As filed with the Securities and Exchange Commission on December 7, 2001
Registration Statement No. 333-71532
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TLC LASER EYE CENTERS INC.
(Exact Name of Registrant as Specified in its Charter)
Ontario 8093
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
980151150
(I.R.S. Employer
Identification Number)
5280 Solar Drive
Suite 300
Mississauga, Ontario L4W 5M8
(905) 602-2020
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
Andrew Beck, Esq.
Torys
237 Park Avenue
New York, New York
10017-3142
(212) 880-6000
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
David Chaikof, Esq.
Torys Lloyd Fiorini, Esq.
Suite 3000, Maritime Life Tower TLC Laser Eye Centers Inc.
P.O. Box 270, TD Centre 5280 Solar Drive
79 Wellington Street West Suite 300
Toronto, Ontario M5K 1E2 Mississauga, Ontario L4W 5M8
(416) 865-0040 (905) 602-2020
Thomas A. Litz, Esq.
Andrew J. Klinghammer, Esq.
Thompson Coburn LLP
One Firstar Plaza
St. Louis, Missouri 63101
(314) 552-6000
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this Registration
Statement and the conditions described herein have been satisfied or waived.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered (2) Offering Price Per Unit Aggregate Offering Price (3) Registration Fee(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares (1) 35,001,330 Shares $2.39 $86,616,498 $21,654.12
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes one attached common share purchase right per share.
(2) Based upon an assumed maximum number of shares that may be issued in the
merger. At the time of the merger, LaserVision is expected to have
outstanding 28,019,450 common shares and options and warrants to purchase
8,297,740 common shares.
(3) Estimated solely for the purpose of calculating the registration fee
calculated pursuant to Rule 457(f)(1) under the Securities Act of 1933 on
the basis of the aggregate market value of the LaserVision common stock to
be exchanged for the securities to be issued by the Registrant calculated
by multiplying $2.385, the average of the high and low prices per share of
the LaserVision common stock reported on the Nasdaq National Market System
on October 11, 2001, by the aggregate number of shares of LaserVision
common stock (i) outstanding on October 11, 2001 and (ii) issuable
pursuant to all outstanding options and warrants.
(4) The total amount of the registration fee was paid previously upon the
initial filing of this registration statement.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
[Logo of TLC Laser Eye Centers Inc.] [Logo of Laser Vision Centers, Inc.]
Proxy Statement/Management Proxy Statement
Information Circular
and
Prospectus for up to ______ common shares
Merger Proposed - Your Vote Is Important
The boards of directors of TLC Laser Eye Centers Inc. and Laser Vision
Centers, Inc. have approved an agreement and plan of merger whereby TLC will
acquire Laser Vision Centers, Inc. through a merger. In the merger, each share
of LaserVision common stock will be converted into the right to receive 0.95 of
a TLC common share. After the merger, TLC will change its name to TLC VISION
Corporation.
We expect that the merger generally will be tax-free for LaserVision
shareholders resident in the United States with respect to the TLC common shares
they receive in the merger.
The exchange ratio is fixed, meaning that it will not be adjusted based on
changes in the prices of the common stock of TLC or LaserVision prior to the
closing. Therefore, the value of the TLC common shares which you will receive in
the merger may increase or decrease before the merger.
Based on the closing price of TLC common shares on the Nasdaq National
Market System of $2.44 on December 6, 2001, the 0.95 exchange ratio represented
approximately $2.32 in value for each share of LaserVision common stock. We urge
you to obtain current market price quotations for TLC and LaserVision common
stock. The TLC common shares are traded on The Toronto Stock Exchange under the
symbol "TLC" and on the Nasdaq National Market System under the symbol "TLCV."
The common stock of LaserVision is traded on the Nasdaq National Market System
under the symbol "LVCI."
Each company will hold a meeting of its shareholders to vote on this
merger proposal and other selected matters. Whether or not you plan to attend
your meeting, please take the time to vote by completing and mailing the
enclosed proxy card. The date of the TLC meeting is ___________, 2002 and the
date of the LaserVision meeting is ___________, 2002. We enthusiastically join
the other members of our respective boards of directors in unanimously
recommending that our respective shareholders vote FOR the merger.
-------------------------- --------------------------
Elias Vamvakas John J. Klobnak
Chairman of the Board Chairman of the Board
TLC Laser Eye Centers Inc. Laser Vision Centers, Inc.
For a discussion of certain risk factors which you should consider in
evaluating the merger, see "Risk Factors" beginning on page 24.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the securities to be issued
under this document or determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated December 7, 2001 and is
being first mailed on or about ___________, 2001.
TLC LASER EYE CENTERS INC.
___________________
NOTICE OF 2001 ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________________, 2002
___________________
NOTICE IS HEREBY GIVEN THAT the 2001 annual and special meeting of the
shareholders of TLC Laser Eye Centers Inc. will be held on ___________________,
2002 at ___________________ Eastern Standard Time at ___________________, for
the following purposes.
1. To approve the transactions contemplated by an agreement and plan of
merger dated as of August 25, 2001, by and among Laser Vision Centers, Inc., TLC
and a wholly owned subsidiary of TLC that provides for the wholly owned
subsidiary of TLC to merge with and into LaserVision; in the merger, LaserVision
will become a subsidiary of TLC and each share of LaserVision common stock will
be converted into the right to receive 0.95 of a TLC common share;
2. To approve amending TLC's articles of incorporation to change its
corporate name from "TLC Laser Eye Centers Inc." to "TLC VISION Corporation";
3. To approve the continuance of TLC under the laws of New Brunswick,
including the adoption of new by-laws;
4. To approve amending TLC's articles of incorporation to increase the
maximum number of directors from ten to fifteen;
5. To approve the repricing of TLC stock options with an exercise price
above $8.688;
6. To elect eleven directors for the ensuing year. Four of the nominee
directors currently serve as directors of LaserVision and their election as
directors will be effective when the merger is completed;
7. To receive the consolidated financial statements of TLC for the fiscal
year ended May 31, 2001, together with the report of the auditors thereon;
8. To appoint Ernst & Young LLP as auditors of TLC for the ensuing year
and to authorize the directors to fix the remuneration to be paid to the
auditors;
9. To transact such further business as may properly come before the
annual and special meeting or any adjournment thereof; and
10. If necessary, to adjourn or postpone the annual and special meeting.
TLC's board of directors has fixed the close of business on
___________________, 2001 as the record date for determining TLC's shareholders
entitled to notice of and to vote at its annual and special meeting.
(ii)
TLC's management is soliciting the enclosed proxy. Please refer to the
accompanying joint proxy statement/prospectus, which is a management information
circular under Canadian law, for further information with respect to the
business to be transacted at the annual and special meeting. The joint proxy
statement/prospectus and its appendices are deemed incorporated by reference in
and to form part of this notice. TLC's management requests that you complete,
sign, date and return the enclosed proxy card promptly. You are cordially
invited to attend the annual and special meeting in person. The return of the
enclosed proxy card will not affect your right to revoke your proxy or to vote
in person if you do attend the annual and special meeting.
The TLC board of directors recommends that you vote FOR each of the above
proposals.
By Order of the Board of Directors
----------------------------------------
Lloyd D. Fiorini
General Counsel and Secretary
Mississauga, Ontario
___________________, 2001
Whether or not you expect to attend the annual and special meeting, please
complete, date and sign the enclosed proxy card and mail it promptly in the
enclosed envelope in order to assure that your shares are represented. If you
execute a proxy card, you may still attend the annual and special meeting,
revoke your proxy and vote your shares in person. However, attending the annual
and special meeting in person will not revoke your proxy unless you follow the
procedures explained under "Information Regarding the TLC Shareholder Meeting --
Revocation of Proxies" in the accompanying joint proxy statement/prospectus.
(iii)
[Letterhead of Laser Vision Centers, Inc.]
LASER VISION CENTERS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________________, 2002
To the Shareholders of Laser Vision Centers, Inc.:
We will hold a special meeting of shareholders of Laser Vision Centers,
Inc., a Delaware corporation, on ___________________, 2002, at
___________________, Central Standard Time, at ___________________, for the
purpose of considering and voting upon the following:
1. A proposal to approve the acquisition of LaserVision by TLC Laser
Eye Centers Inc., an Ontario corporation, in accordance with the
agreement and plan of merger, dated as of August 25, 2001, by and
among LaserVision, TLC and a wholly owned subsidiary of TLC, and the
transactions contemplated by that agreement. Under the terms of the
agreement and plan of merger, a subsidiary of TLC will merge with
and into LaserVision and LaserVision will become a wholly owned
subsidiary of TLC. In the merger, each share of LaserVision common
stock will be converted into the right to receive 0.95 of a TLC
common share;
2. To authorize the board of directors of LaserVision to adjourn the
special meeting to permit further solicitation of proxies, if
necessary; and
3. To transact any other business that may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
These items of business are described in the accompanying joint proxy
statement/prospectus. You may vote your shares at the special meeting if you are
a shareholder of record on ___________, 2001.
By Order of the Board of Directors
--------------------------------------------
Robert W. May
Vice Chairman, General Counsel and Secretary
St. Louis, Missouri
___________________, 2001
Please sign, date and return the enclosed proxy as soon as possible,
whether or not you plan to attend the special meeting. We have enclosed a
postage-paid return envelope for your convenience. You may withdraw your proxy
at any time prior to or at the special meeting.
Please read carefully the accompanying joint proxy statement/prospectus
and the copy of the merger agreement that appears as Appendix A to the joint
proxy statement/prospectus. The joint proxy statement/prospectus describes the
proposed merger and certain other transactions entered into in connection with
the merger. The joint proxy statement/prospectus and its appendices are deemed
incorporated by reference in and to form a part of this notice.
Your board of directors recommends that you vote FOR approval of the
agreement and plan of merger and the transactions contemplated thereby.
(iv)
TABLE OF CONTENTS
TLC LASER EYE CENTERS INC. NOTICE OF 2001 ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS..................................................................ii
LASER VISION CENTERS, INC. NOTICE OF SPECIAL MEETING OF SHAREHOLDERS.........iv
ADDITIONAL INFORMATION.........................................................1
QUESTIONS AND ANSWERS ABOUT THE MERGER.........................................2
SUMMARY........................................................................4
RISK FACTORS..................................................................24
FORWARD-LOOKING STATEMENTS....................................................35
INFORMATION REGARDING THE TLC SHAREHOLDER MEETING.............................37
Solicitation of Proxies.......................................................37
Appointment of Proxies........................................................37
Non-Registered Shareholders...................................................37
Revocation of Proxies.........................................................38
Voting of Proxies.............................................................39
Voting Shares and Record Date.................................................39
Business to be Conducted at the Meeting.......................................39
Other Business................................................................50
Information on Executive Compensation.........................................50
Report On Executive Compensation..............................................54
Compensation of Directors.....................................................55
Performance Graph.............................................................55
Statement of Corporate Governance Policies....................................56
Audit Committee Report........................................................58
Directors' and Officers' Liability Insurance..................................58
Certain Relationships and Related Party Transactions..........................59
Security Ownership of Certain Beneficial Owners and Management................59
Section 16(a) Beneficial Ownership Reporting Compliance.......................60
INFORMATION REGARDING THE LASERVISION SHAREHOLDER MEETING.....................61
Solicitation of Proxies.......................................................61
Appointment of Proxies........................................................61
Matters to Be Considered......................................................62
Record Date and Voting Rights.................................................62
Recommendation of LaserVision Board of Directors..............................62
Security Ownership of Certain Beneficial Owners And Management................62
THE MERGER....................................................................64
General.......................................................................64
Background and Reasons for the Merger.........................................65
Recommendation of TLC Board of Directors......................................68
Recommendation of LaserVision Board of Directors..............................70
Certain Projections (Unaudited)...............................................72
Opinion of SG Cowen...........................................................74
Opinion of Goldman Sachs......................................................88
Conditions to the Merger......................................................94
(v)
Non-Solicitation Obligations of LaserVision...................................96
Other Covenants...............................................................97
Termination of the Merger Agreement...........................................98
Amendments and Waivers to the Merger Agreement................................99
Representations and Warranties...............................................100
Exchange of Share Certificates...............................................100
Treatment of Fractional Shares...............................................101
Accounting Treatment.........................................................101
Material U.S. Federal Income Tax Consequences................................102
Interests of Specified Persons in the Merger.................................105
Fees Payable to Financial Advisors...........................................107
Resale Restrictions..........................................................107
Stock Exchange Listings......................................................107
Regulatory Matters...........................................................107
Fees and Expenses............................................................108
TLC SELECTED CONSOLIDATED FINANCIAL INFORMATION..............................109
LASERVISION SELECTED CONSOLIDATED FINANCIAL DATA.............................111
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION FOR TLC VISION............113
COMPARATIVE MARKET PRICE DATA................................................125
THE COMPANIES AFTER THE MERGER...............................................127
General......................................................................127
Plans and Proposals..........................................................127
Directors and Officers.......................................................127
Principal Holders of Securities..............................................131
Dividend Policy..............................................................131
Independent Auditors.........................................................131
Transfer Agent and Registrar.................................................131
Certain Relationships and Related Party Transactions.........................131
DESCRIPTION OF TLC SHARE CAPITAL.............................................133
General......................................................................133
TLC Shareholder Rights Plan..................................................133
BUSINESS OF TLC..............................................................136
General......................................................................136
Recent Developments..........................................................136
BUSINESS OF LASERVISION......................................................138
General......................................................................138
Recent Developments..........................................................139
COMPARISON OF SHAREHOLDER RIGHTS.............................................140
Ontario Law Compared To New Brunswick Law....................................140
Delaware Law Compared To New Brunswick Law...................................142
LEGAL MATTERS................................................................150
EXPERTS......................................................................150
(vi)
SHAREHOLDER PROPOSALS........................................................151
WHERE YOU CAN FIND MORE INFORMATION..........................................151
DIRECTORS' APPROVAL..........................................................154
APPENDIX A MERGER AGREEMENT..................................................A-1
APPENDIX B OPINION OF SG COWEN SECURITIES CORPORATION........................B-1
APPENDIX C OPINION OF GOLDMAN, SACHS & CO....................................C-1
APPENDIX D PROPOSED ARTICLES AND BY-LAWS OF TLC VISION CORPORATION...........D-1
APPENDIX E SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO)............E-1
APPENDIX F TLC SHAREHOLDERS RESOLUTIONS......................................F-1
APPENDIX G AUDIT COMMITTEE TERMS OF REFERENCE OF TLC LASER EYE CENTERS INC...G-1
APPENDIX H CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS.........................................................H-1
APPENDIX I ADDITIONAL INFORMATION FOR CANADIAN SHAREHOLDERS OF TLC ON
THE DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES...................................................................I-1
(vii)
ADDITIONAL INFORMATION
Copies of our respective annual reports on Form 10-K have been delivered
with this joint proxy statement/prospectus. This joint proxy
statement/prospectus also incorporates important business and financial
information about TLC and LaserVision from other documents filed with the U.S.
Securities and Exchange Commission that are not delivered with or included in
this joint proxy statement/prospectus. This information is available to you
without charge upon your written or oral request. You can obtain copies of each
of the documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses and telephone numbers:
TLC Laser Eye Centers Inc. Laser Vision Centers, Inc.
5280 Solar Drive 540 Maryville Centre Drive
Suite 300 Suite 200
Mississauga, Ontario L4W 5M8 St. Louis, Missouri 63141
Attention: Investor Relations Department Attention: Investor Relations
Department
Telephone: (905) 602-2020 Telephone: (314) 434-6900
If you would like to request documents, please do so by
___________________, 2002 in order to receive them before the meetings. If you
request any documents from either of us, we will mail them to you by first class
mail, or another equally prompt means, within one business day after the request
is received.
See "Where You Can Find More Information" on page 151 for more information
on where you can find reports and other information on TLC and LaserVision and
other documents that have been filed relating to the merger.
___________________
In this joint proxy statement/prospectus, $ refers to U.S. dollars and
Cdn$ refers to Canadian dollars.
1
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers highlight the most important aspects
of the merger, but do not cover all of the information in this joint proxy
statement/prospectus. You should read this entire joint proxy
statement/prospectus carefully.
Q: What will happen in the merger?
A: A wholly owned subsidiary of TLC will merge with and into LaserVision.
LaserVision will continue as the surviving corporation and will be a
wholly owned subsidiary of TLC.
Q: Why are TLC and LaserVision proposing the merger?
A: The boards of directors of both companies believe the merger is in the
best interests of both companies and their respective shareholders. TLC
and LaserVision believe that the combined company will have the
efficiencies and resources to capture the full value of its growth
potential. TLC and LaserVision believe that the merger combines the
complementary strengths of each organization, enabling the value of each
company's assets to be more fully realized. Combining the companies should
help position TLC VISION for growth by providing cost controls and the
resources and combined operating efficiencies needed for expanded
franchises and other development opportunities.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this
document. Then, please fill out, sign and mail your proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at your meeting. If a returned card is signed but does not
specify a choice, your proxy will be voted FOR the matters being
considered at your meeting.
Q: Who can vote at the meetings?
A: You may vote at the TLC shareholder meeting if you owned TLC common shares
at the close of business on ___________________, 2001. You may vote at the
LaserVision shareholder meeting if you owned shares of LaserVision common
stock at the close of business on ___________________, 2001. If you
acquired TLC common shares after those dates you may be able to vote those
shares if you comply with the procedures described in this joint proxy
statement/prospectus.
Q: How many votes are required to approve the merger agreement and matters
relating to the merger agreement?
A: Approval of the merger by TLC shareholders requires the affirmative vote
of a majority of the votes cast at the TLC shareholder meeting. Approval
of the merger by the LaserVision shareholders requires the affirmative
vote of the holders of a majority of the outstanding shares of common
stock of LaserVision. In addition, some matters related to the merger,
such as approval of the continuance of TLC under the laws of New Brunswick
and the adoption of new by-laws, the change of name of TLC, and the
increase in the size of the TLC board of directors, require the
affirmative vote of two-thirds of the votes cast at the TLC shareholder
meeting.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time before your proxy is voted at
your company's meeting. If you are a shareholder of TLC, you can revoke
your proxy in one of three ways. First, you can deposit a written notice
stating that you would like to revoke your proxy with the transfer agent
no later than the last business day prior to the meeting or with the chair
at the meeting. Second, you can complete and deposit a new
2
proxy card with the Secretary of TLC c/o CIBC Mellon Trust Company not
later than the close of business on ___________________, 2002. Third, you
may attend your company's meeting and vote in person. If you are a
LaserVision shareholder, you may revoke your proxy by sending a written
notice of revocation or a properly executed proxy card bearing a later
date to LaserVision's corporate secretary, or by attending the special
meeting and electing to vote in person. Simply attending the meeting,
however, will not revoke your proxy. You must follow the proper procedure
to revoke your proxy at the meeting. If you have instructed a broker or
other intermediary on how to vote your shares, you must follow directions
received from your broker or other intermediary on how to change your
vote.
Q: What rights do I have if I oppose the merger and related matters?
A: TLC shareholders have dissenters' rights with respect to the continuance
of TLC under the laws of New Brunswick. TLC shareholders who properly
exercise their dissenters' rights will be entitled to be paid the fair
value of their TLC common shares. LaserVision shareholders do not have
dissenters' rights in connection with the merger.
Q: Should I send in my stock certificate now?
A: No. After the merger is completed, LaserVision shareholders will receive
written instructions for exchanging their stock certificates for new
certificates representing the consideration to be received by them in the
merger. Please do not send in your stock certificates with your proxy. TLC
shareholders will not be required to exchange their share certificates
representing TLC common shares as a result of the merger.
Q: Who can help answer my questions?
A: If you have any questions about the matters addressed in this joint proxy
statement/prospectus or if you need additional copies of this joint proxy
statement/prospectus, you should contact:
Shareholders of TLC:
TLC Laser Eye Centers Inc.
5280 Solar Drive
Suite 300
Mississauga, ON L4W 5M8
Canada
(905) 602-2020
Attention: Investor Relations Department
Shareholders of LaserVision:
Laser Vision Centers, Inc.
540 Maryville Centre Drive
Suite 200
St. Louis, Missouri 63141
(314) 434-6900
Attention: Investor Relations Department
3
- --------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information about the merger from this
document and may not contain all of the information that is important to you.
The summary should be read together with the more detailed information and
financial statements and related notes and other financial information contained
elsewhere or incorporated by reference in this joint proxy statement/prospectus.
Many items in this summary include a page reference directing you to a more
complete description of that item.
The Companies
(pages 136 to 139)
TLC Laser Eye Centers Inc. TLC, an Ontario corporation, is one of
5280 Solar Drive the largest providers of laser vision
Suite 300 correction services in North America. TLC
Mississauga, Ontario L4W 5M8 owns and manages eye care centers which,
Canada together with TLC's network of over
(905) 602-2020 12,500 eye care doctors, provide laser
vision correction of common refractive
disorders such as nearsightedness,
farsightedness and astigmatism. TLC,
which commenced operations in 1993,
currently has 60 refractive centers in 28
states and provinces throughout the
United States and Canada.
TLC Acquisition II Corp., referred to as
the merger subsidiary, is a wholly owned
subsidiary of TLC. The merger subsidiary
was incorporated under the laws of
Delaware on August 21, 2001. The merger
subsidiary will merge with and into
LaserVision on the effective date of the
merger.
Laser Vision Centers, Inc. LaserVision, a Delaware corporation,
540 Maryville Centre Drive provides access to computer-controlled
Suite 200 lasers called excimer lasers, automated
St. Louis, Missouri 63141 microsurgical instruments used to create
(314) 434-6900 a thin flap on the eye called
microkeratomes, other equipment and
support services such as training,
technical support and equipment
maintenance to eye surgeons for the
treatment of nearsightedness,
farsightedness, astigmatism and cataracts
primarily in the United States. Much of
LaserVision's equipment is mobile and is
routinely moved from location to location
in response to demand for procedures.
LaserVision also provides equipment at
fixed locations.
In August 2001, LaserVision acquired
assets and liabilities of ClearVision
Laser Centers, Inc., a Nevada
corporation, and its wholly owned
subsidiaries. ClearVision developed and
operated excimer laser centers for the
correction of refractive vision disorders
and provided mobile access to excimer
lasers in 13 states in the United States.
The TLC Meeting TLC will hold its annual and special
(pages 37 to 60) meeting on ___________________, 2002 at
___________________ Eastern Standard Time
at ___________________. At the meeting,
the shareholders of TLC will be asked to
consider and vote upon a number of
resolutions described and included in
this document, including a resolution to
approve the merger agreement that
provides for the merger subsidiary to
merge with and into LaserVision. Under
the terms of the merger agreement,
LaserVision will become a wholly owned
subsidiary of TLC and each share of
LaserVision common stock will be
converted into the right to receive 0.95
of a TLC common share. The other
resolutions that shareholders will be
asked to consider are
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
resolutions approving:
o the change of the name of TLC to
"TLC VISION Corporation";
o the continuance of TLC under the
laws of New Brunswick, including the
adoption of new by-laws;
o an increase in the maximum number of
directors from 10 to 15 directors;
and
o the repricing of TLC stock options
with an exercise price above $8.688.
Because the TLC meeting is also an annual
meeting, shareholders of TLC will also be
asked to vote on the election of
directors, including four directors
designated by LaserVision whose terms of
office will begin at the time the merger
becomes effective, to appoint auditors
and to receive the consolidated financial
statements of TLC for the fiscal year
ended May 31, 2001.
The LaserVision Meeting LaserVision will hold its special meeting
(pages 61 to 63) on ___________________, 2002 at
___________________, Central Standard
Time, at ___________________. At the
meeting, the shareholders of LaserVision
will be asked to consider and vote upon
the merger agreement that provides for
the merger subsidiary to merge with and
into LaserVision. Under the terms of the
merger agreement, LaserVision will become
a wholly owned subsidiary of TLC and each
share of LaserVision common stock will be
converted into the right to receive 0.95
of a TLC common share.
The Merger To understand the merger fully and for a
(pages 64 to 108) more complete description of the legal
terms of the merger, you should read
carefully this entire document and the
documents incorporated by reference. The
merger agreement appears as Appendix A to
this joint proxy statement/prospectus.
TLC and LaserVision encourage you to read
the merger agreement. It is the legal
document that governs the merger.
TLC, the merger subsidiary and
LaserVision have entered into a merger
agreement dated August 25, 2001. The
merger agreement provides for the merger
of the merger subsidiary with and into
LaserVision. After the merger,
LaserVision will be the surviving
corporation and will become a wholly
owned subsidiary of TLC. This merger will
be effective as soon as practicable and
in any event not later than the last day
of the month and five business days after
the satisfaction of or, to the extent
permitted under the merger agreement,
waiver of, all conditions to the merger
contained in the merger agreement,
whichever is later.
The merger is conditional upon the
completion of a number of items,
including:
o regulatory and shareholder approval;
o the expiration or termination of the
relevant waiting period under the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as
amended, which waiting period
expired on October 18, 2001;
o the filing and effectiveness of one
or more registration statements
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
to be filed by TLC with the U.S.
Securities and Exchange Commission
with respect to the common shares of
TLC to be issued under the merger
agreement and TLC common shares
issuable upon the exercise of TLC
stock options issued under the
merger agreement;
o the written opinion of counsel to
the effect that the merger will
constitute a tax-free reorganization
under the Internal Revenue Code of
1986, as amended, which opinion has
been delivered;
o the receipt by each of LaserVision
and TLC of a written fairness
opinion from its respective
independent financial advisor, each
of which has been received;
o the conditional approval for listing
by The Toronto Stock Exchange and
the Nasdaq National Market System of
the TLC common shares to be issued
in the merger and to be issuable
upon exercise of TLC stock options
issued under the merger agreement,
which conditional approval has been
obtained from The Toronto Stock
Exchange; and
o the continued accuracy in all
material respects of each party's
representations and warranties and
the performance by each party of its
obligations under the merger
agreement.
Conditions to the merger may be waived by
the party entitled to the benefit of the
condition. In the event that any material
condition is waived, we will be required
to amend the registration statement of
which this joint proxy
statement/prospectus forms a part and the
management of the company waiving the
condition will be required to resolicit
proxies from its shareholders.
The merger agreement provides that each
share of LaserVision common stock that is
outstanding when the merger occurs will
be converted into the right to receive
0.95 of a TLC common share. Assuming the
merger was consummated on November 30,
2001, TLC would issue an aggregate of
approximately 26,472,615 TLC common
shares in the merger in exchange for the
issued and outstanding shares of
LaserVision common stock, representing
approximately 41% of the issued and
outstanding common shares of TLC VISION
after the merger. Based on the value of
the TLC common shares to be issued in
exchange for shares of LaserVision common
stock, the value of the TLC options to
be issued in connection with the merger
and the costs associated with the merger,
the aggregate consideration to be paid by
TLC in the merger is approximately $88
million. No fractional common shares of
TLC will be issued in the merger. See
"The Merger - Treatment of Fractional
Shares" for a description of how
LaserVision shareholders will receive
cash in lieu of fractional shares.
In addition, at the effective time of the
merger, outstanding options and warrants
to purchase shares of LaserVision common
stock will become options to purchase TLC
common shares. The number of TLC common
shares that will be received upon
exercise of each TLC stock option will be
0.95 of the number of shares of
LaserVision common stock that would have
been received upon exercise of the
LaserVision option or warrant. As
contemplated by the merger agreement,
immediately prior to the merger,
LaserVision will decrease the exercise
price of outstanding options and warrants
to acquire 2,109,825 shares of
LaserVision common
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
stock, which otherwise would have had an
exercise price greater than $8.688 per
common share of TLC after the merger, to
a price of $8.688 per common share of TLC
after the merger.
The options to acquire TLC common shares
that are issued under the merger
agreement will not be issued under TLC's
amended and restated stock option plan
and the number of shares issuable on the
exercise of these options will not be
counted in determining the maximum number
of TLC common shares available for
issuance under the TLC stock option plan.
These TLC stock options will have the
same terms and conditions as the
LaserVision options and warrants which
they replace, including the same
expiration date and exercise price per
share, except with respect to the vesting
of options held by John J. Klobnak,
Robert W. May and B. Charles Bono, senior
officers of LaserVision, which will vest
immediately upon the merger becoming
effective under the terms of employment
agreements described under "The Merger --
Interests of Specified Persons in the
Merger."
Subject to the approval of TLC
shareholders and The Toronto Stock
Exchange, TLC will allow the holders of
outstanding TLC stock options with an
exercise price greater than $8.688 to
elect to reduce the exercise price of
their options to $8.688 by surrendering a
number of the existing shares subject to
each repriced option as follows:
o for every option with an exercise
price of at least $40, the holder
will surrender 75% of the shares
subject to that option;
o for every option with an exercise
price of at least $30 but less than
$40, the holder will surrender
two-thirds of the shares subject to
that option; and
o for every option with an exercise
price of at least $20 but less than
$30, the holder will surrender 50%
of the shares subject to that
option.
Every option with an exercise price of at
least $8.688 but less than $20 will be
repriced to $8.688 without the holder
having to surrender any of the shares
subject to that option. Options to
acquire an aggregate of 863,867 TLC
common shares would be affected by this
repricing. If approved and if all holders
of options with an exercise price greater
than $8.688 elect to reduce their option
prices, the repriced options will then be
exercisable to acquire an aggregate of
847,109 TLC common shares.
Risk Factors There are risk factors that should be
(pages 24 to 34) considered by TLC shareholders and
LaserVision shareholders in evaluating
whether to approve the merger agreement
and the related transactions. Some of
these risk factors relate directly to the
merger while others relate to the
business of each of TLC and LaserVision,
independent of the merger, and the
combined business to be carried on by TLC
VISION. See "Risk Factors" for a more
complete discussion of these risk
factors.
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
Termination of the TLC and LaserVision can agree to
Merger Agreement terminate the merger agreement without
(pages 98 to 99) completing the merger, and either of them
can terminate the merger agreement under
various circumstances, including if:
o the merger is not completed by
December 31, 2001;
o any applicable law makes the
consummation of the merger illegal;
o a court or other governmental
authority prohibits the merger;
o LaserVision or TLC shareholders do
not approve the merger agreement and
the transactions contemplated
thereby;
o the closing price of TLC common
shares on the Nasdaq National Market
System at any time is less than
$2.15 or the closing price of shares
of LaserVision common stock on the
Nasdaq National Market System at any
time is less than $1.50;
o the other company has breached any
representation or warranty contained
in the merger agreement which would
have or would be reasonably likely
to have a material adverse effect,
or there has been a material breach
of any of the covenants or
agreements contained in the merger
agreement, which breach is not
curable or, if curable, is not cured
within 30 days; or
o the board of directors of
LaserVision recommends or enters
into a written agreement, other than
a confidentiality agreement, with a
third party for a merger or similar
transaction, take-over bid or sale
of more than 50% of the consolidated
assets of LaserVision, liquidation,
or sale of shares constituting more
than 15% of the shares of
LaserVision common stock.
On September 20 and 21, 2001, the closing
price of TLC common shares as quoted on
the Nasdaq National Market System was
less than $2.15. The parties have advised
each other than they do not intend to
exercise their respective rights to
terminate the merger agreement on the
basis of those prices.
In addition, the merger agreement may be
terminated and the merger may be
abandoned at any time prior to the
closing by action of the LaserVision
board of directors in writing if all
three of the following have occurred:
o LaserVision is not in breach of its
non-solicitation obligations in the
merger agreement;
o the merger shall not have been
approved by the LaserVision
shareholders; and
o the LaserVision board of directors
authorizes LaserVision, subject to
the terms of the merger agreement,
including consulting with its
financial and legal advisors, to
enter into a written agreement,
other than a confidentiality
agreement, concerning a proposal
that would, if consummated in
accordance with its terms, result in
a transaction more favorable to
LaserVision's shareholders, referred
to in this joint proxy
statement/prospectus as a superior
proposal, and LaserVision promptly
notifies TLC in writing that it
intends
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
to enter into such an agreement.
The merger agreement may be terminated
and the merger may be abandoned at any
time prior to the closing by TLC in
writing if either: (1) the LaserVision
board of directors shall have withdrawn
or adversely modified its approval or
recommendation of the merger; or (2)
LaserVision enters into a written
agreement, other than a confidentiality
agreement, for a superior proposal.
LaserVision will be required to pay TLC a
termination fee of $3 million in
immediately available funds, if any one
of the following events occurs:
o LaserVision enters into a written
agreement, other than a
confidentiality agreement, for an
acquisition proposal;
o LaserVision terminates the merger
agreement after the LaserVision
board of directors has authorized
LaserVision to enter into an
agreement for a superior proposal;
o TLC terminates the merger agreement
because the LaserVision board of
directors withdraws or adversely
modifies its approval or
recommendation of the merger because
of a superior proposal; or
o TLC terminates the merger agreement
because LaserVision recommends or
enters into a written agreement,
other than a confidentiality
agreement, for a superior proposal.
Reasons for the Merger The merger was driven by strong and
(pages 65 to 68) complementary business models. TLC and
LaserVision believe that the combined
company will have the efficiencies and
resources to capture the full value of
its growth potential. Together, the
company will be one of the premiere
companies in the eye surgery industry,
providing support services such as
training, technical support and equipment
maintenance to a leading network of
affiliated doctors so they can deliver
superior patient care. TLC and
LaserVision believe that the merger
combines the complementary strengths of
each organization, enabling the value of
each company's assets to be more fully
realized. Combining the companies should
help position TLC VISION for growth by
providing cost controls and the resources
and combined operating efficiencies
needed for expanded franchises and other
development opportunities.
TLC's large network of affiliated doctors
is expected to bring additional support
to the cataract and ambulatory surgery
sectors in which LaserVision currently
operates and we believe TLC VISION will
be able to provide a greater range of
services to these affiliated doctors. For
LaserVision's ambulatory surgical center
and cataract businesses, the merger
represents a unique opportunity for
growth given the significant capital
requirements and other barriers to growth
in these businesses.
As a national company, we believe that
TLC VISION will be able to obtain
additional national contracts and
corporate programs and will be able to
realize greater value out of national
coverage.
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
Recommendations of the TLC and The Board of Directors of TLC has
LaserVision Board of Directors determined that the merger agreement and
(pages 68 to 72) the transactions contemplated thereby are
fair to TLC shareholders and in the best
interests of TLC and unanimously
recommends that the shareholders of TLC
approve the merger agreement and the
merger.
The Board of Directors of LaserVision has
determined that the merger agreement and
the transactions contemplated thereby are
fair to LaserVision shareholders and in
the best interests of LaserVision and
unanimously recommends that the
shareholders of LaserVision approve the
merger agreement and the merger.
Approval by TLC Shareholders Approval of the merger requires the
(pages 39 to 50) affirmative vote of a majority of the
votes cast at the TLC shareholder
meeting. In addition, the resolutions
relating to the following matters require
the affirmative vote of at least
two-thirds of the votes cast at the TLC
shareholder meeting in order to be
approved:
o the change of name of TLC to "TLC
VISION Corporation";
o the continuance of TLC under the
laws of New Brunswick, including the
adoption of new by-laws; and
o an increase in the maximum number of
directors from 10 to 15 directors.
Approval of the repricing of the TLC
stock options with an exercise price
above $8.688 requires the affirmative
vote of a majority of the votes cast at
the TLC shareholder meeting. For the
purposes of the approval of the repricing
of the TLC stock options, the votes of
directors and senior officers of TLC, and
its subsidiaries, to whom options have
been or may be granted under the TLC
stock option plan and their spouses,
partners and certain other related
persons will not be counted in
determining whether the necessary level
of shareholder approval has been
obtained.
If the merger is not approved, TLC will
not proceed with the change of name or
the repricing of the TLC stock options.
The officers and directors of TLC own
approximately 21% of the outstanding TLC
common shares entitled to vote and have
advised TLC that they intend to vote FOR
the resolutions relating to the above
matters other than the repricing of the
TLC stock options, for which their votes
will not be counted.
Approval by LaserVision Approval of the merger requires the
Shareholders affirmative vote of the holders of a
(page 62) majority of the outstanding shares of
LaserVision common stock. The officers
and directors of LaserVision own
approximately 1.4% of the outstanding
shares of LaserVision common stock
entitled to vote and have advised
LaserVision that they intend to vote FOR
the merger. TLC indirectly owns
approximately 2% of the outstanding
shares of LaserVision common stock
entitled to vote and intends to vote FOR
the merger.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
Opinion of Financial Advisor to TLC SG Cowen Securities Corporation was
(pages 74 to 88) retained by TLC to act as exclusive
financial advisor to TLC in connection
with the merger. On August 23, 2001, SG
Cowen delivered its written opinion to
the TLC board of directors to the effect
that as of the date of the opinion and
based upon and subject to various matters
described in the opinion, the number of
TLC common shares into which each share
of LaserVision common stock will be
converted under the merger agreement,
referred to as the conversion number, was
fair, from a financial point of view, to
TLC.
The full text of the written opinion of
SG Cowen, dated August 23, 2001, which
sets forth the assumptions made,
procedures followed, other matters
considered and limitations on the review
by SG Cowen is attached as Appendix B to
this joint proxy statement/prospectus and
is incorporated into this joint proxy
statement/prospectus by reference. SG
Cowen provided its opinion for the
information and assistance of the TLC
board of directors in connection with its
consideration of the merger and its
opinion does not constitute a
recommendation as to how any TLC
shareholder should vote with respect to
the merger. TLC shareholders are urged
to, and should, read the opinion of SG
Cowen in its entirety.
Opinion of Financial Advisor On August 25, 2001, Goldman, Sachs & Co.
to LaserVision rendered its oral opinion to the
(pages 88 to 94) LaserVision board of directors, which was
subsequently confirmed in writing, that,
as of the date of the opinion and based
upon and subject to the factors and
assumptions set forth in the opinion, the
conversion number under the merger
agreement is fair, from a financial point
of view, to the holders of shares of
LaserVision common stock, other than TLC.
The full text of the written opinion of
Goldman Sachs, dated August 25, 2001,
which sets forth assumptions made,
matters considered and limitations on the
review undertaken in connection with the
opinion, is attached as Appendix C to
this joint proxy statement/prospectus and
is incorporated into this joint proxy
statement/prospectus by reference.
Goldman Sachs provided its opinion for
the information and assistance of
LaserVision's board of directors in
connection with its consideration of the
merger and its opinion does not
constitute a recommendation as to how any
holder of shares of LaserVision common
stock should vote with respect to the
merger. LaserVision shareholders are
urged to, and should, read the opinion in
its entirety.
Accounting Treatment The merger will be accounted for as a
(pages 101 to 102) purchase for financial reporting and
accounting purposes under U.S. and
Canadian generally accepted accounting
principles.
Stock Exchange Listings TLC has applied to the Nasdaq National
(page 107) Market System and has received
conditional approval from The Toronto
Stock Exchange for the listing of the TLC
common shares to be issued to
shareholders of LaserVision in the merger
and the TLC common shares to be subject
to TLC stock options issued under the
merger agreement.
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
U.S. Federal Income Tax The merger is intended to qualify, for
Consequences U.S. federal income tax purposes, as a
(pages 102 to 105) tax-free reorganization so that,
generally, no gain or loss would be
recognized by U.S. holders of shares of
LaserVision common stock. Thompson Coburn
LLP, counsel to LaserVision, has
delivered an opinion to the effect that
the merger will constitute a
reorganization within the meaning of
Section 368(a) of the Internal Revenue
Code of 1986, as amended. "The Merger -
Material U.S. Federal Income Tax
Consequences" contains a more complete
discussion of U.S. federal income tax
consequences to U.S. holders of
LaserVision common stock.
Interests of Specified Persons A number of directors and officers of
in the Merger LaserVision have interests in the merger
(pages 105 to 107) in addition to the interests of the
shareholders of LaserVision. These
interests exist, in part, because of
employment agreements that the officers
of LaserVision will enter into with TLC
VISION upon completion of the merger.
These agreements provide for severance
payments upon termination of employment,
accelerated vesting of TLC stock options
and other benefits. LaserVision also
anticipates granting a stock option for
up to 300,000 additional shares of
LaserVision common stock to an executive
officer and issuing cash payments of up
to a total of $250,000 to three executive
officers prior to the closing of the
merger. Certain officers and employees of
TLC also received cash bonuses totalling
Cdn$75,000 in connection with the merger.
In addition, the directors of TLC and
four directors of LaserVision will become
directors of TLC VISION after the merger.
The LaserVision board of directors and
the TLC board of directors were aware of
these interests and considered them,
among other matters, in approving the
merger agreement and the transactions
contemplated thereby.
Procedures for Exchange If the requisite approvals are obtained
of Share Certificates from TLC shareholders and LaserVision
(pages 100 to 101) shareholders and the merger is completed,
LaserVision shareholders will be required
to exchange their share certificates
representing shares of LaserVision common
stock for share certificates representing
TLC VISION common shares. We encourage
LaserVision shareholders to review
carefully the information under the
heading "The Merger - Exchange of Shares"
for a more detailed description of the
procedures to be followed in order to
obtain new share certificates. TLC
shareholders will not be required to
exchange their share certificates
representing TLC common shares as a
result of the merger.
Dissenters' Rights TLC shareholders have dissenters' rights
(pages 42 to 45) with respect to the continuance of TLC
under the laws of New Brunswick, which is
one of a series of interrelated
transactions which the parties have
agreed to engage in under the merger
agreement. TLC shareholders who properly
exercise their dissenters' rights will be
entitled to be paid the fair value of
their TLC common shares. Dissenters'
rights are technical and a TLC
shareholder who does not follow the
proper procedures will not be entitled to
be paid the fair value of his or her TLC
common shares. TLC shareholders should
refer to "Information Regarding the TLC
Shareholder Meeting - Business to be
Conducted at the Meeting - Resolution 3"
for an explanation of the continuance
under the laws of New Brunswick and
"Information Regarding the TLC
Shareholder Meeting - Business to be
Conducted at the Meeting - Resolution 3 -
Dissenters' Rights" and
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
Appendix E for an explanation of the
procedure for exercising these
dissenters' rights. We encourage TLC
shareholders to read about their
dissenters' rights and to consult with
their advisers. LaserVision shareholders
do not have dissenters' appraisal rights
in connection with the merger.
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
Comparative Market Price Data
(pages 125 to 126)
TLC common shares are traded on The Toronto Stock Exchange under the
symbol "TLC" and on the Nasdaq National Market System under the symbol "TLCV."
LaserVision common stock is traded on the Nasdaq National Market System under
the symbol "LVCI." The information shown in the table below presents the closing
price per share on the Nasdaq National Market System and The Toronto Stock
Exchange for TLC common shares and the closing price per share on the Nasdaq
National Market System for LaserVision common stock on August 24, 2001, the last
full trading day prior to the public announcement of the proposed merger, and on
December 6, 2001, the last full trading day prior to the date of this joint
proxy statement/prospectus, and, applying the closing prices on the Nasdaq
National Market System, the equivalent value per share of LaserVision common
stock based upon a conversion number of 0.95 of a TLC common share for each
share of LaserVision common stock.
Because the market price of TLC common shares is subject to fluctuation
due to numerous market forces, the market value of the TLC common shares that
holders of shares of LaserVision common stock will receive in the merger may
increase or decrease prior to the effective time of the merger. LaserVision
shareholders should obtain current market quotations for their shares and the
TLC common shares. Historical market prices are not indicative of future market
prices.
TLC TLC LaserVision Equivalent Value
(Nasdaq) (TSE) (Nasdaq) Per LaserVision Share
-------- --------- ----------- ---------------------
Market price as of August 24, 2001 ........ $4.34 Cdn$ 6.75 $3.01 $4.12
Market price as of December 6, 2001 ....... $2.44 Cdn$ 3.80 $2.33 $2.32
The following table sets forth the high and low sale prices per share of
TLC common shares as reported on The Toronto Stock Exchange and the Nasdaq
National Market System for the periods indicated.
Price Range
-------------------------------------------------
Nasdaq (TLCV) TSE (TLC)
----------------- --------------------------
High Low High Low
---- --- ---- ---
Quarter Ended
August 31, 1999 ............................ $53.500 $24.125 Cdn$ 79.00 Cdn$ 36.50
November 30, 1999 .......................... 32.750 15.750 49.50 23.25
February 29, 2000 .......................... 19.875 10.500 29.25 16.25
May 31, 2000 ............................... 15.688 5.891 23.00 8.75
August 31, 2000 ............................ $ 8.313 $ 5.000 Cdn$ 12.20 Cdn$ 7.70
November 30, 2000 .......................... 5.500 2.250 8.20 3.55
February 28, 2001 .......................... 7.875 1.125 12.00 1.67
May 31, 2001 ............................... 9.250 4.640 14.20 7.11
August 31, 2001 ............................ $ 5.700 $ 3.610 Cdn$ 8.70 Cdn$ 5.68
November 30, 2001 .......................... 3.900 1.750 6.09 2.81
December 1, 2001 to December 6, 2001 ....... $ 2.600 $ 2.350 $ 4.10 $ 3.75
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
The following table sets forth the high and low sale prices per share of
LaserVision common stock as reported on the Nasdaq National Market System for
the periods indicated, adjusted for the 2-for-1 stock split which occurred in
August 1999.
Price Range
-------------------
Nasdaq (LVCI)
-------------------
High Low
---- ---
Quarter Ended
July 31, 1999 .......................................... $37.813 $21.000
October 31, 1999 ....................................... 33.750 8.500
January 31, 2000 ....................................... 16.750 7.813
April 30, 2000 ......................................... 12.000 3.875
July 31, 2000 .......................................... $ 7.813 $ 4.000
October 31, 2000 ....................................... 6.875 3.750
January 31, 2001 ....................................... 4.125 1.125
April 30, 2001 ......................................... 5.188 2.219
July 31, 2001 .......................................... $ 4.000 $ 2.250
October 31, 2001 ....................................... 3.660 1.520
November 1, 2001 to December 6, 2001 ................... 2.760 2.150
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
TLC SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical consolidated financial
information for TLC as of and for each of the fiscal years in the five-year
period ended May 31, 2001 and as of August 31, 2001 and for the three months
ended August 31, 2001 and 2000. The information as of and for the five years in
the period ended May 31, 2001 has been prepared in accordance with or reconciled
to U.S. generally accepted accounting principles has been derived from TLC's
audited consolidated financial statements. The information as of August 31, 2001
and for the three months ended August 31, 2001 and 2000 has been derived from
TLC's unaudited consolidated financial statements which have also been prepared
in accordance with U.S. generally accepted accounting principles. This unaudited
information includes all adjustments which are, in the opinion of TLC's
management, necessary for a fair presentation and of a normal recurring nature.
Results for the three months ended August 31, 2001 do not necessarily indicate
results for the entire fiscal year. TLC encourages you to read this financial
information in conjunction with TLC's consolidated financial statements, and
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in TLC's annual report on Form 10-K/A for
the fiscal year ended May 31, 2001 and quarterly report on Form 10-Q/A for the
quarter ended August 31, 2001, which are incorporated by reference in this joint
proxy statement/prospectus, and the unaudited pro forma combined financial
information for TLC VISION, and the related notes, appearing elsewhere in this
joint proxy statement/prospectus. TLC also prepares its consolidated financial
statements in accordance with Canadian generally accepted accounting principles.
For the Three Months Ended For the Year Ended
August 31, May 31,
------------------ --------------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
Income Statement Data:
Revenues(1) ............................. $35,024 $47,945 $174,006 $201,223 $146,910 $59,122 $19,948
Cost of revenues ........................ 23,047 28,668 110,016 129,234 92,383 29,669 13,852
Gross margin ............................ 11,977 19,278 63,990 71,989 54,527 29,453 6,096
Operating expenses ...................... 17,725 25,002 101,682 75,939 54,370 36,487 14,697
Income (loss) from operations ........... (5,748) (5,724) (37,692) (3,950) 157 (7,034) (8,601)
Net income (loss) ....................... (6,562) (5,172) (37,773)(4) (5,918) (4,556)(5) (10,280) (9,574)
Income (loss) per share ................. (0.17) (0.14) (1.00) (0.16) (0.13) (0.37) (0.47)
Weighted average number of common
shares outstanding (in thousands) .... 38,040 37,204 37,779 37,178 34,090 28,035 20,617
Operating Data:
Number of eye care centers
(at end of period) ................... 59 62 59 62 55 45 27
Number of secondary care centers
(at end of period) ................... 3 2 3 5 14 15 7
Number of laser vision correction
procedures ........................... 24,100 33,400 122,800 134,000 90,600 35,859(3) 11,026(2)
As of
August 31, 2001 As of May 31,
--------------- ------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ..................... $ 47,203 $ 47,987 $ 78,531 $ 125,598 $ 1,895 $ 13,230
Working capital ............................... 32,003 36,837 59,481 146,884 53,153 8,055
Total assets .................................. 220,126 238,438 289,364 295,675 164,212 73,746
Total debt, excluding current portion ......... 7,362 8,313 6,728 11,030 17,911 10,935
Shareholders' equity:
Capital stock ............................... $ 276,368 $ 276,277 $ 269,953 $ 269,454 $ 143,554 $ 63,522
Warrants .................................... 532 532 532 -- -- --
Deficit ..................................... (86,723) (80,161) (42,388) (31,267) (22,421) (12,141)
Accumulated other comprehensive income (loss) (16,698) (9,542) (4,451) 5,936 407 --
Total shareholders' equity .................... 173,479 187,106 223,646 244,123 121,540 51,381
- ----------
(1) Includes primarily those revenues pertaining to the operation of eye care
centers, the management of refractive and secondary care centers and TLC's
other non-refractive businesses.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
(2) Includes procedures performed at centers previously owned by 20/20 Laser
Eye Centers Inc. starting March 1997. 20/20 was acquired by TLC on
February 10, 1997.
(3) Includes procedures performed at centers previously owned by BeaconEye
Inc. TLC acquired BeaconEye Inc. on April 16, 1998.
(4) In fiscal 2001, decisions were made to: (1) exit from an e-commerce
enterprise, eyeVantage.com Inc., resulting in a restructuring charge of
$11.7 million, (2) record the potential for losses in an equity investment
in a secondary care operation of $1 million, (3) record the estimated
costs associated with TLC's current restructuring initiative in the amount
of $3.4 million, (4) segregate the amount of $2.1 million for an
arbitration award against TLC, and (5) provide $0.9 million for the
impairment of a portfolio investment.
(5) In the last quarter of fiscal 1999, TLC made a decision to restructure
operations in connection with its managed care and secondary care
businesses. As a result, TLC recorded a restructuring charge of $10.8
million relating to the write-off of intangibles and amounts due from
affiliated physician groups, and incurred a loss on the sale of the assets
of its managed care subsidiary of $2.6 million.
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
LASERVISION SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary consolidated financial information
for LaserVision. LaserVision's balance sheet data and statement of operations
data as of and for the five years in the period ended April 30, 2001 are taken
from LaserVision's audited consolidated financial statements which have been
prepared in accordance with U.S. generally accepted accounting principles.
LaserVision's balance sheet data as of July 31, 2001 and income statement data
for the three months ended July 31, 2001 and 2000 are taken from LaserVision's
unaudited consolidated financial statements which have been prepared in
accordance with U.S. generally accepted accounting principles. This unaudited
data includes all adjustments which are, in the opinion of LaserVision's
management, necessary for a fair presentation and of a normal recurring nature.
In certain respects, U.S. generally accepted accounting principles differ from
Canadian generally accepted accounting principles. Accordingly, certain line
items with respect to income statement data and balance sheet data would differ
under Canadian generally accepted accounting principles. For a discussion of the
principal differences between Canadian and U.S. generally accepted accounting
principles as they apply to the financial information of LaserVision for the
years ended April 30, 2001, 2000 and 1999, see Appendix I to this joint proxy
statement/prospectus. Results for the three months ended July 31, 2001 do not
necessarily indicate results for the entire fiscal year. You should read this
financial information in conjunction with LaserVision's consolidated financial
statements, and the related notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included in LaserVision's annual
report on Form 10-K for the fiscal year ended April 30, 2001, and quarterly
report on Form 10-Q for the quarter ended July 31, 2001 which are incorporated
by reference in this joint proxy statement/prospectus, and the unaudited pro
forma consolidated financial information for TLC VISION, and the related notes,
appearing elsewhere in this joint proxy statement/prospectus.
In August 2001, LaserVision acquired assets and liabilities of
ClearVision. ClearVision's consolidated financial statements appear as Appendix
H to this joint proxy statement/prospectus. For a discussion of the principal
differences between Canadian and U.S. generally accepted accounting principles
as they apply to the financial information of ClearVision see note 15 to
ClearVision's audited consolidated financial statements and note 7 to
ClearVision's unaudited consolidated financial statements appearing as Appendix
H to this joint proxy statement/prospectus.
For the Three For the Year Ended
Months Ended July 31, April 30,
-------------------- ----------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Revenues .............................. $25,311 $22,237 $96,073 $88,055 $52,359 $23,469 $8,238
Gross profit .......................... 8,268 7,038 30,584 28,555 17,691 6,719 648
Selling, general and administrative ... 7,793 5,872 29,098 17,702 11,809 9,592 9,719
Vendor program change expense ......... -- -- -- 2,043(2) -- -- --
Fixed asset impairment provision ...... -- -- -- -- -- -- 2,772(1)
Income (loss) from operations ......... 475 1,166 1,486 8,810 5,882 (2,873) (11,843)
Net income (loss) before taxes ........ 409 1,863 2,635 10,464 5,051 (3,496) (12,069)
Income tax (expense) benefit .......... (156) (708) (1,387) 3,394 1,489 -- --
Net income (loss) ..................... 253 1,155 1,248 13,858 6,540 (3,496) (12,069)
Deemed preferred dividends ............ -- (54) (161) (209) (171) (1,930) (126)
Net income (loss) applicable
to common stockholders ............. 253 1,101 1,087 13,649 6,369 (5,426) (12,195)
Net income (loss) per share - basic ... .01 .05 .04 .55 .31 (.30) (.72)
Net income (loss) per share - diluted . .01 .04 .04 .49 .27 (.30) (.72)
Weighted average number of common
shares outstanding - basic ......... 25,702 23,918 24,264 24,884 20,290 18,356 16,842
Weighted average number of common
shares outstanding - diluted ....... 25,885 24,521 24,326 28,460 23,930 18,356 16,842
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
As of
July 31, 2001, As of April 30,
-------------- -----------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ........... $17,834 $15,726 $17,702 $8,173 $8,430 $3,794
Short-term investments .............. 5,953 9,037 31,440 -- -- --
Working capital ..................... 21,778 25,896 44,141 7,105 5,554 1,654
Total assets ........................ 123,146 122,073 123,267 53,189 30,829 22,870
Total debt, excluding current portion 7,907 10,363 5,878 7,784 6,585 6,133
Convertible preferred stock with
mandatory redemption provision ... -- -- 2,295 2,086 1,915 --
Stockholders' equity ................ 93,276 92,954 89,619 26,661 13,578 10,276
- ----------
(1) In connection with LaserVision's continuing evaluation of the
recoverability of its assets, an asset impairment charge of $2,772,000 was
recorded for the year ended April 30, 1997. This impairment charge related
to domestic and international lasers, as well as goodwill.
(2) On February 22, 2000, VISX Incorporated, the manufacturer of most of the
lasers owned by LaserVision, announced a new program for its customers,
including LaserVision, that included a change in the royalty fee charged
by VISX from $250 per procedure to $100 per procedure. Along with this
pricing change, VISX announced that it would no longer provide procedure
cards for enhancements at no charge, nor would it provide credits for
procedure cards used for past enhancements or ambassadors. An enhancement
is a procedure subsequent to the initial treatment that is performed to
improve the surgical result. An ambassador is a patient who is treated at
no charge and is frequently a celebrity or a member of the surgeon's
practice. In addition, VISX would not exchange the inventory of procedure
cards held by LaserVision at a cost of $250 per procedure card for
procedure cards at the reduced cost of $100. Accordingly, LaserVision
recorded a charge of approximately $2.4 million in the quarter ended
January 31, 2000 for actual and estimated expenses related to enhancements
and ambassadors, and reductions in inventory value, which would not be
reimbursed by VISX and which LaserVision did not expect to collect from
its customers without legal assistance. In the quarter ended April 30,
2000, LaserVision reversed $0.4 million of the vendor program change
expense based upon actual and estimated expenses related to the
enhancements, ambassadors and reductions in inventory value.
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma financial
information for TLC VISION which is taken from the unaudited pro forma combined
financial statements, and the related notes, for TLC VISION included in this
joint proxy statement/prospectus starting at page 113. The unaudited pro forma
combined financial statements for TLC VISION give effect to the merger and the
combination of TLC and LaserVision through the issuance of TLC common shares for
the outstanding shares of LaserVision common stock. In addition, on August 31,
2001, LaserVision acquired certain assets and liabilities of ClearVision and its
subsidiaries. The unaudited pro forma combined financial statements for TLC
VISION also give effect to LaserVision's acquisition of the ClearVision assets
and liabilities.
The unaudited pro forma combined statements of income (loss) for TLC
VISION for the fiscal year ended May 31, 2001 and for the three months ended
August 31, 2001 have been prepared in accordance with U.S. generally accepted
accounting principles and reflect the merger and the combination of TLC and
LaserVision and LaserVision's acquisition of assets and liabilities of
ClearVision as if they had taken place on June 1, 2000. In certain respects,
U.S. generally accepted accounting principles differ from Canadian generally
accepted accounting principles. Accordingly, certain line items would differ
under Canadian generally accepted accounting principles. Appendix I to this
joint proxy statement/prospectus contains summary unaudited pro forma financial
information for TLC VISION prepared in accordance with Canadian generally
accepted accounting principles.
The unaudited pro forma combined statement of income (loss) of TLC VISION
for the fiscal year ended May 31, 2001 combines:
o TLC's audited historical results of operations for the year
ended May 31, 2001;
o LaserVision's audited historical results of operations for the
year ended April 30, 2001; and
o ClearVision's unaudited historical results of operations for
the 12 months ended March 31, 2001,
as adjusted for the pro forma effects of the transactions described above and in
the related notes. Because ClearVision had a December 31 year end, ClearVision's
12 month results were derived from ClearVision's results for the year ended
December 31, 2000, less ClearVision's results for the three months ended March
31, 2000 plus ClearVision's results for the three months ended March 31, 2001.
The unaudited pro forma combined statement of income (loss) for TLC VISION
for the three months ended August 31, 2001 combines:
o TLC's unaudited historical results of operations for the three
months ended August 31, 2001;
o LaserVision's unaudited historical results of operations for
the three months ended July 31, 2001; and
o ClearVision's unaudited historical results of operations for
the three months ended June 30, 2001,
as adjusted for the pro forma effects of the transactions described above and in
the related notes.
The unaudited pro forma combined balance sheet for TLC VISION as of August
31, 2001 has been prepared in accordance with U.S. generally accepted accounting
principles and reflects the merger and the combination of TLC and LaserVision
and LaserVision's acquisition of assets and liabilities of ClearVision as if
these transactions had occurred on August 31, 2001.
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
The unaudited pro forma combined balance sheet for TLC VISION combines:
o TLC's unaudited historical balance sheet as of August 31,
2001:
o LaserVision's unaudited historical balance sheet as of July
31, 2001; and
o ClearVision's unaudited historical balance sheet as of June
30, 2001,
as adjusted for the pro forma effects of the transactions described above and in
the related notes.
The unaudited pro forma combined financial information for TLC VISION
reflects the combination using the purchase method of accounting and has been
prepared on the basis of assumptions described in the related notes, including
assumptions relating to the allocation of the total purchase cost to the assets
and liabilities of LaserVision based upon preliminary estimates of their fair
value. The actual allocation may differ materially from those assumptions after
valuations and other procedures to be performed after the completion of the
transaction are finalized and as a result of LaserVision's and ClearVision's
results of operations from July 31, 2001 and June 30, 2001, respectively, to the
completion of the acquisition.
The summary unaudited pro forma combined financial information for TLC
VISION should be read in conjunction with:
o the unaudited pro forma financial statements, and the related
notes, for TLC VISION included in this joint proxy
statement/prospectus starting at page 113;
o TLC's consolidated financial statements, included in TLC's
annual report on Form 10-K/A for the fiscal year ended May 31,
2001 and quarterly report on Form 10-Q for the quarter ended
August 31, 2001;
o LaserVision's consolidated financial statements, included in
LaserVision's annual report on Form 10-K for the fiscal year
ended April 30, 2001 and quarterly report on Form 10-Q/A for
the quarter ended July 31, 2001; and
o ClearVision's consolidated financial statements, appearing as
Appendix H to this joint proxy statement/prospectus, and the
pro forma financial information of LaserVision reflecting the
ClearVision acquisition, included in LaserVision's Form 8-K/A
dated August 31, 2001,
all of which appears in or is incorporated by reference in this joint proxy
statement/prospectus. Management believes that the assumptions used in preparing
the unaudited pro forma combined financial information provide a reasonable
basis for presenting all of the significant effects of the acquisition, that the
pro forma adjustments give appropriate effect to those assumptions and that the
pro forma adjustments are properly applied in the accompanying unaudited pro
forma combined financial information. The unaudited pro forma combined financial
information for TLC VISION does not purport to represent what the actual
operating results would have been had the combination actually taken place on
June 1, 2000, or to represent the financial position had the combination
actually taken place at August 31, 2001, or to project TLC VISION's results of
operations for any future period or financial condition at any future date. The
information does not reflect any adjustments to historical results relating to
the estimated cost savings or changes in business strategies that may result
from the combination and integration of TLC, LaserVision and ClearVision.
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
Fiscal Year Ended Three Months Ended
May 31, 2001 August 31, 2001
------------ ---------------
(in thousands)
Income Statement Data:
Revenue .................................. $296,727 $65,731
Cost of revenues ......................... 187,463 43,120
Gross margin ............................. 109,264 22,611
Operating expenses ....................... 143,994 27,349
Income (loss) from operations ............ (34,630) (4,738)
Net income (loss) attributable to
common stock .......................... ($34,008) (5,722)
Income (loss) per share: ................. (0.55) (0.09)
Weighted average number of common shares
outstanding (in thousands): ........... 61,548 63,184
As at August 31, 2001
---------------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ............................... $65,887
Working capital ......................................... 31,555
Total assets ............................................ 397,578
Total debt, excluding current portion ................... 20,307
Shareholders' Equity:
Common shares ........................................ 386,825
Common shares held in treasury ....................... (2,432)
Warrants and options ................................. 14,537
Deficit .............................................. (86,723)
Accumulated Other comprehensive
income (loss) ...................................... (16,698)
Total shareholders' equity .............................. 295,509
See "Unaudited Pro Forma Financial Information for TLC VISION - Notes to
Unaudited Pro Forma Combined Financial Statements" for a description of the pro
forma adjustments.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
UNAUDITED COMPARATIVE PER SHARE INFORMATION
The following table presents historical per share information of TLC and
LaserVision and unaudited pro forma combined per share information that reflects
the combination of TLC, LaserVision and ClearVision using the purchase method of
accounting for business combinations. This information should be read in
conjunction with TLC's and LaserVision's consolidated financial statements and
related notes, incorporated by reference in this joint proxy
statement/prospectus, and ClearVision's consolidated financial statements and
related notes appearing as Appendix H and incorporated by reference in this
joint proxy statement/prospectus, and the unaudited pro forma combined financial
information of TLC VISION and related notes, appearing elsewhere in this joint
proxy statement/prospectus. The TLC VISION unaudited pro forma combined per
share information does not necessarily indicate the operating results that would
have been achieved had the combination of TLC and LaserVision occurred at the
beginning of the periods presented nor does it indicate future results of
operations or financial position. Neither TLC nor LaserVision declared any cash
dividends during the periods presented.
As of and for the year ended
May 31, 2001
-------------------------------------------------
Pro Forma
-----------------------
LaserVision
TLC LaserVision (1) TLC VISION Equivalent (4)
--- --------------- ---------- --------------
Net income (loss) per share:
Basic ......................................... ($1.00) $0.04 ($0.55) ($0.52)
Diluted ....................................... ($1.00) $0.04 ($0.55) ($0.52)
Book value per common share at period end (2) (3) $4.92 $3.60 $4.84 $4.60
As of and for the three months ended
August 31, 2001
-------------------------------------------------
Pro Forma
-----------------------
LaserVision
TLC LaserVision (1) TLC VISION Equivalent (4)
--- --------------- ---------- --------------
Net income (loss) per share:
Basic ......................................... ($0.17) $0.01 ($0.09) ($0.09)
Diluted ....................................... ($0.17) $0.01 ($0.09) ($0.09)
Book value per common share at period end (2) (3) $4.56 $3.60 $4.58 $4.35
- ----------
(1) Because of the different year ends, consolidated financial information
relating to LaserVision is presented for the fiscal year ended April 30,
2001 and the three months ended July 31, 2001.
(2) The historical book value per share is computed by dividing total
shareholders' equity as of the end of each period for which such
computation is made by the number of common shares outstanding at the end
of each period.
(3) The pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares outstanding at the
end of each period for which such computation is made. For purposes of
computing pro forma book value per share as of May 31, 2001 the pro forma
book value of $309,366,000 was divided by pro forma common shares
outstanding of 64,484,000 which includes the 583,000 common shares which
will be held by a subsidiary of TLC VISION in exchange for the shares of
LaserVision common stock that it currently owns. For purposes of computing
pro forma book value per share as of August 31, 2001 the pro forma book
value of $295,509,000 was divided by pro forma common shares outstanding
of 64,503,000 which includes the 583,000 common shares which will be held
by a subsidiary of TLC VISION in exchange for the shares of LaserVision
common stock that it currently owns.
(4) The LaserVision pro forma equivalent per share amounts are computed by
multiplying the TLC VISION pro forma combined per share amounts by the
conversion number of 0.95 of a TLC common share for each share of
LaserVision common stock. Pro forma diluted earnings per share excludes
the effect of dilutive securities totalling 10,713,000 for the fiscal year
ended May 31, 2001 and totalling 10,552,000 for the three months ended
August 31, 2001, respectively, as they are antidilutive.
- --------------------------------------------------------------------------------
23
RISK FACTORS
You should carefully consider the following risk factors in evaluating
whether to vote for or against the approval and adoption of the merger
agreement. Some of these risk factors relate directly to the merger while others
relate to the business of each of TLC and LaserVision independent of the merger,
as well as the anticipated business of the combined company, TLC VISION. In
addition, this joint proxy statement/prospectus also contains forward-looking
statements that involve risks and uncertainties as described below under
"Forward-Looking Statements." You should also evaluate the other information
included in this joint proxy statement/prospectus and the information we have
incorporated by reference.
Risks Specific to Our Business and Our Industry
TLC has not been profitable and TLC VISION may not be profitable in the future.
TLC reported net losses of $37.8 million, $5.9 million, $4.6 million and
$10.3 million for fiscal 2001, 2000, 1999 and 1998, respectively. As of May 31,
2001, TLC reported an accumulated deficit of $80.2 million. TLC VISION may not
become profitable and if it does become profitable, its profitability may vary
significantly from quarter to quarter. TLC VISION's profitability will depend on
a number of factors, including:
o our ability to increase demand for our services and control costs;
o our ability to execute our strategy and effectively integrate
acquired businesses and assets;
o economic conditions in our markets, including the availability of
discretionary income;
o concerns about the safety and effectiveness of laser vision
correction;
o competitive factors;
o regulatory developments;
o our ability to achieve expected cost savings and synergies; and
o our ability to retain and attract qualified personnel.
Changes in general economic conditions may cause fluctuations in TLC VISION's
revenues and profitability.
The cost of laser vision correction procedures is typically not reimbursed
by health care insurance companies or other third party payors. Accordingly, the
operating results of TLC VISION may vary based upon the impact of changes in
economic conditions on the disposable income of consumers interested in laser
vision correction. A significant decrease in consumer disposable income in a
weakening economy may result in decreased procedure levels and revenues for TLC
VISION.
The market for laser vision correction is intensely competitive and competition
may increase.
Some of our competitors or companies that may choose to enter the industry
in the future may have substantially greater financial, technical, managerial,
marketing and/or other resources and experience than us and may compete more
effectively than TLC VISION. TLC VISION will compete with hospitals, individual
ophthalmologists, other corporate laser centers and manufacturers of excimer
laser equipment in offering laser vision correction services and access to
excimer lasers. TLC VISION's principal corporate competitors will include
LCA-Vision Inc., Laser Vision Institute, Inc. and Aris Vision Institute.
Competition in the market for laser vision correction could increase as
excimer laser surgery becomes more commonplace and the number of
ophthalmologists performing the procedure increases. In addition, competition
would increase if state laws were amended to permit optometrists, in addition to
ophthalmologists, to perform laser vision correction. TLC VISION will compete on
the basis of quality of service, reputation, brand recognition and price. If
more providers offer laser vision correction in a given geographic market, the
price charged for such procedures may decrease. In recent years, competitors
have offered laser vision correction at prices considerably
24
lower than TLC's prices. The laser vision correction industry has been
significantly affected by reductions in the price for laser vision correction,
including the failure of many businesses that provided laser vision correction.
Market conditions may compel TLC VISION to lower prices to remain competitive
and any reduction in our prices may not be offset by an increase in our
procedure volume or decreases in our costs. A decrease in either the fees or
procedures performed at our eye care centers or in the number of procedures
performed at our centers could cause our revenues to decline and our business
and financial condition to weaken.
Laser vision correction competes with other surgical and non-surgical
treatments for refractive disorders, including eyeglasses, contact lenses, other
types of refractive surgery and other technologies currently under development,
such as corneal rings, intraocular lenses and surgery with different types of
lasers. TLC VISION's management, operations and marketing plans may not be
successful in meeting this competition. Optometry chains and other suppliers of
eyeglasses and contact lenses may have substantially greater financial,
technical, managerial, marketing and other resources and experience than us and
may promote alternatives to laser vision correction or purchase laser systems
and offer laser vision correction to their customers.
If the price of excimer laser systems decreases, additional competition
could develop. The price for excimer laser systems could decrease for a number
of reasons, including technological innovation and increased competition among
laser manufacturers. Further reductions in the price of excimer lasers could
reduce demand for TLC VISION's laser access services by making it economically
more attractive for eye surgeons to buy excimer lasers rather than utilize TLC
VISION's services.
Although doctors performing laser vision correction at TLC's eye care
centers and significant employees of TLC and LaserVision have agreed to
restrictions on competing with us, or soliciting patients or employees
associated with their facilities, these non-competition agreements may not be
enforceable.
The market acceptance of laser vision correction is uncertain.
TLC and LaserVision believe that the profitability and growth of TLC
VISION will depend upon broad acceptance of laser vision correction in the
United States and, to a lesser extent, Canada. We may have difficulty generating
revenue and growing our business if laser vision correction does not become more
widely accepted by eye care doctors or the general population as an alternative
to existing methods of treating refractive vision disorders. Laser vision
correction may not become more widely accepted due to a number of factors,
including:
o its cost, particularly since laser vision correction typically is
not covered by government or private insurers;
o general resistance to surgery;
o effective and less expensive alternative methods of correcting
refractive vision disorders are widely available;
o the lack of long-term follow-up data;
o the possibility of unknown side effects; and
o reported adverse events or other unfavorable publicity involving
patient outcomes from laser vision correction.
Concerns about potential side effects and long-term results of laser vision
correction may negatively impact market acceptance of laser vision correction
and prevent us from growing our business.
Concerns have been raised with respect to the predictability and stability
of results and potential complications or side effects of laser vision
correction. Any complications or side effects of laser vision correction may
call into question the safety and effectiveness of laser vision correction,
which in turn may damage the likelihood of market acceptance of laser vision
correction. Complications or side effects of laser vision correction could lead
to product liability, malpractice or other claims against TLC VISION. Also
complications or side effects could jeopardize the approval by the U.S. Food and
Drug Administration of the excimer laser for sale for laser vision
25
correction. Although results of a study showed that the majority of patients
experienced no serious side effects six years after laser vision correction
using the Photorefractive Keratectomy procedure, known as PRK, complications may
be identified in further long term follow-up studies of PRK or Laser In-Situ
Keratomileusis, known as LASIK, the procedure more often performed in recent
years. Laser vision correction may involve the removal of "Bowman's layer," an
intermediate layer between the outer corneal layer and the middle corneal layer
of the eye. Although several studies have demonstrated no significant adverse
reactions to excimer laser removal of Bowman's layer, the effect of the removal
of Bowman's layer on patients is unclear.
We may be unable to enter into or maintain agreements with doctors or other
health care providers on satisfactory terms.
TLC VISION will have difficulty generating revenue if we are unable to
enter into or maintain agreements with doctors or other health care providers on
satisfactory terms. Most states prohibit TLC and LaserVision, and will prohibit
TLC VISION, from practicing medicine, employing doctors to practice medicine on
our behalf or employing optometrists to render optometric services on our
behalf. In most states we may only own and manage centers and enter into
affiliations with doctors and other health care providers. Also, affiliated
doctors have provided a significant source of patients for TLC and LaserVision
and are expected to provide a significant source of patients for TLC VISION.
Accordingly, the success of our business depends upon our ability to enter into
agreements on acceptable terms with a sufficient number of health care
providers, including institutions and eye care doctors to render or arrange
surgical and other professional services at facilities owned or managed by TLC
VISION.
Quarterly fluctuations in operating results make financial forecasting
difficult.
TLC VISION may experience future quarterly losses which may exceed prior
quarterly losses of TLC and LaserVision on a combined basis. TLC VISION's
expense levels will be based, in part, on our expectations as to future
revenues. If actual revenue levels are below expectations, TLC VISION's
operating results would deteriorate. Historically, the quarterly results of
operations of TLC and LaserVision have varied, and future results may continue
to fluctuate significantly from quarter to quarter. Accordingly,
quarter-to-quarter comparisons of our operating results may not be meaningful
and should not be relied upon as indications of our future performance or annual
operating results. Quarterly results will depend on numerous factors, including
economic conditions in our geographic markets, market acceptance of our
services, seasonal factors and other factors described in this joint proxy
statement/prospectus.
The market price of our common shares may be volatile.
Historically, the market price of TLC's common shares and LaserVision's
shares of common stock has been very volatile. For example, the market price of
TLC common shares decreased from a high of $53.50 to a low of $1.125 between
July 1999 and January 2001. TLC VISION's common shares will likely be volatile
in the future due to industry developments and business-specific factors such
as:
o our ability to effectively penetrate the laser vision correction
market;
o our ability to execute our business strategy;
o new technological innovations and products;
o changes in government regulations;
o adverse regulatory action;
o public concerns about the safety and effectiveness of laser vision
correction;
o loss of key management;
o announcements of extraordinary events such as acquisitions or
litigation;
o variations in our financial results;
26
o fluctuations in our competitors' stock prices;
o the issuance of new or changed stock market analyst reports and
recommendations concerning our common shares or our competitors'
stock;
o changes in earnings estimates by securities analysts;
o our ability to meet analysts' projections;
o changes in the market for medical services; or
o general economic, political and market conditions.
In addition, in recent years the prices and trading volumes of publicly
traded shares, particularly those of companies in health care related markets,
have been extremely volatile. This volatility has substantially affected the
market prices of many companies' securities for reasons frequently unrelated or
disproportionate to their operating performance. Following the terrorist attacks
in the United States in September 2001, stock markets have experienced extreme
volatility and stock prices have declined, in some cases substantially. Further
attacks and any responsive actions to these attacks may result in further
declines in stock prices or continued volatility in stock markets generally.
Continued volatility may reduce the market price of the common shares of TLC
VISION.
We may be unable to execute our business strategy.
TLC VISION's business strategy will be to focus on:
o maximizing revenues through a co-management model and innovative
marketing programs;
o controlling costs without compromising superior quality of care or
clinical outcomes; and
o pursuing additional growth opportunities for its core laser vision
correction business through TLC's Affiliate Center Program, as
described below, strategic acquisitions and opening new centers.
If TLC VISION does not successfully execute this strategy or if the
strategy is not effective, we may be unable to maintain or grow our revenues or
achieve profitability.
The growth strategy of TLC VISION depends on our ability to make acquisitions or
enter into affiliation arrangements.
The growth strategy of TLC VISION will be dependent on increasing the
number of procedures at our eye care centers, increasing the number of eye care
centers through internal development or acquisitions and entering into
affiliation arrangements with local eye care professionals in markets not large
enough to justify a corporate center.
The addition of new centers will present challenges to management,
including the integration of new operations, technologies and personnel. The
addition of new centers also present special risks, including:
o unanticipated liabilities and contingencies;
o diversion of management attention; and
o possible adverse effects on operating results resulting from:
o possible future goodwill impairment;
o increased interest costs;
o the issuance of additional securities; and
o increased costs resulting from difficulties related to the
integration of the acquired businesses.
27
TLC VISION's ability to achieve growth through acquisitions will depend on
a number of factors, including:
o the availability of attractive acquisition opportunities;
o the availability of capital to complete acquisitions;
o the availability of working capital to fund the operations of
acquired businesses; and
o the effect of existing and emerging competition on our operations.
We may not be able to successfully identify suitable acquisition
candidates, complete acquisitions on acceptable terms, if at all, or
successfully integrate acquired businesses into our operations. Our past and
possible future acquisitions may not achieve adequate levels of revenue,
profitability or productivity or may not otherwise perform as expected.
TLC has an Affiliate Center Program designed to provide TLC's patient care
and service in association with local independent eye care professionals in
secondary markets which are not large enough to justify the development or
acquisition of a full sized TLC center. TLC VISION's ability to grow through the
Affiliate Center Program will depend on a number of factors, including:
o the success of the pilot program;
o the availability and willingness of local eye care practitioners to
participate in the program; and
o the ability of the local affiliate to integrate his or her practice
with our methods of operations and to maintain the goodwill
generated by our brand.
A decline in our stock price could prevent us from completing acquisitions
and could result in increased dilution to existing shareholders.
We may have substantial future capital requirements, and our ability to obtain
additional funding is uncertain.
TLC VISION will be unable to predict with certainty the timing or the
amount of its future capital requirements. Continued operating losses or changes
in our operations, expansion plans or capital requirements may consume available
cash and other resources more rapidly than we anticipate and more funding may be
required before TLC VISION becomes profitable. Our capital needs depend on many
factors, including:
o the rate and cost of acquisitions of businesses, equipment and other
assets;
o the rate of opening new centers or expanding existing centers;
o market acceptance of laser vision correction; and
o actions by competitors.
We may not have adequate resources to finance our business, and we may not
be able to obtain additional capital through subsequent equity or debt
financings on terms acceptable to us or at all. If we do not have adequate
resources and cannot obtain additional capital, we will not be able to implement
our expansion strategy successfully, our growth could be limited and our net
income and financial condition could be adversely affected.
We may be unable to successfully implement and integrate new operations and
facilities.
The success of TLC VISION depends on our ability to expand and manage our
operations and facilities. In the past, TLC and LaserVision have grown rapidly
in the United States. For example, since May 31, 1999, TLC has opened 19 eye
care centers in the United States and Canada. In addition, net revenues for the
year ended May 31, 2000 increased by 37% from the previous year. Our growth and
expansion has increased, and may continue to
28
increase, our management's responsibilities and demands on operating and
financial systems and resources. Our business and financial results are
dependent upon a number of factors, including our ability to:
o implement new, expanded or upgraded operations and financial
systems, procedures and controls;
o hire and train new staff and managerial personnel;
o adapt or amend our business structure to comply with present or
future legal requirements affecting our arrangements with doctors,
including state prohibitions on fee-splitting, corporate practice of
optometry and medicine and referrals to facilities in which doctors
have a financial interest; and
o obtain regulatory approvals, where necessary, and comply with
licensing requirements applicable to doctors and facilities
operated, and services offered, by doctors.
Our failure or inability to successfully implement these and other factors
may adversely affect the quality and profitability of our business operations.
We depend on key personnel whose loss could adversely affect our business.
TLC VISION's success and growth depends in part on the active
participation of key medical and management personnel, including Dr. Machat, Mr.
Vamvakas, Mr. Wachtman and Dr. Lindstrom. TLC maintains key person insurance for
each of Dr. Machat and Mr. Vamvakas and LaserVision maintains similar insurance
for Mr. Wachtman. Following the merger, TLC VISION will maintain key person
insurance for each of Dr. Machat, Mr. Vamvakas, Mr. Wachtman and Dr. Lindstrom.
Despite having this insurance in place, the loss of any one of these key
individuals could adversely affect the quality, profitability and growth
prospects of our business operations.
TLC VISION will have employment or similar agreements with the above
individuals and other key personnel. The terms of these agreements will include,
in some cases, entitlements to substantial severance payments in the event of
termination of employment by either TLC VISION or the employee.
We may be subject to malpractice and other similar claims and we may be unable
to obtain or maintain adequate insurance against these claims.
The provision of medical services at our centers entails an inherent risk
of potential malpractice and other similar claims. Patients at our centers
execute informed consent statements prior to any procedure performed by doctors
at our centers, but these consents may not provide adequate liability
protection. Although we do not engage in the practice of medicine or have
responsibility for compliance with regulatory and other requirements directly
applicable to doctors and doctor groups, claims, suits or complaints relating to
services provided at our centers may be asserted against us in the future, and
the assertion or outcome of these claims could result in higher administrative
and legal expenses, including settlement costs or litigation damages.
TLC and LaserVision currently maintain malpractice insurance coverage that
each believes is adequate both as to risks and amounts covered. In addition, we
require the doctors who provide medical services at our centers to maintain
comprehensive professional liability insurance and most of these doctors have
agreed to indemnify TLC and LaserVision against certain malpractice and other
claims. Our insurance coverage, however, may not be adequate to satisfy claims,
insurance maintained by the doctors may not protect TLC and such indemnification
may not be enforceable or, if enforced, may not be sufficient. Our inability to
obtain adequate insurance or an increase in the future cost of insurance to TLC
VISION and the doctors who provide medical services at the centers may have a
material adverse effect on our business and financial results.
The excimer laser system uses hazardous gases which if not properly
contained could result in injury. We may not have adequate insurance for any
liabilities arising from injuries caused by the excimer laser system or
hazardous gases. While we believe that any claims alleging defects in our
excimer laser systems would be covered by the manufacturers' product liability
insurance, the manufacturers of our excimer laser systems may not continue to
carry adequate product liability insurance.
29
Compliance with industry regulations is costly and onerous.
TLC's and LaserVision's operations are, and TLC VISION's operations will
be, subject to extensive federal, state and local laws, rules and regulations.
Our efforts to comply with these laws, rules and regulations may impose
significant costs, and failure to comply with these laws, rules and regulations
may result in fines or other charges being imposed on TLC VISION.
Many state laws prohibit corporations from practicing medicine and
optometry and many federal and state laws extensively regulate the solicitation
of prospective patients, the structure of our fees, and our contractual
arrangements with hospitals, surgery centers, ophthalmologists and optometrists,
among others. Some states also impose licensing requirements. Although we have
each tried to structure our business and contractual relationships in compliance
with these laws in all material respects, if any aspect of our operations were
found to violate applicable laws, we could be subject to significant fines or
other penalties, required to cease operations in a particular state, prevented
from commencing operations in a particular state or otherwise be required to
revise the structure of our business or legal arrangements. Many of these laws
and regulations are ambiguous, have not been definitively interpreted by courts
or regulatory authorities and vary from jurisdiction to jurisdiction.
Accordingly, we may not be able to predict how these laws and regulations will
be interpreted or applied by courts and regulatory authorities, and some of our
activities could be challenged.
Numerous legislative proposals to reform the U.S. health care system have
been introduced in Congress and in various state legislatures over the past
several years. We cannot predict whether any of these proposals will be adopted
and, if adopted, what impact this legislation would have on our business. To
respond to any such changes, we could be required to revise the structure of our
legal arrangements or the structure of our fees, incur substantial legal fees,
fines or other costs, or curtail some of our business activities, reducing the
potential profit of some of our arrangements.
State medical boards and state boards of optometry generally set limits on
the activities of ophthalmologists and optometrists. In some instances, issues
have been raised as to whether participation in a co-management program violates
some of these limits. If a state authority were to find that our co-management
program did not comply with state licensing laws, TLC VISION would be required
to revise the structure of our legal arrangements, and affiliated doctors might
terminate their relationships with us.
Federal and state civil and criminal statutes impose penalties, including
substantial civil and criminal fines and imprisonment, on health care providers
and persons who provide services to health care providers, including management
businesses such as TLC and LaserVision, for fraudulently or wrongfully billing
government or other insurers. In addition, the federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in
the name of the U.S. government for violations of its provisions and obtain a
portion of the damages if the action is successful. TLC and LaserVision each
believes that it is in material compliance with these billing laws, but our
business could be adversely affected if governmental authorities were to
scrutinize or challenge our activities or private parties were to assert a false
claim or action against us in the name of the U.S. government.
Although TLC believes that we have obtained the necessary licenses or
certificates of need in states where such licenses are required and that we are
not required to obtain any licenses in other states, some of the state
regulations governing the need for such licenses are unclear, and there is no
applicable precedent or regulatory guidance to help resolve these issues. A
state regulatory authority could determine that TLC VISION is operating a center
inappropriately without a required license or certificate of need, which could
subject us to significant fines or other penalties, result in our being required
to cease operations in a state or otherwise jeopardize our business and
financial results. If TLC VISION expands to a new geographic market, we may be
unable to obtain any new license required in that jurisdiction.
Compliance with additional health care regulation in Canada is costly and
burdensome.
Some Canadian provinces have adopted conflict of interest regulations that
prohibit optometrists, ophthalmologists or corporations they own or control from
receiving benefits from suppliers of medical goods or
30
services to whom they refer patients. The laws of some Canadian provinces also
prohibit health care professionals from splitting fees with non-health care
professionals and prohibit non-licensed entities such as TLC from practicing
medicine or optometry and from directly employing doctors or optometrists. TLC
believes that it is in material compliance with these requirements, but a review
of TLC's operations by Canadian regulators or changes in the interpretation or
enforcement of existing Canadian legal requirements or the adoption of new
requirements could require us to incur significant costs to comply with laws and
regulations in the future or require us to change the structure of our
arrangements with doctors.
Compliance with U.S. Food and Drug Administration regulations regarding the use
of excimer laser systems for laser vision correction is costly and burdensome.
To date, the FDA has approved excimer laser systems manufactured by some
manufacturers for sale for the treatment of nearsightedness, farsightedness and
astigmatism up to stated levels of correction. Failure to comply with applicable
FDA requirements with respect to the use of the excimer laser could subject us,
our affiliated doctors or laser manufacturers to enforcement action, including
product seizure, recalls, withdrawal of approvals and civil and criminal
penalties.
The FDA has adopted guidelines in connection with the approval of excimer
laser systems for laser vision correction. The FDA, however, has also stated
that decisions by doctors and patients to proceed outside the FDA approved
guidelines is a practice of medicine decision which the FDA is not authorized to
regulate. Failure to comply with FDA requirements, or any adverse FDA action,
including a reversal of its interpretation with respect to the practice of
medicine, could result in a limitation on or prohibition of our use of excimer
lasers.
Discovery of problems, violations of current laws or future legislative or
administrative action in the United States or elsewhere may adversely affect the
laser manufacturers' ability to obtain regulatory approval of laser equipment.
Furthermore, the failure of other excimer laser manufacturers to comply with
applicable federal, state or foreign regulatory requirements, or any adverse
action against or involving such manufacturers, could limit the supply of
excimer lasers, substantially increase the cost of excimer lasers, limit the
number of patients that can be treated at our centers and limit our ability to
use excimer lasers.
Most of TLC's eye care centers in the United States use VISX and/or Alcon
Laboratories Inc. excimer lasers and most of LaserVision's lasers are VISX
excimer lasers. If VISX, Alcon or other excimer laser manufacturers fail to
comply with applicable federal, state or foreign regulatory requirements, or if
any adverse regulatory action is taken against or involves such manufacturers,
the supply of lasers could be limited and the cost of excimer lasers could
increase.
The MobilExcimer utilized by LaserVision in its mobile laser access
operations has been approved by the FDA for certain uses. The Roll-On/Roll-Off
laser system consists of an excimer laser mounted on a motorized, air suspension
platform and transported in a specially modified truck. We believe that use of
this transport system does not require FDA approval; the FDA has taken no
position in regard to such approval. The FDA could, however, take the position
that excimer lasers are not approved for use in this transport system. Such a
view by the FDA could lead to an enforcement action against us, which could
impede our ability to maintain or increase our volume of excimer laser
surgeries. This could have a material adverse effect on our business and
financial results. Similarly, we believe that FDA approval is not required for
our mobile use of microkeratomes or the cataract equipment transported by our
cataract operations. The FDA, however, could take a contrary position which
could result in an enforcement action.
Disputes with respect to intellectual property could adversely affect our
business.
There has been substantial litigation in the United States and Canada
regarding the patents on ophthalmic lasers. If the use of an excimer laser or
other procedure performed at any of our centers is deemed to infringe a patent
or other proprietary right, we may be prohibited from using the equipment or
performing the procedure that is the subject of the patent dispute or may be
required to obtain a royalty bearing license, which may involve substantial
costs, including ongoing royalty payments. If a license is not available on
acceptable terms, we may be required to seek the use of products which do not
infringe the patent. The unavailability of alternate products could
31
cause us to cease operations in the United States or Canada or delay our
expansion. If we are prohibited from performing laser vision correction at any
of our laser centers, our ability to carry on our business will be jeopardized.
LaserVision and ClearVision have also secured patents for portions of the
equipment we use to transport our mobile lasers. LaserVision's and ClearVision's
patents and other proprietary technology are important to our success. Our
patents could be challenged, invalidated or circumvented in the future.
Litigation regarding intellectual property is common and our patents may not
adequately protect our intellectual property. Defending and prosecuting
intellectual property proceedings is costly and involves substantial commitments
of management time. If we fail to successfully defend our rights with respect to
our intellectual property we may be required to pay damages.
We may not have the capital resources necessary in order to keep up with rapid
technological changes.
Modern medical technology changes rapidly. New or enhanced technologies
and therapies may be developed with better performance or lower costs than the
laser vision correction currently provided at our centers. We may not have the
capital resources to upgrade our excimer laser equipment, acquire new or
enhanced medical devices or adopt new or enhanced procedures at the time that
any advanced technology or therapy is introduced.
Risk Factors Specific to the Merger
The integration of TLC and LaserVision may not be successful.
The merger involves a combination of two companies that have complementary
business models located principally in the United States and Canada. TLC's
business model has focused upon owning and managing refractive centers which
provide laser vision correction directly to consumers. LaserVision's business
has consisted primarily of contracting directly with eye surgeons for access to
excimer lasers and related services. The success of the merger will be dependent
on a number of factors, including but not limited to the combined entity's
ability to:
o integrate LaserVision's operations with the operations of TLC;
o maintain and enhance relationships and affiliations with local eye
care professionals;
o achieve an effective combined management structure;
o achieve expected cost savings and increased operating efficiencies;
o achieve expected increases in procedure volumes and revenues; and
o retain and attract qualified personnel.
The integration of TLC and LaserVision may not be successful.
TLC VISION may become a competitor of some of the eye surgeons with whom
LaserVision contracts to provide laser access, which may impair TLC VISION's
business relationship with the affected eye surgeon or result in the termination
of that business relationship.
On the consummation of the merger, the businesses of LaserVision and TLC
will be integrated. The combined company after the merger will operate
refractive centers which may perform many of the same services as eye surgeons
with whom LaserVision contracts to provide laser access. If this occurs, the
combined company's relationship with an affected eye surgeon may be impaired or
may be terminated by the eye surgeon.
We may not be able to successfully integrate the operations of ClearVision.
In August 2001, LaserVision acquired substantially all of the assets of
ClearVision, a Colorado-based provider of access to excimer lasers to eye
surgeons. At the time of its acquisition, ClearVision had experienced
significant financial distress during its last two fiscal years. ClearVision
reported net losses attributable to common stock of approximately $3.0 million
for the six-month period ended June 30, 2001, and $15.4 million and $3.3 million
for the fiscal years ended December 31, 2000 and 1999, respectively. In
ClearVision's audited financial
32
statements for the year ended December 31, 2000, ClearVision's auditors
indicated that recurring losses from operations and net capital deficiency
raised substantial doubt about ClearVision's ability to continue as a going
concern. TLC VISION may be unable to improve the operating results of the
ClearVision assets and successfully integrate the operations of ClearVision.
We will incur significant costs of integration and transaction expenses as a
result of the merger.
TLC and LaserVision estimate they will collectively incur direct
transaction costs of approximately $14.5 million associated with the merger,
which will be included as a part of the total purchase cost for accounting
purposes. TLC and LaserVision believe TLC VISION may incur charges to
operations, which we cannot currently reasonably estimate, in the quarter in
which the merger occurs or the following quarters, to reflect costs associated
with integrating the two companies. TLC VISION may incur additional material
charges in subsequent quarters to reflect additional costs associated with the
merger.
The repricing of TLC stock options could have a material adverse impact on our
reported earnings in the future and could make our reported earnings volatile.
Subject to the approval of TLC's shareholders and The Toronto Stock
Exchange, TLC will allow the holders of outstanding TLC stock options with an
exercise price greater than $8.688 to elect to reduce the exercise price of
their options to $8.688, in some cases by surrendering a number of the existing
shares issuable on exercise of each repriced option. If the price of TLC
VISION's common shares rises above the new exercise price of $8.688, the
repricing of the options could have a material adverse impact on TLC VISION's
reported earnings and could make our reported earnings more volatile. Under
current U.S. generally accepted accounting principles, the repriced options will
be subject to variable accounting treatment. Variable accounting requires that
the difference between the price of TLC VISION's common shares at the end of
each financial quarter and the new exercise price be charged to income as
compensation over the remaining vesting period of the outstanding options. If
the price of TLC VISION common shares rises above $8.6888, variable accounting
will require TLC VISION to remeasure total compensation at the end of each
quarter and take an appropriate charge to income. This charge may be material to
future quarterly and annual results. TLC VISION is unable to estimate at this
point the total amount of compensation expense, if any, or the period to which
the charge to income will be made.
New accounting standards relating to the treatment of goodwill could result in a
significant charge to TLC VISION's reported earnings in the future.
TLC has decided to early adopt the accounting standards of Statement of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Effective June 1, 2001, amortization of
goodwill is not required. However, the new standards introduce new guidance on
how goodwill is to be tested for impairment. In accordance with these new
standards, TLC is required to perform a transitional impairment test on goodwill
that existed as at June 1, 2001. Impairment is tested using a two-step approach,
at a level of reporting referred to as a reporting unit. The first step compares
the fair value of a reporting unit with its carrying amount, including goodwill,
to identify potential impairment. If the fair value of a reporting unit exceeds
its carrying amount, goodwill is not impaired and the second step of the
impairment test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, step two requires the fair value of the reporting unit's
goodwill to be compared with its carrying amount to measure impairment loss, if
any. The fair value of goodwill is determined in the same manner as in a
business combination. An enterprise allocates the fair value of a reporting unit
to all assets and liabilities, including unrecognized intangible assets, as if
the reporting unit had been acquired in a business combination and the fair
value was the price paid to acquire the reporting unit. Any impairment existing
at June 1, 2001 will be charged to TLC's earnings for the quarter ending
November 30, 2001 as the effect of a change in accounting principle. Under the
new standards, TLC VISION will also be required to perform additional tests of
goodwill impairment at least annually, but more frequently if indications of
impairment exist. Any impairment losses occurring after June 1, 2001 will be
charged to earnings in the period the impairment is determined and recorded in
operating income for that period. Since TLC has a material amount of goodwill
recorded on its balance sheet, even prior to the merger, the adoption of the new
standards could result in a significant charge to the reported earnings of TLC
VISION in the future.
33
The ability of TLC VISION's shareholders to effect changes in control of TLC
VISION will be limited.
TLC VISION has a shareholder rights plan which enables the board of
directors to delay a change in control of TLC VISION. This could discourage a
third party from attempting to acquire control of TLC VISION, even if an attempt
would be beneficial to the interests of the shareholders. In addition, since TLC
VISION will be a Canadian corporation, investments in TLC VISION may be subject
to the provisions of the Investment Canada Act. In general, this act provides a
system for the notification to the Investment Canada agency of acquisitions of
Canadian businesses by non-Canadian investors and for the review by the
Investment Canada agency of acquisitions that meet thresholds specified in the
act. To the extent that a non-Canadian person or company attempted to acquire
33% or more of TLC VISION's outstanding common stock, the threshold for a
presumption of control, the transaction could be reviewable by the Investment
Canada agency. These factors could have the effect of delaying, deferring or
preventing a change of control of TLC VISION.
34
FORWARD-LOOKING STATEMENTS
TLC and LaserVision have made forward-looking statements in this joint
proxy statement/prospectus that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of TLC, LaserVision and TLC VISION, as well
as statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "estimates," "projects," "intends" or similar
expressions. You should understand that important factors, in addition to those
discussed elsewhere in this document, could affect the future business and
financial results of TLC VISION, and could cause those results to differ
materially from those expressed in any forward-looking statements. These factors
include:
o the fact that TLC has not been profitable in the past and TLC VISION
may not be profitable in the future;
o changes in general economic conditions;
o the intense competition in the market for laser vision correction;
o the uncertainty of market acceptance of laser vision correction;
o concerns about the potential side effects and long-term results of
laser vision correction;
o our ability to enter into or maintain agreements with doctors or
other health care providers on satisfactory terms;
o the fact that historical quarterly fluctuations in our operating
results make financial forecasting difficult;
o the historical and future volatility of our stock price;
o our ability to execute our business strategy;
o our ability to make acquisitions or enter into affiliation
arrangements;
o our future capital requirements and our ability to obtain additional
funding;
o our ability to successfully implement and integrate new operations
and facilities;
o our dependence on key personnel;
o the risk of malpractice and similar claims and our ability to obtain
or maintain adequate insurance against these claims;
o the fact that compliance with industry regulations is costly and
onerous;
o the possibility of disputes with respect to intellectual property
used in our business;
o the significant drain on capital resources necessary to keep up with
rapid technological change;
o the integration of TLC and LaserVision may not be successful;
o the fact that TLC VISION may become a competitor of some of the eye
surgeons with whom LaserVision contracts to provide laser access;
o our ability to successfully integrate the operations of ClearVision;
o the significant costs of integration and transaction expenses that
will result from the merger; and
o the impact that the repricing of TLC stock options in the merger
will have on our financial results;
o the impact that new accounting standards relating to the treatment
of goodwill will have on our financial results; and
o the fact that TLC VISION's shareholders' ability to effect a change
in control of TLC VISION will be limited.
35
Anticipated future results may not be achieved. We caution readers not to
place undue reliance on these forward-looking statements, which speak only as of
their dates. We have described some important factors that could cause our
actual results to differ materially from our expectations in this joint proxy
statement/prospectus, including in the section titled "Risk Factors." Except as
otherwise required by applicable securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements whether as a result of
new information, future events or otherwise.
