SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1999
COMMISSION FILE NUMBER: 0-29302
TLC THE LASER CENTER INC.
-------------------------
(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
Mississauga, Ontario L4W 4Y2
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (905) 602-2020
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. Yes |X| No |_|
As of October 13, 1999 there were 37,782,456 of the registrant's Common
Shares outstanding.
<PAGE>
This Quarterly Report on Form 10-Q (herein, together with all amendments,
exhibits and schedules hereto, referred to as the "Form 10-Q") 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", "intends" 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 but not
limited to those set forth elsewhere in this Form 10-Q in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the Section entitled "Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended May 31, 1999. Unless the context
indicates or requires otherwise, references in this Form 10-Q 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-Q 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.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of August 31, 1999 and May 31, 1999
Consolidated Statement of Income for the Three Months Ended
August 31, 1999 and August 31, 1998
Consolidated Statement of Changes in Financial Position for the
Three Months Ended August 31, 1999 and August 31, 1998
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits
2
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PART I. FINANCIAL INFORMATION
Item 1. TLC The Laser Center Inc.
Consolidated Balance Sheet
August 31 May 31
(U.S. dollars, in thousands) 1999 1999
================================================================================
ASSETS
Current assets
Cash and cash equivalents $ 136,833 $ 151,810
Marketable securities 11,657 --
Accounts receivable 17,496 15,359
Prepaids and sundry assets 7,823 6,602
- --------------------------------------------------------------------------------
Total current assets 173,809 173,771
Restricted cash 1,606 1,730
Investments and other assets 15,545 14,359
Intangibles 57,094 47,441
Capital assets 40,112 38,993
Assets under capital lease 12,048 10,556
- --------------------------------------------------------------------------------
Total assets $ 300,214 $ 286,850
================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 21,341 $ 19,512
Current portion of long term debt 1,937 2,181
Current portion of obligations under capital lease 5,413 4,717
Income taxes payable 2,958 477
Deferred compensation -- --
- --------------------------------------------------------------------------------
Total current liabilities 31,649 26,887
Long term debt 4,680 4,620
Obligations under capital lease 6,402 6,410
Deferred rent and compensation 939 959
- --------------------------------------------------------------------------------
Total liabilities 43,670 38,876
- --------------------------------------------------------------------------------
Non-controlling interest 10,134 8,151
- --------------------------------------------------------------------------------
Commitments
SHAREHOLDERS' EQUITY
Capital stock 269,775 269,454
Deficit (23,365) (29,631)
- --------------------------------------------------------------------------------
Total shareholders' equity 246,410 239,823
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 300,214 $ 286,850
================================================================================
See notes to interim consolidated financial statements.
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TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED AUGUST 31
(Unaudited)
(U.S. dollars, in thousands except per share amounts) 1999 1998
================================================================================
Net revenues
Refractive $ 50,044 $ 26,384
Other 1,999 2,579
- --------------------------------------------------------------------------------
Net revenues 52,043 28,963
- --------------------------------------------------------------------------------
Expenses
Doctor Compensation
Refractive 4,627 2,595
Operating 34,223 19,707
Interest and other (1,102) 711
Depreciation and amortization 4,076 3,615
Start-up and Development expenses -- 995
- --------------------------------------------------------------------------------
41,824 27,623
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST 10,219 1,340
- --------------------------------------------------------------------------------
Income taxes
Current 2,924 619
- --------------------------------------------------------------------------------
2,924 619
- --------------------------------------------------------------------------------
INCOME BEFORE NON-CONTROLLING
INTEREST 7,295 721
Non-controlling interest (1,029) (318)
- --------------------------------------------------------------------------------
NET INCOME FOR THE PERIOD $ 6,266 $ 403
==============================
BASIC INCOME PER SHARE $ 0.17 $ 0.01
==============================
Weighted average number of
Common Shares Outstanding 37,403,397 33,698,630
==============================
Fully Diluted Income Per Share (1) $ 0.16 $ 0.01
==============================
(1) Fully Diluted earnings per share reflect earnings that would have been
reported had all compensation based options been exercised.
