SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1998
COMMISSION FILE NUMBER: 0-29302
TLC THE LASER CENTER INC.
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(Exact name of registrant as specified in its charter)
Ontario, Canada 980151150
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
5600 Explorer Drive, Suite 301 L4W 4Y2
Mississauga, Ontario (Zip Code)
(Address of principal executive
offices)
Registrant's telephone, including area code (905) 602-2020
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Common Shares, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |_|
As of August 19, 1998, the aggregate market value of the registrant's
Common Shares held by non-affiliates of the registrant was approximately $355
million.
As of August 19, 1998, there were 33,721,132 of the registrant's Common
Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement for the Company's 1998 annual shareholder's meeting
(incorporated in Part III to the extent provided in Items 10, 11, 12, and 13).
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TLC THE LASER CENTER INC.
This Annual Report on Form 10-K (herein, together with all amendments, exhibits
and schedules hereto, referred to as the "Form 10-K") contains certain
forward-looking statements within the meaning of Section 27A of the U.S.
Securities and Exchange Act of 1934, which statements can be identified by the
use of forward looking terminology, such as "may", "will", "expect",
"anticipate", "estimate", "plans" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth elsewhere in this Form
10-K. See the "Risk Factors" section of Item 1 "Business" for cautionary
statements identifying important factors with respect to such forward looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from results referred to in forward looking
statements. Unless the context indicates or requires otherwise, references in
this Form 10-K to the "Company" or "TLC" shall mean TLC The Laser Center Inc.
and its subsidiaries. The Company's fiscal year ends on May 31. Therefore,
references in this Form 10-K to a particular fiscal year shall mean the 12
months ended on May 31 in that year. References to "$" or "dollars" shall mean
U.S. dollars unless otherwise indicated. References to "C$" shall mean Canadian
dollars. References to the "Commission" shall mean the U.S. Securities and
Exchange Commission
PART I
ITEM 1. BUSINESS
Overview
The Company owns and manages eyecare centers throughout North America and,
together with its network of eyecare providers, specializes in laser vision
correction to correct common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company is
the largest provider of laser vision correction services in North America, where
it has developed regional networks of over 7,000 doctors who treat patients who
have eye care procedures at both refractive centers for laser vision correction
and secondary care centers for advanced eye care, which may include surgery.
Since commencing operations in September 1993, TLC has opened or acquired 45
refractive centers (including one with secondary care operations) and 17
secondary care centers in the United States and Canada.
On April 9, 1998, the Company acquired approximately 97% of the issued and
outstanding shares of BeaconEye Inc. ("BeaconEye") in exchange for 842,980 of
the Company's Common Shares ("Common Shares"). On May 27, 1998, the Company
completed its acquisition of the remaining issued and outstanding shares of
BeaconEye (bringing the Company's ownership to 100%) in exchange for an
additional 29,312 Common Shares. The Common Shares issued were valued at
approximately $11.7 million, plus TLC assumed obligations and restructuring
costs for a total purchase price of approximately $16.3 million. BeaconEye owns
and manages 11 refractive centers, including nine centers in the United States
and two centers in Canada. As a result of this acquisition, the number of TLC
centers has increased to a total of 45 refractive laser centers and 17 secondary
care centers operating in 25 states and provinces throughout the United States
and Canada.
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Industry Background
Refractive Disorders
The primary function of the human eye is to focus light. The eye works
much like a camera; light rays enter the eye through the cornea, which provides
most of the focusing power. Light then travels through the lens where it is
fine-tuned to focus properly on the retina. The retina, located at the back of
the eye, acts like the film in the camera, changing light into electric impulses
that are carried by the optic nerve to the brain. To see clearly, light must be
focused precisely on the retina. Refractive disorders, such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism, result from an
inability of the cornea and the lens to focus images on the retina properly. The
amount of refraction required to properly focus images depends on the curvature
of the cornea and the size of the eye. If the curvature is not correct, the
cornea cannot properly focus the light passing through it onto the retina, and
the viewer will see a blurred image.
Surgical Procedures
Refractive disorders have historically been treated primarily by
eyeglasses or contact lenses. Increasingly, they are being treated by surgical
techniques, the most common of which in the United States, prior to the excimer
laser being approved for sale for laser vision correction, was Radial Keratotomy
("RK"). RK is a surgical procedure first performed in the 1970s, that corrects
myopia by altering the shape of the cornea. This is accomplished by placing
incisions in a "radial" pattern along the outer portion of the cornea using a
hand-held diamond-tipped blade. These very fine incisions are designed to help
flatten the curvature of the cornea, thereby allowing light rays entering the
eye to properly focus on the retina. The incisions penetrate 90% of the depth of
the cornea. Because RK involves incisions into the corneal tissue, it may weaken
the structure of the cornea, which can have adverse consequences following
traumatic injury. RK also produces incisional scarring, and may cause
fluctuation of vision and progressive farsightedness. Industry sources estimate
that in 1994 over 200,000 RK procedures were performed in the United States. A
variation of RK, Astigmatic Keratotomy, is used to correct astigmatism.
Laser Vision Correction
Excimer laser technology was developed by International Business Machines
Corporation in 1976, and has been used in the computer industry for many years
to etch sophisticated computer chips. Excimer lasers have the desirable
qualities of producing very precise ablation without affecting the area outside
of the target zone. In 1981, it was shown that the excimer laser could ablate
corneal tissue. Each pulse of the excimer laser can remove 0.25 microns of
tissue in 12 billionths of a second. The first laser experiment on human eyes
was performed in 1985 and the first human eye was treated with the excimer laser
in the United States in 1988.
Excimer laser procedures are designed to reshape the outer layers of the
cornea to correct vision disorders by changing the curvature of the cornea.
There are currently two procedures that use the excimer laser to correct vision
disorders: Photorefractive Keratectomy ("PRK") and Laser
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In-Situ Keratomileusis ("LASIK"). In the case of both PRK and LASIK, prior to
the procedure, the doctor makes an assessment of the exact correction required
and programs the excimer laser. The software of the excimer laser then
calculates the optimal number of pulses needed to achieve the intended corneal
correction using a specially developed algorithm. Both PRK and LASIK are
performed on an outpatient basis without general anesthesia, using only topical
anesthetic eye drops. An eyelid holder is inserted to prevent blinking while the
eye drops eliminate the reflex to blink. The patient reclines in a chair, his or
her eye focused on a fixation target, and the surgeon positions the patient's
cornea for the procedure. The surgeon uses a foot pedal to apply the excimer
laser beam, which emits a rapid succession of excimer laser pulses. The typical
procedure takes 10 to 15 minutes, from set-up to completion, with the length of
time of the actual excimer laser treatment lasting 15 to 90 seconds.
In order to market an excimer laser for commercial sale in the United
States, the manufacturer must obtain pre-market approval ("PMA") from the United
States Food and Drug Administration (the "FDA"). The initial PMA approval for
the sale of the Summit Technology Inc. ("Summit") laser for the treatment of
myopia was granted by the FDA in 1995. The FDA has granted subsequent approvals
for the sale of the VISX Incorporated ("VISX") excimer laser for the treatment
of myopia and astigmatism and for the sale of the Summit excimer laser for the
treatment of astigmatism. Excimer lasers are currently in clinical trials for
the treatment of hyperopia. In Canada, neither the sale nor the use of excimer
lasers to perform refractive surgery is currently subject to regulatory
approval, and excimer lasers have been used to treat myopia since 1990 and to
treat hyperopia since 1996. The Company expects that future sales of any new
excimer laser models in Canada may require the approval of the Health Protection
Branch of Health Canada ("HPB").
The FDA has only approved the Summit and VISX excimer lasers for PRK
procedures. LASIK came into commercial use in Canada in 1994 and, while to date
the Summit and VISX excimer lasers have not been approved in the United States
for LASIK procedures, surgeons in the United States have performed LASIK since
1996 using their discretion as a practice of medicine matter. FDA regulations
require the laser to be approved, not the procedure. The FDA has stated that it
considers the decision by doctors to use the excimer laser for simultaneous
bilateral treatment or LASIK to be a practice of medicine decision, which the
FDA is not authorized to regulate. Therefore, in the same way that doctors often
prescribe drugs for "off-label" uses (i.e., uses for which the FDA did not
originally approve the drug), a doctor may use a device such as the excimer
laser for a procedure not specifically approved by the FDA if that doctor
determines that it is in the best interest of the patient. In addition, on
August 3, 1998, the FDA approved the commercial sale and use of an excimer laser
for LASIK procedures. The rights to commercially produce and distribute such
laser are owned by LaserSight Incorporated ("LaserSight"). Currently, the
majority of laser vision correction procedures being performed in the United
States and Canada are LASIK. See "Item 1 - Business -- Potential Side Effects
and Long Term Results of Laser Vision Correction" and "--Government Regulation-
Regulation of Health Care Industry - United States - U.S. Food and Drug
Administration."
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Photorefractive Keratectomy
With PRK, no scalpels are used and no incisions are made. The surgeon
prepares the eye by gently removing the surface layer of the cornea called the
epithelium. The surgeon then applies the excimer laser beam, reshaping the
curvature of the cornea. Deeper cell layers remain virtually untouched. Since a
layer typically about as slender as a human hair is removed, the cornea
maintains its original strength. A contact lens bandage is then placed on the
eye to protect it. Following PRK, a patient typically experiences blurred vision
and discomfort until the epithelium heals. A patient usually experiences a
substantial improvement in clarity of vision within a few days following PRK,
normally seeing well enough to drive a car within one to two weeks. However, it
generally takes one month, but may take up to six months, for the full benefit
of PRK to be realized.
PRK has been used commercially since 1988 and industry sources estimate
that to date over one million PRK procedures have been performed worldwide.
Clinical trials conducted by Summit prior to receiving FDA approval for the sale
of its excimer laser showed that one year after the PRK procedure, approximately
81% of the patients could see 20/20 or better and approximately 99% could see
20/40 or better (the minimum level required to drive without corrective lenses
in most states). Clinical data submitted to the FDA by Summit has shown that
patient satisfaction is very high with over 95% indicating they would
enthusiastically recommend PRK to a friend. In addition, a study published in
the February, 1998 issue of Ophthalmology reported the results of 83 patients in
the United Kingdom who underwent PRK for myopia of up to 7 diopters in 1989. The
study found that the patients experienced stable vision and the majority of
patients experienced no side effects. No complications were observed such as
cataracts, retinal detachment or long term, elevated intraocular pressure and no
patients developed an infection.
Laser In-Situ Keratomileusis
LASIK came into commercial use in Canada in 1994 and in the United States
in 1996. In LASIK, an automated microsurgical instrument called a microkeratome
is used to create a thin corneal flap which remains hinged to the eye. The
corneal flap is 160 to 180 microns thick, about 30% of the corneal thickness.
Patients do not feel or see the cutting of the corneal flap, which takes only a
few seconds. The corneal flap is then laid back and excimer laser pulses are
applied to the inner stromal layers of the cornea to treat the eye with the
patient's prescription. The corneal flap is then closed and the flap and
interface rinsed. Once the procedure is completed, most surgeons wait two to
three minutes to ensure the corneal flap has fully re-adhered. At this point,
patients can blink normally and the corneal flap remains secured in position by
the natural suction within the cornea. Since the surface layer of the cornea
remains intact with LASIK, no bandage contact lens is required and the patient
experiences virtually no discomfort. LASIK has the advantage of more rapid
recovery than PRK, with most typical patients seeing well enough to drive a car
the next day and healing completely within one to three months. Currently, the
majority of laser vision correction procedures in the United States and Canada
are LASIK.
More than 80% of the excimer laser procedures currently performed at the
Company's refractive centers are LASIK. The Company's medical directors believe
LASIK generally allows
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TLC THE LASER CENTER INC.
for more precise correction than PRK for higher levels of myopia and hyperopia
(with or without astigmatism), greater predictability of results and decreased
probability of regression.
Potential Side Effects and Long Term Results of Laser Vision Correction
Concerns with respect to the safety and efficacy of laser vision
correction include predictability and stability of results and potential
complications or side effects, including the following: post-operative pain;
corneal haze during healing (an increase in light-scattering properties of the
cornea); glare/halos (disturbed night vision); decrease in contrast sensitivity
(reduced visual quality or sharpness); temporary increases in intraocular
pressure in reaction to post-procedure medication; modest fluctuations in
astigmatism and modest decreases in best corrected vision (i.e., with
eyeglasses); loss of fixation during the procedure; unintended over- or
under-correction; instability, reversion or regression of effect; corneal scars
(blemishing marks left on the cornea); corneal ulcers (inflammatory lesions
resulting in loss of corneal tissue); and corneal healing disorders (compromised
or weakened immune system or connective tissue disease which causes poor
healing). Laser vision correction may involve the removal of "Bowman's layer,"
an intermediate layer between the epithelium (outer corneal layer) and the
stroma (middle corneal layer). Although several studies conducted to date have
demonstrated no significant adverse reactions to excimer laser removal of
Bowman's layer, it is unclear what effect this may have on the patient. Although
recently released results of a study showed that the majority of patients
experienced no serious side effects six years after laser vision correction
using the PRK procedure, there can be no assurance that complications will not
be identified in further long term follow-up studies. Any such complications or
side effects may call into question the safety and effectiveness of laser vision
correction, which in turn may negatively affect the approval by the FDA of the
excimer laser for sale for laser vision correction and the market acceptance of
such procedures and lead to product liability, malpractice or other claims
against the Company. Any such occurrence could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Refractive Market
While estimates of market size should not be taken as projections of
revenues or of the Company's ability to penetrate that market, an industry
source estimates that 145 million people in the United States currently use or
need eyeglasses or contact lenses to correct refractive vision disorders. An
industry source estimates that approximately 77 million people in the United
States are myopic.
Industry sources also estimate that in 1997, 215,000 laser vision
correction procedures were performed in the United States, an increase of 105%
from 105,000 procedures in 1996. If, each year, only two percent of the myopic
population in the United States (estimated to be 1.5 million people) had the
procedure on both eyes, then, based on current prices, the U.S. market would be
more than $6 billion annually. If FDA approval is granted for the sale of
excimer lasers for the treatment of hyperopia, then the potential U.S. market
for laser vision correction could increase significantly. The Company believes
that its profitability and growth will depend upon broad acceptance of laser
vision correction in the United States and, to a lesser extent, Canada. There
can be no assurance that laser vision correction will be more widely accepted by
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ophthalmologists, optometrists or the general population as an alternative to
existing methods of treating refractive disorders. The acceptance of laser
vision correction may be affected adversely by its cost (particularly since
laser vision correction is typically not covered by government insurers or other
third party payors and, therefore, must be paid for by the individual receiving
treatment), concerns relating to its safety and effectiveness, general
resistance to surgery, the effectiveness of alternative methods of correcting
refractive vision disorders, the lack of long term follow-up data and the
possibility of unknown side effects. There can be no assurance that long term
follow-up data will not reveal complications that may have a material adverse
effect on the acceptance of laser vision correction. Many consumers may choose
not to have laser vision correction due to the availability and promotion of
effective and less expensive nonsurgical methods for vision correction. Any
future reported adverse events or other unfavorable publicity involving patient
outcomes from laser vision correction could also adversely affect its acceptance
whether or not the procedures are performed at TLC refractive centers. Market
acceptance could also be affected by regulatory developments and by the ability
of the Company and other participants in the laser vision correction market to
train a broad population of ophthalmologists in performing the procedure.
Acceptance of laser vision correction by ophthalmologists could also be affected
by the cost of excimer laser systems. The failure of laser vision correction to
achieve broad market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.
TLC The Laser Center Inc.
The Company owns and manages eyecare centers throughout North America and,
together with its network of over 7,000 eyecare doctors, specializes in laser
vision correction to correct common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company is
the largest provider of laser vision correction services in North America. The
Company also develops and manages regional networks of eye doctors who refer
patients to refractive centers and secondary care centers.
TLC was incorporated on May 23, 1993 and began operations in September
1993 when it opened the TLC Windsor refractive center. Since commencement of
operations, TLC has opened or acquired 45 refractive centers (including two with
secondary care operations) and 17 secondary care centers. Two refractive centers
were opened in fiscal 1995, two centers were opened in fiscal 1996, and 22
refractive centers were opened or acquired in fiscal 1997 (one of which was
closed). In fiscal 1998, TLC has opened or acquired eight refractive centers, in
addition to the 11 refractive centers owned and managed by BeaconEye.
On May 27, 1998, the Company completed its acquisition of all of the
issued and outstanding shares of BeaconEye in exchange for 872,292 Common Shares
valued at approximately $11.7 million, plus TLC assumed obligations and
restructuring costs. BeaconEye owns and manages 11 refractive centers, including
nine centers in the United States and two centers in Canada. See "Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Developments."
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Expansion Plans
Overview
The Company is pursuing a strategy designed to expand its position as the
leader in the North American market for laser vision correction. The major focus
of the Company's expansion strategy is the United States, where the Company
continues to position itself to take advantage of the growing market for laser
vision correction. The Company has a four-part strategy: (i) continued
development of local doctor relationships through its co-management model; (ii)
increased market penetration through internal development and strategic
acquisition of refractive centers; (iii) further acquisitions of secondary care
centers to support the core refractive surgery business; and (iv) continued
development of its managed care division and other strategic ancillary
businesses and support programs.
Co-Management Model
The Company has developed and implemented a co-management model under
which it not only establishes and operates refractive centers and provides an
array of related support services, but also develops provider networks of
primary care doctors (usually optometrists), who provide pre- and post-operative
care for patients, and refractive surgeons (ophthalmologists), who perform the
laser vision correction procedure. The primary care doctors assess candidates
for laser vision correction and provide pre- and post-operative care, including
an initial eye examination and a minimum of six follow-up visits to monitor
healing and vision improvement. In addition, each TLC center has an optometrist
on staff who works in an administrative capacity to manage operations at the
center and to support and expand the network of affiliated doctors. The staff
optometrist provides a range of clinical training and other services to
affiliated primary care doctors to support these doctors' individual practices
and to assist them in providing quality patient care. See "Item 1 - Business -
Government Regulation Regulation of Optometrists and Ophthalmologists."
The Company believes that its relationship with its more than 7,000
affiliated doctors represents an important competitive strength. This network
represents more than 20% of the licensed practicing optometrists in the United
States. The Company believes that its affiliated doctor network is the largest
such network in the laser vision correction field in North America.
Increased Market Penetration
The second component of the Company's expansion strategy is the growth of
its core refractive surgery business. TLC plans to grow in the laser vision
correction business in three ways: by building new centers, by acquiring
existing centers and by acquiring other laser vision correction companies that
have multiple centers. The TLC senior executive team regularly examines
acquisition and development opportunities in the refractive market. On February
10, 1997, the Company acquired 99.9% of the shares of 20/20 Laser Centers, Inc.,
a company managing nine refractive centers located in Florida, Maryland, New
Jersey, New York, Pennsylvania and Virginia, for a purchase price of
approximately 21.7 million, paid in Common Shares. On May 27, 1998, the Company
completed its acquisition of all of the outstanding shares
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of BeaconEye which operates 11 refractive centers, including nine in the United
States and two in Canada. See "Item 1 Business - Expansion Plans --Risk of
Inability to Execute Acquisition Strategy; Management of Growth."
Acquisition of Additional Secondary Care Centers
The third component of the Company's expansion strategy is the acquisition
of secondary care centers in U.S. cities where it manages refractive centers and
has established a network of affiliated doctors. Secondary care centers are
equipped to provide advanced levels of eyecare and the Company believes that
their development improves TLC's competitive position. The Company believes
additional secondary care centers will allow the Company to: (i) increase the
number of laser vision correction procedures performed at TLC refractive
centers; (ii) enlarge and strengthen the existing TLC provider network of
co-managing doctors; (iii) secure long term relationships with highly skilled
surgeons; and (iv) capitalize on the existing network of TLC doctors to expand
the business of acquired secondary care centers. The TLC senior executive team
regularly examines acquisition opportunities in the secondary care center
market. See "Item 1 - Business -Expansion Plans -- Risk of Inability to Execute
Acquisition Strategy; Management of Growth."
Strategic Ancillary Businesses and Support Programs
The final component of the Company's strategy is to develop strategic
ancillary businesses and support programs. The Company has developed a managed
care division for eyecare services, Partner Provider Health, Inc. ("PPH"), and
other strategic ancillary businesses and programs such as the Eyecare Network
and The Vision Source Inc. to support its core refractive surgery business.
Risk of Inability to Execute Acquisition Strategy; Management of Growth
The Company's growth strategy is dependent on increasing the number of TLC
refractive and secondary care centers through strategic acquisitions. The
addition of new centers can be expected to present challenges to management,
including the integration of new operations, technologies and personnel, and
special risks, including unanticipated liabilities and contingencies, diversion
of management attention and possible adverse effects on operating results
resulting from increased goodwill amortization, increased interest costs, the
issuance of additional securities and increased costs resulting from
difficulties related to the integration of the acquired businesses. The future
ability of the Company to achieve growth through acquisitions will depend on a
number of factors, including the availability of attractive acquisition
opportunities, the availability of funds needed to complete acquisitions, the
availability of working capital needed to fund the operations of acquired
businesses and the effect of existing and emerging competition on operations.
There can be no assurance that the Company will be able to successfully identify
suitable acquisition candidates, complete acquisitions on acceptable terms, if
at all, or successfully integrate acquired businesses into its operations. The
Company's past and possible future acquisitions, including the acquisition of
BeaconEye, may not achieve adequate levels of revenue, profitability or
productivity or may not otherwise perform as expected.
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There can be no assurance that the Company will have adequate resources to
finance acquisitions. Failure by the Company to successfully implement its
acquisition strategy and integrate and operate the acquired businesses
efficiently would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Item 1 - Business Expansion
Plans -- Future Capital Requirements; Uncertainty of Additional Funding" and
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Future Capital Requirements; Uncertainty of Additional Funding
It is not possible to predict with certainty the timing or the amount of
future capital requirements. However, the Company may require significant
additional funding to expand in the future. Such additional funding may be
raised through additional public or private equity or debt financings or other
sources and will, if obtained by way of subsequent equity financing, result in
dilution to the holders of the Common Shares. There can be no assurance that the
Company's operations, expansion plans or capital requirements will not change in
a manner that would consume available resources more rapidly than anticipated,
or that substantial additional funding will not be required before the Company
can achieve profitable operations. The Company's capital needs depend on many
factors, including the rate and cost of acquisitions of businesses, equipment
and other assets, the rate of opening new centers or expanding existing centers,
market acceptance of laser vision correction and actions by competitors.
Further, additional funding may not be available on terms satisfactory to the
Company, if at all. If adequate funds are not available, the Company may be
required to cut back or abandon its expansion plans and curtail operations
significantly, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Description of Refractive Centers
A typical TLC refractive center has between four and five thousand square
feet of space and is located in an office building. Although the legal and
payment structures can vary from state to state depending upon local law and
market conditions, TLC generally receives revenues in the form of management and
facility fees paid by doctors who use the center to perform laser vision
correction procedures and administrative fees for billing and collection
services from doctors who co-manage patients treated at the centers. Every TLC
center has a director, who is an optometrist and oversees the administrative
aspects of the clinical operations of the center and builds and supports the
co-management provider network. Each center also has a business manager, a
receptionist, ophthalmic technicians and patient consultants (who answer
patients' questions). The number of staff depends on the activity level of the
center. Most TLC centers also have a professional relations coordinator who
works with the clinical director to support the doctor network and market TLC's
services. One senior staff person is designated as the executive director of the
center and prepares the annual strategic plan and supervises the day-to-day
operations of the center. See Item 2 for a listing of each TLC refractive
center.
The Company's average cost to open a refractive center in the United
States has been $1.3 million. It is intended that the cost to open new centers
will be funded through equipment financing which the Company currently has
available to it and funds available for general
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corporate purposes. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations." Generally, the Company expects
that a TLC refractive center will become profitable after it has completed
approximately 18 months of operation.
Description of Secondary Care Centers
A secondary care center is equipped for doctors to provide advanced levels
of eye care, which may include eye surgery, for the treatment of disorders such
as glaucoma, cataracts and retinal disorders. Generally, a secondary care center
does not provide primary eye care, such as eye examinations, or dispense eyewear
or contact lenses.
The Company manages 17 secondary care centers in the United States
(including two that are also refractive centers). See Item 2 for a listing of
each TLC secondary care center.
The Company generally purchases certain assets of secondary care
practices, such as medical equipment, furniture and fixtures, as well as
acquiring the leasehold for the office space. The Company also enters into a
long term practice management agreement with the doctors whereby the Company
agrees to manage their practice, including providing administrative services and
support staff, and providing the facilities for the secondary care centers, in
exchange for management fees.
The Company's revenues from managing secondary care centers is derived
from management fees paid by doctors; however, the primary source of those funds
is the fees paid to doctors by or on behalf of patients. Government and private
third-party payors are seeking to contain health care costs by imposing lower
reimbursement and lower utilization rates and negotiating reduced payment
schedules with providers of vision care, including care provided at secondary
care centers. Rates paid by many private third-party payors, including those
that provide Medicare supplemental insurance, are based on the doctor's and
center's usual and customary charges, which are generally higher than Medicare
payment rates. A decrease in the number of privately insured patients treated at
the Company's secondary care centers or a further reduction in reimbursement
rates or in payments to doctors could cause the revenues of such centers to
decrease and have a material adverse effect on the Company's business, financial
condition and results of operations, and there can be no assurance that the
Company's revenues from its secondary care centers will be sufficient to achieve
or maintain profitability.
Ownership of Refractive and Secondary Care Centers
The majority of TLC's refractive centers are operated by wholly-owned
subsidiaries of the Company, with minority interests in 10 centers, typically
owned by affiliated doctors or other health care providers. TLC intends to
maintain majority voting control and control of the board of directors of all
subsidiaries owning refractive centers.
The Company, in most cases through majority-owned subsidiaries, manages
doctors' practices at secondary care centers and provides doctors with
administrative services, support staff and facilities in exchange for management
fees. In most cases, doctors practicing in the secondary care centers hold
minority interests in the subsidiaries. In addition, the Company has minority
interests in other managed secondary care centers.
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Sales and Marketing
While the Company believes that many myopic and hyperopic people are
potential candidates for laser vision correction, these procedures must compete
with corrective eyewear, RK and other surgical and non-surgical treatments for
myopia and hyperopia. The decision to have laser vision correction largely
represents a choice dictated by an individual's desire to reduce or eliminate
their reliance on eyeglasses or contact lenses.
Since the majority of the Company's patients are referred by affiliated
doctors, a large part of the Company's marketing resources are devoted to
marketing programs with affiliated doctors, the goal of which is to encourage
the use of TLC centers. The Company believes that the most effective way to
market to doctors is to be perceived as the leading provider of quality facility
and management services and as the network with the leading doctors in laser
vision correction. To this end, the Company strives to be the leader in clinical
and training programs, to educate doctors on laser vision correction and to
remain current with new procedures and techniques. See "Item 1 - Business -
Strategic Ancillary Businesses and Support Programs Support Programs." The
Company also promotes its services to doctors in Canada and the United States
through conferences, advertisements in journals, direct marketing, its Web site
and newsletters. The Company provides a limited amount of marketing directly to
members of the public through radio and print advertisements, videos, brochures
and seminars.
Surgeon Contracts
In each area where TLC operates, TLC forms a network of eye doctors
(mostly optometrists) who perform the pre-operative and post-operative care for
patients who have laser vision correction. Those doctors then "co-manage" their
patients with TLC surgeons, which means that the surgeon performs the laser
vision correction procedure itself, while the optometrist performs the
pre-operative screening and post-operative care. In most states, co-management
doctors have the option of charging the patient directly for their services or
having TLC collect the fees, which amount to approximately 20% of the total
procedure fee, on their behalf.
Most surgeons performing excimer laser procedures at TLC refractive
centers do so under one of three types of standard agreements (which have been
modified for use in the various U.S. states as required by state law). Each
agreement typically prohibits surgeons from disclosing confidential information
relating to the center, soliciting patients or employees of the center, or
participating in any other refractive center within a specified area. See "Item
1 - Business -Competition - Laser Vision Correction." However, although surgeons
performing laser vision correction at the Company's refractive centers have
agreed to certain restrictions on competing with, or soliciting doctors
associated with, the Company, there can be no assurance that such agreements
will be enforceable. See "Item 3 - Legal Proceedings."
Surgeons must meet the credentialing requirements of the FDA and the TLC
refractive center in which they perform procedures and must complete training
provided by the Company unless the Company is otherwise satisfied that the
surgeon has been properly trained. Surgeons are responsible for maintaining
appropriate malpractice insurance and most agree to indemnify the Company and
its affiliates for any losses incurred as a result of the surgeon's negligence
or malpractice. See "Item 1 - Business - Potential Liability and Insurance."
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Most states prohibit the Company from practicing medicine, employing
physicians to practice medicine on the Company's behalf or employing
optometrists to render optometric services on the Company's behalf. Because the
Company does not practice medicine or optometry, its activities are limited to
owning and managing refractive centers and secondary care centers and
affiliating with other health care providers. Affiliated doctors provide a
significant source of patients for the Company. Accordingly, the success of the
Company's operations depends upon its ability to enter into agreements on
acceptable terms with a sufficient number of health care providers, including
institutions, ophthalmologists and optometrists, to render surgical and other
professional services at facilities owned or managed by the Company. There can
be no assurance that the Company will be able to enter into agreements with
doctors or other health care providers on satisfactory terms or that such
agreements will be profitable to the Company. Failure to enter into or maintain
such agreements with a sufficient number of qualified doctors will have a
material adverse effect on the Company's business, financial condition and
results of operations.
Strategic Ancillary Businesses and Support Programs
The Company is pursuing other businesses with the primary objective of
supporting the core laser vision correction business.
Managed Care
The Company has established PPH, a managed care subsidiary for eyecare
services, with the goal of strengthening the doctor network and supporting
affiliated doctors. In addition, the Company believes that because of the
economies of scale that it expects to develop through its refractive and
secondary care centers and the geographic area that it expects will be covered
by the TLC network of affiliated doctors, the Company will be in an improved
competitive position to obtain managed care contracts with HMOs, insurance
companies, employer groups and other private third party payors.
The goal of PPH is to implement a business model whereby eyecare providers
collaborate in building successful managed care businesses. PPH develops local
practice associations called VisionMeds, which are intended to expand the market
share of affiliated eye care providers through successful contracting for the
complete range of managed eye care products. TLC secondary care centers as well
as TLC affiliated optometrists are expected to be the immediate beneficiaries of
market share growth in managed care contracting by PPH.
PPH is expected to receive fees from payors for performing certain
management services. PPH was established during fiscal 1997 and that year had
losses of $1.1 million, which included costs incurred prior to the commencement
of commercial operations.
Information Technology
The TLC network of centers and affiliated doctors are being linked by
information technology systems through (i) an on-line communication network;
(ii) practice management software; and (iii) the Internet. The information
technology systems are designed to support TLC's network of affiliated doctors.
On-line Communication Network: The Eye Care Network is an on-line
communication system designed to link affiliated doctors with the Company, each
other and suppliers. The Company believes that the Eye Care Network will be a
significant component of services provided to its network doctors.
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Practice Management Software: TLC's practice management software is
designed to facilitate the financial reporting process, including practice
management, cost analysis and patient outcomes.
Internet: TLC's Web sites at www.lasercenter.com and www.lzr.com provide a
directory of TLC eyecare providers, contain questions and answers about laser
vision correction and provide TLC network information for local doctors.
Other Businesses
In July, 1997, TLC acquired The Vision Source, Inc., a corporation
administered by practicing optometrists that provides marketing, management and
buying power to independently owned and operated optometric franchises in the
United States. The Company believes that The Vision Source, Inc. will also be an
important component of the co-management model.
The Company believes that its management and marketing skills may
potentially be applicable to a variety of health care services provided by the
private sector and that the Company's infrastructure and systems may offer the
opportunity to realize synergies. Toward that end, from time to time, the
Company has explored new ventures which may provide opportunities for growth and
profitability in the future. One such venture, in cosmetic laser surgery, was
recently established in Detroit, Michigan in partnership with a local doctor.
Should such ventures prove to be successful, the Company may expand the ventures
to other markets.
Support Programs
National Advisory Council
The Company's Advisory Council is comprised of doctors that represent the
geographic centers in which TLC currently manages or intends to manage a
refractive center. By providing regional representation, the Advisory Council
serves as a channel of communication to local doctors. The Advisory Council
advises the Company from time to time on a broad range of clinical and strategic
issues, and its feedback is incorporated into the Company's strategic
development.
Training
The Company conducts a comprehensive training program under the
supervision of Dr. Jeffery Machat or Dr. Steven Slade. Dr. Machat and Dr. Slade
are the Co-National Medical Directors of TLC, and both are prominent
ophthalmologists and experts in the field of laser vision correction. Both have
been working with excimer lasers since 1990 and have lectured and trained
surgeons in North America, South America, Europe, South Africa, Australia and
Asia. The Company believes that Dr. Slade was the first surgeon to perform LASIK
in the United States and Dr. Machat was the first surgeon to perform LASIK in
Canada. In addition, Dr. Machat and Dr. Slade are qualified by Chiron Vision
Corporation ("Chiron") to certify surgeons to perform LASIK procedures using
Chiron excimer lasers.
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Education
The Company believes that ophthalmologists, optometrists and other eye
care professionals who provide laser vision correction services are a valuable
resource in increasing general awareness and acceptance of the procedures among
potential patients and in promoting the Company as a service provider. The
Company seeks to be perceived by eye care professionals as the leader in the
field of laser vision correction. One way in which it hopes to achieve this
objective is by participating in the education and training of ophthalmologists
and optometrists in Canada and the United States. In the last three years, the
Company has devoted approximately $300,000 to educational initiatives. Most of
this expenditure is attributable to educational programs for eye care
professionals conducted through the TLC Continuing Education Foundation (the
"Foundation").
The Company established the Foundation in November 1994 to provide
educational programs to doctors in all aspects of clinical study, primarily in
conjunction with a number of major optometry schools in the United States. In
addition, TLC has an education and training relationship with the University of
Waterloo, the only English language optometry school in Canada.
Equipment and Capital Financing
Manufacturers of excimer lasers include VISX and Summit, which both have
excimer lasers approved by the FDA for sale for the treatment of myopia and
astigmatism. The excimer laser of Autonomous Technologies Corporation has been
recommended for FDA approval for sale for the treatment of myopia by the FDA
Ophthalmic Devices Advisory Panel, and Chiron is expected to present data to the
FDA for approval of its excimer laser for sale for the treatment of myopia. In
addition, on August 3, 1998, the FDA approved the commercial sale of an excimer
laser for the LASIK procedure. The rights to commercially produce and distribute
such laser are owned by LaserSight. The FDA also has accepted a pre-market
approval application from LaserSight for its development of a scanning laser so
that clinical trials may begin for such laser.
In the United States, most of the Company's excimer lasers are
manufactured by VISX with a small percentage manufactured by Summit. In Canada,
the majority of the Company's excimer lasers are manufactured by Chiron.
Although there can be no assurance, the Company believes that based on the
number of existing manufacturers, the current inventory levels of those
manufacturers and the number of suitable, previously owned, FDA approved lasers
available for sale in the market, the supply of excimer lasers is more than
adequate for the Company's future operations and expansion plans.
A new excimer laser costs approximately $500,000. The Company acquires
excimer lasers and other equipment used at its centers under capital lease
arrangements, which typically have a term of five years. As available technology
improves and additional procedures are approved by the FDA, the Company expects
to upgrade the capabilities of its lasers. See "Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Excimer lasers require periodic servicing, generally after 300 procedures.
As manufacturers' warranties expire, the Company typically enters into service
contracts with manufacturers.
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When excimer laser procedures are performed in TLC's centers in the United
States, the Company is required to pay the manufacturer of the excimer laser a
license royalty fee. There can be no assurance that payments made to VISX or
Summit in the United States will preclude a patent dispute with either VISX or
Summit with respect to technology or activities purported to be covered by the
relevant patents or that the Company's equipment or methods will not infringe
patents held by other parties. See "Item 1 - Business -Intellectual
Property/Proprietary Technology."
Potential Liability and Insurance
The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. Although patients at the Company's centers
execute informed consent statements prior to any procedure performed by doctors
at the Company's refractive centers and secondary care centers, there can be no
assurance that such consents will provide adequate liability protection. In
addition, although the Company does not engage in the practice of medicine or
have responsibility for compliance with certain regulatory and other
requirements directly applicable to doctors and doctor groups, there can be no
assurance that claims, suits or complaints relating to services provided at the
Company's refractive centers or secondary care centers will not be asserted
against the Company in the future. The Company currently maintains malpractice
insurance coverage that it believes is adequate both as to risks and amounts.
Such insurance extends to professional liability claims that may be asserted
against employees of the Company that work on site at the refractive centers or
secondary care centers. In addition, the doctors who provide medical services at
the Company's refractive centers and secondary care centers are required to
maintain comprehensive professional liability insurance, although there can be
no assurance that any such insurance will be adequate to satisfy claims or that
insurance maintained by the doctors will protect the Company.
The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of the
Company. An increase in the future cost of such insurance to the Company and the
doctors who provide medical services at the refractive centers and secondary
care centers may have a material adverse effect on the Company's business,
financial condition and results of operations. Successful malpractice or other
claims asserted against any of the doctors who provide medical services or the
Company that exceed applicable policy limits or are not covered by policy terms
could have a material adverse effect on the Company's business, financial
condition and results of operations. Although the doctors providing medical
services at the refractive centers and secondary care centers are required to
carry malpractice insurance and while most have agreed to indemnify the Company
against certain malpractice and other claims, there can be no assurance that
such indemnification is enforceable or, if enforced, that it will be sufficient.
The excimer laser system utilizes certain poisonous gases which if not
properly contained could result in bodily injury. Any such occurrence could
result in a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the use of excimer laser
systems may give rise to claims by patients, doctors, technicians or others
against the Company resulting from laser-related injuries, which may not become
evident for a number of years. While the Company believes that any claims
alleging defects in its excimer laser systems would be covered by the
manufacturers' product liability insurance, there can be no assurance that the
Company's excimer laser manufacturers will continue to carry product liability
insurance or
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that any such insurance will be adequate to protect the Company. The Company may
not have adequate insurance for any liabilities arising from injuries caused by
poisonous gases or laser equipment.
There can be no assurance that adequate insurance will continue to be
available, either at existing or increased levels of coverage on commercially
reasonable terms, if at all, for the Company's existing and future operations
and centers, or that the Company's existing insurance will be adequate to cover
any future claims that may be made. The unavailability of adequate insurance at
acceptable rates could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, even if a claim
against the Company is covered by insurance, the cost of defending the action
and/or the assessment of damages in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Competition
Refractive Centers
Laser vision correction is subject to intense competition. The Company
competes with other entities, including hospitals, individual ophthalmologists,
other laser centers and certain manufacturers of excimer laser equipment, in
offering laser vision correction. The Company's laser centers compete on the
basis of quality of service, reputation and price. The Company's refractive
centers compete in two principal markets: (i) the consumer market for vision
correction and (ii) the market for laser vision correction.
Consumer Market for Vision Correction
Within the consumer market, excimer laser procedures performed by the
Company's centers compete with other surgical and non-surgical treatments for
refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery including RK, and technologies currently under development
such as corneal implants and intraocular implants and surgery with different
types of lasers. In the foreseeable future, the Company believes that eyeglass
and contact lens use will continue to be the most popular form of vision
correction. It is likely that eyeglass and contact lens manufacturers, many of
whom have greater marketing, financial and managerial resources and experience
than the Company, will continue to develop, enhance and market their products to
make them as attractive as possible to people with refractive vision disorders.
There can be no assurance that the Company's management, operations and
marketing plans are or will be successful in meeting this variety of
competition. Further, there can be no assurance that the Company's competitors'
access to capital, financing or other resources or their market presence will
not give these competitors an advantage against the Company. In addition, other
manual surgical and non-surgical techniques to treat vision disorders are
currently in use and under development and may prove to be more attractive to
consumers than laser vision correction.
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Market for Laser Vision Correction
Within the market for laser vision correction, the Company faces
competition from other service providers. Although competitors in certain
markets charge less for laser vision correction, the Company believes that the
primary factors affecting competition in the laser vision correction market are
quality of service, reputation and price and that competitiveness is enhanced by
a strong network of participating doctors. TLC believes that industry experience
to date both in Canada and the United Kingdom suggests that price has been a
less important factor in the patient decision process. If more providers offer
laser vision correction in a given geographic market, the price charged for such
procedures may decrease. Competitors in some markets currently offer laser
vision correction at prices considerably lower than TLC's prices. Market
conditions may compel the Company to lower its prices to remain competitive in
some markets. There can be no assurance that any reduction in prices charged
will be compensated for by an increase in procedure volume or decreases in the
Company's costs. A decrease in either the fees for procedures performed at TLC's
refractive centers or in the number of procedures performed by the Company could
have a material adverse effect on the Company's business, financial condition
and results of operations. Other service providers include companies with
operations similar to the Company, optometrists (whether individually, in groups
or as retail chains), ophthalmologists, hospitals and managed-care entities
which, in order to offer refractive surgery to existing patients, may purchase
excimer lasers directly from a manufacturer. Suppliers of conventional vision
correction (eyeglasses and contact lenses), such as optometric chains, may also
compete with the Company either by marketing alternatives to laser vision
correction or by purchasing excimer lasers and offering refractive surgery to
their customers. These service providers may have greater marketing, financial
and managerial resources and experience than the Company and may be able to
offer laser vision correction at lower rates.
Further competition could develop if a significant decrease in the price of
excimer laser systems were to occur, because the high price of excimer laser
systems currently is a barrier to entry for many potential competitors,
particularly individual ophthalmologists and ophthalmologists participating in
group practices. A price decrease could occur under a variety of circumstances,
including the increase in the availability of lasers following the failure of
one or more of the participants in the U.S. laser vision correction market.
Competition in the market for laser vision correction could increase if state
laws were amended to permit optometrists (in addition to ophthalmologists) to
perform laser vision correction. The Company competes in fragmented geographic
markets and does not face any single dominant U.S. or Canadian national
competitor. The Company's principal corporate competitors include LCA-Vision
Inc., Laser Vision Centers, Inc., Physicians Resource Group, Inc., Clear Vision
Laser Centers, Ltd., PrimeVision Health and Vision Twenty-One, Inc.
Secondary Care Centers
The Company believes that the secondary care center market is in a period
of consolidation as a result of the recent focus on cost-containment by HMOs,
insurance companies and employer groups. To remain competitive in the changing
medical service environment, doctors are increasingly affiliating with larger
organizations which provide skilled and innovative management, negotiate
contracts with payors on behalf of their enrollees and provide sophisticated
information systems, greater capital resources and more efficient cost
structures. The Company believes that small to mid-sized doctor groups and
individual practices are at a
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relative disadvantage in the changing eye care industry, as these smaller
organizations typically lack the capital to expand, develop information systems,
purchase new technologies and generate economies of scale nor do they usually
have the ability to offer a variety of medical services, thus often reducing
their competitive position relative to larger organizations.
The Company believes that companies with established operating histories
and greater resources than the Company may be pursuing the acquisition of
secondary care centers. The Company's principal competitors in this area include
Physicians Resource Group, Inc., PrimeVision Health and Omega Health Systems,
Inc. Many hospitals, secondary care centers, health care companies, HMOs and
insurance companies engage in activities similar to the activities of the
Company's secondary care centers. There can be no assurance that the Company
will be able to compete effectively with such competitors, that additional
competitors will not enter the market, or that such competition will not make it
more difficult to acquire the assets of, and provide management services to,
secondary care centers on terms beneficial to the Company.
TLC secondary care centers will compete with ophthalmologists, hospitals
and other local eye care service providers as well as managed care
organizations. The Company believes that changes in government and private
reimbursement policies and other factors have resulted in increased competition
for consumers of medical services. The Company believes that the cost,
accessibility and quality of services provided are the principal factors that
affect competition. There can be no assurance that the TLC secondary care
centers will be able to compete effectively in the markets that they serve,
which inability to compete could adversely affect the Company's business,
financial condition and results of operations.
Further, the TLC secondary care centers will compete with other providers
for managed care contracts. The Company believes that trends toward managed care
have resulted in increased competition for such contracts. There can be no
assurance that the Company and the TLC secondary care centers will be able to
successfully acquire sufficient managed care contracts to compete effectively in
the markets they will serve, which inability to compete could adversely affect
the Company's business, financial condition and results of operations. In
addition, although doctors providing medical services at the Company's secondary
care centers and certain other employees have agreed to certain restrictions on
competing with, or soliciting doctors associated with, the Company, there can be
no assurance that such agreements will be enforceable. See "Item 3 - Legal
Proceedings."
Managed Care
In the U.S. market for managed eye and vision care contracting, the
Company competes principally with Vision Service Plan, a U.S. national eye care
plan, and other regional market managed care plans: Davis Optical, Block Managed
Vision Care and Eye Health Network of Omega Health Systems, Inc. In addition,
physician practice management companies, such as EyePA Inc. (a subsidiary of
Physicians Resource Group, Inc.), NovaMed Eyecare Management LLC, PrimeVision
Health and Vision Twenty-One, Inc. have been formed to seek managed care
contracts on behalf of their acquired ophthalmic practices and may compete with
PPH. The Company believes that companies with established operating histories
and greater financial, technical, marketing and other resources and experience
than the Company may be seeking such
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managed care contracts. To date, the Company has entered into only two managed
care contracts. There can be no assurance that the Company will be able to
compete effectively with such competitors, that additional competitors will not
enter into the market, or that such competition will not make it more difficult
for the Company to obtain managed care contracts on acceptable terms, if at all.
See "Item 1 - Business - Risk Factors Competition - Managed Care."
Government Regulation
Excimer Laser Regulation
United States
Medical devices, such as the excimer lasers used in the Company's U.S.
centers, are subject to stringent regulation by the FDA and cannot be marketed
for commercial sale in the United States until the FDA grants pre-market
approval ("PMA") for the device.
To obtain a PMA for a medical device, excimer laser manufacturers must
file a PMA application that includes clinical data and the results of
pre-clinical and other testing sufficient to show that there is a reasonable
assurance of safety and effectiveness of their excimer lasers. Human clinical
trials must be conducted pursuant to Investigational Device Exemptions issued by
the FDA in order to generate data necessary to support a PMA.
In the United States, Summit and VISX are currently the only excimer laser
manufacturers to have obtained a PMA for their respective excimer lasers to
treat myopia and astigmatism using PRK. The Summit PMA, which was granted in
October 1995, limits the sale of the excimer laser for use within a six
millimeter ablation zone to correct mild to moderate myopia between -1.5 and
- -7.0 diopters, with astigmatism no greater than 1.5 diopters. In March 1996,
VISX obtained FDA approval for sale of its excimer laser for PRK, subject to
similar use limitations as those applicable to the Summit excimer laser; in
April 1997, VISX received FDA approval for sale of its excimer laser for
treatment of astigmatism using the PRK procedure; and in January 1998, VISX
obtained approval for its excimer laser for treatment of myopia up to 12
diopters using the PRK procedure. On March 12, 1998, the FDA approved a Summit
excimer laser for the treatment of astigmatism.
The FDA Ophthalmic Devices Advisory Panel recommended in February 1998
that the FDA approve the excimer laser of Autonomous Technologies Corporation
for sale for the treatment of myopia with up to 8 diopters of myopia and 4
diopters of astigmatism and Chiron, recently acquired by Bausch & Lomb Inc., is
currently in clinical trials prior to seeking FDA approval for sale of its
excimer laser for treatment of myopia. In addition, on August 3, 1998, the FDA
approved the commercial sale of an excimer laser for the LASIK procedure. The
rights to commercially produce and distribute such laser are owned by
LaserSight. FDA approval has not been obtained by any manufacturer for sale of
the excimer laser for treatment of hyperopia; however, clinical trials for
hyperopia are ongoing.
Use of the excimer laser to treat both eyes at the same time (simultaneous
bilateral treatment) has not been approved by the FDA. The FDA has stated that
it considers the use by doctors of the excimer laser for simultaneous bilateral
treatment to be a practice of medicine decision, which the FDA is not authorized
to regulate. Many of the surgeons at TLC refractive centers perform simultaneous
bilateral treatment as a practice of medicine matter. There can be no assurance
that the FDA will not seek to challenge this practice in the future.
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Any excimer laser manufacturer which obtains PMA approval for use of its
excimer lasers will continue to be subject to regulation by the FDA. Although
the FDA does not regulate surgeons' use of excimer lasers, the FDA actively
enforces regulations prohibiting marketing of products for non-indicated uses
and conducts periodic inspections of manufacturers to determine compliance with
good manufacturing practice regulations. Failure to comply with regulatory
requirements, or any adverse regulatory action, including a reversal of the
FDA's current position that the "off-label" use of excimer lasers by doctors
outside the FDA approved guidelines is a practice of medicine decision, which
the FDA is not authorized to regulate, could result in a limitation on or
prohibition of the Company's use of excimer lasers which in turn could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The marketing and promotion of laser vision correction in the United
States is subject to regulation by the FDA and the Federal Trade Commission
("FTC"). The FDA and FTC have released a joint communique on the requirements
for marketing laser vision correction in compliance with the laws administered
by both agencies. The FTC staff also issued more detailed staff guidance on the
marketing and promotion of laser vision correction and has been monitoring
marketing activities in this area through a non-public inquiry to identify areas
that may require further FTC attention.
Canada
The use of excimer lasers in Canada to perform refractive surgery is not
subject to regulatory approval, and excimer lasers have been used to treat
nearsightedness since June, 1990. However, HPB regulates the sale of devices,
including excimer lasers used to perform procedures at the Company's Canadian
refractive centers. The Company expects that future sales of any new excimer
laser models in Canada may require approval of the HPB. Pursuant to the
regulations prescribed under the Food and Drugs Act, the HPB may permit
manufacturers or importers to sell a certain number of devices to perform
procedures provided the devices are used in compliance with specified
requirements for investigational testing. Permission to sell the device may be
suspended or canceled where the HPB determines that its use endangers the health
of patients or users or where the regulations have not been complied with.
Devices may also be sold for use on a non-investigational basis where evidence
available in Canada to the manufacturer or importer substantiates the benefits
and performance characteristics claimed for the device. The HPB has
conditionally approved the sale of the VISX excimer laser to perform procedures
for mild to moderate nearsightedness and low level astigmatism on a
non-investigational basis. The Company believes that the sale of the excimer
lasers to its refractive centers, and their use at the centers, complies with
HPB requirements. There can be no assurance that Canadian regulatory authorities
will not impose restrictions which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Regulation of Optometrists and Ophthalmologists
United States
The Company and its operations are subject to extensive federal, state and
local laws, rules and regulations, including those prohibiting corporations from
practicing medicine and optometry, prohibiting unlawful rebates and division of
fees, anti-kickback laws, fee-splitting laws, self-referral laws, laws limiting
the manner in which prospective patients may be solicited, and professional
licensing rules. Further, contractual arrangements with hospitals, surgery
centers,
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ophthalmologists and optometrists, among others, are extensively regulated by
federal and state laws.
Federal Law. A federal law (known as the "anti-kickback statute")
prohibits the offer, solicitation, payment or receipt of any remuneration which
is intended to induce, or is in return for, the referral of patients for, or the
ordering of, items or services reimbursable by Medicare or any other federally
financed health care program. This statute also prohibits remuneration intended
to induce the purchasing of, or arranging for, or recommending the purchase or
order of any item, good, facility or service for which payment may be made under
federal health care programs. This statute has been applied to otherwise
legitimate investment interests if one purpose of the offer to invest is to
induce referrals from the investor. Safe harbor regulations provide absolute
protection from prosecution for certain categories of relationships. In
addition, a recent law broadens the government's anti-fraud and abuse
enforcement responsibilities to include all health care delivery systems
regardless of payor.
Subject to certain exceptions, federal law also prohibits a physician from
ordering or prescribing certain designated health services or items if the
service or item is reimbursable by Medicare or Medicaid and is provided by an
entity with which the physician has a financial relationship (including
investment interests and compensation arrangements). This law, known as the
"Stark Law," does not restrict a physician from ordering an item or service not
reimbursable by Medicare or Medicaid or an item or service that does not fall
within the categories designated in the law.
Laser vision correction is not reimbursable by Medicare, Medicaid or other
federal programs. As a result, neither the anti-kickback statute nor the Stark
Law applies to the Company's refractive centers but the Company is subject to
similar state laws.
Doctors at the Company's secondary care centers provide services that are
reimbursable under Medicare and Medicaid. Further, ophthalmologists and
optometrists co-manage Medicare and Medicaid patients who receive services at
the Company's secondary care centers. The co-management model is based, in part,
upon the referral by an optometrist for surgical services performed by an
ophthalmologist and the provision of pre- and post-operative services by the
referring optometrist. The Office of the Inspector General, the government
agency responsible for enforcing the anti-kickback statute, has stated publicly
that to the extent there is an agreement between optometrists and
ophthalmologists to refer back to each other, such an agreement could constitute
a violation of the anti-kickback statute. The Company believes, however, that
its co-management program does not violate the anti-kickback statute, as
patients are given the choice whether to return to the referring optometrist or
to stay with the ophthalmologist for post-operative care. Nevertheless, there
can be no guarantee that the Office of the Inspector General will agree with the
Company's analysis of the law. If the Company's co-management program were
challenged as violating the anti-kickback statute and the Company were not
successful in defending against such a challenge, then the result may be civil
or criminal fines and penalties, including exclusion of the Company, the
ophthalmologists, and the optometrists from the Medicare and Medicaid programs,
or the requirement that the Company revise the structure of its co-management
program or curtail its activities, any of which could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
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TLC THE LASER CENTER INC.
The provision of services covered by the Medicare and Medicaid programs in
the Company's secondary care centers also triggers potential application of the
Stark Law. The co-management model could establish a financial relationship, as
defined in the Stark Law, between the ophthalmologist and the optometrist.
Similarly, to the extent that the Company provides any designated health
services, as defined in the statute, the Stark Law could be triggered as a
result of any of the several financial relationships between the Company and
ophthalmologists. Based on its current interpretation of the Stark Law as set
forth in the proposed regulations published in January 1998, the Company
believes that the referrals from ophthalmologists and optometrists either will
be for services which are not designated health care services as defined in the
statute or will be covered by an exception to the Stark Law. There can be no
assurance, however, that the government will agree with the Company's position
or that there will not be changes in the government's interpretation of the
Stark Law. In such case, the Company may be subject to civil penalties as well
as administrative exclusion and would likely be required to revise the structure
of its legal arrangements or curtail its activities, any of which could have a
material adverse effect on the Company's business, financial condition, and
results of operation.
State Law. In addition to the requirements described above, the regulatory
requirements that the Company must satisfy to conduct its business will vary
from state to state, and, accordingly, the manner of operation by the Company
and the degree of control over the delivery of refractive surgery by the Company
may differ among the states.
A number of states have enacted laws which prohibit what is known as the
corporate practice of medicine. These laws are designed to prevent interference
in the medical decision-making process from anyone who is not a licensed
physician. Many states have similar restrictions in connection with the practice
of optometry. Application of the corporate practice of medicine prohibition
varies from state-to-state. Therefore, while some states may allow a business
corporation to exercise significant management responsibilities over the
day-to-day operation of a medical or optometric practice, other states may
restrict or prohibit such activities. The Company believes that it has
structured its relationship with physicians and optometrists in connection with
the operation of refractive centers as well as in connection with its secondary
care centers so that they conform to applicable corporate practice of medicine
restrictions in all material respects. Nevertheless, there can be no assurance
that, if challenged, those relationships may not be found to violate a
particular state corporate practice of medicine prohibition. Such a finding may
require the Company to revise the structure of its legal arrangements or curtail
its activities, and this may have a material adverse effect on the Company's
business, financial condition, and results of operations.