36
INFORMATION REGARDING THE TLC SHAREHOLDER MEETING
This joint proxy statement/prospectus is being furnished to holders of
common shares of TLC in connection with the solicitation of proxies by or on
behalf of the management of TLC for use at the annual and special meeting of TLC
shareholders to be held on ___________________, 2002 at ___________________,
Eastern Standard Time, at ___________________ and any adjournment or
postponement thereof. The information in this joint proxy statement/prospectus
is given as of December 7, 2001 except where otherwise noted.
The joint proxy statement/prospectus is also being furnished to holders of
common stock of LaserVision in connection with the solicitation of proxies by or
on behalf of the board of directors of LaserVision for use at the special
meeting of LaserVision shareholders to be held on ___________________, 2002 at
___________________, Central Standard Time, at ___________________, and any
adjournment or postponement thereof. See "Information Regarding the LaserVision
Shareholder Meeting" for information on the LaserVision shareholder meeting. If
you are a LaserVision shareholder and do not own TLC common shares, you are not
required to attend and cannot vote at the TLC shareholder meeting so the
following information is for your information only.
Solicitation of Proxies
TLC expects that the solicitation of proxies from TLC shareholders will be
made primarily by mail. TLC has retained Georgeson Shareholder, Inc., a proxy
solicitation firm, to assist in the solicitation of proxies for a fee of
Cdn$65,000 plus customary out-of-pocket expenses. Georgeson Shareholder will
receive an additional fee of Cdn$35,000 if the merger is approved. Proxies also
may be solicited personally by directors, officers and employees of TLC, without
additional remuneration. TLC will, if requested, reimburse banks, brokerage
houses and other custodians, nominees and certain fiduciaries for their
reasonable out-of-pocket expenses incurred in connection with the distribution
of proxy materials to their principals. The total cost of the solicitation of
proxies from TLC shareholders will be borne by TLC.
Appointment of Proxies
The persons named in the enclosed form of proxy are representatives of
management of TLC and are directors or officers of TLC. A TLC shareholder who
wishes to appoint some other person, who need not be a shareholder of TLC, to
represent such shareholder at the TLC shareholder meeting may do so by inserting
such person's name in the blank space provided in the form of proxy. To be
valid, proxies must be deposited with the Secretary of TLC, c/o CIBC Mellon
Trust Company, Proxy Dept., 200 Queen's Quay East, Unit #6, Toronto, Ontario M5A
4K9 not later than the close of business on ___________________, 2002 or, if the
TLC shareholder meeting is adjourned, 48 hours, excluding Saturdays, Sundays and
holidays, before any adjourned meeting.
Non-Registered Shareholders
Only registered shareholders of TLC or the persons they appoint as their
proxies are permitted to vote at the TLC shareholder meeting. However, in many
cases, shares of TLC beneficially owned by a non-registered TLC shareholder are
registered either:
o in the name of an intermediary that the non-registered TLC
shareholder deals with in respect of the shares, such as banks,
trust companies, securities dealers or brokers and trustees or
administrators of self-administered RRSPs, RRIFs, RESPs and similar
plans; or
o in the name of a clearing agency, such as The Canadian Depository
for Securities Limited, of which the intermediary is a participant.
In accordance with the requirements of National Policy Statement No. 41 of
the Canadian Securities Administrators, TLC has distributed copies of the
notice, this joint proxy statement/prospectus and the form of proxy, referred to
collectively as the meeting materials, to the clearing agencies and
intermediaries for distribution to non-registered TLC shareholders.
37
Intermediaries are required to forward the meeting materials to
non-registered TLC shareholders unless a non-registered TLC shareholder has
waived the right to receive them. Very often, intermediaries will use service
companies to forward the meeting materials to non-registered TLC shareholders.
Generally, non-registered TLC shareholders who have not waived the right to
receive the meeting materials will either:
o be given a form of proxy which has already been signed by the
intermediary, typically by a facsimile, stamped signature, which is
restricted as to the number of shares beneficially owned by the
non-registered TLC shareholder but which is otherwise not completed.
Because the intermediary has already signed the form of proxy, this
form of proxy is not required to be signed by the non-registered TLC
shareholder when submitting the proxy. In this case, the
non-registered TLC shareholder who wishes to submit a proxy should
otherwise properly complete the form of proxy and deliver it to the
Secretary of TLC as set out above under "Appointment of Proxies"; or
o more typically, be given a form of proxy which is not signed by the
intermediary, and which, when properly completed and signed by the
non-registered TLC shareholder and returned to the intermediary or
its service company, will constitute voting instructions which the
intermediary must follow. Such voting instructions are often called
a proxy authorization form. Typically, the non-registered TLC
shareholder will also be given a page of instructions which contains
a removable label containing a bar-code and other information. In
order for the form of proxy to validly constitute a proxy
authorization form, the non-registered TLC shareholder must remove
the label from the instructions and affix it to the form of proxy,
properly complete and sign the form of proxy and submit it to the
intermediary or its service company in accordance with the
instructions of the intermediary or its service company.
In either case, the purpose of this procedure is to permit non-registered
TLC shareholders to direct the voting of the shares which they beneficially own.
Should a non-registered TLC shareholder who receives either form of proxy wish
to vote at the TLC shareholder meeting in person, the non-registered TLC
shareholder should strike out the persons named in the proxy and insert the
non-registered TLC shareholder's name in the blank space provided. In either
case, non-registered TLC shareholders should carefully follow the instructions
of their intermediary, including those regarding when and where the proxy or
proxy authorization form is to be delivered.
Revocation of Proxies
In addition to revocation in any other manner provided by law, a
shareholder who has given a proxy may revoke the proxy:
o by completing, signing and depositing a proxy bearing a later date
not later than the close of business on ___________________, 2002
or, if the TLC shareholder meeting is adjourned, not later than 48
hours, excluding Saturdays, Sundays and holidays, before the
adjournment; or
o by depositing an instrument in writing executed by the shareholder
or the shareholder's attorney authorized in writing:
(1) at the registered office of TLC at any time up to and
including the last business day before the day of the TLC
shareholder meeting, or any adjournment thereof; or
(2) with the chairman of the TLC shareholder meeting on the day of
the TLC shareholder meeting or any adjournment thereof.
A non-registered TLC shareholder may revoke voting instructions or a
waiver of the right to receive meeting materials and to vote given to an
intermediary at any time by written notice to the intermediary, except that an
intermediary is not required to act on a revocation of voting instructions or of
a waiver of the right to receive materials and to vote that is not received by
the intermediary at least seven days prior to the TLC shareholder meeting.
38
Voting of Proxies
The management representatives designated in the enclosed form of proxy
will vote or withhold from voting the shares for which they are appointed by
proxy on any ballot that may be called for in accordance with the instructions
of the shareholder as indicated on the proxy, and if the shareholder specifies a
choice with respect to any matter to be acted upon, the shares will be voted
accordingly. In the absence of such direction, such shares will be voted by the
management representatives FOR each of the resolutions as indicated in the
discussion of each resolution. Votes cast by proxy or in person at the TLC
shareholder meeting will be tabulated by the judge of elections appointed for
the TLC shareholder meeting. The scrutineers at the TLC shareholder meeting will
include TLC common shares that are present and entitled to vote but that abstain
or are withheld from voting on a particular matter for purposes of determining
the presence of a quorum but not for purposes of determining whether the
required vote has been received for a particular matter. If a broker indicates
on a proxy that such broker does not have discretionary authority to vote on a
particular matter and has not received instructions from the beneficial owner,
such shares will not be considered for purposes of determining the presence of a
quorum or for the purposes of determining whether the required vote has been
received.
The form of proxy permits TLC shareholders to confer discretionary voting
authority on those persons designated in the proxy with respect to amendments or
variations to the resolutions identified in the notice of the TLC meeting and
with respect to other matters which may properly come before the TLC meeting.
The management of TLC knows of no such amendment, variation or other matter to
come before the TLC meeting as of the date of this joint proxy
statement/prospectus. However, if such amendments or variations or other matters
properly come before the TLC meeting, the management representatives designated
in the form of proxy will vote the TLC common shares represented thereby in
accordance with their best judgment.
TLC shareholders may also be asked to vote on a resolution to adjourn or
postpone the TLC meeting. The management representatives designated in the
enclosed form of proxy will vote or withhold from voting the shares for which
they are appointed by proxy on any such ballot in accordance with the
instructions of the shareholder as indicated on the proxy. In the absence of
such direction, such shares will be voted by the management representatives FOR
a resolution to adjourn or postpone the TLC meeting. The management
representatives designated in the enclosed form of proxy will not vote shares
for which they have been appointed FOR a resolution to adjourn the meeting to
solicit additional proxies if the TLC shareholder has indicated a vote AGAINST
or to ABSTAIN from the resolution.
Voting Shares and Record Date
On November 30, 2001, TLC had outstanding 38,065,058 common shares. Each
registered holder of TLC common shares of record at the close of business on
___________________, 2001, the record date established for notice of the TLC
shareholder meeting, will be entitled to one vote for each TLC common share held
by such shareholder on all matters proposed to come before the TLC shareholder
meeting or any adjournment thereof, except to the extent that such shareholder
has transferred any TLC common shares after the record date and the transferee
of such shares establishes ownership of the shares and demands, not later than
10 days before the TLC shareholder meeting, to be included in the list of
shareholders entitled to vote at the TLC shareholder meeting, in which case the
transferee will be entitled to vote such shares.
A quorum for the TLC shareholder meeting will consist of at least 2
persons present in person and each entitled to vote at the meeting and holding
at least 20% of the outstanding TLC common shares.
Business to be Conducted at the Meeting
Resolution 1: Approval of the Transactions Contemplated by the Merger
Agreement.
The TLC board of directors is asking TLC shareholders to vote on a
resolution to approve the transactions contemplated by the merger agreement. The
merger agreement provides for the combination of TLC and LaserVision in a
transaction in which each outstanding share of LaserVision common stock will be
converted into
39
the right to receive 0.95 of a TLC common share. As a result of the merger, TLC
will become the owner of all of the outstanding shares of LaserVision common
stock. See "The Merger" for a description of the terms of the merger and the
merger agreement. The merger agreement appears as Appendix A to this joint proxy
statement/prospectus and the full text of Resolution 1 appears in Appendix F to
this joint proxy statement/prospectus.
If approved, the merger is expected to be effective not later than the
last day of the month and the fifth business day after satisfaction of or, to
the extent permitted under the merger agreement, waiver of, all conditions to
the merger contained in the merger agreement, whichever is later.
The merger agreement provides that the merger is conditional upon the
approval of TLC shareholders being obtained. The TLC board of directors is
seeking shareholder approval of the merger agreement and the transactions
contemplated by the merger agreement because the merger is an important
transaction for TLC and will result in the issuance of a significant number of
TLC common shares. In addition, the rules of The Toronto Stock Exchange and the
Nasdaq National Market System require shareholder approval for transactions such
as the merger that will result in the issuance of more than 25% or 20%,
respectively, of a company's outstanding capital stock. If TLC shareholders do
not approve the merger, it will not be completed. The merger also may not be
completed if any of the conditions to closing are not satisfied or if the merger
agreement is terminated by TLC or LaserVision.
The affirmative vote of a majority of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to adopt the
resolution to approve the transactions contemplated by the merger agreement. The
management representatives designated in the enclosed form of proxy intend to
vote the TLC common shares for which they have been appointed FOR Resolution 1
unless the shareholder who has given such proxy directs that the shares be
otherwise voted.
The TLC board of directors believes that the transactions contemplated by
the merger agreement are fair to TLC shareholders and in the best interests of
TLC. Accordingly, the TLC board of directors has unanimously approved, and
recommends a vote FOR approval of, the transactions contemplated by the merger
agreement.
The reasons for the transactions contemplated by the merger agreement and
the factors considered by the TLC board of directors in making its
recommendation are set out under the heading "The Merger - Background and
Reasons for the Merger."
Please review the other portions of this joint proxy statement/prospectus
carefully as it contains details regarding the merger, the merger agreement,
LaserVision and related matters.
Resolution 2: Approval of Amendment to TLC's Articles of Incorporation to
Change the Name From "TLC Laser Eye Centers Inc." to "TLC
VISION Corporation."
The TLC board of directors is asking the TLC shareholders to vote on a
resolution to amend TLC's articles of incorporation to change the name of TLC to
"TLC VISION Corporation." The TLC board of directors has unanimously approved
such an amendment to the articles of incorporation. The full text of Resolution
2 appears in Appendix F to this joint proxy statement/prospectus.
The purpose of the proposed name change is to reflect the proposed
combination of TLC and LaserVision and the name change will take place on or
before the closing of the merger. The merger agreement provides that approval of
the name change is a condition to the merger becoming effective.
Upon consummation of the proposed name change it will not be necessary to
surrender TLC share certificates for TLC VISION share certificates. Instead,
when certificates are presented for transfer, new certificates bearing the name
"TLC VISION Corporation" will be issued. If there exists any circumstance which
would make consummation of the name change inadvisable in the judgment of the
TLC board of directors, including the failure of the TLC or LaserVision
shareholders to approve the transactions contemplated by the merger agreement,
this
40
resolution to amend the articles of incorporation may be terminated by the TLC
board of directors either before or after approval of the name change by the TLC
shareholders.
The affirmative vote of two-thirds of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to adopt the
resolution to amend TLC's articles of incorporation to change TLC's name to "TLC
VISION Corporation." The management representatives designated in the enclosed
form of proxy intend to vote the TLC common shares for which they have been
appointed FOR Resolution 2 unless the shareholder who has given such proxy
directs that the shares be otherwise voted.
The TLC board of directors unanimously recommends a vote FOR the
resolution to amend the articles of incorporation to change the name of TLC
Laser Eye Centers Inc. to "TLC VISION Corporation."
Resolution 3: Approval of the Continuance of TLC under the Laws of New
Brunswick and the Adoption of New By-Laws.
Approval Sought
The TLC board of directors is asking TLC shareholders to vote on a
resolution to continue TLC as a corporation under the laws of New Brunswick. The
TLC board of directors has unanimously approved the continuance. The resolution
will also approve the adoption of a new general by-law for TLC. The full text of
Resolution 3 appears in Appendix F to this joint proxy statement/prospectus.
TLC is incorporated under the Business Corporations Act (Ontario), which
has the following residency requirements for directors:
o that a majority of the members of the board of directors and of each
committee of the board be resident Canadians; and
o that the board not transact business at a meeting of directors
unless a majority of the directors present are resident Canadians
unless the resident Canadians not attending previously approved the
matter being considered.
TLC and LaserVision have agreed that after the merger, TLC VISION's board
of directors will consist of eleven directors, consisting of seven directors
from the TLC board of directors and four directors selected from the current
members of the LaserVision board of directors. A majority of the proposed TLC
VISION board of directors are not residents of Canada. Thus, in order to
complete the merger, TLC VISION must not be constrained by the Ontario residency
requirements.
The Business Corporations Act (New Brunswick) does not have any provisions
similar to the Ontario residency requirements for boards of directors. The
continuance will afford TLC VISION the flexibility to structure its board of
directors for the merger and its business needs.
If TLC is continued under New Brunswick law, it will also be necessary to
adopt a new general by-law which will replace TLC's By-Law No. 3, which
currently conforms to Ontario law. The TLC board of directors has adopted,
conditional upon completion of the continuance, By-Law 2001, which is a general
by-law governing the business and affairs of TLC, which will become TLC VISION
if the merger and name change are also approved. By-Law 2001 appears in Appendix
D to this joint proxy statement/prospectus and is substantially similar to
By-Law No. 3, except as is necessary to take into account differences between
New Brunswick and Ontario law as described under "Comparison of Shareholder
Rights - Ontario Compared to New Brunswick."
By-Law 2001 sets out general regulations which govern the internal affairs
of the company, including the establishment of the following:
o the quorum for meetings of directors and shareholders;
41
o the manner of conducting meetings of directors and shareholders;
o signing authorities;
o the duties of the officers of the corporation; and
o the authority of designated persons to contract on behalf of the
corporation.
Because of the additional flexibility that New Brunswick law provides, if
the continuance is approved, TLC intends to implement the continuance even if
the merger is not approved. If approved, the continuance is expected to be
effective as soon as possible after the TLC shareholder meeting and in any event
prior to the closing of the merger.
Resolution 3 regarding the continuance of TLC under the laws of New
Brunswick authorizes the directors to revoke the resolution and not proceed with
the continuance, even though shareholders have approved the continuance. The TLC
board of directors will exercise this discretion and revoke the resolution if
there is any reason why the continuance is no longer in the best interests of
TLC. One of the reasons why the TLC board of directors may exercise this
discretion is if TLC shareholders holding a large number of TLC common shares
exercise their dissenters' rights, described below. By-Law 2001 will only become
effective if the continuance takes place.
Differences between Ontario and New Brunswick law are summarized under
"Comparison of Shareholders Rights - Ontario Compared To New Brunswick." TLC
VISION will continue to be bound by applicable Canadian provincial securities
laws and The Toronto Stock Exchange rules, which currently impose auditing,
financial reporting, continuous disclosure and other requirements relating to
the rights of shareholders. TLC has included provisions in the draft articles of
continuance and By-Law 2001, appearing as Appendix D to this joint proxy
statement/prospectus, which would maintain the current provisions of Ontario law
with respect to the right of shareholders to make proposals for the election of
directors. These provisions are less onerous to shareholders wishing to make a
proposal than those provided under New Brunswick law.
The affirmative vote of two-thirds of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to adopt the
resolution to continue TLC as a corporation under the laws of New Brunswick and
adopt By-Law 2001. The management representatives designated in the enclosed
form of proxy intend to vote the TLC common shares for which they have been
appointed FOR Resolution 3 unless the shareholder who has given such proxy
directs that the shares be otherwise voted.
The TLC board of directors unanimously recommends a vote FOR the
resolution to continue TLC as a corporation under the laws of New Brunswick and
adopt By-Law 2001.
Dissenters' Rights
Holders of TLC common shares have dissenters' rights concerning the
continuance of TLC under the laws of New Brunswick. Under the provisions of
section 185 of the Business Corporations Act (Ontario), referred to as the OBCA,
shareholders of TLC are entitled to send to TLC a written objection to the
special resolution for approval of the continuance of TLC under the laws of New
Brunswick. In addition to any other rights a holder of TLC common shares may
have, when the continuance of TLC under New Brunswick law becomes effective, if
a holder has complied with the dissent procedure under Ontario law, the holder
is entitled to be paid the fair value of the TLC common shares for which the
holder has dissented, determined as at the close of business on the day before
the resolution is adopted.
The dissent procedures are summarized below. A shareholder may only
exercise the right to dissent in respect of shares which are registered in that
shareholder's name. Failure to comply strictly with the dissent procedures may
result in the loss or unavailability of the right to dissent. The execution or
exercise of a proxy does not constitute a written objection for the purposes of
section 185 of the OBCA.
Section 185 provides that a shareholder may only make a claim under that
section with respect to all the shares held by him on behalf of any one
beneficial owner and registered in the shareholder's name. One
42
consequence of this provision is that a shareholder may only exercise the right
to dissent under section 185 in respect of the shares which are registered in
that shareholder's name. In many cases, shares beneficially owned by a
non-registered holder are registered either:
o in the name of an intermediary that the non-registered holder deals
with in respect of the shares, such as banks, trust companies,
securities dealers and brokers, trustees or administrators of
self-administered RRSPs, RESPs and similar plans, and their
nominees; or
o in the name of a clearing agency, such as The Canadian Depository
for Securities, of which the intermediary is a participant.
Accordingly, a non-registered holder will not be entitled to exercise the
right to dissent under section 185 directly. A non-registered holder who wishes
to exercise the right to dissent should immediately contact the intermediary who
the non-registered holder deals with in respect of the shares and either:
o instruct the intermediary to exercise the right to dissent on the
non-registered holder's behalf, which, if the shares are registered
in the name of CDS or other clearing agency, would require that the
shares first be re-registered in the name of the intermediary; or
o instruct the intermediary to re-register the shares in the name of
the non-registered holder, in which case the non-registered holder
would have to exercise the right to dissent directly.
A registered TLC shareholder who wishes to invoke the provisions of
sections 185 of the OBCA must send to TLC a written objection to Resolution 3,
referred to as a notice of dissent, at or before the time fixed for the TLC
shareholder meeting. The sending of a notice of dissent does not deprive a
registered shareholder of the right to vote on Resolution 3 but a vote either in
person or by proxy against Resolution 3 does not constitute a notice of dissent.
A vote in favor of Resolution 3 will deprive the registered shareholder of
further rights under section 185 of the OBCA.
Within ten days after the adoption of Resolution 3 by the shareholders,
TLC is required to notify in writing each TLC shareholder who has filed a notice
of dissent, referred to as a dissenting shareholder, and has not voted for
Resolution 3 or withdrawn his objection, that Resolution 3 has been adopted. A
dissenting shareholder shall, within 20 days after he or she receives notice of
adoption of Resolution 3 or, if he or she does not receive such notice, within
20 days after he or she learns that Resolution 3 has been adopted, send to TLC a
written notice, referred to as a demand for payment, containing:
o his or her name and address;
o the number of TLC common shares in respect of which he or she
dissents; and
o a demand for payment of the fair value of such shares.
Within 30 days after sending his or her demand for payment, the dissenting
shareholder shall send the certificates representing the TLC common shares in
respect of which he or she dissents to TLC or its transfer agent. TLC or its
transfer agent shall endorse on the share certificates notice that the holder is
a dissenting shareholder under section 185 of the OBCA and shall return the
share certificates to the dissenting shareholder. If a dissenting shareholder
fails to send his or her share certificates, he or she has no right to make a
claim under section 185 of the OBCA.
After sending a demand for payment, a dissenting shareholder ceases to
have any rights as a holder of the shares in respect of which he or she has
dissented other than the right to be paid the fair value of such shares as
determined under section 185 of the OBCA, unless:
o the dissenting shareholder withdraws his or her demand for payment
before TLC makes a written offer to pay;
43
o TLC fails to make a timely offer to pay to the dissenting
shareholder and the dissenting shareholder withdraws his or her
demand for payment; or
o the directors of TLC revoke Resolution 3.
In all of the above cases, the dissenting shareholder's rights as a TLC
shareholder are reinstated and the dissenting shareholder is entitled to present
the endorsed share certificates to TLC or its transfer agent to be replaced with
share certificates for the same number of shares at no fee.
Not later than seven days after the later of the date on which the
continuance is effective and the day TLC receives the demand for payment, TLC
shall send to each dissenting shareholder who has sent a demand for payment, an
offer to pay for the shares of the dissenting shareholder in respect of which he
or she has dissented by a statement showing how the fair market value was
determined. Every offer to pay made to dissenting shareholders shall be on the
same terms. The amount specified in an offer to pay which has been accepted by a
dissenting shareholder shall be paid by TLC, within ten days of the acceptance
by the dissenting shareholder of the offer to pay, but an offer to pay lapses if
TLC has not received an acceptance thereof within 30 days after the offer to pay
has been made.
If an offer to pay is not made by TLC or if a dissenting shareholder fails
to accept an offer to pay, TLC may, within 50 days after the date upon which the
continuance is effective or within such further period as a court may allow,
apply to the court to fix a fair value for the TLC common shares of any
dissenting shareholder. If TLC fails to so apply to the court, a dissenting
shareholder may apply to the Ontario Court (General Division) for the same
purpose within a further period of 20 days or within such further period as the
court may allow. A dissenting shareholder is not required to give security for
costs in any application to the court.
On making an application to the court, TLC shall give to each dissenting
shareholder who has sent to TLC a demand for payment and has not accepted an
offer to pay, notice of the date, place and consequences of the application and
of his or her right to appear and be heard in person or by counsel. All
dissenting shareholders whose TLC common shares have not been purchased by TLC
shall be joined as parties to any such application to the court to fix a fair
value and shall be bound by the decision rendered by the court in the
proceedings commenced by such application. The court is authorized to determine
whether any other person is a dissenting shareholder who should be joined as a
party to such application.
The court shall fix a fair value for the TLC common shares of all
dissenting shareholders and may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date upon
which the continuance is effective until the date of payment of the amount
ordered by the court. The final order of the court in the proceedings commenced
by an application by TLC or a dissenting shareholder shall be rendered against
TLC, payable by TLC and in favor of each dissenting shareholder. The cost of any
application to a court by TLC or a dissenting shareholder will be in the
discretion of the court.
The above is only a summary of the dissenting shareholder provisions of
the OBCA, which are technical and complex. The text of section 185 of the OBCA
appears in Appendix E. TLC encourages any shareholder of TLC wishing to exercise
a right to dissent to seek legal advice, as failure to comply strictly with the
provisions of the OBCA may result in the loss or unavailability of the right to
dissent.
Certain U.S. Federal Tax Considerations for Dissenting Shareholders
A U.S. holder of TLC common shares who exercises dissenters' rights,
referred to as a U.S. dissenting shareholder, with respect to the continuance of
TLC under the laws of New Brunswick will generally recognize gain or loss equal
to the difference between the amount of cash received, including the amount of
any Canadian withholding tax, and the U.S. dissenting shareholders' basis in his
or her TLC common shares. The gain or loss will be a capital gain or loss if the
shares are held as a capital asset. Capital gain or loss will be long-term if
the U.S. dissenting shareholder has held the TLC common shares for more than one
year at the time of the exchange. Long-term capital gain recognized by a
non-corporate U.S. holder will be subject to federal income tax at a maximum
rate of 20%. The gain or loss will generally constitute U.S.-source income for
the U.S. dissenting shareholder. The
44
ability of a U.S. dissenting shareholder to claim a U.S. foreign tax credit with
respect to Canadian withholding tax imposed on amounts paid will generally be
very limited or eliminated. However, a U.S. dissenting shareholder may elect to
deduct Canadian withholding taxes and other foreign taxes in lieu of claiming a
U.S. foreign tax credit. U.S. dissenting shareholders are urged to consult with
their U.S. tax advisors regarding the specific federal, state, local and foreign
tax consequences of payments to them.
Certain Canadian Federal Tax Considerations for Dissenting Shareholders
The following outline of income tax considerations is based on the
provisions of the Income Tax Act (Canada) as at the date hereof and is relevant
to TLC shareholders who, for purposes of the Income Tax Act (Canada), deal with
TLC at arm's length and hold their shares as capital property. Shares held by
certain financial institutions, including a bank, a trust company, a credit
union, an insurance corporation, a registered securities dealer or a corporation
controlled by one or more of the foregoing, generally will not be held as
capital property and will be subject to special "mark to market" rules which are
not addressed in this outline.
A dissenting shareholder whose TLC common shares are acquired by TLC on
payment of the fair value of the shares as described under "Dissenters' Rights"
will be deemed to have received a dividend on the shares equal to the excess, if
any, of the amount paid by TLC for the shares over the paid-up capital for tax
purposes of the shares. For dissenting shareholders who are resident in Canada
for purposes of the Income Tax Act (Canada), the deemed dividend will be subject
to similar tax considerations applicable to other dividends received from TLC
(including, for corporate shareholders, the special rules which may deem all or
part of such deemed dividend to be proceeds of disposition of the shares). For
dissenting shareholders who are not resident in Canada for purposes of the
Income Tax Act (Canada), the deemed dividend will be subject to non-resident
withholding tax at the rate of 25% of the amount thereof, subject to reduction
under any applicable international tax treaty. For instance, under the
Canada-U.S. Income Tax Convention (1980) Canadian withholding tax on payments of
dividends is reduced to 15% in the case of a beneficial owner of TLC common
shares who is resident in the United States for the purposes of the Convention
and, generally, owns less than 10% of the voting shares of TLC. In addition, a
dissenting shareholder may realize a capital loss or gain as a result of the
disposition of his or her shares to TLC and for this purpose the dissenting
shareholder's proceeds of disposition generally will exclude the amount of any
dividend deemed to be received by the dissenting shareholder as a result of the
disposition.
Dissenting shareholders are urged to consult their own tax advisers
concerning the Canadian federal, provincial and foreign tax consequences of
payments to them.
Resolution 4: Approval of the Amendment of TLC's Articles of Incorporation
to Increase the Maximum Number of Directors from Ten to
Fifteen.
The TLC board of directors is asking TLC shareholders to vote on a
resolution to amend the articles of incorporation of TLC to increase the maximum
number of directors from ten to fifteen. The articles of TLC currently set the
board as a minimum of one and a maximum of ten directors. The shareholders have
authorized the TLC board of directors to fix the number of directors by
resolution and the size of the TLC board of directors is presently set at seven
directors. Under the terms of the merger agreement, the size of the board of TLC
VISION will be fixed at eleven directors, four of whom will consist of
individuals currently on the LaserVision board of directors. The increase in the
maximum number of directors from ten to fifteen will accommodate the addition of
the new directors from the LaserVision board and will also provide TLC with the
flexibility to add additional directors to the TLC board in the future. The
articles of continuance of TLC will provide for the TLC board of directors to
determine, by resolution, the number of directors up to the maximum provided for
in the articles. The full text of Resolution 4 appears in Appendix F to this
joint proxy statement/prospectus.
The affirmative vote of two-thirds of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to adopt the
resolution to increase the maximum number of directors to fifteen. The
management representatives designated in the enclosed form of proxy intend to
vote the TLC common shares for which they have been appointed FOR Resolution 4
unless the shareholder who has given such proxy directs that the shares be
otherwise voted.
45
The TLC board of directors unanimously recommends a vote FOR the
resolution to increase the maximum number of directors from ten to fifteen.
Resolution 5: Approval of Repricing of TLC Stock Options.
The TLC board of directors is asking TLC shareholders to approve the
repricing of TLC stock options. If the resolution is passed, TLC will allow the
holders of outstanding TLC stock options with an exercise price greater than
$8.688 to elect to reduce the exercise price of their options to $8.688 by
surrendering a number of the existing shares subject to each repriced option as
follows:
o for every option with an exercise price of over $40, the holder will
surrender 75% of the shares subject to that option;
o for every option with an exercise price at least $30 but less than
$40, the holder will surrender two-thirds of the shares subject to
that option; and
o for every option with an exercise price at least $20 but less than
$30, the holder will surrender 50% of the shares subject to that
option.
Every option with an exercise price of at least $8.688 but less than $20, will
be repriced to $8.688 without the holder having to surrender any of the shares
subject to that option.
The full text of Resolution 5 appears in Appendix F to this joint proxy
statement/prospectus.
The purpose of the repricing of TLC stock options is to encourage
employees and other participants in the TLC stock option plan to remain with TLC
VISION and to provide an incentive for these persons to participate in the
growth and success of TLC VISION. This resolution will also put employees of TLC
in the same position as those of LaserVision, since LaserVision will also be
repricing its outstanding options to $8.688 prior to the completion of the
merger.
Options to acquire an aggregate of 863,867 TLC common shares, 370,250 of
which are held by directors and officers, would be affected by this repricing.
If approved and if all holders of options with an exercise price greater than
$8.688 elect to reduce their option prices, the repriced options will then be
exercisable to acquire an aggregate of 847,109 TLC common shares, 370,000 of
which will be subject to options of directors and officers. The following table
sets out the number of TLC common shares subject to options eligible for
repricing held by directors and officers, the current exercise price of those
options, the number of TLC common shares to be subject to such options following
repricing, and the value to each of the directors and officers of the repricing.
46
Total Number
of Shares Subject to Shares Subject to
Options Exercise Price of Options at $8.688
Directors and Officers to be Repriced Options to be Repriced after Repricing Value of Repricing(1)
- ---------------------- -------------- ---------------------- --------------- ------------------
Elias Vamvakas................... 125,000 Cdn$20.75 125,000 $643,333
Dr. Jeffrey Machat............... 20,000 Cdn$29.90 20,000 224,933
Howard J. Gourwitz............... 5,000 $19.50 10,000 104,070
5,000 $18.69
Dr. William David Sullins, Jr.... 5,000 $19.50 10,000 104,070
5,000 $18.69
Warren S. Rustand................ 5,000 $19.50 10,000 104,070
5,000 $18.69
John F. Riegert.................. 6,500 Cdn$29.90 11,500 121,403
5,000 Cdn$27.52
Dr. Mark Whitten................. 2,500 $19.50 5,000 52,035
2,500 $18.69
Madeline D. Walker............... 20,000 Cdn$29.90 35,000 369,833
15,000 Cdn$27.52
Duane Morrison................... 12,900 $19.50 20,500 212,960
7,100 $18.69
500 $13.63
William P. Leonard............... 15,750 $19.50 25,750 270,020
10,000 $18.69
David C. Eldridge................ 20,000 $19.50 35,250 375,756
15,000 $18.69
500 $23.66
Henry Lynn....................... 15,000 Cdn$17.90 50,000 418,533
20,000 Cdn$29.90
15,000 Cdn$27.52
Lloyd Fiorini.................... 6,000 $16.65 12,000 107,252
6,000 Cdn$27.90
All directors and officers
(13 persons)..................... 370,250 370,000 $3,108,436
- ----------
(1) The value of the repricing is calculated as the current exercise price
multiplied by the total number of shares subject to the option, less the
number of shares subject to the repriced option multiplied by $8.688. For
purposes of calculating the value of the repricing, an assumed exchange
rate of $1.00 = Cdn$1.50 has been used to convert Canadian dollars to U.S.
dollars.
If the price of TLC VISION's common shares rises above the new exercise
price of $8.688, the repricing of the options could have a material adverse
impact on TLC VISION's reported earnings and could make our reported earnings
more volatile. Under current U.S. generally accepted accounting principles, the
repriced options will be subject to variable accounting treatment. Variable
accounting requires that the difference between the price of TLC VISION's common
shares at the end of each financial quarter and the new exercise price be
charged to income as compensation over the remaining vesting period of the
outstanding options. Once the price of TLC VISION common shares rises above
$8.6888, variable accounting will require TLC VISION to remeasure total
compensation at the end of each quarter and take an appropriate charge.
This resolution will not be implemented by TLC if the merger is not
approved or completed.
The affirmative vote of a majority of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to adopt the
resolution to reprice the TLC stock options. For the purposes of this approval,
the votes attached to TLC common shares beneficially owned by directors and
senior officers of TLC, and its subsidiaries, to whom options have been or may
be granted under the TLC stock option plan and their spouses, partners and
certain other related persons will not be counted in determining whether the
necessary level of shareholder approval has been obtained. At November 30, 2001,
6,358,279 votes, being the votes attaching to TLC
47
common shares beneficially owned by insiders and their associates, will not be
counted for the purposes of determining whether the shareholder approval
required to reprice the TLC stock options has been obtained. The management
representatives designated in the enclosed form of proxy intend to vote the TLC
common shares for which they have been appointed for Resolution 5 unless the
shareholder who has given such proxy directs that the shares be otherwise voted.
The TLC board of directors unanimously recommends a vote FOR the repricing
of the TLC stock options.
Resolution 6: Election of Directors for the Ensuing Year.
The size of the TLC board of directors is currently set at seven
directors. Conditional upon the approval of the merger and the increase in the
size of the board, the size of the TLC board of directors has been set at eleven
directors. Except as described in the following paragraph, the table below sets
out the name and place of residence of individuals who are proposed by TLC
management to be nominated for election as a director of TLC to hold office
until the next annual meeting of TLC shareholders or until his successor is
elected or appointed. The table also sets out the position with TLC which each
nominee presently holds, the principal occupation of each nominee and the date
on which each nominee was first elected or appointed as a director. See "-
Security Ownership of Certain Beneficial Owners and Management" for the number
of TLC common shares that are beneficially owned, directly or indirectly, or
over which control or direction is exercised by each nominee and "The Companies
After the Merger - Directors and Officers" for the number of shares of TLC
VISION following the merger that will be beneficially owned by each nominee and
for information on each nominee's business experience during the past five
years. TLC's board of directors has an audit committee, a corporate governance
committee and a compensation committee. The members of such committees are
indicated in the table below.
If TLC is continued under the laws of New Brunswick, Dr. Jeffery Machat
will immediately resign as a director of TLC and the TLC board of directors will
appoint Dr. Mark Whitten to fill the vacancy created by this resignation. Dr.
Mark Whitten is an ophthalmologist who is resident in Chevy Chase, Maryland. Dr.
Whitten has not previously been a director of TLC. Dr. Whitten is not being
nominated for election as a director at the TLC meeting because the TLC board of
directors would not then consist of a majority of resident Canadians, as
required by Ontario law. If the continuance is not approved, Dr. Machat will
hold office until the next annual meeting of TLC shareholders or until his
successor is elected or appointed. This joint proxy statement/prospectus
includes information on both Dr. Machat and Dr. Whitten.
Name and Place of Residence Position with TLC Principal Occupation Director of
- --------------------------- ----------------- -------------------- TLC Since
---------
Elias Vamvakas................. Chief Executive Officer and Officer of TLC May 1993
Richmond Hill, Ontario Chairman of the Board of Directors (2)
Dr. Jeffery J. Machat.......... Director, Co-National Medical Director Ophthalmologist May 1993
Richmond Hill, Ontario
John F. Riegert................ Director (2)(3) Corporate Director June 1995
North York, Ontario
Howard J. Gourwitz............. Director(1) Attorney and Counselor-at-Law June 1995
Bloomfield Hills, Michigan
Dr. William David Sullins, Jr.. Director(1)(2) Optometrist June 1995
Athens, Tennessee
Thomas N. Davidson............. Director(1)(3) Corporate Director October 2000
Terra Cotta, Ontario
Warren S. Rustand.............. Director(1)(2)(3) Management Consultant October 1997
Tucson, Arizona
- ----------
(1) Member of TLC's Compensation Committee.
(2) Member of TLC's Corporate Governance Committee.
(3) Member of TLC's Audit Committee.
48
The merger agreement provides for the following individuals to be
nominated for election as directors, conditional upon the merger and the
continuance becoming effective, to hold office until the next annual meeting of
TLC shareholders or until his successor is elected or appointed. None of these
individuals has served as a director or officer of TLC in the past and none
currently owns any TLC common shares. See "The Companies After the Merger -
Directors and Officers" for the number of shares of TLC VISION that will be
beneficially owned by each nominee following the merger and for information on
each nominee's business experience during the past five years. The merger
agreement provides that the four directors of LaserVision nominated for election
as directors of TLC VISION will receive fair representation on each committee of
the TLC VISION board of directors. If the merger is not approved or completed or
if the increase in the size of the board is not approved, these individuals will
not be elected to the TLC board of directors.
Name and Proposed Position with Director
Place of Residence TLC Vision Principal Occupation of LaserVision Since
- ------------------ ---------------------- -------------------- --------------------
John J. Klobnak........... Vice-Chairman Chief Executive Officer of December 1988
St. Louis, Missouri of the Board of Directors LaserVision
James M. Garvey........... Director Corporate Executive November 1995
Boston, Massachusetts
Richard Lindstrom, M.D.... Director Ophthalmologist November 1995
Minneapolis, Minnesota
David S. Joseph........... Director Corporate Director June 2001
Haverford, Pennsylvania
Management of TLC does not contemplate that any of the proposed nominees
will be unable to serve as a director, but, if that should occur for any reason
prior to the TLC shareholder meeting, the management representatives designated
in the enclosed form of proxy reserve the right to vote for another nominee at
their discretion unless a TLC shareholder has specified in his or her proxy that
his or her TLC common shares are to be withheld from voting in the election of
directors. For further information on the individuals nominated for election as
directors, see "The Companies After The Merger - Directors and Officers."
The management representatives designated in the enclosed form of proxy
intend to vote the TLC common shares for which they have been appointed FOR the
eleven individuals nominated for election as directors unless the shareholder
who has given such proxy directs that the shares be withheld from voting.
The TLC board of directors unanimously recommends a vote FOR the election
as directors of the individuals named above.
Resolution 7: To Approve the Appointment of Ernst & Young LLP as Auditors
of TLC for the Ensuing Year and to Authorize the Directors
to Fix the Remuneration to be Paid to the Auditors.
The TLC board of directors proposes that Ernst & Young LLP be appointed as
auditors of TLC until the next annual meeting of TLC shareholders. Ernst & Young
LLP have been auditors of TLC since 1997. Representatives of Ernst & Young LLP
are expected to attend the TLC shareholder meeting, will be provided with an
opportunity to make a statement, should they desire to do so, and will be
available to respond to appropriate questions from the TLC shareholders.
The affirmative vote of the majority of the votes cast at the TLC
shareholder meeting at which a quorum is present is required to appoint Ernst &
Young LLP as auditors of TLC for the ensuing year and to authorize the directors
to fix the remuneration to be paid to the auditors. The management
representatives designated in the enclosed form of proxy intend to vote the TLC
common shares for which they have been appointed FOR Resolution 7 unless the
shareholder who has given such proxy directs that the shares be otherwise voted.
If the TLC shareholders do not approve the appointment of Ernst & Young LLP, the
TLC board of directors will reconsider their appointment.
The TLC board of directors unanimously recommends a vote FOR the
appointment of Ernst & Young LLP as auditors of TLC for the ensuing year.
49
Audit Fees
For the fiscal year ended May 31, 2001, TLC paid audit fees of
approximately Cdn$350,062 to Ernst & Young LLP. TLC also paid Cdn$71,827 and
$389,281 to Ernst & Young LLP for tax services for the fiscal year ended May 31,
2001. No fees were paid to Ernst & Young LLP for financial information systems
design and implementation. The audit committee of TLC has concluded that the
foregoing non-audit services did not adversely impact the independence of Ernst
& Young LLP.
Other Business
TLC knows of no other matter to come before the meeting other than the
matters referred to in the notice of meeting.
Information on Executive Compensation
The following table sets forth all compensation earned during the last
three completed fiscal years by TLC's Chief Executive Officer and TLC's four
highest paid executive officers who were serving as executive officers at the
end of the fiscal year ended May 31, 2001 and whose annual salary and bonus
exceeded Cdn$100,000 in fiscal 2001, referred to as TLC's named executive
officers.
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------
Annual Long-Term
Compensation Compensation
- ------------------------------------------------------------------------------------------------------------------
($) Salary ($) Bonus Common Shares All Other
Fiscal $ June 1 - June 1 - Underlying Compensation
Name and Principal Position Year Currency May 31 May 31 Options (#) ($)
- ------------------------------------------------------------------------------------------------------------------
Elias Vamvakas, 1999 U.S. 282,391 -- 250,000(1) --
Chief Executive Officer 2000 U.S. 342,428 -- -- --
2001 Cdn. 573,370 -- -- --
- ------------------------------------------------------------------------------------------------------------------
Dr. Jeffery J. Machat, 1999 U.S. 960,228(2) -- 20,000(3) --
Co-National Medical Director 2000 U.S. 1,014,863(2) -- -- --
2001 U.S. 398,297(2) -- -- --
Cdn. 64,916(2)
- ------------------------------------------------------------------------------------------------------------------
Thomas G. O'Hare(4) 2001 U.S. 269,608 15,000 250,000(5) 50,000(6)
President and Chief Operating
Officer
- ------------------------------------------------------------------------------------------------------------------
David C. Eldridge 1999 U.S. 172,054 -- 20,000(3) --
Executive Vice-President, Clinical 2000 U.S. 196,378 12,500 15,500(7) --
Affairs 2001 U.S. 233,769 9,850 50,500(7) --
- ------------------------------------------------------------------------------------------------------------------
William P. Leonard 1999 U.S. 118,890 68,888 15,750(7) --
Vice-President, Operations 2000 U.S. 149,904 70,913 10,500(7) --
2001 U.S. 190,198 8,571 50,000(7) --
- ------------------------------------------------------------------------------------------------------------------
(1) These were "bonus" options. Options to acquire 125,000 TLC common shares
vested immediately and options to acquire 62,500 were to vest on each of
December 31, 1999 and 2000, provided that, prior to such dates, (a) TLC
achieved certain financial results or (b) the price of the TLC common
shares on The Toronto Stock Exchange reached certain levels. As neither of
these conditions were met on the specified dates, the unvested options
were forfeited.
(2) TLC has an agreement with Excimer Management Corporation which will make
available to TLC the services of Dr. Jeffery J. Machat as a consultant
relating to the business of TLC. Under the agreement, Dr. Machat continues
in his capacity as Co-National Medical Director of TLC. The agreement
provides for an annual consulting fee in the amount of $100,000 (which is
a decrease from the consulting fee of $200,000 payable in the calendar
year 1999). Dr. Machat and TLC also have agreed that he will perform
excimer laser procedures at one or more of TLC's clinics and will be
entitled to receive a fee based on the number and complexity of procedures
he performs (see the description of the agreement under "- Employment
Contracts"). In order to comply with U.S. disclosure requirements, the
procedure fees have been included in the amount of salary compensation. Of
the amounts set forth above, for fiscal 1999, $100,000, for fiscal 2000,
approximately $167,000, and for fiscal 2001, $100,000, constitute the
consulting fees paid by TLC for Dr. Machat's services as Co-National
Medical Director, and the remainder constitutes procedure fees paid by
patients for medical services performed by Dr. Machat at TLC clinics. In
fiscal 2001, Dr. Machat earned procedure fees in both Canadian and U.S.
dollars.
(3) These options vested one year after the date granted.
50
(4) Mr. O'Hare became an officer of TLC on August 7, 2000. Mr. O'Hare's
employment agreement was terminated effective December 7, 2001.
(5) One third of these options will vest on each of the first, second and
third anniversary of the grant of the options. The options expire five
years from the vesting date.
(6) Mr. O'Hare received a signing bonus of $50,000 upon entering into his
employment agreement.
(7) One quarter of these options will vest on each of the first, second, third
and fourth anniversary of the grant of the options.
The following table sets forth the individual grants of TLC stock options
for fiscal 2001 to the named executive officers:
Options Granted During Fiscal 2001
- ---------------------------------------------------------------------------------------------------------
Name Common Shares Date of Grant % of Total Exercise or Market Value of
Under Options Options Granted Base Price Common Shares
Granted to Employees in Underlying
(#) Fiscal Year Options on the
Date of Grant
- ---------------------------------------------------------------------------------------------------------
Elias Vamvakas -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Jeffery J. Machat -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Thomas G. O'Hare 83,334(2) August 1, 2000 7% $6.31 $6.31
83,333(2) August 1, 2000 7% $6.31 $6.31
83,333(2) August 1, 2000 7% $6.31 $6.31
- ---------------------------------------------------------------------------------------------------------
David C. Eldridge 50,000(3) December 1, 2000 4% $2.66 $2.66
500(3) December 11, 2000 .04% $1.34 $1.34
- ---------------------------------------------------------------------------------------------------------
William P. Leonard 50,000(3) December 1, 2000 4% $2.66 $2.66
- ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------
Name Expiration Date Value Under
Black-Scholes
Option Pricing
Model(1)
- -------------------------------------------------------
Elias Vamvakas -- --
- -------------------------------------------------------
Jeffery J. Machat -- --
- -------------------------------------------------------
Thomas G. O'Hare August 1, 2006
August 1, 2007 $1,015,000
August 1, 2008
- -------------------------------------------------------
David C. Eldridge December 1, 2005 $85,500
December 11, 2005
- -------------------------------------------------------
William P. Leonard December 1, 2005 $85,500
- -------------------------------------------------------
(1) Assumes: 6.5% risk-free rate of interest; dividend yield of 0%; volatility
83%; options mature in 5 years and the expected life is 4 years.
(2) Options vested on December 7, 2001 under the terms of Mr. O'Hare's
separation agreement.
(3) One quarter of all options granted vest on each of the first, second,
third and fourth anniversary of the grant of the options. All options
expire on the fifth anniversary of the grant of the options.
The following table sets forth all TLC stock options exercised by TLC's
named executive officers during fiscal 2001 and the total number of shares
underlying unexercised TLC stock options of TLC's named executive officers and
their dollar value at the end of fiscal 2001:
Aggregate Option Exercises During Fiscal 2001 and Fiscal Year End Option Values
- -------------------------------------------------------------------------------------------------------------------------------
Unexercised Options Value of Unexercised in-the-Money
at Fiscal Year End Options at Fiscal Year End(1)
($)
- -------------------------------------------------------------------------------------------------------------------------------
Name Common Shares Aggregate Value Exercisable Unexerciseable Exercisable Unexerciseable
Acquired on Exercise Realized ($)
(#)
- -------------------------------------------------------------------------------------------------------------------------------
Elias Vamvakas -- -- 533,273 -- 955,359 --
- -------------------------------------------------------------------------------------------------------------------------------
Dr. Jeffery J. Machat 15,207 50,446 60,000 -- 7,750 --
- -------------------------------------------------------------------------------------------------------------------------------
Thomas G. O'Hare -- -- -- 250,000 -- --
- -------------------------------------------------------------------------------------------------------------------------------
David C. Eldridge 15,207 39,386 56,375 62,125 5,425 118,830
- -------------------------------------------------------------------------------------------------------------------------------
William P. Leonard -- -- 22,200 57,875 -- --
- -------------------------------------------------------------------------------------------------------------------------------
(1) Value is based upon the closing price of TLC's common shares on the Nasdaq
National Market System on May 31, 2001, which was $5.00.
51
Employment Contracts
Mr. Elias Vamvakas
TLC entered into an employment contract with Mr. Elias Vamvakas on January
1, 1996. He is the Chief Executive Officer and Chairman of the board of
directors of TLC. This agreement was amended on August 14, 1998. The term of the
amended agreement is five years commencing on January 1, 1996 with automatic one
year renewals unless otherwise terminated by the parties. During the initial
year of the agreement, the base salary was $225,000, $250,000 in the second year
of the term, $275,000 in the third year, $316,250 in the fourth year, and
$363,750 in the fifth year. After that time, Mr. Vamvakas' base salary will be
determined by the TLC board of directors but will never be less than the
previous year's base salary plus fifteen percent. The agreement also provided
for Mr. Vamvakas to receive, except in the fourth and fifth years of the
contract, a discretionary annual bonus as determined by the TLC board of
directors.
Under the amendment to the contract, Mr. Vamvakas was granted options to
acquire an aggregate of 250,000 TLC common shares at an exercise price of
Cdn$20.75 ($13.13). Options to acquire 125,000 TLC common shares vested
immediately and options to acquire 62,500 were to vest on each of December 31,
1999 and 2000, provided that, prior to such dates, (a) TLC achieved certain
financial results or (b) the price of the TLC common shares on The Toronto Stock
Exchange reached certain levels. As neither of these conditions were met on the
specified dates, the unvested options were forfeited. Mr. Vamvakas' contract was
further amended as of January 1, 2001 to provide for the payment of a cash
performance bonus of $209,156.25 if (a) TLC achieves certain financial results,
or (b) the price of the TLC common shares on The Toronto Stock Exchange reaches
certain levels during the 2001 calendar year.
Mr. Vamvakas' employment may be terminated for just cause (as defined in
the agreement). If terminated other than for just cause, Mr. Vamvakas will be
entitled to receive 24 months' base salary and bonus and shall be entitled to
exercise all TLC stock options granted but not otherwise exercisable or
forfeited.
Mr. Vamvakas' contract contains non-competition and non-solicitation
covenants which run for a period of two years following his employment and
prohibit Mr. Vamvakas from engaging in or having a financial interest in a
business involved in the financing, development and/or operation of excimer
laser eye surgery clinics or secondary eye care clinics in geographic markets
where TLC carries on business and from employing or soliciting any employee or
consultant of TLC. The agreement also contains confidentiality covenants
preventing Mr. Vamvakas from disclosing confidential or proprietary information
relating to TLC at any time during or after his employment.
In October 2001, Mr. Vamvakas and other members of TLC's senior management
agreed to defer 10% of their salary until the earlier of (a) two consecutive
quarters of positive cash flow for TLC, or (b) twelve months.
Dr. Jeffery J. Machat
TLC has an agreement with Excimer Management Corporation which corporation
will make available to TLC the services of Dr. Jeffery J. Machat as a consultant
relating to the business of TLC. Under the agreement, Dr. Machat continues in
his capacity as Co-National Medical Director of TLC for a period of three years
commencing on February 1, 2000. The agreement provides for an annual consulting
fee in the amount of $100,000. Dr. Machat and TLC have also entered into an
agreement effective as of February 1, 2000 under which he performs excimer laser
procedures at one or more of TLC's clinics and is entitled to receive a fee
equal to the greater of 15% of the procedure fee collected by TLC and $300 per
eye. In addition, effective as of April 1, 2000, Dr. Machat is paid $4,800 per
day for complex case days. Dr. Machat and TLC have similarly entered into an
agreement with respect to Custom Lasik. Effective as of March 1, 2000 for Custom
Lasik cases, Dr. Machat pays TLC a facility access fee of $1,000 unless the case
arose from TLC's marketing efforts, in which case Dr. Machat pays TLC a facility
access fee of $1,500.
Dr. Machat's consulting agreement may be terminated for just cause. If
terminated other than for just cause, Dr. Machat will be entitled to receive an
amount equal to two times the annual consulting fee.
52
Dr. Machat's consulting agreement contains non-competition and
confidentiality covenants for the benefit of TLC which are similar to those
contained in Mr. Vamvakas' agreement.
Thomas G. O'Hare
TLC entered into an employment agreement with Thomas G. O'Hare, who is
President and Chief Operating Officer of TLC, for a three year term commencing
August 7, 2000 with automatic one-year renewals unless otherwise terminated by
the parties. The annual base salary under the employment agreement was $325,000,
with an annual review of salary increase by TLC based on the discretion of the
TLC board of directors. Mr. O'Hare also received a signing bonus upon entering
into the agreement worth $50,000.
As an inducement to enter into his employment agreement with TLC, Mr.
O'Hare was granted options to acquire 250,000 TLC common shares. One-third of
these options were scheduled to vest on each of the first, second and third
anniversaries of the commencement of the term of the agreement.
Mr. O'Hare's employment agreement with TLC was terminated effective
December 7, 2001. Pursuant to the terms of the separation agreement, Mr. O'Hare
will receive a payment of $650,000, representing 24 months of Mr. O'Hare's
current base salary. The agreement also provides that all of Mr. O'Hare's
options will vest and will be exercisable for a period of 24 months following
the date of termination.
Mr. O'Hare's employment agreement contained non-competition and
non-solicitation covenants which run for a minimum of two years following his
employment and prohibit Mr. O'Hare from engaging in or having a financial
interest in an entity engaged in the refractive laser corrective surgery
business or which competes with TLC in Canada or the United States and from
employing any employee of TLC or soliciting any employee, patient, customer or
supplier of TLC. The agreement also contained confidentiality covenants
preventing Mr. O'Hare from disclosing confidential or proprietary information
relating to TLC at any time during or after his employment. The non-competition,
non-solicitation and confidentiality covenants continue in force under the terms
of Mr. O'Hare's separation agreement.
David C. Eldridge, O.D.
TLC has entered into an employment agreement with Dr. David Eldridge who
is Executive Vice President, Clinical Affairs of TLC. The term of the agreement
is three years commencing on September 1, 1999 with automatic one year renewals
unless otherwise terminated by the parties. The base annual salary under the
employment agreement is $183,337, with an annual review of salary increases by
TLC based on the discretion of the TLC board of directors. Dr. Eldridge is also
entitled to receive options under TLC's stock option plan. Dr. Eldridge's
compensation also includes an annual bonus of up to 20% of his annual salary
based on Dr. Eldridge's personal performance and the financial performance of
TLC as a whole.
Dr. Eldridge's employment may be terminated by TLC for just cause, as
defined in the agreement. If terminated for other than just cause, Dr. Eldridge
will be entitled to receive 12 months' base salary plus an additional month for
each year worked following December 10, 1998 to a maximum of six additional
months.
The agreement contains change of control provisions that provide, among
other things, that Dr. Eldridge may terminate his employment with TLC for any
reason within six months following a change of control and would be entitled to
12 months base annual salary on termination.
Dr. Eldridge's agreement contains non-competition and non-solicitation
covenants which run for a minimum of one year following his employment and
prohibit Dr. Eldridge from engaging in or having a financial interest in, or
permitting the use of his name by, an entity engaged in the refractive laser
corrective surgery business or which competes with TLC. The agreement also
prohibits him from employing any employee of TLC or soliciting any patient of
TLC during the same time period. Additionally, the agreement contains
confidentiality covenants preventing Dr. Eldridge from disclosing confidential
or proprietary information relating to TLC at any time during or after his
employment.
53
In October 2001, Dr. Eldridge and other members of TLC's senior management
agreed to defer 10% of their salary until the earlier of (a) two consecutive
quarters of positive cash flow for TLC, or (b) twelve months.
William P. Leonard
TLC has entered into an employment contract with Mr. William P. Leonard
who is Executive Vice President, Operations of TLC. The term of the agreement is
three years commencing on June 1, 2000 with automatic one year renewals unless
otherwise terminated by the parties. The base annual salary under the employment
agreement is $150,000, with an annual review of salary increases by TLC based on
the discretion of the TLC board of directors. Mr. Leonard is also entitled to
receive options under TLC's stock option plan. Mr. Leonard's compensation also
includes an annual bonus of up to 20% of his annual salary based on Mr.
Leonard's personal performance and the financial performance of TLC as a whole.
Mr. Leonard's employment may be terminated for just cause, as defined in
the agreement. If terminated for other than just cause, Mr. Leonard will be
entitled to receive 12 months' base salary plus an additional month for each
year worked following the third anniversary of the effective date of the
agreement to a maximum of six additional months.
The agreement contains change of control provisions that provide, among
other things, that Mr. Leonard may voluntarily terminate his employment with TLC
within six months following a change of control and would be entitled to 12
months' base salary on termination.
Mr. Leonard's agreement also contains non-competition, non-solicitation
and confidentiality covenants for the benefit of TLC similar to those contained
in Dr. Eldridge's agreement.
In October 2001, Mr. Leonard and other members of TLC's senior management
agreed to defer 10% of their salary until the earlier of (a) two consecutive
quarters of positive cash flow for TLC, or (b) twelve months.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the TLC board of directors is composed of
Messrs. Gourwitz, Davidson and Rustand and Dr. Sullins. None of the members of
the compensation committee is an officer, employee or former officer or employee
of TLC or any of its subsidiaries.
Report On Executive Compensation
TLC's corporate philosophy on compensation is that compensation should be
tied to an individual's performance and to the performance of TLC as a whole.
TLC believes that executive officers who make a substantial contribution to the
long-term success of TLC and its subsidiaries are entitled to participate in
that success.
The compensation of TLC's executive officers, including its named
executive officers, is comprised of base salary, cash bonuses and long-term
incentives in the form of TLC stock options. TLC does not have an executive
pension plan.
TLC is an emerging corporation which was incorporated in 1993 and
consequently its board of directors has placed considerable emphasis upon the
incentive of stock options in determining executive compensation in order to
align the interests of the executive officers with the long-term interests of
TLC's shareholders.
TLC's stock option plan is administered by the TLC board of directors. The
purpose of the stock option plan is to advance the interests of TLC by:
o providing directors, officers, employees and other eligible persons
with additional incentive;
o encouraging stock ownership by eligible persons;
54
o increasing the proprietary interests of eligible persons in the
success of TLC;
o encouraging eligible persons to remain with TLC or its affiliates;
and
o attracting new employees, officers or directors to TLC or its
affiliates.
In determining whether to grant options and how many options to grant to
eligible persons under the TLC stock option plan, consideration is given to each
individual's past performance and contribution to TLC as well as that
individual's expected ability to contribute to TLC in the future.
Compensation of Chief Executive Officer
During fiscal 2001, Mr. Vamvakas, the Chief Executive Officer and Chairman
of the TLC board of directors, continued to provide the leadership and strategic
direction that has enabled TLC to continue its expansion throughout Canada and
the United States.
The base compensation paid to Mr. Vamvakas during fiscal 2001 was set by
his employment agreement described under "- Employment Contracts." In addition,
as provided in his employment agreement, Mr. Vamvakas is entitled to receive a
cash performance bonus of $209,156.25 if TLC achieves certain financial results
or the price of the TLC common shares on The Toronto Stock Exchange reaches
certain levels during the 2001 calendar year. See "- Summary Compensation Table"
for further information on the compensation paid to Mr. Vamvakas in the last
three fiscal years.
The foregoing report is submitted by the Compensation Committee.
Howard J. Gourwitz Thomas N. Davidson Warren S. Rustand
Dr. William David Sullins, Jr.
Compensation of Directors
Directors who are not executive officers of TLC are entitled to receive an
attendance fee of $500 in respect of each meeting attended as well as an annual
fee of $15,000. Non-executive directors are reimbursed for out-of-pocket
expenses incurred in connection with attending meetings of the TLC board of
directors. In addition, outside directors are entitled to receive options to
acquire TLC common shares under TLC's stock option plan based on TLC's
performance. For fiscal 2001, options to acquire 15,000 TLC common shares were
granted to each of the outside directors. The chair of each of the audit,
compensation and corporate governance committee also receives an annual fee of
$5,000.
Performance Graph
The following graph shows the cumulative total TLC shareholder return
(assuming reinvestment of dividends) over the last five fiscal years compared to
the cumulative total return on the TSE 300 Composite Index and the Nasdaq Health
Services Stocks Index.
55
Cumulative Total Return on $100 Investment Assuming Dividends are Reinvested*
May 31, 1996 - May 31, 2001
[LINE GRAPH OMITTED]
5/31/1996 5/31/1997 5/31/1998 5/31/1999 5/31/2000 5/31/2001
TLC Laser Eye $100 $172.66 $345.324 $938.85 $164.03 $110.94
Centers Inc.
TSE 300 $100 $124.25 $150.10 $137.57 $188.30 $168.21
Composite
Index
Nasdaq Health $100 $83.10 $85.26 $72.82 $56.92 $78.19
Services Stocks
Index
Statement of Corporate Governance Policies
The board of directors of TLC believes that strong corporate governance
practices are essential to the well-being of TLC and its shareholders. Since
March 1996, the TLC common shares have been listed on The Toronto Stock
Exchange. The by-laws of The Toronto Stock Exchange require that this Statement
of Corporate Governance Practices relate the corporate governance practices of
the TLC board of directors to the "Guidelines for Improved Corporate Governance"
contained in the Final Report of The Toronto Stock Exchange Committee on
Corporate Governance in Canada, referred to as the TSE report. A description of
TLC's corporate governance practices follows.
Mandate of the Board of Directors
The mandate of the TLC board of directors is to supervise the management
of the business and affairs of TLC and to act with a view to the best interests
of TLC.
56
Composition of the Board of Directors
The TLC board of directors is currently comprised of seven members. The
TLC board of directors believes that five directors are unrelated directors and
the remaining two are related directors, within the meaning of the TSE report.
If the merger is completed and the proposed nominees for election as directors
are elected, the TLC VISION board of directors will continue to consist of a
majority of unrelated directors. An unrelated director is a director who is
independent of management and is free from any interest and any business or
other relationship which could, or could reasonably be perceived to, materially
interfere with the director's ability to act with a view to the best interests
of TLC, other than interests and relationships arising from shareholding. TLC
does not have a significant shareholder, since there is no person who has the
ability to exercise a majority of the votes attached to the outstanding shares
of TLC for the election of directors. There were 12 meetings of the TLC board of
directors in fiscal 2001. Dr. Machat attended 7 of the 12 meetings. James
Connacher attended 3 of the 4 meetings held prior to the time he was replaced on
the TLC board of directors by Mr. Davidson. Mr. Davidson attended 7 of the 8
subsequent meetings. The other directors attended all of the meetings. In
addition to attending board and applicable committee meetings, the unrelated
directors of TLC meet regularly independent of management to discuss the
business and affairs of TLC.
Board Committees
The TLC board of directors has established three committees. The following
is a brief description of each committee and its composition. The merger
agreement provides that if the merger is completed and the four LaserVision
nominees are elected, the four directors will receive fair representation on
each of the committees of the TLC board of directors.
The audit committee consists of three directors: Messrs. Rustand, Davidson
and Riegert, all of whom are unrelated directors. The audit committee is
responsible for the engagement of TLC's independent auditors and reviews with
them the scope and timing of their audit services and any other services they
are asked to perform, their report on TLC's accounts following the completion of
the audit and TLC's policies and procedures with respect to internal accounting
and financial controls. There were 5 meetings of the audit committee during
fiscal 2001. Messrs. Davidson and Riegert replaced Mr. Gourwitz and Dr. Sullins
on January 23, 2001, after which time only one meeting was held, which Mr.
Davidson did not attend. Dr. Sullins attended 3 of the 4 meetings held before
January 23, 2001 and Mr. Gourwitz attended all of the meetings held before
January 23, 2001. Mr. Rustand attended all of the meetings held in fiscal 2001.
The compensation committee consists of four directors: Messrs. Gourwitz,
Davidson, Rustand and Dr. Sullins, all of whom are unrelated directors. The
compensation committee is responsible for the development of compensation
policies and makes recommendations on compensation of executive officers to the
corporate governance committee for approval of the TLC board of directors. There
was one meeting of the compensation committee relating to fiscal 2001. Messrs.
Gourwitz, Rustand and Sullins attended that meeting and Mr. Davidson did not
attend.
The corporate governance committee consists of four directors: Dr. Sullins
and Messrs. Rustand, Riegert and Vamvakas, all of whom are unrelated directors,
except for Mr. Vamvakas. The corporate governance committee is responsible to
the TLC board of directors with respect to developments in the area of corporate
governance, the practices of the TLC board, the nomination of directors and the
delegation of work to other committees of the TLC board. Although there were
discussions and correspondence pertaining to the work of the corporate
governance committee during fiscal 2001, there were no meetings of the corporate
governance committee relating to fiscal 2001.
Shareholder Communications
The TLC board of directors places great emphasis on its communications
with shareholders. Shareholders receive timely dissemination of information and
TLC has procedures in place to permit and encourage feedback from its
shareholders. TLC's senior officers are available to shareholders and, through
its investor relations department, TLC seeks to provide clear and accessible
information about the results of TLC's business and its future plans. TLC
57
has established an investor web site on the Internet through which it makes
available press releases, financial statements, annual reports, trading
information and other information relevant to investors. Mr. Vamvakas may also
be contacted directly by investors through the Internet.
Audit Committee Report
The members of the audit committee are Messrs. Rustand, Davidson and
Riegert. Each member of the audit committee is independent in the judgment of
TLC's board of directors and as required by the listing standards of the Nasdaq
National Market System. The audit committee operates under the audit committee
terms of reference adopted by the TLC board of directors. The terms of reference
appear as Appendix G to this joint proxy statement/prospectus.
Management is responsible for preparing TLC's financial statements and the
independent auditors are responsible for auditing those financial statements.
The audit committee's primary responsibility is to oversee TLC's financial
reporting process on behalf of the TLC board of directors and to report the
result of its activities to the TLC board, as described in the audit committee
charter. The principal recurring duties of the audit committee in carrying out
its oversight responsibility include reviewing and evaluating the audit efforts
of TLC's independent auditors, discussing with management and the independent
auditors the adequacy and effectiveness of TLC's accounting and financial
controls, and reviewing and discussing with management and the independent
auditors TLC's quarterly and annual financial statements.
The audit committee has reviewed and discussed with TLC's management the
audited financial statements of TLC for the fiscal year ended May 31, 2001. The
audit committee has also discussed with Ernst & Young LLP, the independent
auditors of TLC, the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees). The audit committee has
also received from the independent auditors written affirmation of their
independence as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and the audit committee has
discussed with the auditors the firm's independence.
Based upon the review and discussions summarized above, the audit
committee recommended to the TLC board of directors that the audited financial
statements of TLC as of May 31, 2001 and for the year then ended be included in
TLC's annual report on Form 10-K for the year ended May 31, 2001 for filing with
the U.S. Securities and Exchange Commission. In addition, the audit committee
also recommended to the TLC board of directors that the audited financial
statements of TLC, as of May 31, 2001 and for the year then ended, prepared in
accordance with Canadian generally accepted accounting principles be filed with
the securities regulatory authorities in each of the provinces of Canada.
Warren S. Rustand Thomas N. Davidson John F. Riegert
Directors' and Officers' Liability Insurance
TLC maintains directors' and officers' liability insurance. Under this
insurance coverage the insurer pays on behalf of TLC for losses for which TLC
indemnifies its directors and officers, and on behalf of individual directors
and officers for losses arising during the performance of their duties for which
they are not indemnified for TLC. The policy limit is $100,000,000 per policy
term subject to a deductible of $100,000 per occurrence with respect to
corporate indemnity provisions and $250,000 if the claim relates to securities
law claims. The total premium in respect of the directors' and officers'
liability insurance for the year ended May 31, 2001 was approximately $606,250.
The insurance policy does not distinguish between directors and officers as
separate groups.
58
Certain Relationships and Related Party Transactions
Indebtedness of Directors and Officers
No officer, director or employee, or former officer, director or employee,
of TLC, LaserVision or any of their subsidiaries, or associate of any such
officer, director or employee is currently or has been indebted (other than
routine indebtedness) at any time since June 1, 2000 to TLC, LaserVision or any
of their subsidiaries.
Interests of Insiders in Prior and Proposed Transactions
Certain current officers and directors of TLC and LaserVision, have
interests in the merger and the other transactions contemplated by the merger
agreement that may present them with actual or potential conflicts of interest.
These interests are described in this joint proxy statement/prospectus under
"The Merger -- Interests of Specified Persons in the Merger." None of the
principal shareholders, senior officers or directors of TLC or the proposed
nominees for election as directors of TLC, or any of their associates or
affiliates, has any other interest in any other transaction since June 1, 2000
or any other proposed transaction that has materially affected or would
materially affect TLC or its subsidiaries except for arrangements with Dr.
Whitten described under "The Companies After the Merger -- Certain Relationships
and Related Transactions."
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as at November 30, 2001, the security
ownership of TLC directly and beneficially, including vested options, by the
directors, nominee directors and named executive officers of TLC, the directors,
nominee directors and executive officers as a group, and each person who, to the
knowledge of the directors or officers of TLC, beneficially owns, directly or
indirectly, or exercises control or direction over common shares carrying more
than 5% of the voting rights attached to all outstanding TLC common shares.
Directors, Nominee Directors, Total Number of Percentage of Common Options
Named Executive Officers and 5% Shareholders Shares Beneficially Owned Shares Beneficially Owned Beneficially Owned
- -------------------------------------------- ------------------------- ------------------------- ------------------
TAL Global Asset Management Inc................ 5,215,825 13.7% --
Elias Vamvakas................................. 3,872,516 10.0 533,273
Dr. Jeffery J. Machat.......................... 2,926,412 7.7 60,000
All 5% shareholders as a group.............. 12,014,753 31.1 593,273
Thomas G. O'Hare............................... 255,656 * 250,000
David C. Eldridge.............................. 169,514 * 73,500
Dr. William David Sullins, Jr.................. 68,900 * 35,000
William P. Leonard............................. 37,775 * 37,575
Howard J. Gourwitz............................. 35,896 * 35,000
Warren S. Rustand.............................. 32,928 * 30,000
John F. Riegert................................ 32,500 * 32,500
Thomas N. Davidson............................. 15,000 * 15,000
Dr. Mark Whitten............................... 48,759 * 8,125
John J. Klobnak................................ -- -- --
James M. Garvey................................ -- -- --
Dr. Richard Lindstrom.......................... -- -- --
David S. Joseph................................ -- -- --
All directors and officers as a group
(15 persons)................................ 7,495,856 19.1% 1,109,973
- ----------
* Less than one percent
59
Under the rules of the U.S. Securities and Exchange Commission, common
shares which an individual or group has a right to acquire within 60 days by
exercising options or warrants are deemed to be outstanding for the purpose of
computing the percentage of ownership of that individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
The principal address of TAL Global Asset Management Inc. is 1000 de la
Gauchetiere Street West, Suite 3100, Montreal, Quebec, H3B 4W5. TAL Global Asset
Management Inc. is an investment management firm owned by a Canadian chartered
bank whose common shares are listed on The Toronto Stock Exchange and the New
York Stock Exchange.
The business address of both Mr. Vamvakas and Dr. Machat is 5280 Solar
Drive, Suite 300, Mississauga, Ontario, L4W 5M8.
Total Number of Shares Beneficially Owned includes the shares listed under
the column Options Beneficially Owned, which are the shares subject to
outstanding options which are presently exercisable or are exercisable within 60
days of November 30, 2001. Total Number of Shares Beneficially Owned also
includes 1,749,516 shares held indirectly by Mr. Vamvakas through WWJD
Corporation, a corporation wholly owned by the Vamvakas Family Trust, and
1,000,484 shares held indirectly by Mr. Vamvakas through Insight International
Bank Corp., which is wholly owned by Mr. Vamvakas. In addition, 2,837,500 shares
beneficially owned by Dr. Machat are held indirectly through 1123562 Ontario
Limited, a corporation wholly owned by the Machat Family Trust. Mr. Eldridge's
total number of shares beneficially owned includes 6,426 shares held indirectly
by his daughter, Megan Eldridge. Pro Forma Shares Beneficially Owned also
includes 20,000 restricted shares held by Dr. Whitten. The table excludes
234,702 shares owned by LNG Enterprises, Inc., of which Mr. Gourwitz is an
associate, as defined in the Securities Act (Ontario).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the U.S. Securities Exchange Act of 1934, as amended,
requires TLC's directors, certain officers and persons who own more than 10% of
a registered class of TLC's equity securities to file reports of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the U.S. Securities and
Exchange Commission. Such directors, officers and 10% shareholders are also
required by U.S. Securities and Exchange Commission's rules to furnish TLC with
copies of all Section 16(a) reports they file. TLC assists its directors and
officers in preparing their Section 16(a) reports. In fiscal 2001, the
preparation of certain Section 16(a) reports was delayed. As a result, a report
on Form 3 for each of Mr. Davidson (the February 28, 2001 report relating to a
grant of options), Mr. O'Hare (the February 24, 2001 report relating to a grant
of options and a grant of shares), Mr. Peters (the February 14, 2001 report
relating to a grant of options) and Mr. Frederick (the September 27, 2001 report
relating to a grant of options) were filed late. As well, a report on Form 4 for
Dr. Machat (the March 22, 2001 report relating to three share purchase
transactions) was filed late.
60
INFORMATION REGARDING THE LASERVISION SHAREHOLDER MEETING
This section contains information for LaserVision shareholders about the
LaserVision special meeting that has been called to vote upon the merger
agreement and the transactions contemplated thereby.
LaserVision is mailing this joint proxy statement/prospectus to
LaserVision shareholders on or about ___________________, 2001. This joint proxy
statement/prospectus also includes a notice of the LaserVision special meeting.
Together with this document, LaserVision shareholders are also being sent a form
of proxy that LaserVision's board of directors is soliciting for use at the
special meeting. The special meeting will be held on ___________________, 2002,
at , Central Standard Time, at ___________________.
This joint proxy statement/prospectus is also being furnished to holders
of common shares of TLC in connection with the solicitation of proxies by or on
behalf of the management of TLC for use at the annual and special meeting of TLC
shareholders to be held on ___________________, 2002 at ___________________
Eastern Standard Time at ___________________, and any adjournment or
postponement thereof. See "Information Regarding the TLC Shareholder Meeting"
for information on the TLC shareholder meeting. If you are a TLC shareholder and
do not own shares of LaserVision common stock, you are not required to attend
and cannot vote at the LaserVision shareholder meeting so the following
information is for your information only.
Solicitation of Proxies
LaserVision will bear the entire cost of soliciting proxies from
LaserVision shareholders. In addition to soliciting proxies by mail, LaserVision
will request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of LaserVision common stock and secure their
voting instructions, if necessary. LaserVision will reimburse those record
holders for their reasonable expenses in taking those actions. If necessary,
LaserVision also may use several of its regular employees or directors, who will
not be specially compensated, to solicit proxies from LaserVision shareholders,
either personally or by telephone, telegram, fax or letter.
Appointment of Proxies
The accompanying form of proxy is for use at the special meeting if, as a
LaserVision shareholder, you are unable or do not desire to attend in person.
LaserVision shareholders can revoke a proxy at any time before the vote is taken
at the special meeting by submitting to LaserVision's corporate secretary
written notice of revocation or a properly executed proxy of a later date, or by
attending the special meeting and electing to vote in person. Written notices of
revocation and other communications with respect to the revocation of
LaserVision proxies should be addressed to:
Laser Vision Centers Inc.
540 Maryville Centre Drive, Suite 200
St. Louis, Missouri 63141
Attention: Corporate Secretary
All shares represented by valid proxies which LaserVision receives through
this solicitation prior to the special meeting, and not revoked before they are
exercised, will be voted in the manner specified on the proxy card. If a
LaserVision shareholder makes no specification on his or her proxy card, the
proxy will be voted FOR the proposal to approve the merger agreement and the
transactions contemplated thereby. LaserVision's board does not presently know
of any other matters that may be presented for action at the special meeting. If
other matters do properly come before the special meeting, LaserVision intends
that shares represented by proxies in the form accompanying this proxy
statement/prospectus will be voted by and at the discretion of the persons named
in the proxies. However, proxies that vote against approval of the merger will
not be voted in favor of any adjournment or postponement of the special meeting
to solicit additional proxies.
61
Matters to Be Considered
The purpose of the special meeting is to vote on the approval of the
merger agreement and the transactions contemplated thereby. At the special
meeting, LaserVision shareholders also may vote on any other matters that may
properly be submitted to a vote at the special meeting. LaserVision shareholders
also may be asked to vote on a proposal to adjourn or postpone the special
meeting. LaserVision could use any adjournment or postponement for the purpose,
among others, of allowing more time to solicit votes to approve the merger
agreement and the related transactions.
Record Date and Voting Rights
The record date for determining the LaserVision shareholders entitled to
notice of and to vote at the special meeting is ___________________, 2002. At
that time, there were approximately ___________________shares of LaserVision
common stock outstanding held by approximately ___________________ holders of
record.
There must be present at the meeting, whether in person or through return
of a proxy card, holders of LaserVision common stock representing a majority of
the shares outstanding and entitled to vote on the record date to have a quorum
that permits LaserVision to conduct business at the special meeting. LaserVision
shareholders are entitled to one vote for each outstanding share of LaserVision
common stock they hold as of the close of business on the record date.
Shares of LaserVision common stock for which LaserVision has received
properly executed proxies, including proxies which direct that the shares be
voted to abstain, will be counted as present at the special meeting for purposes
of determining whether there is a quorum for transacting business. Broker
non-votes, which occur when a nominee holding shares for a beneficial owner does
not vote because the nominee does not have discretionary voting power and has
not received instructions from the beneficial owner, will not be counted for
purposes of determining whether a quorum exists.
Under Delaware law, approval of the merger requires the affirmative vote
of the holders of a majority of the outstanding shares of LaserVision common
stock. Thus, abstentions and broker non-votes will have the same effect as votes
against approval of the merger agreement. Accordingly, the LaserVision board of
directors urges LaserVision shareholders to complete, date and sign the
accompanying proxy and return it promptly in the enclosed, postage-paid
envelope.
Recommendation of LaserVision Board of Directors
The LaserVision board of directors has approved the merger agreement and
the related transactions. The LaserVision board believes that the merger
agreement and the transactions it contemplates, including the merger, are fair
to, and are in the best interests of, LaserVision and LaserVision shareholders
and recommends that LaserVision shareholders vote FOR approval of the merger.
Security Ownership of Certain Beneficial Owners And Management
The following table and notes thereto set forth certain information
regarding beneficial ownership of LaserVision's common stock as of November 30,
2001 by each of LaserVision's directors and executive officers, all directors
and executive officers as a group and each person who, to the knowledge of the
directors or officers of LaserVision, beneficially owns, directly or indirectly,
or exercises control or direction over shares of LaserVision common stock
carrying more than 5% of the voting rights attached to all outstanding shares of
LaserVision common stock.
62
Total Number of Percentage of Common Shares Warrants and Options
Directors, Executive Officers and 5% Shareholders Shares Beneficially Owned Beneficially Owned Beneficially Owned
- ------------------------------------------------- ------------------------- ------------------ --------------------
Cramer Rosenthal McGlynn LLC/ADV................... 1,661,500 5.9% --
John J. Klobnak.................................... 1,405,750 4.8 1,175,000
James C. Wachtman.................................. 1,073,164 3.7 1,055,000
Robert W. May...................................... 733,173 2.6 702,452
B. Charles Bono.................................... 695,603 2.4 644,000
Richard L. Lindstrom, M.D.......................... 373,938 1.3 303,500
James B. Tiffany................................... 113,545 * 111,917
James M. Garvey.................................... 90,558 * 79,358
Steven C. Straus................................... 101,189 * 97,689
David S. Joseph.................................... 2,500 * 2,500
All directors and officers as a group........... 4,589,419 14.3% 4,171,415
(9 persons)
- ----------
* Less than one percent
Under the rules of the U.S. Securities and Exchange Commission, shares of
common stock which an individual or group has a right to acquire within 60 days
by exercising options or warrants are deemed to be outstanding for the purpose
of computing the percentage ownership of that individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
The principal address of Cramer Rosenthal McGlynn LLC/ADV, an
institutional investment manager, is 707 Westchester Avenue, White Plains, NY
10604. The share information for Cramer Rosenthal McGlynn LLC/ADV is based on a
Form 13F filed by Cramer Rosenthal McGlynn LLC/ADV with the U.S. Securities and
Exchange Commission on November 7, 2001. The Form 13F indicates that Cramer
Rosenthal McGlynn LLC/ADV has sole voting power with respect to 1,418,600 shares
and shared voting power with respect to 242,900 shares. The Form 13F also
indicates that Cramer Rosenthal McGlynn LLC/ADV has shared investment power with
respect to all 1,661,500 shares reported as beneficially owned.
Total Number of Shares Beneficially Owned includes the shares listed under
the column Warrants and Options Beneficially Owned, which are the shares subject
to outstanding options and warrants which are presently exercisable or are
exercisable within 60 days of November 30, 2001. Total Number of Shares
Beneficially Owned also includes the following shares allocated to the following
persons and group under LaserVision's 401(k) plan: Mr. Klobnak - 4,394; Mr.
Wachtman - 4,364; Mr. May - 4,321; Mr. Bono - 4,320; Mr. Tiffany - 1,628; and
all directors and officers as a group - 19,027 and includes 3,583 shares held by
Mr. Bono under LaserVision's Employee Stock Ownership Plan and 12,000 shares
held by Mr. Klobnak indirectly. Mr. Klobnak will also receive fully vested and
immediately exercisable options to purchase 500,000 TLC common shares on the
closing date of the merger having an exercise price equal to the market price of
TLC common shares on the Nasdaq National Market System on the closing date of
the merger.
63
THE MERGER
The discussion of the merger in this joint proxy statement/prospectus and
the description of the principal terms of the merger agreement are subject to
and qualified in their entirety by reference to the merger agreement, a copy of
which appears as Appendix A to this joint proxy statement/prospectus. We
encourage you to read the merger agreement in its entirety.
General
TLC, the merger subsidiary and LaserVision have entered into a merger
agreement dated as of August 25, 2001. The merger agreement provides for the
merger of the merger subsidiary with and into LaserVision. After the merger,
LaserVision will be the surviving corporation and will be a wholly owned
subsidiary of TLC. After the merger, LaserVision will possess all the assets,
except for the TLC common shares which the LaserVision shareholders and others
are entitled to receive, rights, privileges, powers and franchises and be
subject to all of the liabilities, restrictions, disabilities and duties of
LaserVision and the merger subsidiary, as provided under Delaware law.
The merger agreement provides that the merger will become effective at the
time a certificate of merger is duly filed with the Secretary of State of the
State of Delaware or at such later time as may be specified in the certificate
of merger. This filing, together with all other filings or recordings required
by Delaware law in connection with the merger, will be made as soon as
practicable and in any event not later than the last day of the month and five
business days after the satisfaction of or, to the extent permitted under the
merger agreement, waiver of, all conditions to the merger contained in the
merger agreement, whichever is later.
The merger agreement provides that each share of LaserVision common stock
that is outstanding when the merger occurs will be converted into the right to
receive 0.95 of a TLC common share. The number 0.95 is referred to in this joint
proxy statement/prospectus as the conversion number. No fractional common shares
of TLC will be issued in the merger. See "- Treatment of Fractional Shares" for
a description of how LaserVision shareholders will receive cash in lieu of
fractional shares.
Assuming that the merger was consummated on November 30, 2001, TLC would
issue an aggregate of approximately 26,472,615 common shares of TLC in the
merger in exchange for the issued and outstanding shares of LaserVision common
stock, representing approximately 41% of the issued and outstanding common
shares of TLC VISION after the merger.
If at any time between the date of the merger agreement and the effective
time of the merger, any change in the outstanding common shares of TLC or
LaserVision common stock shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, reverse stock
split, consolidation, exchange or readjustment of shares, stock dividend, or
similar transaction with a record date during this period, the number of TLC
common shares to be issued and delivered in the merger in exchange for each
outstanding share of LaserVision common stock as provided in the merger
agreement shall be appropriately adjusted.
In addition, at the effective time of the merger, outstanding options and
warrants to purchase shares of LaserVision common stock will become options to
purchase TLC common shares. The number of TLC common shares that will be
received upon exercise of each TLC stock option will be 0.95 of the number of
shares of LaserVision common stock that would have been received upon exercise
of the LaserVision option or warrant. As contemplated by the merger agreement,
immediately prior to the merger, LaserVision will decrease the exercise price of
outstanding options and warrants to acquire 2,109,825 shares of LaserVision
common stock, which otherwise would have had an exercise price greater than
$8.688 per common share of TLC after the merger, to a price of $8.688 per common
share of TLC after the merger.
The options to acquire TLC common shares that are issued under the merger
agreement will not be issued under TLC's amended and restated stock option plan
and the number of shares issuable upon exercise of these options will not be
counted in determining the maximum number of TLC common shares available for
issuance
64
under the TLC stock option plan. These TLC stock options will have the same
terms and conditions as the LaserVision options and warrants which they replace,
including the same expiration date and exercise price per share, except with
respect to the vesting of options held by John J. Klobnak, Robert W. May and B.
Charles Bono, senior officers of LaserVision, which will vest immediately upon
the merger becoming effective under the terms of employment agreements described
under "The Merger -- Interests of Specified Persons in the Merger."
Subject to the approval of TLC shareholders and The Toronto Stock
Exchange, TLC will allow the holders of outstanding TLC stock options with an
exercise price greater than $8.688 to elect to reduce the exercise price of
their options to $8.688 by surrendering a number of the existing shares subject
to each repriced option as follows:
o for every option with an exercise price of at least $40, the holder
will surrender 75% of the shares subject to that option;
o for every option with an exercise price of at least $30 but less
than $40, the holder will surrender two-thirds of the shares subject
to that option; and
o for every option with an exercise price of at least $20 but less
than $30, the holder will surrender 50% of the shares subject to
that option.
Every option with an exercise price of at least $8.688 but less than $20
will be repriced to $8.688 without the holder having to surrender any of the
shares subject to that option. Options to acquire an aggregate of 863,867 TLC
common shares would be affected by this repricing. If approved and if all
holders of options with an exercise price greater than $8.688 elect to reduce
their option prices, the repriced options will then be exercisable to acquire an
aggregate of 847,109 TLC common shares.
The amount and nature of the consideration to be given in the merger was
established through arm's-length negotiations between TLC and LaserVision and
reflects the balancing of a number of countervailing factors. The total amount
of the consideration reflects a price both parties concluded was appropriate. We
cannot assure you that the current fair market value of TLC or LaserVision
common stock will be equivalent to the fair market value of TLC or LaserVision
common stock on the effective date of the merger. The fair market value of TLC
VISION's common stock may be greater or less than current fair market value of
TLC or LaserVision common stock due to numerous market forces.
After the merger, the LaserVision common stock and the LaserVision stock
options and warrants will no longer be outstanding and each certificate
representing any shares of LaserVision common stock after the merger will
represent only the right to receive the merger consideration.
The board of directors of TLC has determined that the merger agreement and
the transactions contemplated thereby are fair to TLC shareholders and in the
best interests of TLC and unanimously recommends that the shareholders of TLC
approve the merger agreement, the merger and the transactions contemplated
thereby.
The board of directors of LaserVision has determined that the merger
agreement and the transactions contemplated thereby are fair to LaserVision
shareholders and in the best interests of LaserVision and unanimously recommends
that the shareholders of LaserVision approve the merger agreement, the merger
and the transactions contemplated thereby.
Background and Reasons for the Merger
The provisions of the merger agreement are the result of arm's length
negotiations conducted among representatives of TLC and LaserVision and their
legal and financial advisors. The following is a summary of the meetings,
negotiations and discussions between the parties that preceded execution of the
merger agreement.
65
Previous Negotiations
In June 1999, LaserVision retained Goldman Sachs as financial advisor in
connection with the possible sale of all or a portion of the company.
LaserVision retained Goldman Sachs as part of an overall evaluation by
management of the Company's strategic alternatives in light of perceived changes
in market conditions for its laser access business model.
In the fall of 1999, Mr. Vamvakas of TLC began discussions with Mr.
Klobnak of LaserVision regarding a possible transaction between TLC and
LaserVision. As a result of those discussions, TLC executed a confidentiality
agreement in November 1999, with Goldman Sachs executing on behalf of
LaserVision.
In February 2000, TLC and LaserVision executed mutual confidentiality
agreements and the TLC board of directors met with SG Cowen to discuss retaining
SG Cowen to act as exclusive financial advisor with respect to a potential
transaction involving TLC and LaserVision.
Also in February 2000, members of the senior management team of each of
TLC and LaserVision, and their legal and financial advisors, met to discuss
their respective businesses and the possibility of a combination of their
businesses. Following these meetings and subsequent discussions between
management of TLC and LaserVision and consultation with their advisors and
boards of directors, TLC and LaserVision chose not to pursue a transaction. TLC
and LaserVision chose not to pursue a transaction at such time primarily as a
result of differences in the relative valuations placed by the parties on each
others business.
Negotiation of the Merger
In November and December 2000, Mr. Vamvakas and Mr. Klobnak began
discussions about the benefits of a possible combination of TLC and LaserVision.
At an industry conference in January 2001, Mr. Vamvakas and Mr. Klobnak
discussed industry developments. They agreed to seriously consider a merger
between the companies.
Following the January 22-23, 2001 meeting of the TLC board of directors,
the TLC board of directors decided Mr. Rustand should meet with LaserVision to
assess LaserVision's interest in a potential relationship with TLC. TLC
management was also evaluating other possible transactions during this period
and continued to enter into transactions with doctors and pursue its growth
strategy. However, the possible merger with LaserVision was considered to be the
preferred transaction so serious consideration of other strategic transactions
was deferred in favor of negotiations with LaserVision.
On February 20-21, 2001, Mr. Rustand travelled to St. Louis to meet with
management of LaserVision. On February 27, 2001, the TLC board of directors
approved the continued pursuit of a transaction with LaserVision. Mr. Rustand
had a subsequent meeting with management of LaserVision on March 8th in St.
Louis.
In late March and early April, the TLC board of directors had several
calls to discuss the status of the discussions. On March 30, 2001,
representatives of SG Cowen met with members of management of TLC to discuss a
potential transaction with LaserVision. Following this meeting, on April 4,
2001, SG Cowen, on the behalf of the TLC board of directors, submitted a
preliminary non-binding indication of interest to LaserVision.
On April 6, 2001, the LaserVision board of directors met to consider the
status of the proposal. That day and over the following weeks, Mr. Klobnak, Mr.
Vamvakas, Mr. Rustand, and representatives of Goldman Sachs and SG Cowen
discussed the terms of the proposal. Throughout the course of negotiations and
discussions between LaserVision and TLC, the management of LaserVision continued
to explore and evaluate various strategic alternatives for its business.
Although LaserVision management, with the assistance of Goldman Sachs,
identified various parties which might have an interest in entering into a
business combination with LaserVision, based upon previous informal industry
contacts, LaserVision's management concluded that none of these parties would
likely be interested in a transaction which would be more beneficial to
LaserVison's shareholders than the type of transaction
66
being contemplated with TLC. Accordingly, during this period, LaserVision did
not engage in substantive discussions with parties other than TLC with respect
to a sale of all or part of its business.
On April 18-19, Mr. Rustand and a representative of SG Cowen met with Mr.
Klobnak, Mr. Wachtman, Mr. May, Mr. Bono and other members of management of
LaserVision and representatives of Goldman Sachs in St. Louis to discuss the
strategic merits of a potential combination and to discuss the non-binding
indication of interest.
These meetings were followed by numerous phone calls between SG Cowen, Mr.
Vamvakas, Mr. Rustand, Mr. Fiorini and other members of TLC's management and the
TLC board of directors.
On May 9, 2001, SG Cowen discussed with the TLC board of directors its
preliminary review of the potential financial aspects of a transaction with
LaserVision. Following this meeting, the TLC board of directors authorized SG
Cowen to begin formal negotiations with LaserVision and Goldman Sachs.
On May 24, 2001, management of LaserVision, Mr. Rustand, Mr. Vamvakas, Mr.
O'Hare and Mr. Fiorini of TLC, and representatives of SG Cowen and Goldman Sachs
met in New York to commence negotiations for a merger and commence due
diligence.
On May 31, 2001, the LaserVision board of directors met to receive an
update on the negotiations and to discuss LaserVision's financial results.
Throughout June 2001, Mr. Vamvakas and Mr. Klobnak discussed the
management structure for a merged entity. During this period, negotiations were
delayed due to TLC's pending year end and fourth quarter results.
During June and July 2001, representatives of TLC and LaserVision
discussed various matters relating to LaserVision's proposed acquisition of
ClearVision, and TLC and LaserVision determined that proceeding with the
proposed transaction would benefit the combined entity. LaserVision entered into
an asset purchase agreement for the acquisition of ClearVision on August 9,
2001, and the transaction was completed on August 31, 2001.
On July 10, 2001, Mr. Vamvakas and Mr. Wachtman met to finalize the
management team and to meet with other members of the LaserVision executive
team.
Beginning the week of July 16, 2001 and concluding on the week of August
20, management of TLC and LaserVision, and their legal and financial advisors
actively conducted negotiations and reciprocal financial, legal and operational
due diligence. Throughout this period, Mr. Vamvakas consulted with members of
the TLC board of directors to discuss the terms of the merger.
On August 23, 2001, the TLC board of directors met to consider the merger.
TLC's financial and legal advisors attended the meeting and responded to
questions on the merger. SG Cowen delivered its opinion that as of that date the
conversion number was fair, from a financial point of view, to TLC. The TLC
board of directors, based on the factors described under " -- Recommendation of
TLC Board of Directors," unanimously approved the merger and the execution of
the merger agreement.
On August 25, 2001, the LaserVision board of directors met to consider the
merger. LaserVision's financial and legal advisors attended the meeting and
responded to questions on the merger. Goldman Sachs delivered its opinion that
the conversion number of 0.95 of a TLC common share for each share of
LaserVision common stock was fair, from a financial point of view, to the
shareholders of LaserVision, other than TLC. The LaserVision board of directors,
based on the factors described under " -- Recommendation of LaserVision Board of
Directors," unanimously approved the merger and the execution of the merger
agreement.
Reasons for the Merger
The merger was driven by strong and complementary business models. TLC and
LaserVision believe that the combined company will have the efficiencies and
resources to capture the full value of its growth potential.
67
Together, the company will be one of the premiere companies in the eye surgery
industry, providing support services such as training, technical support and
equipment maintenance to a leading network of affiliated doctors so they can
deliver superior patient care. TLC and LaserVision believe that the merger
combines the complementary strengths of each organization, enabling the value of
each company's assets to be more fully realized. Combining the companies should
help position TLC VISION for growth by providing cost controls, the resources
and increased operating efficiencies needed for expanded franchises and other
development opportunities.
TLC's large network of affiliated doctors is expected to bring additional
support to the cataract and ambulatory surgery sectors in which LaserVision
currently operates and we believe TLC VISION will be able to provide a greater
range of services to these affiliated doctors. For LaserVision's ambulatory
surgical center and cataract businesses, the merger represents a unique
opportunity for growth given the significant capital requirements and other
barriers to growth in these businesses.
As a national company, we believe that TLC VISION will be able to obtain
additional national contracts and corporate programs and will be able to realize
greater value out of national coverage.
Recommendation of TLC Board of Directors
At a meeting held on August 23, 2001, the TLC board of directors concluded
that the merger was in the best interest of TLC and determined to unanimously
recommend that the shareholders of TLC vote in favor of the merger. In reaching
its determination, the TLC board of directors consulted with TLC's management
and legal and financial advisors, and carefully considered a number of factors.
The material factors considered by the TLC board of directors were:
o the board of director's knowledge of the business of TLC and
LaserVision and the current trends in the industry for laser vision
correction, and its belief that the merger is important to the
long-term future of TLC;
o all of the reasons described above under " - Reasons for the Merger"
including:
o the strong and complementary business models of TLC and
LaserVision;
o the increased efficiencies and resources that the combined
company will have;
o the fact that combining the companies should position TLC
VISION for growth by providing cost controls, resources and
increased operating efficiencies; and
o the fact the combined company should be able to obtain
additional national contracts and corporate programs and
realize greater value out of national coverage;
o the fairness opinion of SG Cowen to the effect that, as of the date
of such opinion, the conversion number was fair, from a financial
point of view, to TLC;
o the trading prices of the TLC common shares and the shares of
LaserVision common stock prior to August 23, 2001, including the
fact that the conversion number represented a premium to the recent
trading prices of shares of LaserVision common stock;
o the fact that TLC VISION would continue to be a Canadian company
with its international head office in Mississauga, Ontario, Canada,
and would continue to operate under the "TLC" brand;
o the terms and conditions of the merger agreement, which the board
considered to be appropriate and to provide adequate protection to
TLC and its shareholders; the board considered in particular the
following terms of the merger agreement:
68
o the fact that the conversion number between TLC common shares
and shares of LaserVision common stock is fixed, and would not
change if the relative stock prices of TLC and LaserVision
changed prior to closing, which was appropriate given the
historical volatility in the TLC and LaserVision stock prices;
o the fact that TLC shareholders would continue to hold a
majority of the TLC VISION common shares following closing,
which was appropriate given the relative size and value of the
TLC business and the LaserVision business;
o the fact that either party could terminate the merger
agreement if the stock price of either company fell by more
than 50% from the price on the date prior to the execution of
the merger agreement;
o the fact that the Merger has been structured as a
reorganization for U.S. federal income tax purposes, so that
LaserVision shareholders generally will not realize a gain or
a loss, and the fact that the transaction is not taxable for
TLC shareholders;
o the requirement of each of the boards of directors to
recommend that shareholders approve the merger, subject in the
case of LaserVision to the fiduciary duties of the LaserVision
directors;
o the fact that TLC and LaserVision shareholders will each be
entitled to approve the merger and the fact that TLC
shareholders will also be entitled to approve other matters
related to the merger, such as the change of name of the
company to TLC VISION;
o the board of directors' belief that the companies will be able
to satisfy the conditions to completion of the merger,
including the receipt of all necessary regulatory approvals;
o the requirement for the merger to be completed quickly, and
the fact that this would reduce the risk that the merger would
not be completed or would minimize the negative impact if it
were not completed;
o the circumstances in which the merger agreement can be
terminated, including the fact that LaserVision could withdraw
its recommendation of the merger if the LaserVision board of
directors believed the withdrawal was consistent with the
directors' fiduciary duties, and the circumstances in which
LaserVision will be required to pay a fee for termination,
which the board considered, overall and in the circumstances
of this merger, to be adequate protection against LaserVision
considering third party acquisition proposals and an
appropriate means to increase the likelihood that the merger
would be completed;
o the strength of the management team for TLC VISION, including the
fact that:
o Mr. Vamvakas would remain as chief executive officer and the
remainder of the TLC VISION senior management team would
report to Mr. Vamvakas and would consist of a combination of
executives from TLC and LaserVision;
o Mr. Klobnak would remain on the board of TLC VISION as
Vice-Chairman for one year after closing and would then
resign;
o all of the current directors of TLC would remain as directors
for the first year, and would constitute two-thirds of the
directors after one year, which was considered to be
appropriate given the size of TLC compared to LaserVision;
o three members of the LaserVision board of directors, in
addition to Mr. Klobnak, would join the TLC VISION board; and
69
o for one year following closing, no changes could be made to
the senior management team without 80% of the directors of TLC
VISION approving the change;
o the TLC management team's experience in successfully completing
previous strategic acquisitions;
o the alternatives reasonably available to TLC if it did not pursue
the merger with LaserVision, including the advice from management
that, in its judgment, no other reasonably available alternative
would yield greater benefits for TLC and its shareholders than the
merger with LaserVision;
o the proposed repricing of stock options of management and employees
of TLC and LaserVision and the fact that TLC shareholders would be
entitled to approve the repricing of TLC options;
o the interests of TLC management in the transaction, including the
fact that, except for the proposed repricing of options and their
continuing as directors and/or officers of TLC VISION, none of the
directors or officers of TLC had any interest in the transaction
other than an interest as a TLC shareholder; and
o the interests of the LaserVision management in the merger, including
the terms of the new employment contracts proposed for Messrs.