See notes to interim consolidated financial statements.
4
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TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED AUGUST 31
(Unaudited)
(U.S. dollars, in thousands) 1999 1998
================================================================================
Operating activities
Net income $ 6,266 $ 403
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,076 3,615
Non-controlling interest 530 318
Other (205) 241
Changes in non-cash operating items
Accounts receivable (2,132) 3,426
Prepaids and sundry assets (1,221) (789)
Accounts payable and accrued liabilities 1,474 (234)
Income taxes payable (net) 2,481 (79)
Deferred rent and compensation (20) (185)
- --------------------------------------------------------------------------------
Cash provided by operating activities 11,249 6,716
- --------------------------------------------------------------------------------
Financing activities
Restricted cash 124 725
Long term debt (195) (1,165)
Obligations under capital lease (1,246) (886)
Non-controlling interest 570 (44)
Capital stock issued 321 285
- --------------------------------------------------------------------------------
Cash provided by (used in) financing activities (426) (1,085)
- --------------------------------------------------------------------------------
Investing activities
Capital assets (2,369) (3,953)
Assets under capital lease (507) (149)
Acquisitions and investments (11,320) (10,511)
Marketable securities (11,657) --
Other 53 55
- --------------------------------------------------------------------------------
Cash provided by (used in) investing activities (25,800) (14,558)
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (14,977) (8,927)
Cash and cash equivalents, beginning of year 151,810 56,129
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 136,833 $ 47,202
================================================================================
* Note: The consolidated statement of cashflow for the 3 months ended August 31,
1998 has been restated to reflect the retroactive adoption of the CICA
revised guidelines for cash flow statements.
See notes to interim consolidated financial statements.
5
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TLC THE LASER CENTER INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSIOLIDATED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
1. The information contained in the interim consolidated financial statements
and footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the interim consolidated
financial statements included herein should be read in conjunction with
the May 31, 1999 Annual Report on Form 10-K filed by TLC The Laser Center
Inc. (the "Company") with the Securities and Exchange Commission. The
unaudited interim consolidated financial statements as of August 31, 1999
and August 31, 1998, include all normal recurring adjustments which
management considers necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year. The interim
consolidated financial statements include the accounts and transactions 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. The August 28, 1998 three
month consolidation includes certain reclassifications to conform with
classifications for the three month period ended August 31, 1999.
The net income (loss) per share was computed using the weighted average
number of common shares outstanding during each period.
2. On April 7, 1999, the Company entered into an agreement with a subsidiary
of Kaiser Permanente, providing for a strategic alliance, with the
intention to initially own and operate three refractive centers in
California and to eventually develop additional centers in markets in the
United States where Kaiser Permanente has a significant presence. The
agreement also grants the Kaiser Permanente subsidiary the opportunity to
negotiate an ownership interest in existing and future TLC refractive
centers. On June 30, 1999 the Company made a capital contribution of
$1,002,000 representing a 50.1% interest in TLC USA, LLC, the operating
company, for activities of this strategic alliance.
On July 8,1999 the Company acquired 50.1% of the operating assets and
liabilities on Laser Eye Care of California, LLC for cash consideration,
certain operating assets and liabilities of the Company's two California
refractive centers and additional amounts contingent upon achieving
certain levels of profits. No value will be assigned to these contingent
amounts until completion of the earn out period and the outcome of the
contingency is known.
3. 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.
<PAGE>
The following table reconciles results as reported under Canadian GAAP
with those that would have been reported under U.S. GAAP for the three
months ended August 31, 1999:
August 31,1999
--------------
Net Income for the period -- Canadian GAAP $ 6,266
Deferred foreign exchange gains (losses) (1) 16
Income tax expense adjustment under the liability method (2) (483)
-------
Net Income for the year -- U.S. GAAP $ 5,799
-------
Income per share -- U.S. GAAP (3) $ 0.15
-------
Net income based on US GAAP 5,799
Unrealized gains on securities available for sale (2,131)
-------
Comprehensive income 3,668
=======
(1) 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.
