<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report February 12, 1999
(Date of earliest event reported) December 4, 1998
Commission file number 1-10629
-------
LASER VISION CENTERS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1530063
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer identification
or organization) number)
540 Maryville Centre Dr., Suite 200, St. Louis, Missouri 63141
--------------------------------------------------------------
(Address of principal executive offices)
(314)434-6900
-------------
(Registrant's telephone number, including area code)
<PAGE> 2
Laser Vision Centers, Inc. hereby amends the following items, financial
statements, exhibits or other portions of its Current Report dated December 21,
1998, on Form 8-K:
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(1) Audited Financial Statements of Midwest Surgical Services,
Inc. for the two year period ended April 30, 1998
(2) Condensed Consolidated Balance Sheet (Unaudited) of Midwest
Surgical Services, Inc. as of October 31, 1998
(3) Consolidated Statements of Operations (Unaudited) of Midwest
Surgical Services, Inc. for the six month periods ended
October 31, 1998 and 1997
(4) Consolidated Statements of Cash Flows (Unaudited) of Midwest
Surgical Services, Inc. for the six month periods ended
October 31, 1998 and 1997
(5) Audited Financial Statements of Refractive Surgical Resources,
Inc. for the year ended April 30, 1998
(6) Condensed Balance Sheet (Unaudited) of Refractive
Surgical Resources, Inc. as of August 31, 1998
(7) Statements of Operations (Unaudited) of
Refractive Surgical Resources, Inc. for the four month periods
ended August 31, 1998 and 1997
(8) Statements of Cash Flows (Unaudited) of
Refractive Surgical Resources, Inc. for the four month periods
ended August 31, 1998 and 1997
(b) Pro Forma Financial Information
(1) Pro Forma Combined Statements of Operations (Unaudited) for
the year ended April 30, 1998
(2) Pro Forma Combined Statements of Operations (Unaudited) for
the six month period ended October 31, 1998
(3) Pro Forma Combined Balance Sheets (Unaudited) as of October
31, 1998
(c) Exhibits
(1) Stock Purchase Agreement, dated as of September 1, 1998, by
and among Laser Vision Centers, Inc. and Refractive Surgical
Resources, Inc.
(2) Stock Purchase Agreement dated as of December 4, 1998 by and
among Laser Vision Centers, Inc. and Midwest Surgical
Services, Inc.
<PAGE> 3
MIDWEST SURGICAL
SERVICES, INC.
FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Midwest Surgical Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity present fairly,
in all material respects, the financial position of Midwest Surgical Services,
Inc. at April 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 27, 1998, except Note 13
which is as of December 4, 1998
<PAGE> 5
MIDWEST SURGICAL
SERVICES, INC.
BALANCE SHEET
APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance of $24,000 and
$19,137 in 1998 and 1997, respectively $ 702,386 $ 579,312
Other receivables 89,880 41,622
Notes and other receivables - related parties 77,089 102,617
Inventory 468,599 332,350
Prepaid expenses and other current assets 41,838 15,265
------------ ------------
Total current assets 1,379,792 1,071,166
------------ ------------
Property and equipment:
Medical equipment 2,683,537 1,688,379
Aircraft equipment 708,151 697,267
Furniture and fixtures 404,035 331,189
Automobiles 13,532 13,532
Accumulated depreciation (1,119,207) (591,416)
------------ ------------
2,690,048 2,138,951
Other assets 251,311 33,912
------------ ------------
Total assets $ 4,321,151 $ 3,244,029
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
MIDWEST SURGICAL SERVICES, INC.
BALANCE SHEET (CONTINUED)
APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 351,806 $ 250,565
Dividend payable 247,629
Other accrued liabilities 218,395 82,574
Other accrued liabilities - related parties 15,825 38,811
Line of credit 300,000 230,000
Current portion of notes payable 34,341 5,315
Notes payable to related parties 30,000
Current portion of obligations under capital leases 564,493 451,961
------------ -----------
Total current liabilities 1,514,860 1,306,855
------------ -----------
Non-current liabilities:
Notes payable 577,795 562,500
Capital lease obligations 1,176,599 589,598
Other 42,000 44,500
------------ -----------
Total non-current liabilities 1,796,394 1,196,598
------------ -----------
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity:
Common stock, par value $0.10 per share,
250,000 shares authorized, 15,190 shares
issued and outstanding, respectively 1,519 1,519
Additional paid-in capital 94,805 75,188
Retained earnings 921,571 663,869
Treasury stock (7,998) -
------------ -----------
Total stockholders' equity 1,009,897 740,576
------------ -----------
Total liabilities and stockholders' equity $ 4,321,151 $ 3,244,029
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
MIDWEST SURGICAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
1998 1997
<S> <C> <C>
Revenues $ 6,149,588 $ 5,125,182
Cost of revenues 3,623,436 2,918,104
------------ ------------
2,526,152 2,207,078
------------ ------------
Operating expense (income):
General and administrative 1,116,148 1,027,797
Salaries and related expenses 920,076 853,606
Impairment of investment 56,000
Gain from insurance recovery and
litigation settlement (241,500)
Management fees (158,000)
Other operating (income) expense (23,663) 14,918
------------ ------------
Income from operations 615,591 552,257
------------ ------------
Interest expense, net 171,876 109,056
Other expense 9,801 5,636
------------ ------------
Net income $ 433,914 $ 437,565
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
MIDWEST SURGICAL SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996 15,000 $ 1,500 $ 46,800 $473,933 $ - $ 522,233
Issuance of common stock 40 4 8,403 8,407
Exercise of stock options 150 15 19,985 20,000
Dividends (247,629) (247,629)
Net income for year ended
April 30, 1997 - - - 437,565 - 437,565
------ -------- -------- -------- ------- -----------
Balance at April 30, 1997 15,190 1,519 75,188 663,869 740,576
Transfer of net obligation under
capital lease 19,617 19,617
Purchase of treasury stock (7,998) (7,998)
Dividends (176,212) (176,212)
Net income for the year ended
April 30, 1998 - - - 433,914 - 433,914
------ -------- -------- -------- ------- -----------
Balance at April 30, 1998 15,190 $ 1,519 $ 94,805 $921,571 $(7,998) $ 1,009,897
====== ======== ======== ======== ======= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
MIDWEST SURGICAL SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities: $ 433,914 $ 437,565
Net income
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 722,195 404,571
Impairment of investment 56,000
Provision for uncollectible accounts receivable 4,863 19,137
Gain on sale of fixed assets (28,425)
(Gain) loss on termination of capital leases (21,163) 14,918
Gain from insurance recovery and litigation settlement (241,500)
Changes in operating assets and liabilities, net of acquisition:
Increase in accounts receivable (127,937) (134,688)
Increase in notes and other receivables (122,730) (44,239)
Increase in inventory (136,249) (12,658)
(Increase) decrease in prepaid expenses and
other assets (50,805) 14,460
Increase in accounts payable 101,241 33,631
Increase (decrease) in accrued liabilities and other 110,335 (104,328)
--------- ---------
Net cash provided by operating activities 969,664 358,444
--------- ---------
Cash flows from investing activities:
Capital expenditures (140,537) (787,495)
Proceeds from sale of fixed assets and termination 10,213 163,291
of capital leases
Proceeds from insurance recovery 150,000
Acquisition of mobile cataract surgery business (80,000) -
--------- ---------
Net cash used in investing activities (210,324) (474,204)
--------- ---------
Cash flows from financing activities:
Capital lease payments (381,822) (458,966)
Dividends paid (423,841)
Net borrowings under line-of-credit agreement 70,000 65,220
Debt principal payments (23,677) (156,423)
Proceeds from issuance of notes 562,500
Proceeds from stock options exercised 20,000
Proceeds from issuance of common stock - 8,407
--------- ---------
Net cash (used in) provided by financing activities (759,340) 40,738
--------- ---------
Net decrease in cash (75,022)
Cash at beginning of year - 75,022
--------- ---------
Cash at end of year $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
MIDWEST SURGICAL SERVICES, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
1998 1997
<S> <C> <C>
Supplemental schedule of non-cash investing and
financing activities:
Capital lease obligations for equipment purchases $ 1,235,060 $ 921,107
Termination of capital lease:
Capital lease obligation 109,636
Net book value of equipment 88,473
Purchase of investment in aircraft in exchange for:
Cancellation of note receivable 100,000
Issuance of note payable 30,000
Transfer of equipment and lease obligation to related party:
Capital lease obligation 44,069
Net book value of equipment 24,452
Purchase of treasury stock for note payable 7,998
Equipment received in litigation settlement 136,000
The Company purchased all of the assets of a mobile
cataract surgery business during fiscal 1998. In conjunction
with the acquisition, liabilities were assumed as follows:
Fair market value of assets acquired $ 140,000
Cash paid for assets 80,000
-----------
Liabilities assumed $ 60,000
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 189,552 $ 145,397
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
MIDWEST SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 and 1997
- --------------------------------------------------------------------------------
1. NATURE OF ORGANIZATION
Midwest Surgical Services, Inc. ("MSS" or the "Company") is a
Minneapolis-based provider of cataract surgery equipment and supplies
to rural community hospitals. The Company provides as a complete
package the instrumentation, disposables, consumables and prosthetics
along with a highly trained and certified surgical technician. This
service allows the small community hospital to provide the most
sophisticated phaco emulsification cataract surgery and other
procedures without significant capital investment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, disclosure of contingent assets and liabilities, as well
as the reported amounts of revenue and expenses. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash,
accounts receivable, notes receivable, accounts payable, accrued
liabilities, notes payable and capitalized lease obligations. The
estimated fair value of these financial instruments approximates their
book value at April 30, 1998 and 1997, based on the nature of the
instruments and the terms currently available to the Company.
CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers, which are primarily small
community hospitals located in the Midwest. Management believes the
credit risk related to its trade receivables is limited, as no single
customer accounted for a significant amount of the Company's revenue
and that its allowance for doubtful accounts is adequate.
INVENTORY
Inventory is stated at actual cost and consists principally of medical
supplies.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation and
amortization are computed utilizing the straight-line method. In the
opinion of management, this method is adequate to allocate the cost of
equipment over estimated useful lives which range from two to seven
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets when events
or changes in circumstances indicate that an asset's carrying value may
not be recoverable. In reviewing for impairment, if the carrying value
of an asset is greater than the sum of the undiscounted projected cash
flows attributable to that asset, an impairment loss is recognized. The
impairment loss is based on the fair value of the asset which is
determined based on market prices, discounted cash flows or the best
information available.
REVENUE
Revenues are recognized when the surgical procedures are performed.
<PAGE> 12
MIDWESt SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997
PAGE 2
- --------------------------------------------------------------------------------
COST OF REVENUES
Cost of revenues include medical equipment depreciation, equipment
maintenance, technician salaries and technician travel expenses and are
recognized over the useful lives of the related equipment or when
incurred.
INCOME TAXES
The Company is organized under subchapter S of the Internal Revenue
Code. In lieu of corporate income taxes, the shareholders of the S
corporation are taxed on their proportionate share of the Company's
taxable income. Accordingly, no provision for corporate income taxes
has been recorded in these financial statements.
3. 401(k) SAVINGS PLAN
MSS has a 401(k) savings plan for all employees that have completed one
year of service and are 21 years old. Matching contributions to the
plan are made at the discretion of the Company, subject to certain
limitations and subject to a maximum contribution per participant. The
Company may terminate or amend the plan at any time.
Contributions by the Company for eligible employees to the 401(k) plan
for the years ended April 30, 1998 and 1997 were $26,813 and $22,941,
respectively.
4. GAIN FROM INSURANCE RECOVERY AND LITIGATION
During fiscal 1997, an aircraft which the Company owned crashed. The
Company was insured for the loss and received $150,000 from the
insurance carrier. As the aircraft was fully depreciated, this resulted
in the recognition of a $150,000 gain from the insurance recovery.
During fiscal 1997, the Company settled certain litigation with a
medical equipment manufacturer in exchange for equipment with an
estimated fair market value of $136,000. The Company recorded the
equipment at its estimated fair value and recognized a gain from
litigation settlement of $91,500.
5. ASSET PURCHASE AGREEMENT
On March 6, 1998, MSS entered into an agreement to purchase a mobile
cataract surgery business for $80,000 in cash and the issuance of a
$60,000 note to the owner. The acquisition was accounted for under the
purchase method. Accordingly, the purchase price was allocated to fixed
assets with a fair market value of $10,000 and a non-compete agreement
with the owner valued at $30,000. The remaining $100,000 was recorded
as goodwill. The non-compete agreement and the goodwill are being
amortized over two years.
<PAGE> 13
MIDWEST SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997
Page 3
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
6. OTHER ASSETS
Other assets consist of the following at April 30:
1998 1997
Goodwill, net of $8,333 amortization $ 91,667 $ -
Investment in aircraft cooperative 74,000
Noncompete agreement, net of
$2,500 amortization 27,500
Lease deposits and other 58,144 33,912
------------ ------------
Total $ 251,311 $ 33,912
============ ============
</TABLE>
7. NOTES PAYABLE AND LINE OF CREDIT
On February 19, 1997, MSS borrowed $562,500 from Norwest Bank to
purchase an ownership interest in an aircraft for use in the Company's
operations. The note is due in 5 years, bears interest at 8.25% and is
collateralized by the aircraft. At April 30, 1998 and 1997, $545,625
and $562,500, respectively, was payable on the note. Subsequent to
year end, the aircraft was sold and the note was repaid.
In March 1997, MSS obtained a line of credit facility with Fidelity
Bank totaling $660,000. In May 1997, the facility was amended and
increased to $700,000. The facility bears interest at 9% and is
renewable annually and payable on demand. The current facility will
expire on May 1, 1999. At April 30, 1998 and 1997, $300,000 and
$230,000 was outstanding under the line of credit, respectively.
On July 13, 1994, MSS borrowed $54,500 at 9.5% for three years from
Fidelity Bank in conjunction with the purchase of two lasers. At April
30, 1997, $5,315 was outstanding under the note, and on July 15, 1997,
the remaining balance was paid off.
On January 1, 1998, MSS issued a $30,000 non-interest bearing note to
four shareholders of MSS in connection with the transfer of an
ownership interest in an aircraft to the company. The note, which was
due on demand was paid in full on July 29, 1998. See additional
discussion in the related party footnote 12.
On November 24, 1997, MSS purchased 150 shares of common stock for
$7,998 in exchange for a note payable which bears interest at 8% and
is due in two years. At April 30, 1998, $6,511 was payable of which
$4,341 is current and $2,170 is non-current.
In connection with the purchase of a mobile cataract surgery business
(see Note 5), MSS issued a $60,000 note payable to the owner. The note
bears interest at 8.5% and is payable in two annual installments of
$30,000.
<PAGE> 14
MIDWEST SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30,1998 AND 1997
Page 4
- --------------------------------------------------------------------------------
8. OBLIGATIONS UNDER CAPITAL LEASES
The Company finances the purchase of medical equipment, computer
equipment and mini-vans with 3 and 5 year leases. Under the terms of
the lease agreements, the Company is required to purchase the
equipment at the end of the lease term at a fixed price and
accordingly, the leases have been accounted for as capital leases. At
April 30, 1998, the future minimum payments under capital leases are
as follows:
YEAR ENDING APRIL 30, AMOUNT
1999 $ 726,772
2000 567,378
2001 384,732
2002 272,898
2003 and thereafter 171,976
-----------
Total minimum lease payments 2,123,756
Less amount representing interest 382,664
Less current portion 564,493
-----------
Long-term portion of obligations
under capital leases $ 1,176,599
===========
Assets under capital leases totaled $2,482,752 and $1,545,004,
respectively, at April 30, 1998 and 1997. Depreciation of leased assets
was $456,903 and $321,127 for the years ended April 30, 1998 and 1997,
respectively.
During fiscal 1998, the Company terminated certain leases and returned
the related equipment. At the dates of the terminations, the aggregate
outstanding lease obligation and net book value of the equipment
totaled $109,636 and $88,473, respectively. Accordingly, the Company
recognized a $21,163 gain.
9. OPERATING LEASE
The Company currently leases its office space under an operating lease
with a third party that requires monthly payments of $8,418 through
January 31, 2002. The Company subleases a portion of the office space
to other tenants, which are related parties (see Note 12), and receives
monthly sublease revenues of $2,966.
10. STOCK OPTIONS
At April 30, 1998 and 1997, there were 600 options to purchase the
Company's common stock outstanding at an exercise price of $133.33 per
share. As discussed in Note 13, all of the options were exercised
subsequent to year end.
<PAGE> 15
MIDWEST SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997
PAGE 5
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation in the normal course of business.
However, management does not expect that any outstanding or pending
legal proceedings, individually or in the aggregate, will have a
material adverse effect upon the Company's future results of
operations, liquidity or financial condition.
12. RELATED PARTIES
In May 1997, the owners of MSS formed Refractive Surgical Services,
Inc. (RSR), a provider of mobile access to microsurgical equipment
used by eye surgeons. In conjunction with its incorporation, the
Company transferred at historical net book value two microkeratome
machines with a net book value of $24,452 and RSR assumed the related
capital lease obligation of $44,069. MSS provides certain management
services and subleases a portion of its offices to RSR. During fiscal
year 1998, MSS charged RSR approximately $78,000 for management fees
and approximately $71,000 for reimbursement of office rent and other
administrative expenses. At April 30, 1998, RSR owed MSS approximately
$16,000.
In February 1997, the owners of MSS also formed an ophthalmic equipment
supply company. MSS provides certain management services and subleases
a portion of its offices to the supply company. In fiscal year 1998,
MSS charged the supply company $80,000 in management fees and
approximately $10,503 for reimbursement of office rent and other
administrative expenses. Additionally, during fiscal year 1997, MSS
charged the Company $1,965 for rent and other administrative expense.
At April 30, 1998, MSS had a $60,000 receivable from the supply company
related to these fees. The supply company also purchased $2,684 and
$130,480 of inventory from MSS during fiscal years 1998 and 1997,
respectively, while MSS purchased $12,316 and $548 of inventory from
the supply company during fiscal years 1998 and 1997, respectively.
Four stockholders of MSS also own a company that supplies lasers used
in mobile cataract services. During fiscal years 1998 and 1997, MSS
laser purchases from the laser supply company totaled $68,569 and
$165,127, respectively. At April 30, 1998 and 1997, MSS owed the
company $825 and $9,366, respectively. MSS also subleases office space
to the laser supply company. During fiscal years 1998 and 1997, MSS
charged the company $8,433 and $4,772, respectively for reimbursement
of office rent and other administrative expenses.
A stockholder of MSS owns a company specializing in intraocular lens
sales. During fiscal year 1998 and 1997, MSS purchased $198,044 and
$245,030 in lenses, respectively, from the company. At April 30, 1998,
and 1997, MSS owed the company $1,089 and $19,445, respectively. During
fiscal years 1998 and 1997, MSS incurred certain costs for equipment
rentals and selling expenses on behalf of the lens company which
totaled $43,032 and $26,463, respectively. The lens company has agreed
to reimburse MSS for these costs. At April 30, 1998 and 1997, MSS was
due $1,089 and $2,617, respectively, from the lens company.
A stockholder of MSS also provides consulting services to the Company.
Fees for fiscal years 1998 and 1997 were $35,000 and $30,000,
respectively. At April 30, 1998, and 1997, MSS owed the stockholder
$15,000 and $10,000, respectively.
<PAGE> 16
MIDWEST SURGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997
PAGE 6
- --------------------------------------------------------------------------------
In January 1996, four stockholders of MSS borrowed $100,000 from the
Company to purchase an interest in an aircraft cooperative. During
fiscal 1998, MSS purchased the stockholder's interest in the
cooperative for $130,000 in exchange for the cancellation of the
original note and the issuance of a $30,000 non-interest bearing note
payable to the stockholders. Subsequent to the purchase, the Company
determined that its investment was impaired and wrote it down to the
$74,000 estimated fair value resulting in a $56,000 charge to earnings.
MSS recognized $9,600 and $12,416 of interest income from the note
during fiscal years 1998 and 1997, respectively. In addition, it also
incurred $18,353 of expenses during fiscal year 1997 related to use of
the aircraft. Subsequent to April 30, 1998, the investment in the
aircraft cooperative was sold.
The three principal stockholders have personally guaranteed the
Company's obligations under its capital leases and the note with
Fidelity Bank. One stockholder has also personally guaranteed the
Company's obligations under its office lease.
13. SUBSEQUENT EVENTS
In July 1998, MSS sold their investment in an aircraft cooperative for
$74,000. No gain or loss resulted from this transaction.
On June 5, 1998, MSS sold their ownership interest in an aircraft for
$625,000. The proceeds were used principally to repay the debt
associated with original purchase of the interest. The sale resulted in
a gain of approximately $50,000. No gain or loss was recognized on the
extinguishment of the debt.
On July 1, 1998, MSS purchased the stock of Perry Surgical, a North
Carolina-based provider of mobile cataract services, for $305,000 in
cash and $124,000 of notes. The purchase agreement provides for the
payment of additional amounts based on revenues earned in the two years
following the acquisition. MSS also entered into a one year consulting
agreement with the two principal owners of Perry Surgical for $120,000.
On July 5, 1998, 300 options to purchase the Company's common stock
were exercised, and on November 30, 1998, the remaining 300 stock
options were exercised. Proceeds from these option exercises totaled
$80,000.
As of December 4, 1998, the outstanding stock of MSS was purchased by
Laser Vision Centers, Inc. ("LVCI") for an initial payment of $3.8
million in cash and notes, with potential additional consideration of
up to $8.25 million in cash and LVCI common stock based on the
performance of MSS through July 2001.
<PAGE> 17
Midwest Surgical Services, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited) (Audited)
October 31, April 30,
1998 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,167,000 702,000
Inventory 651,000 469,000
Prepaid expenses and other current assets 86,000 209,000
----------- -----------
Total current assets 1,904,000 1,380,000
Equipment, net of accumulated
depreciation of $1,855,000 and
$1,119,000, respectively 2,467,000 2,690,000
Other assets
Goodwill, net 383,000
Other 155,000 251,000
----------- -----------
Total other assets 538,000 251,000
----------- -----------
Total assets $ 4,909,000 $ 4,321,000
=========== ===========
Liabilities and stockholders' equity
Current liabilities
Current portion of notes payable $ 142,000 $ 64,000
Line of credit 330,000 300,000
Current portion of capitalized lease obligation 828,000 565,000
Accounts payable 489,000 352,000
Accrued liabilities 212,000 234,000
----------- -----------
Total current liabilities 2,001,000 1,515,000
Non-current liabilities
Notes payable 63,000 578,000
Capitalized lease obligations 1,354,000 1,176,000
Other 42,000 42,000
----------- -----------
Total non-current liabilities 1,459,000 1,796,000
Stockholders' equity
Common stock 2,000 2,000
Paid in capital 135,000 95,000
Retained earnings 1,320,000 921,000
Treasury stock (8,000) (8,000)
----------- -----------
Total stockholders' equity 1,449,000 1,010,000
----------- -----------
Total liabilities and stockholders' equity $ 4,909,000 $ 4,321,000
=========== ===========
</TABLE>
<PAGE> 18
Midwest Surgical Services, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
1998 1997
<S> <C> <C>
Revenue $ 4,385,000 $ 3,085,000
Cost of Revenue 2,745,000 1,840,000
----------- -----------
Gross Profit 1,640,000 1,245,000
Selling, general and
administrative expense 1,102,000 843,000
----------- -----------
Income from operations 538,000 402,000
Other income and expenses (139,000) (85,000)
----------- -----------
Net income $ 399,000 $ 317,000
=========== ===========
</TABLE>
<PAGE> 19
Midwest Surgical Services, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 399,000 $ 317,000
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 793,000 312,000
Gain on sale of equipment (50,000)
Gain on termination of capital leases (21,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (389,000) (86,000)
Increase in inventory (147,000) (98,000)
(Increase) decrease in other current assets 129,000 (18,000)
Increase (decrease) in accounts
payable and accruals 25,000 165,000
----------- -----------
Net cash provided by operations 760,000 571,000
Cash flows from investing activities:
Acquisition of Perry Surgical, net of
cash acquired (283,000)
Proceeds from sale of equipment 625,000
Acquisition of equipment (111,000) (76,000)
Other 53,000 (17,000)
----------- -----------
Net cash provided by (used in) investing
activities 284,000 (93,000)
Cash flows from financing activities:
Dividends paid (248,000)
Payments on capital lease obligations (369,000) (109,000)
Proceeds from (payments on) line of credit 30,000 (80,000)
Payment on notes payable (745,000) (22,000)
Proceeds from option exercise 40,000 --
----------- -----------
Net cash used in financing activities (1,044,000) (459,000)
Net change in cash 0 19,000
Cash at beginning of period 0 0
----------- -----------
Cash at end of period $ 0 $ 19,000
=========== ===========
Non cash investing and financing activities:
Capital leases for equipment $ 810,000 $ 415,000
Transfer of equipment and lease
obligation to related party:
Capital lease obligation 44,000
Net book value of equipment 24,000
Termination of capital leases:
Capital lease obligation 110,000
Net book value of equipment 88,000
Acquisiton of Perry Surgical
Fair value of assets acquired $ 703,000
Cash paid for the capital stock (305,000)
-----------
Liabilities assumed $ 398,000
===========
</TABLE>
<PAGE> 20
Midwest Surgical Services, Inc.
Notes to Historical Financial Statements
1. The unaudited interim financial statements as of October 31, 1998
and October 31, 1997, 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 which may be expected for the entire
fiscal year.
2. Midwest Surgical Services, Inc. (MSS) elected S corporation status
under the provisions of the Internal Revenue code. As such, all
income and losses flow through to the shareholders who are liable
for all applicable taxes. Accordingly, no provision or credit has
been made for federal and state income taxes.
3. On July 1, 1998, MSS purchased the stock of Perry Surgical, a
North Carolina-based provider of mobile cataract services, for
$305,000 in cash and $124,000 of notes. The purchase agreement
provides for the payment of additional amounts based on revenues
earned in the two years following the acquisition. MSS also
entered into a one year consulting agreement with the two
principal owners of Perry Surgical for $120,000. The unaudited pro
forma MSS results from operations assuming that the Perry
acquisition was consummated as of May 1, 1997 are as follows:
<TABLE>
<CAPTION>
Six months ended
10/31/98 10/31/97
-------- --------
<S> <C> <C>
Revenue $4,535,000 $3,459,000
Income 386,000 338,000
</TABLE>
<PAGE> 21
REFRACTIVE
SURGICAL
RESOURCES, INC.
FINANCIAL STATEMENTS
APRIL 30, 1998
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Refractive Surgical Resources, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity present fairly,
in all material respects, the financial position of Refractive Surgical
Resources, Inc. at April 30, 1998, and the results of its operations and its
cash flows for the year ended April 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 27, 1998, except Note 7,
which is as of September 1, 1998
<PAGE> 23
REFRACTIVE SURGICAL RESOURCES, INC.
BALANCE SHEET
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30, 1998
ASSETS
Current assets:
<S> <C>
Cash $ 97,106
Accounts receivable, net of allowance of $8,000 292,251
Other receivables 64,128
Inventory 61,186
Prepaid expenses and other current assets 28,375
--------------
Total current assets 543,046
--------------
Equipment:
Medical equipment 931,851
Furniture and fixtures 8,543
Accumulated depreciation (124,202)
--------------
Net property and equipment 816,192
Deposits 14,240
--------------
Total assets $ 1,373,478
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 133,982
Accounts payable 697,712
Other accrued liabilities 60,155
--------------
Total current liabilities 891,849
--------------
Non-current liabilities:
Capital lease obligations 261,643
--------------
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, par value $.01 per share, 100,000
authorized, 100,000 shares issued
and outstanding, respectively 1,000
Additional paid in capital 80,383
Retained earnings 138,603
--------------
219,986
--------------
Total liabilities and stockholders' equity $ 1,373,478
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
REFRACTIVE SURGICAL RESOURCES, INC.
STATEMENT OF OPERATIONS
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30, 1998
<S> <C>
Revenues $ 1,763,763
Cost of revenues (includes $121,840 of depreciation) 1,101,743
-------------
662,020
-------------
Operating expense:
General and administrative 330,649
Salaries and related expenses 159,000
Depreciation 2,362
-------------
492,011
-------------
Income from operations 170,009
Interest expense 31,406
-------------
Net income $ 138,603
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
REFRACTIVE SURGICAL RESOURCES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Issuance of stock 100,000 $ 1,000 $ - $ - $ 1,000
Transfer of net obligation under
capital lease (19,617) (19,617)
Conversion of stockholder notes to
equity 100,000 100,000
Net income - - - 138,603 138,603
------- --------- -------- -------- ------------
Balance at April 30, 1998 100,000 $ 1,000 $ 80,383 $138,603 $ 219,986
======= ========= ======== ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
REFRACTIVE SURGICAL RESOURCES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30, 1998
Cash flows from operating activities:
<S> <C>
Net income $ 138,603
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 124,202
Provision for uncollectible accounts receivable 8,000
Changes in operating assets and liabilities:
Increase in accounts receivable (300,251)
Increase in other receivables (64,128)
Increase in inventory (61,186)
Increase in prepaid expenses and other current assets (28,375)
Increase in accounts payable 697,712
Increase in accrued liabilities 60,155
----------
Net cash provided by operating activities 574,732
----------
Cash flows from investing activities:
Acquisition of equipment (487,943)
Equipment deposits (14,240)
----------
Net cash used by investing activities (502,183)
----------
Cash flows from financing activities:
Principal payments under capital lease obligations (76,443)
Proceeds from stockholder notes 100,000
Proceeds from sale of common stock 1,000
----------
Net cash provided by financing activities 24,557
----------
Net increase in cash 97,106
Cash at beginning of year -
----------
Cash at end of year $ 97,106
==========
Supplemental schedule of non-cash investing and financing activities:
Transfer of obligation under capital lease $ 44,069
==========
Transfer of equipment under capital lease $ 24,452
==========
Capital lease obligations related to equipment purchases $ 427,999
==========
Conversion of stockholder notes to equity $ 100,000
==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 31,406
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 27
REFRACTIVE SURGICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. NATURE OF ORGANIZATION
Refractive Surgical Services, Inc. ("RSR" or the "Company") is a
Minneapolis based provider of mobile microkeratome access. The
microkeratome is a microsurgical device which is used by eye surgeons
in conjunction with the excimer laser to perform laser in situ
keratomileusis (LASIK) procedures. RSR is the world's largest provider
of access to microkeratome technology.
RSR was incorporated on May 1, 1997 by the principal stockholders of
Midwest Surgical Services, Inc. ("MSS"), a provider of access to
ophthalmic equipment and other medical supplies, and an executive
formerly with Chiron Ophthalmics, the manufacturer of the
microkeratomes RSR provides.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, disclosure of contingent assets and liabilities, as well
as the reported amounts of revenue and expenses. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that
the fair value of the Company's financial instruments, including cash,
accounts receivable, and capitalized lease obligations approximates
book value at April 30, 1998, based on terms currently available to the
Company in financial markets.
CONCENTRATION OF CREDIT RISK
One customer constituted approximately 27% of the accounts receivable
balance at April 30, 1998. Management believes the credit risk related
to its remaining trade receivables is limited as no single customer
accounted for a significant amount of the Company's revenue and that
its allowance for doubtful accounts is adequate.
INVENTORY
Inventory is stated at cost and consists of general medical supplies.
EQUIPMENT
Equipment is stated at cost. Expenditures for repairs and maintenance
are charged to expense as incurred. Depreciation and amortization are
computed utilizing the straight-line method. In the opinion of
management, this method is adequate to allocate the cost of equipment
over its estimated useful lives which range from two to seven years.
REVENUE
Revenues are recognized when the surgical procedures are performed.
COST OF REVENUES
Cost of revenues include medical equipment depreciation, equipment
maintenance, technician salaries and technician travel expenses and are
recognized over the useful lives of the related equipment or when
incurred.
<PAGE> 28
REFRACTIVE SURGICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
PAGE 2
- --------------------------------------------------------------------------------
INCOME TAXES
The Company is organized under subchapter S of the Internal Revenue
Code. In lieu of corporate income taxes, the shareholders of the S
corporation are taxed on their proportionate share of the Company's
taxable income. Accordingly, no provision for corporate income taxes
has been recorded in these financial statements.
3. NOTES PAYABLE
On May 15, 1997, RSR borrowed $100,000 from its stockholders at 9% per
annum, payable on May 15, 1998. On January 1, 1998 these notes were
converted to stockholders' equity. Interest expense of $5,690 was
incurred and paid through December 31, 1997.
