<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997
REGISTRATION STATEMENT NO. 333-21899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MED-EMERG INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CANADA 3842 NA
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code) Identification
incorporation or organization) No.)
</TABLE>
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Address, including postal code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
CARL PAHAPILL
PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
MED-EMERG INTERNATIONAL, INC.
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Name, address, including postal code and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
JAY M. KAPLOWITZ, ESQ. JACK BECKER, ESQ.
ARTHUR S. MARCUS, ESQ. SNOW BECKER KRAUSS P.C.
GERSTEN, SAVAGE, KAPLOWITZ, 605 THIRD AVENUE
FREDERICKS & CURTIN, LLP NEW YORK, NEW YORK 10158-0125
101 EAST 52ND STREET (212) 687-3860
NEW YORK, NEW YORK 10022
(212) 752-9700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box / /
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT BEING OFFERING PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value....................... 1,437,500(2) $3.90 $ 5,606,250 $ 1,698.86
Class A Warrants................................. 1,437,500(3) $0.10 $ 143,750 $ 43.56
Common Stock issuable upon exercise of
Warrants....................................... 1,437,500(4) $5.00 $ 7,187,500 $ 2,178.03
Underwriters' Warrant to Purchase Common Stock... 125,000 $4.68 $ 585,000 $ 177.27
Underwriters' Warrant to purchase
Warrants....................................... 125,000 $0.12 $ 15,000 $ 4.55
Common Stock issuable upon exercise of Warrants
issuable upon exercise of Underwriters'
Warrants....................................... 125,000(4) $5.00 $ 625,000 $ 189.39
Common Stock being Registered for Selling
Stockholders................................... 125,000 $4.00 $ 500,000 $ 151.52
Total Registration Fee........................... $ 4,443.18
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Includes 187,500 shares of Common Stock subject to an over-allotment option
granted to the Underwriters, including 140,625 shares to be offered by
certain stockholders of the Company.
(3) Includes 187,500 Warrants subject to an over-allotment option granted to the
Underwriters.
(4) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional shares of Common Stock issuable as a
result of any future anti-dilution adjustments in accordance with the terms
of the Class A Common Stock Purchase Warrants.
------------------------
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus"); and (ii) one to be
used in connection with the sale of Common Stock by certain selling
securityholders (the "Selling Securityholders Prospectus"). The Prospectus and
the Selling Securityholders Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholders Prospectus included
herein which are labeled "Alternate Page for Selling Securityholders
Prospectus."
i
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 9, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
MED-EMERG INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MED-EMERG INTERNATIONAL, INC. (the "Company") is hereby offering, separately
and not as units, (the "Offering") 1,250,000 shares of the Company's common
stock, no par value (the "Common Stock"), and 1,250,000 Class A Redeemable
Common Stock Purchase Warrants (the "Warrants") (the "Offering"), through
Network 1 Financial Securities, Inc. and Century City Securities, Inc.
(collectively, the "Underwriters"). Each of the Warrants entitles the registered
holder thereof to purchase one share of Common Stock at a price of $5.00 per
share, subject to adjustment in certain circumstances, at any time commencing
one year from the effective date of the registration statement of which this
Prospectus is a part (the "Effective Date") and thereafter to , 2002,
the fifth anniversary of the Effective Date. The Warrants are subject to
redemption by the Company at $.10 per Warrant at any time commencing
, 1999 [two years after the Effective Date] on not less than 30 days
prior written notice to the holders of the Warrants, provided the closing bid
price of the Common Stock has been at least $8.00 for 20 consecutive trading
days ending on the third day prior to the date on which the Company gives notice
of redemption. The Warrants will be exercisable until the close of business on
the day immediately preceding the date fixed for redemption.
Prior to the Offering, there has been no public market for the Common Stock
and Warrants and no assurance can be given that any such market will develop
upon completion of the Offering. Application has been made to have the Common
Stock and Warrants included for quotation on The Nasdaq SmallCap Market under
the symbols "MEDE" and "MEDEW," respectively, and for listing on the Boston
Stock Exchange under the symbols "MED" and "MEDW," respectively. The initial
public offering price of the Common Stock and the Warrants and the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and the Underwriters and do not necessarily bear any
relation to the Company's earnings, assets, book value, net worth or any other
recognized criteria of value. See "Underwriting." Approximately $250,000 (6.25%)
of the net proceeds of this Offering will be used to repay two notes held by a
director of the Company.
Concurrently with this Offering, 125,000 shares of Common Stock ("Selling
Securityholders' Shares") have been registered by the Company under the
Securities Act of 1933, as amended ("Act"), on behalf of certain of its
stockholders ("Selling Securityholders"), pursuant to a Selling Securityholder
Prospectus included within the Registration Statement of which this Prospectus
forms a part. The Selling Securityholders' Shares are not part of this
underwritten offering. The Selling Securityholder Shares may not be sold prior
to twenty-four months from the Effective Date without the prior written consent
of the Underwriters ("lock-up"). Although the Company will not receive any
proceeds from the sale of the Selling Securityholders' Shares, a director of the
Company, who is also a Selling Securityholder, will receive the proceeds of the
sale of 37,500 shares of Common Stock. The Underwriters have advised the Company
that any decision to release any Selling Securityholder from the lock-up is
dependent on market conditions, particularly its desire to preserve an orderly
market for the Common Stock and Warrants.
AN INVESTMENT IN THE SHARES OF COMMON STOCK AND WARRANTS OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON 8 AND DILUTION ON PAGE 17.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. U.S. $3.90 U.S. $0.39 U.S. $3.51
Per Warrant............................ U.S. $0.10 U.S. $0.01 U.S. $0.09
Total.................................. U.S. $5,000,000 U.S. $500,000 U.S. $4,500,000
</TABLE>
(1) Does not include additional consideration to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds, of which U.S. $50,000 has been paid, (ii) warrants
(the "Underwriters' Warrants") entitling the Underwriters to purchase up to
125,000 shares of Common Stock and 125,000 Warrants at a price per share of
Common Stock or Warrant equal to 120% of the initial public offering price,
(iii) US $5,000 per month for 24 months pursuant to a financial consulting
agreement which is payable in full upon the closing of the Offering; and
(iv) a three year right of first refusal with respect to certain public or
private sales of securities by the Company and any of its subsidiaries or
affiliates. The Company has also agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended,
and to pay the Underwriters, under certain circumstances, a warrant
solicitation fee of 5% of the exercise price of each Warrant exercised. See
"Underwriting."
(2) Before deducting expenses of this Offering estimated at US $500,000 payable
by the Company, including the non-accountable expense allowance of US
$150,000 (US $172,500 if the Underwriters' over-allotment option is
exercised in full).
(3) The Company and certain of its securityholders ("Selling Allotment
Securityholders") have granted the Underwriters an option, exercisable
within 45 days after the date of this Prospectus, to purchase up to 187,500
shares of Common Stock (140,625 of which are being granted by the Selling
Allotment Securityholders) and 187,500 Warrants (the "Over-Allotment
Option") upon the same terms as set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in its
entirety, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company and the Selling Allotment Securityholders will be US
$5,750,000, US $575,000 and US $4,626,562.50 and US$548,437.50,
respectively. See "Underwriting" and "Selling Allotment Stockholders."
The Common Stock and Warrants are being offered by the Underwriters subject
to prior sale, when, as and if delivered to the Underwriters and subject to
their right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of certificates will be made against
payment therefor at the offices of Network 1 Financial Securities, Inc.,
Galleria, Building 2, 2 Bridge Avenue, Redbank, New Jersey 07701, on or about
, 1997.
NETWORK 1 FINANCIAL SECURITIES, INC. CENTURY CITY SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABLIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
EXCHANGE RATE
ALL DOLLAR AMOUNTS SET FORTH IN THIS PROSPECTUS FOR THE COMPANY ARE
EXPRESSED IN CANADIAN DOLLARS, EXCEPT WHERE OTHERWISE NOTED. The following table
sets forth (i) the rates of exchange for the Canadian dollar, expressed in U.S.
dollars, in effect at the end of each of the periods indicated; (ii) the average
of exchange rates in effect on the last day of each month during such periods;
and (iii) the high and low exchange rates during such periods, in each case
based on the noon buying rate in New City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RATE AT END OF PERIOD...................... $ 0.7874 $ 0.7576 $ 0.7143 $ 0.7353 $ 0.7299
AVERAGE RATE DURING PERIOD................. 0.8264 0.7752 0.7299 0.7299 0.7353
HIGH....................................... 0.7874 0.7519 0.7092 0.7299 0.7299
LOW........................................ 0.7874 0.7576 0.7143 0.7353 0.7299
</TABLE>
On May 2, 1997, the noon buying rate for Canadian dollars was U.S. $.7231 =
$1.00 Canadian.
This Prospectus contains conversions of certain Canadian dollar amounts into
U.S. dollars, as indicated by the symbol U.S.$, solely for the convenience of
the reader. These conversions should not be construed as representations that
the Canadian dollar amounts actually represent such U.S. dollar amounts or could
be converted into U.S. dollars at the rate indicated. Canadian dollar amounts so
converted have been converted into U.S. dollars at the rate of U.S. $.74 = $1.00
Canadian, the noon buying rate on January 7, 1997.
CIVIL LIABILITIES
The Company is a corporation incorporated under the Business Corporations
Act of Ontario (the "OBCA") and most of the directors, controlling persons and
officers of the Company, as well as experts named herein, are residents of
Canada. Moreover, substantial portions of the Company's assets and the assets of
such persons are located in Canada. As a result, it may be difficult to effect
service of process within the United States upon the Company or such persons or
to enforce, in United States federal or state courts, judgments against them
obtained in such courts and predicated on the civil liability provisions of the
United States federal or state securities laws. The Company has been advised by
its Canadian counsel, Borden & Elliot, that there is doubt as to whether
Canadian courts would enforce (i) judgments of United States federal or state
courts obtained in actions against the Company or such persons predicated on the
civil liability provisions of the United States federal or state securities
laws; or (ii) in original actions, liabilities against the Company or such
persons predicated solely on the United States federal or state securities laws.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
WARRANTS, THE OVER-ALLOTMENT OPTION OR THE UNDERWRITER'S WARRANTS. AS USED
HEREIN, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, THE
"COMPANY" REFERS TO MED-EMERG INTERNATIONAL, INC. ("MEI"), ITS WHOLLY-OWNED
SUBSIDIARIES, MED-EMERG URGENT CARE CENTRES, INC., 927563 ONTARIO INC. AND
927564 ONTARIO INC., ITS INDIRECT WHOLLY-OWNED SUBSIDIARIES, MED-EMERG, INC.
("MED") AND MED-PLUS HEALTH CENTERS LTD. ("MPHC"), WHO ARE WHOLLY-OWNED BY
927563 ONTARIO, INC. AND 927564 ONTARIO, INC., RESPECTIVELY, THE COMPANY ALSO
OWNS 33.33% OF GLENDERRY WALK-IN CLINIC ("GWIC"), A PARTNERSHIP WHICH IT MANAGES
AND OPERATES.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services in the Province of Ontario, Canada. The broad range
of services offered by the Company include operational consulting and healthcare
management services, physician and nurse staffing, and healthcare educational
services.