(2) 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 in prior periods. 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 income (loss). In addition, the recognition
of operating loss carry-forwards which existed at the acquisition date is
recorded as a reduction of goodwill related to the acquisition and an increase
in the tax provision under U.S. GAAP.
(3) SFAS No. 128, "Earnings Per Share", is effective for fiscal periods ending
after December 15, 1997
As a result of the above differences, as at August 31, 1999 under U.S. GAAP,
long-term assets would increase by $6,112,000 , deferred income tax liabilities
would increase by $4,589,000 and total shareholders' equity would increase by
$1,523,000. In addition, other comprehensive income would increase to
$3,626,000.
Additional disclosures required related to the reconciliation of the
consolidated financial statements from Canadian to U.S. GAAP are as follows:
7
<PAGE>
Income Taxes
Deferred income taxes under U.S. GAAP consist of the following temporary
differences:
Aug. 31,1999
------------
Tax benefit of loss carry forwards
Pre-acquisition $ 11,396
Post-acquisition 5,478
Start-up costs 1,348
Other 1,489
Valuation allowance (19,711)
--------
$ --
--------
Liabilities:
Practice management agreements 1,739
Capital assets 2,180
Other --
--------
$ 3,919
========
8
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Quarter Ended August 31, 1999 Compared to Quarter Ended August 31, 1998
TLC THE LASER CENTER INC.
SUPPLEMENTARY SEGMENTED FINANCIAL INFORMATION
Three months ended August 31, 1999
(U.S. dollars, in thousands) Refractive Other Total
================================================================================
Net revenues $ 50,044 $ 1,999 $ 52,043
Doctor compensation 4,627 -- 4,627
- --------------------------------------------------------------------------------
Net revenue after doctor compensation 45,417 1,999 47,416
- --------------------------------------------------------------------------------
Operating Expenses 32,348 1,875 34,223
Interest and other (1,070) (32) (1,102)
Depreciation and amortization 3,632 444 4,076
Start-up and development expenses -- -- --
---------------------------------
$ 34,910 $ 2,287 $ 37,197
---------------------------------
Income (loss) from operations $ 10,507 $ (288) $ 10,219
---------------------------------
Three months ended August 31, 1998
(U.S. dollars, in thousands) Refractive Other Total
================================================================================
Net revenues $ 26,384 $ 2,579 $ 28,963
Doctor compensation 2,595 -- 2,595
- --------------------------------------------------------------------------------
Net revenue after doctor compensation 23,789 2,579 26,368
- --------------------------------------------------------------------------------
Operating Expenses 17,265 2,442 19,707
Interest and other 768 (57) 711
Depreciation and amortization 3,041 574 3,615
Start-up and development expenses 995 995
---------------------------------
$ 21,074 $ 3,954 $ 25,028
---------------------------------
Income (loss) from operations $ 2,715 $ (1,375) $ 1,340
=================================
9
<PAGE>
Total net revenues in the first quarter of the 2000 fiscal year increased from
$29.0 million the previous year to $52.0 million, an increase of 79%. Revenues
from refractive revenue made up 96% of the total net revenue compared to 91%
during the first quarter of fiscal 1999. This trend emphasizes the significance
of the Company's core business and the impact of the divestiture of a
significant portion of its secondary care operation in the final quarter of
fiscal 1999.
Net revenues from refractive centers for the first quarter of fiscal 2000 were
$50.0 million, which is 89% higher than $26.4 million in the previous year's
first quarter. More than 33,200 procedures were performed in the quarter as
compared to 17,700 during the first quarter of fiscal 1999. The increasing
revenues reflects strong growth in the number of procedures at existing sites,
the development of new centers and the acquisition of centers from competitors.
Net revenues from other activities decreased to $2.0 million from $2.6 million
in the first quarter of fiscal 1999. Net revenues from this business segment
will continue to decline as a percentage of total revenues reflecting the
divestiture of certain secondary care practices which occurred in the fourth
quarter of fiscal year 1999.