4. OBLIGATIONS UNDER CAPITAL LEASES
During the fiscal year, the Company financed the purchase of 18
machines and various other medical equipment with 3 and 4 year capital
leases, requiring total principal payments of $427,999 and bearing
interest at 8.75% to 9%. In conjunction with its incorporation, the
Company received from MSS two microkeratome machines with a net book
value of $24,452 and assumed the related capital lease obligations of
$44,069. Under the terms of the lease agreements, the Company is
required to purchase the equipment at the end of the lease term at a
fixed price.
At April 30, 1998, the future minimum payments under capital leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, AMOUNT
<S> <C>
1999 $ 166,207
2000 159,952
2001 121,496
-------------
Total minimum lease payments 447,655
Less amount representing interest (52,030)
Less current portion (133,982)
-------------
Long-term portion of obligations
under capital leases $ 261,643
=============
</TABLE>
Assets under capital leases totaled $452,451 at April 30, 1998.
Depreciation of leased assets was $69,956 for the year ended April 30,
1998.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation in the normal course of business.
However, management does not expect that any outstanding or pending
legal proceedings, individually or in the
<PAGE> 29
REFRACTIVE SURGICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
PAGE 3
- --------------------------------------------------------------------------------
aggregate, will have a material adverse effect upon the Company's
future results of operations, liquidity or financial condition.
6. RELATED PARTY
MSS provides certain management services and subleases a portion of its
offices to RSR. During fiscal 1998, MSS charged RSR approximately
$78,000 for management fees and approximately $71,000 for office rent
and other administrative expenses. At April 30, 1998, the Company owed
MSS approximately $16,000.
At the time of its incorporation, the Company retained three MSS
employees and assumed responsibility for two MSS equipment leases (see
Note 4).
7. SUBSEQUENT EVENT
On September 1, 1998, the outstanding stock of RSR was purchased by
Laser Vision Centers, Inc. ("LVCI") for a combination of cash and notes
payable totaling $3.3 million. One of the minority owners of the
Company is an outside director of LVCI. LVCI provides eye surgeons
access to excimer lasers.
The Company provides LVCI's customers with access to microkeratomes.
LVCI's customers represented approximately 60% of the Company's
revenues during the year ended April 30, 1998. For the year ended April
30, 1998, the Company also charged LVCI approximately $117,000 for
certain services and supplies it provided directly to LVCI. At April
30, 1998, the Company had $81,916 in receivables from LVCI.
<PAGE> 30
Refractive Surgical Resources, Inc.
Condensed Balance Sheet
<TABLE>
<CAPTION>
(Unaudited) (Audited)
August 31, April 30,
1998 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 300,000 $ 97,000
Accounts receivable, net 347,000 292,000
Inventory 87,000 61,000
Prepaid expenses and other current assets 20,000 93,000
---------- ----------
Total current assets 754,000 543,000
Equipment, net of accumulated
depreciation of $224,000 and
$124,000, respectively 829,000 816,000
Other assets 18,000 14,000
---------- ----------
Total assets $1,601,000 $1,373,000
========== ==========
Liabilities and stockholders' equity
Current liabilities
Current portion of capitalized lease obligation $ 165,000 $ 134,000
Accounts payable 925,000 698,000
Accrued liabilities 51,000 60,000
---------- ----------
Total current liabilities 1,141,000 892,000
Non-current liabilities
Capitalized lease obligations 287,000 261,000
---------- ----------
Total non-current liabilities 287,000 261,000
Stockholders' equity
Common stock 1,000 1,000
Paid in capital 80,000 80,000
Retained earnings 92,000 139,000
---------- ----------
Total stockholders' equity 173,000 220,000
---------- ----------
Total liabilities and stockholders' equity $1,601,000 $1,373,000
========== ==========
</TABLE>
<PAGE> 31
Refractive Surgical Resources, Inc.
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Four Months Ended
August 31,
1998 1997
<S> <C> <C>
Revenue $ 1,133,000 $ 327,000
Cost of revenue 913,000 184,000
----------- -----------
Gross profit 220,000 143,000
Selling, general and
administrative expense 160,000 116,000
----------- -----------
Income from operations 60,000 27,000
Other income and expenses (20,000) (11,000)
----------- -----------
Net income $ 40,000 $ 16,000
=========== ===========
</TABLE>
<PAGE> 32
Refractive Surgical Resources, Inc.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Four Months Ended
August 31,
1998 1997
<S> <C> <C>
Cash flow from operating activities:
Net income $ 40,000 $ 16,000
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 100,000 10,000
Changes in assets and liabilities
Increase in accounts receivable (55,000) (119,000)
Increase in inventory (26,000) (15,000)
(Increase) decrease in prepaid expenses
and other current asset increase 73,000 (34,000)
Increase in accounts payable and
accrued liabilities 218,000 164,000
--------- ---------
Net cash provided by operating activities 350,000 22,000
Cash flows from investing activities:
Acquisition of equipment (12,000) (84,000)
Other, net (4,000)
--------- ---------
Net cash used in investing activities (16,000) (84,000)
Cash flows from financing activities:
Principal payments under capitalized
lease obligations and notes payable (44,000) (10,000)
Proceeds from note payable 100,000
Contributions to/(distributions from) stockholders (87,000) 1,000
--------- ---------
Net cash provided by (used in) financing activities (131,000) 91,000
--------- ---------
Net increase in cash
and cash equivalents 203,000 29,000
Cash at beginning of period 97,000 -
--------- ---------
Cash at end of period $ 300,000 $ 29,000
========= =========
Non cash investing and financing activities:
Capital leases for equipment $ 101,000 $ 98,000
Transfer of capital leases:
Capital lease obligation 44,000
Net book value of equipment 24,000
</TABLE>
<PAGE> 33
Refractive Surgical Resources, Inc.
Notes to Historical Financial Statements
1. The unaudited interim financial statements as of August 31, 1998
and August 31, 1997, 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 which may be expected for the entire
fiscal year.
2. Refractive Surgical Resources, Inc. (RSR) elected S corporation
status under the provisions of the Internal Revenue code. As such,
all income and losses flow through to the shareholders who are
liable for all applicable taxes. Accordingly, no provision or
credit has been made for federal and state income taxes.
<PAGE> 34
Item 7(b) - Pro Forma Financial Information, including Combined
Statements of Operations for the year ended April 30, 1998 and for the
six months ended October 31, 1998, Combined Balance Sheets as of
October 31, 1998 and Notes to the Condensed Pro Forma Financial
Statements
On September 1, 1998, Laser Vision Centers, Inc. (LVCI) acquired all of
the outstanding stock of Refractive Surgical Resources, Inc. (RSR), for
$680,000 in cash (including $212,000 of transaction expenses) and $2.1
million in notes payable/future payments (of which $1.1 million is due
within one year). The acquisition was accounted for under the purchase
method of accounting and resulted in the recognition of goodwill of
$2.6 million. RSR provides microkeratome access and the related
disposable blades used by ophthalmologists during the LASIK procedure.
On December 4, 1998 LVCI acquired all of the outstanding stock of
Midwest Surgical Services, Inc. (MSS), for $2.8 million in cash and
$1.0 million in notes payable/future payments, with potential
additional consideration of up to $8.25 million in cash and LVCI common
stock based on the performance of MSS through July 2001. LVCI has the
option to pay all future payments in cash. MSS provides mobile cataract
services to U.S. ophthalmologists primarily in small markets.
The unaudited pro forma financial statements present a combination of
the historical financial statements for LVCI, RSR and MSS as adjusted
to reflect purchase transactions in accordance with the purchase method
of accounting. Pro forma income statements are presented for the year
ended April 30, 1998 and the six months ended October 31, 1998 as if
the acquisitions had occurred as of May 1, 1997. A pro forma balance
sheet is presented as of October 31, 1998 to illustrate the estimated
effects of the acquisitions as if such events had occurred by this
date.
The Pro Forma Combined Statements of Operations for the year ended
April 30, 1998 include LVCI's, RSR's and MSS's results of operations
for the year ended April 30, 1998. The Pro Forma Combined Statements of
Operations for the six months ended October 31, 1998 include LVCI's
results of operations for this period (including RSR from September 1,
1998 to October 31, 1998), RSR's results of operations for the period
May 1, 1998 to August 31, 1998 only, and MSS's results of operations
for the six months ended October 31, 1998. The Pro Forma Combined
Balance Sheets include LVCI's balance sheet (including RSR) as of
October 31, 1998 and MSS's balance sheet as of October 31, 1998. Final
purchase accounting adjustments will differ from the pro forma
adjustments presented herein and described in the accompanying notes
due to the results of operations of MSS from October 31, 1998 to the
date of closing (December 4, 1998).
The unaudited pro forma financial information is based on assumptions
that management believes are reasonable and such information is
presented for comparative and informational purposes only. The
unaudited pro forma financial information does not purport to represent
what the Company's results of operations or financial condition would
actually have been had such transactions occurred on May 1, 1997 or to
project the Company's results of operations for any future period or
financial condition at any future date.
<PAGE> 35
Laser Vision Centers, Inc.
Pro Forma Combined Statements of Operations (Unaudited)
For the Year Ended April 30, 1998
<TABLE>
<CAPTION>
Historical
-------------------------------------- Pro Forma Pro Forma
LVCI RSR MSS Adjustments Total
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Net revenue $23,469,000 $1,764,000 $6,150,000 $(117,000)(a) $31,266,000
Cost of revenue 16,750,000 1,102,000 3,624,000 (117,000)(a) 21,359,000
----------- ---------- ---------- --------- -----------
Gross profit 6,719,000 662,000 2,526,000 - 9,907,000
Selling, general and
administrative expenses 9,592,000 492,000 1,910,000 383,000(b) 12,377,000
----------- ---------- ---------- --------- -----------
Income (loss) from operations (2,873,000) 170,000 616,000 (383,000) (2,470,000)
Net interest expense and other (623,000) (31,000) (182,000) (444,000)(c) (1,280,000)
----------- ---------- ---------- --------- -----------
Net income (loss) (3,496,000) 139,000 434,000 (827,000) (3,750,000)
Preferred dividends (198,000) - - - (198,000)
----------- ---------- ---------- --------- -----------
Net loss applicable to
common stockholders(d) $(3,694,000) $139,000 $434,000 $(827,000) $(3,948,000)
=========== ========== ========== ========= ===========
Loss per share:
Basic and diluted $(.40) $(.43)
Weighted average number of
basic and diluted shares
outstanding 9,178,000 9,178,000
</TABLE>
(a) Adjustment to eliminate intercompany sales from RSR to LVCI.
(b) Selling, general and administrative expenses have been adjusted to reflect
the increase in the amortization of goodwill attributable to the
acquisitions of RSR and MSS. Total goodwill related to the RSR acquisition
of $2.6 million and the MSS acquisition of $3.1 million is being amortized
over a 15 year period.
(c) Interest expense of $251,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the
RSR acquisition. Interest income of $193,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of
cash on hand utilized to finance the MSS acquisition and $680,000 of cash
on hand utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI, no future taxable income has been assumed given the results of
operations of LVCI through October 31, 1998. Accordingly, LVCI's deferred
tax asset, related primarily to net operating loss carryforwards, is fully
reserved with an offsetting valuation allowance. Therefore any utilization
of the net operating losses as a result of pro forma taxable income from
MSS or RSR would result in an offsetting reduction in the valuation
allowance.
<PAGE> 36
Laser Vision Centers, Inc.
Pro Forma Combined Statements of Operations (Unaudited)
For the Six Months ended October 31, 1998
<TABLE>
<CAPTION>
Historical
-------------------------------------- Pro Forma Pro Forma
LVCI RSR* MSS Adjustments Total
---- ---- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Net revenue $19,512,000 $1,133,000 $4,385,000 $(47,000)(a) $24,983,000
Cost of revenue 12,991,000 913,000 2,745,000 (47,000)(a) 16,602,000
----------- ---------- ---------- -------- -----------
Gross profit 6,521,000 220,000 1,640,000 - 8,381,000
Selling, general and
administrative expenses 4,878,000 160,000 1,102,000 162,000(b) 6,302,000
----------- ---------- ---------- -------- -----------
Income from operations 1,643,000 60,000 538,000 (162,000) 2,079,000
Net interest expense and other (353,000) (20,000) (139,000) (188,000)(c) (700,000)
----------- ---------- ---------- -------- -----------
Net income 1,290,000 40,000 399,000 (350,000) 1,379,000
Preferred dividends (81,000) - - - (81,000)
----------- ---------- ---------- -------- -----------
Net income applicable to
common stockholders(d) $1,209,000 $40,000 $399,000 $(350,000) $1,298,000
=========== ========== ========== ========= ===========
Income per share:
Basic $.12 $.13
Diluted $.11 $.12
Weighted average number of
common shares outstanding - basic 9,834,000 9,834,000
Weighted average number of
common shares outstanding - diluted 10,779,000 10,779,000
</TABLE>
* RSR statement of income is for the four months ended August 31, 1998. RSR
operating results since the acquisition on September 1, 1998 are included in
the LVCI operating results.
(a) Adjustment to eliminate intercompany sales from RSR to LVCI.
(b) Selling, general and administrative expenses have been adjusted to reflect
the increase in the amortization of goodwill attributable to the
acquisitions of RSR and MSS. Total goodwill related to the RSR acquisition
of $2.6 million and the MSS acquisition of $3.1 million is being amortized
over a 15 year period.
(c) Interest expense of $97,000 (at 8%) has been adjusted to reflect the
interest expense on the $1.0 million of notes payable issued in connection
with the MSS acquisition and $2.1 million issued in connection with the
RSR acquisition. Interest income of $91,000 (at 5%) has been adjusted to
reflect the reduction in interest income related to the $3.2 million of
cash on hand utilized to finance the MSS acquisition and $680,000 of cash
on hand utilized to finance the RSR acquisition.
(d) Prior to being acquired by LVCI, RSR and MSS had elected S corporation
status under the provisions of the Internal Revenue Code. As such, all
pre-acquisition income subsequent to this election flowed through to the
shareholders of RSR and MSS, respectively, who were liable for all
applicable taxes. Accordingly, no provision is presented for federal and
state income taxes in the RSR and MSS historical Statements of Operations.
<PAGE> 37
No pro forma adjustment for income tax provision is included since any
taxable income would be offset by the utilization of net operating loss
carryforwards of LVCI. For purposes of recording deferred tax assets of
LVCI, no future taxable income has been assumed given the results of
operations of LVCI through October 31, 1998. Accordingly, LVCI's deferred
tax asset, related primarily to net operating loss carryforwards, is fully
reserved with an offsetting valuation allowance. Therefore any utilization
of the net operating losses as a result of pro forma taxable income from
MSS or RSR would result in an offsetting reduction in the valuation
allowance.
<PAGE> 38
Laser Vision Centers, Inc.
Pro Forma Combined Balance Sheets (Unaudited)
October 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
LVCI* MSS Adjustments Total
----- --- ----------- -----
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $8,491,000 $ - ($2,800,000)(a) $5,691,000
Restricted cash 525,000 525,000
Accounts receivable, net 5,490,000 1,167,000 6,657,000
Inventory 1,128,000 651,000 1,779,000
Prepaid expenses and
other current assets 1,352,000 86,000 1,438,000
---------- --------- --------- ----------
Total current assets 16,986,000 1,904,000 (2,800,000) 16,090,000
Equipment, net of accumulated
depreciation 14,703,000 2,467,000 17,170,000
Other assets
Goodwill, net 3,413,000 383,000 2,524,000(a) 6,320,000
Other 1,499,000 155,000 1,654,000
----------- ---------- ---------- -----------
Total other assets 4,912,000 538,000 2,524,000 7,974,000
---------- --------- --------- ----------
Total Assets $36,601,000 $4,909,000 $ (276,000) $41,234,000
=========== ========== ========== ===========
Liabilities and equity
Current liabilities
Current portion of
notes payable $3,686,000 $142,000 $1,000,000(a) $4,828,000
Line of credit 330,000 330,000
Current portion of
capitalized lease
obligation 842,000 828,000 1,670,000
Accounts payable 4,183,000 489,000 4,672,000
Accrued liabilities 2,697,000 212,000 173,000(a) 3,082,000
----------- ---------- ---------- -----------
Total current liabilities 11,408,000 2,001,000 1,173,000 14,582,000
Non-current liabilities
Notes payable 6,137,000 63,000 6,200,000
Capitalized lease
obligations 607,000 1,354,000 1,961,000
Other 42,000 42,000
----------- ---------- ---------- -----------
Total non-current liabilities 6,744,000 1,459,000 8,203,000
Stockholders' equity
Preferred stock 3,471,000 3,471,000
Common stock 100,000 2,000 (2,000)(b) 100,000
Warrants and options 1,346,000 1,346,000
Paid in capital 44,249,000 135,000 (135,000)(b) 44,249,000
Accumulated deficit (30,717,000) 1,312,000 (1,312,000)(b) (30,717,000)
----------- ---------- ---------- -----------
Total stockholders' equity 18,449,000 1,449,000 (1,449,000) 18,449,000
----------- ---------- ---------- -----------
Total liabilities and equity $36,601,000 $4,909,000 $ (276,000) $41,234,000
=========== ========== ========== ===========
</TABLE>
*Includes RSR balance sheet as of 10/31/98
<PAGE> 39
(a) The allocation of the estimated purchase price to assets and
liabilities assumed at October 31, 1998 is as follows:
Cash payment $2,800,000
Note payable 1,000,000
Transaction expenses 373,000
----------
Total $4,173,000
==========
The purchase price for MSS was allocated as follows:
Net book value of MSS assets $1,449,000
Less goodwill of MSS 383,000
----------
Subtotal 1,066,000
Cost in excess of net assets acquired 3,107,000
----------
Total $4,173,000
==========
Transaction expenses of $200,000 were accrued at October 31, 1998 and
are included in the LVCI balance sheet at October 31, 1998.
The former owners of MSS may earn additional consideration of up to
$8.25 million in cash and LVCI common stock based on the performance of
MSS through July 2001. Such amounts, if required to be paid, will be
recorded as goodwill at that time and amortized over the remaining life
of the goodwill recorded at acquisition.
The historical carrying value of MSS's assets and liabilities reflects
their fair market value on the date of acquisition.
The tax basis of the acquired assets and liabilities equal the
financial statement values as a result of the Company's tax election to
treat the stock purchase as an asset purchase.
(b) To eliminate equity of MSS.
<PAGE> 1
STOCK PURCHASE AGREEMENT
AMONG
LASER VISION CENTERS, INC.
AND
THE SHAREHOLDERS OF REFRACTIVE SURGICAL RESOURCES, INC.
DATED AS OF SEPTEMBER 1, 1998
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
1. CERTAIN DEFINITIONS.....................................................1
2. PURCHASE AND SALE OF COMPANY SHARES.....................................3
2.1 BASIC TRANSACTION..............................................3
2.2 PURCHASE PRICE.................................................3
2.3 CHIRON/BAUSCH AND LOMB PAYOFF AMOUNT...........................4
3. ADDITIONAL CONSIDERATION................................................4
3.1 DESCRIPTION....................................................4
3.2 INSTALLMENT PAYMENTS...........................................4
3.3 ADJUSTMENTS TO INSTALLMENT PAYMENTS............................4
3.4 REPORTS AND DISPUTES...........................................5
4. CLOSING AND TERMINATION.................................................6
4.1 CLOSING........................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE MAJOR
SHAREHOLDERS............................................................6
5.1 ORGANIZATION, EXISTENCE AND GOOD STANDING OF THE COMPANY.......6
5.2 CAPITAL STOCK OF THE COMPANY...................................7
5.3 SUBSIDIARIES...................................................7
5.4 FINANCIAL STATEMENTS...........................................7
5.5 ACCOUNTS AND NOTES RECEIVABLE..................................8
5.6 PERMITS AND INTANGIBLES........................................8
5.7 TAX MATTERS....................................................8
5.8 ASSETS AND PROPERTIES.........................................10
5.9 REAL PROPERTY LEASES, OPTIONS.................................11
5.10 ENVIRONMENTAL LAWS AND REGULATIONS............................11
5.11 CONTRACTS.....................................................13
5.12 NO VIOLATIONS.................................................13
5.13 GOVERNMENT CONTRACTS..........................................14
5.14 CONSENTS......................................................14
5.15 LITIGATION AND RELATED MATTERS................................14
5.16 COMPLIANCE WITH LAWS..........................................14
5.17 INTELLECTUAL PROPERTY RIGHTS..................................14
5.18 EMPLOYEE BENEFIT PLANS........................................16
5.19 EMPLOYEES; EMPLOYEE RELATIONS.................................17
5.20 INSURANCE.....................................................18
5.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC........................19
5.22 BUSINESS RELATIONS............................................19
5.23 OFFICERS AND DIRECTORS........................................19
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.24 BANK ACCOUNTS AND POWERS OF ATTORNEY..........................19
5.25 ABSENCE OF CERTAIN CHANGES OR EVENTS..........................20
5.26 TERMINATION OF PLANS..........................................20
5.27 MICROKERATOMES................................................20
(B) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.....................20
5.28 AUTHORITY AND OWNERSHIP.......................................20
5.29 PREEMPTIVE RIGHTS.............................................21
5.30 VALIDITY OF OBLIGATIONS.......................................21
5.31 ABSENCE OF CLAIMS AGAINST THE COMPANY.........................21
6. REPRESENTATIONS OF LVCI................................................21
6.1 DUE ORGANIZATION..............................................21
6.2 VALIDITY OF OBLIGATIONS.......................................21
6.3 NO CONFLICTS..................................................21
6.4 NO OUTSIDE RELIANCE; KNOWLEDGE REGARDING REPRESENTATIONS......22
7. ADDITIONAL CLOSING DELIVERIES TO THE SHAREHOLDERS......................22
7.1 OPINION OF COUNSEL............................................22
7.2 EMPLOYMENT AGREEMENTS.........................................22
7.3 BROKER RELEASE................................................22
8. ADDITIONAL CLOSING DELIVERIES TO LVCI..................................23
8.1 REPAYMENT OF INDEBTEDNESS.....................................23
8.2 SHAREHOLDER RELEASES..........................................23
8.3 TERMINATION OF RELATED PARTY AGREEMENTS.......................23
8.4 OPINIONS OF COUNSEL...........................................23
8.5 EMPLOYMENT AGREEMENTS.........................................23
8.6 NONCOMPETITION AGREEMENTS.....................................23
8.7 BROKER RELEASE................................................23
8.8 RELEASE OF FINANCING STATEMENTS...............................23
8.9 GOOD STANDING CERTIFICATES....................................24
8.10 FAIRNESS OPINION..............................................24
9. COVENANTS OF THE PARTIES...............................................24
9.1 DISTRIBUTIONS.................................................24
9.2 PREPARATION AND FILING OF TAX RETURNS.........................24
9.3 COMPANY NAME..................................................25
9.4 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS CONCERNING
TERMINATION OF S ELECTION.....................................25
10. INDEMNIFICATION........................................................29
10.1 LVCI LOSSES...................................................30
10.2 EMPLOYEE COMPENSATION AND BENEFITS............................30
10.3 SHAREHOLDER LOSSES............................................30
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
10.4 NOTICE OF LOSS................................................31
10.5 RIGHT TO DEFEND...............................................31
10.6 COOPERATION...................................................32
10.7 RECOUPMENT AND DISPUTE RESOLUTION.............................33
10.8 LIMITATIONS ON INDEMNIFICATION................................35
10.9 EXCLUSIVITY OF REMEDIES.......................................35
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
......................................................................36
12. GENERAL................................................................36
12.1 COOPERATION...................................................36
12.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS
AND WARRANTIES................................................36
12.3 SUCCESSORS AND ASSIGNS........................................37
12.4 ENTIRE AGREEMENT..............................................37
12.5 COUNTERPARTS..................................................37
12.6 BROKERS AND AGENTS............................................37
12.7 EXPENSES......................................................37
12.8 NOTICES.......................................................38
12.9 ARBITRATION...................................................38
12.10 GOVERNING LAW.................................................39
12.11 EXERCISE OF RIGHTS AND REMEDIES...............................39
12.12 REFORMATION AND SEVERABILITY..................................39
12.13 REMEDIES CUMULATIVE...........................................39
12.14 INTERPRETATION................................................39
ANNEX I ....................................................................41
</TABLE>
<PAGE> 5
STOCK PURCHASE AGREEMENT
This agreement (the "Agreement") entered into as of September 1, 1998, by
and among LASER VISION CENTERS, INC., a Delaware corporation ("LVCI"), and
NICHOLAS T. CURTIS, THOMAS L. EAKINS, PAUL C. EHLEN, PAUL W. SCHMIDT, and DR.
RICHARD L. LINDSTROM (the "Major Shareholders"), and the other shareholders of
Refractive Surgical Resources, Inc., a Minnesota corporation, listed on the
signature pages hereof (the "Other Shareholders and collectively with the Major
Shareholders, the "Shareholders"). LVCI and the Shareholders are referred to
collectively herein as the "Parties."
RECITALS
The Shareholders in the aggregate own all of the outstanding capital stock
of Refractive Surgical Resources, Inc., a Minnesota corporation ("Company").
This Agreement contemplates a transaction in which LVCI will purchase from
the Shareholders, and the Shareholders will sell to LVCI, all of the outstanding
capital stock of the Company in return for cash and the LVCI Note.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS
"Additional Consideration" shall have the meaning ascribed to such term in
Section 3.1 hereof.
"Agencies" shall have the meaning ascribed to such term in Section 5.15 hereof.
"Agreement" shall mean this Stock Purchase Agreement.
"Allocation Statement" shall have the meaning ascribed to such term in Section
9.4(h)(ii) hereof.
"Basket" shall have the meaning ascribed to such term in Section 10.8 hereof.
"Business Day" shall mean any day of the year (other than a Saturday or Sunday)
on which national banking institutions in the City of St. Louis in the State of
Missouri are open to the public for conducting business and are not required or
authorized to close.
"Charter Documents" shall have the meaning ascribed to such term in Section 5.1
hereof.
"Closing" shall have the meaning ascribed to such term in Section 4.1 hereof.
<PAGE> 6
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended
"Company" shall mean Refractive Surgical Resources, Inc., a Minnesota
corporation.
"Company Proposed Adjustment" shall have the meaning ascribed to such term in
Section 9.4 (f) hereof.
"Company Stock" shall have the meaning ascribed to such term in Section 2.1
hereof.
"Contracts" shall have the meaning ascribed to such term in Section 5.11(a)
hereof.
"Employment Agreements" shall have the meaning ascribed to such term in Section
7.2 hereof.
"Environmental Requirements" shall have the meaning ascribed to such term in
Section 5.10(b) hereof.
"Equitable Exceptions" shall mean enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, (ii) the remedy of specific performance and injunctive relief
are subject to certain equitable defenses and to the discretion of the court
before which any proceedings may be brought and (iii) rights to indemnification
hereunder may be limited under applicable securities laws.
"Financial Statements" shall have the meaning ascribed to such term in Section
5.4 hereof.
"GAAP" shall mean Generally Accepted Accounting Principles.
"Hazardous Substances" shall have the meaning ascribed to such term in Section
5.10(b) hereof.
"Intellectual Property" shall have the meaning ascribed to such term in Section
5.17(a) hereof.
"Liens" shall have the meaning ascribed to such term in Section 5.29 hereof.
"LVCI Losses" shall have the meaning ascribed to such term in Section 10.1(b)
hereof.
"LVCI Note" shall have the meaning ascribed to such term in Section 2.2 hereof.
"Material Adverse Effect" shall have the meaning ascribed to such term in
Section 5.1 hereof.
"Material Permits" shall have the meaning ascribed to such term in Section 5.6
hereof.
2
<PAGE> 7
"Plans" shall have the meaning ascribed to such term in Section 5.18 hereof.
"Proposed Adjustment" shall have the meaning ascribed to such term in Section
9.4(e) hereof.
"Purchase Price" shall have the meaning ascribed to such term in Section 2.2
hereof.
"Real Property Leases" shall have the meaning ascribed to such term in Section
5.9 hereof.
"Recoupment Arbitrator" shall have the meaning ascribed to such term in Section
10.7(a) hereof.
"Section 338(h)(10) Elections" shall have the meaning ascribed to such term in
Section 9.4(h)(i) hereof.
"Shareholder Losses" shall have the meaning ascribed to such term in Section
10.3(b) hereof.
"Subject Property" shall have the meaning ascribed to such term in Section
5.10(b) hereof.
"Tax Returns" shall have the meaning ascribed to such term in Section 5.7(a)
hereof.
"Taxes" shall have the meaning ascribed to such term in Section 5.7(a) hereof.
"Third Party Intellectual Property" shall have the meaning ascribed to such term
in Section 5.17(a) hereof.
2. PURCHASE AND SALE OF COMPANY SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, concurrently with the execution and delivery hereof, LVCI agrees to
purchase and has purchased from each of the Shareholders, and each of the
Shareholders agrees to sell to and has sold to LVCI, all of his or her capital
stock in the Company ("Company Stock") for the consideration specified below in
this Section 2.
2.2 PURCHASE PRICE. LVCI hereby pays to the Shareholders in the aggregate
maximum total consideration of $3,300,000, subject to adjustment pursuant to
Section 3.3 hereof (the "Purchase Price"), consisting of (i) cash in the amount
of $1,000,000 (less the amount of the Chiron/Bausch and Lomb payoff set forth in
Section 2.3 hereof) payable by wire transfer or delivery of LVCI checks at
Closing, (ii) LVCI's non-interest bearing promissory notes in the aggregate
principal amount of $500,000 due and payable on February 28, 1999 to the
Shareholders in accordance with their ownership of the Company as reflected on
ANNEX I (the "LVCI Notes"), substantially in the form of Exhibit A attached
hereto, which shall be and has been delivered at Closing, and (iii) Additional
Consideration of up to $1,800,000 payable in installments and subject to
reduction as more particularly described in
3
<PAGE> 8
Section 3 hereof. The Shareholders acknowledge that amounts payable to them
under the LVCI Notes and as Additional Consideration may be subject to reduction
pursuant to Section 10.7 in satisfaction of the Shareholders' indemnification
obligations. The Purchase Price has been allocated among the Shareholders in
accordance with the instructions set forth on ANNEX I.
2.3 CHIRON/BAUSCH AND LOMB PAYOFF AMOUNT. The Major Shareholders represent
and warrant that the amount owed by the Company to Chiron/Bausch and Lomb equals
$532,472, and LVCI has paid at Closing this amount to Chiron/Bausch and Lomb out
of the Purchase Price proceeds.
3. ADDITIONAL CONSIDERATION
3.1 DESCRIPTION. On and subject to the terms and conditions of this
Section, LVCI and the Company agree to pay to the Shareholders additional
consideration not to exceed $1,800,000 in cash (the "Additional Consideration").
3.2 INSTALLMENT PAYMENTS. Payment of the Additional Consideration shall be
made in three installments (the "Installment Payments"), each of which shall not
exceed $600,000 in aggregate amount. Each Installment Payment shall consist of
individual payment by check to each Shareholder in the percentages set forth in
ANNEX I attached hereto (which percentages have been agreed to by the
Shareholders). The first Installment Payment shall be forwarded to the
Shareholders entitled thereto by U.S. mail or Federal Express post-marked no
later than July 31, 1999. The second Installment Payment shall be forwarded to
the Shareholders entitled thereto by U.S. mail or Federal Express post-marked no
later than July 31, 2000. The third Installment Payment shall be forwarded to
the Shareholders entitled thereto by U.S. mail or Federal Express post-marked no
later than October 30, 2000.
3.3 ADJUSTMENTS TO INSTALLMENT PAYMENTS.
a. To the extent that the audited book value of the Company on the
Closing Date is less than $100,000 (prior to accrual of the Company's costs
incurred in connection with the negotiation and establishment of this Agreement
and the accomplishment of all transactions contemplated hereunder) as shown on
the Company's August 31, 1998 financial statements (the "Closing Date Financial
Statement"), the first Installment Payment (or, to the extent necessary, the
second and third Installment Payments) of $600,000 shall be reduced on a
dollar-for-dollar basis. To the extent that the audited book value of the
Company on the Closing Date is more than $100,000, LVCI shall pay to the
Shareholders promptly after delivery of the Closing Date Financial Statements
$.50 for every $1.00 of excess up to a maximum payment of $36,000. Any such
payments shall be made in accordance with the Shareholders' percentage interest
at the date hereof.
b. To the extent that the total indebtedness of the Company (relating
to borrowed funds) is greater that $0 on the Closing Date as shown on the
Closing Date Financial
4
<PAGE> 9
Statement, the first Installment Payment (or, to the extent necessary, the
second and third Installments Payment) of $600,000 shall be reduced on a
dollar-for-dollar basis. For purposes of this paragraph, total indebtedness
shall not include any indebtedness to Chiron/Bausch and Lomb which has been
provided for under the escrow arrangements described in Section 2.3.