Many states prohibit a physician from sharing or "splitting" fees with
persons or entities not authorized to practice medicine. TLC's co-management
model for refractive procedures presumes that a patient will make a single
global payment to the laser center, which is a management entity acting on
behalf of the ophthalmologist and optometrist to collect fees on their behalf.
In turn, the ophthalmologist and optometrist pay facility and management fees to
the laser center out of their patient fees collected. While the Company believes
that such arrangements do not violate any such prohibitions in any material
respects, there can be no assurance that one or more states will not interpret
this structure as violating the state fee-splitting prohibition, thereby
requiring the Company to change its procedures in connection with billing and
collecting for services. Violation of state fee-splitting prohibitions may
subject the ophthalmologists and
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TLC THE LASER CENTER INC.
optometrists to sanctions, and may result in the Company incurring legal fees,
as well as being subjected to fines or other costs, and this could have a
material adverse effect on the Company's business, financial condition, and
results of operations.
Just as in the case of the federal anti-kickback statute, while the
Company believes that it is conforming with applicable state anti-kickback
statutes in all material respects, there can be no assurance that each state
will agree with the Company's position and would not challenge the Company. If
the Company were not successful in defending against such a challenge, the
result may be civil or criminal fines or penalties for the Company as well as
the ophthalmologists and optometrists. Such a result would require the Company
to revise the structure of its legal arrangements, and this could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Similarly, just as in the case of the federal Stark Law, while the Company
believes that it is operating in compliance with applicable state
anti-self-referral laws in all material respects, there can be no assurance the
each state will agree with the Company's position or that there will not be a
change in the state's interpretation or enforcement of its own law. In such
case, the Company may be subject to fines and penalties as well as other
administrative sanctions and would likely be required to revise the structure of
its legal arrangements. This could have a material adverse effect on the
Company's business, financial condition and results of operations.
Canada
Conflict of interest regulations in certain Canadian provinces prohibit
optometrists, ophthalmologists or corporations owned or controlled by them from
receiving benefits from suppliers of medical goods or services to whom the
optometrist or ophthalmologist refers his or her patients. In certain
circumstances, these regulations deem it a conflict of interest for an
ophthalmologist to order a diagnostic or therapeutic service to be performed by
a facility in which the ophthalmologist has any proprietary interest. This does
not include a proprietary interest in a publicly traded company. Certain of the
Company's refractive centers in Canada are owned and managed by a subsidiary in
which affiliated doctors own a minority interest. TLC expects that
ophthalmologists and optometrists affiliated with TLC will comply with the
applicable regulations, although it cannot ensure such compliance by doctors.
The laws of certain Canadian provinces prohibit health care professionals
from splitting fees with non-health care professionals and prohibit non-licensed
entities (such as the Company) from practicing medicine or optometry and, in
certain circumstances, from employing physicians or optometrists directly. In
addition, optometrists and ophthalmologists are subject to varying degrees and
types of provincial regulation governing professional misconduct, including
restrictions relating to advertising, and in the case of optometrists, a
prohibition against exceeding the lawful scope of practice. The Company believes
that its operations comply with such laws in all material respects, and expects
that doctors affiliated with TLC centers will comply with such laws, although it
cannot ensure such compliance by doctors.
Facility Licensure and Certificate of Need
The Company believes that it has all licenses necessary to operate its
business. The Company may be required to obtain licenses from the state
Departments of Health, or a division thereof in the various states in which it
opens TLC centers. While there can be no assurance that
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TLC THE LASER CENTER INC.
the Company will be able to obtain facility licenses in all states which may
require facility licensure, the Company has no reason to believe that in such
states, it will be not able to obtain such a license without unreasonable
expense or delay.
Some states require the permission of the State Department of Health or a
division thereof, such as a Health Planning Commission, in the form of a
Certificate of Need ("CON") prior to the construction or modification of an
ambulatory care facility, such as a laser center, or the purchase of certain
medical equipment in excess of an amount set by the state. While there can be no
assurance that the Company will be able to acquire a CON in all states where a
CON is required, the Company has no reason to believe that in those states that
require a CON, it will not be able to do so.
The Company is not aware of any Canadian health regulations which impose
licensing requirements on the operation of refractive centers.
Managed Care
Managed care contracting, provider network operations and related
management services are regulated in the United States by both federal and state
authorities. PPH has obtained or will seek to obtain all required federal and
state permits, licenses and bonds it believes are necessary to operate its
VisionMed subsidiaries and to function as a managed care company in the markets
in which it is developing business. In states where an insurance license is
required by a provider relationship or payor contract, PPH or the local
VisionMed subsidiary or partnership will seek to have such business underwritten
by an appropriate licensed insurer. Managed care is also subject to the federal
anti-kickback and anti-self-referral legislation and by federal anti-trust laws.
PPH intends to structure its local partnerships with providers to comply with
these laws in all of the markets in which it intends to conduct business.
Risk of Non-Compliance
Many of these laws and regulations governing the health care industry are
ambiguous in nature and have not been definitively interpreted by courts and
regulatory authorities. Moreover, state and local laws vary from jurisdiction to
jurisdiction. Accordingly, the Company may not always be able to predict clearly
how such laws and regulations will be interpreted or applied by courts and
regulatory authorities and some of the Company's activities could be challenged.
In addition, there can be no assurance that the regulatory environment in which
the Company operates will not change significantly in the future. Numerous
legislative proposals have been introduced in Congress and in various state
legislatures over the past several years that would, if enacted, effect major
reforms of the U.S. health care system. The Company cannot predict whether any
of these proposals will be adopted and, if adopted, what impact such legislation
would have on the Company's business. The Company has reviewed existing laws and
regulations with its health care counsel and, although there can be no
assurance, the Company believes that its operations currently comply with
applicable laws in all material respects. Also, TLC expects that doctors
affiliated with TLC centers will comply with such laws in all material respects,
although it cannot ensure such compliance by doctors. The Company could be
required to revise the structure of its legal arrangements or the structure of
its fees, incur substantial legal fees, fines or other costs, or curtail certain
of its business activities, reducing the potential profit to the Company of some
of its legal arrangements, any of which may have a material adverse effect on
the Company's business, financial condition and results of operations.
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TLC THE LASER CENTER INC.
Intellectual Property
The name "TLC The Laser Center" is a registered United States service mark
of the Company and a registered trade-mark in Canada. The Company also has
applied for registration of its logo and slogan "See the Best." In addition, the
Company owns a patent in the United States on the treatment of a potential side
effect of laser vision correction generally known as "central islands." The
patent expires in May 2014. The Company's service marks, trade-mark, patent and
other intellectual property may offer the Company a competitive advantage in the
marketplace and could be important to the success of the Company. There can be
no assurance that one or all of the registrations of the service marks will not
be challenged, invalidated or circumvented in the future. A subsidiary of the
Company recently signed an agreement with a subsidiary of LaserSight whereby the
Company has granted an exclusive right to use the central islands patent to
LaserSight.
The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation in the United States and Canada
regarding patents and proprietary rights. There are a number of patents
concerning methods and apparatus for performing corneal procedures with excimer
lasers. In the event that the use of an excimer laser or other procedure
performed at any of the Company's refractive or secondary care centers is deemed
to infringe a patent or other proprietary right, the Company may be prohibited
from using the equipment or performing the procedure that is the subject of the
patent dispute or may be required to obtain a royalty bearing license, which may
not be available on acceptable terms, if at all. The costs associated with any
such licensing arrangements may be substantial and could include ongoing royalty
payments. In the event that a license is not available, the Company may be
required to seek the use of products which do not infringe the patent. The
unavailability of such products may cause the Company to cease operations in the
United States or Canada or delay the Company's expansion into the United States.
If the Company is prohibited from performing laser vision correction at any of
its laser centers, the Company's business, financial condition and results of
operations will be materially adversely affected.
Employees
As of July 31, 1998, the Company had 696 employees. The Company's progress to
date has been highly dependent upon the skills of its key technical and
management personnel, some of whom would be difficult to replace. There can be
no assurance that the Company can retain such personnel or that it can attract
or retain other highly qualified personnel in the future. No employee of the
Company is represented by a collective bargaining agreement, nor has the Company
experienced a work stoppage. The Company considers its relations with its
employees to be good. See "Item 1 - Business - Risk Factors Dependence on Key
Personnel."
Risk Factors
Limited Operating History and Losses from Operations; Uncertainty of Future
Profitability
The Company's ability to achieve or maintain profitability will depend in
part on its ability to increase demand for its services and control costs, its
ability to execute its expansion strategy and effectively integrate acquired
businesses and assets, economic conditions in the Company's markets, competitive
factors and regulatory developments. Accordingly, the extent of future losses
and the time required to achieve profitability is uncertain. There can be no
assurance that
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TLC THE LASER CENTER INC.
the Company will achieve profitability or that profitability, if achieved, will
be sustained. Moreover, if profitability is achieved, the level of such
profitability cannot be predicted and may vary significantly from quarter to
quarter. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Uncertainty of Market Acceptance
The Company believes that its profitability and growth will depend upon
broad acceptance of laser vision correction in the United States and, to a
lesser extent, Canada. There can be no assurance that laser vision correction
will be more widely accepted by ophthalmologists, optometrists or the general
population as an alternative to existing methods of treating refractive
disorders. See "Item 1 - Business - The Refractive Market".
Dependence on Affiliated Doctors
The success of the Company's operations depends upon its ability to enter
into agreements on acceptable terms with a sufficient number of health care
providers, including institutions, ophthalmologists and optometrists, to render
surgical and other professional services at facilities owned or managed by the
Company. There can be no assurance that the Company will be able to enter into
agreements with doctors or other health care providers on satisfactory terms or
that such agreements will be profitable to the Company. See "Item 1 - Business -
Surgeon Contracts".
Competition
Laser vision correction, secondary care, and managed care are all subject
to intense competition. The Company competes with other entities, including
hospitals, individual ophthalmologists, other laser centers and certain
manufacturers of excimer laser equipment, in offering its services. The
Company's laser centers compete on the basis of quality of service, reputation
and price. There can be no assurance that competitors with substantially greater
financial, technical, managerial, marketing and other resources and experience
than the Company will not compete more effectively than the Company. See "Item 1
- - Business - Competition".
Quarterly Fluctuations in Operating Results
Results of operations have varied and may continue to fluctuate
significantly from quarter to quarter and will depend on numerous factors. The
Company does experience some seasonality in results, mostly in the second
quarter due to the deferred scheduling of elective procedures as a result of
vacations for patients and doctors, which tends to reduce results for that
quarter.
Potential Liability and Insurance
The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. There can be no assurance that any
insurance maintained by the Company will be adequate to satisfy claims or that
insurance maintained by the doctors will protect the Company. See "Item 1 -
Business - Potential Liability and Insurance".
Risk of Inability to Execute Acquisition Strategy; Management of Growth
The Company's growth strategy is dependent on increasing the number of TLC
refractive and secondary care centers through strategic acquisitions. The
addition of new centers can be expected to present challenges to management,
including the integration of new operations, technologies and personnel, and
special risks. If the Company's management is unable to
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TLC THE LASER CENTER INC.
successfully implement its growth strategy or manage growth effectively, the
Company's business, financial condition and results of operations could be
materially adversely affected. See "Item 1 - Business -Risk of Inability to
Execute Acquisition Strategy; Management of Growth."
Future Capital Requirements; Uncertainty of Additional Funding
It is not possible to predict with certainty the timing or the amount of
future capital requirements. If adequate funds are not available, the Company
may be required to cut back or abandon its expansion plans and curtail
operations significantly, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Item 1 -
Business - Future Capital Requirements - Uncertainty of Additional Funding" and
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Reimbursement
A decrease in the number of privately insured patients treated at the
Company's secondary care centers or a further reduction in reimbursement rates
or in payments to doctors could cause the revenues of such centers to decrease
and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1 - Business Description of
Secondary Care Centers".
Government Regulation
The Company and its operations are subject to extensive federal, state and
local laws, rules and regulations.The Company could be required to revise the
structure of its legal arrangements or the structure of its fees, incur
substantial legal fees, fines or other costs, or curtail certain of its business
activities, reducing the potential profit to the Company of some of its legal
arrangements, any of which may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1 - Business
- - Governmental Regulation."
Technological Change
Modern medical technology is characterized by extensive research and rapid
technological change. Newer or enhanced technologies may be developed with
better performance or lower cost than the excimer laser equipment currently used
by the Company. Medical companies, academic and research institutions and others
could develop new therapies, including new or enhanced medical devices or
surgical procedures, for the conditions targeted by the Company. These therapies
could be more medically effective and less expensive than the procedures
performed at the Company's refractive centers and could potentially render laser
vision correction obsolete, uneconomical or otherwise undesirable. In addition,
competitors may develop procedures that involve lower per procedure costs. There
can be no assurance that the Company will have the capital resources available
to it to upgrade its excimer laser equipment, acquire any such new or enhanced
medical devices or adopt such new or enhanced procedures at the time that any
advanced technology is developed or introduced. The inability of the Company to
do so successfully could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1 - Business
Competition - Future Capital Requirements; Uncertainty of Additional Funding."
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TLC THE LASER CENTER INC.
Dependence on Key Personnel
The success of the Company is dependent in part on the services of certain
key medical and management personnel, including Dr. Machat and Mr. Vamvakas. The
experience of these individuals will be an important factor contributing to the
Company's continued success and growth. The loss of either of these individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Intellectual Property/Proprietary Technology
The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation in the United States and Canada
regarding patents and proprietary rights. If the Company is prohibited from
performing laser vision correction at any of its laser centers, the Company's
business, financial condition and results of operations will be materially
adversely affected. See "Item 1 - Business - Intellectual Property/Proprietary
Technology".
Potential Volatility of Stock Price
The market price of the Common Shares historically has been subject to
substantial price volatility. Such volatility can be expected to recur in the
future due to industry developments or business-specific factors such as the
Company's ability to effectively penetrate the laser vision correction market,
new technological innovations and products, changes in government regulations,
adverse regulatory action, public concerns with regard to the safety and
effectiveness of various medical procedures, any loss of key management,
announcements of extraordinary events such as litigation or acquisitions,
variations in the Company's financial results, fluctuations in the stock prices
of the Company's competitors, the issuance of new or changed stock market
analyst reports and recommendations concerning the Company or its competitors,
changes in earnings estimates by securities analysts, the Company's ability to
meet analysts' projections, as well as changes in the market for medical
services and general economic, political and market conditions or other
unforeseen factors. In addition, stock markets have experienced extreme price
and volume trading volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many companies for
reasons frequently unrelated or disproportionate to the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of the Common Shares.
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TLC THE LASER CENTER INC.
ITEM 2. PROPERTIES
The Company's centers and the corporate office are located in leased
premises. The leases are negotiated on market terms and typically have a term of
five to ten years. See Note 12 to "Item 8 - Consolidated Financial Statements of
the Company." The following chart contains the location and acquisition or
opening date of each TLC refractive center, including BeaconEye centers.
Refractive Centers
United States
-------------
Location Opened
California
Brea September, 1996
Irvine(1) June, 1997
Colorado
Denver August, 1996
Denver(1) August, 1996
Florida
Boca Raton(2) January, 1996
Fort Lauderdale(1) January, 1997
Tampa(1) January, 1997
Georgia
Atlanta(1) August, 1996
Illinois
Westchester(3) March, 1997
Indiana
Indianapolis March, 1996
Maryland
Rockville(2) January, 1996
Massachusetts
Scituate September 1997
Michigan
Detroit November 1997
Lansing (3) May 1998
Montana
Billings March 1997
New Jersey
Elmwood Park(2) March 1996
Mount Laurel June 1997
New York
Garden City(2) May 1996
New York(2) January 1996
White Plains(2) April 1996
North Carolina
Charlotte June 1997
Raleigh August 1997
Winston-Salem March 1997
Ohio
Ada December 1996
Cleveland November 1997
Oklahoma
Oklahoma City October 1996
Tulsa October 1995
Pennsylvania
Plymouth Meeting(2) April 1996
Pittsburgh June 1998
South Carolina
Greenville June 1996
Tennessee
Johnson City April 1997
Texas
Austin(1) June 1996
Arlington(1) June 1996
Houston(1) August 1996
San Antonio June 1996
Virginia
Fairfax(2) April 1996
Washington
Lynnwood July 1996
Wisconsin
Madison (3) October 1996
Canada
------
Location Opened
British Columbia
Vancouver August 1996
New Brunswick
Moncton September 1997
Ontario
London November 1994
Richmond Hill(1) September 1997
Toronto December 1994
Toronto(1) May 1995
Windsor September 1993
(1) BeaconEye center. On May 27, 1998, the Company completed its acquisition
of BeaconEye.
(2) Acquired February 1997 in the acquisition of 20/20.
(3) Also contains a secondary care center.
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TLC THE LASER CENTER INC.
The following chart contains the location and acquisition or opening date of
each TLC secondary care center:
Secondary Care Centers
Location Date Acquired
Michigan
Battle Creek February 1998
Chelsea February 1998
Jackson February 1998
Lansing(1) February 1998
Ypsilanti February 1998
Illinois
Palos Heights January 1997
Westchester(1) January 1997
Oklahoma
Oklahoma City April 1998
Elk City June 1998
Wisconsin
Madison (1) February 1998
Washington
Auburn March 1996
Burlington December 1997
Mount Vernon March 1996
Seattle March 1996
Sequim February 1998
Sequim March 1996
Smokey Point December 1997
(1) Denotes a center that is also a refractive center.
The Company also leases office space for two corporate offices. The
International Headquarters is located in Mississauga, Ontario in Canada, and the
U.S. Corporate Office is located in Bethesda, Maryland.
ITEM 3. LEGAL PROCEEDINGS
On August 15, 1997, Susan Rachlin, a former patient, filed a suit against TLC
The Laser Center (Northeast) Inc., a subsidiary of TLC (formerly 20/20), along
with Richard Prince MD, David Edmiston MD, Focus Eye Centre and Tri County Eye
Physicians PC, alleging defects in her laser vision correction. The suit was
filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. The
patient initially had laser vision correction, arranged by 20/20 but not
performed by a doctor at a 20/20 center, and had further laser vision correction
by a doctor at a 20/20 center in an attempt to obtain better results. The
patient claims that she continues to have blurry vision and that she still needs
to wear glasses. The case is still in the early pleading stages and damages have
not been quantified. The Company's insurer has assumed the defense of this
claim, and, although there can be no assurance, the Company does not expect this
suit to have a material adverse effect on its business, financial condition or
results of operations.
On January 18, 1998, TLC and its subsidiary, TLC Midwest Eye Laser Center Inc.,
filed a suit in the Circuit Court of Cook County Illinois, Chancery Department,
against Midwest Eye Institute II, Ltd., Midwest Eye Physicians, PC, Herman D.
Sloane, MD, Allen M. Pielet, MD, Floyd W. Woods, OD, Ronald J. Carr, OD, and
Dominick L. Opitz, OD. The suit seeks injunctive relief and compensatory damages
against certain defendants for breach of an administrative services agreement
and seeks an injunction to prevent the defendant doctors from competing with
TLC. The court recently denied the Company's request for an injunction
preventing the defendant doctors from competing with TLC. The Company intends to
appeal this decision. The doctors have made a counterclaim against TLC for
breach of the administrative services agreement and breach of fiduciary duty,
seeking an accounting of funds collected under the agreement, an appointment of
a receiver to collect the practice's receivables and damages in the amount of
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$50,000. TLC does not consider the counterclaim to have merit and, although
there can be no assurance, does not expect to be required to pay damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Shares are listed on The Toronto Stock Exchange under the
symbol "LZR" and , since July 2, 1997 have been listed on the Nasdaq National
Market under the symbol "LZRCF." The following table sets forth, for the periods
indicated, the high and low closing prices per Common Share of the Common Shares
on The Toronto Stock Exchange and the Nasdaq National Market:
The
Toronto Nasdaq
Stock National
Exchange Market
----------------- ------------------
High Low High Low
-------- -------- -------- --------
Fiscal 1997
First Quarter C$8.30 C$5.25 -- --
Second Quarter 8.20 6.90 -- --
Third Quarter 9.40 6.10 -- --
Fourth Quarter 12.00 7.10 -- --
Fiscal 1998
First Quarter C$13.05 C$10.60 US$9.25 US$8.25
Second Quarter 12.80 10.75 9.00 7.75
Third Quarter 20.00 11.10 14.00 7.813
Fourth Quarter 25.00 17.90 17.234 12.688
Record Holders
As of August 20, 1998, there were approximately 637 record holders of the Common
Shares.
Dividends
The Company has never declared or paid cash dividends on the Common Shares. It
is the policy of the Board of Directors of the Company to retain earnings to
finance growth and development of its business and, therefore, the Company does
not anticipate paying cash dividends on its Common Shares in the near future.
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ITEM 6. SELECTED FINANCIAL DATA
Set forth in the following pages are selected historical consolidated
financial data as of and for each of the fiscal years in the four-year period
ended May 31, 1998, which have been derived from and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Form 10-K. The Company previously
reported in Canadian dollars, but is now reporting in U.S. dollars.
Consequently, all of the numbers set forth below are presented in U.S. dollars.
See note 1 to the Consolidated Financial Statements.
Year Ended May 31,
1995(2) 1996 1997 1998
------- ------- ------- -------
Income Statement Data
Amounts under Canadian
GAAP(1)
Net revenues(3) 3,152 6,426 20,112 59,122
Expenses
Operating and doctor 2,314 5,562 21,074 54,763
compensation
Interest and other 110 675 752 692
Depreciation and 236 601 3,463 9,460
amortization
------- ------- ------- -------
2,660 6,838 25,289 64,915
Income (loss) from 492 (412) (5,177) (5,793)
operations before start-up
and development expenses
Start-up and development 1,034 1,584 4,292 3,267
expenses
Loss before income taxes (542) (1,996) (9,469) (9,060)
and non-controlling
interest
Income taxes
Current 31 72 95 1,071
Deferred -- (89) 10 --
------- ------- ------- -------
31 (17) 105 1,071
Loss before (573) (1,979) (9,574) (10,131)
non-controlling
interest
Non-controlling interest -- -- -- 593
Net loss for the period - (573) (1,979) (9,574) (9,538)
Canadian GAAP
Loss per share - (0.06) (0.16) (0.47) (0.34)
Canadian GAAP
Weighted average number 10,134 12,797 20,617 28,035
of Common Shares
outstanding (in thousands)
Amounts under U.S.
GAAP(1)
Net loss for the period - (609) (3,329) (9,574) (10,280)
U.S. GAAP
Loss per share - (0.06) (0.26) (0.47) (0.37)
U.S. GAAP
33
<PAGE>
TLC THE LASER CENTER INC.
Year Ended May 31,
------------------
1995 1996 1997 1998
---- ---- ---- ----
Operating Data
Number of refractive centers
(at end of period) 3 5 27 45
Number of secondary care
centers (at end of period) 0 4 7 15
Number of laser vision
correction procedures 2,176 3,685 11,026(4) 35,859(5)
As of May 31,
-------------
1995 1996 1997 1998
---- ---- ---- ----
Balance Sheet Data
Cash and short-term deposits 397 2,844 13,230 1,895
Working capital (200) 1,656 8,055 54,084
Total assets 2,027 16,819 73,746 164,212
Total debt, excluding current
portion 891 3,104 10,935 17,911
Shareholders' equity
Capital Stock 1,002 13,494 63,522 143,554
Deficit (588) (2,568) (12,141) (21,679)
-------- -------- -------- --------
414 10,926 51,381 121,875
TLC THE LASER CENTER INC.
(1) In certain respects, Canadian GAAP differs from U.S. GAAP. Accordingly,
certain line items with respect to Income Statement Data and Balance Sheet
Data would differ under U.S. GAAP. For a discussion of the principal
differences between Canadian GAAP and U.S. GAAP, see note 17 to the
Consolidated Financial Statements of the Company.
(2) Certain comparative figures have been reclassified to conform to the
presentation for fiscal 1998.
(3) Includes primarily those revenues pertaining to the operation of
refractive centers, the management of refractive and secondary care
centers and The Vision Source Inc.
(4) Includes procedures performed at centers previously owned by 20/20
starting March 1997. 20/20 was acquired by TLC on February 10, 1997.
(5) Includes six weeks of procedures performed at BeaconEye Centers.
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in Item 8
of this Form 10-K. The following discussion is based upon the Company's results
under Canadian GAAP. In certain respects, Canadian GAAP differs from U.S. GAAP.
For a discussion of the principal differences between Canadian GAAP and U.S.
GAAP, see note 17 to the Consolidated Financial Statements of the Company. The
Company is now reporting in U.S. dollars. Unless otherwise specified, all dollar
amounts are U.S. dollars. See Note 1 to the Consolidated Financial Statements of
the Company.
Overview
TLC The Laser Center Inc., which began operations in September 1993, owns and
manages eye care centers throughout North America and, together with its network
of eye care providers, specializes in laser vision correction to correct common
vision disorders such as myopia (nearsightedness), hyperopia (farsightedness)
and astigmatism. Laser vision correction is an outpatient procedure, which is
designed to change the curvature of the cornea to reduce or eliminate a
patient's reliance on eyeglasses or contact lenses. To date, the Company has
established or acquired 45 refractive centers and 17 secondary care centers in
the United States and Canada which includes the recent acquisition of 11
BeaconEye centers in April 1998 (The Company acquired 97% of the outstanding
shares of BeaconEye in April, 1998, and completed its acquisition of the
remaining shares of BeaconEye in May, 1998). Including the six weeks of
BeaconEye center operations, the Company performed over 35,800 procedures during
the fiscal year 1998, making TLC the world's largest provider of laser vision
correction services.
The Company recognizes revenues at the time services are rendered. Net revenues
include only those revenues pertaining to owned laser centers and management
fees from managing refractive and secondary care practices. Under the terms of
the practice management agreements, the Company provides management, marketing
and administrative services to refractive and secondary care practices in return
for management fees. Management services revenue in some cases is equal to the
net revenue of the physician practice, less amounts retained by the physician
groups, and in some cases is based upon a fixed management/facility fee
arrangement. The principal components of operating expenses are wages and
facility leasing costs.
35
<PAGE>
TLC THE LASER CENTER INC.
The Company continues to pursue a growth strategy in its core refractive laser
surgery business, which accounts for more than 86% of net revenues. It is
expected that in addition to "same store" growth, several new centers will be
built or acquired during fiscal year 1999 to increase procedure volume and
position the company for continuing growth. The Company's continued growth and
future profitability are affected by the extent to which laser vision correction
becomes more widely accepted in North American markets and other factors. The
Company anticipates that the percentage of revenue derived from the core
refractive business will continue to increase as the market for laser vision
correction grows.
Results of Operations
Year Ended May 31, 1998 Compared to Year ended May 31, 1997
<TABLE>
<CAPTION>
1998 Refractive Secondary Other Total
Care
<S> <C> <C> <C> <C>
Net revenues $51,079 $6,641 $1,402 $59,122
Doctor compensation 5,242 5,242
---------- --------- -------- --------
Net revenue after doctor compensation 45,837 6,641 1,402 53,880
Operating expenses 41,620 6,294 1,607 49,521
Interest and other 416 87 189 692
Depreciation and amortization 7,107 2,185 168 9,460
Non-recurring charge (1,555) (1,555)
Income (loss) from operations before
---------- --------- -------- --------
non-recurring charge $(3,306) $ (370) $ (562) $(4,238)
<CAPTION>
1997 Refractive Secondary Other Total
Care
<S> <C> <C> <C> <C>
Net revenues $15,130 $4,982 $20,112
Doctor compensation 1,476 1,476
Net revenue after doctor compensation 13,654 4,982 18,636
Operating expenses 15,637 3,961 19,598
Interest and other 637 115 752
Depreciation and amortization 2,728 735 3,463
---------- --------- --------
Income (loss) from operations $(5,348) $ 171 $(5,177)
</TABLE>
Net revenues for the fiscal 1998 year increased $39.0 million to $59.1 million,
which is an increase of 194% over last year's $20.1 million total. More than 86%
of total net revenues were derived from refractive surgery as compared to 75% in
fiscal 1997 demonstrating the increasing significance of the Company's core
business.
Net revenues from refractive centers for fiscal 1998 increased $36.0 million to
$51.1 million, which is an increase of 238% over last year's $15.1 million
total. More than 35,800 paid procedures were performed in fiscal 1998 compared
to 11,000 procedures in fiscal 1997. The increasing revenues reflects strong
growth in the number of procedures performed at existing sites, the development
of new centers and the recent acquisition of the BeaconEye centers which
accounted for 1,300 paid procedures in fiscal 1998.
36
<PAGE>
TLC THE LASER CENTER INC.
Net revenues from secondary care centers increased $1.6 million to $6.6 million
from $5.0 million in fiscal 1997, an increase of 33%. Higher revenues from TLC
Northwest Eye Inc. and the acquisition of TLC Michigan in February, 1998
accounted for the majority of the revenue growth.
Operating expenses and doctor compensation increased $33.7 million to $54.8
million in fiscal 1998 from $21.1 million in fiscal 1997, an increase of 160%.
This increase is a result of: (i) increased variable expenses associated with
the increase in the number of laser vision correction procedures performed at
existing refractive centers and (ii) increased fixed and variable costs from the
addition of new refractive centers. Operating expenses and doctor compensation
as a percentage of net revenues were 93% for fiscal 1998 as compared to 105% in
fiscal 1997. This decrease is attributed to the higher percentage of refractive
centers that had been open for more than one year and were recording higher
revenues.
Interest expense and other of $0.7 million was unchanged, which includes higher
interest expenses on long term debt and capital leases that was offset by higher
interest income and foreign exchange gains.
Depreciation and amortization expense increased to $9.5 million in fiscal 1998
from $3.5 million in fiscal 1997. This is a result of a full year's depreciation
expense on 23 centers which were built during fiscal 1997. In addition
amortization of goodwill increased to $1.7 million in fiscal 1998 from $0.5
million in fiscal 1997 resulting primarily from the full year amortization of
the 20/20 acquisition goodwill. Goodwill is amortized on a straight line basis
over fifteen years.
Start-up and development expenses represent non - recurring costs incurred to
research and develop potential businesses in North America, including salaries
and benefits, professional fees, advertising, promotion and travel expenses, and
costs incurred by the businesses during the period prior to commencement of
commercial operations. These costs decreased 23% to $3.3 million as compared to
$4.3 million in fiscal 1997. During fiscal 1998, the majority of start up and
development costs were incurred by Partner Provider Health ("PPH") for the
development of the managed care business. PPH has been established with the goal
of strengthening the doctor network and supporting affiliated doctors, in
conjunction with the Company's co-management strategy.
Income tax expense increased to $1.1 million in fiscal 1998 from $0.1 million in
fiscal 1997. This increase is a result of certain Canadian center profits being
taxed in Canada as U.S. losses cannot be applied to offset such Canadian taxable
income.
The net loss for fiscal 1998 was $9.5 million or $0.34 per share, compared to a
loss of $9.6 million or $0.47 cents a share the previous year. The similar loss
is a result of a $2.0 million smaller operating loss from refractive being
entirely offset by $2.1 million poorer operating performance from secondary care
operations. Secondary care operating losses are a result of new costs associated
with new secondary care centers that have not yet established their revenue
stream. The secondary care operating loss included a total of $1.5 million of
non-recurring asset write-downs and other charges at the Chicago and Seattle
secondary care clinics. The most significant component of the $1.5 million
charge arose from a contractual dispute with the doctor
37
<PAGE>
TLC THE LASER CENTER INC.
group affiliated with the Company's Chicago center. The loss from refractive
operations includes $0.9 million in losses from BeaconEye, which was acquired
six weeks before the fiscal year end.
Year Ended May 31, 1997 Compared to Year Ended May 31, 1996
Net revenues from refractive centers increased to $15.1 million for fiscal 1997
from $5.5 million for fiscal 1996 which represents an increase of 175% over
fiscal 1996's total. This increase is attributed to the growth in the number of
laser vision correction procedures performed at refractive centers, which
increased to 11,026 from 3,685 the previous year.
Net revenues from secondary care centers increased by 400%, from $1.0 million
for fiscal 1996 to $5.0 million for fiscal 1997. A full year's accounting of
revenues, and an increase in revenues, from the TLC Northwest Eye Inc. secondary
care centers (Washington State) and the acquisition of the TLC Midwest Eye
secondary care centers (Illinois) contributed to the growth in net revenues.
Operating expenses and doctor compensation increased from $5.6 million for
fiscal 1996 to $21.1 million for fiscal 1997. This increase is attributed to:
(i) increased variable expenses associated with the increase in the number of
laser vision correction procedures performed at existing centers; and (ii)
increased fixed and variable costs from the addition of new refractive centers.
Interest and other expenses were unchanged at $0.7 million for fiscal 1996 and
fiscal 1997. While interest expense increased in fiscal 1997 to $0.9 million as
compared to $0.2 million in fiscal 1996, which is attributed to the higher level
of debt outstanding, this higher cost was offset by foreign exchange gains and
interest income.
Depreciation and amortization expense increased from $0.6 million for fiscal
1996 to $3.5 million for fiscal 1997. This increase is attributed to the
addition of assets principally resulting from the addition of 22 refractive
centers in fiscal 1997, as well as the inclusion of $0.5 million of goodwill
amortization attributed to the acquisition of 20/20 in February 1997.
Start-up and development expenses increased from $1.6 million for fiscal 1996 to
$4.3 million for fiscal 1997. Start-up and development expenses for fiscal 1997
include $1.1 million in costs attributable to PPH. These costs were incurred to
set up a new claims processing center and to develop other infrastructure.
The net loss for fiscal 1996 was $2.0 million or $0.16 per share, compared to
$9.6 million or $0.47 per share for fiscal 1997.
38
<PAGE>
TLC THE LASER CENTER INC.
Liquidity and Capital Resources
The Company has financed its operations to date through cash flow, the issuance
of Common Shares, borrowings and capital lease financing.
On April 22, 1998, the Company completed a public offering in the United States
and Canada of 4,740,000 Common Shares at $14.50 per share (the "Offering"). Net
proceeds to the Company, after deducting underwriting discounts and commissions,
were approximately $64.6 million. The proceeds of this offering are being used
to finance further expansion plans including the acquisition and development of
additional refractive centers. The Company estimates that the net proceeds of
the Offering, together with existing cash balances, funds expected to be
generated from operations and available credit facilities, will be sufficient to
fund the Company's anticipated level of operations and its current acquisition
and expansion plans for the next 18 months.
Working capital increased from $8.1 million at May 31, 1997 to $54.1 million at
May 31, 1998, primarily due to the public offering completed on April 22, 1998.
At May 31, 1998, unrestricted cash and marketable securities totaled $56.1
million, an increase of $42.9 million from the $13.2 million balance on May 31,
1997 due to the public offering.
Net cash utilized by operating activities for the year ended May 31, 1998
amounted to $11.8 million, as compared to $6.9 million for the year ended May
31, 1997. The increase in cash usage is due largely to higher accounts
receivable because of more insurance cases both in secondary care and refractive
operations. The Company continued to invest in assets to develop and expand its
refractive procedure capacity in anticipation of continued growth. The Company
also acquired BeaconEye Inc. for $16.3 million, which resulted in the addition
of 11 clinics.
Recent Developments
In April 1998 the Company, through a take-over bid circular, acquired 97% of the
common shares of BeaconEye Inc. The share acquisition was financed through the
issue of 842,980 Common Shares. On May 27, 1998, the Company completed the
acquisition of the remaining shares of BeaconEye Inc., with an issuance of an
additional 29,312 Common Shares. TLC has combined operations and staff of the
two companies. This combination required: (i) the closure of BeaconEye corporate
offices in Fort Worth Texas and Mississauga Ontario, (ii) staff layoffs, (iii)
the implementation of the TLC co-management model at BeaconEye centers, and (iv)
the integration of information systems.
On June 8, 1998 the Company made a portfolio investment of $8 million in cash
through the purchase of 2,000,000 preference shares in LaserSight which are
convertible to common shares at $4.00 per share. This investment was made in
part to fund the start up and development of a mobile laser business in North
America.
39
<PAGE>
TLC THE LASER CENTER INC.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is reviewing internal systems and is communicating with outside customers and
vendors to determine where systems may fail. Although there can be no assurance,
the Company does not believe that it will incur significant operating expenses
or be required to invest heavily in computer systems improvements to be year
2000 compliant. Any year 2000 compliance problem encountered by the Company, its
suppliers or its customers could have a material adverse impact on the Company's
business, financial condition and results of operations.
New Accounting Pronouncements
The Emerging Issues Task Force has issued EITF Abstract No. 97-2, "Application
of FASB Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, and
APB Opinion No. 16, Business Combinations, to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements,"
which is effective for the Company's May 31, 1999 year end. This Abstract
addresses, amongst other things, the circumstances under which it is appropriate
to consolidate physician practices managed by the Company. The Company expects
that it will continue to not consolidate physician practices under its
management.
ITEM 7A. MARKET RISK
Not Applicable
40
<PAGE>
TLC THE LASER CENTER INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESPONSIBILITY FOR
FINANCIAL STATEMENTS
The accompanying consolidated financial statements of TLC The Laser Center Inc.
have been prepared by management in accordance with accounting principles
generally accepted in Canada consistently applied. The most significant of these
accounting policies have been set out in note 1 to the financial statements.
These statements are presented on the accrual basis of accounting. Accordingly,
a precise determination of many assets and liabilities is dependent upon future
events. Therefore, estimates and approximations have been made using careful
judgment. Recognizing that the Company is responsible for both the integrity and
objectivity of the financial statements, management is satisfied that these
financial statements have been prepared within reasonable limits of materiality.
The Board of Directors has appointed an Audit Committee consisting of three
outside directors. The committee meets during the year to review with management
and the auditors any significant accounting, internal control and auditing
matters and to review and finalize the annual financial statements of the
Company along with the independent auditors' report prior to the submission of
the financial statements to the Board of Directors for final approval.
The financial information throughout the text of this annual report is
consistent with the information presented in the financial statements.
The Company's accounting procedures and related systems of internal control are
designed to provide reasonable assurance that its assets are safeguarded and its
financial records are reliable.
External Auditors
The auditors' opinion is based upon an independent and objective examination of
the Company's financial results for the year, conducted in accordance with
generally accepted auditing standards. This examination encompasses an
understanding by the auditors of the Company's accounting systems as well as the
obtaining of a sound understanding of the Company's business. The external
auditors conduct appropriate tests of the Company's transactions and obtain
sufficient audit evidence in order to provide them with reasonable assurance
that the financial statements are presented fairly, in all material respects, in
accordance with generally accepted accounting principles, thus enabling them to
issue their report to the shareholders.
Ernst & Young, Chartered Accountants, having been appointed by the shareholders
to serve as the Company's external auditors, have examined the consolidated
financial statements of the Company for the year ended May 31, 1998, and have
reported thereon in their July 15, 1998 report.
41
<PAGE>
TLC THE LASER CENTER INC.
AUDITORS' REPORT
To the Shareholders of TLC The Laser Center Inc.
We have audited the consolidated balance sheet of TLC The Laser Center Inc. as
at May 31, 1998 and the consolidated statements of income, deficit and changes
in financial position for the year ended May 31, 1998. These consolidated
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 an audit to obtain reasonable
assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 1998 and
the results of its operations and the changes in its financial position for the
year ended May 31, 1998 in accordance with accounting principles generally
accepted in Canada.
The financial statements as at May 31, 1997 and for each of the years in the two
year period ended May 31, 1997, prior to the change in reporting currency
described in Note 1, were audited by other auditors who expressed an opinion
without reservation on those statements in their report dated August 8, 1997. We
have examined the restatement of such financial statements for the change in
reporting currency and, in our opinion, such restatement is appropriate and has
been properly applied.
Toronto, Canada ERNST & YOUNG
July 15, 1998 Chartered Accountants
42
<PAGE>
TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENT OF INCOME
Years ended May 31
<TABLE>
<CAPTION>
(U.S. dollars, in thousands except per share amounts) 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues
Refractive $ 51,079 $ 15,130 $ 5,474
Secondary care 6,641 4,982 952
Other 1,402 -- --
- -------------------------------------------------------------------------------------------------
Net revenues (Note 13) 59,122 20,112 6,426
- -------------------------------------------------------------------------------------------------
Expenses
Doctor compensation
Refractive 5,242 1,476 953
Operating 49,521 19,598 4,609
Interest and other (Note 10) 692 752 675
Depreciation and amortization (Note 10) 9,460 3,463 601
- -------------------------------------------------------------------------------------------------
64,915 25,289 6,838
- -------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS BEFORE
START-UP AND DEVELOPMENT EXPENSES (5,793) (5,177) (412)
Start-up and development expenses 3,267 4,292 1,584
- -------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST (9,060) (9,469) (1,996)
- -------------------------------------------------------------------------------------------------
Income taxes
Current (Note 11) 1,071 95 72
Deferred 10 (89)
- -------------------------------------------------------------------------------------------------
1,071 105 (17)
- -------------------------------------------------------------------------------------------------
LOSS BEFORE NON-CONTROLLING
INTEREST (10,131) (9,574) (1,979)
Non-controlling interest 593 -- --
- -------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $ (9,538) $ (9,574) $ (1,979)
=================================================================================================
LOSS PER SHARE $ (0.34) $ (0.47) $ (0.16)
=================================================================================================
Weighted average number of
Common Shares outstanding 28,034,741 20,617,104 12,796,579
=================================================================================================
</TABLE>
43
<PAGE>
TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENT OF DEFICIT
Years ended May 31
(U.S. dollars, in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Balance, beginning of year $(12,141) $ (2,567) $ (588)
Net loss for the year (9,538) (9,574) (1,979)
- --------------------------------------------------------------------------------
Balance, end of year $(21,679) $(12,141) $(2,567)
================================================================================
44
<PAGE>
TLC THE LASER CENTER INC.
CONSOLIDATED BALANCE SHEETS
As at May 31
(U.S. dollars, in thousands) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term deposits (Note 2) $ 1,895 $ 13,230
Marketable securities (Note 14) 54,234 --
Accounts receivable (Note 14) 10,282 2,784
Income taxes recoverable -- 32
Prepaids and sundry assets 4,632 1,590
- --------------------------------------------------------------------------------
Total current assets 71,043 17,636
Restricted cash (Note 2) 2,086 1,167
Intangibles and other assets (Note 3) 48,852 31,120
Capital assets (Note 4) 31,049 16,813
Assets under capital lease (Note 5) 11,182 7,010
- --------------------------------------------------------------------------------
Total assets $ 164,212 $ 73,746
================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 9,096 $ 6,677
Current portion of long term debt 2,861 1,242
Current portion of obligations under capital lease 3,951 1,631
Current portion of term bank loan -- 27
Income taxes payable 613 --
Deferred compensation (Note 8) 320 --
Deferred income taxes 118 4
- --------------------------------------------------------------------------------
Total current liabilities 16,959 9,581
Long term debt (Note 6) 8,378 4,548
Obligations under capital lease (Note 7) 9,533 6,371
Term bank loan -- 16
Deferred rent and compensation (Note 8) 1,110 1,531
- --------------------------------------------------------------------------------
Total liabilities 35,980 22,047
- --------------------------------------------------------------------------------
Non-controlling interest 6,357 318
- --------------------------------------------------------------------------------
Commitments (Note 12)
SHAREHOLDERS' EQUITY
Capital stock (Note 9) 143,554 63,522
Deficit (21,679) (12,141)
- --------------------------------------------------------------------------------
Total shareholders' equity 121,875 51,381
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 164,212 $ 73,746
================================================================================
Approved on behalf of the Board:
Elias Vamvakas, Director Howard J. Gourwitz, Director
45
<PAGE>
TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years ended May 31
(U.S. dollars, in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Operating activities
Net loss for the year $ (9,538) $ (9,574) $ (1,979)
Items not affecting cash
Depreciation and amortization 9,460 3,463 601
Depreciation and amortization included in
Start-up and development expenses -- -- 106
Non-controlling interest (593) -- --
Deferred income taxes (net) -- 10 (89)
Other 22 313 167
Changes in non-cash operating items
Accounts receivable (6,964) 56 (1,126)
Prepaids and sundry assets (2,129) (1,226) (290)
Accounts payable and accrued liabilities (2,480) (500) 1,331
Income taxes payable (net) 647 (105) 43
Deferred rent and compensation (234) 698 60
- --------------------------------------------------------------------------------
Cash provided by (used for) operating activities (11,809) (6,865) (1,176)
- --------------------------------------------------------------------------------
Financing activities
Restricted cash 463 (961) (206)
Long term debt 1,313 2,751 2,384
Term bank loan (43) (27) (27)
Obligations under capital lease 1,490 4,771 392
Non-controlling interest 412 98 --
Capital stock issued 80,032 50,028 12,492
- --------------------------------------------------------------------------------
Cash provided by (used for) financing activities 83,667 56,660 15,035
- --------------------------------------------------------------------------------
Investing activities
Capital assets (4,460) (12,782) (10,520)
Assets under capital lease (2,196) (4,480) (391)
Acquisitions (21,561) (21,717) --
Marketable securities (54,234) -- --
Other (742) (224) (707)
- --------------------------------------------------------------------------------
Cash provided by (used for) investing activities (83,193) (39,203) (11,618)
- --------------------------------------------------------------------------------
Increase (decrease) in cash (11,335) 10,592 2,241
Cash and short-term deposits, beginning of year 13,230 2,638 397
- --------------------------------------------------------------------------------
Cash and short-term deposits, end of year $ 1,895 $ 13,230 $ 2,638
================================================================================
46
<PAGE>
TLC THE LASER CENTER INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars, except where noted and all tabular amounts in
thousands)
Nature of Operations
TLC The Laser Center Inc. and its subsidiaries (the "Company") develop and
manage laser vision correction centers in the United States and Canada. Each
center provides excimer laser and other clinical equipment and all related
management and support services to physicians and physician practices performing
excimer laser procedures in the Company's centers.
The Company also owns and manages secondary eye care centers in the United
States. These centers provide all necessary clinical equipment and
infrastructure and provide all related management and support services to
physician practices treating a wide range of vision disorders.
The Company faces a number of risks and uncertainties given the nature of the
industry in which it operates.
The Company's profitability is dependent upon broad acceptance in the United
States and Canada of laser vision correction as an alternative to existing
methods of treating refractive disorders. Broad market acceptance is dependent
on many factors including cost, the lack of long term follow up data and the
resulting concerns relating to safety and effectiveness, and future regulatory
developments.
The industry in which the Company operates is subject to extensive federal,
state and local laws, rules and regulations. Many of these laws and regulations
are ambiguous in nature and have not been definitively interpreted by courts and
regulatory authorities. Moreover, they vary from jurisdiction to jurisdiction.
Accordingly, the Company may not always be able to predict clearly how such laws
and regulations will be interpreted or applied and some of the Company's
activities could be challenged. In addition, there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly in the future.
Most States in the United States prohibit the Company from practicing medicine
or employing physicians to practice medicine on the Company's behalf. Because
the Company does not practice medicine, its activities are limited to owning and
managing refractive centers and secondary care centers and affiliating with
health care providers to render medical services at the Company's centers. As a
result, the Company is highly dependent on its affiliated doctors.
The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. Although the Company does not engage in
the practice of medicine, there can be no assurance that claims relating to
services provided at the Company's centers will not be asserted against the
Company. The Company currently maintains malpractice insurance that it believes
to be adequate both as to risks and amounts. In addition, the doctors providing
medical services at the Company's centers are required to maintain insurance.
The Company's revenues from managing secondary care centers are derived from
fees paid by or on behalf of patients to the practices affiliated with the
Company. The Company's profitability could be affected by government and private
third-party payors seeking to contain healthcare costs by reducing reimbursement
rates, lowering utilization rates and negotiating reduced payment schedules with
providers of vision care.
1. Accounting Policies
These consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in Canada, conform in all material
respects with accounting principles generally accepted in the United States,
except as explained in note 17.
Basis of Presentation
These consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries, partnerships and other entities in which the
Company has more than a 50% ownership interest and exercises control. The
ownership interests of other parties in less than wholly owned consolidated
subsidiaries, partnerships and other entities are presented as non-controlling
interests. All significant intercompany transactions and balances have been
eliminated in consolidation.
47
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TLC THE LASER CENTER INC.
The Company does not have an ownership interest in, nor does it exercise control
over, the physician practices under its management. Accordingly, the Company
does not consolidate physician practices under its management.
Reporting Currency
Historically, the Company's consolidated financial statements have been
expressed in Canadian dollars. As a result of increased business activity in the
United States ("U.S.") resulting principally from recent U.S. acquisitions, the
opening of new centers in the U.S. and the Company's growing U.S. shareholder
base, the U.S. dollar has become the unit of measure of the large majority of
the Company's operations. Accordingly, the U.S. dollar has been adopted as the
Company's reporting currency effective May 31, 1998. The consolidated financial
statements and the notes thereto have been restated in U.S. dollars for all
periods presented, in accordance with Canadian generally accepted accounting
principles, using the May 31, 1998 exchange rate of Canadian $1.4570 per U.S.
$1.00.
For periods up to May 31, 1998, the U.S. dollar denominated assets and
liabilities of the Company's Canadian operations and its integrated U.S.
operations were translated into Canadian dollars at exchange rates prevailing at
the balance sheet date for monetary items and at exchange rates prevailing at
the transaction dates for non-monetary items. U.S. dollar denominated income and
expenses were translated into Canadian dollars at average exchange rates
prevailing during the year with the exception of depreciation and amortization,
which was translated at historical exchange rates. Exchange gains and losses
were included in earnings, except for unrealized gains and losses on translation
of U.S. dollar denominated debt which were deferred and amortized over the
remaining term of the related obligation. The Canadian dollar consolidated
financial statement amounts so derived have been restated in U.S. dollars using
the May 31, 1998 exchange rate described above.
For periods after May 31, 1998, the unit of measure of the parent holding
company will be the U.S. dollar. In addition, the Company's Canadian operations
are considered integrated and will be translated into U.S. dollars using the
temporal method. Accordingly, the assets and liabilities of the Company's
Canadian operations will be translated into U.S. dollars at exchange rates
prevailing at the balance sheet date for monetary items and at exchange rates
prevailing at the transaction dates for non-monetary items. Income and expenses
will be translated into U.S. dollars at average exchange rates prevailing during
the year with the exception of depreciation and amortization, which will be
translated at historical exchange rates. Exchange gains and losses will be
included in earnings, except for unrealized gains and losses on translation of
Canadian dollar denominated debt which will be deferred and amortized over the
remaining term of the related obligation.
Capital Assets and Assets Under Capital Lease
Capital assets and assets under capital lease are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization is
provided at rates intended to write off the assets over their productive lives
as follows:
Computer equipment and software - straight line over three years
Furniture, fixtures and equipment - 20% diminishing balance
Laser equipment - 20% diminishing balance
Leasehold improvements - straight line over the initial term of the
lease
Medical equipment - 20% diminishing balance
Vehicles - 30% diminishing balance
For assets acquired or brought into use during the year, depreciation and
amortization is calculated at half the normal rate.
Intangible Assets and Other
The practice management agreements represent the cost of obtaining the exclusive
right to manage secondary care centers in affiliation with the related physician
group during the term of the agreements. Practice management agreements are
amortized using the straight line method over fifteen years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired, and is being amortized on a straight line basis over 15
years. On an ongoing basis, management reviews the valuation and amortization of
goodwill, taking into consideration any
48
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TLC THE LASER CENTER INC.
events and circumstances, which might have impaired the carrying value. Goodwill
is written down to net recoverable value when declines in value are considered
to be other than temporary based upon expected undiscounted cash flows of the
related acquired business.
Start-up and Development Expenses
Start-up and development expenses represent costs incurred to research and
develop potential businesses in North America, including salaries and benefits,
professional fees, advertising, promotion and travel, and costs incurred by
businesses during the period prior to commencement of commercial operations.
Start-up and development expenses are expensed as incurred.
Revenues
The Company includes in income only those operating revenues pertaining to owned
laser centers and management fees earned from managing refractive and secondary
care practices. Under the terms of the practice management agreements, the
Company provides management, marketing and administrative services to refractive
and secondary care practices in return for management fees.
Management service revenue is equal to the net revenue of the physician
practice, less amounts retained by the physician groups. Net revenue of the
physician practice is recorded by the physician groups at established rates
reduced by provision for doubtful accounts, contractual adjustments and amounts
retained by physician groups. Contractual adjustments arise due to the terms of
certain reimbursement and managed care contracts. Such adjustments represent the
difference between the charges at established rates and estimated recoverable
amounts and are recognized in the period the services are rendered. Any
differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized as contractual
adjustments in the year final settlements are determined.
Deferred Income Taxes
The Company follows the tax allocation method of providing for income taxes.
Under this method, deferred income taxes result from the recording of certain
income or expenses for accounting purposes in periods other than those in which
they are reported for income tax purposes.
Cash and Short-term Deposits
Cash and short-term deposits include short-term investments with original
maturities of up to 90 days.
Marketable Securities
Marketable securities, which consist principally of corporate bonds, are carried
at the lower of cost and market.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. These estimates are reviewed
periodically, and, as adjustments become necessary, they are reported in
earnings in the period in which they become known.
49
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TLC THE LASER CENTER INC.
2. Cash
1998 1997
- --------------------------------------------------------------------------------
Cash and short-term deposits $ 1,895 $ 2,935
Funds held in escrow on issuance of special warrants
(Note 9) -- 10,295
- --------------------------------------------------------------------------------
$ 1,895 $13,230
================================================================================
The Company has a banking facility of approximately CDN$1,700,000 available for
posting letters of guarantee, under terms whereby the Company must maintain a
similar minimum amount in its bank account. $692,000 of this facility has been
utilized at May 31,1998 ($1,167,000 at May 31, 1997). In addition, the Company
has posted cash collateral deposits in respect of certain lease commitments,
such deposits amount to $1,394,000 at May 31, 1998 (nil at May 31, 1997). These
restricted cash amounts have been excluded from cash and short-term deposits.
3. Intangibles and Other Assets
1998 1997
- --------------------------------------------------------------------------------
Goodwill (net of amortization of $2,164,000
(1997 - $470,000)) $32,401 $23,611
Practice management agreements (net of amortization of
$2,174,000 (1997 - $511,000)) 14,788 6,527
Other 1,663 982
- --------------------------------------------------------------------------------
$48,852 $31,120
================================================================================
4. Capital Assets
1998 1997
- --------------------------------------------------------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
- --------------------------------------------------------------------------------
Computer equipment and software $ 6,356 $ 2,766 $ 725 $ 128
Deposit on lasers -- -- 2,782 --
Furniture, fixtures and equipment 5,678 1,628 2,534 555
Laser equipment 8,640 2,837 4,596 796
Leasehold Improvements 14,911 3,380 4,769 652
Medical equipment 7,762 1,943 3,579 453
Vehicles and other 311 55 428 16
- --------------------------------------------------------------------------------
43,658 12,609 19,413 2,600
Less: accumulated depreciation 12,609 2,600
- --------------------------------------------------------------------------------
Net book value $31,049 $16,813
================================================================================
5. Assets Under Capital Lease
1998 1997
- --------------------------------------------------------------------------------
Computer equipment $ 177 $ 25
Furniture, fixtures and equipment 393 142
Laser equipment 12,082 7,146
Medical equipment 2,325 623
- --------------------------------------------------------------------------------
14,977 7,936
Accumulated depreciation 3,795 926
- --------------------------------------------------------------------------------
$11,182 $7,010
================================================================================
50
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TLC THE LASER CENTER INC.