Klobnak, Bono, May and Wachtman and the fact that the terms of the
contracts would be disclosed in the proxy statement for the merger
and would be on commercial terms that are reasonable and necessary
in order to retain these individuals.
The TLC board of directors also considered the potential adverse
consequences of the merger, including:
o the challenges of combining the operations of the two businesses
with their operations headquartered in different cities;
o the changes to senior management and the challenges of integrating
new directors and new senior management;
o the risk that anticipated cost savings and increased operating
efficiencies would not be achieved;
o the costs to implement the merger; and
o the potential adverse impact on TLC VISION's financial results that
might result from the stock option repricing.
In view of the complexity and wide variety of information and factors,
both positive and negative, considered by the TLC board of directors, the board
of directors did not find it practical, and did not attempt, to quantify, rank
or otherwise assign relative or specific weights to the factors considered. In
addition, the TLC board of directors did not reach any specific conclusion with
respect to each of the factors considered, or any aspect of any particular
factor. Instead, the TLC board of directors conducted an overall analysis of the
factors described above, including discussion with TLC's management and legal
and financial advisors. In considering the factors described above, individual
members of the TLC board may have given different weight to different factors.
After taking into consideration all the factors set forth above as a
whole, the TLC board of directors concluded that the merger was fair to TLC
shareholders and in the best interest of TLC and that TLC should proceed with
the merger.
Recommendation of LaserVision Board of Directors
At a meeting held on August 25, 2001, the LaserVision board of directors
concluded that the merger was in the best interest of LaserVision and its
shareholders and determined to recommend that the shareholders of
70
LaserVision vote in favor of the merger. The summary set forth below briefly
describes the material reasons, factors and information taken into account by
the LaserVision board of directors in reaching its conclusion.
In reaching its decision, the LaserVision board of directors consulted
with:
o LaserVision management regarding the business and financial
condition of LaserVision, trends and competition in the laser access
industry, LaserVision management's investigation and review of TLC
and TLC's business and financial condition and the terms and other
considerations of the proposed merger;
o Goldman Sachs, which LaserVision engaged as its financial advisor,
regarding a sale of all or a portion of LaserVision. LaserVision's
board believes that Goldman Sachs, a leading international
investment bank which regularly serves as financial advisor to
companies involved in similar types of transactions, is highly
qualified to serve as financial advisor to LaserVision's board.
Accordingly, in addition to the board's own analysis, the board
relied upon Goldman Sachs' fairness opinion that, as of the date of
the opinion, the conversion number is fair, from a financial point
of view, to the holders of shares of LaserVision common stock, other
than TLC;
o Its legal counsel regarding the proposed terms of the transaction,
the fiduciary and other obligations of members of the LaserVision
board in its consideration of the proposed transaction and the legal
investigation of TLC conducted by legal counsel; and
o Its independent accountants regarding the accounting aspects of the
proposed transaction.
In reaching its conclusion to approve the merger and recommend that the
LaserVision shareholders approve the merger and related transactions, the
LaserVision board of directors carefully considered the following information
and factors:
o LaserVision's knowledge of its business, operations, financial
condition, earnings and prospects as they relate to the
opportunities for LaserVision as a stand-alone company;
o the complementary nature of the differing business models of
LaserVision and TLC;
o increasingly competitive conditions in the marketplace for excimer
laser access and refractive eye surgery;
o LaserVision's expectation that the combined company would benefit
from efficiencies and greater economies of scale than either
LaserVision or TLC could achieve separately in managing their
operations and relationships with laser manufacturers and other
suppliers;
o the unique opportunity for growth represented by the combined
company in view of the LaserVision board of directors' assessment of
the growth potential of LaserVision's current business model,
including significant capital requirements and other barriers to
growth in its ambulatory surgical center and cataract businesses,
and the limited number of opportunities for growth in LaserVision's
market areas;
o the strength of the senior management team of the combined company;
o the increased economic value for LaserVision's shareholders because
the merger provides a premium over the market price of shares of
LaserVision's common stock immediately before the announcement of
the merger;
o the opportunity for LaserVision's shareholders to continue their
investment in the combined company through a tax-free transaction;
o the structure of the merger and the terms of the merger agreement,
including the circumstances in which the merger agreement can be
terminated;
71
o enhanced incentives to key personnel aligned with the interests of
shareholders which would result from the repricing of certain
LaserVision and TLC stock options. Given negative long-term industry
trends, currently outstanding options were substantially
out-of-the-money and, in the judgment of LaserVision's board, would
not provide meaningful economic incentives. The board considered the
future financial impact of the proposed repricing and concluded that
the repricing terms provided in the merger agreement were fair to
LaserVision's shareholders and effected an appropriate balance of
the anticipated benefits of the incentives to LaserVision's
shareholders and the dilution cost to them. In particular, the board
noted that TLC VISION only would record variable accounting charges
if and to the extent its stock price exceeds $8.688, the price at
which such options will be repriced; and
o the presentation and opinion of Goldman Sachs, LaserVision's
financial advisor, that the conversion number is fair, from a
financial point of view, to LaserVision's shareholders, other than
TLC.
The LaserVision board of directors also considered potentially negative
factors relating to the merger, including:
o the risk that some or all of the potential benefits, including
revenue growth and cost efficiencies, anticipated to result from the
merger described above might not be realized;
o the costs that will be incurred in connection with the merger,
including the treatment of goodwill and the repricing of stock
options, as well as the costs of integrating the businesses and
transaction expenses arising from the merger which will be incurred
by TLC VISION;
o the uncertainty as to how the TLC VISION common stock will trade
after the merger, including the possibility of a decline in value
due to overall market conditions, industry trends or
company-specific factors;
o the possibility that the merger might not be completed, even if
approved by TLC and LaserVision shareholders, and the effect of
public announcement of the merger or any failure to complete the
merger on LaserVision's business, stock price and LaserVision's
ability to attract and retain key management and other personnel;
o the interests of certain members of management in the transaction
and resulting possible conflicts of interest; and
o other potential risks described in this joint proxy
statement/prospectus under "Risk Factors."
The foregoing summary of the information and factors considered by the
LaserVision board of directors is not intended to be exhaustive but identifies
the material factors considered by the LaserVision board. In view of the
complexity and wide variety of information and factors, both positive and
negative, considered by the LaserVision board of directors, it did not find it
practical to quantify, rank or otherwise assign relative or specific weights to
the factors considered. In addition, the LaserVision board of directors did not
reach any specific conclusion with respect to each of the factors considered, or
any aspect of any particular factor. Instead, the LaserVision board of directors
conducted an overall analysis of the factors described above, including
discussion with LaserVision's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of the
LaserVision board of directors may have given different weight to different
factors.
The LaserVision directors considered all of the factors as a whole, and
overall considered the factors to be favorable to and to support its
determination to approve the merger and that the merger was fair to
LaserVision's shareholders.
Certain Projections (Unaudited)
In connection with the review of the merger, LaserVision's and TLC's
management prepared financial projections in August 2001 for their respective
organizations on a stand-alone, pre-merger basis. These projections were
exchanged by LaserVision and TLC and were presented to SG Cowen and Goldman
Sachs and were considered by the members of each company's board of directors in
its recommendation of the merger.
72
The financial projections are "forward-looking statements" and
LaserVision's, TLC's and TLC VISION's actual results may differ materially from
those set forth in the projections. See "Risk Factors" and "Forward-Looking
Statements" for a discussion of the risks you should consider in reviewing the
projections set forth in this joint proxy statement/prospectus.
In preparing the projections, LaserVision made numerous assumptions
including, without limitation, those assumptions set forth below the following
table. These assumptions were based upon LaserVision management's forecasts and
estimates of future conditions at the time the merger agreement was executed. It
is not possible to predict whether the assumptions made in preparing the
projections will be valid and actual items assumed may prove to be materially
different than those contained in the assumptions. The material portions of the
financial projections prepared by management of LaserVision follow:
Including ClearVision, For the Fiscal Years Ending April 30, (1)
------------------------------------------------------------
2002E 2003E 2004E
----- ----- -----
(in millions, except procedures)
Procedures 186,231 233,870 253,536
Net Revenue(2) $128.5 $155.3 $175.1
EBITDA(3) 26.8 34.1 37.3
EBIT(4) 8.4 11.6 13.8
Net Income 4.3 5.7 6.3
Excluding ClearVision, For the Fiscal Years Ending April 30, (1)
------------------------------------------------------------
2002E 2003E 2004E
----- ----- -----
(in millions, except procedures)
Procedures 152,231 182,561 210,536
Net Revenue(2) $111.3 $133.8 $153.6
EBITDA(3) 21.9 27.3 30.4
EBIT(4) 6.0 7.9 10.0
Net Income 3.1 3.8 4.3
- ----------
(1) Excludes non-recurring charges. Goodwill is assumed to not be amortized.
(2) Net of doctor fees.
(3) Refers to earnings before interest expense, income taxes, depreciation and
amortization.
(4) Refers to earnings before interest expense and income taxes.
In preparing the projections, TLC made numerous assumptions including,
without limitation, those assumptions set forth below the following table. These
assumptions were based upon TLC management's forecasts and estimates of future
conditions at the time the merger agreement was executed. It is not possible to
predict whether the assumptions made in preparing the projections will be valid
and actual items assumed may prove to be materially different than those
contained in the assumptions. The material portions of the financial projections
prepared by management of TLC follow:
73
Excluding ClearVision, For the Fiscal Years Ending May 31,(3)
----------------------------------------------------------
2002E 2003E 2004E
----- ----- -----
(in millions, except procedures)
Procedures 130,773 168,144 193,366
Net Revenue(2) $172.9 $206.4 $227.5
EBITDA(3) 37.1 57.7 75.4
EBIT(4) 14.1 34.4 52.1
Net Income 7.0 16.0 23.8
- ----------
(1) Excludes non-recurring charges. Goodwill is assumed to not be amortized.
(2) Net of doctor fees.
(3) Refers to earnings before interest expense, income taxes, depreciation and
amortization.
(4) Refers to earnings before interest expense and income taxes.
These projections were not prepared with a view to public disclosure or
compliance with published guidelines established by the U.S. Securities and
Exchange Commission, the American Institute of Certified Public Accountants or
the Canadian Institute of Chartered Accountants regarding projections. In
addition, because the realization of the underlying assumptions upon which these
estimates are based are to a large extent beyond LaserVision's and TLC's
control, there can be no assurances that these estimates will be realized and
actual results may be materially higher or lower than those estimated. These
projections were prepared in August 2001 and have not been updated since that
time. LaserVision and TLC do not generally publish their respective business
plans and strategies or make external disclosures of their respective
anticipated financial position or results of operations. Accordingly,
LaserVision and TLC do not intend to, and specifically decline any obligation
to, update or otherwise revise the prospective financial information to reflect
circumstances existing since its preparation or to reflect the occurrence of
unanticipated events, even if any or all the underlying assumptions are shown,
or have been shown, to be in error. Also, LaserVision and TLC do not intend to,
and specifically decline any obligation to, update or revise the prospective
financial information to reflect changes in general economic or industry
conditions. Neither LaserVision's auditors nor TLC's auditors nor any other
independent accountants have compiled, examined or performed any procedures with
respect to these estimates, nor have they expressed any opinion or any other
form of assurance on this information or its achievability, and assume no
responsibility for, and disclaim any association with, this prospective
financial information. The independent public accountant reports incorporated by
reference in this document relate to historical financial statements of
LaserVision and TLC. These reports do not extend to these unaudited financial
projections and should not be read to do so. TLC shareholders and LaserVision
shareholders should not consider these financial projections to be a reliable
predictor of the value of TLC VISION's common shares or of future performance
and should not be relied upon as such.
Opinion of SG Cowen
General
By an engagement letter dated March 30, 2001, TLC retained SG Cowen to act
as exclusive financial advisor to TLC in connection with the proposed merger.
On August 23, 2001, SG Cowen delivered written analyses and its oral
opinion to the TLC board of directors, subsequently confirmed in writing as of
the same date, to the effect that and subject to the various assumptions set
forth therein, as of August 23, 2001, the conversion number was fair, from a
financial point of view, to TLC.
The full text of the written opinion of SG Cowen, dated August 23, 2001,
is attached as Appendix B to this joint proxy statement/prospectus and is
incorporated into this joint proxy statement/prospectus by reference. Holders of
TLC common shares are urged to, and should, read the opinion in its entirety for
the assumptions made, procedures followed, other matters considered and limits
of the review by SG Cowen. The summary of the written opinion of SG Cowen set
forth herein is qualified in its entirety by reference to the
74
full text of the opinion. SG Cowen's analyses and opinion were prepared for and
addressed to the TLC board of directors and are directed only to the fairness,
from a financial point of view, of the conversion number to TLC, and do not
constitute an opinion as to the merits of the merger or a recommendation to any
shareholder as to how to vote in connection with the proposed merger. The
conversion number was determined through negotiations between TLC and
LaserVision and not as a result of recommendations of SG Cowen.
In arriving at its opinion, SG Cowen reviewed and considered the financial
and other matters as it deemed relevant, including, among other things:
o a draft of the merger agreement dated August 22, 2001;
o publicly available information for TLC and other relevant financial
and operating data furnished to SG Cowen by TLC management;
o publicly available information for LaserVision and other relevant
financial and operating data furnished to SG Cowen by LaserVision
management;
o internal financial analyses, financial forecasts, reports and other
information concerning TLC and LaserVision, prepared by the
management of TLC and LaserVision, respectively;
o the amounts and timing of the cost savings and related expenses
expected to result from the merger prepared jointly by the
managements of TLC and LaserVision;
o First Call estimates and financial projections in Wall Street
analyst reports for TLC and LaserVision;
o discussions SG Cowen had with members of the managements of each of
TLC and LaserVision concerning the historical and current business
operations, financial conditions and prospects of TLC and
LaserVision, the cost savings and related expenses expected to
result from the merger and such other matters SG Cowen deemed
relevant;
o operating results, the reported price and trading histories of the
shares of the common stock of TLC and LaserVision as compared to the
operating results, reported price and trading histories of publicly
traded companies SG Cowen deemed relevant;
o financial terms of the merger as compared to the financial terms of
selected business combinations SG Cowen deemed relevant;
o based on the forecasts provided by TLC and LaserVision, the cash
flows generated by each of TLC and LaserVision, respectively, on a
stand alone basis to determine the present value of the discounted
cash flows of TLC and LaserVision;
o pro forma financial effects of the merger on an accretion/dilution
basis; and
o such other information, financial studies, analyses and
investigations and such other factors that SG Cowen deemed relevant
for the purposes of its opinion.
In conducting its review and arriving at its opinion, SG Cowen, with TLC's
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to it
by TLC and LaserVision or which was publicly available. SG Cowen did not
undertake any responsibility for the accuracy, completeness or reasonableness
of, or independently to verify, this information. In addition, SG Cowen did not
conduct any physical inspection of the properties or facilities of TLC or
LaserVision. SG Cowen further relied upon the assurance of management of TLC
that they were unaware of any facts that would make the information provided to
SG Cowen incomplete or misleading in any respect. SG Cowen, with TLC's consent,
assumed that the forecasts provided by TLC and LaserVision and the description
of the cost savings and related expenses expected to result from the merger were
reasonably prepared by the respective managements of TLC and LaserVision or, in
the case of the cost savings and related expenses expected to result from the
merger, jointly by the managements of TLC and LaserVision, in each case on bases
reflecting the best currently available estimates and good faith judgments of
such managements as to the future performance of TLC and LaserVision and
75
that these forecasts, the cost savings and related expenses expected to result
from the merger and the Wall Street analyst projections used in SG Cowen's
analysis, provide a reasonable basis for its opinion.
SG Cowen did not make or obtain any independent evaluations, valuations or
appraisals of the assets or liabilities of TLC or LaserVision, nor was SG Cowen
furnished with these materials. With respect to all legal matters relating to
TLC and LaserVision, SG Cowen relied on the advice of legal counsel to TLC. SG
Cowen's services to TLC in connection with the merger were comprised of
rendering an opinion from a financial point of view with respect to the fairness
to TLC of the conversion number. SG Cowen's opinion was necessarily based upon
economic and market conditions and other circumstances as they existed and could
be evaluated by SG Cowen on the date of its opinion. It should be understood
that although subsequent developments may affect its opinion, SG Cowen does not
have any obligation to update, revise or reaffirm its opinion and SG Cowen
expressly disclaims any responsibility to do so.
For the purposes of rendering its opinion, SG Cowen assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the merger agreement were true and correct, that each
party would perform all of the covenants and agreements required to be performed
by it under the merger agreement and that all conditions to the consummation of
the merger would be satisfied without waiver thereof. SG Cowen assumed that the
final form of the merger agreement would be substantially similar to the last
draft reviewed by SG Cowen. SG Cowen also assumed that all governmental,
regulatory and other consents and approvals contemplated by the merger agreement
would be obtained and that, in the course of obtaining any of those consents, no
restrictions would be imposed or waivers made that would have an adverse effect
on the contemplated benefits of the merger. TLC informed SG Cowen, and SG Cowen
assumed, that the merger would be recorded as a purchase under U.S. generally
accepted accounting principles. TLC informed SG Cowen, and SG Cowen assumed,
that the merger would be treated as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended. In addition, SG Cowen assumed that the
acquisition by LaserVision of certain assets and liabilities of ClearVision and
the assets of Ophthalmic Resources, Inc. were consummated prior to the date of
its opinion.
SG Cowen's opinion does not constitute a recommendation to any shareholder
as to how the shareholder should vote in connection with the proposed merger or
to take any other action in connection with the merger or otherwise. SG Cowen's
opinion does not imply any conclusion as to the likely trading range for TLC
VISION common shares following consummation of the merger or otherwise, which
may vary depending on numerous factors that generally influence the price of
securities. SG Cowen's opinion is limited to the fairness, from a financial
point of view, of the conversion number to TLC. SG Cowen expressed no opinion as
to the underlying business reasons that may support the decision of the TLC
board of directors to approve, or TLC's decision to consummate, the merger.
The following is a summary of the principal financial analyses performed
by SG Cowen to arrive at its opinion. SG Cowen chose to perform the following
analyses because, in the judgment of SG Cowen, they were appropriate for the
purposes of its opinion. Some of the summaries of financial analyses include
information presented in tabular format. In order to fully understand the
financial analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses. SG Cowen performed
various procedures, including each of the financial analyses described below,
and reviewed with the management of TLC the assumptions on which such analyses
were based and other factors, including the historical and projected financial
results of TLC and LaserVision. No limitations were imposed by the TLC board of
directors with respect to the investigations made or procedures followed by SG
Cowen in rendering its opinion.
Analysis of Selected Transactions. SG Cowen reviewed the financial terms,
to the extent publicly available, of selected acquisition transactions in the
refractive surgery industry and physician practice management industry. This
analysis compares valuation ranges based on financial data items of companies
which have been acquired in recent acquisitions, which companies are in the same
or similar industries as TLC and LaserVision, to the related financial
information for the merger. SG Cowen chose these acquisition transactions from
transactions
76
among companies in industries which possessed business, operating or financial
characteristics, including comparable enterprise values, that SG Cowen believed
were similar to characteristics of TLC and LaserVision.
The refractive surgery transactions were (listed as acquiror/target):
o Laser Vision Centers, Inc./ClearVision Laser Centers, Inc.
o Laser Vision Centers, Inc./Midwest Surgical Services, Inc.
o TLC Laser Eye Centers Inc./BeaconEye Inc.
o Vision Twenty-One, Inc./Block Vision
o LCA-Vision Inc./Refractive Centers Intl. Inc.
o Physicians Resource Group, Inc./American Ophthalmic, Inc.
o Physicians Resource Group, Inc./Ophthalmic Division of Equimed Inc.
The physician practice management transactions were (listed as
acquiror/target):
o Orthodontic Centers of America Inc./OrthoAlliance Inc.
o Pediatrix Medical Group, Inc./Magella Healthcare Corp.
o TA Associates/Physician Specialty Corp.
o PhyAmerica Physician Group, Inc./Sterling Healthcare Group, Inc.
o Vestar Capital Partners/Sheridan Healthcare, Inc.
o Welsh, Carson, Anderson & Stowe/Concentra Managed Care Inc.
o Team Health Holdings, LLC/Team Health Inc.
SG Cowen reviewed the enterprise value (defined as market capitalization
of common stock plus total debt less cash and equivalents) paid in the
refractive surgery transactions and physician practice management transactions
as a multiple of latest reported twelve-month (referred to as LTM) revenue,
earnings before interest expense and income taxes (referred to as EBIT) and
earnings before interest expense, income taxes, depreciation and amortization
(referred to as EBITDA) and also examined the multiples of equity value paid in
the refractive surgery transactions and physician practice management
transactions to book value and LTM earnings.
The following tables present the low, mean, median and high multiples from
the multiples implied by (1) the ratio of enterprise value to LTM revenue, EBIT
and EBITDA, and (2) the ratio of equity value to book value and LTM earnings for
the refractive surgery transactions and physician practice management
transactions compared to the corresponding multiples implied by the conversion
number. The multiples implied by the conversion number are based on the closing
stock prices of TLC and LaserVision stock on August 22, 2001 on the Nasdaq
National Market System.
Multiple Implied
Multiples for by Conversion
Refractive Surgery Transactions Number
-------------------------------- ----------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.40x 2.03x 1.32x 6.58x 1.27x
LTM EBIT ................... 8.3 18.9 21.7 24.0 39.2
LTM EBITDA ................. 3.2 11.3 12.6 16.7 7.5
Equity Value as a ratio of:
Book Value ................. 0.7x 3.6x 2.4x 11.1x 1.2x
LTM Earnings ............... 6.8 23.4 23.4 40.1 43.6
77
Multiple Implied
Multiples for Physician by Conversion
Practice Management Transactions Number
-------------------------------- ----------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.59x 1.28x 1.40x 2.37x 1.27x
LTM EBIT ................... 5.3 9.8 10.3 13.3 39.2
LTM EBITDA ................. 4.0 7.6 7.8 10.2 7.5
Equity Value as a ratio of:
Book Value ................. 0.6x 3.0x 2.5x 7.7x 1.2x
LTM Earnings ............... 5.3 14.1 15.8 19.6 43.6
Although the refractive surgery transactions and the physician practice
management transactions were used for comparison purposes, none of those
transactions is directly comparable to the merger. Accordingly, an analysis of
the results of such a comparison is not purely mathematical, but instead
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
companies involved and other factors that could affect the acquisition value of
such companies or TLC or LaserVision to which they are being compared.
Analysis of Premiums Paid in Selected Transactions. SG Cowen reviewed the
premium of the offer price over the trading prices one trading day and four
weeks prior to the announcement date of the refractive surgery transactions and
the physician practice management transactions described above. This analysis
provides a comparison between the premiums of the selected transactions and the
merger at the times specified.
The following table presents the median and mean of the percentage
premiums of the offer prices over the trading prices one trading day and four
weeks prior to the announcement date for the refractive surgery transactions and
the physician practice management transactions, and the premiums implied for
LaserVision, based on the conversion number. The information in the table
regarding the conversion number is based on the closing stock prices of
LaserVision and TLC stock on August 22, 2001 on the Nasdaq National Market
System.
Premium
Physician Practice Implied by
Refractive Surgery Management Conversion
Transactions Transactions Number
------------ ------------ ------
Median Mean Median Mean
------ ---- ------ ----
Premiums Paid to Stock Price:
One day prior to
announcement................ NA NA 18.7% 22.1% 39.0%
Four weeks prior to
announcement................ NA NA 31.5% 38.3% 69.8%
- ----------
"NA" means not available.
Analysis of Selected Publicly Traded Companies for TLC. To provide
contextual data and comparative market information, SG Cowen compared selected
historical operating and financial data and ratios for TLC to the corresponding
financial data and ratios of eleven other companies in the refractive surgery
industry, physician practice management industry and other health care services
industry whose securities are publicly traded. This analysis compares valuation
ranges based on financial data items of companies in the same or similar
industries as TLC to the corresponding financial data items of TLC during the
same periods. SG Cowen chose these companies from among companies in industries
which possessed business, operating or financial characteristics, including
comparable enterprise values, that SG Cowen believed were similar to
characteristics of TLC.
78
The refractive surgery companies were:
o Laser Vision Centers, Inc.
o LCA-Vision Inc.
o Novamed Eyecare Inc.
The physician practice management companies were:
o Pediatrix, Inc.
o AmeriPath, Inc.
o US Oncology, Inc.
o Radiologix, Inc.
The other health care services companies were:
o RehabCare Group, Inc.
o AmSurg Corp.
o U.S. Physical Therapy Inc.
o Prime Medical Services, Inc.
The data and ratios included the enterprise value of all eleven selected
companies as multiples of LTM revenue, EBIT and EBITDA, and estimated 2001 and
2002 calendar year revenue, and the equity value of common stock of all eleven
selected companies as a multiple of the book value of common shareholders'
equity. SG Cowen also examined the ratios of the current share prices of all
eleven selected companies to the estimated 2001 and 2002 calendar year earnings
per share (referred to as EPS).
The following tables present the low, mean, median and high multiples from
the multiples implied by (1) the ratio of enterprise value to LTM revenue, EBIT
and EBITDA, and (2) the ratio of equity value to book value for the refractive
surgery companies, the physician practice management companies and the other
health care services companies and the corresponding TLC multiples. The
information in the table regarding the TLC multiples is based on the closing
price of TLC common shares on August 22, 2001 on the Nasdaq National Market
System.
Refractive Surgery Companies Multiples TLC Multiples
-------------------------------------- -------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.46x 0.69x 0.70x 0.91x 0.70x
LTM EBIT ................... 6.3 17.7 17.7 29.1 NM
LTM EBITDA ................. 3.5 9.1 4.8 19.0 13.5
Equity Value as a ratio of:
Book Value ................. 0.5x 0.8x 0.8x 1.2x 0.9x
Physician Practice
Management Companies Multiples TLC Multiples
-------------------------------------- -------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.70x 2.06x 2.03x 3.48x 0.70x
LTM EBIT ................... 8.0 14.8 12.5 26.3 NM
LTM EBITDA ................. 5.1 10.2 8.6 18.4 13.5
Equity Value as a ratio of:
Book Value ................. 1.2x 2.6x 2.8x 3.5x 0.9x
79
Other Health Care
Services Companies Multiples TLC Multiples
-------------------------------------- -------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 1.48x 2.16x 2.06x 3.06x 0.70x
LTM EBIT ................... 4.2 10.4 11.1 15.1 NM
LTM EBITDA ................. 3.3 8.7 9.3 13.0 13.5
Equity Value as a ratio of:
Book Value ................. 0.7x 4.2x 3.5x 9.1x 0.9x
- ----------
"NM" means not meaningful
The following tables present the low, mean, median and high multiples
implied by (1) the ratio of enterprise value to estimated 2001 and 2002 calendar
year revenue and (2) the ratio of current share price to estimated 2001 and 2002
calendar year EPS for the refractive surgery companies, the physician practice
management companies and the other health care services companies and the
corresponding TLC multiples. The TLC multiples are based upon Wall Street
analyst projections, TLC management base case forecasts and TLC management
upside case forecasts. The TLC management upside case forecasts assume that TLC
will conduct more laser eye surgery procedures (and therefore receive more
revenue) during calendar year 2002 than are assumed under the base case
forecasts. The TLC multiples are based on the closing price of TLC common shares
on August 22, 2001 on the Nasdaq National Market System.
Refractive Surgery
Companies Multiples TLC Multiples
------------------------------------- ------------------------------------
Upside
Based on Base Case Case
Analyst Financial Financial
Low Mean Median High Projections Forecasts Forecasts
--- ---- ------ ---- ----------- --------- ---------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 0.39x 0.59x 0.64x 0.74x 0.69x 0.63x 0.63x
CY 2002 Revenue ............ 0.59 0.67 0.67 0.74 NA 0.57 0.52
Price Per Share as a ratio of:
CY 2001 EPS ................ 6.5x 21.2x 22.9x 34.2x NM NM NM
CY 2002 EPS ................ 5.6 12.2 14.3 16.7 NA 23.4 13.9x
Physician Practice Management
Companies Multiples TLC Multiples
------------------------------------- ------------------------------------
Upside
Based on Base Case Case
Analyst Financial Financial
Low Mean Median High Projections Forecasts Forecasts
--- ---- ------ ---- ----------- --------- ---------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 0.66x 2.03x 2.61x 2.81x 0.69x 0.63x 0.63x
CY 2002 Revenue ............ 0.59 1.72 2.16 2.40 NA 0.57 0.52
Price Per Share as a ratio of:
CY 2001 EPS ................ 15.5x 23.0x 24.3x 29.2x NM NM NM
CY 2002 EPS ................ 13.4 19.4 20.7 23.9 NA 23.4x 13.9x
80
Other Health Care Services
Companies Multiples TLC Multiples
------------------------------------- ------------------------------------
Upside
Based on Base Case Case
Analyst Financial Financial
Low Mean Median High Projections Forecasts Forecasts
--- ---- ------ ---- ----------- --------- ---------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 1.45x 1.81x 1.45x 2.65x 0.69x 0.63x 0.63x
CY 2002 Revenue ............ 1.27 1.53 1.27 2.22 NA 0.57 0.52
Price Per Share as a ratio of:
CY 2001 EPS ................ 7.7x 23.2x 26.4x 32.4x NM NM NM
CY 2002 EPS ................ 6.8 18.6 20.9 25.9 NA 23.4x 13.9x
- ----------
"NM" means not meaningful; "NA" means not available.
Although the eleven selected companies were used for comparison purposes,
none of those companies is directly comparable to TLC. Accordingly, an analysis
of the results of such a comparison is not purely mathematical, but instead
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the eleven
selected companies and other factors that could affect the public trading value
of the selected companies or TLC to which they are being compared.
Analysis of Selected Publicly Traded Companies for LaserVision. To provide
contextual data and comparative market information, SG Cowen compared selected
historical operating and financial data and ratios for LaserVision to the
corresponding financial data and ratios of eleven other companies in the
refractive surgery industry, physician practice management industry and other
health care services industry whose securities are publicly traded. This
analysis compares valuation ranges based on financial data items of companies in
the same or similar industries as LaserVision to the corresponding financial
data items of LaserVision during the same periods. SG Cowen chose these
companies from among companies in industries which possessed business, operating
or financial characteristics, including comparable enterprise values, that SG
Cowen believed were similar to characteristics of LaserVision.
The refractive surgery companies were:
o TLC Laser Eye Centers Inc.
o LCA-Vision Inc.
o Novamed Eyecare Inc.
The physician practice management companies were:
o Pediatrix, Inc.
o AmeriPath, Inc.
o US Oncology, Inc.
o Radiologix, Inc.
The other health care services companies were:
o RehabCare Group, Inc.
o AmSurg Corp.
o U.S. Physical Therapy Inc.
o Prime Medical Services, Inc.
The data and ratios included the enterprise value of all eleven selected
companies as multiples of LTM revenue, EBIT and EBITDA, and estimated 2001 and
2002 calendar year revenue, and the equity value of common stock of all eleven
selected companies as a multiple of the book value of common shareholders'
equity. SG Cowen
81
also examined the ratios of the current share prices of all eleven selected
companies to the estimated 2001 and 2002 calendar year EPS.
The following tables present the low, mean, median and high multiples from
the multiples implied by (1) the ratio of enterprise value to LTM revenue, EBIT
and EBITDA, and (2) the ratio of equity value to book value for the refractive
surgery companies, the physician practice management companies and the other
health care services companies and the corresponding LaserVision multiples. The
LaserVision multiples in the table are based on the conversion number and the
closing stock prices of TLC and LaserVision on August 22, 2001 on the Nasdaq
National Market System.
LaserVision Multiples
--------------------
Based on Based on Closing
Conversion Stock Price on
Refractive Surgery Companies Multiples Number August 22, 2001
------------------------------------------ ---------- ---------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.46x 0.62x 0.70x 0.70x 1.27x 0.91x
LTM EBIT ................... NM 6.3 6.3 NM 40.7 29.1
LTM EBITDA ................. 3.5 12.0 13.5 19.0 6.7 4.8
Equity Value as a ratio of:
Book Value ................. 0.5x 0.9x 0.9x 1.2x 1.2x 0.8x
LaserVision Multiples
--------------------
Based on Based on Closing
Physician Practice Conversion Stock Price on
Management Companies Multiples Number August 22, 2001
------------------------------------------ ---------- ---------------
Low Mean Median High
--- ---- ------ ----
Enterprise Value as a ratio of:
LTM Revenue ................ 0.70x 2.06x 2.03x 3.48x 1.27x 0.91x
LTM EBIT ................... 8.0 14.8 12.5 26.3 40.7 29.1
LTM EBITDA ................. 5.1 10.2 8.6 18.4 6.7 4.8
Equity Value as a ratio of:
Book Value ................. 1.2x 2.6x 2.8x 3.5x 1.2x 0.8x
LaserVision Multiples
--------------------
Based on Based on Closing
Other Health Care Conversion Stock Price on
Services Companies Multiples Number August 22, 2001
------------------------------------------ ---------- ---------------
Low Mean Median High
--- ---- ------ ----
LTM Revenue ................ 1.48x 2.16x 2.06x 3.06x 1.27x 0.91x
LTM EBIT ................... 4.2 10.4 11.1 15.1 40.7 29.1
LTM EBITDA ................. 3.3 8.7 9.3 13.0 6.7 4.8
Equity Value as a ratio of:
Book Value ................. 0.7x 4.2x 3.5x 9.1x 1.2x 0.8x
The following tables present the low, mean, median and high multiples
implied by (1) the ratio of enterprise value to estimated 2001 and 2002 calendar
year revenue and (2) the ratio of current share price to estimated 2001 and 2002
calendar year EPS for the refractive surgery companies, the physician practice
management companies and the other health care services companies and the
corresponding LaserVision multiples. The LaserVision multiples in the table are
based on the conversion number and the closing stock prices of TLC and
LaserVision on August 22, 2001 on the Nasdaq National Market System.
82
Refractive Surgery
Companies Multiples LaserVision Multiples
------------------------------ --------------------
Based on Based on Closing
Conversion Stock Price on
Low Mean Median High Number August 22, 2001
--- ---- ------ ---- ---------- ---------------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 0.39x 0.55x 0.63x 0.64x 1.03x 0.74x
CY 2002 Revenue ........... 0.57 0.66 0.66 0.74 0.83 0.59
Price Per Share as a ratio of:
CY 2001 EPS ................ 6.5x 20.3x 20.3x 34.2x 31.8x 22.9x
CY 2002 EPS ................ 5.6 14.4 14.3 23.4 23.2 16.7
Physician Practice
Management Companies Multiples LaserVision Multiples
------------------------------ --------------------
Based on Based on Closing
Conversion Stock Price on
Low Mean Median High Number August 22, 2001
--- ---- ------ ---- ---------- ---------------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 0.66x 2.03x 2.61x 2.81x 1.03x 0.74x
CY 2002 Revenue ........... 0.59 1.72 2.16 2.40 0.83 0.59
Price Per Share as a ratio of:
CY 2001 EPS ................ 15.5x 23.0x 24.3x 29.2x 31.8x 22.9x
CY 2002 EPS ................ 13.4 19.4 20.7 23.9 23.2 16.7
Other Health Care
Services Companies Multiples LaserVision Multiples
------------------------------ --------------------
Based on Based on Closing
Conversion Stock Price on
Low Mean Median High Number August 22, 2001
--- ---- ------ ---- ---------- ---------------
Enterprise Value as a ratio of:
CY 2001 Revenue ............ 1.45x 1.81x 1.45x 2.65x 1.03x 0.74x
CY 2002 Revenue ........... 1.27 1.53 1.27 2.22 0.83 0.59
Price Per Share as a ratio of:
CY 2001 EPS ................ 7.7x 23.2x 26.4x 32.4x 31.8x 22.9x
CY 2002 EPS ................ 6.8 18.6 20.9 25.9 23.2 16.7
Although the eleven selected companies were used for comparison purposes,
none of those companies is directly comparable to LaserVision. Accordingly, an
analysis of the results of such a comparison is not purely mathematical, but
instead involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the eleven
selected companies and other factors that could affect the public trading value
of the selected companies or LaserVision to which they are being compared.
Historical Exchange Ratio Analysis. SG Cowen analyzed the ratios of the
closing prices of TLC common shares to those of LaserVision common stock over
various periods ending August 22, 2001. This analysis allowed SG Cowen to
compare the premium implied by the conversion number on the date of its opinion
to the implied premiums at various points and during various periods during the
one-year period prior to the date of its opinion. The table below illustrates
the ratios for those periods and the premium or discount implied by the
conversion number in the merger to those historical conversion numbers.
83
Premium/(Discount)
Percentage Implied by
Conversion Number Conversion Number
----------------- -----------------
Latest twelve months average........ 0.8383 13.3%
Latest six months average........... 0.6226 52.6
Latest three months average......... 0.6389 48.7
Latest two months average........... 0.5934 60.1
Latest one month average............ 0.6445 47.4
All-time high....................... 1.5588 (39.1)
One-month prior..................... 0.4813 97.4
High (latest twelve months)......... 1.5588 (39.1)
Low (latest twelve months).......... 0.4318 120.0
Current............................. 0.6835 39.0
Exchange ratio for LaserVision...... 0.9500
Stock Trading History. To provide contextual data and comparative market
data, SG Cowen reviewed the historical market prices of TLC common shares from
August 22, 2000 to August 22, 2001 on the Nasdaq National Market System. SG
Cowen noted that over the indicated periods the high and low prices for shares
of TLC were $9.19 and $1.22 for the twelve-month period. The closing price on
August 22, 2001 was $4.36.
SG Cowen also reviewed the historical market prices of LaserVision common
stock from August 22, 2000 to August 22, 2001. SG Cowen noted that over the
indicated periods the high and low prices for shares of LaserVision common stock
were $6.66 and $1.19 for the twelve-month period. The closing price on August
22, 2001 was $2.98.
Contribution Analysis. SG Cowen analyzed the respective contributions for
fiscal years 2001, 2002, 2003 and 2004 revenue, EBITDA, EBIT and net income of
TLC and LaserVision to the combined company. This analysis was based upon
historical financial results of TLC and LaserVision for fiscal year 2001 and
projected financial results of TLC and LaserVision prepared by the managements
of TLC and LaserVision, respectively, for fiscal years 2002, 2003 and 2004. TLC
management forecasts were based on a base case and an upside case. The TLC
management upside case forecasts assume that TLC will conduct more laser eye
surgery procedures (and therefore receive more revenue) during fiscal years 2003
through 2004 than are assumed under the base case forecasts. This analysis
allowed SG Cowen to compare the relative historical and projected contributions
that would be made by each of TLC and LaserVision if the merger were to be
consummated. SG Cowen compared revenue, EBITDA, EBIT and net income, because
these data are commonly used as valuation indicators for companies in the same
or similar industries as TLC and LaserVision. The following table shows TLC's
percentage contribution to the combined company in each of these cases during
these periods.
84
% of Combined Company - TLC Contribution
TLC Contribution TLC Contribution
Base Case Upside Case
---------------- ----------------
Operating Results:
FY 2001
Revenue ........................ 64.4% 64.4%
EBITDA ......................... 35.8 35.8
EBIT ........................... NM NM
Net Income ..................... NM NM
FY 2002
Revenue ........................ 61.8% 61.8%
EBITDA ......................... 58.0 58.0
EBIT ........................... 62.7 62.7
Net Income ..................... 62.0 62.0
FY 2003
Revenue ........................ 58.1% 61.8%
EBITDA ......................... 52.6 62.8
EBIT ........................... 55.7 74.7
Net Income ..................... 56.7 73.8
FY 2004
Revenue ........................ 56.2% 61.3%
EBITDA ......................... 51.5 66.9
EBIT ........................... 54.2 79.1
Net Income ..................... 56.8 79.2
Pro Forma Ownership Analysis. SG Cowen analyzed the pro forma ownership in
the combined company by the holders of TLC and noted that holders of TLC common
shares would own approximately 58.3% of the combined company, based on the TLC
closing share price on August 22, 2001 on the Nasdaq National Market System.
Discounted Cash Flow Analysis for TLC. The discounted cash flow analysis
is intended to provide insight into the intrinsic value of TLC's business based
on the projected earnings and capital requirements and the net present value of
the subsequent cash flows anticipated to be generated by the assets of TLC's
business. SG Cowen estimated a range of values for TLC common shares based upon
the discounted present value of the projected after-tax cash flows of TLC
described in the financial forecasts provided by management of TLC for the six
and three-quarters fiscal years from August 31, 2001 through May 31, 2008, and
of the terminal value of TLC at May 31, 2008, based upon multiples of revenue
for a base case and an upside case. The TLC management upside case forecasts
assume that TLC will conduct more laser eye surgery procedures (and therefore
receive more revenue) during fiscal years 2003 through 2008 than are assumed
under the base case forecasts. After-tax cash flow was calculated by taking
projected EBIT and subtracting from this amount projected taxes, capital
expenditures, changes in working capital and changes in other assets and
liabilities and adding back projected depreciation and amortization. This
analysis was based upon assumptions described by, projections supplied by and
discussions held with the management of TLC. In performing this analysis, SG
Cowen utilized discount rates ranging from 12.0% to 14.0%, which were selected
based on the estimated industry weighted average cost of capital. SG Cowen
utilized terminal multiples of revenue ranging from 0.90 times to 1.30 times,
these multiples representing the general range of multiples of revenue for the
eleven selected companies discussed above under the heading "- Analysis of
Selected Publicly Traded Companies for TLC."
Utilizing this methodology, the per share equity value of TLC ranged from
$7.00 to $8.73 per share, based on TLC management's base case forecasts and from
$10.68 to $13.24 per share, based on TLC management's upside case forecasts.
85
Discounted Cash Flow Analysis for LaserVision. The discounted cash flow
analysis is intended to provide insight into the intrinsic value of
LaserVision's business based on the projected earnings and capital requirements
and the net present value of the subsequent cash flows anticipated to be
generated by the assets of LaserVision's business. SG Cowen estimated a range of
values for LaserVision common stock based upon the discounted present value of
the projected after-tax cash flows of LaserVision described in the financial
forecasts provided by management of LaserVision for the six and three-quarters
fiscal years from July 31, 2001 through April 30, 2008, and of the terminal
value of LaserVision at April 30, 2008, based upon multiples of revenue.
After-tax cash flow was calculated by taking projected EBIT and subtracting from
this amount projected taxes, capital expenditures, changes in working capital
and changes in other assets and liabilities and adding back projected
depreciation and amortization. This analysis was based upon assumptions
described by, projections supplied by and discussions held with the management
of LaserVision. In performing this analysis, SG Cowen utilized discount rates
ranging from 12.0% to 14.0%, which were selected based on the estimated industry
weighted average cost of capital. SG Cowen utilized terminal multiples of
revenue ranging from 0.90 times to 1.30 times, these multiples representing the
general range of multiples of revenue for the eleven selected companies
discussed above under the heading "- Analysis of Selected Publicly Traded
Companies for LaserVision."
Utilizing this methodology, the per share equity value of LaserVision
ranged from $4.76 to $6.67 per share, based on LaserVision management's
forecasts.
Pro Forma Earnings Analysis. SG Cowen analyzed the potential effect of the
proposed transaction on the projected combined income statement of TLC and
LaserVision for the fiscal years ended 2002, 2003 and 2004. This analysis was
based upon (1) the base case and upside case projected financial forecasts of
TLC, in each case, both including and excluding the cost savings and related
expenses expected to result from the merger, (2) 28.092 million shares of
LaserVision common stock outstanding (which included 2.201 million shares to be
issued by LaserVision for its acquisition of ClearVision Laser Centers, Inc.)
and options to purchase 7.500 million shares of LaserVision common stock
outstanding at a weighted average exercise price of $7.92 according to
LaserVision as of August 22, 2001, and (3) the assumption that the transaction
will close on November 30, 2001. This analysis, with LaserVision management's
consent, used LaserVision management's forecasts for the periods analyzed.
Based on TLC's base case projected financial forecasts without taking into
account the effects of cost savings and related expenses expected to result from
the merger, this analysis indicated that the proposed transaction could increase
TLC's projected earnings per share, on an after-tax basis, for the fiscal years
ended 2002, 2003 and 2004 by $0.02, $0.01 and $0.01, respectively. Based on
TLC's base case projected financial forecasts and taking into account the
effects of cost savings and related expenses expected to result from the merger,
this analysis indicated that the proposed transaction could increase TLC's
projected earnings per share, on an after-tax basis, for the fiscal years ended
2002, 2003 and 2004 by $0.12, $0.15 and $0.28, respectively. The table below
summarizes the results.
TLC After-tax Earnings Per Share - Base Case Accretion/(Dilution) $ Accretion/(Dilution) %
- -------------------------------------------- ---------------------- ----------------------
Without Expected Cost Savings and Related Expenses
Fiscal Year ended 2002................................... $0.02 13.5%
Fiscal Year ended 2003................................... 0.01 3.6
Fiscal Year ended 2004................................... 0.01 3.8
With Expected Cost Savings and Related Expenses
Fiscal Year ended 2002................................... $0.12 66.1%
Fiscal Year ended 2003................................... 0.15 77.0
Fiscal Year ended 2004................................... 0.28 132.3
Based on TLC's upside case projected financial forecasts without taking
into account the effects of cost savings and related expenses expected to result
from the merger, this analysis indicated that the proposed merger could increase
TLC's projected earnings per share, on an after-tax basis, for the fiscal year
ended 2002 by $0.02 and decrease TLC's projected earnings per share, on an
after-tax basis, for the fiscal years 2003 and 2004 by $(0.08) and $(0.15),
respectively. Based on TLC's upside case projected financial forecasts and
taking into account the effects of cost savings and related expenses expected to
result from the merger, this analysis indicated that the proposed
86
transaction could increase TLC's projected earnings per share, on an after-tax
basis, for the fiscal years ended 2002, 2003 and 2004 by $0.12, $0.06 and $0.12,
respectively. The table below summarizes the results.
TLC After-tax Earnings Per Share - Upside Case Accretion/(Dilution) $ Accretion/(Dilution) %
- ---------------------------------------------- ---------------------- ----------------------
Without Expected Cost Savings and Related Expenses
Fiscal Year ended 2002................................... $0.02 13.5%
Fiscal Year ended 2003................................... (0.08) (20.5)
Fiscal Year ended 2004................................... (0.15) (25.5)
With Expected Cost Savings and Related Expenses
Fiscal Year ended 2002................................... $0.12 66.1%
Fiscal Year ended 2003................................... 0.06 13.6
Fiscal Year ended 2004................................... 0.12 19.1
The summary set forth above does not purport to be a complete description
of all the analyses performed by SG Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. SG Cowen did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, notwithstanding the separate factors summarized above, SG
Cowen believes, and has advised the TLC board of directors, that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the process underlying its opinion. In
performing its analyses, SG Cowen made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of TLC and LaserVision. These analyses performed
by SG Cowen are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses or
securities may actually be sold. Accordingly, such analyses and estimates are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors. None of TLC,
LaserVision, SG Cowen or any other person assumes responsibility if future
results are materially different from those projected. The analyses supplied by
SG Cowen and its opinion were among several factors taken into consideration by
the TLC board of directors in making its decision to enter into the transaction
agreement and should not be considered as determinative of such decision.
Information Regarding SG Cowen
The TLC board of directors selected SG Cowen to render an opinion to the
TLC board because SG Cowen is a nationally recognized investment banking firm
and because, as part of its investment banking business, SG Cowen is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. SG Cowen is providing financial services to TLC for which it
will receive customary fees. In addition, in the ordinary course of its
business, SG Cowen and its affiliates trade the equity securities of TLC and
LaserVision for their own account and for the accounts of their customers, and,
accordingly, may at any time hold a long or short position in such securities.
SG Cowen and its affiliates in the ordinary course of business in the future may
provide commercial and investment banking services to TLC and may in the future
receive fees for the rendering of such services.
If the merger is consummated, SG Cowen will be entitled to receive a
transaction fee equal to $3.2 million from TLC. SG Cowen also is entitled to a
fee of $500,000 for rendering its opinion, which fee shall be credited against
any transaction fee paid. Additionally, TLC has agreed to reimburse SG Cowen for
its out-of-pocket expenses, including attorneys' fees, and has agreed to
indemnify SG Cowen against certain liabilities, including liabilities under U.S.
federal securities laws. The terms of the fee arrangement with SG Cowen, which
are customary in transactions of this nature, were negotiated at arm's length
between TLC and SG Cowen, and the TLC board was
87
aware of the arrangement, including the fact that a significant portion of the
fee payable to SG Cowen is contingent upon the completion of the transaction.
Opinion of Goldman Sachs
On August 25, 2001, Goldman, Sachs & Co. rendered its oral opinion to the
LaserVision board of directors, which was subsequently confirmed in writing,
that, as of the date of the opinion and based upon and subject to the factors
and assumptions set forth in the opinion, the conversion number under the merger
agreement is fair, from a financial point of view, to the holders of shares of
LaserVision common stock, other than TLC.
The full text of the written opinion of Goldman Sachs, dated August 25,
2001, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Appendix C
to this joint proxy statement/prospectus and is incorporated by reference into
this joint proxy statement/prospectus. Goldman Sachs provided its opinion for
the information and assistance of LaserVision's board of directors in connection
with its consideration of the merger and does not constitute a recommendation as
to how any holder of shares of LaserVision common stock should vote with respect
to the merger. LaserVision shareholders are urged to, and should, read the
opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other
things:
o the merger agreement;
o annual reports to shareholders and annual reports on Form 10-K of
LaserVision for the five fiscal years in the period ended April 30,
2001 and of TLC for the five fiscal years in the period ended May
31, 2000;
o a draft of the annual report on Form 10-K of TLC for the fiscal year
ended May 31, 2001;
o certain interim reports to shareholders and quarterly reports on
Form 10-Q of LaserVision and TLC;
o certain other communications from LaserVision and TLC to their
respective shareholders; and
o certain internal financial analyses and forecasts for LaserVision
and TLC prepared by their respective managements, including certain
cost savings and operating synergies projected by the managements of
LaserVision and TLC to result from the merger.
Goldman Sachs also held discussions with members of the senior management
of LaserVision and TLC regarding their assessment of the strategic rationale
for, and the potential benefits of, the merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the reported price and trading
activity for the shares of LaserVision common stock and TLC common shares,
compared certain financial and stock market information for LaserVision and TLC
with similar information for several other companies the securities of which are
publicly traded, reviewed the financial terms of other recent business
combinations in the refractive eye care service provider industry specifically
and in other comparable industries generally and performed other studies and
analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it and
assumed such accuracy and completeness for the purpose of rendering its opinion.
In that regard, Goldman Sachs assumed, with the LaserVision board of directors'
consent, that the internal financial forecasts prepared by the managements of
LaserVision and TLC, including the cost savings and operating synergies
projected by the managements of LaserVision and TLC to result from the merger,
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of LaserVision and TLC, and that such cost savings and
operating synergies will be realized in the amounts and time periods
contemplated. In addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities of LaserVision or TLC or any of their
subsidiaries and was not furnished with any evaluation or appraisal.
88
Goldman Sachs also assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the merger will be
obtained without any adverse effect on LaserVision or TLC or on the contemplated
benefits of the merger. Goldman Sachs provided its advisory services and opinion
for the information and assistance of the LaserVision board of directors in
connection with its consideration of the merger and its opinion does not
constitute a recommendation as to how any holder of shares of LaserVision common
stock should vote with respect to the merger.
The following is a summary of the material financial analyses reviewed by
Goldman Sachs and used in connection with providing its opinion to the
LaserVision board of directors on August 25, 2001. The analyses performed were
those which, in Goldman Sachs' professional judgment, were appropriate for the
purposes of its opinion. The order of analyses described, and the results of
those analyses, do not represent relative importance or weight given to those
analyses by Goldman Sachs. Some of the summaries of the financial analyses
include information presented in tabular format, which should be read together
with the text accompanying each summary. In order to more fully understand the
financial analyses used by Goldman Sachs, the tables must be read together with
the full text of each summary. The tables alone are not a complete description
of Goldman Sachs' financial analyses.
Historical Trading Performance
Goldman Sachs reviewed the movements in the indexed prices of the Nasdaq
composite and of a refractive eye care service provider industry composite
comprised of TLC, LaserVision, LCA Vision and NovaMed Eyecare for selected
periods during the three years ended August 17, 2001. Goldman Sachs also
reviewed the indexed prices of the components of the refractive eye care service
provider industry composite during the year ended August 17, 2001. Goldman Sachs
also reviewed, for selected periods ranging from the one month ended August 17,
2001 to the period beginning on July 2, 1997, the date TLC common shares were
listed on the Nasdaq National Market System, and ended on August 17, 2001, the
movements of the daily closing price and trading volume of LaserVision common
stock and TLC common shares, and with respect to TLC common shares, compared the
indexed price on the Nasdaq National Market System and The Toronto Stock
Exchange for the three years in the period ended August 17, 2001 and the latest
year ended August 17, 2001. The three-year and one-year periods chosen for the
analysis of historical public market trading values are chosen to reflect the
impact of corporate events which might be deemed to have an impact on the
current share price performance of the two companies which are considering a
stock-for-stock merger. The use of incremental measurement periods within the
three-year and one-year long review is designed to better capture the
progression of each company's share price throughout those periods. The weighted
average of closing prices for shares of LaserVision common stock for various
periods ranging from the one month ended August 17, 2001 to the period beginning
on July 2, 1997, the date TLC common shares were listed on the Nasdaq National
Market System, and ended on August 17, 2001 ranged from $2.80 to $11.89, and the
weighted average of daily closing prices for TLC common shares for corresponding
periods ranged from $4.88 to $19.87. Goldman Sachs also compared the reported
earnings per common share of TLC with the IBES median quarterly estimates one
month prior to the announcements of earnings by TLC for the quarters commencing
with the first quarter of TLC fiscal year 2000 and ended on the fourth quarter
of TLC fiscal year 2001 and reviewed the closing prices of common shares of TLC
and shares of LaserVision common stock prior to and after such announcements.
Historical Exchange Ratio (Conversion Number) Analysis
Goldman Sachs reviewed the average historical closing prices of
LaserVision common stock and TLC common shares over selected time periods ended
August 17, 2001 and compared the results to the 0.95 conversion number provided
for in the proposed merger. Goldman Sachs did so in order to determine whether
or not the agreed upon conversion number was consistent with the implied
conversion number during those periods. Goldman Sachs calculated the implied
value per share of LaserVision common stock based on the conversion number of
0.95 of a TLC common share, which ranged from $4.17 (based on the closing price
of TLC on August 17, 2001 of $4.39) to $13.61 (based on the average closing
price of TLC since TLC listed on the Nasdaq National Market System of $14.33).
Goldman Sachs also calculated the implied premium paid per share of LaserVision
common stock based on the conversion number of 0.95 of a TLC common share. The
implied premium, based on the closing price of TLC on August 17, 2001 of $4.39,
was 39.0%, which fell within the range of the implied premiums of 23.6% to 60.6%
based on the closing prices of TLC at selected time periods.
89
Contribution Analysis
Goldman Sachs reviewed the contribution of LaserVision to the combined
company's fiscal 2001 and estimated fiscal 2002 and fiscal 2003 number of laser
vision correction procedures, revenues, earnings before interest, taxes,
depreciation and amortization or "EBITDA," earnings before interest and taxes or
"EBIT" and net income, both including and excluding the then pending ClearVision
transaction. Goldman Sachs performed this analysis in order to compare
LaserVision's relative contribution to the combined company on these
measurements to LaserVision's pro forma ownership of the combined company based
on the conversion number. Goldman Sachs' analysis was based on projections
provided by the managements of LaserVision and TLC. In addition, the financial
statements of LaserVision, with a fiscal year end of April 30, were adjusted to
align to the TLC fiscal year end of May 31. Goldman Sachs also reviewed the
enterprise value and market capitalization of the combined company based on
shares outstanding and balance sheet items provided by the managements of
LaserVision and TLC. The calculation of pro forma combined market capitalization
assumes a 0.95 conversion number and a price per share, as of August 17, 2001,
of $3.00 for the LaserVision common stock and $4.39 for the TLC common shares.
The following table presents a summary of the results of Goldman Sachs' review:
LaserVision as a Percentage of the Combined Company (Including ClearVision)
2001A 2002E 2003E Pro Forma for .95x Latest(a)
----- ----- ----- ------------------ ---------
Procedures .............. 53.2% 59.3% 58.3% -- --
Revenues ................ 32.9% 43.1% 43.2% -- --
EBITDA .................. 31.7% 42.5% 37.4% -- --
EBIT .................... 18.7% 38.0% 25.6% -- --
Net income .............. NM 38.6% 26.4% -- --
Enterprise value ........ -- -- -- 42.6% 36.3%
Market Capitalization ... -- -- -- 39.3% 33.5%
LaserVision as a Percentage of the Combined Company (Excluding ClearVision)
2001A 2002E 2003E Pro Forma for .95x Latest(a)
----- ----- ----- ------------------ ---------
Procedures .............. 52.6% 54.2% 52.4% -- --
Revenues ................ 32.5% 39.6% 39.6% -- --
EBITDA .................. 31.2% 37.6% 32.3% -- --
EBIT .................... 17.2% 30.5% 19.0% -- --
Net income .............. NM 31.3% 19.2% -- --
Enterprise value ........ -- -- -- 45.3% 34.4%
Market Capitalization ... -- -- -- 41.2% 31.7%
- ----------
(a) Based on shares outstanding and balance sheet items as provided by
managements of LaserVision and TLC.
Selected Comparable Company Analysis
Goldman Sachs reviewed and compared selected financial information and
multiples for LaserVision and TLC to corresponding financial information and
multiples for the following companies in order to compare LaserVision's public
market valuation to public companies with comparable characteristics:
Ophthalmic Services Laser Vision Correction Companies
- ------------------- ---------------------------------
LCA Vision Inc. Esc Medical Services Ltd.
NovaMed Eyecare, Inc. Sunrise Technologies International, Inc.
VISX, Incorporated
90
Diversified Ophthalmology Diversified Ophthalmology Composite
Composite (Division)
- ------------------------- -----------------------------------
Allergan, Inc. Johnson & Johnson
Bausch & Lomb Incorporated Merck & Co., Inc.
Nestle Group (Alcon Holdings, Inc.)
Novartis AG
Contact Lens Companies Pharmacia Corporation
- ----------------------
The Cooper Companies, Inc.
Ocular Sciences Incorporated
Goldman Sachs selected these companies because they participate in the eye
care industry. Goldman Sachs' analysis of the selected companies compared the
following to the results for LaserVision and TLC: multiples of enterprise value
for sales, EBITDA and EBIT, calendarized price/earnings multiples (based on
calendarized IBES estimates as of August 17, 2001), EBITDA and EBIT margins for
the last twelve months, the ratio of debt to book capital, long-term earnings
growth estimate and the ratio of calendar year 2001 estimated price/earnings to
long-term growth estimate. Following is a summary of the results of Goldman
Sachs' analysis:
Calendarized P/E
Levered Multiples (LTM) Multiples Margins (LTM)
----------------------- ---------------- -------------
Long- 2001E
Debt/ Term P/E to
Book Earnings LT
Sales EBITDA EBIT 2001E 2002E EBITDA EBIT Cap Growth Growth
----- ------ ---- ----- ----- ------ ---- ----- -------- ------
LaserVision ...... 0.8x 4.1x 48.9x 23.1x 16.3x 18.6% 1.5% 15.0% 15.0% 1.5x
TLC .............. 0.9 15.1 NM 119.7 17.8 5.7 NM 12.1 NA NA
Ophthalmic Services
Mean ............. 0.6x 2.5x 3.6x 34.6x 8.2x 19.3% 13.3% 11.9% 27.5% 1.4x
Median ........... 0.6 2.5 3.6 34.6 8.2 19.3 13.3 11.9 27.5 1.4
Laser Vision Correction Companies
Mean ............. 4.5x 26.5x 30.6x 21.3x 15.2x 21.5% 19.2% 49.9% 24.5% 0.9x
Median ........... 4.5 26.5 30.6 21.3 15.2 21.5 19.2 49.9 24.5 0.9
Diversified Ophthalmology Composite
Mean ............. 3.7x 17.4x 25.3x 38.6x 29.6x 19.8% 12.8% 45.0% 16.0% 2.6x
Median ........... 3.7 17.4 25.3 38.6 29.6 19.8 12.8 45.0 16.0 2.6
Diversified Ophthalmology Composite (Division)
Mean ............. 3.8x 15.2x 19.1x 24.1x 22.1x 24.2% 19.5% 27.6% 13.5% 1.9x
Median ........... 3.8 14.6 20.5 22.6 22.1 26.0 22.9 31.5 12.3 1.9
Contact Lens Companies
Mean ............. 3.3x 12.7x 16.5x 18.6x 15.9x 25.8% 19.8% 10.4% 17.8% 1.0x
Median ........... 3.3 12.7 16.5 18.6 15.9 25.8 19.8 10.4 17.8 1.0
Total
Mean ............. 3.1x 15.1x 22.5x 32.6x 18.8x 21.3% 16.6% 28.1% 18.5% 1.6x
Median ........... 3.4 14.8 18.0 22.6 18.2 22.5 16.6 21.0 18.0 1.5
High ............. 6.2 38.1 48.9 119.7 30.9 28.5 24.7 79.8 30.0 3.4
Low .............. 0.5 2.5 3.6 6.9 5.9 5.7 1.5 0.0 11.5 0.2
Selected Acquisitions Analysis
Goldman Sachs analyzed certain information relating to eleven selected
transactions in the ophthalmology industry, including:
91
o aggregate consideration as a multiple of last 12 months sales;
o aggregate consideration as a multiple of last 12 months EBIT;
o aggregate consideration as a multiple of last 12 months net income;
and
o the percentage of premium paid based on the closing price of the
acquired company four weeks prior to the announcement of the
transaction.
The transactions were selected because the acquiror or target or both of such
transactions participate in the opthalmology industry, and Goldman Sachs
performed this analysis in order to compare multiples paid in those transactions
to the multiple implied in the merger. The results of these analyses are
summarized as follows:
LTM Sales LTM EBIT LTM Net Income % Premium Paid
--------- -------- -------------- --------------
Mean 4.6x 21.5x 33.6x 83.9%
Median 2.4 21.5 33.6 91.0
High 12.4 29.5 46.8 111.1
Low 0.4 13.6 20.4 54.0
Discounted Cash Flow Analysis
Goldman Sachs performed a discounted cash flow analysis based on
projections provided by the managements of LaserVision and TLC. Goldman Sachs
calculated implied equity value per share in several different scenarios by
utilizing discount rates ranging from 15% to 25% and perpetuity growth rate
sensitivity percentages ranging from 3% to 7%. Goldman Sachs' discounted cash
flow analysis based on LaserVision management projections of LaserVision,
including the then pending ClearVision transaction, resulted in an implied
equity value per share of LaserVision common stock ranging from $3.25 to $4.64.
Goldman Sachs' discounted cash flow analysis of LaserVision, excluding the then
pending ClearVision transaction, resulted in an implied equity value per share
of LaserVision common stock ranging from $2.77 to $3.81. Goldman Sachs'
discounted cash flow analysis based on TLC management projections resulted in an
implied equity value per common share of TLC ranging from $7.28 to $13.95.
Goldman Sachs performed an EBIT growth rate sensitivity on the discounted cash
flow analysis for the common shares of TLC. Utilizing a 20% discount rate,
perpetuity growth rate sensitivity percentages ranging from 3% to 7% and EBIT
growth rate sensitivity percentages ranging from 0% to 40%, Goldman Sachs
calculated an implied equity value per common share of TLC ranging from $4.09 to
$9.59. Goldman Sachs also calculated the present value of synergies (as provided
by the managements of LaserVision and TLC) per share of LaserVision common stock
utilizing discount rates ranging from 15% to 25% and percentages of synergies
realized of 25% to 100%, which, tax-effected using a rate of 38% provided by the
managements of LaserVision and TLC, ranged from $0.66 to $4.86 per share of
LaserVision common stock.
Implied Future Trading Analysis
Goldman Sachs performed an analysis in which it calculated the present
value of the implied future trading value per share of LaserVision, both
including and excluding the then pending ClearVision transaction, and the
present value of the implied future trading value per share of TLC, based on
estimates provided by the managements of LaserVision and TLC, price/earning
ratios ranging from 16x to 24x and discount rates ranging from 15% to 25%. Based
on estimates provided by the managements of LaserVision and TLC, the present
value of the implied future trading value per share of LaserVision common stock
(including the then pending ClearVision transaction) ranged from $2.40 to $3.60
for fiscal year 2002, $2.43 to $4.56 for fiscal year 2003 and $2.15 to $5.04 for
fiscal year 2004; the present value of the implied future trading value per
share of LaserVision common stock (excluding the then pending ClearVision
transaction) ranged from $1.92 to $2.88 for fiscal year 2002, $1.79 to $3.36 for
fiscal year 2003 and $1.64 to $3.84 for fiscal year 2004; and the present value
of the implied future trading value per common share of TLC ranged from $2.88 to
$4.32 for fiscal year 2002, $5.25 to $9.84 for fiscal year 2003 and $6.14 to
$14.40 for fiscal year 2004.
92
Pro Forma Merger Analysis
Goldman Sachs performed an analysis of the pro forma financial impact of
the merger, based on projections provided by the managements of LaserVision and
TLC. The projections of LaserVision, based on fiscal year end of April 30, were
adjusted to align to the TLC fiscal year end of May 31. Goldman Sachs compared
the fiscal years 2002 and 2003 estimated EPS of TLC on a standalone basis to the
fiscal years 2002 and 2003 estimated EPS of the shares of the combined company
under four scenarios. Assuming the consummation of the then pending ClearVision
transaction but no synergies, the pro forma financial impact of the merger would
be dilutive in both fiscal years 2002 and 2003 by approximately 9% and 24%,
respectively. Assuming consummation of the then pending ClearVision transaction
and synergies of approximately $9 million and $16 million for fiscal years 2002
and 2003, respectively, the pro forma financial impact of the merger would be
accretive in both fiscal years 2002 and 2003 by approximately 33% and 10%,
respectively. Assuming the then pending ClearVision transaction is not
consummated and no synergies, the pro forma financial impact of the merger would
be dilutive in both fiscal years 2002 and 2003 by approximately 16% and 29%,
respectively. Finally, assuming the then pending ClearVision transaction is not
consummated but assuming synergies of approximately $9 million and $16 million
for fiscal years 2002 and 2003, respectively, the pro forma financial impact of
the merger would be accretive in both fiscal years 2002 and 2003 by
approximately 27% and 6%, respectively.
Analysis at Various Prices for LaserVision
Goldman Sachs performed certain analyses, based on historical information
and projections provided by management of LaserVision, at conversion numbers
ranging from 0.75x to 1.25x. Assuming a share price of $3.00 for shares of
LaserVision common stock and $4.39 for TLC common shares, and conversion numbers
ranging from 0.75x to 1.25x, Goldman Sachs calculated for LaserVision the
implied total equity consideration (on a diluted basis) and enterprise value,
the ratio of enterprise value to revenues, the ratio of enterprise value to
EBITDA, the ratio of enterprise value to EBIT and the ratio of price to
earnings. The following table presents the results of Goldman Sachs' analysis
based on the conversion number of 0.95 (dollar amounts in millions, except for
purchase price per share):
Including ClearVision Excluding ClearVision
--------------------- ---------------------
Conversion number.................. 0.95x 0.95x
Premium to market price (as of
August 17, 2001)............... 39.0% 39.0%
Purchase price per share (as of
August 17, 2001)............... $4.17 $4.17
Equity consideration - diluted..... 140.3 131.5
Enterprise value................... 121.2 105.4
Enterprise value / revenues........ FY 04/01A 1.7x 1.4x
FY 04/02E 0.9 0.9
Enterprise value / EBITDA.......... FY 04/01A 7.5 6.5
FY 04/02E 4.5 4.8
Enterprise value / EBIT............ FY 04/01A 81.6 71.0
FY 04/02E 14.5 17.5
Price to earnings ratio............ FY 04/01A 21.5 30.1
FY 04/02E 19.7 26.4
CY 2002E 20.3 27.5
CY 2003E 17.9 24.0
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its opinion, Goldman Sachs
considered the results of all its analyses and did not attribute any particular
weight to any factor or analysis considered by it; rather, Goldman Sachs made
its determination as to the fairness on the basis of its experience and
professional judgment after considering the results of all of its analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to LaserVision, TLC or the merger.
93
The analyses were prepared solely for the purpose of Goldman Sachs'
providing its opinion to the LaserVision board of directors as to the fairness
from a financial point of view of the conversion number to the holders of
LaserVision common stock, other than TLC, and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by those analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
LaserVision, TLC, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the LaserVision board of
directors was one of many factors taken into consideration by the LaserVision
board of directors in making its determination to approve the merger agreement.
This foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs in connection with the opinion and is
qualified by reference to the written opinion of Goldman Sachs attached as
Appendix C to this joint proxy statement/prospectus.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with LaserVision, having acted as its financial advisor in connection
with, and having participated in certain negotiations leading to the merger
agreement. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold positions in securities,
including derivative securities, of LaserVision and TLC for its own account and
for the accounts of customers.
Under a letter agreement dated June 3, 1999, LaserVision engaged Goldman
Sachs as its financial advisor in connection with the possible sale of all or a
portion of LaserVision. Pursuant to the terms of the Goldman Sachs engagement
letter, if the proposed merger is completed Goldman Sachs expects to receive
from LaserVision a cash fee equal to $5 million. In addition, LaserVision has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorneys' fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
Conditions to the Merger
General Conditions
The obligations of TLC, LaserVision and the merger subsidiary to complete
the merger are subject to the satisfaction on or before the closing date of
various conditions, including the following:
o the merger agreement shall have been approved by the affirmative
vote of the holders of a majority of the outstanding LaserVision
common stock in accordance with Delaware law;
o the following shareholder approvals shall have been obtained:
o each of the merger agreement and the new by-laws of TLC shall
have been approved by a majority of the votes cast at the TLC
shareholder meeting; and
o each of the change of name of TLC to "TLC VISION Corporation",
the continuance of TLC under the laws of New Brunswick, and
the increase in the size of the board of directors of TLC
shall have been approved by at least two-thirds of the votes
cast at the TLC shareholder meeting;
o the relevant waiting period, which previously expired on October 18,
2001, under the Hart-Scott-Rodino Act relating to the merger shall
have expired or been terminated and any other appropriate regulatory
approvals shall have been obtained;
94
o no provision of any applicable law and no final unappealable order
of a court of competent jurisdiction shall restrain or prohibit the
consummation of the merger or other transactions contemplated by the
merger agreement;
o the registration statement of which this joint proxy
statement/prospectus is a part shall have been declared effective
and no stop order suspending the effectiveness of the registration
statement shall be in effect and no proceedings for such purpose
shall be pending before the U.S. Securities and Exchange Commission;
o the registration statement in respect of the TLC stock options to be
issued in connection with the merger shall have been declared
effective and no stop order suspending the effectiveness of the
registration statement shall be in effect and no proceedings for
such purpose shall be pending before the U.S. Securities and
Exchange Commission;
o the TLC common shares to be issued in the merger and those to be
issued on the exercise of the TLC stock options to be issued in
connection with the merger shall have been conditionally approved
for listing on The Toronto Stock Exchange and the Nasdaq National
Market System, which conditional approval has been obtained from The
Toronto Stock Exchange;
o TLC and LaserVision shall have received a satisfactory opinion of
Thompson Coburn LLP, legal counsel to LaserVision, to the effect
that the merger will be treated for U.S. federal income tax purposes
as a reorganization in which no gain or loss is recognized within
the meaning of Section 368(a) of the tax code, which opinion has
been delivered;
o TLC shall have obtained an opinion from SG Cowen to the effect that
the conversion number is fair to TLC from a financial point of view,
which opinion has previously been received and appears as Appendix
B, and such opinion shall not have been withdrawn;
o LaserVision shall have obtained an opinion from Goldman Sachs to the
effect that the merger consideration is fair to shareholders of
LaserVision from a financial point of view, which opinion has
previously been received and appears as Appendix C, and such opinion
shall not have been withdrawn; and
o the merger agreement shall not have been terminated.
Conditions to Obligations of TLC and the Merger Subsidiary
The obligations of TLC and the merger subsidiary to complete the merger
are subject to the satisfaction on or before the closing date of each of the
following conditions:
o LaserVision shall have performed in all material respects all of its
obligations required to be performed by it under the merger
agreement on or prior to the closing date and the representations
and warranties of LaserVision contained in the merger agreement that
are qualified by materiality shall be true and correct and the
representations and warranties of LaserVision contained in the
merger agreement that are not so qualified shall be true in all
material respects at and as of the closing date as if made on and as
of such date;
o the LaserVision board of directors shall have adopted all necessary
resolutions, and LaserVision and its subsidiaries shall have taken
all other corporate action necessary to permit the consummation of
the merger;
o notwithstanding any of the representations and warranties of
LaserVision contained in the merger agreement or in the LaserVision
disclosure letter delivered with the merger agreement, there shall
not be, and there shall not have occurred since the date of the
merger agreement, any circumstance, event, condition, change or
development or any set of circumstances, events, conditions, changes
or developments which, in the reasonable judgment of TLC, have or
would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on LaserVision or a material
adverse change concerning LaserVision; and
95
o the LaserVision board of directors shall have made and shall not
have modified or amended, in any material respect, prior to the
LaserVision shareholder meeting, an affirmative recommendation that
the LaserVision shareholders approve the merger agreement and the
merger.
Conditions to Obligations of LaserVision
The obligations of LaserVision to complete the merger are subject to the
satisfaction on or before the closing date of each of the following conditions:
o TLC and the merger subsidiary shall have performed in all material
respects all of their respective obligations required to be
performed by them under the merger agreement at or prior to the
closing date and the representations and warranties of TLC and the
merger subsidiary contained in the merger agreement qualified by
materiality shall be true and correct and the representations and
warranties of TLC contained in the merger agreement that are not so
qualified shall be true in all material respects at and as of the
closing date as if made on and as of such date;
o each of the board of directors of TLC and the merger subsidiary
shall have adopted all necessary resolutions, and all other
necessary corporate action shall have been taken by each of TLC and
the merger subsidiary and their subsidiaries, to permit the
consummation of the merger and the issuance of the TLC common shares
in connection with the merger and upon exercise of the TLC stock
options to be issued under the merger agreement;
o all necessary approvals shall have been received to reprice the
LaserVision stock options and warrants and to grant the TLC stock
options to be issued under the merger agreement;
o notwithstanding any of the representations and warranties of TLC
contained in the merger agreement or in the TLC disclosure letter
delivered with the merger agreement, there shall not be and there
shall not have occurred, any circumstance, event, condition, change
or development or any set of circumstances, events, conditions,
changes or developments, which in the reasonable judgment of
LaserVision, have or would reasonably be expected to have a material
adverse effect on TLC or material adverse change concerning TLC; and
o the board of directors of TLC shall have made and shall not have
modified or amended, in any material respect, prior to the TLC
shareholder meeting, an affirmative recommendation that the TLC
shareholders approve the merger.
Non-Solicitation Obligations of LaserVision
Under the merger agreement, LaserVision has agreed not to solicit,
initiate or knowingly encourage the initiation of any other proposal for a
merger or similar transaction, take-over bid or sale of more than 50% of the
consolidated assets of LaserVision, liquidation, or sale of shares constituting
more than 15% of the shares of LaserVision, referred to in this joint proxy
statement/prospectus as an acquisition proposal. However, nothing contained in
the merger agreement shall prohibit the LaserVision board of directors from
considering, negotiating or discussing an unsolicited acquisition proposal
subject to the following:
o LaserVision shall not furnish any written non-public information
and/or access to the books and records of LaserVision to a person
who proposes an acquisition proposal in respect of LaserVision until
such third party and LaserVision execute a confidentiality
agreement;
o LaserVision shall furnish to TLC the name of any person who proposes
an acquisition proposal within five days after such party executes a
confidentiality agreement with LaserVision, unless LaserVision and
the third party shall have terminated negotiations prior to that
time;
o subject to the other provisions of the merger agreement, LaserVision
shall have no obligation to advise TLC of any information submitted
or made available to a person who proposes an acquisition proposal;
96
o LaserVision shall not furnish or disclose to any person, in writing
or otherwise, any non-public information regarding TLC, regarding
the combined business of TLC and LaserVision or provided by TLC;
o LaserVision shall not, unless required by the LaserVision board of
directors in accordance with its fiduciary duties as advised by its
legal and financial advisors, withdraw or modify in a manner adverse
to TLC the approval or recommendation of the LaserVision board of
directors of the merger agreement and the merger;
o LaserVision shall furnish to TLC a written summary of the material
terms of an acquisition proposal, including the consideration
offered, the conditions to completion, the other parties to the
proposal, and any termination or similar fees payable in connection
with the proposal, that is determined by the LaserVision board of
directors at such time to be reasonably likely to constitute the
final and most favorable proposal by such third party proposing the
acquisition. Such a summary is to be furnished by the end of the
fifth day following the determination by the LaserVision board of
directors unless LaserVision and the third party shall have
terminated negotiations prior to such time; and
o LaserVision shall not approve or recommend any acquisition proposal
or cause LaserVision to enter into a written agreement, other than a
confidentiality agreement, for an acquisition proposal unless and
until the LaserVision board of directors shall have determined that
the acquisition proposal would, if consummated in accordance with
its terms, result in a transaction more favorable to LaserVision's
shareholders.
Other Covenants
The merger agreement also contains other covenants agreed to by TLC and
LaserVision, including the following:
o each of the TLC board of directors and the LaserVision board of
directors will recommend approval of the merger to the TLC
shareholders and LaserVision shareholders, respectively, unless,
with respect to the LaserVision board of directors, their fiduciary
duties require them not to recommend the merger for approval by
LaserVision shareholders;
o until the merger becomes effective, each of TLC and LaserVision will
conduct their businesses in the ordinary course consistent with past
practices, including preserving their business organizations and
relationships with third parties, and will not participate in
transactions such as selling or disposing of businesses, assets or
securities with a value exceeding $5 million, incurring indebtedness
or making a capital expenditure exceeding $1 million or altering
their corporate status or structure;
o each of TLC and LaserVision will promptly notify the other of:
o any notice or other communication from anyone alleging that
his or her, or someone else's, consent is required in
connection with the merger;
o any change that is material to the business, financial
condition or results of TLC or LaserVision, as the case may
be;
o any notice or other communication from any governmental
authority in connection with the merger;
o any action, suit, arbitration, inquiry, proceeding or
investigation commenced or threatened against TLC or
LaserVision which would have a material adverse effect on the
business, financial condition or results of operations of TLC
or LaserVision, as the case may be; and
97
o any event or circumstance which would cause any of TLC's or
LaserVision's representations and warranties to be incorrect;
and
o until the merger becomes effective or the termination of the merger
agreement, TLC and LaserVision will not, directly or indirectly,
alone or in connection with others:
o attempt to acquire any securities or property of the other;
o solicit proxies or influence the voting of any securities of
the other;
o seek to control or influence the management or policies of the
other; or
o make any public or private disclosure of any consideration or
intention to do such things.
Termination of the Merger Agreement
Termination by TLC or LaserVision
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the closing notwithstanding any approval of the merger
agreement by the shareholders of LaserVision or shareholders of TLC:
o by mutual written consent of TLC and LaserVision;
o by either TLC or LaserVision, if the merger has not been consummated
by December 31, 2001 or such other date as both parties may agree
to, provided that the agreement may not be terminated by the party
that has caused the delay as a result of its failure to fulfill any
of its obligations under the merger agreement;
o by either TLC or LaserVision, if there shall be any applicable law
that makes consummation of the merger illegal or otherwise
prohibited or if any order of a court or competent jurisdiction
shall restrain or prohibit the consummation of the merger, and the
order shall become final and nonappealable;
o by either TLC or LaserVision, if the necessary shareholder approvals
shall not have been obtained by reason of the failure to obtain the
requisite vote at any shareholder meeting or at any adjournment of
such meeting;
o by either TLC or LaserVision, if the closing price of TLC common
shares on the Nasdaq National Market System at any time is less than
$2.15 or the closing price of shares of LaserVision common stock on
the Nasdaq National Market System at any time is less than $1.50;
and
o by either TLC or LaserVision, if:
(1) there has been a breach by the other party of any
representation or warranty contained in the merger agreement
which would have or would be reasonably likely to have a
material adverse effect; or
(2) there has been a material breach of any of the covenants or
agreements set forth in the merger agreement, which breach is
not curable or, if curable, is not cured within 30 days after
written notice of the breach is given; or
(3) LaserVision has recommended or entered into a written
agreement, other than a confidentiality agreement, for an
acquisition proposal with a third party.
On September 20 and 21, 2001, the closing price of TLC common shares on
the Nasdaq National Market System was below $2.15. The parties have advised each
other than they do not intend to exercise their respective rights to terminate
the merger agreement on the basis of those prices.
98
Termination by LaserVision
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the closing by action of the LaserVision board of directors in
writing, if all three of the following have occurred:
o LaserVision is not in breach of its obligations listed under "-
Non-Solicitation Obligations of LaserVision" above,
o the merger shall not have been approved by the LaserVision
shareholders; and
o the LaserVision board of directors authorizes LaserVision, subject
to complying with the terms of the merger agreement, including
consulting with its financial and legal advisors, to enter into a
written agreement, other than a confidentiality agreement,
concerning a proposal that would, if consummated in accordance with
its terms, result in a transaction more favorable to LaserVision's
shareholders, referred to in this joint proxy statement/prospectus
as a superior proposal, and LaserVision promptly notifies TLC in
writing that it intends to enter into such an agreement.
Termination by TLC
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the closing by TLC in writing, if either:
o the LaserVision board of directors shall have withdrawn or adversely
modified its approval or recommendation of the merger; or
o LaserVision enters into a written agreement, other than a
confidentiality agreement, for a superior proposal.
Effect of Termination
In the event that:
o LaserVision enters into a written agreement, other than a
confidentiality agreement, for an acquisition proposal; or
o the merger agreement is terminated by LaserVision as described under
"- Termination by LaserVision"; or
o the merger agreement is terminated by TLC as a result of:
(1) the LaserVision board of directors withdrawing or adversely
modifying its approval or recommendation of the merger as a
result of a superior proposal; or
(2) LaserVision recommending or entering into a written agreement,
other than a confidentiality agreement, for a superior
proposal,
then within three business days of the event of such termination, LaserVision
shall pay TLC a termination fee of $3 million in immediately available funds.
Amendments and Waivers to the Merger Agreement
The merger agreement may be amended or any of its provisions may be waived
prior to the effective time of the merger if the amendment or waiver is in
writing and signed, in the case of an amendment, by LaserVision, TLC and the
merger subsidiary and, in the case of a waiver, by the party against whom the
waiver is to be effective. TLC or LaserVision can waive compliance with or
modify covenants, performance of obligations or conditions to closing, all
without further notice to or approval of their respective shareholders. However,
99
o any waiver or amendment will be effective against a party only if
the board of directors of that party approves the waiver; and
o after the adoption of the merger agreement by the shareholders of
LaserVision or TLC, no amendment or waiver may, without the further
approval of LaserVision shareholders or TLC shareholders, as the
case may be, and each party's board of directors, alter or change:
(1) the amount of or kind of consideration to be received in
exchange for any shares of capital stock of LaserVision; or
(2) any term of the articles of incorporation of the surviving
corporation; or
(3) any of the terms or conditions of the merger agreement if the
alteration or change would adversely affect the holders of any
shares of capital stock of LaserVision.
In the event that any material condition is waived, we will be required to
amend the registration statement of which this joint proxy statement/prospectus
forms a part and the management of the company waiving the condition will be
required to resolicit proxies from its shareholders.
Representations and Warranties
The merger agreement contains customary representations and warranties of
both TLC and LaserVision relating to, among other things, their due
incorporation and their respective organization, capitalization, operations,
financial condition, filing of tax returns and payment of taxes, intellectual
property rights, employees and labor matters, absence of material changes since
the end of each company's respective year end and other matters, including their
authority to enter into the merger agreement and to carry out the merger.
Exchange of Share Certificates
TLC has appointed CIBC Mellon Trust Company as exchange agent for the
purpose of exchanging certificates representing shares of LaserVision common
stock. As of the effective time, the merger subsidiary will deposit with the
exchange agent, for the benefit of holders of LaserVision common stock,
certificates representing the TLC common shares issuable under the merger
agreement in exchange for outstanding shares of LaserVision common stock. As
soon as practicable after the effective time, TLC will, or will cause the
exchange agent to, send to each holder of LaserVision common stock at the
effective time a letter of transmittal to be used in the exchange. LaserVision
shareholders should not surrender their certificates for exchange until they
receive a letter of transmittal and instructions from the exchange agent or TLC.
Each holder of shares of LaserVision common stock that have been converted
into a right to receive TLC common shares upon surrender to the exchange agent
of a certificate or certificates representing these shares of LaserVision common
stock, together with a properly completed letter of transmittal, will be
entitled to receive in exchange for those shares:
o that number of whole common shares of TLC which that holder has the
right to receive under the merger agreement;
o cash in lieu of any fractional common shares of TLC; and
o any dividends or distributions which had a payout date which has
already occurred.
The certificate or certificates for shares of LaserVision common stock so
surrendered shall be cancelled. Until so surrendered, each LaserVision stock
certificate will, after the effective time, represent for all purposes only the
right to receive TLC common shares, cash in lieu of any fractional shares and
any dividends or distributions.
If any TLC common shares are to be issued to any person other than the
registered holder of the shares of LaserVision common stock represented by the
certificate or certificates surrendered in exchange for the TLC shares,
100
it will be a condition to that issuance that the certificate or certificates so
surrendered be properly endorsed or otherwise be in proper form for transfer,
and that the person requesting such issuance must either pay to the exchange
agent any transfer tax or other taxes required as a result of that issuance or
establish that the tax has been paid or is not payable.
Where a certificate for shares of LaserVision common stock has been lost,
stolen or destroyed, TLC or the exchange agent will only deliver a new
certificate once the registered holder of that certificate makes an affidavit of
that fact and posts a bond as indemnity against any claim that may be made with
respect to the lost certificate.
After the effective time of the merger, there will be no further
registration of transfers of shares of LaserVision common stock. If, after the
effective time, certificates representing shares of LaserVision common stock are
presented for transfer, they will be cancelled and exchanged for certificates
representing TLC common shares and cash, if applicable, under the terms of the
merger agreement.
Any TLC common shares made available to the exchange agent under the
merger agreement that remain unclaimed by the holders of shares of LaserVision
common stock six months after the effective time will, upon request, be returned
to TLC, and any LaserVision holder who has not exchanged his shares prior to
that time will be entitled thereafter to look only to TLC to exchange his
shares. However, TLC and the surviving corporation will not be liable to any
holder of shares of LaserVision common stock for any amount paid, or any TLC
common shares delivered, to a public official under applicable abandoned
property laws. Any shares of TLC common shares or other amounts remaining
unclaimed by LaserVision shareholders two years after the effective time of the
merger or any earlier date immediately prior to such time as these amounts would
otherwise escheat to, or become property of, any governmental entity, will, to
the extent permitted by applicable law, become the property of TLC free and
clear of any claims or interest of any person previously entitled to the shares
and will be cancelled.
No dividends or other distributions on TLC common shares will be paid to
the holder of any certificates representing shares of LaserVision common stock
until those LaserVision certificates are surrendered for exchange as provided in
the merger agreement. Upon this surrender, there will be paid, without interest,
to the person in whose name the certificates representing the TLC common shares
into which the LaserVision shares were converted are registered, all dividends
and other distributions paid in respect of those TLC common shares on a date
subsequent to, and in respect of a record date after, the effective time.
Treatment of Fractional Shares
No fractional common shares of TLC will be issued in the merger. All
fractional common shares of TLC that a holder of shares of LaserVision common
stock would otherwise be entitled to receive as a result of the merger will be
aggregated, and, if a fractional share results from this aggregation, the
LaserVision holder will be entitled to receive, in lieu of the fractional share,
an amount in cash determined by multiplying the average of the daily closing
sale prices per share of TLC common shares on the Nasdaq National Market System
for the ten trading days immediately prior to the effective time of the merger
by the fraction of a TLC common share to which the LaserVision holder would
otherwise have been entitled. Alternatively, the surviving corporation will have
the option of instructing the exchange agent to aggregate all fractional common
shares of TLC, sell these shares in the public market and distribute to each
holder of shares of LaserVision common stock entitled thereto a pro rata portion
of the proceeds of that public sale. No cash in lieu of fractional common shares
of TLC will be paid to any holder of shares of LaserVision common stock until
that shareholder surrenders certificates representing the shares of LaserVision
common stock to be surrendered and exchanged in accordance with the merger
agreement.
Accounting Treatment
TLC expects to use the purchase method of accounting to give effect to the
merger and the combination of TLC and LaserVision. As required by U.S. and
Canadian generally accepted accounting principles, under purchase accounting,
the assets and liabilities of LaserVision as of the closing date will be
recorded at their respective estimated fair market values and added to those of
TLC. LaserVision completed its purchase of certain assets and liabilities of
ClearVision and its subsidiaries on August 31, 2001. Therefore, the assets and
liabilities of LaserVision
101
as of the closing date will include the acquired assets and liabilities of
ClearVision. Financial statements of TLC VISION issued after the consummation of
the merger would reflect those values as well as the results of operations of
LaserVision, ClearVision and TLC beginning after the closing date of the merger.
Financial statements of TLC issued before consummation of the merger will not be
restated to reflect LaserVision's or ClearVision's historical financial position
or results of operations.
TLC has decided to early adopt the accounting standards of Statement of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. These accounting standards could adversely
affect TLC VISION's financial results. Effective on June 1, 2001, amortization
of goodwill will not be required. However, the new standards introduce new
guidance on how goodwill is to be tested for impairment. Upon adoption, TLC
VISION will be required to perform a transitional impairment test on goodwill
that existed as at June 1, 2001. Impairment is tested using a two-step approach,
at a level of reporting referred to as a reporting unit. The first step compares
the fair value of a reporting unit with its carrying amount, including goodwill,
to identify potential impairment. If the fair value of a reporting unit exceeds
its carrying amount, goodwill is not impaired and the second step of the
impairment test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, step two requires the fair value of the reporting unit's
goodwill to be compared with its carrying amount to measure impairment loss, if
any. The fair value of goodwill is determined in the same manner as in a
business combination. An enterprise allocates the fair value of a reporting unit
to all assets and liabilities, including unrecognized intangible assets, as if
the reporting unit had been acquired in a business combination and the fair
value was the price paid to acquire the reporting unit. Any impairment existing
at June 1, 2001 will be charged to TLC VISION's earnings for the quarter ending
November 30, 2001 as the effect of a change in accounting principle. Under the
new standards, TLC VISION will also be required to perform additional tests of
goodwill impairment at least annually, but more frequently if indications of
impairment exist. Any impairment losses occurring after June 1, 2001 will be
charged to earnings in the period the impairment is determined and recorded in
operating income for that period. Since TLC has a material amount of goodwill
recorded on its balance sheet, even prior to merger, the adoption of the new
standards could result in a significant charge to the reported earnings of TLC
VISION in the future.
Material U.S. Federal Income Tax Consequences
The following is a discussion of the material U.S. federal income tax
consequences of the merger generally applicable to "U.S. holders" of shares of
LaserVision common stock who, pursuant to the merger, exchange their shares of
LaserVision common stock for TLC common shares. For purposes of this discussion,
a U.S. holder means a beneficial owner of shares of LaserVision common stock
that is a citizen or resident of the United States, a corporation organized
under the laws of the United States or any state or the District of Columbia, or
a partnership, trust or estate that is treated as a U.S. person for federal
income tax purposes. This joint proxy statement/prospectus does not describe the
tax consequences for non-U.S. holders of shares of LaserVision common stock of
the merger. All LaserVision shareholders are strongly encouraged to consult
their own tax advisor as to the specific tax consequences of the merger in light
of their personal tax status, including the applicability and effects of
federal, state, local and foreign income and other tax laws.
The following discussion is based on and subject to the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated under the
Code, and existing administrative rulings and court decisions, all as in effect
on the date of this joint proxy statement/prospectus and all of which are
subject to change, possibly with retroactive effect. This discussion is based
upon several assumptions, limitations, representations and covenants, including
those contained in the merger agreement.
In addition, this discussion assumes that LaserVision shareholders hold
their shares of LaserVision common stock as a capital asset and does not address
all of the U.S. federal income tax consequences that may be relevant to
LaserVision shareholders in light of their particular circumstances or if
LaserVision shareholders are persons subject to special rules, including rules
and consequences applicable to:
o banks and other financial institutions;
o tax-exempt organizations and pension funds;
102
o insurance companies;
o dealers or traders in securities;
o LaserVision shareholders who received their shares of LaserVision
common stock through the exercise of employee stock options or
otherwise as compensation;
o LaserVision shareholders who are subject to the alternative minimum
tax provisions of the Code;
o LaserVision shareholders whose functional currency is not the U.S.
dollar; and
o LaserVision shareholders who held shares of LaserVision common stock
as part of a hedge, appreciated financial position, straddle or
conversion transaction.
This discussion does not address any consequences arising under the laws
of any state, locality or foreign jurisdiction. This discussion also does not
address the tax consequences of an exchange or conversion of options or warrants
for LaserVision common stock into options for TLC common shares.
Thompson Coburn LLP has delivered an opinion that the merger will be
treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that accordingly:
o except as otherwise provided by Section 367 of the Code and the
Treasury regulations promulgated thereunder, discussed below, no
gain or loss will be recognized by U.S. holders upon the receipt of
TLC common shares solely in exchange for shares of LaserVision
common stock in the merger, except to the extent of cash received in
lieu of a fractional common share of TLC;
o a cash payment received by a U.S. holder in lieu of a fractional
common share of TLC will result in capital gain or loss measured by
the difference between the cash payment received and the portion of
the aggregate adjusted tax basis in the shares of LaserVision common
stock surrendered that is allocable to such fractional share. Such
gain or loss will be long-term capital gain or loss if the holding
period of the shares of LaserVision common stock deemed to have been
exchanged for the fractional common share of TLC is more than one
year at the effective time of the merger;
o assuming that Section 367 of the Code does not apply, the aggregate
tax basis of the TLC common shares received by a U.S. holder in the
merger will be the same as the aggregate adjusted tax basis of the
shares of LaserVision common stock surrendered in exchange for the
TLC common shares, reduced by any tax basis allocable to a
fractional share for which cash is received; and
o assuming that Section 367 of the Code does not apply, the holding
period of TLC common shares received by each U.S. holder in the
merger will include the holding period of the shares of LaserVision
common stock surrendered in exchange for the TLC common shares.
Thompson Coburn LLP's opinion is based upon the existing law and the
continuing truth and accuracy of certain representations of LaserVision, the
merger subsidiary and TLC, and is subject to a number of assumptions and
qualifications, including the assumption that the merger will be effected
pursuant to applicable state law and otherwise completed according to the terms
of the merger agreement. A tax opinion is not binding on the Internal Revenue
Service or the courts, and there can be no assurance that the Internal Revenue
Service or the courts will not take a contrary view. No ruling from the Internal
Revenue Service has been or will be sought. Future legislative, judicial or
administrative changes or interpretations could alter or modify the statements
and conclusions set forth herein, and any such changes or interpretations could
be retroactive and could affect the tax consequences of the merger to TLC,
LaserVision, or the shareholders of LaserVision.
A successful Internal Revenue Service challenge to the "reorganization"
status of the merger would result in a LaserVision shareholder recognizing gain
or loss with respect to each share of LaserVision common stock surrendered in
the merger, equal to the difference between the LaserVision shareholder's
adjusted tax basis in such share and the fair market value, as of the effective
time of the merger, of the TLC common share received in exchange. In such event,
a LaserVision shareholder's aggregate tax basis in the TLC common share received
would
103
equal its fair market value as of the effective time of the merger, and the
LaserVision shareholder's holding period for such share would begin the day
after the merger.
Even if the merger satisfies all the requirements for a tax-free
reorganization described in Section 368(a) of the Code, the exchange of shares
of LaserVision common stock for TLC common shares in the merger will be a
taxable exchange to the extent that Section 367(a)(1) of the Code applies. This
Section provides that the transfer of appreciated property, including stock, by
a U.S. person to a foreign corporation in a transaction that would otherwise
qualify as a nonrecognition exchange shall be treated as a taxable transfer
unless an exception applies. Under the applicable Treasury regulations, the
exchange of shares of LaserVision common stock for TLC common shares pursuant to
the merger will be treated as an indirect transfer of the shares of LaserVision
common stock to TLC, a foreign corporation. Consequently, unless all the
conditions for the regulatory exception described below are satisfied, this
exchange will be taxable, generally resulting in the tax consequences described
in the immediately preceding paragraph. As further described below, an exception
will be available for all U.S. holders who own less than 5% of each of the total
voting power and total value of the common shares of TLC immediately after the
merger.