3.4 REPORTS AND DISPUTES.
(a) The Company shall within thirty business days after the Closing
Date deliver to each Shareholder a schedule setting forth the computation of any
reduction and a copy of the financial information used in making such
computation. The Company's computation of any reduction under this Section 3
shall be conclusive and binding upon the parties hereto unless, within thirty
business days following the Shareholders' receipt of the aforedescribed payment
and information, Shareholders who formerly held at least of a majority of the
Company Stock notify LVCI in writing (the "Shareholders' Notice") that they
disagree with the Company's computation of the reduction. Such notice by the
Shareholders shall include a schedule setting forth the Shareholders'
computation of the reduction, together with a copy of any financial information,
other than that previously supplied by the Company to the Shareholders, used in
making the Shareholders' computation.
(b) The Shareholders' computation of the reduction under this Section 3
shall be conclusive and binding upon the parties hereto unless, within thirty
business days following LVCI's receipt of the Shareholders' Notice, LVCI
notifies the Shareholders in writing that it disagrees with the Shareholders'
computation of the reduction. If LVCI disagrees with the Shareholders'
computation of the reduction, LVCI and the Shareholders providing such
Shareholders' Notice shall request a national firm of independent certified
public accountants mutually agreeable to LVCI and such Shareholders to compute
the amount of the reduction as promptly as possible, which computation shall be
conclusive and binding upon LVCI and all of the Shareholders. In the event that
LVCI and the Shareholders providing such Shareholders' Notice cannot agree on
such a national firm of independent certified public accountants, then the name
of the national accounting firms, exclusive of any such firm which is rendering
or has within the past three years rendered services to LVCI, the Company or the
Major Shareholders or their Affiliates, shall be selected by lottery until one
such firm is willing to compute the disputed reduction for purposes of this
Agreement. In the event that either LVCI's or the Shareholders' computation is
deemed substantially correct by such national accounting firm, then the party
who challenged such computation shall exclusively bear the costs associated with
retaining the national accounting firm. If neither LVCI's nor the Shareholders'
computation is deemed substantially correct, then the expenses of any
computation by any such national accounting firm selected by LVCI and the
Shareholders to resolve computational disputes hereunder shall be borne equally
by LVCI and the Shareholders.
5
<PAGE> 10
4. CLOSING AND TERMINATION
4.1 CLOSING. The consummation of the transactions contemplated hereby (the
"Closing") has occurred on the Closing Date concurrent with the execution and
delivery hereof. On the Closing Date, all transactions contemplated by this
Agreement, including the delivery of shares, and the delivery by wire transfers
or by certified checks in amounts equal to the aggregate cash portion of the
consideration that the Shareholders shall be entitled to receive at the Closing,
has occurred and is deemed to be completed.
5. REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDERS
Each of the Major Shareholders, jointly and severally, represent and warrant
that all of the following representations and warranties with respect to the
Company and its business and operations set forth in this Section 5(A) are true
and correct at the time of the Closing.
5.1 ORGANIZATION, EXISTENCE AND GOOD STANDING OF THE COMPANY. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the state or jurisdiction of its incorporation or organization with all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Company is duly
qualified or licensed as a foreign corporation or other applicable entity and in
good standing in each jurisdiction in which the character or location of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so duly
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
Company, taken as a whole (a "Material Adverse Effect"). Set forth on Schedule
5.1 is a list of the jurisdictions in which the Company is qualified or licensed
to do business as a foreign corporation. Set forth on Schedule 5.1 is a listing
of all names of all predecessor companies for the past five (5) years of the
Company, including the names of any entities from whom the Company previously
acquired material assets. In addition, set forth on Schedule 5.1 is a complete
list of all the names under which the Company does or has done business. Except
as disclosed in Schedule 5.1, the Company has not been a subsidiary or division
of another corporation or a part of an acquisition which was later rescinded.
True, complete and correct copies of the Articles of Incorporation of the
Company certified by the Secretary of State or other appropriate entity of the
applicable state or jurisdiction of incorporation or organization as of the date
not more than thirty (30) days prior to the Closing and of the By-laws of the
Company have been delivered to LVCI (the "Charter Documents"). Except as set
forth on Schedule 5.1 the minute books of the Company, as heretofore made
available to LVCI, are correct and complete in all material respects.
6
<PAGE> 11
5.2 CAPITAL STOCK OF THE COMPANY. The Company's authorized, issued and
outstanding capital stock is as set forth in Schedule 5.2. All of the Company
Stock has been validly issued and is fully paid and nonassessable and no holder
thereof is entitled to any preemptive rights (except any statutory preemptive
rights, which the Shareholders hereby waive). There are no outstanding
conversion or exchange rights, subscriptions, options, warrants or other
arrangements or commitments obligating the Company to issue any shares of
capital stock or other securities or to purchase, redeem or otherwise acquire
any shares of capital stock or other securities, or to pay any dividend or make
any distribution in respect thereof, except as set forth on Schedule 5.2.
5.3 SUBSIDIARIES. The Company has not previously and does not presently
own, of record or beneficially, or control directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.4 FINANCIAL STATEMENTS.
(a) The Company has previously furnished to LVCI a preliminary draft of
the audited balance sheet of the Company as of April 30, 1998, and the related
statements of operations for the fiscal year then ended, as prepared by
PriceWaterhouseCoopers, certified public accountants, without their opinion or
notes to Financial Statements, together with the Company's compiled balance
sheet and management's statements of operations and shareholders' equity for the
three-month period ended July 31, 1998 (collectively, the "Financial
Statements", attached hereto as Schedule 5.4). The Financial Statements present
fairly and accurately the financial position and results of operations of the
Company as of the indicated dates and for the indicated periods.
(b) Except to the extent (and not in excess of the amounts) reflected
in the July 31, 1998 balance sheet included in the Financial Statements or as
disclosed on Schedule 5.4, the Company has no liabilities or obligations
(including, without limitation, Taxes payable and deferred Taxes and interest
accrued since April 30, 1998) required to be reflected in the Financial
Statements (or the notes thereto) in accordance with sound and accurate
accounting principles other than current liabilities incurred in the ordinary
course of business, consistent with past practice, subsequent to December 31,
1997.
(c) The books and records of the Company are true and correct in all
material respects and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
Except as required by GAAP and except as described in Schedule 5.4, since the
inception of the business of the Company, there has not been any material change
in the accounting methods or practices of the Company.
7
<PAGE> 12
(d) Except as expressly provided in this Section 5.4 or Section 5.5, no
representation is being made by the Shareholders with respect to the achievement
of, or likelihood of achieving, results of any projections provided to LVCI. The
Major Shareholders do, however, represent that to the best of their knowledge,
the information utilized in preparing the projections is reasonable under the
circumstances.
5.5 ACCOUNTS AND NOTES RECEIVABLE. Set forth on Schedule 5.5 is an accurate
list of the accounts and notes receivable of the Company, as of August 31, 1998,
and including receivables from and advances to employees and the Shareholders.
Except as set forth on Schedule 5.5, notes and accounts receivable of the
Company are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Financial Statements
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company,
or on the Closing Date Financial Statements. In the event any such accounts or
notes are deemed uncollectible by the Company, LVCI shall so notify the Major
Shareholders, and shall afford the Major Shareholders the opportunity to collect
such account or note on behalf of the Company.
5.6 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations, including permits, titles
(including, without limitation, motor vehicle titles and current registrations),
fuel permits, licenses, franchises, certificates owned or held by the Company,
the absence of any of which would have a Material Adverse Effect (the "Material
Permits"). An accurate list and summary description is set forth on Schedule 5.6
hereto of all such Material Permits. The Material Permits are valid, and the
Company has not received any notice that any governmental authority intends to
cancel, terminate or not renew any such Material Permit. The Company has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing except where such noncompliance or violation would not have
a Material Adverse Effect. Except as specifically provided on Schedule 5.6 the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any such Material Permits.
5.7 TAX MATTERS.
(a) The Company has filed all income tax returns required to be filed
by the Company and all returns, reports and forms of other Taxes (as defined
below) required to be filed by the Company, and has paid or provided for all
Taxes shown to be due on such returns and all such returns are accurate and
correct in all material respects. True copies of federal and state income tax
returns of the Company for each of the fiscal years from its inception through
December 31, 1997 have been delivered to LVCI. Except as set forth on Schedule
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5.7, (i) no action or proceeding for the assessment or collection of any Taxes
is pending against the Company and no notice of any claim for Taxes, whether
pending or threatened, has been received; (ii) no deficiency, assessment or
other formal claim for any Taxes has been asserted or made against the Company
that has not been fully paid or finally settled; (iii) no issue has been
formally raised by any taxing authority in connection with an audit or
examination of any return of Taxes; and, (iv) no claim has been made by a taxing
authority in a jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to taxation by that jurisdiction. No federal, state
or foreign income tax returns of the Company have been examined, and there are
no outstanding Tax rulings or closing agreements or waivers extending the
applicable statutory periods of limitation for such Taxes or otherwise having
continuing effect for any period. All Taxes that the Company has been required
to collect or withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. Set forth on Schedule
5.7 is a list of all jurisdictions in which the Company is required to file Tax
Returns, and the type of Tax Return that is required to be filed. No Taxes will
be assessed on or after the Closing Date against the Company for any tax period
ending on or prior to the Closing Date other than for Taxes disclosed on
Schedule 5.7. The Company has timely filed all information returns or reports,
including forms 1099, that are required to be filed and has accurately reported
all information required to be included on such returns or reports. For purposes
of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other
assessments including, without limitation, income, excise, property,
withholding, sales and franchise taxes, imposed by the United States, or any
state, county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions attributable thereto; and "Tax
Returns" means all returns or reports, including accompanying schedules, with
respect to Taxes.
(b) The Company is not a party to any Tax allocation or sharing
agreement.
(c) None of the assets of the Company constitutes tax-exempt bond
financed property or tax-exempt use property, within the meaning of Section 168
of the Code. The Company is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Code as in effect prior to
the Tax Reform Act of 1986, or to any "long-term contract" within the meaning of
Section 460 of the Code.
(d) The Company is not a "consenting corporation" within the meaning of
Section 341(f)(1) of the Code, or comparable provisions of any state statutes,
and none of the assets of the Company are subject to an election under Section
341(f) of the Code or comparable provisions of any state statutes. Other than in
connection with the transactions contemplated under this Agreement, the Company
has not filed an election under Section 338(g) or Section 338(h)(10) of the Code
or caused a deemed election under Section 338(e) thereof.
(e) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
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(f) There are no accounting method changes of the Company that could
give rise to an adjustment under Section 481 of the Code for periods after the
Closing Date.
(g) The Company has substantial authority for the treatment of, or has
disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
Federal income returns, all positions taken therein that could give rise to a
substantial understatement of Federal income tax within the meaning of Section
6662(d) of the Code.
(h) The Company has not been a member of an affiliated group filing a
consolidated federal, state or local income Tax return and does not have any
liability for the Taxes of another person (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(i) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
5.8 ASSETS AND PROPERTIES.
(a) REAL PROPERTY. The Company does not own or hold, and has never held
or owned, any interest in real property other than as set forth in Schedule 5.9.
(b) PERSONAL PROPERTY. Except as set forth on Schedule 5.8 and except
for inventory and supplies disposed of or consumed, and accounts receivable
collected or written off, and cash utilized, all in the ordinary course of
business consistent with past practice, the Company owns all of its inventory,
equipment and other personal property (both tangible and intangible) reflected
on the latest balance sheet included in the Financial Statements or acquired
since July 31, 1998, free and clear of any Liens, except for statutory Liens for
current taxes, assessments or governmental charges or levies on property not yet
due and payable.
(c) CONDITION OF PROPERTIES. Except as set forth on Schedule 5.8, the
leasehold estates that are the subject of the Real Property Leases (as defined
in Section 5.9) and the tangible personal property owned or leased by the
Company are in good operating condition and repair, ordinary wear and tear and
repairs and maintenance excepted; and none of the Major Shareholders have any
knowledge of any condition not disclosed herein of any such leasehold estate or
tangible personal property that would affect the fair market value, use or
operation of any leasehold estate or tangible personal property, or otherwise
have a Material Adverse Effect.
(d) COMPLIANCE. The continued use and occupancy of the leasehold
estates that are the subject of the Real Property Leases as currently operated,
used and occupied will not violate any zoning, building, health, flood control,
fire or other law, ordinance, order or
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regulation or any restrictive covenant. There are no violations of any federal,
state, county or municipal law, ordinance, order, regulation or requirement
affecting any portion of the leasehold estates that are the subject of the Real
Property Leases and no written notice of any such violation has been issued by
any governmental authority.
5.9 REAL PROPERTY LEASES, OPTIONS. Schedule 5.9 sets forth a list
(summarizing the parties, lessor addresses, monthly rentals, square footages,
the terms and any extensions and the function of any such property) and copies
of (i) all leases and subleases under which the Company is lessor or lessee or
sublessor or sublessee of any real property, together with all amendments,
supplements, nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto ("Real Property Leases"); (ii) all options
held by the Company or contractual obligations on the part of the Company to
purchase or acquire any interest in real property; and (iii) all options granted
by the Company or contractual obligations on the part of the Company to sell or
dispose of any interest in real property. Copies of all Real Property Leases and
such options and contractual obligations have been delivered to LVCI. The
Company has not assigned any Real Property Leases or any such options or
obligations. There are no Liens on the interest of the Company in the Real
Property Leases, except for (i) Liens for taxes and assessments not yet due and
payable and (ii) those matters set forth on Schedule 5.9. The Real Property
Leases and options and contractual obligations listed on Schedule 5.9 are in
full force and effect and constitute binding obligations of the Company and the
other parties thereto, subject to Equitable Exceptions and (x) there are no
defaults thereunder and (y) no event has occurred and is continuing that with
notice, lapse of time or both would constitute a default by the Company or, to
the best knowledge of the Major Shareholders, by any other party thereto.
5.10 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) (i) During the occupancy and operation of the "Subject Property"
(as defined below) by the Company, the operations of the Subject Property, and
any use, storage, treatment, disposal or transportation of "Hazardous
Substances" (as defined below) that has occurred in, on or under the Subject
Property prior to the date of this Agreement have been in compliance with
"Environmental Requirements" (as defined below);
(ii) the Company has obtained and holds all necessary permits,
licenses, approvals, consents and authorizations required under applicable
Environmental Requirements and is in full compliance with all terms, conditions
and provisions of the same;
(iii) during the occupancy and operation of the Subject Property
by the Company, no release, leak, discharge, spill, disposal or emission of
Hazardous Substances by the Company or its agents has occurred in, on, from or
under the Subject Property in a quantity or manner that violates or requires
further investigation or remediation under Environmental Requirements or as
required by any Agency (as defined in Section 5.15 hereof);
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(iv) the Subject Property, to the best knowledge of the Major
Shareholders, is free of Hazardous Substances as of the date hereof); except for
the presence of small quantities of Hazardous Substances utilized by the Company
or other tenants of the Subject Property in the ordinary course of their
business;
(v) to the best knowledge of the Major Shareholders, there is no
pending or threatened litigation or administrative investigation or proceeding
concerning the Subject Property or the Company involving Hazardous Substances or
Environmental Requirements;
(vi) to the best knowledge of the Major Shareholders, there are no
above-ground or underground storage tank systems or asbestos-containing
materials located at the Subject Property;
(vii) except as set forth on Schedule 5.10, the Company has never
owned, operated or leased any real property other than the Subject Property;
(viii) the Company's current or past transportation to or disposal
at any off-site location of any Hazardous Substances from property now or
formerly owned, operated or leased by the Company at the time of the Company's
ownership, operation or lease thereof was conducted in full compliance with
applicable Environmental Requirements; and
(ix) the Major Shareholders are not aware of any facts, conditions
or circumstances that could reasonably be expected to form the basis for a claim
against the Company, the Shareholders, or any successor in interest to the
Company relating to the Company's compliance or failure to comply with any
Environmental Requirements.
(b) DEFINITIONS. As used in this Agreement, the following terms shall
have following meanings:
"Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, permits, guidance documents, judgments, decrees,
orders, agreements and other restrictions and requirements (whether now or
hereafter in effect) of any governmental authority, including, without
limitation, federal, state and local authorities, relating to the regulation or
protection of human health and safety, worker health and safety, natural
resources, conservation, the environment, or the storage, treatment, disposal,
transportation, handling or other management of industrial or solid waste,
hazardous waste, hazardous or toxic substances or chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as defined in
ss.101(14) of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended from time to time (42 U.S.C. ss.ss. 9601 et
seq.) ("CERCLA") or any regulations promulgated thereunder, or the Occupational
Safety and Health Act of 1970, as
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amended from time to time (29 U.S.C. ss. 651 et seq.), or any regulations
promulgated thereunder; (ii) petroleum and petroleum by-products, asbestos and
asbestos-containing materials, polychlorinated biphenyls and pesticides; or
(iii) any additional substances or materials that have been or are currently
classified or considered to be pollutants, hazardous or toxic under
Environmental Requirements.
"Subject Property" means all property subject to the Real
Property Leases and any properties listed on Schedules 5.9 and 5.10.
5.11 CONTRACTS.
(a) Set forth on Schedule 5.11(a) is a summary and copies of all
contracts, agreements, arrangements and commitments (whether oral or written) to
which the Company is a party or by which its assets or business are bound (the
following, "Contracts") that relate to (i) the sale, lease or other disposition
by the Company of all or any substantial part of its business or assets (other
than in the ordinary course of business), (ii) the purchase or lease by the
Company of a substantial amount of assets (other than in the ordinary course of
business), (iii) the supply by the Company of any customer's requirements for
any item or the purchase by the Company of its requirements for any item or of a
vendor's output of any item, (iv) lending or advancing funds by the Company, (v)
borrowing of funds or guaranteeing the borrowing of funds by any other person,
whether under an indenture, note, loan agreement or otherwise, (vi) any
transaction or matter with any affiliate of the Company, (vii) noncompetition,
(viii) licenses and grants to or from the Company relating to any intangible
property listed on Schedule 5.17, (ix) the acquisition by the Company of any
operating business or the capital stock of any person since December 31, 1997,
or (x) any other matter that is material to the business, assets or operations
of the Company.
(b) Except as set forth on Schedule 5.11(b), each Contract is in full
force and effect on the date hereof, the Company is not in default under any
Contract in any material respect, the Company has not given or received notice
of any default under any Contract, and, to the best knowledge of the Major
Shareholders, no other party to any Contract is in default thereunder.
(c) To the knowledge of the Major Shareholders, the Company is not a
party to any material agreement, the performance of which could reasonably be
likely to have a Material Adverse Effect.
5.12 NO VIOLATIONS. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Shareholders and the consummation of the transactions contemplated hereby will
not (i) violate any provision of any Charter Document, (ii) violate any statute,
rule, regulation, order or decree of any public body or authority by which the
Company or the Shareholders or its or their respective properties or assets are
bound, or (iii) result in a violation or breach of, or constitute a default
under, or
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result in the creation of any encumbrance upon, or create any rights of
termination, cancellation or acceleration in any person with respect to any
Contract or any Material Permit of the Company.
5.13 GOVERNMENT CONTRACTS. The Company is not now and has not been a party
to any governmental contract.
5.14 CONSENTS. Except as set forth on Schedule 5.14, no consent,
approval or other authorization of any governmental authority or under any
Contract or other agreement or commitment to which the Shareholders are parties
is required as a result of or in connection with the execution or delivery of
this Agreement and the other agreements and documents to be executed by the
Shareholders or the consummation by the Shareholders of the transactions
contemplated hereby.
5.15 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.15 is a
list of all actions, suits, proceedings, investigations or grievances pending
against the Company, or, to the best knowledge of the Major Shareholders,
threatened against the Company, the business or any property or rights of the
Company, at law or in equity, before or by any arbitration board or panel, court
or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign ("Agencies"). None
of the actions, suits, proceedings or investigations listed on Schedule 5.15
either (i) would, if adversely determined, have a Material Adverse Effect or
(ii) would, if adversely determined, affect the right or ability of the Company
to carry on its business substantially as now conducted. The Company is not
subject to any continuing court or Agency order, writ, injunction or decree
applicable specifically to its business, operations or assets or its employees,
nor is the Company in default with respect to any order, writ, injunction or
decree of any court or Agency with respect to its assets, business, operations
or employees. Schedule 5.15 lists (x) all worker's compensation claims
outstanding against the Company as of the date hereof and (y) all actions, suits
or proceedings filed by or outstanding against the Company, or in which the
Company is named as a party, since December 31, 1997.
5.16 COMPLIANCE WITH LAWS. The Company is in compliance with all
applicable laws, regulations (including federal, state and local procurement
regulations), orders, judgments and decrees except where the failure to so
comply would not have a Material Adverse Effect.
5.17 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 5.17 lists the domestic and foreign trade names,
trademarks, service marks, trademark registrations and applications, service
mark registrations and applications, patents, patent applications, patent
licenses, software licenses and copyright registrations and applications owned
by the Company or used thereby in the operation of its business (collectively,
the "Intellectual Property"), which Schedule indicates (i) the term and
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exclusivity of its rights with respect to the Intellectual Property and (ii)
whether each item of Intellectual Property is owned or licensed by the Company,
and if licensed, the licensor and the license fees therefor. Unless otherwise
indicated on Schedule 5.17, the Company has the right to use and license the
Intellectual Property, and the consummation of the transactions contemplated
hereby will not result in the loss or material impairment of any rights of the
Company in the Intellectual Property. Each item constituting part of the
Intellectual Property has been, to the extent indicated on Schedule 5.17,
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other government entity, domestic or
foreign, as is indicated on Schedule 5.17; all such registrations, filings and
issuances remain in full force and effect; and all fees and other charges with
respect thereto are current. Except as stated on Schedule 5.17, there are no
pending proceedings or adverse claims made or, to the best knowledge of the
Major Shareholders, threatened against the Company with respect to the
Intellectual Property; there has been no litigation commenced or threatened in
writing within the past five (5) years with respect to the Intellectual Property
or the rights of the Company therein; and the Major Shareholders have no
knowledge that (i) the Intellectual Property or the use thereof by the Company
conflicts with any trade names, trademarks, service marks, trademark or service
mark registrations or applications, patents, patent applications, patent
licenses or copyright registrations or applications of others ("Third Party
Intellectual Property"), or (ii) such Third Party Intellectual Property or its
use by others or any other conduct of a third party conflicts with or infringes
upon the Intellectual Property or its use by the Company.
(b) To the best knowledge of the Major Shareholders, the Intellectual
Property is designed to be used prior to, during and after the year 2000 A.D.,
and will operate during each such time period without error relating to date
data, including without limitation any error relating to or the product of date
data that represents or references different centuries or more than one century.
Without limiting the generality of the foregoing, the Intellectual Property will
not abnormally end or provide invalid or incorrect results as a result of date
data, including without limitation date data that represents or references
different centuries or more than one century; the Intellectual Property has been
designed to ensure year 2000 compatibility, including without limitation date
data century recognition, calculations that accommodate same century and
multi-century formulas and date value, and date data interface values that
reflect the century, and includes "year 2000 capabilities." For the purpose of
this Section 5.17, "year 2000 capabilities" shall mean that the Intellectual
Property will (i) manage and manipulate data involving dates, including single
century formulas and multi-century formulas and will not cause an abnormally
ending scenario within the application or generate incorrect values or invalid
results involving such dates; (ii) provide that all date-related user interface
functionalities and data fields include the indication of century; and (iii)
provide that all date-related data interface functionalities include the
indication of century. To the best knowledge of the Major Shareholders, none of
the Company's vendors or suppliers lack "year 2000 capabilities".
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5.18 EMPLOYEE BENEFIT PLANS. Each employee benefit, stock or compensation
plan, including without limitation employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by the Company or any of its Group
Members (as defined below) (collectively, the "Plans") is listed on Schedule
5.18, is in compliance with applicable law, in all material respects, and has
been administered and operated in accordance with its terms. Each Plan that is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service (the
"IRS") and no event has occurred and no condition exists that could be expected
to result in the revocation of any such determination. No event that constitutes
a "reportable event" (within the meaning of Section 4043(b) of ERISA) for which
the 30-day notice requirement has not been waived by the Pension Benefit
Guaranty Corporation (the "PBGC") has occurred with respect to any Plan. Except
as set forth on Schedule 5.18, no Plan is subject to Title IV of ERISA, and
neither the Company nor any Group Member has made any contributions to or
participated in any "multiple employer plan" (within the meaning of the Code or
ERISA) or "multi-employer plan" (as defined in Section 4001(a)(3) of ERISA).
Full payment has been made of all amounts that the Company was required under
the terms of the Plans to have paid as contributions to such Plans on or prior
to the date hereof (excluding any amounts not yet due) and all amounts properly
accrued to date as liabilities of the Company that have not been paid have been
properly recorded on the Financial Statements, and no Plan that is subject to
Part 3 of Subtitle B of Title I of ERISA has incurred any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived. The Company has not and, to the best knowledge of
the Major Shareholders, no other "disqualified person" or "party in interest"
(within the meaning of Section 4975(e)(2) of the Code and Section 3(14) of
ERISA, respectively) has engaged in any transactions in connection with any Plan
that could be expected to result in the imposition of a material penalty
pursuant to Section 502(i) of ERISA, damages pursuant to Section 409 of ERISA or
a tax pursuant to Section 4975(a) of the Code. No material claim, action,
proceeding, or litigation has been made, commenced or, to the knowledge of the
Major Shareholders, threatened with respect to any Plan (other than for benefits
payable in the ordinary course and PBGC insurance premiums). No Plan or related
trust owns any securities in violation of Section 407 of ERISA. Neither the
Company nor any Group Member has incurred any liability or taken any action, and
the Major Shareholders have no knowledge of any action or event, that could
cause it to incur any liability (i) under Section 412 of the Code or Title IV of
ERISA with respect to any "single employer plan" (within the meaning of Section
4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal
(within the meaning of Section 4205 and 4203 of ERISA, respectively) with
respect to any "multi-employer plan" (within the meaning of Section 3(37) of
ERISA), (iii) on account of unpaid contributions to any such multi-employer
plan, or (iv) to provide health benefits or other non-pension benefits to
retired or former employees, except as specifically required by Section 4980B(f)
of the Code. Except as set forth on Schedule 5.18, neither the execution and
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will (i) entitle any current or former employee
of the Company to severance pay, unemployment compensation or any similar
payment, (ii)
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accelerate the time of payment or vesting, or increase the amount of, any
compensation due to any such employee or former employee, or (iii) directly or
indirectly result in any payment made or to be made to or on behalf of any
person to constitute a "parachute payment" (within the meaning of Section 280G
of the Code). For purposes of this Agreement, "Group Member" shall mean any
member of any "affiliated service group" as defined in Section 414(m) of the
Code that includes the Company, any member of any "controlled group of
corporations" as defined in Section 1563 of the Code that includes the Company
or any member of any group of "trades or businesses under common control" as
defined by Section 414(c) of the Code that includes the Company.
5.19 EMPLOYEES; EMPLOYEE RELATIONS.
(a) Schedule 5.19 sets forth (i) the name and current annual salary (or
rate of pay) and other compensation (including, without limitation, normal
bonus, profit-sharing and other compensation) now payable by the Company to each
employee whose current total annual compensation or estimated compensation is
$25,000 or more, (ii) any increase committed by the Company to become effective
after the date of this Agreement in the total compensation or rate of total
compensation payable by the Company to each such person, (iii) any increase
committed by the Company to become payable after the date of this Agreement by
the Company to employees other than those specified in clause (i) of this
Section 5.19(a), (iv) all presently outstanding loans and advances (other than
routine travel advances and other routine business expense advances of less than
$10,000 to be repaid or formally accounted for within sixty (60) days) made by
the Company to, or made to the Company by, any director, officer or employee,
(v) all other transactions between the Company and any director or officer
thereof since December 31, 1997, (vi) the terms and conditions of any and all
employment agreements, whether written or oral, entered into by the Company and
(vii) except for accruals in the ordinary course consistent with past practice,
all accrued but unpaid vacation pay owing to any officer or employee that is not
disclosed on the Financial Statements.
(b) Except as disclosed on Schedule 5.19, the Company is not a party
to, or bound by, the terms of any collective bargaining agreement, and the
Company has not experienced any material labor difficulties during the last five
(5) years. Except as set forth on Schedule 5.19, there are no labor disputes
existing, or to the best knowledge of the Major Shareholders, threatened
involving, by way of example, strikes, work stoppages, slowdowns, picketing, or
any other interference with work or production, or any other concerted action by
employees. No charges or proceedings before the National Labor Relations Board,
or similar agency, exist, or to the best knowledge of the Major Shareholders,
are threatened.
(c) The relationships enjoyed by the Company with its employees are
good and except as set forth in Schedule 5.19(c), the Major Shareholders have no
knowledge of any facts that would indicate that the employees of the Company
will not continue in the employ thereof following the Closing on a basis similar
to that existing on the date of this Agreement.
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Except for normal difficulties in the present job market, since December 31,
1997, the Company has not experienced any material difficulties in obtaining any
qualified personnel necessary for the operations of its business and, to the
best knowledge of the Major Shareholders, no such shortage of qualified
personnel is threatened or pending which would have a Material Adverse Effect on
the Company. Except as disclosed on Schedule 5.19, the Company is not a party to
any employment contract with any individual or employee, either express or
implied. No legal proceedings, charges, complaints or similar actions exist
under any federal, state or local laws affecting the employment relationship
including, but not limited to: (i) anti-discrimination statutes such as Title
VII of the Civil Rights Act of 1964, as amended (or similar state or local laws
prohibiting discrimination because of race, sex, religion, national origin, age,
disability and the like); (ii) the Fair Labor Standards Act or other federal,
state or local laws regulating hours of work, wages, overtime and other working
conditions; (iii) requirements imposed by federal, state or local government
contracts such as those imposed by Executive Order 11246; (iv) state laws with
respect to tortious employment conduct, such as slander, harassment, false
light, invasion of privacy, negligent hiring or retention, intentional
infliction of emotional distress, assault and battery, or loss of consortium; or
(v) the Occupational Safety and Health Act, as amended, as well as any similar
state laws, or other regulations respecting safety in the workplace; and to the
best knowledge of the Major Shareholders, no proceedings, charges, or complaints
are threatened under any such laws or regulations and no facts or circumstances
exist that would give rise to any such proceedings, charges, complaints, or
claims. The Company is not subject to any settlement or consent decree with any
present or former employee, employee representative or any government or Agency
relating to claims of discrimination or other claims in respect to employment
practices and policies; and no government or Agency has issued a judgment,
order, decree or finding with respect to the labor and employment practices
(including practices relating to discrimination) of the Company. Since
inception, the Company has not incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act or similar state laws; and the
Company has not laid off more than ten percent (10%) of its employees at any
single site of employment in any ninety (90) day period during the twelve (12)
month period ending June 30, 1998.
(d) The Company is in compliance in all material respects with the
provisions of the Americans with Disabilities Act.
5.20 INSURANCE. Schedule 5.20 contains an accurate list of the policies and
contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company. All such policies are in full force and
effect. Neither the Company nor the Major Shareholders have received any notice
of cancellation or non-renewal, or of significant premium increases with respect
to any such policy. Except as disclosed on Schedule 5.20 no pending claims made
by or on behalf of the Company under such policies have been denied or are being
defended against third parties
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under a reservation of rights by an insurer thereof. All premiums due prior to
the date hereof for periods prior to the date hereof with respect to such
policies have been timely paid.
5.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in
Schedule 5.21, no shareholder, officer, director or affiliate of the Company
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of, any corporation, firm, association or
business organization that is a client, supplier, customer, lessor, lessee or
competitor of the Company. Ownership of securities of a corporation whose
securities are registered under the Securities Exchange Act of 1934 not in
excess of five percent (5%) of any class of such securities shall not be deemed
to be a financial interest for purposes of this Section 5.21.
5.22 BUSINESS RELATIONS. Schedule 5.22 contains an accurate list and
copies of contracts of all significant customers and suppliers of the Company
(i.e., (i) those customers representing five percent (5%) or more of the
Company's revenues for the twelve (12) months ended December 31, 1997 or those
ten (10) largest revenue-generating customers and (ii) those suppliers
representing five percent (5%) or more of the Company's operating expenses for
the twelve (12) months ended December 31, 1997 or those ten (10) suppliers with
the largest aggregate invoice amounts submitted to the Company with respect to
such period). Except as set forth on Schedule 5.22, to the best knowledge of the
Major Shareholders, no customer or supplier of the Company has or will cease to
do business therewith after the consummation of the transactions contemplated
hereby, which cessation would have a Material Adverse Effect, and no customer or
supplier will cease to do business with the Company nor will the terms of any
Contract change or be modified in any material respect as a result of the change
of ownership of the Company as a result of the Closing. Except as set forth on
Schedule 5.22 since inception, the Company has not experienced any difficulties
in obtaining any inventory items necessary to the operation of its business,
and, to the best knowledge of the Major Shareholders, no such shortage of supply
of inventory items is threatened or pending. The Company is not required to
provide any bonding or other financial security arrangements in any material
amount in connection with any transactions with any of its customers or
suppliers.