6. Long Term Debt
1998 1997
- --------------------------------------------------------------------------------
Participating Loans
Interest at 18%, due December 1999 to
February 2001, collateralized by equipment $ 3,903 $4,618
Term bank loans
Interest from LIBOR plus 2.25% to 8.50%, due
December 2000 to February 2003,
collateralized by equipment 7,336 1,172
- --------------------------------------------------------------------------------
11,239 5,790
Less current portion 2,861 1,242
- --------------------------------------------------------------------------------
$ 8,378 $4,548
================================================================================
The participating loan agreements provided for additional monthly payments on
principal based on a percentage of net revenues in excess of the minimum monthly
payments. Such additional monthly payments ceased once the lender received a
specified implicit rate of return. During fiscal 1998, the participating loan
terms were amended to increase the minimum monthly payments to a level based on
the original specified implicit rate of return and to eliminate the additional
monthly payments based on a percentage of revenue.
The majority of long-term debt is denominated in U.S. currency.
Aggregate minimum repayments of principal for each of the next five years are as
follows:
1999 $2,861
2000 $2,918
2001 $2,920
2002 $1,952
2003 $ 588
7. Obligations Under Capital Leases
The leases expire between 1999 and 2003 and include imputed interest at rates
ranging from 5% to 16%. The majority of capital leases are denominated in U.S.
currency. The capitalized lease obligations represent the present value of
future minimum annual lease payments as follows:
1998 1997
- --------------------------------------------------------------------------------
1998 $ -- $ 2,510
1999 5,946 2,574
2000 5,821 2,395
2001 5,009 1,757
2002 4,002 1,170
2003 809 262
- --------------------------------------------------------------------------------
21,587 10,668
Less interest portion (8,103) (2,666)
- --------------------------------------------------------------------------------
13,484 8,002
Less current portion 3,951 1,631
- --------------------------------------------------------------------------------
$ 9,533 $ 6,371
================================================================================
8. Deferred Rent and Compensation
Deferred rent represents the benefit of operating lease inducements which
benefits are being amortized on a straight line basis over the related lease
terms. Deferred compensation represents a plan to compensate certain key
managerial executives and was included as part of the acquisition of 20/20 Laser
Centers, Inc. ("20/20") (Note 15). The plan vests 100% on the earlier of
February 15, 1999 or termination of employment, as defined. $320,000 (May 31,
1997 - $577,000) is accrued on potential deferred compensation of $320,000 (May
31, 1997 - $809,000).
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TLC THE LASER CENTER INC.
9. Capital Stock
1998 1997
- --------------------------------------------------------------------------------
Common -- authorized, unlimited number of shares
-- Issued: 33,667,843 (1997 - 25,189,707) shares $143,554 $53,858
-- Special warrants -- 9,664
- --------------------------------------------------------------------------------
$143,554 63,522
================================================================================
Since May 31, 1995, the following additional shares and options were issued:
<TABLE>
<CAPTION>
Common Share Special Warrants
------------ ----------------
# of Shares $ Value # of warrants $ Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 31, 1995 10,917 1,002 -- --
Private offering, net of issue costs 502 861
Shares issued as part of Employee Stock Plan 479 --
Initial Public Offering ("IPO"), net of issue 3,200 7,414
costs
Shares issued to acquire TLC Northwest Eye 1,389 3,918
Exercise of agent's compensation warrants
related to the IPO 31 97
Shares issued as over-allotment options to
an agent of the IPO 71 202 -- --
- ----------------------------------------------------------------------------------------------
May 31, 1996 16,589 13,494 -- --
Exercise of agent's compensation warrants
Related to the IPO 158 486
Public offering, net of issue costs 4,025 18,015
Shares issued to acquire 20/20 4,364 21,717
Exercise of stock options 43 86
Issuance of special warrants, net of issue costs 1,818 $ 9,664
Other 10 60 -- --
- ----------------------------------------------------------------------------------------------
May 31, 1997 25,189 53,858 1,818 9,664
Conversion of special warrants 1,818 9,664 (1,818) (9,664)
Additional special warrant issue costs (40)
Shares issued for acquisitions (1) (Note 15) 1,604 16,417
Exercise of agent's compensation warrants
related to the IPO 138 447
Exercise of stock options 179 786
Public offering, net of issue costs 4,740 62,422 -- --
- ----------------------------------------------------------------------------------------------
May 31, 1998 33,668 $143,554 -- --
==============================================================================================
</TABLE>
(1) This includes approximately 421,804 shares issued in connection with the
acquisition of The Vision Source, Inc. The Common Shares issued are held in
escrow. Release of approximately 210,902 of these shares is subject to an earn
out formula. These shares represent contingent purchase consideration and,
therefore, they will not be valued until completion of the earn out period and
the outcome of the contingency is known. The remaining approximately 210,902
shares will be released from escrow within 15 months from the issue date (see
Note 15).
At May 31, 1998, the Company has reserved 4,116,000 Common Shares for issuance
under its stock option plan. Options granted have terms ranging from 5 to 8
years. Vesting provisions on options granted to date include options that vested
immediately, options that vest in equal amounts annually over the first four
years of the option term and options that vest entirely on the first anniversary
from the grant date. Exercise prices, which are denominated in Canadian dollars,
for options outstanding as of May 31, 1998 range from CDN$2.50 to CDN$17.90
(US$1.72 to US$12.29).
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TLC THE LASER CENTER INC.
Weighted Weighted
Average Average
Strike Price Strike Price
Options Per Share Per Share
- --------------------------------------------------------------------------------
May 31, 1995 20 C$1.50 US$1.03
Granted 2,225 3.39 2.33
Exercised (479) 4.11 2.82
- --------------------------------------------------------------------------------
May 31, 1996 1,766 C$3.19 US$2.19
Granted 320 7.25 4.98
Exercised (20) 1.50 1.03
(23) 4.11 2.82
Forfeited (74) 6.65 4.56
- --------------------------------------------------------------------------------
May 31, 1997 1,969 C$3.73 US$2.56
Granted 518 11.79 8.09
Exercised (71) 6.12 4.20
- --------------------------------------------------------------------------------
May 31, 1998 2,416 C$5.39 US$3.70
================================================================================
Exercisable at May 31, 1998 1,954 C$3.91 US$2.68
The Company also has the following stock options outstanding at May 31, 1998:
o options for various officers of 20/20 with outstanding options to acquire
20/20 shares. The Company has agreed that, immediately upon exercise of
the 20/20 options, the Company will issue Common Shares in exchange for
the 20/20 shares acquired on exercise, on the basis of 0.37517 Common
Shares for every 20/20 share as follows:
o 60,869 (May 31, 1997--167,746) Common Shares at $4.44 per TLC Common Share
o 6,296 Common Shares at $5.33 per TLC Common Share
o 7,503 Common Shares at $8.00 per TLC Common Share
all expiring on March 1, 1999.
During fiscal 1998, 20/20 options were exercised and the resulting 20/20
shares issued were exchanged for 106,877 Common Shares at $4.44 per share.
o 20/20 options were granted to third parties for services rendered to 20/20
at $0.01 per share expiring March 1, 1999. The Company will issue Common
Shares in exchange for the 20/20 shares acquired on exercise, on the basis
of 0.37517 Common Shares for every 20/20 share for a total of 202,592
Common Shares.
10. Interest and Other and Depreciation and Amortization Expenses
1998 1997 1996
- --------------------------------------------------------------------------------
Interest and other
Interest on long-term debt $ 1,200 $ 655 $ 74
Interest on capital leases 1,177 266 61
Interest and bank charges, net (351) (5) 82
Foreign exchange losses (gains) (1,334) (164) 458
- --------------------------------------------------------------------------------
$ 692 $ 752 $675
================================================================================
Depreciation and amortization
Capital assets $ 4,394 $ 1,925 $426
Assets under capital lease 1,709 598 134
Goodwill 1,694 470 --
Practice management agreements 1,663 470 41
- --------------------------------------------------------------------------------
$ 9,460 $ 3,463 $601
================================================================================
53
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TLC THE LASER CENTER INC.
11. Income Tax Losses
As at May 31,1998, the Company and its subsidiaries have non-capital losses
carried forward for income tax purposes of approximately $64,957,000, including
fiscal 1998 losses of approximately $4,677,000, which are available to reduce
taxable income of future years.
The Canadian losses can only be utilized by the source company whereas the
United States losses are utilized on a United States consolidated basis. The
Canadian losses of $10,059,000 expire between 2001 and 2005. The United States
losses of $54,898,000 expire between 2008 and 2013. Included in the Canadian
losses are $8,920,000 of losses and in the United States losses are $44,955,000
of losses from the acquisitions of 20/20 and BeaconEye, of which the
availability and timing of utilization may be restricted. The differences
between the provision for income taxes and the amount computed by applying the
statutory Canadian income tax rate to loss before income taxes and
non-controlling interest were as follows:
1998
- --------------------------------------------------------------------------------
Income tax recovery based on the Canadian
statutory income tax rate of 43% $(3,896)
- --Current year losses not benefited 2,196
- --Non-deductible start-up costs net of amortization 479
- --Non-deductible depreciation and amortization 1,484
- --Non-deductible allowances 376
- --Cash vs. accrual tax deductions 1,545
- --Utilization of prior year losses (1,225)
- --State income taxes 131
- --Large corporation tax 69
- --Other (88)
- --------------------------------------------------------------------------------
Income tax provision $ 1,071
================================================================================
The income tax provision is as follows:
1998
- --------------------------------------------------------------------------------
Current
Canada $ 940
United States - federal --
United States - state 131
- --------------------------------------------------------------------------------
$1,071
================================================================================
12. Commitments
At May 31, 1998, the Company has entered into operating leases for rental office
space and equipment, which require future minimum lease payments aggregating
$22,810,000. Future minimum lease payments over the next five years are as
follows:
1999 $5,509
2000 $4,915
2001 $4,617
2002 $4,172
2003 $3,597
One of the Company's subsidiaries, together with other investors, have jointly
and severally guaranteed the obligations of an equity investee. Total
liabilities of the equity investee under guarantee amount to approximately
$2,900,000 at May 31, 1998.
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TLC THE LASER CENTER INC.
13. Segmented Information The Company's business segments are as follows:
<TABLE>
<CAPTION>
Secondary 1998
1998 Refractive Care Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned and
managed clinics $ 65,297 $ 23,869 $ 1,413 $ 90,579
Amounts retained by doctor group (10,566) (4,711) (11) (15,288)
Contractual allowances and adjustments (3,652) (12,517) -- (16,169)
- -------------------------------------------------------------------------------------------
Net revenues 51,079 6,641 1,402 59,122
Doctor compensation 5,242 -- -- 5,242
- -------------------------------------------------------------------------------------------
Net revenue after doctor compensation $ 45,837 $ 6,641 $ 1,402 $ 53,880
- -------------------------------------------------------------------------------------------
Expenses
Operating 41,620 6,294 1,607 49,521
Interest and other 416 87 189 692
Depreciation and amortization 7,107 2,185 168 9,460
- -------------------------------------------------------------------------------------------
49,143 8,566 1,964 59,673
- -------------------------------------------------------------------------------------------
Income (loss) from operations $ (3,306) $ (1,925) (562) $ (5,793)
===========================================================================================
Total assets $ 137,746 $ 23,887 $ 2,599 $ 164,232
===========================================================================================
<CAPTION>
Secondary 1997
1997 Refractive Care Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned
and managed clinics $ 18,548 $ 14,294 -- $ 32,842
Amounts retained by doctor group (1,452) (6,251) -- (7,703)
Contractual allowances and adjustments (1,966) (3,061) -- (5,027)
- -------------------------------------------------------------------------------------------
Net revenues 15,130 4,982 -- 20,112
Doctor compensation 1,476 -- -- 1,476
- -------------------------------------------------------------------------------------------
Net revenue after doctor compensation 13,654 4,982 -- 18,636
- -------------------------------------------------------------------------------------------
Expenses
Operating 15,637 3,961 -- 19,598
Interest and other 637 115 -- 752
Depreciation and amortization 2,728 735 -- 3,463
- -------------------------------------------------------------------------------------------
19,002 4,811 -- 23,813
- -------------------------------------------------------------------------------------------
Income (loss) from operations $ (5,348) $ 171 -- $ (5,177)
===========================================================================================
Total assets $ 65,108 $ 8,676 -- $ 73,784
===========================================================================================
<CAPTION>
Secondary 1996
1996 Refractive Care Other Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned
and managed clinics $ 5,474 $ 5,512 -- $ 10,986
Amounts retained by doctor group -- (2,307) -- (2,307)
Contractual allowances and adjustments -- (2,253) -- (2,253)
- -------------------------------------------------------------------------------------------
Net revenues 5,474 952 -- 6,426
Doctor compensation 953 -- -- 953
- -------------------------------------------------------------------------------------------
Net revenue after doctor compensation 4,521 952 -- 5,473
- -------------------------------------------------------------------------------------------
Expenses
Operating 4,082 527 -- 4,609
Interest and other 653 22 -- 675
Depreciation and amortization 480 121 -- 601
- -------------------------------------------------------------------------------------------
5,215 670 -- 5,885
- -------------------------------------------------------------------------------------------
Income (loss) from operations $ (694) $ 282 -- $ (412)
===========================================================================================
Total assets $ 7,723 $ 9,096 -- $ 16,819
===========================================================================================
</TABLE>
55
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TLC THE LASER CENTER INC.
13. Segmented Information (continues) The Company's geographic segments are as
follows:
<TABLE>
<CAPTION>
United 1998
1998 Canada States Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics $ 12,527 $ 78,052 $ 90,579
Amounts retained by doctor group (653) (14,635) (15,288)
Contractual allowances and adjustments (699) (15,470) (16,169)
- --------------------------------------------------------------------------------------
Net revenues 11,175 47,947 59,122
Doctor compensation 1,475 3,767 5,242
- --------------------------------------------------------------------------------------
Net revenue after doctor compensation $ 9,700 $ 44,180 $ 53,880
- --------------------------------------------------------------------------------------
Expenses
Operating 11,206 38,315 49,521
Interest and other (1,646) 2,338 692
Depreciation and amortization 1,321 8,139 9,460
- --------------------------------------------------------------------------------------
10,881 48,792 59,673
- --------------------------------------------------------------------------------------
Income (loss) from operations $ (1,181) $ (4,612) $ (5,793)
======================================================================================
Total assets $ 87,948 $ 76,284 $ 164,232
======================================================================================
Capital expenditures $ 717 $ 5,939 $ 6,656
======================================================================================
<CAPTION>
United 1997
1997 Canada States Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics $ 7,745 $ 25,097 $ 32,842
Amounts retained by doctor group -- (7,703) (7,703)
Contractual allowances and adjustments -- (5,027) (5,027)
- --------------------------------------------------------------------------------------
Net revenues 7,745 12,367 20,112
Doctor compensation 895 581 1,476
- --------------------------------------------------------------------------------------
Net revenue after doctor compensation $ 6,850 $ 11,786 $ 18,636
- --------------------------------------------------------------------------------------
Expenses
Operating 9,350 10,248 19,598
Interest and other (213) 965 752
Depreciation and amortization 480 2,983 3,463
- --------------------------------------------------------------------------------------
9,617 14,196 23,813
- --------------------------------------------------------------------------------------
Income (loss) from operations $ (2,767) $ (2,410) $ (5,177)
======================================================================================
Total assets $ 16,272 $ 57,510 $ 73,784
======================================================================================
Capital expenditures $ 846 $ 16,416 $ 17,262
======================================================================================
<CAPTION>
United 1996
1996 Canada States Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics $ 5,002 $ 5,984 $ 10,986
Amounts retained by doctor group -- (2,307) (2,307)
Contractual allowances and adjustments -- (2,253) (2,253)
- --------------------------------------------------------------------------------------
Net revenues 5,002 1,424 6,426
Doctor compensation 953 -- 953
- --------------------------------------------------------------------------------------
Net revenue after doctor compensation $ 4,049 $ 1,424 $ 5,473
- --------------------------------------------------------------------------------------
Expenses
Operating 2,943 1,666 4,609
Interest and other 609 66 675
Depreciation and amortization 367 234 601
- --------------------------------------------------------------------------------------
3,919 1,966 5,885
- --------------------------------------------------------------------------------------
Income (loss) from operations $ 130 $ (542) $ (412)
======================================================================================
Total assets $ 4,696 $ 12,123 $ 16,819
======================================================================================
Capital expenditures $ 758 $ 10,153 $ 10,911
======================================================================================
</TABLE>
56
<PAGE>
TLC THE LASER CENTER INC.
14. Financial Instruments
Fair Value
The carrying amounts of cash and short-term deposits, accounts receivable,
income taxes recoverable, accounts payable and accrued liabilities and income
taxes payable approximates their fair values because of the short-term
maturities of these items.
Given the large number of individual long-term debt instruments and capital
lease obligations held by the Company, it is not practicable within constraints
of timeliness and cost to determine fair value. However, the Company expects
that if it were able to renegotiate such instruments at the current market rates
available to the Company, it would obtain more favorable terms given the
Company's growth and current financial position.
The fair values of the Company's marketable securities are based on quotes from
brokers.
The Company's marketable securities portfolio consists substantially of
long-term corporate bonds. The bonds were purchased with the proceeds from the
Company's April 1998 share offering and at May 31, 1998 the bonds had remaining
terms to maturity not exceeding six months with a substantial majority of the
bonds having terms to maturity of less than one month. It is the Company's
intention to hold the bonds to their maturity.
1998 1997
- --------------------------------------------------------------------------------
Fair values
Marketable securities $54,641 $ --
Risk Management
The Company is exposed to credit risk on accounts receivable from its customers.
In order to reduce its credit risk, the Company has adopted credit policies,
which include the analysis of the financial position of its customers and the
regular review of credit limits. The Company does not have a significant
exposure to any individual customer, except for amounts due from those
refractive and secondary eye practices which it manages and which are
collateralized by the practice's patient receivables. As at May 31, 1998, there
was one individual amount in excess of 10% of total accounts receivable which
amounted to $3,099,000. The accounts receivable from nine other practices under
management aggregated to $3,435,000 at May 31, 1998, which represents 34% of
total accounts receivable.
Cash accounts at the Canadian banks are insured by Canadian Depositary Insurance
Corporation for up to C$60,000. In the United States, the Federal Depositary
Insurance Corporation insures cash balances up to $100,000. At May 31, 1998,
bank deposits exceeded insured limits by $3,475,275.
The Company operates internationally and is therefore exposed to market risks
related to foreign currency fluctuations. As well, there is cash flow exposure
to interest rate fluctuations on debt carrying floating rates of interest.
57
<PAGE>
TLC THE LASER CENTER INC.
15. Acquisitions
BeaconEye Inc.
On April 9, 1998, the Company, through a take-over bid circular, acquired 97% of
the common shares of BeaconEye Inc. ("BeaconEye") and the remaining 3% was
acquired by May 27, 1998. The acquisition was financed through the issuance of
872,292 Common Shares.
The Company's investment in BeaconEye has been accounted for by the purchase
method and the results of operations have been consolidated from April 16, 1998.
The total cost of the acquisition was allocated to the net assets acquired on
the basis of their fair values as follows:
Current assets $ 1,200
Restricted cash 1,380
Capital assets and assets under capital lease 15,844
Goodwill 9,011
Current liabilities assumed (6,141)
Long term debt and obligations under capital lease (5,037)
- --------------------------------------------------------------------------------
$16,257
================================================================================
Funded by
Issuance of Common Shares $11,692
Funding of BeaconEye obligations and restructuring
costs through April 16, 1998 4,483
Acquisition costs 82
- --------------------------------------------------------------------------------
$16,257
================================================================================
Wisconsin
In the fourth quarter of 1998, the Company formed a new wholly-owned subsidiary
in the State of Wisconsin (the "subsidiary"). The subsidiary entered into a
practice management agreement with a local doctor group, and intends to jointly
develop a medical practice to be owned by the local doctor group and managed by
the subsidiary. In consideration for entering into the practice management
agreement, the Company issued the consideration described below which was
allocated to the net assets acquired as follows:
Practice management agreement $2,881
- --------------------------------------------------------------------------------
Funded by
Issuance of Common Shares $2,581
Cash 300
- --------------------------------------------------------------------------------
$2,881
================================================================================
58
<PAGE>
TLC THE LASER CENTER INC.
Michigan
On February 1, 1998, the Company entered into an agreement (the "Venture") in
the State of Michigan. The Venture, called TLC Michigan, L.L.C., is owned 50.1%
by the Company and 49.9% by a group of ophthalmologists. The Venture owns
secondary care centers throughout Michigan, and, through subsidiaries, a
refractive laser center and an 80% interest in a cosmetic laser center in the
Detroit area.
The Company's investment in the Venture has been accounted for by the purchase
method and the results of operations have been consolidated from February 1,
1998.
The total cost of the acquisition was allocated to the net assets acquired on
the basis of their fair values as follows:
Current assets (including cash of $500,000) $ 552
Capital assets 567
Practice management agreement 6,403
Investment in subsidiaries 754
Note receivable 4,682
Other assets 146
Current liabilities including current portion of long term debt (298)
Long term debt (332)
Minority interest (5,912)
- --------------------------------------------------------------------------------
$ 6,562
================================================================================
Funded by
Issuance of Common Shares $ 626
Contribution of cash 500
Contribution of assets 754
Note payable to the Venture 4,682
- --------------------------------------------------------------------------------
$ 6,562
================================================================================
The Vision Source, Inc.
On July 23, 1997, the Company acquired 100% of the common shares of The Vision
Source, Inc. The acquisition was financed through the issuance of 421,804 Common
Shares (see Note 9). The purchase price of $1,303,000 was allocated primarily to
goodwill. The Common Shares issued are held in escrow. Release of 210,902 of
these shares is subject to an earn out formula. These shares represent
contingent purchase consideration and, therefore, will not be valued until
completion of the earn out period and the outcome of the contingency is known.
The remaining 210,902 shares will be released from escrow within 15 months from
the issue date.
20/20 Laser Centers, Inc.
On February 10, 1997, the Company acquired 99.9% of the common shares of 20/20.
The acquisition was financed through the issuance of Common Shares (see Note 9).
The results of operations of 20/20 have been consolidated from the date of
acquisition.
The total cost of the acquisition, using the purchase method of accounting, was
allocated to the net assets acquired on the basis of their book values and then
adjusted for fair values as follows:
Book values
Current assets $ 1,663
Capital assets 1,954
Assets under capital lease 3,555
Other assets 268
Current liabilities (5,443)
Obligations under capital lease (2,380)
Other liabilities (604)
Non-controlling interest (220)
- --------------------------------------------------------------------------------
(1,207)
Fair value adjustments
Assets under capital lease (1,146)
Goodwill 24,070
- --------------------------------------------------------------------------------
$ 21,717
================================================================================
59
<PAGE>
TLC THE LASER CENTER INC.
16. Comparative Figures
Certain comparative figures have been reclassified to conform with the current
year's presentation.
17. Difference Between Canadian and United States Generally Accepted Accounting
Principles
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted ("GAAP") in Canada. The most
significant differences between Canadian and United States GAAP, insofar as they
affect the Company's consolidated financial statements, are described below.
The following table reconciles results as reported under Canadian GAAP with
those that would have been reported under U.S. GAAP:
1998 1997 1996
- --------------------------------------------------------------------------------
Net loss for the year -- Canadian GAAP $ (9,538) $(9,574) $(1,979)
Deferred foreign exchange losses (i) (742) -- --
Differences in accounting for stock-based
compensation (APB 25) (ii) -- -- (1,350)
- --------------------------------------------------------------------------------
Net loss for the year -- U.S. GAAP $(10,280) $(9,574) $(3,329)
================================================================================
Loss per share -- U.S. GAAP (iii) $ (0.37) $ (0.47) $ (0.26)
================================================================================
(i) The gain or loss on translation of foreign currency denominated long-term
monetary items is deferred and amortized over the remaining life of the item
under Canadian GAAP. Under U.S. GAAP, the gain or loss on translation is
included in income when it arises.
(ii) The APB25 adjustment affects the U.S. GAAP balance sheet resulting in an
increase in capital stock and an increase in deficit.
(iii) SFAS No. 128, "Earnings Per Share", is effective for fiscal periods ending
after December 15, 1997. This statement has been retroactively applied to all
periods presented and it had no significant effect on the reported U.S. GAAP
earnings per share data for the years ended May 31, 1998, 1997, and 1996.
Shareholders' equity under U.S. GAAP would have been $121,133,000 at May 31,
1998 ($51,381,000 at May 31, 1997).
Additional disclosures required related to the reconciliation of the
consolidated financial statements from Canadian to U.S. GAAP are as follows:
(a) Statement of Changes in Financial Position
The Company's fiscal 1996 acquisition of TLC Northwest Eye Inc., financed in
part through the issuance of Common Shares, would be considered a non-cash
transaction under U.S. GAAP resulting in a reduction in cash provided by
financing activities of $3,918,000 and a reduction in cash used in investing
activities of $3,918,000.
The Company's fiscal 1997 acquisition of 20/20, financed through the issuance of
Common Shares, would be considered a non-cash transaction under U.S. GAAP
resulting in a reduction in cash provided by financing activities of $21,717,000
and a reduction in cash used in investing activities of $21,717,000.
The portion of the purchase prices financed through the issuance of Common
Shares for the Company's fiscal 1998 acquisitions of The Vision Source, Inc.,
the Michigan Venture, the Wisconsin Venture and BeaconEye would be considered
non-cash transactions under U.S. GAAP resulting in a reduction in cash provided
by financing activities of $16,417,000 and a reduction in cash used in investing
activities of $16,417,000.
The Company has acquired capital assets financed through capital lease
obligations which would be considered non-cash transactions under U.S. GAAP
resulting in a reduction in cash provided by financing activities and a
corresponding reduction in cash used in investing activities of the following
amounts:
Year ended May 31, 1998 $2,196
Year ended May 31, 1997 4,480
Year ended May 31, 1996 391
Interest paid in cash is not substantially different than interest expense in
all periods presented. Income taxes paid in cash were $458,000 in fiscal 1998.
Amounts paid in cash in prior years were not significant.
60
<PAGE>
TLC THE LASER CENTER INC.
(b) Stock-based Compensation
SFAS No. 123, "Accounting for Stock-based Compensation", became effective for
the Company's Fiscal 1997 year. The Company continues to account for its
outstanding fixed price stock options under Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees", which results in the recording
of no compensation expense in the Company's circumstances. Had compensation
expense for stock options granted been determined based upon fair value at the
grant date consistent with the methodology described under SFAS No. 123, the pro
forma effects of fiscal 1996, 1997 and 1998 grants on the net loss and loss per
share amounts for the years ended May 31, 1998, 1997 and 1996 would have been as
follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Net loss under U.S. GAAP $(10,280) $ (9,574) $(3,329)
Adjustments for SFAS 123 (1,195) (662) (875)
- --------------------------------------------------------------------------------
Pro forma net loss under U.S. GAAP $(11,475) $(10,236) $(4,204)
================================================================================
Pro forma loss per share under U.S. GAAP $ (0.41) $ (0.49) $ (0.33)
================================================================================
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 5%; dividend yield of 0%, volatility of
the expected market price of the Company's Common Shares of 0.60; and a weighted
average expected option life of 2.5 years. The Black-Scholes option valuation
model was developed for use in estimating fair value of traded options which
have no vesting restrictions and are fully transferable. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the above
pro forma adjustments for SFAS 123 are not necessarily a reliable single measure
of the fair value of the Company's employee stock options.
(c) Income Taxes
Deferred income taxes under U.S. GAAP consist of the following temporary
differences:
1998
- --------------------------------------------------------------------------------
Assets:
Tax benefit of loss carry forwards
Pre-acquisition $ 22,132
Post-acquisition 4,446
Start-up costs 1,180
Valuation allowance (27,758)
- --------------------------------------------------------------------------------
$ --
================================================================================
Liabilities:
Practice management agreements (1) $ 7,728
Other 118
- --------------------------------------------------------------------------------
$ 7,846
================================================================================
(1) Under U.S GAAP, deferred taxes are recorded based on the difference between
the values assigned for accounting purposes and the tax values of individual
assets acquired in business combinations, except for nondeductible goodwill. The
only such significant differences with respect to the Company are the practice
management agreement assets acquired through the TLC Northwest Eye Inc.
acquisition in fiscal 1996, and the Michigan Venture and Wisconsin venture
acquisitions in fiscal 1998. Under U.S. GAAP, this deferred tax liability is
matched by an equal increase in the value assigned to the practice management
agreement assets. In the statement of income, the resulting increased annual
asset amortization is offset by an equal deferred tax recovery with no effect on
the net loss.
(d) Pro Forma Effects of Acquisitions
Under APB 16, the Company is required to disclose the following information
relating to its acquisitions:
If 20/20 had been acquired on June 1, 1995, the pro forma effects on the
statements of income for the fiscal periods ended May 31, 1996 and 1997 would
have been additional net revenues of $2,164,000 and $3,288,000 and additional
net losses of $5,616,000 and $5,344,000 respectively, based on unaudited 20/20
financial statements for those periods.
61
<PAGE>
TLC THE LASER CENTER INC.
If BeaconEye had been acquired on June 1, 1996, the unaudited pro forma effects
on the statements of income for the fiscal periods ended May 31, 1997 and 1998
would have been additional net revenues of $7,229,000 and $5,979,000 and
additional net losses of $16,995,000 and $16,143,000, respectively.
(e) Reporting Currency
Effective May 31, 1998, the Company adopted the U.S. dollar as its reporting
currency. Prior to this change the Canadian dollar had been used as the
Company's reporting currency. Under Canadian GAAP, the Company's financial
statements for all periods presented through May 31, 1998 have been translated
from Canadian dollars to U.S. dollars using the exchange rate in effect at May
31, 1998. Under U.S. GAAP, the financial statements for periods prior to the
change in reporting currency must be translated to U.S. dollars using the
current rate method, which method uses specific year end or specific annual
average exchange rates as appropriate. The application of the current rate
method to the periods presented did not result in any material differences from
the Canadian GAAP financial statements, and as such, these differences are not
presented in this note.
(f) Other
Under SEC Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards which have not yet been
adopted due to delayed effective dates.
SFAS No. 130, "Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", are effective for the
Company's May 31, 1999 year end. The Company has not yet determined the impact
of these pronouncements on its consolidated financial statements.
The Emerging Issues Task Force has issued EITF Abstract No. 97-2, "Application
of FASB Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, and
APB Opinion No. 16, Business Combinations, to Physician Practice Management
Arrangements", which is effective for the Company's May 31, 1999 year end. This
Abstract addresses, amongst other things, the circumstances under which it is
appropriate to consolidate physician practices managed by the Company. The
Company expects that it will continue to not consolidate physician practices
under its management.
18. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
19. Subsequent Events
LaserSight Incorporated
On June 8, 1998 the Company made a portfolio investment of $8.0 million in cash
through the purchase of 2,000,000 preference shares in LaserSight Incorporated
(LaserSight). These preference shares are convertible to LaserSight I common
shares at $4.00. This investment was made to fund the start up and development
of mobile open access excimer lasers to individual doctors and networks
throughout North America. The companies will focus on providing the best
technology in a cost-effective manner to both urban and rural based ophthalmic
surgeons.
AllSight, Inc.
On June 16, 1998 the Company made a 51% equity investment of $204,000 in cash in
AllSight, Inc., a refractive laser center in the Pittsburgh, PA area.
62
<PAGE>
TLC THE LASER CENTER INC.
Western Oklahoma Eye Center
On June 16, 1998, the Company acquired the operating assets and liabilities of
Western Oklahoma Eye Center in exchange for cash and common shares.
Consideration for this acquisition was $182,000 and $835,000 respectively.
Simultaneous with the acquisition, the Company entered into a long-term practice
management agreement with Dr. John Belardo, P.C.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below in this Item 10, the information required by this Item
10 is incorporated by reference to the Company's definitive proxy statement to
be filed within 120 days after the end of the Company's fiscal year ended May
31, 1998.
Directors and Executive Officers
The following table indicates the names, ages and positions of the Company's
directors and executive officers. There is no family relationship between any of
the officers or directors.
Name Age Position with Company
- ---- --- ---------------------
Elias Vamvakas 39 President, Chief Executive Officer
and Chairman of the Board of
Directors
Dr. Jeffery J. Machat 36 Co-National Medical Director and
Director
Madeline D. Walker 51 Chief Operating Officer
Frances J.K. Brotherhood 50 Executive Vice President, Secondary
Care
Dr. David C. Eldridge 43 Executive Vice President, Clinical
Affairs
Gary F. Jonas 52 Executive Vice President, Strategic
Growth
Peter J. Kastelic 41 Chief Financial Officer and
Treasurer
Ronald J. Kelly 35 Vice President, Acquisitions and
General Counsel
John F. Riegert 68 Secretary and Director
Henry Lynn 47 Executive Vice President,
Information Systems
Howard J. Gourwitz (1)(2)(3) 49 Director
Dr. William David Sullins, Jr.(1)(2)(3) 55 Director
Warren S. Rustand(4)(5) 55 Director
James R. Connacher(1)(3) 61 Director
(1) Member of the Company's Compensation Committee.
(2) Member of the Company's Audit Committee.
(3) Member of the Company's Corporate Governance Committee.
63
<PAGE>
TLC THE LASER CENTER INC.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1998.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1998.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of registrant and its
subsidiaries and report of independent auditors are included in Item 8 hereof.
Report of Independent Auditors.
Consolidated Statements of Income-- Years Ended May 31, 1996, 1997 and 1998.
Consolidated Balance Sheets as of May 31, 1997 and 1998
Consolidated Statements of Deficit -- Years Ended May 31, 1996, 1997 and 1998.
Consolidated Statements of Changes in Financial Position -- Years Ended May 31,
1996, 1997 and 1998.
Notes to Consolidated Financial Statements
(a)(2) Except as provided below, all schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange Commission
either have been included in the Consolidated Financial Statements or are not
required under the related instructions, or are inapplicable and therefore have
been omitted.
None
64
<PAGE>
TLC THE LASER CENTER INC.
(a)(3) The following exhibits are provided with this Form 10-K:
Exhibit Number Description
3.1 Articles of Incorporation
3.2 By-Laws of the Company
4.1 The Company is a party to several agreements defining
the rights of holders of long-term debt. No such
instrument authorizes an amount of securities in
excess of 10 percent of the total assets of the
Company and its subsidiaries on a consolidated basis.
On request, the Company agrees to furnish a copy of
each such instrument to the Commission.
10.1 Material Contracts:
Certain Material Contracts Not in the Ordinary Course
of Business:
(a) Support Agreement with BeaconEye, Inc.
(b) Share for Share Exchange Agreement for
acquisition of 20/20 Laser Centers, Inc.
Certain Management Contracts, Compensatory Plans,
Contracts or Arrangements:
(c) TLC Amended and Restated Share Option Plan
(incorporated by reference to Exhibit 4(a)
to the Company's Registration Statement on
Form S-8 filed with the Commission on
December 31, 1997 (file no. 333-8162))
(d) TLC Share Purchase Plan (incorporated by
reference to Exhibit 4(b) to the Company's
Registration Statement on Form S-8 filed
with the Commission on December 31, 1997
(file no. 333-8162)).
(e) Employment Agreement with Elias Vamvakas
(f) Escrow Agreement with Elias Vamvakas and
Jeffery J. Machat
(g) Consulting Agreement with Excimer Management
Corporation
(h) Employment Agreement with Gary F. Jonas
(i) Employment Agreement with Frances J.K.
Brotherhood
(j) Consulting Agreement with Kelmar Corporation
(k) Consulting Agreement with Mainstay Human
Resources Corp.
(l) Shareholder Agreement For Vision Corporation
21.1 List of all Registrant's Subsidiaries
23.1 Consent of Auditors
27 Financial Data Schedule
65
<PAGE>
TLC THE LASER CENTER INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TLC THE LASER CENTER INC.
By: /s/ Elias Vamvakas
----------------------------
Elias Vamvakas
Chief Executive Officer
August 28, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Elias Vamvakas President, Chief Executive Officer August 26, 1998
- ------------------------- and Chairman of the Board of
Elias Vamvakas Directors
/s/ Peter J. Kastelic Chief Financial Officer and August 26, 1998
- ------------------------- Treasurer
Peter J. Kastelic
/s/ Jeffery J. Machat Co-National Medical Director and August 27, 1998
- ------------------------- Director
Dr. Jeffery J. Machat
/s/ Howard J. Gourwitz Director August 28, 1998
- -------------------------
Howard J. Gourwitz
/s/ William David Sullins Director August 26, 1998
- -------------------------
Dr. William David Sullins
/s/ Warren S. Rustand Director August 28, 1998
- -------------------------
Warren S. Rustand
/s/ John F. Riegert Director August 26, 1998
- -------------------------
John F. Riegert
/s/ James R. Connacher Director August 27, 1998
- -------------------------
James R. Connacher
66
1
For Ministry Use Only
A l'usage exclusif du ministere
[Logo] Ministry of Ministere de
Consumer and la Consommation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
MAY 28 MAI, 1993
/s/ [ILLEGIBLE]
Director/Directeur
Business Corporations Act/Loi de sur les compagnies
Ontario Corporation Number
Numero de la compagnie en Ontario
1031673
----------------------------------
Trans Line Comp Method
Code No Stat Type Incorp
----- ----- ----- ----- ------
A 0 0 A 3
----- ----- ----- ----- ------
18 20 28 29 30
Notice
Share Req'd Jurisdiction
----- ----- -----------------------
S N ONTARIO
----- ----- -----------------------
31 32 33 47
- --------------------------------------------------------------------------------
Form 1
Business
Corporations
Act
Formule
numero 1
Loi
sur les
compagnies
NEWSOME AND GILBERT
CS1236 (FORM 1)
CS 784/83/362-110
- --------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
1. The name of the Corporation is: Denomination sociale de la compagnie:
20/20 LASER CENTERS INC.
2. The address of the registered Adresse du siege social:
office is:
12 Kittredge Court
-------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue at numero ou numero de le R.R. et s'il sagit d'un edifico
a bureau, numero du bureau)
Richmond Hill, Ontario L4C7X3
-------------------------------------------------- --------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
Town of Richmond Hill, in Regional Municipality of York
-------------------------------- dans le/la -----------------------------
(Name of Municipality Geographic (County, District or Regional
Township) Municipality)
(Nom de la municipalite, du canton) (Comte, district, municipalite
regionale)
3. Number (or minimum and maximum number) Nombre (ou nombres minimal et
of directors is: maximal) d'administrateurs:
A minimum of one (1) and a maximum of ten (10)
<TABLE>
<CAPTION>
4. The first director(s) is/are: Premier(s) administrateur(s): Resident
Canadian
First name, initials and last name Residence address, giving Street & No. State
Prenom, initiales et nom de famille or R.R. No., Municipality and Postal Code Yes or No
Adresse personnelle, y compris la rue et Resident
le numero, le numero de la R.R., le nom Canadien
de la municipalite et le code postal Oui/Non
----------------------------------------------------------------------------------------------
<S> <C> <C>
ALLAN H. MANDEL 45 Macauley Drive Yes
Thornhill, Ontario
L3T 5S6
</TABLE>
07116 (04/92)
<PAGE>
2
5. Restrictions, if any, on business the Limites, s'il y a lieu, imposees aux
corporation may carry on or on activites commerciales ou aux
powers the corporation may exercise. pouvoirs de la compagnie.
None
6. The classes and any maximum number of Categories et nombre maximal, s'il y
shares that the corporation is a lieu, d'actions que la compagnie
authorized to issue: est autorisee a emettre:
The capital of the Corporation shall consist of an unlimited number of
non-voting Class A Common Shares (the "Class A Common Shares"); an unlimited
number of voting Class B Common Shares (the "Class B Common Shares"); an
unlimited number of voting Class C Special Shares (the "Class C Special
Shares"); and an unlimited number of non-voting Class D Special Shares (the
"Class D Special Shares").
<PAGE>
3
7. Rights, privileges, restrictions and Droits, privileges, restrictions et
conditions (if any) attaching to each conditions, s'il y a lieu, rattaches
class of shares and directors a chaque categorie d'actions et
authority with respect to any class of pouvoirs des administrateurs
shares which may be issued in series: relatifs a chaque categorie
d'actions qui peut etre emise en
serie:
Class A Common Shares
The Class A Common Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
(a) The holders of the Class A Common shares shall not be entitled to receive
notice or to attend any meeting of the shareholders of the Corporation
unless the meeting is called for the purpose of authorizing the
dissolution of the Corporation or the sale, lease or exchange of all or
substantially all of the property of the Corporation other than in the
ordinary course of business of the Corporation under subsection 183(3) of
the Act, in which case the holders of the Class A Common shares shall be
entitled to receive notice of such meeting. The holders of the Class A
Common shares shall not be entitled either to vote at any meeting of the
shareholders of the Corporation or to sign a resolution in writing, except
a meeting called to consider, or a resolution in writing in respect of,
any amendment to these Articles in respect of which the holders of the
Class A Common shares would be entitled to vote separately as a class
pursuant to the Act:
(b) Notwithstanding the provisions of the Act and any other provision
contained herein, the holders of the Class A Common shares shall not be
entitled to vote separately as a class upon a proposal to amend these
Articles to:
(i) increase or decrease any maximum number of authorized Class A Common
shares, or increase any maximum number of authorized shares of a
class of shares having rights or privileges equal or superior to the
shares of the Class A Common shares;
(ii) effect an exchange, reclassification or cancellation of the Class A
Common shares; or
(iii) create a new class of shares equal to or superior to the Class A
Common shares.
(c) The Class A Common shares shall rank on a parity with the Class B Common
shares with respect to priority in payment of dividends;
(d) Subject to the rights, privileges, restrictions and conditions attaching
to any other class of shares of the Corporation, the Class A Common shares
are entitled to receive any dividend declared by the Corporation in
respect of the Class A Common shares;
(e) Subject to the rights, privileges, restrictions and conditions attaching
to any other class of shares of the Corporation, the holders of the Class
A Common shares shall
<PAGE>
3(a)
be entitled to receive in parity with the Class B Common shares and shall
participate rateably with Class B Common shares with respect to their
entitlement to receive the remaining property of the Corporation upon the
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
Class B Common Shares
The Class B Common Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
(a) The holders of the Class B Common shares shall be entitled to receive
notice of and to attend any meeting the shareholders of the Corporation
and shall be entitled to one vote in respect of each Class B Common share
held at such meetings, except meetings at which the holders of a
particular class of shares other than the Class B Common shares are
entitled to vote separately as a class;
(b) The Class B Common shares shall rank on a parity with the Class A Common
shares with respect to priority in payment of dividends and in the
distribution of assets in the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among it's
shareholders for the purpose of winding up it's affairs;
(c) Subject to the rights, privileges, restrictions and conditions attaching
to any other class of shares of the Corporation, the Class B Common shares
are entitled to receive any dividend declared by the Corporation in
respect of the Class B Common shares.
Class C Special Shares
The Class C Special Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
(a) The holders of the Class C Special shares shall be entitled to receive and
the Corporation shall pay thereon, as and when declared by the Board of
Directors of the Corporation out of the assets of the Corporation properly
applicable to the payment of dividends, non-cumulative cash dividends in
an amount as determined by the Board of Directors; If within any financial
year of the Corporation, the Board of Directors in their discretion shall
not have declared such dividends, then the rights of the holders of the
Class C Special shares to such dividends in respect to any such financial
year shall be forever extinguished.
(b) The holders of the Class C Special shares shall be entitled to receive
notice of and to attend any meeting the shareholders of the Corporation
and shall be entitled to one vote in respect of each Class C Special share
held at such meetings, except
<PAGE>
3(b)
meetings at which the holders of a particular class of shares other than
the Class C Special shares are entitled to vote separately as a class;
(c) The Corporation may, subject to the requirements of the Act, upon the
giving of such notice, if any, and the following of such procedures as the
Directors may determine from time to time, redeem at any time the whole or
from time to time any part of the then outstanding Class C Special Shares,
either on a pro rata basis or otherwise, on payment of an amount for each
share to be redeemed equal to the amount paid up thereon, plus all
declared and unpaid dividends thereon, the whole constituting and being
hereinafter referred to as the "Class C Special Share Redemption Amount";
(d) On or after the date specified for redemption, the Corporation shall pay
or cause to be paid to or to the order of the registered holders of the
Class C Special Shares to be redeemed the Redemption Amount thereof on
presentation and surrender at the registered office of the Corporation or
any other place designated by the Corporation in the notice of redemption,
of the certificates representing the Class C Special Shares called for
redemption. Such Class C Special Shares shall thereupon be redeemed. If
less than all of the Class C Special Shares represented by any certificate
are redeemed, the holder shall be entitled to receive a new certificate
for that number of Class C Special Shares represented by the original
certificate which are not redeemed. From and after the date specified for
redemption, the holders of the Class C Special shares called for
redemption shall cease to be entitled to dividends, and shall not be
entitled to exercise any of the rights of the shareholders in respect
thereof, unless payment of the redemption amount shall not be made upon
presentation of the certificates in accordance with the foregoing
provisions, in which case the rights of the holder shall remain in effect.
(e) Each holder of one or more Class C Special Shares shall have the right, in
his discretion and at all times, to demand that the Corporation redeem all
or any of the said shares registered in the name of the holder in the
registers of the Corporation by presenting to the Corporation, at its head
office, a share certificate representing Class C Special Shares that the
registered holder wishes the Corporation to redeem; the said certificate
shall be accompanied by a written request indicating:
(i) the registered holder wishes all or part of the Class C
Special Shares represented by the said certificate, to be
redeemed by the Corporation; and
(ii) the date (providing that it is a regular business day) upon
which the registered holder wishes his Class C Special Shares
to be redeemed (hereinafter called the "redemption date").
Provided that, the redemption date shall not at any time be
fixed at less that five (5) days from the date of presentation
of the request unless such five (5) days notice is waived by
the Corporation.
<PAGE>
3(c)
The receipt of the said certificate and the said request shall
oblige the Corporation, on the date stipulated in the request,
to redeem each Class C Special Shares requested to be redeemed
by paying to the said registered holder the aggregate of : (1)
the Class C Special Share Redemption Amount for each such
share; and (2) an amount equal to all dividends declared on
such share but unpaid. Commencing from the redemption date
stipulated in the written request, the holders of the said
Class C Special Shares shall not be entitled to the payment of
any dividends and the holders of the same shall not be
entitled to exercise any rights attaching thereto, unless the
payment of the Class C Special Share Redemption Amount for
each share to be redeemed together with all dividends declared
thereunder (hereinafter called the "Redemption Payment") is
not made by the Corporation on the redemption date, in which
case the rights of the holders of the shares in question shall
not be affected in any manner and such holders shall
(notwithstanding any provision to the contrary herein
contained) be entitled to receive cumulative annual dividends
at a fixed rate equal to three-quarters (3/4) of the Prime
Rate accruing on the Redemption Payment from the redemption
date to the date that the Redemption Payment is made.
(f) For the purposes of these Articles, the term "Prime Rate" in respect of
any fiscal period of the Corporation as such term is applied to the Class
C Special Shares means the rate of interest expressed as a annual rate,
established by The Royal Bank of Canada at Toronto, on the particular day
on which any cumulative annual dividends on the Class C Special Shares
begin to accrue, for loans in Canadian dollars to its most creditworthy
commercial customers in Canada.
(g) (i) Subject as hereinafter provided, any holder of fully paid Class C
Special shares shall be entitled at his option at any time up to the
close of business on the third day prior to the redemption date
specified in any notice of redemption of Class C Special shares to
have all or any of the Class C Special shares by him converted into
fully paid Class B Common shares as the same shall be constituted at
the time of conversion at the rate of one hundred (100) Class B
Common shares for each Class C Special share in respect of which the
conversion privilege is exercised;
(ii) The conversion privilege herein provided for may only be exercised
by notice in writing given to the Corporation at its registered
office accompanied by the certificate or certificates for Class C
Special shares in respect of which the holder thereof desires to
exercise such right of conversion and such notice shall be signed by
the person registered on the books of the Corporation as the holder
of the Class C Special shares which the holder desires to have
converted; upon the Corporation receiving such notice it shall issue
certificates for Class B Common shares at the applicable rate herein
prescribed and in accordance with the provisions hereof to the
registered
<PAGE>
3(d)
holder of the Class C Special shares represented by any such
certificate are converted the holder shall be entitled to receive a
new certificate for that number of Class C Special shares
represented by the original certificate which are not converted;
(iii) Upon conversion of any Class C Special shares, the Corporation shall
make a payment to the holder of such shares of an amount equal to
all dividends declared and unpaid on such shares at the date of
conversion but shall make no payment or adjustment on account of any
dividends on the Class B Common shares issuable upon such
conversion;
(h) In the event of liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of Class C Special shares
shall be entitled to receive, before any distribution of the assets of the
Corporation is made among the holders of all other classes of shares of
the Corporation, an amount equal to the return of paid-up capital and an
amount equal to any dividends declared thereon but unpaid and no more.
Class D Special Shares
The Class D Special Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
(a) The holders of the Class D Special shares shall not be entitled to receive
notice or to attend any meeting of the shareholders of the Corporation
unless the meeting is called for the purpose of authorizing the
dissolution of the Corporation or the sale, lease or exchange of all or
substantially all of the property of the Corporation other than in the
ordinary course of business of the Corporation under subsection 183(3) of
the Act, in which case the holders of the Class D Special shall be
entitled to receive notice of such meeting. The holders of the Class D
Special shares shall not be entitled either to vote at any meeting of the
shareholders of the Corporation or to sign a resolution in writing, except
a meeting called to consider, or a resolution in writing in respect of,
any amendment to these Articles in respect of which the holders of the
Class D Special shares would be entitled to vote separately as a class
pursuant to the Act;
(b) The holders of the Class D Special shares shall be entitled to receive and
the Corporation shall pay thereon, as and when declared by the Board of
Directors of the Corporation out of the assets of the Corporation properly
applicable to the payment of dividends, non-cumulative cash dividends in
an amount as determined by the Board of Directors; If within any financial
year of the Corporation, the Board of Directors in their discretion shall
not have declared such dividends, then the rights of the holders of the
Class D Special shares to such dividends in respect to any such financial
year shall be forever extinguished.
<PAGE>
3(e)
(c) In the event of liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of Class D Special shares
shall be entitled to receive, before any distribution of the assets of the
Corporation is made among the holders of the Class A Common shares and the
Class B Common shares, an amount equal to the return of paid-up capital
and an amount equal to any dividends declared thereon but unpaid and no
more.
<PAGE>
4
8. The issue, transfer or ownership of L'emission, le transfert ou la
shares is/is not restricted and the propriete d'actions est/n'est pas
restrictions (if any) are as follows: restreinte. Les restrictions, s'il y
a lieu, sont les suivantes:
The right to transfer shares of the Corporation shall be restricted in that no
shares shall be transferred without either:
(a) The previous consent of the Directors of the Corporation expressed
by a resolution passed at a meeting of the Directors or by an
instrument or instruments in writing signed by a majority of the
Directors; or
(b) The previous consent of the holders of at least 51% of the shares
for the time being outstanding entitled to vote expressed by
resolution passed at a meeting of the shareholders or by an
instrument or instruments in writing signed by such shareholders.
<PAGE>
5
9. Other provisions, if any, are: Autres dispositions, s'il y a lieu:
1. That the Board of Directors may from time to time, in such amounts and on
such terms as it deems expedient:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations (including bonds,
debentures, notes or other similar obligations, secured or
unsecured) of the Corporation;
(c) to the extent permitted by law, give a guarantee on behalf of the
Corporation to secure performance of any present or future
indebtedness, liability or obligations of any person; and
(d) charge, mortgage, hypothecate, pledge or otherwise create a security
interest in all or any of the currently owned or subsequently
acquired real or personal, movable or immovable, property of the
Corporation, including book debts, rights, powers, franchises and
undertakings, to secure any debt obligations or any money borrowed
or other debt or liability of the Corporation.
The Board of Directors may from time to time delegate such one or more of
the Directors and Officers of the Corporation as may be designated by the
Board all or any of the powers conferred on the Board above to such extent
and in such manner as the Board shall determine at the time of each such
delegation;
2. That the number of shareholders of the Corporation, exclusive of persons
who are in the employment of the Corporation and exclusive of persons who,
having been formerly in the employment of the Corporation, were, while in
that employment, and have continued after the termination of that
employment to be shareholders of the Corporation, is limited to not more
that fifty (50), two (2) or more persons who are the joint registered
owners of one (1) or more shares being counted as one (1) shareholder; and
3. That any invitation to the public to subscribe for any shares or
securities of the Corporation is hereby prohibited.
<PAGE>
6
10. The names and addresses of the Full residence address or address of
incorporators are registered office or of principal
Nom et adresse des fondateurs place of business giving street &
First name, initials and last name No. or R.R. No., municipality and
or corporate name postal code
Prenom, initiale et nom de famile Adresse personnelle au complet,
ou denomination sociale adresse du siege social ou adresse
de l'etablissement principal, y
compris la rue et le numero, le
numero de la R.R., le nom de la
municipalite et le code postal
- --------------------------------------------------------------------------------
ALLAN H. MANDEL 45 Macauley Drive
Thornhill, Ontario
L3T 5S6
These articles are signed in duplicate. Les presents statuts sont signes en
double exemplaire.
Signatures of incorporators
(Signature des fondateurs)
/s/ Allan H. Mandel
------------------------------
ALLAN H. MANDEL
<PAGE>
1
For Ministry Use Only
A l'usage exclusif du ministere
[Logo] Ministry of Ministere de
Consumer and la Consommation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
OCTOBER 01 OCTOBRE, 1993
/s/ [ILLEGIBLE]
Director/Directeur
Business Corporations Act/Loi de sur les compagnies
Ontario Corporation Number
Numero de la compagnie en Ontario
1031673
----------------------------------
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18
- --------------------------------------------------------------------------------
Form 3
Business
Corporations
Act,
1982
Formule
numero 3
Loi de 1982
sur les
compagnies
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The present name of the corporation is: Denomination sociale actuelle de
la compagnie:
20/20 LASER CENTERS INC.
2. The name of the corporation is changed to Nouvelle denomination sociale de
(if applicable): la compagnie (s'il y a lieu):
TLC THE LASER CENTER INC.
3. Date of incorporation/amalgamation: Date de la constitution ou de la
fusion:
28/05/93
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are Les statuts de la compagnie sont
amended as follows: modifies de fa facon suivante:
to change the name of the Corporation from 20/20 Laser Centers Inc. to TLC
THE LASER CENTER INC.
<PAGE>
2
5. The amendment has been duly authorized La modification a ete dument
as required by Sections 167 and 169 autorisee conformement a l'article
(as applicable) of the Business 167 et. s'il y a lieu, a l'article
Corporations Act. 169 de la Loi sur les compagnies.
6. The resolution authorizing the Les actionnaires ou les
amendment was approved by the administrateurs (le cas echeant) de
shareholders/directors (as applicable) la compagnie ont approuve la
of the corporation on resolution autorisant la
modification
23/09/1993
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents statuts sont signes en
double exemplaire.
20/20 Laser Centers Inc.
------------------------------------
(Name of Corporation)
(Denomination sociate de la compagne)
By/Par: [ILLEGIBLE] Director
-------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
[Logo] Ministry of Ministere de
Consumer and la Consommation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
MARCH 22 MARS, 1995
/s/ [ILLEGIBLE] (1)
Director/Directeur
Business Corporations Act/Loi de sur les compagnies
Ontario Corporation Number
Numero de la compagnie en Ontario
1031673
----------------------------------
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18
- --------------------------------------------------------------------------------
Form 3
Business
Corporations
Act
Formule
numero 3
Loi
sur les
compagnies
DYE & DURHAM
FORM 3 (B.C.A.)
07119 (01/92)
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The present name of the corporation is: Denomination sociale actuelle de
la compagnie:
TLC THE LASER CENTER INC.