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care, and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million residents of the Province of Ontario (37% of all of Canada). Inefficient
hospitals run the risk of the loss of public funding if they fail to meet the
objectives of the Commission. Accordingly, the incentives are in place to induce
public hospitals to find solutions to achieve the desired efficiencies,
including outsourcing available from and through private sector organizations,
such as the Company.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's soon-to-be launched
Urgent Care Centres program is intended to expand clinic operations. The Company
intends to aggressively market its facilities and services as a viable outsource
alternative to public hospitals' present emergency room operations.
THE EMS DIVISION
The EMS Division of the Company provides physician staffing and
administrative support to emergency departments and physician recruitment
services to Canadian hospitals and emergency physician groups from a pool of
approximately 140 independent, non-employee physicians and other healthcare
professionals who have entered into physician contracts with the Company. Under
the direction of the Company's management, the Company's physician pool provides
emergency medical services to 14 hospital emergency rooms located in Ontario,
Canada. See "Business -- Contractual Arrangements."
Management believes that competitive pressures have focused the attention of
many hospital administrators on the need for better management of their
professional medical staff. In the experience of management, hospitals have
increasingly turned to contract management firms with specialized skills to help
solve physician contract and scheduling problems, to strengthen the management
of their professional
3
<PAGE>
medical staff and specific clinical departments, to better control costs, and to
assist in meeting their healthcare coverage needs and obligations. Using its
management skills and experience, and the economies of scale which the size and
specialization of its operations permit, the Company provides a management
alternative to hospitals while offering a flexible practice and lifestyle
alternative to physicians. The EMS Division also provides management consulting
services to healthcare facilities and the Ministry of Health, Province of
Ontario, and prepares business plans and feasibility studies to improve
efficiency at such facilities.
The marketing strategy for the Company's EMS Division is to procure
contracts to oversee the management of entire emergency departments for
hospitals. In Canada, as indicated by the Savings and Restructuring Act enacted
by the provincial government of Ontario, there is significant pressure to
increase cost effectiveness and efficiency of services within the public
hospital sectors. Accordingly, public sector/private sector partnerships and
joint ventures, such as the outsourcing of entire emergency department services
including physician support, nursing support and administrative services may be
an attractive, cost effective alternative for hospitals, and one to which the
Company has addressed its marketing efforts.
For the years ended December 31, 1996 and December 31, 1995, the EMS
Division represented 81.2% and 86.54% of the Company's revenues, respectively.
For the three months ended March 31, 1997 and March 31, 1996, the EMS Division
represented 78.1% and 85.7% of the Company's revenues, respectively.
THE CLINICAL OPERATIONS DIVISION
The Company's Clinical Operations division owns and operates four clinics in
Canada, including two in Toronto's International Airport. Generally, the clinics
offer a variety of services, including family practice, walk-in services for
patients, and chiropractic and massage therapy. In addition, the airport clinics
provide walk-in services to the employees of the airport and emergency services
to the approximately 28 million travelers who use the airport each year. The
support staff at the airport clinics are employees of the Company. The emergency
physicians, who are not employees of the Company, are on-call for the airport
clinics and on-site for the other two clinics. The Company and its employees do
not provide billable medical services. All billable medical services are
provided by the non-employee physicians.
In addition, the Company operates the Glenderry clinic in which it owns a
33.33% interest. The Company manages the walk-in clinic by providing scheduling,
staffing, recruiting, billing, collections and accounting services to the
clinic. In return for managing the clinic, the Company receives a monthly fee of
$1,500. In addition, as a 33.33% owner of the clinic, the Company receives one
third of all distributions made by the clinic and is responsible for 33.33% of
any losses related to the clinic.
For the years ended December 31, 1996 and December 31, 1995, the Clinical
Operation's division represented 18.8% and 13.46% of the Company's revenues,
respectively. For the three months ended March 31, 1997 and March 31, 1996, the
Clinical Operation's division represented 21.9% and 14.3% of the Company's
revenues, respectively.
URGENT CARE CENTRES
The Company intends to develop a chain of Urgent Care Centres beginning in
the Province of Ontario and then expanding to other provinces in Canada.
Management expects that these centres will offer on-site, emergency medical care
services comparable to the services provided in a traditional emergency
department. The Urgent Care Centre concept consists of a group of emergency
trained physicians, a medical laboratory, a diagnostic radiology service and a
pharmacy, each of which must be present for the others to co-exist, and each of
which is provided by a separately owned company. The Company, through its
wholly-owned subsidiary Med-Emerg Urgent Care Centre, Inc., intends to provide
the provision of emergency medical services at the urgent care centre. Each
emergency-trained physician
4
<PAGE>
working at an Urgent Care Centre will have critical care expertise to treat most
clinical problems. Unlike most walk-in clinics and family physician offices, its
Urgent Care Centres will be staffed to treat 90% of the cases seen in a typical
Ontario emergency department. The Company plans to open its first centre in the
third quarter of 1997 with up to nine additional centres scheduled over the
following eighteen months. The Company estimates that it will cost approximately
$200,000 to establish the Company's participation in each Urgent Care Centre.
See "Use of Proceeds."
Urgent Care Centres will be "community based" and offer convenient access to
non-hospital based health care. Management believes that the centres will offer
high quality service not only in clinical medical practice but also in consumer
defined quality attributes such as waiting times, quality of environment,
quality of personal interaction and courtesy. The Company intends to design
Urgent Care Centres to be less costly to the publicly funded health care system
than traditional emergency departments.
As indicated below, there is a growing need for an alternative provider of
emergency medical services due to the funding problems facing the Canadian
health care system. At present, the vast majority of emergency services are
delivered by qualified family or general practitioners in local communities
rather than emergency specialists as are staffed in hospital emergency rooms.
Notwithstanding that the number of physicians focusing on emergency medicine is
relatively small when compared to the number of medical physicians, the demand
for emergency care has grown significantly over the past ten years.
GROWTH STRATEGY
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any specific acquisitions.
The structure of the Company is as follows: Med-Emerg International, Inc.
oversees the operations of each of its wholly-owned direct and indirect
subsidiaries; Med-Emerg Urgent Care Centres, Inc. is a wholly-owned subsidiary
of the Company which will oversee the Company's expansion and operations with
respect to its planned Urgent Care facilities; 927563 Ontario Inc. and 927564
Ontario Inc. are now holding companies which, prior to the incorporation of
Med-Emerg International, Inc., managed the businesses of their respective
subsidiaries Med-Emerg, Inc. and Med-Plus Health Centres Ltd.; Med-Emerg, Inc.,
the wholly-owned subsidiary of 927563 Ontario Inc., is the operating company
with respect to the Company's EMS Division and is the parent of Canadian Medical
Center Prague, a limited liability company organized under the laws of the Czech
Republic ("CMC"); and Med-Plus Health Centers Ltd., the wholly-owned subsidiary
of 927564 Ontario Inc., is the operating company with respect to the Company's
Clinical Operations Division.
Med-Emerg International, Inc. was incorporated in the Province of Ontario on
December 28, 1995 (under its former name 1162209 Ontario Inc.). Med-Emerg Urgent
Care Centres, Inc. was incorporated in the Province of Ontario on December 2,
1996. 927563 Ontario Inc. and 927564 Ontario Inc. were incorporated in the
Province of Ontario on March 22, 1991, Med-Emerg Inc. was incorporated in the
Province of Ontario in July 1983 and Med Plus Health Centers Ltd. was
incorporated in the Province of Ontario in March 1985. The Company's offices are
located at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1 Canada
and its telephone number is (905) 858-1368.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......... 1,250,000 shares of Common Stock
Warrants Offered............. 1,250,000 Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock. See "Description of
Securities."
Offering Prices.............. US $3.90 per share of Common Stock
US $0.10 per Warrant.
Common Stock Outstanding
Prior to the Offering(1)... 1,952,000
After the Offering(1)...... 3,202,000
Warrants Outstanding:
Prior to the Offering...... 0
After the Offering......... 1,250,000
Terms of Warrants:
Exercise Price............. The exercise price is US $5.00 per share, subject to
adjustment in certain circumstances.
Exercise Period............ The Warrants are exercisable for a period of four years
commencing on , 1998 (one year after the Effective
Date) and expiring on , 2002 (five years after the
Effective Date).
Redemption................. The Warrants are redeemable by the Company, commencing
, 1999, two years from the Effective Date (or sooner
with the consent of the Underwriters), at a redemption price
of $0.10 per Warrant on not less than 30 days written
notice, provided that the closing bid price per share of
Common Stock, for 20 consecutive trading days ending on the
third business day prior to the date of the redemption
notice, is at least US $8.00, subject to adjustment for
certain events. See "Description of Securities--Class A
Warrants."
Risk Factors............... The securities offered hereby involve a high degree of risk
and immediate substantial dilution to public investors. See
"Risk Factors" and "Dilution".
Use of Proceeds............ The net proceeds of the Offering will be used primarily for
the development of a chain of Urgent Care Centres, expansion
of the Emergency Services Division, the repayment of certain
indebtedness and for working capital and general corporate
purposes. See "Use of Proceeds".
</TABLE>
<TABLE>
<S> <C> <C>
Proposed NASDAQ MEDE
Symbols(2)............... Common Stock: MEDEW
Class A Warrants
Proposed BSE Symbols(2).... Common Stock: MED
Class A MEDW
Warrants:
</TABLE>
- ------------------------
(1) Does not include 928,500 shares of Common Stock issuable upon exercise of
outstanding options and 500,000 shares of Common Stock issuable upon
conversion of 500,000 shares of Preferred Stock outstanding. See "Principal
Stockholders," "Management" and "Description of Securities."