5.23 OFFICERS AND DIRECTORS. Set forth on Schedule 5.23 is a list of the
current officers and directors of the Company.
5.24 BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 5.24 sets forth each
bank, savings institution and other financial institution with which the Company
has an account or safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto. Each person holding a power of attorney
or similar grant of authority on behalf of the Company is identified on Schedule
5.24. Except as disclosed on such Schedule, the Company has not given any
revocable or irrevocable powers of attorney to any person, firm, corporation or
organization relating to its business for any purpose whatsoever.
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5.25 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
5.25 or as otherwise contemplated by this Agreement, since December 31, 1997,
there has not been (a) any damage, destruction or casualty loss to the physical
properties of the Company (whether or not covered by insurance), (b) any event
or circumstance that would have a Material Adverse Effect, (c) any entry into
any transaction, commitment or agreement (including, without limitation, any
borrowing) material to the Company, except Contracts or transactions,
commitments or agreements in the ordinary course of business consistent with
past practice, (d) any declaration, setting aside or payment of any dividend or
other distribution in cash, stock or property with respect to the capital stock
or other securities of the Company, any repurchase, redemption or other
acquisition by the Company of any capital stock or other securities, or any
agreement, arrangement or commitment by the Company to do so, (e) any increase
that is material in the compensation payable or to become payable by the Company
to its directors, officers, employees or agents or any increase in the rate or
terms of any bonus, pension or other employee benefit plan, payment or
arrangement made to, for or with any such directors, officers, employees or
agents, except as set forth on Schedule 5.25(f) any sale, transfer or other
disposition of, or the creation of any Lien upon, any part of the assets of the
Company, tangible or intangible, except for sales of inventory and use of
supplies, collections of accounts receivables in the ordinary course of business
consistent with past practice and cash utilized, or any cancellation or
forgiveness of any debts or claims by the Company, (g) any change in the
relations of the Company with or loss of its customers or suppliers, or any loss
of business or increase in the cost of inventory items or change in the terms
offered to customers, which would have a Material Adverse Effect, (h) any
capital expenditure (including any capital leases) or commitment therefor by the
Company in excess of $10,000, or (i) any actions, suits, proceedings,
investigations or grievances initiated or, to the best knowledge of the Major
Shareholders, threatened relating to the Company's products or services.
5.26 TERMINATION OF PLANS. The Company has effected the termination of
each of its Plans.
5.27 MICROKERATOMES At Closing the Company owns a minimum of twenty-one
(21) ACS and twelve (12) Hansatome microkeratomes, all of which are in condition
consistent with the representations and warranties contained in Section 5.8(c).
(B) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder severally represents and warrants that the representations
and warranties in this Section 5(B) as they apply to him or her are true and
correct at the time of the Closing.
5.28 AUTHORITY AND OWNERSHIP. The Shareholder has the full legal right,
power and authority to enter into this Agreement. The Shareholder owns
beneficially (subject to any community property interest of his or her spouse)
and of record the shares of the Company
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Stock set forth opposite such Shareholder's name on ANNEX I. Such shares of the
Company Stock owned by the Shareholder are owned free and clear of any and all
liens, mortgages, security interests, encumbrances, pledges, charges, adverse
claims, options, rights or restrictions of any character whatsoever ("Liens")
other than standard state and federal and other applicable securities laws and
private offering restrictions. The Shareholder has owned such shares of Company
Stock since the date set forth on ANNEX I.
5.29 PREEMPTIVE RIGHTS. The Shareholder does not have, or hereby
waives, any preemptive or other right to acquire shares of the Company Stock
that the Shareholder has or may have had.
5.30 VALIDITY OF OBLIGATIONS. This Agreement has been duly executed and
delivered and is the legal, valid and binding obligation of Shareholder subject
to Equitable Exceptions.
5.31 ABSENCE OF CLAIMS AGAINST THE COMPANY. The Shareholder does not
have any claims against the Company other than as disclosed herein.
6. REPRESENTATIONS OF LVCI
LVCI represents and warrants that all of the following representations
and warranties in this Section 6 are true and correct at the time of the
Closing.
6.1 DUE ORGANIZATION. LVCI is duly organized, validly existing and in
good standing under the laws of the State of Delaware, and is duly authorized
and qualified under all applicable laws, regulations and ordinances of public
authorities to carry on its businesses in the places and in the manner as now
conducted except for where the failure to be so authorized or qualified would
not have a material adverse effect on its business, operations, affairs,
properties, assets or condition (financial or otherwise).
6.2 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement,
the LVCI Note, the Employment Agreements, and the Noncompetition Agreements, by
LVCI and the performance by LVCI of the transactions contemplated herein or
therein have been duly and validly authorized by the Board of Directors of LVCI,
and this Agreement, the LVCI Note, the Employment Agreements, and the
Noncompetition Agreements, have each been duly and validly authorized by all
necessary corporate action, duly executed and delivered and are the legal, valid
and binding obligations of LVCI, enforceable against such party thereto in
accordance with their respective terms, subject to the Equitable Exceptions.
LVCI has full corporate power, capacity and authority to execute this Agreement,
the LVCI Note, the Employment Agreements and the Noncompetition Agreements.
6.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the other agreements and documents contemplated hereby, the
consummation of any
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transactions herein referred to or contemplated by and the fulfillment of the
terms hereof and thereof will not:
(a) Conflict with, or result in a breach or violation of the
Certificate of Incorporation or By-laws of LVCI;
(b) Conflict with, or result in a material default (or would constitute
a default but for any requirement of notice or lapse of time or both) under any
material document, agreement or other instrument to which LVCI is a party, or
violate or result in the creation or imposition of any lien, charge or
encumbrance on any of LVCI's properties pursuant to (i) any law or regulation to
which LVCI or any of its property is subject, or (ii) any judgment, order or
decree to which LVCI is bound or any of its property is subject; or
(c) Result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of LVCI.
6.4 NO OUTSIDE RELIANCE; KNOWLEDGE REGARDING REPRESENTATIONS. LVCI has
not relied on and is not relying upon any statement or representation not made
in this Agreement or in a Schedule hereto. As of the date hereof, LVCI is not
aware of any inaccuracy or misstatement in, or breach of, any representation or
warranty of the Shareholders contained herein.
7. ADDITIONAL CLOSING DELIVERIES TO THE SHAREHOLDERS
Concurrently with the Closing, LVCI has delivered to the Shareholders the
following:
7.1 OPINION OF COUNSEL. The Shareholders have received an opinion from
Dankenbring, Greiman, Osterholt & Hoffmann, P.C., counsel for LVCI, dated the
Closing Date, in the form annexed hereto as Exhibit B.
7.2 EMPLOYMENT AGREEMENTS. LVCI has executed and delivered to certain
Shareholders Employment Agreements in substantially the forms attached hereto as
Exhibit C (the "Employment Agreements").
7.3 BROKER RELEASE. Simultaneous with the Closing, each broker, agent or
attorney identified on Schedule 12.6 has executed and delivered to the
Shareholders an instrument dated the Closing Date in such form as is reasonably
satisfactory to the Major Shareholders releasing the Company and the
Shareholders from any and all claims of such broker, agent or attorney with
respect to fees, commissions and other amounts and expenses thereof that may be
payable thereto in connection with the transactions set forth in this Agreement.
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8. ADDITIONAL CLOSING DELIVERIES TO LVCI
Concurrently with the Closing, the Shareholders have delivered, or have
caused to be delivered, to LVCI the following:
8.1 REPAYMENT OF INDEBTEDNESS. Evidence satisfactory to LVCI that the
Shareholders have repaid the Company in full all amounts owing by the
Shareholders to the Company.
8.2 SHAREHOLDER RELEASES. Each of the Shareholders have delivered to
LVCI an instrument dated the Closing Date in substantially the form of Exhibit D
releasing the Company from any and all claims of the Shareholder against the
Company and any obligations of the Company to the Shareholder, except for items
specifically identified on Schedule 8.2 as being claims of or obligations to
such Shareholder and continuing obligations to such Shareholder relating to his
or her employment by the Company.
8.3 TERMINATION OF RELATED PARTY AGREEMENTS. Evidence satisfactory to
LVCI that all existing agreements between the Company and the Shareholders or
business or personal affiliates of the Company or the Shareholders and all
existing bonus and incentive plans and compensation arrangements of the Company
and its Shareholders, other than those set forth on Schedule 8.3, have been
canceled or terminated.
8.4 OPINIONS OF COUNSEL. LVCI has received an opinion from counsel to
the Shareholders, dated the Closing Date, in the form annexed hereto as Exhibit
E.
8.5 EMPLOYMENT AGREEMENTS. Each of the Shareholders continuing employment
with the Company has executed and delivered to LVCI his Employment Agreement.
8.6 NONCOMPETITION AGREEMENTS. Certain of the Shareholders have
executed and delivered to LVCI Noncompetition Agreements with LVCI in
substantially the forms attached hereto as Exhibit F (the "Noncompetition
Agreements").
8.7 BROKER RELEASE. Simultaneous with the Closing, each broker or agent
identified on Schedule 12.6 has executed and delivered to LVCI an instrument
dated the Closing Date in such form as is reasonably satisfactory to LVCI
releasing the Company and LVCI from any and all claims of such broker or agent
with respect to fees, commissions and other amounts and expenses thereof that
may be payable thereto in connection with the transactions set forth in this
Agreement.
8.8 RELEASE OF FINANCING STATEMENTS. The Company has obtained and
prepared for filing in the appropriate jurisdictions within two (2) business
days following the Closing Termination Statements properly executed by any
parties holding a security interest or other
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encumbrance with respect to each of the Company, the Company Stock or the assets
of the Company as identified by lien searches conducted with respect thereto.
8.9 GOOD STANDING CERTIFICATES. The Company has delivered to LVCI a
certificate, dated as of a date not more than twenty (20) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the state
or other jurisdiction of its incorporation or organization showing that it is in
good standing.
8.10 FAIRNESS OPINION. In addition, LVCI has received, if requested by
LVCI at its own request, a favorable opinion from A.G. Edwards & Sons, Inc., as
to the fairness of the transactions contemplated by this Agreement from a
financial point of view.
9. COVENANTS OF THE PARTIES
9.1 DISTRIBUTIONS. Immediately prior to Closing, the Company will
distribute to the Shareholders in accordance with their proportionate ownership
interests in the Company, an amount equal to 40% of the estimated net taxable
income of the Company for the Short S Year ending on the Closing Date (the "S
Distribution"). As soon as practicable after the Company's federal income tax
return for the Short S Year has been prepared and filed, LVCI shall notify the
Shareholders of the actual amount of net taxable income shown on such return.
Within ten (10) days after such notice, LVCI shall pay the Shareholders the
excess of 40% of the actual net taxable income for the Short S Year over the
amount of the S Distribution. Likewise, in the event the S Distribution exceeds
40% of such net taxable income, the Shareholders shall pay the excess to LVCI
within ten (10) days after such notice.
9.2 PREPARATION AND FILING OF TAX RETURNS.
(a) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any return, amended
return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records concerning the
ownership and tax basis of property, which such party may possess. Each party
shall make its employees or agents reasonably available on a mutually convenient
basis at its cost to provide explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to file returns
pursuant to this Agreement shall bear all costs of filing such returns.
(b) The Shareholders shall have responsibility for the conduct of any
audit of the Company of any taxable period ending on or prior to the Closing
Date; provided however, that in the event that the Shareholders receive notice
of a claim from the Internal
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Revenue Service or any other taxing authority the Shareholders shall promptly,
but in any event within five (5) business days, notify LVCI and the Company of
such claim and of any action taken or proposed to be taken. In the event LVCI
and the Company wishes to participate in such audit they may do so at their own
cost and expense.
9.3 COMPANY NAME. Each Shareholder acknowledges and agrees that the name
"Refractive Surgical Resources, Inc." or any derivations thereof are
important elements of the Company's business and goodwill and covenants that
following the Closing Date he or she will not conduct a business utilizing the
above-described name without the prior written consent of the Company.
9.4 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS CONCERNING TERMINATION
OF S ELECTION.
(a) DEFINITIONS. The following terms, as used herein, have the
following meanings when used hereinafter:
"C Corporation Period" means the period commencing on the S Termination
Date.
"S Corporation Period" means, as to the Company, the period commencing
on the effective date of its S election and ending on the date immediately
preceding the S Termination Date.
"S Corporation Taxable Income" means the taxable income of the Company
from all sources during the S Corporation Period.
"S Short Year" means that portion of the S Termination Year of the
Company as defined in Section 1362(c)(1)(A) of the Code.
"S Termination Date" means the date on which the S corporation status
of the Company is terminated pursuant to Section 1362(d)(2) of the Code and
handled in accordance with Section 1362(e)(6)(D) and (e)(5) of the Code.
"S Termination Year" has the meaning set forth in Section 1362(e)(4) of
the Code.
(b) TERMINATION OF S ELECTION; S TERMINATION YEAR
(i) Termination of S Status. The Company made a valid election
under Section 1362(a) of the Code to be taxed in accordance with the provisions
of Subchapter S of the Code, for its tax year beginning April 11, 1997 (the "S
Election"). The Shareholders
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acknowledge that the Closing will terminate the Company's S Election pursuant to
Section 1362(d)(2) of the Code.
(ii) Effective Date. The S Termination Date shall be on the
Closing Date.
(iii) S Termination Year. The fiscal year in which the S
corporation status of the Company is terminated will be an S Termination Year
with respect to the Company for federal income tax purposes, as defined in
Section 1362(e)(4) of the Code.
(iv) S Short Year. The S Short Year of the Company shall be that
portion of its S Termination Year beginning on the initial day of its fiscal
year and ending on the day immediately preceding the S Termination Date. For
federal income tax purposes, the Company will be treated as an S corporation
during its S Short Year.
(c) ALLOCATION OF INCOME.
(i) Allocation Election. Tax items shall be allocated to the S
Short Year pursuant to normal tax accounting rules (that is, the "closing of the
books method") rather than by the pro rata allocation method contained in
Section 1362(e)(2) of the Code.
(ii) Filing of Tax Returns. In respect to the foregoing
allocation, and subject to review by the Shareholders prior to filing upon
written request, the Company shall cause to be prepared, at its expense, and
shall timely file all tax returns for the S Short Year required by federal,
state and local law and, when appropriate, shall allocate the tax items to the S
Short Year pursuant to normal tax accounting rules (that is, the "closing of the
books method") rather than the pro rata allocation method contained in Section
1362(e)(2) of the Code.
(d) LIABILITY FOR TAXES INCURRED DURING S CORPORATION YEARS INCLUDING
S SHORT YEAR. The Shareholders shall pay (and shall indemnify, defend and hold
harmless the Company from and against liability with respect to) any and all
Taxes that are imposed on the Shareholders or the Company and attributable to
the taxable income of the Company, for all taxable periods (or that portion of
any period including the S Short Year) during which the Company was an S
corporation, including but not limited to, any taxable income of the Company
recognized as a result of the Closing; provided, however, that notwithstanding
the foregoing the Company shall pay (and shall indemnify, defend and hold
harmless the Shareholders from and against liability with respect to) any and
all Taxes that are imposed on the Shareholders or the Company and attributable
to the taxable income of the Company from and after the Closing other than any
Taxes imposed as a result of the Closing. The Shareholders shall pay any and all
Taxes that are imposed on the Shareholders or the Company
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<PAGE> 31
as a result of the Company's S Election being treated as invalid or ineffective
for any reason or such election being revoked or terminated prior to the S
Termination Date.
(e) If any Shareholder receives notice of an intention by a taxing
authority to audit any return of the Shareholder that includes any item of
income, gain, deduction, loss or credit reported by the Company with respect to
the S Corporation Period that the Shareholder has reason to believe may affect
the Company's tax returns during the C Corporation Period, the Shareholder shall
inform LVCI and the Company, in writing, of the audit promptly after receipt of
such notice. If the Shareholder receives notice from a taxing authority of any
proposed adjustment for which LVCI may be required to indemnify hereunder (a
"Proposed Adjustment"), the Shareholder shall give notice to LVCI and the
Company of the Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from the Shareholder, LVCI may
request that the Shareholder contest such Proposed Adjustment and the
Shareholder shall permit LVCI to participate in (but not to control) such
proceedings. If LVCI requests that any Proposed Adjustment be contested, then
the Shareholder shall, at LVCI's expense, contest the Proposed Adjustment or at
the option of LVCI permit LVCI to contest the Proposed Adjustment (including
pursuing all administrative and judicial appeals and processes). LVCI shall pay
to such Shareholder all reasonable costs and expenses (including reasonable
attorneys' and accountants' fees) that the Shareholder may incur in contesting
such Proposed Adjustments. No Shareholder shall make, accept or enter into a
settlement or other compromise, with respect to any Taxes indemnified hereunder,
or forego or terminate any proceeding undertaken hereunder without the consent
of LVCI, which consent shall not be unreasonably withheld. The Shareholders will
reasonably assist if LVCI contests any Proposed Adjustment.
(f) If the Company receives notice of an intention by a taxing
authority to audit any return of the Company that includes any item of income,
gain, deduction, loss or credit reported by the Company with respect to the
period after the Closing during which the Company is a C corporation that the
Company has reason to believe may affect the Shareholders' tax returns during
the S Corporation Period, the Company shall inform the Shareholders, in writing,
of the audit promptly after receipt of such notice. If the Company receives
notice from a taxing authority of any proposed adjustment for which an
Indemnifying Shareholder may be required to indemnify the Company hereunder (a
"Company Proposed Adjustment"), the Company shall give notice to the
Shareholders of the Company Proposed Adjustment promptly after receipt of such
notice from a taxing authority. Upon receipt of such notice from the Company,
the Shareholders may, by in turn giving prompt written notice to the Company,
request that the Company contest such Company Proposed Adjustment. If any
Shareholder requests that any Company Proposed Adjustment be contested, then the
Company shall contest the Company Proposed Adjustment (including pursuing all
administrative and judicial appeals and processes) at the requesting
Shareholder's expense and shall permit such Shareholder to participate in (but
not to control) such proceeding.
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(g) The Company, LVCI and the Shareholders shall cooperate fully with
each other in all matters relating to Taxes and in the determination of amounts
payable hereunder. In the case of disagreement as to the course of action to be
pursued in dealing with taxing authorities (including, without limitation,
matters with respect to preparation and filing of tax returns, conduct of
audits, and proceedings in courts), the decision of the party (LVCI and the
Company, on the one hand, or the Shareholders, on the other hand) who will
economically benefit from or be burdened by the course of action (or in the case
both parties benefit and/or are burdened, the decision of the party with the
greatest benefit or burden) shall control.
(h) (i) The Shareholders shall cooperate with LVCI in taking such
actions necessary and appropriate (including timely filing such forms, tax
returns, elections, schedules and other documents as may be required), at LVCI'S
cost and expense, to effect and preserve a timely Section 338(h)(10) election in
accordance with the requirements of Section 338 of the Code and the Treasury
Regulations promulgated thereunder (and any corresponding elections under state
or local tax law) (collectively, the "Section 338(h)(10) Elections"), and
Shareholders and LVCI shall report the sale of the Shares pursuant to this
Agreement consistently with the Section 338(h)(10) Elections and shall take no
position contrary thereto or inconsistent therewith in any Tax Return, any
discussion with or proceeding before any taxing authority, or otherwise. The
Shareholders shall pay, and LVCI shall reimburse the Shareholders for, any and
all Taxes imposed on the Company attributable to the making of the Section
338(h)(10) Elections. LVCI shall provide the Shareholders with five (5) copies
of an Internal Revenue Form 8023, "Corporate Qualified Stock Purchases,"
completed as reasonably agreed by the parties and the Shareholders shall duly
execute and deposit with LVCI such copies not later than thirty (30) days after
receipt from LVCI. LVCI shall be responsible for the preparation and filing of
all forms and documents required in connection with the Section 338(h)(10)
Elections and shall provide the Shareholders with copies of (i) any necessary
corrections, amendments or supplements to such Form 8023 as reasonably agreed to
by the parties or as necessary to conform to the allocation of the Purchase
Price as described herein, (ii) all attachments required to be filed therewith
pursuant to applicable Treasury Regulations, and (iii) any comparable forms and
attachments with respect to any applicable state or local elections being made
pursuant to the Section 338(h)(10) Elections. At the request of LVCI, the
Shareholders shall execute and deliver to LVCI within ten (10) days after a
request therefor by LVCI such documents or forms as are required by any tax laws
to complete properly the Section 338(h)(10) Elections. The Shareholders and LVCI
shall cooperate fully with each other and make available to each other such Tax
data and other information as may be reasonably required by such Shareholders or
LVCI in order to timely file the Section 338(h)(10) Elections and any other
required statements or schedules. The Shareholders shall (x) promptly execute
and deliver to the LVCI any amendments subsequent to the filing of the Section
338(h)(10) Elections to Form 8023 (and any comparable state and local forms) and
attachments which are required to be filed under applicable law and are
reasonably requested by LVCI, (y) take such additional steps as reasonably
requested by LVCI to comply with all of the requirements of Section 338(h)(10)
of the Code and the Treasury Regulations thereunder,
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and (z) take no action which is inconsistent with the requirements for filing
the Section 338(h)(10) Election under the Code and the applicable Treasury
Regulations.
(ii) In addition, as soon as practicable after the Closing Date,
but in no event later than the date ninety (90) days prior to the due date of
the Form 8023, LVCI shall provide to Shareholders a proposed statement (the
"Allocation Statement") allocating the total of the Purchase Price, and any
other payments pursuant to this Agreement that are properly treated as
additional Purchase Price for tax purposes, among the different assets of the
Company. Shareholders shall not unreasonably withhold their consent to such
allocation. Shareholders and LVCI shall attempt, in good faith, to resolve any
disagreement as to the allocation of the Purchase Price. If Shareholders and
LVCI are unable to reach an agreement, Shareholders and LVCI shall mutually
agree to the appointment of a nationally recognized accounting firm to resolve
any disagreement, whose determination shall be final and binding on the parties.
If the Shareholders and LVCI are unable to agree on the appointment of a
nationally recognized accounting firm, Shareholders and LVCI each shall
designate such a firm, and such designated firms shall select a third firm to
resolve the disagreement. The fees of such accounting firm shall be borne fifty
percent (50%) by the Shareholders and fifty percent (50%) by LVCI.
9.5 Release of Personal Guaranties. LVCI shall take such action as it
deems commercially reasonable to effect the release of any personal guaranties
by the Shareholders under the Contracts after the Closing Date. In the event
LVCI is not able to effect the release of any personal guaranty on terms that it
deems commercially reasonable, LVCI agrees to indemnify and hold harmless any
Shareholder from any claims arising from such personal guarantee pursuant to
Article 10 hereof.
9.6 Winding Down of Plans. LVCI agrees to cause RSR to make accrued
contributions reflected on the Closing Date Financial Statement to RSR's 401(k)
plan and Money Purchase Plan and to take such action as may be required by
applicable laws or regulations and the terms of such Plans as a result of RSR's
termination of such Plans, effective immediately prior to the Closing Date,
including causing the Company to make distributions to the participants therein
as required thereby, provided that nothing herein shall limit LVCI's rights to
indemnification arising from any breach of the representations and warranties
contained in Section 5.18 hereof.
10. INDEMNIFICATION
The Shareholders and LVCI each make the following covenants that are
applicable to them, respectively.
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10.1 LVCI LOSSES.
(a) Each of the Shareholders severally, but not jointly, agrees to
indemnify and hold harmless LVCI and the Company, and their respective
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all LVCI Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by the Major Shareholders in or pursuant to
Article 2 and Article 5, Part A of this Agreement (including, without
limitation, the representations and warranties contained in any certificate
delivered pursuant hereto) or by such Shareholder pursuant to Article 5, Part B
being untrue or incorrect in any material respect; (ii) the items described in
Schedule 5.7 or Schedule 5.15 hereof except in any instance and to the extent
LVCI Losses result from the negligence or misconduct of LVCI or the Company
occurring after the Closing, but only to the extent any such Losses exceed any
reserves therefore on the financial statements or; (iii) any failure by the
Shareholder to observe or perform his or her covenants and agreements set forth
in this Agreement or in any other agreement or document executed by him or her
in connection with the transactions contemplated hereby.
(b) "LVCI Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the Shareholders' consent, which
consent may not be unreasonably withheld), losses, obligations, liabilities,
claims, deficiencies, costs and expenses (including, without limitation,
reasonable attorneys' fees), penalties, fines, interest and monetary sanctions,
including, without limitation, reasonable attorneys' fees and costs incurred to
comply with injunctions and other court and Agency orders, and other costs and
expenses incident to any suit, action, investigation, claim or proceeding or to
establish or enforce the rights of LVCI and the Company or such other persons to
indemnification hereunder.
10.2 EMPLOYEE COMPENSATION AND BENEFITS. Each of the Shareholders jointly
and severally, but not jointly, agrees to indemnify and hold LVCI and the
Company, and their respective directors, officers, employees, representatives,
agents and attorneys harmless from and against any and all LVCI Losses arising
from claims made by employees of the Company, regardless of when made, for
wages, salaries, bonuses, pension, workmen's compensation, medical insurance,
disability, vacation, severance, pay in lieu of notice, sick benefits or other
compensation or benefit arrangements to the extent the same are based on
employment service rendered to the Company prior to the Closing Date or injury
or sickness occurring prior to the Closing Date (collectively, "Employee
Claims"), except to the extent such Employee Claims arise from the Company's
failure to pay any amounts accrued with respect to such Employee Claims on the
Company's Financial Statements or to fulfill its obligations under Section 9.6.
10.3 SHAREHOLDER LOSSES.
(a) LVCI agrees to indemnify and hold harmless the Shareholders, and
their respective representatives, agents, attorneys, successors and assigns
from, against and in
30
<PAGE> 35
respect of any and all Shareholder Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by LVCI in or pursuant to this Agreement
(including, without limitation, the representations and warranties contained in
any certificate delivered pursuant hereto) being untrue or incorrect in any
material respect; (ii) any failure by LVCI to observe or perform its covenants
and agreements set forth in this Agreement or any other agreement or document
executed by it or the Company in connection with the transactions contemplated
hereby; or (iii) any liability arising from or based upon the operation of the
Company subsequent to the Closing Date other than as a result of the breach of a
representation or warranty set forth in Section 5 hereof, except in any instance
and to the extent Shareholder Losses result from the negligence or misconduct of
the Shareholders, or any of them, prior to the Closing Date.
(b) "Shareholder Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of LVCI and the Company,
which consent may not be reasonably withheld), losses, obligations, liabilities,
claims, deficiencies, costs and expenses (including, without limitation,
reasonable attorneys' fees), penalties, fines, interest and monetary sanctions,
including, without limitation, reasonable attorneys' fees and costs incurred to
comply with injunctions and other court and Agency orders, and other costs and
expenses incident to any suit, action, investigation, claim or proceeding or to
establish or enforce the right of the Shareholders or such other persons to
indemnification hereunder.
10.4 NOTICE OF LOSS. Except to the extent set forth in the next sentence, a
party to the Agreement will not have any liability under the indemnity
provisions of this Agreement with respect to a particular matter unless a notice
setting forth in reasonable detail the breach or other matter which is asserted
has been given to the Indemnifying Party (as defined below) and, in addition, if
such matter arises out of a suit, action, investigation, proceeding or claim by
a third party ("Third Party Claim"), such notice is given promptly, but in any
event within ten (10) days after the Indemnified Party (as defined below) is
given notice of the Third Party Claim. Notwithstanding the preceding sentence,
failure of the Indemnified Party to give notice hereunder shall not release the
Indemnifying Party from its obligations under this Section 10, except to the
extent the Indemnifying Party is actually prejudiced by such failure to give
notice. With respect to LVCI Losses, the Shareholders shall be the Indemnifying
Party and LVCI and its directors, officers, employees, representatives, agents
and attorneys shall be the Indemnified Party. With respect to Shareholder
Losses, LVCI shall be the Indemnifying Party and the Shareholders and their
representatives, agents, attorneys, successors and assigns shall be the
Indemnified Party.
10.5 RIGHT TO DEFEND.
(a) The Indemnifying Person shall be entitled to assume and control
the defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Indemnified Person
within ten (10) business days of the receipt of such notice from the Indemnified
Person; provided, however, that LVCI shall have the right to
31
<PAGE> 36
control the defense to the extent of any Third Party Claim seeking equitable
relief or remedial action. Notwithstanding the foregoing, if there exists, under
applicable standards of professional conduct a conflict between the positions of
such parties on any significant issue that would make it inappropriate in the
reasonable judgment of counsel for the Indemnified Person, for the same counsel
to represent both the Indemnified Person and the Indemnifying Person, the
Indemnified Person shall be entitled to retain its own counsel at the
Indemnifying Person's sole expense, provided that the Indemnifying Person shall
not be required to pay for more than one such counsel for all Indemnified
Persons in connection with such Third Party Claim. If the Indemnifying Person
elects not to defend or otherwise deal with any Third Party Claim which relates
to any Losses indemnified against hereunder, fails to notify the Indemnified
Person of its election as provided herein or contests its obligation to
indemnify the Indemnified Person against such Losses, the Indemnified Person may
defend against, negotiate, settle or otherwise deal with such Third Party Claim,
provided that any payment made by the Indemnified Person with respect to such
Third Party Claim shall not, in and of itself establish that the Third Party
Claim is subject to indemnification or determine the amount of Losses with
respect thereto. If the Indemnified Person defends any Third Party Claim, then
the Indemnifying Person shall reimburse the Indemnified Person for the expenses
of defending such Claim upon submission of periodic bills.
(b) No such Third Party Claim may be settled by the Indemnifying
Person without the prior written consent of the Indemnified Person (which
consent shall not be unreasonably withheld if the Indemnified Person would not
be unduly prejudiced); except that a Third Party Claim which does not involve
allegations of criminal or fraudulent conduct by the Indemnified Person and
seeks only nonexemplary damages against the Indemnified Person may be settled by
the Indemnifying Person if such settlement involves a complete release of the
Indemnified Person from liability. Each Shareholder agrees for purposes hereof
that the persons who previously held a majority of the Company Stock (or their
successors and assigns) are authorized to act as agent for the Shareholders and
shall be permitted to direct the defense of any LVCI Losses and to settle or
otherwise resolve any LVCI Losses without the consent of any other Shareholders
(including, without limitation, resolving any issues relating to recoupment
under Section 10.7), and that any action taken by such persons shall be binding
on all of the Shareholders, provided that such persons shall not be entitled to
defend, settle or resolve any LVCI Losses against a Shareholder arising from any
representation or warranty made by such Shareholder pursuant to Article 5, Part
B.
10.6 COOPERATION. Each of LVCI, the Company, and the Shareholders, and each
of their affiliates, successors and assigns shall cooperate with each other in
the defense of any suit, action, investigation, proceeding or claim by a third
party and, during normal business hours, shall afford each other access to their
books and records and employees relating to such suit, action, investigation,
proceeding or claim and shall furnish each other all such further information
that they have the right and power to furnish as may reasonably be necessary to
defend such suit, action, investigation, proceeding or claim, including, without
limitation,
32
<PAGE> 37
reports, studies, correspondence and other documentation relating to
Environmental Protection Agency, Occupational Safety and Health Administration,
and Equal Employment Opportunity Commission matters.
10.7 RECOUPMENT AND DISPUTE RESOLUTION.
(a) LVCI shall have the option of recouping all or any part of any
Losses it may suffer and for which it has a right to indemnification hereunder
by (i) notifying the Shareholders in writing that LVCI intends to reduce the
principal amount outstanding under each of its LVCI Notes; and (ii) reducing the
principal amount outstanding under such LVCI Notes unless the Shareholder, (in
the case of a claim under Article 5, Part B) or persons who previously held a
majority of the Company Stock (or their successors and assigns) acting as agent
for the Shareholders (in the case of any other claims against the Shareholders)
objects to such reduction as provided herein. In the case of any such objection,
LVCI shall pay over to the Escrow Agent under an Escrow Agreement in
substantially the form attached as Exhibit H an amount equal to such claimed
principal reduction. The terms of such Escrow Agreement are hereby approved and
ratified in all respects by the Shareholders and each of the Shareholders agrees
to be bound by its terms. Such amount shall be paid to the Escrow Agent at such
time or times as the principal reduction amount would otherwise have become due
and payable to the Shareholders.