The Treasury regulations provide that Section 367(a)(l) of the Code will
not apply to an exchange made pursuant to the merger, and so the exchange will
qualify as a non-taxable exchange under the normal rules applicable to
reorganizations described in Section 368(a) of the Code, if each of the
following conditions is satisfied:
1. LaserVision complies with certain reporting requirements contained
in Treas. Reg. ss.1.367(a)-3(c)(6);
2. in the transaction, U.S. holders receive, in the aggregate, 50% or
less of each of the total voting power and total value of the common
shares of TLC;
3. immediately after the transaction, U.S. holders that either (a) are
officers or directors of LaserVision, or (b) were 5% shareholders
(as defined in Treas. Reg. ss.1.367-3(c)(5)(iii)) of LaserVision
immediately prior to the merger, own, in the aggregate, 50% or less
of each of the total voting power and total value of the common
shares of TLC;
4. the LaserVision shareholder either (a) owns, including actual
ownership and constructive ownership pursuant to certain attribution
rules set forth in the Code, less than 5% of each of the total
voting power and total value of the common shares of TLC immediately
after the merger, or (b) owns, actually and constructively, 5% or
more of either the total voting power or total value of the common
shares of TLC immediately after the merger and enters into a
five-year gain recognition agreement with the Internal Revenue
Service pursuant to Treas. Reg. ss.1.367(a)-8; and
5. the "active trade or business test" set forth in Treas. Reg.
ss.1.367(a)-3(c)(3) is satisfied. In general, the three elements of
the active trade or business test are: (a) TLC must have been
engaged in the active conduct of business outside the United States
for the entire 36 month period immediately preceding the exchange of
the shares of LaserVision common stock; (b) at the time of the
exchange, neither the LaserVision shareholders nor TLC will have the
intention to substantially dispose of or discontinue such trade or
business; and (c) the "substantiality test" must be met under Treas.
Reg. ss.1.367(a)-3(c)(3)(iii). The substantiality test essentially
requires that the fair market value of TLC must be equal to or
greater than the fair market value of LaserVision at the time of the
merger.
LaserVision and TLC have represented in connection with the tax opinion
described above, that each of the conditions set forth in clauses (1), (2), (3)
and (5) will be satisfied in connection with the merger. Based on these
representations, Thompson Coburn LLP has assumed that Section 367(a)(1) of the
Code will not apply to any U.S. holder that owns less than 5% of each of the
total voting power and total value of the common shares of TLC immediately after
the merger. Accordingly, no gain or loss will be recognized by any less than 5%
U.S. holder as a result of the exchange of shares of LaserVision common stock
for TLC common shares pursuant to the merger (except to the extent of cash in
lieu of fractional shares), as described above.
Any U.S. holder that owns, actually and constructively, 5% or more of
either the total voting power or total value of the common shares of TLC
immediately after the merger will qualify for non-recognition treatment, as
described above, only if that U.S. holder timely files a "gain recognition
agreement" with the Internal Revenue
104
Service in accordance with the provisions set forth in Tres. Reg. ss.1.367(a)-8.
A gain recognition agreement generally would obligate the shareholder to
recognize gain, in whole or in part, with respect to the merger if, within the
60 months following the close of the taxable year of the merger, TLC were to
dispose of some or all of the shares of LaserVision common stock or were to sell
substantially all of the assets acquired from LaserVision in the merger, even
though the U.S. holder has not disposed of any of its TLC common shares. In such
event, the U.S. holder also would be obligated to pay the Internal Revenue
Service interest from the date the U.S. holder filed his or her tax return with
respect to the taxable year of the U.S. holder in which the merger occurs. Any
such U.S. holder is urged to consult with a tax advisor concerning the decision
to file a gain recognition agreement and the procedures to be followed in
connection with that filing.
If a U.S. holder of TLC receives a dividend on its TLC common shares, the
dividend is subject to a Canadian withholding tax. Under the U.S.-Canada tax
treaty, the withholding tax rate for U.S. shareholders generally is 15%.
Depending on the particular circumstances of the U.S. holder, the U.S. holder
generally may be allowed to take either a credit against the holder's U.S.
income tax liability or an income tax deduction for the Canadian tax withheld.
Tax matters are very complicated, and the tax consequences of the merger
to LaserVision shareholders will depend on their particular situation.
LaserVision shareholders are encouraged to consult their own tax advisor
regarding the specific tax consequences of the merger, including tax return
reporting requirements, the applicability of federal, state, local and foreign
tax laws and the effect of any proposed change in the tax laws.
Interests of Specified Persons in the Merger
In considering the respective recommendations of the LaserVision board of
directors and TLC board of directors with respect to the merger, LaserVision
shareholders and TLC shareholders should each be aware that certain members of
the management and board of directors of each of LaserVision and TLC have
certain interests in the merger, including those referred to below, that may
present them with actual or potential conflicts of interest in connection with
the merger. Each of the LaserVision board of directors and the TLC board of
directors was aware of these interests and considered them along with the other
matters described in "- Recommendation of LaserVision Board of Directors" and "-
Recommendation of TLC Board of Directors."
The board of directors of TLC immediately following the merger will
consist of six current directors of TLC; Dr. Mark Whitten, a new nominee; and
John J. Klobnak, James M. Garvey, Dr. Richard Lindstrom and David S. Joseph,
current directors of LaserVision. In addition, TLC has agreed to offer
employment agreements to each of James C. Wachtman, President and Chief
Operating Officer of LaserVision, Robert W. May, Vice Chairman, Secretary and
General Counsel of LaserVision, and B. Charles Bono, Executive Vice President,
Chief Financial Officer and Treasurer of LaserVision. Mr. Wachtman's employment
agreement will provide for the employment of Mr. Wachtman as President and Chief
Operating Officer of TLC VISION and will entitle Mr. Wachtman to receive, among
other things:
o an annual salary in the amount of $325,000;
o an annual bonus of 50% of his salary upon the attainment of
specified performance goals; and
o severance payments in the event of termination of Mr. Wachtman's
employment without cause.
The employment agreements will provide for the employment of Messrs. May
and Bono as executive officers of TLC VISION and entitle each of them to
receive, among other things:
o an annual salary in the amount of $255,000 and $240,000,
respectively;
o an annual bonus of 50% of each officer's base salary upon the
attainment of specified performance goals; provided that each
officer will receive a guaranteed bonus of at least 25% of his base
salary for the first year of his employment;
105
o full vesting and immediate exercisability for each TLC stock option
received in exchange for LaserVision options or warrants as a result
of the merger; and
o severance payments in the event of termination of each officer's
employment without cause, or upon death, disability or resignation
of or by the officer for specified reasons or within 18 months of
the closing date of the merger.
In addition, TLC has agreed to enter into an employment agreement with
John J. Klobnak, the Chairman and Chief Executive Officer of LaserVision, on the
closing date of the merger. The employment agreement will provide, among other
things, for Mr. Klobnak's resignation as an officer of LaserVision on the
closing date of the merger and for his resignation as Vice Chairman of the board
of directors of TLC VISION on the first anniversary of the closing date of the
merger. In return, Mr. Klobnak will receive:
o a cash payment equal to $2,844,000 plus the cash equivalent of his
unused vacation time accrued on the date of the agreement;
o fully vested and immediately exercisable options to purchase 500,000
TLC common shares at an exercise price equal to the closing price of
TLC common shares on the Nasdaq National Market System on the
closing date of the merger;
o full vesting and immediate exercisability for each TLC stock option
received in exchange for LaserVision options or warrants as a result
of the merger; and
o certain "piggyback" registration rights with respect to his TLC
common shares.
LaserVision has granted options to acquire LaserVision common stock within
and outside of LaserVision's stock option plans to a number of directors,
officers and employees of LaserVision and its subsidiaries. A number of
directors, officers, employees and other people have been granted warrants to
purchase LaserVision common stock pursuant to LaserVision's warrant plan and
otherwise. Prior to the closing date of the merger, LaserVision anticipates
granting a stock option for up to 300,000 additional shares of LaserVision
common stock to Mr. May and awarding a cash bonus to each of Messrs. May and
Bono in the amount of $50,000 payable on the closing date of the merger. In
addition, on the closing date, Mr. Wachtman will receive a payment of $150,000
in recognition of the reduction in the term of his employment agreement from
three years to two years. The merger agreement provides all outstanding options,
warrants and other rights to acquire LaserVision common stock will be
proportionately adjusted on the basis of a 0.95 to 1 ratio and become
exercisable for TLC common shares on the same material terms and conditions as
the LaserVision option or warrant, except with respect to the options held by
Messrs. Klobnak, May and Bono which will vest immediately under their new
employment agreements. After the merger, LaserVision's existing stock option and
warrant plans will be terminated. As contemplated by the merger agreement,
immediately prior to the merger becoming effective, LaserVision will decrease
the exercise price of outstanding options and warrants to purchase 2,109,825
shares of LaserVision common stock which otherwise would have had an exercise
price greater than $8.688 per TLC common share after the merger to a price
equivalent to $8.688 per TLC common share. TLC also intends, subject to
shareholder approval, to reprice outstanding TLC stock options with an exercise
price greater than $8.688 as described under "--General." Options to acquire an
aggregate of 370,250 TLC common shares at an exercise price greater than $8.688
are held by directors and officers of TLC. If approved and all directors and
officers elect to reduce their option prices, these options will be exercisable
to acquire an aggregate of 370,000 TLC common shares.
TLC has also granted cash bonuses to Lloyd Fiorini, Paul Frederick and
Brian Park in connection with the merger in the amount of Cdn$25,000, Cdn$15,000
and Cdn$10,000, respectively. An additional four employees received a combined
total of Cdn$25,000 in cash bonuses in connection with the merger.
The merger agreement provides that all rights to indemnification for
officers and directors of LaserVision or any subsidiary as provided in the
certificate of incorporation and by-laws of the surviving corporation following
the merger of LaserVision with the merger subsidiary, will not be amended,
repealed or otherwise modified for a period of not less than six years from the
time the merger becomes effective. The merger agreement also provides that, for
not less than six years from the time the merger becomes effective, there shall
be maintained in effect coverage no
106
less favorable than that in effect under current policies of the directors' and
officers' liability insurance maintained by LaserVision with respect to claims
arising from facts or events which occurred before the merger became effective.
The TLC board of directors considered the interests of TLC management in
the merger and concluded that shareholder approval of the merger and, in
particular, the option repricing, will neutralize the effect of any conflict of
interest TLC officers and directors may have had in considering the merger. The
LaserVision board of directors was aware of and discussed the interests of some
directors and members of management in the merger and considered those
interests, along with the other matters described in "- Recommendation of
LaserVision Board of Directors," in approving the merger agreement and the
transactions contemplated thereby.
Fees Payable to Financial Advisors
On March 30, 2001, SG Cowen was retained as the exclusive financial
advisor to TLC in connection with the proposed merger. Under its agreement with
TLC, SG Cowen is entitled to receive a cash fee of $3.2 million, less the
fairness opinion fee of $500,000 that was payable upon delivery of its fairness
opinion, from TLC in connection with the merger, payable upon the closing of the
merger. In addition, TLC has agreed to reimburse SG Cowen for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify SG Cowen
against certain liabilities, including liabilities under the U.S. federal
securities laws.
On June 3, 1999, LaserVision engaged Goldman Sachs as its financial
advisor in connection with the possible sale of all or a portion of LaserVision.
Pursuant to the terms of the Goldman Sachs engagement letter, if the proposed
merger is completed Goldman Sachs expects to receive from LaserVision a cash fee
equal to $5 million. In addition, LaserVision has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorneys' fees, and
to indemnify Goldman Sachs against certain liabilities, including liabilities
under the U.S. federal securities laws.
Resale Restrictions
The issuance of the TLC common shares to LaserVision shareholders in
connection with the merger has been registered under the U.S. Securities Act of
1933, as amended. Accordingly, all TLC common shares received by LaserVision
shareholders in the merger will be freely transferable, except that TLC common
shares received by persons who are deemed to be affiliates, as this term is
defined under the U.S. Securities Act, of LaserVision prior to the merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the U.S. Securities Act or Rule 144 in the case of those
persons who become affiliates of TLC VISION or as otherwise permitted under the
U.S. Securities Act. Persons who may be deemed to be affiliates of LaserVision
or TLC generally include individuals or entities that control, are controlled
by, or are under common control with, LaserVision or TLC and may include
executive officers and directors of LaserVision or TLC as well as principal
stockholders of LaserVision or TLC. This joint proxy statement/prospectus does
not cover resales of TLC common shares received by any person who may be deemed
to be an affiliate of LaserVision.
Stock Exchange Listings
The TLC common shares, which will, after the merger, be the common shares
of TLC VISION, are listed on The Toronto Stock Exchange and quoted on the Nasdaq
National Market System. TLC has applied to the Nasdaq National Market System and
has received conditional approval from The Toronto Stock Exchange for the
listing of the TLC common shares to be issued to shareholders of LaserVision in
the merger and the TLC common shares issuable upon exercise of TLC stock options
issued under the merger agreement. Listing is subject to TLC fulfilling all the
requirements of The Toronto Stock Exchange and the Nasdaq National Market
System.
Regulatory Matters
Neither TLC nor LaserVision is aware of any material licenses or
regulatory permits that it holds which might be adversely affected by the merger
or of any material approval or other action by any federal, provincial, state
107
or foreign government or any administrative or regulatory agency that would be
required to be obtained prior to the effective time of the merger, except as
described below.
Hart-Scott-Rodino Antitrust Improvements Act (United States)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules promulgated thereunder by the Federal Trade Commission, certain
transactions, including the merger, may not be consummated unless notification
has been given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division and the specified waiting period
requirements have been satisfied. TLC and LaserVision filed notification and
report forms under the Hart-Scott-Rodino Act with the Federal Trade Commission
and the Antitrust Division on September 18, 2001. The waiting period under the
Hart-Scott-Rodino Act began on September 18, 2001 and expired at 11:59 p.m. New
York City time, on October 18, 2001.
The Federal Trade Commission and the Antitrust Division frequently
scrutinize the legality under the antitrust laws of transactions such as the
merger. At any time before or after the consummation of the merger, the
Antitrust Division or the Federal Trade Commission could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the merger or seeking
divestiture of substantial assets of TLC and LaserVision. At any time before or
after the consummation of the merger and notwithstanding that the
Hart-Scott-Rodino Act waiting period expired, any state could take such action
under the state antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
merger or seeking divestiture of LaserVision or businesses of TLC. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
TLC and LaserVision believe that the merger can be effected in compliance
with federal and state antitrust laws. However, there could be a challenge to
the consummation of the merger on antitrust grounds and, if made, TLC and
LaserVision may not prevail or could be required to accept certain conditions,
possibly including certain divestitures, in order to consummate the merger.
Fees and Expenses
All costs and expenses incurred in connection with the merger agreement
are to be paid by the party incurring the cost or expense, except LaserVision
and TLC shall each pay one-half of all costs and expenses related to printing,
filing and mailing the registration statement relating to the TLC common shares
issued under the merger, and this joint proxy statement/prospectus and all U.S.
Securities and Exchange Commission and other regulatory filing fees. See "-
Termination of the Merger Agreement - Effect of Termination" above for a
discussion of the circumstances in which LaserVision will be required to pay TLC
a termination fee of $3 million. The combined estimated fees, costs and expenses
of TLC and LaserVision in connection with the merger, including, without
limitation, financial advisor fees, filing fees, legal and accounting fees and
printing and mailing costs are anticipated to be approximately $14.5 million.
108
TLC SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical financial information for
TLC as of and for each of the fiscal years in the five-year period ended May 31,
2001 and as of August 31, 2001 and for the three months ended August 31, 2001
and 2000. The information as of and for the five years in the period ended May
31, 2001 has been prepared in accordance with or reconciled to U.S. generally
accepted accounting principles has been derived from TLC's audited consolidated
financial statements. The information as of August 31, 2001 and for the three
months ended August 31, 2001 and 2000 has been derived from TLC's unaudited
consolidated financial statements which have also been prepared in accordance
with U.S. generally accepted accounting principles. This unaudited information
includes all adjustments which are, in the opinion of TLC's management,
necessary for a fair presentation and of a normal recurring nature. Results for
the three months ended August 31, 2001 do not necessarily indicate results for
the entire fiscal year. TLC encourages you to read this financial information in
conjunction with TLC's consolidated financial statements, and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in TLC's annual report on Form 10-K/A for the fiscal year
ended May 31, 2001 and quarterly report on Form 10-Q for the quarter ended
August 31, 2001, which are incorporated by reference in this joint proxy
statement/prospectus, and the unaudited pro forma combined financial information
for TLC VISION, and the related notes, appearing elsewhere in this joint proxy
statement/prospectus. TLC also prepares its consolidated financial statements in
accordance with Canadian generally accepted accounting principles.
For the Three Months For the Year Ended
Ended August 31, May 31,
---------------------- ------------------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
Income Statement Data:
Revenues(1) ........................ $ 35,024 $ 47,945 $ 174,006 $ 201,223 $ 146,910 $ 59,122 $ 19,948
Cost of revenues ................... 23,047 28,668 110,016 129,234 92,383 36,382 13,852
Gross margin ....................... 11,977 19,278 63,990 71,989 54,527 22,740 6,096
Operating expenses ................. 17,725 25,002 101,682 75,939 54,370 36,486 14,697
Income (loss) from operations ...... (5,748) (5,724) (37,692) (3,950) 157 (7,034) (8,601)
Net income (loss) .................. (6,562) (5,172) (37,773)(4) (5,918) (4,556)(5) (10,280) (9,574)
Income (loss) per share ............ (0.17) (0.14) (1.00) (0.16) (0.13) (0.37) (0.47)
Weighted average number of common
shares outstanding (in thousands) 38,040 37,204 37,779 37,178 34,090 28,035 20,617
Operating Data:
Number of eye care centers
(at end of period) .............. 59 62 59 62 55 45 27
Number of secondary care centers
(at end of period) .............. 3 2 3 5 14 15 7
Number of laser vision correction
procedures ...................... 24,100 33,400 122,800 134,000 90,600 35,859(3) 11,026(2)
As of
August 31, 2001, As of May 31,
---------------------- ------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents .......... $ 47,203 $ 47,987 $ 78,531 $ 125,598 $ 1,895 $ 13,230
Working capital .................... 32,003 36,837 59,481 146,884 53,153 8,055
Total assets ....................... 220,126 238,438 289,364 295,675 164,212 73,746
Total debt, excluding current
portion ......................... 7,362 8,313 6,728 11,030 17,911 10,935
Shareholders' equity:
Capital stock ................... $ 276,368 $ 276,277 $ 269,953 $ 269,454 $ 143,554 $ 63,522
Warrants ........................ 532 532 532 -- -- --
Deficit ......................... (86,723) (80,161) (42,388) (31,267) (22,421) (12,141)
Accumulated other comprehensive
income (loss) ................ (16,698) (9,542) (4,451) 5,936 407 --
Total shareholders' equity ......... 173,479 187,106 223,646 244,123 121,540 51,381
- ----------
(1) Includes primarily those revenues pertaining to the operation of eye care
centers, the management of refractive and secondary care centers and TLC's
other non-refractive businesses.
(2) Includes procedures performed at centers previously owned by 20/20 Laser
Eye Centers Inc. starting March 1997. 20/20 was acquired by TLC on
February 10, 1997.
(3) Includes procedures performed at centers previously owned by BeaconEye
Inc. TLC acquired BeaconEye Inc. on April 16, 1998.
109
(4) In fiscal 2001, decisions were made to: (1) exit from an e-commerce
enterprise, eyeVantage.com Inc., resulting in a restructuring charge of
$11.7 million, (2) record the potential for losses in an equity investment
in a secondary care operation of $1 million, (3) record the estimated
costs associated with TLC's current restructuring initiative in the amount
of $3.4 million, (4) segregate the amount of $2.1 million for an
arbitration award against TLC, and (5) provide $0.9 million for the
impairment of a portfolio investment.
(5) In the last quarter of fiscal 1999, TLC made a decision to restructure
operations in connection with its managed care and secondary care
businesses. As a result, TLC recorded a restructuring charge of $10.8
million relating to the write-off of intangibles and amounts due from
affiliated physician groups, and incurred a loss on the sale of the assets
of its managed care subsidiary of $2.6 million.
110
LASERVISION SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
information for LaserVision. LaserVision's balance sheet data and statement of
operations data as of and for the five years in the period ended April 30, 2001
are taken from LaserVision's audited consolidated financial statements which
have been prepared in accordance with U.S. generally accepted accounting
principles. LaserVision's balance sheet data as of July 31, 2001 and income
statement data for the three months ended July 31, 2001 and 2000 are taken from
LaserVision's unaudited consolidated financial statements which have been
prepared in accordance with U.S. generally accepted accounting principles. This
unaudited data includes all adjustments which are, in the opinion of
LaserVision's management, necessary for a fair presentation and of a normal
recurring nature. In certain respects, U.S. generally accepted accounting
principles differ from Canadian generally accepted accounting principles.
Accordingly, certain line items with respect to income statement data and
balance sheet data would differ under Canadian generally accepted accounting
principles. For a discussion of the principal differences between Canadian and
U.S. generally accepted accounting principles as they apply to the financial
information of LaserVision for the years ended April 30, 2001, 2000 and 1999,
see Appendix I to this joint proxy statement/prospectus. Results for the three
months ended July 31, 2001 do not necessarily indicate results for the entire
fiscal year. You should read this financial information in conjunction with
LaserVision's consolidated financial statements, and the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in LaserVision's annual report on Form 10-K for the fiscal
year ended April 30, 2001 and quarterly report on Form 10-Q for the quarter
ended July 31, 2001, which are incorporated by reference in this joint proxy
statement/prospectus, and with the unaudited pro forma consolidated financial
information for TLC VISION, and the related notes, appearing elsewhere in this
joint proxy statement/prospectus.
In August 2001, LaserVision acquired assets and liabilities of
ClearVision. ClearVision's consolidated financial statements appear as Appendix
H to this joint proxy statement/prospectus. For a discussion of the principal
differences between Canadian and U.S. generally accepted accounting principles
as they apply to the financial information of ClearVision see note 15 to
ClearVision's audited consolidated financial statements and note 7 to
ClearVision's unaudited consolidated financial statements appearing as Appendix
H to this joint proxy statement/prospectus.
For the Three For the Year Ended
Months Ended July 31, April 30,
--------------------- ---------
2001 2000 2001 2000 1999 1998 1997
-------- --------- -------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenues ............................ $ 25,311 $ 22,237 $ 96,073 $ 88,055 $ 52,359 $ 23,469 $ 8,238
Gross profit ........................ 8,268 7,038 30,584 28,555 17,691 6,719 648
Selling, general and administrative . 7,793 5,872 29,098 17,702 11,809 9,592 9,719
Vendor program change expense ....... -- -- -- 2,043(2) -- -- --
Fixed asset impairment provision .... -- -- -- -- -- -- 2,772(1)
Income (loss) from operations ....... 475 1,166 1,486 8,810 5,882 (2,873) (11,843)
Net income (loss) before taxes ...... 409 1,863 2,635 10,464 5,051 (3,496) (12,069)
Income tax (expense) benefit ........ (156) (708) (1,387) 3,394 1,489 -- --
Net income (loss) ................... 253 1,155 1,248 13,858 6,540 (3,496) (12,069)
Deemed preferred dividends .......... -- (54) (161) (209) (171) (1,930) (126)
Net income (loss) applicable
to common stockholders ........... 253 1,101 1,087 13,649 6,369 (5,426) (12,195)
Net income (loss) per share - basic . .01 .05 .04 .55 .31 (.30) (.72)
Net income (loss) per share - diluted .01 .04 .04 .49 .27 (.30) (.72)
Weighted average number of common
shares outstanding - basic ....... 25,702 23,918 24,264 24,884 20,290 18,356 16,842
Weighted average number of common
shares outstanding - diluted ..... 25,885 24,521 24,326 28,460 23,930 18,356 16,842
111
As of July 31, 2001 As of April 30,
------------------- --------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents .............. $ 17,834 $ 15,726 $ 17,702 $ 8,173 $ 8,430 $ 3,794
Short-term investments ................. 5,953 9,037 31,440 -- -- --
Working capital ........................ 21,778 25,896 44,141 7,105 5,554 1,654
Total assets ........................... 123,146 122,073 123,267 53,189 30,829 22,870
Total debt, excluding current portion .. 7,907 10,363 5,878 7,784 6,585 6,133
Convertible preferred stock with
mandatory redemption provision ...... -- -- 2,295 2,086 1,915 --
Stockholders' equity ................... 93,276 92,954 89,619 26,661 13,578 10,276
- ----------
(1) In connection with LaserVision's continuing evaluation of the recoverability
of its assets, an asset impairment charge of $2,772,000 was recorded for the
year ended April 30, 1997. This impairment charge related to domestic and
international lasers, as well as goodwill.
(2) On February 22, 2000, VISX Incorporated, the manufacturer of most of the
lasers owned by LaserVision, announced a new program for its customers,
including LaserVision, that included a change in the royalty fee charged by VISX
from $250 per procedure to $100 per procedure. Along with this pricing change,
VISX announced that it would no longer provide procedure cards for enhancements
at no charge, nor would it provide credits for procedure cards used for past
enhancements or ambassadors. An enhancement is a procedure subsequent to the
initial treatment that is performed to improve the surgical result. An
ambassador is a patient who is treated at no charge and is frequently a
celebrity or a member of the surgeon's practice. In addition, VISX would not
exchange the inventory of procedure cards held by LaserVision at a cost of $250
per procedure card for procedure cards at the reduced cost of $100. Accordingly,
LaserVision recorded a charge of approximately $2.4 million in the quarter ended
January 31, 2000 for actual and estimated expenses related to enhancements and
ambassadors, and reductions in inventory value, which would not be reimbursed by
VISX and which LaserVision did not expect to collect from its customers without
legal assistance. In the quarter ended April 30, 2000, LaserVision reversed $0.4
million of the vendor program change expense based upon actual and estimated
expenses related to the enhancements, ambassadors and reductions in inventory
value.
112
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION For TLC VISION
Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements for TLC
VISION give effect to the merger and the combination of TLC and LaserVision
through the issuance of TLC common shares for the outstanding shares of
LaserVision common stock. In addition, on August 31, 2001, LaserVision acquired
certain assets and liabilities of ClearVision and its subsidiaries. The
unaudited pro forma combined financial statements for TLC VISION also give
effect to LaserVision's acquisition of the ClearVision assets and liabilities.
The unaudited pro forma combined statements of income (loss) for TLC
VISION for the fiscal year ended May 31, 2001 and for the three months ended
August 31, 2001 have been prepared in accordance with U.S. generally accepted
accounting principles and reflect the merger and the combination of TLC and
LaserVision and LaserVision's acquisition of assets and liabilities of
ClearVision as if they had taken place on June 1, 2000. In certain respects,
U.S. generally accepted accounting principles differ from Canadian generally
accepted accounting principles. Accordingly, certain line items with respect to
income statement data and balance sheet data would differ under Canadian
generally accepted accounting principles. Appendix I to this joint proxy
statement/prospectus contains summary unaudited pro forma financial information
for TLC VISION prepared in accordance with Canadian generally accepted
accounting principles.
The unaudited pro forma combined statement of income (loss) of TLC VISION
for the fiscal year ended May 31, 2001 combines:
o TLC's audited historical results of operations for the year ended
May 31, 2001;
o LaserVision's audited historical results of operations for the year
ended April 30, 2001; and
o ClearVision's unaudited historical results of operations for the 12
months ended March 31, 2001,
as adjusted for the pro forma effects of the transactions described above and in
the related notes. Because ClearVision had a December 31 year end, ClearVision's
12 month results were derived from ClearVision's results for the year ended
December 31, 2000, less ClearVision's results for the three months ended March
31, 2000 plus ClearVision's results for the three months ended March 31, 2001.
The unaudited pro forma combined statement of income (loss) for TLC VISION
for the three months ended August 31, 2001 combines:
o TLC's unaudited historical results of operations for the three
months ended August 31, 2001;
o LaserVision's unaudited historical results of operations for the
three months ended July 31, 2001; and
o ClearVision's unaudited historical results of operations for the
three months ended June 30, 2001,
as adjusted for the pro forma effects of the transactions described above and in
the related notes.
The unaudited pro forma combined balance sheet for TLC VISION as at August
31, 2001 has been prepared in accordance with U.S. generally accepted accounting
principles and reflects the merger and the combination of TLC and LaserVision
and LaserVision's acquisition of assets and liabilities of ClearVision as if
these transactions occurred on August 31, 2001.
The unaudited pro forma combined balance sheet for TLC VISION combines:
o TLC's unaudited historical balance sheet as of August 31, 2001:
113
o LaserVision's unaudited historical balance sheet as of July 31,
2001; and
o ClearVision's unaudited historical balance sheet as of June 30,
2001,
as adjusted for the pro forma effects of the transaction described above and in
the related notes.
The unaudited pro forma combined financial information for TLC VISION
reflects the combination using the purchase method of accounting and has been
prepared on the basis of assumptions described in the related notes, including
assumptions relating to the allocation of the total purchase cost to the assets
and liabilities of LaserVision based upon preliminary estimates of their fair
value. The actual allocation may differ materially from those assumptions after
valuations and other procedures to be performed after the completion of the
transaction are finalized and as a result of LaserVision's and ClearVision's
results of operations from July 31, 2001 and June 30, 2001, respectively, to the
completion of the acquisition.
The summary unaudited pro forma combined financial information for TLC
VISION should be read in conjunction with:
o TLC's consolidated financial statements, included in TLC's annual
report on Form 10-K/A for the fiscal year ended May 31, 2001 and
quarterly report on Form 10-Q/A for the quarter ended August 31,
2001;
o LaserVision's consolidated financial statements, included in
LaserVision's annual report on Form 10-K for the fiscal year ended
April 30, 2001 and quarterly report on Form 10-Q for the quarter
ended July 31, 2001; and
o ClearVision's consolidated financial statements, appearing as
Appendix H to this joint proxy statement/prospectus, and the pro
forma financial information of LaserVision reflecting the
ClearVision acquisition, included in LaserVision's Form 8-K/A dated
August 31, 2001,
all of which appears in or is incorporated by reference in this joint proxy
statement/prospectus. Management believes that the assumptions used in preparing
the unaudited pro forma combined financial information provide a reasonable
basis for presenting all of the significant effects of the acquisition, that the
pro forma adjustments give appropriate effect to those assumptions, and that the
pro forma adjustments are properly applied in the accompanying unaudited pro
forma combined financial information. The unaudited pro forma combined financial
statements for TLC VISION do not purport to represent what the actual operating
results would have been had the combination actually taken place on June 1,
2000, or to represent the financial position had the combination actually taken
place at August 31, 2001, or to project TLC VISION's results of operations for
any future period or financial condition at any future date. The information
does not reflect any adjustments to historical results relating to the estimated
cost savings or changes in business strategies that may result from the
combination and integration of TLC, LaserVision and ClearVision.
114
TLC VISION CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
For the year ended May 31, 2001
(in thousands of dollars, except per share amounts)
ProForma Proforma
ClearVision LaserVision/
LaserVision ClearVision Adjustments ClearVision
----------- ----------- ----------- -----------
Revenues
Refractive
Owned centers....................... $13,783 $ -- $ -- $13,783
Management, facility and access fees 66,992 26,648 -- 93,640
Other.................................. 15,298 -- -- 15,298
------- ------------ ------------- ------------------
Total revenues...................... 96,073 26,648 -- 122,721
------- ------------ ------------- ------------------
Cost of revenues
Owned centers
Surgeon fees...................... 9,023 -- -- 9,023
Other variable.................... 2,581 -- -- 2,581
------- ------------ ------------- ------------------
Total owned centers................. 11,604 -- -- 11,604
Management, facility and access fees 43,863 21,624 (3,624) 1 61,863
Other.................................. 10,022 -- -- 10,022
------- ------------ ------------- ------------------
Total cost of revenues.............. 65,489 21,624 (3,624) 83,180
------- ------------ ------------- ------------------
Gross margin........................ 30,584 5,024 3,624 39,232
------- ------------ ------------- ------------------
Operating expenses
Selling, general and administrative. 27,310 12,396 -- 39,706
Depreciation of capital assets and
assets under capital lease........ 605 401 (309) 1 697
Amortization of intangibles......... 1,184 42 -- 6 1,226
Start-up and development expenses... -- -- -- --
Restructuring....................... -- 683 -- 683
------- ------------ ------------- ------------------
Total operating expenses............... 29,099 13,522 (309) 42,312
------- ------------ ------------- ------------------
Income (loss) from operations.......... 1,485 (8,498) 3,933 (3,080)
Interest and other.................. 1,150 (538) 252 2,3 864
Gain (loss) from equity investments. -- -- -- --
Minority interest................... -- -- -- --
------- ------------ ------------- ------------------
Income (loss) before income taxes...... 2,635 (9,036) 4,185 (2,216)
Income taxes........................ (1,387) (3,191) 5,442 4 864
------- ------------ ------------- ------------------
Net income (loss) 1,248 (12,227) 9,627 (1,352)
Dividends and/or accretion applicable
To preferred stock................ (161) (2,482) 2,482 5 (161)
------- ------------ ------------- ------------------
Net income (loss) attributable to common
stock.................................. ($1,087) ($14,709) $12,109 ($1,513)
======= ============ ============= ==================
Income (loss) per share:
Basic............................... $0.04 ($0.06)
Diluted............................. $0.04 ($0.06)
Weighted average number of common shares
outstanding (in thousands):
Basic............................... 24,264 7 25,634
Diluted............................. 24,326 26,455
ProForma
LaserVision Proforma
TLC Adjustments TLC Vision
--- ----------- ----------
Revenues
Refractive
Owned centers....................... $78,470 $ -- $92,253
Management, facility and access fees 82,749 -- 176,389
Other.................................. 12,787 -- 28,085
------- ------------ --- -------
Total revenues...................... 174,006 -- 296,727
------- ------------ --- -------
Cost of revenues
Owned centers
Surgeon fees...................... 15,538 -- 24,561
Other variable.................... 39,688 -- 42,269
------- ------------ --- -------
Total owned centers................. 55,226 -- 66,830
Management, facility and access fees 44,684 (4.530) A
(1,612) A 100,405
Other.................................. 10,106 -- 20,128
------- ------------ --- -------
Total cost of revenues.............. 110,016 (6,142) 187,363
------- ------------ --- -------
Gross margin........................ 63,990 6,142 109,364
------- ------------ --- -------
Operating expenses
Selling, general and administrative. 67,802 -- 107,508
Depreciation of capital assets and
assets under capital lease........ 2,262 -- 2,959
Amortization of intangibles......... 12,543 -- 13,769
Start-up and development expenses... -- -- --
Restructuring....................... 19,075 -- 19,758
------- ------------ --- -------
Total operating expenses............... 101,682 -- 143,994
------- ------------ --- -------
Income (loss) from operations.......... (37,692) 6,142 (34,630)
Interest and other.................. 2,543 -- 3,407
Gain (loss) from equity investments. -- -- --
Minority interest................... (1,316) -- (1,316)
------- ------------ --- -------
Income (loss) before income taxes...... (36,465) 6,142 (32,539)
Income taxes........................ (1,308) (864) B (1,308)
------- ------------ --- -------
Net income (loss) (37,773) $5,278 (33,847)
Dividends and/or accretion applicable
To preferred stock................ -- -- (161)
------- ------------ --- -------
Net income (loss) attributable to common
stock............................... ($37,773) $5,278 ($34,008)
======== ============ === ========
Income (loss) per share:
Basic............................... ($1.00) ($0.55)
Diluted............................. ($1.00) ($0.55)
Weighted average number of common shares
outstanding (in thousands):
Basic............................... 37,779 61,548
Diluted............................. 37,779 61,548
See accompanying notes to the unaudited pro forma combined financial statements.
115
TLC VISION CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
For the three months ended August 31, 2001
(in thousands of dollars, except per share amounts)
ProForma Proforma
ClearVision LaserVision/
LaserVision ClearVision Adjustments ClearVision
----------- ----------- ----------- -----------
Revenues
Refractive
Owned centers .............................. $4,025 $ -- $ -- $4,025
Management, facility and access fees ....... 16,239 5,396 -- 21,635
Other ........................................ 5,047 -- -- 5,047
---------------------------------------------------------------
Total revenues ............................. 25,311 5,396 -- 30,707
---------------------------------------------------------------
Cost of revenues
Owned centers
Surgeon fees ............................. 2,447 -- -- 2,447
Other variable ........................... 882 -- -- 882
---------------------------------------------------------------
Total owned centers ........................ 3,329 -- 3,329
Management, facility and access fees ....... 10,450 4,485 (640) 8 14,295
Other ........................................ 3,264 -- -- 3,264
---------------------------------------------------------------
Total cost of revenues ..................... 17,043 4,485 708 20,888
---------------------------------------------------------------
Gross margin ............................... 8,268 911 708 9,819
---------------------------------------------------------------
Operating expenses
Selling, general and administrative ........ 7,618 1,798 -- 9,416
Depreciation of capital assets and assets
under capital lease ........................ 170 101 (68) 8 203
Amortization of intangibles ................ 5 -- -- 13 5
Start-up and development expenses .......... -- -- -- --
Restructuring .............................. -- -- -- --
---------------------------------------------------------------
Total operating expenses ..................... 7,793 1,899 (68) 9,624
---------------------------------------------------------------
Income (loss) from operations ................ 475 (988) 708 195
Interest and other ......................... (66) (140) 53 9,10 (153)
Gain (loss) from equity investments ........ -- -- -- --
Minority interest .......................... -- -- -- --
---------------------------------------------------------------
Income (loss) before income taxes ............ 409 (1,128) 761 42
Income taxes ............................... (156) -- 139 11 (17)
---------------------------------------------------------------
Net income (loss) ............................ 253 (1,128) 900 25
Dividends and/or accretion applicable
To preferred stock ....................... -- (646) 646 12 --
---------------------------------------------------------------
Net income (loss) attributable to common stock $253 ($1,774) $1,546 $25
===============================================================
Income (loss) per share:
Basic ...................................... $0.01 ($0.00)
Diluted .................................... $0.01 ($0.00)
Weighted average number of common shares
outstanding (in thousands):
Basic ...................................... 25,702 14 27,081
Diluted .................................... 25,885 28,104
ProForma
LaserVision Proforma
TLC Adjustments TLC Vision
--- ----------- ----------
Revenues
Refractive
Owned centers .............................. $13,442 $ -- $17,467
Management, facility and access fees ....... 17,935 -- 39,570
Other ........................................ 3,647 -- 8,694
------------------------------------------------
Total revenues ............................. 35,024 -- 65,731
------------------------------------------------
Cost of revenues
Owned centers
Surgeon fees ............................. 2,676 -- 5,123
Other variable ........................... 7,055 -- 7,937
------------------------------------------------
Total owned centers ........................ 9,731 -- 13,060
Management, facility and access fees ....... 11,394 (815) C 24,874
Other ........................................ 1,922 -- 5,186
------------------------------------------------
Total cost of revenues ..................... 23,047 (815) 43,120
------------------------------------------------
Gross margin ............................... 11,977 815 22,611
------------------------------------------------
Operating expenses
Selling, general and administrative ........ 14,614 -- 24,030
Depreciation of capital assets and assets
under capital lease ........................ 547 -- 750
Amortization of intangibles ................ 2,564 -- 2,569
Start-up and development expenses .......... -- -- --
Restructuring .............................. -- -- --
------------------------------------------------
Total operating expenses ..................... 17,725 -- 27,349
------------------------------------------------
Income (loss) from operations ................ (5,748) 815 (4,738)
Interest and other ......................... 24 -- (129)
Gain (loss) from equity investments ........ -- -- --
Minority interest .......................... (372) -- (372)
------------------------------------------------
Income (loss) before income taxes ............ (6,096) 815 (5,239)
Income taxes ............................... (466) -- (483)
------------------------------------------------
Net income (loss) ............................ (6,562) 815 (5,722)
Dividends and/or accretion applicable
To preferred stock ....................... -- -- --
------------------------------------------------
Net income (loss) attributable to common stock ($6,562) $815 ($5,722)
================================================
Income (loss) per share:
Basic ...................................... ($0.17) ($0.09)
Diluted .................................... ($0.17) ($0.09)
Weighted average number of common shares
outstanding (in thousands):
Basic ...................................... 38,040 63,184
Diluted .................................... 38,040 63,184
See accompanying notes to the unaudited pro forma combined financial statements.
116
TLC VISION CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As at August 31, 2001
(in thousands of dollars)
ProForma
LaserVision ClearVision Adjustments
----------- ----------- -----------
ASSETS
Cash and cash equivalents ....................... $17,834 $984 ($266) 15
(572) 16
(2,802) 17
(1,494) 18
5,000 22
Short-term investments........................... 5,953 -- --
Accounts receivable.............................. 9,547 317 --
Inventory........................................ 3,750 270 --
Deferred tax asset............................... 3,250 -- --
Prepaid expenses and sundry assets............... 2,127 290 (189) 25
--------------------------------------------------------
Total current assets........................ 42,461 1,861 (323)
Restricted cash.................................. -- -- --
Investments and other assets..................... 1,036 646 (155) 16
(425) 25
Intangibles...................................... 12,592 -- --
Goodwill......................................... 22,528 716 15
1,257 16
(303) 19
(222) 19
3,696 20
6,642 21
(83) 23
(335) 24
(328) 25
Fixed assets..................................... 37,700 4,967 83 23
Assets under capital leases...................... -- -- --
Deferred tax asset............................... 6,829 -- --
--------------------------------------------------------
Total assets................................ $123,146 $7,474 $10,220
========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities......... $5,267 $4,075 ($335) 24
(942) 25
Accrued purchase obligations..................... -- -- --
Accrued restructuring costs...................... -- -- --
Accrued wage costs............................... 1,236 -- --
Accrued legal settlements........................ -- -- --
Income taxes payable............................. -- -- --
Current portion of long-term debt................ 6,499 3,054 (2,802) 17
(252) 18
Current portion of obligations under capital
lease........................................ 1,452 1,385 --
Other accrued liabilities........................ 6,229 1,073 (222) 19
530 16
450 15
--------------------------------------------------------
Total current liabilities................... 20,683 9,587 (3,573)
Line of credit................................... 2,011 -- 5,000 22
Long-term debt................................... 2,567 1,545 (1,242) 18
(303) 19
Obligations under capital lease.................. 3,329 38 --
Deferred rent.................................... -- -- --
--------------------------------------------------------
Total liabilities........................... 28,590 11,170 (118)
--------------------------------------------------------
Minority interest................................ 1,280 -- --
Commitments and contingencies....................
Series A-1 Redeemable Preferred Stock............ -- 23,073 (23,073) 20
SHAREHOLDERS' EQUITY
Common shares.................................... 259 2 (2) 20
21 21
Common shares held in treasury................... -- -- --
Series A-2 convertible preferred stock........... -- 27,468 (27,468) 20
Warrants and options............................. 1,144 3,061 (3,061) 20
Paid-in-capital and other........................ 110,924 (32,985) 32,985 20
6,621 21
Treasury stock at cost........................... (323) (1,302) 1,302 20
Deficit.......................................... (18,728) (23,013) 23,013 20
Accumulated other comprehensive loss............. -- -- --
--------------------------------------------------------
Total shareholders' equity.................. 93,276 (26,769) 33,411
--------------------------------------------------------
Total liabilities and shareholders' equity.. $123,146 $7,474 $10,220
========================================================
Proforma
LaserVision/ ProForma Proforma
ClearVision TLC Adjustments TLC Vision
----------- --- ----------- ----------
ASSETS
Cash and cash equivalents ....................... $18,684 $47,203 $ -- $65,887
Short-term investments........................... 5,953 -- -- 5,953
Accounts receivable.............................. 9,864 8,525 -- 18,389
Inventory........................................ 4,020 -- -- 4,020
Deferred tax asset............................... 3,250 -- (3,250) D --
Prepaid expenses and sundry assets............... 2,228 5,000 -- 7,228
-------------------------------------------------------------------
Total current assets........................ 43,999 60,728 (3,250) 101,477
Restricted cash.................................. -- 1,620 -- 1,620
Investments and other assets..................... 1,102 17,096 (2,984) F 13,215
(1,999) G
Intangibles...................................... 12,592 57,497 (12,592) I 76,397
18,900 K
Goodwill......................................... 33,568 32,752 78,934 K 111,686
(33,568) J
Fixed assets..................................... 42,750 43,500 -- 86,250
Assets under capital leases...................... -- 6,933 -- 6,933
Deferred tax asset............................... 6,829 -- (6,829) E --
-------------------------------------------------------------------
Total assets................................ $140,840 $220,126 $36,612 $397,578
===================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities......... $8,065 $13,910 $14,500 H $36,475
Accrued purchase obligations..................... -- 3,000 -- 3,000
Accrued restructuring costs...................... -- 403 -- 403
Accrued wage costs............................... 1,236 2,316 -- 3,552
Accrued legal settlements........................ -- 2,100 -- 2,100
Income taxes payable............................. -- 460 -- 460
Current portion of long-term debt................ 6,499 3,812 -- 10,311
Current portion of obligations under capital
lease........................................ 2,837 2,724 -- 5,561
Other accrued liabilities........................ 8,060 -- -- 8,060
-------------------------------------------------------------------
Total current liabilities................... 26,697 28,725 14,500 69,922
Line of credit................................... 7,011 -- -- 7,011
Long-term debt................................... 2,567 6,589 -- 9,156
Obligations under capital lease.................. 3,367 773 -- 4,140
Deferred rent.................................... -- 566 -- 566
-------------------------------------------------------------------
Total liabilities........................... 39,642 36,653 14,500 90,795
-------------------------------------------------------------------
Minority interest................................ 1,280 9,994 -- 11,274
Commitments and contingencies....................
Series A-1 Redeemable Preferred Stock............ -- -- -- --
SHAREHOLDERS' EQUITY
Common shares.................................... 280 276,368 (280) O 386,825
110,457 L
Common shares held in treasury................... -- -- (2,432) P (2,432)
Series A-2 convertible preferred stock........... -- -- -- --
Warrants and options............................. 1,144 532 (1,144) O 14,537
13,008 M
997 N
Paid-in-capital and other........................ 117,545 -- (117,545) O --
Treasury stock at cost........................... (323) -- 323 O --
Deficit.......................................... (18,728) (86,723) 18,728 O (86,723)
Accumulated other comprehensive loss............. -- (16,698) -- (16,698)
-------------------------------------------------------------------
Total shareholders' equity.................. 99,918 173,479 22,122 295,509
-------------------------------------------------------------------
Total liabilities and shareholders' equity.. $140,840 $220,126 $36,612 $397,578
===================================================================
See accompanying notes to the unaudited pro forma combined financial statements.
117
TLC VISION CORPORATION
Notes to Unaudited Pro Forma Combined Financial Statements
1. Basis of Pro Forma Presentation
The TLC VISION unaudited pro forma combined financial statements reflect
the estimated issuance of 26,472,615 TLC common shares for all of the
outstanding shares of LaserVision common stock based on the outstanding shares
of LaserVision common stock as of November 30, 2001, and the conversion number
of 0.95 of a TLC common share for each share of LaserVision common stock. As a
result of the acquisition on August 31, 2001, by LaserVision of certain assets
and liabilities of ClearVision and certain of its subsidiaries, the unaudited
pro forma combined financial statements also give effect to the combination of
LaserVision and ClearVision. The purchase cost by TLC of LaserVision is based on
the average market price per TLC common share of $4.1725 per share for the two
days before and the two days after the signing of the merger agreement and the
announcement of the proposed merger. The actual number of TLC common shares to
be issued will depend on the actual number of outstanding shares of LaserVision
common stock on the effective date. TLC currently owns 613,500 common shares of
LaserVision and accordingly the 582,825 TLC common shares with a value of
$2,431,837 to be issued by TLC to acquire these outstanding shares will be
included as a component of shareholders equity.
In addition, TLC expects to issue options to purchase TLC common shares in
exchange for all the outstanding LaserVision options as of the effective date.
Based on the number of LaserVision options outstanding on November 30, 2001, and
additional options to be issued concurrent with the closing of this transaction,
TLC estimates that it would issue options to purchase approximately 7,283,593
TLC common shares at a weighted average exercise price of $5.05 per share. The
actual number of options to be granted will depend on the actual number of
LaserVision options outstanding at the effective date. In addition, TLC expects
to issue options to purchase TLC common shares in exchange for all the
outstanding LaserVision warrants as of the effective date. Based on the number
of LaserVision warrants outstanding on November 30, 2001, TLC expects to issue
options to purchase approximately 415,150 TLC common shares at a weighted
average exercise price of $4.78 per share. The actual number of options to be
granted will depend on the actual number of LaserVision warrants outstanding at
the effective date. These unaudited pro forma combined financial statements
reflect the issuance of these options based on their fair value using the Black
Scholes pricing model with the following weighted average assumptions: risk-free
interest of 5.25%, dividend yield of 0%, volatility factor of the expected
market price of TLC VISION's common shares of 0.924, and a weighted average
expected option life of 4.0 years. The fair market value of the options granted
is 14,004,000.
The estimated direct transaction expenses incurred or assumed of
$14,500,000 have been included as part of the total estimated purchase cost
118
The total purchase price will be allocated to the assets acquired and
liabilities assumed, based on their respective estimated fair values. The
allocation of the aggregate purchase price reflected in the TLC VISION unaudited
pro forma combined financial statements is preliminary and represents
management's best estimate of the fair value of the assets and liabilities. The
actual allocation may differ materially from those assumptions after valuations
and other procedures to be performed after the completion of the merger are
finalized. Such allocation may differ significantly from the preliminary
allocation included herein. Following is a table of the estimated total purchase
cost and the intangible assets acquired (in thousands of dollars).
Estimated purchase cost
Estimated value of securities to be issued $ 110,457
Less: TLC ownership of 613,500 shares of LaserVision common stock (2,432)
---------
108,025
TLC investment in LaserVision and deferred advisor fees 4,983
Replacement options granted for options 13,008
Replacement options granted for warrants 997
---------
127,013
Direct transaction costs and expenses 11,700
Accrued severance costs 2,800
---------
Total estimated purchase cost $ 141,513
=========
Purchase price allocation
Tangible net assets acquired $ 43,679
Intangible assets acquired:
Goodwill 78,934
Management agreements 18,900
---------
Total estimated purchase price allocation $ 141,513
=========
Tangible net assets of LaserVision principally include cash and cash
equivalents, short-term investments, accounts receivable, fixed assets and other
assets. Liabilities assumed principally include accounts payable, accrued
compensation and other accrued expenses.
The fair value assigned to the management agreements of LaserVision and
its subsidiaries as of July 31, 2001, is based on the amount paid in the case of
recently entered into agreements and on discounted cash flow and earnings
analyses for all other agreements, as determined by the preliminary results of
an independent valuation. The value assigned to these agreements could change
upon completion of these procedures.
Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets.
Goodwill relative to the Laser Vision acquisition is not being amortized under
guidance of Statement of Financial Accounting Standards No. 141, Business
Combinations and Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.
If TLC and LaserVision had adopted the provisions of these standards on
June 1, 2000, TLC amortization of goodwill of $3,784,000 would not have been
reflected in the pro forma combined statement of income (loss) and the pro forma
loss and pro forma loss per share would have been $30,224,000 and $0.49
respectively, the new standards also require an annual impairment test related
to goodwill. The amount, if any, of such an impairment loss has not been
included in this unaudited pro forma financial statement.
The unaudited pro forma combined statements of income (loss) for TLC
VISION for the year ended May 31, 2001 and the three months ended August 31,
2001 have been represented in a manner which reflects management plans to
present classifications of revenues and expenses in future financial statements.
Management believes this presentation provides users of the financial statements
with the most meaningful understanding of the combined business. Accordingly,
the revenues and expenses of TLC, LaserVision and ClearVision have been
reclassified from their historical presentation to reflect the proposed new
classifications.
On August 31, 2001, LaserVision acquired certain assets and liabilities of
ClearVision and its subsidiaries for $4,900,000 in cash and approximately
2,100,000 shares of restricted common stock of LaserVision of which
119
750,000 shares are being held in escrow pending settlement of certain post
acquisition purchase price contingencies. The acquisition was accounted for
under the purchase method. In connection with the acquisition of ClearVision,
LaserVision management does not believe there are material amounts of separately
identifiable assets to be valued apart from goodwill, however, further studies
which are currently in process could identify specific intangibles other than
goodwill which could impact on the accompanying pro forma financial information.
ClearVision provided excimer laser access and is based in Lakewood, Colorado.
Additional information with respect to this transaction is included in the
LaserVision 8-K/A dated August 31, 2001, incorporated by reference in this joint
proxy statement/prospectus.
2. Pro Forma Net Income (Loss) Per Share
The TLC VISION unaudited pro forma combined statements of income (loss)
has been prepared as if the combination of TLC and LaserVision had occurred on
June 1, 2000. The pro forma combined basic and dilutive net income (loss) per
share are based on the weighted average number of TLC common shares outstanding
during each period and the weighted average number of shares of LaserVision
common stock outstanding during each period multiplied by the conversion number.
The TLC options granted for LaserVision options and warrants are not included in
the computation of pro forma dilutive net income (loss) per share as their
effect would be antidilutive. The 582,825 common shares that TLC will issue in
connection with the approximately 625,000 shares of LaserVision that TLC
currently owns and which will be held by a subsidiary of TLC VISION have not
been reflected in the weighted average outstanding common shares outstanding for
the year. The 712,500 TLC shares expected to be issued and held in escrow from
the ClearVision acquisition relating to the 750,000 LaserVision shares held in
escrow are excluded from the calculation of basic earnings per share.
3. Pro Forma Adjustments
The TLC VISION unaudited pro forma combined financial statements give
effect to the preliminary allocation of the total purchase cost to the assets
and liabilities of LaserVision based on their relative fair values and to the
amortization over the respective useful lives of amounts allocated to intangible
assets.
Pro Forma Adjustments LaserVision/ClearVision Statement of Income (Loss) -
Year Ended May 31, 2001
1. Adjustment to depreciation of ClearVision fixed assets based on fair
value of assets at acquisition and depreciation policies of
LaserVision.
2. Adjustment of $742,000 to interest expense to reverse interest on
ClearVision debt not assumed or repaid at the acquisition date.
Additional interest of $313,000 has been reflected on the additional
$5,000,000 draw (weighted average interest rate of 6.25% for the
period) on LaserVision line of credit used to finance purchase of
ClearVision.
3. Adjustment to other income to reverse income on minority ownership
in leasing company, which was not continued after LaserVision
acquired ClearVision.
4. Adjustment to tax (expense) benefit to reflect a 39% income tax rate
on pro forma combined income (loss) before taxes.
5. Adjustment to eliminate preferred dividends on ClearVision preferred
stock which was not assumed in the acquisition of ClearVision by
LaserVision.
6. Effective May 1, 2001, LaserVision adopted the provisions of SFAS
141, Business Combinations and SFAS 142 Goodwill and Other
Intangible Assets, and ceased amortization of goodwill. The pro
forma combined statement of operations for LaserVision for the year
ended April 30, 2001 does not reflect any amortization of goodwill
relative to the ClearVision goodwill. If LaserVision had adopted the
provisions of SFAS 141 and 142 on May 1, 2000, LaserVision goodwill
amortization of $1,612,000 would not have been reflected in the pro
forma combined statement of operations for the year ended April 30,
2001, and pro
120
forma net income (loss) applicable to common stockholders and pro
earnings (loss) per share-basic and diluted would have been $99,000,
$0.00, and $0.00, respectively.
7. 750,000 LaserVision shares held in escrow are excluded from the
calculation of basic earnings per share.
Pro Forma Adjustments LaserVision/ClearVision Statement of Income (Loss) -
Three Months Ended August 31, 2001
8. Adjustment to depreciation of ClearVision fixed assets based on fair
value of assets at acquisition and depreciation policies of
LaserVision.
9. Adjustment of $155,000 to interest expense to reverse interest on
ClearVision debt not assumed or repaid at the acquisition date.
Additional interest of $69,000 has been reflected on the additional
$5,000,000 draw (weighted average interest rate of 5.5% for the
period) on LaserVision line of credit used to finance purchase of
ClearVision.
10. Adjustment to other income to reverse income on minority ownership
in leasing company, which was not continued after LaserVision
acquired ClearVision.
11. Adjustment to tax (expense) benefit to reflect a 39% income tax rate
on pro forma combined income (loss) before taxes.
12. Adjustment to eliminate preferred dividends on ClearVision preferred
stock which was not assumed in the acquisition of ClearVision by
LaserVision.
13. Effective May 1, 2001, LaserVision adopted the provisions of SFAS
141, "Business Combinations" and SFAS 142 "Goodwill and Other
Intangible Assets", and ceased amortization of goodwill. The pro
forma combined statement of operations for LaserVision for the 3
months ended July 31, 2001 does not reflect any amortization of
goodwill.
14. 750,000 LaserVision shares held in escrow are excluded from the
calculation of basic earnings per share.
Pro Forma Adjustments LaserVision/ClearVision Balance Sheet
15. Adjustment to reflect severance payment totalling $266,000 and
accrual of $450,000 for bonus obligations to former ClearVision
employees for services rendered prior to August 31, 2001.
16. Adjustment of $572,000 to reflect payment of transaction expenses
and other payments to major shareholders of ClearVision. Adjustment
to reclassify $155,000 of deferred LaserVision transaction costs
(previously paid to third party advisors) to goodwill. Adjustment to
accrue legal and accounting fees of $120,000 and investment banking
fees of $410,000 incurred by LaserVision relative to the
transaction.
17. Adjustment to reflect payment of bank debt of ClearVision with
proceeds of the transaction.
18. Adjustment to reflect payment of other debt of ClearVision with
proceeds of the transaction.
19. Adjustment to eliminate debt and accrued interest not assumed by
LaserVision as part of the ClearVision acquisition. This debt and
accrued interest were forgiven by the various respective debt
holders.
20. Adjustment to eliminate ClearVision historical equity accounts.
21. Adjustment to record shares of LaserVision common stock issued:
2,129,085 shares at $3.12 per share, the average of the closing
market prices from August 7, 2001 through August 13, 2001, two days
prior through two days following the announcement of the acquisition
of ClearVision by LaserVision; 750,000 of these common shares are
being held in an escrow account pending settlement of certain
post-acquisition purchase price contingencies.
22. Adjustment to record draws on bank lines of credit by LaserVision to
fund cash portion of purchase price and related transaction costs
incurred by LaserVision.
121
23. Adjustment to record property and equipment at fair market value.
Under LaserVision depreciation policies, the remaining useful lives
of the various ClearVision property and equipment categories are as
follows:
Lasers - 3.5 years
Medical equipment - 2.5 years
Mobile equipment - 3.0 years
Furniture, fixtures and leasehold improvements - 3.0 years
24. Adjustment to record vendor concessions agreed to as of the
transaction closing date on amounts owed by ClearVision.
25. Adjustment to eliminate investment in unconsolidated affiliate and
related receivable and payable from/to affiliate as such amounts
were not acquired or assumed by LaserVision in the acquisition of
ClearVision
Pro Forma Adjustments TLC/LaserVision Statement of Income (Loss) - Year
Ended May 31, 2001
A. Adjustment to depreciation expense of $4,530,000 for the LaserVision
and ClearVision fixed and intangible assets based on fair value of
assets at acquisition and depreciation policies of TLC. Adjustment
to amortization expense of $1,612,000 for the elimination of
LaserVision's good will amortization expense.
B. To reverse LaserVision's pro forma adjusted tax recovery of $864,000
based on the need for a valuation allowance on deferred tax assets
reflecting the pro forma combined losses of TLC VISION.
Pro Forma Adjustments TLC/LaserVision Statement of Income - Three Months
Ended August 31, 2001
C. Adjustment to depreciation expense of $815,000 for the LaserVision
and ClearVision fixed and intangible assets based on fair value of
assets at acquisition and depreciation policies of TLC.
Pro Forma Adjustments TLC/LaserVision Balance Sheet
D. To write-off LaserVision's current deferred tax asset of $3,250,000
as a result of the need for a valuation allowance based on the
combined pro forma losses of TLC VISION.
E. To write-off LaserVision's long-term deferred tax asset of
$6,829,000 as a result of the need for a valuation allowance based
on the combined pro forma losses of TLC VISION.
F. To eliminate TLC's investment at August 31, 2001 in LaserVision of
613,500 common shares valued at $2,984,000.
G. To reverse previously deferred advisor fees of $1,999,000
H. To record transaction costs of $14,500,000 to be incurred or assumed
by TLC associated with the transaction - $11,700,000 in advisors'
fees, expenses relating to preparing, printing and mailing and
filing this registration statement and other expenses and regulatory
filing fees and $2,800,000 in severance costs. Severance costs
relate to the expected termination of one executive of LaserVision
who will be paid severance in the year following the completion of
the transaction.
I. To eliminate LaserVision's intangibles of $12,592 prior to the
allocation of the purchase price by TLC
J. To eliminate LaserVision's goodwill of $33,568 prior to the
allocation of the purchase price by TLC
K. To allocate the aggregate purchase price of LaserVision's net
assets, in accordance with the purchase method of accounting as
follows:
122
Common Shareholders' Equity acquired
before adjustments D, E, H, I and J........................................ $ 99,918
Deduct effects of adjustments described in D, E, I and J......................... (56,239)
--------
Net tangible assets.............................................................. 43,679
--------
FV of shares to be issued........................................................ $110,457
Less TLC ownership of LaserVision shares................................... (2,432)
--------
108,025
Adjustments F and G.............................................................. 4,983
FV of replacement options granted for LaserVision options........................ 13,008
FV of replacement options granted for LaserVision warrants....................... 997
Estimated acquisition costs described in H....................................... 14,500
--------
$141,513
--------
Excess purchase price over net tangible assets acquired.......................... $ 97,834
========
Allocation of purchase price in excess of FV of net tangible assets acquired
Management Contracts (includes amounts in I)............................... $ 18,900
Goodwill (includes amounts in J)........................................... 78,934
--------
$ 97,834
========
L. The issuance of 26,472,615 TLC common shares at $4.1725 per share in
exchange for all 27,865,911 outstanding LaserVision common shares as
of November 30, 2001, on the basis of an exchange ratio of .95 of a
TLC share for each common share of LaserVision.
M. To record the fair value of $13,008,000 of TLC stock options issued
in order to replace the outstanding LaserVision stock options.
N. To record the fair value of $997,000 of TLC stock options issued in
order to replace the outstanding LaserVision warrants.
O. To eliminate on consolidation the shareholders' equity attributable
to LaserVision's common shareholders in the amount of $99,918.
P. To reflect the value of the 613,500 common shares of LaserVision
currently owned by TLC, exchanged into 582,825 TLC common shares
issued with a value of $2,431,837 as a component of shareholders'
equity.
123
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of TLC and the pro forma
capitalization of TLC VISION as of August 31, 2001 on the basis of the
assumptions set forth in the TLC VISION unaudited pro forma financial
statements. This table should be read in conjunction with the TLC consolidated
financial statements and the LaserVision consolidated financial statements,
incorporated by reference in this joint proxy statement/prospectus, and the
unaudited pro forma financial information for TLC VISION, including the related
notes, appearing elsewhere in this joint proxy statement/prospectus.
Pro Forma Capitalization of TLC VISION Corporation
(in thousands, except share and per share amounts)
(unaudited)
TLC VISION
TLC Pro Forma
--- ---------
Long term debt, net of current portion ................................................ $ 7,362 $ 20,307
Stockholders' Equity
Common shares, no par value; unlimited number authorized shares;
38,049,000 issued and outstanding at August 31, 2001 and 64,503,000 as adjusted (2) $ 276,368 $ 386,825
Common shares held by a subsidiary .................................................. -- (2,432)
Warrants and options ................................................................ 532 14,537
Deficit (3) ......................................................................... (86,723) (86,723)
Accumulated other comprehensive loss ................................................ (16,698) (16,698)
--------- ---------
Total Stockholders' Equity ............................................................ $ 173,479 $ 295,509
========= =========
Total Capitalization .................................................................. $ 180,841 $ 315,816
========= =========
(1) Assumes that all shares of LaserVision common stock have been exchanged
for TLC common shares.
(2) Consists of 583,000 TLC common shares which will be held by a subsidiary
of TLC VISION in exchange for the shares of LaserVision common stock that
it currently owns.
(3) Deficit as at August 31, 2001.
124
Comparative Market Price Data
TLC common shares have been traded on The Toronto Stock Exchange since
March 22, 1996 under the symbol "TLC." TLC common shares also have been listed
on the Nasdaq National Market System since July 2, 1997 under the symbol "TLCV."
On November 30, 2001, there were 500 holders of record of TLC common shares.
LaserVision common stock has been traded on the Nasdaq National Market
System since June 15, 1992 under the symbol "LVCI." On November 30, 2001, there
were 411 holders of record of LaserVision common stock.
The information shown in the table below presents the closing price per
share on the Nasdaq National Market System and The Toronto Stock Exchange for
TLC common shares and the closing price per share on the Nasdaq National Market
System for LaserVision common stock on August 24, 2001, the last full trading
day prior to the public announcement of the proposed merger, and on December 6,
2001, the last full trading day prior to the date of this joint proxy
statement/prospectus, and, applying the closing prices on the Nasdaq National
Market System, the equivalent value per share of LaserVision common stock based
upon a conversion number of 0.95 of a TLC common share for each share of
LaserVision common stock.
Because the market price of TLC common shares is subject to fluctuation
due to numerous market forces, the market value of the TLC common shares that
holders of shares of LaserVision common stock will receive in the merger may
increase or decrease prior to the effective time of the merger. LaserVision
shareholders should obtain current market quotations for their shares and the
TLC common shares. Historical market prices are not indicative of future market
prices.
TLC TLC LaserVision Equivalent Value
(Nasdaq) (TSE) (Nasdaq) Per LaserVision Share
-------- ----- ----------- ---------------------
Market price as of August 24, 2001.... $4.34 Cdn $6.75 $3.01 $4.12
Market price as of December 6, 2001... $2.44 Cdn $3.80 $2.33 $2.32
The following table sets forth the high and low sale prices per share of
TLC common shares as reported on The Toronto Stock Exchange and the Nasdaq
National Market System for the periods indicated.
Price Range
-------------------------------------------------
Nasdaq TSE
------------------- -------------------------
High Low High Low
------- ------- ---------- ----------
Quarter Ended
August 31, 1999 .................... $53.500 $24.125 Cdn$ 79.00 Cdn$ 36.50
November 30, 1999 .................. 32.750 15.750 49.50 23.25
February 29, 2000 .................. 19.875 10.500 29.25 16.25
May 31, 2000 ....................... 15.688 5.891 23.00 8.75
August 31, 2000 .................... $ 8.313 $ 5.000 Cdn$ 12.20 Cdn$ 7.70
November 30, 2000 .................. 5.500 2.250 8.20 3.55
February 28, 2001 .................. 7.875 1.125 12.00 1.67
May 31, 2001 ....................... 9.250 4.640 14.20 7.11
August 31, 2001 .................... $ 5.700 $ 3.610 Cdn$ 8.70 Cdn$ 5.68
November 30, 2001 .................. 3.900 1.750 6.09 2.81
December 1, 2001 to December 6, 2001 $ 2.600 $ 2.350 $ 4.10 $ 3.75
125
The following table sets forth the high and low sale prices per share of
LaserVision common stock as reported on the Nasdaq National Market System for
the periods indicated, adjusted for the 2-for-1 stock split which occurred in
August 1999.
Price Range
--------------------
Nasdaq
--------------------
High Low
------- -------
Quarter Ended
July 31, 1999 ........................................ $37.813 $21.000
October 31, 1999 ..................................... 33.750 8.500
January 31, 2000 ..................................... 16.750 7.813
April 30, 2000 ....................................... 12.000 3.875
July 31, 2000 ........................................ $ 7.813 $ 4.000
October 31, 2000 ..................................... 6.875 3.750
January 31, 2001 ..................................... 4.125 1.125
April 30, 2001 ....................................... 5.188 2.219
July 31, 2001 ........................................ $ 4.000 $ 2.250
October 31, 2001 ..................................... 3.660 1.520
November 1, 2001 to December 6, 2001 ................. 2.760 2.150
Neither TLC nor LaserVision has paid cash or other dividends in the last
three years. Neither TLC nor LaserVision anticipates the declaration of cash
dividends prior to the effective time of the merger. See "The Companies after
the Merger - Dividend Policy" for a discussion of the considerations applicable
to the payment of any future dividends.
126
The Companies After The Merger
General
Upon the completion of the merger, TLC will be renamed TLC VISION
Corporation and will be continued under the laws of the province of New
Brunswick. TLC VISION will continue to have its head office at 5280 Solar Drive,
Suite 300, Mississauga, Ontario L4W 5M8 (Tel. No. (905) 602-2020). After the
effective time of the merger, TLC will directly own all of the capital stock of
LaserVision, which will continue to be a corporation governed by the Delaware
General Corporation Law. The registered office of LaserVision will continue to
be located at 540 Maryville Centre Drive, Suite 200, St. Louis, Missouri 63141
(Tel. No. (314) 434-6900). The head office of the U.S. operations of TLC VISION
will be located in St. Louis, Missouri.
Plans and Proposals
TLC and LaserVision believe that the merger combines the complementary
strengths of each organization, enabling the value of each company's assets to
be more fully realized.
TLC and LaserVision intend to preserve their existing businesses and core
competencies, operating through TLC VISION, in all material business segments in
which TLC and LaserVision currently operate. TLC VISION will maintain its head
office in Mississauga, Ontario and its U.S. corporate office in St. Louis,
Missouri. TLC and LaserVision do not anticipate reductions in the workforces of
the two companies as a result of the merger but will work following the merger
to better utilize resources and control costs.
Following the closing of the merger, TLC VISION will continue to operate
the businesses currently conducted by each of TLC and LaserVision at their
existing facilities. TLC's large network of affiliated doctors is expected to
bring additional support to the cataract and ambulatory surgery sectors in which
LaserVision currently operates and we believe TLC VISION will be able to provide
a greater range of services to these affiliated doctors. Current center
locations will not be changed but will be evaluated by TLC VISION on a long-term
basis following the merger to determine the most advantageous locations for the
combined entity. The administrative operations of the two companies will be
integrated following the merger.
Directors and Officers
The merger agreement provides that the TLC VISION board of directors will
consist of eleven directors, four of whom will consist of individuals currently
on the LaserVision board of directors, for one year following the effective time
of the merger. The merger agreement provides that the four directors of
LaserVision nominated for election as directors of TLC will receive fair
representation on each committee of the TLC VISION board of directors and the
by-laws of TLC VISION will provide for management's nomination of them for
election as directors at the first annual meeting of shareholders of TLC VISION
following the effective date of the merger. On the first anniversary of the
effective time of the merger, John K. Klobnak and one other member of the TLC
VISION board of directors, other than James M. Garvey, Richard Lindstrom, M.D.
or David S. Joseph, will resign as directors. At that time, the number of
directors of TLC VISION will be reduced to nine.
The following table sets forth information with respect to the proposed
principal executive officers and directors of TLC VISION immediately following
the effective time of the merger and their beneficial share ownership and
percentage of shares beneficially owned of TLC VISION on a pro forma basis. The
remaining senior management positions of TLC VISION will be filled prior to
closing by individuals who currently hold similar positions in TLC and
LaserVision.
127
Pro Forma
Pro Forma Percentage of Pro Forma
Shares Shares Options
Beneficially Beneficially Beneficially
Name Age Position with TLC VISION Corporation Owned Owned Owned
- ---- --- ------------------------------------ ------------ ------------- ------------
Elias Vamvakas ........................ 43 Chief Executive Officer 3,872,009 6.0% 533,273
and Chairman of the Board of Directors
John J. Klobnak ....................... 50 Vice-Chairman of the Board of Directors 2,049,213 3.1 1,830,000
James C. Wachtman ..................... 40 President and Chief Operating Officer 1,233,256 1.9 1,216,000
B. Charles Bono III ................... 53 Chief Financial Officer 789,073 1.2 740,050
Lloyd D. Fiorini ...................... 35 Co-General Counsel 7,500 * 7,500
Robert W. May ......................... 54 Co-General Counsel 824,764 1.3 795,579
Dr. Jeffery Machat .................... 39 Co-National Medical Director 2,956,826 4.6 60,000
John F. Riegert ....................... 71 Director 32,500 * 32,500
Howard J. Gourwitz .................... 53 Director 35,896 * 35,000
Thomas N. Davidson .................... 61 Director 15,000 * 15,000
Dr. William David Sullins, Jr ......... 58 Director 68,900 * 35,000
Warren S. Rustand ..................... 58 Director 32,928 * 30,000
Dr. Mark Whitten ...................... 50 Director 48,759 * 8,125
James M. Garvey ....................... 54 Director 97,905 * 87,265
Dr. Richard Lindstrom ................. 54 Director 367,116 * 300,200
David S. Joseph ....................... 59 Director 9,500 * 9,500
All directors and principal officers as
a group (16 persons) .................. 12,441,145 17.7% 5,734,992
- ----------
* Less than one percent
Under the rules of the U.S. Securities and Exchange Commission, shares of
common stock which an individual or group has a right to acquire within 60 days
by exercising options are deemed to be outstanding for the purpose of computing
the percentage of ownership of that individual or group, but are not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
Pro Forma Shares Beneficially Owned includes the shares listed under the
column Pro Forma Options Beneficially Owned, which are the shares subject to
outstanding TLC stock options and LaserVision options and warrants which are
presently exercisable or are exercisable within 60 days of November 30, 2001.
The above table does not give effect to the proposed repricing of the TLC stock
options described under "The Merger -- General" which may result in a reduction
in the number of outstanding TLC stock options. The information provided under
the column Pro Forma Percentage of Shares Beneficially Owned is based on
38,065,058 TLC common shares and 27,865,911 shares of LaserVision common stock
outstanding on November 30, 2001 multiplied by 0.95.
Pro Forma Shares Beneficially Owned also includes 1,749,516 TLC common
shares held indirectly by Mr. Vamvakas through WWJD Corporation, a corporation
wholly owned by the Vamvakas Family Trust, and 1,000,484 TLC common shares held
indirectly by Mr. Vamvakas through Insight International Bank Corp., which is
wholly owned by Mr. Vamvakas. In addition, 2,837,500 TLC common shares
beneficially owned by Dr. Machat are held indirectly through 1123562 Ontario
Limited, a corporation wholly owned by the Machat Family Trust. Mr. Eldridge's
total number of Pro Forma Shares Beneficially Owned includes 6,426 TLC common
shares held indirectly by his daughter, Megan Eldridge. Pro Forma Shares
Beneficially Owned also includes 20,000 restricted shares held by Dr. Whitten.
The table excludes 234,702 TLC common shares owned by LNG Enterprises, Inc., of
which Mr. Gourwitz is an associate, as defined in the Securities Act (Ontario).
Pro Forma Shares Beneficially Owned also includes the following shares of
LaserVision common stock allocated to the following persons and group under
LaserVision's 401(k) plan: Mr. Klobnak - 4,174; Mr. Wachtman - 4,146; Mr. May -
4,105; Mr. Bono - 4,104; Mr. Tiffany - 1,547; and all directors and officers as
a group - 18,076 and includes 3,404 shares of
128
LaserVision common stock held by Mr. Bono under LaserVision's Employee Stock
Ownership Plan and 11,400 shares of LaserVision common stock held by Mr. Klobnak
indirectly.
Set forth below is biographical information relating to the proposed
officers and directors of TLC VISION.
Elias Vamvakas is the Chief Executive Officer and Chairman of the Board of
Directors of TLC. Prior to co-founding TLC in 1993, Mr. Vamvakas was the
President of E.A. Vamvakas Insurance Agencies Limited, an insurance, financial
planning and benefits provider, and the President of the Creative Planning
Financial Group of Companies, a private provider of financial planning, benefits
and pension plans.
John J. Klobnak has served as Chairman of the Board and Chief Executive
Officer of LaserVision since July 1988. From 1990 to 1993, Mr. Klobnak served as
LaserVision's Chairman, President and Chief Executive Officer. From 1986 to
1988, he served as Chief Operating Officer and subsequently President of
MarketVision, a partnership acquired by LaserVision upon its inception in 1988.
Prior to 1986, Mr. Klobnak was engaged in marketing and consulting. Mr. Klobnak
is currently a director of Quick Study Radiology, Inc.
James C. Wachtman joined LaserVision as Chief Operating Officer of North
America operations effective June 1996 and became President in August 1998. From
1983 until he joined LaserVision, Mr. Wachtman was employed in various positions
by McGaw, Inc., a manufacturer of medical disposables. Most recently, he served
as Vice President of Operations of CAPS, a hospital pharmacy division of McGaw.
B. Charles Bono III joined LaserVision as Executive Vice President, Chief
Financial Officer and Treasurer in October 1992. From 1980 to 1992, Mr. Bono was
employed by Storz Instrument Company, a global marketer of ophthalmic devices
and pharmaceutical products that is now a part of Bausch and Lomb Surgical,
serving as Vice President of Finance from 1987 to 1992.
Lloyd D. Fiorini, J.D., LL.M., was appointed Secretary of TLC in November
1999 and General Counsel of TLC in March 2000. Prior to joining TLC as legal
counsel in July 1998, Mr. Fiorini practiced law in the Washington, D.C. offices
of the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Mr.
Fiorini's practice focused in the areas of health care fraud and abuse, health
care compliance and health care transactions. Mr. Fiorini received a Masters of
Law in Health Law from Loyola University School of Law - Chicago.
Robert W. May joined LaserVision as its Vice-Chairman and General Counsel
in September 1993. Prior to joining LaserVision as a full-time employee, Mr. May
served as Corporate Secretary, General Corporate Counsel and a director of
LaserVision. He was engaged in private legal practice in St. Louis, Missouri
from 1985 until 1993.
Jeffery J. Machat, MD, is the Co-National Medical Director of TLC. Prior
to co-founding TLC in 1993, Dr. Machat performed laser vision correction at the
Laser Eye Centre, the Toronto Laser Sight Centre, the Bochner Eye Institute and
the Windsor Laser Eye Institute. Dr. Machat received his Royal College of Canada
Certification in Ophthalmology in 1990. Dr. Machat was also board certified by
the American Academy of Ophthalmology in 1991 and is a member of the American
Society of Cataract and Refractive Surgeons and the International Society of
Refractive Surgery.
John F. Riegert has been a director of TLC since June 1995. Mr. Riegert
was the Secretary of TLC from 1995 until November 1999. Prior to joining TLC,
Mr. Riegert was the Chief Executive Officer of Crossroads Christian
Communications Inc., a national broadcasting company, from 1992 to 1995, a
private corporate consultant from 1991 to 1992, and the Vice President and
Secretary-Treasurer of the Canadian Bankers' Association from 1969 to 1991.
Howard J. Gourwitz has been a director of TLC since June 1995. Mr.
Gourwitz has been a shareholder of the Southfield, Michigan law firm Gourwitz
and Barr, P.C. since January 1993. Mr. Gourwitz specializes in the practice of
corporate and tax law, estate and financial planning, and commercial planning,
real estate, sports and entertainment law.
129
Thomas N. Davidson has been Chairman of NuTech Precision Metals Inc. and
Chairman of Quarry Hill Group, a private investment holding company, since 1986.
NuTech Precision Metals Inc. is a manufacturer of high performance metal
fabrications for the health care, aerospace, high technology and chemical
industries. Mr. Davidson is past Chairman of Hanson Chemical Inc., a supplier of
janitorial cleaning products, General Trust and PCL Packaging Inc., a supplier
of plastic packaging. He is on the board of several Canadian and U.S. public
companies and was recognized by the Financial Post as the Canadian Entrepreneur
of the year in 1979.
William David Sullins, Jr., OD, has been a director of TLC since June
1995. Dr. Sullins has been the President and Chief of Clinical Services of
Athens Eye Care Clinic, P.C., a professional optometric corporation, since 1991.
Dr. Sullins is a founding member and distinguished practitioner of National
Academies of Practice, a Fellow and former member of the Admissions Committee of
the American Academy of Optometry, a Fellow and Admissions Chair of the
Tennessee Academy of Optometry, Adjunct Professor at the Southern College of
Optometry, member Council on Optometric Education, and Past President and former
Chairman of the Board of Trustees of the American Optometric Association. Dr.
Sullins is a director of First Franklin Bankshares, a financial holding company,
and of First National Bank and Trust Company. Dr. Sullins is a Fellow of the
American Association of Optometry.
Warren S. Rustand has been a director of TLC since October 1997. Mr.
Rustand is currently the Managing General Partner of Harlingwood Capital
Partners, a San Diego-based investment firm. Mr. Rustand was the Chairman and
Chief Executive Officer of Rural/Metro Corporation, a U.S. public company
providing ambulance and fire protection services, from 1996 to August 1998. Mr.
Rustand was Chairman and Chief Executive Officer of The Cambridge Company Ltd.,
a merchant banking and management consulting company, from 1987 to 1997. From
1994 to 1997, Mr. Rustand was also the Chairman of 20/20 Laser Centers, Inc.,
which was acquired by TLC in 1997.
Mark Whitten, M.D. has served as the Regional Medical Director of TLC in
the Washington D.C. metropolitan area since 1997. Dr. Whitten served as Chairman
of the Board at the Washington National Eye Center at Washington Hospital Center
in 1992 and as Vice President of the Board of Directors from 1990 to 1991. From
1994 to 1996 Dr. Whitten was the Chairman of the Medical Society of D.C. and in
1995 was President of the Washington Ophthalmological Society. Dr. Whitten was
also a council member of the American Academy of Ophthalmology between 1991 and
1996. Dr. Whitten has also been a clinical instructor for VISX, a manufacturer
of excimer lasers, since 1997.
James M. Garvey has served as a director of LaserVision since November
1995. Mr. Garvey serves as Chief Executive Officer and Managing Partner of
Schroder Ventures Life Sciences Advisors, a venture capital advisory company
which he joined in May 1995. From 1989 to 1995, Mr. Garvey was Director of
Allstate Venture Capital, the venture capital division of Allstate Corp., after
initially directing Allstate Venture Capital's health care investment activity.
Mr. Garvey is currently a director of Achillion Pharmaceuticals, Inc., SunRise
"At Home" Assisted Living, Inc., Discovery Therapeutics, Inc., Quick Study
Radiology, Inc., Orthovita, Inc. and has served as director and Chairman of
several public and private health care companies.
Richard L. Lindstrom, M.D. has served as a director of LaserVision since
November 1995. Since 1979, Dr. Lindstrom has been engaged in the private
practice of ophthalmology and has been the President of Minnesota Eye
Consultants P.A., a provider of eyecare services, or its predecessor since 1989.
In 1989, Dr. Lindstrom founded the Phillips Eye Institute Center for Teaching &
Research, an ophthalmic research and surgical skill education facility, and he
currently serves as the Center's Medical Director. Dr. Lindstrom has served as
an Associate Director of the Minnesota Lions Eye Bank since 1987. He is a
medical advisor for several medical device and pharmaceutical manufacturers.
From 1980 to 1989, he served as a Professor of Ophthalmology at the University
of Minnesota. Dr. Lindstrom received his M.D., B.A. and B.S. degrees from the
University of Minnesota.
David S. Joseph joined LaserVision's board of directors in June 2001. Mr.
Joseph has been Chairman of Orthovita, Inc., a biomaterials company, since May
1999, after having previously served as President and Chief Executive Officer
since 1993. He is also a member of the Board of Directors of Highway to Health,
Animas Corporation, and Morphotek, Inc. He was a co-founder, President and CEO
of both Site Microsurgical Systems, an
130
ophthalmic device company, acquired by Johnson and Johnson, and co-founder,
President and CEO of Surgical Laser Technologies Inc., a manufacturer of laser
systems and non-laser surgical devices.
Principal Holders of Securities
To TLC's and LaserVision's knowledge, based upon current ownership of
securities, TAL Global Asset Management Inc. is the only person who will
beneficially own, directly or indirectly, or exercise control or direction over,
common shares of TLC VISION carrying more than 5% of the voting rights attached
to all common shares of the company. TAL Global Asset Management Inc. will
beneficially own 5,215,825 common shares of TLC VISION, representing 8.1% of the
common shares of TLC VISION following the merger. The 5,215,825 common shares of
TLC VISION which will be owned by TAL Global Asset Management Inc. includes
options to purchase 9,500 TLC common shares which are currently exercisable or
exercisable within 60 days of November 30, 2001.
Dividend Policy
We expect that TLC VISION will retain earnings to finance the growth and
development of its business and, accordingly, we do not anticipate paying cash
dividends on TLC VISION common shares in the near future. Determinations to pay
future dividends and the amount thereof will be made by the board of directors
of TLC VISION and will depend on its future earnings, capital requirements,
financial condition and other relevant factors.
Independent Auditors
Subject to TLC shareholder approval, Ernst & Young LLP, the current
auditors of TLC, will be the independent auditors of TLC VISION and its
subsidiaries.
Transfer Agent and Registrar
The transfer agent and registrar for the TLC common shares in Canada is,
and after the merger will be, CIBC Mellon Trust Company at its principal office
in Toronto at 320 Bay St. P.O. Box 1, Toronto, Ontario, M5M 4A6, Telephone:
(416) 643-5500. The transfer agent and registrar for the TLC common shares in
the United States is, and after the merger will be, Mellon Investor Services at
its principal office in New Jersey at Overpeck Centre, 85 Challenger Road,
Ridgefield Park, New Jersey 07660, Telephone: (201) 296-4000.
Certain Relationships and Related Party Transactions
In January 1999, LaserVision entered into a limited partnership agreement
with Minnesota Eye Consultants for the operation of one of its roll-on/roll-off
mobile systems. Dr. Richard Lindstrom, a director and medical director of
LaserVision and a proposed director of TLC VISION, is president of Minnesota Eye
Consultants. LaserVision is the general partner and owns 60% of the partnership.
Minnesota Eye Consultants, P.A. is a limited partner and owns 40% of the
partnership. LaserVision contributed equipment valued at $650,000 to the
partnership and received $260,000 from Minnesota Eye Consultants. LaserVision
receives a revenue-based management fee from the partnership.
In September 2000, LaserVision entered into a five-year agreement with
Minnesota Eye Consultants to provide laser access. LaserVision paid $6.2 million
to acquire five lasers and the exclusive right to provide laser access to
Minnesota Eye Consultants. LaserVision also assumed leases on three of the five
lasers acquired. The transaction resulted in a $5.0 million intangible asset
recorded as deferred contract rights which will be amortized over the life of
the agreement.
Dr. Lindstrom receives compensation from LaserVision in his capacity as
medical director for both LaserVision and its mobile cataract subsidiary,
Midwest Surgical Services.
On March 1, 2001, a limited liability company indirectly wholly owned by
TLC acquired all of the non-medical assets relating to the refractive practice
of Dr. Mark Whitten, a proposed director of TLC VISION. The cost
131
of this acquisition was $20,000,000 with $10,000,000 paid in cash on March 1,
2001 and the remaining $10,000,000 payable in four equal installments on each of
the first four anniversary dates of closing. In addition, TLC has entered into
services agreements with companies that own Dr. Whitten's refractive satellite
operations located in Frederick, Maryland, and Charlottesville, Virginia, under
which TLC will provide such companies with services in return for a fee. Under
the purchase agreement, Dr. Whitten has also agreed to a non-competition
covenant which will cease to apply if TLC fails to pay the deferred portion of
the purchase price.
Dr. Whitten also entered into an employment agreement effective March 1,
2001 with a professional corporation in which TLC has an exclusive management
agreement. Dr. Whitten agreed to be employed for 15 years to perform refractive
surgery at TLC sites through this professional corporation. For so long as Dr.
Whitten's employment agreement is in force, Dr. Whitten will have one of the
three seats on the management board of the TLC limited liability company that
acquired his assets.
The interests of members of the proposed management and board of directors
of TLC VISION in the merger are discussed under "The Merger -- Interests of
Specified Persons in the Merger."
132
DESCRIPTION OF TLC SHARE CAPITAL
General
The authorized capital of TLC consists of an unlimited number of common
shares, of which 38,065,058 common shares were outstanding as of November 30,
2001. The common shares entitle holders to one vote per share at all meetings of
shareholders of TLC, to share ratably in any dividends declared by the board of
directors on the common shares and to receive the property remaining after the
satisfaction of prior claims in the event of a dissolution of TLC.
TLC Shareholder Rights Plan
In 1999, TLC shareholders approved the adoption of a shareholders rights
plan. The material terms of the rights plan are summarized below. The proposed
merger does not trigger the terms of the shareholder rights plan and the rights
plan agreement will remain in force after the merger. Reference should be made
to the actual provisions of the shareholder rights plan agreement between TLC
and CIBC Mellon Trust Company as rights agent, a copy of which has been filed as
an exhibit to the registration statement of which this joint proxy
statement/prospectus is a part.
Rights
One right has been issued and is attached to each outstanding common share
of TLC. A right only becomes exercisable upon the occurrence of a flip-in event,
which is a transaction by which a person becomes an acquiring person and which
otherwise does not meet the requirements of a permitted bid.
When exercised, a right entitles each TLC shareholder who is not then
attempting to acquire control of TLC to purchase additional TLC common shares at
a substantial discount to market value. This purchase would cause substantial
dilution to the person or group of persons attempting to acquire control of TLC,
other than by way of a permitted bid. The rights will expire on the termination
of the rights plan, unless redeemed before such time.
Acquiring Person
An acquiring person is generally a person who becomes the beneficial owner
of 20% or more of the outstanding TLC common shares. Under the rights plan,
there are various exceptions, including:
(1) a person who acquires 20% or more of the outstanding common shares
due to:
o acquisitions of common shares by TLC;
o pro rata distributions of common shares by TLC; or
o the issuance of common shares on an exempt private placement
basis, subject to certain limits; and
(2) underwriters who obtain TLC common shares for the purposes of a
public distribution.
Beneficial Ownership
The thresholds for triggering the rights plan are based on the percentage
of shares that are beneficially owned by a person. This is defined in terms of
legal or equitable ownership of TLC common shares. In addition, a person is
deemed to be the beneficial owner of TLC common shares in circumstances where
that person, and its affiliates or associates and any other person acting
jointly or in concert with such person, has a right to acquire TLC common shares
within 60 days. There are various exceptions to this rule, including:
o persons who tender TLC common shares under a take-over bid;
133
o persons such as portfolio managers who hold as nominees;
o persons who enter into lock-up agreements on certain terms and
conditions; and
o persons who have been given proxies to vote other persons' TLC
common shares in connection with a public proxy solicitation, or who
have agreements as to how they will vote their common shares.
Permitted Bid
If a take-over bid is structured as a permitted bid, a flip-in event will
not occur and the rights will not become exercisable. The requirements of a
permitted bid include the following:
o the take-over bid must be made to all shareholders by means of a
take-over bid circular;
o the take-over bid must not permit the bidder to take up any TLC
common shares that have been tendered to the take-over bid prior to
the expiry of a period not less than 60 days after the take-over bid
is made, and then only if at such time more than 50% of the TLC
common shares held by the independent shareholders, being
shareholders other than the bidder, its affiliates and persons
acting jointly or in concert with such bidder, have been tendered to
the take-over bid and not withdrawn;
o the take-over bid must contain an irrevocable and unqualified
provision that, unless it is withdrawn, TLC common shares may be
tendered at any time during the 60 day period referred to above and
that any common shares deposited under the take-over bid may be
withdrawn until they have been taken up and paid for; and
o if more than 50% of the TLC common shares held by independent
shareholders are tendered to the take-over bid within the 60-day
period, then the bidder must make a public announcement of that fact
and the take-over bid must then remain open for an additional 10
business days from the date of such public announcement.
The rights plan also allows a competing permitted bid to be made while a
permitted bid is in existence. A competing permitted bid is a take-over bid that
is made after a permitted bid has been made but prior to its expiry, and which
satisfies all of the requirements of a permitted bid except that it may expire
on the same date as the permitted bid, provided that the competing permitted bid
is open for a minimum of 21 days.
The requirements of a permitted bid and competing permitted bid enable TLC
shareholders to decide whether the take-over bid or any competing permitted bid
is adequate on its own merits, without being influenced by the likelihood that a
take-over bid will succeed. Moreover, if there is sufficient support for a
take-over bid such that at least 50% of the outstanding TLC common shares have
been tendered to it, a shareholder who has not yet tendered to that bid will
have a further 10 business days in which to decide whether to withdraw its TLC
common shares from a competing take-over bid, if any, and whether to tender to
the take-over bid.
Waiver and Redemption
The TLC board of directors may waive the application of the rights plan to
a particular take-over bid or redeem the rights in the following circumstances:
o a waiver can only be given where a take-over bid is made by way of a
take-over bid circular;
o a waiver given in respect of one take-over bid constitutes an
automatic waiver in respect of all other competing take-over bids;
o a waiver may be given in the event of an acquisition of TLC common
shares by any person over the 20% threshold, provided that such
person agrees to dispose of the excess shares within 30 days, if
such acquisition was inadvertent and without any intention to cause
a flip-in event, and otherwise within 10 days; and
134
o the rights are deemed to be redeemed upon the successful completion
of a permitted bid or a competing permitted bid if a waiver has been
given in respect of any other take-over bid made by way of circular.
The TLC board of directors may, however, terminate the rights plan, with
prior shareholder approval, at any time prior to the occurrence of a flip-in
event by redeeming all of the rights that are then outstanding at a price of
Cdn$0.0001 per right.
Termination
The rights plan will expire on the fifth anniversary of its adoption,
namely on November 4, 2004. However, shareholder reconfirmation of the rights
plan is required at the first annual TLC shareholder meeting after the third
anniversary of the rights plan, namely at the TLC shareholder meeting to be held
after November 4, 2002.
135
BUSINESS OF TLC
For a more detailed description of the business of TLC we encourage you to
refer to TLC's annual report on Form 10-K for the fiscal year ended May 31,
2001, including TLC's audited consolidated financial statements and TLC's
Management's Discussion and Analysis of Financial Condition and Results of
Operations, incorporated by reference in this joint proxy statement/prospectus.
General
TLC Laser Eye Centers Inc.
5280 Solar Drive
Suite 300
Mississauga, Ontario
L4W 5M8, Canada
(905) 602-2020
TLC is one of the largest providers of laser vision correction services in
North America. TLC owns and manages eye care centers which, together with TLC's
network of over 12,500 eye care doctors, provide laser vision correction of
common refractive vision disorders such as nearsightedness, farsightedness and
astigmatism. Laser vision correction is an out-patient procedure that is
designed to change the curvature of the cornea to reduce or eliminate a
patient's reliance on eyeglasses or contact lenses. TLC, which commenced
operations in September 1993, currently has 60 eye care centers in 28 states and
provinces throughout the United States and Canada. More than 350,000 paid
refractive procedures have been performed at TLC centers, including over 122,800
performed at TLC's centers during fiscal 2001.
More than 95% of the excimer laser procedures currently performed at TLC's
eye care centers are Laser In-Site Keratomileusis, known as LASIK. In LASIK, an
automated microsurgical instrument called a microkeratome is used to create a
thin corneal flap which remains hinged to the eye. The flap is pulled back and
the excimer laser pulses are applied to the inner layers of the eye. The
remaining procedures are Photofractive Keratectomy, known as PRK, in which the
excimer laser pulses are applied directly to the cornea. TLC's medical directors
believe LASIK generally allows for more precise correction than PRK for higher
levels of nearsightedness and farsightedness, with or without astigmatism,
greater predictability of results and decreased probability of regression. TLC
considers itself a clinical leader in the field of vision correction procedures.
TLC's medical directors continually evaluate new vision correction technologies
and procedures and seek to ensure that patients at TLC's eye care centers are
receiving the highest quality vision care.
In the past year, TLC affirmed its strategy to position itself as a
premium provider of laser vision correction services. TLC believes that superior
quality of care and outstanding clinical results will be the long-term
determinants of success in the laser vision correction industry.
In response to the recent industry turmoil, TLC retained the services of a
national consulting firm and undertook an extensive review of its internal
structures, market position, resources and future strategies. That review
supported TLC's decision to maintain its premium brand model. TLC decided that
its focus would remain on maximizing revenues through TLC's co-management model
and innovative marketing programs, controlling costs without compromising
superior quality of care and clinical outcomes and pursuing additional growth
opportunities for its core laser vision correction business through its TLC
Affiliate Center Program and strategic acquisitions.
Recent Developments
On October 15, 2001, TLC announced its first quarter results for the
period ended August 31, 2001. TLC reported an operating loss of $0.11 per share,
excluding non-cash charges relating to the amortization of intangibles from
acquisitions, compared to a loss of $0.05 per share in the same quarter of its
2001 fiscal year. TLC reported a net loss of $0.17 per share for the quarter
compared to $0.14 in the first quarter of fiscal 2001.
136
On December 5, 2001, TLC announced the departure of Thomas G. O'Hare as
President and Chief Operating Officer effective December 7, 2001. For a
description of Mr. O'Hare's separation agreement, see "Information Regarding the
TLC Shareholder Meeting - Information on Executive Compensation - Employment
Contracts - Thomas G. O'Hare".
137
Business of LaserVision
For a more detailed description of the business of LaserVision refer to
LaserVision's annual report on Form 10-K for the fiscal year ended April 30,
2001, including LaserVision's audited consolidated financial statements and
LaserVision Management's Discussion and Analysis of Financial Condition and
Results of Operations, incorporated by reference in this joint proxy
statement/prospectus.
General
Laser Vision Centers, Inc.
540 Maryville Centre Drive
Suite 200
St. Louis, Missouri 63141
(314) 434-6900
LaserVision provides access to computer controlled lasers called excimer
lasers, automated surgical instruments used to create a thin flap on the eye
called microkeratomes, other equipment and value added support services such as
training, technical support and equipment maintenance to eye surgeons for the
treatment of nearsightedness, farsightedness, astigmatism and cataracts
primarily in the United States. Much of LaserVision's equipment is mobile and is
routinely moved from location to location in response to customer demand for
procedures. LaserVision also provides equipment at fixed locations.
LaserVision's flexible delivery system enlarges the pool of potential locations,
eye surgeons and patients that it can serve, and allows it to effectively
respond to changing market demands.
Eye surgeons pay LaserVision a fee for each procedure they perform using
its equipment. LaserVision typically provides each piece of equipment to many
different eye surgeons, which allows LaserVision to more efficiently use the
equipment and offer it at an affordable price. LaserVision refers to its
practice of providing equipment to multiple eye surgeons as shared access.
Eye surgeons take advantage of LaserVision's shared access and flexible
delivery system for a variety of reasons including the ability to:
o avoid a large capital investment;
o eliminate the risks associated with buying high-technology equipment
that may rapidly become obsolete;
o obtain technical support provided by its laser engineers and
microkeratome technicians;
o use the equipment without responsibility of maintenance or repair;
o cost-effectively serve small to medium-sized markets and remote
locations; and
o serve satellite locations even in large markets.