(2) The proposed Nasdaq and Boston Stock Exchange trading symbols do not imply
that a liquid and active market will be developed or sustained for the
Shares and/or Warrants upon completion of the Offering.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from and should be read in conjunction with the financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
All references to dollar amounts are stated in Canadian dollars unless otherwise
noted.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31
-------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue................................ $ 2,836,034 $ 2,677,942 $ 10,817,048 $ 10,983,553 $ 10,474,754
Physician Fees and Other Direct
Costs................................ 2,007,062 2,072,800 8,554,396 8,406,631 7,977,679
Gross Profit........................... 828,972 605,142 2,262,652 2,576,922 2,497,075
Operating Expenses..................... 652,378 827,793 3,616,269 2,860,892 2,218,420
Other Income (Expense)................. (45,582) (6,634) (55,461) 54,930 (51,879)
Income (loss) Before Taxes............. 131,012 (229,285) (1,409,078) (229,040) 226,776
Provision for Income Taxes
(recovery)........................... 32,753 (68,786) (146,554) 71,447 52,245
Net Income (Loss)...................... 98,259 (160,499) (1,262,524) (300,487) 174,531
Net Income per Common Share(1)......... $ 0.05 $ (0.05) $ (0.42) $ (0.13) $ 0.07
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(2)
------------- --------------
Working Capital.................................................................... $ (1,337,761) 4,102,239
Total Assets....................................................................... 4,222,870 7,860,514
Accumulated Deficit................................................................ (6,856,121) (7,077,710)
Shareholders' Equity............................................................... 336,058 5,554,469
</TABLE>
- ------------------------
(1) Net income per share reflects a weighted average of 1,900,944 shares of
Common Stock outstanding at March 31, 1997, 3,038,214 shares of Common Stock
outstanding at December 31, 1996, 2,988,889 shares of Common Stock
outstanding at March 31, 1996, and 2,333,333 shares of Common Stock
outstanding prior to such dates.
(2) Reflects the issuance of 1,250,000 shares of the Company's Common Stock and
1,250,000 Warrants offered hereby and the application of the net proceeds
therefrom. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE COMPANY.
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
AS WELL AS OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
OPERATING LOSSES; ACCUMULATED DEFICIT; WORKING CAPITAL DEFICIT. The Company
incurred a net loss of $1,262,524 for the year ended December 31, 1996 and a net
loss of $300,487 for its year ended December 31, 1995, as compared to net income
of $174,531 for the year ended December 31, 1994. The losses in the year ended
December 31, 1996 and year ended December 31, 1995 were primarily the result of
write-downs of $509,337 and $663,448, respectively, for an investment in a
clinic in Prague, The Czech-Republic, which is currently being closed. In
addition, in 1996 there was a charge of $610,000 for stock compensation. As of
March 31, 1997 and December 31, 1996, the Company had an accumulated deficit of
approximately $6,856,121 and $6,954,380, respectively, and a working capital
deficit of approximately $(1,337,761) and $(1,192,641), respectively. There can
be no assurance as to the future profitability of the Company. See "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON CONTRACTS WITH HOSPITALS. The Company derives the majority of
its revenues from contracts with hospitals. The standard hospital contract
provides for an initial one or two-year term, which renews automatically unless
terminated on 60 days notice. The Company has at times experienced a periodic
reduction in the number of its hospital contracts. This reduction is the direct
result of the Ontario Hospital's Restructuring Committee's reduction and/or
amalgamation of the number of hospital emergency departments, the defined nature
of the crisis management service for hospitals that the Company provides and the
risk that a physician elects to remain in the community and work on a full time
basis for the hospital thus eliminating the need for the Company's services. In
addition, in each of the Company's hospital contracts, each party is able to
terminate the contract upon two or three months prior written notice. In some
contracts, the hospital has the right to terminate immediately if it pays two to
three months of management fees. There can be no assurance that the Company will
be able to maintain its current level of hospital contracts. The loss of several
hospital contracts would have a material adverse affect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE OF URGENT CARE CENTRES. Upon completion of
the Offering, the Company intends to develop a chain of Urgent Care Centres
which will provide on-site emergency medical services. The success of these
centres depends on several factors, including the ability of the Company to
attract qualified physicians and other health care providers and the public's
willingness to seek emergency medical care at such centres. There can be no
assurance that the Company will be able to obtain the necessary qualified
personnel or that the Urgent Care Centre concept will be accepted by the market.
CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS; POTENTIAL TAX
LIABILITY. The Company contracts with physicians as independent contractors,
rather than employees, to fulfill its contractual obligations to hospitals.
Therefore, the Company did not historically, and the Company does not currently,
withhold income taxes, make Unemployment Insurance and Canada Pension Plan
payments, or provide worker's compensation insurance with respect to such
independent contractors. The payment of applicable taxes is regarded as the
responsibility of such independent contractors. A determination by taxing
authorities that the Company is required to treat the physicians as employees
could have an adverse effect on the Company and its operations.
ADVERSE EFFECT OF PROVINCIAL LAWS REGARDING THE CORPORATE PRACTICE OF
MEDICINE. Business corporations are legally prohibited in many Canadian
provinces from providing or holding themselves out as providers of medical care.
While the Company has structured its operations to comply with the corporate
practice of medicine laws of Ontario and will seek to structure its operations
in the future to comply with the laws of any province in which it seeks to
operate, there can be no assurance that, given
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<PAGE>
varying and uncertain interpretations of such laws, the Company would be found
to be in compliance with restrictions on the corporate practice of medicine in
such province. A determination that the Company is in violation of applicable
restrictions on the practice of medicine in any province in which it operates
could have a materially adverse effect on the Company if the Company were unable
to restructure its operations to comply with the requirements of such province.
Such regulations may limit the provinces in which the Company can operate,
thereby inhibiting future expansion of the Company into potential markets in
other jurisdictions or states.
CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES. Due to the nature of its
business, the Company and certain physicians who provided services on its behalf
may be the subject of medical malpractice claims, with the attendant risk of
substantial damage awards. The sources of potential liability in this regard
include the alleged negligence of physicians placed by the Company at contract
hospitals, and liabilities in connection with medical services provided at the
clinics. The Company currently maintains the following insurance policies
related to professional liabilities: (i) $10,000,000 with respect to general
commercial liability; and (ii) $10,000,000 with respect to errors and omissions
caused by a negligent act, error or omission by the Company, or any person for
whom the Company is legally liable, arising out of the conduct of the Company's
business. In addition, physicians staffed by the Company maintain their own
malpractice insurance. To the extent such physicians were regarded as agents of
the Company in the practice of medicine, there can be no assurance that a
patient would not sue the Company for any medical negligence of such physicians.
In addition, in the event that the Company becomes liable, there can be no
assurance that its current insurance policy will be adequate to cover any
liabilities.
GOVERNMENT REGULATION. The Company's operations are subject to extensive
Federal and provincial government regulation. The provision of medical services
in Canada is for the most part, under provincial jurisdiction. Under the Health
Insurance Act, the government of Ontario is responsible for paying physicians
for the provision of insured services to residents of Ontario. In 1993, the
government placed an overall maximum ("hard cap") of approximately $3.8 billion
on the amount physicians could collectively bill the Ontario Health Insurance
Plan (OHIP) for insured services. As physicians' billings exceeded this hard cap
in successive years, the government reduced the fees received under OHIP by
prescribed percentages ("clawback"). This clawback is subject to constant
revision and review. In addition to the hard cap, individual physicians'
billings under OHIP are subject to threshold amounts ("soft caps"). Once a
physician reaches a prescribed level in the 12-month period beginning April 1 of
each year, the government reduces payments to the physician by a prescribed
fraction. For the period ended March 31, 1997 there was no clawback expense as
compared to a charge to earnings of $28,352 for the period ended March 31, 1996.
For the twelve months ended December 31, 1996, a total of $143,261 compared to
the amount of $176,949 for the twelve months ended December 31, 1995 was
reflected as clawback expense. Substantially all of the Company's operating
revenue is derived from government funded and administered programs. In Canada,
the health care system is publicly administered and is largely considered not
for profit. A large for profit health care sector nevertheless co-exists within
the non-profit section. OHIP fee for service over the past three years has been
"clawed back" to ensure a total spending freeze of $3.8 billion per year in
Ontario. In fiscal year 1996-97, the government announced a lowering of billing
thresholds for all physicians in the province. The thresholds were lowered to
levels which are estimated to affect as many as 30% of physicians. Once billings
exceed these thresholds, further billings are discounted by 33%, 66% and 75%. In
May 1997, the Ontario provincial government reached an agreement with the
medical profession wherein it was agreed that the soft cap imposed against the
individual physicians shall be cancelled on all services rendered after February
28, 1998. This agreement is due to expire on March 31, 2000. Further, this
agreement has no effect on the hard cap. Any further change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of the Company, absent, or prior to, satisfactory
renegotiation of contracts with clients and arrangements with contracted
physicians. There can be no assurance as to what new regulations, whether now
with respect to hard caps or in the future with respect to soft caps, will be
imposed and what effect they will have on the Company.
9
<PAGE>
In addition the Health Services Restructuring Commission (HSRC), established
under Bill 26, will have the mandate and authority to facilitate and accelerate
hospital restructuring in Ontario. This legislation contains measures intended
to control public and private spending on healthcare as well as to provide
universal public access to the healthcare system. The Company cannot predict the
ultimate effect of this and what other healthcare legislation, if any, will be
enacted. Significant changes in Canada's healthcare system are likely to have a
gradual but substantial impact on the manner in which the Company conducts its
business and could have a gradual but substantial impact on the manner in which
the Company conducts its business and could have a material effect on the
results of the Company.
ABILITY TO MANAGE GROWTH; RISK OF UNSPECIFIED ACQUISITIONS. As part of its
business strategy, the Company intends to pursue growth through acquisitions of
related and complementary businesses in both Canada and the United States. The
Company's growth strategy will require expanded client services and support,
increased personnel throughout the Company, expanded operational and financial
systems and the implementation of new control procedures. There can be no
assurance that the Company will be able to achieve rapid growth or be able to
manage expanded operations effectively. Moreover, failure to implement financial
and operating systems and to add professional and necessary support personnel
could have a material adverse impact on the Company's results of operations and
financial condition. The Company has no present commitments, understandings or
agreements for any acquisitions. The Company's acquisitions could involve a
number of risks including the diversion of management's attention to the
assimilation of the companies to be acquired, unforeseen difficulties in the
acquired operations, adverse effects on the Company's operating results,
amortization of acquired intangible assets and dilution in the ownership
interest of stockholders as a result of the issuance of additional Common Stock
or Preferred Stock. The consummation of any acquisition will likely include the
issuance by the Company of additional equity and/or debt securities. In
addition, the Company may utilize a portion of the proceeds of this Offering.