In the case of any Third Party Claim giving rise to Losses, the amount
of which is uncertain, LVCI shall notify the Shareholders of its reasonable good
faith estimate of the amount of Losses it could ultimately expect to pay with
respect to such Claim and pay over to the Escrow Agent such amount at the time
such amount would otherwise be due. The written notice shall specify the
general, factual basis for such claim and the amount by which the LVCI Notes are
to be reduced (or in the case of a Third Party Claim giving rise to Losses, the
amount of which is uncertain, the amount to be placed in Escrow). If the
Shareholders have any objection to the reduction (or in the case of a Third
Party Claim giving rise to Loses, the amount of which is uncertain, the amount
to be placed in Escrow), the Shareholders shall have 30 days to make such
investigation of the claim as Shareholders deem necessary or desirable. For the
purposes of such investigation, LVCI agrees to make available to Shareholders or
their authorized representatives the information relied upon by LVCI to
substantiate the reduction. If LVCI and Shareholders do not agree within such 30
day period, either as to the reduction or the amount to be placed in escrow, the
matter shall be submitted to arbitration in accordance with the arbitration
rules of the American Arbitration Association then in effect. Within such 30 day
period, the parties shall jointly select a single arbitrator (the "Recoupment
Arbitrator"), the selection of which will not be unreasonably withheld by either
party, who shall have substantial experience with respect to the substance of
the matters in dispute and shall have the authority to hold hearings and to
render a decision in accordance with the arbitration rules of the American
Arbitration Association. The Recoupment Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Recoupment Arbitrator shall be
33
<PAGE> 38
set forth in writing, delivered to each of LVCI and the Shareholders and shall
be conclusive and binding on the parties and shall be non-appealable. The party
whose position is not chosen by the Recoupment Arbitrator shall pay all expenses
of the Recoupment Arbitrator.
(b) To the extent LVCI does not recoup, pursuant to Section 10.7(a),
any Loss it may suffer and for which it has a right to indemnification
hereunder, LVCI shall have the option of recouping all or any part of such
Losses by (i) notifying the Shareholders in writing at least 30 days prior to
the making of any Installment Payment hereunder that LVCI intends to reduce the
amount of any Additional Consideration otherwise payable to the Shareholders;
and (ii) reducing the amount of Additional Consideration unless the Shareholder
(in the case of a claim under Article 5, Part B) or persons who previously held
a majority of the Company Stock (or their successors and assigns) acting as
agent for the Shareholders (in the case of any other claims against the
Shareholders) objects to such reduction as provided herein. In the case of any
such objection, LVCI shall pay over to the Escrow Agent an amount equal to such
reduction. In the case of any Third Party Claim giving rise to Losses the amount
of which is uncertain, LVCI shall notify the Shareholders of its reasonable good
faith estimate of the amount of Losses it could ultimately expect to pay with
respect to such Claim and pay over to the Escrow Agent such amount. Such amounts
shall be paid to the Escrow Agent at such time or times as the Installment
Payment(s) would otherwise have become due and payable to the Shareholders. Any
amount of the Additional Consideration not in dispute shall be paid in
accordance with Section 3. The written notice shall specify the general, factual
basis for such claim and the amount the Additional Consideration is to be
reduced (or in the case of a Third Party Claim giving rise to Losses, the amount
of which is uncertain, the amount to be placed in Escrow). If the Shareholders
have any objection to the reduction (or in the case of a Third Party Claim
giving rise to Losses, the amount of which is uncertain, the amount to be placed
in Escrow), the Shareholders shall have 30 days to make such investigation of
the claim as Shareholders deem necessary or desirable. For the purposes of such
investigation, LVCI agrees to make available to Shareholders or their authorized
representatives the information relied upon by LVCI to substantiate the
reduction. If LVCI and Shareholders do not agree within such 30 day period,
either as to the reduction or the amount to be placed in escrow, the matter
shall be submitted to arbitration in accordance with the arbitration rules of
the American Arbitration Association then in effect. Within such 30 day period,
the parties shall jointly select a single arbitrator (the "Recoupment
Arbitrator"), the selection of which will not be unreasonably withheld by either
party, who shall have substantial experience with respect to the substance of
the matters in dispute and shall have the authority to hold hearings and to
render a decision in accordance with the arbitration rules of the American
Arbitration Association. The Recoupment Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Recoupment Arbitrator shall be set forth in writing, delivered to each of LVCI
and the Shareholders and shall be conclusive and binding on the parties and
shall be non-appealable. The party whose position is not chosen by the
Recoupment Arbitrator shall pay all expenses of the Recoupment Arbitrator.
34
<PAGE> 39
10.8 LIMITATIONS ON INDEMNIFICATION.
(a) An indemnifying party shall not have any liability under Section
10.1 hereof unless the aggregate amount of Losses to the indemnified parties
finally determined to arise thereunder exceeds $33,000 (the "Basket") and, in
such event the indemnifying party shall be required to pay the entire amount of
such Losses in excess of the Basket.
(b) The maximum amount of Losses which the Shareholders shall be
liable under Section 10.1 hereof shall not exceed $2,300,000.
(c) Notwithstanding any other provision hereof, no Shareholder shall
be liable for more than his or her pro rata share of LVCI Losses. For purposes
hereof, a Shareholder's pro rata share of LVCI Losses shall equal his or her
percentage ownership of Company Stock immediately prior to the Closing. Each
Shareholder further agrees that the Shareholder shall be responsible for the
Shareholder's share of LVCI Losses, but only his share of LVCI Losses,
regardless of whether LVCI proceeds directly against the Shareholder or
exercised its right of recoupment under Section 10.7. Each Shareholder further
agrees that if any of the other Shareholders have paid more that their share of
LVCI Losses, by reason of LVCI's right of recoupment under Section 10.7 or
otherwise, the other Shareholders will have a right of contribution from such
Shareholder to the point that such Shareholder has paid his share of LVCI
Losses. Each Shareholder further agrees, upon written notice from one or more
other Shareholders to promptly pay to the other Shareholders any amounts due
hereunder. In the event it becomes necessary to enforce the right of
contribution provided hereunder, each Shareholder further agrees that the
Shareholders with a right of contribution shall be entitled to reasonable
attorney's fees and reimbursement of other costs associated with enforcement of
their right of contribution.
(d) The amount of any Loss shall be net of any amounts recovered
(regardless of time) or recoverable with diligent effort by the Indemnified
Party under insurance policies with respect to such Loss and shall be on an
"After-Tax Basis." For purposes hereof "After-Tax Basis" shall mean an amount
which, after subtraction of the amount of all Taxes payable by the recipient
thereof as a result of the receipt or accrual of such payment, and after taking
into account (i) the increase of all Taxes payable by such recipient for all
affected taxable years as a result of the event or occurrence giving rise to
such payment and (ii) the reduction of Taxes payable by the recipient for all
taxable years ending on or before the end of the taxable year in which such
payment is made as a result of the event or occurrence giving rise to such
payment, shall be sufficient as of the date of payment to compensate the
recipient for the event or occurrence giving rise to such payment.
10.9 EXCLUSIVITY OF REMEDIES. LVCI hereby acknowledges and agrees that,
except with respect to claims based upon breach of covenant or agreement (with
respect to which equitable relief would be available as provided herein or in
the Employment Agreements or Noncompetition Agreements), the sole and exclusive
remedy by LVCI and the Company, and
35
<PAGE> 40
their respective directors, officers, employees, representatives, agents and
attorneys with respect to any and all claims relating to the subject matters of
this Agreement shall be pursuant to the indemnification provisions set forth in
Article 10.
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
[This Section intentionally left blank.]
12. GENERAL
12.1 COOPERATION. The Company, the Shareholders and LVCI shall each deliver
or cause to be delivered to the other at such other times and places after the
Closing Date as shall be reasonably agreed to, such additional instruments as
the other may reasonably request for the purpose of carrying out this Agreement.
The Company will cooperate and use its reasonable efforts to have the present
officers, directors and employees thereof cooperate with LVCI on and after the
Closing Date in furnishing information, evidence, testimony and other assistance
in connection with any Tax return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
12.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
(a) COVENANTS AND AGREEMENTS. All covenants and agreements made
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Closing and shall continue in full force and effect
thereafter according to their terms without limit as to duration, except as
otherwise expressly provided herein.
(b) REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein shall survive the Closing and shall continue in full
force and effect until August 1, 2000, except that (a) the representations and
warranties contained in Section 5.7 hereof shall survive until the earlier of
(i) the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes to
which such representations and warranties relate without an assertion of a
deficiency in respect thereof by the applicable taxing authority or (ii) the
completion of the final audit and determination by the applicable taxing
authority and final disposition of any deficiency resulting therefrom, (b) the
representations and warranties contained in Section 5.10 shall survive for a
period of five (5) years following the Closing, (c) the representations and
warranties contained in Section 5.18 shall survive until the expiration of the
applicable period of the statutes of limitations applicable to ERISA matters,
and (d) the representations and warranties contained in Sections 5.1, 5.2, and
5.29 and Sections 6.1, 6.2 and 6.3 shall survive indefinitely.
36
<PAGE> 41
(c) CLAIMS MADE PRIOR TO EXPIRATION. No claim under Article 10 for
breach of a representation or warranty shall be made after the representation or
warranty expires. Notwithstanding the foregoing, the termination of a survival
period shall not affect the rights of an Indemnified Party in respect of any
claim made by any party with specificity, in good faith and in writing to the
Indemnifying Party in accordance with Sections 10.4 and 12.8 hereof prior to the
expiration of the applicable survival period.
12.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LVCI, and the heirs and legal representatives of the Shareholders.
12.4 ENTIRE AGREEMENT. This Agreement (including the schedules and exhibits
attached hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding among the Shareholders and LVCI, and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and this Agreement and the Exhibits hereto may be modified or amended only by a
written instrument executed by the Shareholders and LVCI.
12.5 COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.6 BROKERS AND AGENTS. Except as disclosed on Schedule 12.6, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other against all loss, cost,
damages or expense arising out of claims for fees or commissions of brokers
employed or alleged to have been employed by such indemnifying party.
12.7 EXPENSES. LVCI will pay the fees, expenses and disbursements of LVCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by LVCI under this Agreement. Except as otherwise
specifically provided in this Agreement, the Shareholders will pay from personal
funds and not from the funds of the Company, any fees, expenses and
disbursements of its agents, representatives, accountants, counsel and other
business advisors incurred in connection with the subject matter of this
Agreement. Except as otherwise stated in Section 9.4(h)(i) hereof, the
Shareholders acknowledge that they, and not the Company or LVCI, will pay all
Taxes due upon receipt of the consideration payable to the Shareholders pursuant
to Section 2 hereof, and all sales, use, real property, transfer, recording,
gains, stock transfer and other similar fees in connection with the transactions
contemplated by this Agreement.
37
<PAGE> 42
12.8 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by (a) depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, (b) delivering the same in person to an
officer or agent of such party, or (c) telecopying the same with electronic
confirmation of receipt.
(i) If to LVCI, addressed to them at:
Laser Vision Centers, Inc.
540 Maryville Centre Drive, Suite 200
St. Louis, Missouri 63141
Telecopy No.: (314) 434-2424
Attn: Robert W. May
with copies to:
Dankenbring Greiman Osterholt & Hoffmann, P.C.
120 South Central Avenue, 5th Floor
St. Louis, Missouri 63105
Telecopy No.: (314) 862-4656
Attn: James R. Dankenbring, Esq.
(ii) If to the Shareholders, addressed thereto at the address
set forth on ANNEX I, with copies to such counsel as set forth below.
(iii) If to the Company, addressed to:
Refractive Surgical Resources, Inc.
10860 Nesbitt Ave., South
Bloomington, Minnesota 55437
Telecopy No.:
Attn:
with copies to:
Faegre & Benson, LLP
2200 Norwest Center
Minneapolis, Minnesota 55402
Telecopy No.: (612) 336-3026
Attn: David M. Vander Haar, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
12.9 ARBITRATION. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in St. Louis, Missouri in
accordance with the rules of the
38
<PAGE> 43
American Arbitration Association then in effect. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. A decision by a majority of the
arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Except as otherwise
specifically provided in this Agreement, the direct expense of any arbitration
proceeding shall be borne equally by the Shareholders on the one hand, and LVCI
and the Company, on the other hand.
12.10 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Missouri.
12.11 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
12.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.14 INTERPRETATION. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof. The Schedules and Exhibits referred
to herein shall be construed with and as an integral part of this Agreement.
Disclosure of any fact or item in any Schedule referenced in a particular
section of this Agreement, shall, should the existence of the fact or item or
its content be relevant to any other section of this Agreement, be deemed to be
disclosed with respect to that other section whether or not an explicit
cross-reference appears, provided that the disclosure is sufficient to
reasonably inform LVCI of the information required to be disclosed by such other
section.
[BALANCE OF THIS PAGE INtENTIONALLY LEFT BLANK.]
39
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LASER VISION CENTERS, INC.
By: /s/ John J. Klobnak
-------------------------------------
Name: John J. Klobnak
-----------------------------------
Title: CEO
----------------------------------
THE SHAREHOLDERS:
/s/ Paul C. Ehlen
----------------------------------------
Paul C. Ehlen
/s/ Thomas L. Eakins
----------------------------------------
Thomas L. Eakins
/s/ Paul W. Schmidt
----------------------------------------
Paul W. Schmidt
/s/ Nicholas T. Curtis
----------------------------------------
Nicholas T. Curtis
/s/ Dr. Richard L. Lindstrom
----------------------------------------
Dr. Richard L. Lindstrom
/s/ Dr. Vance Thompson
----------------------------------------
Dr. Vance Thompson
/s/ James A. Greiling
-----------------------------------------
James A. Greiling
/s/ Nancy A. Tiffany
-----------------------------------------
Nancy A. Tiffany
/s/ Kipp Fesenmaier
-----------------------------------------
Kipp Fesenmaier
40
<PAGE> 45
ANNEX I
TO THAT CERTAIN STOCK PURCHASE AGREEMENT
DATED AS OF September 1, 1998 BY AND AMONG
LASER VISION CENTERS, INC. AND
THE SHAREHOLDERS OF REFRACTIVE SURGICAL RESOURCES, INC.
SHAREHOLDERS OF REFRACTIVE SURGICAL RESOURCES, INC.:
<TABLE>
<CAPTION>
Percentage
Interest in Note
Payments and
Number of Shares Date(s) of Percent Cash at Additional
Name and Address of Common Stock Acquisition Interest Closing Consideration
- ---------------- --------------- ----------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Paul C. Ehlen
[Address] 21,000 05/01/97 21.000 $467,528 0
Thomas L. Eakins
[Address] 21,000 05/01/97 21.000 0 26.5823%
Paul W. Schmidt
[Address] 21,000 05/01/97 21.000 0 26.5823%
Nicholas T. Curtis
[Address] 21,000 05/01/97 21.000 0 26.5823%
Dr. Richard L. Lindstrom
[Address] 6,675 05/01/97 6.675 0 8.4494%
Dr. Vance Thompson
[Address] 6,675 05/01/97 6.675 0 8.4494%
James A. Greiling
[Address] 1,719 05/01/97 1.719 0 2.17584%
Nancy A. Tiffany
[Address] 743 05/01/97 0.743 0 .9405%
Kipp Fesenmaier
[Address] 188 05/01/97 0.188 0 .2380%
</TABLE>
41
<PAGE> 1
STOCK PURCHASE AGREEMENT
AMONG
LASER VISION CENTERS, INC.
AND
THE SHAREHOLDERS OF MIDWEST SURGICAL SERVICES, INC.
DATED AS OF DECEMBER 1, 1998
<PAGE> 2
TABLE OF CONTENTS
1. CERTAIN DEFINITIONS......................................................1
2. PURCHASE AND SALE OF COMPANY SHARES...................................5
2.1 Basic Transaction..................................................5
2.2 Purchase Price.....................................................5
3. CONTINGENT CONSIDERATION..............................................6
3.1 Description........................................................6
3.2 Calculation Periods................................................6
3.3 Calculation........................................................6
3.4 Adjustments to LVCI January Notes..................................6
3.5 Operating Income Profitability.....................................7
3.6 Reports and Disputes...............................................8
4. CLOSING AND TERMINATION..............................................10
4.1 Closing...........................................................10
5. REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDERS.............10
5.1 Organization, Existence and Good Standing of the Company..........10
5.2 Capital Stock of the Company......................................11
5.3 Subsidiaries......................................................11
5.4 Financial Statements..............................................11
5.5 Accounts and Notes Receivable.....................................12
5.6 Permits and Intangibles...........................................12
5.7 Tax Matters.......................................................13
5.8 Assets and Properties.............................................14
5.9 Real Property Leases, Options.....................................15
5.10 Environmental Laws and Regulations.............................15
5.11 Contracts......................................................17
5.12 No Violations..................................................18
5.13 Government Contracts...........................................18
5.14 Consents.......................................................18
5.15 Litigation and Related Matters.................................18
5.16 Compliance with Laws...........................................19
5.17 Intellectual Property Rights...................................19
5.18 Employee Benefit Plans.........................................20
5.19 Employees; Employee Relations..................................21
5.20 Insurance......................................................23
5.21 Interests in Customers, Suppliers, Etc.........................23
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5.22 Business Relations.............................................23
5.23 Officers and Directors.........................................24
5.24 Bank Accounts and Powers of Attorney...........................24
5.25 Absence of Certain Changes or Events...........................24
5.26 Termination of Plans...........................................25
5.27 Medicare/Medicaid..............................................25
(B) Representations and Warranties of the Shareholders................26
5.28 Authority and Ownership........................................26
5.29 Preemptive Rights..............................................26
5.30 Validity of Obligations........................................26
5.31 Absence of Claims Against the Company..........................26
6. REPRESENTATIONS OF LVCI..............................................27
6.1 Due Organization..................................................27
6.2 Validity of Obligations...........................................27
6.3 No Conflicts......................................................27
6.4 No Outside Reliance; Knowledge Regarding Representations..........28
6.5 Capitalization....................................................28
6.6 Issuance of Shares................................................28
6.7 Reservation of Shares.............................................28
6.8 SEC Documents, Financial Statements...............................28
6.9 Absence of Certain Changes........................................29
6.10 Listing........................................................29
6.11 Compliance with Laws...........................................29
6.12 Disclosure.....................................................30
7. ADDITIONAL CLOSING DELIVERIES TO THE SHAREHOLDERS....................30
7.1 Opinion of Counsel................................................30
7.2 Employment Agreements.............................................30
7.3 Broker Release....................................................30
8. ADDITIONAL CLOSING DELIVERIES TO LVCI................................30
8.1 Repayment of Indebtedness.........................................30
8.2 Shareholder Releases..............................................30
8.3 Termination of Related Party Agreements...........................31
8.4 Opinions of Counsel...............................................31
8.5 Employment Agreements.............................................31
8.6 Noncompetition Agreements.........................................31
8.7 Broker Release....................................................31
8.8 Release of Financing Statements...................................31
8.9 Good Standing Certificates........................................31
8.10 Fairness Opinion...............................................32
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<TABLE>
<S> <C> <C>
9. COVENANTS OF THE PARTIES.................................................32
9.1 Distributions.........................................................32
9.2 Preparation and Filing of Tax Returns.................................32
9.3 Company Name..........................................................33
9.4 Covenants of the Company and the Shareholders Concerning Termination
of S Election.........................................................33
9.5 Release of Personal Guaranties........................................37
9.6 Winding Down of Plans.................................................37
9.7 Covenant of the Manager's Regarding Management of the Business........37
9.8 Agreement as to Board Composition.....................................37
9.9 Working Capital.......................................................38
9.10 Acquisitions.......................................................38
9.11 No Subordination...................................................38
9.12 Changes in Accounting Principles...................................38
10. INDEMNIFICATION..........................................................38
10.1 LVCI Losses........................................................39
10.2 Employee Compensation and Benefits.................................39
10.3 Shareholder Losses.................................................40
10.4 Notice of Loss.....................................................40
10.5 Right to Defend....................................................41
10.6 Cooperation........................................................41
10.7 Recoupment and Dispute Resolution..................................42
10.8 Limitations on Indemnification.....................................44
10.9 Exclusivity of Remedies............................................45
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS.................45
11.1 Incidental Registration Rights.....................................45
11.2 Registration Procedures............................................46
11.3 Expenses...........................................................48
11.4 Indemnification and Contribution...................................48
12. GENERAL..................................................................50
12.1 Cooperation........................................................50
12.2 Survival of Covenants, Agreements, Representations and Warranties..51
12.3 Successors and Assigns.............................................51
12.4 Entire Agreement...................................................51
12.5 Counterparts.......................................................52
12.6 Brokers and Agents.................................................52
12.7 Expenses...........................................................52
12.8 Notices............................................................52
12.9 Arbitration........................................................53
</TABLE>
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12.10 Governing Law.............................................53
12.11 Exercise of Rights and Remedies...........................54
12.12 Reformation and Severability..............................54
12.13 Remedies Cumulative.......................................54
12.14 Interpretation............................................54
ANNEX I................................................................56
<PAGE> 6
STOCK PURCHASE AGREEMENT
This agreement (the "Agreement") entered into as of December 1, 1998, by
and among LASER VISION CENTERS, INC., a Delaware corporation ("LVCI"), THOMAS L.
EAKINS, PAUL C. EHLEN and PAUL W. SCHMIDT (the "Major Shareholders"), and the
other shareholders of Midwest Surgical Services, Inc., a Minnesota corporation,
listed on the signature pages hereof (the "Other Shareholders" and collectively
with the Major Shareholders, the "Shareholders"). LVCI and the Shareholders are
referred to collectively herein as the "Parties."
RECITALS
The Shareholders in the aggregate own all of the outstanding capital stock
of Midwest Surgical Services, Inc., a Minnesota corporation ("Company").
This Agreement contemplates a transaction in which LVCI will purchase from
the Shareholders, and the Shareholders will sell to LVCI, all of the outstanding
capital stock of the Company in return for cash, the LVCI Notes and the
Contingent Consideration, if and to the extent certain contingencies are met.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS
"After-Tax Basis" shall have the meaning ascribed to such term in Section
10.8(d) hereof.
"Agencies" shall have the meaning ascribed to such term in Section 5.15 hereof.
"Agreement" shall mean this Stock Purchase Agreement.
"Allocation Statement" shall have the meaning ascribed to such term in Section
9.4(h)(ii) hereof.
"Basket" shall have the meaning ascribed to such term in Section 10.8 hereof.
"Board" shall have the meaning ascribed to such term in Section 9.8 hereof.
"Business Day" shall mean any day of the year (other than a Saturday or Sunday)
on which national banking institutions in the City of St. Louis in the State of
Missouri are open
<PAGE> 7
to the public for conducting business and are not required or authorized to
close.
"Charter Documents" shall have the meaning ascribed to such term in Section 5.1
hereof.
"Closing" shall have the meaning ascribed to such term in Section 4.1 hereof.
"Closing Date" shall mean the date hereof.
"Closing Date Financial Statements" shall have the meaning ascribed to such term
in Section 3.5(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended
"Company" shall mean Midwest Surgical Services, Inc., a Minnesota corporation.
"Company Proposed Adjustment" shall have the meaning ascribed to such term in
Section 9.4 (f) hereof.
"Company Stock" shall have the meaning ascribed to such term in Section 2.1
hereof.
"Contingent Consideration" shall have the meaning ascribed to such term in
Section 3.1 hereof.
"Contingent Consideration Value" shall have the meaning ascribed to such term in
Section 3.7 hereof.
"Contracts" shall have the meaning ascribed to such term in Section 5.11(a)
hereof.
"Default" shall have the meaning ascribed to such term in Section 3.6(d) hereof.
"Due Dates" shall have the meaning ascribed to such term in Section 3.2 hereof.
"Employee Claims" shall have the meaning ascribed to such term in Section 10.2
hereof.
"Employment Agreements" shall have the meaning ascribed to such term in Section
7.2 hereof.
"Environmental Requirements" shall have the meaning ascribed to such term in
Section 5.10(b) hereof.
"Equitable Exceptions" shall mean enforcement may be subject to bankruptcy,
insolvency,
2
<PAGE> 8
reorganization, moratorium or similar laws affecting creditors' rights
generally, (ii) the remedy of specific performance and injunctive relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings may be brought and (iii) rights to indemnification
hereunder may be limited under applicable securities laws.
"ERISA" shall have the meaning ascribed to such term in Section 5.18 hereof.
"Financial Statements" shall have the meaning ascribed to such term in Section
5.4 hereof.
"GAAP" shall mean Generally Accepted Accounting Principles.
"Group Member" shall have the meaning ascribed to such term in Section 5.18
hereof.
"Hazardous Substances" shall have the meaning ascribed to such term in Section
5.10(b) hereof.
"Incremental 2001" shall have the meaning ascribed to such term in Section 3.2
hereof.
"Intellectual Property" shall have the meaning ascribed to such term in Section
5.17(a) hereof.
"IRS" shall mean Internal Revenue Service.
"Liens" shall have the meaning ascribed to such term in Section 5.28 hereof.
"LVCI" shall mean Laser Vision Centers, Inc.
"LVCI Losses" shall have the meaning ascribed to such term in Section 10.1(b)
hereof.
"LVCI Notes" shall have the meaning ascribed to such term in Section 2.2 hereof.
"LVCI Stock" shall have the meaning ascribed to such term in Section 11 hereof.
"Majority of the Shareholders" shall mean those Shareholders who are entitled to
receive a majority of the payments under the LVCI Notes and the Contingent
Consideration.
"Major Shareholders" shall mean Thomas L. Eakins, Paul C. Ehlen and Paul
Schmidt.
"Managers" shall mean Thomas L. Eakins and Paul W. Schmidt or, in the case of
the death, disability, termination for cause as defined in their Employment
Agreements, or voluntary termination of employment of both Managers, successor
Managers acceptable to
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<PAGE> 9
LVCI and a Majority of the Shareholders.
"Material Adverse Effect" shall have the meaning ascribed to such term in
Section 5.1 hereof.
"Material Permits" shall have the meaning ascribed to such term in Section 5.6
hereof.
"Noncompetition Agreements" shall have the meaning ascribed to such term in
Section 8.6 hereof.
"Operating Income Profitability" shall have the meaning ascribed to such term in
Section 3.5 hereof.
"Other Shareholders" shall mean the current shareholders of Midwest Surgical
Services, Inc. other than the Major Shareholders.
"Parties" shall mean LVCI and the Shareholders.
"PBGC" shall have the meaning ascribed to such term in Section 5.18 hereof.
"Periods" shall have the meaning ascribed to such term in Section 3.2 hereof.
"Perry Surgical Acquisition" means the purchase of the business of Perry
Surgical Services, Inc. pursuant to a Stock Purchase Agreement which was
consummated effective as of July 1, 1998.
"Plans" shall have the meaning ascribed to such term in Section 5.18 hereof.
"Proposed Adjustment" shall have the meaning ascribed to such term in Section
9.4(e) hereof.
"Purchase Price" shall have the meaning ascribed to such term in Section 2.2
hereof.
"Qualified Public Offering" shall have the meaning ascribed to such term in
Section 11.1 hereof.
"Real Property Leases" shall have the meaning ascribed to such term in Section
5.9 hereof.
"Recoupment Arbitrator" shall have the meaning ascribed to such term in Section
10.7(a) hereof.
4
<PAGE> 10
"Registration Expenses" shall have the meaning ascribed to such term in Section
11.3 hereof.
"S Election" shall have the meaning ascribed to such term in Section 9.4(b)
hereof.
"Section 338(h)(10) Elections" shall have the meaning ascribed to such term in
Section 9.4(h)(i) hereof.
"Securities Act" shall mean the Securities Act of 1933 as amended from time to
time.
"Selling Expenses" shall have the meaning ascribed to such term in Section 11.3
hereof.
"Shareholders" shall mean the Other Shareholders and the Major Shareholders,
collectively.
"Shareholder Losses" shall have the meaning ascribed to such term in Section
10.3(b) hereof.
"Shareholder's Notice" shall have the meaning ascribed to such term in Section
3.6(a) hereof.
"Subject Property" shall have the meaning ascribed to such term in Section
5.10(b) hereof.
"Tax Returns" shall have the meaning ascribed to such term in Section 5.7(a)
hereof.
"Taxes" shall have the meaning ascribed to such term in Section 5.7(a) hereof.
"Third Party Intellectual Property" shall have the meaning ascribed to such term
in Section 5.17(a) hereof.
"Year 1" shall have the meaning ascribed to such term in Section 3.2 hereof.
"Year 2" shall have the meaning ascribed to such term in Section 3.2 hereof.
2. PURCHASE AND SALE OF COMPANY SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, concurrently with the execution and delivery hereof, LVCI agrees to
purchase and has purchased from each of the Shareholders, and each of the
Shareholders agrees to sell to and has sold to LVCI, all of his or her capital
stock in the Company ("Company Stock") for the consideration specified below in
this Section 2.
5
<PAGE> 11
2.2 PURCHASE PRICE. LVCI hereby pays to the Shareholders in the aggregate
maximum total consideration of $3,500,000 (the "Purchase Price"), consisting of
(i) LVCI's promissory notes in the aggregate amount of $2,500,000 bearing
interest at the rate of approximately five and two-tenths percent (5.2%) per
annum totaling $10,833 and payable on January 4, 1999 to the Shareholders as
reflected on ANNEX I (the "LVCI January Notes", and (ii) LVCI's non-interest
bearing promissory notes in the aggregate principal amount of $1,000,000 due and
payable on April 30, 1999 to the Shareholders in accordance with their
percentage interest in such notes as reflected on ANNEX I, (the "LVCI Notes"),
substantially in the form of Exhibit A attached hereto, which shall be and have
been delivered at Closing. The Shareholders acknowledge that amounts payable to
them under the LVCI Notes and as Contingent Consideration may be subject to
reduction pursuant to Section 10.7 in satisfaction of the Shareholders'
indemnification obligations. The Purchase Price has been allocated among the
Shareholders in accordance with the instructions set forth on ANNEX I.
3. CONTINGENT CONSIDERATION
3.1 DESCRIPTION. On and subject to the terms and conditions of this
Section, LVCI and the Company agree to pay to the Shareholders in accordance
with the instructions set forth on ANNEX I contingent consideration not to
exceed $8,250,000 in value consisting of LVCI restricted common stock having a
maximum value of $4,125,000 with the remainder to consist of cash (the
"Contingent Consideration"). LVCI shall have the option in its sole discretion
to substitute cash for all or a portion of the stock component of the Contingent
Consideration. In no event shall the total of the Purchase Price plus the
Contingent Consideration exceed $11,750,000.
3.2 CALCULATION PERIODS. The Contingent Consideration shall be based upon
the Company's Operating Income Profitability (defined hereinafter) for each of
the following periods (the "Periods"): (i) the five-month period ending April
30, 1999 ("Year 1"); (ii) the twelve-month period ending April 30, 2000 ("Year
2"); and (iii) the three-month period ending July 31, 2000 ("Incremental 2001").
Payment of the Contingent Consideration, to the extent earned, shall be made in
three installments each relating to the Company's performance during the
respective Period. Payment of the Contingent Consideration for each Period shall
be due and payable 90 days from the ending day of such Period (the "Due Dates"),
with any LVCI Stock component of the Contingent Consideration valued at the
average closing market price of such stock during the ten NASDAQ trading days
immediately preceding each Due Date.
3.3 CALCULATION. Contingent Consideration payments, if any, shall be
calculated according to the Contingent Consideration Schedules attached hereto
as Schedule 3.3 and incorporated herein by reference. As reflected on Schedule
3.3, Contingent Consideration
6
<PAGE> 12
for Year 2 shall be determined by cross referencing Operating Income
Profitability for Year 1 with Operating Income Profitability for Year 2. For
purposes of calculation of Contingent Consideration, Operating Income
Profitability for any given Period shall be rounded down to the closest level
reflected on Schedule 3.3. Notwithstanding the foregoing, no Contingent
Consideration whatsoever shall be paid with respect to Year 1 or Year 2 for any
Operating Income Profitability falling below the 75% level in each respective
Period and no Contingent Consideration shall be paid with respect to an
Incremental 2001 Operating Income Profitability level falling below the 33 1/3%
level.
3.4 ADJUSTMENTS TO LVCI JANUARY NOTES. To the extent that the audited
shareholder's equity of the Company on the Closing Date is greater than or less
than $1,070,000 (immediately prior to the Closing), the aggregate principal
amount of the LVCI January Notes shall be increased or decreased on a dollar for
dollar basis.