2. The name of the corporation is changed Nouvelle denomination sociale de
to (if applicable): la compagnie (s'il y a lieu):
3. Date of incorporation/amalgamation: Date de la constitution ou de la
fusion:
28/05/93
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are Les statuts de la compagnie sont
amended as follows: modifies de la facon suivante:
(1) to provide that the existing 100 Class B Common Shares of the
Corporation be divided on a basis of One Hundred Thousand (100,000) to
One (1);
(2) to change the designation of the Class B Common Shares to common
shares;
(3) to remove the authorized but unissued Class A Common Shares, Class C
Special Shares and Class D Special Shares of the Corporation and all
rights, privileges, restrictions and conditions attaching thereto;
(4) to declare that the capital of the Corporation after giving effect to
the foregoing consists of an unlimited number of common shares;
<PAGE>
2
(5) to remove the existing rights, privileges, restrictions and conditions
attached to the Class B Common Shares that have been redesignated as
common shares and to provide that the new rights, privileges,
restrictions and conditions attaching to the common shares are as
follows:
(a) Payment of Dividends: The holders of the common shares shall be
entitled to receive dividends if, as and when declared by the
board of directors of the Corporation out of the assets of the
Corporation properly applicable to the payment of dividends in
such amounts and payable in such manner as the board of directors
may from time to time determine.
(b) Participation upon Liquidation, Dissolution or Winding-Up: In the
event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation
among its shareholders for the purpose of winding-up its affairs,
the holders of the common shares shall be entitled to participate
rateably in any distribution of assets of the Corporation.
(c) Voting Rights: The holders of the common shares shall be entitled
to receive notice of and to attend all annual and special
meetings of the shareholders of the Corporation and to one vote
in respect of each common share held at such meetings.
5. The amendment has been duly authorized La modification a ete dument
as required by Sections 168 & 170 (as autorisee conformement a l'article
applicable) of the Business 168 et, s'il y a lieu, a l'article
Corporations Act. 170 de la Loi sur les compagnies.
6. The resolution authorizing the Les actionnaires ou les
amendment was approved by the administrateurs (le cas echeant) de
shareholders/directors (as applicable) la compagnie ont approuve la
of the corporation on resolution autorisant la
modification
09 02 95
--------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents status sont signes en
double exemplaire.
TLC THE LASER CENTER INC.
----------------------------------------
(Name of Corporation)
(Denomination sociale de la compagnie)
By/Par: [ILLEGIBLE] Director
----------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
[Logo] Ministry of Ministere de
Consumer and la Consommation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
FEBRUARY 19 FEVRIER, 1996
/s/ [ILLEGIBLE]
Director/Directeur
Business Corporations Act/Loi de sur les compagnies
Ontario Corporation Number
Numero de la compagnie en Ontario
1031673
---------------------------------
TRANS
CODE
-----
C
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18
- --------------------------------------------------------------------------------
Form 3
Business
Corporations
Act
Formule
numero 3
Loi
sur les
compagnies
DYE & DURHAM
FORM 3 (B.C.A.)
07119 (01/92)
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The present name of the corporation is: Denomination sociale actuelle
de la compagnie:
TLC THE LASER CENTER INC.
2. The name of the corporation is changed Nouvelle denomination sociale
to (if applicable): de la compagnie (s'il y a
lieu):
3. Date of incorporation/amalgamation: Date de la constitution ou de
la fusion:
28 May 1993
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are Les statuts de la compagnie
amended as follows: sont modifies de la facon
suivante:
The articles of the Company are amended to remove the following private
company restrictions contained therein:
(a) the restriction on the right to transfer shares of the company;
(b) the limit on the number of shareholders of the Company; and
(c) the prohibition against any invitation to the public to subscribe
for any shares or securities of the Company
<PAGE>
2
5. The amendment has been duly authorized La modification a ete dument
as required by Sections 168 & 170 (as autorisee conformement a
applicable) of the Business Corporations l'article 168 et, s'il y a
Act. lieu, a l'article 170 de la
Loi sur les compagnies.
6. The resolution authorizing the amendment Les actionnaires ou les
was approved by the shareholders/directors administrateurs (le cas
(as applicable) of the corporation on echeant) de la compagnie ont
approuve la resolution
autorisant la modification
23 January 1996
---------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents status sont
signes en double exemplaire.
TLC THE LASER CENTER INC.
---------------------------------------
(Name of Corporation)
(Denomination sociale de la compagnie)
By/Par: /s/ Elias Vamvakas President, Chief
Executive Officer
-------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
BY-LAW NO. 3
A by-law relating generally to
the transaction of the business
and affairs of
TLC THE LASER CENTER INC.
(hereinafter referred to as the "Corporation")
DIRECTORS
1. Calling of and notice of meetings - Meetings of the board shall be held at
such time and on such day as the Chairman of the Board, President or Secretary
or any two directors may determine. Notice of meetings of the board shall be
given to each director not less than 48 hours before the time when the meeting
is to be held. Each newly elected board may without notice hold its first
meeting for the purposes of organization and the appointment of officers
immediately following the meeting of shareholders at which such board was
elected.
2. Place of meetings - Meetings of the board may be held at any place within or
outside Ontario and in any financial year of the Corporation it shall not be
necessary for a majority of the meetings of the board to be held at a place
within Canada.
3. Votes to govern - At all meetings of the board every question shall be
decided by a majority of the votes cast on the question; and in case of an
equality of votes the chairman of the meeting shall not be entitled to a second
or casting vote.
4. Interest of directors and officers generally in contracts - No director or
officer shall be disqualified by his office from contracting with the
Corporation nor shall any contract or arrangement entered into by or on behalf
of the Corporation with any director or officer or in which any director or
officer is in any way interested be liable to be voided nor shall any director
or officer so contracting or being so interested be liable to account to the
Corporation for any profit realized by any such contract or arrangement by
reason of such director or officer holding that office or of the fiduciary
relationship thereby established; provided that the director or officer shall
have complied with the provisions of the Business Corporations Act (Ontario).
SHAREHOLDERS' MEETINGS
5. Quorum - At any meeting of shareholders, a quorum shall be two (2) persons
present in person and each entitled to vote thereat and holding or representing
by proxy not less than 51% per cent of the votes entitled to be cast thereat.
<PAGE>
6. Casting Vote - In the case of an equality of votes at any meeting of
shareholders the chairman of the meeting shall not be entitled to a second or
casting vote.
INDEMNIFICATION
7. Indemnification of directors and officers - The Corporation shall indemnify a
director or officer of the Corporation, a former director or officer of the
Corporation or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and his heirs and legal representatives to the extent
permitted by the Business Corporations Act (Ontario).
8. Indemnity of others - Except as otherwise required by the Business
Corporations Act (Ontario) and subject to paragraph 7, the Corporation may from
time to time indemnify and save harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another body corporate, partnership, joint venture,
trust or other enterprise, against expenses (including legal fees), judgments,
fines and any amount actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted honestly and in good faith with a
view to the best interests of the Corporation and, with respect to any criminal
or administrative action or proceeding that is enforced by a monetary penalty,
had reasonable grounds for believing that his conduct was lawful. The
termination of any action, suit or proceeding by judgment, order, settlement or
conviction shall not, of itself, create a presumption that the person did not
act honestly and in good faith with a view to the best interests of the
Corporation and, with respect to any criminal or administrative action or
proceeding that is enforced by a monetary penalty, had no reasonable grounds for
believing that his conduct was lawful.
9. Right of indemnity not exclusive - The provisions for indemnification
contained in the by-laws of the Corporation shall not be deemed exclusive of any
other rights to which any person seeking indemnification may be entitled under
any agreement, vote of shareholders or directors or otherwise, both as to action
in his official capacity and as to action in another capacity, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs and legal representatives of
such a person.
10. No liability of directors or officers for certain matters - To the extent
permitted by law, no director or officer for the time being of the Corporation
shall be liable for the acts, receipts, neglects or defaults of any other
director or officer or employee or for joining in any receipt or act for
conformity or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation or for the insufficiency or
deficiency of any security in or upon which any of the moneys of or belonging to
the Corporation shall be placed out or invested or for any loss or damage
arising from the bankruptcy, insolvency or tortious act of any person, firm or
body corporate with whom or which any moneys, securities or other assets
belonging to the
<PAGE>
Corporation shall be lodged or deposited or for any loss, conversion,
misapplication or misappropriation of or any damage resulting from any dealings
with any moneys, securities or other assets belonging to the Corporation or for
any other loss, damage or misfortune whatever which may happen in the execution
of the duties of his respective office or trust or in relation thereto unless
the same shall happen by or through his failure to act honestly and in good
faith with a view to the best interests of the Corporation and in connection
therewith to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. If any director or officer of
the Corporation shall be employed by or shall perform services for the
Corporation otherwise than as a director or officer or shall be a member of a
firm or a shareholder, director or officer of a body corporate which is employed
by or performs services for the Corporation, the fact of his being a director or
officer of the Corporation shall not disentitle such director or officer or such
firm or body corporate, as the case may be, from receiving proper remuneration
for such services.
BANKING ARRANGEMENTS, CONTRACTS, ETC.
11. Banking arrangements - The banking business of the Corporation, or any part
thereof, shall be transacted with such banks, trust companies or other financial
institutions as the board may designate, appoint or authorize from time to time
by resolution and all such banking business, or any part thereof, shall be
transacted on the Corporation's behalf by such one or more officers and/or other
persons as the board may designate, direct or authorize from time to time by
resolution and to the extent therein provided.
12. Execution of instruments - Contracts, documents or instruments in writing
requiring execution by the Corporation shall be signed by any two officers or
directors, and all contracts, documents or instruments in writing so signed
shall be binding upon the Corporation without any further authorization or
formality. The board is authorized from time to time by resolution to appoint
any officer or officers or any other person or persons on behalf of the
Corporation to sign and deliver either contracts, documents or instruments in
writing generally or to sign either manually or by facsimile signature and
deliver specific contracts, documents or instruments in writing. The term
"contracts, documents or instruments in writing" as used in this by-law shall
include deeds, mortgages, charges, conveyances, powers of attorney, transfers
and assignments of property of all kinds including specifically but without
limitation transfers and assignments of shares, warrants, bonds, debentures or
other securities and all paper writings.
MISCELLANEOUS
13. Invalidity of any provisions of this by-law - The invalidity or
unenforceability of any provision of this by-law shall not affect the validity
or enforceability of the remaining provisions of this by-law.
14. Omissions and errors - The accidental omission to give any notice to any
shareholder, director, officer or auditor or the non-receipt of any notice by
any shareholder, director, officer or auditor or any error in any notice not
affecting the substance thereof shall not invalidate any
<PAGE>
action taken at any meeting held pursuant to such notice or otherwise founded
thereon.
15. Lien for Indebtedness - Subject to the Act, the Corporation has a lien on
shares registered in the name of the shareholder or his legal representative for
any debt of the shareholder to the Corporation. The Corporation may enforce the
lien by:
a. in the case of redeemable shares, redeeming the shares at their
redemption price; and
b. in the case of all other shares, purchasing such shares at their
book value for cancellation or for resale.
and by applying the value of such shares so determined to the debt of the
shareholder. In enforcing the lien as aforesaid the Corporation shall not be
obliged to redeem or purchase all of the shares of that class but only the
shares subject to the lien. In electing to enforce the lien in this manner the
Corporation shall not prejudice or surrender any other rights of enforcement of
the lien which may in law be available to it or any other remedy available to
the Corporation for collection of the debt or any part thereof.
INTERPRETATION
16. Interpretation - In this by-law and all other by-laws of the Corporation
words importing the singular number only shall include the plural and vice
versa; words importing the masculine gender shall include the feminine and
neuter genders; words importing persons shall include an individual,
partnership, association, body corporate, executor, administrator or legal
representative and any number or aggregate of persons; "articles" include the
original or restated articles of incorporation, articles of amendment, articles
of amalgamation, articles of continuance, articles of reorganization, articles
of arrangement and articles of revival; "board" shall mean the board of
directors of the Corporation; "Business Corporations Act" shall mean the
Business Corporations Act (Ontario), as amended from time to time or any Act
that may hereafter be substituted therefor; and "meeting of shareholders" shall
mean and include an annual meeting of shareholders and a special meeting of
shareholders.
REPEAL
17. Repeal - By-laws No. 1 and 2 of the Corporation are repealed as of the
coming into force of this by-law provided that such repeal shall not affect the
previous operation of any by-law so repealed or affect the validity of any act
done or right, privilege, obligation or liability acquired or incurred under or
the validity of any contract or agreement made pursuant to any such by-law prior
to its repeal. All officers and persons acting under any by-law so repealed
shall continue to act as if appointed by the directors under the provisions of
this by-law or the Business Corporations Act (Ontario) until their successors
are appointed.
<PAGE>
RESOLVED that the foregoing By-law No. 3 is made a by-law of the
Corporation.
The undersigned, being all the directors of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
/s/ Elias Vamvakas /s/ John Riegert
- ----------------------------- --------------------------------
ELIAS VAMVAKAS JOHN RIEGERT
/s/ Jeffery Machat
- ----------------------------- --------------------------------
DR. JEFFERY MACHAT HOWARD GOURWITZ
/s/ Ronald J. Kelly
- ----------------------------- --------------------------------
DAVID ELDRIDGE RONALD J. KELLY
- -----------------------------
DAVID SULLINS
RESOLVED that the foregoing By-law No. 3 of the by-laws of the
Corporation is hereby confirmed.
The undersigned, being all the shareholders of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
1123562 ONTARIO LIMITED
/s/ Elias Vamvakas Per: /s/ Jeffery Machat
- ----------------------------- -----------------------------
ELIAS VAMVAKAS Authorized Signing Officer
1111881 ONTARIO LIMITED LNG ENTERPRISES, INC.
Per: /s/ Elias Vamvakas Per: /s/ [ILLEGIBLE]
------------------------- -----------------------------
Authorized Signing Officer Authorized Signing Officer
- ----------------------------- ---------------------------------
WARHEIT, PHILIP I. - SMITH PEARL WARHEIT TRUST U/A DATED
BARNEY INC. I.R.A. CUSTODIAN 12 - 5 - 88
<PAGE>
RESOLVED that the foregoing By-law No. 3 is made a by-law of the
Corporation.
The undersigned, being all the directors of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
/s/ Elias Vamvakas /s/ John Riegert
- ----------------------------- --------------------------------
ELIAS VAMVAKAS JOHN RIEGERT
/s/ Jeffery Machat /s/ Howard Gourwitz
- ----------------------------- --------------------------------
DR. JEFFERY MACHAT HOWARD GOURWITZ
/s/ David Eldridge /s/ Ronald J. Kelly
- ----------------------------- --------------------------------
DAVID ELDRIDGE RONALD J. KELLY
/s/ David Sullins
- -----------------------------
DAVID SULLINS
RESOLVED that the foregoing By-law No. 3 of the by-laws of the
Corporation is hereby confirmed.
The undersigned, being all the shareholders of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
1123562 ONTARIO LIMITED
/s/ Elias Vamvakas Per: /s/ Jeffery Machat
- ----------------------------- -----------------------------
ELIAS VAMVAKAS Authorized Signing Officer
1111881 ONTARIO LIMITED LNG ENTERPRISES, INC.
Per: /s/ Elias Vamvakas Per: /s/ [ILLEGIBLE]
------------------------- -----------------------------
Authorized Signing Officer Authorized Signing Officer
- ----------------------------- ---------------------------------
WARHEIT, PHILIP I. - SMITH PEARL WARHEIT TRUST U/A DATED
BARNEY INC. I.R.A. CUSTODIAN 12 - 5 - 88
<PAGE>
RESOLVED that the foregoing By-law No. 3 is made a by-law of the
Corporation.
The undersigned, being all the directors of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
/s/ Elias Vamvakas /s/ John Riegert
- ----------------------------- --------------------------------
ELIAS VAMVAKAS JOHN RIEGERT
/s/ Jeffery Machat
- ----------------------------- --------------------------------
DR. JEFFERY MACHAT HOWARD GOURWITZ
/s/ Ronald J. Kelly
- ----------------------------- --------------------------------
DAVID ELDRIDGE RONALD J. KELLY
- -----------------------------
DAVID SULLINS
RESOLVED that the foregoing By-law No. 3 of the by-laws of the
Corporation is hereby confirmed.
The undersigned, being all the shareholders of TLC THE LASER CENTER
INC., hereby sign the foregoing resolution.
DATED the 26th day of June, 1995.
1123562 ONTARIO LIMITED
/s/ Elias Vamvakas Per: /s/ Jeffery Machat
- ----------------------------- -----------------------------
ELIAS VAMVAKAS Authorized Signing Officer
1111881 ONTARIO LIMITED LNG ENTERPRISES, INC.
Per: /s/ Elias Vamvakas Per:
------------------------- -----------------------------
Authorized Signing Officer Authorized Signing Officer
/s/ Philip I. Smith /s/ Philip I. Smith P/A
- ----------------------------- ---------------------------------
WARHEIT, PHILIP I. - SMITH PEARL WARHEIT TRUST U/A DATED
BARNEY INC. I.R.A. CUSTODIAN 12 - 5 - 88
<PAGE>
/s/ Dr. Thomas P. Arvas /s/ Dennis Bellehumeur
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
/s/ Dennis Bellehumeur
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
/s/ Vito Campanaro
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
/s/ Margie C. Baldwin
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
/s/ Dr. Bob Baldwin
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
/s/ Richard Cooper
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
/s/ Dr. David Eldridge By: /s/ Dr. David Eldridge
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
/s/ H.G. Eldridge
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
/s/ Jane Fenwick
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
/s/ Marsden D. Fenwick /s/ Susan C. Fenwick
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
/s/ Mary Ellen O'Keefe
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
/s/ John O'Keefe
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
/s/ George Foster
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
/s/ Dr. Roy Hiskett
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
/s/ Dennis Bellehumeur
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
/s/ John Lamb
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
/s/ Dr. Thomas P. Arvas /s/ Dennis Bellehumeur
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
/s/ Frank Larussa, JR. 7-15-97
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
/s/ Dennis Bellehumeur
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
/s/ Hayley Nianiaris
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
/s/ Jerry D. Remington
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
/s/ James A. Ward
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
/s/ James E. Ward
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per:
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
- ------------------------------ ---------------------------------
HAYLEY NIANIARIS JERRY D. REMINGTON
- ------------------------------ ---------------------------------
JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per: /s/ [ILLEGIBLE]
-------------------------- ---------------------------------
Authorized Signing Officer DR. BROCK WRIGHT
- ------------------------------ ---------------------------------
JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
- ----------------------------- ---------------------------------
DR. THOMAS P. ARVAS DENNIS BELLEHUMEUR
- ----------------------------- ---------------------------------
MARGIE C. BALDWIN and VITO CAMPANARO
- ----------------------------- ---------------------------------
DR. BOB BALDWIN, as joint tenants RICHARD COOPER
ELDRIDGE JOINT VENTURE
By:
- ------------------------------ ------------------------------
DR. DAVID ELDRIDGE
- ------------------------------ ---------------------------------
DR. H.G. ELDRIDGE JANE FENWICK
- ------------------------------ ---------------------------------
MARSDEN D. FENWICK SUSAN C. FENWICK
- ------------------------------ ---------------------------------
MARY ELLEN O'KEEFE and GEORGE FOSTER
- ------------------------------ ---------------------------------
JOHN O'KEEFE, as joint tenants DR. ROY HISKETT
- ------------------------------ ---------------------------------
JOHN LAMB FRANK LARUSSA, JR.
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HAYLEY NIANIARIS JERRY D. REMINGTON
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JAMES A. WARD JAMES E. WARD
TRIO INVESTMENT INC.
Per: /s/ Dr. Brock Wright
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Authorized Signing Officer DR. BROCK WRIGHT
/s/ John Wright /s/ Kevin R. Wright
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JOHN WRIGHT KEVIN R. WRIGHT
<PAGE>
LRC CO. OF OKLAHOMA CITY
Per: /s/ [ILLEGIBLE]
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Authorized Signing Officer PHILIP A. WUNCH
<PAGE>
LRC CO. OF OKLAHOMA CITY
Per: /s/ Philip A. Wunch
-------------------------- ---------------------------------
Authorized Signing Officer PHILIP A. WUNCH
TLC SUPPORT AGREEMENT
THIS AGREEMENT is made this 26th day of February, 1998.
BETWEEN: BEACONEYE INC. (the "Corporation"), a corporation
incorporated under the laws of Canada,
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TLC THE LASER CENTER INC. ("TLC"), a corporation
incorporated under the laws of Ontario
WHEREAS:
(a) TLC has proposed a transaction (the "Transaction") to the Corporation on the
basis set out in Schedule "A" pursuant to which TLC would acquire all of the
outstanding common shares of the Corporation;
(b) TLC also has proposed that, pending completion of the Transaction, it will
manage and fund the business and affairs of the Corporation;
(c) Shareholders of the Corporation have entered into agreements (the "Lock-Up
Agreements") with TLC pursuant to which they have agreed, among other things, to
tender those shares pursuant to the Transaction;
(d) The board of directors of the Corporation (after consultation with its
financial advisor, CIBC Wood Gundy Inc., and shareholders of the Corporation)
has determined that it is in the best interests of the Corporation to pursue the
Transaction;
NOW THEREFORE in consideration of the mutual covenants set out in this agreement
and other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the Corporation and TLC agree that:
1. Representations and Warranties
A. The Corporation represents and warrants to TLC that:
(a) the Corporation has been incorporated and organized, and is validly
existing, under the laws of its jurisdiction of incorporation;
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(b) the Corporation has the requisite corporate power and authority to
enter into this agreement;
(c) the execution and delivery of this agreement by the Corporation, and
the consummation by the Corporation of the transactions contemplated
by this agreement, have been duly authorized by the board of
directors of the Corporation;
(d) this agreement has been duly executed and delivered by the
Corporation and constitutes a valid and binding obligation of the
Corporation, enforceable by TLC against the Corporation in
accordance with its terms, subject to the availability of equitable
remedies and the enforcement of creditors' rights generally;
(e) the execution and delivery by the Corporation of this agreement and
performance by it of its obligations under this agreement will not:
(i) result in a material violation or breach of any provision of
its constating documents or its bylaws, or
(ii) any applicable law or, to its knowledge, any regulation,
order, judgement or decree (subject to obtaining the consents
referred to below);
(f) other than the delivery and filing of a directors circular and
filings required in connection with the financing contemplated in
Schedule "B", no authorization, consent or approval of, or filing
with, any public body, court or authority is necessary for the
consummation by the Corporation of its obligations under this
agreement, except for such authorizations, consents, approvals and
filings as to which the failure by any party to obtain or make would
not, individually or in the aggregate, prevent or materially delay
the Transaction;
(g) the board of directors of the Corporation has determined to
recommend that holders of common shares of the Corporation accept,
and tender their shares pursuant to, the Transaction.
(h) as at the date of this agreement, the accounts payable and accrued
expenses of the Corporation do not exceed US$4 million, in the
aggregate; and
(i) except as publicly disclosed or disclosed in writing to TLC prior to
the date of this agreement, there has not been any material adverse
change (as that term is defined for the purpose of the Securities
Act (Ontario)) in the financial condition of the Corporation from
that reflected in the balance sheet and income statement for the
month ended January 31, 1998 that has been delivered to TLC.
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B. TLC represents and warrants to the Corporation that:
(a) TLC has been incorporated and organized, and is validly existing,
under the laws of its jurisdiction of incorporation;
(b) TLC has the requisite corporate power and authority to enter into
this agreement;
(c) the execution and delivery of this agreement by TLC, and the
consummation by TLC of the transactions contemplated by this
agreement, have been duly authorized by the board of directors of
TLC;
(d) this agreement has been duly executed and delivered by TLC and
constitutes a valid and binding obligation of TLC, enforceable by
the Corporation against TLC in accordance with its terms, subject to
the availability of equitable remedies and the enforcement of
creditors' rights generally;
(e) the execution and delivery by TLC of this agreement and performance
by it of its obligations under this agreement will not:
(i) result in a material violation or breach of any provision of
its constating documents or its bylaws, or
(ii) any applicable law or, to its knowledge, any regulation,
order, judgement or decree (subject to obtaining the consents
referred to below);
(f) other than the delivery and filing of a share exchange take-over bid
circular, no authorization, consent or approval of, or filing with,
any public body, court or authority is necessary for the
consummation by TLC of its obligations under this agreement, except
for such authorizations, consents, approvals and filings as to which
the failure by any party to obtain or make would not, individually
or in the aggregate, prevent or materially delay the Transaction;
and
(g) TLC has sufficient funds available to finance the Corporation on the
terms set out in Schedule "B".
2. The Transaction
On or before March 16, 1998, TLC shall mail to all holders of common
shares of the Corporation a share exchange take-over bid circular that is
consistent with the terms and conditions of Schedule "A" and complies with all
applicable legislation.
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3. Cooperation
The Corporation shall use all reasonable commercial efforts to assist TLC
in complying with ss.2 and, among other things, will:
(a) provide to TLC such lists of holders of the securities of the
Corporation that TLC may reasonably request to assist it in the
implementation of the Transaction;
(b) through its board of directors recommend that its shareholders
tender Shares to the Transaction;
(c) issue and file a directors circular, including such recommendation,
that complies with all applicable legislation and is in accordance
with Schedule "A"; and
(d) use its commercially reasonable efforts to cause the exercise,
conversion or cancellation of all issued and outstanding options or
other rights, warrants or entitlements to purchase or otherwise
acquire authorized and unissued common shares of the Corporation
(other than the Debentures) prior to the expiry date of the Bid.
4. Management of the Corporation
From the date of this agreement until its termination, TLC shall manage
the business and affairs of the Corporation and the Corporation shall cooperate
with TLC in permitting it to do so. (That management shall include, without
limitation, the ability to require existing management of the Corporation to
take leave with pay, provided such leave is on terms that do not result in any
liability to the Corporation.) In this capacity, TLC shall:
(a) act honestly and in good faith with a view to the best interests of
the Corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
TLC shall have no liability to the Corporation in this context for any
liabilities, obligations, claims, costs or expenses, and the Corporation shall
indemnify TLC and its present and former directors, officers and employees
against all costs, charges and expenses (including an amount paid to settle an
action or satisfy a judgment) reasonably incurred by such party in respect of
any civil, criminal or administrative action or proceeding to which it is made a
party by reason of its management activities undertaken pursuant to this section
4, except, in each case, to the extent that a court of competent jurisdiction
determines in a judgement that is not subject to appeal that those liabilities,
obligations,
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claims, costs or expenses arise out of, or are caused by, the wilful misconduct,
bad faith or negligence of TLC or any of its directors, officers, employees,
consultants, agents or representatives.
5. Bridge Financing
Provided that, as at the date hereof, the accounts payable and accrued
expenses of the Corporation do not exceed US$4 million, in the aggregate, TLC
shall provide financing to the Corporation to finance its operations from the
date of this agreement on the terms set out in Schedule "B".
6. Access to Information to Facilitate Pursuant of the Transaction
The Corporation shall afford (and will cause its respective subsidiaries
to afford) to TLC (and its directors, officers, employees and agents) access to
their businesses, properties, assets, officers, employees, agents, books and
records. All information resulting from this process shall be held in confidence
as provided in the confidentiality agreement (the "Confidentiality Agreement")
dated November 4, 1997 to which TLC is a party.
7. Other Acquisition Proposals
A. Except as expressly permitted by this agreement, the Corporation shall not,
directly or indirectly (through any insider, investment banker, agent or
otherwise) take any act that would reasonably be expected to in any material way
adversely affect, or reduce the likelihood of, the successful completion of the
Transaction.
B. Without limiting the generality of the preceding paragraph, during the term
of this agreement, the Corporation shall not:
(a) solicit, initiate, or encourage inquiries or submission of;
(b) participate in any discussion or negotiations regarding;
(c) furnish to any other person any information with respect to; or
(d) otherwise cooperate in any way with, or assist or participate in, or
facilitate or encourage any effort or attempt by any other person to
effect,
a transaction which competes with or is inconsistent with the successful
completion of the Transaction. Nothing in this agreement shall, however, prevent
the board of directors of the
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Corporation or the Corporation itself from responding to or pursuing an
unsolicited proposal made to it if, in the opinion of the board of directors of
the Corporation, acting in good faith, the failure to do so would be
inconsistent with the discharge of their fiduciary duties.
C. The Corporation shall notify TLC of any proposed transaction (including the
terms thereof and the identity of the party making the proposal), any future
request for non-public information relating to the Corporation, or access to the
properties, books or records of the Corporation (or any of its subsidiaries) by
any person that may be considering a transaction that could reasonably be
considered to be in competition with or inconsistent with the Transaction.
8. Fees and Expenses
Except as expressly provided in Schedule "B", or as may otherwise be
agreed by the parties, each of the parties shall be responsible for payment of
all fees and expenses incurred by it in connection with the matters contemplated
by this agreement.
9. Confidentiality and Public Disclosure
Disclosure of this agreement, its terms and conditions and the
transactions that it contemplates shall be made only:
(a) with the approval of each of the Corporation (through its board of
directors) and TLC, which approval shall not be withheld
unreasonably;
(b) as required by applicable legislation or any regulatory authority or
stock exchange; or
(c) as may be required by a court of competent jurisdiction.
The Corporation and TLC shall consult with one another as to the timing and
wording of press releases and other disclosure of or relating to this agreement
and the Transaction. This section shall not restrict the ability of the
Corporation and TLC to provide copies of this agreement to their respective
boards of directors and to those employees, bankers and professional advisors
that need to know details of this agreement and the Transaction for them to
perform their obligations in connection with the Transaction.
10. Termination
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A. The Corporation, when not in default in performance of its obligations under
this agreement may, without prejudice to any other rights, terminate this
agreement by notice to TLC if:
(a) TLC has not taken up and paid for all common shares tendered
pursuant to the Transaction on or before April 17, 1998; or
(b) TLC breaches this agreement in any material respect.
B. TLC, when not in default of the performance of its obligations under this
agreement, may, without prejudice to any other rights, terminate this agreement
by notice to the Corporation if:
(a) any of the Lock-Up Agreements have been terminated without the
consent of TLC, provided that TLC has not breached a Lock-Up
Agreement in any material respect; or
(b) the Corporation breaches this agreement in any material respect.
C. This agreement also may be terminated at such other time as may be agreed by
the board of directors of the Corporation and TLC in writing.
D. The provisions of ss.4 (as it relates to the liability of TLC for its
management of the business and affairs of the Corporation), 6 (as it relates to
the maintenance of confidentiality), 8, 9, 10, 11, 12, 13, 14, 15 and 16 shall
continue in full force and effect and survive any termination or purported
termination of this agreement or any of its terms.
11. Assignment
TLC may assign all or any part of its rights under this agreement (other
than those arising under ss.4) to a direct or indirect wholly-owned subsidiary;
provided that if such an assignment takes place, TLC shall continue to be liable
for any default in the performance by the assignee. This agreement shall not
otherwise be assignable by either the Corporation or TLC without the prior
written consent of the other.
12. Notice
Any notice or other communication required or permitted to be given under
this agreement shall be sufficiently given if delivered in person or if sent by
facsimile transmission (provided that transmission is confirmed):
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(a) in the case of the Corporation, to the following address:
3 Robert Speck Parkway
Suite 725
Mississauga, Ontario
L4Z 2G5
Facsimile No: 905-897-6130
Attention: Richard Lockie
Chairman, Special Committee of the Board of Directors
(b) in the case of TLC, to the following address:
5600 Explorer Drive
Suite 301
Mississauga, Ontario
L4W 4Y2
Facsimile No: 905-602-2025
Attention: Elias Vamvakas
President and Chief Executive Officer
or such other address as the party to which that notice or other communication
is to be given last notified the party giving the notice in the same manner
provided in this section. Any notice given in accordance with the section shall
be deemed to have been received on the date of delivery or sending.
13. Governing Law
This agreement shall be governed by, and construed in accordance with, the
laws of the Province of Ontario and the federal laws of Canada applicable
therein (excluding any conflict of laws rule or principle that might refer to
the laws of another jurisdiction). Each party irrevocably submits to the
non-exclusive jurisdiction of the courts of Ontario with respect to any matter
arising under this agreement or related to this agreement.
14. Entire Agreement
This agreement and the Confidentiality Agreement constitute the entire
obligations of the parties with respect to the subject matter of this agreement
and supersede any prior expression of intent or understanding with respect to
the subject matter of this agreement or understanding with respect to the
transactions contemplated by this agreement. For greater certainty, none of the
parties
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makes any representation or warranty, express or implied, except as set forth in
this agreement or as may be set forth in a subsequent definitive agreement.
15. Specific Performance and Other Equitable Rights
Each of the Corporation and TLC recognizes and acknowledges that this
agreement is an integral part of the Transaction and that they would not pursue
the Transaction unless this agreement was executed. Each of the Corporation and
TLC acknowledges and agrees that a breach by it of any covenant or other
commitment contained in this agreement will cause the other to sustain injury
for which it would not have an adequate remedy at law for money damages. In the
event of any such breach, the aggrieved party shall be entitled to the remedy of
specific performance of the covenants or commitments and preliminary and
permanent injunctive and other equitable relief in addition to any other remedy
to which it might be entitled, at law or in equity. The Corporation and TLC
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
16. Counterparts
This agreement may be signed in any number of counterparts (by facsimile
or otherwise), each of which shall be deemed to be original and all of which,
when taken together, shall be deemed to constitute one in the same instrument.
It shall not be necessary in making proof of this agreement to produce more than
one counterpart.
IN WITNESS WHEREOF the parties have signed this agreement as of the date
first set out above.
BEACONEYE INC.
Per: ____________________________________
TLC THE LASER CENTRE INC.
Per: ____________________________________
<PAGE>
SCHEDULE "A"
THE TRANSACTION
Form: Share exchange take-over bid (the "Bid") for all of the common
shares of the Corporation.
Consideration: $1.50 per common share of the Corporation, to be satisfied
with common shares of TLC, which shall be valued at the
weighted average closing price of the common shares of TLC on
the 20 trading days ending on the last trading day prior to
take up of the common shares of the Corporation under the Bid;
provided this value shall not exceed $18.75 or be less than
$17.50. Fractional interests in common shares of TLC will not
be issued and in lieu thereof, a holder will be paid cash
based on the price calculated above per common share of TLC.
Conditions: The bid shall be conditional only upon:
(a) there being deposited, and not withdrawn, at least
two-thirds of the outstanding common shares of the
Corporation;
(b) no law, regulation, rule, policy, decision or order
(whether or not having the force of law) shall have been
enacted, promulgated, applied or rendered after the date
of this agreement (i) to cease trade, enjoin, prohibit
or impose material limitations or conditions on the
purchase by or the sale to TLC of the common shares of
the Corporation or the right of TLC to own or exercise
full rights of ownership of such shares, or (ii) which
would prevent, or impose material limitations or
conditions on, completion of the acquisition by TLC of
all of the common shares of the Corporation pursuant to
a second step transaction; and
(c) there not existing any prohibition at law against TLC
making the Bid or taking up and paying for any or all of
the shares under the Bid.
Mailing: TLC shall mail the bid on or before March 16, 1998.
Take-Up: TLC shall take up and pay for common shares deposited under
the bid as soon as possible after the expiry of the initial 21
day withdrawal rights contemplated under the Securities Act
(Ontario).
Letter of
Transmittal: The letter of transmittal will contain the language included
under the heading "Release of BeaconEye and Certain Persons
and Cancellation of Options and Warrants" in the letter of
transmittal that accompanied TLC's January 13, 1998
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circular, amended to add the following after the words "Expiry
Time" in the seventh line:
"except that such release insofar as it relates to
directors, officers and employees of BeaconEye and its
subsidiaries shall only extend to causes, matters or
things arising out of their conduct as directors,
officers and employees of BeaconEye and its
subsidiaries".
Directors
Circular: The board of directors of the Corporation shall make available
to TLC, for mailing by TLC concurrently with the Bid, a
directors circular recommending that holders of common shares
of the Corporation accept, and tender their shares pursuant
to, the Bid.
<PAGE>
SCHEDULE "B"
FINANCING
Facility: Subject to ss.5 of the agreement, TLC shall advance to the
Corporation sufficient funds to carry on its business in a
manner that does not diminish the value of that business.
Drawdowns: Advances shall be made to the Corporation as required for the
operation of its business.
Interest: The principal amount of the loan and accrued interest shall
bear interest at floating rate equal to prime plus 2%.
Interest shall accrue monthly and be payable at maturity.
Maturity: The loan shall mature and be payable on December 31, 1998.
Prepayment: The Corporation may prepay the loan, in $100,000 increments,
at any time.
Security: The loan shall be secured on the assets of the Corporation
(including a pledge of the shares of its subsidiaries) and its
subsidiaries and shall rank in priority to the security
granted in connection with the convertible debentures issued
by the Corporation in November 1997; provided, however, that
if TLC does not take up and pay for the Shares based solely on
reliance on condition (b)(ii) then TLC shall subordinate its
security interest to the holders of the Debentures.
Expenses: All reasonable out-of-pocket expenses of TLC in connection
with the financing shall be for the account of the
Corporation.
TLC The Laser Center Inc.
SHARE FOR SHARE EXCHANGE AGREEMENT
THIS AGREEMENT is made and entered into as of December 15, 1996;
B E T W E E N:
TLC The Laser Center Inc., a corporation incorporated under the laws
of the Province of Ontario
(hereinafter referred to as "TLC")
OF THE FIRST PART,
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20/20 Laser Centers, Inc., a corporation incorporated pursuant to
the laws of the State of Maryland
(hereinafter referred to as "20/20")
OF THE SECOND PART,
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Gary F. Jonas, Charles Citrin, M.D., Warren Rustand, Mark Speaker,
M.D., J. James Thimons, O.D., Michael Kane, Michael Solomon
(individually and as Trustee of Goldstein Family Trust), Elizabeth
A. Karmin, Eric J. Hatch, Greg P. Cofoid, and Corinne
Kuypers-Denlinger (hereinafter referred to as the "Insiders")
OF THE THIRD PART.
W I T N E S S E T H:
WHEREAS Company is engaged in the business of developing and
operating medical practices in the United States of America in which physicians
use excimer lasers to correct refractive vision disorders such as
nearsightedness and astigmatism (the "Business");
AND WHEREAS TLC is engaged in the business of developing and
operating medical practices in North America in which physicians use excimer
lasers to correct refractive vision disorders such as nearsightedness and
astigmatism and desires to acquire Company through a tax-free exchange of the
stock of 20/20 solely for voting stock of TLC pursuant to Section 368(a)(1)(B)
of the Internal Revenue Code of 1986, as amended (the "Code").
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2
AND WHEREAS the Insiders have agreed to deliver their shares in
20/20 commensurate with the execution and delivery of this Agreement, together
with the form of proxy evidencing an affirmative vote in favour of the Exchange
(as hereinafter defined);
NOW, THEREFORE, in consideration of the recitals and of the
respective covenants, representations, warranties and agreements herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
INTERPRETATION
1.1 Definitions
In this Agreement, unless something in the subject matter or context is
inconsistent therewith:
(a) "Agreement" means this agreement, the schedules, exhibits and all
amendments made hereto by written agreement between the parties;
(b) "Balance Sheet of 20/20" has the meaning set out in Section 3.4;
(c) "Balance Sheet of TLC" has the meaning set out in Section 4.5;
(d) "Business" has the meaning set forth in the first recital;
(e) "Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Ontario or in the State of Maryland;
(f) "Closing" has the meaning set forth in Section 2.2 below;
(g) "Closing Date" has the meaning set forth in Section 2.2 below;
(h) "Code" means the Internal Revenue Code of 1986, as amended;
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3
(i) "Company" means 20/20 and each of the Subsidiaries;
(j) "Company Share" means a share of the voting common stock of 20/20;
(k) "Effective Time" means the time as of which the Exchange (as
hereinafter defined) is effective which, for purposes of this
Agreement, is intended to be, and may be used interchangeably with,
the Closing Date;
(l) "Exchange" has the meaning set out in Section 2.1(b);
(m) "Insiders" means Gary F. Jonas, Charles Citrin, M.D., Warren
Rustand, Mark Speaker, M.D., J. James Thimons, O.D., Michael Kane,
Michael Solomon (individually and as Trustee of Goldstein Family
Trust), Elizabeth A. Karmin, Eric J. Hatch, Greg P. Cofoid, and
Corinne Kuypers-Denlinger.
(n) "Interim Consolidated Financial Statements of TLC" has the meaning
set out in Section 4.5;
(o) "Prospectus" means the prospectus of TLC dated September 24, 1996
relating to the offering of 3.5 million common shares of TLC;
(p) "Purchase Price" has the meaning set out in Section 2.1(a);
(q) "Shareholders" means all of the holders of the Company Shares;
(r) "Subsidiaries" means collectively 20/20 Laser Services (DC Metro),
LLC, 20/20 Laser Services (South Florida), LLP, 20/20 Laser Services
(Philadelphia Metro), LLP, 20/20 Laser Services (NY Metro I), LLC,
20/20 Laser Services (NY Metro II), LLC and 20/20 Laser Services
(Manhattan), LLC;
(s) "Threshold" has the meaning set out in Section 2.1(a);
(t) "TLC Share" means a voting common share without par value of TLC;
(u) "20/20 Financial Statements" has the meaning set out in Section 3.4;
and
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4
(v) "20/20 Financial Statements Date" means October 31, 1996..
1.2 Headings
The division of this Agreement into Articles and Sections and the
insertion of heading are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms of "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles and
Sections are to Articles and Sections of this Agreement.
1.3 Extended Meanings
In this Agreement, words importing the singular number shall include the
plural and vice versa, words importing the masculine gender shall include the
feminine and neuter genders and vice versa and words importing persons shall
include individuals, partnerships, associations, trusts, unincorporated
organizations and corporations.
1.4 Accounting Principles
Whenever in this Agreement reference is made to a calculation to be made
in accordance with generally accepted accounting principles, such reference
shall be deemed to be to the generally accepted accounting principles from time
to time adopted by the American Institute of Certified Public Accountants, or
any successor institute in the case of the Company, and the Canadian Institute
of Chartered Accountants, or any successor institute in the case of TLC,
applicable as at the date on which such calculation is made or required to be
made in accordance with generally accepted accounting principles.
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5
1.5 Exhibits
The following are the Exhibits annexed hereto and incorporated by
reference and deemed to be part hereof:
Exhibit 1 - Form of Legal Opinion of Proskauer Rose
Goetz & Mendelsohn LLP, respecting 20/20
Compliance with Health Care Statutes;
Exhibit 2 - [Intentionally Deleted];
Exhibit 3 - Form of Legal Opinion of Tory Tory
DesLauriers & Binnington and/or Arent Fox
Kintner Plotkin & Kahn respecting TLC
Corporate Matters;
Exhibit 4 - Form of Holdback Agreement;
Exhibit 5 - Form of Executive Officer Employment
Agreement for 20/20;
Exhibit 6 - Form of Shareholders' Certification; and
Exhibit 7 - Form of Insiders' Transmittal Letter; and
Exhibit 8 Form of Registration Rights Agreement.
Exhibit 9 - Form of Amended Loan Documents for Advance
1.6 Schedules
The following are the Schedules annexed hereto and incorporated by
reference and deemed to be part hereof:
Schedule 3.1 - List of Company Shareholders;
Schedule 3.3 - List of Options and Warrants;
Schedule 3.6 - List of Title to Properties;
Encumbrances;
Schedule 3.7 - List of Leases;
Schedule 3.8 - List of Fixed Assets;
Schedule 3.9 - List of Material Contracts;
Schedule 3.10 - List of Restrictive Documents;
Schedule 3.11 - List of Litigation Proceedings;
Schedule 3.12 - Taxes
Schedule 3.14 - List of Insurance Policies;
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6
Schedule 3.15 - List of Intellectual Property;
Schedule 3.19 - List of Employees, Length of Service,
and Compensation and Benefit Plans;
Schedule 3.20 - List of Environmental Claims;
Schedule 3.22 - List of Bank Accounts, Powers of
Attorney and Related Party Contracts;
Schedule 3.24 - Miscellaneous Disclosures
Schedule 3.28 - Subsidiaries
Schedule 4.7 - List of TLC Restrictive Documents;
Schedule 4.8 - List of TLC Litigation Proceedings; and
Schedule 7.1 - Stock Options.
ARTICLE II
THE EXCHANGE AND RELATED TRANSACTIONS
2.1 The Exchange
(a) TLC offers to purchase from the Shareholders and the Insiders all of
the Company Shares upon and subject to the terms and conditions
hereof; provided however that this offer shall be contingent upon
the Shareholders and the Insiders of the Company selling in the
aggregate at least 80% of the Company Shares computed on a fully
diluted basis (the "Threshold");
(b) The purchase price to be paid for the Company Shares (the "Purchase
Price") shall be paid and satisfied by the allotment, issuance and
delivery to the Shareholders and Insiders of .37517 TLC Shares for
each Company Share (the "Exchange Ratio") or by the vesting of
certain Stock Options in the TLC Share Option Plan pursuant to the
provisions of Section 7.1 hereof. After making the calculation of
the Exchange Ratio for each Shareholder or Optionee (as defined in
Section 7.1 hereof), any fraction of .50 and above shall be rounded
up to the next whole TLC Share, and any fraction below .50 shall be
rounded down so that no fractional TLC Shares are issued. Subject to
the terms and conditions of this Agreement, the Shareholders and
Insiders shall surrender all of their Shares to TLC in exchange
solely for TLC Shares at the Effective Time (the "Exchange").
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7
(c) TLC hereby agrees that the amount of the Purchase Price shall be
added to the stated capital applicable to the common shares issued
by TLC.
2.2 The Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Arent Fox Kintner Plotkin &
Kahn, 1050 Connecticut Avenue, N.W., Washington, D.C. 20036-5339 following the
satisfaction or waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby, commencing at 9:00 a.m., local
time, on January 31, 1997 or such other date the parties may mutually determine
(the "Closing Date").
2.3 Actions at the Closing. At the Closing, (i) Shareholders and the Company
will deliver to TLC the various certificates, instruments, and documents
referred to in Article VII below; and (ii) TLC will deliver to the Company
various certificates, instruments and documents referred to in Article VIII
below or as may be required pursuant to the General Corporation Law of Maryland.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND INSIDERS
3.0 Representations of the Company and Insiders. The Company and Insiders,
jointly and severally, if applicable, except as otherwise indicated, represent,
warrant and agree as follows:
3.1 Ownership of Company Shares. The Shareholders and Insiders are the lawful
record owners of all of the outstanding Company Shares and with respect to the
Insiders only, their Shares are free and clear of all liens, encumbrances,
restrictions and claims of every kind; the Insiders have the legal right, power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby; the Exchange will result in the transfer to TLC of valid
title to the Company Shares owned by the Insiders, free and clear of all liens,
encumbrances, restrictions and claims of every kind. According to the books and
records of the Company, the numbers of shares owned by each Shareholder is
listed on Schedule 3.1. Attached hereto as Exhibit 6 is a copy of the
Shareholders' Certification which TLC may rely upon to be made by each
Shareholder as to his/her/its ownership of their respective Company Shares. The
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8
Company or the Insiders have not received any notice of any pledge, lien or
other encumbrance of any of the Company Shares except as described in Schedule
3.1.
3.2 Existence; Good Standing; Corporate Authority and Authorization. 20/20 is a
corporation duly organized, validly existing and in good standing under its
jurisdiction of incorporation or organization. Each of the Subsidiaries is a
limited partnership or limited liability company duly organized, validly
existing and in good standing under its jurisdiction of organization. 20/20 and
each of the Subsidiaries is qualified to do business and is in good standing in
all other jurisdictions in which the character or location of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification necessary. 20/20 has the power and authority to own its property
and to carry on its business as now being conducted. 20/20 has the full power
and authority to enter into and perform this Agreement. Compliance with the
terms and conditions hereof by 20/20 will not (i) violate or conflict with any
provision of the articles of incorporation, other constating documents of 20/20
or any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restrictions of any government, governmental
agency or court to which the Company or any of its property or assets is
subject, or (ii) result in the breach or termination of any provision of, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, require any notice or constitute a breach or default under any
note, bond, indenture, lease, agreement or other instrument or obligation to
which the Company is a party or by which any of the properties or assets of the
Company may be subject, bound or affected. No authorization, consent or approval
of any public body or authority is necessary to the validity of the transactions
contemplated by this Agreement. Except for the tender of Company Shares by the
Shareholders pursuant to Article V, all necessary approvals of the parties under
any contracts, commitments or understandings to which the Company is a party or
any other person required to permit the consummation on the part of the Company
of the transactions contemplated in this Agreement have been or will be obtained
by the Company or the Insiders on or before the Closing Date. Except for the
tender of Company Shares by the Shareholders pursuant to Article V, neither the
Company nor any Insider is otherwise a party to any contract or subject to any
other legal restriction that would prevent or restrict complete fulfillment by
the Company or the Insiders of all of the terms and conditions of this Agreement
or compliance with any of the Company's or the Insiders' obligations under it.
Except for the tender of Company Shares by the Shareholders pursuant to Article
V, the Company has taken all necessary corporate actions to authorize and
approve the execution, delivery and performance of this Agreement (including
approval by the Board of Directors of the Company). This Agreement constitutes a
legal, valid and binding obligation of the Company and the Insiders, enforceable
against the Company and
<PAGE>
9
the Insiders in accordance with its terms.
3.3 Capital Stock and Exclusive Dealing.
(a) 20/20 has an authorized capitalization consisting of Twenty Million
(20,000,000) shares of voting common stock, par value $.01 per share, of which
11,105,301 shares have been issued and outstanding to the Shareholders and the
Insiders, collectively. The Insider's Shares represent42%of the total issued and
outstanding Shares. All such shares have been duly authorized; are validly
issued; and, are fully paid and nonassessable. There are no other shares of
stock of 20/20 issued and outstanding. There are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of 20/20 except as set out on
Schedule 3.3.
(b) Neither the Company nor the Insiders is engaged in any discussions or
negotiations for the purchase or sale of any shares of the Company Shares or
treasury shares except in connection with the transactions described herein.
3.4 Financial Statements. The Company has furnished TLC with the consolidated
balance sheets of the Company for the annual fiscal periods ended December 31,
1994 and December 31, 1995, and the ten (10) month interim period ended October
31, 1996 (the "Balance Sheet of 20/20") and the related consolidated statements
of income, shareholder's equity and changes in financial position for the
periods then ended (hereinafter collectively referred to as the "20/20 Financial
Statements"). The 20/20 Financial Statements have not been audited (except for
the audit conducted by representatives of TLC as referenced below), and have
been prepared by the Company. All such 20/20 Financial Statements are fairly
presented in accordance with generally accepted accounting principles
consistently followed according to past practice throughout the periods
indicated. The Balance Sheet of 20/20 presents fairly the financial position of
the Company at the dates thereof and, except as indicated therein, reflects in
accordance with generally accepted accounting principles claims against and
debts and liabilities of the Company, fixed or contingent, as at the dates
thereof, and the related consolidated statements of income, shareholder's equity
and changes in financial position fairly presents the results of the operations
of the Company and its Subsidiaries and the changes in the financial position
for the periods indicated. The 20/20 Financial Statements have been audited by
representatives of TLC.
3.5 Books and Records. The corporate records and minute books of the Company, as
made
<PAGE>
10
available to TLC and its representatives prior to the Closing Date, contain
complete and accurate records of all official meetings of and official corporate
actions or written consents by the respective shareholders and Board of
Directors of the Company and such meetings were duly held. The share certificate
books, registers of Shareholders, registers of transfers and registers of
directors are complete and accurate. The Company does not have any of its
corporate and financial records, systems, controls, data or information (other
than patient outcomes data) recorded, stored, maintained, operated or otherwise
wholly or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
3.6 Title to Properties; Encumbrances. Except as set forth in Schedule 3.6
attached hereto and made a part hereof and except for properties and assets
reflected in the Balance Sheet of 20/20 or acquired since the 20/20 Financial
Statement Date or which have been sold or otherwise disposed of in the ordinary
course of business, the Company has good, valid and merchantable title to (a)
all its properties and assets (personal, tangible and intangible), including,
without limitation, all the properties and assets reflected in the Balance Sheet
of 20/20, except as indicated in the notes thereto, and (b) all the properties
and assets purchased by the Company since the 20/20 Financial Statements Date;
in each case, each such property is subject to no encumbrance, lien, charge or
other restriction of any kind or character, except for (i) liens reflected in
the Balance Sheet of 20/20, (ii) purchase money liens, (iii) liens consisting of
zoning or planning restrictions, easements, permits and other restrictions or
limitations on the use of real property or irregularities in title thereto which
do not materially detract from the value of, or impair the use of, or otherwise
impair the marketability of the title or affect the use of such property by the
Company in the operation of its business and (iv) liens for current taxes,
assessments or governmental charges or levies on property not yet due and not
delinquent.
3.7 Leases. Schedule 3.7 attached hereto and made a part hereof contains an
accurate and complete list (including the location of an executed copy thereof)
of all leases to which the Company is a party as lessee or lessor. Each lease
set forth in Schedule 3.7 is in full force and effect. All rents and additional
rents (except as set forth on Schedule 3.7) due to date on each such lease have
been paid; in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease and is not in default thereunder
and (except as set forth on Schedule 3.7) no waiver, indulgence or postponement
of the lessee's obligations thereunder has been granted by the lessor; and
(except as set forth on Schedule 3.7) there exists no event of default or event,
occurrence, condition or act (including the execution and delivery of
<PAGE>
11
this Agreement) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default under such
lease. Except as set forth on Schedule 3.7, the Company has not knowingly
violated or been given notice of violation of any of the terms or conditions
under any such lease in any material respect, and to the best knowledge,
information and belief of the Company and Insiders, all of the covenants to be
performed by any other party under any such lease have been fully performed. The
property leased by the Company is in a state of good maintenance and repair and
is adequate and suitable for the purposes for which it is presently being used
except for minor repairs which may be necessary in the ordinary course of
business.
3.8 Fixed Assets. Schedule 3.8 attached hereto and made a part hereof sets forth
a true, correct and complete description and location of each material item of
equipment, furniture, fixtures, and other items of tangible personal property
owned or leased by the Company and used in or useful or pertaining to the
Business or the operation thereof, including, without limitation, the excimer
lasers used at the Company's medical practice sites, whether or not reflected on
the books of the Company or in the possession of the Company and whether or not
presently in use.
3.9 Material Contracts. Except as set forth in Schedule 3.9 attached hereto and
made a part hereof, the Company is not now bound by (a) any agreement, contract
or commitment relating to the employment of any person by the Company, or any
bonus, deferred compensation, pension, profit sharing, stock option, employee
stock purchase, retirement or other employee benefit plan, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(c) any agreement contract or commitment relating to capital expenditures, (d)
any loan or advance to, or investment in, any other person or any agreement,
contract or commitment relating to the making of any such loan, advance or
investment, (e) any guarantee or other contingent liability in respect of any
indebtedness or obligation of Shareholders, or any other person or company
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any management service, consulting or any
other similar type contract, (g) any agreement, contract or commitment limiting
the freedom of the Company to engage in any line of business or to compete with
any other person, (h) any agreement, contract or commitment of the Company which
involves the payment in the aggregate of Twenty-Five Thousand and No/100 Dollars
U.S. ($25,000.00) or more. Each contract or agreement set forth in Schedule 3.9
is in full force and effect and to the best knowledge and belief of the Insiders
and the Company (except for the matters disclosed on Schedule 3.7 hereof) there
exists no default or event of default or event, occurrence, condition or act
(including the execution and delivery of this Agreement) which, with
<PAGE>
12
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder. Except for the
matters disclosed on Schedule 3.7 hereof, the Company has not knowingly violated
or been given notice of a violation of any of the terms or conditions of any
contract or agreement set forth in Schedule 3.9 in any material respect, and, to
the best knowledge, information and belief of the Company and Insiders, all of
the covenants to be performed by any other party thereto have been fully
performed.