Any new issues of equity will likely result in additional dilution to the
investors in this Offering. The Company is prohibited from issuing any Common
Stock or Preferred Stock for a period of 24 months from the date of this
Prospectus without the prior written consent of the Underwriters. There is no
assurance the Company will be successful in consummating any acquisition
transactions.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is largely
dependent upon the efforts and abilities of certain members of its management,
including but not limited to, Ramesh Zacharias, M.D., its Chief Executive
Officer and Carl Pahapill, its President and Chief Operating Officer. The loss
of the services of either Dr. Zacharias or Mr. Pahapill would likely have a
material adverse effect on the business of the Company. Although the Company has
procured key-man life insurance in the amount of $1,000,000 on Mr. Pahapill, it
has no key-man life insurance on any other employees. See "Business--Personnel"
and "Officers and Directors."
CONTROL BY MANAGEMENT AND/OR EXISTING STOCKHOLDERS. Following completion of
the Offering, the Company's officers and directors will own or have rights to
acquire an aggregate of approximately 49% of the voting power of the Company's
capital stock. See "Principal Stockholders" and "Description of Securities."
Accordingly, such stockholders will possess the ability to generally exert
substantial control over the business and operations of the Company.
COMPANY FINANCING OF ACCOUNTS RECEIVABLES. One of the services provided by
the Company's EMS Division is the collection of fees for services performed by
the independent physician contractors. In the event that the Company does not
collect these fees by the time payment is due to the physician, it is
nevertheless obligated to pay the physician. In practice, the Company uses its
working capital to finance the accounts receivable and pays the physician. As
stated in the "Use of Proceeds" section, a portion of the proceeds of this
Offering will be used to augment the Company's working capital which is, in
part, used to finance accounts receivable. Historically, bad debts are less than
1% of gross billings since substantially all of the physician services billed to
OHIP are for Ontario residents who are automatically covered by OHIP for the
medical services performed. However, there can be no assurance that accounts
receivables will ultimately be collected from OHIP and the hospital.
Accordingly, there can be no assurance that the
10
<PAGE>
Company will not experience significant losses due to unsatisfied accounts
receivable which have been financed by the Company.
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 27.25% of the
net proceeds of the Offering will be applied to working capital and general
corporate purposes. In addition, the application of the balance of the proceeds
may differ considerably from the estimates set forth herein due to changes in
the economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses. Accordingly, management of the
Company will have broad discretion over the use of proceeds. See "Use of
Proceeds."
NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds
of the Offering together with available cash flows will be sufficient to finance
the Company's working capital requirements for a period of at least 12 months
following the completion of the Offering. The Company has allocated US$1,090,000
of proceeds of the Offering for working capital purposes. In addition, although
the Company has not entered into any formal commitments, the Company's strategy
is to acquire companies with related and complementary businesses. The continued
expansion and operation of the Company's business beyond such 12 month period
and its ability to make acquisitions may be dependent upon its ability to obtain
additional financing. There can be no assurance that additional financing will
be available on terms acceptable to the Company, or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION. The healthcare industry is highly competitive. The Company
competes based on the scope, quality and cost of services provided. Certain of
the Company's actual or potential competitors have substantially greater
financial resources available to them. While management believes that it
competes on the basis of the quality of its services, the larger resources of
its competitors may give them certain cost advantages over the Company (e.g., in
the areas of malpractice insurance, cost, savings from internal billing and
collection and a broader scope of services). The Company also competes with
various local physician groups which provide hospitals with emergency staffing
alternatives. The clinics operated by the CO Division compete with hospital and
other private physicians. The Urgent Care Centres will compete with hospital
emergency rooms. There can be no assurance that the Company will not encounter
increased competition in the future which could adversely affect the Company's
operating results.
OFFERING PROCEEDS BENEFIT AFFILIATED PERSON; PROCEEDS TO REBAY
INDEBTEDNESS. The Company will use a portion of the net proceeds of this
Offering to (i) repay US$100,000 principal amount plus interest borrowed against
a line of credit granted to the Company by one of its directors, and (ii) repay
US$150,000 principal amount plus interest to a director of the Company who
invested in the January 1997 private placement. See "Use of Proceeds."
TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL STOCKHOLDERS. The Company has in
the past loaned money to members of management and principal stockholders. As of
March 31, 1997, amount outstanding is $201,864, $141,864 of which will be repaid
prior to the completion of this Offering, and $60,000 of which is being repaid
over a period of five years beginning two years from the completion of this
Offering. These loans bear no interest. The Company does not at present
contemplate entering into additional related party transactions. In the future,
the Company plans to present all proposed transactions with affiliated parties
to the Board of Directors for its consideration and approval. Any Board member
who has an interest in such transaction will abstain from voting thereon.
LIMITED PUBLIC MARKET FOR THE COMPANY'S SECURITIES; NO ASSURANCE OF PUBLIC
TRADING MARKET. Prior to the Offering, there has been no market for the Common
Stock or Warrants. No assurance can be given that a public market for such
securities will develop or that a public trading market, if developed, will be
sustained. The Company has applied for listing of the Common Stock and Warrants
on The Nasdaq Stock Market, Inc. ("Nasdaq") SmallCap Market. If a trading market
does in fact develop for the Common Stock and Warrants, there can be no
assurance that it will be maintained. If for any reason the Company's securities
are not listed on Nasdaq or a public trading market does not develop, purchasers
of the Company's securities may have difficulty in selling their securities
should they desire to do so. In any event,
11
<PAGE>
because certain restrictions may be placed upon the sale of the securities,
unless such securities qualify for an exemption from the "penny stock" rules,
such as listing on the Nasdaq Small Cap Market, some brokerage firms will not
effect transactions in the Company's securities and it is unlikely that any bank
or financial institution will accept such securities as collateral, which could
have a materially adverse effect in developing or sustaining any market for the
securities.
For continued listing on The Nasdaq SmallCap Market, a company, among other
things, must have (i) US$2,000,000 in net tangible assets, US$35,000,000 in
market capitalization, or net income of US$500,000 in two of the last three
years, (ii) US$1,000,000 in market value of public float, (iii) a minimum bid
price of US$1.00 per share, and (iv) have a minimum of two (2) market makers. If
the Company is listed on Nasdaq, and the Company is unable to satisfy the
requirements for continued listing, trading, if any, in the Common Stock would
be conducted in the "pink sheets" or on the NASD OTC Electronic Bulletin Board.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current prices and volume information with respect to
transactions in such securities are provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
securities.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock.
Dividends on the Preferred Stock will accrue at a rate of US$135,000 per year.
See "Dividend Policy" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate and
substantial dilution to investors. Purchasers of Common Stock in the Offering
will incur an immediate dilution of US$4.16 per share (assuming no value is
ascribed to the Warrants) in the net tangible book value of their investment
from the initial public offering price, which dilution amounts to approximately
107% of the initial public offering price per share of Common Stock. Investors
in the Offering will pay US$3.90 per share, as compared with an average cash
price of US$.40 per share of Common Stock paid by existing stockholders. Upon
completion of this Offering, the Company will still have a negative net tangible
book value. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 1,952,000 shares of Common Stock of
the Company outstanding as of the date of this Prospectus, 1,827,000 are
"restricted securities," and 840,000 are owned by "affiliates" of the Company,
as those terms are defined in Rule 144 promulgated under the Securities Act.
Absent registration under the Securities Act, the sale of such shares is subject
to Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least one year is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of
12
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outstanding shares of the same class, or if the Common Stock is quoted on NASDAQ
or a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person who presently is not
and who has not been an affiliate of the Company for at least two months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least three years to sell such shares without regard to any
of the volume limitations described above. An aggregate of 125,000 shares of
Common Stock are being registered concurrently with this Offering. Robert Rubin,
a Director, holds options to purchase an aggregate of 700,000 shares of Common
Stock. In the event Mr. Rubin exercises such options, the shares will be
eligible for resale under Rule 144 commencing two years from the exercise of the
options. All of the Company's existing securityholders have agreed not to sell
or otherwise dispose of any of their shares of Common stock for a period of two
years from the date of this Prospectus, without the prior written consent of the
Underwriter. Options to purchase an additional 228,500 shares of Common Stock
have been granted pursuant to the Company's 1997 Stock Option Plan. There can be
no assurance that the Company will not issue additional options currently
available for issuance. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold under
Rule 144 into the public market may adversely affect prevailing market prices
for the Common Stock and could impair the Company's ability to raise capital in
the future through the sale of equity securities. See "Shares Eligible for
Future Sale."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of US$.10 per Warrant,
commencing two years after the Effective Date (or earlier with the consent of
the Underwriters) and prior to their expiration; provided that (i) prior notice
of not less than 30 days is given to the Warrantholders; (ii) the closing bid
price of the Common Stock on each of the 20 consecutive trading days ending on
the third business day prior to the date on which the Company gives notice of
redemption has been at least US$8.00; and (iii) Warrantholders shall have
exercise rights until the close of the business day preceding the date fixed for
redemption. Notice of redemption of the Warrants could force the holders to
exercise the Warrants and pay the Exercise Price at a time when it may be
disadvantageous for them to do so, or to sell the Warrants at the current market
price when they might otherwise wish to hold them, or to accept the redemption
price, which may be substantially less than the market value of the Warrants at
the time of redemption. See "Description of Securities--Warrants."
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise, (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Securities and
Exchange Commission, and (ii) such Common Stock is then qualified for sale or
exempt therefrom under applicable state securities laws in the jurisdictions in
which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) any time after nine months subsequent to the effective
date when any information contained in the prospectus is over sixteen months
old, (ii) when facts or events have occurred which represent a fundamental
change in the information contained in the registration statement, or (iii) when
any material change occurs in the information relating to the plan of
distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine months following the date of this Prospectus or until
, 1997, assuming a post-effective amendment is not filed by the
Company. The Warrants will be separately tradeable and separately transferable
from the Common Stock offered hereby immediately commencing on the date of this
Prospectus. The Company intends to qualify the Warrants and the shares of Common
Stock issuable upon exercise of the Warrants in a limited number of states,
although certain exemptions under state securities ("blue sky") laws may permit
the Warrants to be transferred to
13
<PAGE>
purchasers in states other than those in which the Warrants were initially
qualified. The Company will be prevented, however, from issuing shares of Common
Stock upon exercise of the Warrants in those states where exemptions are
unavailable and the Company has failed to qualify the Common Stock issuable upon
exercise of the Warrants. The Company may decide not to seek, or may not be able
to obtain qualification of the issuance of such Common Stock in all of the
states in which the holders of the Warrants reside. In such a case, the Warrants
of those holders will expire and have no value if such Warrants cannot be
exercised or sold. See "Description of Securities."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK AND COMMON
STOCK. The Company's Certificate of Incorporation authorizes the issuance of an
unlimited number of shares of Common Stock and "blank check" preferred stock
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue an unlimited number of shares of Common
Stock for any purpose without stockholder approval or issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock and adversely affect the relative voting power or other rights of
the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. Except
for 500,000 shares of Preferred Stock currently held by Ramesh and Victoria
Zacharias, the Company has no present intention to issue any shares of its
preferred stock. However, there can be no assurance that the Company will not
issue shares of preferred stock or common stock in the future. The Company has
agreed with the Underwriters that, except for issuances disclosed in or
contemplated by this Prospectus, it will not issue any securities, including but
not limited to any shares of preferred stock, for a period of 24 months
following the Effective Date, without the prior written consent of the
Underwriters. See "Certain Transactions" and "Description of
Securities--Preferred Stock."