3.5 OPERATING INCOME PROFITABILITY. "Operating Income Profitability" is
calculated as revenues less cost of revenues less operating expenses determined
in accordance with GAAP, and consistent with the accounting principles and
practices of the Company prior to the Closing Date as modified on the Company's
October 31, 1998 Financial Statements to comply with GAAP; and
(a) shall not be reduced by LVCI corporate allocations, except for
direct services provided by LVCI to the Company at cost as agreed by the
Managers and LVCI (not to exceed the cost of the same services performed on an
outsourced basis);
(b) shall be reduced by the interest expense associated with (i) any
debt on the December 1, 1998 balance sheet (the "Closing Date Financial
Statements") and (ii) any capital in excess of cash distributed or otherwise
transferred to LVCI that LVCI may infuse into the Company as agreed by the
Managers and LVCI, in order for the Company to reach its targeted Operating
Income objectives. For the purposes of computing this interest expense an
interest rate at the most favorable borrowing rate then available to LVCI from a
commercial lending institution will be assumed;
(c) assumes operating expenses will include total lease costs if
leases do not meet the GAAP criteria for a capital lease or will include
appropriate depreciation and interest expenses related to lease equipment if
such leases meet the criteria for a capital lease under GAAP;
(d) shall be reduced by payments made to certain of the Shareholders
pursuant to their Employment Agreements, with the exception of any bonus;
(e) shall be reduced by the costs (if any) of additional
administrative staff,
7
<PAGE> 13
as agreed by the Managers and LVCI and which relieves the Company's management
and other personnel from existing administrative duties to allow them to focus
more of their efforts on business development, but not costs associated with
complying with LVCI's reporting and administrative requirements;
(f) shall be reduced by profit sharing contributions, increases in
compensation packages paid to the Company's senior management (not including the
Shareholders) under employment agreements which might be put in place as a
result of this transaction, in each case as agreed by the Managers and LVCI. The
general intention of these bonuses and contributions will be to increase
productivity incentives while reducing turnover during the ownership and
management transition periods;
(g) shall be increased for Year 2, by the amount, if any, that
Operating Income Profitability for Year 1 exceeds $511,000.00; and
(h) shall be reduced by any interest related to payments made on
capital required to meet the Company's contingent obligations with respect to
the Perry Surgical Acquisition. For the purposes of computing this interest
expense an interest rate at the most favorable borrowing rate then available to
LVCI from a commercial lending institution will be assumed.
(i) shall be increased by an amount equal to a credited interest
amount on any cash distributed or otherwise transferred to LVCI at an interest
rate equal to the money market rate then earned by LVCI; and
(j) shall be increased by any other expense allocated to the Company
by LVCI to the extent such expense has not been agreed to by the Managers and
LVCI.
Interest, except as provided in Sections 3.5(b), 3.5(c), 3.5(h) and
3.5(i), and Federal and State income taxes shall not be taken into account for
purposes of determining Operating Income Profitability.
As to any of the items listed above with respect to which the
agreement of LVCI and the Managers is required, if LVCI and the Managers cannot
agree, the disputed issue shall be resolved by the Company's Board of Directors.
8
<PAGE> 14
3.6 REPORTS AND DISPUTES.
(a) In connection with the making of each payment by LVCI and the
Company to the Shareholders under this Section 3, the Company shall deliver to
each Shareholder entitled to Contingent Consideration at the time of such
payment a schedule setting forth the computation of the Contingent Consideration
and a copy of the financial information used in making such computation and such
other information as the Shareholders may reasonably request to verify the
accuracy of the Company's computation. The Company's computation of any payment
under this Section 3 shall be conclusive and binding upon the parties hereto
unless, within thirty business days following a Shareholder's receipt of the
aforedescribed payment and information, such Shareholder notifies LVCI in
writing (the "Shareholder's Notice") that it disagrees with the Company's
computation of the Contingent Consideration. Such notice by a Shareholder shall
include a schedule setting forth the Shareholder's computation of the Contingent
Consideration, together with a copy of any financial information, other than
that previously supplied by the Company to the Shareholders, used in making the
Shareholder's computation.
(b) The Shareholder's computation of the Contingent Consideration
under this Section 3 shall be conclusive and binding upon the parties hereto
unless, within thirty business days following LVCI's receipt of the
Shareholder's Notice, LVCI notifies the Shareholder in writing that it disagrees
with the Shareholder's computation of the Contingent Consideration. If LVCI
disagrees with the Shareholder's computation of the Contingent Consideration,
LVCI and the Shareholder shall request a national firm of independent certified
public accountants mutually agreeable to LVCI and the Shareholder to compute the
amount of the Contingent Consideration as promptly as possible, which
computation shall be conclusive and binding upon LVCI and all of the
Shareholders. In the event that LVCI and the Shareholder cannot agree on such a
national firm of independent certified public accountants, then the names of the
"Big 5" national accounting firms, exclusive of any such firm which is rendering
or has within the past three years rendered services to LVCI, the company or the
Shareholders or their Affiliates, shall be selected by lottery until one such
firm is willing to compute the disputed payment for purposes of this Agreement.
In the event that either LVCI's or the Shareholders' computation is deemed
substantially correct by such national accounting firm, then the party who
challenged such computation shall exclusively bear the costs associated with
retaining the national accounting firm. If neither LVCI's nor the Shareholders'
computation is deemed substantially correct, then the expenses of any
computation by any such national accounting firm selected by LVCI and the
Shareholders to resolve computational disputes hereunder shall be borne equally
by LVCI and the Shareholders.
(c) In the event the amount of Contingent Consideration paid by LVCI
and the Company to the Shareholders in accordance with Section 3 for any Period
is
9
<PAGE> 15
recomputed in accordance with Section 3.6(b), the adjustment to amount of
Contingent Consideration shall be paid by LVCI and the Company to the
Shareholders within ten business days after the date of final recomputation of
such payment.
(d) If LVCI fails to perform any of its obligations hereunder, or
violates the terms of this Agreement, or interferes with the ability of the
Company to perform hereunder, the Company or a Shareholder shall give LVCI a
notice of default specifically setting forth the nature of default, violation or
interference ("Default") and stating that LVCI shall have a period of thirty
(30) days to cure such Default as specified in the notice of default. If LVCI
does not cure the specified default within such thirty (30) day period, or, if
such Defaults are not capable of being cured within such period and LVCI has not
commenced in good faith to cure such Defaults within such thirty (30) day period
and does not thereafter proceed with diligence and continuity the curing
thereof, then a Shareholder may, at his sole discretion, exercise his respective
rights to enforce any provision of this Agreement for Default by the Company.
Furthermore, if such Default is a default in payment of any amounts due and
payable under the LVCI Notes or as Contingent Consideration and such Default has
not been cured within the applicable thirty (30) day period, then a Shareholder
may, at his sole discretion, in addition to any other rights available at law or
equity, have the option to accelerate the payment of any amounts then
outstanding on the LVCI Notes in the event of a Default in payment under such
LVCI Notes or, in the case of a Default in payment of Contingent Consideration,
to be paid the maximum remaining Contingent Consideration contemplated by this
Agreement, regardless of the actual Operating Income Profitability of the
Company.
4. CLOSING AND TERMINATION
4.1 CLOSING. The consummation of the transactions contemplated hereby (the
"Closing") has occurred on the Closing Date concurrent with the execution and
delivery hereof. On the Closing Date, all transactions contemplated by this
Agreement, including the delivery of shares, and the delivery by wire transfers
or by certified checks in amounts equal to the aggregate cash portion of the
consideration that the Shareholders shall be entitled to receive at the Closing,
has occurred and is deemed to be completed.
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5. REPRESENTATIONS AND WARRANTIES OF THE MAJOR
SHAREHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDERS
Each of the Major Shareholders, jointly and severally, represent and warrant
that all of the following representations and warranties with respect to the
Company and each of its subsidiaries and their respective business and
operations set forth in this Section 5(A) (collectively, for purposes of this
Section 5(A) the "Company") are true and correct at the time of the Closing.
5.1 ORGANIZATION, EXISTENCE AND GOOD STANDING OF THE COMPANY. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the state or jurisdiction of its incorporation or organization with all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Company is duly
qualified or licensed as a foreign corporation or other applicable entity and in
good standing in each jurisdiction in which the character or location of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so duly
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
Company, taken as a whole (a "Material Adverse Effect"). Set forth on Schedule
5.1 is a list of the jurisdictions in which the Company is qualified or licensed
to do business as a foreign corporation. Set forth on Schedule 5.1 is a listing
of all names of all predecessor companies for the past five (5) years of the
Company, including the names of any entities from whom the Company previously
acquired material assets. In addition, set forth on Schedule 5.1 is a complete
list of all the names under which the Company does or has done business. Except
as disclosed in Schedule 5.1, the Company has not been a subsidiary or division
of another corporation or a part of an acquisition which was later rescinded.
True, complete and correct copies of the Articles of Incorporation of the
Company certified by the Secretary of State or other appropriate entity of the
applicable state or jurisdiction of incorporation or organization as of the date
not more than thirty (30) days prior to the Closing and of the By-laws of the
Company have been delivered to LVCI (the "Charter Documents"). Except as set
forth on Schedule 5.1 the minute books of the Company, as heretofore made
available to LVCI, are correct and complete in all material respects.
5.2 CAPITAL STOCK OF THE COMPANY. The Company's authorized, issued and
outstanding capital stock is as set forth in Schedule 5.2. All of the Company
Stock has been validly issued and is fully paid and nonassessable and no holder
thereof is entitled to any preemptive rights (except any statutory preemptive
rights, which the Shareholders
11
<PAGE> 17
hereby waive). There are no outstanding conversion or exchange rights,
subscriptions, options, warrants or other arrangements or commitments obligating
the Company to issue any shares of capital stock or other securities or to
purchase, redeem or otherwise acquire any shares of capital stock or other
securities, or to pay any dividend or make any distribution in respect thereof,
except as set forth on Schedule 5.2.
5.3 SUBSIDIARIES. Except as set forth in Schedule 5.3, the Company has not
previously and does not presently own, of record or beneficially, or control
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
entity nor is the Company, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.4 FINANCIAL STATEMENTS.
(a) The Company has previously furnished to LVCI the draft audited
balance sheet of the Company as of April 30, 1998, and the related statements of
operations for the fiscal year then ended, as prepared by Price Waterhouse
Coopers, certified public accountants, with their opinion or notes to Financial
Statements, together with the Company's consolidated compiled draft balance
sheet and management's statements of operations and shareholders' equity for the
three-month and six-month periods ended October 31, 1998 (collectively, the
"Financial Statements", attached hereto as Schedule 5.4). The Financial
Statements have been prepared in accordance with GAAP and present fairly and
accurately the financial position and results of operations of the Company as of
the indicated dates and for the indicated periods, subject, in the case of
unaudited statements, to normal year-end audit adjustments and the absence of
notes.
(b) Except to the extent (and not in excess of the amounts) reflected
in the October 31, 1998 balance sheet included in the Financial Statements or as
disclosed on Schedule 5.4, the Company has no liabilities or obligations
(including, without limitation, Taxes payable and deferred Taxes and interest
accrued since April 30, 1998) required to be reflected in the Financial
Statements (or the notes thereto) in accordance with sound and accurate
accounting principles other than current liabilities incurred in the ordinary
course of business, consistent with past practice, subsequent to December 31,
1997.
(c) The books and records of the Company are true and correct in all
material respects and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
Except as required by GAAP and except as described in Schedule 5.4, since April
30, 1998, there has not been any material change in the accounting methods or
practices of the Company. No fees or expenses that have been incurred as a
result of the transaction contemplated by this Agreement have been paid by, or
accrued on the Financial Statements or the Closing Date
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Financial Statement of, the Company.
(d) Except as expressly provided in this Section 5.4 or Section 5.5,
no representation is being made by the Shareholders with respect to the
achievement of, or likelihood of achieving, results of any projections provided
to LVCI. The Major Shareholders do, however, represent that to the best of their
knowledge, the information utilized in preparing the projections is reasonable
under the circumstances.
5.5 ACCOUNTS AND NOTES RECEIVABLE. Set on Schedule 5.5 is an accurate
list of the accounts and notes receivable of the Company, as of October 31,
1998, and including receivables from and advances to employees and the
Shareholders. Except as set forth on Schedule 5.5, notes and accounts receivable
of the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts as stated on the Closing Date
Financial Statements. In the event any such accounts or notes are deemed
uncollectible by the Company, LVCI shall so notify the Major Shareholders, and
shall afford the Major Shareholders the opportunity to collect such account or
note on behalf of the Company.
5.6 PERMITS AND INTANGIBLES. The Company holds all licenses,
franchises, permits and other governmental authorizations, including permits,
titles (including, without limitation, motor vehicle titles and current
registrations), fuel permits, licenses, franchises, certificates owned or held
by the Company, the absence of any of which would have a Material Adverse Effect
(the "Material Permits"). An accurate list and summary description is set forth
on Schedule 5.6 hereto of all such Material Permits. The Material Permits are
valid, and the Company has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such Material Permit.
The Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
permits, licenses, orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing except where such noncompliance or
violation would not have a Material Adverse Effect. Except as specifically
provided on Schedule 5.6 the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Material Permits.
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5.7 TAX MATTERS.
(a) The Company has filed all income tax returns required to be filed
by the Company and all returns, reports and forms of other Taxes (as defined
below) required to be filed by the Company, and has paid or provided for all
Taxes shown to be due on such returns and all such returns are accurate and
correct in all material respects. True copies of federal and state income tax
returns of the Company for each of the fiscal years from its inception through
December 31, 1997 have been delivered to LVCI. Except as set forth on Schedule
5.7, (i) no action or proceeding for the assessment or collection of any Taxes
is pending against the Company and no notice of any claim for Taxes, whether
pending or threatened, has been received; (ii) no deficiency, assessment or
other formal claim for any Taxes has been asserted or made against the Company
that has not been fully paid or finally settled; (iii) no issue has been
formally raised by any taxing authority in connection with an audit or
examination of any return of Taxes; and, (iv) no claim has been made by a taxing
authority in a jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to taxation by that jurisdiction. No federal, state
or foreign income tax returns of the Company have been examined, and there are
no outstanding Tax rulings or closing agreements or waivers extending the
applicable statutory periods of limitation for such Taxes or otherwise having
continuing effect for any period. All Taxes that the Company has been required
to collect or withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. Set forth on Schedule
5.7 is a list of all jurisdictions in which the Company is required to file Tax
Returns, and the type of Tax Return that is required to be filed. No Taxes will
be assessed on or after the Closing Date against the Company for any tax period
ending on or prior to the Closing Date other than for Taxes disclosed on
Schedule 5.7. The Company has timely filed all information returns or reports,
including forms 1099, that are required to be filed and has accurately reported
all information required to be included on such returns or reports. For purposes
of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other
assessments including, without limitation, income, excise, property,
withholding, sales and franchise taxes, imposed by the United States, or any
state, county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions attributable thereto; and "Tax
Returns" means all returns or reports, including accompanying schedules, with
respect to Taxes.
(b) The Company is not a party to any Tax allocation or sharing
agreement.
(c) None of the assets of the Company constitutes tax-exempt bond
financed property or tax-exempt use property, within the meaning of Section 168
of the Code. The Company is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Code as in effect prior to
the Tax Reform Act of
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1986, or to any "long-term contract" within the meaning of Section 460 of the
Code.
(d) The Company is not a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of the Company are subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes. Other
than in connection with the transactions contemplated under this Agreement, the
Company has not filed an election under Section 338(g) or Section 338(h)(10) of
the Code or caused a deemed election under Section 338(e) thereof.
(e) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
(f) There are no accounting method changes of the Company that could
give rise to an adjustment under Section 481 of the Code for periods after the
Closing Date.
(g) The Company has substantial authority for the treatment of, or has
disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
Federal income returns, all positions taken therein that could give rise to a
substantial understatement of Federal income tax within the meaning of Section
6662(d) of the Code.
(h) Prior to its acquisition of Perry Surgical, Inc., the Company has
not been a member of an affiliated group filing a consolidated federal, state or
local income Tax return and does not have any liability for the Taxes of another
person (i) under Section 1.1502-6 of the Treasury regulations (or any similar
provision of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract or (iv) otherwise.
(i) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
5.8 ASSETS AND PROPERTIES.
(a) REAL PROPERTY. The Company does not own or hold, and has never
held or owned, any interest in real property other than as set forth in Schedule
5.9.
(b) PERSONAL PROPERTY. Except as set forth on Schedule 5.8 and except
for inventory and supplies disposed of or consumed, and accounts receivable
collected or written off, and cash utilized, all in the ordinary course of
business consistent with past practice, the Company owns all of its inventory,
equipment and other personal property (both tangible and intangible) reflected
on the latest balance sheet included in the Financial Statements or acquired
since October 31, 1998, free and clear of any Liens, except for
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statutory Liens for current taxes, assessments or governmental charges or levies
on property not yet due and payable.
(c) CONDITION OF PROPERTIES. Except as set forth on Schedule 5.8, the
leasehold estates that are the subject of the Real Property Leases (as defined
in Section 5.9) and the tangible personal property owned or leased by the
Company are in good operating condition and repair, ordinary wear and tear and
repairs and maintenance excepted; and none of the Major Shareholders have any
knowledge of any condition not disclosed herein of any such leasehold estate or
tangible personal property that would affect the fair market value, use or
operation of any leasehold estate or tangible personal property, or otherwise
have a Material Adverse Effect.
(d) COMPLIANCE. The continued use and occupancy of the leasehold
estates that are the subject of the Real Property Leases as currently operated,
used and occupied will not violate any zoning, building, health, flood control,
fire or other law, ordinance, order or regulation or any restrictive covenant.
There are no violations of any federal, state, county or municipal law,
ordinance, order, regulation or requirement affecting any portion of the
leasehold estates that are the subject of the Real Property Leases and no
written notice of any such violation has been issued by any governmental
authority.
5.9 REAL PROPERTY LEASES, OPTIONS. Schedule 5.9 sets forth a list
(summarizing the parties, lessor addresses, monthly rentals, square footages,
the terms and any extensions and the function of any such property) and copies
of (i) all leases and subleases under which the Company is lessor or lessee or
sublessor or sublessee of any real property, together with all amendments,
supplements, nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto ("Real Property Leases"); (ii) all options
held by the Company or contractual obligations on the part of the Company to
purchase or acquire any interest in real property; and (iii) all options granted
by the Company or contractual obligations on the part of the Company to sell or
dispose of any interest in real property. Copies of all Real Property Leases and
such options and contractual obligations have been delivered to LVCI. The
Company has not assigned any Real Property Leases or any such options or
obligations. There are no Liens on the interest of the Company in the Real
Property Leases, except for (i) Liens for taxes and assessments not yet due and
payable and (ii) those matters set forth on Schedule 5.9. The Real Property
Leases and options and contractual obligations listed on Schedule 5.9 are in
full force and effect and constitute binding obligations of the Company and the
other parties thereto, subject to Equitable Exceptions and (x) there are no
defaults thereunder and (y) no event has occurred and is continuing that with
notice, lapse of time or both would constitute a default by the Company or, to
the best knowledge of the Major Shareholders, by any other party thereto.
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5.10 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) (i) During the occupancy and operation of the "Subject
Property" (as defined below) by the Company, the operations of the Subject
Property, and any use, storage, treatment, disposal or transportation of
"Hazardous Substances" (as defined below) that has occurred in, on or under the
Subject Property prior to the date of this Agreement have been in compliance
with "Environmental Requirements" (as defined below);
(ii) the Company has obtained and holds all necessary
permits, licenses, approvals, consents and authorizations required under
applicable Environmental Requirements and is in full compliance with all terms,
conditions and provisions of the same;
(iii) during the occupancy and operation of the Subject
Property by the Company, no release, leak, discharge, spill, disposal or
emission of Hazardous Substances by the Company or its agents has occurred in,
on, from or under the Subject Property in a quantity or manner that violates or
requires further investigation or remediation under Environmental Requirements
or as required by any Agency (as defined in Section 5.15 hereof);
(iv) the Subject Property, to the best knowledge of the Major
Shareholders, is free of Hazardous Substances as of the date hereof; except for
the presence of small quantities of Hazardous Substances utilized by the Company
or other tenants of the Subject Property in the ordinary course of their
business;
(v) to the best knowledge of the Major Shareholders, there is
no pending or threatened litigation or administrative investigation or
proceeding concerning the Subject Property or the Company involving Hazardous
Substances or Environmental Requirements;
(vi) to the best knowledge of the Major Shareholders, there are
no above-ground or underground storage tank systems or asbestos-containing
materials located at the Subject Property;
(vii) except as set forth on Schedule 5.10, the Company has
never owned, operated or leased any real property other than the Subject
Property;
(viii) the Company's current or past transportation to or
disposal at any off-site location of any Hazardous Substances from property now
or formerly owned, operated or leased by the Company at the time of the
Company's ownership, operation or lease thereof was conducted in full compliance
with applicable Environmental
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Requirements; and
(ix) the Major Shareholders are not aware of any facts,
conditions or circumstances that could reasonably be expected to form the basis
for a claim against the Company, the Shareholders, or any successor in interest
to the Company relating to the Company's compliance or failure to comply with
any Environmental Requirements.
(b) DEFINITIONS. As used in this Agreement, the following terms shall
have following meanings:
"Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, permits, guidance documents, judgments, decrees,
orders, agreements and other restrictions and requirements (whether now or
hereafter in effect) of any governmental authority, including, without
limitation, federal, state and local authorities, relating to the regulation or
protection of human health and safety, worker health and safety, natural
resources, conservation, the environment, or the storage, treatment, disposal,
transportation, handling or other management of industrial or solid waste,
hazardous waste, hazardous or toxic substances or chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as defined in
ss.101(14) of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended from time to time (42 U.S.C. ss.ss. 9601 et
seq.) ("CERCLA") or any regulations promulgated thereunder, or the Occupational
Safety and Health Act of 1970, as amended from time to time (29 U.S.C. ss. 651
et seq.), or any regulations promulgated thereunder; (ii) petroleum and
petroleum by-products, asbestos and asbestos-containing materials,
polychlorinated biphenyls and pesticides; or (iii) any additional substances or
materials that have been or are currently classified or considered to be
pollutants, hazardous or toxic under Environmental Requirements.
"Subject Property" means all property subject to the Real Property
Leases and any properties listed on Schedules 5.9 and 5.10.
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5.11 CONTRACTS.
(a) Set forth on Schedule 5.11(a) is a summary and copies of all
contracts, agreements, arrangements and commitments (whether oral or written) to
which the Company is a party or by which its assets or business are bound (the
following, "Contracts") that relate to (i) the sale, lease or other disposition
by the Company of all or any substantial part of its business or assets (other
than in the ordinary course of business), (ii) the purchase or lease by the
Company of a substantial amount of assets (other than in the ordinary course of
business), (iii) lending or advancing funds by the Company, (iv) borrowing of
funds or guaranteeing the borrowing of funds by any other person, whether under
an indenture, note, loan agreement or otherwise, (v) any transaction or matter
with any affiliate of the Company, (vi) noncompetition, (vii) licenses and
grants to or from the Company relating to any intangible property listed on
Schedule 5.17, (viii) the acquisition by the Company of any operating business
or the capital stock of any person since April 30, 1998, or (ix) any other
matter that is material to the business, assets or operations of the Company.
LVCI has been given the opportunity to review all Contracts that relate to
the supply by the Company of any customer's requirements for any item or the
purchase by the Company of its requirements for any item or of a vendor's output
of any item.
(b) Except as set forth on Schedule 5.11(b), each Contract is in full
force and effect on the date hereof, the Company is not in default under any
Contract in any material respect, the Company has not given or received notice
of any default under any Contract, and, to the best knowledge of the Major
Shareholders, no other party to any Contract is in default thereunder.
(c) To the best knowledge of the Major Shareholders, the Company is
not a party to any material agreement, the performance of which could reasonably
be likely to have a Material Adverse Effect.
5.12 NO VIOLATIONS. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Shareholders and the consummation of the transactions contemplated hereby will
not (i) violate any provision of any Charter Document, (ii) violate any statute,
rule, regulation, order or decree of any public body or authority by which the
Company or the Shareholders or its or their respective properties or assets are
bound, or (iii) result in a violation or breach of, or constitute a default
under, or result in the creation of any encumbrance upon, or create any rights
of termination, cancellation or acceleration in any person with respect to any
Contract or any Material Permit of the Company.
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5.13 GOVERNMENT CONTRACTS. The Company is not now and has not been a party
to any governmental contract.
5.14 CONSENTS. Except as set forth on Schedule 5.14, no consent, approval or
other authorization of any governmental authority or under any Contract or other
agreement or commitment to which the Shareholders are parties is required as a
result of or in connection with the execution or delivery of this Agreement and
the other agreements and documents to be executed by the Shareholders or the
consummation by the Shareholders of the transactions contemplated hereby.
5.15 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.15 is a list of
all actions, suits, proceedings, investigations or grievances pending against
the Company, or, to the best knowledge of the Major Shareholders, threatened
against the Company, the business or any property or rights of the Company, at
law or in equity, before or by any arbitration board or panel, court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign ("Agencies"). None of the
actions, suits, proceedings or investigations listed on Schedule 5.15 either (i)
would, if adversely determined, have a Material Adverse Effect or (ii) would, if
adversely determined, affect the right or ability of the Company to carry on its
business substantially as now conducted. The Company is not subject to any
continuing court or Agency order, writ, injunction or decree applicable
specifically to its business, operations or assets or its employees, nor is the
Company in default with respect to any order, writ, injunction or decree of any
court or Agency with respect to its assets, business, operations or employees.
Schedule 5.15 lists (x) all worker's compensation claims outstanding against the
Company as of the date hereof and (y) all actions, suits or proceedings filed by
or outstanding against the Company, or in which the Company is named as a party,
since December 31, 1997.
5.16 COMPLIANCE WITH LAWS. The Company is in compliance with all applicable
laws, regulations (including federal, state and local procurement regulations),
orders, judgments and decrees except where the failure to so comply would not
have a Material Adverse Effect.
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5.17 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 5.17 lists the domestic and foreign trade names,
trademarks, service marks, trademark registrations and applications, service
mark registrations and applications, patents, patent applications, patent
licenses, software licenses and copyright registrations and applications owned
by the Company or used thereby in the operation of its business (collectively,
the "Intellectual Property"), which Schedule indicates (i) the term and
exclusivity of its rights with respect to the Intellectual Property and (ii)
whether each item of Intellectual Property is owned or licensed by the Company,
and if licensed, the licensor and the license fees therefor. Unless otherwise
indicated on Schedule 5.17, the Company has the right to use and license the
Intellectual Property, and the consummation of the transactions contemplated
hereby will not result in the loss or material impairment of any rights of the
Company in the Intellectual Property. Each item constituting part of the
Intellectual Property has been, to the extent indicated on Schedule 5.17,
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other government entity, domestic or
foreign, as is indicated on Schedule 5.17; all such registrations, filings and
issuances remain in full force and effect; and all fees and other charges with
respect thereto are current. Except as stated on Schedule 5.17, there are no
pending proceedings or adverse claims made or, to the best knowledge of the
Major Shareholders, threatened against the Company with respect to the
Intellectual Property; there has been no litigation commenced or threatened in
writing within the past five (5) years with respect to the Intellectual Property
or the rights of the Company therein; and the Major Shareholders have no
knowledge that (i) the Intellectual Property or the use thereof by the Company
conflicts with any trade names, trademarks, service marks, trademark or service
mark registrations or applications, patents, patent applications, patent
licenses or copyright registrations or applications of others ("Third Party
Intellectual Property"), or (ii) such Third Party Intellectual Property or its
use by others or any other conduct of a third party conflicts with or infringes
upon the Intellectual Property or its use by the Company.
(b) To the best knowledge of the Major Shareholders, the Intellectual
Property is designed to be used prior to, during and after the Year 2000 A.D.,
and will operate during each such time period without error relating to date
data, including without limitation any error relating to or the product of date
data that represents or references different centuries or more than one century.
Without limiting the generality of the foregoing, the Intellectual Property will
not abnormally end or provide invalid or incorrect results as a result of date
data, including without limitation date data that represents or references
different centuries or more than one century; the Intellectual Property has been
designed to ensure Year 2000 compatibility, including without limitation date
data century recognition, calculations that accommodate same century and
multi-century formulas and date value, and date data interface values that
reflect the century, and includes Year 2000 Capabilities. For the purpose of
this Section 5.17, "Year 2000 Capabilities" shall mean that
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the Intellectual Property will (i) manage and manipulate data involving dates,
including single century formulas and multi-century formulas and will not cause
an abnormally ending scenario within the application or generate incorrect
values or invalid results involving such dates; (ii) provide that all
date-related user interface functionalities and data fields include the
indication of century; and (iii) provide that all date-related data interface
functionalities include the indication of century. To the best knowledge of the
Major Shareholders, none of the Company's vendors or suppliers lack Year 2000
Capabilities.
5.18 EMPLOYEE BENEFIT PLANS. Each employee benefit, stock or
compensation plan, including without limitation employee benefit plans within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), maintained or contributed to by the Company or any
of its Group Members (as defined below) (collectively, the "Plans") is listed on
Schedule 5.18, is in compliance with applicable law, in all material respects,
and has been administered and operated in accordance with its terms. Each Plan
that is intended to be "qualified" within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service (the "IRS") and no event has occurred and no condition exists that could
be expected to result in the revocation of any such determination. No event that
constitutes a "reportable event" (within the meaning of Section 4043(b) of
ERISA) for which the 30-day notice requirement has not been waived by the
Pension Benefit Guaranty Corporation (the "PBGC") has occurred with respect to
any Plan. Except as set forth on Schedule 5.18, no Plan is subject to Title IV
of ERISA, and neither the Company nor any Group Member has made any
contributions to or participated in any "multiple employer plan" (within the
meaning of the Code or ERISA) or "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA). Full payment has been made of all amounts that the Company
was required under the terms of the Plans to have paid as contributions to such
Plans on or prior to the date hereof (excluding any amounts not yet due) and all
amounts properly accrued to date as liabilities of the Company that have not
been paid have been properly recorded on the Financial Statements, and no Plan
that is subject to Part 3 of Subtitle B of Title I of ERISA has incurred any
"accumulated funding deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived. The Company has not and, to the
best knowledge of the Major Shareholders, no other "disqualified person" or
"party in interest" (within the meaning of Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively) has engaged in any transactions in
connection with any Plan that could be expected to result in the imposition of a
material penalty pursuant to Section 502(i) of ERISA, damages pursuant to
Section 409 of ERISA or a tax pursuant to Section 4975(a) of the Code. No
material claim, action, proceeding, or litigation has been made, commenced or,
to the best knowledge of the Major Shareholders, threatened with respect to any
Plan (other than for benefits payable in the ordinary course and PBGC insurance
premiums). No Plan or related trust owns any securities in violation of Section
407 of ERISA. Neither the Company nor any Group Member has incurred any
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liability or taken any action, and the Major Shareholders have no knowledge of
any action or event, that could cause it to incur any liability (i) under
Section 412 of the Code or Title IV of ERISA with respect to any "single
employer plan" (within the meaning of Section 4001(a)(15) of ERISA), (ii) on
account of a partial or complete withdrawal (within the meaning of Section 4205
and 4203 of ERISA, respectively) with respect to any "multi-employer plan"
(within the meaning of Section 3(37) of ERISA), (iii) on account of unpaid
contributions to any such multi-employer plan, or (iv) to provide health
benefits or other non-pension benefits to retired or former employees, except as
specifically required by Section 4980B(f) of the Code. Except as set forth on
Schedule 5.18, neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby will (i)
entitle any current or former employee of the Company to severance pay,
unemployment compensation or any similar payment, (ii) accelerate the time of
payment or vesting, or increase the amount of, any compensation due to any such
employee or former employee, or (iii) directly or indirectly result in any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" (within the meaning of Section 280G of the Code). For
purposes of this Agreement, "Group Member" shall mean any member of any
"affiliated service group" as defined in Section 414(m) of the Code that
includes the Company, any member of any "controlled group of corporations" as
defined in Section 1563 of the Code that includes the Company or any member of
any group of "trades or businesses under common control" as defined by Section
414(c) of the Code that includes the Company.
5.19 EMPLOYEES; EMPLOYEE RELATIONS.
(a) Schedule 5.19 sets forth (i) the name and current annual salary
(or rate of pay) and other compensation (including, without limitation, normal
bonus, profit-sharing and other compensation) now payable by the Company to each
employee whose current total annual compensation or estimated compensation is
$25,000 or more, (ii) any increase committed by the Company to become effective
after the date of this Agreement in the total compensation or rate of total
compensation payable by the Company to each such person, (iii) any increase
committed by the Company to become payable after the date of this Agreement by
the Company to employees other than those specified in clause (i) of this
Section 5.19(a), (iv) all presently outstanding loans and advances (other than
routine travel advances and other routine business expense advances of less than
$10,000 to be repaid or formally accounted for within sixty (60) days) made by
the Company to, or made to the Company by, any director, officer or employee,
(v) all other transactions between the Company and any director or officer
thereof since December 31, 1997, (vi) the terms and conditions of any and all
employment agreements, whether written or oral, entered into by the Company and
(vii) except for accruals in the ordinary course consistent with past practice,
all accrued but unpaid vacation pay owing to any officer or employee that is not
disclosed on the Financial Statements.