LaserVision provides a broad range of support services to the eye surgeons
who use its equipment, including initial training of physicians and staff,
technical support and equipment maintenance, marketing, clinical advisory
service, patient financing, partnership opportunities and practice satelliting.
Eye surgeons who are developing their practices, or who perform limited numbers
of procedures, find LaserVision's support services particularly attractive.
LaserVision continues to look for ways to expand its support services, so that
it can offer value to those surgeons who perform enough procedures to otherwise
justify the purchase of their own equipment.
LaserVision provides mobile cataract equipment and services through its
Midwest Surgical Services, Inc., Southeast Medical, Inc. and Southern
Ophthalmics, Inc. subsidiaries. LaserVision's OR Providers, Inc. subsidiary
provides cataract equipment and services at fixed sites. The cataract division
focuses on developing relationships between local hospitals, referring
optometrists and eye surgeons in small to medium-sized markets. In this way,
138
LaserVision expands the demand for "close to home" cataract surgery which
LaserVision makes economically feasible through its shared-access approach and
mobile systems.
Recent Developments
On August 31, 2001, LaserVision completed the acquisition of substantially
all of the assets and certain of the liabilities of ClearVision Laser Centers,
Inc., a Nevada corporation, and its wholly owned subsidiaries, under the terms
of an asset purchase agreement by and among LaserVision and ClearVision.
Under the terms of the asset purchase agreement, LaserVision paid an
aggregate of $4,882,242 in cash and issued 2,129,085 shares of LaserVision
common stock to ClearVision as consideration for the purchase of the acquired
assets. Of the 2,129,085 shares of LaserVision common stock issued to
ClearVision, an aggregate of 750,000 shares were placed in escrow as security
for the payment of certain post-closing purchase price adjustments and any
indemnity claims which may be owed by ClearVision to LaserVision under the terms
of the asset purchase agreement. LaserVision also entered into a registration
rights agreement with respect to the 2,129,085 shares of LaserVision common
stock issued to ClearVision in the transaction under which LaserVision agreed to
register such shares under the U.S. Securities Act of 1933, as amended, upon the
terms and conditions set forth in the registration rights agreement.
ClearVision developed and operated excimer laser centers for the
correction of refractive vision disorders and provided mobile access to excimer
lasers in 13 states in the United States.
On October 23, 2001, LaserVision announced that it expects to report a net
loss of $0.07 to $0.10 per share for the second quarter ended October 31, 2001.
For the same quarter of its 2001 fiscal year, LaserVision reported earnings per
share of $0.02. For the six-month period ended October 31, 2001, LaserVision
expects to report a loss of $0.06 to $0.09 per share compared to earnings per
share of $0.15, or $0.14 per share fully diluted, for the six-month period ended
October 31, 2000.
139
COMPARISON OF SHAREHOLDER RIGHTS
Following the merger, the shareholders of LaserVision, a Delaware
corporation, will become shareholders of TLC, which will be continued under the
laws of the province of New Brunswick and will change its name to TLC VISION
Corporation. TLC is currently an Ontario corporation. The following is a summary
of the material differences between the current rights of LaserVision and TLC
shareholders and the rights of shareholders under New Brunswick law. These
differences arise from differences between the Delaware General Corporation Law,
the Business Corporations Act (Ontario) and the Business Corporations Act (New
Brunswick), and between LaserVision's articles of incorporation and by-laws,
TLC's articles of incorporation and by-laws, and the proposed articles and
by-laws of TLC VISION. For a more detailed description of the rights of
LaserVision shareholders and TLC shareholders you should refer to the relevant
provisions of Delaware, Ontario and New Brunswick law, the LaserVision articles
and LaserVision by-laws, the TLC articles and the TLC by-laws and the proposed
articles and by-laws of TLC VISION. For information as to where the governing
instruments of LaserVision and TLC may be obtained, see "Where You Can Find More
Information." The proposed articles and by-laws of TLC VISION appear as Appendix
D to this joint proxy statement/prospectus.
Ontario Law Compared To New Brunswick Law
Upon the issuance of a certificate of continuance under New Brunswick law,
the shareholders of TLC, a corporation incorporated under the laws of the
province of Ontario, will become shareholders of a corporation continued under
the laws of the province of New Brunswick. Generally, Ontario and New Brunswick
law provide substantially similar rights to shareholders of a corporation
existing under either of those jurisdictions. New Brunswick law contains
derivative action, oppression, and dissent and appraisal rights similar to those
provided by Ontario law. There are, however, differences between Ontario and New
Brunswick law which will result in various changes to the rights of TLC
shareholders. The following is a summary of the significant differences between
Ontario and New Brunswick law which may affect the rights of TLC shareholders.
The following is a summary only and does not purport to be a comprehensive
statement of the statutory provisions to which reference is made.
Residency and Qualification of Directors
New Brunswick law does not require directors to be residents or citizens
of Canada. Accordingly, following the continuance, TLC will not be required to
have a majority of directors who are resident Canadians on the board of
directors of TLC, or any committee thereof, as currently required under Ontario
law.
Cumulative Voting
Under New Brunswick law, shareholders have cumulative voting rights in the
election of directors. Ontario law permits, but does not require, such
cumulative voting rights. Cumulative voting rights permit each shareholder
entitled to vote at a meeting of shareholders to cast a number of votes equal to
the number of shares held by the shareholder multiplied by the number of
directors to be elected. The shareholder is entitled to cast all such votes in
favor of one candidate for director or distribute them among the candidates in
any manner. The articles of continuance of TLC, however, provide that, subject
to applicable law, the shareholders of TLC will not have cumulative voting
rights. Such provision has been included in the articles of continuance to
anticipate any potential future amendment of New Brunswick law, should New
Brunswick law be amended to permit articles to provide that such cumulative
voting rights will not be available to shareholders subject to New Brunswick
law. Shareholders should note, however, that New Brunswick law does not
currently contain any such provision permitting articles to provide that such
cumulative voting rights will not apply.
Auditors and Financial Statements
After the merger, TLC Vision intends to prepare and deliver quarterly and
annual financial statements in accordance with U.S. and Canadian generally
accepted accounting principles. As described above, TLC, notwithstanding
continuance under New Brunswick law, will continue to be subject to applicable
securities laws in Canada and the rules of The Toronto Stock Exchange which
provide for comprehensive financial reporting and audit
140
requirements including, for example, preparation and delivery of audited
financial statements in accordance with Canadian generally accepted accounting
principles and the appointment of an audit committee. Accordingly, the following
differences between Ontario and New Brunswick law will not impact the financial
statements and audit requirements currently imposed upon TLC by such securities
laws and stock exchange rules. New Brunswick law does not require TLC to appoint
an auditor or require that financial statements be subject to audit. Further,
New Brunswick law does not require financial statements to be prepared in
accordance with Canadian generally accepted accounting principles. Under Ontario
law, a public company is required to appoint an auditor and to deliver audited
financial statements to shareholders. Such financial statements, under the
Securities Act (Ontario), are required to be prepared in accordance with
standards of the Canadian Institute of Chartered Accountants. Further, under
Ontario law, TLC is required to appoint an audit committee. New Brunswick law
does not contain a similar requirement.
Share Capital
Under Ontario law, there is no provision for par value shares. Under New
Brunswick law, share capital may be specified as having a par value or no par
value. The proposed TLC Vision articles continue to provide for only non-par
value shares.
Pre-Emptive Rights
Under New Brunswick law, unless otherwise provided in the articles of a
corporation, shareholders generally have pre-emptive rights with respect to the
issuance of certain securities of the corporation. However, New Brunswick law
provides that a corporation which has its shares listed on a prescribed stock
exchange, including The Toronto Stock Exchange, is not subject to the otherwise
applicable pre-emptive rights provisions in the New Brunswick Act. Furthermore,
the proposed TLC Vision articles specifically provide that such pre-emptive
rights will not be available to shareholders of the corporation. Under Ontario
law, the granting of pre-emptive rights is permissive rather than mandatory and
there is no provision in the articles of TLC for pre-emptive rights.
Take-Over Bid Rules
Ontario law does not prescribe take-over bid rules and requirements.
Applicable securities laws, however, contain comprehensive take-over bid rules
which stipulate a 20% threshold for their application to an offer to acquire
shares. Generally stated, these rules provide that any person or company which
offers to acquire shares which result in such person or company holding more
than 20% of the outstanding shares of TLC, must, with certain exceptions, make
an identical offer to all the shareholders of TLC. The corresponding percentage
under New Brunswick law is 50%; however, the 20% threshold under applicable
securities laws will continue to apply to TLC Vision.
Financial Assistance
Under New Brunswick law, the articles of TLC may provide that financial
assistance may be given to certain persons and related corporations
notwithstanding solvency tests otherwise prescribed in New Brunswick law. The
TLC Vision articles do not so provide. Ontario law does not prescribe solvency
tests for financial assistance but requires that all material financial
assistance provided to certain persons and related corporations be disclosed to
shareholders.
Shareholder Proposals
New Brunswick law provides that holders of not less than 10% of the voting
shares of TLC may submit a proposal with respect to the election of directors.
The corresponding threshold under Ontario law is 5%. However, the articles of
continuance of TLC specifically provide that holders of not less than 5% of the
voting shares of TLC may submit a proposal with respect to the election of
directors.
141
Mandatory Solicitation of Proxies
As described above, TLC, notwithstanding continuance under New Brunswick
law, will continue to be subject to applicable securities laws and The Toronto
Stock Exchange rules which provide for comprehensive mandatory proxy
solicitation rules. Accordingly, the following differences between New Brunswick
and Ontario law will not impact upon the requirement for the mandatory
solicitation of proxies by TLC currently imposed upon TLC by such securities
laws and stock exchange rules. New Brunswick law contains no provisions relating
to the mandatory solicitation of proxies. Ontario law provides that, in the
event a corporation offers its securities to the public, management must, with
respect to any meeting of shareholders, provide a form of proxy together with
the giving of notice of such meeting to each shareholder who is entitled at that
time to receive notice of the meeting. Under Ontario law, proxies cannot be
solicited without the delivery of either a management or a dissident's proxy
circular.
Requisition of Meeting by Shareholders
New Brunswick law provides that holders of not less than 10% of the voting
shares of TLC may require the directors to call a meeting of shareholders. The
corresponding threshold under Ontario law is 5%.
Investigations of TLC
Under New Brunswick law, the holders of not less than 10% of the issued
shares of any class of a corporation may apply to the court for an order
requiring that an investigation be made of a corporation or of any affiliated
corporation. Under Ontario law, any security holder, which includes any
shareholder, may make such an application.
Delaware Law Compared To New Brunswick Law
LaserVision shareholders, whose rights are currently governed by the
LaserVision certificate of incorporation, the LaserVision by-laws and Delaware
law, will, upon completion of the merger, become shareholders of TLC VISION and
their rights with respect to TLC VISION common shares will be governed by the
articles and by-laws of TLC VISION and the laws of the province of New
Brunswick. Generally, Delaware and New Brunswick law provide substantially
similar rights to shareholders of a corporation existing under either of those
jurisdictions. There are, however, differences between Delaware and New
Brunswick law which will result in various changes to the rights of LaserVision
shareholders. The following is a summary of the significant differences between
Delaware and New Brunswick law which may affect the rights of LaserVision
shareholders. The following is a summary only and does not purport to be a
comprehensive statement of the statutory provisions to which reference is made.
Share Capital
TLC's authorized capital stock is described under "Description of TLC
Share Capital" and will remain the same upon the continuance of TLC under the
laws of New Brunswick. The total authorized shares of capital stock of
LaserVision consists of 50,000,000 shares of common stock, par value $0.01 per
share, and 1,000,000 shares of preferred stock, par value $0.01 per share. On
the close of business on November 30, 2001, 27,865,911 shares of LaserVision
common stock were issued and outstanding and no shares of LaserVision preferred
stock were issued and outstanding.
The LaserVision certificate of incorporation provides that the LaserVision
board of directors is authorized to provide for the issuance from time to time
of shares of LaserVision preferred stock in one or more series. The LaserVision
board of directors is expressly authorized to fix the designations, powers,
including voting powers, preferences, rights, qualifications, limitations,
restrictions and other terms of any series of LaserVision preferred stock. The
LaserVision board of directors may also increase the number of shares of any
series subsequent to the issuance of shares of such series.
142
Filling Vacancies on the Board of Directors
Under New Brunswick law, a quorum of directors may appoint one or more
directors to fill a vacancy among the directors as long as the director or
directors so appointed holds office for a term expiring at the close of the next
annual meeting of shareholders. However, New Brunswick law provides that a
vacancy created by an increase in the number of directors must be filled by the
shareholders.
Delaware law and the by-laws of LaserVision provide that vacancies and
newly created directorships may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, unless
otherwise provided in the certificate of incorporation or by-laws.
Vote Required for Extraordinary Transactions
Under New Brunswick law, certain extraordinary corporate actions, such as
certain amalgamations, other than with a direct or indirect wholly owned
subsidiary, continuances, and sales, leases or exchanges of all or substantially
all the property of a corporation other than in the ordinary course of business,
and other extraordinary corporate actions such as liquidations, dissolutions
and, if ordered by a court, arrangements, are required to be approved by special
resolution. A special resolution is a resolution passed at a meeting by not less
than two-thirds of the votes cast by the shareholders who voted in respect of
the resolution. In certain cases, a special resolution to approve an
extraordinary corporate action is also required to be approved separately by the
holders of a class or series of shares, including in certain cases a class or
series of shares not otherwise carrying voting rights.
Delaware law requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon to authorize any merger,
consolidation, dissolution or sale of substantially all of the assets of a
corporation, except that, unless required by its certificate of incorporation:
o no authorizing shareholder vote is required of a corporation
surviving a merger if
(1) such corporation's certificate of incorporation is not amended
in any respect by the merger;
(2) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be
an identical outstanding or treasury share of the surviving
corporation after the effective date of the merger; and
(3) either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such
stock are to be issued or delivered under the plan of merger,
or the authorized unissued shares or the treasury shares of
common stock of the surviving corporation to be issued and
delivered in the merger plus those initially issuable upon
conversion of any other shares, securities or obligations to
be issued in the merger do not exceed 20% of such
corporation's outstanding common stock immediately prior to
the effective date of the merger; and
o in certain limited circumstances, no authorizing shareholder vote is
required of a corporation to authorize a merger with or into a
single direct or indirect wholly owned subsidiary of such
corporation. Shareholder approval is also not required under
Delaware law for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it
owns at least 90% of the outstanding shares of each class of stock,
so long as the parent corporation is the surviving corporation.
Amendment to Governing Documents
Under New Brunswick law, an amendment to the articles of a corporation
requires the approval of the holders of at least two-thirds of the outstanding
shares entitled to vote on the proposed amendment. The holders of the
outstanding shares of a class or series are entitled to vote as a separate class
on a proposed amendment that would:
143
o increase or decrease the maximum number of authorized shares of the
class or increase the maximum number of authorized shares of a class
or series having rights equal or superior to the class or series;
o effect an exchange, reclassification or cancellation of all or part
of the shares of such class or series;
o add, change or remove the rights, privileges, restrictions or
conditions attached to the shares of the class or series;
o increase the rights or privileges of any class or series of shares
having rights or privileges equal or superior to the class or
series;
o create a new class or series of shares equal or superior to the
shares of the class or series;
o make any class or series of shares having rights or privileges
inferior to the shares of the class equal or superior to the shares
of the class or series;
o effect an exchange or create a right of exchange of the shares of
another class or series into shares of the class or series; or
o add, change or remove restrictions on the transfer of the shares of
the class or series.
If any proposed amendment would affect the shares of a series in the
manner different from other shares of the same class, the holders of that series
are entitled to vote separately as a series on the proposed amendment.
New Brunswick law states that unless the articles or by-laws otherwise
provide, the directors may, by resolution, make, amend or repeal any by-laws
that regulate the business or affairs of a corporation. When the directors make,
amend or repeal a by-law, they are required under New Brunswick law to submit
the by-law, amendment or repeal to the shareholders at the next meeting of
shareholders. The shareholders may then confirm, reject or amend the by-law,
amendment or repeal by an ordinary resolution. An ordinary resolution is one
which is passed by a majority of the votes cast by shareholders who voted on the
resolution.
Under Delaware law, an amendment to the certificate of incorporation of a
corporation requires the approval of the board of directors and the approval of
the holders of a majority of the outstanding stock entitled to vote upon the
proposed amendment. The holders of the outstanding shares of a class are
entitled to vote as a separate class on a proposed amendment that would:
o increase or decrease the aggregate number of authorized shares of
the class;
o increase or decrease the par value of the shares of the class; or
o alter or change the powers, preferences or special rights of the
shares of the class, so as to affect them adversely.
If any proposed amendment would alter or change the powers, preferences or
special rights of one or more series of any class so as to affect them
adversely, but would not so affect the entire class, then only the shares of the
series so affected by the amendment will be considered a separate class.
Under Delaware law, unless a corporation's certificate of incorporation
provides otherwise, the shareholders entitled to vote have the power to adopt,
amend or repeal the corporation's by-laws. The LaserVision certificate of
incorporation and by-laws provide that the LaserVision board of directors and
LaserVision shareholders are each expressly authorized to amend or repeal the
LaserVision by-laws.
144
Cumulative Voting
Under New Brunswick law, shareholders have cumulative voting rights in the
election of directors. Delaware law permits, but does not require, such
cumulative voting rights. Shareholders of LaserVision do not have the right to
cumulate their votes in the election of directors. Cumulative voting rights
permit each shareholder entitled to vote at a meeting of shareholders to cast a
number of votes equal to the number of shares held by the shareholder multiplied
by the number of directors to be elected. The shareholder is entitled to cast
all such votes in favor of one candidate for director or distribute them among
the candidates in any manner. The articles of continuance of TLC, however,
provide that, subject to applicable law, the shareholders of TLC will not have
cumulative voting rights. Such provision has been included in the articles of
continuance to anticipate any potential future amendment of New Brunswick law,
should New Brunswick law be amended to permit articles to provide that such
cumulative voting rights will not be available to shareholders subject to New
Brunswick law. Shareholders should note, however, that New Brunswick law does
not currently contain any such provision permitting articles to provide that
such cumulative voting rights will not apply.
Quorum Of Shareholders
Under New Brunswick law, a quorum consists of a majority of shares
entitled to vote present in person or represented by proxy unless the articles
or by-laws provide otherwise. The proposed TLC VISION by-laws will provide that
a quorum consists of two persons present in person and entitled to vote at the
meeting and holding or representing by proxy not less than 20% of the votes
entitled to vote at the meeting.
Under Delaware law, a quorum consists of a majority of shares entitled to
vote present in person or represented by proxy unless the certificate of
incorporation or by-laws provide otherwise. The LaserVision by-laws do not alter
the majority requirement of this statutory quorum requirement.
Shareholder Inspection Rights; Shareholder Lists
Under New Brunswick law, a shareholder has the right during usual business
hours to inspect in person or by agent or attorney, records containing copies of
the articles and by-laws of the corporation and any amendments to these articles
and by-laws, minutes of all meetings and resolutions of the shareholders, copies
of all notices of directors and notices of registered office, the names and
addresses of all persons who are or have been directors of the corporation and a
copy of the share register of the corporation.
Under Delaware law, any shareholder, in person or by attorney or other
agent, may inspect for any proper purpose LaserVision's stock ledger, a list of
its shareholders and its other books and records by serving the corporation with
a written demand, given under oath, that states his purpose for doing so. A
proper purpose is a purpose reasonably related to such person's interest as a
shareholder. A complete list of shareholders entitled to vote at any meeting of
shareholders must be open to the examination of any shareholder, for any purpose
germane to the meeting, for a period of at least 10 days prior to such meeting.
The list must also be kept at the place of the meeting during the whole time of
the meeting and may be inspected by any shareholder who is present at the
meeting.
Dissenters' Rights
New Brunswick law provides that shareholders of a New Brunswick
corporation are entitled to exercise dissenters' rights and to be paid the fair
value of their shares in certain circumstances. New Brunswick law does not
distinguish for this purpose between listed and unlisted shares. These
circumstances include:
o any amalgamation with another corporation, other than with certain
affiliated corporations;
o an amendment to the corporation's articles to add, change or remove
any provisions restricting the issue, transfer or ownership of
shares;
o an amendment to the corporation's articles to add, change or remove
any restriction upon the business or businesses that the corporation
may carry on;
145
o a continuance under the laws of another jurisdiction;
o a sale, lease or exchange of all or substantially all the property
of the corporation other than in the ordinary course of business;
o a court order permitting a shareholder to dissent in connection with
an application to the court for an order approving an arrangement
proposed by the corporation; or
o certain amendments to the articles of a corporation which require a
separate class or series vote,
provided that a shareholder is not entitled to dissent if an amendment to the
articles is effected by a court order approving a reorganization or by a court
order made in connection with an action for an oppression remedy.
Under New Brunswick law, a shareholder may be able to, in addition to
exercising dissenters' rights, seek an oppression remedy for any act or omission
of a corporation which is oppressive, unfairly prejudicial to, or that unfairly
disregards, a shareholder's interests. This remedy is described in more detail
below under "- Oppression Remedy."
Under Delaware law, holders of shares of any class or series have the
right, in certain circumstances, to dissent from a merger or consolidation by
demanding payment in cash for their shares equal to the fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, of such shares, as determined by a court in an action
timely brought by the corporation or the dissenters. Delaware law grants
dissenters' appraisal rights only in the case of mergers or consolidations, and
not in the case of a sale or transfer of assets or a purchase of assets for
stock regardless of the number of shares being issued. Further, no appraisal
rights are available for shares of any class or series listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 shareholders, unless the agreement of
merger or consolidation requires the holders thereof to accept for such shares
anything other than:
o stock of the surviving corporation;
o shares of stock of another corporation which shares of stock are
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 shareholders;
o cash in lieu of fractional shares, in the circumstances listed
above; or
o some combination of the above.
In addition, such rights are not available for any shares of the surviving
corporation if the merger did not require the vote of the shareholders of the
surviving corporation.
Oppression Remedy
New Brunswick law provides an oppression remedy that enables a court to
make any order, both interim and final, to rectify the matters complained of if
the court is satisfied upon application by a complainant that:
o any act or omission of the corporation or an affiliate effects a
result;
o the business or affairs of the corporation or an affiliate are or
have been carried on or conducted in a manner; or
o the powers of the directors of the corporation or an affiliate are
or have been exercised in a manner,
that is oppressive or unfairly prejudicial to, or that unfairly disregards, the
interest of any security holder, creditor, director or officer of the
corporation.
146
A complainant includes:
o a present or former registered holder or beneficial owner of
securities of the corporation or any of its affiliates;
o a present or former officer or director of the corporation or any of
its affiliates;
o the Director under the Business Corporations Act (New Brunswick);
o any other person who in the discretion of the court is a proper
person to make such application; and
o a creditor of the corporation.
The oppression remedy provides the court with an extremely broad and
flexible jurisdiction to intervene in corporate affairs to protect the
reasonable expectations of shareholders and other complainants. While conduct
which is in breach of fiduciary duties of directors or that is contrary to the
legal right of a complainant will normally trigger the court's jurisdiction
under the oppression remedy, the exercise of that jurisdiction does not depend
on a finding of a breach of such legal and equitable rights. Furthermore, the
court may order a corporation to pay the interim expenses of a complainant
seeking an oppression remedy, but the complainant may be held accountable for
such interim costs on final disposition of the complaint, as in the case of a
derivative action.
Delaware law does not provide for a similar remedy.
Derivative Action
Under New Brunswick law, a complainant may apply to the court for leave to
bring an action in the name of and on behalf of a corporation or any subsidiary,
or to intervene in an existing action to which any such body corporate is a
party, for the purpose of prosecuting, defending or discontinuing the action on
behalf of the corporation. Under New Brunswick law, no action may be brought and
no intervention in an action may be made unless the complainant has given
reasonable notice to the directors of the corporation or its subsidiary of the
complainant's intention to apply to the court if:
o the directors of the corporation or its subsidiary do not bring,
diligently prosecute or defend or discontinue the action;
o the complainant is acting in good faith; and
o it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
Under New Brunswick law, the court in a derivative action may make any
order it thinks fit and may order a corporation or its subsidiary to pay the
complainant's reasonable legal fees and disbursements.
Derivative actions may be brought in Delaware by a shareholder on behalf
of, and for the benefit of, a corporation governed by Delaware law. Delaware law
provides that a shareholder must aver in the complaint that he or she was a
shareholder of the corporation at the time of the transaction of which he or she
complains or that his or her shares thereafter devolved upon him or her by
operation of law. A shareholder may not sue derivatively unless he or she first
makes demand on the corporation that it bring suit and such demand has been
refused, unless it is shown that such suit would have been futile.
Shareholder Consent in Lieu of Meeting
Under New Brunswick law, shareholder action without a meeting may only be
taken by written resolution signed by all shareholders who would be entitled to
vote thereon at a meeting. Delaware law and the by-laws of LaserVision provide
that any action required to be taken or which may be taken at an annual or
special meeting of shareholders may be taken without a meeting, without prior
notice and without a vote if a consent in writing is signed
147
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize such action at a meeting at which all
shares entitled to vote were present and voted.
Dividends and Distributions
Under New Brunswick law, TLC VISION may declare or pay a dividend unless
there are reasonable grounds for believing that TLC VISION is or would after the
payment be unable to pay its liabilities as they become due or the realizable
value of TLC VISION's assets would be less than the aggregate of TLC VISION's
liabilities and stated capital of all classes of shares of TLC VISION.
Under Delaware law, subject to any restriction contained in a
corporation's certificate of incorporation, the board of directors may declare,
and the corporation may pay, dividends or other distributions upon the shares of
its capital stock either:
o out of surplus; or
o if there is no surplus, out of the net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year,
unless net assets are less than the capital of all outstanding
preferred stock.
Surplus is defined as the excess of the net assets of the corporation over
the amount determined to be the capital of the corporation by the board of
directors. The capital of the corporation cannot be less than the aggregate par
value of all issued shares of capital stock. Net assets equals total assets
minus total liabilities. The LaserVision certificate of incorporation does not
alter these provisions of Delaware law.
Fiduciary Duties of Directors
Directors of corporations governed by New Brunswick law have fiduciary
obligations to the corporation. Under New Brunswick law, directors must act
honestly and in good faith with a view to the best interests of the corporation,
and must exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
Directors of corporations incorporated or organized under Delaware law
have fiduciary obligations to the corporation and its shareholders. These
fiduciary obligations require the directors to act in accordance with the
so-called duties of due care and loyalty. Under Delaware law, the duty of care
requires that the directors act in a deliberative manner and that they inform
themselves, prior to making a business decision, of all material information
reasonably available to them. The duty of loyalty may be summarized as the duty
to act in good faith in a manner that the directors reasonably believe to be in
the best interests of the corporation and its shareholders.
Indemnification of Officers and Directors
Under New Brunswick law, a corporation may indemnify a director or
officer, a former director or officer or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation is or was a shareholder or creditor, and his or her heirs and legal
representatives, referred to as an indemnifiable person, against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of such corporation or such body
corporate, if:
o he or she acted honestly and in good faith with a view to the best
interests of such corporation; and
o in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful.
An indemnifiable person is entitled under New Brunswick law to such
indemnity from the corporation if he or she was substantially successful on the
merits in his or her defense of the action or proceeding and fulfilled the
148
conditions set out above. A corporation may, with the approval of a court, also
indemnify an indemnifiable person with respect to an action by or on behalf of
the corporation or body corporate to procure a judgment in its favor, to which
such person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, if he or she fulfils the
conditions set out above. Agreements between TLC and its directors and senior
officers provide for indemnification to the fullest extent permitted by law. The
proposed TLC Vision by-laws also provide for indemnification of directors and
officers to the fullest extent authorized by New Brunswick law.
Delaware law provides that a corporation may indemnify its present and
former directors, officers, employees and agents, each referred to as an
indemnitee, against all reasonable expenses, including attorneys fees, and,
except in actions initiated by or in the right of the corporation, against all
judgments, fines and amounts paid in settlement of actions brought against them,
if such individual acted in good faith and in a manner that he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The corporation shall indemnify a current or former
director or officer of the corporation to the extent that he or she is
successful on the merits or otherwise in the defense of any claim, issue or
matter associated with an action. The LaserVision by-laws provide for
indemnification of directors and officers to the fullest extent authorized by
Delaware law.
Delaware law allows for the advance payment of an officer or director
indemnitee's expenses prior to the final disposition of an action, provided
that, in the case of a current director or officer, the indemnitee undertakes to
repay any such amount advanced if it is later determined that the indemnitee is
not entitled to indemnification with regard to the action for which the expenses
were advanced. The agreements with TLC directors and senior officers and the
proposed TLC VISION by-laws provide for such advance payments.
Director Liability
New Brunswick law does not permit any limitation of a director's
liability. Delaware law provides that the charter of a corporation may include a
provision which limits or eliminates the liability of directors to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided such liability does not arise from certain
prescribed conduct, including breach of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, the payment of unlawful dividends or expenditure of funds for unlawful
stock repurchases or redemptions or transactions for which such director derived
an improper personal benefit. LaserVision's by-laws contain a provision limiting
the liability of its directors to the fullest extent permitted by Delaware law.
Under both Delaware and New Brunswick law, corporations may purchase and
maintain insurance for director and officer liability.
Anti-Take-Over Provisions and Interested Stockholders
Delaware law prohibits, in certain circumstances, a business combination
between the corporation and an interested stockholder within three years of the
stockholder becoming an interested stockholder. An interested stockholder is a
holder who, directly or indirectly, controls 15% or more of the outstanding
voting stock or is an affiliate of the corporation and was the owner of 15% or
more of the outstanding voting stock at any time within the prior three-year
period. A business combination includes a merger, consolidation, sale or other
disposition of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation or the aggregate market value of the
assets, determined on a consolidated basis, or outstanding stock of the
corporation and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation. This provision
does not apply where:
o the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the time the interested
stockholder acquired such 15% interest;
o upon the consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of
the corporation excluding, for the purpose of determining the number
of shares outstanding, shares held by
149
persons who are directors and also officers and by employee stock
plans in which participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered;
o the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding
votes entitled to be cast by disinterested stockholders at an annual
or special meeting;
o the corporation does not have a class of voting stock that is listed
on a national securities exchange, authorized for quotation on the
Nasdaq National Market System, or held of record by more than 2,000
stockholders unless any of the foregoing results from action taken,
directly or indirectly, by an interested stockholder or from a
transaction in which a person becomes an interested stockholder;
o the corporation has opted out of this provision; or
o in certain other limited circumstances.
New Brunswick law does not contain a comparable provision with respect to
business combinations. However, policies of certain Canadian securities
regulatory authorities, including Rule 61-501 of the Ontario Securities
Commission, contain requirements in connection with related party transactions.
A related party transaction means, generally, any transaction by which an
issuer, directly or indirectly, acquires or transfers an asset or acquires or
issues treasury securities or assumes or transfers a liability from or to, as
the case may be, a related party by any means in any one or any combination of
transactions. Related party is defined in Rule 61-501 and includes directors,
senior officers and holders of at least 10% of the voting securities of the
issuer.
Rule 61-501 requires more detailed disclosure in the proxy material sent
to security holders in connection with a related party transaction. Subject to
certain exceptions, Rule 61-501 also requires the preparation of a formal
valuation of the subject matter of the related party transaction and any
non-cash consideration offered in the transaction and the inclusion of a summary
of the valuation in the proxy material. Rule 61-501 also requires, subject to
certain exceptions, that the shareholders of the issuer, other than the related
party and its affiliates, separately approve the transaction, by either a simple
majority or two-thirds of the votes cast, depending on the circumstances.
LEGAL MATTERS
The validity of the TLC common shares being offered under this joint proxy
statement/prospectus is being passed upon for TLC by Stewart McKelvey Stirling
Scales, 10th Floor, Brunswick House, 44 Chipman Hill, Saint John, New Brunswick.
Thompson Coburn LLP, One Firstar Plaza, St. Louis, Missouri, will pass upon
certain U.S. federal income tax consequences for LaserVision and LaserVision
shareholders.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of TLC included in TLC's annual report on
Form 10-K/A for the fiscal year ended May 31, 2001 as set forth in their report,
which is incorporated by reference in this registration statement. TLC's
consolidated financial statements and schedules are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The consolidated financial statements of LaserVision and its subsidiaries
incorporated in this joint proxy statement/prospectus by reference to
LaserVision's annual report on Form 10-K for the fiscal year ended April 30,
2001, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The audited consolidated financial statements of ClearVision Laser
Centers, Inc. and its subsidiaries, appearing as Appendix H to, and incorporated
by reference in, this joint proxy statement/prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated in, and appear as an appendix
to, this joint proxy statement/prospectus upon the authority of said firm as
experts in auditing and accounting. Reference is made to said report, which
includes an explanatory paragraph with respect to the uncertainty regarding
ClearVision's ability to continue as a going concern as discussed in Note 1 to
the consolidated Financial Statements.
150
SHAREHOLDER PROPOSALS
TLC
If the merger is not completed, TLC expects that its annual meeting of
shareholders for fiscal 2002 will be held on or about October 22, 2002.
Accordingly, any proposal of a TLC shareholder intended to be presented at TLC's
annual meeting of shareholders for fiscal 2002 must be received by TLC's
principal office not later than _______________________, 2002, or
_____________________, 2002 in the event that TLC is not continued under the
laws of New Brunswick, to be considered for inclusion in the proxy statement for
that meeting. Shareholder proposals not included in the proxy statement may not
be considered at the meeting. In the event that a TLC shareholder fails to
notify TLC by ____________________________, 2002 of an intent to present a
proposal for a vote, management of TLC will have the right to exercise its
discretionary authority to vote against the proposal, if presented and not
included in the proxy statement for that meeting.
LaserVision
If the merger is not completed, LaserVision expects that its annual
meeting of shareholders for fiscal 2002 will be held on or about ___________,
2002. Any shareholder proposal intended to be presented at LaserVision's 2002
annual meeting of shareholders must meet the requirements established by the
U.S. Securities and Exchange Commission for shareholder proposals and must be
received by LaserVision at its office in St. Louis, Missouri on or before
_____________________, 2002 in order to be considered for inclusion in the proxy
statement for that meeting. Shareholder proposals which do not appear in the
proxy statement may be considered at the 2002 annual meeting of shareholders
only if notice of the proposal is received by LaserVision at its office in St.
Louis, Missouri on or before _____________________, 2002.
TLC VISION
We expect that TLC VISION's annual meeting of shareholders for fiscal 2002
will be held on or about October 22, 2002. Accordingly, any proposal of a TLC
VISION shareholder intended to be presented at TLC VISION's annual meeting of
shareholders for fiscal 2002 must be received by TLC VISION's principal office
not later than _____________________, 2002 to be considered for inclusion in the
proxy statement for that meeting. Shareholder proposals not included in the
proxy statement may not be considered at the meeting. In the event that a TLC
VISION shareholder fails to notify TLC VISION by _____________________, 2002 of
an intent to present a proposal for a vote, management of TLC VISION will have
the right to exercise its discretionary authority to vote against the proposal,
if presented and not included in the proxy statement for that meeting.
WHERE YOU CAN FIND MORE INFORMATION
LaserVision and TLC are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports, proxy statements and other information with
the U.S. Securities and Exchange Commission. Such reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the U.S. Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the U.S.
Securities and Exchange Commission's regional office located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may be obtained by mail from the Public Reference Section of the
U.S. Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The U.S. Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other materials that are filed through the U.S.
Securities and Exchange Commission's Electronic Data Gathering, Analysis, and
Retrieval system. This web site can be accessed at http://www.sec.gov. In
addition, reports, statements or other information that TLC files with any of
the Canadian securities authorities are also electronically available to the
public from the Canadian System for Electronic Document Analysis and Retrieval,
the Canadian equivalent of the U.S. Securities and Exchange Commission's
electronic document gathering and retrieval system, at http://www.sedar.com.
151
TLC filed a registration statement on Form S-4 to register with the U.S.
Securities and Exchange Commission TLC common shares to be issued to LaserVision
shareholders in the merger. This joint proxy statement/prospectus is a part of
the Form S-4 and constitutes a prospectus of TLC. As allowed by Securities and
Exchange Commission rules, this joint proxy statement/prospectus does not
contain all the information you can find in TLC's registration statement or the
exhibits to the registration statement.
Some of the important business and financial information relating to TLC
and LaserVision that you may want to consider in deciding how to vote is not
included in this joint proxy statement/prospectus. The U.S. Securities and
Exchange Commission allows TLC and LaserVision to "incorporate by reference"
information filed with the U.S. Securities and Exchange Commission into this
joint proxy statement/ prospectus. This means that TLC and LaserVision can
disclose important information to you by referring you to another document filed
with the U.S. Securities and Exchange Commission. The information incorporated
by reference is considered to be part of this joint proxy statement/prospectus,
except for any information that is superseded by information that is included
directly in this document.
TLC incorporates by reference the documents listed below and all documents
filed by TLC with the U.S. Securities and Exchange Commission under Section
13(a), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of
this joint proxy statement/prospectus and the date of the TLC shareholder
meeting:
1. TLC's annual report on Form 10-K for the fiscal year ended May 31,
2001 as amended by Form 10-K/A filed on September 28, 2001 and Form
10-K/A filed on _____________________, 2001;
2. TLC's quarterly report on Form 10-Q for the fiscal quarter ended
August 31, 2001 as amended by Form 10-Q/A filed on
_____________________, 2001;
3. TLC's current report on Form 8-K dated August 25, 2001; and
4. the description of TLC's common shares contained in TLC's
registration statement on Form F-10 filed with the U.S. Securities
and Exchange Commission on May 12, 1999.
LaserVision incorporates by reference the documents listed below and all
documents filed by LaserVision with the U.S. Securities and Exchange Commission
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
between the date of this joint proxy statement/prospectus and the date of the
LaserVision shareholder meeting:
1. LaserVision's annual report on Form 10-K for the fiscal year ended
April 30, 2001;
2. LaserVision's quarterly report on Form 10-Q for the fiscal quarter
ended July 31, 2001; and
3. LaserVision's current reports on Form 8-K dated August 9, 2001 and
August 25, 2001 and LaserVision's current report on Form 8-K dated
August 31, 2001 as amended by Form 8-K/A filed on October 11, 2001
and Form 8-K/A filed on ______________, 2001, which includes audited
financial statements for ClearVision and pro forma financial
information for ClearVision and LaserVision.
Later information filed with the U.S. Securities and Exchange Commission
will update and supersede the information in this joint proxy
statement/prospectus and any previously filed documents. You can obtain copies
of each of the documents incorporated by reference in this joint proxy
statement/prospectus, without charge, by requesting them in writing or by
telephoning from the appropriate company at the following addresses and
telephone numbers:
TLC Laser Eye Centers Inc. Laser Vision Centers, Inc.
5280 Solar Drive 540 Maryville Centre Drive
Suite 300 Suite 200
Mississauga, Ontario L4W 5M8 St. Louis, Missouri 63141
Attention: Investor Relations Attention: Investor Relations
Department Department
Telephone: (905) 602-2020 Telephone: (314) 434-6900
152
Copies of:
o TLC's most recent annual report on Form 10-K, which is an annual
information form under Canadian law, together with one copy of any
document, or the pertinent pages of any document, incorporated by
reference in TLC's most recent annual report on Form 10-K;
o TLC's most recently filed comparative annual financial statements
prepared in accordance with Canadian generally accepted accounting
principles, together with the accompanying report of the auditor;
o TLC's "Management's Discussion and Analysis of Financial Condition
and Results of Operations" relating to TLC's most recently filed
comparative annual financial statements prepared in accordance with
Canadian generally accepted accounting principles; and
o any interim financial statements of TLC that have been filed for any
period after the end of TLC's most recently completed financial
year,
and this joint proxy statement/prospectus, which is a management information
circular under Canadian law, are available to anyone, upon request, from the
Secretary of TLC, and without charge to security holders of TLC.
If you would like to request documents, please do so by
_____________________, 2002 in order to receive them before the meetings. If you
request any documents from either of us, the recipient will mail them to you by
first class mail, or another equally prompt means, within one business day after
your request is received.
TLC has supplied all of the information contained in this joint proxy
statement/prospectus relating to TLC, and LaserVision has supplied all of the
information contained in this joint proxy statement/ prospectus relating to
LaserVision.
With respect to information about the merger and the meetings of TLC and
LaserVision, you should only rely on the information contained in this joint
proxy statement/prospectus. Neither TLC nor LaserVision has authorized any other
person to provide you any different information. If anyone provides you with
different or inconsistent information, you should not rely on it. Neither the
delivery hereof nor any distribution of the securities being offered pursuant
hereto shall, under any circumstances, create an implication that there has been
no change in the information set forth herein since the date of this joint proxy
statement/prospectus. This joint proxy statement/prospectus does not constitute
an offer or solicitation by anyone in any state in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
153
DIRECTORS' APPROVAL
The contents and sending of this joint proxy statement/prospectus have
been approved by the TLC board of directors and the LaserVision board of
directors.
By Order of the TLC Board of By Order of the LaserVision Board
Directors of Directors
Lloyd Fiorini Robert W. May
General Counsel and Secretary Vice-Chairman, General Counsel
and Secretary
Mississauga, Canada St. Louis, Missouri
_____________________, 2001 _____________________, 2001
154
APPENDIX A
MERGER AGREEMENT
A-1
LASER VISION CENTERS, INC.
- and -
TLC LASER EYE CENTERS INC.
- and -
TLC ACQUISITION II CORP.
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
- --------------------------------------------------------------------------------
August 25, 2001
TORYS
----------------
NEW YORK TORONTO
A-2
TABLE OF CONTENTS
ARTICLE 1.
INTERPRETATION
1.1. Definitions .......................................................... 1
1.2. Interpretation Not Affected by Headings, etc. ........................ 9
1.3. Number, etc. ......................................................... 9
1.4. Date For Any Action .................................................. 9
1.5. Entire Agreement ..................................................... 9
1.6. Currency ............................................................. 9
1.7. Knowledge ............................................................ 9
ARTICLE 2.
THE MERGER
2.1. The Merger ........................................................... 10
2.2. Effect of Merger ..................................................... 10
2.3. Surrender and Payment ................................................ 11
2.4. Adjustments .......................................................... 13
2.5. Fractional Shares .................................................... 13
ARTICLE 3.
THE SURVIVING CORPORATION
3.1. Certificate of Incorporation ......................................... 13
3.2. Bylaws ............................................................... 13
3.3. Directors and Officers ............................................... 14
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF LVCI
4.1. Corporate Existence and Power ........................................ 14
4.2. Corporate Authorization .............................................. 14
4.3. Governmental Authorization ........................................... 14
4.4. Non-Contravention .................................................... 15
4.5. Capitalization ....................................................... 15
4.6. Subsidiaries ......................................................... 16
4.7. SEC Filings and Financial Statements ................................. 17
4.8. Joint Proxy Statement/Prospectus; Registration Statement ............. 18
4.9. Absence of Certain Changes ........................................... 18
4.10. No Undisclosed Material Liabilities .................................. 20
4.11. Personal Property .................................................... 20
4.12. Accounts Receivable .................................................. 21
4.13. Contracts ............................................................ 21
4.14. Litigation ........................................................... 22
4.15. Taxes ................................................................ 22
A-3
4.16. Tax Free Merger ...................................................... 23
4.17. Intellectual Property ................................................ 24
4.18. Employee Benefit Plans ............................................... 24
4.19. Environmental Matters ................................................ 27
4.20. Employees ............................................................ 27
4.21. Non-Arm's Length Transactions ........................................ 28
4.22. Canadian Competition Act ............................................. 28
4.23. Compliance with Laws ................................................. 28
4.24. Finders' Fees ........................................................ 29
4.25. Opinion of Financial Advisor ......................................... 29
4.26. Vote Required ........................................................ 29
4.27. Compliance with Health Care Requirements ............................. 29
4.28. Medicare Participation/Accreditation ................................. 29
4.29. Exclusion ............................................................ 30
4.30. Federal Health Care Programs ......................................... 30
4.31. Third-Party Payment .................................................. 30
4.32. Billing .............................................................. 31
4.33. Reimbursement Matters ................................................ 31
4.34. Representations Complete ............................................. 31
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF TLC AND MERGER SUBSIDIARY
5.1. Corporate Existence and Power ........................................ 31
5.2. Corporate Authorization .............................................. 32
5.3. Governmental Authorization ........................................... 32
5.4. Non-Contravention .................................................... 32
5.5. Capitalization ....................................................... 33
5.6. Subsidiaries ......................................................... 34
5.7. Canadian Securities Law and TLC Financial Statements ................. 35
5.8. SEC Filings and Financial Statements ................................. 36
5.9. Joint Proxy Statement/Prospectus; Registration Statement ............. 37
5.10. Absence of Certain Changes ........................................... 37
5.11. No Undisclosed Material Liabilities .................................. 39
5.12. Personal Property .................................................... 39
5.13. Contracts ............................................................ 39
5.14. Litigation ........................................................... 40
5.15. Taxes ................................................................ 40
5.16. Tax Free Merger ...................................................... 41
5.17. Intellectual Property ................................................ 43
5.18. Employee Benefit Plans ............................................... 43
5.19. Environmental Matters ................................................ 46
5.20. Employees ............................................................ 46
5.21. Non-Arm's Length Transactions ........................................ 47
5.22. Compliance with Laws ................................................. 47
5.23. Finders' Fees ........................................................ 47
5.24. Opinion of Financial Advisor ......................................... 47
5.25. Votes Required ....................................................... 48
5.26. Interim Operations of Merger Subsidiary .............................. 48
5.27. Authorization for TLC Common Shares .................................. 48
A-4
5.28. Compliance with Health Care Requirements ............................. 48
5.29. Medicare Participation/Accreditation ................................. 49
5.30. Exclusion ............................................................ 49
5.31. Federal Health Care Programs ......................................... 50
5.32. Third-Party Payment .................................................. 50
5.33. Billing; Gratuitous Payments ......................................... 50
5.34. Reimbursement Matters ................................................ 50
5.35. Accounts Receivable .................................................. 50
5.36. Representations Complete ............................................. 51
ARTICLE 6.
COVENANTS OF LVCI
6.1. Conduct of LVCI ...................................................... 51
6.2. Stockholder Meeting .................................................. 52
6.3. Other Offers ......................................................... 53
6.4. Notices of Certain Events ............................................ 54
6.5. Affiliates ........................................................... 55
6.6. Employee Stock Options ............................................... 55
ARTICLE 7.
COVENANTS OF TLC AND MERGER SUBSIDIARY
7.1. Conduct of TLC and Merger Subsidiary ................................. 55
7.2. TLC Stockholder Meeting .............................................. 57
7.3. Obligations of Merger Subsidiary ..................................... 57
7.4. NASDAQ and TSE Listing ............................................... 57
7.5. Notice of Certain Events ............................................. 57
7.6. Replacement Options .................................................. 58
ARTICLE 8.
COVENANTS OF TLC, MERGER SUBSIDIARY AND LVCI
8.1. Corporate Governance ................................................. 58
8.2. TLC Name Change ...................................................... 59
8.3. Commercially Reasonable Best Efforts ................................. 59
8.4. Certain Filings ...................................................... 59
8.5. Public Announcements ................................................. 60
8.6. Further Assurances ................................................... 61
8.7. Preparation of the Joint Proxy Statement/Prospectus and
Registration Statements .............................................. 61
8.8. Access to Information ................................................ 61
8.9. Mutual Standstill .................................................... 63
8.10. Directors' and Officers' Insurance ................................... 64
8.11. Closing Matters ...................................................... 65
ARTICLE 9.
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party .......................... 65
9.2. Additional Conditions to the Obligations of TLC and Merger
Subsidiary ........................................................... 67
A-5
9.3. Conditions to the Obligations of LVCI ............................... 67
ARTICLE 10.
TERMINATION
10.1. Termination ......................................................... 68
10.2. Termination by LVCI ................................................. 69
10.3. Termination by TLC .................................................. 69
10.4. Effect of Termination ............................................... 70
ARTICLE 11.
MISCELLANEOUS
11.1. Notices ............................................................. 70
11.2. Survival of Representations and Warranties .......................... 72
11.3. Amendments and Waiver ............................................... 72
11.4. Further Assurances .................................................. 72
11.5. Public Statements ................................................... 72
11.6. Severability ........................................................ 73
11.7. Fees and Expenses ................................................... 73
11.8. Successors and Assigns .............................................. 73
11.9. No Third Party Beneficiaries ........................................ 73
11.10. Governing Law ....................................................... 73
11.11. Counterparts; Effectiveness ......................................... 74
- ----------
* The Table of Contents is not a part of this Agreement.
A-6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of August 25, 2001, among Laser
Vision Centers, Inc., a Delaware corporation ("LVCI"), TLC Laser Eye Centers
Inc., an Ontario corporation ("TLC"), and TLC Acquisition II Corp., a Delaware
corporation and a wholly owned subsidiary of TLC ("Merger Subsidiary");
WHEREAS, the Boards of Directors of each of TLC, Merger Subsidiary and
LVCI have determined that it is advisable and in the best interests of their
respective companies and their stockholders to consummate the strategic business
combination transaction provided for herein in which, subject to the terms and
conditions set forth herein, Merger Subsidiary will merge (the "Merger") with
and into LVCI, so that the newly created LVCI is the surviving corporation in
the Merger;
WHEREAS, for U.S. federal income tax purposes, the parties intend that the
Merger shall qualify as a Reorganization;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a purchase; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1.
INTERPRETATION
1.1. Definitions
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1.1. "Accounts Receivable" means all accounts receivable, trade
receivables, notes receivable and other receivables, which in any case are
payable as a result of goods sold or services provided, or billed for.
1.1.1. "Acquisition Proposal" means any merger, amalgamation, take-over
bid, sale of more than 50% of the consolidated assets of LVCI (or any
lease, long-term supply agreement or other arrangement having the same
economic effect as a sale of assets comprising more than 50% of the
consolidated assets of LVCI), liquidation, sale of shares or rights or
interests therein or thereto constituting greater than 15% of the LVCI
Common Shares outstanding on the date hereof (or if after the date hereof
LVCI issues LVCI Common Shares in connection with the acquisition of
ClearVision Laser Centers, Inc., 15% of the LVCI Common Shares outstanding
on the date of such issuance) or similar transactions involving LVCI, or a
proposal to do so, excluding the Merger.
A-7
1.1.3. "Action" means any action, suit, arbitration, inquiry, proceeding
or investigation by or before any Governmental Authority or arbitrator.
1.1.4. "Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this Agreement, the term "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with" as used with respect to any Person) means the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such Person whether through ownership of voting
securities, by contract or otherwise.
1.1.5. "Average TLC Trading Price" shall mean the average of the daily
closing price per share of TLC Common Shares on NASDAQ for the 10
consecutive trading days prior to the Closing Date.
1.1.6. "Business Day" shall mean each day on which banking institutions in
both of Toronto, Canada and St. Louis, Missouri are not authorized or
required to close.
1.1.7. "Canadian GAAP" shall mean Canadian generally accepted accounting
principles in effect at that time and applied on a basis consistent with
past periods.
1.1.8. "Closing" means the consummation of the Merger and the other
transactions contemplated hereby.
1.1.9. "Closing Date" shall have the meaning set forth in Section 2.1.3.
1.1.10. "Code" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated
thereunder.
1.1.11. "Conversion Number" shall have the meaning set forth in Section
2.2.2.
1.1.12. "Delaware Law" shall mean the General Corporation Law of the State
of Delaware.
1.1.13. "Effective Time" shall have the meaning set forth in Section
2.1.3.
1.1.14. "Employee Plan" shall mean any "employee benefit plan", within the
meaning of Section 3(3) of ERISA, whether or not subject to ERISA, and any
employment, consulting, termination, severance, retention, change in
control, deferred or incentive compensation, stock option or other equity
based, vacation or other fringe benefit plan, program, policy,
arrangement, agreement or commitment.
1.1.15. "Environmental Laws" means any Laws governing or relating to
pollution, protection of human health or the Environment, air emissions,
water discharges, hazardous or toxic substances, solid or hazardous waste,
or occupational health and safety, or any similar Law of foreign
jurisdictions where LVCI or its Subsidiaries, on the one hand, and TLC or
its Subsidiaries, on the other hand, respectively, do business,
A-8
including without limitation the U.S. Federal Water Pollution Control Act,
the U.S. Clean Air Act, the U.S. Solid Waste Disposal Act as amended by
the Resource Conservation and Recovery Act (RCRA), the Hazardous Materials
Transportation Act (HMTA), the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA), the U.S. Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), as amended by the Superfund
Amendment and Reauthorization Act (SARA), the U.S. Emergency Planning and
Community Right-To-Know Act (EPCRA), the U.S. Toxic Substances Control Act
(TSCA), the U.S. Safe Drinking Water Act (SDWA), and the U.S. Occupational
Safety and Health Act (OSHA), all as amended, and the rules and
regulations thereunder as interpreted by Governmental Authorities.
1.1.16. "ERISA" shall mean the U.S. Employee Retirement Income Security
Act of 1974, as amended, and the regulations promulgated thereunder and
published interpretations of any Governmental Authority with respect
thereto.
1.1.17. "Exchange Act" shall mean the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
1.1.18. "Exchange Agent" shall have the meaning set forth in Section
2.3.1.
1.1.19. "Exchange Filing Requirements" shall have the meaning set forth in
section 5.7.1.
1.1.20. "Executive Officers" shall have the meaning set forth in Section
1.7.
1.1.21. "FTC" shall have the meaning set forth in Section 8.4.2.
1.1.22. "Eye Surgery Consultant" means any eye surgeon who performs laser
vision correction or cataract surgery using an LVCI or TLC, as applicable,
excimer laser or who performs such services at an LVCI Facility or TLC
Facility, as applicable.
1.1.23. "GAAP" means U.S. generally accepted accounting principles in
effect at the time and applied on a basis consistent with past periods.
1.1.24. "Goldman" shall have the meaning set forth in Section 4.24.
1.1.25. "Governmental Authority" means any court, administrative agency or
commission or other foreign or domestic federal, state, provincial or
local governmental authority or instrumentality.
1.1.26. "HSR Act" shall have the meaning set forth in Section 4.3.
1.1.27. "Information" shall have the meaning set forth in Section 8.8.1.
1.1.28. "Intellectual Property Rights" shall mean all proprietary, license
and other rights in and to: (A) trademarks, service marks, brand names,
trade dress, trade names, words, symbols, color schemes and other
indications of origin; (B) patents, patent
A-9
applications, inventors' certificates and invention disclosures; (C) trade
secrets and other confidential or non-public business information,
including ideas, formulas, compositions, discoveries and improvements,
know-how, manufacturing and production processes and techniques, and
research and development information; (D) drawings, specifications, plans,
proposals and technical data; analytical models, investment and lending
strategies and records, financial and other products; financial, marketing
and business data, pricing and cost information; business and marketing
plans and customer and supplier lists and information; in each case
whether patentable, copyrightable or not; (E) computer programs and
databases, in each case whether patentable, copyrightable or not, and all
documentation therefor; (F) writings and other works of authorship,
including marketing materials, brochures, training materials, including
all copyrights and moral rights related to each of the foregoing; (G) mask
works; (H) rights to limit the use or disclosure of confidential
information by any Person; (I) registrations of, and applications to
register, any of the foregoing with any Governmental Authority and any
renewals or extensions thereof; (J) the goodwill associated with each of
the foregoing; and (K) any claims or causes of action arising out of or
related to any infringement or misappropriation of any of the foregoing;
in each case in any jurisdiction.
1.1.29. "Interested Third Party" shall have the meaning set forth in
Section 6.3.2.1.
1.1.30. "Joint Proxy Statement/Prospectus" shall have the meaning set
forth in Section 4.8.
1.1.31. "Laws" means all statutes, regulations, statutory rules,
principles of law, orders, decrees, codes, published policies and
guidelines, and terms and conditions of any grant of approval, permits,
authority or license of any court, Governmental Authority, statutory body
or self-regulatory authority (including the TSE or NASDAQ) and the term
"applicable" with respect to such Laws and in the context that refers to
one or more Persons, means that such Laws apply to such Person or Persons
or its or their business, undertaking, property or securities and emanate
from a Person having jurisdiction over the Person or Persons or its or
their business, undertaking, property or securities.
1.1.32. "Liability" means any debt, obligation, duty or liability of any
nature (including any undisclosed, unfixed, unliquidated, unsecured,
unmatured, unaccrued, unasserted, contingent, conditional, inchoate,
implied, vicarious, joint, several or secondary liability), regardless of
whether such debt, obligation, duty or liability would be required to be
disclosed on a balance sheet prepared in accordance with GAAP or Canadian
GAAP, as applicable.
1.1.33. "Licenses" shall have the meaning set forth in Section 4.23.
1.1.34. "Liens" shall mean any charge, mortgage, pledge, security
interest, restriction, claim, lien, or encumbrance.
1.1.35. "LVCI 10-K" shall have the meaning set forth in Section 4.7.1.
A-10
1.1.36. "LVCI Affiliate" shall have the meaning set forth in Section 6.5.
1.1.37. "LVCI Benefit Arrangement" shall have the meaning set forth in
Section 4.18.7.
1.1.38. "LVCI Board" shall mean the Board of Directors of LVCI.
1.1.39. "LVCI Common Shares" shall have the meaning set forth in Section
2.2.2.
1.1.40. "LVCI Disclosure Letter" means that certain letter dated as of
August 25, 2001 and delivered by LVCI to TLC.
1.1.41. "LVCI Employee Plans" shall have the meaning set forth Section
4.18.1.
1.1.42. "LVCI Facility" shall have the meaning set forth in Section 4.28.
1.1.43. "LVCI Financial Statements" shall have the meaning set forth in
Section 4.7.4.
1.1.44. "LVCI Intellectual Property Rights" shall have the meaning set
forth in Section 4.17.1.
1.1.45. "LVCI Material Adverse Change" means any change, either
individually or in the aggregate, that is materially adverse to the
business, financial condition or results of operations of LVCI and its
Subsidiaries taken as a whole.
1.1.46. "LVCI Material Adverse Effect" means any effect, either
individually or in the aggregate, that is materially adverse to the
business, financial condition or results of operations of LVCI and its
Subsidiaries taken as a whole.
1.1.47. "LVCI Material Contract" shall have the meaning set forth in
Section 4.13.
1.1.48. "LVCI Nominees" shall have the meaning set forth in Section 8.1.3.
1.1.49. "LVCI Preferred Shares" shall have the meaning set forth in
Section 4.5.1.
1.1.50. "LVCI SEC Filings" shall have the meaning set forth in Section
4.7.1.
1.1.51. "LVCI Securities" shall have the meaning set forth in Section
4.5.1.
1.1.52. "LVCI Stock Options" shall have the meaning set forth in Section
4.5.1.
1.1.53. "LVCI Stockholder Meeting" shall have the meaning set forth in
Section 6.2.1.
1.1.54. "LVCI Voting Debt" shall have the meaning set forth in Section
4.5.2.
1.1.55. "Merger" shall have the meaning set forth in the recitals to this
Agreement.
A-11
1.1.56. "Merger Consideration" shall have the meaning set forth in Section
2.2.2.
1.1.57. "Merger Subsidiary" shall have the meaning set forth in the first
paragraph of this Agreement.
1.1.58. "Merger Subsidiary Common Shares" shall have the meaning set forth
in Section 2.1.1.
1.1.59. "NASD" shall mean the National Association of Securities Dealers,
Inc.
1.1.60. "NASDAQ" shall mean the Nasdaq National Market Inc.
1.1.61. "New Certificates" shall have the meaning set forth in Section
2.3.1.
1.1.62. "Old Certificates" shall have the meaning set forth in Section
2.3.1.
1.1.63. "Ontario Act" shall mean the Securities Act (Ontario), as amended
and the rules, policies and regulations promulgated or issued thereunder.
1.1.64. "Order" means any order, judgment, injunction, decree,
determination or award by any Governmental Authority or arbitrator.
1.1.65. "Permit" means any permit, license, certificate (including a
certificate of occupancy and a certificate of need), registration,
authorization, consent, or approval issued by a Governmental Authority.
1.1.66. "Permitted Liens" means (a) Liens for Taxes that are not yet due
and payable or that are being contested in good faith by appropriate
proceedings and as to which adequate reserves have been established in
accordance with GAAP or Canadian GAAP, as the case may be, (b) workers',
repairmens' and similar Liens imposed by Law that have been incurred in
the ordinary course of business and consistent with past practice which in
the aggregate do not have or are not reasonably expected to have an LVCI
Material Adverse Effect or TLC Material Adverse Effect, as the case may
be, (c) Liens and other title defects, easements, encroachments and
encumbrances that do not, individually or in the aggregate, materially
impair the value or continued use of the property (as currently used) to
which they relate, (d) the rights of others to customer deposits which in
the aggregate do not have or are not reasonably expected to have an LVCI
Material Adverse Effect or a TLC Material Adverse Effect, as the case may
be, and (e) any of the Liens described in the foregoing clauses (a)
through (d) of this definition incurred in the ordinary course of business
and consistent with past practice, after the date hereof which in the
aggregate do not have or is not reasonably expected to have an LVCI
Material Adverse Effect or a TLC Material Adverse Effect, as the case may
be.
1.1.67. "Person" or "person" shall mean any individual, bank, corporation,
limited liability company, partnership, association, joint-stock company,
business trust or unincorporated organization.
A-12
1.1.68. "Registration Statement" shall have the meaning set forth in
Section 4.8.
1.1.69. "Reorganization" shall have the meaning given to such term in
Section 368(a) of the Code.
1.1.70. "Replacement Options" shall have the meaning set forth in Section
7.6.
1.1.71. "SEC" shall mean the U.S. Securities and Exchange Commission.
1.1.72. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.1.73. "SG Cowen" shall have the meaning set forth in Section 5.23.
1.1.74. "Subsidiary" and "Significant Subsidiary" shall have the meanings
ascribed to them in Rule 1-02 of Regulation S-X of the SEC. "Subsidiary
of" any Person means (i) any corporation or other entity of which
securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing
similar functions are directly or indirectly owned by such Person and (ii)
any partnership of which such Person is a general partner.
1.1.75. "Superior Proposal" means an unsolicited bona fide written
Acquisition Proposal that the LVCI Board determines in good faith, after
consultation with financial and legal advisors, would, if consummated in
accordance with its terms, result in a transaction more favourable to
LVCI's shareholders than the transaction contemplated by this Agreement.
1.1.76. "Surviving Corporation" shall have the meaning set forth in
Section 2.1.2.
1.1.77. "Taxes" shall mean all taxes, charges, fees, levies or other
assessments, however denominated, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority whether arising before, on or after the Closing Date.
1.1.78. "Tax Returns" means all returns, declarations, reports,
information returns and statements required to be filed with any taxing
authority relating to Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
1.1.79. "TLC 10-K" shall have the meaning set forth in Section 5.8.1.
1.1.80. "TLC Benefit Arrangement" shall have the meaning set forth in
Section 5.18.7.
A-13
1.1.81. "TLC Board" shall mean the Board of Directors of TLC.
1.1.82. "TLC Common Shares" shall have the meaning set forth in Section
2.2.2.
1.1.83. "TLC Disclosure Documents" shall have the meaning set forth in
section 5.7.1.
1.1.84. "TLC Disclosure Letter" means that certain letter dated as of
August 25, 2001 and delivered by TLC to LVCI.
1.1.85. "TLC Employee Plans" shall have the meaning set forth Section
5.18.1.
1.1.86. "TLC Facility" shall have the meaning set forth in Section 5.29.
1.1.87. "TLC Financial Statements" shall have the meaning set forth in
Section 5.8.2.
1.1.88. "TLC Intellectual Property Rights" shall have the meaning set
forth in Section 5.17.1.
1.1.89. "TLC Material Adverse Change" means any change, either
individually or in the aggregate, that is materially adverse to the
business, financial condition or results of operations of TLC and its
Subsidiaries taken as a whole.
1.1.90. "TLC Material Adverse Effect" means any effect, either
individually or in the aggregate, that is materially adverse to the
business, financial condition or results of operations of TLC and its
Subsidiaries taken as a whole.
1.1.91. "TLC Material Contract" shall have the meaning set forth in
Section 5.13.
1.1.92. "TLC Rights" shall have the meaning set forth in Section 5.5.1.
1.1.93. "TLC Rights Plan" shall have the meaning set forth in Section
5.5.1.
1.1.94. "TLC SEC Filings" shall have the meaning set forth in Section
5.8.1.
1.1.95. "TLC Securities" shall have the meaning set forth in Section
5.5.1.
1.1.96. "TLC Stock Option Plan" means the TLC Amended and Restated Stock
Option Plan incorporated by reference to Exhibit 4(a) to TLC's
registration statement on Form S-8 filed with the SEC on December 31,
1997, as amended.
1.1.97. "TLC Stockholder Meeting" shall have the meaning set forth in
Section 5.25.
1.1.98. "TLC Voting Debt" shall have the meaning set forth in Section
5.5.2.
1.1.99. "TSE" shall mean The Toronto Stock Exchange.
A-14
1.2. Interpretation Not Affected by Headings, etc.
The division of this Agreement into Articles, Sections, and other portions
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation hereof. Unless otherwise
indicated, all references to an "Article", "Section" or "Schedule" followed by a
number and/or a letter refer to the specified Article, Section or Schedule of
this Agreement. The terms "this Agreement", "hereof", "herein" and "hereunder"
and similar expressions refer to this Agreement (including the Schedules hereto)
and not to any particular Article, Section or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.
1.3. Number, etc.
Unless the context otherwise requires, words importing the singular shall
include the plural and vice versa and words importing any gender shall include
all genders. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
1.4. Date For Any Action
In the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day which is a Business Day.
1.5. Entire Agreement
This Agreement and the agreements and other documents referred to herein
constitute the entire agreement among the parties hereto pertaining to the terms
of the Merger and the other transactions contemplated hereby and supersede all
other prior agreements (including any term sheets and confidentiality
agreements), understandings, negotiations and discussions, whether oral or
written, between the parties hereto with respect to the Merger and the other
transactions contemplated by this Agreement.
1.6. Currency
Unless otherwise specified, all references in this Agreement to "dollars"
or "$" shall mean U.S. dollars.
1.7. Knowledge
In this Agreement, references to "to the knowledge of" means the actual
knowledge of any of the Executive Officers of LVCI or TLC, as the case may be,
after reasonable inquiry, and such Executive Officers shall make such inquiry as
is reasonable in the circumstances. For purposes of this Section 1.7, "Executive
Officers" in the case of LVCI means the Chief Executive Officer, the President
and Chief Operating Officer, the Chief Financial Officer and the General
A-15
Counsel, and in the case of TLC means the Chief Executive Officer, the President
and Chief Operating Officer, the Acting Chief Financial Officer, any permanently
appointed Chief Financial Officer and the General Counsel.
ARTICLE 2.
THE MERGER
2.1. The Merger
2.1.1. Immediately prior to the Effective Time, TLC shall contribute the
Merger Consideration to Merger Subsidiary in exchange for common stock of
Merger Subsidiary (the "Merger Subsidiary Common Shares").
2.1.2. At the Effective Time, Merger Subsidiary shall be merged with and
into LVCI in accordance with Delaware Law, whereupon the separate
existence of Merger Subsidiary shall cease, and LVCI shall survive and
continue to exist as a Delaware corporation (the "Surviving Corporation").
2.1.3. As soon as practicable and in any event no later than the later of
(a) the last day of the month and (b) five Business Days after
satisfaction (or, to the extent permitted hereunder, waiver) of all
conditions to the Merger, LVCI and Merger Subsidiary will cause to be
filed a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by Law in
connection with the Merger. The Closing of the Merger will take place at
the offices of Torys, Suite 3000, Maritime Life Tower, Box 270, TD Centre,
Toronto, Ontario, M5K 1N2, or such other place as the parties may agree.
The Merger shall become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware
or at such later time as is specified in the certificate of merger (the
"Effective Time"). The date of the Closing is referred to herein as the
"Closing Date".
2.1.4. The Merger shall have the effects prescribed by Delaware Law.
Without limiting the generality of the foregoing, and subject thereto,
from and after the Effective Time, the Surviving Corporation shall possess
all the assets (except for the Merger Consideration which the LVCI
stockholders and others are entitled to receive), rights, privileges,
powers and franchises and be subject to all of the liabilities,
restrictions, disabilities and duties of LVCI and Merger Subsidiary, all
as provided under Delaware Law.
2.2. Effect of Merger
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any action on the part of any
party or stockholder:
A-16
2.2.1. each issued and outstanding share of Merger Subsidiary Common
Shares shall be converted into and become one fully-paid and
non-assessable share of common stock of the Surviving Corporation;
2.2.2. each share of common stock of LVCI ("LVCI Common Shares")
outstanding immediately prior to the Effective Time (other than (i) LVCI
Common Shares held by LVCI and (ii) LVCI Common Shares held by TLC or
Merger Subsidiary) shall be converted into the right to receive 0.95 (the
"Conversion Number") of a fully paid and non-assessable common share of
TLC (a "TLC Common Share", which term shall also include the associated
TLC Rights). The Conversion Number shall be subject to adjustment as
provided in Section 2.4. The TLC Common Shares to be received pursuant to
this Section 2.2.2 are referred to herein as the "Merger Consideration";
and
2.2.3. each LVCI Common Share held by LVCI, TLC or Merger Subsidiary shall
be cancelled and extinguished without any consideration therefor.
2.3. Surrender and Payment
2.3.1. Prior to the Effective Time, TLC shall appoint an agent reasonably
acceptable to LVCI (the "Exchange Agent") for the purpose of exchanging
certificates representing LVCI Common Shares ("Old Certificates"). As of
the Effective Time, Merger Subsidiary shall deposit with the Exchange
Agent for the benefit of the holders of LVCI Common Shares for exchange in
accordance with this Section 2.3, through the Exchange Agent, certificates
representing the TLC Common Shares issuable pursuant to Section 2.2 in
exchange for outstanding LVCI Common Shares ("New Certificates").
2.3.2. Promptly after the Effective Time, TLC will send, or will cause the
Exchange Agent to send, to each holder of LVCI Common Shares at the
Effective Time a letter of transmittal reasonably acceptable to LVCI for
use in exchanging such holder's Old Certificates for the New Certificates
(which shall specify that the delivery shall be effected, and risk of loss
and title shall pass, only upon proper delivery of the Old Certificates to
the Exchange Agent).
2.3.3. Each holder of LVCI Common Shares that have been converted into a
right to receive TLC Common Shares, upon surrender to the Exchange Agent
of Old Certificates, together with a properly completed letter of
transmittal covering such Old Certificates, shall receive in exchange
therefor (a) that number of whole TLC Common Shares which such holder has
the right to receive pursuant to Section 2.2; (b) cash in lieu of
fractional shares pursuant to Section 2.5; and (c) any dividends or
distributions the payout date for which shall have occurred, and the Old
Certificates so surrendered shall be cancelled. Until so surrendered, each
Old Certificate shall, after the Effective Time, represent for all
purposes, only the right to receive upon such surrender the New
Certificates representing TLC Common Shares, cash in lieu of any
fractional TLC Common Shares as contemplated by this Section 2.3 and
Section 2.5 and any dividends or distributions.
A-17
2.3.4. If any TLC Common Shares are to be issued to a Person other than
the registered holder of the LVCI Common Shares represented by the Old
Certificates surrendered in exchange therefor, it shall be a condition to
such issuance that the Old Certificates shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting
such issuance shall pay to the Exchange Agent any transfer tax or other
taxes required as a result of such issuance to a Person other than the
registered holder of such LVCI Common Shares or establish to the
reasonable satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
2.3.5. At the Effective Time, holders of LVCI Common Shares shall cease to
be, and shall have no rights as, stockholders of LVCI, other than the
right to receive any dividend or other distribution with respect to such
LVCI Common Shares with a record date occurring prior to the Effective
Time and the consideration provided under this Article 2. After the
Effective Time, there shall be no further registration of transfers of
LVCI Common Shares. If, after the Effective Time, Old Certificates are
presented to the Surviving Corporation, they shall be cancelled and
exchanged for New Certificates as provided for, and in accordance with the
procedures set forth, in this Article 2.
2.3.6. Any New Certificates made available to the Exchange Agent pursuant
to Section 2.3.1 that remain unclaimed by the holders of LVCI Common
Shares six months after the Effective Time shall be returned to TLC, upon
demand, and any such holder who has not exchanged his or her LVCI Common
Shares in accordance with this Section 2.3 prior to that time shall
thereafter look only to TLC to exchange such LVCI Common Shares.
Notwithstanding the foregoing, the Surviving Corporation and TLC shall not
be liable to any holder of LVCI Common Shares for any amount paid, or any
TLC Common Shares delivered to a public official pursuant to applicable
abandoned property Laws. Any TLC Common Shares or amounts remaining
unclaimed by holders of LVCI Common Shares two years after the Effective
Time (or such earlier date immediately prior to such time as such amounts
would otherwise escheat to or become property of any Governmental
Authority) shall, to the extent permitted by applicable Law, become the
property of TLC free and clear of any claims or interest of any Person
previously entitled thereto.
2.3.7. No dividends or other distributions on TLC Common Shares shall be
paid to the holder of any unsurrendered Old Certificates until such Old
Certificates are surrendered as provided in this Section. Upon such
surrender, there shall be paid, without interest, to the Person in whose
name the New Certificates representing the TLC Common Shares into which
such shares were converted are registered, all dividends and other
distributions paid in respect of such TLC Common Shares on a date
subsequent to, and in respect of a record date after, the Effective Time.
2.3.8. If any Old Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Old Certificate to be lost, stolen or destroyed and the posting by such
person of a bond in such reasonable amount as TLC may direct as indemnity
against any claim that may be made against it or the Surviving Corporation
with respect to such Old Certificate, TLC shall, in exchange for
A-18
such lost, stolen or destroyed Old Certificate, deliver or cause the
Exchange Agent to deliver a New Certificate in respect thereof pursuant to
this Section 2.3.
2.4. Adjustments
If, at any time during the period between the date of this Agreement and
the Effective Time, the outstanding TLC Common Shares or LVCI Common Shares are
changed into a different number of shares, by reason of any reclassification,
recapitalization, stock split or combination, reverse stock split,
consolidation, exchange or readjustment of shares, stock dividend or similar
transaction with a record date (or where there is no record date, effective
date) during such period, the Conversion Number shall be appropriately adjusted.
2.5. Fractional Shares
No fractional TLC Common Shares shall be issued in the Merger. All
fractional TLC Common Shares that a holder of LVCI Common Shares would otherwise
be entitled to receive as a result of the Merger shall be aggregated and if a
fractional share results from such aggregation, such holder shall be entitled to
receive, in lieu thereof, an amount (in U.S. dollars) in cash (without interest)
determined by multiplying the Average TLC Trading Price by the fraction of a TLC
Common Share to which such holder would otherwise have been entitled.
Alternatively, the Surviving Corporation shall have the option of instructing
the Exchange Agent to aggregate all fractional TLC Common Shares, sell such
shares in the public market and distribute to holders of LVCI Common Shares a
pro rata portion of the proceeds of such sale. No such cash in lieu of
fractional TLC Common Shares shall be paid to any holder of LVCI Common Shares
until Old Certificates are surrendered and exchanged in accordance with Section
2.3.
ARTICLE 3.
THE SURVIVING CORPORATION
3.1. Certificate of Incorporation
Effective immediately following the Merger, the certificate of
incorporation of Merger Subsidiary, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable Law; provided, however,
that the certificate of incorporation of the Surviving Corporation shall be
amended to read: "The name of the corporation is Laser Vision Centers, Inc."
3.2. Bylaws
Effective immediately following the Merger, the bylaws of Merger
Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable Law.
A-19
3.3. Directors and Officers
From and after the Effective Time, until the earlier of their resignation
or removal or until their respective successors are duly elected or appointed
and qualified in accordance with applicable Law, (i) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (ii) the officers of Merger Subsidiary at the Effective Time
shall be the officers of the Surviving Corporation.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF LVCI
LVCI represents and warrants to TLC and Merger Subsidiary that, and
acknowledges that TLC and Merger Subsidiary are relying upon such
representations and warranties in connection with the matters contemplated by
this Agreement:
4.1. Corporate Existence and Power
LVCI and each of its Subsidiaries is a corporation or other entity duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure to so qualify
would not have or reasonably be expected to have, individually or in the
aggregate, an LVCI Material Adverse Effect. LVCI has heretofore delivered or
made available to TLC true and complete copies of the certificate of
incorporation and bylaws or other constating documents as currently in effect
for LVCI and each of its Subsidiaries.
4.2. Corporate Authorization
LVCI has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by LVCI of this Agreement and the consummation of the
Merger by LVCI are within LVCI's corporate powers and, except for any required
approval by LVCI's stockholders in connection with the Merger, have been duly
authorized by all necessary corporate action on the part of LVCI. This Agreement
has been duly executed and delivered by LVCI and constitutes a valid and binding
obligation of LVCI.
4.3. Governmental Authorization
The execution, delivery and performance by LVCI of this Agreement and the
consummation of the Merger by LVCI require no action by or in respect of, or
filing with, any Governmental Authority other than (i) the filing of a
certificate of merger in accordance with Delaware Law and (ii) compliance with
applicable requirements of the Hart-Scott-Rodino
A-20
Antitrust Improvements Act of 1976 (the "HSR Act") and the Exchange Act, except
where the failure of any action to be taken by any Governmental Authority or
filing to be made would not have or reasonably be expected to have, individually
or in the aggregate, an LVCI Material Adverse Effect or prevent consummation of
the Merger or the transactions contemplated hereby.
4.4. Non-Contravention
Except as disclosed in the LVCI Disclosure Letter, the execution, delivery
and performance by LVCI of this Agreement and the consummation of the Merger by
LVCI do not and will not (i) contravene or conflict with the certificate of
incorporation or bylaws of LVCI, (ii) assuming compliance with the matters
referred to in Section 4.3, contravene or conflict with or constitute a
violation of any provision of any Law or Order binding upon or applicable to
LVCI or any of its Subsidiaries, (iii) constitute a default under or give rise
to a right of termination, cancellation or acceleration of any right or
obligation of LVCI or any of its Subsidiaries or to a loss of any benefit to
which LVCI or any of its Subsidiaries is entitled under any provision of any
LVCI Material Contract or other material agreement or other instrument binding
upon LVCI or any of its Subsidiaries or any license, franchise, Permit or other
similar authorization held by LVCI or any of its Subsidiaries, or (iv) result in
the creation or imposition of any Lien on any material asset of LVCI or any of
its Subsidiaries, except for any occurrences or results referred to in clauses
(ii), (iii) and (iv) which would not have or reasonably be expected to have,
individually or in the aggregate, an LVCI Material Adverse Effect or prevent
consummation of the transactions contemplated hereby.
4.5. Capitalization
4.5.1. The entire authorized capital stock of LVCI consists of (i)
50,000,000 shares of common stock and (ii) 1,000,000 shares of preferred
stock, par value $0.01 per share, issuable in series ("LVCI Preferred
Shares"). As of August 23, 2001, there were outstanding: (a) 25,888,487
LVCI Common Shares, (b) no LVCI Preferred Shares, (c) options to purchase
an aggregate of 7,779,490 LVCI Common Shares, at the exercise prices and
in the amounts listed in the LVCI Disclosure Letter, of which 687,675 were
granted under the LVCI 1990 Incentive Stock Option Plan, 382,835 were
granted under the LVCI 1990 Non-Qualified Stock Option Plan and 1,790,462
were granted under the LVCI 2000 Incentive Stock Plan, and (d) warrants to
purchase an aggregate of 3,758,518 LVCI Common Shares to other Persons
pursuant to the LVCI 1994 Non-Qualified Warrant Plan, at the exercise
prices and in the amounts listed in the LVCI Disclosure Letter (the items
in (c) and (d) being referred to collectively as the "LVCI Stock
Options"). In addition, an aggregate of 975,750 LVCI Common Shares have
been reserved for issuance under LVCI's equity based incentive plans and
an aggregate of 2,201,200 LVCI Common Shares have been reserved as
consideration for acquisitions previously disclosed in the LVCI SEC
Filings. All outstanding shares of capital stock of LVCI have been duly
authorized and validly issued and are fully paid and non-assessable and
free of pre-emptive rights. Except as set forth in this Section 4.5.1 or
the LVCI Disclosure Letter, there are outstanding as of the date hereof
(i) no shares of capital stock or other voting securities of LVCI, (ii) no
securities of LVCI convertible into or
A-21
exchangeable for shares of capital stock or voting securities of LVCI and
(iii) no options, warrants or other rights to acquire from LVCI, and, no
obligation of LVCI to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of LVCI (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "LVCI Securities"). Except as disclosed in
the LVCI Disclosure Letter, between the date hereof and the Effective
Time, no LVCI Securities will be issued. Except as set forth in the LVCI
Disclosure Letter, LVCI has not issued, granted or awarded any phantom
stock, stock appreciation rights, or any similar instruments to any
Person. There are no outstanding obligations of LVCI or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any LVCI
Securities.
4.5.2. No bonds, debentures, notes or other evidences of indebtedness
having the right to vote (or convertible into securities having the right
to vote) on any matters on which stockholders may vote ("LVCI Voting
Debt") that were issued by LVCI are outstanding. Except as set forth in
this Section 4.5 and the LVCI Disclosure Letter, there are outstanding (A)
no shares of capital stock, LVCI Voting Debt or other voting securities of
LVCI, (B) no securities of LVCI or any Subsidiary of LVCI convertible into
or exchangeable for shares of capital stock, LVCI Voting Debt or other
voting securities of LVCI or any Subsidiary of LVCI, and (C) no options,
warrants, calls, rights (including pre-emptive rights), commitments or
agreements pursuant to which LVCI or any Subsidiary of LVCI is obligated
to issue, deliver, sell, purchase, redeem or acquire, or cause to be
issued, delivered, sold, purchased, redeemed or acquired, additional
shares of capital stock or any LVCI Voting Debt or other voting securities
of LVCI or of any Subsidiary of LVCI or obligating LVCI or any Subsidiary
of LVCI to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement, except in the case of Subsidiaries where
such event would not be or would not reasonably be expected to be an LVCI
Material Adverse Change.
4.5.3. Except as disclosed in the LVCI Disclosure Letter, there are not as
of the date hereof and there will not be at the Effective Time any
stockholder agreements, voting trusts or other agreements or
understandings to which LVCI is a party or by which it is bound relating
to the voting of any shares of the capital stock of LVCI which will limit
in any way the granting of proxies by or on behalf of or from, or the
casting of votes by, LVCI stockholders with respect to the Merger.
4.6. Subsidiaries
4.6.1. LVCI has provided to TLC the name and jurisdiction of incorporation
or organization of each Subsidiary of LVCI. Except as disclosed in the
LVCI Disclosure Letter, all of the issued and outstanding shares of
capital stock of each Subsidiary of LVCI have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by
LVCI.
4.6.2. Except as disclosed in the LVCI Disclosure Letter, all of the
outstanding capital stock or other ownership interests, as applicable, of
each Subsidiary of LVCI which is owned by LVCI, directly or indirectly, is
owned free and clear of any Lien and
A-22
free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or
other ownership interests, as applicable, but excluding rights of first
refusal among share or equity holders of the Subsidiary). There are no
outstanding obligations of LVCI or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any outstanding securities in any LVCI
Subsidiary.
4.6.3. Except for shares of the Subsidiaries of LVCI and as disclosed in
the LVCI Disclosure Letter, LVCI does not own, directly or indirectly, any
shares of stock or other equity or long term debt securities of any
corporation or have any equity interest in any Person.
4.7. SEC Filings and Financial Statements
4.7.1. LVCI has delivered or made available to TLC: (i) its annual report
on Form 10-K for the fiscal year ended April 30, 2001 (the "LVCI 10-K"),
(ii) its current reports on Form 8-K dated January 12, 2001, June 14, 2001
and August 9, 2001, (iii) its proxy statement relating to the annual
meeting of stockholders held on November 10, 2000, and (iv) all of its
other reports, statements, schedules and registration statements filed by
LVCI with the SEC since July 1, 1998 and, in each case, all materials
incorporated therein by reference or filed therewith as exhibits (the
filings referred to in clauses (i) through (iv) above and the materials
referred to above, in each case delivered or made available to TLC prior
to the date hereof, being hereinafter referred to as the "LVCI SEC
Filings").
4.7.2. As of its filing or amendment date or with respect to any proxy
statements included in the LVCI SEC Filings, as of the date it was first
mailed to LVCI stockholders, each such report or statement filed pursuant
to the Exchange Act complied as to form and content in all material
respects with the requirements of the Exchange Act, except as disclosed in
the LVCI Disclosure Letter, and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
4.7.3. Each such registration statement and any amendment thereto filed
pursuant to the Securities Act included in the LVCI SEC Filings, as of the
date such statement or amendment became effective, complied as to form in
all material respects with the Securities Act and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not
misleading.
4.7.4. The financial statements of LVCI, including the notes thereto,
included in the LVCI SEC Filings (the "LVCI Financial Statements")
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of applicable
Governmental Authorities and the SEC with respect thereto as of their
respective filing dates, and have been prepared in accordance with GAAP
(except as may be indicated in the notes thereto or, in the case of
unaudited statements
A-23
included in quarterly reports on Form 10-Q, as permitted by Form 10-Q of
the SEC). The LVCI Financial Statements present fairly the consolidated
financial position and results of operations of LVCI and its Subsidiaries
at the dates presented, subject to year-end adjustments and the absence of
notes thereto) and reflect appropriate and adequate reserves in respect of
contingent liabilities, if any, of LVCI and its Subsidiaries on a
consolidated basis. There has been no change in LVCI accounting policies,
except as described in the notes to the LVCI Financial Statements, since
July 1, 1998.
4.7.5. All documents that LVCI is responsible for filing with NASDAQ or
any Governmental Authority in connection with the Merger will comply as to
form and content in all material respects with the applicable provisions
of the Securities Act, the Exchange Act and Exchange Filing Requirements.
4.8. Joint Proxy Statement/Prospectus; Registration Statement
None of the information supplied by LVCI for inclusion in (a) the joint
proxy statement relating to the LVCI Stockholder Meeting and the TLC Stockholder
Meeting (also constituting the prospectus in respect of TLC Common Shares to be
exchanged for LVCI Common Shares in the Merger) (the "Joint Proxy
Statement/Prospectus"), to be filed by LVCI and TLC with the SEC, and any
amendments or supplements thereto, or (b) the Registration Statement on Form S-4
(the "Registration Statement") to be filed by TLC with the SEC in connection
with the Merger, and any amendments or supplements thereto, will, at the
respective times such documents are filed, and, in the case of the Joint Proxy
Statement/Prospectus, at the time the Joint Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of LVCI and of
TLC, at the time of the LVCI Stockholder Meeting and the TLC Stockholder Meeting
and at the Effective Time, and, in the case of the Registration Statement, when
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. All documents that LVCI is responsible for filing with the
SEC in connection with the Merger will comply in all material respects with the
applicable provisions of the Exchange Act, the Securities Act and state
securities Laws.
4.9. Absence of Certain Changes
Except as contemplated hereby or as described or provided for in any LVCI
SEC Filing or as disclosed in the LVCI Disclosure Letter, since April 30, 2001,
LVCI and its Subsidiaries have conducted their business in all material respects
in the ordinary course consistent with past practices and there has not been:
4.9.1. any event, occurrence or development or state of circumstances or
facts, which affects or relates to LVCI or any of its Subsidiaries which
has had or would reasonably be expected to have an LVCI Material Adverse
Effect;
A-24
4.9.2. any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of LVCI, or any
repurchase, redemption or other acquisition by LVCI or any of its
Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, LVCI or any of its
Subsidiaries;
4.9.3. any amendment of any term of any outstanding security of LVCI or
any of its Subsidiaries;
4.9.4. any claim or threatened claim against LVCI or one or more of its
Subsidiaries in respect of one or more LVCI Material Contracts where the
Liability of LVCI or one or more of its Subsidiaries exceeds, or could
reasonably be expected to exceed, individually or in the aggregate,
$1,000,000;
4.9.5. any material sale, lease or other disposition of any of the assets
of LVCI or any of its Subsidiaries, other than assets sold, leased or
otherwise disposed of in the ordinary course of business consistent with
past practices which would not, in the aggregate, have or reasonably be
expected to have an LVCI Material Adverse Effect;
4.9.6. any material purchase or lease of any assets by LVCI or any of its
Subsidiaries, other than assets purchased or leased in the ordinary course
of business consistent with past practices;
4.9.7. any change in any method of accounting or accounting practices by
LVCI or any of its Subsidiaries, except for any such change required by
reason of a concurrent change in GAAP or to conform a Subsidiary's
accounting policies and practices to those of LVCI;
4.9.8. except for contractual obligations existing on the date hereof, any
(i) grant of any severance or termination pay to any director, officer or
employee of LVCI (other than as disclosed in the LVCI Disclosure Letter),
(ii) entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of LVCI or any of its Subsidiaries
except in the ordinary course of business consistent with past practices
with persons who are not executive officers, (iii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements, (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of LVCI or any of its
Subsidiaries, other than in the ordinary course of business consistent
with past practices or (v) acceleration of the exercisability or vesting
of any options, as the case may be;
4.9.9. any actual or, to the knowledge of LVCI, threatened suspension or
cancellation of any Permit held by LVCI or any Subsidiary other than those
the suspension or cancellation of which would not have or reasonably be
expected to have, individually or in the aggregate, an LVCI Material
Adverse Effect;
A-25
4.9.10. to the knowledge of LVCI, any change in any federal or state Law
applicable to LVCI or any of its Subsidiaries or in the interpretation or
application thereof, which individually or in the aggregate has had or
would reasonably be expected to have an LVCI Material Adverse Effect;
4.9.11. to the knowledge of LVCI, any Action brought against or threatened
against LVCI or any of its Subsidiaries by any Governmental Authority
which has had or would reasonably be expected to have, individually or in
the aggregate, an LVCI Material Adverse Effect;
4.9.12. to the knowledge of LVCI, any Action, brought or threatened by any
Governmental Authority which has had or would reasonably be expected to
have, individually or in the aggregate, an LVCI Material Adverse Effect;
or
4.9.13. any agreement or commitment by LVCI or any of its Subsidiaries to
take any action described in Section 4.9.
4.10. No Undisclosed Material Liabilities
Except as disclosed in the LVCI Disclosure Letter or as disclosed in any
LVCI SEC Filing, (i) there are no Liabilities of LVCI or any of its Subsidiaries
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and (ii) there is no existing condition, situation or
set of circumstances which, individually or in the aggregate, have or would
reasonably be expected to have an LVCI Material Adverse Effect, other than in
the case of either (i) or (ii):
4.10.1. Liabilities disclosed or provided for in LVCI's audited
consolidated balance sheet dated as of April 30, 2001 included in the LVCI
10-K;
4.10.2. Liabilities incurred in the ordinary course of business consistent
with past practices since April 30, 2001, which in the aggregate are not
material to LVCI and its Subsidiaries taken as a whole; and
4.10.3. Liabilities under this Agreement.
4.11. Personal Property
4.11.1. Subject to Permitted Liens, except as set forth in the LVCI
Disclosure Letter, LVCI or its Subsidiaries have marketable and
indefeasible title to all personal property owned by LVCI or its
Subsidiaries and used in the conduct of their business, other than (A)
property that has been disposed of in the ordinary course of business, and
(B) property that has been disposed of in transactions disclosed to TLC in
the LVCI Disclosure Letter, except for property where the failure to have
such marketable and indefeasible title would not, individually or in the
aggregate, have or reasonably be expected to have an LVCI Material Adverse
Effect.
A-26
4.11.2. Except as disclosed in the LVCI Disclosure Letter, (i) to the
knowledge of LVCI, all of the leases of leased personal property used in
the business conducted by LVCI and its Subsidiaries are valid and binding
and in full force and effect and (ii) there has been no material breach of
any such lease by LVCI or its Subsidiaries or, to the knowledge of LVCI,
any other Person, which breach has not been cured or waived except for any
breaches of leases the absence of which would not have or reasonably be
expected to have an LVCI Material Adverse Effect.
4.12. Accounts Receivable
Except as disclosed in the LVCI Disclosure Letter, all Accounts Receivable
of LVCI and its Subsidiaries reflected on the balance sheet included in the LVCI
10-K as of April 30, 2001 and all Accounts Receivable of LVCI and its
Subsidiaries generated after April 30, 2001 that are reflected in the accounting
records of LVCI and its Subsidiaries as of the Closing Date represent or will
represent valid obligations arising from sales actually made or services
actually performed or billed for in the ordinary course of business, except to
the extent reflected in the allowances for doubtful accounts in the LVCI
Financial Statements. In the reasonable judgement of management of LVCI, all
Accounts Receivable not paid prior to the Closing Date are current and
collectible in the ordinary course of business, except to the extent reflected
in the allowances for doubtful accounts in the LVCI Financial Statements. The
allowances for doubtful accounts reflected in the LVCI Financial Statements have
been determined consistent with past practices and in accordance with GAAP.
Except as set forth in the LVCI Disclosure Letter or as would not otherwise have
or reasonably be expected to have an LVCI Material Adverse Effect, LVCI and its
Subsidiaries have good and valid title to the Accounts Receivable free and clear
of all Liens except Permitted Liens.
4.13. Contracts
Except for (i) purchase orders, invoices, confirmations and similar
documents involving the purchase or sale of goods or services for less than
$1,000,000 over a period of 12 months or less, (ii) leases of personal property,
(iii) LVCI Benefit Arrangements, and (iv) contracts relating to intercompany
obligations, the following contracts (A) to which LVCI or any of its
Subsidiaries is a party or (B) by which any of the assets of LVCI or any of its
Subsidiaries are bound are "LVCI Material Contracts": (1) contracts which
individually or in the aggregate pertain to the borrowing of money in amounts in
excess of $1,000,000; (2) contracts creating Liens other than Permitted Liens;
(3) contracts creating guarantees in amounts that, individually or in the
aggregate, exceed $1,000,000; (4) contracts relating to material employment or
consulting services; (5) contracts relating to any single capital expenditure by
LVCI or any of its Subsidiaries in excess of $1,000,000 or aggregate capital
expenditures in excess of $5,000,000; (6) contracts for the purchase or sale of
real property, any business or line of business or for any merger or
consolidation; (7) joint venture or partnership agreements; (8) contracts that
individually require by their respective terms after the date hereof the payment
or receipt of $1,000,000 or more; (9) any agreement involving derivatives,
hedging or futures under which the obligations of LVCI or any of its
Subsidiaries could reasonably be expected to exceed $1,000,000; (10) any
contract that limits the freedom of LVCI or its Subsidiaries to compete in
A-27
any line of business or to conduct business in any geographic location; and (11)
any contract for the purchase or sale of all or substantially all of the assets
or stock of any company or operating division. To the knowledge of LVCI, all
LVCI Material Contracts are valid and binding and in full force and effect.
Except as disclosed in the LVCI Disclosure Letter, there has been no material
breach of any contract by LVCI or its Subsidiaries or, to the knowledge of LVCI,
any other Person, which breach has not been cured or waived. LVCI has made
available to TLC true and complete copies of the LVCI Material Contracts.
4.14. Litigation
Except as described in any LVCI SEC Filing or as disclosed in the LVCI
Disclosure Letter, there is no Action pending against, or to the knowledge of
LVCI, threatened against LVCI or any of its Subsidiaries or any of their
respective assets that is not covered by insurance. Those Actions that are
pending against, or are, to the knowledge of LVCI, threatened against LVCI or
any of its Subsidiaries or any of their respective assets would not have or
reasonably be expected to have, individually or in the aggregate, an LVCI
Material Adverse Effect. Neither LVCI nor any of its Subsidiaries is in
violation of any Order.
4.15. Taxes
4.15.1. LVCI and its Subsidiaries have timely filed all Tax Returns
required to be filed with any tax authority when due in accordance with
all applicable Laws except where the failure to do so would not have or
reasonably be expected to have, individually or in the aggregate, an LVCI
Material Adverse Effect, and such Tax Returns are complete and correct;
4.15.2. Except as disclosed in the LVCI SEC Filings, no deficiency in
payment of any Taxes for any period has been asserted by any taxing
authority which remains unsettled at the date hereof except for
deficiencies which would not have or reasonably be expected to have,
individually or in the aggregate, an LVCI Material Adverse Effect;
4.15.3. LVCI is not liable and it is not reasonably likely that LVCI will
be liable for any Taxes not heretofore paid or reserved against in LVCI's
April 30, 2001 financial statements except those incurred in the ordinary
course of business consistent with past practices, or which would not have
or reasonably be expected to have, individually or in the aggregate, an
LVCI Material Adverse Effect;
4.15.4. There are no Actions now pending or made or, to the knowledge of
LVCI, threatened against LVCI in respect of any Taxes, except as would not
have or reasonably be expected to have an LVCI Material Adverse Effect.
Neither LVCI nor any Subsidiary has received any written notification that
any material issues have been raised (and are currently pending) by the
United States Internal Revenue Service or any other taxing authority,
including, without limitation, any sales tax authority, in connection with
any Tax Returns;
A-28
4.15.5. There are no agreements, waivers or other arrangements providing
for any extension of time with respect to the filing of any Tax Return or
other document or the payment of any Taxes by LVCI or the period for any
assessment or reassessment of Taxes; and
4.15.6. LVCI has withheld from each amount paid by LVCI, or otherwise
collected, or credited to any person the amount of Taxes required to be
withheld therefrom and has remitted such Taxes to the proper tax or other
Governmental Authorities within the time required under applicable Laws.
4.16. Tax Free Merger
4.16.1. Following the Merger, the Surviving Corporation will hold at least
90 percent of the fair market value of the net assets, and at least 70
percent of the fair market value of the gross assets, held by LVCI prior
to the Merger. For purposes of this representation, amounts used by LVCI
to pay reorganization expenses and all redemptions, distributions and
payments, in cash or property, made by LVCI in connection with the Merger
shall be included as assets of LVCI prior to the Merger.
4.16.2. LVCI has no plan or intention to issue additional shares of its
stock that would result in TLC losing control of LVCI within the meaning
of Section 368(c) of the Code. At the time of the Merger, LVCI will not
have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any Person could acquire stock in
LVCI that, if exercised or converted, would affect TLC's acquisition or
retention of such control.
4.16.3. There is no intercorporate indebtedness existing between TLC and
LVCI or between Merger Subsidiary and LVCI.
4.16.4. LVCI is not an investment company as such term is defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
4.16.5. LVCI is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
4.16.6. On the date of the Merger, the fair market value of the assets of
LVCI will exceed the sum of LVCI's liabilities plus the amount of
liabilities, if any, to which the assets are subject.