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no exemption
to such registration or qualification was available in such jurisdiction, in
order to realize any economic benefit from the purchase of the Warrants, a
holder might have to sell the Warrants rather than exercising them. No assurance
can be given, however, as to the ability of the Company to effect any required
registration or qualification of the Common Stock or Warrants in any
jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities--Warrants."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby, after deducting underwriting discounts and commissions
and other expenses of the Offering, are estimated to be U.S. $4,000,000 (U.S.
$4,172,500 if the Over-allotment Option is exercised in full). The Company
intends to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------- -----------
<S> <C> <C>
(U.S.
DOLLARS)
Urgent Care Centres (1)............................................ $ 1,000,000 25.00%
Repayment of Lines of Credit (2)................................... $ 908,000 22.70%
Repayment of Bridge Notes (3)...................................... 510,000 12.75%
Emergency Service Contracts (4).................................... 342,000 8.55%
Computer Equipment (5)............................................. 150,000 3.75%
Working Capital and General Corporate Purposes and potential
acquisitions (6)................................................. 1,090,000 27.25%
------------- -----------
$ 4,000,000 100.00%
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Represents the estimated capital and working capital costs related to
establish the Company's participation in the first 10 Urgent Care Centres.
In addition, the Company intends to secure bank financing and third party
lease financing of at least U.S.$500,000 to fund the costs of opening the
first 10 Urgent Care Centres. See "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
(2) Represents repayment of US$100,000 loan against line of credit provided to
the Company by Robert Rubin, a director of the Company. This loan is to be
repaid on the earlier to occur of (i) the consummation of this Offering, and
(ii) May 16, 1998. The loan bears interest on an annual basis at the prime
rate plus two percent (2%). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."
Also represents repayment of approximately $1,100,000 (US$808,000) against
the Company's outstanding balance on its bank credit facility, such balance
bearing interest on an annual basis at the facility's announced prime rate
plus 1.5%.
(3) Represents repayment of the principal and accrual interest on the 8%
promissory notes sold in the January 1997 private placement ("Bridge
Financing"). The proceeds from the Bridge Financing were applied to reduce
the Company's bank borrowings. These Bridge Notes bear interest at a rate of
8% per annum and are due in June 1998, or earlier upon receipt of gross
proceeds of at least US$4,000,000 (debt or equity) from an underwritten
public offering. Robert Rubin, a director of the Company, is the holder of a
bridge note in the principal amount of US$150,000. See "Certain
Relationships and Related Transactions."
(4) Represents the cost of financing accounts receivable for emergency service
contracts that the Company anticipates receiving over the next 24 months,
although there can be no assurance of the receipt thereof. Until required,
these funds will be invested in short-term instruments to remain available
to finance the new emergency service contracts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(5) Represents the estimated cost of upgrading the Company's management
information systems, particularly its accounting and billing systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(6) Although the Company has not identified any definite acquisition candidate,
the Company intends to use a portion of the net proceeds of the Offering to
fund acquisitions.
15
<PAGE>
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering, based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds may differ from the estimates set forth herein due to changes in the
economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company and will be within
the categories listed above.
The Company estimates that the net proceeds from this Offering together with
available cash flows will be sufficient to meet the Company's liquidity and
working capital requirements for a period of 12 months from the completion of
this Offering. In the event that the Company consummates any acquisition,
although no specific acquisition has been identified, such funds will be derived
from the funds currently allocated to working capital or from revenues generated
from the Company's operations. There can be no assurance that the Company will
generate sufficient revenues for such acquisitions.
Pending application, the net proceeds will be invested in short-term money
market instruments and direct or indirect Canadian or U.S. Government
obligations. Any proceeds received upon exercise of the Warrants and the
Over-allotment Option, as well as income from investments, if any, will be added
to working capital.
16
<PAGE>
DILUTION
1. DILUTION AS CALCULATED WITHOUT GIVING EFFECT TO CONVERSION OF PREFERRED
STOCK. (1)
At March 31, 1997, the Company had a net tangible book value (deficit) of
(US $4,857,606) or (US$2.48) per share of outstanding capital stock. Net
tangible book value represents the Company's total tangible assets less total
liabilities, divided by the number of shares of capital stock outstanding. After
giving effect to the sale of the Common Stock and the Warrants offered hereby
(assuming no value is ascribed to the Warrants), the adjusted pro forma net
tangible book value (deficit) of the Company would have been approximately (US
$857,606) or approximately (US $.26) per share of outstanding capital stock at
March 31, 1997. This represents immediate dilution of US $4.16 per share, or
107% to purchasers of the Common Stock and Warrants in the Offering. The
following table illustrates the per share dilution to be incurred by the public
investors in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share............................ US $3.90
Net tangible book value at March 31, 1997........................... (US $2.48)
Increase per share attributable to the sale of the Common Stock
offered hereby.................................................... US $2.22
----------
Pro forma net tangible book value after the Offering................ (US $.26)
----------
Dilution per share to new investors................................. US $4.16
----------
----------
</TABLE>
2. DILUTION AS CALCULATED WHEN GIVING EFFECT TO CONVERSION OF THE PREFERRED
STOCK. (2)
At March 31, 1997, the Company had a net tangible book value (deficit) of
(US $357,606) or (US$.18) per share of outstanding capital stock. Net tangible
book value represents the Company's total tangible assets less total
liabilities, divided by the number of shares of capital stock outstanding. After
giving effect to the sale of the Common Stock and the Warrants offered hereby
(assuming no value is ascribed to the Warrants), the adjusted pro forma net
tangible book value of the Company would have been approximately US $3,642,394
or approximately US $.84 per share of outstanding capital stock at March 31,
1997. This represents immediate dilution of US $3.06 per share, or 78% to
purchasers of the Common Stock and Warrants in the Offering. The following table
illustrates the per share dilution to be incurred by the public investors in the
Offering:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share.............................. US $3.90
Net tangible book value at March 31, 1997............................. (US $0.18)
Increase per share attributable to the sale of the Common Stock
offered hereby...................................................... US $1.02
---------
Pro forma net tangible book value after the Offering.................. US $.84
---------
Dilution per share to new investors................................... US $3.06
---------
---------
</TABLE>
The following table summarizes the number and percentages of shares of
Common Stock purchased from the Company through the date of this Prospectus, the
amount and percentage of cash consideration paid and the average price per share
paid to the Company by existing stockholders and by new investors pursuant to
the Offering:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION PAID AVERAGE
SHARES PURCHASED ---------------------------- PRICE
NUMBER/PERCENTAGE AMOUNT PERCENT PER SHARE
----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Existing Stockholders................... 1,952,000/60.9% US$ 788,367 13.9% US$0.40
New Investors........................... 1,250,000/39.1% US 4,875,000 86.1% US$3.90
----------------- --------------- -----
3,202,000/100% US$ 5,663,367 100.0%
----------------- --------------- -----
----------------- --------------- -----
</TABLE>
- ------------------------
(1) In calculating dilution, the first presentation does not give effect to the
conversion of an aggregate of US$4,500,000 of Convertible Preferred Stock
which is convertible into 500,000 shares of Common Stock at US$9.00 per
share for a period of ten years from the date of issuance. Issuance of the
Convertible Preferred Stock resulted in a charge to retained earnings of
$5,525,414 (US$4,062,804); however, the stated capital of the Convertible
Preferred Stock does not form part of the net tangible book value available
to the common shareholders as adjusted March 31, 1997.
(2) In calculating dilution, the second presentation gives effect to the
conversion of an aggregate of the convertible preferred stock into an
equivalent number of shares of Common Stock at $3.90 per share.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1997, (i) the actual
capitalization, and (ii) the capitalization of the Company as adjusted to give
effect to the sale by the Company of 1,250,000 shares of Common Stock and
1,250,000 Warrants offered hereby and the application of the estimated net
proceeds thereof. This information should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
AS ADJUSTED
ACTUAL (1)
------------ --------------
<S> <C> <C>
Short Term Debt
Bank Operating Facility.......................................................... $ 1,072,903 --
Promissory Note.................................................................. $ 101,368 $ 101,368
8% Bridge Notes.................................................................. 680,000 --
------------ --------------
1,854,272 101,368
------------ --------------
------------ --------------
Stockholders' Equity:
Convertible Redeemable Preferred Stock no par value; authorized unlimited shares,
500,000 shares issued and outstanding (actual and as adjusted)................... 6,120,000 6,120,000
Common Stock--no par value authorized unlimited, Shares issued and outstanding
1,952,000 (actual), and 3,202,000 (as adjusted).................................. 1,072,179 6,512,179
Accumulated Deficit................................................................ (6,856,121) (7,077,710)
------------ --------------
Total Shareholders' Equity and Capitalization...................................... 336,058 $ 5,554,469
------------ --------------
------------ --------------
</TABLE>
- --------------------------
(1) Gives effect to the sale of 1,250,000 shares of Common Stock and 1,250,000
Warrants and the application of the net proceeds thereof. See "Use of
Proceeds."
DIVIDENDS
To date, the Company has paid $145,383 in cash dividends. The Company has no
present intention of paying any additional dividends on its Common Stock in the
foreseeable future, as it intends to use its earnings, if any, to generate
increased growth. The payment by the Company of cash dividends, if any, in the
future, rests solely within the discretion of its Board of Directors and will
depend upon, among other things, the Company's earnings, capital requirements
and financial condition, as well as other factors deemed relevant by the
Company's Board of Directors. The terms of the outstanding Preferred Stock
prohibit the payment of any dividends on Common Stock until dividends have been
paid on the Preferred Stock. See "Description of Securities--Preferred Stock."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company believes that emergency departments, which are often the first
point of contact with patients, play an important role in providing the
individual with continuous access to the healthcare system. The Company's
history dates back to 1983 when its founder identified the need for a private
sector company that could provide emergency physician contract staffing and
recruitment. A tenet of the Company's strategy has been that third party
providers of specialized emergency care medicine can play an important role in
reducing the costs of publicly funded healthcare systems while ensuring the
highest quality of care.