Operating expenses and doctor compensation increased to $38.9 million in the
first quarter of fiscal 2000 from $22.3 million in same quarter of the previous
fiscal year. 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, and (iii) higher corporate
costs which are necessary to support the higher level of business activity.
Operating expenses and doctor compensation as a percentage of net revenues were
74.6% of net revenues as compared to 77% of net revenues in fiscal year 1999.
This decrease is attributed to the higher average number of procedures being
performed at the Company's centers.
Interest expense and other expenses of ($1.1) million reflects interest revenue
from a strong cash position resulting from ongoing positive cashflow from
operations and the result of a successful public offering in the fourth quarter
of fiscal 1999. Interest expense on long term debt and capital leases on
equipment are lower from that of prior quarters and reflect better financing
terms.
Depreciation and amortization expense increased from $3.6 million in the first
quarter of fiscal 1999 to $4.1 million in same the quarter of this fiscal year.
This increase is largely a result of new centers and the additional depreciation
and amortization associated with the Company's acquisitions during fiscal 1999
as well as the amortization from the goodwill resulting from the Company's
California investment in the first quarter of fiscal 2000. Goodwill is amortized
on a straight-line basis over fifteen years.
Start up and development costs in the first quarter of fiscal 1999 were incurred
by Partner Provider Health for the development of a managed care business
specializing in eye care. TLC sold PPH in May of 1999. The Company does not
expect to incur these costs in the future.
Income tax expense increased to $2.9 million for the first quarter of fiscal
2000 from $0.6 million in the same period in 1999. This increase is a result of
the company having utilized most of its tax losses from prior periods, the
Company expects to incur tax liabilities for its earnings in fiscal 2000.
The net income for the first quarter of fiscal 2000 was $6.3 million or $0.17
per share, compared to net income of $0.4 million or $0.01 cents a share for the
same quarter last year. This net income is a result of the much higher procedure
volume in the refractive business as well as the reduction of losses in
secondary care operations and the disposal of managed health care business.
Liquidity and Capital Resources
Cash from operating activities was $11.2 million for the first three months as
compared to the first three months of fiscal 1999 of $6.7 million. This is
primarily a result of the Company' substantial increase in net income for the
quarter.
Working capital decreased to $142.2 million from $146.9 million at May 31 1999.
Cash, cash equivalents and marketable securities were $148.5 million as compared
to $151.8 million at May 31 1999. The company
10
<PAGE>
continued to develop or acquire new refractive centers and therefore increased
its investment in capital assets. In addition, the company made strategic
investments of $11 million in the California market.
The Company estimates that the net proceeds of its recent public 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 at least the next 18 months.
The Company continues to invest in assets to develop and expand its refractive
procedure capacity in anticipation of continued growth, through the development
of new centers and acquisition of refractive practices. At the current time, TLC
has more than 15 centers under development. In addition, the Company is actively
pursuing other acquisition opportunities.
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 completed a comprehensive study of the possible affects of the Year
2000 issue on its systems and results of operations and a detailed plan of
action including projected costs and contingency plans. The Company's systems
constitute primarily desktop computers most of which are linked by a local area
network server at individual site locations. In August of 1999, the Company
completed a total company-wide upgrade of its financial, operational systems and
relevant hardware as relating to its core business. This upgrade provided
significant additional systems functionality and integration as well as enhanced
internal communication tools to the whole organization. As a result of these
upgrades the Company believes that it has prepared its computer systems and
related applications to accommodate date-sensitive information relating to the
Year 2000. Any upgrades still to be done, mostly replacing some older desktop
computers and relevant operating software, will not be material to the financial
condition or results of operations of the Company. The Company has tested and
determined that its software applications for all essential functions, such as
all financial applications, scheduling, center management and communications,
are Year 2000 compliant. The Company is currently successfully scheduling future
appointments in the 2000 calendar year. The Company's contingency plans in place
for failure of "mission critical" systems will be used. Other than providing
additional support resources over year end, no specific changes to the
contingency plans have been made for the failure of systems as a result of year
2000. Such costs will be expensed as incurred.
The Company is continuing to monitor the Y2K compliance of its suppliers. To
date, no significant concerns have been identified. However, there can be no
assurance that Year 2000-related issues with the providers of good and services
will not have a material adverse affect on the financial condition or the
results of operations of the Company.