3.10 Restrictive Documents. Except as set forth in Schedule 3.10 attached hereto
and made a part hereof, the Company is not subject to, or a party to, any
charter, bylaw, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, which materially adversely affects
the business practices, operations or condition of the Company or any of its
assets or property, or which would prevent consummation of the transactions
contemplated by this Agreement or the continued operation of the Company's
business after the date hereof or the Closing Date on substantially the same
basis as heretofore operated or which would restrict the ability of the Company
to acquire any property or conduct business in any area.
3.11 Litigation. Except as set forth in Schedule 3.11 attached hereto and made a
part hereof, there is no action, suit, or proceeding at law or in equity by any
person or entity, or any arbitration or any administrative or other proceeding
by or before (or to the best knowledge, information and belief of the Company or
Insiders; any investigation by) any governmental or other instrumentality or
agency, pending, or to the best knowledge, information and belief of the Company
or Insiders, threatened, against or affecting the Company or any of its
properties or rights which could materially and adversely affect the right or
ability of the Company to carry on its business as now conducted, or which could
materially and adversely affect the condition, whether financial or otherwise,
or properties of the Company that would not otherwise be covered by adequate
insurance. Except as set forth on Schedule 3.11, the Company is not subject to
any judgment, order or decree entered in any lawsuit or proceeding which may
have a material adverse effect on any of its operations, business practices or
on its ability to acquire any property or conduct business in any area.
3.12 Taxes. (a) For purposes of this Agreement, (i) "Taxes" shall mean all
taxes, assessments, charges, duties, fees, levies or other governmental charges
(including interest, penalties or additions associated therewith) (including,
without limitation, federal, state, city, county, local, foreign, or other
income, franchise, capital, withholding, real or tangible property, employment,
unemployment compensation, transfer, sales, use, excise and all other taxes of
any
<PAGE>
13
kind) imposed by the United States or any state, city, county, country or
foreign government or subdivision or agency thereof, whether disputed or not,
and (ii) "Transaction" means any one or more transactions, acts, events, or
omissions of whatsoever nature.
(b) The Company has filed on a timely basis all returns and reports, including
all estimated returns and reports of every kind, and have timely given all
notices, in respect of Taxes required to be filed or given under applicable law
within the applicable statute of limitations period. Such returns, reports and
notices are complete and accurate in all material respects. All Taxes shown on
such returns or reports have been, and all Taxes subsequently assessed with
respect to the periods and or Transactions to which such returns or reports
relate have been or will be, timely, and fully paid except for amounts that the
Company is contesting in good faith, as set forth in Schedule 3.12. Except as
set forth in Schedule 3.12, no extensions of time to file such reports or
returns or waivers of statutes of limitation have been granted. The provisions
in the 20/20 Financial Statements for Taxes currently payable are adequate in
all material respects to provide for such Taxes for which the Company may be
liable in respect of periods or Transactions through the dates thereof. The
Company has not recorded any deferred taxes in the 20/20 Financial Statements.
The federal income taxes of the Company have not been examined by the Internal
Revenue Service (the "IRS"). To the best knowledge of the Company and the
Insiders, no fact or condition exists relating to any past or present
Transaction, except as set forth in Schedule 3.12, which, if known to any tax
authority having jurisdiction, would likely result in a successful challenge by
such authority of the treatment or omission of such factor or condition on any
tax return, report or notice of the Company. The Company has made all payments
of estimated Taxes required to be made under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code") and any comparable provisions of
state, local or foreign law. All such amounts that are required to be remitted
to any taxing authority have been duly remitted, except for such amounts as the
Company is contesting in good faith as set forth in Schedule 3.12. Except as set
forth in Schedule 3.12, there is no pending nor, to the best of the Company's
knowledge, threatened or contemplated action, audit, proceeding or investigation
for the assessment or collection of Taxes of the Company. Except as set forth in
Schedule 3.12, there are no requests for rulings, outstanding subpoenas or
requests for information with respect to Taxes of the Company, proposed
reassessments of any property owned or leased by the Company, or similar matters
pending with respect to any taxing authority. Except as set forth in Schedule
3.12, no power of attorney has been granted by the Company with respect to any
matter relating to Taxes which is currently in force. Any adjustment of Taxes of
the Company made by the IRS in any examination which is required to be reported
to the appropriate state, local or foreign taxing authorities has been reported
and any additional amount due with respect
<PAGE>
14
thereto has been paid except for amounts that the Company is contesting in good
faith, as set forth in Schedule 3.12.
(c) The Company has not received any material revenue agent's reports, or other
material written assertions of deficiencies or other liabilities for Taxes, with
respect to past records for which the limitations period has not run.
No power of attorney granted by the Company with respect to any taxes is
currently in force and the Company is not a party to any agreement for the
allocation or sharing of taxes, and the Company has never been a member of any
affiliated group tax return, and the Company has no liability for the taxes of
any person under Treasury Regulation Section 1.1502-6 (or any similar provision
of state, local or foreign law). The Company has not, with regard to any assets
or property held, acquired or to be acquired by it, filed a consent to the
application of Section 341(f) of the Code, and it is not a party to any
agreement, contract or arrangement that could result, on account of the
transactions contemplated by this Agreement, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
All monies required to be withheld from employees of the Company for income
taxes, social security and unemployment insurance taxes have been withheld or
collected and paid, when due, to the appropriate governmental authority, or if
such payment is not yet due, an adequate reserve has been established and the
Company has otherwise complied in all material respects with applicable laws,
rules, and regulations relating to tax withholding and remittance from
employees.
The Company is not a "United States Real Property Holding Corporation" as
defined in Section 897 of the Code.
The term "return" or "tax return" shall include any return declaration, report,
estimate, information return and statement required to be filed with or supplied
to any taxing authority in connection with any Taxes.
3.13 Liabilities. The Company has no material outstanding claims, liabilities or
indebtedness, contingent or otherwise, except as set forth in the Balance Sheet
of 20/20 other than liabilities incurred subsequent to the 20/20 Financial
Statement Date in the ordinary course of business not involving borrowings by
the Company or as may have been disclosed in Schedules attached hereto or
otherwise disclosed and consented to by TLC. Neither the Company nor Insiders
<PAGE>
15
knows of any default in respect to the terms or conditions of any indebtedness
for which it may be obligated on, whether directly, indirectly or as endorser or
guarantor. The Company and Insiders represent and warrant that they have not
received any notice, verbal or otherwise, that any of the holders and payees of
any and all such liabilities, material or otherwise, intend to accelerate or
demand payment from the Company of any such liabilities as a result of the
consummation of the transactions herein described.
3.14 Insurance. Schedule 3.14 attached hereto and made a part hereof, sets out a
summary of the risk insured against and amount of coverage for all insurance
policies which the Company maintains with respect to its Business, properties or
employees. All such policies are in full force and effect and there currently
exists no right of termination on the part of the insurance carriers as a result
of any prior default on the part of the Company. Such policies, with respect to
their amounts and types of coverage, are believed to be adequate to insure
against material risks to which the Company and its property and assets are
normally exposed in the operation of its business. Since the 20/20 Financial
Statement Date there has not been any material adverse change in the Company's
relationship with its insurers or in the premiums payable pursuant to such
policies. The Company has no reason to believe that the insurance policies in
Section 3.14 will not be renewed or will only be renewed on the basis that there
will be a material increase in the premium payable thereon.
3.15 Intellectual Properties. For the purposes of this Section 3.15,
"Intellectual Property" means any and all right, title and interest of the
Company in and to: patents, registered or unregistered tradenames, trademarks
and servicemarks and registered or unregistered copyrights and applications
therefor; trade secrets, customer lists, methodologies, proprietary development
and marketing information and know-how, inventions, inventors' notes, drawings,
and designs associated with any of the foregoing, relating to the business of
the Company. Schedule 3.15 contains a complete list of all tradenames,
trademarks, and servicemarks that are registered or applications for which have
applications for registration have been filed with the Patent and Trademark
Office, and a list of all materials which have been filed with the Copyright
Office for copyright protection.
(a) The Company has full and exclusive right, title and interest in and
to the Intellectual Property, free and clear of all claims, liens,
encumbrances, licenses and other interest, except for those
specifically disclosed on Schedule 3.15, and the Company has no
obligation to any other person or entity with respect to the
Intellectual Property, except as disclosed in Schedule 3.15. The
Company has the
<PAGE>
16
right to bring actions for infringement of the Intellectual
Property, and none of the Intellectual Property infringes the rights
of any other person except with respect to outstanding litigation
disclosed in Schedule 3.11.
(b) Schedule 3.15 accurately identifies all rights, licensed to the
Company by third parties, the ownership as well as the registered or
unregistered status of all the foregoing being separately stated.
The Intellectual Property is adequate for the conduct of the
business of the Company. Services provided by the Company do not
infringe the rights owned by any other person or entity. No holder
of any equity security, director, officer or employee of the Company
owns, directly or indirectly, any interest in (i) any Intellectual
Property, or (ii) any other rights which infringe upon, conflict
with, or relate to any Intellectual Property which may supplement,
substitute for or compete with any of rights now used by the
Company.
3.16 Compliance with Laws. The Company is in compliance in all material respects
with all applicable laws, regulations, orders, judgments and decrees of each and
every jurisdiction in which the Company is doing business, including applicable
Federal and State laws and regulations, the violation of which would have a
material adverse effect on the Company.
3.17 Accounts and Notes Receivable. To the best knowledge of the Company and the
Insiders, the amount of accounts and notes receivable, unbilled invoices and
other debts (collectively the "accounts receivable") due or recorded in the
records and books of account of the Company as being due to the Company on the
20/20 Financial Statement Date less the amount reserved for bad debts in the
20/20 Financial Statements, are a reasonable estimate of the collectible portion
of the accounts receivable. There has been no material adverse change since the
20/20 Financial Statement Date in the amount of accounts receivable or other
debts due the Company or the allowances with respect thereto, or accounts
payable of the Company, from that reflected in the Consolidated Balance Sheet of
20/20.
3.18 Employment Relations. Except as set forth on Schedule 3.11, (a) the Company
is in compliance in all material respects with all federal, state or other
applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labour practice which would have a material
adverse effect on the Company; (b) no unfair labour practice complaint against
the Company is pending before the National Labour Relations Board; (c) there is
no labour
<PAGE>
17
strike, dispute, slow down or stoppage actually pending or, to the best
knowledge and belief of the Company and the Insiders, threatened against or
involving the Company; (d) no representation question exists respecting the
employees of the Company; (e) no grievance which might have a material adverse
effect upon the Company or the conduct of its business exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted; (f) no collective bargaining
agreement is in effect or currently being negotiated by the Company; and (g) the
Company has not experienced any material labour difficulty since the Company's
inception. There has not been, and to the best knowledge and information of
Insiders, there will not be, any material adverse change in relations with
employees of the Company as a result of any announcement and completion of the
transactions contemplated by the Agreement.
3.19 Employees and Employee Benefit Plans:
(a) List of Employees and Plans. Set forth in Schedule 3.19 attached
hereto and made a part hereof is an accurate and complete list of
all employees, their length of service, employees compensation and
employee benefit plans ("Employee Benefit Plans") within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not any such Employee Benefit
Plans are otherwise exempt from the provisions of ERISA,
established, maintained or contributed to by the Company (including,
for this purpose and for the purpose of all of the representations
in this Section 3.19, all employers (whether or not incorporated)
which by reason of common control are treated together with the
Company and/or the Shareholders as a single employer within the
meaning of Section 414 of the Code).
(b) Other Plans. The Company does not presently maintain any employee
benefit plans or any other pension, welfare or retirement benefit
plans, except as set forth on Schedule 3.19.
(c) Employee Benefit Plans. No "reportable event" (as such term is
defined in Section 4043(b) of ERISA) or "prohibited transaction" (as
such term is defined in Section 406 of ERISA and Section 4975(c) of
the Code would be assessable) has occurred with respect to the
Employee Benefit Plans. The Company has complied with all terms and
conditions of, and has no liabilities or obligations under the
Employee Benefit Plans except as shown in the 20/20 Financial
Statements and
<PAGE>
18
accompanying footnotes. All Employee Benefit Plans has been
maintained in full compliance with all laws, including, without
limitation, ERISA and the Code, of all governmental authorities, and
all notices, reports and other filings required to be delivered or
filed under applicable laws with respect to the Employee Benefit
Plans. None of the Employee benefit Plans is a multi-employer plan
within the meaning of Section 3(37) of ERISA.
3.20 Environmental Laws and Regulations. The Company has heretofore made
available to TLC any and all information relating to the following items: (a)
the nature and quantities of any hazardous substances (as defined below)
generated, transported or disposed of by the Company since its inception,
together with a description of the location of each such activity, and (b) a
summary of the nature and quantities of any hazardous substances that have been
disposed of or found at any site or facility owned or operated presently or at
any previous time by the Company. The Company's existing and prior uses of the
real property owned and leased by it comply and have at all times during the
Company's occupancy complied with, and the Company is not in violation of, and
has not violated, in connection with the ownership, lease, occupancy, use,
maintenance, or operation of the property or the conduct of its business, any
applicable federal, state, county or local statutes, laws, regulations, rules,
ordinances, codes, licenses or permits relating in any way to the protection of
the environment, including, without limitation, the Clean Air Act, the Federal
Water Pollution Control Act of 1972, the Resource Conservation and Recovery Act
of 1976 ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Toxic Substances Control Act, any
analogous state laws, and any amendments or extensions of the foregoing and the
regulations promulgated thereunder (collectively, the "Environmental Laws"). The
Company has not received any notice of any work, repairs, construction or
capital expenditures required by the Environmental Laws with respect to any of
its properties or its business. Neither the Company nor the Insiders have
received notice that any, of the Company's leased or owned properties is
contaminated by or contains any hazardous substance except as set forth on
Schedule 3.20. No claim, action, suit or proceeding is pending or, to the
Company's or Insiders's knowledge, threatened against the Company, before any
court or other governmental authority or arbitration tribunal, relating to
hazardous substances, pollution or the environment, and there is no outstanding
judgment, order, writ, injunction, decree or award against or affecting the
Company or its assets with respect to the same. To the knowledge of the Company
or Insiders, there has never been, and there is not presently occurring, any
release or disposal by the Company of any hazardous substance on or from any of
the Company's leased or owned properties in violation of any Environmental Laws.
The Company has not received any notice from any government agency or private or
public
<PAGE>
19
entity advising it that it is responsible for response costs with respect to a
release, a threatened release or clean up of chemicals produced by, or resulting
from, any business, commercial, or industrial activities, operations, or
processes, including, but not limited to, hazardous substances, and has not
received any information requests under CERCLA from any government agency.
Neither the Company nor Insiders have received any notice of a violation of any
Environmental Laws in connection with the ownership, use, maintenance, or
operation of any of the Company's leased or owned real properties by the owner
thereof or any other person except as disclosed on Schedule 3.20. Except as
disclosed in Schedule 3.20, to the best knowledge of the Company and the
Insiders, there are no facts or circumstances which the Company reasonably
expects could form the basis for the assertion of any Claim (as defined below)
against the Company relating to environmental matters including, but not limited
to, any Claim arising from past or present environmental practices asserted
under the Environmental Laws, which the Company believes might have a material
adverse effect on the business, results of operations, financial condition or
prospects of the Company taken as a whole.
As used herein, "hazardous substances(s)" include any pollutants, contaminants,
dangerous substances, toxic substances, solid waste, hazardous wastes, hazardous
materials, or hazardous substances as defined in or pursuant to RCRA or CERCLA,
or any other federal, state or local environmental law, ordinance, rule or
regulation, except that, for purposes of this Agreement, "petroleum" (including
crude oil or any faction thereof) shall be deemed a "hazardous substance."
"Release" and "disposal" shall have the same meanings as defined in CERCLA and
RCRA. "Claim" shall mean any and all claims, demands, causes of actions, suits,
proceedings, administrative proceedings, losses, judgments, attorneys' fees, and
any other expenses incurred, assessed or sustained by or against the Company or
any of its subsidiaries. See Section 9.2 hereof for additional obligations of
the Company and Insiders with respect to environmental matters.
3.21 Interests in Competitors, Suppliers, Etc. As of the Closing Date, neither
the Insiders nor any persons holding the position of officer or director or any
similar position of the Company owns or possesses, directly or indirectly, any
financial interest in, or is a director, officer or employee of, any
corporation, firm, association or business organization which is engaged in the
same or similar business as the Company, or is a competitor or potential
competitor of the Company. Ownership of securities of a company whose securities
are registered under the Securities Exchange Act of 1934, not in excess of 5% of
any class of such securities, shall not be deemed to be a financial interest for
purposes of this Section 3.21 or in Section 3.22.
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20
3.22 Bank Accounts, Powers of Attorney and Related Party Contracts. Set forth in
Schedule 3.22 attached hereto and made a part hereof is an accurate and complete
list showing (a) the name and address of each bank in which the Company has an
account or safe deposit box, the number of any such account or any such box, the
names of all persons authorized to draw thereon or to have access thereto and
the current balances maintained in all such accounts, (b) the names of all
persons, if any, holding powers of attorney, authorized to draw thereon or have
access thereto from the Company and a summary statement of the terms thereof,
and (c) copies of contracts of Company with any individual or other entity in
which any shareholder of the Company has a financial interest.
3.23 No Changes Prior to Closing Date. During the period from the 20/20
Financial Statement Date through and including the Closing Date, except as
expressly provided for and stated in this Agreement or as set forth in any
Exhibit or Schedule hereto, the Company will not have, without the express
written consent of TLC, (i) incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except in the ordinary
course of business, (ii) permitted any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind except in the ordinary course of business and except for purchase money
financing to acquire equipment, (iii) sold, transferred or otherwise disposed of
any assets except in the ordinary course of business, (iv) made any capital
expenditure or commitment therefor in excess of $25,000.00 (U.S.), except in the
ordinary course of business, (v) declared or paid any dividend or made any
distribution on any shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any option, warrant or
other right to purchase or acquire any such shares, (vi) made any bonus payments
or profit sharing distributions or payments of any like kind to the employees,
shareholders, officers or directors of the Company except in the ordinary course
of business, (vii) increased its indebtedness for borrowed money, except current
borrowings from TLC, or made any loan to any employee, person or entity, (viii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material to the Company and its
subsidiaries, (ix) granted any increase in the rate of wages, salaries, bonuses
or other remuneration to any executive employee or other employee, except in the
ordinary course of business, (x) cancelled or waived any claims or rights of
substantial value, (xi) made any change in any method of business accounting,
except in the usual and ordinary manner and in the ordinary course of its
business, (xii) changed the ownership of the shares of the Company's common
stock or its capital structure (whether by the issuance or redemption of shares
or by granting of options) in contemplation of effecting the Exchange, (xiii)
retired, purchased,
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21
redeemed or reacquired any shares of its common stock, (xiv) paid any management
fees, rent, compensation or other similar fees or expenses to a Shareholder or
Insider or any affiliate of a Shareholder or Insider in an amount inconsistent
with past practices (except as disclosed and provided for in contracts that are
part of the Exhibits), or (xv) agreed, whether or not in writing, to do any of
the foregoing.
3.24 Disclosure. No representation, warranty or covenant in Article III of this
Agreement, the financial statements referred to in Section 3.4 above, or any
attached Schedule, Exhibit or certificate delivered pursuant to the terms
hereof, contains any untrue statement of a material fact, or omits any statement
of a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Company or Insiders which
materially and adversely affects the business, prospects or financial condition
of the Company, its properties or assets, which has not been disclosed and set
forth in this Agreement. The Company has disclosed to TLC the matters set forth
in Schedule 3.24.
3.25 Broker's or Finder's Fees. No agent, broker, person or firm acting on
behalf of an Insider or the Company is, or will be, entitled to any commission
or broker's or finder's fees from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
3.26 Agreements, Judgments and Decrees Affecting Insiders. The Insiders
represent and warrant to TLC that they are not subject to any agreement,
judgment or decree adversely affecting their ability to provide services to the
Company to enter into this Agreement; or, to consummate the transactions
contemplated herein.
3.27 Copies of Documents. The Company and Insiders have caused to be made
available for inspection and copying by TLC, true, complete and correct copies
of all documents referred to in this Agreement or in any Schedule attached
hereto and made a part hereof. To the best of their knowledge, information and
belief, the Company and Insiders warrant and represent that they have given TLC
access to all information relating to the Company's capital structure, its
business operations and all additional information which TLC has requested.
3.28 Subsidiaries. Except for the Subsidiaries and except as set forth in
Schedule 3.28, 20/20 does not own, directly or indirectly, any capital stock or
other equity securities of any corporation, partnership, limited liability
company or other entity to have any direct or indirect
<PAGE>
22
equity or ownership interest in any business other than the business conducted
by the Company. With respect to each Subsidiary and except as set forth in
Schedule 3.28: (a) 20/20 owns directly or indirectly all of such Subsidiary's
outstanding equity ownership (b) all such outstanding equity ownership is duly
and validly issued; (c) there are no outstanding options, warrants, rights,
contracts, commitments, understandings, or arrangements by which the Subsidiary
is bound to issue any additional shares of its equity ownership or any security
convertible thereunto or exercisable or exchangeable therefor; (d) the
Subsidiary is qualified or licensed to do business in the jurisdictions
identified in Schedule 3.28, which are all of the jurisdictions in which the
character of its properties or the nature of its business makes such
qualification or licensing necessary (except for such jurisdictions in which the
failure to so qualify or be licensed could not have a material adverse effect on
the business, properties, condition (financial or otherwise), results of
operations or prospects of such Subsidiary; and (e) complete correct copies of
each Subsidiary's limited partnership agreement or limited liability company
operating agreement, as the case may be, as amended to date and as now in effect
have been delivered to TLC.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF TLC
4.0 Representations, Warranties and Covenants of TLC. TLC represents, warrants
and covenants as follows:
4.1 Existence and Good Standing. TLC is a corporation duly organized and validly
subsisting under the laws of the Province of Ontario and is a reporting issuer
not in default under the Securities Act (Ontario).
4.2 Corporate Authority and Authorization. TLC has the corporate power and
authority to own its property and to carry on its business as now being
conducted and to make, execute, deliver and perform this Agreement. This
Agreement has been duly authorized and approved by all required corporate action
of TLC (including approval by its Board of Directors), and this Agreement is a
valid and binding obligation of TLC enforceable against TLC in accordance with
the terms of this Agreement.
4.3 Existence; Good Standing; Corporate Authority and Authorization. TLC is
qualified to do business in all jurisdictions in which the character or location
of the properties owned or leased by TLC or the nature of the business conducted
by TLC makes such qualification
<PAGE>
23
necessary. TLC has the power to own its property and to carry on its business as
now being conducted. TLC has the full power and authority to enter into and
perform this Agreement and consummate the Exchange. Compliance with the terms
and conditions hereof will not (i) violate or conflict with any provision of the
articles of incorporation or bylaws of TLC or any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restrictions of any government, governmental agency or court to which TLC is
subject, or (ii) result in the breach or termination of any provision of, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, require any notice or constitute a breach or default under any
note, bond, indenture, lease, agreement or other instrument or obligation to
which TLC is a party or by which any of the properties or assets of TLC may be
subject, bound or affected. Except for the approval of The Toronto Stock
Exchange referred to in Section 7.7, no authorization, consent or approval of
any public body or authority is necessary to the validity of the transactions
contemplated by this Agreement. Except for the approval of The Toronto Stock
Exchange referred to in Section 7.7., all necessary approvals of the parties
under any contracts, commitments or understandings to which TLC is a party or
any other person required to permit the consummation on the part of TLC of the
transactions contemplated in this Agreement have been or will be obtained by TLC
on or before the Closing Date. TLC is not otherwise a party to any contract or
subject to any other legal restriction that would prevent or restrict complete
fulfilment by TLC of all of the terms and conditions of this Agreement or
compliance with any of the obligations under it.
4.4 Capital Stock. TLC has an authorized capitalization consisting of an
unlimited number of shares designated as common shares, no par value per share,
of which 20,747,026 shares have been issued and are outstanding (the "TLC
Stock"). All such shares have been duly authorized; are validly issued; and, are
fully paid and non-assessable. There are no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of TLC other than as set out in the
Prospectus or granted in the ordinary course. The shares of TLC to be issued to
the Shareholders and the Insiders on the Closing Date will be duly authorized,
validly issued and fully paid and non-assessable.
4.5 Financial Statements and No Material Changes. TLC has furnished the Insiders
and the Company with the Consolidated Financial Statements of TLC for the fiscal
periods ended May 31, 1995 and May 31, 1996 (the "Consolidated Financial
Statements of TLC") and the interim period ended August 31, 1996 (pro-forma to
reflect the offering described in the Prospectus) and as updated to September
14, 1996 in the Prospectus and the related consolidated
<PAGE>
24
statements of income, shareholder's equity and changes in financial position for
the periods then ended. The Consolidated Financial Statements of TLC have been
audited, but not the interim consolidated financial statements which have been
prepared by TLC. The interim consolidated balance sheet and related statement of
income of TLC as at August 31, 1996 are hereinafter collectively referred to as
the "Interim Consolidated Financial Statements of TLC". All such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently followed according to past practice throughout the
periods indicated. The Interim Consolidated Financial Statements of TLC fairly
presents the financial position of TLC at the date thereof and, except as
indicated therein, reflects all claims against and all debts and liabilities of
TLC, fixed or contingent, as at the date thereof, and the related statement of
income, shareholder's equity and changes in financial position fairly present
the results of the operations of the TLC and the changes in the financial
position for the periods indicated.
4.6 Title to Properties; Encumbrances. Except as set forth in the Prospectus and
except for properties and assets reflected in the Interim Consolidated Financial
Statements of TLC or acquired since the date of the Consolidated Financial
Statements of TLC or which have been sold or otherwise disposed of in the
ordinary course of business, TLC and its subsidiaries have good, valid and
merchantable title to (a) all their properties and assets (personal, tangible
and intangible), including, without limitation, all the properties and assets
reflected in the Consolidated Financial Statements of TLC, except as indicated
in the notes thereto, and (b) all the properties and assets purchased by TLC
since August 31, 1996; in each case, each such property is subject to no
encumbrance, lien, charge or other restriction of any kind or character, except
for (i) liens reflected in the Interim Consolidated Financial Statements, (ii)
purchase money security interests; (iii) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of real property or irregularities in title thereto which do not materially
detract from the value of, or impair the use of, or otherwise impair the
marketability of the title or affect the use of such property by TLC in the
operation of its business and (iv) liens for current taxes, assessments or
governmental charges or levies on property not yet due and not delinquent.
4.7 Restrictive Documents. Except as set forth in Schedule 4.7, TLC is not
subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license,
permit, agreement, contract, instrument, law, rule, ordinance, regulation,
order, judgment or decree, or any other restriction of any kind or character,
which materially adversely affects the business practices, operations or
condition of TLC and its subsidiaries or any of their assets or property, or
which would prevent consummation of the transactions contemplated by this
Agreement or the continued operation of
<PAGE>
25
TLC's and its subsidiaries' business after the date hereof or the Closing Date
on substantially the same basis as heretofore operated or which would restrict
the ability of TLC and its subsidiaries to acquire any property or conduct
business in any area.
4.8 Litigation. Except as set forth in Schedule 4.8 attached hereto and made a
part hereof, there is no action, suit, proceeding at law or in equity by any
person or entity, or any arbitration or any administrative or other proceeding
by or before (or to the best knowledge, information and belief of TLC any
investigation by) any governmental or other instrumentality or agency, pending,
or to the best knowledge, information and belief of TLC, threatened, against or
affecting TLC and its subsidiaries or any of their properties or rights which
could materially and adversely affect the right or ability of TLC and its
subsidiaries to carry on their businesses as now conducted, or which could
materially and adversely affect the condition, whether financial or otherwise,
or properties of TLC and its subsidiaries; and TLC does not know of any valid
basis for any such action, proceeding or investigation. Neither TLC nor its
subsidiaries are subject to any judgment, order or decree entered in any lawsuit
or proceeding which may have a material adverse effect on any of their
operations, business practices or on their ability to acquire any property or
conduct business in any area.
4.9 Taxes. TLC has filed, will file or has caused to be filed, within the times
and within the manner prescribed by law, all federal, provincial/state, local
and foreign income tax returns and all other tax reports and returns which are
required to be filed by, or with respect to, TLC and its subsidiaries. Such
returns and reports reflect accurately all required and appropriate liability
for taxes of TLC and its subsidiaries for the periods covered thereby. All
federal, national, provincial/state, local and foreign income, profits,
franchise, sales, use, occupancy, excise and other taxes and assessments
(including interest and penalties) payable by, or due from, TLC and its
subsidiaries have been fully paid or adequately disclosed and fully provided for
in the books and financial statements of TLC and its subsidiaries, including the
Interim Consolidated Financial Statements, and will be accrued fully through the
Closing Date. All federal, national, provincial/state, local, state and foreign
income tax liabilities of TLC and its subsidiaries have been finally determined
and paid by TLC and its subsidiaries for all fiscal years to and including the
fiscal year ended May 31, 1996. No examination, audit or inquiry of any tax
return, national, provincial/state, state or otherwise, of TLC and its
subsidiaries is currently in progress and neither TLC nor its subsidiaries have
received notice of intent to commence any inquiry, audit or examination of any
such tax return from any taxing authority. Except as provided herein, there are
no outstanding agreements or waivers extending the statutory period of
limitations applicable to any tax return of TLC and its subsidiaries.
<PAGE>
26
4.10 Liabilities. Neither TLC nor its subsidiaries have any material outstanding
claims, liabilities or indebtedness, contingent or otherwise, except as set
forth in the Interim Consolidated Financial Statements and other than
liabilities incurred subsequent to the date of the Interim Consolidated
Financial Statements in the ordinary course of business not involving borrowings
by TLC and its subsidiaries or as may have been disclosed and consented to by
TLC. TLC does not know of any default in respect to the terms or conditions of
any indebtedness for which it may be obligated on, whether directly, indirectly
or as endorser. TLC represents and warrant that, to the best of its knowledge
and belief, the holders and payees of any and all such liabilities, material or
otherwise, will not accelerate or demand payment from TLC and its subsidiaries
of any such liabilities as a result of the consummation of the transactions
herein described.
4.11 Compliance with Laws. TLC and its subsidiaries are in compliance in all
material respects with all applicable laws, regulations, orders, judgments and
decrees of each and every jurisdiction in which TLC and its subsidiaries are
doing business, including applicable Canadian and Federal and State laws and
regulations, the violation of which would have a material adverse effect on TLC
and its subsidiaries. TLC has made all required filings necessary with the
Toronto Stock Exchange.
4.12 No Changes to Capital Structure Prior to Closing Date. During the period
from the date of the Prospectus through and including the Closing Date, TLC will
not have, without the express written consent of the Company (i) declared or
paid any cash or stock dividend, (ii) changed its capital structure by
redemption, stock split, merger, reorganization or consolidation except for the
issuance of shares in the ordinary course of business and except for the
over-allotment described in the Prospectus and issuances for acquisitions in the
ordinary course of business, (iii) entered into any transaction that requires
the approval of its shareholders, or (iv) agreed, whether or not in writing to
do any of the foregoing.
4.13 Disclosure. No representation, warranty or covenant in Article IV of this
Agreement, the financial statements referred to in Section 4.5 above, or any
attached Schedule, Exhibit or certificate delivered in accordance with the terms
hereof or any document or statement in writing which has been supplied by or on
behalf of TLC and its subsidiaries, or by any of TLC's or any of its
subsidiaries' directors or officers, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to TLC which
materially and adversely affects the business, prospects or financial
<PAGE>
27
condition of TLC, its properties or assets, which has not been disclosed and set
forth in this Agreement.
4.14 Broker's or Finder's Fees. No agent, broker, person or firm acting on
behalf of TLC is, or will be, entitled to any commission or broker's or finder's
fees from any of the parties hereto, or from any person controlling, controlled
by or under common control with any of the parties hereto, in connection with
any of the transactions contemplated herein.
ARTICLE V
SHAREHOLDER APPROVAL
5.0 TLC acknowledges that Shareholders and Insiders holding in the aggregate at
least 80% of the Company Shares must accept TLC's offer for the Exchange. The
Insiders agree that concurrent with the execution of this Agreement, they will
tender to TLC their Shares in accordance with the terms of the Exchange, and
will execute and deliver a letter of transmittal substantially in the form
attached hereto as Exhibit 7free from all liens, charges, encumbrance,
restrictions and claims of every kind whatsoever to be held by TLC pending the
Closing. In the event that TLC does not receive tenders in excess of the
Threshold from the Shareholders and Insiders, TLC, the Insiders and the Company
acknowledge and agree that each of TLC, the Company and the Insiders have the
right to terminate the Exchange contemplated herein, in which case TLC shall
return to the Insiders all of their respective Company Shares. The Insiders
hereby covenant and agree that after their Company Shares have been tendered to
TLC, they will recommend to the Shareholders that they tender their respective
Company Shares pursuant to the terms of the Exchange, and that they will not do
anything, directly or indirectly, to influence the Shareholders not to tender
their Shares pursuant to the Exchange.
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28
ARTICLE VI
CONDUCT OF BUSINESS
6.0 Conduct of Business of the Company. The Company and Insiders represent,
warrant and agree that during the period from the 20/20 Financial Statement Date
to the Closing Date, the Company shall have, and Insiders shall have caused the
Company to have, conducted its business operations according to the ordinary and
usual course of business and to have used its best efforts to preserve intact
its business organization, kept available the services of its officers and
employees, and maintained satisfactory relationships with vendors, licensor,
suppliers, distributors, clients and others having business relationships with
the Company. Notwithstanding such agreements, pending the Closing Date and
except as may be first approved by TLC or as is otherwise permitted or required
by this Agreement, the Company and Insiders will cause (a) the Company's
articles of incorporation and bylaws to be maintained in their form as of the
date of this Agreement, (b) the Company to refrain from entering into any
contract or commitment except contracts in the ordinary course of business (c)
the Company to refrain from making any change affecting any bank, safe deposit
or power of attorney arrangements of the Company, and (d) the Company to refrain
from taking any action referred to in Section 3.23 that would make such
statements untrue during the period from the 20/20 Financial Statement Date to
the Closing Date. The Company shall, and the Insiders shall cause the Company
to, confer on a regular and frequent basis with Ronald J. Kelly or Anthony F.
Rzepka to report material operational matters relative to ongoing business
operations of the Company. The Company shall, and Insiders shall cause the
Company to, notify TLC of any emergency or other change in the normal course of
its business or in the operation of its properties and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), adjudicatory proceedings (to include lawsuits,
arbitration or mediation), budget meetings or submissions involving any material
property of the Company, and to keep TLC fully informed of such events and
permit its representatives prompt access to all materials prepared in connection
therewith.
6.1 Exclusive Dealing. Through the Closing Date, neither the Company nor the
Insiders shall have taken, and Insiders shall have caused the Company to refrain
from taking, any action to, directly or indirectly, encourage, initiate or
engage in discussions or negotiations with, or provide any information to, any
corporation, partnership, person, or other entity or group, other than TLC,
concerning any sale of substantial assets, purchase of stock, merger or similar
transaction involving the Company, its capital stock and the business or assets
of the Company.
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29
6.2 Review of the Company. TLC may, prior to the Closing Date, through its
representatives, review the properties, books and records of the Company and its
financial and legal condition as they deem necessary or advisable to familiarize
themselves with such properties and other matters; such review shall not,
however, modify, extinguish or otherwise affect TLC's ability to rely upon any
of the representations and warranties made by the Company or Insiders hereunder.
Insiders shall cause the Company to permit TLC and its representatives to have,
after the date of execution hereof, full access to the premises and to all the
books and records of the Company and to cause the officers of the Company to
furnish TLC with such financial and operating data and other information with
respect to the business and properties of the Company as TLC shall from time to
time reasonably request. In the event of termination of this Agreement, TLC
shall return to the Company and Insiders and keep confidential any material
information obtained from the Company or Insiders concerning the Company and its
properties, operations and business (unless such information is readily
ascertainable from public or published information or trade sources) or the same
ceases to be material (or becomes so ascertainable), shall not use any of such
information to compete with the Company, either directly or indirectly, and
shall return to the Company all copies of any schedules, statements, documents
or other written information obtained in connection herewith.
6.3 Fulfilment of Agreement. The Company and the Insiders shall deliver or cause
to be delivered on the Closing Date, and thereafter at such other times and
places as shall be reasonably agreed upon, such additional instruments as TLC
may reasonably request for the purpose of consummating and carrying out this
Agreement and its terms, conditions and requirements.
6.4 Best Efforts. The Company and the Insiders shall use its best efforts to
take, or cause to be taken, all action or do, or cause to be done, all things
necessary, proper or advisable under this Agreement, applicable laws and
regulations to enable, consummate, make effective and evidence the transactions
contemplated hereby.
6.5 Insiders Release. The Insiders hereby release, remise and forever discharge
the Company, and their officers, agents, representatives, directors, employees
and insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively referred to as the "Releases") of and
from any and all liabilities, claims, demands, of every nature, character or
description, now accrued or which may hereafter accrue, without limitation of
law, equity or otherwise, based in whole or in part on any facts, conduct,
activities, transactions, events or occurrence known or unknown, which have or
allegedly have existed,
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30
occurred, happened, arisen or transpired from the beginning of time to the date
of this Release (the "Released Claims"). Each of the Insiders represents and
warrants that no claim released herein has been assigned, expressly, impliedly
or by operation of law, and that all claims of each of the Shareholders and
Insiders released herein are owned by them, and they have the sole authority to
release them. Each of the Insiders agrees that he/she shall forever refrain and
forebear from commencing, instituting or prosecuting any lawsuit, action or
proceeding, judicial, administrative or otherwise, or otherwise attempting to
collect or enforce any Released Claims which are released and discharged herein.
ARTICLE VII
COVENANTS OF TLC
7.0 Advance of $1.5 Million U.S. to 20/20 TLC shall advance the sum of U. S.
$1.5 million (the "Advance") when (i) this Agreement is signed, (ii) the
respective Boards of Directors of TLC and 20/20 approve the transactions
contemplated herein, (iii) Shareholders holding at least the Threshold amount of
Company Shares indicate in writing that they have agreed to accept the tender
offer being made by TLC pursuant to this Agreement, and (iv) the Company
executes and delivers the amended loan documents in the form attached hereto as
Exhibit 9, and (iv) the Insiders and U.S.A. Medical Resources deliver all
Company Shares owned or controlled by each of them pursuant to Section 8.13 The
Advance shall be based upon the same terms and conditions as the Interim
Financing more particularly described in paragraph 13 of that certain Letter
Agreement dated October 4, 1996 between 20/20 and TLC (the "Letter of Intent"),
provided however that the Interim Financing and Advance shall have a maturity
date of one (1) year from the date that TLC makes its election or is deemed to
have made its election pursuant to Section 13.12 of the Letter of Intent. The
loan documents for the Interim Financing shall be in the form of Exhibit 9
attached hereto.
7.1 Stock Options. The persons listed on Schedule 7.1 (the "Optionees")
currently have outstanding options to purchase Company Shares in the respective
amounts set forth in Schedule 7.1. (the "Company Stock Options"). The Company
agrees that, except as set forth below, all of such Company Stock Options shall
be either exercised (and included in the offer for the Exchange) or settled out
and terminated at Closing, unless TLC reasonably agrees to other arrangements.
The Company may issue some shares for little or no compensation in order to
settle out outstanding Company Stock Options, so long as the shares issued does
not cause the
<PAGE>
31
outstanding Company Shares to exceed the total cap of Company Shares to be
purchase pursuant to Section 8.14 hereof. In addition, with respect to the
outstanding qualified incentive stock options held by Elizabeth Karmin, Greg
Cofoid, Corinne Denlinger, and Eric Hatch, as described in Schedule 7.1 and with
respect to the outstanding nonqualified stock options held by Mark Speaker,
M.D., J. James Thimons, O.D., and Eric Donnenfeld, M.D., as described in
Schedule 7.1, TLC agrees to work with the Company to make arrangements so that
the economic benefit and favorable tax treatment that such optionees are
currently entitled to will be preserved to the greatest extent possible without
material detriment to the Company or TLC.
7.2 Governmental Filings; Compliance with Laws. TLC has made, or will make prior
to Closing, all necessary filings required under the Hart Scott Rodino Act. In
addition, the tender offer to be made by TLC to the Shareholders pursuant to
this Agreement shall be conducted in compliance with all applicable laws, rules
and regulations.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF TLC
8.0 Conditions to Obligations of TLC. The obligation of TLC to consummate the
Exchange and other transactions described herein on the Closing Date is subject
to satisfaction of the following conditions.
8.1 Opinions of the Insiders's Counsel; Certificate of Shareholders. Insiders
The Company shall have furnished TLC with a favourable opinion, (i) of
Proskauer, Rose respecting Company compliance with all relevant health law
statutes substantially as set out in Exhibit 1 in form and substance
satisfactory to TLC and its counsel, and (ii) a favourable opinion dated the
Closing Date, of Shaw, Pittman, Potts & Trowbridge in form and substance
satisfactory to TLC and its counsel.
8.2 Good Standing. Insiders shall have delivered to TLC (a) copies of the
Company's articles of incorporation and/or organization, including all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of incorporation, (b) certificates from the
Secretary of State or other appropriate official of the respective jurisdictions
of incorporation and/or organization to the effect that the Company is in good
standing, (c) copies of the operating agreements of the Subsidiaries certified
by the appropriate officers of the Company.
<PAGE>
32
8.3 No Material Adverse Change. From the date of this Agreement to the Closing
Date, there shall have been no material adverse change in the assets or
liabilities, the business or condition, financial or otherwise, the results of
operations, or prospects of the Company, and the Company and Insiders shall have
delivered to TLC a certificate, dated the Closing Date, to such effect. The
parties acknowledge that the Company is currently operating on a negative cash
flow basis and that based upon the Company's projected revenues, it will
continue having negative cash flow between the date of this Agreement and the
Closing.
8.4 Truth of Representations and Warranties. The representations and warranties
of the Company and Insiders contained in this Agreement or in any Exhibit or
Schedule delivered pursuant thereto shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date (as though
made on and as of the Closing Date) except (i) to the extent such
representations and warranties are by their express provisions made as of a
specified date and (ii) for the effect of transactions contemplated by the
Agreement, and the Chief Executive Officer of the Company and Insiders shall
have delivered to TLC on the Closing Date a certificate, dated the Closing Date,
to such effect.
8.5 Performance of Agreements. Each and all of the agreements of the Company and
Insiders to be performed on or before the Closing Date pursuant to the terms
hereof shall have been duly performed, and the Chief Executive Officer of the
Company and Insiders shall not be in breach of any covenant in this Agreement
and shall have delivered to TLC a certificate, dated the Closing Date, to such
effect.
8.6 No Litigation Threatened. No action or proceeding shall have been instituted
or, to the best knowledge, information and belief of the Company or Insiders
shall have been threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby. The Chief Executive Officer of the Company and Insiders shall have
delivered to TLC a certificate, dated the Closing Date, to such effect.
8.7 Approvals and Consents. All governmental and other consents, filings, and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been obtained by TLC or the Company
including, without limitation, the following to be obtained or completed by TLC:
(i) approval from the Toronto Stock Exchange relating to the listing of the TLC
Shares issued to the Shareholders pursuant to the Exchange, and (ii) any filings
required under the Hart Scott Rodino Act.
<PAGE>
33
8.8 Intra-Company Debt. All indebtedness to the Company, other than travel and
similar advances in the ordinary course of business, from Insiders or any
directors, officers and employees of the Company shall have been repaid to the
Company in full.
8.9 Insiders Employment Agreement. Elizabeth A. Karmin, Eric J. Hatch, Greg P.
Cofoid, and Corinne Kuypers-Denlinger shall have executed and delivered an
Employment Agreement with TLC on terms satisfactory to TLC, substantially in the
form attached as Exhibit 5. The parties understand that the bracketed items are
still to be finally agreed upon.
8.10 Resignations of Directors. TLC shall have received the resignations of all
directors of the Company. The Employment Agreement for Gary Jonas shall be
amended in accordance with previous discussions among the parties to the
satisfaction of TLC.
8.11 Holdback Agreement. The Shareholders and Insiders shall have entered into a
Holdback Agreement substantially in the form attached hereto as Exhibit 4.
8.12 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to TLC and its counsel,
and to the Company and its counsel.
8.13 Delivery from Insiders. The Insiders and U.S.A. Medical Resources shall
have irrevocably tendered and delivered all Company Shares owned or controlled
by them to TLC in contemplation of the Exchange on the date of execution of this
Agreement duly endorsed for transfer and such Shares are free from all liens,
charges, encumbrances, restrictions and claims of every kind whatsoever.
8.14 Company Shares and Options. The total of Company Shares to be purchased
hereunder and Company Options to be assumed pursuant to Section 7.1 hereof shall
not exceed the equivalent of Twelve Million Five Hundred Thousand (12,500,000)
Company Shares in the aggregate, except for the Company Options that are to be
assumed by TLC pursuant to the last sentence of Section 7.1 hereof. Except for
the Company Options to be assumed by TLC pursuant to the last sentence of
Section 7.1 hereof, all options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance, or sale of any shares of the
capital stock of the Company shall have been converted to Company Shares
(subject to the cap set forth above) or shall have been cancelled or otherwise
terminated.
<PAGE>
34
8.15 Threshold. The Shareholders shall have tendered pursuant to the Exchange a
sufficient number of Company Shares exceeding the Threshold.
8.16 Conditions for the Benefit of TLC. In case any covenant of Company or
condition to be performed or complied with for the benefit of TLC at or prior to
the Closing Date shall not have been performed or complied with at or prior to
the Closing Date in any material respect, TLC may, without limiting any other
right that TLC may have, at its sole option, either:
(a) terminate this Agreement by notice to Company and the Insiders, and
in such event TLC shall be released from all obligations hereunder;
or
(b) waive compliance with any such term, covenant or condition in whole
or in part on such terms as may be agreed upon without prejudice to
any of its rights of rescission in the event of non-performance of
any other term, covenant or condition in whole or in part;
and, if TLC terminates this Agreement pursuant to this Section and the term,
covenant or condition for which TLC has terminated this Agreement was a breach
of representation, warranty or covenant set forth in Articles III or VI hereof
(unless such breach of representation, warranty or covenant was caused by
circumstances that were reasonably beyond the control of the Company or the
Insiders), the Company shall be liable to TLC for any losses, damages or
expenses incurred by TLC as a result of such breach.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND
INSIDERS
9.0 Conditions to Obligations of the Company and Insiders. The obligations of
the Shareholders, the Insiders and the Company to consummate the Exchange and
other transactions described herein on the Closing Date is subject to
satisfaction of the following conditions:
9.1 Opinions of Counsel for TLC. TLC shall have furnished the Company with
opinions, dated the Closing Date, of Tory Tory DesLauriers & Binnington and
Arent Fox Kintner Plotkin
<PAGE>
35
& Kahn substantially in the form set forth in Exhibit 3 hereto, including an
opinion of tax counsel to the effect that the Exchange constitutes a tax-free
exchange under Section 368(a)(1)(B) of the Internal Revenue Code of 1986.
9.2 Truth of Representations and Warranties. The representations and warranties
of TLC contained in this Agreement shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; and TLC shall have delivered to the
Company on the Closing Date a certificate, dated the Closing Date, to such
effect.
9.3 Performance of Agreements. Each and all of the agreements of TLC to be
performed on or before the Closing Date pursuant to the terms hereof shall have
been duly performed in all material respects, and TLC shall have delivered to
the Company a certificate, dated the Closing Date, to such effect.
9.4 Insiders Employment Agreement. TLC shall have executed and delivered
employment agreements with Elizabeth A. Karmin, Eric J. Hatch, Greg P. Cofoid,
and Corinne Kuypers-Denlinger subsntailly in the form attached as Exhibit 5.
9.5 Proceedings. All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and the Insiders
and their counsel.
9.6 Approvals and Consents. All governmental and other consents, filings, and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been obtained by TLC or the Company
including, without limitation, the following to be obtained or completed by TLC:
(i) approval from The Toronto Stock Exchange relating to the listing of the TLC
Shares issued to the Shareholders pursuant to the Exchange, and (ii) any filings
required under the Hart Scott Rodino Act.
9.7 Reaching Threshold. The Shareholders shall have tendered pursuant to the
Exchange a sufficient number of Company Shares exceeding the Threshold.
9.8 TLC Advance. TLC shall have advanced a further U.S. $1.5 million to the
Company pursuant to the terms of Article VII hereof.
<PAGE>
36
9.9 Payment of Purchase Price. Each of the Shareholders who have tendered their
Company Shares and the Insiders shall have received TLC Shares pursuant to the
Exchange and the Purchase Price described in Section 2.1, subject to the terms
and conditions of the Holdback Agreement.
9.10 Conditions for the Benefit of Company. In case any covenant of TLC or
condition to be performed or complied with for the benefit of Company at or
prior to the Closing Date shall not have been performed or complied with at or
prior to the Closing Date in any material respect, the Company may, without
limiting any other right that the Company may have, at its sole option, either:
(a) terminate this Agreement by notice to TLC, and in such event Company
shall be released from all obligations hereunder; or
(b) waive compliance with any such term, covenant or condition in whole
or in part on such terms as may be agreed upon without prejudice to
any of its rights of rescission in the event of non-performance of
any other term, covenant or condition in whole or in part;
and, if Company terminates this Agreement pursuant to this Section and the term,
covenant or condition for which Company has terminated this Agreement was one
that TLC had covenanted to ensure has been performed or complied with, TLC shall
be liable to the Company for any losses, damages or expenses incurred by the
Company as a result of such breach.
9.11 Directors of TLC Following the Exchange. TLC shall have appointed one (1)
representative director of the Shareholders to the board of TLC and three (3)
representative directors to the board of TLC The Laser Center Inc. (Delaware).
9.12 Registration Rights Agreement. TLC shall have executed and delivered to the
Company the Registration Rights Agreement substantially in the form attached
hereto as Exhibit 8.
<PAGE>
37
ARTICLE X
SURVIVAL OF REPRESENTATIONS, INDEMNITY
10.0 Survival of Representations. The covenants of all parties in the
Registration Rights Agreement attached hereto as Exhibit 8 and the Holdback
Agreement attached hereto as Exhibit 4 shall survive the Exchange. The other
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing through the date 24 months after the Closing
Date; provided, however, that representations and warranties in Section 3.12
relating to the tax year listed in the left-hand column below shall survive the
Closing through December 31 of the year set forth below opposite such tax year:
tax year ended December 31 survival date through September 30
1996 2001
1995 2000
1994 1999
1993 1998
The survival dates set forth in this Section shall be the last date on which any
party may seek indemnification under Article X or any other remedy it may be
entitled to with respect to any representations, warranty, covenant or agreement
under this Agreement which survives until such date.
10.2 Indemnification.
(a) From and after the Closing Date, the Shareholders, including the
Insiders, shall indemnify, defend and hold harmless TLC and its
officers, directors, employees and agents, against and from any
claim, liability, obligation, loss, damage, assessment, judgment,
cost and expense (including, without limitation, reasonable
attorney's and accountant's fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or
prosecuting any litigation, claim, action, suit, proceeding or
demand) of any kind or character arising out of or in any manner
incident, relating or attributable to (i) the failure of or
inaccuracy in any representation or breach of warranty of the
Company or Insiders contained in
<PAGE>
38
Article III or VI of this Agreement or any certifications delivered
by the Company or the Insiders pursuant to Article VII hereof, (ii)
any failure by Insiders or the Company to perform or observe any
covenant or agreement to be performed or observed by either of them
under this Agreement or under any certificates or other documents or
agreements executed by either of them in connection with this
Agreement, and (iii) with respect to the use of the Company's leased
and owned real properties prior to the Closing Date, any claim
asserted by any person, entity, agency, organization or body against
TLC or the Company, as a result of the handling, generation,
treatment, storage, disposal (including off-site disposal),
transport, release, discharge, spill, or emission of any hazardous
or toxic substances or wastes, solid wastes, pollutants or
contaminants on, at or about any of the Company's leased or owned
real properties, or the costs and expenses associated with cleaning
up, removing, disposing of or otherwise eliminating any oil, toxic
substance, hazardous substance, pollutant, solid waste, waste, or
contaminant, therefrom, provided, however, that such obligation to
indemnify under clauses (i) through (iii) above shall not arise
unless and until the aggregate amount owed under such clauses
exceeds the sum of $100,000, in which case TLC shall be entitled to
indemnification for all amounts described in clauses (i) through
(iii) above in excess of $100,000.00.
(b) From and after the Closing Date, TLC agrees to indemnify, defend and
hold harmless the Shareholders including Insiders against and from
any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense (including, without limitation,
reasonable attorney's an accountant's fees and costs and expenses
reasonably incurred in investigating, preparing, defending against
or prosecuting any litigation, claim, action, suit, proceeding or
demand) of any kind or character arising out of or in any manner
incident, relating or attributable to (i) the inaccuracy in any
representation or breach of warranty of TLC contained in this
Agreement, in any Schedule or in any certificate, instrument or
other document or agreement executed by TLC in connection with this
Agreement or otherwise made or given in writing in connection with
this Agreement, or (ii) any failure by TLC to perform or observe any
covenant, agreement or condition to be performed or observed by them
under this Agreement or under any certificates or other documents or
agreements executed by either of them in connection with this
Agreement; provided, however, that such obligation to indemnify
shall not arise unless and until the aggregate amount owed under the
foregoing exceeds the sum
<PAGE>
39
of $100,000 in which case the Shareholders and Insiders shall be
entitled to indemnification for all amounts in excess of $100,000.
(c) If TLC believes that a matter has occurred that entitles it to
indemnification under Section 10.2 (a) or Shareholders believe that
a matter has occurred that entitles them to indemnification under
Section 10.2(b), TLC or the Shareholders, as the case may be (the
"Indemnified Party"), shall give written notice to the party or
parties against whom indemnification is sought (each of whom is
referred to herein as an "Indemnifying Party") describing such
matter in reasonable detail. The Indemnified Party shall be entitled
to give such notice prior to the establishment of the amount of its
losses, liabilities, costs or damages, and to supplement its claim
from time to time thereafter by further notices as they are
established. Each Indemnifying Party shall send a written response
to such claim for indemnification within thirty (30) days after
receipt of the claim stating its acceptance or objection to the
indemnification claim, and explaining its position in respect
thereto in reasonable detail. If such Indemnifying Party does not
timely respond, it will be deemed to have accepted the Indemnified
Party's indemnification claim as specified in the notice given by
the Indemnified Party and the Indemnifying Party shall have been
deemed to have waived any further rights to object to the subject
matter of such notice either at law or in equity. If the
Indemnifying Party gives a timely objection notice, then the parties
will negotiate in good faith to attempt to resolve the dispute. Upon
the expiration of an additional thirty (30) day period from the date
of the objection notice or such longer period as to which the
Indemnified and Indemnifying Parties may agree, any such dispute
shall be submitted to arbitration in Bethesda, Maryland to a member
of a "Big Six" accounting firm mutually appointed by the Indemnified
and Indemnifying Parties (or, in the event the Indemnified and
Indemnifying Parties cannot agree on a single such member, to a
panel of three members of a "Big Six" accounting firm selected in
accordance with the rules of such American Arbitration Association),
who shall promptly arbitrate such dispute in accordance with the
rules of such Association and report to the parties upon such
disputed items, and such report shall be final, binding and
conclusive on the parties. Judgment upon the award by the
arbitrator(s) may be entered in any court having jurisdiction. The
prevailing party in any such arbitration shall be entitled to
recover from, and have paid by, the other party hereto to all fees
and disbursements of such arbitrator or arbitrators and its
reasonable attorney's fees,
<PAGE>
40
costs and expenses incurred in such arbitration.