4.16.7. LVCI agrees to treat the Merger as a Reorganization. This
Agreement is intended to constitute a "plan of reorganization" within the
meaning of Section 1.368-2(g) of the income tax regulations promulgated
under the Code. LVCI has not knowingly taken any action that would
jeopardize the qualification of the Merger as a Reorganization. During the
period from the date of this Agreement through the Effective Time, unless
all parties hereto shall otherwise agree in writing, LVCI shall not
knowingly take or fail to take any action which action or failure would
jeopardize the qualification of
A-29
the Merger as a Reorganization. LVCI shall cause one or more of its
responsible officers to execute and deliver certificates to confirm the
accuracy of certain relevant facts as may be reasonably requested by
counsel in connection with the preparation and delivery of the tax opinion
described in Section 9.1.8.
4.17. Intellectual Property
4.17.1. LVCI and its Subsidiaries own or are licensed to use all
Intellectual Property Rights currently used in the business of LVCI or its
Subsidiaries or necessary to conduct the business of LVCI and its
Subsidiaries as currently conducted (the "LVCI Intellectual Property
Rights") other than as would not have or reasonably be expected to have an
LVCI Material Adverse Effect.
4.17.2. Except as set forth in the LVCI Disclosure Letter, LVCI and its
Subsidiaries are not required to pay any royalties, fees or other amounts
to any Person in connection with the use of the LVCI Intellectual Property
Rights.
4.17.3. LVCI and its Subsidiaries have good and valid title to all LVCI
Intellectual Property Rights owned by any of them and valid and
enforceable license rights to all LVCI Intellectual Property Rights used
under license, free and clear, to the knowledge of LVCI, of all Liens, and
other than as set forth in the LVCI Disclosure Letter, to the knowledge of
LVCI, all LVCI Intellectual Property Rights are in full force and effect
and will remain in full force and effect immediately following the
Effective Time other than as would not have or reasonably be expected to
have an LVCI Material Adverse Effect.
4.17.4. Except as disclosed in the LVCI SEC Filings, neither LVCI nor any
of its Subsidiaries: (A) has been notified or is otherwise aware of any
actual or threatened adverse proceeding of any Person pertaining to any
challenge to the scope, validity or enforceability of, or LVCI's ownership
of, any of the LVCI Intellectual Property Rights; (B) is the subject of
any claim of infringement or misappropriation by LVCI or any of its
Subsidiaries of any third party Intellectual Property Rights; or (C) has
any claim for infringement or misappropriation of, or breach of any
license or agreement involving, any of the LVCI Intellectual Property
Rights.
4.18. Employee Benefit Plans
4.18.1. "LVCI Employee Plans" shall mean each "employee benefit plan", as
defined in Section 3(3) of ERISA, which (i) is subject to any provision of
ERISA and (ii) is maintained, administered or contributed to by LVCI or
any affiliate and covers any employee or former employee of LVCI or any
affiliate or under which LVCI or any affiliate has any Liability. The LVCI
Disclosure Letter contains a complete and correct list of each Employee
Plan. With respect to each LVCI Employee Plan, true and complete copies
have been made available to TLC of: (i) the plan document or agreement or,
with respect to any LVCI Employee Plan that is not in writing, a written
description of the terms thereof; (ii) the trust agreement, insurance
contract or other documentation of any
A-30
related funding arrangement; (iii) the summary plan description; (iv) the
most recent required Internal Revenue Service Form 5500, including all
schedules thereto; (v) any material communication to or from any
Governmental Authority, including a written description of any material
oral communication; and (vi) all amendments or modifications to any such
document. For purposes of this Section 4.18.1, "affiliate" of any Person
means other Person which, together with such Person, would be treated as a
single employer under Section 414 of the Code.
4.18.2. No LVCI Employee Plan individually or collectively constitutes a
"defined benefit plan" as defined in Section 3(35) of ERISA.
4.18.3. No LVCI Employee Plan or LVCI Benefit Arrangement constitutes a
"multi-employer plan", as defined in Section 3(37) of ERISA, and no LVCI
Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code. No LVCI Employee Plan is subject to Title
IV of ERISA. Neither LVCI nor any of its affiliates has incurred, nor has
reason to expect to incur, any Liability under Title IV of ERISA arising
in connection with the termination of, or complete or partial withdrawal
from, any plan previously covered by Title IV of ERISA that would have, or
reasonably be expected to have, individually or in the aggregate, an LVCI
Material Adverse Effect.
4.18.4. Nothing done or omitted to be done and no transaction or holding
of any asset under or in connection with any LVCI Employee Plan has or
will make LVCI or any of its Subsidiaries or any officer or director of
LVCI or any of its Subsidiaries subject to any Liability under Title I of
ERISA or liable for any Tax pursuant to Section 4975 of the Code that
would have, or reasonably be expected to have, individually or in the
aggregate, an LVCI Material Adverse Effect.
4.18.5. Each LVCI Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust forming a part
thereof is exempt from Tax pursuant to Section 501(a) of the Code, and
each LVCI Employee Plan has been maintained in material compliance with
its terms and with the requirements prescribed by any and all statutes,
Orders, final rules and final regulations, including but not limited to
ERISA and the Code, which are applicable to such LVCI Employee Plan.
4.18.6. Except as disclosed in the LVCI Disclosure Letter, there is no
contract, agreement, plan or arrangement covering any employee or former
employee of LVCI or any affiliate that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
4.18.7. "LVCI Benefit Arrangement" shall mean each employment, severance
or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for compensation, bonus,
profit-sharing, stock option, stock purchase, stock appreciation or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental
unemployment
A-31
benefits, severance benefits and post-employment or retirement benefits
(including compensation, health or medical insurance or other benefits,
but excluding any health, medical, pension or other benefit plan that is
provided to employees by a Governmental Authority) which (i) is not an
LVCI Employee Plan, (ii) is entered into, maintained or contributed to, as
the case may be, by LVCI or any of its affiliates and (iii) covers any
employee or former employee of LVCI or any of its affiliates. Copies or
descriptions of the LVCI Benefit Arrangements have been made available to
TLC. Each LVCI Benefit Arrangement has been maintained in compliance with
its terms and with the requirements prescribed by any and all Laws that
are applicable to such LVCI Benefit Arrangement.
4.18.8. Except as disclosed in the LVCI Disclosure Letter, the
transactions contemplated hereby will not result in any Liability for
severance pay to any employee or accelerate the exercisability or vesting
of any LVCI options, warrants, stock appreciation rights, phantom stock
awards or any similar instruments as the case may be, nor will any
employee be entitled to any payment solely by reason of such transactions.
4.18.9. All contributions required to be made to trusts in connection with
any LVCI Employee Plan that would constitute a "defined contribution plan"
(within the meaning of Section 3(34) of ERISA) have been made in a timely
manner in compliance with applicable law and regulations.
4.18.10. Other than claims in the ordinary course for benefits with
respect to LVCI Employee Plans or LVCI Benefit Arrangements, there are no
Actions (including claims for Taxes, interest, penalties or fines) pending
with respect to any LVCI Employee Plan or LVCI Benefit Arrangement, or any
circumstances which might give rise to any such Action (including claims
for any Taxes, interest, penalties or fines).
4.18.11. All reports, returns and similar documents with respect to the
LVCI Employee Plans or LVCI Benefit Arrangements required to be filed with
any Governmental Authority have been so filed by the due date for such
filings.
4.18.12. LVCI does not provide, nor has it made any current or past
commitment to provide, post-retirement health or medical benefits for
retired employees of LVCI or its Subsidiaries, except as specifically
required under Section 4980B of the Code or Section 601 of ERISA. LVCI has
substantially complied with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the regulations
thereunder.
4.18.13. There has been no amendment to, written interpretation or
announcement (whether or not written) by LVCI or any of its Affiliates
relating to, or change in employee participation or coverage under, any
LVCI Employee Plan or LVCI Benefit Arrangement which in the aggregate
would increase the per employee expense of maintaining such LVCI Employee
Plan or LVCI Benefit Arrangement above the level of the expense incurred
on a per employee basis in respect thereof for the fiscal year ended on
April 30, 2001 except to the extent, with respect to all employees, that
such increase
A-32
results from premium increases in the normal course or as would not have,
or reasonably be expected to have, individually or in the aggregate, an
LVCI Material Adverse Effect.
4.19. Environmental Matters
All operations of LVCI and its Subsidiaries have been conducted, and are
now, in compliance with all Environmental Laws. Except as LVCI has publicly
disclosed in documents filed with the SEC since July 1, 1998, LVCI is not aware
that it or any Subsidiary is subject to:
4.19.1. any Action which relates to environmental, health or safety
matters or any investigation or evaluation concerning environmental,
health or safety matters; or
4.19.2. any demand or notice with respect to the breach of, or Liability
under, any Environmental Laws and LVCI is not aware of facts or
circumstances that could reasonably be expected to result in any such
Action to which it or any Subsidiary would be subject and which could
reasonably be expected to result in an LVCI Material Adverse Effect.
4.20. Employees
4.20.1. There is no collective bargaining or other labour union agreement
applicable to any employees of LVCI or any of its Subsidiaries. Neither
LVCI nor any of its Subsidiaries are required to recognize any labour
union or employee association representing its employees or any agent
having bargaining rights for its employees and neither LVCI nor any of its
Subsidiaries have any knowledge, after appropriate enquiry, of any
threatened attempts to organize or establish any labour union or employee
association with respect to its employee. No material work stoppage or
material labour dispute against LVCI or any of its Subsidiaries in
connection with their businesses is pending or, to the knowledge of LVCI,
threatened and, to the knowledge of LVCI, there is no related
organizational activity by any employees of LVCI or any of its
Subsidiaries. Neither LVCI nor any of its Subsidiaries has, except as set
forth in the LVCI Disclosure Letter, received any written notice of any
material unfair labour practice in connection with the business, and no
such complaints are pending before the National Labor Relations Board or
other similar Governmental Authority.
4.20.2. LVCI has complied in all material respects with all Laws
applicable to it relating to employment, including those relating to
wages, hours, collective bargaining, occupational health and safety,
workers' hazardous materials, employment standards, pay equity and
workers' compensation. There are no outstanding charges or complaints
against LVCI relating to unfair labour practices or discrimination or
under any legislation relating to employees. LVCI has paid in full all
material amounts owing under applicable occupational health and safety
legislation, and to the knowledge of LVCI, there are no circumstances that
would permit a penalty assessment under such legislation. There are no
Orders requiring LVCI to comply outstanding under applicable occupational
health
A-33
and safety legislation, except where such Order would not have or
reasonably be expected to have an LVCI Material Adverse Effect.
4.21. Non-Arm's Length Transactions
4.21.1. None of LVCI or its Subsidiaries has made any payment or loan to,
or has borrowed any monies from or is otherwise indebted to, any officer,
director, employee or stockholder of such company or any Person not dealing with
it at arm's length or any Affiliate of the foregoing, except as disclosed in the
LVCI Disclosure Letter and except for usual compensation paid in the ordinary
course of business consistent with past practices.
4.21.2. Except as disclosed in the LVCI Disclosure Letter and except for
contracts made solely between LVCI and its Subsidiaries and except for
consulting contracts or contracts of employment, none of LVCI or its
Subsidiaries is a party to any contract with any officer, director, employee or
shareholder of such company or any Person not dealing with it at arm's length or
any Affiliate of any of the foregoing.
4.22. Canadian Competition Act
The aggregate value of the assets in Canada of LVCI and its Subsidiaries,
determined in accordance with the Competition Act (Canada), does not exceed $35
million Canadian dollars. The aggregate gross annual revenues from sales in or
from Canada generated by those assets, determined in accordance with the
Competition Act (Canada), does not exceed $35 million Canadian dollars.
4.23. Compliance with Laws
Except as described or provided for in any LVCI SEC Filing or as disclosed
in the LVCI Disclosure Letter, neither LVCI nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any Laws, other than
violations which would not have or reasonably be expected to have, individually
or in the aggregate, an LVCI Material Adverse Effect. Except as described or
provided for in any LVCI SEC Filing or as disclosed in the LVCI Disclosure
Letter, LVCI and its Subsidiaries have obtained and maintain in effect all
Permits, accreditations, approvals, and consents (collectively, the "Licenses")
required by any Governmental Authority to properly and legally operate or
conduct the businesses in which LVCI and its Subsidiaries are engaged, other
than those Licenses the absence of which would not have or reasonably be
expected to have, individually or in the aggregate, an LVCI Material Adverse
Effect. Except as described or provided for in any LVCI SEC Filing or as
disclosed in the LVCI Disclosure Letter, LVCI is not in default or in violation
of the terms of any of the Licenses and none of the Licenses are subject to
pending revocation or cancellation, other than with respect to Licenses, the
loss of which would not have or reasonably be expected to have, individually or
in the aggregate, an LVCI Material Adverse Effect.
A-34
4.24. Finders' Fees
Except for Goldman, Sachs & Co. ("Goldman"), there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of LVCI or any of its Subsidiaries who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
4.25. Opinion of Financial Advisor
LVCI has received the opinion of Goldman to the effect that, as of the
date of such opinion, the Conversion Number is fair to LVCI's stockholders from
a financial point of view.
4.26. Vote Required
The affirmative vote of the holders of a majority of the outstanding LVCI
Common Shares is the only vote of the holders of any class or series of LVCI's
capital stock necessary in order for LVCI to perform its obligations under this
Agreement and consummate the transactions contemplated hereby.
4.27. Compliance with Health Care Requirements
4.27.1. To the knowledge of LVCI, LVCI and each Subsidiary is, to the
extent applicable to their operations, (i) eligible to receive payment
under Titles XVIII and XIX of the Social Security Act, and (ii) in
compliance with the conditions of participation in the Medicare and
Medicaid programs, except where such inability in the case of item (i) or
non-compliance in the case of item (ii) does not have and is not
reasonably likely to have, individually or in the aggregate, an LVCI
Material Adverse Effect.
4.27.2. LVCI and each Subsidiary are not required to file cost reports and
other claims and governmental filings with respect to Medicare and
Medicaid programs.
4.27.3. To the knowledge of LVCI, neither LVCI, its Subsidiaries, nor any
of their current or former directors, officers, managers, agents,
employees or other persons acting on behalf of them, has offered, paid,
solicited or received any remuneration in order to obtain or maintain
business, which offer, payment, solicitation, or receipt is in violation
of Law, except where such violation does not have and is not likely to
have, individually or in the aggregate, an LVCI Material Adverse Effect.
4.28. Medicare Participation/Accreditation
To the extent applicable to their operations, all health care facilities
owned or operated by LVCI or any Subsidiary (each, an "LVCI Facility") have any
required certificate of need and are in substantial compliance with the
conditions of participation of such programs and certificate, except where the
failure to be so certified, to have such agreements, or to be in such compliance
does not have and is not reasonably likely to have, individually or in the
aggregate, an LVCI
A-35
Material Adverse Effect. Neither LVCI nor any Subsidiary has received notice
from any Governmental Authority, fiscal intermediary, carrier or similar entity
which enforces or administers the statutory or regulatory provisions in respect
to any governmental health care program of any pending or threatened
investigations, and to the knowledge of LVCI, no such investigations are
pending, threatened or imminent, which will have or are reasonably expected to
have, individually or in the aggregate, an LVCI Material Adverse Effect. All
returns, cost reports and other filings made by LVCI or any Subsidiary with
Medicare, Medicaid or any other governmental health care program or third party
payor are complete and accurate except where the failure to be so complete and
accurate is not reasonably likely to have, individually or in the aggregate, an
LVCI Material Adverse Effect. No adjustment or disallowance in any such costs
reports and other requests for payment, including adjustments or disallowances
for late filings, has been made or, to the knowledge of LVCI, threatened by any
federal or state agency or instrumentality or other provider reimbursement
entities relating to Medicare or Medicaid or by any third party payor which
individually or in the aggregate would have or reasonably be expected to have an
LVCI Material Adverse Effect, and, to the knowledge of LVCI, there is no basis
for any successful claims or requests for recovery of overpayments from any such
agency, instrumentality, entity or third party payor except for any such claims
or requests which are not reasonably likely to have, individually or in the
aggregate, an LVCI Material Adverse Effect.
4.29. Exclusion
To the knowledge of LVCI, neither LVCI nor any Subsidiary employs or
contracts with any person who has been excluded from participation in a Federal
Health Care Program (as defined in 42 U.S.C.ss. 1320a-7b(f)) where such
action could reasonably serve as a basis for LVCI's or any Subsidiary's
suspension or exclusion from the Medicare or any state Medicaid program.
4.30. Federal Health Care Programs
Neither LVCI nor any Subsidiary nor any of their officers,
directors, agents or managing employees: (a) has had a civil monetary penalty
assessed against him/her/it under Section 1128A of the Social Security Act or
any regulations promulgated thereunder; (b) has been excluded from participation
under any federal health care program (as defined in 42 U.S.C. ss.1320a-7b(f));
or (c) has been convicted (as that term is defined in 42 C.F.R. ss.1001.2)
of any of the categories of offenses as described in the Social Security Act
Section 1128(a) and (b)(1),(2),(3) or any regulations promulgated thereunder.
4.31. Third-Party Payment
LVCI and each Subsidiary has a valid contract to participate as a provider
of services in and under those third-party payment programs in which it
operates. To the knowledge of LVCI, no Action is pending to suspend, limit,
terminate, or revoke the status of LVCI or any Subsidiary as a provider in any
such program, and neither LVCI nor any Subsidiary has been provided notice by
any such third-party payor of its intention to suspend, limit, terminate,
revoke, or fail to renew any contractual arrangement with LVCI or any Subsidiary
as a participating provider of services
A-36
in whole or in part except where any such Actions or notices are not reasonably
likely to have, individually or in the aggregate, an LVCI Material Adverse
Effect.
4.32. Billing
Except as set forth in the LVCI Disclosure Letter, all billing by, or on
behalf of, any of LVCI or any Subsidiary to third-party payors, including, but
not limited to, Medicare, Medicaid and private insurance companies has been true
and correct in all material respects.
4.33. Reimbursement Matters
Except as disclosed in the LVCI Disclosure Letter, for the previous three
years, LVCI and its Subsidiaries have not received any written notice of denial
of payment or overpayment of a material nature from a U.S. federal health care
program or any other third party reimbursement source (inclusive of managed care
organizations) with respect to items or services provided by LVCI and/or any
Subsidiary, other than those which have been finally resolved in any settlement
for an amount less than $100,000.
4.34. Representations Complete
None of the representations or warranties made by LVCI herein or in the
LVCI Disclosure Letter, when all such documents are read together in their
entirety, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF TLC AND MERGER SUBSIDIARY
TLC and Merger Subsidiary, jointly and severally, represent and warrant to
LVCI as follows and acknowledge that LVCI is relying upon such representations
and warranties in connection with the matters contemplated by this Agreement:
5.1. Corporate Existence and Power
TLC and each of its Subsidiaries (including Merger Subsidiary) is a
corporation duly organized, validly existing and in good standing under the Laws
of its province or other jurisdiction of incorporation or organization, has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure to
be so qualified would not have or reasonably be expected to have, individually
or in the aggregate, a TLC Material Adverse Effect. TLC has heretofore
A-37
delivered to LVCI true and complete copies of TLC's articles of incorporation
and bylaws as currently in effect.
5.2. Corporate Authorization
TLC and Merger Subsidiary have all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by TLC and Merger Subsidiary of
this Agreement and the consummation of the Merger by TLC and Merger Subsidiary
are within each of TLC and Merger Subsidiary's corporate powers and, except for
any required approvals by TLC's stockholders in connection with the Merger, have
been duly authorized by all necessary corporate action on the part of TLC and
Merger Subsidiary. This Agreement has been duly executed and delivered by TLC
and Merger Subsidiary and constitutes a valid and binding obligation of TLC and
Merger Subsidiary.
5.3. Governmental Authorization
The execution, delivery and performance by TLC and Merger Subsidiary of
this Agreement and the consummation of the Merger by Merger Subsidiary require
no action by or in respect of, or filing with, any Governmental Authority other
than (i) the filing of a certificate of merger in accordance with Delaware Law;
(ii) the filing of articles of amendment of TLC to amend the name of TLC to "TLC
Vision Corporation"; (iii) the filing of articles of continuance of TLC under
the Laws of the Province of New Brunswick and the authorization of the
continuance of TLC in accordance with the Laws of the Province of Ontario; (iv)
compliance with any applicable requirements of the HSR Act, the Exchange Act and
the Securities Act; (v) compliance with any applicable requirements of the
Ontario Act; (vi) compliance with the listing requirements of the NASD; (vii)
the filing with, and approval by the TSE and NASDAQ of the conditional listing
application and satisfaction of the conditions contained therein and the
approval by the TSE of the increase in the number of shares authorized for
issuance under the TLC Stock Option Plan and other matters in connection with
the Replacement Options (including, if applicable, approval of a new stock
option plan of TLC relating thereto); and (vii) compliance with any applicable
state securities or Blue Sky laws, except where the failure of any action to be
taken by any Governmental Authority or filing to be made would not have or
reasonably be expected to have, individually or in the aggregate, a TLC Material
Adverse Effect or prevent consummation of the Merger or the transactions
contemplated hereby.
5.4. Non-Contravention
The execution, delivery and performance by TLC and Merger Subsidiary of
this Agreement and the consummation of the Merger by Merger Subsidiary do not
and will not (i) contravene or conflict with the articles of incorporation or
bylaws of TLC or Merger Subsidiary (except for the appointment of the LVCI
Nominees, which is conditional upon an amendment being made to the articles of
TLC to increase the size of the TLC Board), (ii) assuming compliance with the
matters referred to in Section 5.3, contravene or conflict with or constitute a
violation of any provision of any Law or Order binding upon or applicable to TLC
or any of its
A-38
Subsidiaries, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of TLC or
any of its Subsidiaries or to a loss of any benefit to which TLC or any of its
Subsidiaries is entitled under any provision of any TLC Material Contract or
other material agreement or other instrument binding upon TLC or any of its
Subsidiaries or any License, franchise, Permit or other similar authorization
held by TLC or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any material asset of TLC or any of its Subsidiaries,
except for any occurrences or results referred to in clauses (ii), (iii) and
(iv) which would not have or reasonably be expected to have, individually or in
the aggregate, a TLC Material Adverse Effect or prevent consummation of the
transactions contemplated hereby.
5.5. Capitalization
5.5.1. The entire authorized capital stock of TLC consists of an unlimited
number of TLC Common Shares. As of July 31, 2001, there were outstanding:
(a) 38,048,748 TLC Common Shares (with attached common share purchase
rights (the "TLC Rights") in accordance with TLC's Shareholder Rights Plan
(the "TLC Rights Plan") evidenced by the Shareholder Rights Plan Agreement
dated as of September 21, 1999, between TLC and CIBC Mellon Trust
Company), (b) warrants to purchase 100,000 TLC Common Shares at an
exercise price of Cdn.$18.80 per share, and (c) employee and other stock
options issued pursuant to the TLC Stock Option Plan or otherwise to
purchase an aggregate of 2,798,001 TLC Common Shares. In addition, an
aggregate of 500,000 TLC Common Shares have been reserved for issuance
under TLC's Share Purchase Plan, an aggregate of 2,317,999 have been
reserved for issuance under the TLC Stock Option Plan and an aggregate of
457,497 TLC Common Shares have been reserved for issuance as compensation
for doctors as previously disclosed in the TLC SEC Filings. All
outstanding shares of capital stock of TLC have been duly authorized and
validly issued and are fully paid and non-assessable and free of
pre-emptive rights. Except as set forth in this Section 5.5.1, there are
outstanding as of the date hereof (i) no shares of capital stock or other
voting securities of TLC, (ii) no securities of TLC convertible into or
exchangeable for shares of capital stock or voting securities of TLC, and
(iii) no options, warrants or other rights to acquire from TLC, and, no
obligation of TLC to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of TLC (the items in clauses (i), (ii) and (iii) being referred
to collectively as the "TLC Securities"). Except as disclosed in the TLC
Disclosure Letter, between the date hereof and the Effective Time, no TLC
Securities will be issued. TLC has not issued, granted or awarded any
phantom stock, stock appreciation rights or any similar instruments to any
Person. There are no outstanding obligations of TLC or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any TLC
Securities. The TLC Common Shares to be exchanged for LVCI Common Shares
in the Merger have been duly authorized and allotted and when issued and
delivered in accordance with the terms of this Agreement, will have been
validly issued and will be fully paid and non-assessable and the issuance
thereof is not subject to any pre-emptive or other similar right. All of
the Replacement Options have been or will be, prior to the Effective Time,
duly authorized and the TLC Common Shares issuable on the exercise of
A-39
the Replacement Options have been or will be, prior to the Effective Time,
duly authorized and allotted and when issued in accordance with the terms
of this Agreement and the Replacement Options will have been or will be,
prior to the Effective Time, validly issued and will be fully paid and
non-assessable and the issuance thereof is not subject to any pre-emptive
or other rights. TLC Common Shares issuable upon the exercise of the
Replacement Options will be conditionally listed on the TSE and NASDAQ,
subject only to notice of issuance. The transactions contemplated hereby
will not by themselves result in the TLC Rights under the TLC Rights Plan
becoming exercisable.
5.5.2. No bonds, debentures, notes or other evidence of indebtedness of
TLC having the right to vote (or convertible into securities having the
right to vote) on any matters on which stockholders may vote (the "TLC
Voting Debt") are outstanding. Except as set forth in this Section 5.5,
there are outstanding (A) no shares of capital stock, TLC Voting Debt or
other voting securities of TLC, (B) no securities of TLC or any Subsidiary
of TLC convertible into or exchangeable for shares of capital stock, TLC
Voting Debt or other voting securities of TLC or any Subsidiary of TLC,
and (C) no options, warrants, calls, rights (including pre-emptive
rights), commitments or agreements pursuant to which TLC or any Subsidiary
of TLC is obligated to issue, deliver, sell, purchase, redeem or acquire,
or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of capital stock or any TLC Voting Debt or other voting
securities of TLC or of any Subsidiary of TLC or obligating TLC or any
Subsidiary of TLC to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement, except in the case of Subsidiaries
where such event would not be or would not reasonably be expected to be a
TLC Material Adverse Change.
5.5.3. There are not as of the date hereof and there will not be at the
Effective Time any stockholder agreements, voting trusts or other
agreements or understandings to which TLC is a party or by which it is
bound relating to the voting of any shares of the capital stock of TLC
which will limit in any way the granting of proxies by or on behalf of or
from, or the casting of votes by, TLC stockholders with respect to the
Merger.
5.6. Subsidiaries
5.6.1. TLC has provided to LVCI the name and jurisdiction of incorporation
or organization of each Subsidiary of TLC. Except as disclosed in the TLC
Disclosure Letter, the issued and outstanding shares of capital stock of
each Subsidiary of TLC have been duly authorized and validly issued and
are fully paid and non-assessable and are owned by TLC.
5.6.2. Except as disclosed in the TLC Disclosure Letter, all of the
outstanding capital stock or other ownership interests, as applicable, of
each Subsidiary of TLC which is owned by TLC, directly or indirectly, is
owned free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests, as
applicable, but excluding rights of first refusal among share or equity
holders of the Subsidiaries). There
A-40
are no outstanding obligations of TLC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding securities in any
Subsidiary of TLC.
5.6.3. Except for shares of the Subsidiaries of TLC and as disclosed in
the TLC Disclosure Letter, TLC does not own, directly or indirectly, any
shares of stock or other equity or long term debt securities of any
corporation or have any equity interest in any Person.
5.7. Canadian Securities Law and TLC Financial Statements
5.7.1. TLC is a reporting issuer under the Ontario Act, is not on the list
of defaulting reporting issuers maintained under the Ontario Act, and has
delivered or made available to LVCI a true and complete copy of each
quarterly, annual or other form, report, filing or document filed by TLC
with the Governmental Authorities under the Ontario Act, or under the
rules, policies, listing agreements or other requirements of the TSE or
any other stock exchange on which any of TLC's securities are listed and
posted for trading ("Exchange Filing Requirements"), since July 1, 1998,
which are all the forms, reports, filings or documents (other than
preliminary material) that TLC was required to file with the Governmental
Authorities under the Ontario Act, or pursuant to Exchange Filing
Requirements, since July 1, 1998. TLC will deliver to LVCI a true and
complete copy of each quarterly, annual or other report or filing filed by
TLC with the Governmental Authorities under the Ontario Act, or Exchange
Filing Requirements, subsequent to the date of this Agreement and prior to
the Closing Date. All of such forms, reports, filings or documents filed
prior to the date of this Agreement are hereinafter referred to as the
"TLC Disclosure Documents". TLC has not filed any confidential material
change reports still maintained on a confidential basis. TLC is in
compliance in all material respects with applicable securities Laws of
Ontario and other applicable jurisdictions of Canada.
5.7.2. As of their respective filing dates, the TLC Disclosure Documents
complied in all material respects with the requirements of the Ontario
Act, all other applicable Laws, and Exchange Filing Requirements. As of
their respective filing dates, none of the TLC Disclosure Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
5.7.3. As of their respective filing dates, the financial statements of
TLC prepared in accordance with Canadian GAAP, including the notes
thereto, included in the TLC Disclosure Documents complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of applicable Governmental Authorities and
the Ontario Securities Commission with respect thereto as of their
respective filing dates, and have been prepared in accordance with
Canadian GAAP (except as may be indicated in the notes thereto or, in the
case of unaudited statements, included in quarterly reports). Such
financial statements present fairly the consolidated financial position
and results of operations of TLC and its Subsidiaries at the
A-41
dates presented, subject to year-end adjustments and the absence of notes
thereto) and reflect appropriate and adequate reserves in respect of
contingent liabilities, if any, of TLC and its Subsidiaries on a
consolidated basis. There has been no change in TLC accounting policies,
except as described in the notes to such financial statements, since July
1, 1998.
5.8. SEC Filings and Financial Statements
5.8.1. TLC has delivered or made available to LVCI (i) its annual report
on Form 10-K for the fiscal year ended May 31, 2001 (the "TLC 10-K"), (ii)
its proxy statement relating to the annual meeting of stockholders held on
October 26, 2000, and (iii) all of its other reports, statements,
schedules and registration statements filed by TLC with the SEC since July
1, 1998, and in each case all materials incorporated therein by reference
or filed therewith as exhibits (the filings referred to in clauses (i)
through (iii) above and the materials referred to above, in each case
delivered or made available to LVCI prior to the date hereof, being
hereinafter referred to as the "TLC SEC Filings").
5.8.2. The financial statements of TLC prepared in accordance with GAAP,
including the notes thereto, included in the TLC SEC Filings (the "TLC
Financial Statements") complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of applicable Governmental Authorities and the SEC with
respect thereto as of their respective filing dates, and have been
prepared in accordance with GAAP (except as may be indicated in the notes
thereto or, in the case of unaudited statements included in quarterly
reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The TLC
Financial Statements present fairly the consolidated financial position
and results of operations of TLC and its Subsidiaries at the dates
presented, subject to year-end adjustments and the absence of notes
thereto) and reflect appropriate and adequate reserves in respect of
contingent liabilities, if any, of TLC and its Subsidiaries. There has
been no change in TLC accounting policies, except as described in the
notes to the TLC Financial Statements, since July 1, 1998.
5.8.3. As of its filing date or with respect to any proxy statements
included in the TLC SEC Filings, as of the date it was first mailed to TLC
stockholders, each such report or statement filed pursuant to the Exchange
Act complied as to form and content in all material respects with the
requirements of the Exchange Act, and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
5.8.4. Each registration statement and any amendment thereto filed
pursuant to the Securities Act included in the TLC SEC Filings, as of the
date such statement or amendment became effective, complied as to form and
content in all material respects with the Securities Act and did not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were
made, not misleading.
A-42
5.8.5. All documents that TLC is responsible for filing with the TSE,
NASDAQ or any Governmental Authority in connection with the Merger will
comply as to form and content in all material respects with the applicable
provisions of the Securities Act, the Exchange Act, the Ontario Act and
Exchange Filing Requirements.
5.9. Joint Proxy Statement/Prospectus; Registration Statement
None of the information supplied by TLC for inclusion in (a) the Joint
Proxy Statement/Prospectus to be filed by LVCI and TLC with the SEC and any
amendments or supplements thereto, or (b) the Registration Statement to be filed
by TLC with the SEC in connection with the Merger, and any amendments or
supplements thereto, will, at the respective times such documents are filed,
and, in the case of the Joint Proxy Statement/Prospectus, at the time the Joint
Proxy Statement/Prospectus or any amendment or supplement thereto is first
mailed to stockholders of LVCI and of TLC and at the time of the LVCI
Stockholder Meeting and the TLC Stockholder Meeting and at the Effective Time,
and, in the case of the Registration Statement, when it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
All documents that TLC is responsible for filing with the SEC in connection with
the Merger will comply as to form and content in all material respects with the
applicable provisions of the Exchange Act, the Securities Act and state
securities Laws.
5.10. Absence of Certain Changes
Except as contemplated hereby or as described or provided for in any TLC
SEC Filing or as disclosed in the TLC Disclosure Letter, since May 31, 2001, TLC
and its Subsidiaries have conducted their business in all material respects in
the ordinary course consistent with past practices and there has not been:
5.10.1. any event, occurrence or development or state of circumstances or
facts, which affects or relates to TLC, which has had or would reasonably
be expected to have a TLC Material Adverse Effect;
5.10.2. any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of TLC, or any
repurchase, redemption or other acquisition by TLC or any of its
Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, TLC or any of its
Subsidiaries;
5.10.3. any amendment of any term of any outstanding security of TLC or
any of its Subsidiaries;
5.10.4. any claim or threatened claim against TLC or one or more of its
Subsidiaries in respect of one or more TLC Material Contracts where the
Liability of TLC or one or more of its Subsidiaries exceeds, or could
reasonably be expected to exceed, individually or in the aggregate,
$1,000,000;
A-43
5.10.5. any purchase or lease of any assets by TLC or any of its
Subsidiaries, other than assets purchased or leased in the ordinary course
of business consistent with past practices;
5.10.6. any change in any method of accounting or accounting practices by
TLC or any of its Subsidiaries, except for any such change required by
reason of a concurrent change in GAAP or Canadian GAAP or to conform a
Subsidiary's accounting policies and practices to those of TLC;
5.10.7. any material sale, lease or other disposition of any of the assets
of TLC or any of its Subsidiaries, other than assets sold, leased or
otherwise disposed of in the ordinary course of business consistent with
past practices which would not, in the aggregate, have or reasonably be
expected to have a TLC Material Adverse Effect;
5.10.8. except for contractual obligations existing on the date hereof and
as provided in the TLC Disclosure Letter, any (i) grant of any severance
or termination pay to any director, officer or employee of TLC other than
in the ordinary course of business, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of TLC or
any of its Subsidiaries except in the ordinary course of business
consistent with past practices with persons who are not executive
officers, (iii) increase in benefits payable under any existing severance
or termination pay policies or employment agreements, (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of TLC or any of its Subsidiaries, other than in the ordinary
course of business consistent with past practices or (v) acceleration of
the exercisability or vesting of any options, as the case may be;
5.10.9. any actual or, to the knowledge of TLC, threatened suspension or
cancellation of any Permit held by TLC or any Subsidiary other than those
the suspension or cancellation of which would not have or reasonably be
expected to have, individually or in the aggregate, a TLC Material Adverse
Effect;
5.10.10. to the knowledge of TLC, any change in any federal or state Law
applicable to TLC or any of its Subsidiaries, or in the interpretation or
application thereof, which individually or in the aggregate has had or
would reasonably be expected to have a TLC Material Adverse Effect;
5.10.11. to the knowledge of TLC, any Action, brought against or
threatened against TLC or any of its Subsidiaries by any Governmental
Authority which has had or would reasonably be expected to have,
individually or in the aggregate, a TLC Material Adverse Effect;
5.10.12. to the knowledge of TLC, any Action brought or threatened by
Governmental Authority which has had or would reasonably be expected to
have, individually or in the aggregate, a TLC Material Adverse Effect; or
A-44
5.10.13. any agreement or commitment by TLC or any of its Subsidiaries to
take any actions described in this Section 5.10.
5.11. No Undisclosed Material Liabilities
Except as disclosed in any TLC SEC Filing, (i) there are no Liabilities of
TLC or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and (ii) there is
no existing condition, situation or set of circumstances which, individually or
in the aggregate, have or would reasonably be expected to have a TLC Material
Adverse Effect, other than in the case of either (i) or (ii):
(a) Liabilities disclosed or provided for in TLC's audited consolidated
balance sheet dated as of May 31, 2001;
(b) Liabilities incurred in the ordinary course of business consistent
with past practices since May 31, 2001, which in the aggregate are
not material to TLC or its Subsidiaries taken as a whole; and
(c) Liabilities under this Agreement.
5.12. Personal Property
5.12.1. Subject to Permitted Liens, TLC or its Subsidiaries have
marketable and indefeasible title to all personal property owned by TLC or
its Subsidiaries and used in the conduct of their business, other than
property that has been disposed of in the ordinary course of business,
except for property where the failure to have such marketable and
indefeasible title would not, individually or in the aggregate, have or
reasonably be expected to have a TLC Material Adverse Effect.
5.12.2. (i) To the knowledge of TLC all of the leases of leased personal
property used in the business conducted by TLC and its Subsidiaries are
valid and binding and in full force and effect and (ii) there has been no
material breach of any such lease by TLC or its Subsidiaries or, to the
knowledge of TLC, any other Person, which breach has not been cured or
waived except for any breaches of leases the absence of which would not
have or reasonably be expected to have a TLC Material Adverse Effect.
5.13. Contracts
Except for (i) purchase orders, invoices, confirmations and similar
documents involving the purchase or sale of goods or services for less than
$1,000,000 over a period of 12 months or less, (ii) leases of personal property,
(iii) TLC Benefit Arrangements, and (iv) contracts relating to intercompany
obligations, the following contracts (A) to which TLC or any of its Subsidiaries
is a party or (B) by which any of the assets of TLC or any of its Subsidiaries
are bound are "TLC Material Contracts": (1) contracts which, individually or in
the aggregate, pertain to the borrowing of money in amounts in excess of
$1,000,000; (2) contracts creating Liens other than Permitted Liens; (3)
contracts creating guarantees in amounts that, individually or in the
A-45
aggregate, exceed $1,000,000; (4) contracts relating to material employment or
consulting services; (5) contracts relating to any single capital expenditure by
TLC or any of its Subsidiaries in excess of $1,000,000 or aggregate capital
expenditures in excess of $5,000,000; (6) contracts for the purchase or sale of
real property, any business or line of business or for any merger or
consolidation; (7) joint venture or partnership agreements; (8) contracts that
individually require by their respective terms after the date hereof the payment
or receipt of $1,000,000 or more; (9) any agreement involving derivatives,
hedging or futures under which the obligations of TLC or any of its Subsidiaries
could reasonably be expected to exceed $1,000,000; (10) any contract that limits
the freedom of TLC or its Subsidiaries to compete in any line of business or to
conduct business in any geographic location; or (11) any contract for the
purchase or sale of all or substantially all of the assets or stock of any
company or operating division. To the knowledge of TLC, all TLC Material
Contracts are valid and binding and in full force and effect. There has been no
material breach of any contract by TLC or its Subsidiaries or, to the knowledge
of TLC, any other Person, which breach has not been cured or waived. TLC has
made available to LVCI true and complete copies of the TLC Material Contracts.
5.14. Litigation
Except as described in any TLC SEC Filing or as disclosed in the TLC
Disclosure Letter, there is no Action pending against, or, to the knowledge of
TLC, threatened against TLC or any of its Subsidiaries or any of their
respective assets that is not covered by insurance. Those Actions that are
pending against, or are, to the knowledge of TLC, threatened against TLC or any
of its Subsidiaries or any of their respective assets would not have or
reasonably be expected to have, individually or in the aggregate, a TLC Material
Adverse Effect. Neither TLC nor any of its Subsidiaries is in violation of any
Order.
5.15. Taxes
5.15.1. TLC and its Subsidiaries have timely filed all Tax Returns
required to be filed with any tax authority when due in accordance with
all applicable Laws except where the failure to do so would not have or
reasonably be expected to have, individually or in the aggregate, a TLC
Material Adverse Effect, and such Tax Returns, are complete and correct;
5.15.2. No deficiency in payment of any Taxes for any period has been
asserted by any taxing authority which remains unsettled at the date
hereof except for deficiencies which would not have or reasonably be
expected to have, individually or in the aggregate, a TLC Material Adverse
Effect;
5.15.3. TLC is not liable and it is not reasonably likely that TLC will be
liable for any Taxes not heretofore paid or reserved against in the TLC
May 31, 2001 financial statements except those incurred in the ordinary
course of business consistent with past practice, or which would not have
or reasonably be expected to have, individually or in the aggregate, a TLC
Material Adverse Effect;
A-46
5.15.4. Canadian federal income tax assessments have been issued to TLC
covering all past periods up to and including its fiscal year ended May
31, 2000. There are no Actions now pending or made or, to the knowledge of
TLC, threatened against TLC in respect of any Taxes except as would not
have, or reasonably be expected to have a TLC Material Adverse Effect.
Neither TLC nor any Subsidiary has received any written notification that
any material issues have been raised (and are currently pending) by the
Canada Customs and Revenue Agency, the United States Internal Revenue
Service or any other taxing authority, including, without limitation, any
sales tax authority, in connection with any Tax Returns;
5.15.5. There are no agreements, waivers or other arrangements providing
for any extension of time with respect to the filing of any Tax Return or
other document or the payment of any Taxes by TLC or the period for any
assessment or reassessment of Taxes (except that in the United States
subsidiaries of TLC have filed extensions of the deadline for filing Tax
Returns for the year ended May 31, 2001). Only the fiscal years of TLC
subsequent to May 31, 1996 remain open for reassessment for additional
Canadian federal income Taxes; and
5.15.6. TLC has withheld from each amount paid by TLC, or otherwise
collected, or credited to any person the amount of Taxes required to be
withheld therefrom or collected by TLC and has remitted such Taxes to the
proper tax or other Governmental Authorities within the time required
under applicable Laws.
5.16. Tax Free Merger
5.16.1. Following the Merger, the Surviving Corporation will hold at least
90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by Merger
Subsidiary prior to the Merger (excluding the Merger Consideration).
5.16.2. TLC will acquire LVCI Common Shares solely in exchange for TLC
Common Shares, and in the Merger, LVCI Common Shares representing control
of LVCI as defined in Section 368(c) of the Code, will be exchanged solely
for TLC Common Shares.
5.16.3. Prior to the Merger, TLC will be in control of Merger Subsidiary
within the meaning of Section 368(c) of the Code.
5.16.4. TLC has no plan or intention as part of the plan of the Merger to
cause the Surviving Corporation to issue after the Effective Time
additional shares of stock that would result in TLC losing control of the
Surviving Corporation within the meaning of Section 368(c) of the Code or
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in the Surviving
Corporation that, if exercised or converted, would affect TLC's
acquisition or retention of control of the Surviving Corporation, as
defined in Section 368(c) of the Code.
A-47
5.16.5. TLC has no plan or intention to re-acquire any of the TLC Common
Shares issued in the Merger.
5.16.6. TLC has no plan or intention to liquidate the Surviving
Corporation, to merge the Surviving Corporation with or into another
corporation or to sell or otherwise dispose of the Surviving Corporation
stock except for transfers of stock to a corporation controlled by TLC.
5.16.7. TLC will cause the Surviving Corporation to attach to a timely
filed U.S. income tax return for the taxable year in which the Merger
occurs the statement required by Section 1.367(a)-3(c)(6) of the Treasury
regulations issued under Section 367(a) of the Code.
5.16.8. Following the Merger, the Surviving Corporation will continue
LVCI's historic business or use a significant portion of its historic
business assets in a business.
5.16.9. Merger Subsidiary will have no liabilities assumed by the
Surviving Corporation and will not transfer to the Surviving Corporation
in the Merger any assets subject to liabilities.
5.16.10. There is no intercorporate indebtedness existing between TLC and
LVCI or between Merger Subsidiary and LVCI.
5.16.11. Except as provided in Section 10.4 of this Agreement, TLC and
Merger Subsidiary will pay their respective expenses incurred in
connection with the Merger.
5.16.12. Neither TLC nor Merger Subsidiary is an investment company as
such term is defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
5.16.13. TLC agrees to treat the Merger as a Reorganization. This
Agreement is intended to constitute a "plan of reorganization" within the
meaning of Section 1.368-2(g) of the income tax regulations promulgated
under the Code. Neither TLC nor Merger Subsidiary has knowingly taken any
action that would jeopardize the qualification of the Merger as a
Reorganization. During the period from the date of this Agreement through
the Effective Time, unless all parties hereto shall otherwise agree in
writing, neither TLC nor Merger Subsidiary shall knowingly take or fail to
take any action which action or failure would jeopardize the qualification
of the Merger as a Reorganization. TLC shall cause one or more of its
responsible officers to execute and deliver certificates to confirm the
accuracy of certain relevant facts as may be reasonably requested by
counsel in connection with the preparation and delivery of the tax opinion
described in Section 9.1.8.
5.16.14. Following the Effective Time, TLC shall use its commercially
reasonable best efforts, and shall cause the Surviving Corporation to use
its commercially reasonable best efforts, to conduct its business and the
Surviving Corporation's business in a manner which would not jeopardize
the characterization of the Merger as a Reorganization.
A-48
5.17. Intellectual Property
5.17.1. TLC and its Subsidiaries own or are licensed to use all
Intellectual Property Rights currently used in the business of TLC or its
Subsidiaries or necessary to conduct the business of TLC and its
Subsidiaries as currently conducted or currently anticipated to be
conducted (the "TLC Intellectual Property Rights") other than as would not
have or reasonably be expected to have a TLC Material Adverse Effect.
5.17.2. Except as set forth in the TLC Disclosure Letter, TLC and its
Subsidiaries are not required to pay any royalties, fees or other amounts
to any Person in connection with the use of the TLC Intellectual Property
Rights.
5.17.3. TLC and its Subsidiaries have good and valid title to all TLC
Intellectual Property Rights owned by any of them and valid and
enforceable license rights to all TLC Intellectual Property Rights used
under license, free and clear, to the knowledge of TLC, of all Liens, and
other than as set forth in the TLC Disclosure Letter, to the knowledge of
TLC, all TLC Intellectual Property Rights are in full force and effect and
will remain in full force and effect immediately following the Effective
Time other than as would not have or reasonably be expected to have a TLC
Material Adverse Effect.
5.17.4. Neither TLC nor any of its Subsidiaries: (A) has been notified or
is otherwise aware of any actual or threatened adverse proceeding of any
Person pertaining to any challenge to the scope, validity or
enforceability of, or TLC's ownership of, any of the TLC Intellectual
Property Rights; (B) is the subject of any claim of infringement or
misappropriation by TLC or any of its Subsidiaries of any third party
Intellectual Property Rights; or (C) has any claim for infringement or
misappropriation of, or breach of any license or agreement involving, any
of the TLC Intellectual Property Rights.
5.18. Employee Benefit Plans
5.18.1. "TLC Employee Plans" shall mean each U.S.-based "employee benefit
plan", as defined in Section 3(3) ERISA, which is subject to any provision
of ERISA and each Canadian based employee benefit plant that is
maintained, administered or contributed to by TLC or any affiliate and
covers any employee or former employee of TLC or any affiliate or under
which TLC or any affiliate has any Liability. The TLC Disclosure Letter
contains a complete and correct list of each TLC Employee Plan. With
respect to each TLC Employee Plan, true and complete copies have been made
available to LVCI of: (i) the plan document or agreement or, with respect
to any TLC Employee Plan that is not in writing, a written description of
the terms thereof; (ii) the trust agreement, insurance contract or other
documentation of any related funding arrangement; (iii) the summary plan
description; (iv) the most recent required Internal Revenue Service Form
5500, including all schedules thereto; (v) any material communication to
or from any Governmental Authority, including a written description of any
oral communication; and (vi) all amendments or modifications to any such
document. For purposes of this Section 5.18.1, "affiliate" of any Person
means other Person which,
A-49
together with such Person, would be treated as a single employer under
Section 414 of the Code.
5.18.2. No TLC Employee Plan individually or collectively constitutes a
"defined benefit plan" as defined in Section 3(35) of ERISA or applicable
Canadian legislation.
5.18.3. No TLC Employee Plan or TLC Benefit Arrangement constitutes a
"multi-employer plan", as defined in Section 3(37) of ERISA or in the
applicable Canadian pension benefit legislation, and no TLC Employee Plan
is maintained in connection with any trust described in Section 501(c)(9)
of the Code. No TLC Employee Plan is subject to Title IV of ERISA. Neither
TLC nor any of its affiliates has incurred, nor has reason to expect to
incur, any Liability under Title IV of ERISA arising in connection with
the termination of, or complete or partial withdrawal from, any plan
previously covered by Title IV of ERISA that would have, or reasonably be
expected to have, individually or in the aggregate, a TLC Material Adverse
Effect.
5.18.4. Nothing done or omitted to be done and no transaction or holding
of any asset under or in connection with any TLC Employee Plan has or will
make TLC or any of its Subsidiaries or any officer or director of TLC or
any of its Subsidiaries subject to any Liability under Title I of ERISA or
liable for any Tax pursuant to Section 4975 of the Code that would have,
or reasonably be expected to have, individually or in the aggregate, a TLC
Material Adverse Effect.
5.18.5. Each TLC Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust forming a part
thereof is exempt from Tax pursuant to Section 501(a) of the Code, and
each TLC Employee Plan has been maintained in material compliance with its
terms and with the requirements prescribed by any and all statutes,
Orders, final rules and final regulations, including but not limited to
applicable Canadian pension legislation, ERISA and the Code, which are
applicable to such TLC Employee Plan.
5.18.6. There is no contract, agreement, plan or arrangement covering any
employee or former employee of TLC or any affiliate that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible pursuant to the terms of Section 280G of the Code.
5.18.7. "TLC Benefit Arrangement" shall mean each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for compensation, bonus, profit-sharing, stock
option, stock purchase, stock appreciation or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangements), health or medical benefits, disability
benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, health or medical insurance or other benefits, but excluding
any health, medical, pension or other benefit plan that is provided to
employees by a Governmental
A-50
Authority) which (i) is not a TLC Employee Plan, (ii) is entered into,
maintained or contributed to, as the case may be, by TLC or any of its
affiliates and (iii) covers any employee or former employee of TLC or any
of its affiliates. Copies or descriptions of the TLC Benefit Arrangements
have been made available to LVCI. Each TLC Benefit Arrangement has been
maintained in compliance with its terms and with the requirements
prescribed by any and all Laws that are applicable to such TLC Benefit
Arrangement.
5.18.8. The transactions contemplated hereby will not result in any
Liability for severance pay to any employee or accelerate the
exercisability or vesting of any TLC options, warrants, stock appreciation
rights, phantom stock awards or any similar instruments as the case may
be, nor will any employee be entitled to any payment solely by reason of
such transactions.
5.18.9. All contributions required to be made to trusts in connection with
any TLC Employee Plan that would constitute a "defined contribution plan"
(within the meaning of Section 3(34) of ERISA or applicable Canadian
pension benefit legislation) have been made in a timely manner in
compliance with applicable law and regulations.
5.18.10. Other than claims in the ordinary course for benefits with
respect to TLC Employee Plans or TLC Benefit Arrangements, there are no
Actions (including claims for any Taxes, interest, penalties or fines )
pending with respect to any TLC Employee Plan or TLC Benefit Arrangement,
or any circumstances which might give rise to any such Action (including
claims for any Taxes, interest, penalties, or fines).
5.18.11. All reports, returns and similar documents with respect to the
TLC Employee Plans or TLC Benefit Arrangements required to be filed with
any Governmental Authority have been so filed by the due date for such
filings.
5.18.12. TLC does not provide, nor has it made any current or past
commitment to provide, post-retirement health or medical benefits for
retired employees of TLC or its Subsidiaries, except as specifically
required under Section 4980B of the Code or Section 601 of ERISA. TLC has
substantially complied with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the regulations
thereunder.
5.18.13. There has been no amendment to, written interpretation or
announcement (whether or not written) by TLC or any of its Affiliates
relating to, or change in employee participation or coverage under, any
TLC Employee Plan or TLC Benefit Arrangement which in the aggregate would
increase the per employee expense of maintaining such TLC Employee Plan or
TLC Benefit Arrangement above the level of the expense incurred on a per
employee basis in respect thereof for the fiscal year ended on May 31,
2001 except to the extent, with respect to all employees, that such
increase results from premium increases in the normal course or as would
not have, or reasonably be expected to have, individually or in the
aggregate, a TLC Material Adverse Effect.
A-51
5.19. Environmental Matters
All operations of TLC and its Subsidiaries have been conducted, and are
now, in compliance with all Environmental Laws. Except as TLC has publicly
disclosed in documents filed with the SEC since July 1, 1998, TLC is not aware
that it or any Subsidiary is subject to:
5.19.1. any Action which relates to environmental, health or safety
matters or any investigation or evaluation concerning environmental,
health or safety matters; or
5.19.2. any demand or notice with respect to the breach of, or Liability
under, any Environmental Laws and TLC is not aware of facts or
circumstances that could reasonably be expected to result in any such
Action which it or any Subsidiary would be subject and which could
reasonably be expected to result in a TLC Material Adverse Effect.
5.20. Employees
5.20.1. There is no collective bargaining or other labour union agreement
or employee association applicable to any employees of TLC or any of its
Subsidiaries. Neither TLC nor any of its Subsidiaries has made any
commitment to, or conducted any negotiation with, any labour union or
employee association with respect to any future agreement or arrangement.
Neither TLC nor any of its Subsidiaries are required to recognize any
labour union or employee association representing its employees or any
agent having bargaining rights for its employees. No material work
stoppage or material labour dispute against TLC or any of its Subsidiaries
in connection with their businesses is pending or, to the knowledge of
TLC, threatened and, to the knowledge of TLC, there is no related
organizational activity by any employees of TLC or any of its
Subsidiaries. Neither TLC nor any of its Subsidiaries has, except as set
forth in the TLC Disclosure Letter, received any written notice of any
material unfair labour practice in connection with the business, and no
such complaints are pending before the National Labor Relations Board or
other similar Governmental Authority.
5.20.2. TLC has complied in all material respects with all Laws applicable
to it relating to employment, including those relating to wages, hours,
collective bargaining, occupational health and safety, workers' hazardous
materials, employment standards, pay equity and workers' compensation.
Except as disclosed in the TLC Disclosure Letter, there are no outstanding
charges or complaints against TLC relating to unfair labour practices or
discrimination or under any legislation relating to employees. TLC has
paid in full all material amounts owing under the Workplace Safety and
Insurance Act (Ontario) or comparable legislation, and to the knowledge of
TLC, there are no circumstances that would permit a penalty reassessment
under such legislation. There are no Orders requiring TLC to comply
outstanding under the Occupational Health and Safety Act (Ontario) or
comparable legislation, except where such Order would not have or
reasonably be expected to have a TLC Material Adverse Effect.
A-52
5.21. Non-Arm's Length Transactions
5.21.1. None of TLC or its Subsidiaries has made any payment or loan to,
or has borrowed any monies from or is otherwise indebted to, any officer,
director, employee or stockholder of such company or any Person not
dealing with it at arm's length or any Affiliate of the foregoing, except
as disclosed in the TLC Disclosure Letter and except for usual
compensation paid in the ordinary course of business consistent with past
practices.
5.21.2. Except as disclosed in the TLC 10-K and except for contracts made
solely between TLC and its Subsidiaries and except for consulting
contracts or contracts of employment, none of TLC or its Subsidiaries is a
party to any contract with any officer, director, employee or shareholder
of such company or any Person not dealing with it at arm's length or any
Affiliate of any of the foregoing.
5.22. Compliance with Laws
Except as described or provided for in any TLC SEC Filing or as disclosed
in the TLC Disclosure Letter, neither TLC nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any Laws, other than
violations which would not have or reasonably be expected to have, individually
or in the aggregate, a TLC Material Adverse Effect. Except as described or
provided for in any TLC SEC Filing or as disclosed in the TLC Disclosure Letter,
TLC and its Subsidiaries have obtained and maintain in effect all Licenses
required by any Governmental Authority to properly and legally operate or
conduct the business in which TLC and its Subsidiaries are engaged, other than
those Licenses the absence of which would not have or reasonably be expected to
have, individually or in the aggregate, a TLC Material Adverse Effect. Except as
described or provided for in any TLC SEC Filing or as disclosed in the TLC
Disclosure Letter, TLC is not in default or in violation of the terms of any of
the Licenses and none of the Licenses are subject to pending revocation or
cancellation, other than with respect to Licenses, the loss of which would not
have or reasonably be expected to have, individually or in the aggregate, a TLC
Material Adverse Effect.
5.23. Finders' Fees
Except for SG Cowen Securities Corporation ("SG Cowen"), whose fees will
be paid by TLC, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of TLC
or any of its Subsidiaries who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
5.24. Opinion of Financial Advisor
TLC has received the opinion of SG Cowen to the effect that, as of the
date of such opinion, the Conversion Number is fair to TLC from a financial
point of view.
A-53
5.25. Votes Required
The only votes of the holders of any class or series of TLC's capital
stock necessary in order for TLC to perform its obligations under this Agreement
and the transactions contemplated hereby are the affirmative vote of the holders
of the following percentages of TLC Common Shares represented in person or by
proxy at the meeting of stockholders of TLC (such meeting, including the
adjournments thereof, the "TLC Stockholder Meeting"), (i) at least 50% in
respect of this Agreement and the transactions contemplated herein; (ii) at
least 66 2/3% in respect of the change of the name of TLC to "TLC Vision
Corporation"; (iii) at least 66 2/3% in respect of the continuance of TLC in the
Province of New Brunswick; (iv) at least 66 2/3% in respect of the resolution to
increase the size of the TLC Board to eleven (11) directors; (v) at least 50% in
respect of the adoption of new by-laws for TLC; and (vi) at least 50%
(excluding, if required by applicable Laws, the holders of TLC Common Shares who
are insiders (as defined in the Ontario Act) of TLC to whom shares may be issued
pursuant to the TLC Stock Option Plan or their associates (as defined in the
Ontario Act), in respect of the resolution to increase the number of options
available for issuance under the TLC Stock Option Plan and, if applicable, the
resolution to grant the Replacement Options (and, if applicable, approval of a
new stock option plan for TLC relating thereto) and all matters in connection
therewith.
5.26. Interim Operations of Merger Subsidiary
Merger Subsidiary was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
5.27. Authorization for TLC Common Shares
Prior to the Closing Date, TLC will have taken all necessary action to
permit it to issue the number of TLC Common Shares to be issued pursuant to the
terms of this Agreement including those issuable upon the exercise of
Replacement Options. TLC Common Shares issued pursuant to the terms of this
Agreement, including those issuable upon the exercise of the Replacement
Options, will, when issued, be validly issued, fully paid and non-assessable and
no Person will have any pre-emptive right to subscription or purchase in respect
thereof. Such TLC Common Shares will be conditionally listed on the TSE and
NASDAQ, subject only to notice of issuance.
5.28. Compliance with Health Care Requirements
5.28.1. To TLC's knowledge, TLC and each Subsidiary is, to the extent
applicable to their operations, (i) eligible to receive payment under
Titles XVIII and XIX of the Social Security Act, (ii) in compliance with
the conditions of participation in the Medicare program, except where such
inability in the case of item (i) or non-compliance in the case of item
(ii) does not have and is not reasonably likely to have, individually or
in the aggregate, a TLC Material Adverse Effect.
A-54
5.28.2. Except as disclosed in the TLC Disclosure Letter, TLC and each
Subsidiary are not required to file cost reports and other claims and
governmental filings with respect to Medicare and Medicaid programs.
5.28.3. To the knowledge of TLC, neither TLC, its Subsidiaries, nor any of
their current or former directors, officers, managers, agents, employees
or other persons acting on behalf of them, has offered, paid, solicited or
received any remuneration in order to obtain or maintain business, which
offer, payment, solicitation, or receipt is in violation of Law, except
where such violation does not have and is not likely to have, individually
or in the aggregate, a TLC Material Adverse Effect.
5.29. Medicare Participation/Accreditation
To the extent applicable to their operations, all health care facilities
owned or operated by TLC or any Subsidiary (each, a "TLC Facility") have any
required certificate of need and are in substantial compliance with the
conditions of participation of such programs and certificate, except where the
failure to be so certified, to have such agreements, or to be in such compliance
does not have and is not reasonably likely to have, individually or in the
aggregate, a TLC Material Adverse Effect. Neither TLC nor any Subsidiary has
received notice from any Governmental Authority, fiscal intermediary, carrier or
similar entity which enforces or administers the statutory or regulatory
provisions in respect to any governmental health care program of any pending or
threatened investigations, and to the knowledge of TLC, no such investigations
are pending, threatened or imminent, which will have or are reasonably expected
to have, individually or in the aggregate, a TLC Material Adverse Effect. All
returns, cost reports and other filings made by TLC or any Subsidiary with
Medicare, Medicaid or any other governmental health care program or third party
payor are complete and accurate except where the failure to be so complete and
accurate is not reasonably likely to have, individually or in the aggregate, a
TLC Material Adverse Effect. No adjustment or disallowance in any such costs
reports and other requests for payment, including adjustments or disallowances
for late filings, has been made or, to the knowledge of TLC, threatened by any
federal or state agency or instrumentality or other provider reimbursement
entities relating to Medicare or Medicaid or by any third party payor which
individually or in the aggregate would have or reasonably be expected to have a
TLC Material Adverse Effect, and, to the knowledge of TLC, there is no basis for
any successful claims or requests for recovery of overpayments from any such
agency, instrumentality, entity or third party payor except for any such claims
or requests which are not reasonably likely to have, individually or in the
aggregate, a TLC Material Adverse Effect.
5.30. Exclusion
To the knowledge of TLC, neither TLC nor any Subsidiary employs or
contracts with any person who has been excluded from participation in a Federal
Health Care Program (as defined in 42 U.S.C. ss. 1320a-7b(f)) where such action
could reasonably serve as a basis for TLC's or any Subsidiary's suspension or
exclusion from the Medicare or any state Medicaid program.
A-55
5.31. Federal Health Care Programs
To the knowledge of TLC, neither TLC nor any Subsidiary nor any of their
officers, directors, agents or managing employees: (a) has had a civil monetary
penalty assessed against him/her/it under Section 1128A of the Social Security
Act or any regulations promulgated thereunder; (b) has been excluded from
participation under any federal health care program (as defined in 42 U.S.A.
ss. 1320a-7b(f)); or (c) has been convicted (as that term is defined in 42
C.F.R. ss. 1001.2) of any of the categories of offenses as described in the
Social Security Act Section 1128(a) and (b)(1), (2), (3) or any regulations
promulgated thereunder.
5.32. Third-Party Payment
TLC and each Subsidiary has a valid contract to participate as a provider
of services in and under those third-party payment programs in which it
operates. To the knowledge of TLC, no Action is pending to suspend, limit,
terminate, or revoke the status of TLC or any Subsidiary as a provider in any
such program, and neither TLC nor any Subsidiary has been provided notice by any
such third-party payor of its intention to suspend, limit, terminate, revoke, or
fail to renew any contractual arrangement with TLC or any Subsidiary as a
participating provider of services in whole or in part, except where any such
Actions or notices are not reasonably likely to have, individually or in the
aggregate, a TLC Material Adverse Effect.
5.33. Billing; Gratuitous Payments
All billing by, or on behalf of, any of TLC or any Subsidiary to
third-party payors, including, but not limited to, Medicare, Medicaid and
private insurance companies has been true and correct in all material respects.
5.34. Reimbursement Matters
For the previous three years, neither TLC nor its Subsidiaries have
received any written notice of denial of payment or overpayment of a material
nature from a U.S. federal health care program or any other third party
reimbursement source (inclusive of managed care organizations) with respect to
items or services provided by TLC and/or any Subsidiary, other than those which
have been finally resolved in any settlement for an amount less than $100,000.
5.35. Accounts Receivable
All Accounts Receivable of TLC and its Subsidiaries reflected on the
balance sheet included in the TLC 10-K as of May 31, 2001 and all Accounts
Receivable of TLC and its Subsidiaries generated after May 31, 2001 that are
reflected in the accounting records of TLC and its Subsidiaries as of the
Closing Date represent or will represent valid obligations arising from sales
actually made or services actually performed or billed for in the ordinary
course of business, except to the extent reflected in the allowances for
doubtful accounts in the TLC Financial Statements. In the reasonable judgment of
management of TLC, all Accounts Receivable not paid prior to the Closing Date
are current and collectible in the ordinary course of business,
A-56
except to the extent reflected in the allowances for doubtful accounts in the
TLC Financial Statements. The allowances for doubtful accounts reflected in the
TLC Financial Statements have been determined consistent with past practices and
in accordance with GAAP. Except as would not otherwise have or reasonably be
expected to have a TLC Material Adverse Effect, TLC and its Subsidiaries have
good and valid title to the Accounts Receivable free and clear of all Liens
except Permitted Liens.
5.36. Representations Complete
None of the representations or warranties made by TLC herein or in the TLC
Disclosure Letter, when all such documents are read together in their entirety,
contains any untrue statement of a material fact, or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE 6.
COVENANTS OF LVCI
6.1. Conduct of LVCI
Except as expressly contemplated by this Agreement or as described or
provided for in any LVCI SEC Filing or as disclosed in writing by LVCI prior to
the date of this Agreement, from the date hereof until the earlier to occur of
the Effective Time and the termination of this Agreement, LVCI and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practices and shall use their commercially reasonable best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Except as otherwise approved in writing by TLC or as expressly
contemplated by this Agreement, and without limiting the generality of the
foregoing, from the date hereof until the Effective Time:
6.1.1. LVCI and its Subsidiaries will not adopt or propose any change in
their articles of incorporation or bylaws;
6.1.2. LVCI shall not authorize or propose, or enter into any agreement,
arrangement or understanding (or permit any Subsidiary to do so) with
respect to (a) any acquisition of businesses, assets or securities the
value of the consideration for which (including assumed debt or other
obligations) would exceed $5,000,000 individually (including in a series
of related transactions) (excluding any transactions previously consented
to in writing by TLC), or (b) any disposition of businesses, assets or
securities the value of the consideration for which (including assumed
debt or other obligations) would exceed $5,000,000 individually (including
in a series of related transactions) (excluding any transactions
previously consented to in writing by TLC);
A-57
6.1.3. LVCI will not declare or pay any dividends or make any
distributions on its issued and outstanding capital stock, in cash, stock,
property or otherwise;
6.1.4. LVCI will not, and will not permit any of its Subsidiaries to, (i)
issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of capital stock of LVCI or any of its Subsidiaries or
any options, warrants, calls, conversion privileges or rights of any kind
to acquire shares of LVCI or any of its Subsidiaries (except as disclosed
in the LVCI Disclosure Letter or pursuant to the exercise of stock options
or currently outstanding rights under existing compensation-related share
issuance plans), (ii) split, combine or reclassify any LVCI Securities or
securities of a Subsidiary or (iii) repurchase, redeem or otherwise
acquire any LVCI Securities or any securities of a Subsidiary;
6.1.5. LVCI will not, and will not permit any of its Subsidiaries to, take
or agree to commit to take any action that would make any representation
and warranty of LVCI hereunder inaccurate in any material respect at, or
as of any time prior to, the Effective Time;
6.1.6. LVCI will not create, incur, assume or suffer to exist, any
indebtedness for borrowed money in excess of $1,000,000 (including capital
lease obligations), other than (i) indebtedness existing as of the date of
this Agreement, (ii) borrowings under existing credit lines in the
ordinary course of business, consistent with past practices, and (iii)
intercompany indebtedness among LVCI and its Subsidiaries arising in the
ordinary course of business, consistent with past practice;
6.1.7. LVCI will not make any capital expenditure (including, without
limitation, expenditures for property, plant and equipment) or
appropriations or commitments with respect thereto other than as
contemplated by the LVCI projections provided to TLC or additional
expenditures, appropriations or commitments which do not exceed an
aggregate of $1,000,000; and
6.1.8. LVCI will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
Notwithstanding the foregoing, TLC shall be deemed to have consented to the
transactions involving LVCI listed in the LVCI Disclosure Letter.
6.2. Stockholder Meeting
6.2.1. LVCI shall use its best efforts to cause a meeting of its
stockholders to be duly called and held as soon as reasonably practicable,
but in no event later than the 50th day following the date on which the
Registration Statement is declared effective under the Securities Act
(such meeting, including any adjournments thereof, the "LVCI Stockholder
Meeting"), for the purpose of voting on the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby, and
any other item of business required by or consented to in writing by TLC
acting reasonably.
A-58
6.2.2. If an Acquisition Proposal has been proposed to LVCI or announced
within 10 Business Days prior to the date of the LVCI Stockholder Meeting,
unless the LVCI Board has determined that the Acquisition Proposal is not
a Superior Proposal, LVCI shall adjourn or delay the LVCI Stockholder
Meeting for a period, which shall be not less than five Business Days,
determined by the LVCI Board to be reasonably necessary to fulfill its
fiduciary duties as advised by counsel and to satisfy all applicable Laws.
6.2.3. The LVCI Board shall, unless otherwise required in accordance with
their fiduciary duties as advised by its legal and financial advisors,
recommend approval and adoption of this Agreement and the Merger by LVCI's
stockholders. In connection with such meeting, LVCI will, subject to the
foregoing, use its commercially reasonable best efforts to obtain the
necessary approvals by its stockholders of the matters (including the
solicitation of proxies to be voted at the LVCI Stockholder Meeting)
referred to above in this Section 6.2 and such other matters as are
required by Delaware Law, and will otherwise comply with all legal
requirements applicable to such meetings.
6.3. Other Offers
6.3.1. LVCI shall not, directly or indirectly, through any officer,
director, employee, representative or agent of LVCI or any of its
subsidiaries, solicit, initiate or knowingly encourage (including by way
of furnishing any written non-public information or entering into any form
of agreement, arrangement or understanding) the initiation of any
inquiries or proposals regarding an Acquisition Proposal.
6.3.2. Nothing shall prevent the LVCI Board from considering, negotiating
or discussing an unsolicited possible Acquisition Proposal, subject to the
following:
6.3.2.1. LVCI shall not furnish any written non-public information
and/or access to the books and records of LVCI to a Person who
proposes an Acquisition Proposal in respect of LVCI (an "Interested
Third Party") until the Interested Third Party and LVCI execute a
confidentiality agreement;
6.3.2.2. LVCI shall furnish to TLC the name of any Interested Third
Party within five days after such party executes a confidentiality
agreement with LVCI, unless LVCI and Interested Third Party shall
have terminated negotiations prior to such time;
6.3.2.3. subject to the other provisions of this Agreement, LVCI
shall have no obligation to advise TLC of any information submitted
or made available to an Interested Third Party pursuant to this
Section 6.3;
6.3.2.4. LVCI shall not furnish or disclose to any Person, in
writing or otherwise, any non-public information regarding TLC,
regarding the combined business of TLC and LVCI or provided by TLC;
A-59
6.3.2.5. LVCI shall not, unless required by the LVCI Board in
accordance with its fiduciary duties as advised by its legal and
financial advisors, withdraw or modify in a manner adverse to TLC
the approval or recommendation of the LVCI Board of this Agreement
and the Merger as described in Section 6.2;
6.3.2.6. LVCI shall furnish to TLC a written summary of the material
terms (including the consideration offered, the conditions to
completion, the other parties thereto and any termination or similar
fees payable in connection therewith) of an Acquisition Proposal
that is determined by the LVCI Board at such time to be reasonably
likely to constitute the final and most favourable proposal by such
Interested Third Party, such summary to be furnished by the end of
the fifth day following such determination by the LVCI Board unless
LVCI and the Interested Third Party shall have terminated
negotiations prior to such time; and
6.3.2.7. LVCI shall not approve or recommend any Acquisition
Proposal or cause LVCI to enter into a written agreement (other than
a confidentiality agreement) for an Acquisition Proposal unless and
until the LVCI Board shall have determined that the Acquisition
Proposal is a Superior Proposal.
6.3.3. LVCI shall ensure that its officers and directors and its
Subsidiaries and their officers and directors and any financial advisors
or other advisors or representatives retained by it are aware of the
provisions of this Section 6.3, and it shall be responsible for any breach
of this Section 6.3 by its financial advisors or other advisors or
representatives.
6.4. Notices of Certain Events
LVCI shall promptly notify TLC of:
6.4.1. any notice or other communication from any Person alleging that the
consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
6.4.2. any LVCI Material Adverse Change or any material change in the
business, financial condition or results of operations of LVCI and its
Subsidiaries taken as a whole;
6.4.3. any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement; and
6.4.4. any Actions commenced or, to the knowledge of LVCI, threatened
against, relating to or involving or otherwise affecting LVCI or any of
its Subsidiaries which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 4.14 or
which relate to the consummation of the transactions contemplated by this
Agreement, or of any event or circumstance which would cause any
A-60
of LVCI's representations and warranties contained herein to be incorrect
in any material respect.
6.5. Affiliates
To ensure that the issuance of TLC Common Shares in the Merger complies
with the Securities Act, prior to the Effective Time, LVCI shall cause to be
delivered to TLC a list identifying each Person who might at the time of the
LVCI Stockholder Meeting be deemed to be an "affiliate" of LVCI for purposes of
Rule 145 under the Securities Act (each, an "LVCI Affiliate"). LVCI shall use
its best efforts to obtain from each Person who is identified as a possible LVCI
Affiliate prior to the Effective Time an agreement providing that such person
will not offer to sell, sell or otherwise dispose of any TLC Common Shares
issued to such Person in the Merger in violation of the Securities Act.
6.6. Employee Stock Options
6.6.1. LVCI shall use its commercially reasonable best efforts to cause
the directors and officers of LVCI and its Subsidiaries listed on the LVCI
Disclosure Letter to consent to the repricing of the LVCI Stock Options as
provided in Section 6.6.2 and conversion of the LVCI Stock Options as
provided for in Section 7.6.
6.6.2. LVCI shall take all steps required to reprice the LVCI Stock
Options set forth on the LVCI Disclosure Letter which are outstanding as
of the date hereof to a price of $8.688 per TLC Common Share immediately
following the Effective Time, and such repricing shall be effective
immediately prior to Closing.
6.6.3. LVCI agrees that TLC may, before or after the Effective Time,
reprice all or any of the TLC Stock Options disclosed in the TLC
Disclosure Letter in the manner disclosed in the TLC Disclosure Letter,
subject to the receipt of all necessary approvals including any required
stockholder approvals.
ARTICLE 7.
COVENANTS OF TLC AND MERGER SUBSIDIARY
7.1. Conduct of TLC and Merger Subsidiary
Except as expressly contemplated by this Agreement or as described or
provided for in any TLC SEC Filing or as described in writing by TLC prior to
the date of this Agreement, from the date hereof until the earlier to occur of
the Effective Time and the termination of this Agreement, TLC and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practice and shall use their commercially reasonable best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Except as otherwise approved in writing by
A-61
LVCI or as expressly contemplated by this Agreement, and without limiting the
generality of the foregoing, from the date hereof until the Effective Time:
7.1.1. TLC, its Subsidiaries and Merger Subsidiary will not adopt or
propose any change in their articles of incorporation or bylaws;
7.1.2. TLC shall not authorize or propose, or enter into any agreement,
arrangement or understanding (or permit any Subsidiary to do so) with
respect to (a) any acquisition of businesses, assets or securities the
value of the consideration for which (including assumed debt or other
obligations) would exceed $5,000,000 individually (including in a series
of related transactions) (excluding any transactions previously consented
to in writing by LVCI), or (b) any disposition of businesses, assets or
securities the value of the consideration for which (including assumed
debt or other obligations) would exceed $5,000,000 individually (including
in a series of related transactions) (excluding any transactions
previously consented to in writing by LVCI);
7.1.3. TLC will not declare or pay any dividends or make any distributions
on its issued and outstanding capital stock in cash, stock, property or
otherwise;
7.1.4. TLC will not, and will not permit any of its Subsidiaries to, (i)
issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of capital stock of TLC or any of its Subsidiaries or
any options, warrants, calls, conversion privileges or rights of any kind
to acquire shares of TLC or any of its Subsidiaries (except as disclosed
in the TLC Disclosure Letter or pursuant to the exercise of stock options
or currently outstanding rights under existing compensation-related share
issuance plans), (ii) split, combine or reclassify any TLC Common Shares
or any securities of a Subsidiary or (iii) repurchase, redeem or otherwise
acquire any TLC Securities or any securities of a Subsidiary;
7.1.5. TLC will not, and will not permit any of its Subsidiaries to, take
or agree or commit to take any action that would make any representation
and warranty of TLC or Merger Subsidiary hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time;
7.1.6. TLC will not create, incur, assume or suffer to exist, any
indebtedness for borrowed money in excess of $1,000,000 (including capital
lease obligations), other than (i) indebtedness existing as of the date of
this Agreement, (ii) borrowings under existing credit lines in the
ordinary course of business, consistent with past practices, and (iii)
intercompany indebtedness among TLC and its Subsidiaries arising in the
ordinary course of business, consistent with past practice;
7.1.7. TLC will not make any capital expenditure (including, without
limitation, expenditures for property, plant and equipment) or
appropriations or commitments with respect thereto other than as
contemplated by the TLC projections provided to LVCI or additional
expenditures, appropriations or commitments which do not exceed an
aggregate of $1,000,000; and
A-62
7.1.8. TLC will not, and will not permit any of its Subsidiaries to, agree
or commit to do any of the foregoing.
Notwithstanding the foregoing, LVCI shall be deemed to have consented to the
transactions involving TLC listed in the TLC Disclosure Letter.
7.2. TLC Stockholder Meeting
7.2.1. TLC shall use its best efforts to cause the TLC Stockholder Meeting
to be duly called and held as soon as reasonably practicable, but in no
event later than the 50th day after the date on which the Registration
Statement is declared effective under the Securities Act for the purpose
of (i) voting on the approval and adoption of this Agreement, the Merger
and the other transactions contemplated hereby, (ii) the change of name of
TLC, (iii) the adoption of new by-laws, (iv) the continuance of TLC under
the Laws of the Province of New Brunswick, (v) the increase in the size of
the TLC Board, (vi) the increase in the number of shares reserved for
issuance under the TLC Stock Option Plan, (vii) if applicable, the
issuance of the Replacement Options and all matters in connection
therewith, (viii) the election of directors and (ix) any other item of
business necessary to be conducted at an annual meeting of stockholders or
required by or consented in writing by LVCI acting reasonably.
7.2.2. The TLC Board shall recommend approval and adoption of this
Agreement and the Merger and the items set out above by TLC's
stockholders. In connection with such meeting, TLC will, subject to the
foregoing, use its commercially reasonable best efforts to obtain the
necessary approvals by its stockholders of the matters referred to
(including the solicitation of proxies to be voted at the TLC Stockholder
Meeting) above in this Section 7.2 and such other matters as are required
by Ontario Law, and will otherwise comply with all legal requirements
applicable to such meetings.
7.3. Obligations of Merger Subsidiary
TLC will take all action necessary to cause Merger Subsidiary to perform
its obligations under this Agreement and to consummate the Merger on the terms
and conditions set forth in this Agreement.
7.4. NASDAQ and TSE Listing
TLC shall use its commercially reasonable best efforts to cause the TLC
Common Shares to be issued in the Merger and those to be issued upon the
exercise of the Replacement Options to be conditionally approved for listing on
the TSE and on NASDAQ prior to the Effective Time.
7.5. Notice of Certain Events
Each of TLC and Merger Subsidiary shall promptly notify LVCI in writing
of:
A-63
7.5.1. any notice or other communication from any Person alleging that the
consent of such Person (or other Person) is or may be required in
connection with the transactions contemplated by this Agreement;
7.5.2. any TLC Material Adverse Change or any material change in the
business, financial condition or results of operation of TLC and its
Subsidiaries taken as a whole;
7.5.3. any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement; and
7.5.4. any Actions commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting it or any of its
Subsidiaries which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 5.14 or which
relate to the consummation of the transactions contemplated by this
Agreement.
7.6. Replacement Options
At Closing, each outstanding LVCI Stock Option shall become an option to
acquire TLC Common Stock (the "Replacement Options") with the following terms
and conditions: (i) the Replacement Options shall be exercisable to purchase the
number of TLC Common Shares that the corresponding LVCI Stock Options were
exercisable to purchase multiplied by the Conversion Number; (ii) the exercise
price of the Replacement Options shall be the exercise price(s) of the
corresponding LVCI Stock Options, giving effect to the repricing of options
provided for in Section 6.6.2; and (iii) the unexpired term, vesting schedule
and other material terms and conditions of the Replacement Options will be the
same as that of the LVCI Stock Options (as if the Merger had not taken place).
The Replacement Options may be issued under a new stock option plan to be
established by TLC.
ARTICLE 8.
COVENANTS OF TLC, MERGER SUBSIDIARY AND LVCI
8.1. Corporate Governance
8.1.1. The parties agree that the corporate governance and related
arrangements respecting TLC set out in Schedule 8.1 will become effective
upon the completion of the Merger.
8.1.2. In order to give effect to the foregoing, the TLC Board has passed
a resolution (a) that stockholder approval be sought to amend the articles
of TLC to increase the maximum number of directors of TLC to 15 and (b)
that, upon the increase in the maximum number of directors and conditional
upon the consummation of the Merger in accordance with this Agreement, the
number of directors of TLC be set at 11.
A-64
8.1.3. At the TLC stockholder meeting, management of TLC shall nominate
for election as directors of TLC, such election to be conditional upon the
increase in the size of the TLC Board and upon consummation of the Merger
in accordance with this Agreement, the following four individuals
currently on the LVCI Board: John K. Klobnak, James M. Garvey, Richard
Lindstrom, M.D., and David S. Joseph (the "LVCI Nominees").
8.1.4. Subject to stockholder approval, the by-laws of TLC following
consummation of the Merger in accordance with this Agreement will include
(i) a by-law providing that management of TLC shall nominate the LVCI
Nominees for re-election as directors of TLC at the next annual meeting of
stockholders of TLC following the TLC Stockholders Meeting at which the
Merger is approved, such directors to hold office for a term of one year
or until such earlier time as their successors are elected or appointed or
such directors have resigned in accordance with this Agreement or
otherwise, (ii) a by-law providing that the head office of TLC will remain
in Mississauga, Ontario and the head office for TLC's U.S. operations will
be located in St. Louis, Missouri, and (iii) such other matters as are
required by the Laws of New Brunswick and as are required by LVCI and TLC,
each acting reasonably.
8.2. TLC Name Change
At or prior to the Effective Time, TLC shall change its corporate name to
"TLC Vision Corporation", provided, however, that the approval shall have been
obtained therefor.
8.3. Commercially Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, each party agrees
to use its commercially reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws and regulations to consummate the transactions
contemplated by this Agreement.
8.4. Certain Filings
8.4.1. LVCI and TLC shall cooperate with one another (a) in connection
with the preparation of the Registration Statement and Joint Proxy
Statement/Prospectus, and (b) in determining whether any action by or in
respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any Material Contracts, in connection with the consummation of
the transactions contemplated by this Agreement and (c) in seeking any
such actions, consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith or with the
Registration Statement and Joint Proxy Statement/Prospectus and seeking
timely to obtain any such actions, consents, approvals or waivers.
A-65
8.4.2. Without limiting the generality of Section 8.4.1, as soon as
practicable, each of TLC and LVCI shall file with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") a premerger notification form and any
supplemental information (other than privileged information) which may be
requested in connection therewith pursuant to the HSR Act, which filings
and supplemental information will comply in all material respects with the
requirements of the HSR Act. Each of TLC and LVCI shall cooperate fully
with the other in connection with the preparation of such filings and
shall use best efforts to respond to any requests for supplemental
information from the FTC or the Antitrust Division and to obtain early
termination of any waiting period applicable to the Merger under the HSR
Act. Any and all filing fees required to be paid in connection with the
premerger notification pursuant to the HSR Act shall be borne and paid
equally by LVCI and TLC.
8.4.3. Following the Effective Date of the Merger, TLC and LVCI shall to
the extent necessary in a timely and expeditious manner make all
postmerger filings as are necessary with the SEC, the TSE and NASDAQ and
in this regard, TLC shall take all reasonable steps and make all necessary
filings and pay such fees as are required in accordance with the
conditional listing approval of the TSE and NASDAQ in order to obtain as
expeditiously as possible final listing approval for the TLC Common Shares
issued in connection with this transaction or to be issued in connection
with the exercise of the Replacement Options.
8.4.4. Each of LVCI and TLC agree to cooperate and use their commercially
reasonable best efforts to contest and resist any Action, and to have
vacated, lifted, reversed or overturned any Order (whether temporary,
preliminary or permanent) that is in effect and that restricts, prevents
or prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by
vigorously pursuing all available avenues of administration and judicial
appeal and all available legislative action. Notwithstanding any other
provision of this Agreement to the contrary, each of LVCI and TLC also
agree, if requested by the other, to take any and all actions as are or
may be required by Governmental Authorities as a condition to the granting
of any approvals required in order to permit the consummation of the
Merger or the other transactions contemplated hereby or as may be required
to avoid, lift, vacate or reverse any legislative, administrative or
judicial action which would otherwise cause any condition to closing not
to be satisfied, unless any such actions individually or in the aggregate
would be onerous to the combined operations of TLC and LVCI.
8.5. Public Announcements
TLC and LVCI will consult with each other before issuing any press release
or making any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable
Law or any listing agreement with any national securities exchange or
interdealer quotation system, will not issue any such press release or make any
such public statement prior to such consultation.
A-66
8.6. Further Assurances
At and after the Effective Time, the officers and directors of the
Surviving Corporation will be authorized to execute and deliver, in the name and
on behalf of LVCI or Merger Subsidiary, any deeds, bills of sale, assignments,
assurances, instruments or other documents and to take and do, in the name and
on behalf of LVCI or Merger Subsidiary, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of LVCI acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger.
8.7. Preparation of the Joint Proxy Statement/Prospectus and Registration
Statements
8.7.1. TLC and LVCI shall promptly prepare and file with the SEC a
preliminary version of the Joint Proxy Statement/Prospectus and will use
their commercially reasonable best efforts to respond to the comments of
the SEC in connection therewith and to furnish all information required to
prepare the definitive Joint Proxy Statement/Prospectus and to file any
amendments or supplements thereto as may be required by applicable Law.
After receiving comments from the SEC, TLC shall promptly file with the
SEC the Registration Statement containing the Joint Proxy
Statement/Prospectus. Each of TLC and LVCI shall use its commercially
reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such
filing. TLC shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or filing
a general consent to service of process in any jurisdiction) required to
be taken under any applicable state securities Laws in connection with the
issuance of TLC Common Shares in the Merger and LVCI shall furnish all
information concerning LVCI and the holders of LVCI Common Shares as may
be reasonably requested in connection with any such action. Promptly after
the effectiveness of the Registration Statement, LVCI and TLC will each
cause the Joint Proxy Statement/Prospectus to be mailed to its
stockholders, and if necessary, after the definitive Joint Proxy
Statement/Prospectus shall have been mailed, promptly circulate amended,
supplemented or supplemental proxy materials and, if required in
connection therewith, re-solicit proxies.
8.7.2. TLC shall prepare and file a registration statement on Form S-8 in
order to register under the Securities Act the TLC Common Shares to be
issued from time to time after the Effective Time upon the exercise of the
Replacement Options, and shall use reasonable commercial efforts to cause
such registration statement to become effective at or prior to the
Effective Time and to maintain the effectiveness of such registration for
the period of time that the Replacement Options remain outstanding and may
be exercised.
8.8. Access to Information
8.8.1. Subject to Section 8.8.2 to and including Section 8.8.10 and
applicable Laws, upon reasonable notice, each of TLC and LVCI shall (and
shall cause each of its Subsidiaries to) afford the representatives of the
other party hereto access, during normal
A-67
business hours from the date hereof and until the earlier of the Closing
Date or the termination of this Agreement, to its properties, books,
contracts and records as well as to its management personnel, and, during
such period, each party shall (and shall cause each of its Subsidiaries
to) furnish promptly to the other party all information concerning its
business, properties and personnel as such party may reasonably request
(the "Information").
8.8.2. The Information will be kept strictly confidential and shall not,
without the prior written consent of the disclosing party, be disclosed by
the receiving party, or by its representatives, in any manner whatsoever,
in whole or in part, and shall not be used by the receiving party or its
representatives other than in connection with the Merger. Moreover, the
receiving party agrees to reveal the Information only to its
representatives who have a reasonable need to know the Information for the
purposes of evaluating the Merger, who are informed by the receiving party
of the confidential nature of the Information and who have agreed to act
in accordance with the terms and conditions of this Agreement.
Notwithstanding such agreement, the receiving party shall continue to be
responsible for any breach of this Agreement by its representatives and
shall indemnify and save the disclosing party harmless from any breach by
any of the receiving party's representatives.
8.8.3. The receiving party shall keep a record of the Information
furnished to it, in any medium other than oral, and the location of such
Information. All copies of the Information, except for that portion of the
Information which consists of analyses, compilations, forecasts, studies
or other documents prepared by the receiving party or its representatives
will be returned to the disclosing party immediately upon its request.
That portion of the Information which consists of analyses, compilations,
forecasts, studies or other documents prepared by the receiving party or
its representatives, will be destroyed upon the disclosing party's request
and any oral Information will continue to be subject to the terms of this
Agreement. Upon the request of the disclosing party, the receiving party
shall provide a certificate certifying as to the complete return and
destruction of all Information in accordance with the terms of this
paragraph.
8.8.4. The receiving party shall keep all of the Information disclosed or
delivered to it, whether electronically stored or in a tangible form,
segregated from all of its property and in a safe and secure environment
and will use commercially reasonable best efforts to protect and keep safe
all of the Information disclosed from any loss, harm, theft, unauthorized
use, tampering, sabotage, unauthorized duplication, destruction, addition,
deletion, damage or interference whatsoever.
8.8.5. The receiving party acknowledges that the Information is
confidential and a valuable asset of the disclosing party and all right,
title and interest in and to the Information (including all Intellectual
Property) is and at all time shall remain the exclusive property of the
disclosing party.
8.8.6. The receiving party acknowledges that other than as contained in
this Agreement none of the disclosing party, its representatives or any of
its or their respective
A-68
affiliates makes any express or implied representation or warranty as to
the accuracy or completeness of the Information.
8.8.7. If the receiving party or anyone to whom the receiving party
transmits the Information pursuant to this Agreement becomes legally
compelled to disclose any of the Information, the receiving party will
provide the disclosing party with prompt notice so that the disclosing
party may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. If such protective order
or other remedy is not obtained or the disclosing party waives compliance
with the provisions of this Agreement, the receiving party will furnish
only that portion of the Information which it is advised, by written
opinion of counsel, addressed to the receiving party and to the disclosing
party, is legally required and will exercise its best efforts to obtain
reliable assurance that confidential treatment will be accorded the
Information.
8.8.8. The parties each acknowledge that disclosure of any Information may
cause significant damage and harm to a disclosing party, its Affiliates,
Subsidiaries and shareholders and that remedies at law may be inadequate
to protect against breach of this Agreement, and the parties hereby in
advance agree to the granting of injunctive relief in favour of the
disclosing party without proof of actual damages, in addition to any other
remedy the disclosing party may be entitled to.
8.8.9. The parties acknowledge that certain information may be
competitively sensitive and that disclosure thereof shall be limited to
that which is reasonably necessary for the purpose of (i) preparing
submissions or applications in order to obtain any appropriate regulatory
approvals, (ii) preparing the Joint Proxy Statement/Prospectus, and (iii)
avoiding conflicts.
8.8.10. The provisions of Sections 8.8.2 to and including Section 8.8.8
and this Section 8.8.10 shall survive the termination of this Agreement.
8.9. Mutual Standstill
From the date hereof until the Closing Date or the termination of this
Agreement, each of LVCI and TLC agrees that it will not, otherwise than pursuant
to this Agreement, the Merger and the transactions contemplated hereby and
thereby or with the prior approval of the other, which approval may be given on
such terms as the other may determine:
8.9.1. in any manner acquire, agree to acquire or make any proposal or
offer to acquire, directly or indirectly, any securities or property of
the other;
8.9.2. propose or offer to enter into, directly or indirectly, any merger
or business combination involving the other or to purchase, directly or
indirectly, a material portion of the assets of the other;
A-69
8.9.3. directly or indirectly, solicit, or participate or join with any
Person in the solicitation of any proxies to vote, to seek or advise or to
influence any Person with respect to the voting of any voting securities
of the other;
8.9.4. otherwise act alone or in concert with others to seek to control or
to influence the management, board of directors or policies of the other;
8.9.5. make any public or private disclosure of any consideration,
intention, plan or arrangement inconsistent with any of the foregoing; or
8.9.6. advise, assist or encourage any of the foregoing or work in concert
with others in respect of the foregoing.
For the purpose of this Section 8.9, each reference to LVCI or TLC shall
include its Subsidiaries and its successors. The termination of this Agreement
shall also terminate any other agreements between the parties which have an
effect similar to this Section 8.9, including, for greater certainty, (i) the
letter dated November 16, 1999 between TLC and Goldman, on behalf of LVCI, and
(ii) the mutual confidentiality and non-disclosure agreement effective as of
February 1, 2000 between LVCI and TLC.
8.10. Directors' and Officers' Insurance
8.10.1. After the Effective Time, TLC will provide, or cause to be
provided, such coverage to the officers and directors of LVCI and its
Subsidiaries who shall continue as officers and directors of TLC and its
Subsidiaries to the same extent that TLC provides or causes to be provided
such coverage to the other officers and directors of TLC and its
Subsidiaries.
8.10.2. For a period of six (6) years after the Effective Time, TLC and
LVCI agree that Surviving Corporation shall cause to be maintained in
effect the current policies of directors' and officers' liability
insurance maintained by LVCI, copies of which have been provided to TLC,
covering past or future claims with respect to periods before the
Effective Time (provided that TLC and LVCI agree that Surviving
Corporation may substitute therefor policies with coverage no less
favourable to such directors and officers with respect to claims arising
from facts or events which occurred before the Effective Time).
8.10.3. The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain the provisions with respect to indemnification
and exculpation from liability set forth in the LVCI Certificate of
Incorporation and By-Laws on the date of this Agreement and shall not be
amended, repealed or otherwise modified for a period of six (6) years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of LVCI, unless such modification
is required by applicable Law.
A-70
8.10.4. This Section 8.10 shall survive the consummation of the Merger, is
intended to benefit LVCI, the Surviving Corporation and each indemnified
party, shall be binding, jointly and severally, on all successors and
assigns of the Surviving Corporation and TLC, and shall be enforceable by
the indemnified parties.
8.11. Closing Matters
Each of LVCI, Merger Subsidiary and TLC shall deliver, at the closing of
the transactions contemplated hereby, such customary certificates, resolutions
and other closing documents as may be required by the other parties hereto,
acting reasonably.
ARTICLE 9.
CONDITIONS TO THE MERGER
9.1. Conditions to the Obligations of Each Party
The respective obligations of LVCI, TLC and Merger Subsidiary to
consummate the Merger are subject to the satisfaction, on or before the Closing
Date, of the following conditions:
9.1.1. this Agreement shall have been approved by the affirmative vote of
the holders of a majority of the outstanding LVCI Common Shares in
accordance with Delaware Law;
9.1.2. (a) each of the Agreement and the new by-laws of TLC shall have
been approved by at least 50% of the votes cast by the holders of TLC
Common Shares represented at the TLC Stockholder Meeting, (b) each of the
change of name of TLC, the continuance of TLC under the Laws of the
Province of New Brunswick, and the increase in the size of the TLC Board
shall have been approved by at least 66 2/3% of the votes cast by the
holders of TLC Common Shares represented at the TLC Stockholder Meeting
and (c) each of the increase in the number of options available under the
TLC Stock Option Plan and, if applicable, the grant of the Replacement
Options (including, if applicable, approval of a new stock option plan of
TLC relating thereto) amendments relating thereto shall have been approved
by at least 50% of the votes cast by the holders of TLC Common Shares
represented at the Meeting (excluding, if required by applicable Laws, the
holders of TLC Common Shares who are insiders (as defined in the Ontario
Act) of TLC to whom shares may be issued pursuant to the TLC Share Option
Plan or their associates (as defined in the Ontario Act);
9.1.3. all required waiting periods under the HSR Act shall have expired
or been terminated and any other appropriate regulatory approvals shall
have been obtained;
9.1.4. no provision of any applicable Law and no final, unappealable Order
of a court of competent jurisdiction shall restrain or prohibit the
consummation of the Merger or the other transactions contemplated by this
Agreement;
A-71
9.1.5. the Registration Statement shall have been declared effective and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and be in effect and no proceedings for such
purpose shall be pending before the SEC;
9.1.6. the registration statement on Form S-8 in respect of the
Replacement Options shall have become effective and no stop order
suspending the effectiveness of such registration statement shall have
been issued and be in effect and no proceedings for such purpose shall be
pending before the SEC;
9.1.7. the TLC Common Shares to be issued in the Merger and those to be
issued on the exercise of Replacement Options shall have been
conditionally approved for listing on the TSE and NASDAQ subject only to
notice of issuance and the satisfaction of the standard filing
requirements and payment of requisite filing fees;
9.1.8. TLC and LVCI shall have received an opinion from Thompson Coburn
LLP, counsel to LVCI, based upon certain factual representations of LVCI,
TLC and Merger Subsidiary reasonably requested by such counsel, dated the
Closing Date, to the effect that the Merger will be treated for federal
income tax purposes as a Reorganization in which no gain or loss is
recognized by LVCI Stockholders as a result of the Merger (except with
respect to LVCI Stockholders who receive cash in lieu of fractional
shares) in form and substance reasonably satisfactory to LVCI and TLC;
9.1.9. LVCI shall have obtained from Goldman, a written opinion of a type
customary in transactions similar to those contemplated hereby, to the
effect that the Conversion Number is fair to LVCI's stockholders from a
financial point of view, and such opinion shall not have been withdrawn;
9.1.10. LVCI shall cause to be delivered within two Business Days before
the date on which the Registration Statement is declared effective, to TLC
and Merger Subsidiary, a comfort letter from PriceWaterhouseCoopers LLP,
auditors of LVCI, in respect of the LVCI Financial Statements, in form and
content satisfactory to TLC, acting reasonably.
9.1.11. TLC shall cause to be delivered within two Business Days before
the date on which the Registration Statement is declared effect, to LVCI,
a comfort letter from Ernst & Young LLP, auditors of TLC, in respect of
the TLC Financial Statements, in form and content satisfactory to LVCI,
acting reasonably.
9.1.12. TLC shall have obtained from SG Cowen, the opinion of SG Cowen
referred to in Section 5.24 to the effect that the Conversion Number is
fair to TLC from a financial point of view, and such opinion shall not
have been withdrawn; and
9.1.13. this Agreement shall not have been terminated pursuant to Article
10.