The Company's core business is operating refractive laser surgery centers that
are equipped with a computer-controlled excimer laser as the primary essential
piece of equipment. VISX Incorporated ("VISX") manufactures approximately 85% of
the excimer lasers owned by the Company. Representatives from VISX have informed
the Company that it has tested its lasers for Year 2000 compliance and that the
lasers will function without any affect on safety or efficacy upon a change of
date to the Year 2000. However, without any upgrade, some VISX lasers might
print out patient reports with an incorrect date on them. VISX developed a
software upgrade to correct this problem and has completed the installation of
the upgrade in all of the Company's VISX lasers at no cost to the Company. The
Company's refractive centers are equipped with other computer-controlled
ophthalmic equipment, but none are essential to the laser vision correction
procedure. The Company does not expect that the cost of any replacements or
upgrades required for other ophthalmic equipment in its laser centers for the
Year 2000 will be material to the financial condition or results of operations
of the Company.
Laser vision correction is an elective procedure, which is not covered by
Medicare, Medicaid or other governmental reimbursement programs. Some private
insurance companies, however, provide partial or full coverage for the
procedure, which the Company estimates accounts for approximately 8 % of its
revenues for the period from June 1, 1999 to August 31st. If private insurance
companies that cover the laser vision procedure have difficulty processing and
paying claims because of Year 2000 issues, this could cause accounts receivable
for refractive procedures performed at the Company's refractive centers to
increase, or the patient volume in the refractive centers operated by the
Company to decrease, which could have a material adverse effect on the financial
condition or results of operations of the Company until such Year 2000 problems
are corrected. Most secondary care procedures are covered by governmental
reimbursement
11
<PAGE>
programs, such as Medicare or Medicaid, and by private insurance companies. If
third party payors have difficulty processing and paying claims because of Year
2000 issues, this could cause delays in such payments and an increase in
accounts receivable for procedures performed in secondary care centers in which
the Company has an investment.
Further, the Company cannot predict the impact that the Year 2000 issue will
have on its potential patients or the economy generally. If the Year 2000 issue
were to have a significant adverse impact on the economy or potential patients
perception of the economy, this could have a material adverse impact on the
number of procedures performed, particularly with respect to elective procedures
such as refractive surgery, and on the Company's financial results until the
economy and consumer confidence recovers.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
See Note 2 in the Financial Statements above for discussion of the Company's
California investments.
ITEM 6. EXHIBITS
Exhibit 10.1(e) Amendment to Employment Agreement with Elias Vamvakas
Exhibit 27 Financial Data Schedule
12
<PAGE>
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
October 15, 1999
By: /s/ Peter Kastelic
-----------------------------
Peter Kastelic
Chief Financial Officer
October 15, 1999
13
Exhibit 10.1(e)
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, made and entered into as of
the 14th day of August, 1998, by and between 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").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive executed an Employment
Agreement as of January 1, 1996 ("Employment Agreement"); and
WHEREAS the parties desire to extend and amend the Employment Agreement.
NOW, THEREFORE, said Employment Agreement shall be amended as follows:
1. Section 3 of the Employment Agreement shall be deleted in its entirety
and the following language substituted in place thereof:
"The Executive's employment will, subject to Section 9, be for a term of
five years from and after January 1, 1996 and extending to December 31,
2000 (the "Term"). Commencing on January 1, 2001, 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."
2. Section 5(a) of the Employment Agreement shall be deleted in its
entirety and the following language substituted in place thereof:
"(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, $316,250(US) in the fourth
year of the Term, and $363,750(US) in the fifth 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 percent. The foregoing Salary payable in each year is before
deduction for income taxes and other required deductions, such as Canada
Pension Plan and Employment Insurance contributions, but excluding the
Benefits paid by the Corporation as provided in Section 5(b). The Salary
will be payable in equal instalments semi-monthly in arrears in each month
during each Year of Employment, the first payment to be made on January
15, 1996."