(d) If a third person asserts a claim against an Indemnified Party in
connection with the matter involved in such claim, the Indemnified
Party shall promptly (but in no event later than ten (10) days prior
to the time at which an answer or other responsive pleading or
notice with respect to the claim is required) notify the
Indemnifying Party of such claim. The Indemnifying Party shall have
the right, at its election, to pursue the defense or settlement of
such claim by giving prompt notice to the Indemnified Party that it
will do so, such election to be made and notice given in any event
at least five (5) days prior to the time at which an answer or other
responsive pleading or notice with respect thereto is required. If
the Indemnifying Party makes such election, the Indemnifying Party
may conduct the defense of such claim through counsel of its
choosing (subject to the Indemnified Party's approval, not to be
unreasonably withheld), will be responsible for the expenses of such
defense, and shall be bound by the results of its defense or
settlement of the claim to the extent it produces damage or loss to
the Indemnified Party. The Indemnifying Party shall not settle such
claims without prior written notice to and consultation with the
Indemnified Party, and no such settlement involving any injunction
or other remedy that could have a material adverse effect on the
Indemnified Party may be agreed to without its consent. As long as
the Indemnifying Party is diligently contesting any such claim in
good faith, the Indemnified Party shall not pay or settle any such
claim. If the Indemnifying Party does not make such election, or
having made such election does not proceed diligently to defend such
claim prior to the time at which an answer or other responsive
pleading or notice with respect thereto is required, or does not
continue diligently to contest such claim, then the Indemnified
Party may conduct the defense and proceed with such claim in its
exclusive discretion, and the Indemnifying Party shall be bound by
any defense or settlement that the Indemnified Party may make in
good faith with respect to such claim. The parties agree to
cooperate in defending such third party claims, and the defending
party shall have reasonable access to records, information and
personnel in control of the other party which are pertinent to the
defense thereof.
(e) The parties acknowledge and agree that this Article X requires that
all disputed claims shall be submitted to arbitration in accordance
with Section 10.2(c). The parties also acknowledge that recourse
under this Article X shall be limited as set
<PAGE>
41
forth in the Holdback Agreement attached hereto as Exhibit 4.
(f) In the event the Shareholders make a claim for indemnification
pursuant to this Section 10.2, the Shareholders shall be entitled to
collect any damages in the form of TLC Shares rather than cash, if
necessary to protect the tax-free treatment of the Exchange under
Section 368 (a)(1)(B) of the Code.
ARTICLE XI
MISCELLANEOUS
11.1 Knowledge of Insiders. Where any representation or warranty contained in
this Agreement is expressly qualified by reference to the knowledge, information
and belief of Insiders, the Insiders hereby confirm that they have made such due
and diligent inquiry as they deem necessary and appropriate as to the matters
that are the subject of such representations and warranties. However, where a
representation or warranty is qualified by reference to having received or not
received "notice" of an event or matter, then no affirmative inquiry shall be
required.
11.2 Professional Expenses. The Company (on behalf of itself), Insiders and TLC
(on behalf of itself) shall each pay all of their own professional expenses
relating to negotiating, drafting and closing the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of their
respective counsel, financial advisers and accountants.
11.3 Governing Law. The interpretation and construction of this Agreement and
all matters relating hereto shall be governed by the laws of the State of
Maryland.
11.4 Jurisdiction. Any judicial proceeding brought to enforce any arbitration
judgment may be brought in the appropriate courts of Montgomery County, State of
Maryland or the United States District Court District of Maryland, Southern
Division and, by execution and delivery of this Agreement, each of the parties
to this Agreement accepts for himself or itself the exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. The prevailing party in any
such action shall be entitled to an award of its attorney's fees, paralegal
fees, costs and expenses incurred at the trial and appellate levels and in any
proceedings in Bankruptcy Court.
<PAGE>
42
11.5 Publicity. Except as otherwise required by law, or as may be mutually
consented and agreed to, none of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or in
connection with or arising out of this Agreement or the matters contained
herein, without obtaining the prior approval of both TLC and the Company to the
contents and the manner of presentation and publication thereof, provided,
however, TLC shall have the right to make a public announcement of the execution
of this Agreement and a disclosure of the basic terms and conditions of this
Agreement if advised to do so by its legal counsel in connection with the
reporting and disclosure obligations of TLC under applicable securities laws.
11.6 Notices. Any notice or other communications required or permitted hereunder
shall be sufficiently given if delivered in person or sent by express mail or by
registered or certified mail, postage prepaid, addressed as follows:
(i) If to TLC:
206 Laird Drive
Suite 100
Toronto, Ontario
Canada M4G 3W4
Attention: Ronald J. Kelly
(ii) If to Company:
20/20 Laser Centers, Inc.
6701 Democracy Blvd, Suite 200
Bethesda, Maryland 20817
Attention: Gary F. Jonas, CEO
<PAGE>
43
(iv) If to the Insiders:
c/o 20/20 Laser Centers, Inc.
6701 Democracy Blvd., Suite 200
Bethesda, Maryland 20817
Attention: Elizabeth A. Karmin, General Counsel
or such other address as shall be furnished in writing by any such party, and
such notice or communication shall be deemed to have been given as of the date
so delivered, sent or mailed.
11.7 Assignment. This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto.
11.8 Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument.
11.9 Entire Agreement. This Agreement, including the other documents referred to
herein which form a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such subject matter.
11.10 Amendments. This Agreement may not be changed orally, but only by an
agreement in writing signed by TLC, Insiders and Company.
11.11 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
11.12 Third Party Beneficiaries. Each party hereto intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
person other than the parties hereto.
11.13 Best Efforts. All parties hereto agree to use their best efforts and all
due diligence to fulfil all requirements of this Agreement and conditions to the
Closing as soon as practicable.
11.14 Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the
<PAGE>
44
Company, TLC, the Insiders, and their respective successors, heirs and legal
representatives, but neither this agreement nor any rights hereunder may be
assigned by either party without the advanced written consent of the other
party.
11.15 Time of the Essence. Time shall be of the essence of this Agreement.
[End of Page 44]
<PAGE>
45
IN WITNESS WHEREOF, each of the parties herein below stated has executed
this Agreement as of the date and year first above written.
Attest: TLC THE LASER CENTER INC.
By:
- ------------------------- ------------------------------
Ronald J. Kelly
Vice-President, Acquisitions
20/20 LASER CENTERS, INC.
By:
- ------------------------- ------------------------------
Gary Jonas
Chief-Executive Officer
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
)
- ------------------------------ ---------------------------------------
Witness ) Gary F. Jonas
)
)
- ------------------------------ ---------------------------------------
Witness ) Charles Citrin, M.D.
)
)
- ------------------------------ ---------------------------------------
Witness ) Warren Rustand
)
)
- ------------------------------ ---------------------------------------
Witness ) Mark Speaker, M.D.
<PAGE>
46
)
- ------------------------------ ---------------------------------------
Witness ) J. James Thimons, O.D.
)
)
- ------------------------------ ---------------------------------------
Witness ) Michael Kane, CPA
)
)
- ------------------------------ ---------------------------------------
Witness ) Michael Solomon, Esq.,
individually and as Trustee of
Goldstein Family Trust
)
)
- ------------------------------ ---------------------------------------
Witness ) Elizabeth A. Karmin
)
)
- ------------------------------ ---------------------------------------
Witness ) Eric J. Hatch
)
)
- ------------------------------ ---------------------------------------
Witness ) Greg P. Cofoid
)
)
- ------------------------------ ---------------------------------------
Witness ) Corinne Kuypers-Denlinger
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 4th day of March, 1996,
B E T W E E N:
TLC THE LASER CENTER INC., a corporation
incorporated under the laws of the Province
of Ontario
(the "Corporation")
-and-
ELIAS VAMVAKAS, of the City of Richmond
Hill, in the Province of Ontario
(the "Executive")
RECITALS:
A. The Corporation is the parent company of a group of companies
(collectively, the "TLC Group") involved in the business of providing
excimer laser eye surgery and other secondary eye care services.
B. The Executive is currently an employee of the Corporation and/or the TLC
Group as well as a shareholder of the Corporation.
C. The Corporation and the Executive entered into an Agreement dated as of
January 1, 1996 (the "Employment Agreement") to set forth the rights and
obligations of each of them as regards the Executive's continuing
employment with the Corporation for their mutual benefit and to reflect
the nature of the Executive's employment by a corporation intending to
become a public corporation.
D. Pursuant to clause 8 of the Employment Agreement, the Corporation granted
to the Executive options (the "Original Options") to acquire 1,000,000
common shares in the capital of the Corporation at an option price of
$2.50 (Cdn.) per common share of which options to acquire 250,000 shares
were to have been exerciseable in each of the four years from the date of
the Employment Agreement on a cumulative basis. Each of the Original
Options were to expire on the earlier of (i) five years following the date
on which they would have become exerciseable, and (ii) 90 days following
termination of the Executive's employment under the Employment Agreement.
E. In connection with the initial public offering of common shares of the
Corporation and the application for listing of the common shares on The
Toronto Stock Exchange, The Toronto Stock Exchange has required that the
Original Options be replaced with options (the "New Options") exerciseable
at the issue price of US $3.00 per share (Cdn. $4.11 per share).
F. In order to ensure that the Executive is kept in substantially the same
economic position that he was in while he held the Original Options, the
Corporation will permit the
<PAGE>
-2-
Executive to apply the inherent value (the "Inherent Value") in the
Original Options towards the exercise of New Options prior to the closing
of the initial public offering on March 25, 1996. The Inherent Value is
equal to the number obtained when (a) the difference between (i) Cdn.
$2.50, and (ii) US $3.00 (Cdn. $4.11) is multiplied by (b) the number of
common shares subject to the Original Options held by the Executive. The
Inherent Value can be applied by the Executive as consideration for the
exercise of New Options at the issue price of Cdn.$4.11.
G. The Corporation and the Executive wish to amend clause 8 of the Employment
Agreement to reflect the replacement of the Original Options with the New
Options and to enter into a share option agreement which sets out the
terms and conditions relating to the New Options, including the vesting
and expiry dates of the New Options.
NOW THEREFORE in consideration of the mutual covenants and agreements contained
in this agreement and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Corporation and the Executive
agree to amend the Employment Agreement as follows:
1. Clause 8 of the Employment Agreement is deleted in its entirety and replaced
with the following:
"The Corporation hereby grants to the Executive options to acquire
1,000,000 common shares in the capital of the Corporation at an option
price of $4.11 (Cdn.) per common share. The parties agree to enter into a
Share Option Agreement substantially in the form of Schedule A attached
hereto in order to set forth the terms and conditions relating to the
options herein granted."
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT.
TLC THE LASER CENTER INC.
By: /s/ John Riegert
---------------------------------
John Riegert
Chief Financial Officer
WITNESS: )
)
)
/s/ Janet Craig ) /s/ Elias Vamvakas
- -------------------------------- ) ---------------------------------
) ELIAS VAMVAKAS
Janet Craig )
- -------------------------------- )
Witness Name (Please Print) )
<PAGE>
SCHEDULE A
SHARE OPTION AGREEMENT
THIS AGREEMENT is made as of this 4th day of March, 1996,
B E T W E E N:
TLC THE LASER CENTER INC., a corporation
incorporated under the laws of the Province of
Ontario
(the "Corporation")
-and-
ELIAS VAMVAKAS, of the City of Richmond Hill, in
the Province of Ontario
(the "Executive")
RECITALS:
A. The Corporation and the Executive entered into an agreement dated as of
January 1, 1996, as amended by an agreement dated as of March 4, 1996 (the
"Employment Agreement") to set forth the rights and obligations of each of
them as regards the Executive's continuing employment with the Corporation
for their mutual benefit and to reflect the nature of the Executive's
employment by a corporation intending to become a public corporation.
B. Pursuant to clause 8 of the Employment Agreement, the Corporation has
granted to the Executive an option to acquire 1,000,000 common shares in
the capital of the Corporation at an option price of $4.11 (Cdn.) per
share. This Option replaces the option (the "Original Option") granted to
the Executive by the Corporation as of January 1, 1996 pursuant to clause
8 of the Employment Agreement, as such clause read prior to the amendment
of such clause by the Amendment to Employment Agreement made as of March
4, 1996 between the Corporation and the Executive.
C. The Corporation and the Executive wish to enter into this Share Option
Agreement to set forth the terms and conditions relating to the option
granted to the Executive pursuant to clause 8 of the Employment Agreement.
<PAGE>
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NOW THEREFORE, in consideration of the mutual covenants and
agreements contained in this agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the Corporation
and the Executive agree as follows:
Grant and Exercise of Options
1. The parties confirm that pursuant to clause 8 of the Employment Agreement.
the Corporation has granted to the Executive an option (the "Option") to acquire
1.000,000 common shares (the "Shares") in the capital of the Corporation at an
option price of $4.11 (Cdn.) per share. The Executive's rights to purchase
Shares pursuant to this Option will vest and expire as follows:
Vesting Date Number of Options Expiry Date(1) Aggregate Number
- ------------ Exercisable On or -------------- of Options
After Vesting Date Exercisable
------------------ ----------------
Immediately 391,727 January 1, 2001 Immediately:
391,727
March 25, 1996 152,069 January 1, 2001 March 25, 1996:
543,796
January 1, 1997 152,068 January 1, 2002 January 1, 1997:
695,864
January 1, 1998 152,068 January 1, 2003 January 1, 1998:
842,932
January 1, 1999 152,068 January 1, 2004 January 1, 1999:
1,000,000
(1) Subject to earlier expiration in accordance with the terms of this
Agreement.
The Corporation will permit the Executive to apply the inherent
value (the "Inherent Value") of the Original Option towards the exercise of the
Options granted to the Executive pursuant to clause 8 of the Employment
Agreement which vest immediately. However, the Executive's ability to apply the
Inherent Value to the exercise of the Option will expire on March 25, 1996. The
Inherent Value will be considered to have a fair value equal to that number
obtained when (a) the difference between (i) Cdn. $2.50 and (ii) Cdn. $4.11
<PAGE>
-3-
(US $3.00) is multiplied by (b) the number of Shares subject to the Original
Option held by the Executive.
The Executive's Inherent Value is calculated as follows:
The total number of Original Options granted to you as of
January 1, 1996 was:
1,000,000
Multiplied by: (i) $4.11 - (ii) $2.50 Cdn. $1.61
Total Inherent Value: Cdn. $1,610,000
In order to apply the Inherent Value of the Original Option toward
the exercise of the Options referred to above, please sign the Inherent Value
Exercise Form which is attached to this Agreement and return it to Janet Craig
at the Corporation's head office as soon as possible and in any event prior to
March 25, 1996.
2. Additional Terms of Exercise
Not less than 100 Shares may be purchased at any one time except
where the remainder totals less than 100. No fractional Shares may be issued and
the board of directors of the Corporation (the "Board") may determine the manner
in which fractional Share value will be treated. Subject to the foregoing, this
Option may be exercised in whole or in part in respect of vested Options at any
time prior to expiry of the relevant Options, by delivery of written notice to
the Corporation's head office to the attention of the Secretary of the
Corporation, specifying the number of Shares to be purchased, accompanied by
payment by bank draft or certified cheque of the total purchase price of the
Shares.
3. Termination, Retirement, Death or Departure
(a) If the Executive ceases to be an employee of the Corporation for any
reason whatsoever other than death, each Option held by the Executive will
cease to be exercisable 90 days after the date the Executive ceases to be
an employee of the Corporation. If any portion of an Option has not vested
by the Termination Date, that portion of the Option may not under any
circumstances be exercised by the Executive. Without limitation, and for
greater certainty only, this subsection (a) will apply regardless of
whether the Executive was dismissed with or without cause and regardless
of whether the Executive received compensation in respect of dismissal or
was entitled to a period of notice of termination which would otherwise
have permitted a greater portion of the Option to vest in the Executive.
(b) If the Executive dies, the legal representatives of the Executive may
exercise the Executive's Options within 180 days after the date of the
Executive's death but only to the extent the Options were by their terms
exercisable on the date of death. If the legal representative of the
Executive who has died exercises the Option in accordance with the
<PAGE>
-4-
terms of this Agreement, the Corporation will have no obligation to issue
the Shares until evidence satisfactory to the Corporation has been
provided by the legal representative that the legal representative is
entitled to purchase the Shares under this Agreement.
4. Payment of Option Price
The exercise price of each Share purchased under an Option must be
paid in full by bank draft or certified cheque at the time of exercise, and upon
receipt of payment in full, the number of Shares in respect of which the Option
is exercised will be duly issued as fully paid and non-assessable.
5. Share Certificates
Share certificates representing the number of Shares in respect of
which the Option has been exercised will be issued only upon payment in full of
the relevant exercise price. These share certificates will be held for
safekeeping by the Secretary of the Corporation, unless the Executive directs
the Secretary otherwise.
6. Amendment of Option Terms
With the consent of any applicable regulatory authorities (as
required) and the Executive, the Board may amend or modify any outstanding
Options in any manner to the extent that the Board would have had the authority
to initially grant the award as so modified or amended, including without
limitation, to change the date or dates as of which, or the price at which, an
Option becomes exercisable.
7. Right to Terminate Options on Sale of Corporation
Notwithstanding any other provision of this Agreement, if the Board
at any time by resolution declares it advisable to do so in connection with any
proposed sale or conveyance of all or substantially all of the property and
assets of the Corporation or any proposed merger, consolidation, amalgamation or
offer to acquire all of the outstanding Shares of the Corporation (collectively,
the "Proposed Transaction"), the Corporation may give written notice to the
Executive advising that the outstanding Options may be exercised only within 30
days after the date of the notice and not thereafter, and that all rights of the
Executive under any Options not exercised will terminate at the expiration of
the 30-day period, provided that the Proposed Transaction is completed within
180 days after the date of the notice. If the Proposed Transaction is not
completed within the 180-day period, no right under any Option will be affected
by the notice, except that the Option may not be exercised between the date of
expiration of the 30-day period and the day after the expiration of the 180-day
period.
8. Prohibition of Transfer of Options
Options are personal to the Executive. The Executive may deal with
any Options or any interest in them or transfer any Options now or hereafter
held by the Executive only in
<PAGE>
-5-
accordance with this Agreement. A purported transfer of any Options in violation
of this Agreement will not be valid and the Corporation will not issue any Share
upon the attempted exercise of improperly transferred Options. For the purposes
of this Agreement, the term "transfer" shall have the meaning ascribed to such
term in the Share Option Plan of the Corporation dated February 12, 1996.
9. Prohibition of Transfer of Shares
The Executive will not, upon exercise of an Option, deal with any
Share or any interest in it or transfer any Share now or hereafter held by the
Executive except in accordance with the Articles of the Corporation as
implemented by the Board.
10. Capital Adjustments
If there is any change in the outstanding Shares by reason of a
stock dividend or split, recapitalization, consolidation, combination or
exchange of shares, or other fundamental corporate change, the Board will make,
subject to any prior approval required of relevant stock exchanges or other
applicable regulatory authorities, if any, an appropriate substitution or
adjustment in (i) the exercise price of any unexercised Options; (ii) the number
or kind of shares reserved for issuance to the Executive; and (iii) the purchase
price of those shares subject to unexercised Options theretofore granted to the
Executive, and in the exercise price of those unexercised Options; provided,
however, that no substitution or adjustment will obligate the Corporation to
issue or sell fractional shares. In the event of the reorganization of the
Corporation or the amalgamation or consolidation of the Corporation with another
corporation, the Board may make such provision for the protection of the rights
of the Executive, as the Board in its discretion deems appropriate. The
determination of the Board, as to any adjustment or as to there being no need
for adjustment, will be final and binding on all parties.
11. Compliance with Legislation
The Board may postpone or adjust any exercise of any Option or the
issue of any Shares pursuant to this Agreement as the Board in its discretion
may deem necessary in order to permit the Corporation to effect or maintain
registration of this Agreement or the Shares issuable pursuant thereto under the
securities laws of any applicable jurisdiction, or to determine that the Shares
and this Agreement are exempt from such registration. The Corporation is not
obligated by any provision of this Agreement or any grant hereunder to sell or
issue Shares in violation of any applicable law. In addition, if the Shares are
listed on a stock exchange, the Corporation will have no obligation to issue any
Shares pursuant to this Agreement unless the Shares have been duly listed, upon
official notice of issuance, on a stock exchange on which the Shares are listed
for trading.
12. Restrictions on Resale of Shares
The Executive's right to resell Shares that the Executive purchases
pursuant to the exercise of any vested Options may be restricted in accordance
with applicable securities laws.
<PAGE>
-6-
The Executive should contact the Secretary of the Corporation or his legal
adviser for more details concerning these restrictions.
13. Governing Law
This Agreement will be governed by and construed in accordance with
the laws of the Province of Ontario.
IN WITNESS WHEREOF the parties have executed this Agreement.
TLC THE LASER CENTER INC.
By: /s/ John Riegert
---------------------------------
John Riegert
Chief Financial Officer
WITNESS )
)
)
/s/ Janet Craig ) /s/ Elias Vamvakas
- -------------------------------- ) ---------------------------------
) ELIAS VAMVAKAS
Janet Craig )
- -------------------------------- )
Witness Name (Please Print) )
<PAGE>
INHERENT VALUE EXERCISE FORM
TLC The Laser Center Inc.
206 Laird Drive, Suite 100
Toronto, Ontario
M4G 3W4
Attention: Janet Craig
Dear Sirs/Mesdames:
I hereby notify the Corporation that pursuant to the terms of the
Share Option Agreement dated March 4, 1996 (the "Share Option Agreement") made
between me and the Corporation, I wish to exercise options to acquire 391,727
common shares of the Corporation at an exercise price of $4.11 (Cdn.). I hereby
direct the Corporation to apply the Inherent Value of my Original Option toward
this exercise of Options. Words used herein and denoted by initial capital
letters have the respective meanings ascribed thereto in the Share Option
Agreement.
Yours truly,
/s/ Elias Vamvakas
Dated: March 18, 1996 -----------------------------
Elias Vamvakas
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 1st day of January, 1996,
B E T W E E N:
TLC THE LASER CENTER INC., a corporation
incorporated under the laws of the Province of
Ontario
(the "Corporation")
-and-
ELIAS VAMVAKAS, of the City of Richmond Hill,
in the Province of Ontario
(the "Executive")
RECITALS:
A. The Corporation is the parent company of a group of companies
(collectively, the "TLC Group") involved in the business of providing
excimer laser eye surgery and other secondary eye care services.
B. The Executive is currently an employee of the Corporation and/or the TLC
Group as well as a shareholder of the Corporation.
C. The Corporation and the Executive wish to enter into this Agreement to set
forth the rights and obligations of each of them as regards the
Executive's continuing employment with the Corporation for their mutual
benefit and to reflect the nature of the Executive's employment by a
corporation intending to become a public corporation.
NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED
IN THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION (THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED), THE CORPORATION AND THE EXECUTIVE
AGREE AS FOLLOWS:
Definitions
1. In this Agreement,
"Agreement" means this agreement and all schedules attached to this
agreement, in each case as they may be amended or supplemented from time
to time;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in the Province of Ontario;
<PAGE>
-2-
"Competitive Business" means a business carried on in North America which
includes the financing, development and/or operation of excimer laser eye
surgery clinics or secondary eye care clinics in the geographic market
areas where the Corporation carries on or, to the knowledge of the
Executive at any time during the continuance of this Agreement, intends to
carry on, its business;
"Confidential Information" means all confidential or proprietary
information, Intellectual Property (including trade secrets) and
confidential facts relating to the business or affairs of the Corporation
or the TLC Group whether or not originated by the Executive including,
without limitation, work product resulting from or related to work or
projects performed or to be performed by the Corporation or the TLC Group,
internal personnel and financial information of the Corporation or the TLC
Group, purchasing and internal cost information, service and operational
manuals, the manner and method of conducting the business of the
Corporation or the TLC Group, marketing and development plans and
agreements, price and cost data, price and fee amounts, pricing and
billing policies, quoting procedures, marketing techniques, methods of
obtaining business, forecasts and forecast assumptions and volumes, future
plans and potential strategies of the Corporation or the TLC Group which
have been or are being discussed, ideas concerning proposed eye surgery
clinics, contracts and their contents, patient and affiliated doctor
services, data provided by patients and affiliated doctor, and the type,
quantity and specifications of products and services, purchased, leased,
licensed, engaged, employed or received by the Corporation or the TLC
Group or by clients of the Corporation or the TLC Group, business plans,
patients, affiliated doctor and vendor lists, business deals with any of
these, financing, acquisition, development, licensing and distribution
agreements and budgets and investment opportunities and structures;
"Disability" means the mental or physical state of the Executive such that
the Executive has been unable as a result of illness, disease, mental or
physical disability or similar cause, as determined by a legally qualified
medical practitioner selected by the Corporation, to fulfil the
Executive's obligations under this Agreement either for any consecutive
180 day period or for any period of 180 days (whether or not consecutive)
in any consecutive 365 day period and the cause so determined by such
medical practitioner falls within the definition of "disability" contained
in the disability insurance policy referred to in section 10(b) hereof;
"Employment Period" means the Term and renewals thereof;
"ESA" means the Employment Standards Act (Ontario) as the same may be
amended from time to time and any successor legislation thereto or similar
legislation governing the employment of the Executive;
"Intellectual Property" means all legally recognized rights which result
or derive from the Executive's services provided to the Corporation or the
TLC Group or with the knowledge, use or incorporation of Confidential
Information, and includes but is not limited to developments, inventions,
designs, works of authorship, improvements and ideas, whether or not
patentable or copyrightable, conceived or made by the Executive
(individually or in collaboration with others) during the Employment
Period or which
<PAGE>
-3-
result from or derive from the Corporation's or the TLC Group's resources
or which are reasonably related to the business of the Corporation or the
TLC Group;
"Just Cause" means: (i) the failure of the Executive to carry out his
duties after notice by the Corporation of the failure to do so and an
opportunity for the Executive to correct the same within a reasonable time
from the date of receipt of such notice, (ii) theft, fraud, dishonesty or
misconduct by the Executive involving the property, business or affairs of
the Corporation or the carrying out of the Executive's duties; or (iii)
any material breach or non-observance by the Executive of any term of this
Agreement;
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative, regulatory
body or agency, government or governmental agency, authority or entity
however designated or constituted;
"Term" has the meaning set out in section 3; and
"Year of Employment" means any 12 month period during the Employment
Period commencing on January 1, and ending on December 31.
2. Employment of the Executive
The Corporation will employ the Executive, and the Executive will
serve the Corporation, in positions assigned by the board of directors of the
Corporation from time to time that are consistent with the Executive's skills
and experience and comparable to the duties and positions held by the Executive
with the Corporation prior to the date of this Agreement. The Executive shall,
at the discretion of the board of directors of the Corporation, hold the office
of President, Chief Executive Officer and Chairman of the Board of Directors.
The Corporation may, by notice given in accordance with this Agreement, cause
the Executive to be employed by another member of the TLC Group designated by
the Corporation. If a designation of this sort is made, this Agreement will
govern the employment relationship between the Executive and the relevant member
of the TLC Group but the term "Corporation" will, unless the context requires
otherwise, be deemed to refer to the member of the TLC Group that employs the
Executive. The Executive will comply with all rules, regulations and
instructions of the Corporation now in force, or which may be adopted from time
to time, and communicated by the Corporation to its employees.
3. Employment Period
The Executive's employment will, subject to section 9, be for a term
of three years extending to December 31, 1998 (the "Term"). Commencing on
January 1, 1999, the Term shall be automatically extended for successive periods
of one year unless terminated by the agreement of the parties or pursuant to
section 9(c) or 9(d) hereof.
<PAGE>
-4-
4. Performance of Duties
During the Employment Period, the Executive will faithfully,
honestly and diligently serve the Corporation and the TLC Group. The Executive
will (except in the case of illness or accident) devote sufficient time and
effort so as to ensure the effective management of the Corporation and will use
his best efforts to promote the interests of the Corporation. The Executive
appreciates that his duties may involve significant travel, and agrees to travel
as reasonably required in order to fulfil his duties.
5. Remuneration
(a) Basic Remuneration. The Corporation will pay the Executive a gross
annual salary (the "Salary") in an amount equal to $225,000 (US) in
the first year of the Term, $250,000 (US) in the second year of the
Term, $275,000 (US) in the third year of the Term and thereafter
during successive annual renewals of the Term the Corporation will
pay the Executive a gross annual Salary in an amount determined by
the board of directors of the Corporation from time to time in
respect of each such successive year, provided that the Executive's
Salary in each such successive year shall be no less than that paid
in the previous year plus fifteen per cent. The foregoing Salary
payable in each year is before deduction for income taxes and other
required deductions, such as Canada Pension Plan and Unemployment
Insurance contributions, but excluding the Benefits paid by the
Corporation as provided in section 5(b)). The Salary will be payable
in equal installments semi-monthly in arrears in each month during
each Year of Employment, the first payment to be made on January 15,
1996.
(b) Benefits. The Corporation will provide to the Executive any benefits
provided from time to time to employees of the Corporation generally
including, without limitation, medical and dental insurance plans
and disability insurance (the "Benefits"). In addition, the
Executive will be entitled to participate in applicable fund, plan
or arrangement relating to senior executives of the Corporation in
effect generally from time to time with respect to the Corporation,
in accordance with and subject to the terms thereof.
(c) Bonus Remuneration. The Executive will be entitled to receive such
bonus remuneration, if any, in respect of each Year of Employment
during the Employment Period (including, without limitation, any
Year of Employment during which this Agreement terminates), as the
board of directors of the Corporation, in its sole discretion, may
authorize (the "Bonus").
6. Expenses
The Corporation will, upon presentation of expense statements or
receipts and such other supporting documentation as the Corporation may
reasonably require, pay or reimburse the Executive in accordance with the
Corporation's expense policies for all travel and out-of-pocket expenses
reasonably incurred or paid by the Executive in the performance of his duties
and responsibilities.
<PAGE>
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7. Vacation
The Executive will be entitled during each Year of Employment during
the Employment Period to such period of vacation with pay as the board of
directors of the Corporation, in its sole discretion, may authorize, provided
that the Executive will be entitled to at least 4 weeks of vacation during each
Year of Employment. Vacation will be taken by the Executive at such time as may
be convenient to the Corporation having regard to its operations.
8. Options
The Corporation hereby grants to the Executive options to acquire
1,000,000 common shares in the capital of the Corporation at an option price of
$2.50 (Cdn.) per common share of which options to acquire 250,000 shares will be
exerciseable in each of the next four years on a cumulative basis. Each of the
foregoing options shall expire on the earlier of (i) 5 years following the date
on which they become exerciseable and (ii) ninety days following termination of
the Executive's employment hereunder. The parties agree to enter into such
additional documents as may be required to give effect to the options herein
granted.
9. Termination
(a) Notice. The Executive's employment may be terminated at any time:
(i) by the Corporation without prior notice and without further
obligations to the Executive for reasons of Just Cause or
Disability; or
(ii) in any other case, by the Corporation on 24 months' prior
written notice, provided that if, in the case of termination
by the Corporation under this clause 9(a)(ii), the Executive
is entitled under the ESA to a longer period of notice than
that prescribed above, the notice to be given by the
Corporation under this clause 9(a)(ii) will be that minimum
period of notice which is required under the ESA and no more.
Termination of the Executive's employment by the Corporation
pursuant to clause 9(a)(i) or clause 9(a)(ii) may be undertaken only
under the authority of a resolution of the aboard of directors
approved by 80% of the directors.
Subject to section 10 hereof, the Executive's employment will be
automatically terminated, without further obligation on the part of
the Corporation or the TLC Group (except as to the pro-rata payments
of amounts owing to such date) upon the Executive's death.
(b) Effective Date. The effective date on which the Executive's
employment will be deemed to have been terminated will be:
(i) in the case of termination under clause 9(a)(i) or 9(a)(ii),
the day on which the Executive is deemed, under section 19, to
have received notice from the Corporation of termination; and
<PAGE>
-6-
(ii) in the case of the death of the Executive, on the date of the
Executive's death.
(c) No Other Entitlement. Except as provided in this section 9 and
section 10, where the Executive's employment has been terminated by
the Executive or terminated or deemed to have been terminated by the
Corporation for any reason, the Executive will not be entitled,
except to the extent required under any mandatory employment
standard under the ESA, to receive any payment as termination pay,
severance pay, in lieu of notice, or as damages. Except as to any
entitlement as provided herein and in section 10 hereof, the
Executive hereby waives any claims the Executive may have against
the Corporation for or in respect of termination pay, severance pay,
or on account of loss of office or employment or notice in lieu
thereof or damages in lieu thereof (other than rights to accrued and
unpaid Salary and vacation pay, to reimbursement for expenses
pursuant to section 6, to the assignment to the Executive of any and
all insurance policies or health and dental insurance plans, if
assignable, and to the granting of any share options to which the
Executive is entitled in accordance with the terms of this
Agreement). Payments to the Executive upon termination by the
Corporation will be deemed to include and to satisfy entitlement to
termination pay and severance pay pursuant to the ESA to the extent
of such payments.
(d) The Executive may terminate his employment with the Corporation at
any time following the Term on not less than 120 days prior written
notice.
10. Termination Payment
(a) if this Agreement is terminated by the Corporation pursuant to
section 9(a)(i) for Just Cause, then the Corporation shall pay to
the Executive the minimum amount required to be paid in respect of
such termination by the ESA;
(b) if this Agreement is terminated by the Corporation pursuant to
section 9(a)(i) for Disability, the Corporation shall not be
required to make any termination, severance or other payment to
the Executive, provided that the Executive shall be entitled to
receive all disability payments payable to the Executive pursuant
to disability insurance maintained by the Corporation for the
benefit of the Executive. The Corporation covenants that
throughout the Employment Period it will maintain disability
insurance for the benefit of the Executive at at least the
insurable levels and on terms no less favourable to the Executive
than the disability insurance policy for the benefit of the
Executive existing on the date hereof, provided that the cost of
maintaining such insurance is not unreasonable as determined by a
vote of not less than 80% of the directors of the Corporation. If
such determination is made the parties agree within a reasonable
time thereafter to negotiate mutually acceptable alternative
arrangements. Notwithstanding the foregoing, but subject to such
mutually acceptable alternate arrangements if entered into, the
Corporation will for a period of 18 months following termination
of this Agreement pursuant to this section 10(b), pay to the
Executive the difference between (i) amounts received by the
Executive pursuant to disability insurance policy maintained by
the Corporation and (ii) 150% of the Salary and
<PAGE>
-7-
Bonus paid to the Executive during his last full year of employment
hereunder. Such amounts will be estimated and paid monthly to the
Executive with any necessary adjustments at the end of such 18 month
period;
(c) if this Agreement is terminated by the Corporation pursuant to
section 9(a)(ii) hereof, the Corporation shall pay to the Executive,
within 30 days of the effective date of such termination, an amount
equal to 24 months Salary determined by reference to the Executive's
salary in the current Year of Employment and a Bonus equal to twice
the average of the Bonus paid to the Executive in each of the
previous two years; and
(d) if this Agreement is terminated by reason of the death of the
Executive, the Corporation shall pay to the Executive's estate or
personal representatives all amounts owing to the Executive up to
and including the date of death together with a Bonus equal to that
percentage of the previous year's Bonus that is equal to the
percentage determined by dividing 365 the numerical day in the Year
of Employment that the Executive died and multiplying that product
by 100.
11. Return of Materials Upon Termination
Upon termination of the Executive's employment by the Corporation,
the Executive will promptly deliver to the Corporation all property of or
belonging to or administered by the Corporation or the TLC Group, including
without limitation all documents, manuals, customer, patient, affiliated doctor,
supplier, product and other proprietary lists, data, records, computer programs,
codes, materials, prototypes, products, samples, analyses, reports, marketing
materials, equipment, tools and devices relating or pertaining to any
Intellectual Property or Confidential Information, including all copies or
reproductions of the same
12. Non-Competition Agreement
The Executive acknowledges the competitive and proprietary nature of
the business carried on by the Corporation and the TLC Group and the interests
of the Corporation and the TLC Group in limiting, on a reasonable basis, the
availability of its employees and former employees to Competitive Businesses.
Accordingly, the Executive will not, either during the Employment
Period or for a period of 24 months thereafter, directly or indirectly, in any
manner whatsoever including, without limitation, either individually, or in
partnership, jointly or in conjunction with any other Person, or as employee,
principal, agent, director or shareholder
(a) be engaged in any undertaking;
(b) have any financial or other interest (including an interest by way
of royalty or other compensation arrangements) in or in respect of
the business of any Person which carries on a business; or
<PAGE>
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(c) advise, lend money to, guarantee the debts or obligations of or
permit the use of the Executive's name or any part thereof by any
Person which carries on a business;
in North America, if the undertaking or the business, as the case may be, is a
Competitive Business.
Nothing in this section 12 will operate to prevent the Executive
from owning, on a passive investment basis, up to 5% of the issued shares of a
Competitive Business, the shares of which are traded on a recognized stock
exchange or traded in the over-the-counter market in Canada or elsewhere.
Notwithstanding the foregoing but subject to section 4 hereof, the
Corporation acknowledges that the Executive will, throughout the Employment
Period, continue to hold certain professional licences relevant to and will
continue to receive compensation from E.A. Vamvakas Insurance Agencies Limited
and Creative Planning Corporation Insurance Services, Inc. and the Corporation
agrees that such licenses and relationships shall not constitute a breach of
this section 12.
13. No-Solicitation of Employees or Consultants
The Executive acknowledges the importance to the business carried on
by the Corporation and the TLC Group of the human resources engaged and
developed by the Corporation and the TLC Group and the unique access that the
Executive's employment and other involvement with the Corporation and the TLC
Group offers to interfere with these resources. Accordingly, the Executive will
not, during the Employment Period and for the period of 24 months thereafter,
directly or indirectly, employ, be employed by, enter into a partnership or
other association with or retain as an independent contractor or be retained as
an independent contractor by any employee of or consultant to the Corporation or
the TLC Group or induce or solicit, or attempt to induce, any such person to
leave that person's employment or engagement.
14. Confidentiality
The Executive will not, during the Employment Period and at any time
thereafter, directly or indirectly, other than as required by his duties use or
disclose to any Person any Confidential Information unless:
(a) the Confidential Information is available to the public or in the
public domain at the time of such disclosure or use, without breach
of this Agreement or any similar agreement between the Corporation
and other employees or consultants; or;
(b) disclosure of the Confidential Information is required to be made by
any law, regulation, governmental authority or court, provided that
before disclosure is made, notice of the requirement is provided to
the Corporation, and (to the extent possible in the circumstances)
the Corporation is afforded an opportunity to dispute the
requirement for disclosure.
<PAGE>
-9-
The Executive's obligations under this section 14 are to remain in effect in
perpetuity and will exist and continue in full force and effect notwithstanding
any breach or repudiation or any alleged breach or repudiation of this Agreement
by the Corporation.
15. Copyright
During the Employment Period, the Executive agrees to disclose to
the Corporation all Intellectual Property developed by the Executive, either
individually or in collaboration with others, which relates directly or
indirectly to the business of the Corporation or the TLC Group. The Executive
acknowledges and agrees that all right, title and interest of any kind
whatsoever in and to the Intellectual Property, including the foregoing and any
copyrights, is and will be the exclusive property of the Corporation and the
Corporation will have absolute discretion to determine how such Intellectual
Property is used. All work done during the Employment Period by the Executive
for the Corporation or a member of the TLC Group is a work for hire under which
the Corporation or the member of the TLC Group, as the case may be, is the first
author for copyright purposes. Copyright will vest in the Corporation or the
relevant member of the TLC Group, as the case may be. The Executive hereby
waives all moral rights that the Executive may have in the Intellectual Property
and the Executive agrees that this waiver may be invoked by the Corporation, and
by any of its authorized agents or assignees, to use any of the Intellectual
Property. The Executive agrees that the Executive will execute all such
instruments and do all such things as may be reasonably necessary or desirable
to give full effect to the foregoing and will cooperate and assist the
Corporation and the TLC Group in enforcing their rights under this paragraph.
16. Certain Warranties, Covenants and Remedies
(a) The Executive agrees that the obligations of the Executive as set
forth in sections 11, 12, 13, 14 and 15 will be deemed to have
commenced as of the date on which the Executive was first employed
by the TLC Group. The Executive warrants that the Executive has not,
to date, breached any of the obligations set forth in any of these
sections.
(b) The Executive acknowledges that a material breach or threatened
material breach by the Executive of any of sections 11, 12, 13, 14
and 15 will result in the Corporation and its shareholders suffering
irreparable harm which is not capable of being calculated and which
cannot be fully or adequately compensated by the recovery of damages
alone. Accordingly, the Executive agrees that the Corporation will
be entitled to interim and permanent injunctive relief, specific
performance and other equitable remedies, in addition to any other
relief to which the Corporation may become entitled.
(c) The Executive's obligations under each of sections 11, 12, 13, 14
and 15 are to remain in effect in accordance with their terms and
will exist and continue in full force and effect notwithstanding any
breach or repudiation, or alleged breach or repudiation, of this
Agreement by the Corporation.
<PAGE>
-10-
17. Co-operation by Executive
The Executive will co-operate in all respects with the Corporation
if a question arises as to whether he has a Disability. Without limitation, the
Executive will authorize the Executive's medical doctor or other health care
specialist to discuss the condition of the Executive with the Corporation and
will as reasonably requested by the Corporation submit to examination by a
medical doctor or other health care specialist selected by the Corporation.
18. Citizenship and Residence
The Executive warrants that he is a Canadian citizen ordinarily
resident in Ontario and covenants that he will maintain his status as such
unless and until otherwise approved by the board of directors of the
Corporation. The Corporation will not, without agreement of the Executive,
require the Executive to relocate from the Municipality of Metropolitan Toronto.
19. Notices
Any notice or other communication required or permitted to be given
hereunder must be in writing, delivered by facsimile or by hand-delivery as
hereinafter provided. Any such notice or other communication, if sent by
facsimile, will be deemed to have been received on the Business Day following
the sending, or if delivered by hand to the Executive will be deemed to have
been received at the time it is delivered to him or, if delivered to the
Executive or the Corporation at applicable address noted below, when it is
delivered either to the individual designated below or to an individual at such
address having apparent authority to accept deliveries on behalf of the
addressee. Notice of change of address will also be governed by this section.
Notices and other communications must be addressed as follows:
(a) if to the Executive:
423 Weldrick Road East
Richmond Hill, Ontario
L4B 2M5
Attention: Mr. Elias Vamvakas
Telecopier number: (905) 770-7235
(b) if to the Corporation:
206 Laird Drive
Suite 100
Toronto, Ontario
M4G 3W4
Attention: Corporate Secretary
Telecopier number: (416) 467-6882
<PAGE>
-11-
20. Headings
The inclusion of headings in this Agreement is for convenience of
reference only and is not to affect the construction or interpretation hereof.
21. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any provision
by a court of competent jurisdiction will not affect the validity or
enforceability of any other provision hereof.
22. Entire Agreement
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter of this Agreement. This Agreement supersedes
and replaces all prior agreements, if any, written or oral, with respect to the
Executive's employment by the Corporation or the TLC Group and any rights which
the Executive may have by reason of any such prior agreement or by reason of the
Executive's prior employment, if any, by the Corporation or the TLC Group.
There are no warranties, representations or agreements between the parties in
connection with the subject matter of this Agreement except as specifically set
forth or referred to in this Agreement. No reliance is placed on any
representations, opinion, advice or assertion of fact made by the Corporation
the TLC Group or its directors, officers and agents to the Executive, except to
the extent that the same has been reduced to writing and included as a term of
this Agreement. Accordingly, there will be no liability, either in tort or in
contract, assessed in relation to any such representation, opinion, advice or
assertion of fact, except to the extent aforesaid.
23. Waiver, Amendment
Except as expressly provided in this Agreement, no amendment or
waiver of this Agreement will be binding unless executed in writing by the party
to be bound thereby. No waiver of any provision of this Agreement will
constitute a waiver of any other provision nor will any waiver of any provision
of this Agreement constitute a continuing waiver unless otherwise expressly
provided.
24. Employers and Employees Act
Section 2 of the Employers and Employees Act (Ontario) or other
similar provisions in the ESA will not apply to or in respect of this Agreement
or the employment of the Executive hereunder.
25. Governing Law
This Agreement will be governed by and construed in accordance with
the laws of the Province of Ontario.
<PAGE>
-12-
26. Counterparts
This Agreement may be signed in counterparts. Each counterpart will
constitute an original document and all counterparts, taken together, will
constitute one and the same instrument. Executed counterparts may be delivered
by telecopier.
27. Acknowledgement
The Executive acknowledges that:
(a) the Executive has had sufficient time to review and consider this
Agreement thoroughly;
(b) the Executive has read and understands the terms of this Agreement
and the Executive's obligations hereunder;
(c) the Executive has been given an opportunity to obtain independent
legal advice, or such other advice as the Executive may desire,
concerning the interpretation and effect of this Agreement; and
<PAGE>
-13-
(d) the Agreement is entered into voluntarily by the Executive.
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT.
TLC THE LASER CENTER INC.
By: /s/ John Riegert c/s
---------------------------------
John Riegert
Chief Financial Officer
WITNESS:
)
)
/s/ Ernest Belyea ) /s/ Elias Vamvakas
- -------------------------------- ) ---------------------------------
) ELIAS VAMVAKAS
Ernest Belyea )
- -------------------------------- )
Witness Name (Please Print) )
ESCROW AGREEMENT
THIS AGREEMENT made in triplicate this 5th day of March, 1996
BETWEEN:
ELIAS VAMVAKAS, of the City of Toronto,
1111881 ONTARIO LIMITED, a corporation incorporated
under the laws of Ontario
JEFFERY J. MACHAT, of the City of Windsor
1123562 ONTARIO LIMITED, a corporation incorporated
under the laws of Ontario
and LNG ENTERPRISES, INC., a corporation incorporated
under the laws of Michigan
(hereinafter collectively called the "Security
Holders")
OF THE FIRST PART
-and-
THE R-M TRUST COMPANY, a company incorporated under
the laws of Canada and having a registered office in
the City of Toronto, Ontario
(hereinafter called the "Trustee")
OF THE SECOND PART
-and-
TLC THE LASER CENTER INC., a corporation incorporated
under the laws of the Province of Ontario
(hereinafter called the "Issuer")
OF THE THIRD PART.
WHEREAS in furtherance of complying with the requirements of the
Securities Act (Ontario), the Security Holders are desirous of depositing in
escrow certain securities in the Issuer owned or to be received by them;
AND WHEREAS 1111881 Ontario Limited is a corporation indirectly
controlled by Elias Vamvakas and 1123562 Ontario Limited is a corporation
indirectly controlled by Jeffery J. Machat;
<PAGE>
-2-
AND WHEREAS the Trustee has agreed to undertake and perform its
duties according to the terms and conditions hereof;
NOW THEREFORE this Agreement witnesseth that in consideration of the
aforesaid agreements, and of the sum of one dollar ($l.00) now paid by the
parties hereto, each to the other (receipt of which sum the parties do hereby
respectively acknowledge each to the other) the Security Holders covenant and
agree with the Issuer and with the Trustee and the Issuer and the Trustee
covenant and agree each with the other and with the Security Holders, as
follows:
1. Each of the Security Holders hereby places and deposits in escrow those
securities of the Issuer which are represented by the certificates described or
referred to in Schedule "A" (hereinafter, the "Escrowed Securities") hereto with
the Trustee and hereby undertakes and agrees forthwith to deliver those
securities (including any replacement securities or certificates if and when
such are issued or allotted) to the Trustee for deposit in escrow. Included in
and forming part of the Escrowed Securities are certain common shares of the
Issuer to be issued to certain of the Security Holders prior to closing of the
initial public offering of the Issuer pursuant to the Prospectus (as hereinafter
defined).
2. The parties hereby agree that the Escrowed Securities and the beneficial
ownership of or any interest in them and the certificate representing them
(including any replacement securities or certificates) shall not be sold,
assigned, hypothecated, alienated, released from escrow, transferred within
escrow, or otherwise in any manner dealt with, without the express consent,
order or direction in writing of the Ontario Securities Commission (hereinafter
referred to as the "Commission") being first had and obtained or except as may
be required by reason of the death or bankruptcy of any Security Holder, in
which cases the Trustee shall hold the said certificates subject to this
agreement, for whatever person, firm or corporation shall be legally entitled to
be or become the registered owner thereof.
3. The Security Holders hereby direct the Trustee to retain their respective
Escrowed Securities and the certificates (including any replacement securities
or certificates) representing the same and not to do or cause anything to be
done to release the same from escrow or to allow any transfer, hypothecation or
alienation thereof except with and as directed by the written
<PAGE>
-3-
consent, order or direction of the Commission. The Trustee hereby accepts the
responsibilities placed on it hereby and agrees to perform the same in
accordance with the terms hereof and the written consents, orders or directions
of the Commission.
4. (a) The Trustee shall release from escrow the Escrowed Securities held by the
Trustee in the following amounts and at the following times, pro rata to the
Security Holders:
(i) 10% of the Escrowed Securities immediately after that date
which is nine months following the date of the final receipt
of the Director under the Securities Act (Ontario) (the
"Director") for the prospectus dated March 5, 1996 of the
Issuer relating to the offering of common shares in the
capital of the Issuer (the "Prospectus");
(ii) a further 20% of the Escrowed Securities immediately after
each of the first, second and third anniversaries of the
release contemplated in clause 4(a)(i) above; and
(iii) the remaining 30% of the Escrowed Securities immediately after
the fourth anniversary of the release contemplated in clause
4(a)(i) above.
(b) Notwithstanding the provisions of paragraph 4(a), any Security Holder
may, at any time while any of the Escrowed Securities remain with the Trustee
pursuant to this agreement, apply to the Commission in accordance with the
policies of the Commission for the Commission's consent to the release from
escrow of all or part of the Escrowed Securities and the Trustee shall, upon
receipt of the written direction of such Security Holder and the consent of the
Commission, release such securities.
(c) Notwithstanding the provisions of paragraph 4(a), upon the death of
any Security Holder who is an individual, that individual's Escrowed Securities
may be released from escrow by the Trustee such that 1/3 of such Escrowed
Securities have been released after the date of death, 2/3 of such Escrowed
Securities have been released after the first anniversary of the date of death
and all such Escrowed Securities have been released after the second anniversary
of the date of death, provided that the Trustee receives from the legal
representative of the deceased
<PAGE>
-4-
Security Holder proper evidence that the Commission has been informed by notice
in writing of the date of death of such Security Holder.
(d) This agreement has been made in connection with a proposed
distribution by the Issuer of common shares in respect of which the Issuer has
filed and obtained a receipt from the Commission for the preliminary prospectus
dated January 15, 1996. If a final receipt is not obtained from the Commission
for the Prospectus, or if subscriptions for the minimum offering of common
shares are not received by the agents by May 4, 1996:
(i) the Trustee shall forthwith after May 4, 1996 release all of
the Escrowed Securities from the provisions of this agreement;
and
(ii) this agreement shall cease, on May 4, 1996, to be of any
further force and effect.
5. The Security Holders, or any of them, may pledge, charge, hypothecate or
otherwise encumber their respective Escrowed Securities in order to secure their
bona fide indebtedness to a third party lender with whom the relevant Security
Holder deals at arm's length, if such lender acknowledges in writing, addressed
to the parties hereto and to the Commission, that the securities are held by,
and shall be dealt with by the Trustee, subject to and in accordance with this
agreement, and such acknowledgement is filed with the Commission.
6. If during the period in which any of the said Escrowed Securities are
retained in escrow pursuant hereto, any dividend is received by the Trustee in
respect of the Escrowed Securities, any such dividend shall be forthwith paid or
transferred to the respective Security Holders entitled thereto.
7. All voting rights attached to the Escrowed Securities shall at all times be
exercised by the respective registered owners thereof.
8. The Issuer and each Security Holder hereby agree to indemnify and hold
harmless the Trustee from and against any liability, loss, claim, action, cost,
and expense, including legal fees and disbursements, (collectively, the
"Liabilities") which may be asserted against the Trustee arising from or out of
this Agreement; provided that the Issuer and each Security Holder
<PAGE>
-5-
shall not be required to indemnify the Trustee in the event that such
Liabilities are a result of the gross negligence or wilful misconduct of the
Trustee. This provision shall survive the resignation or removal of the Trustee
or the termination of this Agreement.
9. The Trustee shall be protected in acting and relying reasonably upon any
written notice, direction, instruction, order, certificate, confirmation,
request, waiver, consent, receipt, statutory declaration or other paper or
document (collectively referred to as "Documents") furnished to it and signed by
any person required to or entitled to execute and deliver to the Trustee any
such Documents in connection with this Agreement, not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information therein contained, which it in good
faith believes to be genuine.
10. The Trustee may retain legal counsel and advisors as may be reasonably
required for the purpose of discharging its duties or determining its rights
under this Agreement, and may rely and act upon the advice of such counsel or
advisor.
11. In consideration of the Trustee fulfilling its obligations hereunder, the
Issuer agrees to pay the Trustee such reasonable fees and expenses as the Issuer
and the Trustee may agree upon from time to time.
12. The Trustee shall have no duties or responsibilities except as expressly
provided in this Agreement and shall have no liability or responsibility arising
under any other agreement, including any agreement referred to in this
Agreement, to which the Trustee is not a party.
13. The Issuer hereby acknowledges the terms and conditions of this agreement
and agrees to take all reasonable steps to facilitate its performance.
14. If the Trustee should wish to resign, it shall give at least six months'
notice to the Issuer, which may, with the written consent of the Commission, by
writing appoint another Trustee in its place and such appointment shall be
binding on the Security Holders and the new Trustee shall assume and be bound by
the obligations of the Trustee hereunder.
15. The written consent, order or direction of the Commission as to a release
from escrow of all or part of the said Escrowed Securities shall terminate this
agreement only in
<PAGE>
-6-
respect to those securities so released. For greater certainty this clause does
not apply to Escrowed Securities transferred within escrow.
16. Each Security Holder covenants and agrees that their respective, current
mailing address is set out in the register of the securities kept by the Trustee
as transfer agent and registrar and that, from time to time, they shall provide
to the Trustee their respective current mailing address.
17. This agreement may be executed in several parts in the same form and such
parts as so executed shall together form one original agreement, and such parts
if more than one shall be read together and construed as if all the signing
parties hereto had executed one copy of this agreement.
18. Wherever the singular or masculine are used throughout this agreement, the
same shall be construed as being the plural or feminine or neuter where the
context so requires.
19. This agreement shall enure to the benefit of and be binding upon the parties
hereto, their and each of their heirs, executors, administrators, successors and
assigns.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed these presents
the day and year first above written.
TLC THE LASER CENTER INC.
By: /s/ John Riegert
---------------------------------
Authorized Signing Officer
THE R-M TRUST COMPANY
By:
---------------------------------
Authorized Signing Officer
By:
---------------------------------
Authorized Signing Officer
LNG ENTERPRISES, INC.
By:
---------------------------------
Authorized Signing Officer
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed these presents
the day and year first above written.
TLC THE LASER CENTER INC.
By:
---------------------------------
Authorized Signing Officer
THE R-M TRUST COMPANY
By: /s/ Charito Librodo
---------------------------------
CHARITO LIBRODO
Authorized Signing Officer
By: /s/ Bruce Cornish
---------------------------------
BRUCE CORNISH
Authorized Signing Officer
LNG ENTERPRISES, INC.