A-72
9.2. Additional Conditions to the Obligations of TLC and Merger Subsidiary
The respective obligations of TLC and Merger Subsidiary to consummate the
Merger are also subject to the satisfaction, on or before the Closing Date, of
the following further conditions precedent (each of which is for the exclusive
benefit of TLC and Merger Subsidiary and may be waived by TLC on behalf of
itself and Merger Subsidiary and any one or more of which, if not satisfied or
waived, will relieve TLC and Merger Subsidiary of any obligation under this
Agreement):
9.2.1. LVCI shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, the representations and warranties of LVCI contained in this
Agreement that are qualified by materiality or LVCI Material Adverse
Effect or LVCI Material Adverse Change shall be true and correct and the
representations and warranties of LVCI contained in this Agreement that
are not so qualified shall be true and correct in all material respects at
and as of the Closing Date, and TLC shall have received a certificate
signed by an executive officer of LVCI to the foregoing effect;
9.2.2. the LVCI Board shall have adopted all necessary resolutions, and
all other necessary corporate action shall have been taken by LVCI and its
Subsidiaries, to permit the consummation of the Merger;
9.2.3. notwithstanding any of the representations and warranties of LVCI
contained herein (and the information set out in any of the corresponding
Schedules and the LVCI Disclosure Letter), there shall not be, and there
shall not have occurred since the date of this Agreement, any
circumstance, event, condition, change or development or any set of
circumstances, events, conditions, changes or developments, which, in the
reasonable judgment of TLC, has or have or would reasonably be expected to
have, individually or in the aggregate, an LVCI Material Adverse Effect or
an LVCI Material Adverse Change; and
9.2.4. the LVCI Board shall have made and shall not have modified or
amended, in any material respect, prior to the LVCI Stockholder Meeting,
an affirmative recommendation that the holders of the LVCI Common Shares
approve this Agreement and the Merger.
9.3. Conditions to the Obligations of LVCI
The obligation of LVCI to consummate the Merger is also subject to the
satisfaction, on or before the Closing Date, of the following further conditions
precedent (each of which is for the exclusive benefit of LVCI and may be waived
by LVCI and any one or more of which, if not satisfied or waived, will relieve
LVCI of any obligation under this Agreement):
9.3.1. TLC and Merger Subsidiary shall have performed in all material
respects all of their respective obligations hereunder required to be
performed by them at or prior to the Effective Time, the representations
and warranties of TLC and Merger Subsidiary
A-73
contained in this Agreement qualified by materiality or by TLC Material
Adverse Effect or TLC Material Adverse Change shall be true and correct
and the representations and warranties of TLC contained in this Agreement
that are not so qualified shall be true and correct in all material
respects at and as of the Closing Date as if made on and as of such date,
and LVCI shall have received a certificate signed by an executive officer
of each of TLC and Merger Subsidiary to the foregoing effect;
9.3.2. each of the boards of directors of TLC and Merger Subsidiary shall
have adopted all necessary resolutions, and all other necessary corporate
action shall have been taken by each of TLC and Merger Subsidiary and
their subsidiaries, to permit the consummation of the Merger and the issue
of the TLC Common Shares contemplated thereby and the issue of TLC Common
Shares upon the exercise from time to time of the Replacement Options;
9.3.3. all necessary approvals shall have been received by LVCI and TLC,
respectively, to reprice the options as provided in Section 6.6.2 and, as
applicable, grant the Replacement Options, as provided in Section 7.6;
9.3.4. notwithstanding any of the representations and warranties of TLC
and Merger Subsidiary contained herein (and the information set out in any
of the corresponding schedules and the TLC Disclosure Letter) there shall
not be, and there shall not have occurred since the date of this
Agreement, any circumstance, event, condition, change or development or
any set of circumstances, events, conditions, changes or developments,
which, in the reasonable judgment of LVCI has or have or would reasonably
be expected to have, individually or in the aggregate, a TLC Material
Adverse Effect or a TLC Material Adverse Change; and
9.3.5. the board of directors of TLC shall have made and shall not have
modified or amended, in any material respect, prior to the TLC Stockholder
Meeting, an affirmative recommendation that the holders of the TLC Common
Shares approve the Merger.
ARTICLE 10.
TERMINATION
10.1. Termination
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Closing (notwithstanding any approval of this Agreement by the
stockholders of LVCI or TLC):
10.1.1. by mutual written consent of LVCI and TLC;
10.1.2. by either LVCI or TLC, if the Merger has not been consummated by
December 31, 2001 or such later date as the parties may agree in unity
(provided that the
A-74
right to terminate this Agreement under this clause shall not be available
to any party whose failure to fulfill any of its obligations under this
Agreement has been the cause of or resulted in the failure to consummate
the Merger by such date);
10.1.3. by either LVCI or TLC, if there shall be any applicable Law that
makes the consummation of the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree of a court of competent
jurisdiction shall restrain or prohibit the consummation of the Merger,
and such judgment, injunction, order or decree shall become final and
non-appealable;
10.1.4. by either LVCI or TLC, if the stockholder approvals referred to in
Section 9.1.1 or 9.1.2 shall not have been obtained by reason of the
failure to obtain the requisite vote upon a vote at a duly held meeting of
stockholders or at any adjournment thereof;
10.1.5. by either LVCI or TLC, if (i) the closing price of TLC Common
Shares on NASDAQ at any time after the date hereof is less than $2.15, or
(ii) the closing price of LVCI Common Shares on NASDAQ at any time after
the date hereof is less than $1.50; and
10.1.6. by either LVCI or TLC (the "Terminating Party") if (x) there has
been a breach by the other party of any representation or warranty
contained in this Agreement which would have or would be reasonably likely
to have a TLC Material Adverse Effect or LVCI Material Adverse Effect, as
the case may be, or (y) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of the
other party, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by the
Terminating Party to the other party, or (z) LVCI has recommended or
entered into a written agreement (other than a confidentiality agreement)
for an Acquisition Proposal.
10.2. Termination by LVCI
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Closing by action of the LVCI Board in writing, if (i) LVCI is
not in breach of Section 6.3, (ii) the Merger shall not have been approved by
the LVCI stockholders, and (iii) the LVCI Board authorizes LVCI, subject to
complying with the terms of this Agreement, to enter into a written agreement
(other than a confidentiality agreement) concerning a transaction that
constitutes a Superior Proposal and LVCI promptly notifies TLC in writing that
it intends to enter into such an agreement.
10.3. Termination by TLC
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Closing by TLC in writing, if the LVCI Board shall have
withdrawn or adversely modified its approval or recommendation of the Merger or
if the LVCI Board recommends or enters into a written agreement (other than a
confidentiality agreement) for a Superior Proposal.
A-75
10.4. Effect of Termination
10.4.1. In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 10, no party to this Agreement
shall have any liability or further obligation to any other party
hereunder except that (a) the agreements contained in Section 11.7 shall
survive the termination hereof, (b) the parties shall be liable for any
wilful breaches hereof, and (c) if (i) LVCI shall have entered into a
written Agreement (other than a confidentiality agreement) for an
Acquisition Proposal; (ii) LVCI has terminated this Agreement in
accordance with Section 10.2; or (iii) TLC has terminated this Agreement
in accordance with Section 10.3 as a result of (A) LVCI withdrawing or
adversely modifying its approval or recommendation of the Merger as a
result of a Superior Proposal or (B) LVCI recommending or entering into a
written agreement (other than a confidentiality agreement) for a Superior
Proposal, then LVCI shall pay to TLC an amount equal to $3,000,000 in
immediately available funds designated by TLC.
10.4.2. The payment in clause (c) of Section 10.4.1 shall be due three (3)
Business Days after the date (x) in the case of an event in (i) of clause
(c), on which the LVCI Board enters into an agreement for a Superior
Proposal; (y) in the case of an event in (ii) of clause (c), on which this
Agreement is terminated by the LVCI Board; and (z) in the case of an event
in (iii) of clause (c), on which this Agreement is terminated by the TLC
Board.
ARTICLE 11.
MISCELLANEOUS
11.1. Notices
All notices, requests and other communications to any party hereunder
shall be in writing (including telecopy or similar writing) and shall be given,
if to TLC or Merger Subsidiary, to:
TLC Laser Eye Centers Inc.
5280 Solar Drive
Suite 300
Mississauga, Ontario
L4W 5M8
Telephone: (905) 602-2020 ex. 3900
Telecopy: (905) 602-7956
Attention: Chief Executive Officer
A-76
with a copy to:
Torys
P.O. Box 270
79 Wellington Street West
Maritime Life Tower, Suite 3000
Toronto, Ontario
M5K 1N2
Telephone: (416) 865-0040
Telecopy: (416) 865-7380
Attention: David Chaikof
if to LVCI, to:
Laser Vision Centers, Inc.
540 Maryville Center Drive
Suite 200
St. Louis, MO
63141
Telephone: (314) 523-8201
Telecopy: (314) 434-7251
Attention: Chief Executive Officer
with a copy to:
Thompson Coburn LLP
One Firstar Plaza
St. Louis, Missouri
63101-1693
Telephone: (314) 552-6000
Telecopy: (314) 552-7000
Attention: Thomas A. Litz
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate confirmation is received or (ii) if given by any other means, when
delivered at the address specified in this Section.
A-77
11.2. Survival of Representations and Warranties
Except as otherwise provided in this Agreement, the representations,
warranties, agreements and covenants contained herein and in any certificate or
other writing delivered pursuant hereto shall not survive the Effective Time
except Section 6.4, Section 7.5, Section 7.6 and Article 2.
11.3. Amendments and Waiver
11.3.1. Any provision of this Agreement may be amended or waived prior to
the Closing, if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by TLC, Merger Subsidiary and LVCI
or, in the case of a waiver, by the party against whom the waiver is to be
effective; provided that (i) any waiver or amendment shall be effective
against a party only if the board of directors of such party approves such
waiver and (ii) after the adoption of this Agreement by the stockholders
of LVCI or TLC, no such amendment or waiver shall, without further
approval of such stockholders and each party's board of directors, alter
or change (x) the amount or kind of consideration to be received in
exchange for any shares of capital stock of LVCI, (y) any term of the
certificate of incorporation of the Surviving Corporation, or (z) any of
the terms or conditions of this Agreement if such alteration or change
would adversely affect the holders of any shares of capital stock of LVCI.
11.3.2. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
11.4. Further Assurances
Each party hereto shall, from time to time, and at all times hereafter, at
the request of the other parties hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
11.5. Public Statements
LVCI and TLC agree to consult with each other as to the general nature of
any news releases or public statements with respect to this Agreement or the
Merger, and to use their respective reasonable efforts not to issue any news
releases or public statements inconsistent with the results of such
consultations. Subject to applicable Laws, each party shall use its reasonable
efforts to enable the other parties to review and comment on all such news
releases prior to the release thereof.
A-78
11.6. Severability
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule or law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
11.7. Fees and Expenses
11.7.1. Except as otherwise provided in this Section, all costs and
expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense.
11.7.2. LVCI and TLC shall each pay one-half of all costs and expenses
related to printing, filing and mailing the Registration Statement and the
Joint Proxy Statement/Prospectus and all SEC and other regulatory filing
fees.
11.8. Successors and Assigns
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other parties hereto.
11.9. No Third Party Beneficiaries
Nothing in this Agreement expressed or implied, is intended to confer upon
any person, other than the parties hereto, or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement. Notwithstanding the foregoing, (a) the LVCI Nominees shall be third
party beneficiaries with respect to TLC's obligations to nominate them for
election to the TLC Board at TLC's annual meeting in 2002; and (b) LVCI's
directors and officers shall be third party beneficiaries of TLC's obligations
under Section 8.10.
11.10. Governing Law
This Agreement shall be construed in accordance with and governed by the
law of the State of New York (except insofar as mandatory provisions of Delaware
law are applicable), without regard to the conflicts of law principles thereof.
A-79
11.11. Counterparts; Effectiveness
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. Counterparts may be executed either in
original or faxed form and the parties adopt any signatures of the parties,
provided, however, that any party providing its signature in faxed form shall
promptly forward to the other parties an original of the signed copy of this
Agreement which was so faxed. This Agreement shall become effective when each
party hereto shall have received by fax or otherwise counterparts hereof signed
by all of the other parties hereto.
* * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LASER VISION CENTERS, INC.
By: /s/ John J. Klobnak
--------------------------
Name: John J. Klobnak
Title: Chief Executive Officer
By: /s/ Robert W. May
--------------------------
Name: Robert W. May
Title: Secretary
TLC LASER EYE CENTERS INC.
By: /s/ Elias Vamvakas
--------------------------
Name: Elias Vamvakas
Title: Chairman and Chief Executive Officer
By: /s/ Lloyd D. Fiorini
--------------------------
Name: Lloyd D. Fiorini
Title: Secretary and General Counsel
A-80
TLC ACQUISITION II CORP.
By: /s/ Elias Vamvakas
--------------------------
Name: Elias Vamvakas
Title: Chief Executive Officer
By: /s/ Lloyd D. Fiorini
--------------------------
Name: Lloyd D. Fiorini
Title: Secretary
A-81
SCHEDULE 8.1
GOVERNANCE ARRANGEMENTS
1. Name: On the Closing Date, TLC will be renamed "TLC Vision
Corporation".
2. Directors: For the first year following the completion of the Merger,
the board of directors shall consist of eleven (11)
directors, of which, subject to stockholder approval, four
(4) shall consist of the LVCI Nominees. At the first
anniversary of the completion of the Merger, the
Vice-Chairman will resign from the TLC Board and one member
of the TLC Board, other than the LVCI Nominees, will also
resign, following which the size of the TLC Board will be
reduced to nine (9) directors. Management of TLC will
nominate the LVCI Nominees for election to the TLC Board at
TLC's annual meeting of stockholders in 2002. For so long as
they serve on the TLC Board, the LVCI Nominees then serving
on the TLC Board shall be entitled to fair representation on
each committee of the TLC Board.
3. Management: Following the completion of the Merger, the senior
management of TLC following the consummation of the Merger
shall be comprised of the following persons:
Chairman and Chief - Chairman and Chief Executive
Executive Officer Officer of TLC
Vice-Chairman - Chairman and Chief Executive
Officer of LVCI
President and Chief - President and Chief Operating
Operating Officer officer of LVCI
Chief Financial - Chief Financial Officer of LVCI
Officer
Co-General Counsels - General Counsel of TLC and General
Counsel of LVCI
4. Offices: The head office for TLC following the consummation of the
Merger will remain in Mississauga, Ontario, and the head
office for its United States operations will be located in
St. Louis, Missouri.
5. Super-Majority: In the first year following the completion of the Merger,
approval of any changes in the senior management listed
above may only be made with approval of 80% or more of the
TLC Board. To give effect to the foregoing, the employment
agreements entered into by TLC with the senior management
listed above shall provide, at a minimum, that in the first
year following completion of the Merger the agreements can
only be terminated with approval of 80% or more of the TLC
Board.
A-82
APPENDIX B
OPINION OF SG COWEN SECURITIES CORPORATION
[SG COWEN LETTERHEAD]
August 23, 2001
Board of Directors
TLC Laser Eye Centers Inc.
5280 Solar Drive, Suite 300
Mississauga, Ontario
L4W 5M8
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to TLC Laser Eye Centers Inc. ("TLC") of the Conversion Number (as defined
below) pursuant to the terms of the Agreement and Plan of Merger, to be dated as
of August 25, 2001 (the "Agreement"), by and among TLC, TLC Acquisition Corp.
("Merger Subsidiary") and Laser Vision Centers, Inc. ("LVCI").
As more specifically set forth in the Agreement, and subject to the terms,
conditions and adjustments set forth in the Agreement, TLC, Merger Subsidiary
and LVCI intend to effect a merger of Merger Subsidiary with and into LVCI (the
"Merger"). Upon consummation of the Merger, Merger Subsidiary will cease to
exist, LVCI will be the surviving corporation in the Merger and each outstanding
share of LVCI Common Stock will be converted into the right to receive 0.95 TLC
Common Shares (the "Conversion Number").
SG Cowen Securities Corporation ("SG Cowen"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates may from time to time
trade the securities of TLC and LVCI for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
We are acting as exclusive financial advisor to the Board of Directors of TLC in
connection with the Merger and will receive a fee from TLC for our services
pursuant to the terms of our engagement letter with TLC, dated as of March 30,
2001, a significant portion of which is contingent upon the consummation of the
Merger. We will also receive a fee for providing this opinion to the Board of
Directors.
In connection with our opinion, we have reviewed and considered such financial
and other matters as we have deemed relevant, including, among other things:
o a draft of the Agreement dated August 22, 2001;
o certain publicly available information for TLC and certain other relevant
financial and operating data furnished to SG Cowen by TLC management;
o certain publicly available information for LVCI and certain other relevant
financial and operating data furnished to SG Cowen by LVCI management;
o certain internal financial analyses, financial forecasts, reports and
other information concerning TLC (the "TLC Forecasts") and LVCI (the "LVCI
Forecasts"), prepared by the management of TLC and LVCI, respectively;
B-1
o the amounts and timing of the cost savings and related expenses expected
to result from the Merger prepared jointly by the managements of TLC and
LVCI (the "Expected Synergies");
o First Call estimates ("First Call Estimates") and financial projections in
Wall Street analyst reports ("Wall Street Projections") for TLC and LVCI;
o discussions we have had with certain members of the managements of each of
TLC and LVCI concerning the historical and current business operations,
financial conditions and prospects of TLC and LVCI, the Expected Synergies
and such other matters we deemed relevant;
o certain operating results, the reported price and trading histories of the
shares of the common stock of TLC and LVCI as compared to the operating
results, reported price and trading histories of certain publicly traded
companies we deemed relevant;
o certain financial terms of the Merger as compared to the financial terms
of certain selected business combinations we deemed relevant;
o based on the TLC Forecasts and the LVCI Forecasts, the cash flows
generated by each of TLC and LVCI, respectively, on a stand alone basis to
determine the present value of the discounted cash flows of TLC and LVCI;
o certain pro forma financial effects of the Merger on an accretion/dilution
basis; and
o such other information, financial studies, analyses and investigations and
such other factors that we deemed relevant for the purposes of this
opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by TLC and LVCI, respectively, or which is publicly available. We have not
undertaken any responsibility for the accuracy, completeness or reasonableness
of, or independently to verify, such information. In addition, we have not
conducted, nor have we assumed any obligation to conduct, any physical
inspection of the properties or facilities of TLC or LVCI. We have further
relied upon the assurance of management of TLC that they are unaware of any
facts that would make the information provided to us incomplete or misleading in
any respect. We have, with your consent, assumed that the TLC Forecasts, the
LVCI Forecasts and the description of the Expected Synergies were reasonably
prepared by the respective managements of TLC and LVCI or, in the case of the
Expected Synergies, jointly by the managements of TLC and LVCI, in each case on
bases reflecting the best currently available estimates and good faith judgments
of such managements as to the future performance of TLC and LVCI, and that such
forecasts and synergies and the First Call Estimates and the Wall Street
Projections utilized in our analysis provide a reasonable basis for our opinion.
In addition, we have not made or obtained any independent evaluations,
valuations or appraisals of the assets or liabilities of TLC or LVCI, nor have
we been furnished with such materials. With respect to all legal matters
relating to TLC and LVCI, we have relied on the advice of legal counsel to TLC.
Our services to TLC in connection with the Merger have been comprised of
rendering an opinion from a financial point of view with respect to the Exchange
Ratio. Our opinion is necessarily based upon economic and market conditions and
other circumstances as they exist and can be evaluated by us on the date hereof.
It should be understood that although subsequent developments may affect our
opinion, we do not have any obligation to update, revise or reaffirm our opinion
and we expressly disclaim any responsibility to do so.
For purposes of rendering our opinion we have assumed, in all respects material
to our analysis, that the representations and warranties of each party contained
in the Agreement are true and correct, that each party will perform all of the
covenants and agreements required to be performed by it under the Agreement and
that all conditions to the consummation of the Merger will be satisfied without
waiver thereof. We have assumed that the final form of the Agreement will be
substantially similar to the last draft reviewed by us. We have also assumed
that
B-2
all governmental, regulatory and other consents and approvals contemplated
by the Agreement will be obtained and that in the course of obtaining any of
those consents no restrictions will be imposed or waivers made that would have
an adverse effect on the contemplated benefits of the Merger. You have informed
us, and we have assumed, that the Merger will be recorded as a purchase under
generally accepted accounting principles. You have informed us, and we have
assumed, that the Merger will be treated as a tax-free reorganization. In
addition, we have assumed that the acquisition by LVCI of the assets and
liabilities of ClearVision Laser Centers, Inc. and the assets of Ophthalmic
Resources, Inc. were consummated prior to the date hereof.
It is understood that this letter is intended for the benefit and use of Board
of Directors of TLC in its consideration of the Merger and may not be used for
any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose without our prior written consent,
provided, however, that this opinion may be reproduced in its entirety in any
proxy statement or registration statement relating to the Transaction filed by
TLC or LVCI under the Securities Exchange Act of 1934, as amended, and/or
similar laws of Canada, or the Securities Act of 1933, as amended (the
"Securities Act") and/or similar laws of Canada, provided, that it will be
reproduced in such proxy statement or registration statement in full, and any
description of or reference to SG Cowen or summary of this letter in such proxy
statement or registration statement will be in a form acceptable to SG Cowen and
its counsel, and provided, further, that in consenting to such inclusion we do
not admit or acknowledge that we come within the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations promulgated thereunder.
This letter does not constitute a recommendation to any stockholder as to how
such stockholder should vote with respect to the Merger or to take any other
action in connection with the Merger or otherwise. We have not been requested to
opine as to, and our opinion does not in any manner address, TLC's underlying
business decision to enter into the Agreement or effect the Merger. Furthermore,
we express no view as to the price or trading range for shares of TLC's Common
Shares following the consummation of the Merger.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Conversion Number is fair, from a financial point of view, to TLC.
Very truly yours,
SG Cowen Securities Corporation
B-3
APPENDIX C
OPINION OF GOLDMAN, SACHS & CO.
[GOLDMAN SACHS LETTERHEAD]
PERSONAL AND CONFIDENTIAL
August 25, 2001
Board of Directors
Laser Vision Centers, Inc.
540 Maryville Centre Drive
Suite 200
St. Louis, MO 63141
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders (other than TLC Laser Eye Centers Inc. ("TLC")) of the
outstanding shares of Common Stock, par value $0.01 per share (the Shares"), of
Laser Vision Centers, Inc. (the "Company") of the ratio of 0.95 shares of Common
Stock, without par value (the "TLC Common Stock") of TLC to be received for each
Share (such ratio, the "Conversion Number") pursuant to the Agreement and Plan
of Merger, dated as of August 25, 2001 (the "Agreement"), among TLC, TLC
Acquisition II Corp., a wholly owned subsidiary of TLC, and the Company.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to the Agreement. Goldman,
Sachs & Co. provides a full range of financial advisory and securities services,
and, in the course of its normal trading activities, may from time to time
effect transactions and hold positions in securities, including derivative
securities, of the Company and TLC for its own account and for the accounts of
customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended April 30, 2001 and of TLC for the five
fiscal years ended May 31, 2000; a draft of the Annual Report on Form 10-K of
TLC for the fiscal year ended May 31, 2001; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company and TLC; certain
other communications from the Company and TLC to their respective stockholders;
and certain internal financial analyses and forecasts for the Company and TLC
prepared by their respective managements, including certain cost savings and
operating synergies projected by the managements of the Company and TLC to
result from the transaction contemplated by the Agreement (the "Synergies"). We
also have held discussions with members of the senior management of the Company
and TLC regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Shares and the TLC Common Stock, compared certain
financial and stock market information for the Company and TLC with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the refractive eye care service provider industry specifically and in other
industries generally and performed such other studies and analysis as we
considered appropriate.
C-1
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by the managements of the Company and TLC, including the
Synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company and TLC, and that
such Synergies will be realized in the amounts and time periods contemplated
thereby. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of the Company or TLC or any of their subsidiaries
and we have not been furnished with any such evaluation or appraisal. We also
have assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the transaction contemplated by the
Agreement will be obtained without any adverse effect on the Company or TLC or
on the contemplated benefits of the transaction contemplated by the Agreement.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Conversion
Number pursuant to the Agreement is fair from a financial point of view to the
holders of Shares (other than TLC).
Very truly yours,
_________________________________________
(Goldman, Sachs & Co.)
C-2
APPENDIX D
PROPOSED ARTICLES AND BY-LAWS OF TLC VISION CORPORATION
NEW BRUNSWICK NOUVEAU BRUNSWICK
BUSINESS CORPORATIONS ACT LOI SUR LES CORPORATIONS
COMMERCIALES
FORM 7
FORMULE 7
ARTICLES OF CONTINUANCE STATUTS DE PROROGATION
(SECTION 126) (ARTICLE 126)
- --------------------------------------------------------------------------------
1 - Name of Corporation Raison sociale de la corporation
TLC LASER EYE CENTERS INC.
- --------------------------------------------------------------------------------
2 - The classes and any maximum Les categories et le nombre maximal
number of shares that the corporation d'actions que la corporation peut
is authorized to issue and any emettre ainsi que le montant
maximum aggregate amount for which maximal global pour lequel les
the share may be offered including actions peuvent etre emises, y
shares without par value and/or with compris les actions sans valeur au
par value and the amount of par pair ou avec valeur au pair ou les
value. deux et le montant de la valeur au
pair.
The corporation is authorized to issue an unlimited number of common
shares without par value.
- --------------------------------------------------------------------------------
3 - Restrictions, if any, on share Restrictions, s'il y en a, au
transfers transfert d'actions
None
- --------------------------------------------------------------------------------
4 - Number (or minimum and maximum Nombre (ou nombre minimum et
number) of directors maximum) des administrateurs
Minimum of one (1) and a maximum of
ten (10) as determined by
resolution of the board of
directors of the Corporation.
- --------------------------------------------------------------------------------
5 - Restrictions, if any, on Restrictions, s'il y en a, a
businesses the corporation may carry l'activite que peut exercer la
on corporation
None
- --------------------------------------------------------------------------------
6 -(1)If change of name effected, (1) En cas de changement de raison
previous name sociale; indiquer la derniere
en date.
N/A
(2) Details of incorporation (2) Details sur la constitution en
corporation.
Articles of Amalgamation dated
September 1, 1998 under the
Business Corporations Act (Ontario)
- --------------------------------------------------------------------------------
7 - Other provisions, if any Autres dispositions, le cas echeant
See attached Schedule "I"
- --------------------------------------------------------------------------------
Date | Signature | Description of Office-Description
| | du bureau
| |
| |
- --------------------------------------------------------------------------------
FOR DEPARTMENT USE ONLY RESERVE A L'USAGE DU MINISTERE
- --------------------------------------------------------------------------------
Corporation No. - No.de corporation | Filed-Depose
|
|
- --------------------------------------------------------------------------------
D-1
TLC LASER EYE CENTERS INC.
(hereinafter referred to as the "Corporation")
THIS IS SCHEDULE "I" TO THE FOREGOING FORM 7 UNDER
THE NEW BRUNSWICK BUSINESS CORPORATIONS ACT
1. PLACE OF SHAREHOLDERS MEETINGS
Notwithstanding subsections (1) and (2) of Section 84 of the
Business Corporations Act, as from time to time in force, meetings of
shareholders of the Corporation may be held outside New Brunswick at any
location throughout the world.
2. PRE-EMPTIVE RIGHTS
(A) Notwithstanding subsection (2) of Section 27 of the Business
Corporations Act, as from time to time in force, but subject however
to any rights arising under any unanimous shareholders agreements,
the holders of equity shares of any class, in the case of the
proposed issuance by the Corporation of, or the proposed granting by
the Corporation of rights or options to purchase, its equity shares
of any class of any shares or other securities convertible into or
carrying rights or options to purchase its equity shares of any
class, shall not as such, even if the issuance of the equity shares
proposed to be issued or issuable upon exercise of such rights or
options or upon conversion of such other securities would adversely
affect the unlimited dividend rights of such holders, have the
pre-emptive right as provided by Section 27 of the Business
Corporations Act to purchase such shares or other securities.
(B) Notwithstanding subsection (3) of Section 27 of the Business
Corporations Act, as from time to time in force, but subject however
to any rights arising under any unanimous shareholders agreements,
the holders of voting shares of any class, in case of the proposed
issuance by the Corporation of, or the proposed granting by the
Corporation of rights or options to purchase, its voting shares of
any class, shall not as such, even if the issuance of the voting
shares proposed to be issued or issuable upon exercise of such
rights or options or upon conversion of such other securities would
adversely affect the voting rights of such holders, have the
pre-emptive right as provided by Section 27 of the Business
Corporations Act to purchase such shares or other securities.
3. BORROWING AUTHORITY
The directors of the Corporation may from time to time, in such
amounts and on such terms as deemed expedient:
D-2
(A) borrow money upon the credit of the Corporation;
(B) issue, reissue, sell or pledge debt obligations of the Corporation;
(C) give a guarantee on behalf of the Corporation to secure performance
of an obligation of any person; and
(D) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the Corporation.
The foregoing powers may be delegated by the directors to such
officers or directors of the Corporation to such extent and in such manner as
determined by the directors from time to time.
Nothing in this clause limits or restricts the borrowing of money by
the Corporation on bills of exchange or promissory notes made, drawn, accepted
or endorsed by or on behalf of the Corporation.
4. CUMULATIVE VOTING
Subject to applicable law, there shall be no cumulative voting
rights in favour of shareholders of the Corporation.
5. SHAREHOLDER PROPOSAL
Subject to Section 89(5) of the Act, a proposal by a shareholder
under Section 89 of the Act may include nominations for the election of
directors if the proposal is signed by one or more holders of shares
representing in the aggregate not less than 5% of the shares or 5% of the shares
of a class of shares of the Corporation entitled to vote at the meeting to which
the proposal is to be presented, in which case the Corporation shall set out the
proposal in the notice of meeting in the same manner as provided for under
Section 89(2) of the Act.
D-3
TLC LASER EYE CENTERS INC.
BY-LAW 2001
A by-law relating generally to the regulation of the affairs of TLC LASER
EYE CENTERS INC.
BE IT ENACTED AND IT IS HEREBY ENACTED as by-law 2001 of TLC LASER EYE
CENTERS INC. (hereinafter called the "Corporation") as follows:
DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the
context otherwise specifies or requires:
(a) "Act" means the Business Corporations Act, Statutes of New
Brunswick, 1981, c.B-9.1, as from time to time amended, and every
statute that may be substituted therefor and, in the case of such
amendment or substitution, any reference in the by-laws of the
Corporation shall be read as referring to the amended or substituted
provisions therefor;
(b) "articles" means the articles, as from time to time amended, of the
Corporation;
(c) "by-law" means any by-laws of the Corporation from time to time in
force and effect;
(d) "director" means an individual occupying the position of director of
the Corporation and "directors", "board of directors" and "board"
includes a single director;
(e) "effective date" means the effective date of the Merger;
(f) "LVCI Nominees" has the meaning assigned thereto under the Agreement
and Plan of Merger dated August 25, 2001 between Laser Vision
Centers, Inc., the Corporation and TLC Acquisition II Corp.
(f) "Merger" means the merger between TLC Acquisition II Corp. and Laser
Vision Centers, Inc. pursuant to the Agreement and Plan of Merger
dated August 25, 2001 between Laser Vision Centers, Inc., TLC Laser
Eye Centers Inc. and TLC Acquisition II Corp.;
D-4
(g) "unanimous shareholder agreement" means an agreement as described in
subsection 99(2) of the Act or a declaration of a shareholder
described in subsection 99(3) of the Act;
(h) words importing the singular number only shall include the plural
and vice versa; words importing the masculine gender shall include
the feminine and neuter genders and vice versa; words importing
persons shall include bodies corporate, corporations, companies,
partnerships, syndicates, trusts and any number or aggregate of
individuals;
(i) the headings used in any by-law are inserted for reference purposes
only and are not to be considered or taken into account in
construing the terms or provisions thereof or to be deemed in any
way to clarify, modify or explain the effect of any such terms or
provisions; and
(j) any term contained in any by-law which is defined in the Act shall
have the meaning given to such term in the Act.
REGISTERED OFFICE
2. The Corporation may from time to time by resolution of the board of directors
change the location of the address of the registered office of the Corporation
to another place within New Brunswick.
HEAD OFFICE
3. Conditional on completion of the Merger, the Corporation's head office will
be located in Mississauga, Ontario and the Corporation's head office in respect
of the Corporation's operation in the United States will be located in St.
Louis, Missouri.
CORPORATE SEAL
4. The Corporation may have one or more corporate seals which shall be such as
the board of directors may adopt by resolution from time to time.
DIRECTORS
D-5
5. Number and Powers. There shall be a board of directors consisting of such
fixed number of directors as may be set out in the articles or as may be
determined as prescribed by the articles, or failing that, as specified by
by-law. Subject to any unanimous shareholder agreement, the directors shall
manage the business and affairs of the Corporation and may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation and are not by the Act, the articles, the by-laws, any special
resolution of the Corporation, any unanimous shareholder agreement or by statute
expressly directed or required to be done in some other manner
6. Nomination of Directors. Conditional on completion of the Merger, management
of the Corporation shall nominate the LVCI Nominees for election at the first
annual meeting of the shareholders of the Corporation following the effective
date.
7. Vacancies. If the number of directors is increased, the resulting vacancies
shall be filled at a meeting of shareholders duly called for that purpose.
Notwithstanding the provisions of paragraph 9 of this by-law and subject to the
provisions of the Act, if a vacancy should otherwise occur in the board, the
remaining directors, if constituting a quorum, may appoint a qualified person to
fill the vacancy for the remainder of the term. In the absence of a quorum the
remaining directors shall forthwith call a meeting of shareholders to fill the
vacancy pursuant to subsection 69(2) of the Act. Where a vacancy or vacancies
exist in the board, the remaining directors may exercise all of the powers of
the board so long as a quorum remains in office.
8. Duties. Every director and officer of the Corporation in exercising his
powers and discharging his duties shall
(a) act honestly and in good faith; and
(b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances,
in the best interests of the Corporation.
9. Qualification. Every director shall be an individual nineteen (19) or more
years of age and no one who is of unsound mind and has been so found by a court
in Canada or elsewhere or who has the status of a bankrupt or who has been
convicted of an offence under the Criminal Code, chapter C-34 of the Revised
Statutes of Canada, 1970, as amended from time to time, or the criminal law of
any jurisdiction outside of Canada, in connection with the promotion, formation
or management of a corporation or involving fraud (unless three (3) years have
elapsed since the expiration of the period fixed for suspension of the passing
of sentence without sentencing or since a fine was imposed, or unless the term
of imprisonment and probation imposed, if any, was concluded, whichever is the
latest, but the disability imposed hereby ceases upon a pardon being granted)
shall be a director.
D-6
10. Term of Office. A director's term of office shall be from the meeting at
which he is elected or appointed until the annual meeting next following or
until his successor is elected or appointed, or until, if earlier, he dies or
resigns, or is removed or disqualified pursuant to the provisions of the Act.
11. Vacation of Office. The office of a director shall if so facto be vacated if
(a) he dies;
(b) by notice in writing to the Corporation he resigns his office and such
resignation, if not effective immediately, becomes effective in accordance
with its terms;
(c) he is removed from office in accordance with section 67 of the Act; or
(d) he ceases to be qualified to be a director.
12. Election and Removal.
(A) Directors shall be elected by the shareholders by ordinary resolution in
general meeting on a show of hands unless a poll is demanded and if a poll is
demanded such election shall be by ballot. All the directors then in office
shall cease to hold office at the close of the meeting of shareholders at which
directors are to be elected. A director, if qualified, is eligible for
re-election.
(B) Subject to sections 65 and 67 of the Act, the shareholders of the
Corporation may by ordinary resolution at an annual or a special meeting remove
any director before the expiration of his term of office and may, by a majority
of the votes cast at the meeting, elect any person in his stead for the
remainder of his term.
(C) Each shareholder entitled to vote at an election of directors has the right
to cast a number of votes equal to the number of votes attached to the shares
held by him multiplied by the number of directors to be elected, and he may cast
all such votes in favour of one candidate or distribute them among the
candidates in any manner.
(D) A separate vote of shareholders shall be taken with respect to each
candidate nominated for director unless a resolution is passed unanimously
permitting two (2) or more persons to be elected by a single resolution.
(E) If a shareholder has voted for more than one candidate without specifying
the distribution of his votes among the candidates, he shall be deemed to have
distributed his votes equally among the candidates for whom he voted.
D-7
(F) If the number of candidates nominated for director exceeds the number of
positions to be filled, the candidates who receive the least number of votes
shall be eliminated until the number of candidates remaining equals the number
of positions to be filled.
(G) A retiring director shall retain office until the adjournment or termination
of the meeting at which his successor is elected unless such meeting was called
for the purpose of removing him from office as a director in which case the
director so removed shall vacate office forthwith upon the passing of the
resolution for his removal.
13. Validity of Acts. An act by a director or officer is valid notwithstanding
an irregularity in his election or appointment or a defect in his qualification.
MEETINGS OF DIRECTORS
14. Place of Meeting. Subject to the articles, meetings of directors may be held
at any place within or outside New Brunswick as the directors may from time to
time determine or as the person convening the meeting may give notice. A meeting
of the directors may be convened by the chairman of the board (if any), the
chief executive officer, the president or any director at any time. The
secretary shall upon direction of any of the foregoing officers or director
convene a meeting of the directors.
15. Notice. (A) Notice of the time and place of each meeting of the board shall
be given in the manner provided in paragraph 63 herein to each director.
(a) not less than three (3) days before the time when the meeting is to be
held, if the notice is mailed, or
(b) not less than twenty-four (24) hours before the time when the meeting is
to be held if the notice is given personally or is delivered or is sent by
any means of transmitted or recorded communication, such as facsimile
transmission, voice-mail or electronic-mail,
provided that meetings of the directors may be held at any time without notice
if all the directors have waived notice.
(B) For the first meeting of the board of directors to be held immediately
following the election of directors at an annual or special meeting of the
shareholders, no notice of such meeting need be given to the newly elected or
appointed director or directors in order for the meeting to be duly constituted,
provided a quorum of the directors is present.
D-8
(C) A notice of a meeting of directors shall specify any matter referred to in
subsection 73(2) of the Act that is to be dealt with at the meeting but, unless
a by-law otherwise provides, need not otherwise specify the purpose of or the
business to be transacted at the meeting.
16. Waiver of Notice. Notice of any meeting of the directors or any
irregularity in any meeting or in the notice thereof may be waived by any
director in writing or by telegram, cable, telex or facsimile transmission
addressed to the Corporation or in any other manner, and such waiver may be
validly given either before or after the meeting to which such waiver relates.
The attendance of a director at a meeting of directors is a waiver of notice of
the meeting except where a director attends a meeting for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called.
17. Telephone Participation. A director may participate in a meeting of
directors or of a committee of directors by means of such telephone or other
communication facilities that permit all persons participating in the meeting to
hear each other, and a director participating in such a meeting by such means
shall be deemed to be present at that meeting.
18. Adjournment. Any meeting of the directors may be adjourned from time
to time by the chairman of the meeting, with the consent of the meeting, to a
fixed time and place and no notice of the time and place for the continuance of
the adjourned meeting need be given to any director if the time and place of the
adjourned meeting is announced at the original meeting. Any adjourned meeting
shall be duly constituted if held in accordance with the terms of the
adjournment and a quorum is present thereat. The directors who formed a quorum
at the original meeting are not required to form the quorum at the adjourned
meeting. If there is no quorum present at the adjourned meeting, the original
meeting shall be deemed to have terminated forthwith after its adjournment.
19. Quorum and Voting. Subject to the articles, a majority of directors
shall constitute a quorum for the transaction of business at any meeting of
directors. No business shall be transacted by the directors except at a meeting
of directors at which a quorum of the board is present. Questions arising at any
meeting of the directors shall be decided by a majority of votes cast. In case
of an equality of votes, the chairman of the meeting shall not have a second or
casting vote. Where the Corporation has only one director, that director may
constitute a meeting.
20. Resolution in lieu of meeting. A resolution in writing, signed by all
the directors or signed counterparts of such resolution by all the directors
entitled to vote on that resolution at a meeting of directors or a committee of
directors, is as valid as if it had been passed at a meeting of directors or
committee of directors duly called, constituted and held. A copy of every such
resolution or counterpart thereof shall be kept with the minutes of the
proceedings of the directors or such committee of directors.
D-9
21. Deemed Consent of Director Present at Meeting. A director who is
present at a meeting of directors or committee of directors is deemed to have
consented to any resolution passed or action taken thereat unless he:
(a) requests that his dissent be or his dissent is entered in the
minutes of the meeting;
(b) sends his written dissent to the secretary of the meeting before the
meeting is terminated; or
(c) sends his dissent by registered mail or delivers to the registered
office of the Corporation immediately after the meeting is
terminated.
REMUNERATION OF DIRECTORS
22. Subject to the articles or any unanimous shareholder agreement, the
remuneration to be paid to the directors shall be such as the board of directors
shall from time to time determine and such remuneration shall be in addition to
the salary paid to any officer of the corporation who is also a member of the
board of directors. The directors may also be resolution award special
remuneration to any director undertaking any special services on the
Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation. The confirmation of any such resolution or
resolutions by the shareholders shall not be required. The directors shall also
be entitled to be paid their travelling and other expenses properly incurred by
them in connection with the affairs of the Corporation.
SUBMISSION OF CONTRACTS OR TRANSACTIONS
TO SHAREHOLDERS FOR APPROVAL
23. The directors in their discretion may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting of
the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and any contract, act or transaction that shall
be approved, ratified or confirmed by resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the articles or any other by-law) shall be as valid
and as binding upon the Corporation and upon all the shareholders as though it
had been approved, ratified and/or confirmed by every shareholder of the
Corporation.
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
D-10
24. No director or officer for the time being of the Corporation shall be
liable for the acts, receipts, neglects or defaults of any other director or
officer or employee of the Corporation or for joining in any receipt or act for
conformity or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired by
order of the board of directors for or on behalf of the Corporation or for the
insufficiency or deficiency of any security in or upon which any of the moneys
of or belonging to the Corporation shall be placed out or invested or for any
loss or damage arising from the bankruptcy, insolvency or tortious act of any
person, firm or corporation including any person, firm or corporation with whom
or which any moneys, securities or effects of the Corporation shall be lodged or
deposited or for any loss, conversion, misapplication or misappropriation of or
any damage resulting from any dealings with any moneys, securities or other
assets belonging to the Corporation or for any other loss, damage or misfortune
whatever which may happen to the Corporation in the execution of the duties of
his respective office of trust or in relation thereto, unless the same shall
happen by or through his failure to exercise the powers and to discharge the
duties of his office honestly, in good faith with a view to the best interests
of the Corporation, and in connection therewith to exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances, provided that nothing herein contained shall relieve a director
or officer from the duty to act in accordance with the Act or regulations made
thereunder or relieve a director or officer from the duty to act in accordance
with the Act or regulations made thereunder or relieve him from liability for a
breach thereof. The directors for the time being of the Corporation shall not be
under any duty or responsibility in respect of any contract, act or transaction
whether or not made, done or entered into in the name or on behalf of the
Corporation, except such as shall have been submitted to and authorized or
approved by the board of directors. If any director or officer of the
Corporation shall be employed by or shall perform services for the Corporation,
the fact of his being a shareholder, director or officer of the Corporation
shall not disentitle such director or officer or such firm or body corporate, as
the case may be, from receiving proper remuneration for such services.
INDEMNITIES TO DIRECTORS AND OTHERS
25. Subject to section 81 of the Act, except in respect of an action by or
on behalf of the Corporation or Another Body Corporate (as hereinafter defined)
to procure a judgement in its favour, the Corporation shall indemnify each
director and officer of the Corporation and each former director and officer of
the Corporation and each person who acts or acted at the Corporation's request
as a director or officer of Another Body Corporate, and his heirs and legal
representatives, against all costs, charges and expenses, including any amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
the Corporation or Another Body Corporate, as the case may be, if
D-11
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
"Another Body Corporate" as used herein means a body corporate of which
the Corporation is or was a shareholder or creditor.
26. Insurance. Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of any
person referred to in paragraph 25 as the board may, from time to time,
determine.
OFFICERS
27. Appointment of Officers. Subject to the articles or any unanimous
shareholder agreement, the directors may appoint a chairman of the board, a
chief executive officer, a president and a secretary and, if deemed advisable,
may also appoint one or more vice-presidents, a treasurer and one or more
assistant secretaries and one/or more assistant treasurers. None of such
officers, except the chairman of the board, need be a director of the
Corporation. Any two or more of such offices may be held by the same person. In
case and whenever the same person holds the offices of secretary and treasurer
he may, but need not, be known as the secretary-treasurer. The directors may
from time to time designate such other offices and appoint such other officers,
employees and agents as it shall deem necessary who shall have such authority
and shall perform such functions and duties as may from time to time be
prescribed by resolution of the directors.
28. Remuneration and Removal of Officers. Subject to the articles or any
unanimous shareholder agreement, the remuneration of all officers, employees and
agents appointed by the directors may be determined from time to time by
resolution of the directors. The fact that any officer, employee or agent is a
director or shareholder of the Corporation shall not disqualify him from
receiving such remuneration as may be so determined. The directors may by
resolution remove any officer, employee or agent at any time, with or without
cause.
29. Duties of Officers may be Delegated. In the case of the absence or
inability or refusal to act of any officer of the Corporation or for any reason
that the directors may deem sufficient, the directors may delegate all or any of
the powers of such officer to any other officer or to any director for the time
being.
D-12
30. Chairman of the Board. The chairman of the board (if any) shall, if
present, preside at all meetings of the directors. He shall sign such contracts,
documents or instruments in writing as require his signature and shall have such
other powers and duties as may from time to time be assigned to him by
resolution of the directors.
31. Chief Executive Officer. The chief executive officer (if any) of the
Corporation shall exercise general supervision over the business and affairs of
the Corporation and such other duties as the board may specify from time to
time. During the absence or disability of the president, or if no president has
been appointed, the chief executive officer shall also have the powers and
duties of that office.
32. President. The president (if any) of the Corporation shall be the
chief operating officer and shall, subject to the authority of the chief
executive officer, exercise general supervision over the operations of the
Corporation. During the absence or disability of the chief executive officer, or
if no chief executive officer has been appointed, the president shall also have
the powers and duties of that office.
33. Vice-President. The vice-president (if any) or, if more than one, the
vice-presidents in order of seniority, shall be vested with all the powers and
shall perform all the duties of the president in the absence or inability or
refusal to act of the president. The vice-president or, if more than one, the
vice-presidents in order of seniority, shall sign such contracts, documents or
instruments in writing as require his or their signatures and shall also have
such other powers and duties as may from time to time be assigned to him or them
by resolution of the directors.
34. Secretary. The secretary shall give or cause to be given notices for
all meetings of the directors or committees thereof (if any) and of shareholders
when directed to do so, and shall have charge, subject to the provisions of
paragraphs 35 and 55 hereof, of the records referred to in section 18 of the Act
and of the corporate seal or seals (if any). He shall sign such contracts,
documents or instruments in writing as require his signature and shall have such
other powers an duties as may from time to time be assigned to him by resolution
of the directors or as are incident to his office.
35. Treasurer. Subject to the provisions of any resolution of the
directors, the treasurer (if any) shall be the chief financial officer and shall
have the care and custody of all the funds and securities of the Corporation and
shall deposit the same in the name of the Corporation in such bank or banks or
with such other depositary or depositaries as the directors may by resolution
direct. He shall prepare, maintain and keep or cause to be kept adequate books
of accounts and accounting records. He shall sign such contracts, documents or
instruments in writing as require his signature and shall have such other powers
and duties as may from time to time be assigned to him by resolution of the
directors or as are incident to his office. He may be required to give such bond
for the faithful performance of his duties as the directors in their
uncontrolled discretion may require, but no director shall be liable for failure
to require any such
D-13
bond or for the insufficiency of any such bond or for any loss by reason of the
failure of the Corporation to receive any indemnity thereby provided.
36. Assistant Secretary and Assistant Treasurer. The assistant secretary
or, if more than one, the assistant secretaries in order of seniority, and the
assistant treasurer or, if more than one, the assistant treasurers in order of
seniority (if any), shall respectively perform all the duties of the secretary
and treasurer, respectively, in the absence or inability to act of the secretary
or treasurer as the case may be. The assistant secretary or assistant
secretaries, if more than one, and the assistant treasurer or assistant
treasurers, if more than one, shall sign such contracts, documents or
instruments in writing as require his or their signatures respectively and shall
have such other powers and duties as may from time to time be assigned to them
by resolution of the directors.
37. Vacancies. If the office of chairman of the board, chief executive
officer, president, vice-president, secretary, assistant secretary, treasurer,
assistant treasurer, or any other office created by the directors pursuant to
paragraph 27 hereof, shall be or become vacant by reason of death, resignation,
removal or in any other manner whatsoever, the directors may, subject to
paragraph 27 hereof, appoint another person to fill such vacancy.
COMMITTEES OF DIRECTORS
38. The directors may from time to time appoint from their number one or
more committees of directors consisting of one or more individuals and delegate
to such committee or committees any of the powers of the directors except as
provided in subjection 73(2) of the Act. Unless otherwise ordered by the
directors, a committee of directors shall have power to fix its quorum, elect
its chairman and regulate its proceedings. All such committees shall report to
the directors as required by them.
SHAREHOLDERS' MEETING
39. Annual Meeting. subject to compliance with section 85 of the Act, the
annual meeting of the shareholders shall be convened on such day in each year
and at such time as the directors may by resolution determine.
40. Special Meetings. (A) Special meetings of the shareholders may be
convened by order of the chairman of the board, the chief executive officer, the
president or a vice-president or by the directors, to be held at such time and
place as may be specified in such order.
D-14
(B) Shareholders holding between them not less than ten percent (10%) of
the issued shares of the Corporation that carry the right to vote at a meeting
sought to be held may requisition the directors to call a meeting of
shareholders. Such requisition shall state the business to be transacted at the
meeting and shall be sent to each director and the registered office of the
Corporation.
(C) Except as otherwise provided in subsection 96(3) of the Act, it shall
be the duty of the directors on receipt of such requisition, to cause such
meeting to be called by the secretary of the Corporation.
(D) If the directors do not, within twenty-one (21) days after receiving
such requisition call such meeting, any shareholder who signed the requisition
may call the meeting.
41. Place of Meetings. Meetings of shareholders of the Corporation shall
be held at the registered office of the Corporation or at such other place
within New Brunswick as the directors by resolution may determine.
Notwithstanding the foregoing, a meeting of shareholders of the Corporation may
be held outside New Brunswick if all the shareholders entitled to vote at that
meeting so agree, and a shareholder who attends a meeting of shareholders held
outside New Brunswick is deemed to have so agreed except when he attends the
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully held. Notwithstanding either of
the foregoing sentences, meetings of shareholders may be held outside New
Brunswick at one or more places specified in the articles.
42. Notice. (A) Subject to the articles or a unanimous shareholder
agreement, a printed, written or typewritten notice stating the day, hour, place
of meeting, the general nature of the business to be transacted and, if special
business is to be transacted thereat, stating
(a) the nature of that business in sufficient detail to permit the
shareholder to form a reasoned judgment thereon; and
(b) the text of any special resolution to be submitted to the meeting.
shall be sent to each person who is entitled to notice of such meeting and who
on the record date for notices appears on the records of the Corporation or its
transfer agent as a shareholder and to each director of the Corporation and the
auditor of the Corporation, if any, personally, by sending such notice by
prepaid mail or in such other manner as provided by by-law for the giving of
notice, not less than twenty-one (21) days nor more than fifty (50) days before
the meeting. If such notice is sent by mail it shall be addressed to the latest
address of each such person as shown in the records of the Corporation or its
transfer agent, or if no address is shown therein, then to the last address of
each such person known to the secretary.
D-15
(B) The auditor of the Corporation, if any, is entitled to attend any
meeting of shareholders of the Corporation and to receive all notices and other
communications relating to any such meeting that a shareholder is entitled to
receive.
43. Waiver of Notice. A meeting of shareholders may be held for any
purpose at any time and, subject to section 84 of the Act, at any place without
notice if all the shareholders entitled to notice of such meeting are present in
person or represented by proxy at the meeting (except where the shareholder
attends the meeting for the express purpose of objecting to the transaction of
any business on the grounds that the meeting is not lawfully called) or if all
the shareholders entitled to notice of such meeting and not present in person
nor represented by proxy thereat waive notice of the meeting. Notice of any
meeting of shareholders or any irregularity in any such meeting or in the notice
thereof may be waived by any shareholder, the duly appointed proxy of any
shareholders, any directors or the auditor of the Corporation in writing, by
telegram, cable, telex or facsimile addressed to the Corporation or by any other
manner, and any such waiver may be validly given either before or after the
meeting to which such waiver relates.
44. Omission of Notice. The accidental omission to give notice of any
meeting to or the non-receipt of any notice by any person shall not invalidate
any resolution passed or any proceeding taken at any meeting of shareholders.
45. Record Date. (A) The directors may by resolution fix in advance a date
as the record date for the determination of shareholders
(a) entitled to receive payment of a dividend;
(b) entitled to participate in a liquidation distribution; or
(c) for any other purpose except the right to receive notice of or
to vote at a meeting of shareholders, but such record date
shall not precede by more than fifty (50) days the particular
action to be taken.
(B) The directors may by resolution also fix in advance the date as the
record date for the determination of the shareholders entitled to receive notice
of a meeting of shareholders, but such record date shall not precede by more
than fifty (50) days or by less than twenty-one (21) days the date on which the
meeting is to be held.
(C) If no record date is fixed,
(a) the record date for the determination of shareholders entitled
to receive notice of a meeting of shareholder shall be
D-16
(i) at the close of business on the day immediately preceding
the day on which the notice is given; or
(ii) if no notice is given, the day on which the meeting is
held; and
(b) the record date for the determination of shareholders for any
purpose, other than that specified in subparagraph (a) above or to
vote, shall be at the close of business on the day on which the
directors pass the resolution relating thereto.
46. Voting. (A) Votes at meetings of the shareholders may be given either
personally or by proxy. At every meeting at which he is entitled to vote, every
shareholder present in person and every proxyholder shall have one (1) vote on a
show of hands. Upon a poll at which he is entitled to vote, every shareholder
present in person or by proxy shall (subject to the provisions, if any, of the
articles) have one(1) vote for every share registered in his name.
(B) Voting at a meeting of shareholders shall be by show of hands except
where a ballot is demanded by a shareholder or proxyholder entitled to vote at
the meeting. a shareholder or proxyholder may demand a ballot either before or
after any vote by show of hands. In case of an equality of votes the chairman of
the meeting shall not have a second or casting vote in addition to the vote or
votes to which he may be entitled as a shareholder or proxyholder.
(C) At any meeting, unless a ballot is demanded, a declaration by the
chairman of the meeting that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact without proof of the number or
proportion of votes recorded in favour of or against the motion.
(D) In the absence of the chairman of the board, the chief executive
officer, the president and every vice-president, the shareholders present
entitled to vote shall choose another director as chairman of the meeting and if
no director is present or if all the directors present decline to take the chair
then the shareholders or proxyholders present shall choose one of their number
to be chairman.
(E) If at any meeting a ballot is demanded on the election of a chairman
or on the question of adjournment or termination it shall be taken forthwith
without adjournment. If a ballot is demanded on any other question or as to the
election of directors it shall be taken in such manner and either at once or
later at the meeting or at an adjourned meeting as the chairman of the meeting
directs. The result of a ballot shall be deemed to be the resolution of the
meeting at which the ballot was demanded. A demand for a ballot may be
withdrawn.
D-17
(F) Where a person holds shares as a personal representative, such person
or his proxy is the person entitled to vote at all meetings of shareholders in
respect of the shares so held by him.
(G) Where a person mortgages or hypothecates his shares, such person or
his proxy is the person entitled to vote at all meetings of shareholders in
respect of such shares unless, in the instrument creating the mortgage or
hypothec, he has expressly empowered the person holding the mortgage or hypothec
to vote in respect of such shares, in which case, and subject to the articles,
such holder or his proxy is the person entitled to vote in respect of the
shares.
(H) Where two or more persons hold the same share or shares jointly, any
one of such persons present at a meeting of shareholders has the right, in the
absence of the other or others, to vote in respect of such share or shares, but
if more than one of such persons are present or represented by proxy and vote,
they shall vote together as one on the share or shares jointly held by them.
47. Proxies. (A) A shareholder, including a shareholder that is a body
corporate, entitled to vote at a meeting of shareholders may by means of a proxy
appoint a proxyholder or one or more alternate proxyholders, none of whom are
required to be a shareholder of the Corporation, which proxyholders shall have
all the rights of the shareholder to attend and act at the meeting in the place
and stead of the shareholder except to the extent limited by the proxy.
(B) An instrument appointing a proxy shall be in writing and shall be
executed by the shareholder or by his attorney authorized in writing or, if the
shareholder is a body corporate, either under its seal or by an officer or
attorney thereof, duly authorized. A proxy is valid only at the meeting in
respect of which it is given or any adjournment thereof.
(C) Unless the Act requires another form, an instrument appointing a
proxyholder shall be in the form determined by the directors from time to time.
48. Time for Deposit of Proxies. The board may by resolution specify in a
notice calling a meeting of shareholders a time, preceding the time of such
meeting or an adjournment thereof by not more than 48 hours excluding Saturdays
and holidays before which time proxies to be used at such meeting must be
deposited. A proxy shall be acted upon only if, prior to the time so specified,
it shall have been deposited with the Corporation or an agent thereof specified
in such notice or, if no such time is specified in such notice, only if it has
been received by the secretary of the Corporation or by the chairman of the
meeting or any adjournment thereof prior to the time of voting.
49. The directors may from time make regulations regarding the depositing
of proxies at some place or places other than the place at which a meeting or
adjourned meeting of
D-18
shareholders is to be held and for particulars of such proxies to be sent by
means of wire or wireless or any other form of transmitted or recorded
communication or in writing before the meeting or adjourned meeting to the
Corporation or any agent of the Corporation for the purpose of receiving such
particulars and providing that proxies so deposited may be voted upon as though
the proxies themselves were deposited with the Corporation at the meeting or
adjourned meeting and votes given in accordance with such regulations shall be
valid and shall be counted. The chairman of any meeting of shareholders may,
subject to any regulations made as aforesaid, in his discretion accept wire or
wireless or any other form of transmitted or recorded or written communication
as to the authority of any person claiming to vote on behalf of and to represent
a shareholder notwithstanding that no proxy conferring such authority has been
deposited with the Corporation, and any votes given in accordance with such
communication accepted by the chairman of the meeting shall be valid and shall
be counted.
50. Adjournment. (A) The chairman of the meeting may with the consent of
the meeting adjourn any meeting of shareholders from time to time to a fixed
time and place. If a meeting of shareholders is adjourned for less than sixty
(60) days, it is not necessary to give notice of the adjourned meeting other
than by announcement at the earlier meeting that is adjourned. If a meeting of
shareholders is adjourned by one or more adjournments for an aggregate of sixty
(60) days or more, notice of the adjourned meeting shall be given as for an
original meeting.
(B) Any adjourned meeting shall be duly constituted if held in accordance
with the terms of the adjournment and a quorum is present at the opening
thereat. The persons who formed a quorum at the original meeting are not
required to form the quorum at the adjourned meeting. If there is no quorum
present at the opening of the adjourned meeting, the original meeting shall be
deemed to have terminated forthwith after its adjournment. Any business may be
brought before or dealt with at any adjourned meeting which might have been
brought before or dealt with at the original meeting in accordance with the
notice calling the same.
51. Quorum. Two persons present in person and entitled to vote and holding
or representing by proxy not less than 20% of the votes entitled to be cast at
the meeting shall constitute a quorum of any meeting of the shareholders or any
class of shareholders. No business shall be transacted at any meeting unless the
requisite quorum be present at the time of the transactions of such business. If
a quorum is not present at the time appointed for a meeting of shareholders or
within such reasonable time thereafter as the shareholders present may
determine, the persons present and entitled to vote may adjourn the meeting to a
fixed time and place but may not transact any other business and the provisions
of paragraph 39 of this by-law with regard to notice shall apply to such
adjournment.
52. Resolution in Lieu of Meeting. A resolution in writing signed by all
the shareholders or signed counterparts of such resolution by all the
shareholders entitled to vote on
D-19
that resolution at a meeting of shareholders is as valid as if it had been
passed at a meeting of the shareholders duly called, constituted and held. A
copy of every such resolution or counterpart thereof shall be kept with the
minutes of the meetings of shareholders.
SHARES AND TRANSFERS
53. Issuance. Subject to the articles, any unanimous shareholder agreement
and to section 27 of the Act, shares in the Corporation may be issued at such
times and to such persons or classes of persons and, subject to sections 23 and
24 of the Act, for such consideration as the directors may determine.
54. Certificates. Share certificates (and the form of stock transfer power
on the reverse side thereof) shall (subject to compliance with section 47 of the
Act) be in such form and be signed by such director(a) or officer(s) as the
directors may from time to time by resolution determine. Such certificates shall
be signed manually by at least one director or officer of the corporation or by
or on behalf of a registrar, transfer agent or branch transfer agent of the
Corporation, and any additional signatures required on a share certificate may
be printed or otherwise mechanically reproduced thereon. If a share certificate
contains a printed or mechanically reproduced signature of a person, the
Corporation may issue the share certificate notwithstanding that the person has
ceased to be a director or an officer at the date of its issue.
55. Registrar and Transfer Agent. The directors may from time to time by
resolution appoint or remove one or more registrars and/or branch registrars
(which may but need not be the same person) to keep the share register and/or
one or more transfer agents and/or branch transfer agents (which may but need
not be the same person) to keep the register of transfers, and (subject to
section 48 of the Act) may provide for the registration of issues and the
registration of transfers of the shares of the Corporation in one or more places
and such registrars and/or branch registrars and/or transfer agents and/or
branch transfer agents shall keep all necessary books and registers of the
Corporation for the registration of the issuance and the registration of
transfers of the shares of the Corporation for which they are so appointed. All
certificates issued after any such appointment representing shares issued by the
Corporation shall be countersigned by or on behalf of one of the said registrars
and/or branch registrars and/or transfer agents and/or branch transfer agents,
as the case may be.
56. Replacement of Share Certificates. The board or any officer or agent
designated by the board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken on payment of such fee, not exceeding
$3.00, and on such terms as to indemnity, reimbursement of expenses and
D-20
evidence of loss and of title as the board may from time to time prescribe,
whether generally or in any particular case.
DIVIDENDS
57. Subject to the Act, the directors may from time to time by resolution
declare and the Corporation may pay dividends on the issued and outstanding
shares in the capital of the Corporation subject to the act and to the
provisions (if any) of the articles of the Corporation.
58. Dividend Cheques. A dividend payable in cash shall be paid by cheque
drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class or series in respect of which it has
been declared and mailed by prepaid ordinary mail to such registered holder at
his recorded address, unless such holder otherwise directs. In the case of joint
holders the cheque shall, unless such joint holders otherwise direct, be made
payable to the order of all of such joint holders and mailed to them at their
recorded address. The mailing of such cheque as aforesaid, unless the same is
not paid on due presentation, shall satisfy and discharge the liability for the
dividend to the extent of the sum represented thereby plus the amount of any tax
which the Corporation is required to and does withhold.
59. Non-receipt of Cheques. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement or expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in any
particular case.
60. Record Date for Dividends and Rights. The board may fix in advance a
date, preceding by not more than fifty (50) days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of the right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the right to subscribe for such securities. If no record date is so
fixed, the record date for the determination of the persons entitled to receive
payment of any dividend or to exercise the right to subscribe for securities of
the Corporation shall be at the close of business on the day on which the
resolution relating to such dividend or right to subscribe is passed by the
board.
61. Unclaimed Dividends. Any dividend unclaimed after a period of six
years from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
D-21
VOTING SECURITIES IN OTHER BODIES CORPORATE
62. All securities of any other body corporate carrying voting rights held
from time to time by the Corporation may be voted at all meetings of
shareholders, bondholders, debenture holders or holders of such securities, as
the case may be, of such other body corporate in such manner and by such person
or persons as the directors of the Corporation shall from time to time determine
and authorize by resolution. The duly authorized signing officers of the
Corporation may also from time to time execute and deliver for and on behalf of
the Corporation proxies and/or arrange for the issuance of voting certificates
and/or other evidence of the right to vote in such names as they may determine
without the necessity of a resolution or other action by the directors.
NOTICE
63. Method of Giving Notice. Any notice, communication or other document
to be given by the Corporation to a shareholder, director, officer, or auditor
of the Corporation under any provision of the Act, the Articles or by-laws shall
be sufficiently given if delivered personally to the person to whom it is to be
given or if delivered to his latest address as shown in the records of the
Corporation or if mailed by prepaid ordinary mail or air mail in a sealed
envelope addressed to him at his latest address as shown in the records of the
Corporation or if sent to such person, at the latest applicable number for such
person as shown in the records of the Corporation, by any means of wire or
wireless or any other form of transmitted or recorded communication. The
secretary may change the address on the records of the Corporation of any
shareholder in accordance with any information believed by him to be reliable. A
notice, communication or document so delivered shall be deemed to have been
given when it is delivered personally or at the address aforesaid. A notice,
communication or document so mailed shall be deemed to have been given on the
date it is deposited in a post office or public letter box. A notice sent by any
means of wire or wireless or any other form of transmitted or recorded
communications shall be deemed to have been given on the day on which it is
transmitted.
64. Shares Registered in More Than One Name. All notices or other
documents required to be sent to a shareholder by the Act, the regulations under
the Act, the articles or the by-laws of the Corporation shall, with respect to
any shares in the capital of the Corporation registered in more than one name,
be given to whichever of such persons is named first in the records of the
Corporation and any notice or other document so given shall be sufficient notice
or delivery of such document to all the holders of such shares.
65. Persons Becoming Entitled by Operation of Law. Every person who by
operation of law, transfer or by any other means whatsoever shall become
entitled to any shares in the capital of the Corporation shall be bound by every
notice or other document in respect of
D-22
such shares which prior to his name and address being entered on the records of
the Corporation shall have been given to the person or persons from whom he
derives his title to such shares.
66. Deceased Shareholder. Any notice or other document delivered or sent
by post or left at the address of any shareholder as the same appears in the
records of the Corporation shall, notwithstanding that such shareholder be then
deceased and whether or not the Corporation has notice of his decease, be deemed
to have been duly served in respect of the shares held by such shareholder
(whether held solely or with other persons) until some other person be entered
in his stead in the records of the Corporation as the holder or one of the
holders thereof and such service shall for all purposes be deemed a sufficient
service of such notice or other document on his heirs, executors or
administrators and all persons (if any) interested with him in such shares.
67. Signatures to Notices. The signature of any director or officer of the
Corporation to any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed.
68. Computation of Time. Where a given number of days' notice extending
over any period is required to be given under any provisions of the articles or
by-laws of the Corporation, the day of service or posting of the notice shall,
unless it is otherwise provided, be counted in such number of days or other
period and such notice shall be deemed to have been given or sent on the day of
service or posting.
69. Proof of Service. A certificate of any officer of the Corporation in
office at the time of the making of the certificate or of a transfer officer of
any transfer agent or branch transfer agent of shares of any class of the
Corporation as a to facts in relation to the mailing or delivery or service of
any notice or other documents to any shareholder, director, officer or auditor
or publication of any notice or other document shall be conclusive evidence
thereof and shall be binding on every shareholder, director, officer or auditor
of the Corporation, as the case may be.
CHEQUES, DRAFTS, NOTES, ETC.
70. All cheques, drafts or orders for the payment of money and all notes,
acceptances and bills of exchange shall be signed by such officer or officers or
other person or persons, whether or not officers of the Corporation, and in such
manner as the directors may from time to time designate by resolution.
CUSTODY OF SECURITIES
D-23
71. (A) All securities (including warrants) owned by the Corporation shall
be lodged (in the name of the Corporation) with a chartered bank or a trust
company or in a safety deposit box or, if so authorized by resolution of the
directors, with such other depositaries or in such other manner as may be
determined from time to time by the directors.
(B) All securities (including warrants) belonging to the Corporation may
be issued and held in the name of a nominee or nominees of the Corporation (and
if issued or held in the names of more than one nominee shall be held in the
names of the nominees jointly with right of survivorship) and shall be endorsed
in blank with endorsement guaranteed in order to enable transfer thereof to be
completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
72. (A) Contracts, documents or instruments in writing requiring the
signature of the Corporation may be signed by the chairman of the board, the
chief executive officer, the president or a vice-president and the secretary or
the treasurer and all contracts, documents and instruments in writing so signed
shall be binding upon the Corporation without any further authorization or
formality. The board of directors shall have power from time to time by
resolution to appoint any officer or officers, or any person or persons, on
behalf of the Corporation either to sign contracts, documents and instruments in
writing generally or to sign specific contracts, documents or instruments in
writing.
(B) The corporate seal of the Corporation, if any, may be affixed to
contracts, documents and instruments in writing signed as aforesaid or by any
officer or officers, person or persons, appointed as aforesaid by resolution of
the board of directors but any such contract, document or instrument is not
invalid merely because the corporate seal, if any, is not affixed thereto.
(C) The term "contracts, documents or instruments in writing" as used in
this by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property real or person, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, share warrants,
stocks, bonds, debentures or other securities and all paper writings.
(D) In particular without limiting the generality of the foregoing the
chairman of the board, the chief executive officer, the president or a
vice-president and the secretary or the treasurer shall have authority to sell,
assign, transfer, exchange, convert or convey any and all shares, stocks, bonds,
debentures, rights, warrants or other securities owned by or registered in the
name of the Corporation and to sign and execute (under the seal of the
Corporation or otherwise) all assignments, transfers, conveyances, powers of
attorney and other instruments that
D-24
may be necessary for the purpose of selling, assigning, transferring,
exchanging, converting or conveying any such shares, stocks, bonds, debentures,
rights, warrants or other securities.
(E) The signature or signatures of the chairman of the board, the chief
executive officer, the president, a vice-president, the secretary, the treasurer
and assistant secretary or an assistant treasurer or any director of the
corporation and/or of any other officer or officers, person or persons,
appointed as aforesaid by resolution of the board of directors may, if
specifically authorized by resolution of the directors, be printed, engraved,
lithographed or otherwise mechanically reproduced upon any contracts, documents
or instruments in writing or bonds, debentures or other securities of the
corporation executed or issued by or on behalf of the Corporation and all
contracts, documents or instruments in writing or bonds, debentures or other
securities of the Corporation on which the signature or signatures of any of the
foregoing officers or persons authorized as aforesaid shall be so reproduced
pursuant to special authorization by resolution of the directors shall be deemed
to have been manually signed by such officers or persons whose signature or
signatures is or are so reproduced and shall be as valid to all intents and
purposes as if they had been signed manually and notwithstanding that the
officers or persons whose signature or signatures is or are so reproduced may
have ceased to hold office at the date of the delivery or issue of such
contracts, documents or instruments in writing or bonds, debentures or other
securities of the Corporation.
AUDITOR
73. At each annual meeting of the shareholders of the Corporation an
auditor may be appointed for the purpose of auditing and verifying the accounts
of the Corporation for the then current year and his report shall be submitted
at the next annual meeting of the shareholders. The auditor shall not be a
director or an officer of the Corporation. Unless fixed by the meeting of
shareholders at which he is appointed, the remuneration of the auditor shall be
determined from time to time by the directors.
FISCAL YEAR
74. The fiscal period of the Corporation shall terminate on such day in
each year as the directors may from time to time by resolution determine.
BORROWING
75. General Borrowing. The directors may from time to time:
D-25
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the Corporation;
(c) give a guarantee on behalf of the Corporation to secure performance
of an obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the Corporation.
The directors may from time to time authorize any director or directors,
or officer or officers, of the Corporation, to make arrangements with reference
to the money borrowed or to be borrowed as aforesaid, and as to the terms and
conditions of the loan thereof, and as to the securities to be given therefor,
with power to vary or modify such arrangements, terms and conditions and to give
such additional securities for any moneys borrowed or remaining due by the
Corporation as the directors of the Corporation may authorize, and generally to
manage, transact and settle the borrowing of money by the Corporation.
REPEAL OF BY-LAWS
76. Repeal of By-Laws. Upon this by-law coming into force, all prior by-laws
presently in force other than by-laws relating to the borrowing powers of the
Corporation are repealed provided that such repeal shall not affect the previous
operation of such by-laws so repealed or affect the validity of any act done or
right, privilege, obligation or liability acquired or incurred or the validity
of any contract or agreement made pursuant to any such by-laws prior to their
repeal. all officers and persons acting under such by-laws so repealed shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or board passed under such repealed by-laws
shall continue to be good and valid except to the extent that they are
inconsistent with this by-law or until amended or repealed.
* * * * * * * * * * * * * * * * * * *
D-26
WITNESS the corporate seal of the Corporation this day of , 2001.
__________________________________
CHIEF EXECUTIVE OFFICER
__________________________________
SECRETARY
D-27
APPENDIX E
SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
185. (1) Rights of dissenting shareholders. Subject to subsection (3) and
to sections 186 and 248, if a corporation resolves to,
(a) amend its articles under section 168 to add, remove or change
restrictions on the issue, transfer or ownership of shares of a
class or series of the shares of the corporation;
(b) amend its articles under section 168 to add, remove or change any
restriction upon the business or businesses that the corporation may
carry on or upon the powers that the corporation may exercise;
(c) amalgamate with another corporation under sections 175 and 176;
(d) be continued under the laws of another jurisdiction under section
181; or
(e) sell, lease or exchange all or substantially all of its property
under subsection 184(3)
holder of shares of any class or series entitled to vote on the resolution may
dissent.
(2) Idem. If a corporation resolves to amend its articles in a manner
referred to in subsection 170(1), a holder of shares of any class or series
entitled to vote on the amendment under section 168 or 170 may dissent, except
in respect of an amendment referred to in,
(a) clause 170(1)(a), (b) or (e) where the articles provide that the
holders of shares of such class or series are not entitled to
dissent; or
(b) subsection 170(5) or (6).
(3) Exception. A shareholder of a corporation incorporated before the 29th
day of July, 1983 is not entitled to dissent under this section in respect of an
amendment of the articles of the corporation to the extent that the amendment:
(a) amends the express terms of any provision of the articles of the
corporation to conform to the terms of the provision as deemed to be
amended by section 277; or
(b) deletes from the articles of the corporation all of the objects of
the corporation set out in its articles, provided that the deletion
is made by the 29th day of July, 1986.
(4) Shareholder's right to be paid fair value. In addition to any other
right the shareholder may have, but subject to subsection (30), a shareholder
who complies with this section is entitled, when the action approved by the
resolution from which the shareholder dissents becomes effective, to be paid by
the corporation the fair value of the shares held by the shareholder in respect
of which the shareholder dissents, determined as of the close of business on the
day before the resolution was adopted.
(5) No partial dissent. A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by the dissenting
shareholder on behalf of any one beneficial owner and registered in the name of
the dissenting shareholder.
(6) Objection. A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting or of the shareholder's right to dissent.
E-1
(7) Idem. The execution or exercise of a proxy does not constitute a
written objection for purposes of subsection (6).
(8) Notice of adoption of resolution. The corporation shall, within ten
days after the shareholders adopt the resolution, send to each shareholder who
has filed the objection referred to in subsection (6) notice that the resolution
has been adopted, but such notice is not required to be sent to any shareholder
who voted for the resolution or who has withdrawn the objection.
(9) Idem. A notice sent under subsection (8) shall set out the rights of
the dissenting shareholder and the procedures to be followed to exercise those
rights.
(10) Demand for payment of fair value. A dissenting shareholder entitled
to receive notice under subsection (8) shall, within twenty days after receiving
such notice, or, if the shareholder does not receive such notice, within twenty
days after learning that the resolution has been adopted, send to the
corporation a written notice containing,
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the shareholder
dissents; and
(c) a demand for payment of the fair value of such shares.
(11) Certificates to be sent in. Not later than the thirtieth day after
the sending of a notice under subsection (10), a dissenting shareholder shall
send the certificates representing the shares in respect of which the
shareholder dissents to the corporation or its transfer agent.
(12) Idem. A dissenting shareholder who fails to comply with subsections
(6), (10) and (11) has no right to make a claim under this section.
(13) Endorsement on certificate. A corporation or its transfer agent shall
endorse on any share certificate received under subsection (11) a notice that
the holder is a dissenting shareholder under this section and shall return
forthwith the share certificates to the dissenting shareholder.
(14) Rights of dissenting shareholder. On sending a notice under
subsection (10), a dissenting shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of the shares as
determined under this section except where,
(a) the dissenting shareholder withdraws notice before the corporation
makes an offer under subsection (15);
(b) the corporation fails to make an offer in accordance with subsection
(15) and the dissenting shareholder withdraws notice; or
(c) the directors revoke a resolution to amend the articles under
subsection 168(3), terminate an amalgamation agreement under
subsection 176(5) or an application for continuance under subsection
181(5), or abandon a sale, lease or exchange under subsection
184(8),
in which case the dissenting shareholder's rights are reinstated as of the date
the dissenting shareholder sent the notice referred to in subsection (10), and
the dissenting shareholder is entitled, upon presentation and surrender to the
corporation or its transfer agent of any certificate representing the shares
that has been endorsed in accordance with subsection (13), to be issued a new
certificate representing the same number of shares as the certificate so
presented, without payment of any fee.
E-2
(15) Offer to pay. A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is effective
or the day the corporation received the notice referred to in subsection (10),
send to each dissenting shareholder who has sent such notice,
(a) a written offer to pay for the dissenting shareholder's shares in an
amount considered by the directors of the corporation to be the fair
value thereof, accompanied by a statement showing how the fair value
was determined; or
(b) if subsection (30) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
(16) Idem. Every offer made under subsection (15) for shares of the same
class or series shall be on the same terms.
(17) Idem. Subject to subsection (30), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (15) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(18) Application to court to fix fair value. Where a corporation fails to
make an offer under subsection (15) or if a dissenting shareholder fails to
accept an offer, the corporation may, within fifty days after the action
approved by the resolution is effective or within such further period as the
court may allow, apply to the court to fix a fair value for the shares of any
dissenting shareholder.
(19) Idem. If a corporation fails to apply to the court under subsection
(18), a dissenting shareholder may apply to the court for the same purpose
within a further period of twenty days or within such further period as the
court may allow.
(20) Idem. A dissenting shareholder is not required to give security for
costs in an application made under subsection (18) or (19).
(21) Costs. If a corporation fails to comply with subsection (15), then
the costs of a shareholder application under subsection (19) are to be borne by
the corporation unless the court otherwise orders.
(22) Notice to shareholders. Before making application to the court under
subsection (18) or not later than seven days after receiving notice of an
application to the court under subsection (19), as the case may be, a
corporation shall give notice to each dissenting shareholder who, at the date
upon which the notice is given,
(a) has sent to the corporation the notice referred to in subsection
(10); and
(b) has not accepted an offer made by the corporation under subsection
(15), if such an offer was made,
of the date, place and consequences of the application and of the dissenting
shareholder's right to appear and be heard in person or by counsel, and a
similar notice shall be given to each dissenting shareholder who, after the date
of such first mentioned notice and before termination of the proceedings
commenced by the application, satisfies the conditions set out in clauses (a)
and (b) within three days after the dissenting shareholder satisfies such
conditions.
(23) Parties joined. All dissenting shareholders who satisfy the
conditions set out in clauses (22)(a) and (b) shall be deemed to be joined as
parties to an application under subsection (18) or (19) on the later of the date
upon which the application is brought and the date upon which they satisfy the
conditions, and shall be bound by the decision rendered by the court in the
proceedings commenced by the application.
E-3
(24) Idem. Upon an application to the court under subsection (18) or (19),
the court may determine whether any other person is a dissenting shareholder who
should be joined as a party, and the court shall fix a fair value for the shares
of all dissenting shareholders.
(25) Appraisers. The court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(26) Final order. The final order of the court in the proceedings
commenced by an application under subsection (18) or (19) shall be rendered
against the corporation and in favor of each dissenting shareholder who, whether
before or after the date of the order, complies with the conditions set out in
clauses (22)(a) and (b).
(27) Interest. The court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(28) Where corporation unable to pay. Where subsection (30) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (26), notify each dissenting shareholder that is unable lawfully to
pay dissenting shareholders for their shares.
(29) Idem. Where subsection (30) applies, a dissenting shareholder, by
written notice sent to the corporation within thirty days after receiving a
notice under subsection (28), may,
(a) withdraw a notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder's full
rights are reinstated; or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors of
the corporation but in priority to its shareholders.
(30) Idem. A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that,
(a) the corporation is or, after the payment, would be unable to pay its
liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
(31) Court order. Upon application by a corporation that proposes to take
any of the actions referred to in subsection (1) or (2), the court may, if
satisfied that the proposed action is not in all the circumstances one that
should give rise to rights arising under subsection (4), by order declare that
those rights will not arise upon the taking of the proposed action, and the
order may be subject to compliance upon such terms and conditions as the court
thinks fit and, if the corporation is an offering corporation, notice of any
such application and a copy of any order made by the court upon such application
shall be served upon the Commission.
(32) Commission may appear. The Commission may appoint counsel to assist
the court upon the hearing of an application under subsection (31), if the
corporation is an offering corporation.
E-4
APPENDIX F
TLC SHAREHOLDERS RESOLUTIONS
TLC LASER EYE CENTERS INC.
RESOLUTION NO. 1
Resolved as a special resolution that:
1. the transactions contemplated by the Agreement and Plan of Merger (the
"Merger Agreement"), a copy of which is attached as Appendix A to the
joint proxy statement/prospectus of TLC Laser Eye Centers Inc. ("TLC") and
Laser Vision Centers, Inc. ("LaserVision") dated _____________________,
2001, by and between TLC, LaserVision and TLC Acquisition II Corp. dated
as of August 25, 2001, pursuant to which TLC Acquisition II Corp., a
wholly owned subsidiary of TLC, will merge (the "Merger") with LaserVision
are hereby approved;
2. the Merger Agreement is hereby approved;
3. the board of directors of TLC is hereby authorized to revoke this special
resolution at any time prior to the Merger becoming effective without
further approval of the shareholders of TLC and to determine not to
proceed with the Merger; and
4. any director or proper officer of TLC is hereby authorized and directed
for and in the name of and on behalf of TLC to execute, whether under the
corporate seal of TLC or otherwise, and to deliver, all such documents,
instruments and other writings, including articles of amalgamation in
prescribed form, and to perform and do all such other acts and things, as
in the opinion of such director or officer may be necessary or desirable
in order to implement the Merger or otherwise to give effect to the
foregoing resolution or the matters contemplated thereby and by the Merger
Agreement.
F-1
TLC LASER EYE CENTERS INC.
RESOLUTION NO. 2
Resolved as a special resolution that:
1. TLC Laser Eye Centers Inc. ("TLC") is hereby authorized to amend its
articles of incorporation to change the name of TLC to "TLC Vision
Corporation";
2. the board of directors of TLC is hereby authorized to revoke this
resolution and to determine not to proceed with the change of name without
the further approval of the shareholders of TLC; and
3. any director or proper officer of TLC is hereby authorized and directed
for and in the name of and on behalf of TLC to execute, whether under the
corporate seal of TLC or otherwise, and to deliver, all such documents,
instruments and other writings, including the filing of articles of
amendment, and to perform and do all such other acts and things, as in the
opinion of such director or officer may be necessary or desirable in order
to implement the name change or otherwise to give effect to the foregoing
resolution or the matters contemplated thereby.
F-2
TLC LASER EYE CENTERS INC.
RESOLUTION NO. 3
Resolved as a special resolution that:
1. TLC Laser Eye Centers Inc. ("TLC") is hereby authorized to apply for a
certificate of continuance continuing TLC as a body corporate under the
laws of the province of New Brunswick (the "Continuance");
2. TLC is authorized to make application to the Director under the Business
Corporations Act (Ontario) for the Director's authorization to permit the
Continuance;
3. the articles of continuance, which shall be substantially in the form of
the articles (the "Articles of Continuance") contained in Appendix D to
the joint proxy statement/prospectus of TLC and Laser Vision Centers, Inc.
dated _____________________, 2001, are hereby approved;
4. upon the continuance becoming effective and without affecting the validity
of the existence of TLC or of any act done under its articles, the
articles of TLC be replaced by the Articles of Continuance;
5. subject to the issuance of a certificate of continuance and without
affecting the existence of TLC under its currently effective articles and
by-laws and any act done thereunder, By-Law 2001, a General By-Law
conforming to the requirements of the Business Corporations Act (New
Brunswick), a copy of which appears in Appendix D to the joint proxy
statement/prospectus, adopted by the board of directors of TLC, is hereby
approved and confirmed.
6. the board of directors of TLC is hereby authorized to revoke this
resolution and to abandon the application for the certificate of
continuance at any time prior to the issue thereof without further
approval of the shareholders of TLC; and
7. any director or proper officer of TLC is hereby authorized and directed
for and in the name of and on behalf of TLC to execute, whether under the
corporate seal of TLC or otherwise, and to deliver, all such documents,
instruments and other writings, including the application for
authorization to continue under the laws of the province of New Brunswick
and the filing of articles of continuance in prescribed form, and to
perform and do all such other acts and things, as in the opinion of such
director or officer may be necessary or desirable in order to implement
the Continuance or otherwise to give effect to the foregoing resolution or
the matters contemplated thereby.
F-3
TLC LASER EYE CENTERS INC.
RESOLUTION NO. 4
Resolved as a special resolution that:
1. TLC Laser Eye Centers Inc. ("TLC") is hereby authorized to amend the
articles of TLC to increase the maximum number of directors from ten to
fifteen directors; and
2. any director or proper officer of TLC is hereby authorized and directed
for and in the name of and on behalf of TLC to execute, whether under the
corporate seal of TLC or otherwise, and to deliver, all such documents,
instruments and other writings, including the filing of articles of
amendment, and to perform and do all such other acts and things, as in the
opinion of such director or officer may be necessary or desirable in order
to implement the increase in the maximum number of directors or otherwise
to give effect to the foregoing resolution or the matters contemplated
thereby.
F-4
TLC LASER EYE CENTERS INC.
RESOLUTION NO. 5
Resolved that:
1. TLC Laser Eye Centers Inc. ("TLC") is hereby authorized to allow the
holders of outstanding options (the "Options") to purchase common shares
of TLC with an exercise price of greater than $8.688 to elect to reduce
the exercise price of their Options to $8.688 by surrendering a number of
the existing TLC common shares subject to each repriced Option as follows:
(i) for every Option with an exercise price of greater than $40, the
holder must surrender 75% of the TLC common shares subject to such
Option;
(ii) for every Option with an exercise price of at least $30 but less
than $40, the holder must surrender two-thirds of the TLC common
shares subject to such Option; and
(iii) for every Option with an exercise price of at least $20 but less
than $30, the holder must surrender 50% of the TLC common shares
subject to such Option.
Every Option with an exercise price of at least $8.688 but less than $20,
will be repriced at $8.688 without the holder having to surrender any of
the TLC common shares subject to such Option; and
2. any director or proper officer of TLC is hereby authorized and directed
for and in the name of and on behalf of TLC to execute, whether under the
corporate seal of TLC or otherwise, and to deliver all such documents,
instruments and other writings and to perform and do all such other acts
and things, as in the opinion of such director or officer may be necessary
or desirable in order to implement or otherwise give effect to the
foregoing resolution or the matters contemplated thereby.
F-5
APPENDIX G
AUDIT COMMITTEE
TERMS OF REFERENCE OF TLC LASER EYE CENTERS INC.
DEFINITIONS
"Outside Director" means a Director who is not an Officer or employee of the
Corporation or its Affiliates.
"Unrelated Director" means a Director who is independent from management and is
free from any interest and any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the Director's
ability to act with a view to the best interests of the Corporation, other than
interests arising from shareholding.
OBJECTIVES
The main objectives of the Audit Committee are to oversee:
o The Corporation's financial reporting process and consider and make
recommendations to the Board regarding the preparation, integrity and fair
presentation of financial statements.
o The establishment and maintenance of a system of internal control designed
to provide reasonable assurance that assets are safeguarded and reliable,
timely financial information is produced.
o The management of the Corporation's financial affairs in compliance with
applicable laws and regulations and the maintenance of proper standards of
conduct.
STRUCTURE
o The Audit Committee shall be composed of three Outside Directors.
o Members of the Audit Committee shall serve for a one-year term, unless
they resign, and may serve consecutive terms.
o The Chairperson and the Secretary of the Audit Committee shall be
appointed by the Audit Committee members.
o A quorum at meetings of the Audit Committee shall be two members.
o The Audit Committee shall establish its own procedures, including the time
and place of meetings and such other procedures as it considers necessary
or advisable.
RESPONSIBILITIES
The responsibilities of the Audit Committee are to:
1. Meet on a regular quarterly basis (in person or by telephone conference).
Special meetings should be authorized at the request of any member of the
Audit Committee or at the request of the external or internal auditors or
senior members of management. The external auditors should be expected to
attend all meetings of the Audit Committee, unless informed otherwise by
the Chair of the Audit Committee. At each meeting, provision should be
made to meet privately with management and with the external auditors.
G-1
2. Keep the full Board informed of the Audit Committee's activities by
providing a written report following each Audit Committee Meeting. Minutes
of all meetings should be prepared by the Audit Committee's Secretary, to
be filed in the corporate records.
3. Review all published financial statements that require approval by the
Board. These would include year end audited statements, and any additional
financial statements required in prospectuses or by regulatory
authorities.
4. Review any report of management that accompanies published financial
statements (at least to the extent that such a report discusses the
financial position or operating results) for consistency of disclosure
with the financial statements themselves.
5. Review the audit plans of the internal and external auditors, including
the degree of coordination between the plans of the internal and external
auditors where appropriate. The Audit Committee should inquire into the
extent to which the planned audit scope can be relied upon to detect
weaknesses in internal control or fraud or other illegal acts. Any
significant recommendations made to management by auditors for the
strengthening of internal controls should be reviewed.
6. Agree with the external auditors on the basis for measuring the external
auditors' performance in delivering value through the audit process, and
should subsequently review their performance in delivering this value.
7. With input from both the external and internal auditors, assess
management's programs and policies regarding the adequacy and
effectiveness of internal controls over the accounting and financial
reporting systems of the Corporation.
8. Review the results of the internal and external auditors and any changes
in accounting practices or policies and the financial statement impact
thereof. In addition, the Audit Committee should review any accruals,
provisions or estimates that have a significant effect upon the financial
statements, as well as other sensitive matters such as measurement and
disclosure of related-party transactions.
9. Review with management, the external auditors and, if necessary, with
legal counsel, any litigation, claim or other contingency, including tax
assessments, that could have a material effect upon the financial position
or operating results of the Corporation, and the manner in which these
matters have been disclosed in the financial statements.
10. Review policies and practices concerning regular examination of officers'
expenses and perquisites, including the personal use of Corporation
assets, and inquire as to the results of these examinations, whether
performed internally or by the external auditors.
11. Ascertain whether the Corporation has effective processes for assessing
the risk of material misstatements in the Corporation's financial
statement.
12. Consider any other matter that in its judgment should be taken into
account in reaching its recommendation to the Board concerning the
approval of the financial statements.
13. Determine annually whether the external auditors should be reappointed and
recommend accordingly to the Board. If necessary, inquire as to the
reasons if a change in external auditors is proposed, including the
response of the incumbent auditors, and should inquire as to the
qualifications of the newly proposed auditors before making its
recommendation to the Board.
14. Review annually the responsibilities of the Audit Committee.
G-2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As Of December 31, 2000 And 1999
Together With Report Of Independent Public Accountants
H - 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
ClearVision Laser Centers, Inc.:
We have audited the consolidated balance sheets of CLEARVISION LASER CENTERS,
INC. (a Nevada corporation) AND SUBSIDIARIES as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ClearVision Laser
Centers, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Arthur Andersen LLP
Denver, Colorado,
March 9, 2001.
H - 2
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,262,986 $ 6,012,550
Trade accounts receivable, net of allowance for doubtful
accounts of $1,711,000 and $1,067,000, respectively 522,512 1,687,044
Other receivables 312,998 --
Prepaid royalty cards 254,050 1,087,320
Deferred tax asset -- 616,000
Other current assets 210,693 398,812
------------ ------------
Total current assets 2,563,239 9,801,726
PROPERTY AND EQUIPMENT: 19,166,810 17,333,767
Less-accumulated depreciation and amortization (12,036,452) (7,515,511)
------------ ------------
Property and equipment, net 7,130,358 9,818,256
------------ ------------
OTHER NON-CURRENT ASSETS:
Non-compete agreements, less accumulated amortization of
$556,772 and $375,256, respectively -- 389,781
Goodwill, less accumulated amortization of $257,039 and
$139,934, respectively -- 602,266
Investments in unconsolidated affiliates 459,032 347,737
Deferred tax assets -- 2,567,000
Other non-current assets 243,555 157,547
------------ ------------
Total other non-current assets 702,587 4,064,331
------------ ------------
TOTAL ASSETS $ 10,396,184 $ 23,684,313
============ ============
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
H - 3
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2000 1999
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 3,954,087 $ 5,260,580
Patient deposits 106,591 84,526
Accrued interest payable 149,969 108,941
Accrued expenses 906,970 924,992
Current maturities of revolving lines
of credit and notes payable - affiliate (Note 4) 382,808 106,950
Current maturities of long-term debt and capitalized
lease obligations (Notes 7 and 8) 4,831,893 2,565,306
Other current liabilities 158,685 --
------------ ------------
Total current liabilities 10,491,003 9,051,295
------------ ------------
LONG-TERM LIABILITIES:
Revolving lines of credit- affiliate (Note 4) -- 69,841
Notes payable - related parties (Notes 4 and 11) 1,544,572 --
Bank line of credit and other long-term debt (Note 7) 20,457 1,574,564
Capitalized lease obligations (Notes 4 and 8) 364,154 1,828,089
------------ ------------
Total long-term liabilities 1,929,183 3,472,494
------------ ------------
SERIES A-1 REDEEMABLE PREFERRED STOCK (Note 10) 21,780,526 19,367,010
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY -- 449,869
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 14)
STOCKHOLDERS' EQUITY (DEFICIT):
Series A-2 convertible preferred stock, no par value, 20,000,000
shares authorized; 4,205,474 shares issued and outstanding 27,468,024 27,468,024
Common stock, $.001 par value; 72,000,000 shares authorized;
2,220,271 and 2,181,521 shares issued and 2,074,021 and
2,035,271 shares outstanding, respectively 2,220 2,182
Additional paid-in capital (deficit) (32,984,757) (33,149,040)
Warrants outstanding 3,056,797 3,007,684
Common stock held in treasury, at cost (146,250 shares) (1,302,300) (1,302,300)
Accumulated deficit (20,044,512) (4,682,905)
------------ ------------
Total stockholders' equity (deficit) (23,804,528) (8,656,355)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 10,396,184 $ 23,684,313
============ ============
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
H - 4
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
REVENUE:
Professional medical services revenue, net $ 28,295,530 $ 38,294,939 $ 27,092,191
Other revenue 820,968 651,681 7,413
------------ ------------ ------------
Total revenue 29,116,498 38,946,620 27,099,604
COST OF REVENUE:
Royalty fees and medical supplies 7,572,473 13,022,810 9,274,556
Salaries and wages 5,045,597 4,360,206 2,165,778
Depreciation and amortization 5,261,868 3,924,327 2,573,861
Other cost of revenue 5,493,282 5,247,961 2,690,452
------------ ------------ ------------
Total cost of revenue 23,373,220 26,555,304 16,704,647
------------ ------------ ------------
Gross profit 5,743,278 12,391,316 10,394,957
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and wages (exclusive of compensation
expense - recapitalization shown below) 6,818,391 5,193,463 2,427,162
Compensation expense - Recapitalization (Note 11) 79,459 3,821,168 --
Advertising and marketing 3,515,567 3,482,214 2,480,685
Depreciation and amortization 410,750 243,681 104,970
Asset impairment (Note 2) 683,131 -- --
Restructuring costs 748,403 -- --
Other selling, general and administrative 2,826,174 2,566,241 1,596,784
------------ ------------ ------------
Total selling, general and administrative
expenses 15,081,875 15,306,767 6,609,601
------------ ------------ ------------
Income (loss) from operations (9,338,597) (2,915,451) 3,785,356
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Equity in income of investees, net 230,982 172,762 123,980
Minority interest -- (414,483) (186,015)
Interest expense - affiliate (310,575) (430,373) (737,885)
Other interest expense (497,755) (419,569) (313,907)
Other income, net 154,158 132,185 26,857
------------ ------------ ------------
Total other income (expenses) (423,190) (959,478) (1,086,970)
------------ ------------ ------------
Income (loss) before income taxes (9,761,787) (3,874,929) 2,698,386
Income tax (expense) benefit (3,186,303) 1,635,000 777,000
------------ ------------ ------------
NET INCOME (LOSS) (12,948,090) (2,239,929) 3,475,386
DIVIDENDS AND ACCRETION OF
REEDEMABLE PREFERRED STOCK (2,413,517) (1,041,610) --
------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK $(15,361,607) $ (3,281,539) $ 3,475,386
============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic $ (6.95) $ (0.93) $ 0.72
============ ============ ============
Diluted $ (6.95) $ (0.93) $ 0.64
============ ============ ============
The accompanying notes to financial statements are an
integral part of these consolidated statements.