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(b) Except as disclosed on Schedule 5.19, the Company is not a party
to, or bound by, the terms of any collective bargaining agreement, and the
Company has not experienced any material labor difficulties during the last five
(5) years. Except as set forth on Schedule 5.19, there are no labor disputes
existing, or to the best knowledge of the Major Shareholders, threatened
involving, by way of example, strikes, work stoppages, slowdowns, picketing, or
any other interference with work or production, or any other concerted action by
employees. No charges or proceedings before the National Labor Relations Board,
or similar agency, exist, or to the best knowledge of the Major Shareholders,
are threatened.
(c) The relationships enjoyed by the Company with its employees are
good and except as set forth in Schedule 5.19(c), the Major Shareholders have no
knowledge of any facts that would indicate that the employees of the Company
will not continue in the employ thereof following the Closing on a basis similar
to that existing on the date of this Agreement. Except for normal difficulties
in the present job market, since December 31, 1997, the Company has not
experienced any material difficulties in obtaining any qualified personnel
necessary for the operations of its business and, to the best knowledge of the
Major Shareholders, no such shortage of qualified personnel is threatened or
pending which would have a Material Adverse Effect on the Company. Except as
disclosed on Schedule 5.19, the Company is not a party to any employment
contract with any individual or employee, either express or implied. No legal
proceedings, charges, complaints or similar actions exist under any federal,
state or local laws affecting the employment relationship including, but not
limited to: (i) anti-discrimination statutes such as Title VII of the Civil
Rights Act of 1964, as amended (or similar state or local laws prohibiting
discrimination because of race, sex, religion, national origin, age, disability
and the like); (ii) the Fair Labor Standards Act or other federal, state or
local laws regulating hours of work, wages, overtime and other working
conditions; (iii) requirements imposed by federal, state or local government
contracts such as those imposed by Executive Order 11246; (iv) state laws with
respect to tortious employment conduct, such as slander, harassment, false
light, invasion of privacy, negligent hiring or retention, intentional
infliction of emotional distress, assault and battery, or loss of consortium; or
(v) the Occupational Safety and Health Act, as amended, as well as any similar
state laws, or other regulations respecting safety in the workplace; and to the
best knowledge of the Major Shareholders, no proceedings, charges, or complaints
are threatened under any such laws or regulations and no facts or circumstances
exist that would give rise to any such proceedings, charges, complaints, or
claims. The Company is not subject to any settlement or consent decree with any
present or former employee, employee representative or any government or Agency
relating to claims of discrimination or other claims in respect to employment
practices and policies; and no government or Agency has issued a judgment,
order, decree or finding with respect to the labor and employment practices
(including practices relating to discrimination) of the Company. Since
inception, the Company has not
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incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act or similar state laws and the Company has not laid off more
than ten percent (10%) of its employees at any single site of employment in any
ninety (90) day period during the twelve (12) month period ending June 30, 1998.
(d) The Company is in compliance in all material respects with the
provisions of the Americans with Disabilities Act.
5.20 INSURANCE. Schedule 5.20 contains an accurate list of the policies
and contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company. All such policies are in full force and
effect. Neither the Company nor the Major Shareholders have received any notice
of cancellation or non-renewal, or of significant premium increases with respect
to any such policy. Except as disclosed on Schedule 5.20 no pending claims made
by or on behalf of the Company under such policies have been denied or are being
defended against third parties under a reservation of rights by an insurer
thereof. All premiums due prior to the date hereof for periods prior to the date
hereof with respect to such policies have been timely paid.
5.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in
Schedule 5.21, no shareholder, officer, director or affiliate of the Company
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of, any corporation, firm, association or
business organization that is a client, supplier, customer, lessor, lessee or
competitor of the Company. Ownership of securities of a corporation whose
securities are registered under the Securities Exchange Act of 1934 not in
excess of five percent (5%) of any class of such securities shall not be deemed
to be a financial interest for purposes of this Section 5.21.
5.22 BUSINESS RELATIONS. Schedule 5.22 contains an accurate list and
copies of contracts of all significant customers and suppliers of the Company
(i.e., (i) those customers representing five percent (5%) or more of the
Company's revenues for the twelve (12) months ended December 31, 1997 or those
ten (10) largest revenue-generating customers and (ii) those suppliers
representing five percent (5%) or more of the Company's operating expenses for
the twelve (12) months ended December 31, 1997 or those ten (10) suppliers with
the largest aggregate invoice amounts submitted to the Company with respect to
such period). Except as set forth on Schedule 5.22, to the best knowledge of the
Major Shareholders, no customer or supplier of the Company has or will cease to
do business therewith after the consummation of the transactions contemplated
hereby, which cessation would have a Material Adverse Effect, and no customer or
supplier will cease to do business with the Company nor will the terms of any
Contract change or be modified in any
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material respect as a result of the change of ownership of the Company as a
result of the Closing. Except as set forth on Schedule 5.22 since inception, the
Company has not experienced any difficulties in obtaining any inventory items
necessary to the operation of its business, and, to the best knowledge of the
Major Shareholders, no such shortage of supply of inventory items is threatened
or pending. The Company is not required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
5.23 OFFICERS AND DIRECTORS. Set forth on Schedule 5.23 is a list of
the current officers and directors of the Company.
5.24 BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 5.24 sets forth
each bank, savings institution and other financial institution with which the
Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto. Each person holding a
power of attorney or similar grant of authority on behalf of the Company is
identified on Schedule 5.24. Except as disclosed on such Schedule, the Company
has not given any revocable or irrevocable powers of attorney to any person,
firm, corporation or organization relating to its business for any purpose
whatsoever.
5.25 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.25 or as otherwise contemplated by this Agreement, since December 31,
1997, there has not been (a) any damage, destruction or casualty loss to the
physical properties of the Company (whether or not covered by insurance), (b)
any event or circumstance that would have a Material Adverse Effect, (c) any
entry into any transaction, commitment or agreement (including, without
limitation, any borrowing) material to the Company, except Contracts or
transactions, commitments or agreements in the ordinary course of business
consistent with past practice, (d) any declaration, setting aside or payment of
any dividend or other distribution in cash, stock or property with respect to
the capital stock or other securities of the Company, any repurchase, redemption
or other acquisition by the Company of any capital stock or other securities, or
any agreement, arrangement or commitment by the Company to do so, (e) any
increase that is material in the compensation payable or to become payable by
the Company to its directors, officers, employees or agents or any increase in
the rate or terms of any bonus, pension or other employee benefit plan, payment
or arrangement made to, for or with any such directors, officers, employees or
agents, except as set forth on Schedule 5.25(f) any sale, transfer or other
disposition of, or the creation of any Lien upon, any part of the assets of the
Company, tangible or intangible, except for sales of inventory and use of
supplies, collections of accounts receivables in the ordinary course of business
consistent with past practice and cash utilized, or any cancellation or
forgiveness of any debts or claims by the Company, (g) any change in the
relations of the Company with or loss of its customers or suppliers, or any loss
of
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business or increase in the cost of inventory items or change in the terms
offered to customers, which would have a Material Adverse Effect, (h) any
capital expenditure (including any capital leases) or commitment therefor by the
Company in excess of $10,000, or (i) any actions, suits, proceedings,
investigations or grievances initiated or, to the best knowledge of the Major
Shareholders, threatened relating to the Company's products or services.
5.26 TERMINATION OF PLANS. The Company has effected the termination of
each of its Plans.
5.27 MEDICARE/MEDICAID
(a) Fraud and Abuse. Neither the Company nor the Shareholders nor, to
the knowledge of the Shareholders, any person or entity providing professional
or other services for the Company is currently, or in the past five (5) years
has, engaged in any activities which are prohibited or are cause for criminal or
civil penalties under Sections 1320a-7a or 1320a-7b of Title 42 of the United
State Code or the regulations promulgated thereunder, or similar state or local
statutes or regulations, or which are prohibited by applicable statutes or
regulations, including, but not limited to, the following:
(i) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration: (1) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid; or (2) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, leasing or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid; or
(ii) referring any patients to a person or entity with which
either the Company or Shareholders has a financial relationship that is
prohibited by applicable law.
(b) Reimbursement Matters. Except as disclosed on Schedule 5.27, in
the past three (3) years (i) the Company has not and, to the Company's and
Shareholder's best knowledge, no nursing home, hospital or other health care
provider with respect to which the Company provides services has received any
written notices of denial or recoupment from the Medicare or Medicaid programs,
or any other third party reimbursement source (inclusive of managed care
organizations) with respect to products or services provided by the Company;
(ii) to the Company's and Shareholder's best knowledge, there is no basis for
the assertion after the Closing of any such denial or recoupment claim and (iii)
neither the Company nor, to the Company's or Shareholder's best knowledge, any
nursing home,
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hospital or other health care provider with respect to which the Company
provides services has received written notice of any denial of claims for
payment from any Medicare or Medicaid program or any other third party
reimbursement source (inclusive of managed care organizations) of any pending or
threatened investigations or surveys specifically with respect to, or arising
out of, products or services provided by the Company, and to Shareholder's best
knowledge, no such investigation or survey is pending, threatened or imminent.
(c) Certain Payments. None of the Company, the Shareholders or any
of their respective directors, officers, agents, affiliates or employees, or any
other person authorized to act for or on behalf of the Company or any of the
Shareholders, has directly or indirectly made, offered or agreed to offer any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any customer, supplier, referral source, governmental employee or any
other Person or entity, regardless or form, whether in money, property, or
services in violation of any law: (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, or (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect to the Company or any affiliate of the Company.
(B) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder severally represents and warrants that the
representations and warranties in this Section 5(B) as they apply to him or her
are true and correct at the time of the Closing.
5.28 AUTHORITY AND OWNERSHIP. The Shareholder has the full legal right,
power and authority to enter into this Agreement. The Shareholder owns
beneficially (subject to any community property interest of his or her spouse)
and of record the shares of the Company Stock set forth opposite such
Shareholder's name on ANNEX I. Except as set forth on Schedule 5.28 hereof, such
shares of the Company Stock owned by the Shareholder are owned free and clear of
any and all liens, mortgages, security interests, encumbrances, pledges,
charges, adverse claims, options, rights or restrictions of any character
whatsoever ("Liens") other than standard state and federal and other applicable
securities laws and private offering restrictions. The Shareholder has owned
such shares of Company Stock since the date set forth on ANNEX I.
5.29 PREEMPTIVE RIGHTS. The Shareholder does not have, or hereby
waives, any preemptive or other right to acquire shares of the Company Stock
that the Shareholder has or may have had.
5.30 VALIDITY OF OBLIGATIONS. This Agreement has been duly executed and
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delivered and is the legal, valid and binding obligation of Shareholder subject
to Equitable Exceptions.
5.31 ABSENCE OF CLAIMS AGAINST THE COMPANY. The Shareholder does not have
any claims against the Company other than as disclosed herein.
6. REPRESENTATIONS OF LVCI
LVCI represents and warrants that all of the following representations and
warranties in this Section 6 are true and correct at the time of the Closing.
6.1 DUE ORGANIZATION. LVCI is duly organized, validly existing and in
good standing under the laws of the State of Delaware, and is duly authorized
and qualified under all applicable laws, regulations and ordinances of public
authorities to carry on its businesses in the places and in the manner as now
conducted except for where the failure to be so authorized or qualified would
not have a material adverse effect on its business, operations, affairs,
properties, assets or condition (financial or otherwise).
6.2 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement, the LVCI Notes, the Employment Agreements, and the Noncompetition
Agreements, by LVCI and the performance by LVCI of the transactions contemplated
herein or therein have been duly and validly authorized by the Board of
Directors of LVCI, and this Agreement, the LVCI Notes, the Employment
Agreements, and the Noncompetition Agreements, have each been duly and validly
authorized by all necessary corporate action, duly executed and delivered and
are the legal, valid and binding obligations of LVCI, enforceable against such
party thereto in accordance with their respective terms, subject to the
Equitable Exceptions. LVCI has full corporate power, capacity and authority to
execute this Agreement, the LVCI Notes, the Employment Agreements and the
Noncompetition Agreements.
6.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the other agreements and documents contemplated hereby, the
consummation of any transactions herein referred to or contemplated by and the
fulfillment of the terms hereof and thereof will not:
(a) Conflict with, or result in a breach or violation of the
Certificate of Incorporation or By-laws of LVCI;
(b) Conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under any
material document, agreement or other instrument to which LVCI is a party, or
violate or result in the creation or imposition of any lien, charge or
encumbrance on any of LVCI's properties pursuant to
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(i) any law or regulation to which LVCI or any of its property is subject, or
(ii) any judgment, order or decree to which LVCI is bound or any of its property
is subject; or
(c) Result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of LVCI.
6.4 NO OUTSIDE RELIANCE; KNOWLEDGE REGARDING REPRESENTATIONS. LVCI has not
relied on and is not relying upon any statement or representation not made in
this Agreement or in a Schedule hereto. As of the date hereof, LVCI is not aware
of any inaccuracy or misstatement in, or breach of, any representation or
warranty of the Shareholders contained herein.
6.5 CAPITALIZATION. As of the date hereof, the authorized stock of LVCI
consists of (i) 50,000,000 shares of Common Stock of which 10,069,264 shares are
issued and outstanding, 3,246,083 shares are reserved for issuance pursuant to
LVCI's stock option plans, approximately 650,000 shares are reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for shares of Common Stock; and (ii) 1,000,000 shares of preferred
stock, of which 3,250 are outstanding. All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully
paid, and nonassessable.
6.6 ISSUANCE OF SHARES. The Shares of LVCI Stock which may constitute a
portion of the Contingent Consideration are duly authorized and, upon issuance
in accordance with the terms of this Agreement will be validly issued, fully
paid and non-assessable, and free from all taxes, liens and charges with respect
to the issue thereof and shall not be subject to preemptive rights or other
similar rights of stockholders of LVCI.
6.7 RESERVATION OF SHARES. LVCI shall at all times have authorized and
reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for payment of the Contingent Consideration in the form of LVCI
Stock of a value up to $4,125,000. LVCI shall not reduce the number of shares of
Common Stock reserved for issuance in connection with payment of the LVCI Stock
portion of the Contingent Consideration without the consent of each Shareholder,
which consent will not be unreasonably withheld. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
issuable as partial payment of the Contingent Consideration, LVCI will promptly
take all corporate action necessary to authorize and reserve a sufficient number
of shares, including, without limitation, calling a special meeting of
shareholders to authorize additional shares to meet LVCI's obligations under
this Section 6.7, in the case of an insufficient number of authorized shares,
and using its best efforts to obtain shareholder approval of an increase in such
authorized number of shares.
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6.8 SEC DOCUMENTS, FINANCIAL STATEMENTS. Since April 30, 1996, LVCI has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein necessary in order to make the statements
therein, in light of the circumstances under with they were made, not
misleading. As of their respective dates, the financial statements of LVCI
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
consolidated financial position of LVCI and its consolidated Subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the financial
statements of LVCI included in the SEC Documents, LVCI has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to November 30, 1998 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of LVCI.
6.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 6.9, since
November 30, 1998, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.
6.10 LISTING. The Company will obtain and maintain the listing and trading
of its Common Stock on either Nasdaq, the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange
("AMEX") and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such
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exchanges, as applicable.
6.11 COMPLIANCE WITH LAWS. LVCI is in compliance with all applicable laws,
regulations, orders, judgements and decrees except where the failure to so
comply would not have a Material Adverse Effect.
6.12 DISCLOSURE. All information relating to or concerning LVCI provided
to the Shareholders in connection with the transactions contemplated hereby is
true and correct in all material respects and LVCI has not omitted to state any
material fact necessary in order to make any statements made therein, in light
of the circumstances under which they were made, not misleading.
7. ADDITIONAL CLOSING DELIVERIES TO THE SHAREHOLDERS
Concurrently with the Closing, LVCI has delivered to the Shareholders the
following:
7.1 OPINION OF COUNSEL. The Shareholders have received an opinion from
Dankenbring, Greiman, Osterholt & Hoffmann, P.C., counsel for LVCI, dated the
Closing Date, in the form annexed hereto as Exhibit B.
7.2 EMPLOYMENT AGREEMENTS. LVCI has executed and delivered to certain
Shareholders Employment Agreements in substantially the forms attached hereto as
Exhibit C (the "Employment Agreements").
7.3 BROKER RELEASE. Simultaneous with the Closing, each broker, agent or
attorney identified on Schedule 12.6 has executed and delivered to the
Shareholders an instrument dated the Closing Date in such form as is reasonably
satisfactory to the Major Shareholders releasing the Company and the
Shareholders from any and all claims of such broker, agent or attorney with
respect to fees, commissions and other amounts and expenses thereof that may be
payable thereto in connection with the transactions set forth in this Agreement.
Concurrently with the Closing, LVCI and Paul C. Ehlen shall have entered
into a Sales Representative Agreement upon mutually agreeable terms.
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8. ADDITIONAL CLOSING DELIVERIES TO LVCI
Concurrently with the Closing, the Shareholders have delivered, or have
caused to be delivered, to LVCI the following:
8.1 REPAYMENT OF INDEBTEDNESS. Evidence satisfactory to LVCI that the
Shareholders and their Affiliates have repaid the Company in full all amounts
owing by the Shareholders or their Affiliates to the Company.
8.2 SHAREHOLDER RELEASES. Each of the Shareholders have delivered to LVCI
an instrument dated the Closing Date in substantially the form of Exhibit D
releasing the Company from any and all claims of the Shareholder against the
Company and any obligations of the Company to the Shareholder, except for items
specifically identified on Schedule 8.2 as being claims of or obligations to
such Shareholder and continuing obligations to such Shareholder relating to his
or her employment by the Company.
8.3 TERMINATION OF RELATED PARTY AGREEMENTS. Evidence satisfactory to LVCI
that all existing agreements between the Company and the Shareholders or
business or personal affiliates of the Company or the Shareholders and all
existing bonus and incentive plans and compensation arrangements of the Company
and its Shareholders, other than those set forth on Schedule 8.3, have been
canceled or terminated.
8.4 OPINIONS OF COUNSEL. LVCI has received an opinion from counsel to the
Shareholders, dated the Closing Date, in the form annexed hereto as Exhibit E.
8.5 EMPLOYMENT AGREEMENTS. Each of the Managers has executed and delivered
to LVCI his Employment Agreement.
8.6 NONCOMPETITION AGREEMENTS. Thomas L. Eakins and Paul W. Schmidt have
executed and delivered to LVCI Noncompetition Agreements with LVCI in
substantially the forms attached hereto as Exhibit F-1 and Paul C. Ehlen has
executed and delivered to LVCI a Noncompetition Agreement with LVCI in
substantially the form attached as Exhibit F-2 (the "Noncompetition
Agreements").
8.7 BROKER RELEASE. Simultaneous with the Closing, each broker or agent
identified on Schedule 12.6 has executed and delivered to LVCI an instrument
dated the Closing Date in such form as is reasonably satisfactory to LVCI
releasing the Company and LVCI from any and all claims of such broker or agent
with respect to fees, commissions and other amounts and expenses thereof that
may be payable thereto in connection with the transactions set forth in this
Agreement.
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8.8 RELEASE OF FINANCING STATEMENTS. The Company has obtained and
prepared for filing in the appropriate jurisdictions within two (2) business
days following the Closing Termination Statements properly executed by any
parties holding a security interest or other encumbrance with respect to each of
the Company, the Company Stock or the assets of the Company as identified by
lien searches conducted with respect thereto.
8.9 GOOD STANDING CERTIFICATES. The Company has delivered to LVCI a
certificate, dated as of a date not more than twenty (20) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the state
or other jurisdiction of its incorporation or organization showing that it is in
good standing.
8.10 FAIRNESS OPINION. In addition, LVCI has received, if requested by
LVCI, a favorable opinion from A.G. Edwards & Sons, Inc., as to the fairness of
the transactions contemplated by this Agreement from a financial point of view.
9. COVENANTS OF THE PARTIES
9.1 DISTRIBUTIONS. Immediately prior to Closing, the Company will
distribute to the Shareholders in accordance with their proportionate ownership
interests in the Company, an amount equal to 40% of the estimated net taxable
income of the Company for the Short S Year ending on the Closing Date (the "S
Distribution") and a good faith estimate of the difference between the
anticipated Shareholders' equity as of the Closing Date and $1,070,000 (the
"Excess Equity Distribution"). As soon as practicable after the Company's
federal income tax return for the Short S Year has been prepared and filed, LVCI
shall notify the Shareholders of the actual amount of net taxable income shown
on such return. Within ten (10) days after such notice, LVCI shall pay the
Shareholders the excess of 40% of the actual net taxable income for the Short S
Year over the amount of the S Distribution. Likewise, in the event the S
Distribution exceeds 40% of such net taxable income, the Shareholders shall pay
the excess to LVCI within ten (10) days after such notice.
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9.2 PREPARATION AND FILING OF TAX RETURNS.
(a) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any return, amended
return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records concerning the
ownership and tax basis of property, which such party may possess. Each party
shall make its employees or agents reasonably available on a mutually convenient
basis at its cost to provide explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to file returns
pursuant to this Agreement shall bear all costs of filing such returns.
(b) The Shareholders shall have responsibility for the conduct of any
audit of the Company of any taxable period ending on or prior to the Closing
Date; provided however, that in the event that the Shareholders receive notice
of a claim from the Internal Revenue Service or any other taxing authority the
Shareholders shall promptly, but in any event within five (5) business days,
notify LVCI and the Company of such claim and of any action taken or proposed to
be taken. In the event LVCI and the Company wishes to participate in such audit
they may do so at their own cost and expense.
9.3 COMPANY NAME. Each Shareholder acknowledges and agrees that the name
"Midwest Surgical Services, Inc." or any derivations thereof are important
elements of the Company's business and goodwill and covenants that following the
Closing Date he or she will not conduct a business utilizing the above-described
name without the prior written consent of the Company.
9.4 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS CONCERNING TERMINATION
Of S ELECTION.
(a) DEFINITIONS. The following terms, as used herein, have the
following meanings when used hereinafter:
"C Corporation Period" means the period commencing on the S
Termination Date.
"S Corporation Period" means, as to the Company, the period commencing
on the effective date of its S election and ending on the date immediately
preceding the S
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Termination Date.
"S Corporation Taxable Income" means the taxable income of the Company
from all sources during the S Corporation Period.
"S Short Year" means that portion of the S Termination Year of the
Company as defined in Section 1362(c)(1)(A) of the Code.
"S Termination Date" means the date on which the S corporation status
of the Company is terminated pursuant to Section 1362(d)(2) of the Code and
handled in accordance with Section 1362(e)(6)(D) and (e)(5) of the Code.
"S Termination Year" has the meaning set forth in Section 1362(e)(4)
of the Code.
(b) TERMINATION OF S ELECTION; S TERMINATION YEAR
(i) Termination of S Status. The Company made a valid election
under Section 1362(a) of the Code to be taxed in accordance with the provisions
of Subchapter S of the Code, for its tax year beginning April 11, 1997 (the "S
Election"). The Shareholders acknowledge that the Closing will terminate the
Company's S Election pursuant to Section 1362(d)(2) of the Code.
(ii) Effective Date. The S Termination Date shall be on the
Closing Date.
(iii) S Termination Year. The fiscal year in which the S
corporation status of the Company is terminated will be an S Termination Year
with respect to the Company for federal income tax purposes, as defined in
Section 1362(e)(4) of the Code.
(iv) S Short Year. The S Short Year of the Company shall be that
portion of its S Termination Year beginning on the initial day of its fiscal
year and ending on the day immediately preceding the S Termination Date. For
federal income tax purposes, the Company will be treated as an S corporation
during its S Short Year.
(c) ALLOCATION OF INCOME.
(i) Allocation Election. Tax items shall be allocated to the S
Short Year pursuant to normal tax accounting rules (that is, the "closing of the
books method") rather than by the pro rata allocation method contained in
Section 1362(e)(2) of the Code.
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(ii) Filing of Tax Returns. In respect to the foregoing
allocation, and subject to review by the Shareholders prior to filing upon
written request, the Company shall cause to be prepared, at its expense, and
shall timely file all tax returns for the S Short Year required by federal,
state and local law and, when appropriate, shall allocate the tax items to the S
Short Year pursuant to normal tax accounting rules (that is, the "closing of the
books method") rather than the pro rata allocation method contained in Section
1362(e)(2) of the Code.
(d) LIABILITY FOR TAXES INCURRED DURING S CORPORATION YEARS INCLUDING
S SHORT YEAR. The Shareholders shall pay (and shall indemnify, defend and hold
harmless the Company from and against liability with respect to) any and all
Taxes that are imposed on the Shareholders or the Company and attributable to
the taxable income of the Company, for all taxable periods (or that portion of
any period including the S Short Year) during which the Company was an S
corporation, including but not limited to, any taxable income of the Company
recognized as a result of the Closing; provided, however, that notwithstanding
the foregoing the Company shall pay (and shall indemnify, defend and hold
harmless the Shareholders from and against liability with respect to) any and
all Taxes that are imposed on the Shareholders or the Company and attributable
to the taxable income of the Company from and after the Closing other than any
Taxes imposed as a result of the Closing. The Shareholders shall pay any and all
Taxes that are imposed on the Shareholders or the Company as a result of the
Company's S Election being treated as invalid or ineffective for any reason or
such election being revoked or terminated prior to the S Termination Date.
(e) If any Shareholder receives notice of an intention by a taxing
authority to audit any return of the Shareholder that includes any item of
income, gain, deduction, loss or credit reported by the Company with respect to
the S Corporation Period that the Shareholder has reason to believe may affect
the Company's tax returns during the C Corporation Period, the Shareholder shall
inform LVCI and the Company, in writing, of the audit promptly after receipt of
such notice. If the Shareholder receives notice from a taxing authority of any
proposed adjustment for which LVCI may be required to indemnify hereunder (a
"Proposed Adjustment"), the Shareholder shall give notice to LVCI and the
Company of the Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from the Shareholder, LVCI may
request that the Shareholder contest such Proposed Adjustment and the
Shareholder shall permit LVCI to participate in (but not to control) such
proceedings. If LVCI requests that any Proposed Adjustment be contested, then
the Shareholder shall, at LVCI's expense, contest the Proposed Adjustment or at
the option of LVCI permit LVCI to contest the Proposed Adjustment (including
pursuing all administrative and judicial appeals and processes). LVCI shall pay
to such Shareholder all reasonable costs and expenses (including reasonable
attorneys' and accountants' fees) that the Shareholder may incur in contesting
such
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<PAGE> 43
Proposed Adjustments. No Shareholder shall make, accept or enter into a
settlement or other compromise, with respect to any Taxes indemnified hereunder,
or forego or terminate any proceeding undertaken hereunder without the consent
of LVCI, which consent shall not be unreasonably withheld. The Shareholders will
reasonably assist if LVCI contests any Proposed Adjustment.
(f) If the Company receives notice of an intention by a taxing
authority to audit any return of the Company that includes any item of income,
gain, deduction, loss or credit reported by the Company with respect to the
period after the Closing during which the Company is a C corporation that the
Company has reason to believe may affect the Shareholders' tax returns during
the S Corporation Period, the Company shall inform the Shareholders, in writing,
of the audit promptly after receipt of such notice. If the Company receives
notice from a taxing authority of any proposed adjustment for which an
Indemnifying Shareholder may be required to indemnify the Company hereunder (a
"Company Proposed Adjustment"), the Company shall give notice to the
Shareholders of the Company Proposed Adjustment promptly after receipt of such
notice from a taxing authority. Upon receipt of such notice from the Company,
the Shareholders may, by in turn giving prompt written notice to the Company,
request that the Company contest such Company Proposed Adjustment. If any
Shareholder requests that any Company Proposed Adjustment be contested, then the
Company shall contest the Company Proposed Adjustment (including pursuing all
administrative and judicial appeals and processes) at the requesting
Shareholder's expense and shall permit such Shareholder to participate in (but
not to control) such proceeding.
(g) The Company, LVCI and the Shareholders shall cooperate fully with
each other in all matters relating to Taxes and in the determination of amounts
payable hereunder. In the case of disagreement as to the course of action to be
pursued in dealing with taxing authorities (including, without limitation,
matters with respect to preparation and filing of tax returns, conduct of
audits, and proceedings in courts), the decision of the party (LVCI and the
Company, on the one hand, or the Shareholders, on the other hand) who will
economically benefit from or be burdened by the course of action (or in the case
both parties benefit and/or are burdened, the decision of the party with the
greatest benefit or burden) shall control.
(h) (i) The Shareholders shall cooperate with LVCI in taking such
actions necessary and appropriate (including timely filing such forms, tax
returns, elections, schedules and other documents as may be required), at LVCI'S
cost and expense, to effect and preserve a timely Section 338(h)(10) election in
accordance with the requirements of Section 338 of the Code and the Treasury
Regulations promulgated thereunder (and any corresponding elections under state
or local tax law) (collectively, the "Section 338(h)(10) Elections"), and
Shareholders and LVCI shall report the sale of the Shares pursuant to this
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<PAGE> 44
Agreement consistently with the Section 338(h)(10) Elections and shall take no
position contrary thereto or inconsistent therewith in any Tax Return, any
discussion with or proceeding before any taxing authority, or otherwise. The
Shareholders shall pay, and LVCI shall reimburse the Shareholders for, any and
all Taxes imposed on the Company attributable to the making of the Section
338(h)(10) Elections. LVCI shall provide the Shareholders with five (5) copies
of an Internal Revenue Form 8023, "Corporate Qualified Stock Purchases,"
completed as reasonably agreed by the parties and the Shareholders shall duly
execute and deposit with LVCI such copies not later than thirty (30) days after
receipt from LVCI. LVCI shall be responsible for the preparation and filing of
all forms and documents required in connection with the Section 338(h)(10)
Elections and shall provide the Shareholders with copies of (i) any necessary
corrections, amendments or supplements to such Form 8023 as reasonably agreed to
by the parties or as necessary to conform to the allocation of the Purchase
Price as described herein, (ii) all attachments required to be filed therewith
pursuant to applicable Treasury Regulations, and (iii) any comparable forms and
attachments with respect to any applicable state or local elections being made
pursuant to the Section 338(h)(10) Elections. At the request of LVCI, the
Shareholders shall execute and deliver to LVCI within ten (10) days after a
request therefor by LVCI such documents or forms as are required by any tax laws
to complete properly the Section 338(h)(10) Elections. The Shareholders and LVCI
shall cooperate fully with each other and make available to each other such Tax
data and other information as may be reasonably required by such Shareholders or
LVCI in order to timely file the Section 338(h)(10) Elections and any other
required statements or schedules. The Shareholders shall (x) promptly execute
and deliver to the LVCI any amendments subsequent to the filing of the Section
338(h)(10) Elections to Form 8023 (and any comparable state and local forms) and
attachments which are required to be filed under applicable law and are
reasonably requested by LVCI, (y) take such additional steps as reasonably
requested by LVCI to comply with all of the requirements of Section 338(h)(10)
of the Code and the Treasury Regulations thereunder, and (z) take no action
which is inconsistent with the requirements for filing the Section 338(h)(10)
Election under the Code and the applicable Treasury Regulations.
(ii) In addition, as soon as practicable after the Closing Date,
but in no event later than the date ninety (90) days prior to the due date of
the Form 8023, LVCI shall provide to Shareholders a proposed statement (the
"Allocation Statement") allocating the total of the Purchase Price, and any
other payments pursuant to this Agreement that are properly treated as
additional Purchase Price for tax purposes, among the different assets of the
Company. Shareholders shall not unreasonably withhold their consent to such
allocation. Shareholders and LVCI shall attempt, in good faith, to resolve any
disagreement as to the allocation of the Purchase Price. If Shareholders and
LVCI are unable to reach an agreement, Shareholders and LVCI shall mutually
agree to the appointment of a nationally recognized accounting firm to resolve
any disagreement, whose determination shall be final and binding on the parties.
If the Shareholders and LVCI are
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<PAGE> 45
unable to agree on the appointment of a nationally recognized accounting firm,
Shareholders and LVCI each shall designate such a firm, and such designated
firms shall select a third firm to resolve the disagreement. The fees of such
accounting firm shall be borne fifty percent (50%) by the Shareholders and fifty
percent (50%) by LVCI.
9.5 RELEASE OF PERSONAL GUARANTIES. LVCI shall take such action as it
deems commercially reasonable to effect the release of any personal guaranties
by the Shareholders under the Contracts after the Closing Date. Each such
guarantee is identified on Schedule 9.5. In the event LVCI is not able to effect
the release of any personal guaranty on terms that it deems commercially
reasonable, LVCI agrees to indemnify and hold harmless any Shareholder from any
claims arising from such personal guarantee pursuant to Article 10 hereof.