By:
---------------------------------
Authorized Signing Officer
<PAGE>
be read together and construed as if all the signing parties hereto had executed
one copy of this agreement.
17. Wherever the singular or masculine are used throughout this agreement, the
same shall be construed as being the plural or feminine or neuter where the
context so requires.
18. This agreement shall enure to the benefit of and be binding upon the parties
hereto, their and each of their heirs, executors, administrators, successors and
assigns.
IN WITNESS WHEREOF the parties hereto have executed these presents
the day and year first above written.
TLC THE LASER CENTER INC.
By:
---------------------------------
Authorized Signing Officer
THE R-M TRUST COMPANY
By:
---------------------------------
Authorized Signing Officer
By:
---------------------------------
Authorized Signing Officer
LNG ENTERPRISES, INC.,
a Michigan corporation
By: /s/ Lawrence M. Loewenthal
---------------------------------
Authorized Signing Officer
LAWRENCE M. LOEWENTHAL,
Its President
<PAGE>
1111881 ONTARIO LIMITED
By: /s/ Elias Vamvakas
---------------------------------
Authorized Signing Officer
1123562 ONTARIO LIMITED
By:
---------------------------------
Authorized Signing Officer
<PAGE>
1111881 ONTARIO LIMITED
By: /s/ Elias Vamvakas
---------------------------------
Authorized Signing Officer
1123562 ONTARIO LIMITED
By: /s/ Jeffrey J. Machat
---------------------------------
Authorized Signing Officer
<PAGE>
)
)
)
) /s/ Elias Vamvakas
- ------------------------------ ) ---------------------------------------
Witness ) Elias Vamvakas
)
)
- ------------------------------ ) ---------------------------------------
Witness ) Jeffery J. Machat
<PAGE>
)
)
)
)
- ------------------------------ ) ---------------------------------------
Witness ) Elias Vamvakas
)
) /s/ Jeffery J. Machat
- ------------------------------ ) ---------------------------------------
Witness ) Jeffery J. Machat
<PAGE>
SCHEDULE A
Number
Name of of Securities Certificate
Security Holder Beneficial Owner Subject to Escrow Number
--------------- ---------------- ----------------- ------
LNG Enterprises, Inc. LNG Enterprises, Inc. 2,466,667 C-11
Elias Vamvakas
(a) Delivered Herewith:
Elias Vamvakas Elias Vamvakas 750,000 C-9
1111881 Ontario
Limited Elias Vamvakas 2,220,000 C-8
(b) Shares to be issued Elias Vamvakas 376,504
and delivered prior
to closing upon
exercise of value
options
Jeffery Machat
(a) Delivered Herewith:
Jeffery Machat Jeffery Machat 12,500 C-30
1123562 Ontario
Limited Jeffery Machat 4,440,000 C-10A
(b) Shares to be issued Jeffery Machat 9,496
and delivered prior
to closing upon
exercise of value
options
CONSULTING AGREEMENT
THIS AGREEMENT is made as of this 1st day of January, 1996,
B E T W E E N:
TLC THE LASER CENTER INC., a corporation
incorporated under the laws of the Province of
Ontario
(the "Corporation")
- and -
EXCIMER MANAGEMENT CORPORATION, a
corporation incorporated under the laws of the
Province of Ontario
("EMCO")
RECITALS:
A. The Corporation is the parent company of a group of companies
(collectively, the "TLC Group") involved in the business of providing
excimer laser eye surgery and other secondary eye care services.
B. EMCO has in its employ, Dr. Jeffrey J. Machat, a leading ophalmologist,
expert in excimer laser eye surgery.
C. The Corporation and EMCO wish to enter into this Agreement to set forth
the basis upon which EMCO will make the services of Dr. Machat available
to the Corporation.
NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED
IN THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION (THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED), THE CORPORATION AND EMCO AGREE AS
FOLLOWS:
Definitions
1. In this Agreement,
"Agreement" means this agreement and all schedules attached to this
agreement, in each case as they may be amended or supplemented from time
to time;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in the Province of Ontario;
"Competitive Business" means a business carried on anywhere in North
America which includes the financing, development and/or operation of
laser eye surgery clinics or secondary eye care clinics in the market
areas where the Corporation carries on, or to the
<PAGE>
-2-
knowledge of EMCO at any time during the term of this Agreement or any
renewals thereof, intends to carry on its business;
"Confidential Information" means all confidential or proprietary
information, Intellectual Property (including trade secrets) and
confidential facts relating to the business or affairs of the Corporation
or the TLC Group whether or not originated by the Executive including,
without limitation, work product resulting from or related to work or
projects performed or to be performed by the Corporation or the TLC Group,
internal personnel and financial information of the Corporation or the TLC
Group, purchasing and internal cost information, service and operational
manuals, the manner and method of conducting the business of the
Corporation or the TLC Group, marketing and development plans and
agreements, price and cost data, price and fee amounts, pricing and
billing policies, quoting procedures, marketing techniques, methods of
obtaining business, forecasts and forecast assumptions and volumes, future
plans and potential strategies of the Corporation or the TLC Group which
have been or are being discussed, ideas concerning proposed eye surgery
clinics, contracts and their contents, patient and affiliated doctor
services, data provided by patients and affiliated doctor services, and
the type, quantity and specifications of products and services, purchased,
leased, licensed, engaged, employed or received by the Corporation or the
TLC Group or by clients of the Corporation or the TLC Group, business
plans, patients, affiliated doctor and vendor lists, business deals with
any of these, financing, acquisition, development, licensing and
distribution agreements and budgets and investment opportunities and
structures;
"Contract Term" means the Term and renewals thereof;
"Contract Year" means any 12 month period commencing on January 1, and
ending on December 31;
"Disability" means the mental or physical state of Dr. Machat such that
Dr. Machat has been unable as a result of illness, disease, mental or
physical disability or similar cause, as determined by a legally qualified
medical practitioner selected by the Corporation, to fulfil EMCO's
obligations under this Agreement either for any consecutive 180 day period
or for any period of 180 days (whether or not consecutive) in any
consecutive 365 day period;
"Intellectual Property" means all legally recognized rights which result
or derive from Dr. Machat's services provided to the Corporation or the
TLC Group or with the knowledge, use or incorporation of Confidential
Information, and includes but is not limited to developments, inventions,
designs, works of authorship, improvements and ideas, whether or not
patentable or copyrightable, conceived or made by Dr. Machat (individually
or in collaboration with others) during the Contract Term or which result
from or derive from the Corporation's or the TLC Group's resources or
which are reasonably related to the business of the Corporation or the TLC
Group other than any of the foregoing in respect of which EMCO provides
written notice thereof to the Corporation prior to any material work being
undertaken by Dr. Machat, EMCO requests that all such rights which may
result or derive from such work be excluded from the definition of
"Intellectual Property" and the President of the Corporation provides
written notice to EMCO of its agreement with such request;
<PAGE>
-3-
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative, regulatory
body or agency, government or governmental agency, authority or entity
however designated or constituted;
"Term" has the meaning set out in section 3; and
"Termination Event" means: (i) the failure of EMCO, through Dr. Machat, to
carry out its obligations hereunder after notice by the Corporation of the
failure to do so and an opportunity for EMCO to correct the same within a
reasonable time from the date of receipt of such notice, (ii) theft,
fraud, dishonesty or misconduct by EMCO or its employees involving the
property, business or affairs of the Corporation or the carrying out of
EMCO's obligations; or (iii) any material breach or non-observance by EMCO
of any term of this Agreement.
2. Scope of Services
The Corporation hereby retains EMCO to provide the services of Dr.
Machat as follows:
(i) to provide consulting services to the Corporation in the
capacity of Chief Surgeon of the Windsor laser eye surgery
clinic owned by the Corporation (the "Windsor Clinic") and
Co-National Medical Director for the Corporation which shall
include advising the Corporation on doctor qualifications,
surgery methods, procedures and techniques, laser machines,
research results, patient profiles and other medical
professional matters relating to establishing and conducting
laser eye surgery clinics in North America;
(ii) on behalf of the Corporation, establishing and implementing
training procedures and education programs to be made
available by the Corporation to affiliated doctors throughout
North America; and
(iii) to provide such further advice and assistance to the
Corporation in connection with its laser eye surgery clinics
as the Corporation may reasonably request from time to time.
The Corporation will designate Dr. Machat as its Chief Surgeon of
the Windsor Clinic and Co-National Medical Director. EMCO hereby acknowledges
that the services to be rendered by it hereunder will be provided to the TLC
Group as a whole as well as the Corporation.
3. Contract Period
The term of this Agreement will, subject to section 9, be for a term
of three years ending on December 31, 1998 (the "Term"). Thereafter, the Term
shall be automatically extended for successive periods of one year unless either
party gives notice of termination within 60 days before or after the applicable
renewal date.
<PAGE>
-4-
4. Performance of Duties
During the Contract Period, EMCO shall cause Dr. Machat to
faithfully, honestly and diligently provide the services herein contracted for
to the Corporation and the TLC Group. EMCO will cause Dr. Machat (except in the
case of illness or accident) to devote sufficient time and effort to the
services herein contracted for so as to use his best efforts to promote the
interests of the Corporation. EMCO appreciates that the services herein
contracted for may involve significant travel, and agrees to cause Dr. Machat to
travel as reasonably required in order to fulfil EMCO's obligations hereunder.
5. Fees
The Corporation will pay EMCO for the services of Dr. Machat
hereunder an annual contract fee (the "Fee") throughout each year of the Term in
an amount equal to $200,000 (US). EMCO acknowledges that Dr. Machat is an
employee of EMCO and EMCO shall be solely responsible for deduction for income
taxes and other required deductions, such as Canada Pension Plan and
Unemployment Insurance contributions payable by or in respect of Dr. Machat
pursuant to his employment with EMCO and hereby indemnifies and saves the
Corporation harmless in respect thereof. Unless otherwise agreed in writing, the
Fee will be payable in equal installments monthly in arrears in each month
during each Contract Year, the first payment to be made on February 1, 1996.
6. Expenses
The Corporation will, upon presentation of expense statements or
receipts and such other supporting documentation as the Corporation may
reasonably require, pay or reimburse EMCO in accordance with the Corporation's
expense policies for all travel and out-of-pocket expenses reasonably incurred
or paid by EMCO in the performance by Dr. Machat of the services herein
contracted for.
7. Vacation
The Corporation acknowledges that during each Contract Year of this
Agreement EMCO will provide the services of Dr. Machat to the Corporation for a
maximum of 48 weeks. EMCO agrees to consult with the Corporation concerning the
proposed weeks when Dr. Machat will not be made available to ensure that such
time may be convenient to the Corporation having regard to those of its
operations in respect of which Dr. Machat is providing services hereunder.
8. Termination
(a) Notice. This Agreement may be terminated by the Corporation at any
time:
(i) without prior notice and without further obligations to EMCO
for Disability or if a Termination Event occurs. Termination
of this Agreement by the Corporation pursuant hereto may be
undertaken only under the authority of a resolution of the
board of directors of the Corporation approved by 80% of the
directors.
(ii) upon 90 days prior written notice, provided however that if
this Agreement is so terminated an amount equal to two times
the Fee shall be payable to EMCO within 30 days following
notice of such termination. Termination
<PAGE>
-5-
of this Agreement by the Corporation pursuant hereto may be
undertaken only under the authority of a resolution of the
board of directors of the Corporation approved by 80% of the
directors.
(b) This Agreement will be automatically terminated, without further
obligation on the part of the Corporation or the TLC Group (except
as to the pro-rata payments of amounts owing to such date) upon the
death of Dr. Machat.
(c) Effective Date. The effective date on which this Agreement will be
deemed to have been terminated will be:
(i) in the case of termination under section 8(a), 30 days
following delivery of notice of termination; and
(ii) in the case of termination pursuant to section 8(b), on the
date of death.
(d) No Other Obligations. Except for payment of all amounts owing
hereunder to the effective date of a termination or as otherwise
provided herein, neither EMCO nor Dr. Machat will be entitled to
receive any payment arising out of or relating to this Agreement.
EMCO on its own behalf and on behalf of its employees hereby waives
any claims against the Corporation for or in respect of termination
pay, severance pay, or on account of loss of office or employment or
notice in lieu thereof or damages in lieu thereof and EMCO hereby
indemnifies and saves the Corporation harmless in respect thereof.
(e) Termination by EMCO. Following the expiration of the Term, this
Agreement may be terminated by EMCO at any time on 120 days prior
written notice.
9. Return of Materials Uoon Termination
Upon termination of this Agreement, EMCO shall cause its employees
to promptly deliver to the Corporation all property of or belonging to or
administered by the Corporation or the TLC Group, including without limitation
all documents, manuals, customer, patient, affiliated doctor, supplier, product
and other proprietary lists, data, records, computer programs, codes, materials,
prototypes, products, samples, analyses, reports, marketing materials,
equipment, tools and devices relating or pertaining to any Intellectual Property
or Confidential Information, including all copies or reproductions of the same
10. Non-Competition Agreement
EMCO acknowledges the competitive and proprietary nature of the
business carried on by the Corporation and the TLC Group and the interests of
the Corporation and the TLC Group in limiting, on a reasonable basis, the
availability of those primary consultants providing services to Competitive
Businesses.
Accordingly, EMCO agrees that neither it nor any of its employees
will, either during the Term or any renewal thereof or for a period of 24 months
thereafter, directly or indirectly, in any manner whatsoever including, without
limitation, either individually, or in partnership, jointly or in conjunction
with any other Person, or as employee, principal, agent, consultant, adviser,
director or shareholder
<PAGE>
-6-
(a) be engaged in any undertaking;
(b) have any financial or other interest (including an interest by
way of royalty or other compensation arrangements) in or in
respect of the business of any Person which carries on a
business; or
(c) advise, lend money to, guarantee the debts or obligations of
or permit the use of the Executive's name or any part thereof
by any Person which carries on a business;
anywhere in North America, if the undertaking or the business, as the case may
be, is a Competitive Business.
Nothing in this section 10 will operate to prevent (i) EMCO or Dr.
Machat from owning, on a passive investment basis, up to 5% of the issued shares
of a Competitive Business, the shares of which are traded on a recognized stock
exchange or traded in the over-the-counter market in Canada or elsewhere, or
(ii) following the termination of this Agreement, Dr. Machat from performing
excimer laser surgery as a sole practitioner at a single location in Canada
provided such practice has no professional or business relationship, directly or
indirectly, with a Competitive Business and is not within a 100 mile radius of
any TLC eye care facility.
11. No-Solicitation of Employees or Consultants
EMCO acknowledges the importance to the business carried on by the
TLC Group of the human resources engaged and developed by the TLC Group and the
unique access that EMCO's employees with the TLC Group offers to interfere with
these resources. Accordingly, EMCO covenants that neither it nor any of its
employees will, during the Contract Period and for the period of 24 months
thereafter, directly or indirectly, employ, be employed by, enter into a
partnership or other association with or retain as an independent contractor or
be retained as an independent contractor by any employee of or consultant to the
Corporation or the TLC Group or induce or solicit, or attempt to induce, any
such person to leave that person's employment or engagement.
12. Confidentiality
Neither EMCO nor any of its employees will, during the Contract
Period and at any time thereafter, directly or indirectly, other than as
required pursuant hereto use or disclose to any Person any Confidential
Information unless;
(a) the Confidential Information is available to the public or in the
public domain at the time of such disclosure or use, without breach
of this Agreement or any similar agreement between the Corporation
and others; or;
(b) disclosure of the Confidential Information is required to be made by
any law, regulation, governmental authority or court, provided that
before disclosure is made, notice of the requirement is provided to
the Corporation, and (to the extent possible in the circumstances)
the Corporation is afforded an opportunity to dispute the
requirements for disclosure.
<PAGE>
-7-
EMCO's and its employees obligations under this section 12 are to remain in
effect in perpetuity and will exist and continue in full force and effect
notwithstanding any breach or repudiation or any alleged breach or repudiation
of this Agreement by the Corporation.
13. Copyright
During the Contract Period, EMCO agrees that it and its employees
will disclose to the Corporation all Intellectual Property developed by Dr.
Machat, either individually or in collaboration with others, which relates
directly or indirectly to the business of the Corporation or the TLC Group. EMCO
acknowledges and agrees that all right, title and interest of any kind
whatsoever in and to the Intellectual Property, including the foregoing and any
copyrights, is and will be the exclusive property of the Corporation and the
Corporation will have absolute discretion to determine how such Intellectual
Property is used. All work done during the Contract Period by Dr. Machat or EMCO
for the Corporation or a member of the TLC Group is a work in respect of which
the Corporation or the member of the TLC Group, as the case may be, shall be
deemed to be the first author for copyright purposes. Copyright will vest in the
Corporation or the relevant member of the TLC Group, as the case may be. EMCO on
its own behalf and on behalf of Dr. Machat hereby waives all moral rights that
either may have in the Intellectual Property and agrees that this waiver may be
invoked by the Corporation, and by any of its authorized agents or assignees, to
use any of the Intellectual Property. EMCO agrees that to execute all such
instruments and do all such things as may be reasonably necessary or desirable
to give full effect to the foregoing and will cooperate and assist the
Corporation and the TLC Group in enforcing their rights under this paragraph.
14. Certain Warranties, Covenants and Remedies
(a) EMCO agrees that its obligations as set forth in sections 9, 10, 11,
12 and 13 will be deemed to have commenced as of the date on which
services are or have been provided by EMCO to the Corporation before
or after the date hereof
(b) EMCO acknowledges that a material breach or threatened material
breach of any of sections 9, 10, 11, 12 and 13 will result in the
Corporation and its shareholders suffering irreparable harm which is
not capable of being calculated and which cannot be fully or
adequately compensated by the recovery of damages alone.
Accordingly, EMCO agrees that the Corporation will be entitled to
interim and permanent injunctive relief; specific performance and
other equitable remedies, in addition to any other relief to which
the Corporation may become entitled.
(c) EMCO's obligations under each of sections 9, 10, 11, 12 and 13 are
to remain in effect in accordance with their terms and will exist
and continue in full force and effect notwithstanding any breach or
repudiation, or alleged breach or repudiation, of this Agreement by
the Corporation.
(d) EMCO represents, warrants and covenants that (i) it will at all
times during this Agreement employ Dr. Machat; (ii) it will not
provide the services of any of its employees to a Competitive
Business during the term hereof; (iii) it will at all times while
Dr. Machat is its employee maintain disability insurance for the
benefit of Dr. Machat in amounts not less than and on terms no less
favourable than those formerly maintained by the Corporation; and
(iv) no employee of EMCO will consult, lecture, take part in
education or training seminars or speaking
<PAGE>
-8-
engagements, in the eye care field, without the prior written
consent of the Corporation, which consent may be unreasonably
withheld.
15. Co-operation
EMCO will co-operate and will cause Dr. Machat to co-operate in all
respects with the Corporation if a question arises as to whether Dr. Machat has
a Disability. Without limitation, Dr. Machat will authorize his medical doctor
or other health care specialist to discuss any medical condition with the
Corporation and will as reasonably requested by the Corporation submit to
examination by a medical doctor or other health care specialist selected by the
Corporation.
16. Residence
EMCO represents and warrants that it is not a non-resident of Canada
for purposes of the Income Tax Act (Canada).
17. Notices
Any notice or other communication required or permitted to be given
hereunder must be in writing, delivered by facsimile or by hand-delivery as
hereinafter provided. Any such notice or other communication, if sent by
facsimile, will be deemed to have been received on the Business Day following
the sending, or if delivered by hand to the Executive will be deemed to have
been received at the time it is delivered to him or, if delivered to the
Executive or the Corporation at applicable address noted below, when it is
delivered either to the individual designated below or to an individual at such
address having apparent authority to accept deliveries on behalf of the
addressee. Notice of change of address will also be governed by this section.
Notices and other communications must be addressed as follows:
(a) if to EMCO.
(b) if to the Corporation:
206 Laird Drive
Suite 100
Toronto, Ontario
M4G 3W4
Attention: President
Telecopier number: (416) 467-6882
18. Headings
The inclusion of headings in this Agreement is for convenience of
reference only and is not to affect the construction or interpretation hereof
<PAGE>
-9-
19. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any provision
by a court of competent jurisdiction will not affect the validity or
enforceability of any other provision hereof
20. Entire Agreement
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter of this Agreement. This Agreement supersedes
and replaces all prior agreements, if any, written or oral, with respect to the
subject matter hereof. There are no warranties, representations or agreements
between the parties in connection with the subject matter of this Agreement
except as specifically set forth or referred to in this Agreement. No reliance
is placed on any representations, opinion, advice or assertion of fact made by
the Corporation the TLC Group or its directors, officers and agents to EMCO,
except to the extent that the same has been reduced to writing and included as a
term of this Agreement. Accordingly, there will be no liability, either in tort
or in contract, assessed in relation to any such representation, opinion, advice
or assertion of fact, except to the extent aforesaid.
21. Waiver, Amendment
Except as expressly provided in this Agreement, no amendment or
waiver of this Agreement will be binding unless executed in writing by the party
to be bound thereby. No waiver of any provision of this Agreement will
constitute a waiver of any other provision nor will any waiver of any provision
of this Agreement constitute a continuing waiver unless otherwise expressly
provided. Neither this Agreement nor any part thereof may be assigned without
the prior written consent of the other party hereto.
22. Surgery Agreement
The parties hereto acknowledge that Dr. Machat and one or more
members of the TLC Group may enter into a Surgery Agreement pursuant to which
Dr. Machat performs laser eye surgery at one or more TLC clinics. Any such
agreement shall be completely separate from and independent of this agreement
and shall be deemed not to be a breach of any obligations hereunder.
23. Governing Law
This Agreement will be governed by and construed in accordance with
the laws of the Province of Ontario.
<PAGE>
-10-
24. Counterparts
This Agreement may be signed in counterparts. Each counterpart will
constitute an original document and all counterparts, taken together, will
constitute one and the same instrument. Executed counterparts may be delivered
by telecopier.
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT.
EXCIMER MANAGEMENT
CORPORATION
By /s/ Dr Jeffery J. Machat
---------------------------------- c/s
Dr Jeffery J. Machat
TLC THE LASER CENTER INC.
By /s/ Elias Vamvakas
---------------------------------- c/s
Elias Vamvakas
================================================================================
EMPLOYMENT AGREEMENT
BETWEEN
GARY JONAS
AND
TLC THE LASER CENTER INC.
MADE AS OF
September 1, 1997
================================================================================
1
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of September 1, 1997;
B E T W E E N:
Gary Jonas
(hereinafter referred to as the "Employee"),
OF THE FIRST PART,
- and -
TLC The Laser Center Inc., a corporation incorporated under the laws
of the Province of Ontario, Canada (hereinafter referred to as the
"Employer"),
OF THE SECOND PART.
THIS AGREEMENT WITNESSES that in consideration of the covenants and
agreements herein contained the parties hereto agree as follows:
ARTICLE ONE - EMPLOYMENT
1.1 Employment
Subject to the terms and conditions herein contained, the Employee shall
be employed by the Employer as Executive Vice President of the Employer, and
shall perform such duties and exercise such powers related thereto as may from
time to time be assigned to him by the Employer.
1.2 Term of Employment
The employment of the Employee hereunder shall commence on September 1,
1997 and shall be for a period of five (5) years to terminate on August 30,
2002, subject to any renewal of this Agreement pursuant to Section 5.1 and
subject to earlier termination of this Agreement pursuant to Sections 4.1 and
4.2.
1.3 Place of Employment
The Employee shall perform his work and services for the Employer or for
an Affiliate (which includes any parent, subsidiary or other corporation
associated or affiliated with the Employer, including without limitation, 20/20
Laser Centers, Inc. ("20/20")) as may be designated by the Employer from time to
time in Bethesda, Maryland.
2
<PAGE>
ARTICLE TWO - REMUNERATION
2.1 Salary
The Employer shall pay the Employee during the term of this Agreement a
gross annual salary of $U.S.220,000.00 payable bi-weekly in arrears. Such salary
shall be reviewed by the parties annually during each anniversary date of this
Agreement and any changes in such salary shall be as agreed upon in writing
between the parties.
2.2 Benefits
The Employee will be entitled to participate in the benefit plans
generally available to employees of the Employer and/or 20/20 Laser Centers,
Inc. in effect from time to time. The Employee acknowledges receiving a written
summary of the terms of such benefit plans. The Employee shall be entitled to
receive stock options on December 1, 1997 in accordance with the Employer's
Stock Option Plan as a senior management employee, but shall not be entitled to
participate in such Plan in any year thereafter.
2.3 Vacation
During the term of this Agreement the Employee shall be entitled to four
weeks vacation per annum. Such vacation shall be taken at a time or times
acceptable to the Employer having regard to its operations.
2.4 Expenses
The Employee shall be reimbursed for all authorized travelling and other
out-of-pocket expenses actually and properly incurred by him in connection with
his duties hereunder. For all such expenses the Employee shall furnish to the
Employer statements and vouchers as and when required by the Employer.
ARTICLE THREE - EMPLOYEE'S COVENANTS
3.1 Service
The Employee shall devote the whole of his time, attention and ability to
the business of the Employer or to the business of any other person as
authorized by the Employer and shall well and faithfully serve the Employer and
shall use his best efforts to promote the interests of the Employer, provided
however, that the Employee shall be entitled to serve on, and receive
compensation from, boards of directors and advisory boards for other companies
so long as such duties do not conflict with or interfere with his duties for the
Employer.
3
<PAGE>
3.2 Duties and Responsibilities
The Employee shall duly and diligently perform all the duties assigned to
him while in the employ of the Employer, and shall truly and faithfully account
for and deliver to the Employer all money, securities and things of value
belonging to the Employer which the Employee may from time to time receive for,
from or on account of the Employer.
3.3 Rules and Regulations
The Employee shall be bound by and shall faithfully observe and abide by
all the rules and regulations of the Employer from time to time in force which
are brought to his notice or of which he should reasonably be aware.
3.4 Non-Disclosure
The Employee shall not (either during the continuance of the employment or
at any time thereafter) disclose any information relating to the private or
confidential affairs of the Employer or relating to any secrets of the Employer
to any person other than for the Employer's purposes and, without limiting the
generality of the foregoing, the Employee shall not (either during the
continuance of the employment or at any time thereafter) disclose to any person
other than for the Employer's purposes and shall not (either during the
continuance of the employment or at any time thereafter) use for his own
purposes or for any purposes other than those of the Employer any such
information or secrets he may acquire in relation to the business of the
Employer.
3.5 Non-Competition
(1) The Employee shall not, without the prior written consent of the
Employer, at any time for a period of eighteen (18) months following the date of
termination of this Agreement for whatever reason and with or without cause,
either individually or in partnership or jointly or in conjunction with any
person as principal, agent, employee, shareholder (other than a holding of
shares listed on a Canadian or United States stock exchange that does not exceed
two percent (2%) of the outstanding shares so listed) or in any other manner
whatsoever carry on or be engaged in or be concerned with or interested in or
advise, lend money to, guarantee the debts or obligations of or permit his name
or any part thereof to be used or employed by any person engaged in or concerned
with or interested in within North America in the business of internet
electronic commerce (as conducted by the Employer in the eye care or health care
industry at the time of the Employee's termination of employment) or laser
vision correction services (the "Business"). The parties acknowledge, however,
that Employee may be employed by a company such as an advertising agency, an
accounting firm, a law firm, or consulting firm or similar type of company or
firm that has clients who are in the Business so long as the total annual
billings attributable to the client or clients in the Business do not exceed 25%
of the total annual billings of the employer company or firm.
4
<PAGE>
(2) The Employee confirms that all restrictions in Section 3.5(1) are
reasonable and valid and all defences to the strict enforcement thereof by the
Employer are waived by the Employee.
3.6 Inventions and Patents
In the event the Employee contributes to any patentable invention arising
out of or in the course of his employment hereunder, any such patentable
invention shall be the exclusive property of the Employer and the Employer shall
have the exclusive right to file patent applications in the name of the Employer
in connection therewith and the Employee shall cooperate with the Employer and
provide all necessary assistance in the filing and prosecution of such patent
applications.
ARTICLE FOUR - TERMINATION OF EMPLOYMENT
4.1 Termination by Employer for Cause
The Employer may terminate this Agreement at any time for cause without
payment of any compensation either by way of anticipated earnings or damages of
any kind. For purposes of this Agreement, "cause" shall be any of the following:
(i) conviction of a felony; (ii) breach of fiduciary duty; (iii) breach of this
agreement; or (iv) failure to perform stated duties. The phrase "failure to
perform stated duties" is not intended to refer to a subjective evaluation of
performance, but rather is intended to refer to the employee's unwillingness to
perform a duty that has been clearly stated as being part of his/her
responsibilities.
4.2 Termination by Employer or Employee on Notice; Severance
The Employer or the Employee may terminate this Agreement upon the giving
of six months written notice to the other party. Notwithstanding the foregoing,
the Employer may terminate this Agreement immediately upon paying to the
Employee six months' salary in lieu of such notice and upon making the benefit
plan contributions or otherwise providing for full benefits during the six month
period following an immediate termination. The Employee agrees that the Employer
may deduct from any payment of salary in lieu of notice hereunder the Employee's
benefit plan contributions which were regularly made during the term of this
Agreement in accordance with the terms of all benefit plans to be maintained
hereunder for the minimum period prescribed by law. In the event the Employer
terminates the Employee for cause (as defined above), then the Employee shall
not be entitled to any notice or severance salary or benefits.
4.3 Fair and Reasonable
The parties confirm that the notice and pay in lieu of notice provisions
contained in Section 4.2 are fair and reasonable and the parties agree that upon
any termination of this Agreement by the Employer in compliance with Sections
4.1 or 4.2 or upon any termination of this Agreement by the Employee, the
Employee shall have no action, cause of action, claim or demand against the
Employer or any other person as a consequence of such termination other than a
claim for salary and benefits until the effective date of such termination.
4.4 Return of Property
5
<PAGE>
Upon any termination of this Agreement the Employee shall at once deliver
or cause to be delivered to the Employer all books, documents, effects, money,
securities or other property belonging to the Employer or for which the Employer
is liable to others, which are in the possession, charge, control or custody of
the Employee.
4.5 Provisions which Operate Following Termination
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of Sections 3.4, 3.5, 3.6
and 4.4 of this Agreement and any other provisions of this Agreement necessary
to give efficacy thereto shall continue in full force and effect following such
termination.
ARTICLE FIVE - RENEWAL OF AGREEMENT
5.1 This Agreement shall continue for successive periods of one year's duration
beyond the original term described in Section 1.2 (subject to the termination
provisions set forth in Section 4 hereof) on the same terms and conditions of
employment or on such terms and conditions of employment as are agreed upon in
writing between the parties unless either party has given the requisite notice
to terminate under Article Four hereof.
ARTICLE SIX - GENERAL
6.1 Sections and Headings
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
6.2 Number
In this Agreement words importing the singular number only shall include
the plural and vice versa and words importing the masculine gender shall include
the feminine and neuter genders and vice versa and words importing persons shall
include individuals, partnerships, associations, trusts, unincorporated
organizations and corporations and vice versa.
6.3 Benefit of Agreement
This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Employee and the successors and permitted assigns of the Employer, respectively.
6.4 Entire Agreement
6
<PAGE>
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement.
6.5 Amendments and Waivers
No amendment to this Agreement shall be valid or binding unless set forth
in writing and duly executed by both of the parties hereto. No waiver of any
breach of any provision of this Agreement shall be effective or binding unless
made in writing and signed by the party purporting to give the same and, unless
otherwise provided in the written waiver, shall be limited to the specific
breach waived.
6.6 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
6.7 Notices
Any demand, notice or other communication (hereinafter in this Section 6.8
referred to as a "Communication") to be given in connection with this Agreement
shall be given in writing and may be given by personal delivery or by registered
mail addressed to the recipient as follows:
To the Employee:
6701 Democracy Boulevard
Bethesda, MD
20817
7
<PAGE>
To the Employer:
255 Queens Avenue
Suite 1660
London, Ontario
Canada N6A5R8
Attention: General Counsel
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the 5th day, other than a Saturday,
Sunday or statutory holiday in Ontario, following the deposit thereof in the
mail. If the party giving any Communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery.
6.8 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland and the federal laws of the United States of
America applicable therein.
6.9 Copy of Agreement
The Employee hereby acknowledges receipt of a copy of this Agreement duly
signed by the Employer.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED )
)
in the presence of: )
)
)
/s/ M. H. Walker ) /s/ Gary Jonas (s)
- ---------------------------- -------------------------
Witness ) Gary Jonas
TLC THE LASER CENTER INC.
By: /s/ R. J. Kelly
---------------------------
8
[LETTERHEAD OF TLC THE LASER CENTER, INC.]
April 4, 1997
SENT BY FACSIMILE
Frances JK Brotherhood
3124 County Road 810
Alvarado, Texas
76009
Frances,
Further to our conversation of this morning, I am pleased to outline and
formalize our agreement as follows:
Position: Vice President, Corporate Development
Start Date: March 31, 1997
Responsibilities: o Membership on Strategic Planning Team:
o systems review
o assist with integration of 20/20 and TLC
o management structure and philosophy review
o Any other projects and responsibilities deemed
appropriate as the TLC business evolves.
Automobile Our current policy on car expenses is to reimburse @ 31
Allowance: cents per mile for travel in the U.S. and @ 30 cents
per kilometer for travel in Canada. However, you have
asked for $6,000.00 per year in lieu of this, which
requires Elias' approval. I will advise you once I have
discussed this with him.
Other Business All reasonable expenses related to TLC business will be
Expenses: reimbursed as per policy when Expense Reports are
submitted monthly and approved, along with all related
original receipts, in accordance with TLC's Corporate
Finance Policies and Procedures which you are getting
from Sabrina. A U.S. American Express Card will follow.
Health Care Plan: You will be enrolled in TLC's family U.S. health care
plan which will take effect upon commencement of
employment. I understand that the details of this plan
have already been discussed with Nina and yourself and
that you have already received the details in the
package sent to you on February 7th.
Vacation: You will be entitled to 4 weeks (20 business days)
vacation per annum based on your anniversary date as
part of this employment agreement. Vacation cannot be
taken until after its 'earned' unless pre-agreed upon.
<PAGE>
Salary: $130,000 U.S. per annum paid bi-weekly. The possibility
of upward salary adjustments will be tied to our salary
and performance evaluations system effective September
1st of each year and/or any major change of
responsibility. As a corporate employee you will also
be eligible for Share Options which are distributed
December 1st of each year in accordance with our Share
Option Plan. A copy of the plan will be forwarded to
you by Janet Craig. The normal eligibility period is 1
year of employment, which we are waiving in your case.
Frances, as also discussed, we are hiring you as a full-time employee at the
full-time salary, however, we have agreed that in the short-term, you will be
continuing with some personal consulting assignments which will not conflict
with our business or your effectiveness. The continuation of these will be
further discussed depending on your change of responsibilities.
I am also attaching the Confidentiality/Non-Compete Agreement that we agreed
upon which, in essence, does not preclude you from working within the eye-care
market, but does prevent you from working with a direct competitor in the
refractive business. I hope that it meets your needs, as we discussed.
As far as severance arrangements are concerned, this was an area that we had not
discussed, and since we do not have any such standard policy in place at this
time, I will have to discuss this with Elias and Ron Kelly prior to making a
commitment. However, I would not be uncomfortable with providing you a minimum
of 3 months salary and benefit continuation upon commencement of your position
until we implement a policy for the Senior Management group. Once this policy is
in place, and if it is different, then you would automatically be eligible for
that plan.
Once again, Frances, I hope the above meets with your approval and if so, please
sign below.
We have received all of your completed benefit forms and the W4 form, as well as
your void personal check. Thank you for your prompt attention in providing these
to us.
I look forward to working with you!
Yours sincerely,
/s/ Maddie Walker
Maddie Walker
Chief Operating Officer
- --------------------------------------------------------------------------------
I agree to be bound by the above, and acknowledge that it correctly sets out the
arrangements agreed upon between us relating to my employment.
/s/ FJKB 04 APR 97
- ----------------------------------- ---------------------------------
Frances JK Brotherhood Date
/s/ Brenda Holloway 4-7-97
- ----------------------------------- ---------------------------------
Witness Date
===========================================
[STATE BRENDA HOLLOWAY
SEAL] Notary Public, State of Texas
My Commission Expires Oct. 28, 1997
===========================================
This document is considered legal and binding if transmitted via facsimile.
CONSULTING AGREEMENT
THIS AGREEMENT is made as of this 1st day of August, 1996;
B E T W E E N :
TLC THE LASER CENTER INC., a corporation incorporated under the laws
of the Province of Ontario
(the "Corporation")
OF THE FIRST PART,
- and -
KELMAR CORPORATION, a corporation incorporated under the laws of the
Province of Ontario
("KELMAR")
OF THE SECOND PART.
RECITALS:
A. The Corporation is the parent company of a group of companies
(collectively, the "TLC Group") involved in the business of providing
excimer laser surgery and other secondary eye care services.
B. KELMAR has under contract for his services, Ronald J. Kelly.
C. The Corporation and KELMAR wish to enter into this Agreement to set forth
the basis upon which KELMAR will make the services of Ronald J. Kelly
available to the Corporation.
NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED
IN THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION (THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED), THE CORPORATION AND KELMAR AGREE
AS FOLLOWS:
1. Definitions
In this Agreement,
<PAGE>
- 2 -
"Agreement" means this Agreement and all schedules attached to this agreement,
in each case as they may be amended or supplemented from time to time;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in the Province of Ontario;
"Competitive Business" means a business carried on anywhere in North America
which includes the financing, development and/or operation of laser eye surgery
clinics or secondary eye care clinics in the market areas where the Corporation
carries on, or to the knowledge of KELMAR at any time during the term of this
Agreement or any renewals thereof, intends to carry on its business;
"Confidential Information" means all confidential information or proprietary
information, Intellectual Property (including trade secrets) and confidential
facts relating to the business or affairs of the Corporation or the TLC Group
whether or not originated by Ronald J. Kelly including, without limitation, work
products resulting from or related to work or projects performed or to be
performed by the Corporation or the TLC Group, internal personnel and financial
information of the Corporation or the TLC Group, purchasing and internal cost
information, service and operational manuals, the manner and method of
conducting the business of the Corporation or the TLC Group, marketing and
development plans and agreements, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing techniques, methods
of obtaining business, forecasts and forecast assumptions and volumes, future
plans and potential strategies of the Corporation or the TLC Group which have
been or are being discussed, ideas concerning proposed eye surgery clinics,
contracts and their contents, patient and affiliated doctor services, data
provided by patients and affiliated doctor services, and the type, quantity and
specifications of products and services, purchased, leased, licensed, engaged,
employed or received by the Corporation or the TLC Group or by clients of the
Corporation or the TLC Group, business plans, patients, affiliated doctor and
vendor lists, business deals with any of these, financing, acquisition,
development, licensing and distribution agreements and budgets and investment
opportunities and structures;
"Contract Term" means the Term and renewals thereof;
"Contract Year" means any 12 month period commencing on January 1, and ending on
December 31 but shall be deemed to include the three month period from October
1, 1996 to December 31, 1996;
"Disability" means the mental or physical state of Ronald J. Kelly such that
Ronald J. Kelly has been unable as a result of illness, disease, mental or
physical disability or similar cause, as determined by a legally qualified
medical practitioner selected by the Corporation, to fulfil KELMAR'S obligations
under this Agreement either for any consecutive 60 day period or for any period
of 60 days (whether or not consecutive) in any consecutive 365 day period;
<PAGE>
- 3 -
"Intellectual Property" means all legally recognized rights which result or
derive from Ronald J. Kelly's services provided to the Corporation or the TLC
Group or with the knowledge, use or incorporation of Confidential Information,
and includes but is not limited to developments, inventions, designs, works of
authorship, improvements and ideas, whether or not patentable or copyrightable,
conceived or made by Ronald J. Kelly (individually or in collaboration with
others) during the Contract Term or which result from or derive from the
Corporation's or the TLC Group's resources or which are reasonably related to
the business of the Corporation or the TLC Group other than any of the foregoing
in respect of which KELMAR provides written notice thereof to the Corporation
prior to any material work being undertaken by Ronald J. Kelly, KELMAR requests
that all such rights which my result or derive from such work be excluded from
the definition of "Intellectual Property" and the Chief Executive Officer of the
Corporation provides written notice to KELMAR of its agreement with such
request;
"Person" means any individual, partnership, limited partnership, joint venture,
syndicate, sole proprietorship, company or corporation with or without share
capital, unincorporated association, trust, trustee, executor, administrator or
other legal personal representative, regulatory body or agency, government or
governmental agency, authority or entity however designated or constituted;
"Term" has the meaning set out in Section 3; and
"Termination Event" means:
(i) the failure of KELMAR, through Ronald J. Kelly to carry out its
obligations hereunder after notice by the Corporation of the failure
to do so and an opportunity for KELMAR to correct the same within a
reasonable time from the date of receipt of such notice;
(ii) theft, fraud, dishonesty or misconduct by KELMAR or its employees
involving the property, business or affairs of the Corporation or
the carrying out of KELMAR'S obligations; or
(iii) any material breach by KELMAR of any term of this Agreement.
2. Scope of Services
The Corporation hereby retains KELMAR:
(i) to provide consulting services to the Corporation in the capacity of
a senior executive officer and general counsel, which shall include
advising the Corporation on mergers, acquisitions, financings and
other professional matters relating to establishing and conducting
laser eye surgery clinics in North America; and
<PAGE>
- 4 -
(ii) to provide such further advice and assistance to the Corporation in
connection with its laser eye surgery clinics as the Corporation may
reasonably request from time to time.
KELMAR hereby acknowledges that the services to be rendered by it hereunder will
be provided to the TLC Group as a whole as well as the Corporation.
3. Contract Period
The term of this Agreement will commence on October 1, 1996 (or such earlier
time as may be agreed upon between KELMAR and the Corporation) for a term of
three and one-quarter years ending on December 31, 1999 (the "Term").
Thereafter, the Term shall be automatically extended for successive periods of
one year unless either party gives notice of termination within 60 days before
or after the applicable renewal date.
4. Performance of Duties
During the Contract Term, KELMAR shall cause Ronald J. Kelly to faithfully,
honestly and diligently provide the services herein contracted for to the
Corporation and the TLC Group as are designated by the Chief Executive Officer
or the Board of Directors of the Corporation to a maximum of 48 weeks per
Contract Year. KELMAR will cause Ronald J. Kelly (except in the case of illness
or accident) to devote sufficient time and effort to the services herein
contracted for so as to use his best efforts to promote the interests of the
Corporation, provided however, the Corporation acknowledges that its provision
of services through Ronald J. Kelly shall be that he will substantially spend
his work week providing services to the Corporation, and the balance pursuing
other interests such as the private practice of law. KELMAR appreciates that the
services herein contracted for involve significant travel, and agrees to cause
Ronald J. Kelly to travel as reasonably required in order to fulfil KELMAR'S
obligations hereunder.
5. Fees
(a) Basic Remuneration. The Corporation will pay KELMAR for the services
of Ronald J. Kelly hereunder an annual contract fee (the "Fee")
throughout each year of the Term in an amount equal to $200,000.00
(Cdn.) plus any applicable Goods and Services Tax. KELMAR
acknowledges that Ronald J. Kelly is under contract with KELMAR and
KELMAR shall be solely responsible for deduction for any applicable
income taxes and other required deductions, such as Canada Pension
Plan and Unemployment Insurance contributions payable by or in
respect of Ronald J. Kelly pursuant to his arrangements with KELMAR
and hereby indemnifies and saves the Corporation harmless in respect
thereof. Unless otherwise agreed in writing, the Fee will be payable
in equal instalments monthly in advance in each month during each
Contract Year, the first payment to be made on October 1, 1996.
<PAGE>
- 5 -
(b) Bonus and Share Options. During any Contract Year in which KELMAR
makes Ronald J. Kelly available to provide services to the
Corporation, Ronald J. Kelly will be entitled to participate in any
applicable fund, plan or arrangement relating to a senior management
executive of the Corporation in effect generally from time to time
with respect to the Corporation, in accordance with and subject to
the terms thereof, including, without limitation;
(i) such bonus remuneration, if any, in respect of each Contract
Year during the Contract Term (including, without limitation,
any Contract Year during which this Agreement terminates), as
the board of directors or Chief Executive Officer of the
Corporation, in their sole discretion, may authorize: and
(ii) share options in accordance with the Corporation's Share
Option Plan, if any, in respect of each Contract Year during
the Contract Term.
Ronald J. Kelly shall be considered a senior executive equivalent to
the Chief Financial Officer and Chief Operating Officer for the
purposes of this Section 5(b). KELMAR hereby acknowledges and
consents to Ronald J. Kelly receiving any bonus or share options
directly in order to facilitate any tax, estate or R.R.S.P. planning
in recognition of the non-transferability of options pursuant to the
Corporation's Share Option Plan.
6. Expenses
The Corporation will, upon presentation of expense statements or receipts and
such other supporting documentation as the Corporation may reasonably require,
pay or reimburse KELMAR in accordance with the Corporation's expense policies
for all travel and out-of-pocket expenses reasonably incurred or paid by KELMAR
in the performance by Ronald J. Kelly of the services herein contracted for,
provided however, Kelmar shall be responsible for any office or secretarial
expenses associated with its office located in London, Ontario.
7. Termination
(a) Notice. This Agreement may be terminated by the Corporation at any
time:
(i) without prior notice and without further obligations to KELMAR
for Disability or if a Termination Event occurs. Termination
of this Agreement by the Corporation pursuant hereto may be
undertaken only under the authority of the Chief Executive
Officer/President.
(ii) upon 90 days prior written notice, provided however that if
this Agreement is so terminated an amount equal to $100,000.00
shall be payable to KELMAR within 30 days following notice of
such termination,
<PAGE>
- 6 -
such payment is acknowledged by the parties to be liquidated
damages and not as a penalty. Each of the parties acknowledges
that the amount of $100,000.00 is a reasonable estimate of the
damages that will occur to KELMAR in the event of termination
of this Agreement pursuant to Section 7(a) shall occur,
particularly due to the previous full time occupation of
Ronald J. Kelly as a private legal practitioner and the time
that will be required for him to establish another full time
practice. Termination of this Agreement by the Corporation
pursuant hereto may be undertaken only under the authority of
the Chief Executive Officer/President.
(b) This Agreement will be automatically terminated, without further
obligation on the part of the Corporation or the TLC Group (except
as to the pro-rata payments of amounts owing to such date) upon the
death of Ronald J. Kelly.
(c) Effective Date. The effective date on which this Agreement will be
deemed to have been terminated will be:
(i) in the case of termination under Section 7(a), 30 days
following delivery of notice of termination; and
(ii) in the case of termination pursuant to Section 7(b), on the
date of death.
(d) No Other Obligations. Except for payment of all amounts owing
hereunder to the effective date of a termination or as otherwise
provided herein, neither KELMAR or Ronald J. Kelly will be entitled
to receive any payment arising out of or relating to this Agreement.
KELMAR on its own behalf and on behalf of its employees hereby
waives any claims against the Corporation for or in respect of
termination pay, severance pay, or on account of loss of office or
employment or notice in lieu thereof or damages in lieu thereof and
KELMAR hereby indemnifies and saves the Corporation harmless in
respect thereof.
(e) Termination by Kelmar. Following the expiration of the Term, this
Agreement may be terminated by KELMAR at any time on 90 days prior
written notice.
8. Return of Materials Upon Termination
Upon termination of this Agreement, KELMAR shall cause its employees to promptly
deliver to the Corporation all property of or belonging to or administered by
the Corporation or the TLC Group, including, without limitation, all documents,
manuals, customer, patient, affiliated doctor, supplier, product and proprietary
lists, data, records, computer programs, codes, materials, prototypes, products,
samples, analyses, reports, marketing materials, equipment,
<PAGE>
- 7 -
tools and devices relating or pertaining to any Intellectual Property or
Confidential Information, including all copies or reproductions of the same.
9. Non-Competition Agreement
KELMAR acknowledges the competitive and proprietary nature of the business
carried on by the Corporation and the TLC Group and the interests of the
Corporation and the TLC Group limiting, on a reasonable basis, the availability
of those primary consultants providing services to Competitive Businesses.
Accordingly, KELMAR agrees that neither it nor any of its employees will, either
during the Term or any renewal thereof or for a period of 24 months thereafter,
directly or indirectly, in any manner whatsoever including, without limitation,
either individually, or in partnership, jointly or in conjunction with any other
Person, or as an employee, principal, agent, consultant, advisor, legal advisor,
director or shareholder
(a) be engaged in any undertaking;
(b) have any financial or other interest (including an interest by way
of royalty or other compensation arrangements) or in respect of the
business of any Person which carries on a business; or
(c) advise, lend money to, guarantee the debts or obligations of or
permit the use of the KELMAR'S name or any part thereof by any
Person which carries on a business;
anywhere in North America, if the undertaking or the business, as the case may
be, is a Competitive Business.
Nothing in this Section 9 will operate to prevent (i) KELMAR or Ronald J. Kelly
from owning, on a passive investment basis, up to 5 % of the issued shares of a
Competitive Business, the shares of which are traded on a recognized stock
exchange or traded in the over-the-counter market in Canada or elsewhere.
Notwithstanding the foregoing, but subject to Section 4 hereof, the Corporation
acknowledges that Ronald J. Kelly will, throughout the Contract Term, continue
to hold certain professional licences relevant to and will continue to receive
compensation from Vision Corporation, other corporations and his private legal
practice and the Corporation agrees that such licenses and relationships shall
not constitute a breach of this Section 9.
10. Non-Solicitation of Employees or Consultants
KELMAR acknowledges the importance to the business carried on by the TLC Group
of the human resources engaged and developed by the TLC Group and the unique
access that
<PAGE>
- 8 -
KELMAR'S employees with the TLC Group offers to interfere with these resources.
Accordingly, KELMAR covenants that neither it nor any of its employees will,
during the Contract Term and for the period of 24 months thereafter, directly or
indirectly, employ, be employed by, enter into a partnership or other
association with or retain as an independent contractor or be retained as an
independent contractor by an employee of or consultant to the Corporation or the
TLC Group or induce or solicit, or attempt to induce, any such person to leave
that person's employment or engagement.
11. Confidentiality
Neither KELMAR nor any of its employees will, during the Contract Term and at
any time thereafter, directly or indirectly, other than as required pursuant
hereto use or disclose to any Person any Confidential Information unless;
(a) the Confidential Information is available to the public or in the
public domain at the time of such disclosure or use, without breach
of this Agreement or any similar agreement between the Corporation
and others; or
(b) disclosure of the Confidential Information is required to be made by
any law, regulation, governmental authority or court, provided that
before disclosure is made, notice of the requirement is provided to
the Corporation is afforded an opportunity to dispute the
requirements for disclosure.
KELMAR and its employees obligations under this Section 12 are to remain in
effect in perpetuity and will exist and continue in full force and effect
notwithstanding any breach or repudiation or any alleged breach or repudiation
of this Agreement by the Corporation.
12. Copyright
During the Contract Term, KELMAR agrees that it and its employees will disclose
to the Corporation all Intellectual Property developed by Ronald J. Kelly,
either or in collaboration with others, which relates directly or indirectly to
the business of the Corporation or the TLC Group. KELMAR acknowledges and agrees
that all right, title and interest of any kind whatsoever in and to the
Intellectual Property, including the foregoing and any copyrights, is and will
be the exclusive property of the Corporation and the Corporation will have
absolute discretion to determine how such Intellectual Property is used. All
work done during the Contract Term by Ronald J. Kelly or KELMAR for the
Corporation or a member of the TLC Group is a work in respect of which the
Corporation or the member of the TLC, as the case may be, shall be deemed to be
the first author for copyright purposes. Copyright will vest in the Corporation
or the relevant member of the TLC Group, as the case may be. KELMAR on its own
behalf and on behalf of Ronald J. Kelly hereby waives all moral rights that
either may have in the Intellectual Property and agrees that this waiver may be
invoked by the Corporation, and by any of its authorized agents or assignees, to
use any of the Intellectual Property. KELMAR agrees that to execute all such
instruments and do all such things as may be reasonably necessary
<PAGE>
- 9 -
or desirable to give full effect to the foregoing and will cooperate and assist
the Corporation and the TLC Group in enforcing their rights under this
paragraph.
13. Certain Warranties, Covenants and Remedies
(a) KELMAR agrees that its obligations as set forth in Sections 8, 9,
10, 11 and 12 will be deemed to have commenced as of the date on
which services are or have been provided by KELMAR to the
Corporation before or after the date hereof.
(b) KELMAR acknowledges that a material breach or threatened material
breach of any of Sections 8, 9, 10, 11 and 12 will result in the
Corporation and it shareholders suffering irreparable harm which is
not capable of being calculated and which cannot be fully or
adequately compensated by the recovery of damages alone.
Accordingly, KELMAR agrees that the Corporation will be entitled to
interim and permanent injunctive relief, specific performance and
other equitable remedies, in addition to any other relief to which
the Corporation may become entitled.
(c) KELMAR'S obligations under each of Sections 8, 9,10, 11 and 12 are
to remain in effect in accordance with their terms and will exist
and continue in full force and effect notwithstanding any breach or
repudiation, or alleged breach or repudiation, of this Agreement by
the Corporation.
(d) KELMAR represents, warrants and covenants that:
(i) it will at all times during this Agreement retain the services
of Ronald J. Kelly; and
(ii) it will not provide the services of any of its employees to a
Competitive Business during the term hereof.
14. Co-Operation
KELMAR will co-operate and will cause Ronald J. Kelly to co-operate in all
respects with the Corporation if a question arises as to whether Ronald J. Kelly
has a Disability. Without limitation, Ronald J. Kelly will authorize his medical
doctor or other health care specialist to discuss any medical condition with the
Corporation and will as reasonably requested by the Corporation submit to
examination by a medical doctor or other health care specialist selected by the
Corporation.
15. Residence
KELMAR represents and warrants that it is not a non-resident of Canada for
purposes of the Income Tax Act (Canada).
<PAGE>
- 10 -
16. Notices
Any notice or other communication required or permitted to be given hereunder
must be in writing, delivered by facsimile or by hand-delivery as hereinafter
provided. Any such notice or other communication, if sent by facsimile, will be
deemed to have been received on the Business Day following the sending, or if
delivered by hand to Ronald J. Kelly will be deemed to have been received at the
time it is delivered to him or, if delivered to Ronald J. Kelly or the
Corporation at the applicable address noted below, when it is delivered to the
individual designated below or to an individual at such address having apparent
authority to accept deliveries on behalf of the addressee. Notice of change of
address will also be governed by this Section. Notices and other communications
must be delivered as follows:
(a) if to KELMAR:
34 Old Mill Court
London, Ontario
N6K 4H6
(b) if to the Corporation
206 Laird Drive
Suite 100
Toronto, Ontario
M4G 3W4
Attention: Chief Executive Officer
Fax No. (416) 467-6882
17. Headings
The inclusion of headings in this Agreement is for convenience of reference only
and its not to affect the construction or interpretation hereof.
18. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and
a declaration of invalidity or unenforceability of any provision by a court of
competent jurisdiction will not affect the validity or enforceability of any
other provision hereof.
19. Entire Agreement
This Agreement constitutes the entire agreement between the parties pertaining
to the subject matter of this Agreement. This Agreement supersedes and replaces
all prior agreements, if any, written or oral, with respect to the subject
matter hereof. There are no warranties,
<PAGE>
- 11 -
representations or agreements between the parties in connection with the subject
matter of this Agreement except as specifically set forth or referred to in this
Agreement. No reliance is placed on any representations, opinion, advice or
assertion of fact made by the Corporation, the TLC Group or its directors,
officers and agents to KELMAR, except to the extent that the same has been
reduced to writing and included as a term of this Agreement. Accordingly, there
will be no liability, either in tort or inc contract, assessed in relation to
any such representation, opinion, advice or assertion of fact, except to the
extent aforesaid.