Socialized medicine has been in place in the Province of Ontario for a
quarter of a century. As the Canadian government's healthcare program is the
most expensive government program, it is therefore an obvious and unavoidable
target for restraints. It was built with a recognition that the transfer from
private health care to state-funded care would be a complex transition. Since
the transition, there has been a reluctance to address major reforms.
Consequently, the system has grown rapidly in both cost and complexity.
Demand for emergency care has grown significantly over the past ten years,
notwithstanding the small proportion of physicians focusing on emergency
medicine. Moreover, recruitment of experienced emergency medicine practitioners
by hospitals in other countries is intense and such demand is expected to
continue for some time. Given the uncertainties associated with patient volumes
in several Ontario hospital emergency departments, the pool of available
physicians willing to practice emergency medicine has been declining.
In the last five to ten years, major changes have been occurring in the way
services are delivered within hospitals in Canada. The length of time patients
stay in hospitals has been dropping substantially. Overall, the average length
of stay in acute care hospitals has decreased 20% in the last five years.
Patients who five years ago would generally have spent up to ten days in
hospital are now often being operated on using minimally invasive surgery which
results in their being discharged within a day or two of being admitted.
Day surgery as a percentage of all surgery has increased from 53% to 70% in
five years. As a result, in many hospitals the majority of surgery is now done
on an outpatient basis. Many other services previously provided mainly on an
inpatient basis are shifting to outpatient programs (e.g., dialysis,
chemotherapy and diagnostic testing).
Thus, governments have been studying alternatives to the existing
fee-for-service funding of physicians in order to reduce health care costs.
Since 1988, close to 3,500 acute care hospital beds have been closed in the
Toronto Metropolitan area alone, a 30% decrease. Although the number of acute
care beds has decreased by 30% and similar bed decreases have occurred in other
areas, the number of hospitals remains unchanged. Scarce public health dollars
continue to be spent on the overhead and infrastructure of independent
facilities even though the amount of time patients spend in these facilities has
decreased. Among hospitals, 25% to 30% of funds are spent on administrative,
overhead and infrastructure costs.
Funding constraints for health care in Ontario have resulted in billing
caps, with a sliding scale claw-back. This claw-back reduces the amount a
physician can bill after total annual billing exceeds $275,000. Other solutions
under consideration include rostered patient care. Rostering is a reimbursement
plan based on a fixed fee per patient as opposed to Fee-For-Service. The patient
would assume financial responsibility for non-emergency care when such care is
obtained outside the rostered family practice but within a defined geographic
proximity if it is accessed merely for convenience. However, proponents of
various roster-based models have not offered any concrete proven solutions to
decrease emergency department utilization. Under the current Health Services
Organization ("HSO") model, the Ontario Ministry of Health pays a monthly flat
fee to the Company on behalf of the patient's physician for each
19
<PAGE>
patient enrolled under the HSO program regardless of whether the patient visits
the clinic or not. The monthly fee is determined by the age and sex of the
patient and is referred to as the capitation rate. At March 31, 1997, the
average monthly capitation rate was $12.89 per patient with approximately 6,596
patients enrolled under the HSO program.
Fees charged by the Company for emergency department staffing services are
comprised of two elements: (i) hospital services; and (ii) physician services.
Under each hospital contract, the Company has the responsibility for the billing
and collection of physician fees. The Company charges each hospital a fee for
its recruiting and staffing services on a fixed fee basis. Details of the
Company's hospital contracts are described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the
particular hospital, the Company considers several factors including location of
the hospital in relation to the availability of physicians, number of physicians
from which to draw, the number of physician shifts required, and patient
volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee contracts) the physicians are
paid on the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is generally not a pre-set renewal fee
stated within the contract, however, on occasion the contract contains a stated
renewal fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador, promote the services provided by
the Company, to provide orientation to new physicians at a facility, and
to screen all new physician applicants.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staff's salary relates directly to the hospital staffing
business. When the Company receives a new contract and there
20
<PAGE>
exists a shortage of physicians, the Company's recruiting staff will work
towards increasing the Company's supply of emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, back-up coverage, local medical director's accommodation costs and
any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs.
The Company's hospital contracts are designed to transfer to the hospital
certain financial risks arising from changes in patient volume. Because the
majority of such contracts are reimbursed from government healthcare insurance
plans, the Company's bad debt experience in collection of physician fees has
been less than 1% of allowable billings, primarily due to administrative errors.
Fee-for-service contractual arrangements involve a credit risk related to
services provided to uninsured individuals. The Company's working capital needs
are generally a function of the acquisition of new hospital contracts or the
conversion of fixed fee contracts to fee-for-service contracts. As discussed
below in Results of Operations, the Company has sometimes experienced a
reduction in the number of its hospital contracts, making the acquisition of new
contracts particularly important. See "Risk Factors -- Loss of Hospital and
Physician Contracts."
The Company's physician contracts are entered into between the Company and
individual physicians and are either part time or full-time. A physician working
with the Company assigns the right to bill and provides a consent to the Company
to perform both the billing and collection function for the medical services
performed. The Ontario Ministry of Health is notified of the physician's consent
for the Company to perform these functions through the use of an authorization
form. The Company pays the physician for the services provided based on the
terms of the contract between the Company and the physician. The Company does
not purchase receivables from the physicians. In general, each contracted
physician will be placed in a functioning facility by the Company and the
Company will collect all fees due to the physician for rendering medical
services. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of total OHIP billings, plus the administrative fees charged to the
hospital.
In the Clinic operations, revenue is generated when the contracted physician
performs a medical service which in turn is billed by the Company to the
Ministry of Health. The fee-for-services billed to the Ministry of Health are
based on rates set by the Ministry of Health and vary depending on the type of
medical service performed. The Ministry of Health pays the Company on a monthly
basis for these services billed and the Company in turn pays the physician
according to the contract between the physician and the Company. In addition,
the Company owns and manages its clinic and provides staffing, administration,
management and financial support. Therefore, the Company received a monthly
management fee from each clinic and is entitled to 100% of any distributions
made from the clinic.
21
<PAGE>
The Company's management believes that the Company is positioned as a viable
solution to some of the existing problems in the healthcare system and therefore
has expanded its original offering of physician staffing and recruitment to
provide a broader range of services to fit needs in the emergency and related
health services marketplace.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
NET SERVICE REVENUES. Revenues increased by $158,092 or 5.9% from
$2,677,942 for the three months ended March 31, 1996 to $2,836,034 for the
comparable period in 1997. The increase is due primarily from revenue generated
from the St. George acquisition completed in August 1996. For the three months
ended March 31, 1997, revenue from this clinic totaled $208,204. The increase in
revenue from the clinic was offset by a slight reduction in revenue generated
from hospital contracts.
For the three months ended March 31, 1997, revenues of Emergency Medical
Services division decreased by $79,024 or 3.4% to $2,215,505 from $2,294,529 for
the three months ended March 31, 1996. The marginal decline of revenues was due
to: (i) the termination of seven fixed fee hospital contracts that were replaced
by four new fixed fee contracts, (ii) the termination of two fixed fee contracts
for correctional institutions, (iii) a marginal decline in fee-for-service
contracts from two hospitals.
For the three months ended March 31, 1997, operating income of Emergency
Medical Services division increased by $82,268 to $64,763 from a loss of $17,505
for the three months ended March 31, 1996. The increase was due to a decrease in
operating expenses and income from consulting projects.
For the three months ended March 31, 1997, revenues of Clinical Operations
increased by $237,116 or 61.8% to $620,529 from $383,413 for the three months
ended March 31, 1996. The increase in revenues was due to the acquisition of a
new clinic during the third quarter of the prior fiscal year.
For the three months ended March 31, 1997, operating income for the Clinical
Operations increased by $316,977 to $111,831 from a loss of $205,146 for the
three months ended March 31, 1996. The increase was due to greater revenues from
the newly acquired clinic, as well as reductions in operating costs as a result
of the amalgamation of the new clinic with one of the Company's other medical
clinics. At March 31, 1996, the operating loss included the write-off of
deferred start-up project costs of $166,960. There was no write-off of deferred
start-up costs at March 31, 1997.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees
to contract physicians, represents the largest single variable expense. These
fees are earned primarily through the Company's emergency medical services to
the hospital emergency department contracts. Physician fees for the three months
ended March 31 decreased by $244,064 or 11.8% from $2,072,800 in 1996 to
$2,007,062 in 1997 due to the reduction in the number of hospital staffing
contracts. Physician fees represented 77.4% of net revenues for the three months
ended March 31, 1996 and 64.5% of net revenues for the three months ended March
31, 1997. Included in physician fees is clawback expense, which is a recovery of
billings due to over utilization of medical services. The clawback rate for 1997
was 0% compared to the rate of 10% set by the Ontario Ministry of Health for the
1996 period. The clawback charge for the three months ended March 31, 1996
totaled $28,352. Other direct costs include travel, marketing and consulting
costs related to international projects. These costs represent 6.3% of net
revenues for the three months ended March 31, 1997. There were no related
international costs for the three months ended March 31, 1996. The 1997 costs
relate to the undertaking of a consulting project in the Northwest Territories,
Canada.
OPERATING EXPENSES. Operating expenses decreased by $175,415 or 21.2% from
$827,793 for the three months ended March 31, 1996 to $652,378 for the three
months ended March 31, 1997. Operating costs include general operating expenses
and the write-off of deferred start-up costs. The general operating expenses
excluding the write-off of deferred start-up costs represents 23.0% of net
revenues for both the three months ended March 31, 1996 and March 31, 1997. The
write-off or deferred start-up costs in the amount of $166,960 relate to an
investment in a clinic in Prague, Czech Republic. The write-off was due to
22
<PAGE>
an unanticipated difficulty in penetrating the market and generating a
sufficient return on capital invested from that clinic. Given the domestic
opportunities available, the Company had decided to focus its efforts on
domestic operations. The remaining write-down of $42,875 relates to start-up
project costs for the healthcare consulting project in Malaysia.
INTEREST EXPENSE. Interest expense increased by $38,948 or 587% from $6,634
to $45,582 for the three months ended March 31, 1996 and 1997 respectively. The
increase in interest expense is due primarily to increased bank borrowings,
interest charged on the bridge promissory notes and the amortization of deferred
financing charges relating to the shares of Common Stock issued in the January
1997 bridge financing. For the three months ended March 31, 1997, a total of
$10,478 was charged as interest on the promissory notes and $13,890 was
amortized as financing costs.