9.6 WINDING DOWN OF PLANS. LVCI agrees to cause the Company to make
accrued contributions reflected on the Closing Date Financial Statements to the
Company's 401(k) plan and Money Purchase Plan and to take such action as may be
required by applicable laws or regulations and the terms of such Plans as a
result of the Company's termination of such Plans, effective immediately prior
to the Closing Date, including causing the Company to make distributions to the
participants therein as required thereby, provided that nothing herein shall
limit LVCI's rights to indemnification arising from any breach of the
representations and warranties contained in Section 5.18 hereof.
9.7 COVENANT OF THE MANAGER'S REGARDING MANAGEMENT OF THE BUSINESS. The
Managers represent that they shall manage the Company's business in the ordinary
course, taking on contracts consistent with the Company's historical business
mix and profitability objectives and shall manage working capital balances to
achieve historical levels relative to the Company's revenue base.
9.8 AGREEMENT AS TO BOARD COMPOSITION. In order to provide for the
harmonious management of the Company, LVCI agrees that it shall vote its shares
in the Company so as to provide that at all times prior to July 31, 2001 the
Company's Board of Directors will at all times consist of two designees of LVCI,
two designees of the Managers and one independent director designated jointly by
LVCI and the Managers. LVCI further agrees to vote its shares to amend the
Company's Articles of Incorporation and Bylaws, as appropriate, to provide that
the Board of Directors may act only upon the affirmative vote of a majority of
all directors.
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<PAGE> 46
9.9 WORKING CAPITAL. LVCI shall make available to the Company a line of
credit for working capital to be used consistent with and for the purposes
specified in Section 9.7.. The amount of working capital LVCI may be required to
provide the Company shall in no event exceed 80 % of the Company's accounts
receivable aged sixty (60) days or less and shall also be subject to the
following limits:
<TABLE>
<CAPTION>
Closing - 4/30/99 5/1/99 - 7/31/01
----------------- ----------------
<S> <C> <C>
Maximum Required
Working Capital $1,000,000 $1,500,000
</TABLE>
9.10 ACQUISITIONS. During the period ending July 31, 2001, LVCI agrees
that all services provided by LVCI or its subsidiaries with respect to mobile
intraocular surgery using microscopes and phacoemulsifiers performed by LVCI and
its existing subsidiaries will be performed by the Company. LVCI further agrees
that during the period ending July 31, 2001, it will not acquire a controlling
interest in any business entity performing intraocular surgery without the
consent of the Company's Board of Directors.
9.11 NO SUBORDINATION. LVCI agrees that is shall not enter into any
agreement with any financial institution, creditor or other third party
providing for subordination of payment of the Contingent Consideration without
the consent of a Majority of the Shareholders, which consent will not be
unreasonably withheld.
9.12 CHANGES IN ACCOUNTING PRINCIPLES. Except as required by GAAP or
applicable law, LVCI agrees that prior to July 31, 2001, it will not change the
accounting principles and practices of the Company as reflected on the Company's
October 31, 1998 Financial Statement.
10. INDEMNIFICATION
The Shareholders and LVCI each make the following covenants that are
applicable to them, respectively.
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<PAGE> 47
10.1 LVCI LOSSES.
(a) Each of the Shareholders severally, but not jointly, agrees to
indemnify and hold harmless LVCI and the Company, and their respective
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all LVCI Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by the Major Shareholders in or pursuant to
Article 5, Part A of this Agreement (including, without limitation, the
representations and warranties contained in any certificate delivered pursuant
hereto) or by such Shareholder pursuant to Article 5, Part B being untrue or
incorrect in any material respect; (ii) the items described in Schedule 5.7 or
Schedule 5.15 hereof except in any instance and to the extent LVCI Losses result
from the negligence or misconduct of LVCI or the Company occurring after the
Closing, but only to the extent any such Losses exceed any reserves therefore on
the Closing Date Financial Statements or; (iii) any failure by the Shareholder
to observe or perform his or her covenants and agreements set forth in this
Agreement or in any other agreement or document executed by him or her in
connection with the transactions contemplated hereby.
(b) "LVCI Losses" shall mean all damages (including, without limitation,
amounts paid in settlement with the Shareholders' consent, which consent may not
be unreasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and Agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of LVCI and the Company or such other persons to
indemnification hereunder.
10.2 EMPLOYEE COMPENSATION AND BENEFITS. Each of the Shareholders
severally, but not jointly agrees to indemnify and hold LVCI and the Company,
and their respective directors, officers, employees, representatives, agents and
attorneys harmless from and against any and all LVCI Losses arising from claims
made by employees of the Company, regardless of when made, for wages, salaries,
bonuses, pension, workmen's compensation, medical insurance, disability,
vacation, severance, pay in lieu of notice, sick benefits or other compensation
or benefit arrangements to the extent the same are based on employment service
rendered to the Company prior to the Closing Date or injury or sickness
occurring prior to the Closing Date (collectively, "Employee Claims"), except to
the extent such Employee Claims arise from the Company's failure to pay any
amounts accrued with respect to such Employee Claims on the Company's Closing
Date Financial Statements or to fulfill its obligations under Section 9.6.
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<PAGE> 48
10.3 SHAREHOLDER LOSSES.
(a) LVCI agrees to indemnify and hold harmless the Shareholders, and
their respective representatives, agents, attorneys, successors and assigns
from, against and in respect of any and all Shareholder Losses (as defined
below) suffered, sustained, incurred or required to be paid by any of them by
reason of (i) any representation or warranty made by LVCI in or pursuant to this
Agreement (including, without limitation, the representations and warranties
contained in any certificate delivered pursuant hereto) being untrue or
incorrect in any material respect; (ii) any failure by LVCI to observe or
perform its covenants and agreements set forth in this Agreement or any other
agreement or document executed by it or the Company in connection with the
transactions contemplated hereby; or (iii) any liability arising from or based
upon the operation of the Company subsequent to the Closing Date other than as a
result of the breach of a representation or warranty set forth in Section 5
hereof, except in any instance and to the extent Shareholder Losses result from
the negligence or misconduct of the Shareholders, or any of them, prior to the
Closing Date.
(b) "Shareholder Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of LVCI and the Company,
which consent may not be reasonably withheld), losses, obligations, liabilities,
claims, deficiencies, costs and expenses (including, without limitation,
reasonable attorneys' fees), penalties, fines, interest and monetary sanctions,
including, without limitation, reasonable attorneys' fees and costs incurred to
comply with injunctions and other court and Agency orders, and other costs and
expenses incident to any suit, action, investigation, claim or proceeding or to
establish or enforce the right of the Shareholders or such other persons to
indemnification hereunder.
10.4 NOTICE OF LOSS. Except to the extent set forth in the next sentence, a
party to the Agreement will not have any liability under the indemnity
provisions of this Agreement with respect to a particular matter unless a notice
setting forth in reasonable detail the breach or other matter which is asserted
has been given to the Indemnifying Party (as defined below) and, in addition, if
such matter arises out of a suit, action, investigation, proceeding or claim by
a third party ("Third Party Claim"), such notice is given promptly, but in any
event within ten (10) days after the Indemnified Party (as defined below) is
given notice of the Third Party Claim. Notwithstanding the preceding sentence,
failure of the Indemnified Party to give notice hereunder shall not release the
Indemnifying Party from its obligations under this Section 10, except to the
extent the Indemnifying Party is actually prejudiced by such failure to give
notice. With respect to LVCI Losses, the Shareholders shall be the Indemnifying
Party and LVCI and its directors, officers, employees, representatives, agents
and attorneys shall be the Indemnified Party. With respect to Shareholder
Losses, LVCI shall be the Indemnifying Party and the Shareholders and their
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<PAGE> 49
representatives, agents, attorneys, successors and assigns shall be the
Indemnified Party.
10.5 RIGHT TO DEFEND.
(a) The Indemnifying Person shall be entitled to assume and control
the defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Indemnified Person
within ten (10) business days of the receipt of such notice from the Indemnified
Person; provided, however, that LVCI shall have the right to control the defense
to the extent of any Third Party Claim seeking equitable relief or remedial
action. Notwithstanding the foregoing, if there exists, under applicable
standards of professional conduct a conflict between the positions of such
parties on any significant issue that would make it inappropriate in the
reasonable judgment of counsel for the Indemnified Person, for the same counsel
to represent both the Indemnified Person and the Indemnifying Person, the
Indemnified Person shall be entitled to retain its own counsel at the
Indemnifying Person's sole expense, provided that the Indemnifying Person shall
not be required to pay for more than one such counsel for all Indemnified
Persons in connection with such Third Party Claim. If the Indemnifying Person
elects not to defend or otherwise deal with any Third Party Claim which relates
to any Losses indemnified against hereunder, fails to notify the Indemnified
Person of its election as provided herein or contests its obligation to
indemnify the Indemnified Person against such Losses, the Indemnified Person may
defend against, negotiate, settle or otherwise deal with such Third Party Claim,
provided that any payment made by the Indemnified Person with respect to such
Third Party Claim shall not, in and of itself establish that the Third Party
Claim is subject to indemnification or determine the amount of Losses with
respect thereto. If the Indemnified Person defends any Third Party Claim, then
the Indemnifying Person shall reimburse the Indemnified Person for the expenses
of defending such Claim upon submission of periodic bills.
(b) No such Third Party Claim may be settled by the Indemnifying
Person without the prior written consent of the Indemnified Person (which
consent shall not be unreasonably withheld if the Indemnified Person would not
be unduly prejudiced); except that a Third Party Claim which does not involve
allegations of criminal or fraudulent conduct by the Indemnified Person and
seeks only nonexemplary damages against the Indemnified Person may be settled by
the Indemnifying Person if such settlement involves a complete release of the
Indemnified Person from liability. Each Shareholder agrees for purposes hereof
that the persons who previously held a majority of the Company Stock (or their
successors and assigns) are authorized to act as agent for the Shareholders and
shall be permitted to direct the defense of any LVCI Losses and to settle or
otherwise resolve any LVCI Losses without the consent of any other Shareholders
(including, without limitation, resolving any issues relating to recoupment
under Section 10.7), and that any action taken by such persons shall be binding
on all of the Shareholders, provided that such persons shall
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<PAGE> 50
not be entitled to defend, settle or resolve any LVCI Losses against a
Shareholder arising from any representation or warranty made by such Shareholder
pursuant to Article 5, Part B.
10.6 COOPERATION. Each of LVCI, the Company, and the Shareholders, and each
of their affiliates, successors and assigns shall cooperate with each other in
the defense of any suit, action, investigation, proceeding or claim by a third
party and, during normal business hours, shall afford each other access to their
books and records and employees relating to such suit, action, investigation,
proceeding or claim and shall furnish each other all such further information
that they have the right and power to furnish as may reasonably be necessary to
defend such suit, action, investigation, proceeding or claim, including, without
limitation, reports, studies, correspondence and other documentation relating to
Environmental Protection Agency, Occupational Safety and Health Administration,
and Equal Employment Opportunity Commission matters.
10.7 RECOUPMENT AND DISPUTE RESOLUTION.
(a) LVCI shall have the option of recouping all or any part of
any Losses it may suffer and for which it has a right to indemnification
hereunder by (i) notifying the Shareholders in writing that LVCI intends to
reduce the principal amount outstanding under each of its LVCI Notes; and (ii)
reducing the principal amount outstanding under such LVCI Notes unless the
Shareholder, (in the case of a claim under Article 5, Part B) or persons who
previously held a majority of the Company Stock (or their successors and
assigns) acting as agent for the Shareholders (in the case of any other claims
against the Shareholders) objects to such reduction as provided herein. In the
case of any such objection, LVCI shall pay over to the Escrow Agent under an
Escrow Agreement in substantially the form attached as Exhibit G an amount equal
to such claimed principal reduction. The terms of such Escrow Agreement are
hereby approved and ratified in all respects by the Shareholders and each of the
Shareholders agrees to be bound by its terms. Such amount shall be paid to the
Escrow Agent at such time or times as the principal reduction amount would
otherwise have become due and payable to the Shareholders.
In the case of any Third Party Claim giving rise to Losses,
the amount of which is uncertain, LVCI shall notify the Shareholders of its
reasonable good faith estimate of the amount of Losses it could ultimately
expect to pay with respect to such Claim and pay over to the Escrow Agent such
amount at the time such amount would otherwise be due. The written notice shall
specify the general, factual basis for such claim and the amount by which the
LVCI Notes are to be reduced (or in the case of a Third Party Claim giving rise
to Losses, the amount of which is uncertain, the amount to be placed in Escrow).
If the Shareholders have any objection to the reduction (or in the case of a
Third Party Claim giving rise to Losses, the amount of which is uncertain, the
amount to be
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<PAGE> 51
placed in Escrow), the Shareholders shall have 30 days to make such
investigation of the claim as Shareholders deem necessary or desirable. For the
purposes of such investigation, LVCI agrees to make available to Shareholders or
their authorized representatives the information relied upon by LVCI to
substantiate the reduction. If LVCI and Shareholders do not agree within such 30
day period, either as to the reduction or the amount to be placed in escrow, the
matter shall be submitted to arbitration in accordance with the arbitration
rules of the American Arbitration Association then in effect. Within such 30 day
period, the parties shall jointly select a single arbitrator (the "Recoupment
Arbitrator"), the selection of which will not be unreasonably withheld by either
party, who shall have substantial experience with respect to the substance of
the matters in dispute and shall have the authority to hold hearings and to
render a decision in accordance with the arbitration rules of the American
Arbitration Association. The Recoupment Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Recoupment Arbitrator shall be set forth in writing, delivered to each of LVCI
and the Shareholders and shall be conclusive and binding on the parties and
shall be non-appealable. The party whose position is not chosen by the
Recoupment Arbitrator shall pay all expenses of the Recoupment Arbitrator.
(b) To the extent LVCI does not recoup, pursuant to Section
10.7(a), any Loss it may suffer and for which it has a right to indemnification
hereunder, LVCI shall have the option of recouping all or any part of such
Losses by (i) notifying the Shareholders in writing at least 30 days prior to
the making of any Installment Payment hereunder that LVCI intends to reduce the
amount of any Contingent Consideration otherwise payable to the Shareholders;
and (ii) reducing the amount of Contingent Consideration unless the Shareholder
(in the case of a claim under Article 5, Part B) or persons who previously held
a majority of the Company Stock (or their successors and assigns) acting as
agent for the Shareholders (in the case of any other claims against the
Shareholders) objects to such reduction as provided herein. In the case of any
such objection, LVCI shall pay over to the Escrow Agent an amount equal to such
reduction. In the case of any Third Party Claim giving rise to Losses the amount
of which is uncertain, LVCI shall notify the Shareholders of its reasonable good
faith estimate of the amount of Losses it could ultimately expect to pay with
respect to such Claim and pay over to the Escrow Agent such amount. Such amounts
shall be paid to the Escrow Agent at such time or times as the Installment
Payment(s) would otherwise have become due and payable to the Shareholders. Any
amount of the Contingent Consideration not in dispute shall be paid in
accordance with Section 3. The written notice shall specify the general, factual
basis for such claim and the amount the Contingent Consideration is to be
reduced (or in the case of a Third Party Claim giving rise to Losses, the amount
of which is uncertain, the amount to be placed in Escrow). If the Shareholders
have any objection to the reduction (or in the case of a Third Party Claim
giving rise to Losses, the amount of which is uncertain, the amount to be
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<PAGE> 52
placed in Escrow), the Shareholders shall have 30 days to make such
investigation of the claim as Shareholders deem necessary or desirable. For the
purposes of such investigation, LVCI agrees to make available to Shareholders or
their authorized representatives the information relied upon by LVCI to
substantiate the reduction. If LVCI and Shareholders do not agree within such 30
day period, either as to the reduction or the amount to be placed in escrow, the
matter shall be submitted to arbitration in accordance with the arbitration
rules of the American Arbitration Association then in effect. Within such 30 day
period, the parties shall jointly select a single arbitrator (the "Recoupment
Arbitrator"), the selection of which will not be unreasonably withheld by either
party, who shall have substantial experience with respect to the substance of
the matters in dispute and shall have the authority to hold hearings and to
render a decision in accordance with the arbitration rules of the American
Arbitration Association. The Recoupment Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Recoupment Arbitrator shall be set forth in writing, delivered to each of LVCI
and the Shareholders and shall be conclusive and binding on the parties and
shall be non-appealable. The party whose position is not chosen by the
Recoupment Arbitrator shall pay all expenses of the Recoupment Arbitrator.
10.8 LIMITATIONS ON INDEMNIFICATION.
(a) An indemnifying party shall not have any liability under
Section 10.1 hereof unless the aggregate amount of Losses to the indemnified
parties finally determined to arise thereunder exceeds $35,000 (the "Basket")
and, in such event the indemnifying party shall be required to pay the entire
amount of such Losses in excess of the Basket.
(b) The maximum amount of Losses which the Shareholders shall be
liable under Section 10.1 hereof shall not exceed $3,500,000.
(c) Notwithstanding any other provision hereof, no Shareholder
shall be liable for more than his or her pro rata share of LVCI Losses. For
purposes hereof, a Shareholder's pro rata share of LVCI Losses shall equal his
or her percentage ownership of Company Stock immediately prior to the Closing.
Each Shareholder further agrees that the Shareholder shall be responsible for
the Shareholder's share of LVCI Losses, but only his share of LVCI Losses,
regardless of whether LVCI proceeds directly against the Shareholder or
exercised its right of recoupment under Section 10.7. Each Shareholder further
agrees that if any of the other Shareholders have paid more than their share of
LVCI Losses, by reason of LVCI's right of recoupment under Section 10.7 or
otherwise, the other Shareholders will have a right of contribution from such
Shareholder to the point that such Shareholder has paid his share of LVCI
Losses. Each Shareholder further agrees, upon written notice from one or more
other Shareholders to promptly pay to the other
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<PAGE> 53
Shareholders any amounts due hereunder. In the event it becomes necessary to
enforce the right of contribution provided hereunder, each Shareholder further
agrees that the Shareholders with a right of contribution shall be entitled to
reasonable attorney's fees and reimbursement of other costs associated with
enforcement of their right of contribution.
(d) The amount of any Loss shall be net of any amounts
recovered (regardless of time) or recoverable with diligent effort by the
Indemnified Party under insurance policies with respect to such Loss and shall
be on an "After-Tax Basis." For purposes hereof "After-Tax Basis" shall mean an
amount which, after subtraction of the amount of all Taxes payable by the
recipient thereof as a result of the receipt or accrual of such payment, and
after taking into account (i) the increase of all Taxes payable by such
recipient for all affected taxable years as a result of the event or occurrence
giving rise to such payment and (ii) the reduction of Taxes payable by the
recipient for all taxable years ending on or before the end of the taxable year
in which such payment is made as a result of the event or occurrence giving rise
to such payment, shall be sufficient as of the date of payment to compensate the
recipient for the event or occurrence giving rise to such payment.
10.9 EXCLUSIVITY OF REMEDIES. LVCI hereby acknowledges and agrees that,
except with respect to claims based upon breach of covenant or agreement (with
respect to which equitable relief would be available as provided herein or in
the Employment Agreements or Noncompetition Agreements), the sole and exclusive
remedy by LVCI and the Company, and their respective directors, officers,
employees, representatives, agents and attorneys with respect to any and all
claims relating to the subject matters of this Agreement shall be pursuant to
the indemnification provisions set forth in Article 10.
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The LVCI Stock which may be acquired by the Shareholders pursuant to
this Agreement is being acquired solely for their own accounts, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
THE SHARES OF LVCI STOCK WHICH MAY BE ISSUED TO THE SHAREHOLDERS
PURSUANT TO THIS AGREEMENT WILL NOT BE REGISTERED UNDER THE 1933 SECURITIES ACT,
AND WILL NOT BE LISTED AND ELIGIBLE FOR TRADING ON THE NASDAQ NATIONAL MARKET.
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<PAGE> 54
11.1 INCIDENTAL REGISTRATION RIGHTS.
If LVCI at any time proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
LVCI Stock for sale to the public) pursuant to a Qualified Public Offering (as
such term is defined below), each such time it will give written notice to all
holders of outstanding LVCI Stock of its intention so to do. Upon the written
request of any such holder of LVCI Stock, received by LVCI within 30 days after
the giving of any such notice by LVCI, to register any of the LVCI Stock, LVCI
will use its best efforts to cause the LVCI Stock as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by LVCI, all to the extent requisite
to permit the sale or other disposition by the holder of such LVCI Stock so
registered. The number of shares of LVCI Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders of LVCI Stock
based upon the number of shares of LVCI Stock owned by such holders) if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
LVCI therein. Notwithstanding the foregoing provisions, LVCI may withdraw any
registration statement referred to in this Article 11 without incurring any
liability to the holders of LVCI Stock.
As used herein, the term "Qualified Public Offering" shall mean a firm
commitment underwritten public offering of shares of LVCI Common Stock in which
the aggregate price paid for such shares by the public shall be at least twenty
million dollars ($20,000,000).
11.2 REGISTRATION PROCEDURES.
If and whenever LVCI is required by the provisions of Section 11.1 to use
its best efforts to effect the registration of any shares of LVCI Stock under
the Securities Act, LVCI will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which shall be on Form S-3 or other form of general applicability satisfactory
to the managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in
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<PAGE> 55
paragraph (a) above and comply with the provisions of the Securities Act with
respect to the disposition of all LVCI Stock covered by such registration
statement for such period;
(c) furnish to each seller of LVCI Stock, and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the LVCI Stock covered by such registration statement;
(d) use its best efforts to register or qualify the LVCI Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the managing underwriter reasonably shall request,
provided, however, that LVCI shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the LVCI Stock covered by
such registration statement with any securities exchange on which the Common
Stock of LVCI is then listed;
(f) immediately notify each seller of LVCI Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which LVCI has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(g) use its best efforts to furnish on the date that LVCI
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing LVCI for the purposes of
such registration, addressed to the underwriters, stating that such registration
statement has become effective under the Securities Act and that (A) to the best
knowledge of such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, and (B) the registration
statement, the related prospectus and each amendment or supplement thereof
comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements contained therein) and (ii) a letter dated such date from
the independent public accountants retained by LVCI, addressed to the
underwriters, stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such accountants, the
financial statements of LVCI included in the registration statement or the
prospectus, or any amendment or
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<PAGE> 56
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request.
For purposes of Section 11.1, the period of distribution of LVCI Stock in a
Qualified Public Offering shall be deemed to extend until each underwriter has
completed the distribution of all securities purchased by it, and the period of
distribution of LVCI Stock in any other registration shall be deemed to extend
until the earlier of the sale of all LVCI Stock covered thereby and 365 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of LVCI Stock
will furnish to LVCI in writing such information with respect to themselves and
the proposed distribution by them as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws.
In connection with a registration pursuant to Section 11.1, LVCI and each
seller agree to enter into a written agreement with the managing underwriter
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of LVCI's size and investment stature.
11.3 EXPENSES.
All expenses incurred by LVCI in complying with Section 11.2, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for LVCI, fees
and expenses (including counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, and costs of insurance but excluding any Selling Expenses, are
called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of LVCI Stock are called "Selling Expenses."
LVCI will pay all Registration Expenses in connection with each
registration statement under Section 11.2. All Selling Expenses in connection
with each registration statement under Section 11.2 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than LVCI (except to the extent LVCI shall be a
seller) as they may agree.
Any expenses incurred by the sellers in connection with the retention
of professional
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<PAGE> 57
advisors other than the underwriters shall be borne by the sellers.
11.4 INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the LVCI Stock
under the Securities Act pursuant to Section 11.1, LVCI will indemnify and hold
harmless each seller of such LVCI Stock thereunder, each underwriter of such
LVCI Stock thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such LVCI Stock was registered under the Securities Act pursuant to
Section 11.1, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each such seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided, however, that LVCI will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing.
(b) In the event of a registration of any of the LVCI Stock
under the Securities Act pursuant to Section 11.1 each seller of such LVCI
Stock; thereunder, severally and not jointly, will indemnify and hold harmless
LVCI, each person, if any, who controls LVCI within the meaning of the
Securities Act, each officer of LVCI who signs the registration statement, each
director of LVCI, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which LVCI or such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such LVCI Stock was registered under the Securities Act pursuant to
Section 11.1, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse LVCI and each such officer, director, underwriter and controlling
person for any legal or
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<PAGE> 58
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such seller, as such, furnished in writing to LVCI by such seller, and provided,
further, however, that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the shares sold by
such seller under such registration statement bears to the total public offering
price of all securities sold thereunder, but not in any event to exceed the
proceeds received by such seller from the sale of LVCI Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.4 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.4 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.4 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that the interests of the indemnified party reasonably
may be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of LVCI Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 11.4 but it is judicially determined (by the entry
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<PAGE> 59
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 11.4 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 11.4; then, and in each such
case, LVCI and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such holder is responsible for the portion
represented by the percentage that the public offering price of its LVCI Stock
as the case may be, offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and
LVCI is responsible for the remaining portion; provided, however, that, in any
such case, (A) no such holder will be required to contribute any amount in
excess of the public offering price of all such LVCI Stock offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 9(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
12. GENERAL
12.1 COOPERATION. The Company, the Shareholders and LVCI shall each deliver
or cause to be delivered to the other at such other times and places after the
Closing Date as shall be reasonably agreed to, such additional instruments as
the other may reasonably request for the purpose of carrying out this Agreement.
The Company will cooperate and use its reasonable efforts to have the present
officers, directors and employees thereof cooperate with LVCI on and after the
Closing Date in furnishing information, evidence, testimony and other assistance
in connection with any Tax return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
12.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
(a) COVENANTS AND AGREEMENTS. All covenants and agreements
made hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing and shall continue in full force
and effect thereafter according to their terms without limit as to duration,
except as otherwise expressly provided herein.
(b) REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein shall survive the Closing and shall continue in full
force and effect until August 1, 2000, except that (a) the representations and
warranties contained in Section 5.7 hereof shall survive until the earlier of
(i) the expiration of the applicable periods (including
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<PAGE> 60
any extensions) of the respective statutes of limitation applicable to the
payment of the Taxes to which such representations and warranties relate without
an assertion of a deficiency in respect thereof by the applicable taxing
authority or (ii) the completion of the final audit and determination by the
applicable taxing authority and final disposition of any deficiency resulting
therefrom, (b) the representations and warranties contained in Section 5.10
shall survive for a period of five (5) years following the Closing, (c) the
representations and warranties contained in Section 5.18 shall survive until the
expiration of the applicable period of the statutes of limitations applicable to
ERISA matters, and (d) the representations and warranties contained in Sections
5.1, 5.2, and 5.28 and Sections 6.1, 6.2 and 6.3 shall survive indefinitely.
(c) CLAIMS MADE PRIOR TO EXPIRATION. No claim under Article 10
for breach of a representation or warranty shall be made after the
representation or warranty expires. Notwithstanding the foregoing, the
termination of a survival period shall not affect the rights of an Indemnified
Party in respect of any claim made by any party with specificity, in good faith
and in writing to the Indemnifying Party in accordance with Sections 10.4 and
12.8 hereof prior to the expiration of the applicable survival period.
12.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
LVCI, and the heirs and legal representatives of the Shareholders.
12.4 ENTIRE AGREEMENT. This Agreement (including the schedules and exhibits
attached hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding among the Shareholders and LVCI, and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and this Agreement and the Exhibits hereto may be modified or amended only by a
written instrument executed by the Shareholders and LVCI.
12.5 COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.6 BROKERS AND AGENTS. Except as disclosed on Schedule 12.6, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other against all loss, cost,
damages or expense arising out of claims for fees or commissions of brokers
employed or alleged to have been employed by such indemnifying party.
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12.7 EXPENSES. LVCI will pay the fees, expenses and disbursements of LVCI
and its agents, representatives, accountants (including PricewaterhouseCoopers,
LLP) and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by LVCI
under this Agreement. Except as otherwise specifically provided in this
Agreement, the Shareholders will pay from personal funds and not from the funds
of the Company, any fees, expenses and disbursements of its agents,
representatives, accountants (excluding PricewaterhouseCoopers, LLP), counsel
and other business advisors incurred in connection with the subject matter of
this Agreement. Except as otherwise stated in Section 9.4(h)(i) hereof, the
Shareholders acknowledge that they, and not the Company or LVCI, will pay all
Taxes due upon receipt of the consideration payable to the Shareholders pursuant
to Section 2 hereof, and all sales, use, real property, transfer, recording,
gains, stock transfer and other similar fees in connection with the transactions
contemplated by this Agreement.
12.8 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (b) delivering the same
in person to an officer or agent of such party, or (c) telecopying the same with
electronic confirmation of receipt.
(i) If to LVCI, addressed to them at:
Laser Vision Centers, Inc.
540 Maryville Centre Drive, Suite 200
St. Louis, Missouri 63141
Telecopy No.: (314) 434-2424
Attn: Robert W. May
with copies to:
Dankenbring Greiman Osterholt & Hoffmann, P.C.
120 South Central Avenue, 5th Floor
St. Louis, Missouri 63105
Telecopy No.: (314) 862-4656
Attn: James R. Dankenbring, Esq.
(ii) If to the Shareholders, addressed thereto at the address
set forth on ANNEX I, with copies to such counsel as set forth below.
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(iii) If to the Company, addressed to:
Midwest Surgical Services, Inc.
10860 Nesbitt Ave., South
Bloomington, Minnesota 55437
Telecopy No.:
Attn: Thomas L. Eakins
with copies to:
Faegre & Benson, LLP
2200 Norwest Center
Minneapolis, Minnesota 55402
Telecopy No.: (612) 336-3026
Attn: David M. Vander Haar, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
12.9 ARBITRATION. Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in Minneapolis, Minnesota in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
A decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction. Except as otherwise specifically provided in this Agreement, the
direct expense of any arbitration proceeding shall be borne equally by the
Shareholders on the one hand, and LVCI and the Company, on the other hand.
12.10 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Missouri.
12.11 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
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12.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
12.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.14 INTERPRETATION. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof. The Schedules and Exhibits referred
to herein shall be construed with and as an integral part of this Agreement.
Disclosure of any fact or item in any Schedule referenced in a particular
section of this Agreement, shall, should the existence of the fact or item or
its content be relevant to any other section of this Agreement, be deemed to be
disclosed with respect to that other section whether or not an explicit
cross-reference appears, provided that the disclosure is sufficient to
reasonably inform LVCI of the information required to be disclosed by such other
section.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
LASER VISION CENTERS, INC.
By: /s/ John J. Klobnak
-----------------------------
Name: John J. Klobnak
---------------------------
Title: CEO
--------------------------
THE SHAREHOLDERS:
/s/ Paul C. Ehlen
--------------------------------
Paul C. Ehlen
/s/ Thomas L. Eakins
--------------------------------
Thomas L. Eakins
/s/ Paul W. Schmidt
--------------------------------
Paul W. Schmidt
/s/ Dr. Richard L. Lindstrom
--------------------------------
Dr. Richard L. Lindstrom
/s/ James A. Greiling
--------------------------------
James A. Greiling
/s/ Kipp Fesenmaier
--------------------------------
Kipp Fesenmaier
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<PAGE> 65
ANNEX I
TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF
DECEMBER 1, 1998 BY AND AMONG LASER VISION CENTERS, INC. AND
THE SHAREHOLDERS OF MIDWEST SURGICAL SERVICES, INC.
SHAREHOLDERS OF MIDWEST SURGICAL SERVICES, INC.:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PERCENTAGE
INTEREST IN
APRIL NOTE
NUMBER OF PAYMENTS AND
SHARES COMMON DATE(S) OF PERCENT JANUARY NOTE CONTINGENT
NAME AND ADDRESS STOCK ACQUISITION INTEREST AT CLOSING CONSIDERATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PAUL C. EHLEN 4,500 09/01/94 28.776% $2,219,060 0
7600 AUTO CLUB CIRCLE
BLOOMINGTON, MN 55438
- --------------------------------------------------------------------------------------------------------------------
THOMAS L. EAKINS 4,500 09/01/94 28.766% 113,505 40.4020%
5312 RIVER BLUFF CIRCLE
BLOOMINGTON, MN 55437
- --------------------------------------------------------------------------------------------------------------------
PAUL W. SCHMIDT 4,500 06/01/97 28.766% 113,505 40.4020%
8105 WEST 110TH STREET
BLOOMINGTON, MN 55438
- --------------------------------------------------------------------------------------------------------------------
DR. RICHARD L. LINDSTROM 1,350 09/01/94 8.633% 34,053 12.1210%
2811 WESTWOOD ROAD
WAYZATA, MN 55391
- --------------------------------------------------------------------------------------------------------------------
JAMES A. GREILING 150 09/18/96 4.796% 18,918 6.734%
9826 PURGATORY ROAD 300 09/07/98
EDEN PRAIRIE, MN 55437 300 11/30/98
- --------------------------------------------------------------------------------------------------------------------
KIPP FESENMAIER 38 01/01/97 0.243% 9,059 0.3410%
4865 15TH AVENUE, SE
ST. CLOUD, MN 56304
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
60