20. Waiver, Amendment
Except as expressly provided in this Agreement, no amendment or waiver of this
Agreement will be binding unless executed in writing by the party to be bound
thereby. No waiver of any provision of this agreement will constitute a waiver
of any other provisions nor will any waiver of any provision of this Agreement
constitute a continuing waiver unless otherwise expressly provided. Neither this
Agreement nor any part thereof may be assigned without the prior written consent
of the other party hereto.
21. Governing Law
This Agreement will be governed by and construed in accordance with the laws of
the Province of Ontario.
22. Counterparts
This Agreement may be signed in counterparts. Each counterpart will constitute
an original document and all counterparts, taken together, will constitute one
and the same instrument. Executed counterparts may be delivered by telecopier.
IN WITNESS WHEREOF the parties have executed this Agreement.
KELMAR CORPORATION
Per: /s/ R. J. Kelly
------------------------------------
TLC THE LASER CENTER INC.
Per: /s/ [ILLEGIBLE]
------------------------------------
CONSULTING AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 1996;
BETWEEN:
TLC THE LASER CENTER INC., a corporation incorporated under the laws
of the Province of Ontario
(the "Corporation")
OF THE FIRST PART,
- and -
MAINSTAY HUMAN RESOURCES CORP., a corporation incorporated under the
laws of the Province of Ontario
("MAINSTAY")
OF THE SECOND PART.
RECITALS:
A. The Corporation is the parent company of a group of companies
(collectively, the "TLC Group") involved in the business of providing
excimer laser surgery and other secondary eye care services.
B. MAINSTAY has under contract for her services, Madeline Walker.
C. The Corporation and MAINSTAY wish to enter into this Agreement to set
forth the basis upon which MAINSTAY will make the services of Madeline
Walker available to the Corporation.
NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED
IN THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION (THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED), THE CORPORATION AND MAINSTAY
AGREE AS FOLLOWS:
<PAGE>
-2-
1. Definitions
In this Agreement,
"Agreement" means this Agreement and all schedules attached to this agreement,
in each case as they may be amended or supplemented from time to time;
"Business Day" means any day, other than Saturday, Sunday or any statutory
holiday in the Province of Ontario;
"Competitive Business" means a business carried on anywhere in North America
which includes the financing, development and/or operation of laser eye surgery
clinics or secondary eye care clinics in the market areas where the Corporation
carries on, or to the knowledge of MAINSTAY at any time during the term of this
Agreement or any renewals thereof, intends to carry on its business;
"Confidential Information" means all confidential information or proprietary
information, Intellectual Property (including trade secrets) and confidential
facts relating to the business or affairs of the Corporation or the TLC Group
whether or not originated by Madeline Walker including, without limitation, work
products resulting from or related to work or projects performed or to be
performed by the Corporation or the TLC Group, internal personnel and financial
information of the Corporation or the TLC Group, purchasing and internal cost
information, service and operational manuals, the manner and method of
conducting the business of the Corporation or the TLC Group, marketing and
development plans and agreements, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing techniques, methods
of obtaining business, forecasts and forecast assumptions and volumes, future
plans and potential strategies of the Corporation or the TLC Group which have
been or are being discussed, ideas concerning proposed eye surgery clinics,
contracts and their contents, patient and affiliated doctor services, data
provided by patients and affiliated doctor services, and the type, quantity and
specifications of products and services, purchased, leased, licensed, engaged,
employed or received by the Corporation or the TLC Group or by clients of the
Corporation or the TLC Group, business plans, patients, affiliated doctor and
vendor lists, business deals with any of these, financing, acquisition,
development, licensing and distribution agreements and budgets and investment
opportunities and structures;
"Contract Term" means the Term and renewals thereof;
"Contract Year" means any 12 month period commencing on December 1, and ending
on November 30;
"Disability" means the mental or physical state of Madeline Walker such that
Madeline Walker has been unable as a result of illness, disease, mental or
physical disability or similar cause, as determined by a legally qualified
medical practitioner selected by the Corporation, to fulfil
<PAGE>
-3-
MAINSTAY'S obligations under this Agreement either for any consecutive 180 day
period or for any period of 180 days (whether or not consecutive) in any
consecutive 365 day period;
"Intellectual Property" means all legally recognized rights which result or
derive from Madeline Walker's services provided to the Corporation or the TLC
Group or with the knowledge, use or incorporation of Confidential Information,
and includes but is not limited to, developments, inventions, designs, works of
authorship, improvements and ideas, whether or not patentable or copyrightable,
conceived or made by Madeline Walker (individually or in collaboration with
others) during the Contract Term or which result from or derive from the
Corporation's or the TLC Group's resources or which are reasonably related to
the business of the Corporation or the TLC Group other than any of the foregoing
in respect of which MAINSTAY provides written notice thereof to the Corporation
prior to any material work being undertaken by Madeline Walker, whereby MAINSTAY
requests that all such rights which may result or derive from such work be
excluded from the definition of "Intellectual Property" and the Chief Executive
Officer of the Corporation provides written notice to MAINSTAY of its agreement
with such request;
"Person" means any individual, partnership, limited partnership, joint venture,
syndicate, sole proprietorship, company or corporation with or without share
capital, unincorporated association, trust, trustee, executor, administrator or
other legal personal representative, regulatory body or agency, government or
governmental agency, authority or entity however designated or constituted;
"Term" has the meaning set out in Section 3; and
"Termination Event" means:
(i) the failure of MAINSTAY, through Madeline Walker to carry out its
obligations hereunder after notice by the Corporation of the failure
to do so and an opportunity for MAINSTAY to correct the same within
a reasonable time from the date of receipt of such notice;
(ii) theft, fraud, dishonesty or misconduct by MAINSTAY or its employees
involving the property, business or affairs of the Corporation or
the carrying out of MAINSTAY'S obligations; or
(iii) any material breach by MAINSTAY of any term of this Agreement.
2. Scope of Services
The Corporation hereby retains MAINSTAY to provide the services of Madeline
Walker as follows:
<PAGE>
-4-
(i) to provide consulting services to the Corporation in the capacity of
a senior executive officer, namely chief operating officer, which
shall include advising the Corporation on all operational aspects of
laser vision correction clinics, as well as head office operating
procedures and other professional matters relating to establishing
and conducting laser eye surgery clinics in North America; and
(ii) to provide such further advice and assistance to the Corporation in
connection with its laser eye surgery clinics and head office
operations as the Corporation may reasonably request from time to
time.
MAINSTAY hereby acknowledges that the services to be rendered by it hereunder
will be provided to the TLC Group as a whole as well as the Corporation.
3. Contract Period
The term of this Agreement will commence on December 1, 1996 (or such earlier
time as may be agreed upon between MAINSTAY and the Corporation) for a term of
three (3) years ending on November 30, 1999 (the "Term"). Thereafter, the Term
shall be automatically extended for successive periods of one year unless either
party gives notice of termination within 60 days before or after the applicable
renewal date.
4. Performance of Duties
During the Contract Term, MAINSTAY shall cause Madeline Walker to faithfully,
honestly and diligently provide the services herein contracted for to the
Corporation and the TLC Group as are designated by the Chief Executive Officer
or the Board of Directors of the Corporation to a maximum of 48 weeks per
Contract Year. MAINSTAY will cause Madeline Walker (except in the case of
illness or accident) to devote sufficient time and effort to the services herein
contracted for so as to use her best efforts to promote the interests of the
Corporation, provided however, the Corporation acknowledges that its provision
of services through Madeline Walker shall be that she will substantially spend
her work week providing services to the Corporation, and the balance pursuing
other interests such as management and human resource consulting. MAINSTAY
appreciates that the services herein contracted for involve travel, and agrees
to cause Madeline Walker to travel as reasonably required in order to fulfil
MAINSTAY'S obligations hereunder.
5. Fees
(a) Basic Remuneration. The Corporation will pay MAINSTAY for the
services of Madeline Walker hereunder an annual contract fee (the
"Fee") throughout each year of the Term in an amount equal to
$145,000.00 (Cdn.) plus any applicable Goods and Services Tax. The
Fee shall be increased 10% per year for each of the second and third
years of the Term. MAINSTAY acknowledges that Madeline Walker is
under contract with MAINSTAY and MAINSTAY shall be
<PAGE>
-5-
solely responsible for deduction for any applicable income taxes and
other required deductions, such as Canada Pension Plan and
Unemployment Insurance contributions payable by or in respect of
Madeline Walker pursuant to her arrangements with MAINSTAY and
hereby indemnifies and saves the Corporation harmless in respect
thereof. Unless otherwise agreed in writing, the Fee will be payable
in equal instalments monthly in arrears in each month during each
Contract Year, the first payment to be made on or about December 1,
1996.
(b) Bonus and Share Options. During any Contract Year in which MAINSTAY
makes Madeline Walker available to provide services to the
Corporation, Madeline Walker will be entitled to participate in any
applicable fund, plan or arrangement relating to a senior management
executive of the Corporation in effect generally from time to time
with respect to the Corporation, in accordance with and subject to
the terms thereof, including, without limitation;
(i) such bonus remuneration, if any, in respect of each Contract
Year during the Contract Term (including, without limitation,
any Contract Year during which this Agreement terminates), as
the board of directors or Chief Executive Officer of the
Corporation, in their sole discretion, may authorize; and
(ii) share options in accordance with the Corporation's Share
Option Plan, if any, in respect of each Contract Year during
the Contract Term.
MAINSTAY hereby acknowledges and consents to Madeline Walker
receiving any bonus or share options directly in order to facilitate
any tax, estate or R.R.S.P. planning in recognition of the
non-transferability of options pursuant to the Corporation's Share
Option Plan.
If a change of Control (as defined by the Business Corporations Act (Ontario) of
TLC occurs, if TLC is merged into or consolidated with another corporation under
circumstances where TLC is not the surviving corporation, if TLC is liquidated,
or sells or otherwise disposes of substantially all of its assets to another
corporation while unexercised options remain outstanding under the Share Option
Plan, then all outstanding options held by Mainstay or Madeline Walker shall be
vested and shall be fully exercisable as of the effective date of any such
change of control, merger, consolidation, liquidation or sale.
6. Expenses
The Corporation will, upon presentation of expense statements or receipts and
such other supporting documentation as the Corporation may reasonably require,
pay or reimburse MAINSTAY in accordance with the Corporation's expense policies
for all travel and out-of-pocket expenses reasonably incurred or paid by
MAINSTAY in the performance by Madeline Walker of the services herein contracted
for.
<PAGE>
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7. Termination
(a) Notice. This Agreement may be terminated by the Corporation at any
time:
(i) without prior notice and without further obligations to
MAINSTAY for Disability or if a Termination Event occurs.
Termination of this Agreement by the Corporation pursuant
hereto may be undertaken only under the authority of a
resolution of the board of directors of the Corporation
approved by 80% of the directors.
(ii) upon 90 days prior written notice, provided however that if
this Agreement is so terminated an amount equal to $200,000.00
shall be payable to MAINSTAY within 30 days following notice
of such termination, such payment is acknowledged by the
parties to be liquidated damages and not as a penalty. Each of
the parties acknowledges that the amount equal to $200,000.00
is a reasonable estimate of the damages that will occur to
MAINSTAY in the event of termination of this Agreement
pursuant to Section 7(a) shall occur, particularly due to the
previous full time occupation of Madeline Walker as a
management consultant and the time that will be required for
her to establish another full time management consulting
practice. Termination of this Agreement by the Corporation
pursuant hereto may be undertaken only under the authority of
a resolution of the board of directors of the Corporation
approved by 80% of the directors.
(b) This Agreement will be automatically terminated, without further
obligation on the part of the Corporation or the TLC Group (except
as to the pro-rata payments of amounts owing to such date) upon the
death of Madeline Walker.
(c) Effective Date. The effective date on which this Agreement will be
deemed to have been terminated will be:
(i) in the case of termination under Section 7(a), 30 days
following delivery of notice of termination; and
(ii) in the case of termination pursuant to Section 7(b), on the
date of death.
(d) No Other Obligations. Except for payment of all amounts owing
hereunder to the effective date of a termination or as otherwise
provided herein, neither MAINSTAY or Madeline Walker will be
entitled to receive any payment arising out of or relating to this
Agreement. MAINSTAY on its own behalf and on behalf of its employees
hereby waives any claims against the Corporation for or in respect
of termination pay, severance pay, or on account of loss of office
or employment or notice in lieu thereof or damages in lieu thereof
and MAINSTAY
<PAGE>
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hereby indemnifies and saves the Corporation harmless in respect
thereof.
(e) Termination by Mainstay. Following the expiration of the Term, this
Agreement may be terminated by MAINSTAY at any time on 90 days prior
written notice.
8. Return of Materials Upon Termination
Upon termination of this Agreement, MAINSTAY shall cause its employees to
promptly deliver to the Corporation all property of or belonging to or
administered by the Corporation or the TLC Group, including, without limitation,
all documents, manuals, customer, patient, affiliated doctor, supplier, product
and proprietary lists, data, records, computer programs, codes, materials,
prototypes, products, samples, analyses, reports, marketing materials,
equipment, tools and devices relating or pertaining to any Intellectual Property
or Confidential Information, including all copies or reproductions of the same.
9. Non-Competition Agreement
MAINSTAY acknowledges the competitive and proprietary nature of the business
carried on by the Corporation and the TLC Group and the interests of the
Corporation and the TLC Group limiting, on a reasonable basis, the availability
of those primary consultants providing services to Competitive Businesses.
Accordingly, MAINSTAY agrees that neither it nor any of its employees will,
either during the Term or any renewal thereof or for a period of 24 months
thereafter, directly or indirectly, in any manner whatsoever including, without
limitation, either individually, or in partnership, jointly or in conjunction
with any other Person, or as an employee, principal, agent, consultant, adviser,
director or shareholder
(a) be engaged in any undertaking;
(b) have any financial or other interest (including an interest by way
of royalty or other compensation arrangements) or in respect of the
business of any Person which carries on a business; or
(c) advise, lend money to, guarantee the debts or obligations of or
permit the use of the MAINSTAY'S name or any part thereof by any
Person which carries on a business;
anywhere in North America, if the undertaking or the business, as the case may
be, is a Competitive Business.
Nothing in this Section 9 will operate to prevent (i) MAINSTAY or Madeline
Walker from owning, on a passive investment basis, up to 5% of the issued shares
of a Competitive Business,
<PAGE>
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the shares of which are traded on a recognized stock exchange or traded in the
over-the-counter market in Canada or elsewhere.
10. Non-Solicitation of Employees or Consultants
MAINSTAY acknowledges the importance to the business carried on by the TLC Group
of the human resources engaged and developed by the TLC Group and the unique
access that MAINSTAY'S employees with the TLC Group offers to interfere with
these resources. Accordingly, MAINSTAY covenants that neither it nor any of its
employees will, during the Contract Term and for the period of 24 months
thereafter, directly or indirectly, employ, be employed by, enter into a
partnership or other association with or retain as an independent contractor or
be retained as an independent contractor by an employee of or consultant to the
Corporation or the TLC Group or induce or solicit, or attempt to induce, any
such person to leave that person's employment or engagement.
11. Confidentiality
Neither MAINSTAY nor any of its employees will, during the Contract Term and at
any time thereafter, directly or indirectly, other than as required pursuant
hereto use or disclose to any Person any Confidential Information unless;
(a) the Confidential Information is available to the public or in the
public domain at the time of such disclosure or use, without breach
of this Agreement or any similar agreement between the Corporation
and others; or
(b) disclosure of the Confidential Information is required to be made by
any law, regulation, governmental authority or court, provided that
before disclosure is made, notice of the requirement is provided to
the Corporation is afforded an opportunity to dispute the
requirements for disclosure.
MAINSTAY and its employees obligations under this Section 12 are to remain in
effect in perpetuity and will exist and continue in full force and effect
notwithstanding any breach or repudiation or any alleged breach or repudiation
of this Agreement by the Corporation.
12. Copyright
During the Contract Term, MAINSTAY agrees that it and its employees will
disclose to the Corporation all Intellectual Property developed by Madeline
Walker, either or in collaboration with others, which relates directly or
indirectly to the business of the Corporation or the TLC Group. MAINSTAY
acknowledges and agrees that all right, title and interest of any kind
whatsoever in and to the Intellectual Property, including the foregoing and any
copyrights, is and will be the exclusive property of the Corporation and the
Corporation will have absolute discretion to determine how such Intellectual
Property is used. All work done during the Contract Term by Madeline Walker or
MAINSTAY for the Corporation or a member of the
<PAGE>
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TLC Group is a work in respect of which the Corporation or the member of the
TLC, as the case may be, shall be deemed to be the first author for copyright
purposes. Copyright will vest in the Corporation or the relevant member of the
TLC Group, as the case may be. MAINSTAY on its own behalf and on behalf of
Madeline Walker hereby waives all moral rights that either may have in the
Intellectual Property and agrees that this waiver may be invoked by the
Corporation, and by any of its authorized agents or assignees, to use any of the
Intellectual Property. MAINSTAY agrees that to execute all such instruments and
do all such things as may be reasonably necessary or desirable to give full
effect to the foregoing and will cooperate and assist the Corporation and the
TLC Group in enforcing their rights under this paragraph.
13. Certain Warranties, Covenants and Remedies
(a) MAINSTAY agrees that its obligations as set forth in Sections 8, 9,
10, 11 and 12 will be deemed to have commenced as of the date on
which services are or have been provided by MAINSTAY to the
Corporation before or after the date hereof.
(b) MAINSTAY acknowledges that a material breach or threatened material
breach of any of Sections 8, 9, 10, 11 and 12 will result in the
Corporation and it shareholders suffering irreparable harm which is
not capable of being calculated and which cannot be fully or
adequately compensated by the recovery of damages alone.
Accordingly, MAINSTAY agrees that the Corporation will be entitled
to interim and permanent injunctive relief, specific performance and
other equitable remedies, in addition to any other relief to which
the Corporation may become entitled.
(c) MAINSTAY'S obligations under each of Sections 8, 9, 10, 11 and 12
are to remain in effect in accordance with their terms and will
exist and continue in full force and effect notwithstanding any
breach or repudiation, or alleged breach or repudiation, of this
Agreement by the Corporation.
(d) MAINSTAY represents, warrants and covenants that:
(i) it will at all times during this Agreement retain the services
of Madeline Walker; and
(ii) it will not provide the services of any of its employees to a
Competitive Business during the term hereof.
14. Co-Operation
MAINSTAY will co-operate and will cause Madeline Walker to co-operate in all
respects with the Corporation if a question arises as to whether Madeline Walker
has a Disability. Without limitation, Madeline Walker will authorize her medical
doctor or other health care specialist to
<PAGE>
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discuss any medical condition with the Corporation and will as reasonably
requested by the Corporation submit to examination by a medical doctor or other
health care specialist selected by the Corporation.
15. Residence
MAINSTAY represents and warrants that it is not a non-resident of Canada for
purposes of the Income Tax Act (Canada).
16. Notices
Any notice or other communication required or permitted to be given hereunder
must be in writing, delivered by facsimile or by hand-delivery as hereinafter
provided. Any such notice or other communication, if sent by facsimile, will be
deemed to have been received on the Business Day following the sending, or if
delivered by hand to Madeline Walker will be deemed to have been received at the
time it is delivered to her or, if delivered to Madeline Walker or the
Corporation at the applicable address noted below, when it is delivered to the
individual designated below or to an individual at such address having apparent
authority to accept deliveries on behalf of the addressee. Notice of change of
address will also be governed by this Section. Notices and other communications
must be delivered as follows:
(a) if to MAINSTAY:
2908 S. Sheridan Way
Suite 301
3rd Floor
Oakville, Ontario
(b) if to the Corporation
206 Laird Drive
Suite 100
Toronto, Ontario
M4G 3W4
Attention: Chief Executive Officer
Fax No. (416) 467-6882
17. Headings
The inclusion of headings in this Agreement is for convenience of reference only
and its not to affect the construction or interpretation hereof.
<PAGE>
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18. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and
a declaration of invalidity or unenforceability of any provision by a court of
competent jurisdiction will not affect the validity or enforceability of any
other provision hereof.
19. Entire Agreement
This Agreement constitutes the entire agreement between the parties pertaining
to the subject matter of this Agreement. This Agreement supersedes and replaces
all prior agreements, if any, written or oral, with respect to the subject
matter hereof. There are no warranties, representations or agreements between
the parties in connection with the subject matter of this Agreement except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any representations, opinion, advice or assertion of fact made by the
Corporation, the TLC Group or its directors, officers and agents to MAINSTAY,
except to the extent that the same has been reduced to writing and included as a
term of this Agreement. Accordingly, there will be no liability, either in tort
or inc contract, assessed in relation to any such representation, opinion,
advice or assertion of fact, except to the extent aforesaid.
20. Waiver, Amendment
Except as expressly provided in this Agreement, no amendment or waiver of this
Agreement will be binding unless executed in writing by the party to be bound
thereby. No waiver of any provision of this agreement will constitute a waiver
of any other provisions nor will any waiver of any provision of this Agreement
constitute a continuing waiver unless otherwise expressly provided. Neither this
Agreement nor any part thereof may be assigned without the prior written consent
of the other party hereto.
21. Governing Law
This Agreement will be governed by and construed in accordance with the laws of
the Province of Ontario.
22. Counterparts
This Agreement may be signed in counterparts. Each counterpart will constitute
an original document and all counterparts, taken together, will constitute one
and the same instrument. Executed counterparts may be delivered by telecopier.
<PAGE>
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IN WITNESS WHEREOF the parties have executed this Agreement.
MAINSTAY HUMAN RESOURCES CORP.
Per: /s/ M. D. Walker
-------------------------------
TLC THE LASER CENTER INC.
Per: /s/ R. J. Kelly
-------------------------------
================================================================================
SHAREHOLDERS AGREEMENT
BETWEEN
TLC THE LASER CENTER INC.
AND
A.R.M. GROUP INC.
AND
1134445 ONTARIO LIMITED
AND
VISION CORPORATION
MADE AS OF
DECEMBER 12, 1995
================================================================================
<PAGE>
SHAREHOLDERS AGREEMENT
THIS AGREEMENT made as of December 12, 1995;
B E T W E E N:
TLC The Laser Center Inc., a corporation incorporated under the
laws of the Province of Ontario
(hereinafter referred to as "TLC")
OF THE FIRST PART,
- and -
A.R.M. Group Inc., a corporation incorporated under the laws of
the Province of Ontario
(hereinafter referred to as "ARM")
OF THE SECOND PART,
- and -
1134445 Ontario Limited, a corporation incorporated under the
laws of the Province of Ontario
(hereinafter referred to as "Ontario")
OF THE THIRD PART,
- and -
Vision Corporation, a corporation incorporated under the laws of
the Province of Ontario
(hereinafter referred to as the "Corporation")
OF THE FOURTH PART.
WHEREAS the authorized capital of the Corporation consists of an unlimited
number of common shares, of which 100 are issued and outstanding;
AND WHEREAS at the date hereof all of the issued shares of the Corporation
are beneficially owned by TLC, ARM, and Ontario as follows:
<PAGE>
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SHAREHOLDERS COMMON SHARES
------------ -------------
TLC 50
ARM 39.9
ONTARIO 10.1
AND WHEREAS the Shareholders and the Corporation have agreed to enter into
this Agreement as being in their respective best interests and for the purpose
of providing for the operation of the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and the mutual covenants and agreements herein contained the parties
hereto agree as follows:
ARTICLE ONE - INTERPRETATION
1.1 Definitions
In this Agreement, unless something in the subject matter or context is
inconsistent therewith:
(a) "Accountant" means the auditor or accountant, as the case may be, of
the Corporation appointed from time to time;
(b) "Agreement" means this agreement and all schedules attached hereto
and all amendments made hereto and thereto by written agreement
between the Shareholders and the Corporation;
(c) "Business" means the development and maintenance of a computer
software network for the eye care industry;
(d) "Business Corporations Act" means the Business Corporations Act
(Ontario), as now enacted or as the same may from time to time be
amended, re-enacted or replaced;
(e) Business Day" means a day other than a Saturday, Sunday or statutory
holiday in Ontario;
(f) "Communication" has the meaning set out in Section 5.9;
(g) "Notice" has the meaning set out in Section 3.4(1);
<PAGE>
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(h) "Offered Shares" has the respective meanings set out in Sections
3.4(1), 3.5(1) and 3.7(3).
(i) "Offeree" and "Offerees" have the respective meanings set out in
Sections 3.4(1), 3.5(1) and 3.7(3);
(j) "Offeror" has the respective meanings set out in Sections 3.4(1),
3.5(1) and 3.7(3):
(k) "Permitted Transferee" has the meaning set out in Section 3.7(1);
(l) "Shares" means the shams of the Corporation that the Shareholders at
the date hereof or hereafter may beneficially own; and
(m) "Shareholders" means TLC, ARM and Ontario, together with such other
persons as may become parties to this Agreement, collectively and
"Shareholder" means any one of such persons individually.
1.2 Sections and Headings
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
1.3 Number
Words importing the singular number only shall include the plural and vice
versa, words importing the masculine gender shall include the feminine and
neuter genders and vice versa and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa.
1.4 Accounting Principles
Wherever in this Agreement reference is made to "generally accepted
accounting principles", such reference shall be deemed to be the generally
accepted accounting principles from time to time approved by the Canadian
Institute of Chartered Accountants, or any successor institute, applicable as at
the date on which such calculation is made or required to be made in accordance
with generally accepted accounting principles.
<PAGE>
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1.5 Not A Unanimous Shareholder Agreement
This Agreement is not a unanimous shareholder agreement within the
provisions of Section 108 of the Business Corporations Act (Ontario).
ARTICLE TWO - MANAGEMENT
2.1 Carrying our of the Agreement
The Shareholders shall at all times carry out and cause the Corporation to
carry out the provisions of this Agreement. The parties agree that the sole
purpose of the Corporation is the Business and the Shareholders, Officers and
Directors are free to engage in other computer software and computer network
activities which are not to be considered competitive with, or opportunities
that should be conducted by, or first offered to, the Corporation, even if there
is an overlap in such activities.
2.2 Idem
Each of Elias Vamvakas ("Vamvakas"), Stephen M. Caslick ("Caslick") and
Ronald J. Kelly ("Kelly"), so long as they are directors of the Corporation and
to the extent that they are permitted by law to bind themselves to do so, will
act and vote as directors in order that the purpose, intent and provisions of
this Agreement shall be carried out.
2.3 Idem
The Corporation confirms its knowledge of this Agreement and will carry
out and be bound by the provisions of this Agreement to the full extent that it
has the capacity and power at law to do so.
2.4 Directors
The board of directors of the Corporation shall consist of three (3)
directors and Vamvakas, Caslick and Kelly shall be the directors of the
Corporation unless, prior to the election or appointment of any other person as
a director of the Corporation, all of the Shareholders have consented in writing
to such person being elected or appointed and a copy of such consent has been
filed with the Corporation.
2.5 Accountant
Orenstein & Partners shall be appointed the accountant of the Corporation
unless, prior to the appointment of any other person as accountant of the
Corporation, all of the Shareholders
<PAGE>
-5-
have consented in writing to such person being appointed and a copy of such
consent has been filed with the Corporation.
2.6 Idem
The Shareholders shall in each financial year of the Corporation consent
to exempt the Corporation from the requirement to appoint an auditor of the
Corporation pursuant to the provisions of the Business Corporations Act
(Ontario).
2.7 Approval of Matters
None of the following actions:
(a) any change in the articles or by-laws of the Corporation;
(b) any change in the authorized or issued capital of the Corporation;
(c) the entering into of any agreement or the making of any offer or the
granting of any right capable of becoming an agreement to allot or
issue any shares of the Corporation;
(d) any action which may lead to or result in a material change in the
nature of the business of the Corporation;
(e) the entering into of any agreement other than in the ordinary course
of the Corporation's business;
(f) the borrowing of any money, the giving of any security or the making
or incurring of any single capital expenditure in excess of
$5,000.00 or any capital expenditures which, in the aggregate, are
in excess of $10,000.00 in any financial year of the Corporation;
(g) the taking of any steps to wind-up or terminate the corporate
existence of the Corporation;
(h) the sale, lease, exchange or disposition of the entire undertaking
or property or assets of the Corporation or any substantial part
thereof;
(i) the making of, directly or indirectly, loans or advances to, or the
giving of security for or the guaranteeing of the debts of, any
person;
(j) the declaration or payment of any dividend;
<PAGE>
-6-
(k) the taking, holding, subscribing for or agreeing to purchase or
acquire shares in the capital of any body corporate;
(l) the entering into of a partnership or of any arrangement for the
sharing of profits, union of interests, joint venture or reciprocal
concession with any person; and
(m) the entering into of an amalgamation, merger or consolidation with
any other body corporate;
shall be taken by the Corporation unless:
(A) in the case of an action that by law requires the approval of
the directors only:
(1) at any meeting of directors:
(i) each of Vamvakas and Caslick give their approval
to such action by resolution; or
(2) all of the directors consent to such action by an
instrument or instruments in writing; and
(B) in the case of an action that by law requires the approval of
the shareholders:
(1) at any meeting of shareholders duly called for the
purpose of considering the proposed action, at least 66
2/3% of the votes are cast in favour of the action; or
(2) all of the Shareholders consent to such action by an
instrument or instruments in writing.
ARTICLE THREE - DEALING WITH SHARES
3.1 No Transfer of Shares
Except as expressly provided for in this Article Three, the Shareholders
shall not sell, transfer, assign, pledge, charge, mortgage or in any other way
dispose of or encumber their Shares or their rights under this Agreement without
first complying with all of the provisions of this Agreement unless, prior to
the disposition or encumbrance of their Shares, all of the Shareholders have
consented in writing to such disposition or encumbrance.
<PAGE>
-7-
3.2 Endorsement on Certificates
Share certificates of the Corporation shall bear the following language
either as an endorsement or on the face thereof:
"The shares represented by this certificate are subject to all the terms
and conditions of an agreement made as of December 12, 1995, a copy of
which is on file at the registered office of the Corporation."
3.3 Issue of Additional Shares
If any additional shares of the Corporation are to be issued from
treasury, the Corporation shall first offer such shares to the Shareholders by
notice given to them of the Corporation's intention to issue additional shares
and the number and class thereof to be so issued. The Shareholders shall have
the right to purchase the shares so offered pro rata based upon the number of
Shares beneficially owned by the Shareholders at the date notice is given of
such offer. The Shareholders shall have 20 Business Days from the date such
notice is given in which to take up and pay for all or any of the shares so
offered. The shares that have not been taken up and paid for within the said 20
Business Days shall be offered again by the Corporation by notice given to those
Shareholders who elected to take up and pay for all of the shares initially
offered to them, and each of such Shareholders shall have the right to purchase
the shares so offered pro rata based upon the number of Shares beneficially
owned by the Shareholders at the date notice is given of such subsequent offer.
Such Shareholders shall have 20 Business Days from the date such subsequent
notice is given in which to take up and pay for all or any of the shares so
offered, and so on from time to time until all the shares have been taken up or
until all of the Shareholders have refused to take up any more, in which latter
event the shares not so taken up may be issued to such persons as the directors
in their discretion determine, provided that such persons agree to be bound by
this Agreement and to become parties hereto.
3.4 Sale of Shares
(1) Any Shareholder (hereinafter in this Section 3.4 referred to as the
"Offeror") who desires to sell all or any of his Shares shall give notice of
such proposed sale (hereinafter in this Section 3.4 referred to as the "Notice")
to the Corporation and to the other Shareholders, and shall set out in the
Notice the number of his Shares that he desires to sell (hereinafter in this
Section 3.4 referred to as the "Offered Shares").
(2) Upon the Notice being given, the other Shareholders (hereinafter in
this Section 3.4 sometimes collectively referred to "Offerees" and sometimes
individually referred to as an "Offeree") shall have the right to purchase all,
but not less than all, of the Offered Shares. The Offerees shall be entitled to
purchase the Offered Shares pro rata based upon the number of
<PAGE>
-8-
Shares beneficially owned by the Offerees or to purchase in such proportion as
the Offerees may agree in writing, at the price to be determined in accordance
with the provisions of Section 3.4(3).
(3) The price of the Offered Shares shall be the fair value of such Shares
as determined by the Accountant in accordance with generally accepted accounting
principles as at the end of the fiscal quarter of the Corporation immediately
preceding the fiscal quarter in which the Notice was given. Such determination
shall be made in writing and given to all of the Shareholders and to the
Corporation within 20 Business Days of the giving of Notice or as soon
thereafter as may be reasonably possible.
(4) For the purpose of determining such fair value, the Accountant may
appoint, at the expense of the Corporation, an independent valuer or appraiser
to assist the Accountant in such determination. The report of the Accountant,
when delivered to the Shareholders and to the Corporation, shall be conclusive
and binding upon all parties.
(5) Within 10 Business Days of having been given the Accountant's report
of the fair value of the Offered Shares, each Offeree who desires to purchase
all of the Offered Shares that he is entitled to purchase in accordance with the
provisions of Section 3.4(2) shall give notice to the Offeror, to the
Corporation and to the other Offerees. If any Offeree does not give such notice,
the Offered Shares that he had been entitled to purchase (hereinafter in this
Section 3.4(5) referred to as the "Rejected Shares") may instead be purchased by
the Offerees who did give such notice, pro rata based upon the number of Shares
beneficially owned by such Offerees as between themselves or in such other
proportion as such Offerees may agree in writing, and, within five Business Days
of the expiry of the 10 Business Day period specified in this Section 3.4(5),
each Offeree who desires to purchase all of the Rejected Shares that he is
entitled to purchase in accordance with the provisions of this Section 3.4(5)
shall give an additional notice to the Offeror, to the Corporation and to the
other Offerees. If any Offeree entitled to give the said additional notice does
not do so, the Rejected Shares that he had been entitled to purchase may instead
be purchased by the Offerees who did give such notice, and so on from time to
time until the Offerees are willing to purchase all of the Offered Shares or
until they are not willing to purchase any more. If the Offerees are willing to
purchase all, but not less than all, of the Offered Shares, the transaction of
purchase and sale shall be completed within 20 Business Days of the expiry of
the 10 Business Day period or five Business Day periods, as the case may be,
specified in this Section 3.4(5). The transaction shall be completed at the
Corporation's registered office where delivery of the Offered Shares shall be
made by the Offeror with good tide, free and clear of all liens, charges and
encumbrances, against payment by certified cheque by the Offerees.
(6) if the Offeror makes default in transferring the Offered Shares to the
Offerees as provided for in this Section 3.4, the President of the Corporation
is authorized and directed to receive the purchase money and to thereupon cause
the names of the Offerees to be entered in
<PAGE>
-9-
the registers of the Corporation as the holders of the Shares purchasable by
them. The said purchase money shall be held in trust by the Corporation on
behalf of the Offeror and not commingled with the Corporation's assets, except
that any interest accruing thereon shall be for the account of the Corporation.
The receipt by the Secretary of the Corporation for the purchase money shall be
a good discharge to the Offerees and, after their names have been entered in the
registers of the Corporation in exercise of the aforesaid power, the validity of
the proceedings shall not be subject to question by any person. On such
registration, the Offeror shall cease to have any right to or in respect of the
Offered Shares except the right to receive, without interest, the purchase price
received by the Secretary of the Corporation.
(7) If the Offerees do not give notice in accordance with the provisions
of Section 3.4(5) that they are willing to purchase all of the Offered Shares,
the rights of the Offerees, subject as hereinafter provided, to purchase the
Offered Shares shall forthwith cease and determine and the Offeror may sell the
Offered Shares to any person within four months after the expiry of the 10
Business Day period or five Business Day periods, as the case may be, specified
in Section 3.4(5), for a price not less than the price that would have been
payable by the Offerees and on other terms no more favourable to such person
than those that would have been applicable had the Offerees agreed to purchase
the Offered Shares in accordance with the provisions of this Section 3.4,
provided that the person to whom his Shares are to be sold agrees prior to such
transaction to be bound by this Agreement and to become a party hereto in place
of the Offeror with respect to the Offered Shares. If the Offered Shares are not
sold within such four month period on such terms, the rights of the Offerees
pursuant to this Section 3.4 shall again take effect and so on from time to
time.
3.5 Insolvency of a Shareholder
(1) If any Shareholder makes an assignment for the benefit of creditors or
is the subject of any proceedings under any bankruptcy or insolvency law or,
takes steps to wind-up or terminate its corporate existence (hereinafter in this
Section referred to as the "Offeror"), the other Shareholders (hereinafter in
this Section 3.5 sometimes collectively referred to as the "Offerees" and
sometimes individually referred to as an "Offeree") shall have the right to
purchase all, but nor less than all, of the Shares beneficially owned by the
Offeror (hereinafter in this Section 3.5 referred to as the "Offered Shares").
(2) The Offerees shall be entitled to purchase the Offered Shares pro rata
based upon the number of Shares beneficially owned by the Offerees or to
purchase in such other proportion as the Offerees may agree in writing, at the
price to be determined in accordance with the provisions of Section 3.5(3).
(3) The price of the Offered Shares shall be the fair value of such Shares
as determined by the Accountant in accordance with generally accepted accounting
principles as at the end of the fiscal quarter of the Corporation immediately
preceding the fiscal quarter in which the event
<PAGE>
-10-
referred to in Section 3.5(1) occurred. Such determination shall be made in
writing and given to all of the Shareholders and to the Corporation within 20
Business Days of the date of the event referred to in Section 3.5(1) or as soon
thereafter as may be reasonably possible.
(4) Within 10 Business Days of having been given the Accountant's report
of the fair value of the Offered Shares, each Offeree who desires to purchase
all of the Offered Shares that he is entitled to purchase in accordance with the
provisions of Section 3.5(2) shall give notice to the Offeror, to the
Corporation and to the other Offerees. If any Offeree does not give such notice,
the Offered Shares that he had been entitled to purchase (hereinafter in this
Section 3.5(5) referred to as the "Rejected Shares") may instead be purchased by
the Offerees who did give such notice, pro rata based upon the number of Shares
beneficially owned by such Offerees as between themselves or in such other
proportion as such Offerees may agree in writing, and, within five business Days
of the expiry of the 10 Business Day period specified in this Section 3.5(5),
each Offeree who desires to purchase all of the Rejected Shares that he is
entitled to purchase in accordance with the provisions of this Section 3.5(5)
shall give an additional notice to the Offerer, to the Corporation and to the
other Offerees. If any Offeree entitled to give the said additional notice does
not do so, the Rejected Shares that he had been entitled to purchase may instead
be purchased by the Offerees who did give such notice, and so on from time to
time until the Offerees are willing to purchase all of the Offered Shares or
until they are not willing to purchase any more. If the Offerees are willing to
purchase all, but not less than all, of the Offered Shares, the transaction of
purchase and sale shall be completed within 20 Business Days of the expiry of
the 10 Business Day period or five Business Day periods, as the case may be,
specified in this Section 3.5(5). The transaction shall be completed at the
Corporation's registered office where delivery of the Offered Shares shall be
made by the Offeror with good title, free and clear of all liens, charges and
encumbrances, against payment by certified cheque by the Offerees.
(5) If the Offeror makes default in transferring the Offered Shares to the
Offerees as provided for in this Section 3.5, the Secretary of the Corporation
is authorized and directed to receive the purchase money and to thereupon cause
the names of the Offerees to be entered in the registers of the Corporation as
the holders of the Shares purchasable by them. The said purchase money shall be
held in trust by the Corporation on behalf of the Offerer and not commingled
with the Corporation's assets, except that any interest accruing thereon shall
be for the account of the Corporation. The receipt by the Secretary of the
Corporation for the purchase money shall be a good discharge to the Offerees
and, after their names have been entered in the registers of the Corporation in
exercise of the aforesaid power, the validity of the proceedings shall not be
subject to question by any person. On such registration, the Offeror shall cease
to have any right to or with respect of the Offered Shares except the right to
receive, without interest, the purchase price received by the Secretary of the
Corporation.
(6) If the Offerees do not give notice in accordance with the provisions
of Section 3.5(5) that they are willing to purchase all of the Offered Shares,
the rights of the Offerees, subject as
<PAGE>
-11-
hereinafter provided, to purchase the Offered Shares shall forthwith cease and
determine and the Offeror may sell the Offered Shares to any person within four
months after the expiry of the 10 Business Day period or five Business Day
periods, as the case may be, specified in Section 3.5(5), for a price not less
than the price that would have been payable by the Offerees and on other terms
no wore favourable to such person than those that would have been applicable had
the Offerees agreed to purchase the Offered Shares in accordance with the
provisions of this Section 3.5, provided that the person to whom his Shares are
to be sold agrees prior to such transaction to be bound by this Agreement and to
become a party hereto in place of the Offeror with respect to the Offered
Shares. If the Offered Shares are not sold within such four month period on such
terms, the rights of the Offerees pursuant to this Section 3.5 shall again take
effect and so on from time to time.
3.6 Control of TLC, ARM or Ontario
If the control of either party, as determined by reference to the
provisions of the Business Corporations Act (Ontario), changes, the other
Shareholders shall have the right to purchase all, but not less than all, of the
Shares beneficially owned by such party, in the proportions and for the price
and upon the terms and conditions determined in accordance with the provisions
contained in Section 3.4 mutatis mutandis.
3.7 Shareholder Controlled Company
(1) Notwithstanding any other provision of this Agreement, each
Shareholder shall be entitled after giving notice to the other Shareholders and
to the Corporation to sell, transfer and assign all, but not less than all, of
the Shares beneficially owned by him to a corporation (hereinafter referred to
as the "Permitted Transferee"), provided that, in the case of a Shareholder who
is an individual, the only other shareholders of the Permitted Transferee are:
(i) corporations of which the Members of the Immediate Family of
the Shareholder are at all times the legal and beneficial
owners of shares carrying at least 51% of the issued and
outstanding voting rights of such corporations, which shares
are sufficient, if exercised, to elect a majority of the board
of directors of such corporations; or
(ii) trusts the sole beneficiaries of which are the Members of the
Immediate Family of the Shareholder;
and that, in the case of a Shareholder that is a corporation, the only other
shareholders of the Permitted Transferee are affiliates, as determined by the
provisions of the Business Corporations Act (Ontario), of such Shareholder and,
in either case, the Permitted Transferee has entered into an agreement prior to
such transaction not to sell, transfer or assign such Shares except to
<PAGE>
-12-
another corporation controlled, as determined by the provisions of the Business
Corporations Act (Ontario), by the Shareholder from whom it acquired the Shares
and to become a party hereto.
(2) Notwithstanding the completion of any sale of the Shares by a
Shareholder to a Permitted Transferee pursuant to Section 3.7(1), that
Shareholder shall:
(i) not sell, transfer, assign, pledge, charge or in any way
dispose of or encumber his shares of the Permitted Transferee;
(ii) continue to be bound by all the obligations hereunder as if he
continued to be a Shareholder of the Corporation and perform
such obligations to the extent that the Permitted Transferee
fails to do so; and
(iii) at all times be the legal and beneficial owner of shares
carrying at least 51% of the issued and outstanding voting
rights of the Permitted Transferee, which shares shall be
sufficient, if exercised, to elect a majority of the board of
directors of the Permitted Transferee.
(3) If any Shareholder who has sold, transferred, or assigned his Shares
to a Permitted Transferee pursuant to the provisions of Section 3.7(1) fails to
comply with any of the provisions of Section 3.7(2), the other Shareholders
(hereinafter in this Section 3.7 sometimes collectively referred to as the
"Offerees" and sometimes individually referred to as an "Offeree") shall have
the right to purchase all, but not less than all, of the Shares owned by the
Permitted Transferee (such Shares hereinafter in this Section 3.7 referred to as
the "Offered Shares" and such Permitted Transferee hereinafter in this Section
3.7 referred to as the "Offeror").
(4) The Offerees shall have the right to purchase the Offered Shares pro
rata based upon the number of Shares beneficially owned by the Offerees or to
purchase in such other proportion as the Offerees may agree in writing, at the
price to be determined in accordance with the provisions of Section 3.5(5).
(5) The price of the Offered Shares shall be the lower of the fair value
and the book value of such Shares as determined by the Accountant in accordance
with generally accepted accounting principles as at the end of the fiscal
quarter immediately preceding the fiscal quarter in which the event referred to
in Section 3.4(3) occurred. Such determination shall be made in writing and
given to all of the Shareholders and to the Corporation within 20 Business Days
of the date of the event referred to in Section 3.4(3) or as soon thereafter as
may be reasonably possible.
(6) Within 10 Business Days of having been given the Accountant's report
of the fair value or book value of the Offered Shares, each Offeree who desires
to purchase all of the Offered Shares that he is entitled to purchase in
accordance with the provisions of Section 3.4(3)
<PAGE>
-13-
shall give notice to the Offeror, to the Corporation and to the other Offerees.
If any Offeree does not give such notice, the Offered Shares that he had been
entitled to purchase (hereinafter in this Section 3.7(6) referred to as the
"Rejected Shares") may instead be purchased by the Offerees who did give such
notice, pro rata based upon the number of Shares beneficially owned by such
Offerees as between themselves or in such other proportion as such Offerees may
agree in writing, and, within five Business Days of the expiry of the 10
Business Day period specified in this Section 3.7(6), each Offeree who desires
to purchase all of the Rejected Shares that he is entitled to purchase in
accordance with the provisions of this Section 3.7(6) shall give an additional
notice to the Offeror, to the Corporation and to the other Offerees. If any
Offeree entitled to give the said additional notice does not do so, the Rejected
Shares that he had been entitled to purchase may instead be purchased by the
Offerees who did give such notice, and so on from time to time until the
Offerees are willing to purchase all of the Offered Shares or until they are not
willing to purchase any more. If the Offerees are willing to purchase all, but
not less than all, of the Offered Shares, the transaction of purchase and sale
shall be completed within 20 Business Days of the expiry of the 10 Business Day
period or five Business Day periods, as the case may be, specified in this
Section 3.7(6). The transaction shall be completed at the Corporation's
registered office where delivery of the Offered Shares shall be made by the
Offeror with good title, free and clear of all liens, charges and encumbrances,
against payment by certified cheque by the Offerees.
(7) If the Offeror makes default in transferring the Offered Shares to the
Offerees as provided for in this Section 3.7, the Secretary of the Corporation
is authorized and directed to receive the purchase money and to thereupon cause
the names of the Offerees to be entered in the registers of the Corporation as
the holders of the Shares purchasable by them. The said purchase money shall be
held in trust by the Corporation on behalf of the Offeror and not commingled
with the Corporation's assets, except that any interest accruing thereon shall
be for the account of the Corporation. The receipt by the Secretary of the
Corporation for the purchase money shall be a good discharge to the Offerees
and, after their names have been entered in the registers of the Corporation in
exercise of the aforesaid power, the validity of the proceedings shall not be
subject to question by any person. On such registration, the Offerer shall cease
to have any right to or in respect of the Offered Shares except the right to
receive, without interest, the purchase price received by the Secretary of the
Corporation.
3.8 Pledge of Shares
Any Shareholder may pledge, charge, mortgage or otherwise specifically
encumber his Shares to a bank or other financial institution for the purpose of
securing any borrowings by such Shareholder, provided that such bank or
financial institution acknowledges to the parties to this Agreement in writing
that the pledge, charge, mortgage or encumbrance of such Shares shall at all
times be subject to all the terms and conditions of this Agreement, including
the prohibition against pledging, charging or mortgaging or otherwise
encumbering such Shares contained in Section 3.1 except as permitted pursuant to
this Section 3.8.
<PAGE>
-14-
3.9 Exclusivity of Sections
Each of Sections 3.4, 3.4, 3.6 and 3.7 are exclusive and the provisions
thereof may only be relied upon by any party hereto if the provisions of one of
the other of such Sections are not at the same time being relied upon by the
same or another party hereto.
ARTICLE FOUR - GENERAL
4.1. Non-Competition
(1) None of the Shareholders will, without the prior written consent of
the other Shareholders, at any time while it is a shareholder of the Corporation
and for a period of 2 years, individually or in partnership or jointly or in
conjunction with any person as principal, agent, employee, shareholder (other
than a holding of shares listed on a Canadian or United Stares stock exchange
that does not exceed 5% of the outstanding shares so listed) or in any other
manner whatsoever carry on or be engaged in or be concerned with or interested
in or advise, lend money to, guarantee the debts or obligations of or permit his
name or any part thereof to be used or employed by any person engaged in or
concerned with or interested in within the United States or Canada any business
similar to or competitive with the Business.
(2) Each of the Shareholders confirms that all restrictions in Section 4.1
are reasonable and valid and all defences to the strict enforcement thereof are
waived by each Shareholder.
4.2 Benefit of the Agreement
This Agreement shall enure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties hereto.
4.3 Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory, between the parties other
than as expressly set forth in this Agreement.
4.4 Amendments and Waivers
No amendment to this Agreement shall be valid or binding unless set forth
in writing and duly executed by all of the parties hereto. No waiver of any
breach of any provision of this Agreement shall be effective or binding unless
made in writing and signed by the party
<PAGE>
-15-
purporting to give the same and, unless otherwise provided in the written
waiver, shall be limited to the specific breach waived.
4.5 Assignment
Except as may be expressly provided in this Agreement, none of the parties
hereto may assign his rights or obligations under this Agreement without the
prior written consent of all of the other parties hereto.
4.6 Termination
This Agreement shall terminate upon:
(a) the written agreement of all of the Shareholders;
(b) the dissolution or bankruptcy of the Corporation or the making by
the Corporation of an assignment under the provisions of the
Bankruptcy and Insolvency Act; or
(c) one Shareholder becoming the beneficial owner of all of the Shares.
4.7 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
4.8 Notices
Any demand, notice or other communication (hereinafter in this Section 4
referred to as a "Communication") to be given in connection with this Agreement
shall be given in writing and may be given by personal delivery, by registered
mail or by transmittal by telex addressed to the recipient as follows:
To: TLC
206 Laird Drive
Suite 100
Toronto, Ontario
M4G 3W4
Attention: Elias Vamvakas
Fax No.: (416) 467-6882
<PAGE>
-16-
To: ARM
4149 Catherine Street East
Dorchester, Ontario
N0L 1G0
Attention: Stephen M. Caslick
Fax No.: (519) 268-3506
To: Ontario
680 Waterloo Street
London, Ontario
N6A 3V8
Attention: Ronald J. Kelly
Fax No.: (519) 672-9296
To: Corporation
200 Queens Avenue
London, Ontario
N6A 1J3
Attention: Stephen M. Caslick
or such other address, telex number or individual as may be designated by notice
by any party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if given by registered mail, on the 5th Business Day following the deposit
thereof in the mail and, if given by telex, on the day of transmittal thereof.
If the party giving any Communication knows or ought reasonably to know of any
difficulties with the postal system which might affect the delivery of mail, any
such Communication shall not be mailed but shall be given by personal delivery
or by telex.
4.9 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
<PAGE>
-17-
IN WITNESS WHEREOF the parties have executed this Agreement.
TLC THE LASER CENTER INC.
Per: /s/ [ILLEGIBLE]
------------------------------------
A.R.M. GROUP INC.
Per: /s/ [ILLEGIBLE]
------------------------------------
1134445 ONTARIO LIMITED
Per: /s/ [ILLEGIBLE]
------------------------------------
VISION CORPORATION
Per: /s/ R. J. Kelly
------------------------------------
Name of Entity State of Formation
Partner Provider Health Inc. DE
Sixty-Seven Corporation DE
TLC Charlotte Leasing Company, LLC NC
TLC Chicago Laser Center Inc. IL
TLC Chicago Leasing Company, L.L.C. IL
TLC Detroit Inc. MI
TLC International Inc. DE
TLC Management Services Inc. DE
TLC Midwest Eye Laser Center, Inc. IL
TLC Network Services Inc. DE
TLC Piedmont Leasing Company, LLC SC
TLC Rocky Mountain Leasing Company, L.L.C. CO
TLC Seattle Leasing Company, L.L.C. WA
TLC The Laser Center (Atlanta) Inc. GA
TLC The Laser Center (Big Sky) Inc. MT
TLC The Laser Center (Brea) Inc. CA
TLC The Laser Center (Carolina) Inc. NC
TLC The Laser Center (Charlotte) Inc. NC
TLC The Laser Center (Cleveland) Inc. OH
TLC The Laser Center (Columbus) Inc. OH
TLC The Laser Center (Delaware) Inc. DE
TLC The Laser Center (Indiana) Inc. IN
TLC The Laser Center (Institute) Inc. DE
TLC The Laser Center (Lima) Inc. OH
TLC The Laser Center (Massachusetts) Inc. MA
TLC The Laser Center (Miami) Inc. FL
TLC The Laser Center (Northeast) Inc. MD
TLC The Laser Center (Northwest) Inc. WA
TLC The Laser Center (Oklahoma City) Inc. OK
TLC The Laser Center (Piedmont) Inc. SC
TLC The Laser Center (Rocky Mountain) Inc. CO
TLC The Laser Center (South Florida) L.P. FL
TLC The Laser Center (Tri-Cities) Inc. TN
TLC The Laser Center (Tulsa) Inc. OK
TLC The Laser Center (Winston-Salem) Inc. NC
TLC The Laser Center (Wisconsin Management) Inc. WI
TLC The Laser Center (Wisconsin) Inc. WI
TLC Tri-Cities Leasing Company, LLC TN
TLC Tulsa Finance Company, L.L.C. OK
TLC Winston-Salem Leasing Company, LLC NC
VisionMed Alabama LLC AL
VisionMed Arizona Inc. AZ
VisionMed Carolinas Management Inc. NC
VisionMed Connecticut LLC CT
VisionMed Delaware Inc. DE
<PAGE>
Exhibit 21.1 (Page 2)
Name of Entity State of Formation
VisionMed Illinois Inc. IL
VisionMed Kentucky Inc. KY
VisionMed Louisiana, Inc. LA
VisionMed Maine Inc. ME
VisionMed Massachusetts Inc. MA
VisionMed Michigan Inc. MI
VisionMed MidAtlantic LLC DE
VisionMed National Inc. DE
VisionMed New Hampshire Inc. NH
VisionMed New Jersey Inc. NJ
VisionMed Northern California, LLC CA
VisionMed Ohio Inc. OH
VisionMed Oklahoma Inc. OK
VisionMed Pennsylvania Inc. PA
VisionMed Rhode Island Inc. RI
VisionMed Tennessee, Inc. TN
VisionMed Texas Inc. TX
VisionMed Vermont Inc. VT
VisionMed Washington Inc. WA
Consent of Independent Chartered Accountants
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-8162) of TLC The Laser Center Inc. of our report dated July
15, 1998, included in the 1998 Annual Report (Form 10-K) of TLC The Laser Center
Inc.
Toronto, Canada /s/ Ernst & Young
July 15, 1998 Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for TLC The Laser Center Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 1,895,000
<SECURITIES> 54,234,000
<RECEIVABLES> 10,282,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,043,000
<PP&E> 58,635,000
<DEPRECIATION> 16,404,000
<TOTAL-ASSETS> 164,212,000
<CURRENT-LIABILITIES> 16,959,000
<BONDS> 0
0
0
<COMMON> 143,554,000
<OTHER-SE> (21,679,000)
<TOTAL-LIABILITY-AND-EQUITY> 164,212,000
<SALES> 0
<TOTAL-REVENUES> 59,122,000
<CGS> 0
<TOTAL-COSTS> (54,763,000)
<OTHER-EXPENSES> (12,727,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (692,000)
<INCOME-PRETAX> (9,060,000)
<INCOME-TAX> (1,071,000)
<INCOME-CONTINUING> (10,131,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 593,000
<CHANGES> 0
<NET-INCOME> (9,538,000)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