H - 5
Page 1 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A
Common Stock Preferred Stock
------------------- ---------------
Shares Amount Shares Amount Warrants
--------- ------ ------- ---- ----------
BALANCE, December 31, 1997 4,696,916 $4,697 103,093 $103 $ 979,045
Sale of common stock 10,000 10 -- -- --
Exercise of stock options 325 -- -- -- --
Exercise of warrants by non-
employees (Note 12) 84,000 84 -- -- (8,641)
Shares issued in exchange for
equipment 1,867 2 -- -- --
Warrants cancelled or forfeited -- -- -- -- (24,149)
Non-cash compensation from stock
options (Note 12) -- -- -- -- --
Warrants issued to non-employees -- -- -- -- --
Issuance of common stock in
connection with acquisition
of business (Note 3) 25,000 25 -- -- --
Issuance of common stock in
connection with non-
compete agreement (Note 6) 7,994 8 -- -- --
Warrants issued in connection
with acquisition of business
(Note 3) -- -- -- -- 79,800
Repurchase of common stock
(56,250 shares) (Note 4) -- -- -- -- --
Net income -- -- -- -- --
--------- ------ ------- ---- ----------
BALANCE, December 31, 1998 4,826,102 $4,826 103,093 $103 $1,026,055
========= ====== ======= ==== ==========
Additional
Paid-in Treasury Accumulated
Capital Stock Deficit Total
---------- --------- ----------- ----------
BALANCE, December 31, 1997 $3,499,636 $ -- $(4,876,752) $ (393,271)
Sale of common stock 49,990 -- -- 50,000
Exercise of stock options 1,300 -- -- 1,300
Exercise of warrants by non-
employees (Note 12) 113,621 -- -- 105,064
Shares issued in exchange for
equipment 13,998 -- -- 14,000
Warrants cancelled or forfeited 24,149 -- -- --
Non-cash compensation from stock
options (Note 12) 48,725 -- -- 48,725
Warrants issued to non-employees 69,986 -- -- 69,986
Issuance of common stock in
connection with acquisition
of business (Note 3) 124,975 -- -- 125,000
Issuance of common stock in
connection with non-
compete agreement (Note 6) 39,962 -- -- 39,970
Warrants issued in connection
with acquisition of business
(Note 3) -- -- -- 79,800
Repurchase of common stock
(56,250 shares) (Note 4) -- (225,000) -- (225,000)
Net income -- -- 3,475,386 3,475,386
---------- --------- ----------- ----------
BALANCE, December 31, 1998 $3,986,342 $(225,000) $(1,401,366) $3,390,960
========== ========= =========== ==========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
H - 6
Page 2 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A Series A-2
Common Stock Preferred Stock Preferred Stock
---------------------- ------------------ -------------------------
Shares Amount Shares Amount Shares Amount
---------- ------- -------- ------ --------- ------------
BALANCE, December 31, 1998 4,826,102 $ 4,826 103,093 $ 103 -- $ --
Recapitalization (Note 11)-
Conversion of promissory
notes to common stock 76,666 77 -- -- -- --
Conversion of preferred
stock into common stock 103,000 103 (103,093) (103) -- --
Issuance of series A-2
preferred stock, net
of offering costs of
$1,248,639 -- -- -- -- 3,787,764 25,947,506
Acquisition of common
stock (3,088,877) (3,089) -- -- -- --
Cash settlement of warrants -- -- -- -- -- --
Warrants issued to non-
employees -- -- -- -- -- (1,478,647)
Warrants issued to employees -- -- -- -- -- --
Warrants issued to non-
employees (Note 12) -- -- -- -- -- --
Exercise of warrants by non-
employees, including tax
benefit of $649,000 261,750 262 -- -- -- --
Non-cash compensation from
stock options (Note 12) -- -- -- -- -- --
Exercise of stock options 2,880 3 -- -- -- --
Management and Services
Agreement (Note 4) -
Common stock reacquired
(90,000 shares) -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- --
Warrants cancelled or forfeited -- -- -- -- -- --
Sale of Series A-2 preferred stock -- -- -- -- 417,710 2,999,165
Dividends and accretion of
redeemable preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------- -------- ----- --------- ------------
BALANCE, December 31, 1999 2,181,521 $ 2,182 -- $ -- 4,205,474 $ 27,468,024
========== ======= ======== ===== ========= ============
Additional
Paid-in Treasury Accumulated
Warrants Capital Stock Deficit Total
----------- ------------ ----------- ----------- ------------
BALANCE, December 31, 1998 $ 1,026,055 $ 3,986,342 $ (225,000) $(1,401,366) $ 3,390,960
Recapitalization (Note 11)-
Conversion of promissory
notes to common stock -- 229,923 -- -- 230,000
Conversion of preferred
stock into common stock -- -- -- -- --
Issuance of series A-2
preferred stock, net
of offering costs of
$1,248,639 -- -- -- -- 25,947,506
Acquisition of common
stock -- (36,970,767) -- -- (36,973,856)
Cash settlement of warrants (756,209) (2,242,554) -- -- (2,998,763)
Warrants issued to non-
employees 2,465,097 -- -- -- 986,450
Warrants issued to employees 84,825 -- -- -- 84,825
Warrants issued to non-
employees (Note 12) 55,220 -- -- -- 55,220
Exercise of warrants by non-
employees, including tax
benefit of $649,000 (195,527) 1,785,375 -- -- 1,590,110
Non-cash compensation from
stock options (Note 12) -- 44,232 -- -- 44,232
Exercise of stock options -- 15,883 -- -- 15,886
Management and Services
Agreement (Note 4) -
Common stock reacquired
(90,000 shares) -- -- (1,077,300) -- (1,077,300)
Issuance of warrants 332,190 -- -- -- 332,190
Warrants cancelled or forfeited (3,967) 2,526 -- -- (1,441)
Sale of Series A-2 preferred stock -- -- -- -- 2,999,165
Dividends and accretion of
redeemable preferred stock -- -- -- (1,041,610) (1,041,610)
Net loss -- -- -- (2,239,929) (2,239,929)
----------- ------------ ----------- ----------- ------------
BALANCE, December 31, 1999 $ 3,007,684 $(33,149,040) $(1,302,300) $(4,682,905) $ (8,656,355)
=========== ============ =========== =========== ============
The accompanying notes to financial statements
are an integral part of these consolidated statements.
H - 7
Page 3 of 3
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Series A Series A-2
Common Stock Preferred Stock Preferred Stock
------------------- ------------------- ------------------------
Shares Amount Shares Amount Shares Amount
--------- ------ ------ ------ --------- -----------
BALANCE, December 31, 1999 2,181,521 $2,182 -- $ -- 4,205,474 $27,468,024
Warrants issued to employees and
Non-employees (Note 12) -- -- -- -- -- --
Exercise of warrants by non-
employees 3,950 3 -- -- -- --
Warrants exercised in exchange
for $100,000 promissory note 25,000 25 -- -- -- --
Exercise of stock options 9,800 10 -- -- -- --
Non-cash compensation from
stock options -- -- -- -- -- --
Warrants cancelled or forfeited -- -- -- -- -- --
Dividends and accretion of
redeemable preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ------ ------ --------- -----------
BALANCE, December 31, 2000 2,220,271 $2,220 -- $ -- 4,205,474 $27,468,024
========= ====== ====== ====== ========= ===========
Additional
Paid-in Treasury Accumulated
Warrants Capital Stock Deficit Total
----------- ------------ ----------- ------------ ------------
BALANCE, December 31, 1999 $ 3,007,684 $(33,149,040) $(1,302,300) $ (4,682,905) $ (8,656,355)
Warrants issued to employees and
Non-employees (Note 12) 132,064 -- -- -- 132,064
Exercise of warrants by non-
employees -- 18,922 -- -- 18,925
Warrants exercised in exchange
for $100,000 promissory note (17,448) 17,423 -- -- --
Exercise of stock options -- 48,490 -- -- 48,500
Non-cash compensation from
stock options -- 37,500 -- -- 37,500
Warrants cancelled or forfeited (65,503) 41,948 -- -- (23,555)
Dividends and accretion of
redeemable preferred stock -- -- -- (2,413,517) (2,413,517)
Net loss -- -- -- (12,948,090) (12,948,090)
----------- ------------ ----------- ------------ ------------
BALANCE, December 31, 2000 $ 3,056,797 $(32,984,757) $(1,302,300) $(20,044,512) $(23,804,528)
=========== ============ =========== ============ ============
The accompanying notes to financial statements
are an integral part of these consolidated statements
H - 8
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(12,948,090) $(2,239,929) $ 3,475,386
Adjustments to reconcile net income (loss) to net
cash from operating activities-
Amortization of non-compete agreements
and goodwill 298,621 333,681 299,962
Depreciation and amortization 5,373,997 3,834,327 2,353,779
Allowance for doubtful accounts 644,317 437,534 240,000
Asset impairment 683,131 -- --
Equity in income of investees (230,982) (172,762) (123,980)
Loss on disposal of fixed assets 40,885 -- --
Gain from Management and Services Agreement
(Note 4) (294,160) (235,327) --
Warrants issued to non-employees 29,050 55,220 69,986
Non-cash compensation for employee warrants 79,459 83,385 --
Non-cash compensation for employee options 37,500 44,232 48,725
Minority interest -- 414,483 186,015
Deferred tax provision (benefit) 3,183,000 (1,527,000) (1,007,000)
Distributions from unconsolidated affiliates 115,887 151,259 72,586
Effect of changes in operating assets and liabilities-
Trade accounts receivable 520,215 (791,317) (1,017,567)
Other receivables (312,998) -- --
Prepaid royalty cards 833,270 (320,710) (263,355)
Other current assets 188,119 (62,032) (300,700)
Other non-current assets (86,008) (43,111) (72,301)
Accounts payable (1,306,493) 2,247,395 1,554,779
Patient deposits 22,065 (61,890) 57,510
Accrued interest payable 41,028 (23,013) (49,893)
Accrued expenses 434,824 (177,491) 582,148
------------ ----------- -----------
Net cash provided by (used in) operating activities (2,653,363) 1,946,934 6,106,080
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable - related party -- 52,666 --
Purchase of property and equipment, net (1,944,271) (5,372,446) (3,421,267)
Sale of property and equipment 166,000 -- --
Distribution from unconsolidated affiliates 3,800 69,472 176,136
Purchase of Laser Northwest -- (803,135) --
Purchase of minority interest in subsidiary (439,575) -- --
------------ ----------- -----------
Net cash used in investing activities (2,214,046) (6,053,443) (3,245,131)
------------ ----------- -----------
The accompanying notes to financial statements are
an integral part of these consolidated statements.
H - 9
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Recapitalization transaction-
Proceeds from issuance of Series A-1 Redeemable
Preferred Stock $ -- $ 18,143,390 $ --
Proceeds from issuance of Series A-2 Convertible
Preferred Stock -- 27,196,146 --
Transaction costs from the issuance of
preferred stock -- (2,081,030) --
Cash redemption of common stock -- (36,973,856) --
Cash redemption of warrants -- (2,998,763) --
Proceeds from line of credit -- 1,090,000 --
Proceeds from notes payable - related parties 909,000 -- --
Net repayments under working capital
lines of credit and other payables - affiliate (107,124) (482,485) (270,594)
Payments on notes payable -- -- (391,338)
Proceeds from long-term debt 3,211,318 -- 1,969,141
Payments on long-term debt and capital
lease obligations (3,962,774) (2,372,264) (1,951,874)
Proceeds from issuance of common stock -- -- 50,000
Purchase of treasury stock -- -- (225,000)
Proceeds from exercise of options 48,500 15,886 1,300
Proceeds from exercise of warrants 18,925 941,110 105,064
Distribution to minority interest -- (150,629) --
Sale of Series A-1 and A-2 preferred stock -- 5,000,000 --
----------- ------------ -----------
Net cash provided by (used in) financing activities 117,845 7,327,505 (713,301)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,749,564) 3,220,996 2,147,648
CASH AND CASH EQUIVALENTS, beginning of year 6,012,550 2,791,554 643,906
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,262,986 $ 6,012,550 $ 2,791,554
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the year $ 767,301 $ 768,372 $ 1,001,899
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease
obligations and notes payable $ 948,713 $ 2,956,800 $ 583,687
=========== ============ ===========
Common stock issued in connection with
non-compete agreement (Note 6) $ -- $ -- $ 39,970
=========== ============ ===========
Common stock issued in connection with
acquisition of businesses (Note 3) $ -- $ -- $ 125,000
=========== ============ ===========
Warrants issued in connection with acquisition
of a business (Note 6) $ -- $ -- $ 79,800
=========== ============ ===========
Common stock issued in exchange for equipment $ -- $ -- $ 14,000
=========== ============ ===========
Conversion of promissory notes to common stock $ -- $ 230,000 $ --
=========== ============ ===========
Accretion of Series A-1 Preferred Stock $ 255,605 $ 133,023 $ --
=========== ============ ===========
Accrued dividends on Series A-1 Preferred Stock $ 1,105,272 $ 908,587 $ --
=========== ============ ===========
Dividend issue of Series A-1 Preferred Stock $ 1,961,226 $ -- $ --
=========== ============ ===========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
H - 10
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999
1. NATURE OF ORGANIZATION:
ClearVision Laser Centers, Inc. (together with its subsidiaries, the "Company"),
a Nevada corporation, was established in 1995 to develop and operate excimer
laser vision correction centers throughout the United States. The Company's
current operations are concentrated in the West Coast, Rocky Mountain, Midwest
and Southern regions of the United States. The Company contracts with
independent ophthalmologists and optometrists ("doctors") for the use of its
centers. The excimer laser can be used to treat refractive optical disorders
such as nearsightedness, farsightedness and astigmatism to eliminate or reduce
the need for corrective lenses. For each of its owned centers, the Company
manages the daily operations and provides all of the necessary services and
equipment, other than those professional services performed by a doctor. In
addition, the Company provides a broad range of related services, including
doctor and staff training, technical support services and maintenance, and
advertising and marketing programs and services.
Risks and Uncertainties
The Company competes with several other providers of fixed-site and mobile laser
centers. The viability of the Company is dependent upon, among other things, the
Company's ability to attract and retain commitments of doctors who perform laser
vision correction procedures, and its ability to obtain new or enhanced medical
devices or advanced technology as it is developed. The Company and its
operations are subject to numerous federal, state and local laws, rules and
regulations, many of which are subject to varying interpretations. As a result,
the potential reach of the laws is uncertain, and some of the Company's
activities could be challenged, which could require changes to certain of the
Company's legal or fee structure or curtailment of certain of its business
activities.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. However, since its inception and
through December 31, 2000, the Company has generated net losses totaling
$16,589,385, including net losses of $12,948,090 and $2,239,929 for the years
ended December 31, 2000 and 1999, respectively. Additionally, the Company had a
net use of cash from operations of $2,653,363 for the year ended December 31,
2000.
The laser vision correction industry has experienced a significant increase in
competition, including competition from discount providers, which has had a
material negative impact on the Company's results of operations. Beginning in
the third quarter of 2000, management has implemented significant cost saving
measures, including a reduction in the Company's workforce and consolidation of
Company facilities. The Company incurred $748,403 for severance payments, the
closure of under-performing sites and the elimination of excess lease space,
which is reflected as restructuring costs in the
H - 11
accompanying statement of operations for the year ended December 31, 2000.
Management continues to evaluate and implement additional cost reduction
measures.
H - 12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities, as well as the reported amounts of revenue and expenses.
Actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of ClearVision Laser
Centers, Inc. and its wholly and majority-owned subsidiaries. The 44.6% interest
in one subsidiary that was not owned by the Company as of December 31, 1999, is
presented as a minority interest in the accompanying consolidated financial
statements. Effective January 1, 2000, the Company acquired the minority
interest for $439,575. The $10,294 book value of the minority interest in excess
of the purchase price was recorded as a reduction of goodwill. All significant
intercompany accounts and transactions have been eliminated.
ClearVision does not have any ownership interest in, and does not consolidate
the accounts of, any medical practices that contract for the use of its laser
vision correction centers.
Investments in Unconsolidated Affiliates
The Company accounts for its investments in less than 50% owned entities using
the equity method of accounting. Under the equity method of accounting, the
Company recognizes, in its financial statements, its proportionate share of the
income and losses of each investee. The Company's investment balances represent
its initial investments, adjusted for its proportionate share of the investees'
income or losses and distributions received from the investees. The Company's
investments consist of the following (together, "the LeaseCos"):
Colorado Excimer Leasing-1, CEL, a limited liability company, was
LLC formed in February 1995. As of December
31, 2000, 1999 and 1998, the Company
owned a 37.3% interest in CEL.
Utah Excimer Leasing, LLC UEL, a limited liability company, was
formed in September 1995. As of December
31, 2000, 1999 and 1998, the Company
owned a 49.1% interest in UEL.
Southern Colorado Excimer SCEL, a limited liability company, was
Leasing, LLC formed in October 1995. As of December
31, 2000, 1999 and 1998, the Company
owned an 18% interest in SCEL.
The LeaseCos were formed primarily to raise capital for the acquisition of
lasers and other equipment used by the Company. The ownership interest in each
of the LeaseCos that is not held by the Company is held by certain individual
doctors who utilize the Company's centers. The LeaseCos obtained third-party
lease financing for lasers and other equipment which were then leased to the
Company for use in its centers (Note 4).
H - 13
The following table summarizes financial information for the LeaseCos, for the
years ended December 31, 2000, 1999 and 1998, respectively:
2000 1999 1998
---------- ---------- ----------
Rental Income $ 735,393 $ 994,012 $1,533,237
Interest Income 33,933 169,857 95,162
Interest Expense 23,267 110,849 193,671
Net Income 577,786 479,744 490,268
Total Assets 1,342,091 1,071,489 2,395,307
Capitalized Lease Obligations -- 263,672 1,169,453
Total Members' Capital 1,134,895 581,689 902,593
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents are composed of money
market funds, which are stated at cost and approximate market.
Trade Accounts Receivable
Trade accounts receivable consists of amounts due from doctors for their use of
the Company's centers, or from insurance companies in cases where the Company
performs billing services on behalf of the doctors, net of an estimate of
uncollectable amounts. The amount of insurance claims receivable, which will be
remitted to the doctors only upon collection by the Company, is included in
accounts payable. The Company does not require collateral on its trade
receivables.
Prepaid Royalty Cards
Prepaid royalty cards consist of cards necessary to use the Company's excimer
lasers. The cost of these cards is charged to royalty fees expense as they are
used.
Property and Equipment
Property and equipment, including assets acquired under capital leases, consists
principally of lasers and other medical equipment and is stated at cost.
Expenditures for repairs and maintenance are expensed as incurred. Depreciation
and amortization are computed utilizing the straight-line method over estimated
useful lives or, in the case of leasehold improvements, over the shorter of the
estimated useful lives or the remaining lease term.
Goodwill
The Company recorded goodwill in connection with the acquisitions of the
minority interests in certain consolidated subsidiaries, its interest in CEL and
certain other acquisitions. Amortization is recorded on a straight-line basis,
generally over periods of three to fifteen years (Note 3).
H - 14
Non-compete Agreements
The Company has entered into non-compete agreements with certain doctors (Notes
3, 4 and 6). The cost of each non-compete agreement is amortized over the
estimated period of benefit, typically three to five years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable from future undiscounted cash flows. Impairment losses are recorded
for the difference between the carrying value and the fair value of the
long-lived asset. Due to the factors described in Note 1 (Liquidity and Capital
Resources), management evaluated the carrying value of its long-lived assets and
recorded an impairment in 2000 of $683,131 related to its non-compete agreements
and goodwill. These intangible assets were evaluated in combination with, and
based on, the fair value of related long-lived assets. The estimated fair values
of the Company's long-lived assets were based on recent market transactions.
Revenue
Professional medical services revenue represents fees, less discounts, earned
for a doctor's use of the Company's laser vision correction centers and related
services. Revenue is recognized at the time a doctor performs a laser vision
correction procedure and is presented net of professional medical services fees
collected on behalf of, and paid to, the independent doctors. Beginning in 1999,
the Company has amended its agreements with doctors to provide that the Company
receives a fixed fee per procedure performed by the doctors rather than a
variable percentage of the procedure fee charged to the patient.
Other revenue includes revenue received from the sale of marketing materials and
other miscellaneous sources and management services revenue.
Cost of Revenue
Cost of revenue includes expenses directly related to the operation of the laser
vision correction centers, including royalty fees, medical supplies, salaries
and wages, depreciation and amortization, including amortization of non-compete
agreements and other expenses. Other cost of revenue includes costs related to
the operation and occupancy of the laser vision correction centers, such as
rent, utilities and office supplies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses that are not
directly related to the operation of the laser vision correction centers,
including salaries and wages, advertising and marketing expenses, depreciation
and amortization, training and contract labor. Advertising and marketing costs
are expensed as incurred.
Income Taxes
The Company uses the liability method for measuring and recognizing income
taxes. Deferred income tax assets and liabilities are recognized for the
expected future income tax consequences of temporary differences between the
financial reporting and income tax bases of assets, liabilities and
carryforwards.
H - 15
Deferred tax assets are reduced, if necessary, by a valuation allowance for the
amount of any net deferred tax asset which, more likely than not based on
current circumstances, is not expected to be realized.
H - 16
Earnings (Loss) per Share
Basic earnings (loss) per share is determined by dividing net income (loss) by
the weighted average number of common shares outstanding during each period.
Diluted earnings per share includes the effects of potentially issuable common
stock, but only if dilutive. The treasury stock method, using the average price
of the Company 's stock for the period, is applied to determine the dilution
from stock options, warrants, convertible debt and Series A Convertible
Preferred Stock. These securities were excluded for the years ended December 31,
2000 and 1999 as anti-dilutive because of the net loss reported for those years.
Year Ended December 31,
-------------------------------------------
2000 1999 1998
------------ ----------- ----------
Basic Earnings (Loss) per Share:
Numerator-
Net income (loss) attributable
to common stock $(15,361,607) $(3,281,539) $3,475,386
Denominator-
Weighted average shares outstanding 2,211,351 3,541,880 4,803,735
------------ ----------- ----------
Basic Earnings (Loss) per Share $ (6.95) $ (0.93) $ 0.72
============ =========== ==========
Diluted Earnings (Loss) per Share:
Numerator-
Net income (loss) attributable
to common stock $(15,361,607) $(3,281,539) $3,475,386
Interest on convertible debt, net
of tax effect -- -- 8,400
------------ ----------- ----------
(15,361,607) (3,281,539 3,483,786
------------ ----------- ----------
Denominator-
Weighted average shares outstanding 2,211,351 3,541,880 4,803,735
Options -- -- 134,633
Warrants -- -- 346,865
Convertible debt -- -- 76,667
Convertible preferred stock -- -- 103,093
------------ ----------- ----------
2,211,351 3,541,880 5,464,993
------------ ----------- ----------
Diluted Earnings (Loss) per Share $ (6.95) $ (0.93) $ 0.64
============ =========== ==========
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", prescribes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income, as defined, includes all changes in
equity during a period from non-owner sources (revenues, expenses, gains and
losses). From its
H - 17
inception through December 31, 2000, the Company's comprehensive income (loss)
has been the same as its net income (loss).
New Accounting Standards
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delayed the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), until fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
instruments embedded in other contracts, and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities and
the measurement of those instruments at fair value. It also specifies the
accounting for changes in the fair value of a derivative instrument depending on
the intended use of the instruments and whether (and how) it is designated as a
hedge. As of December 31, 2000, the Company was not engaged in any derivative
financial instruments and accordingly, there was no effect of adopting SFAS 133
on January 1, 2001.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. ACQUISITIONS:
1998 Acquisitions
In January 1998, the Company acquired the business of Laser Visioncare, a
Tacoma, Washington based laser eye surgery clinic. In connection with this
transaction, the Company issued 5,000 shares of its common stock, having a fair
value of $25,000, to Laser Visioncare shareholders and assumed Laser
Visioncare's laser and facility leases. The doctor shareholders of Laser
Visioncare agreed to reimburse the Company (subject to certain limitations) for
payments made under the laser lease through a deduction from professional fees
otherwise payable to the doctors for laser correction procedures performed. In
connection with this transaction, the Company recorded a receivable related to
the laser lease reimbursement agreement, capitalized the laser and recorded the
related lease obligation.
In 1998, the Company issued 10,000 shares of its common stock, having a fair
value of $50,000, to the partners of Nashville Global Vision Limited Partnership
("Global") for the purchase of Global's business. In connection with this
transaction, the Company attributed the $50,000 value of the stock issued to
non-compete arrangements obtained from Global's partners, capitalized the laser
and recorded the related lease obligation. The cost allocated to the non-compete
agreements is amortized over the period of benefit, estimated to be three years.
In 1998, the Company acquired the business of Laser Eye Care Center of Atlanta
("Laser Eye") in exchange for 10,000 shares of its common stock and the
assumption of Laser Eye's laser and facility leases. The fair value of the
10,000 shares of the Company's common stock totaled $50,000 and was attributed
to non-compete arrangements obtained from Laser Eye's members. This cost is
being amortized over the period of benefit, estimated to be three years.
1999 Acquisition
H - 18
In May 1999, the Company purchased substantially all of the assets of Laser
Northwest, a Seattle, Washington based laser eye surgery clinic, for $803,135.
In connection with this transaction, the Company recorded goodwill for
approximately $292,000, capitalized the laser and other acquired assets, and
attributed approximately $144,000 to non-compete arrangements for payments made
to the physicians for each of their owned units of the partnership. The cost of
both the goodwill and the non-compete arrangements were being amortized over the
period of benefit, estimated to be three years. During 2000, these assets were
deemed to be impaired and the remaining book value is included in the $683,131
asset impairment charge in the accompanying statement of operations.
4. RELATED PARTY TRANSACTIONS:
The Company has entered into various lease arrangements with the LeaseCos (Note
2) for lasers and other related equipment which are accounted for as capital
leases by the Company (Note 8). Additionally, the LeaseCos have provided
ClearVision Laser Centers - Southern Colorado, LLC ("CVSC"), ClearVision Laser
Centers - Utah, LLC ("CVU") and ClearVision Laser Centers - Denver, LLC ("CVD")
with revolving lines of credit to borrow up to $400,000, $400,000 and $600,000,
respectively. The notes payable by CVSC and CVU were paid in full on their due
dates in 1999. CVD's borrowings under its line of credit totaled $69,667 and
$176,791 as of December 31, 2000 and 1999, respectively. Interest on CVD's line
of credit accrues at 14% per annum and is payable quarterly. The unpaid
principal and interest are due in full on July 31, 2001. Upon the occurrence of
certain events of default, as defined, CVD's revolving line of credit is due and
payable on demand.
During 2000, a director and former officer of the Company acquired the laser
leased by CVSC from SCEL and a new laser and sold those lasers to the Company in
exchange for a note payable totaling $748,713. The Company also acquired the
laser under lease from UEL in exchange for a note payable for $200,000. Interest
expense to the Company under these leases and working capital lines of credit
totaled $310,575, $430,373 and $737,885 for the years ended December 31, 2000,
1999 and 1998, respectively. The LeaseCos are managed by Accel Holdings, Inc., a
company owned by the director and former officer of the Company.
During 1997, the Company acquired two lasers from doctors. One laser was
acquired in exchange for $50,000 cash and a $150,000 note. This note was fully
repaid in 1998. The second laser was acquired by assuming the remaining payments
due by the doctor to the vendor totaling approximately $252,000. Approximately
$7,000 remained outstanding on this note as of December 31, 1999, which was
fully repaid during 2000 (Note 7).
The Company also acquired other medical equipment from doctors during 1997
totaling approximately $68,250. The unpaid balances on notes issued for these
purchases were fully repaid during 1998.
In March 1997, the Company loaned a doctor $50,000 under a five-year note
bearing interest at 8% per annum, payable annually commencing May 1, 1998. This
note was repaid in 1998. Additionally, as of December 31, 1997, the Company had
a $26,885 receivable from CEL which was repaid in 1998.
In August 1998, the Company repurchased 56,250 shares of its common stock from a
principal shareholder and former employee for $225,000.
Under agreements with certain doctors, the Company reimburses the doctors for
marketing costs incurred.
H - 19
Management and Services Agreement
The Company entered into a Management and Services Agreement with a doctor
effective May 1, 1999 (the "Management Agreement"). Under the Management
Agreement, the Company managed the operations of the doctor's laser center and
provided marketing support through its call-center. As compensation for its
services, the Company received a management fee based upon the number of
procedures performed at the doctor's center each month. Additionally, the
Company leased certain laser equipment to the doctor.
The Management Agreement superseded all previous agreements between the Company
and the doctor, including a four-year non-compete agreement executed in April
1997, for which the Company issued the doctor a restricted stock certificate
representing 90,000 shares of the Company's common stock (the "Restricted
Stock"). The non-compete agreement was recorded at the $450,000 value of the
Restricted Stock and was being amortized over the four-year period of the
non-compete agreement. The Restricted Stock was subject to forfeiture only if
the doctor and/or his employees failed to perform a specified minimum number of
procedures annually at Company sites.
As consideration for executing the Management Agreement and the cancellation of
the Restricted Stock, the Company issued the doctor warrants to purchase 90,000
shares of the Company's common stock at $6.53 per share. Warrants for 30,000
shares vested immediately upon grant, with warrants for an additional 30,000
shares scheduled to vest on May 1, 2001 and May 1, 2003, respectively, provided
the Management Agreement was in full force and in effect at the time of vesting.
As a result of this transaction, the Company realized a gain of approximately
$529,000, representing the difference between the fair value of the cancelled
Restricted Stock and the total of (i) the net book value of the initial
non-compete agreement and (ii) the fair value of the warrants issued.
Approximately $235,000 of the gain was recognized, and is included in other
revenue in the accompanying consolidated statement of operations, for the year
ended December 31, 1999. The doctor terminated the Management Agreement in July
2000, and the remaining deferred gain of approximately $294,000 was fully
recognized and is included in other revenue in the accompanying consolidated
statement of operations for the year ended December 31, 2000. Additionally, as
part of the termination agreement, the doctor's 60,000 unvested warrants for the
purchase of the Company's common stock were vested.
Management Agreement
In connection with the recapitalization transaction (Note 11), the Company
entered into a five-year management agreement with two purchasers of the Series
A-1 Preferred Stock and the Series A-2 Preferred Stock. Under that agreement,
the investors perform services relating to business and organizational strategy,
financial and investment management, advisory and merchant and investment
banking advice, for an aggregate fee of $250,000 per year. In July 2000, the
investors agreed to suspend the fee under the Management Agreement for one year.
The fee for 2000 is approximately $125,000.
H - 20
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Life
(In Years) December 31,
---------- ---------------------------
2000 1999
------------ ------------
Lasers and medical equipment 3 $ 15,329,470 $ 14,317,712
Laser transport systems 3 991,362 953,018
Computers and office equipment 3 1,401,516 1,048,742
Furniture and fixtures 5 499,617 379,397
Leasehold improvements 5 928,477 485,852
Work in process 16,368 149,046
------------ ------------
19,166,810 17,333,767
Accumulated depreciation
and amortization (12,036,452) (7,515,511)
------------ ------------
Property and equipment, net $ 7,130,358 $ 9,818,256
============ ============
6. NON-COMPETE AGREEMENTS:
In 1998, the Company issued a warrant to a doctor for the purchase of 20,000
shares of the Company's common stock for $.01 per share in exchange for a
commitment by the doctor not to compete with the Company and to provide
part-time consulting services for a period of three years. The fair value of
this warrant totaled approximately $80,000 and is amortized over the estimated
three year period of benefit.
In 1998, the Company issued 7,994 shares of its common stock to certain doctors
in connection with the commencement of operations at a new location. The fair
value of these shares totaled approximately $40,000 and is amortized over the
period of benefit, estimated to be three years.
Amortization expense related to non-compete agreements totaled approximately
$182,000, $223,000 and $269,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
As of December 31, 2000, based on the Company's results of operations for 2000,
and due to the adverse conditions in certain of its markets (Note 1), the
Company determined that there was no remaining value to its non-compete
agreements. Accordingly, the Company wrote-off the unamortized book value of
non-compete agreements totaling approximately $208,000, which is included in
asset impairment in the accompanying consolidated statement of operations for
the year ended December 31, 2000.
7. DEBT:
Bank Line of Credit
As of December 31, 1999, the Company had a $1,000,000 bank line of credit, of
which the full amount of the credit facility was outstanding. The line of
credit, which was payable in full on May 10, 2001, was
H - 21
repaid in full and cancelled in 2000. Borrowings under the line of credit
accrued interest at the bank's prime rate.
Convertible Debt
The Company received proceeds of $40,000 and $190,000 from the sale of
convertible notes during 1997 and 1996, respectively. The convertible notes
accrued interest at an annual rate of 6%, payable semi-annually. In March 1999,
the convertible debt was converted into shares of the Company's common stock at
$3.00 per share.
Other Long-Term Debt
On February 14, 2000, the Company obtained a $10,000,000 credit facility
("Facility"). The Facility consists of: i) a $3,000,000 term loan ("Term Loan")
drawn and used to refinance the existing line of credit and refinance certain
capital lease obligations and ii) a currently unused $7,000,000 revolving credit
loan ("Revolver"). The Facility bears a floating annual interest rate at the
prime rate plus 1.75% on outstanding balances and a fee of 0.5% per annum on the
unused portion of the Revolver, payable monthly. The Facility is secured by
substantially all of the Company's assets. The Term Loan is payable in
forty-eight equal monthly installments beginning February 1, 2001. Draws and/or
repayments on the Revolver can be made monthly through February 14, 2002, at
which time the Revolver converts to a senior amortizing term loan, payable in
thirty-six equal monthly payments (based on a twenty year amortization) with a
balloon payment due on February 13, 2005. The Revolver can be used for general
working capital purposes up to $2,000,000, purchases of equipment and
acquisitions subject to the Company meeting certain financial and non-financial
covenants. The Facility contains financial covenants that require the Company to
maintain Senior Debt Service Coverage and Total Debt Service Coverage Ratios, as
defined, of no more than 3 to 1 and Minimum Tangible Net Worth, as defined, of
at least $2,970,000.
As of December 31, 2000, the Company was not in compliance with certain Facility
covenants. Accordingly, the Company is not currently permitted to request draws
under the Revolver and the entire $3,000,000 Term Loan is classified as a
current liability in the accompanying consolidated balance sheet as of December
31, 2000, based on the lender's right to demand repayment. Additionally, the
interest rate on the outstanding balance of the Term Loan was increased by 2%
per annum effective March 1, 2001 due to the defaults existing for certain
facility covenants. Total long-term debt consists of the following:
H - 22
December 31,
---------------------------
2000 1999
----------- -----------
Bank line of credit $ -- $ 1,000,000
Term Loan 3,000,000 --
Revolving lines of credit - affiliate (Note 4) 69,667 176,791
Note payable; interest at 12% per annum; principal and
interest due monthly through March 2000; collateralized
by laser -- 7,325
Notes payable to a financial institution; interest at rates
ranging from 9.6% to 12.5% per annum; principal and
interest generally due in 36 monthly payments; debt
maturities at various dates through November 2001;
collateralized by lasers and other equipment -- 1,417,448
Note payable to UEL; interest at 8.5% per annum; principal
due in four equal payments through September 2001;
interest due in September 2001 (Note 4) 200,000 --
Note payable to a director and former officer; interest at 10%
per annum; principal and interest due quarterly through
October 2006 (Note 4) 748,713 --
Note payable; interest at 12% per annum; principal and
interest due in 60 monthly payments through October 2005 25,040 --
Notes payable to four related parties and former officers for
escrow releases; interest at a rate of 10% per annum,
principal and interest due in October 2006, or earlier upon
a change in control or 91 days after payment in full of all
amounts due under the Facility; subordinate to the Facility
(Note 11) 909,000 --
Note payable to a financing company; interest at a rate
of 9.7% per annum; principal and interest due monthly
through April 2001 84,459 --
----------- -----------
Total 5,036,879 2,601,564
Less- Current portion (3,471,850) (957,159)
----------- -----------
Long-term debt, net of current portion $ 1,565,029 $ 1,644,405
=========== ===========
Future annual maturities of the Company's long-term debt, including the bank
line of credit and the lines of credit from the LeaseCos (Note 4), but excluding
the effect of the Company's default under its Term Loan, are as follows:
Year ending December 31,
2001 $ 864,707
2002 540,897
2003 552,659
2004 565,657
2005 1,471,756
Thereafter 1,041,203
----------
$5,036,879
==========
H - 23
Due to the Company's default under its Term Loan, the lender may require the
Company to repay the $3,000,000 outstanding balance prior to its scheduled
maturity, which includes $392,857 in 2001, $428,572 in 2002 through 2004 and
$1,321,427 in 2005.
H - 24
8. LEASES:
The Company leases its corporate offices and certain laser center facilities
under non-cancelable operating leases. Rental expense for all operating leases
totaled approximately $2,128,000, $1,701,000 and $866,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company also leases excimer
lasers and related equipment under capital lease arrangements with the LeaseCos
(Note 4). In 1998, Accel, as manager of the LeaseCos approved modifications to
the original leases in order to reflect more closely the intended financial
relationship between the LeaseCos and the Company at the inception of the
leases. The implicit interest rates on these leases, as amended, range from
approximately 12.5% to 58.0% per annum.
Assets under capital leases totaled approximately $4,291,000 and $6,320,000 with
total net book value of $1,438,000 and $2,760,000, respectively, at December 31,
2000 and 1999, and are included in property and equipment in the accompanying
consolidated balance sheets. Depreciation of leased assets was approximately
$1,141,000, $1,207,000 and $1,230,000 for the years ended December 31, 2000,
1999 and 1998, respectively. The following is a summary of future minimum lease
payments under capital leases and operating leases having an initial or
remaining non-cancelable term of one year or more as of December 31, 2000.
Capital Operating
Leases Leases
----------- ----------
Year Ending December 31,
2001 $ 1,795,122 $1,945,215
2002 571,418 1,851,074
2003 -- 1,722,697
2004 -- 1,467,728
2005 -- 975,212
Thereafter -- 466,907
----------- ----------
Total minimum lease payments 2,366,540 $8,428,833
==========
Less- amount representing interest (259,535)
-----------
Present value of minimum lease payments 2,107,005
Current maturities of capitalized
lease obligations (1,742,851)
-----------
Capitalized lease obligations $ 364,154
===========
H - 25
9. INCOME TAXES:
As of December 31, 2000, the Company has tax net operating loss carryforwards
("NOLs") of approximately $14,621,000. Of those NOLs, approximately $77,000
expires in 2017, approximately $5,559,000 expires in 2019 and the remaining
approximately $8,985,000 expires in 2020.
As of December 31, 1997, the Company had recorded net deferred tax assets of
approximately $1,827,000 for the future benefit of NOLs and temporary
differences between the financial reporting and income tax bases of assets and
liabilities, with an offsetting valuation allowance for the full amount of those
deferred tax assets. The valuation allowance had been established due to the
uncertainty of the Company's ability to generate taxable income sufficient to
utilize the NOLs before their expiration based upon the results of the Company's
operations through December 31, 1997. For the year ended December 31, 1998, the
Company reversed the entire valuation allowance due to the utilization of most
of the Company's NOLs and management's estimate that it was more likely than not
that the Company would realize the full benefit of the remaining net deferred
tax assets. Due to the factors described in Note 1 (Liquidity and Capital
Resources), a valuation allowance for the full amount of the deferred tax asset
was established during the year ended December 31, 2000.
The components of the (provision for) benefit from income taxes for the years
ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
----------- ----------- -----------
Current (provision) benefit:
Federal $ -- $ 123,000 $ (214,000)
State (3,303) (15,000) (16,000)
----------- ----------- -----------
Current (provision) benefit (3,303) 108,000 (230,000)
Deferred (provision) benefit:
Federal 3,378,000 1,947,000 (712,000)
State 397,000 229,000 (108,000)
Change in valuation allowance (6,958,000) -- 1,827,000
----------- ----------- -----------
Total deferred tax (provision) benefit (3,183,000) 2,176,000 1,007,000
Less: Benefit credited to stockholders' equity -- (649,000) --
----------- ----------- -----------
Deferred (provision) benefit (3,183,000) 1,527,000 1,007,000
----------- ----------- -----------
Total (provision) benefit $(3,186,303) $ 1,635,000 $ 777,000
=========== =========== ===========
H - 26
The income tax benefits differ from amounts computed by applying the statutory
Federal income tax rate to income before taxes for the years ended December 31,
2000, 1999 and 1998, as follows:
2000 1999 1998
-------------------- -------------------- --------------------
Amount % Amount % Amount %
----------- ---- ----------- ---- ----------- ----
Computed Federal income tax
benefit (expense) using
statutory rate $ 3,319,000 34.0% $ 1,318,000 34.0% $ (917,452) 34.0%
Non-deductible expenses
and other (40,000) (0.4) (41,000) (1.1) (50,548) (1.9)
State income taxes, net of
federal benefit 387,000 4.0 153,000 4.0 (82,000) (3.0)
Management/Services
Agreement 100,000 1.0 153,000 4.0 -- --
Other 5,697 0.1 52,000 1.3 -- --
Change in valuation allowance (6,958,000) (71.3) -- -- 1,827,000 67.7
----------- ---- ----------- ---- ----------- ----
Income tax benefit (expense) $(3,186,303) 32.6% $ 1,635,000 42.2% $ 777,000 28.8%
=========== ==== =========== ==== =========== ====
The components of the net deferred tax assets and liabilities as of December 31,
2000 and 1999 are as follows:
2000 1999
----------- -----------
Compensatory warrants issued $ 99,000 $ 293,000
Capitalized leases, net of depreciation 504,000 242,000
Minority interest in CVSC -- 11,000
Non-compete agreements 215,000 90,000
Accrued expenses 122,000 122,000
Goodwill 354,000 155,000
Net operating losses 5,524,000 2,136,000
AMT credit carryforward 89,000 89,000
Other 51,000 45,000
----------- -----------
Total deferred tax assets 6,958,000 3,183,000
Valuation allowance (6,958,000) --
----------- -----------
Net deferred tax assets -- 3,183,000
Current portion -- (616,000)
----------- -----------
Non-current portion $ -- $ 2,567,000
=========== ===========
10. SERIES A-1 REDEEMABLE PREFERRED STOCK:
Holders of the Company's Series A-1 Redeemable Preferred Stock (the "Series A-1
Preferred Stock") are entitled to receive dividends at an annual rate of 10%.
All dividends are cumulative, whether or not
H - 27
declared, and are payable semi-annually in arrears commencing July 1, 1999, to
holders of record on the immediately preceding June 15 or December 15. The
Company may, at its sole option, pay dividends in cash or in additional shares
of Series A-1 Preferred Stock having an aggregate liquidation preference equal
to the amount of such dividends. In 2000, the Company issued 409,439 shares of
Series A Preferred Stock in payment of accrued dividends totaling $908,587 at
December 31, 1999. As of December 31, 2000, accrued dividends totaled
$1,105,272, which the Company paid through the issuance of 230,746 additional
shares of Series A-1 Preferred Stock in January 2001.
The holders of the Series A-1 Preferred Stock are not entitled to vote on any
matter to be voted upon by the Company's stockholders; however, they are
entitled to a liquidation preference equal to the original issue price plus all
accumulated and unpaid dividends. The Series A-1 Preferred Stock ranks senior to
all classes of common stock and on a parity with the Series A-2 Preferred Stock.
The Series A-1 Preferred Stock is subject to mandatory cash redemption in whole
on the earlier to occur of (i) a "Qualified Public Offering" (an underwritten
public offering of the Company's common stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, the net
proceeds from which exceeds $15 million) or (ii) seven years from the closing of
the Merger, at a redemption price equal to 100% of the liquidation preference,
including all accumulated and unpaid dividends. Upon proper written notice to
holders, the Company may at any time redeem the Series A-1 Preferred Stock, in
whole or in part, at a redemption price equal to 100% of the liquidation
preference, including all accumulated and unpaid dividends.
11. SHAREHOLDERS' EQUITY:
Series A Convertible Preferred Stock
In 1996, the Company issued 103,093 shares of its $.001 par value Series A
Convertible Preferred Stock (the "Series A Preferred") to Omega Health Systems,
Inc. ("Omega") in exchange for $250,000 cash and a commitment by Omega to
provide the Company with various marketing materials and services having an
aggregate value of $250,000. The $250,000 attributed to these marketing
materials and services was expensed by the Company in 1996. Omega also received
warrants for the purchase of 51,546 shares of the Company's common stock,
exercisable from June 30, 1997 through June 30, 1998 at an initial price of
$4.85 per share. The warrants were not exercised by Omega and expired as of June
30, 1998. The fair value of the warrants issued was approximately $20,000, as
determined using a Black-Scholes pricing model, and has been reclassified from
warrants outstanding to additional paid in capital in the accompanying
consolidated balance sheets as of December 31, 1998.
The holders of the Series A Preferred Stock converted their shares into common
stock, on a one for one basis simultaneously with the recapitalization
transaction discussed below.
Series A-2 Convertible Preferred Stock
Holders of the Company's Series A-2 Convertible Preferred Stock (the "Series A-2
Preferred Stock") are not entitled to any dividends; however, they are entitled
to an initial liquidation preference equal to the original issue price.
Additionally, holders of the Series A-2 Preferred Stock are entitled to vote on
any matter to be voted upon by the stockholders of the Company, together with
the holders of common stock or any other class or series of stock, as a single
class.
H - 28
The Series A-2 Preferred Stock, at the holder's option, is convertible at any
time into shares of the Company's common stock, initially on a one for one
basis. The conversion ratio is subject to adjustment upon the occurrence of
certain events, including among other things, (i) the payment of dividends or
distributions in shares of the Company's common stock, (ii) splits or reverse
splits on the Company's common stock, (iii) the issuance of rights, options or
warrants to all holders of the Company's common stock entitling them to
subscribe for the purchase of common stock at a price per share less than the
original issue price of the Series A-2 Preferred Stock and (iv) certain other
transactions in which shares of the Company's common stock are converted into
the right to receive stock, securities or other property of another corporation.
Recapitalization
On May 26, 1999, the Company's Board of Directors approved an Agreement and Plan
of Merger (the "Agreement") through which the Company completed a
recapitalization effective July 21, 1999. Pursuant to the Agreement, Laser
Acquisition Corp., a newly created Nevada Corporation, merged into the Company
and the Company received cash proceeds from the issuance of preferred stock. The
Company received cash proceeds of approximately $43,259,000, net of offering
costs totaling approximately $2,081,000, from the sale to new investors of
3,787,764 shares of both the Series A-1 Preferred Stock ($4.79 per share) and
the Series A-2 Preferred Stock ($7.18 per share).
Holders of the Company's common stock as of May 26, 1999, were entitled to
receive $11.97 in exchange for each share of common stock held. Alternatively,
stockholders could elect to retain one-half of their shares and receive a
warrant to purchase one-quarter of a share of common stock for each share of
common stock retained by the stockholder (a "New Warrant") and receive $11.97
per share in cancellation of the other one-half of their shares. The Company
distributed $36,973,856 for 3,088,877 shares of common stock tendered and issued
499,433 New Warrants for shares retained by shareholders.
Holders of options to purchase the Company's common stock could retain their
options and receive a New Warrant for each share of common stock issuable upon
exercise of the options retained. Alternatively, holders of the Company's
options could elect to have one-half of their options cancelled and receive
$11.97 per share of common stock issuable under such options less the applicable
option exercise price. The Company distributed $3,736,343 in exchange for
options cancelled, which is included in compensation expense - recapitalization
in the accompanying financial statements. Additionally, the Company issued
132,016 New Warrants for options retained. The fair value of the New Warrants
issued totaled approximately $190,000 and is being recognized over the remaining
vesting period of options retained. For the years ended December 31, 2000 and
1999, $79,459 and $84,825, respectively, were recognized, which is also included
in compensation expense - recapitalization in the accompanying consolidated
financial statements. New Warrants having a fair value of $23,555 on the date of
issuance had been forfeited by terminated employees as of December 31, 2000.
Holders of warrants for the purchase of the Company's common stock could retain
their warrants and receive a New Warrant for each share of common stock issuable
upon exercise of the warrants retained. Alternatively, holders of the Company's
warrants could elect to have any or all of their warrants cancelled and receive
$11.97 per share of common stock issuable under such warrants less the
applicable warrant exercise price. The Company distributed $2,998,763 in
settlement of warrants tendered and issued 37,625 New Warrants for warrants
retained. The total fair value of New Warrants issued for common stock and
warrants retained totaled $2,465,097 and has been allocated ratably to the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock as a cost of
issuance.
H - 29
Each New Warrant entitles the holder to purchase one-quarter share of the
Company's common stock based upon a purchase price of $5.09 per share. The New
Warrants are exercisable at any time prior to the seventh anniversary of the
closing of the Merger, or the sale or other disposition of all or substantially
all of the Company's assets, whichever occurs first (except that the New
Warrants issued to holders of options will not become exercisable prior to the
time that the associated options become exercisable and must be exercised, if at
all, by the date that is seven years from the closing of the Merger). The
purchase price of $5.09 per share of common stock is subject to adjustment from
time to time in order to reflect the result of stock dividends, stock splits or
other similar events.
Of the cash consideration to be paid to holders of the Company's common stock,
options and warrants, $4.2 million was required to be placed in an escrow
account for approximately two years to cover post-closing claims, if any, made
by the new investors under the Agreement. The escrow account is maintained by a
financial institution and is not an asset of the Company. During 2000, a portion
of the escrow account was distributed to four related parties and former
officers of the Company who loaned the Company $909,000 of the proceeds in
exchange for notes bearing interest at 10% per annum and due in October 2006
(see Note 7).
The new investors, by virtue of their stock ownership and a Voting Trust
Agreement executed by two of the Company's principal shareholders and former
officers, have the voting power sufficient to control most decisions relating to
the Company that require a vote of stockholders. Additionally, the new investors
have the power to elect three of the Company's five directors.
On October 26, 1999, the Company sold an additional 417,710 shares of both the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock for $5,000,000.
12. STOCK OPTIONS AND WARRANTS:
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" prescribes a fair value based method of accounting
for employee stock options or similar equity instruments. However, SFAS 123
allows the continued measurement of employee compensation expense for these
instruments using the intrinsic value based method prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees", provided that pro forma disclosures are made of net income or loss
as if the fair value based method had been applied.
SFAS 123 requires that equity instruments issued to non-employees for goods or
services be accounted for based on the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable.
Employee Stock Options
The Company accounts for its stock-based compensation to employees under the
provisions of APB 25 and related interpretations. Under the intrinsic value
based method prescribed by APB 25, no compensation expense is generally
recognized if the exercise price of options or similar equity instruments
granted is at least equal to the fair value of the underlying stock on the date
of grant.
The Company has granted stock options to employees that generally vest over one
to four years and expire three to ten years after the date of grant. The
exercise prices of options granted were generally
H - 30
equal to the fair value of the Company's common stock on the date of grant, as
determined by management. Certain options, however, contained exercise prices
below the current fair value of the Company's common stock as evidenced by sales
to third parties. Accordingly, the Company recognized compensation expense
totaling $37,500, $44,232 and $48,725 for the years ended December 31, 2000,
1999 and 1998, respectively.
During July 1999, the Company adopted the 1999 Stock Option Plan (the "Plan")
under which 1,256,455 shares of common stock are authorized for issuance to
qualified participants under the Plan. The option price per share is equal to
the fair market value at the time the option is granted or, with respect to a
nonqualified stock option, such other price as determined by the Compensation
Committee of the Board of Directors; provided however, that the option price per
share for any incentive stock option granted to an employee who owns more than
10% of the combined voting power of all classes of the Company's stock shall
equal 110% of the fair market value at the time the Incentive Stock Option is
granted. All stock options granted under the Plan have a maximum term of ten
years.
Non-employee Warrants
The Company has granted warrants for the purchase of its common stock to certain
non-employees, including vendors and physicians, for services provided or in
connection with the expansion of the Company's operations into new markets. In
accordance with SFAS 123, the Company accounts for the issuance of equity
instruments to non-employees based upon their fair value as determined using a
Black Scholes pricing model. The warrants issued to non-employees are generally
exercisable upon issuance and expire three to five years after the date of
grant. The Company recognized $29,050, $55,220 and $69,986 for warrants issued
to non-employees which is included in general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December
31, 2000, 1999 and 1998, respectively.
For accounting purposes, warrants granted were valued utilizing a Black-Scholes
option pricing model with the following weighted average assumptions.
Years Ended December 31,
------------------------------------
2000 1999 1998
--------- --------- ---------
Risk-free interest rate 6.4% 5.9% 5.6%
Expected dividend yield 0% 0% 0%
Expected lives outstanding 7.0 years 6.7 years 3.5 years
Expected volatility 60% 58% 0%
H - 31
Summary of Options and Warrants
A summary of the Company's stock option and warrant activity for the years ended
December 31, 2000, 1999 and 1998 is as follows:
Options Warrants
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------------ -------- ----------
Outstanding, December 31, 1997 659,800 $3.76 855,046 $3.19
Granted 383,500 5.25 69,000 3.55
Exercised (325) 4.00 (84,000) 1.25
Cancelled/Forfeited (28,900) 5.90 (123,546) 3.25
---------- ----- -------- -----
Outstanding, December 31, 1998 1,014,075 $4.26 716,500 $3.44
========== ===== ======== =====
Granted 974,000 6.53 789,164 5.30
Exercised (2,880) 5.55 (261,750) 3.60
Cancelled (502,083) 4.13 (348,304) 2.73
---------- ----- -------- -----
Outstanding, December 31, 1999 1,483,112 5.79 895,610 5.31
========== ===== ======== =====
Options Warrants
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------------ -------- ----------
Granted 162,000 $6.53 20,000 $6.53
Exercised (9,800) 4.95 (28,950) 4.11
Cancelled (529,786) 5.92 (117,490) 6.05
---------- ----- -------- -----
Outstanding, December 31, 2000 1,105,526 $5.85 769,170 $5.28
========== ===== ======== =====
Options Options Options
Granted Granted Granted
Above At Below
Fair Value Fair Value Fair Value Warrants
---------- ---------- ---------- --------
Weighted average fair value of
options/warrants granted during
the year:
1998 $ 0.86 $ 1.59 $ -- $ 2.28
1999 $ 0.39 $ 2.22 $ -- $ 4.34
2000 -- $ 2.30 $ -- $ 4.32
H - 32
The following table summarizes information about the stock options outstanding
and exercisable as of December 31, 2000:
Options Outstanding Options Exercisable
------------------------------- ---------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Number Contractual Average Number Exercise
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Price
- --------------- ----------- ------------ -------------- ----------- -----------
$ 1.50-$2.25 35,575 .2 $2.00 35,575 $2.00
$ 3.75-$4.50 160,137 .4 $4.00 159,562 $4.00
$ 4.51-$5.25 113,112 3.9 $5.00 51,570 $5.00
$ 5.26-$6.00 36,454 .2 $5.75 36,454 $5.75
$ 6.01-$6.75 753,998 7.3 $6.53 254,414 $6.53
$ 6.76-$7.50 6,250 .2 $7.50 6,250 $7.50
The following table summarizes information about the warrants outstanding and
exercisable as of December 31, 2000:
Warrants Outstanding Warrants Exercisable
------------------------------- ---------------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Number Contractual Average Number Exercise
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Price
- --------------- ----------- ------------ -------------- ----------- -----------
$.001-$0.75 8,000 1.6 $0.01 8,000 $0.01
$1.50-$2.25 6,250 .2 $2.00 6,250 $2.00
$4.50-$5.25 648,920 5.1 $5.09 640,949 $5.09
$6.01-$6.75 105,000 4.2 $6.53 35,000 $6.53
$6.76-$7.50 1,000 .7 $7.50 1,000 $7.50
H - 33
Pro Forma Disclosures
As discussed above, the Company has elected to account for its employee stock
options under the provisions of APB 25. In accordance with SFAS 123, the Company
has computed its pro forma net income as if the Company had accounted for its
employee stock options using the fair value method prescribed by that statement.
The fair value of the employee stock options was determined using the minimum
value method which assumes no volatility and the following weighted-average
assumptions:
Year Ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Risk-free interest rate 6.40% 6.02% 5.72%
Volatility 0% 0% 0%
Dividend yield 0% 0% 0%
Expected term 7.00 years 7.00 years 6.75 years
The aggregate estimated fair value of stock options granted in 2000, 1999 and
1998 was $372,566, $1,986,949 and $557,152, respectively. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to expense
over the options' vesting period. All options are initially assumed to vest.
Compensation previously recognized is reversed to the extent applicable to
forfeitures of unvested options. The Company's pro forma net loss for the years
ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
------------ ----------- ----------
Net Income (Loss) Attributable
to Common Stock:
As Reported $(15,361,607) $(3,281,539) $3,475,386
Pro Forma $(16,626,593) $(4,113,087) $3,225,227
Net Income (Loss) per Share:
As Reported--Diluted $(6.95) $(0.93) $0.64
Pro Forma--Diluted $(7.52) $(1.16) $0.59
13. RETIREMENT PLAN:
The Company sponsors a plan known as ClearVision Laser Centers, Inc. 401(k)
Profit Sharing Plan and Trust (the "Plan"). Substantially all of the Company's
employees of at least 21 years of age are eligible to participate after nine
months of employment. The Company can make matching contributions at its
discretion. The Company's matching contributions to the Plan totaled
approximately $151,705, $97,000 and $44,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
H - 34
14. COMMITMENTS AND CONTINGENCIES:
The Company previously offered, subject to certain exclusions, a lifetime
warranty program through which enhancement procedures are available at no charge
to qualified patients who comply with the specified terms and conditions of the
program following their initial laser vision correction procedure. The Company
has accrued approximately $68,000 and $68,000 for costs associated with
potential future enhancement procedures related to laser vision correction
procedures performed through December 31, 2000 and 1999, respectively.
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of its business. Management believes the ultimate resolution of
these matters will not have a material adverse affect on the Company's financial
position or results of operations.
H - 35
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As Of June 30, 2001 and December 31, 2000
and For The Six Months Ended June 30, 2001 and 2000
H - 36
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
ASSETS June 30, December 31,
2001 2000
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 983,913 $ 1,262,986
Trade accounts receivable, net of allowance for doubtful
accounts of $1,208,000 and $1,711,000 , respectively 316,560 522,512
Other receivables 206,298 312,998
Prepaid royalty cards 269,881 254,050
Other current assets 84,125 210,693
------------ ------------
Total current assets 1,860,777 2,563,239
PROPERTY AND EQUIPMENT: 18,696,828 19,166,810
Less-accumulated depreciation and amortization (13,730,015) (12,036,452)
------------ ------------
Property and equipment, net 4,966,813 7,130,358
------------ ------------
OTHER NON-CURRENT ASSETS:
Investments in unconsolidated affiliates 424,971 459,032
Other non-current assets 221,880 243,555
------------ ------------
Total other non-current assets 646,851 702,587
------------ ------------
TOTAL ASSETS $ 7,474,441 $ 10,396,184
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated balance sheets.
H - 37
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) June 30, December 31,
2001 2000
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 4,075,260 $ 3,954,087
Patient deposits 54,253 106,591
Accrued interest payable 221,772 149,969
Accrued expenses 692,400 906,970
Current maturities of revolving lines
of credit and notes payable - affiliate (Note 4) 238,111 382,808
Current maturities of long-term debt and capitalized
lease obligations (Notes 4 and 5) 4,201,662 4,831,893
Other current liabilities 103,685 158,685
------------ ------------
Total current liabilities 9,587,143 10,491,003
------------ ------------
LONG-TERM LIABILITIES:
Notes payable - related parties (Note 4) 1,486,753 1,544,572
Other long-term debt (Note 4) 58,368 20,457
Capitalized lease obligations (Note 5) 37,535 364,154
------------ ------------
Total long-term liabilities 1,582,656 1,929,183
------------ ------------
SERIES A-1 REDEEMABLE PREFERRED STOCK 23,072,669 21,780,526
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series A-2 convertible preferred stock, no par value, 20,000,000
shares authorized; 4,205,474 shares issued and outstanding 27,468,024 27,468,024
Common stock, $.001 par value; 72,000,000 shares authorized;
2,220,271 shares issued and 2,074,021 shares outstanding 2,220 2,220
Additional paid-in capital (deficit) (32,984,757) (32,984,757)
Warrants outstanding 3,061,447 3,056,797
Common stock held in treasury, at cost (146,250 shares) (1,302,300) (1,302,300)
Accumulated deficit (23,012,662) (20,044,512)
------------ ------------
Total stockholders' equity (deficit) (26,768,027) (23,804,528)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 7,474,441 $ 10,396,184
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated balance sheets.
H - 38
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ ------------
REVENUE:
Professional medical services revenue, net $ 11,846,698 $ 16,859,550
Other revenue 181,595 553,164
------------ ------------
Total revenue 12,028,293 17,412,714
COST OF REVENUE:
Royalty fees and medical supplies 3,412,020 4,901,346
Salaries and wages 1,874,148 2,617,186
Depreciation and amortization 2,086,640 2,538,380
Other cost of revenue 2,103,700 2,965,468
------------ ------------
Total cost of revenue 9,476,508 13,022,380
------------ ------------
Gross profit 2,551,785 4,390,334
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and wages (exclusive of compensation
expense - recapitalization shown below) 2,072,168 3,912,009
Compensation expense - Recapitalization -- 78,587
Advertising and marketing 613,423 1,835,673
Depreciation and amortization 222,373 201,283
Other selling, general and administrative 1,014,982 1,586,865
------------ ------------
Total selling, general and administrative
expenses 3,922,946 7,614,417
------------ ------------
Loss from operations (1,371,161) (3,224,083)
------------ ------------
OTHER INCOME (EXPENSES):
Equity in income of investees, net 68,508 117,790
Interest expense - affiliate (137,303) (171,933)
Other interest expense (237,218) (232,256)
Other income, net 5,919 513,270
------------ ------------
Total other income (expenses) (300,094) 226,871
------------ ------------
Loss before income taxes (1,671,255) (2,997,212)
Income tax (expense) benefit (4,752) --
------------ ------------
NET LOSS (1,676,007) (2,997,212)
DIVIDENDS AND ACCRETION OF
REDEEMABLE PREFERRED STOCK (1,292,143) (1,177,673)
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (2,968,150) $ (4,174,885)
============ ============
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
H - 39
Page 1 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,676,007) $(2,997,212)
Adjustments to reconcile net loss to net cash
from operating activities-
Amortization of non-compete agreements
and goodwill -- 152,635
Depreciation and amortization 2,340,153 2,582,354
Equity in income of investees (68,508) (117,790)
(Gain) loss on disposal of fixed assets (31,140) --
Gain from Management and Services Agreement (Note 4) -- (36,770)
Warrants issued to non-employees 4,650 31,863
Non-cash compensation for employee warrants -- 78,587
Non-cash compensation for employee options -- 18,750
Effect of changes in operating assets and liabilities-
Trade accounts receivable, net 225,465 557,762
Other receivables 87,188 (570,217)
Prepaid royalty cards (15,831) 681,780
Other current assets 126,568 364,621
Other non-current assets 21,675 (258,542)
Accounts payable 121,173 (572,191)
Patient deposits (52,338) (5,674)
Accrued interest payable 71,803 23,375
Accrued expenses (269,569) (384,091)
----------- -----------
Net cash from operating activities 885,282 (450,760)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (69,070) (1,638,119)
Distribution from unconsolidated affiliates 102,569 49,213
Purchase of minority interest in subsidiary -- (439,572)
----------- -----------
Net cash from investing activities 33,499 (2,028,478)
----------- -----------
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
H - 40
Page 2 of 2
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under working capital
lines of credit and other payables - affiliate $ (79,372) $ (51,661)
Proceeds from long-term debt -- 3,000,000
Payments on long-term debt and capital
lease obligations (1,118,482) (3,148,919)
Proceeds from exercise of options -- 46,029
Proceeds from exercise of warrants -- 116,755
----------- -----------
Net cash from financing activities (1,197,854) (37,796)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (279,073) (2,517,034)
CASH AND CASH EQUIVALENTS, beginning of period 1,262,986 6,012,550
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 983,913 $ 3,495,516
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 302,718 $ 380,814
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of promissory notes to common stock $ 76,400 $ --
=========== ===========
Accretion of Series A-1 Preferred Stock $ 131,607 $ 125,033
=========== ===========
Accrued dividends on Series A-1 Preferred Stock $ 1,160,536 $ 1,052,640
=========== ===========
Dividend issue of Series A-1 Preferred Stock $ 1,105,272 $ 908,573
=========== ===========
The accompanying notes to financial statements
are an integral part of these condensed consolidated statements.
H - 41
CLEARVISION LASER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF ORGANIZATION:
ClearVision Laser Centers, Inc. (together with its subsidiaries, the "Company"),
a Nevada corporation, was established in 1995 to develop and operate excimer
laser vision correction centers throughout the United States. The Company's
current operations are concentrated in the West Coast, Rocky Mountain, Midwest
and Southern regions of the United States. The Company contracts with
independent ophthalmologists and optometrists ("doctors") for the use of its
centers. The excimer laser can be used to treat refractive optical disorders
such as nearsightedness, farsightedness and astigmatism to eliminate or reduce
the need for corrective lenses. For each of its owned centers, the Company
manages the daily operations and provides all of the necessary services and
equipment, other than those professional services performed by a doctor. In
addition, the Company provides a broad range of related services, including
doctor and staff training, technical support services and maintenance, and
advertising and marketing programs and services.
Risks and Uncertainties
The Company competes with several other providers of fixed-site and mobile laser
centers. The viability of the Company is dependent upon, among other things, the
Company's ability to attract and retain commitments of doctors who perform laser
vision correction procedures, and its ability to obtain new or enhanced medical
devices or advanced technology as it is developed. The Company and its
operations are subject to numerous federal, state and local laws, rules and
regulations, many of which are subject to varying interpretations. As a result,
the potential reach of the laws is uncertain, and some of the Company's
activities could be challenged, which could require changes to certain of the
Company's legal or fee structure or curtailment of certain of its business
activities.
Liquidity and Capital Resources
Since its inception and through June 30, 2001, the Company has generated net
losses totaling $18,265,392, including net losses of $1,676,007 and $2,997,212
for the six months ended June 30, 2001 and 2000, respectively. Beginning in the
third quarter of 2000, management has implemented significant cost saving
measures, including a reduction in the Company's workforce and consolidation of
Company facilities. Additionally, the Company has explored various financing
options and strategic relationships (Note 6). The Company generated cash from
operations of $885,282 for the six month period ended June 30, 2001 as compared
to a net use of cash from operations of $(450,760) for the six month period
ended June 30, 2000.
The auditors' report on the Company's financial statements as of, and for the
year ended, December 31, 2000, expressed substantial doubt regarding the
Company's ability to continue as a going concern due to its continuing losses
and its net capital deficiency.
H - 42
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and with the instructions to Form 10-Q and Article 10 of
Regulation S-X for interim financial information. Accordingly, these statements
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. All significant intercompany accounts and transactions have been
eliminated in consolidation. Operating results for the six months ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto for the year ended December 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.
Investments in Unconsolidated Affiliates
The Company accounts for its investments in less than 50% owned entities using
the equity method of accounting. Under the equity method of accounting, the
Company recognizes, in its financial statements, its proportionate share of the
income and losses of each investee. The Company's investment balances represent
its initial investments, adjusted for its proportionate share of the investees'
income or losses and distributions received from the investees. The Company's
investments consist of the following (together, "the LeaseCos"):
Colorado Excimer Leasing-1, CEL, a limited liability company, was
LLC formed in February 1995. As of June 30,
2001 and December 31, 2000, the Company
owned a 37.3% interest in CEL.
Utah Excimer Leasing, LLC UEL, a limited liability company, was
formed in September 1995. As of June 30,
2001 and December 31, 2000, the Company
owned a 49.1% interest in UEL.
Southern Colorado Excimer SCEL, a limited liability company, was
Leasing, LLC formed in October 1995. As of June 30,
2001 and December 31, 2000, the Company
owned an 18% interest in SCEL.
H - 43
The LeaseCos were formed primarily to raise capital for the acquisition of
lasers and other equipment used by the Company. Certain individual doctors who
utilize the Company's centers hold the ownership interest in each of the
LeaseCos that is not held by the Company. The LeaseCos obtained third-party
lease financing for lasers and other equipment, which were then leased to the
Company for use in its centers.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable from future undiscounted cash flows. Impairment losses are recorded
for the difference between the carrying value and the fair value of the
long-lived asset. The laser vision correction industry has experienced a
significant increase in competition; including competition from discount
providers, which has had a material negative impact on the Company's results of
operations since the second half of 2000. Due to the expected continuing effects
of the increased competition, management evaluated the carrying value of its
long-lived assets and recorded an impairment as of December 31, 2000, of
$683,131 related to its non-compete agreements and goodwill. These intangible
assets were evaluated in combination with, and based on, the fair value of
related long-lived assets. The estimated fair values of the Company's long-lived
assets were based on recent market transactions. For the six month period ended
June 30, 2000, amortization expense related to goodwill and non-compete
agreements totaled approximately $153,000.
Income Taxes
The Company uses the liability method for measuring and recognizing income
taxes. Deferred income tax assets and liabilities are recognized for the
expected future income tax consequences of temporary differences between the
financial reporting and income tax bases of assets, liabilities and
carryforwards. Deferred tax assets are reduced, if necessary, by a valuation
allowance for the amount of any net deferred tax asset which, more likely than
not based on current circumstances, is not expected to be realized. The Company
recorded a valuation allowance sufficient to fully offset net deferred tax
assets arising during the six-month periods ended June 30, 2001 and 2000, due to
the uncertainty regarding realization of those deferred tax assets. Based on
continuing losses through December 31, 2000 and the projected losses for 2001 ,
the Company increased its valuation allowance to $6,958,000 to fully offset its
deferred tax assets as of December 31, 2000.
The components of the (provision for) benefit from income taxes for the
six-month periods ended June 30, 2001 and 2000, are as follows:
2001 2000
--------- ---------
Current (provision) benefit:
Federal $ -- $ --
State (4,752) --
--------- ---------
Current (provision) benefit (4,752) --
Deferred (provision) benefit:
Federal 568,000 869,000
State 67,000 120,000
Change in valuation allowance (635,000) (989,000)
--------- ---------
Deferred tax (provision) benefit -- --
--------- ---------
Total (provision) benefit $ (4,752) $ --
========= =========
H - 44
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Life June 30, December 31,
(In Years) 2001 2000
---------- ------------ ------------
Lasers and medical equipment 3 $ 14,793,750 $ 15,329,470
Laser transport systems 3 991,362 991,362
Computers and office equipment 3 1,386,909 1,401,516
Furniture and fixtures 5 491,728 499,617
Leasehold improvements 5 1,033,079 928,477
Work in process -- 16,368
------------ ------------
18,696,828 19,166,810
Accumulated depreciation
and amortization (13,730,015) (12,036,452)
------------ ------------
Property and equipment, net $ 4,966,813 $ 7,130,358
============ ============
4. DEBT:
On February 14, 2000, the Company obtained a $10,000,000 credit facility
("Facility"). The Facility consists of: i) a $3,000,000 term loan ("Term Loan")
drawn and used to refinance the existing line of credit and refinance certain
capital lease obligations and ii) a currently unused $7,000,000 revolving credit
loan ("Revolver"). The Facility bears a floating annual interest rate at the
prime rate plus 1.75% on outstanding balances and a fee of 0.5% per annum on the
unused portion of the Revolver, payable monthly. The Facility is secured by
substantially all of the Company's assets. The Term Loan is payable in
forty-eight equal monthly installments beginning February 1, 2001. Draws and/or
repayments on the Revolver can be made monthly through February 14, 2002, at
which time the Revolver converts to a senior amortizing term loan, payable in
thirty-six equal monthly payments (based on a twenty year amortization) with a
balloon payment due on February 13, 2005. The Revolver can be used for general
working capital purposes up to $2,000,000, purchases of equipment and
acquisitions subject to the Company meeting certain financial and non-financial
covenants. The Facility contains financial covenants that require the Company to
maintain Senior Debt Service Coverage and Total Debt Service Coverage Ratios, as
defined, of 1.35 to 1; a Senior Debt to Adjusted EBITDA Ratio, as defined, of no
more than 3 to 1 and a Minimum Tangible Net Worth, as defined, of at least
$2,970,000.
As of June 30, 2001 and December 31, 2000, the Company was not in compliance
with certain Facility covenants and the Company is not currently permitted to
request draws under the Revolver. The entire outstanding balance under the Term
loan of $2,785,714 and $3,000,000 is classified as a current liability in the
accompanying consolidated balance sheets as of June 30, 2001 and December 31,
2000, respectively, based on the lender's right to demand repayment.
Additionally, the interest rate on the outstanding balance of the Term Loan was
increased by 2% per annum effective March 1, 2001 due to the defaults existing
for certain facility covenants.
H - 45
Total long-term debt consists of the following:
June 30, December 31,
----------- ------------
2001 2000
----------- -----------
Term Loan $ 2,785,714 $ 3,000,000
Revolving lines of credit - affiliate 10,295 69,667
Note payable to UEL; interest at 8.5% per annum; principal
due in four equal payments through September 2001;
interest due in September 2001 100,000 200,000
Note payable to a director and former officer; interest at 10%
per annum; principal and interest due quarterly through
October 2006 725,569 748,713
Note payable; interest at 12% per annum; principal and
interest due in 60 monthly payments through October 2005 23,795 25,040
Note payable; interest at 10.5% per annum; principal and
interest due in 36 monthly payments through December
2003 65,271 --
Notes payable to four related parties and former officers for
escrow releases; interest at a rate of 10% per annum,
principal and interest due in October 2006, or earlier upon
a change in control or 91 days after payment in full of all
amounts due under the Facility; subordinate to the Facility 889,000 909,000
Note payable to financing company; interest at a rate of 9.7%
per annum; principal and interest due monthly through
April 2001 -- 84,459
----------- -----------
Total 4,599,644 5,036,879
Less- Current portion (3,054,523) (3,471,850)
----------- -----------
Long-term debt, net of current portion $ 1,545,121 $ 1,565,029
=========== ===========
5. LEASES:
The Company leases its corporate offices and certain laser center facilities
under non-cancelable operating leases. In 2001, the Company amended its
operating lease for its corporate offices to terminate October 31, 2001.
Assets under capital leases totaled approximately $4,153,000 and $4,291,000 with
total net book value of $885,000 and $1,438,000, respectively, at June 30, 2001
and December 31, 2000, and are included in property and equipment in the
accompanying consolidated balance sheets. Depreciation of leased assets
H - 46
was approximately $511,000 and $694,000 for the six month periods ended June 30,
2001 and 2000, respectively.
The following is a summary of future minimum lease payments under capital leases
and operating leases having an initial or remaining non-cancelable term of one
year or more as of June 30, 2001.
Capital Operating
Leases Leases
----------- ----------
Year Ending June 30,
2002 $ 1,593,111 $1,613,844
2003 40,846 1,285,854
2004 -- 1,090,982
2005 -- 777,534
2006 -- 404,787
Thereafter -- 365,188
----------- ----------
Total minimum lease payments 1,633,957 $5,538,189
==========
Less- amount representing interest (211,172)
-----------
Present value of minimum lease payments 1,422,785
Current maturities of capitalized
lease obligations (1,385,250)
-----------
Capitalized lease obligations $ 37,535
===========
6. SUBSEQUENT EVENTS:
On August 31, 2001, the Company sold substantially all assets and certain
liabilities (the "Transaction") to Laser Vision Centers, Inc., ("Laser Vision")
a publicly traded company in the refractive laser access business based in St.
Louis, Missouri. Laser Vision paid an aggregate of approximately $4,882,000 in
cash and issued 2,129,085 shares of restricted stock for the net assets
acquired. An aggregate of 750,000 shares of the restricted stock issued was
deposited in an escrow account for one year to be available to satisfy
additional purchase price adjustments that may arise as set forth and defined in
the Asset Purchase Agreement. The cash received will be distributed to the
Company in the amount of $266,079 for the payout of severance to terminated
employees, $375,000 for Transaction expenses and $197,229 for future ongoing
operation costs. Finova Capital Corporation will receive $2,802,012 in
satisfaction of all indebtedness of the Company under the Facility (Note 4).
Certain related party creditors will receive $37,500 from Laser Vision proceeds
and $18,750 from the Company in full satisfaction of $82,169 of outstanding
obligations. Other related party creditors will receive a combination of cash of
$769,784 and an amount equal to the value of an established number of shares of
LVCI stock held by the Company to be paid within 90 days of the first
anniversary of the Transaction in full satisfaction of $1,624,177 of outstanding
obligations. The unconsolidated affiliate, Colorado Excimer Leasing-1,, LLC,
will receive $202,750 in full satisfaction of $883,856 of outstanding
obligations and ClearVision will waive its ownership rights to any future
distributions of CEL. CEL will also receive $162,500 in exchange for certain
equipment. In addition, Utah Excimer Leasing, LLC will receive $69,388 in full
satisfaction of approximately $136,323 of outstanding obligations and
ClearVision will waive its ownership rights to any future distributions of UEL.
H - 47
Following the settlement of remaining obligations, it is the intent of the Board
of Directors to dissolve the Company.
H - 48
APPENDIX I
ADDITIONAL INFORMATION FOR
CANADIAN SHAREHOLDERS OF TLC
ON THE DIFFERENCES BETWEEN U.S. AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
To be filed by an amendment to this registration statement.
I-1
PROXY
LASER VISION CENTERS, INC.
540 Maryville Centre Drive, Suite 200
St. Louis, Missouri 63141
For the Special Meeting of Shareholders to be held ____________, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of LASER VISION CENTERS, INC. does
hereby nominate, constitute and appoint John J. Klobnak and Robert W. May, or
each of them (with full power to act alone), true and lawful proxies and
attorneys-in-fact, with full power of substitution, for the undersigned and in
the name, place and stead of the undersigned to vote all of the shares of common
stock, $0.01 par value, of LaserVision standing in the name of the undersigned
on its books at the close of business on ______________, 2001 at the Special
Meeting of Shareholders to be held at_________________________, on ______, 2002,
at _____, Central Standard Time, and at any adjournments or postponements
thereof, with all the powers the undersigned would possess if personally
present, as follows:
1. To consider and vote upon a proposal to approve the acquisition of
LaserVision by TLC Laser Eye Centers Inc. ("TLC") in accordance with the
agreement and plan of merger, dated as of August 25, 2001, by and among
LaserVision, TLC and a wholly owned subsidiary of TLC, and the
transactions contemplated by that agreement. Under the terms of the merger
agreement, a subsidiary of TLC will merge with and into LaserVision and
LaserVision will become a wholly owned subsidiary of TLC upon the terms
and subject to the conditions set forth in the merger agreement, as more
fully described in the accompanying joint proxy statement/prospectus.
|_| FOR |_| AGAINST |_| ABSTAIN
2. To transact such other business that may properly come before the special
meeting or any adjournments or postponements of the special meeting.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To authorize the Board of Directors to adjourn the special meeting to
permit further solicitation of proxies, if necessary.
|_| FOR |_| AGAINST |_| ABSTAIN
The Board of Directors recommends a vote "FOR" approval of the agreement
and plan of merger and the transactions contemplated thereby.
The undersigned hereby revokes any other proxies to vote at such meeting
and hereby ratifies and confirms all that the proxies and attorneys-in-fact, or
each of them, appointed hereunder may lawfully do by virtue hereof. Said proxies
and attorneys-in-fact, without limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the special meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is given herein, this
proxy will be voted "FOR" each of the proposals listed above.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY SO THAT IT IS RECEIVED
BY ______________, 2002 USING THE ENVELOPE PROVIDED.
Check appropriate box and
indicate changes below:
Address Change? |_| Name Change? |_|
_________________________________
| |
| |
___________________________________ |_________________________________|
Name of Shareholder Signature(s) in Box
(Please print clearly)
___________________________________ _________________________________|
Number of Shares Date
Please sign this proxy card exactly as your shares are registered. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If more than one person holds the power to vote the same shares, any one
of them may sign this proxy card. If the shareholder is a corporation, this
proxy card must be signed by a duly authorized officer of the shareholder. By
signing this proxy card, you acknowledge receipt of the Notice of Special
Meeting and the Joint Proxy Statement/Prospectus (with all enclosures and
attachments), dated , 2001, relating to the special meeting.
- 2 -
TLC LASER EYE CENTERS INC.
PROXY
Annual and Special Meeting of Shareholders of TLC Laser Eye Centers Inc.
to be held on _______________, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF
TLC LASER EYE CENTERS INC.
The undersigned shareholder of TLC Laser Eye Centers Inc. ("TLC")
hereby appoints Elias Vamvakas, President and a director of TLC, or, failing
him, Lloyd D. Fiorini, General Counsel and Secretary of TLC, or instead of any
of the foregoing, ___________________________, as proxy of the undersigned, to
attend, vote and act for and on behalf of the undersigned at the annual and
special meeting of shareholders of TLC to be held on _______, 2002 at _________,
Eastern Standard Time, at ___________________, and at all adjournments thereof,
upon the following matters:
1. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or, if no specification is made, vote FOR a resolution approving the
transactions contemplated by an agreement and plan of merger dated
as of August 25, 2001 by and among Laser Vision Centers, Inc., TLC
and a wholly owned subsidiary of TLC that provides for a wholly
owned subsidiary of TLC to merge with and into LaserVision; in the
merger, LaserVision would become a wholly owned subsidiary of TLC,
as fully described in the accompanying joint proxy
statement/prospectus;
2. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or, if no specification is made, vote FOR a resolution approving the
amendment of the articles of TLC to change the name of TLC to "TLC
VISION Corporation";
3. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or, if no specification is made, vote FOR a resolution approving the
continuance of TLC under the laws of New Brunswick and the adoption
of new by-laws of TLC;
4. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or, if no specification is made, vote FOR a resolution approving the
amendment of the articles of TLC to increase the maximum number of
directors from 10 to 15;
5. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or, if no specification is made, vote FOR a resolution approving the
repricing of certain options outstanding under TLC's amended and
restated stock option plan in the manner described in the
accompanying joint proxy statement/prospectus;
6. TO VOTE FOR |_| WITHHOLD |_|
or, if no specification is made, vote FOR the election of the
following directors for the terms and subject to the conditions
stated in the accompanying joint proxy statement/prospectus:
Elias Vamvakas Warren S. Rustand
Dr. Jeffery J. Machat John J. Klobnak+
John F. Riegert James M. Garvey+
Howard J. Gourwitz Dr. Richard Lindstrom+
Dr. William David Sullins, Jr. David S. Joseph+
Thomas N. Davidson
Provided that the undersigned wishes to withhold vote for the
following directors:
____________________________________________________________________
8. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or if no specification is made, vote FOR the continued appointment
of Ernst & Young as auditors of TLC and authorizing the directors to
fix the remuneration of the auditors; and
9. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
of if no specification is made, vote FOR the grant of discretion to
the proxy nominee to vote on any amendments to the foregoing and on
such other business as may properly come before the meeting or any
adjournments thereof.
10. TO VOTE FOR |_| AGAINST |_| ABSTAIN |_|
or if no specification is made, vote FOR the adjournment or
postponement of the annual and special meeting.
The shares represented by this proxy will be voted as directed. If
no direction is indicated as to any item(s), they will be voted in favor of such
item(s).
EXECUTED on the _____________ day of ___________, 2002
_____________________________ ________________________________
Number of Common Shares Signature of Shareholder
________________________________
Name of Shareholder
(Please print clearly)
- 2 -
* Please see other side for notes on how to use this proxy.
+ The merger agreement provides for these individuals to be nominated for
election as directors, conditional upon the merger becoming effective, to hold
office until the next annual meeting of TLC shareholders or until his successor
is elected or appointed. If the merger is not approved, these individuals will
not be elected to the TLC board of directors.
NOTES:
1. A shareholder has the right to appoint a person to represent the
shareholder at the meeting other than the management representatives
designated in this proxy. Such right may be exercised by inserting in the
space provided the name of the other person the shareholder wishes to
appoint. Such other person need not be a shareholder.
2. To be valid, this proxy must be signed and deposited with CIBC Mellon
Trust Company, Proxy Dept., 200 Queen's Quay East, Unit #6, Toronto,
Ontario M5A 4K9 (Facsimile No. (416) 368-2502) not later than the close of
business on ____________________, 2002, or, if the meeting is adjourned,
48 hours (excluding Saturdays and holidays) before any adjourned meeting.
3. If an individual, please sign exactly as your shares are registered. If
the shareholder is a corporation, this proxy must be executed by a duly
authorized officer or attorney of the shareholder and, if the corporation
has a corporate seal, its corporate seal should be affixed. If the shares
are registered in the name of an executor, administrator or trustee,
please sign exactly as the shares are registered. If the shares are
registered in the name of the deceased or other shareholder, the
shareholder's name must be printed in the space provided, the proxy must
be signed by the legal representative with his name printed below his
signature and evidence of authority to sign on behalf of the shareholder
must be attached to this proxy.
4. Reference is made to the accompanying joint proxy statement/prospectus
(which is also a management information circular under Canadian laws) for
further information regarding completion and use of this proxy and other
information pertaining to the meeting. Before completing this proxy,
non-registered holders should carefully review the section in the
accompanying joint proxy statement/prospectus entitled "Information
Regarding the TLC Shareholder Meeting -- Non-Registered Shareholders" and
should carefully follow the instructions of the securities dealer or other
intermediary who sent this proxy.
5. If this proxy is not dated in the space provided, it is deemed to bear the
date on which it is mailed.
6. If a share is held by two or more persons, any one of them present or
represented by proxy at a meeting of shareholders may, in the absence of
the other or others, vote in respect thereof, but if more than one of them
are present or represented by proxy, they shall vote together in respect
of each share so held.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant is currently an Ontario corporation. At the meeting
to approve the merger, shareholders of the Registrant will be asked, among other
things, to approve the continuance of the Registrant into the province of New
Brunswick and the change of the Registrant's name to "TLC VISION Corporation."
Consequently, this Registration Statement provides information for both Ontario
and New Brunswick.
1. Ontario
Under Section 136 of the Business Corporations Act (Ontario), a
director or officer of a corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives:
(a) may be indemnified by the corporation against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil,
criminal or administrative action or proceeding to which he or she
is made a party by reason of being or having been a director or
officer of such corporation or body corporate;
(b) may be indemnified by the corporation, with the approval of a court,
against all costs, charges and expenses reasonably incurred by the
person in connection with an action by or on behalf of the
corporation or body corporate to procure a judgment in its favor, to
which the person is made a party by reason of being or having been a
director or officer of the corporation or body corporate; and
(c) is entitled to indemnity from the corporation in respect of all
costs, charges and expenses reasonably incurred by him or her in
connection with the defense of any civil, criminal or administrative
action or proceeding to which he or she is made a party by reason of
being or having been a director or officer of the corporation or
body corporate, if the person seeking indemnity was substantially
successful on the merits of his or her defense of the action or
proceeding.
Provided, in all cases, such person fulfills the conditions that (a)
he or she acted honestly and in good faith with a view to the best interests of
the corporation, and (b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful.
Section 7 of the Registrant's By-law No. 3 contains provisions
relating to the indemnification of directors and officers, which provide, in
general, that the Registrant shall indemnify its officers and directors, its
former officers and directors, any person who acts or acted at the Registrant's
request as a director or officer of a body corporate of which the Registrant is
or was a creditor, and their heirs and legal representatives, to the extent
permitted by the Business Corporations Act (Ontario).
2. New Brunswick
Section 81 of the New Brunswick Business Corporations Act (NBBCA),
which will govern the Registrant following its continuance under the laws of New
Brunswick, provides that, except in respect of an action by or on behalf of a
corporation to procure a judgment in its favor, a corporation may indemnify a
director or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and
his heirs and legal representatives against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the corporation or such body corporate, if (a) he acted
honestly and in good faith with a view to the best interests of the corporation
and (b) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he had reasonable grounds for believing that his
conduct was lawful. A corporation may with the approval of the Court of Queen's
Bench of New Brunswick indemnify a person referred to above in respect of an
action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with such
action if he fulfills the conditions set out in (a) and (b) above.
Notwithstanding the foregoing, a director or officer of a corporation is
entitled to indemnification from the corporation in respect of all costs,
charges and expenses reasonably incurred by him in connection with the defense
of any civil, criminal or administrative action or proceeding to which he is
made a party by reason of his position with the corporation or body corporate if
he was substantially successful on the merits in his defense of the action or
proceeding, he fulfills the conditions set out in (a) and (b) above and he is
fairly and reasonably entitled to indemnity. By-Law 2001, which is the proposed
general by-law of the Registrant, will provide that the Registrant shall
indemnify a director or officer of the Registrant, a former director or officer
of the Registrant or a person who acts or acted at the Registrant's request as a
director or officer of a body corporate of which the Registrant is or was a
shareholder or creditor, and the heirs and legal representatives thereof, to the
extent permitted by the NBBCA or otherwise by law.
A policy of directors and officers' liability insurance is
maintained by the Registrant which insures directors and officers of the
Registrant and its subsidiaries for losses as a result of claims based upon the
acts or omissions as directors and officers of the Registrant. The Registrant
has entered into agreements with certain of its directors and officers and will
enter into agreements with all of its directors and officers pursuant to which
the Registrant agrees to indemnify its directors and officers to the fullest
extent permitted by applicable law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Item 21. Exhibits and Financial Statement Schedules.
Exhibit
Number Description
- ------ -----------
2.1 -- Agreement and Plan of Merger, dated as of August 25, 2001, by and
among the Registrant, TLC Acquisition II Corp. and Laser Vision
Centers, Inc. (attached as Appendix A to the joint proxy
statement/prospectus contained in this Registration Statement).
Pursuant to Item 601(b)(2) of Regulation S-K, the disclosure letters
referred to in the Agreement and Plan of Merger are omitted. The
Registrant hereby undertakes to furnish supplementally a copy of any
omitted disclosure letters to the Commission upon request.
3.1 -- Articles of Incorporation of the Registrant dated September 1,
1998 (incorporated by reference to Exhibit 3.1 to the Registrant's
Form 10-K for the fiscal year ended May 31, 1998).
3.2 -- Articles of Amendment of the Registrant dated November 5, 1999
(incorporated by reference to Exhibit 3.2 to the Registrant's Form
10-K for the fiscal year ended May 31, 2000).
3.3 -- Articles of Continuance of the Registrant which will become
effective prior to completion of the merger (attached as Appendix D
to the joint proxy statement/ prospectus contained in this
Registration Statement).
II - 3
3.4 -- By-Law No. 3 of the Registrant which will be replaced by By-Law 2001
prior to the completion of the merger (incorporated by reference to
Exhibit 3.2 to the Registrant's Form 10-K for the fiscal year ended
May 31, 1998).
3.5 -- Amendment dated as of November 4, 1999 to By-Law No. 3 of the
Registrant.(1)
3.6 -- By-Law 2001 of the Registrant which will become effective prior to
the completion of the merger (attached as Appendix D to the joint
proxy statement/prospectus contained in this Registration
Statement).
4.1 -- Shareholder Rights Plan Agreement dated as of September 21, 1999
between the Registrant and CIBC Mellon Trust Company.(1)
5.1 -- Form of opinion of Stewart McKelvey Stirling Scales as to legality
of the Registrant's common shares.(2)
8.1 -- Form of opinion of Thompson Coburn LLP as to certain tax matters.(2)
10.1 -- The Registrant's Share Purchase Plan (incorporated by reference to
Exhibit 4(b) to the Registrant's Registration Statement on Form S-8
filed with the Commission on December 31, 1997).
10.2 -- Employment Agreement with Elias Vamvakas (incorporated by reference
to Exhibit 10.1(e) to the Registrant's Form 10-K for the fiscal year
ended May 31, 1998).
10.3 -- Consulting Agreement with Excimer Management Corporation
(incorporated by reference to Exhibit 10.1(g) to the Registrant's
Form 10-K for the fiscal year ended May 31, 1998).
10.4 -- Shareholder Agreement for Vision Corporation (incorporated by
reference to Exhibit 10.1(l) to the Registrant's Form 10-K for the
fiscal year ended May 31, 1998).
10.5 -- Employment Agreement with David Eldridge (incorporated by
reference to Exhibit 10.1(m) to the Registrant's Form 10-K for the
fiscal year ended May 31, 2000).
10.6 -- Employment Agreement with William Leonard (incorporated by
reference to Exhibit 10.1(n) to the Registrant's Form 10-K for the
fiscal year ended May 31, 2000).
10.7 -- Employment Agreement with Thomas O'Hare (incorporated by
reference to Exhibit 10.1(o) to the Registrant's Form 10-K for the
fiscal year ended May 31, 2000).
10.8 -- Amended and Restated Share Option Plan of the Registrant
(incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-8 filed with the Commission on
December 31, 1997).
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Form 10-K for the fiscal year ended
May 31, 2001).
23.1 -- Consent of Ernst & Young LLP, independent accountants.(2)
23.2 -- Consent of PricewaterhouseCoopers LLP, independent
accountants.(2)
23.3 -- Consent of Arthur Andersen LLP, independent accountants.(2)
23.4 -- Consent of Stewart McKelvey Stirling Scales (included in the
opinion attached as Exhibit 5.1).
23.5 -- Consent of Thompson Coburn LLP (included in the opinion attached
as Exhibit 8.1).
24.1 -- Power of Attorney(1).
II - 4
99.1 -- Form of Proxy for LaserVision common stock.(2)
99.2 -- Form of Proxy for TLC common shares.(2)
99.3 -- Opinion of SG Cowen Securities Corporation (included as Appendix
B to the joint proxy statement/prospectus contained in this
Registration Statement).
99.4 -- Opinion of Goldman, Sachs & Co. (included as Appendix C to the
joint proxy statement/prospectus contained in this Registration
Statement).
99.5 -- Consent of SG Cowen Securities Corporation.(2)
99.6 -- Consent of Goldman, Sachs & Co.(2)
- ----------
(1) Previously filed.
(2) Filed herewith.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(A) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(B) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(C) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II - 5
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a)
and Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
the time shall be deemed to be the initial bona fide offering
thereof.
(c) (i) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by
other Items of the applicable form.
(ii) The Registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 20 above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the proxy
statement/prospectus which forms a part of this registration
statement pursuant to Items 4, 10(b), 11, or 13 of this registration
statement, within one business day of receipt of such request, and
to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this
registration statement through the date of responding to the
request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became
effective.
II - 6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mississauga, Province of Ontario, Canada on December 7, 2001.
TLC LASER EYE CENTERS INC.
By: /s/ Elias Vamvakas
----------------------------------
Elias Vamvakas
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Elias Vamvakas Chief Executive Officer and December __, 2001
- --------------------------------- Chairman of the Board of Directors
Elias Vamvakas (Principal Executive Officer)
* Controller and Acting Chief December __, 2001
- --------------------------------- Financial Officer (Principal Financial
Brian Park and Accounting Officer)
* Co-National Medical Director December __, 2001
- --------------------------------- and Director
Jeffery J. Machat
* Director December __, 2001
- ---------------------------------
Howard J. Gourwitz
Director
- ---------------------------------
Dr. William David Sullins, Jr.
* Director December __, 2001
- ---------------------------------
John F. Riegert
* Director December __, 2001
- ---------------------------------
Thomas N. Davidson
II - 7
Director
- ---------------------------------
Warren S. Rustand
*By: /s/Elias Vamvakas
----------------------------
Attorney-in-fact
II - 8
INDEX OF EXHIBITS
Exhibit
Number Description of Exhibit Description
- ------ ----------------------------------
2.1 -- Agreement and Plan of Merger, dated as of August 25, 2001, by
and among the Registrant, TLC Acquisition II Corp. and Laser
Vision Centers, Inc. (attached as Appendix A to the joint proxy
statement/prospectus contained in this Registration Statement).
Pursuant to Item 601(b)(2) of Regulation S-K, the disclosure
letters referred to in the Agreement and Plan of Merger are
omitted. The Registrant hereby undertakes to furnish
supplementally a copy of any omitted disclosure letters to the
Commission upon request.
3.1 -- Articles of Incorporation of the Registrant dated September 1,
1998 (incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the fiscal year ended May 31, 1998).
3.2 -- Articles of Amendment of the Registrant dated November 5, 1999
(incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-K for the fiscal year ended May 31, 2000).
3.3 -- Articles of Continuance of the Registrant which will become
effective prior to completion of the merger (attached as
Appendix D to the joint proxy statement/ prospectus contained in
this Registration Statement).
3.4 -- By-Law No. 3 of the Registrant which will be replaced by By-Law
2001 prior to the completion of the merger (incorporated by
reference to Exhibit 3.2 to the Registrant's Form 10-K for the
fiscal year ended May 31, 1998).
3.5 -- Amendment dated as of November 4, 1999 to By-Law No. 3 of the
Registrant.(1)
3.6 -- By-Law 2001 of the Registrant which will become effective prior
to the completion of the merger (attached as Appendix D to the
joint proxy statement/prospectus contained in this Registration
Statement).
4.1 -- Shareholder Rights Plan Agreement dated as of September 21, 1999
between the Registrant and CIBC Mellon Trust Company.(1)
5.1 -- Form of opinion of Stewart McKelvey Stirling Scales as to
legality of the Registrant's common shares.(2)
8.1 -- Form of opinion of Thompson Coburn LLP as to certain tax
matters.(2)
10.1 -- The Registrant's Share Purchase Plan (incorporated by reference
to Exhibit 4(b) to the Registrant's Registration Statement on
Form S-8 filed with the Commission on December 31, 1997).
10.2 -- Employment Agreement with Elias Vamvakas (incorporated by
reference to Exhibit 10.1(e) to the Registrant's Form 10-K for
the fiscal year ended May 31, 1998).
10.3 -- Consulting Agreement with Excimer Management Corporation
(incorporated by reference to Exhibit 10.1(g) to the
Registrant's Form 10-K for the fiscal year ended May 31, 1998).
10.4 -- Shareholder Agreement for Vision Corporation (incorporated by
reference to Exhibit 10.1(l) to the Registrant's Form 10-K for
the fiscal year ended May 31, 1998).
10.5 -- Employment Agreement with David Eldridge (incorporated by
reference to Exhibit 10.1(m) to the Registrant's Form 10-K for
the fiscal year ended May 31, 2000).
II - 9
Exhibit
Number Description of Exhibit Description
- ------ ----------------------------------
10.6 -- Employment Agreement with William Leonard (incorporated by
reference to Exhibit 10.1(n) to the Registrant's Form 10-K for
the fiscal year ended May 31, 2000).
10.7 -- Employment Agreement with Thomas O'Hare (incorporated by
reference to Exhibit 10.1(o) to the Registrant's Form 10-K for
the fiscal year ended May 31, 2000).
10.8 -- Amended and Restated Share Option Plan of the Registrant
(incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-8 filed with the Commission on
December 31, 1997).
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Form 10-K for the fiscal year
ended May 31, 2001).
23.1 -- Consent of Ernst & Young LLP, independent accountants.(2)
23.2 -- Consent of PricewaterhouseCoopers LLP, independent
accountants.(2)
23.3 -- Consent of Arthur Andersen LLP, independent accountants.(2)
23.4 -- Consent of Stewart McKelvey Stirling Scales (included in the
opinion attached as Exhibit 5.1).
23.5 -- Consent of Thompson Coburn LLP (included in the opinion attached
as Exhibit 8.1).
24.1 -- Power of Attorney(1).
99.1 -- Form of Proxy for LaserVision common stock.(2)
99.2 -- Form of Proxy for TLC common shares.(2)
99.3 -- Opinion of SG Cowen Securities Corporation (included as Appendix
B to the joint proxy statement/prospectus contained in this
Registration Statement).
99.4 -- Opinion of Goldman, Sachs & Co. (included as Appendix C to the
joint proxy statement/prospectus contained in this Registration
Statement).
99.5 -- Consent of SG Cowen Securities Corporation.(2)
99.6 -- Consent of Goldman, Sachs & Co.(2)
- ----------
(1) Previously filed.
(2) Filed herewith.
II - 10