NET INCOME. As a result of the above items, the Company had a net income of
$98,259 for the three months ended March 31, 1997 as compared to a net loss of
$160,499 for the three months ended March 31, 1996.
FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
NET SERVICE REVENUES. Revenues decreased by $166,505 or 1.5% from
$10,983,553 in 1995 to $10,817,048 in 1996. The decrease in revenue can be
attributed to the reduction in the number of hospital staffing contacts and the
closure of an unprofitable medical clinic in October 95. The reduction in
revenue from hospital contracts was offset by revenues generated from the
Glenderry Medical Clinic acquisition in December 1995 and the St. George Medical
Clinic acquisition in September 1996.
For the fiscal year ended December 31, 1996, revenues from Emergency Medical
Services decreased by $722,310 or 7.6% to $8,783,309 from $9,505,619 for the
year ended December 31, 1995. The decline in revenues was due to: (i) the loss
of four fixed fee hospital contracts during the year which were replaced by four
lower fee generating contracts, (ii) reductions in fee income from two contracts
serving correctional institutions, (iii) a marginal increase in two
fee-for-service contracts, and (iv) reductions in several contracts in place the
prior year due to reductions in funding to hospitals from the provincial
government.
For the fiscal year ended December 31, 1996, operating income from Emergency
Medical Services decreased by $689,802 to a loss of $332,644, from a profit of
$357,158 for the fiscal year ended December 31, 1995. The decrease was due to
the attendant loss of revenues from the loss of hospital contracts during the
year that were replaced by lower fee contracts, reductions in prior year
contracts together with a delay in reducing the level of staffing to reflect the
reduced demand for physicians. The loss of hospital contracts is the direct
result of the Ontario Hospital's Restructuring Committee's reduction and/or
amalgamation of the number of hospital emergency departments, the defined nature
of the crisis management service for hospitals that the Company provides and the
risk that a physician elects to remain in the community and work on a full time
basis for the hospital thus eliminating the need for the Company's services. The
December 31, 1996 loss also includes a write-off of advances relating to the
Malaysia project in the amount of $42,875.
For the fiscal year ended December 31, 1996, revenues of Clinical Operations
increased by $555,805 or 37.6% to $2,033,739 from $1,477,934 for the year ended
December 31, 1995. The increase in revenues was due to revenues of two new
clinics that were acquired in December 1995 and September 1996.
For the fiscal year ended December 31, 1996, operating income of Clinical
Operations increased by $230,155 or 35.9% to a loss of $410,973, from a loss of
$641,128 for the fiscal year ended December 31, 1995. The reduction of loss in
operating income resulted from the increase in revenues from St. George's clinic
combined with staff reductions and salary reductions in all of the Company's
clinics, the closure of an unprofitable clinic in October 1995, reduction in
management support staff and a lower write-off of deferred start up costs in the
amount of $196,986 in connection with the Company's CMC clinic.
PHYSICIAN FEES AND OTHER COSTS. Physician fees, which represent fees to
contract physicians, represent the largest single variable expense. These fees
are earned primarily through the Company's emergency
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medical services to the hospital emergency department contracts. Physician fees
declined $90,434 or 1.1% from $8,385,712 in 1995 to $8,295,278 in 1996 due to
the reduction in the number of hospital staffing contracts. Physician fees
represented 76.3% of net revenues for 1995 and 76.6% of net revenues in 1996.
Included in physician fees is clawback expense, which is a recovery of billings
due to over utilization of medical services. The clawback rate of 10% set by the
Ontario Ministry of Health resulted in a charge of $176,949 in 1995 compared to
a clawback rate of 6.5% resulting in a charge of $143,261 in 1996. Clawback
expense decreased by $33,688 or 19.0% in 1996 compared to 1995 due to the
reduction in hospital contract revenue and the reduction in the clawback rate
imposed by the Ontario Ministry of Health. Other direct costs include travel,
marketing and consulting costs related to international projects. These costs
represent .19% of net revenues for 1995 and 2.4% of net revenues in 1996 and are
slightly higher in 1996 due to the undertaking of the consulting project in the
State of Kerala in India.
OPERATING EXPENSES. Operating expenses increased by $755,377 or 26.4% from
$2,860,892 in 1995 to $3,616,269 in 1996. Operating costs include general
operating expenses, a stock compensation charge and the write-off of deferred
start-up costs. In anticipation of growth, the Company had increased its
administrative, management and marketing support. This increase in
administrative, management and marketing support was comprised primarily of
personnel additions, whose aggregate salaries and associated payroll expenses
amounted to approximately $245,000. This increase in staffing was due in part to
the opening of two new medical clinics during 1996 as well as in preparation to
expand the Company's operations in the business of managing urgent care centres.
More recently, the Company has restructured its operating overhead in an effort
to better position itself as a competitive deliverer of emergency related health
services. The primary components of this restructuring involved: (i) the
elimination of two administrative staff positions and one operations staff
position; (ii) the renegotiation and reduction of lease expense at one of the
Company's medical clinics; (iii) the termination of a consulting contract with
respect to the Company's decision to discontinue the operations of the clinic in
Prague, Czech Republic; and (iv) the reduction of communication and delivery
expenses for the medical clinics in Canada. The balance of the increase in
operating expenses during 1996, compared to 1995, resulted from a stock
compensation charge of $610,000 in 1996, and write-off of deferred start-up
costs amounting to $509,337 in 1996 as compared to $663,448 for the same period
in 1995. The general operating expenses excluding the stock compensation charge
and the write-off of deferred start-up costs represent 20.0% and 23.1% of net
revenues in 1995 and 1996, respectively.
The stock compensation charge of $610,000 in 1996 is a result of the share
restructuring that occurred in November 1996. As part of the recapitalization of
the company, Hampton House International was issued 610,000 common shares in
consideration of past services. The value of $1.00 per share was ascribed to the
common shares.
The write-off of deferred start-up costs of $509,337 in 1996 is due
primarily to a write-down of $466,462 for an investment in a clinic in Prague,
Czech Republic. The write-down was due to an unanticipated difficulty in
penetrating the market and generating a sufficient return on capital invested
from that clinic. Given the domestic opportunities available, the Company had
decided to focus its efforts on domestic operations. The additional write-off of
$42,875 relates to start-up project costs for a healthcare consulting project in
Malaysia.
INTEREST EXPENSE. Interest expense and dividend income increased by
$110,391 or 200% from income of $54,930 to an expense of $55,461 in 1995 and
1996, respectively. In 1996, there was no dividend income as compared to 1995
which reported dividend income of $123,623 as a result of a redemption of common
shares. Interest expense totaled $68,693 for 1995 compared to $55,461 for 1996.
The decrease in interest expense of $13,232 or 19.2% is due primarily to reduced
bank borrowings.
NET INCOME. As a result of the above items, the Company had a net loss of
$1,262,524 for the twelve months ended December 31, 1996 as compared to a net
loss of $300,487 for the twelve months ended December 31, 1995.
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YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SERVICE REVENUES. Revenues increased by $508,799, or 5%, from
$10,474,754 to $10,983,553. This increase was primarily attributable to the
increase in fee income from fixed fee hospital staffing contracts as five new
contracts replaced four lower fee contracts.
For the fiscal year ended December 31, 1995, revenues of the Emergency
Medical Services division increased by $508,492 or 5.7% to $9,505,619 from
$8,997,127 for the year ended December 31, 1994. The increase in revenues was
due to the net addition of one hospital contract during the year, and a marginal
increase in average fee income from contracts that were operating in the prior
year.
For the fiscal year ended December 31, 1995, operating income of the
Emergency Medical Services division increased by $108,251 or 43.5% to $357,158
from $248,907 for the fiscal year ended December 31, 1994. The increase was
largely due to the closure of an unprofitable clinic.
For the fiscal year ended December 31, 1995, revenues of the Clinical
Operations division remained constant at $1,477,934 compared to $1,477,627 for
the year ended December 31, 1994. For the fiscal year ended December 31, 1995,
operating income of Clinical Operations decreased by $670,876 to a loss of
$641,128 from a profit of $29,748 for the fiscal year ended December 31, 1994.
The decrease was primarily due to the write-off of deferred start up costs in
the amount of $663,448 in connection with the Company's CMC clinic.
PHYSICIAN FEES AND OTHER COSTS: Physician fees, which represent fees to
contract physicians, represent the largest single variable expense. These fees
are earned primarily through the Company's provision of emergency medical
services to hospital emergency department contracts. Contract physician fees
increased $435,000, or 5.5% from $7,950,712 to $8,385,712 and represent 76.3% of
net revenues for 1995 compared with 75.9% of net revenues for 1994. The increase
in physician fees is consistent with the increase in the number of hospital
staffing contracts in 1995. Included in physician fees is clawback expense,
which is a recovery of billings due to over utilization of medical services. The
clawback rate set by the Ontario Ministry of Health for 1994 was 7.5% compared
to the rate of 10% for 1995 and resulted in a charge of $124,546 in 1994
compared to $176,949 in 1995. Clawback expense increased by $52,403 or 42.1% in
1995 compared to 1994 due to the rate change imposed by the Ministry. Other
direct costs include travel, marketing and consulting costs related to
international projects. These costs represent .25% of net revenues for 1994 and
.19% of net revenues in 1995.
OPERATING EXPENSES Operating expenses increased by $642,472 or 28.9% from
$2,218,420 in 1994 to $2,860,892 in 1995. These expenses represent 21.2% of
revenues and 26.0% of revenues in 1994 and 1995, respectively. The increase in
operating costs is primarily due to a write-down of $663,448 for an investment
in a clinic in Prague, Czech Republic and Malaysia. The write-down was due to an
unanticipated difficulty in penetrating the market and generating a sufficient
return on capital invested from that clinic. Given the domestic opportunities
available, the Company had decided to focus its efforts on domestic operations.
INTEREST EXPENSE. Interest expense increased $16,814, or 32.4% from $68,693
in 1995 as compared to $51,879 in 1994. The increase is attributable to an
increase in borrowings to finance accounts receivable due to the 5% growth in
net revenues, largely derived from billings to government healthcare insurance
plans for services rendered by the Company's physicians.
NET INCOME. As a result of the above items, the Company had a net loss of
$300,487 in 1995 as compared to a net income of $174,531 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the provision of Clinical
Operations.
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The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups. The assets
employed by the Company to support the Emergency Medical Services operations are
primarily working capital to finance accounts receivable which are generated by
individual physicians but collected by the Company pursuant to contractual
agreements between the Company and the independent contracted physicians. The
average age of collection of the accounts receivable balances averages
approximately 45 days; however, the physicians are paid after 15 days. Thus, the
liquidity of the Company is significantly affected by the volume of billings
generated by the Emergency Medical Services operations which fluctuates from
month to month.