3. Section 5(c) of the Employment Agreement shall be deleted in its
entirety and the following language substituted in place 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"), provided, however, the Executive will not be entitled to any
Bonus during the fourth and fifth years of the Term."
14
<PAGE>
4. The following paragraph shall be added to Section 8 of the Employment
Agreement:
"The Corporation hereby grants to the Executive options to acquire 250,000
common shares in the capital of the Corporation at an option price of
$20.75(Cdn) per common share. The option to acquire 125,000 of such shares
is exercisable immediately. Provided that either: i) the Corporation has
met or exceeded the average of the analysts' expectations as expressed by
the investment banking firms RBC Dominion Securities Inc. and Paine Webber
Incorporated, or their successors, regarding the Corporation's earnings
per share for each quarter beginning December 1, 1998 through November 30,
1999, or December 1, 1999 through November 30, 2000, as the case may be,
or ii) the price per share of the Corporation's stock on the Toronto Stock
Exchange shall have increased by a percentage that equals or exceeds the
percentage increase of the Toronto Stock Exchange 300 Index for the period
beginning January 1, 1999 through December 15, 1999 or the period
beginning January 1, 2000 through December 15, 2000, as the case may be,
then an option to acquire 62,500 of such shares will be exercisable on
each of December 31, 1999 or December 31, 2000, as the case may be. In the
event that neither of the contingencies are satisfied for 1999, then the
option to purchase 62,500 of such shares shall be forfeited as of December
31, 1999. In the event that neither of the contingencies are satisfied for
2000, then the option to purchase 62,500 of such shares shall be forfeited
as of December 31, 2000. Anything to the contrary herein notwithstanding,
all of the options granted in this paragraph which have not yet been
exercised or forfeited shall become immediately exercisable upon the
earlier of: i) the termination of Executive's employment by the
Corporation for any reason other than Just Cause, as defined in this
Employment Agreement, or ii) the Executive's death or Disability, as
defined in this Employment Agreement. Each of the foregoing options shall
expire on the earlier of (i) 5 years following the date on which they
become exercisable 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."
IN WITNESS WHEREOF, Corporation and Executive have executed this First
Amendment to Employment Agreement as of the date specified on the first page
hereof, and the terms of the Employment Agreement, as modified herein, are
hereby ratified and affirmed.
TLC THE LASER CENTER INC.
BY: /s/ Peter J. Kastelic
-------------------------
Peter J. Kastelic,
Its: Chief Financial Officer
WITNESS:
CORPORATION
)
)
) /s/ Elias Vamvakas
) ---------------------
) ELIAS VAMVAKAS
- --------------------------- ) EXECUTIVE
Witness Name (Please Print) )
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the interim
consolidated financial statements of TLC The Laser Center Inc. for the three
month period ending August 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 136,833,000
<SECURITIES> 11,657,000
<RECEIVABLES> 17,496,000
<ALLOWANCES> 2,547,000
<INVENTORY> 0
<CURRENT-ASSETS> 173,809,000
<PP&E> 83,023,000
<DEPRECIATION> (30,863,000)
<TOTAL-ASSETS> 300,214,000
<CURRENT-LIABILITIES> 31,649,000
<BONDS> 0
0
0
<COMMON> 269,775,000
<OTHER-SE> (23,365,000)
<TOTAL-LIABILITY-AND-EQUITY> 300,214,000
<SALES> 0
<TOTAL-REVENUES> 52,043,000
<CGS> 0
<TOTAL-COSTS> (38,850,000)
<OTHER-EXPENSES> (4,076,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,102,000
<INCOME-PRETAX> 10,219,000
<INCOME-TAX> (2,924,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,029,000)
<CHANGES> 0
<NET-INCOME> 6,266,000
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