Clinical Operations, include family practices, walk-in services and
chiropractic and massage therapy to patients. In addition to a similar
requirement to finance the accounts receivable which are generated by individual
physicians but collected by the Company pursuant to contractual agreements
between the Company and the independent contracted physicians, the Company must
also finance assets utilized in the operations of the clinics. These assets
include leasehold improvements and fixtures, medical equipment, information
systems and office furniture and supplies. Thus the average amount of assets
employed by the Company to support the Clinical operations is generally greater
than Emergency Medical Services operations calculated on a per physician basis.
The capital requirements of the Company arise in four major areas. These are
(i) the need for additional capital to increase business through new service
contracts for hospital emergency departments, (ii) the commencement of new
specialty healthcare clinics, (ii) marketing expenses associated with consulting
services both in Canada and international markets, and (iv) the need for capital
to increase administrative capabilities, including centralized billing and
collection services and management information systems.
Marketing expenses associated with consulting services both in Canada and
international markets are not expected to be material in the next 24 months as
the Company's resources will be focused on developing new hospital contracts in
Canada and the development of Urgent Care Centres.
The Company is planning to develop a chain of Urgent Care Centres, initially
in Ontario and then in other provinces, that it believes will gain public
recognition and government support as a quality deliverer of emergency health
care. The Company intends to develop these centres through both the opening of
new centres and the acquisition of currently operating centres. No specific
acquisition candidates have been identified. The first Urgent Care Centre is
planned to open in the third quarter of 1997 with up to nine additional centres
scheduled over the following eighteen months. Any decision to expand this base
of 10 centres will be based on realized profitability and capital resources. The
Company anticipates that the funding required to support this plan will amount
to about $2.0 million. The Company estimates that bank financing and third party
lease financing of at least $500,000 can be secured, thus approximately $1.5
million of the net proceeds from the Offering will be used to support the
long-term capital and working capital requirements of the Urgent Care Centres.
As of the date of this Prospectus, the Company has not secured any bank
financing or third party financing, and there can be no assurance that such
additional funding will be obtained on terms favorable to the Company, or at
all. See "Use of Proceeds."
In January 1996, the Company consummated a private offering of 1,000,000
shares of Common Stock for net proceeds of approximately $845,000 together with
warrants to purchase 1,000,000 shares at an exercise price of $2.00 per share.
The Company consummated this private offering because it needed working capital
funds, including money to fund its bank credit facility. As part of the
Company's November 1996 Recapitalization (as such term is hereinafter defined),
all holders of the warrants surrendered their outstanding warrants.
In September 1996, the Company acquired all of the assets and physician
contracts of the St. Georges Health Services Organization (HSO) for a $193,732
promissory note, 75,000 shares of the Company's Common Stock, and the assumption
of $270,868 of liabilities . This HSO was a contractual agreement with the
Ministry of Health to provide primary care at a clinic for a specified number of
registered patients.
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In January 1997, the Company completed a private placement of its securities
("Bridge Financing"), in which it sold 8% promissory notes in the aggregate
principle amount of US$500,000 and 125,000 shares of its Common Stock and raised
aggregate gross proceeds of US $500,000. The net proceeds of US $425,000 were
initially applied to reduce the Company's bank borrowings. The principal and
accrued interest on the notes are due and payable upon the earlier of 18 months
from the date of issuance or receipt by the Company of at least US $4,000,000
from the sale of its debt and\or equity securities in a public or private
financing.
Robert Rubin, a director of the Company, has extended the Company a $500,000
line of credit which bears interest at 2% above the prime rate. As of the date
hereof, there is a $100,000 outstanding balance under such line of credit.
In addition, the Company currently has an aggregate line of credit of
$1,200,000 with its bank credit facilities. This credit may be drawn on by the
Company at the bank's prime rate plus 1 1/2%. All bank loans are secured by a
general security agreement covering all of the Company's assets. The terms of
the banking agreement contain, among other provisions, requirements for
maintaining defined levels of net worth and financial ratios. At March 31, 1997,
the Company did not comply with (i) the net worth covenant because the net worth
of the Company was less than $250,000 and (ii) the financial ratio covenants
requiring a debt service coverage ratio of 1.5:1. The Company has not requested
or received a waiver of these defaults. As a result of these defaults, the bank
is in a position to demand repayment of its loan; however, the Company utilized
the proceeds of the Bridge Financing to reduce the Company's bank borrowings. As
of March 31, 1997, the Company has an outstanding balance of $1,072,903 on its
line of credit. The Company intends to repay the outstanding balance out of the
net proceeds of the Offering. See "Use of Proceeds."
The Company believes, although there can be no assurance, that net proceeds
of the Offering and operating revenues will provide sufficient capital to
finance the Company's capital requirements during the 12 months following
completion of the Offering. If the Company encounters unexpected expenses during
such period, or if after such period, revenues from operations are not
sufficient to fund operations or growth, the Company may require additional
financing. There can be no assurance that the Company will be able to obtain
additional financing on acceptable terms, or at all.
Inflation has not had, nor is it expected to have, a material impact on the
operations and financial condition of the Company.
CHANGE IN ACCOUNTANTS
Zaritsky Penny was previously the auditors for Med-Emerg Inc. which is a
significant subsidiary of the Company. During the fiscal year ended December 31,
1995, that firm's appointment as auditors for Med-Emerg Inc. was terminated and
KPMG was engaged as auditors for Med-Emerg Inc. (KPMG was also appointed
auditors of Med-Plus Health Centers Ltd. another significant subsidiary of the
Company.) The decision to change auditors was approved by the Company's board of
directors.
In connection with the audit of Med-Emerg Inc. for the year ended December
31, 1994, and the subsequent interim period through to the appointment of KPMG,
there were no disagreements with Zaritsky Penny on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The audit report of Zaritsky Penny on the financial statements of Med-Emerg
Inc. as of and for the year ended December 31, 1994, did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
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BUSINESS
BACKGROUND
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million population of the Province of Ontario (37% of all of Canada).
Inefficient hospitals run the risk of the loss of public funding if they fail to
meet the objectives of the Commission. Accordingly, the incentives are in place
to induce public hospitals to find solutions to achieve the desired
efficiencies, including outsourcing available from and through private sector
organizations, such as the Company.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services. The broad range of services currently offered by
the Company include operational consulting and healthcare management services,
management of special purpose health clinics, physician and nurse staffing, and
health educational services.
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any particular acquisitions.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's soon-to-be launched
Urgent Care Centres program is intended to expand clinic operations. The Company
intends to aggressively market its facilities and services as a viable outsource
alternative to public hospitals' present emergency room operations.
THE EMS DIVISION
Competitive pressures have focused the attention of many healthcare
administrators, in both the private and public sectors, on the need for better
staffing of their medical professionals. Hospitals have increasingly turned to
contract staffing firms with specialized skills to help solve physician contract
and scheduling problems.
The EMS Division was established in 1983 as a medical staffing and
recruitment business. The Company provides physician staffing and administrative
support to emergency departments and physician recruitment services to Canadian
hospitals and emergency physician groups. The administrative services include
billing, maintenance of records and coordinating with third party payors. Under
its contracts with hospitals, the Company is obligated to provide emergency
department physician coverage. The Company also coordinates the scheduling of
staff physicians which provides emergency department coverage and assists the
hospital's administrative and medical staff in such areas as quality assurance,
risk management, departmental accreditation and marketing. Under the direction
of the Company's management, the Company's physician pool of approximately 140
emergency physicians undergo a rigorous accreditation program in order to ensure
the quality of doctors who provide services on behalf of the Company.
The Company's services are reimbursed either based on a monthly fee payable
by the hospital or alternately on a per shift basis. As of March 31, 1997, the
Company had 14 hospital contracts, of which 11
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were contracted to pay monthly administration fees and three were contracted to
pay based on per shift billings.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in hospitals
which have contracted for the Company's contract staffing services. The Company
then enters into contracts with physicians who meet its qualifications and
provides those physicians as candidates for admission to the hospital's medical
staff. While each hospital with which the Company contracts, ultimately
determines whether a physician must be board certified in emergency medicine to
provide medical services in its emergency room, in general, the hospitals do not
require physicians to be so certified. The Company requires all physicians to be
currently licensed to practice medicine in the Province of Ontario and to be
Advanced Cardiac Life Support ("ACLS") or Advanced Training Life Support
("ATLS") certified before entering into a contract for the physician's services.
The Company bills and collects the professional fees for the medical
services provided. Professional fees payable to the physician are disbursed by
the Company pursuant to each physician's contract. Physicians are generally paid
on the basis of the greater of a fixed hourly rate or fee for service patient
billings. As independent contractors, the physicians are responsible for their
own income taxes and statutory remittances to the respective federal and
provincial governments, as well as professional liability insurance. See "Risk
Factors--Classification of Physicians as Independent Contractors; Potential Tax
Liability."
The terms and conditions of the Company's contracts with physicians
generally provide that the Company, on a best efforts basis, bears the primary
responsibility to provide physician coverage to various facilities under
contract as provided for in each physician contract, each contracted physician
will be placed in a functioning facility by the Company and the Company will
collect all fees due to the physician for rendering services. The Company then
pays the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
hospital contracts is comprised of approximately 8% to 20% of OHIP billings plus
the administrative fees charged to the hospital. These contracts contain the
following provisions: Each physician is not an employee of the Company but is
instead an independent contractor of services to various medical facilities
under contract with the Company; Each physician must remain in good standing
with the College of Physicians & Surgeons of the Province of Ontario and be
licensed to practice medicine in the Province of Ontario; Each physician must
remain in good standing with the Canadian Medical Protective Association
("CMPA") and have appropriate CMPA coverage to provide physician services to
patients while working with the Company; Each physician is expected to maintain
an acceptable level of Continuing Medical Education ("CME") in order to qualify
for reimbursement; Physicians are bound by a non-competition restriction not to
provide services at any hospital where the Company has a contract for one year
following the contract term. Each physician full-time contract has a term of
twelve months.
CONTRACTS WITH HOSPITALS. The Company coordinates the scheduling of staff
physicians to provide coverage on a negotiated basis to a hospital's emergency
department.
The Company generally provides contract physician staffing services to
hospitals on the following arrangements: fee-for-service contracts and
physicians per shift that the Company provides to the hospital. In addition,
physicians under contract to the Company authorize the Company to bill and
collect fees. Depending upon the hospital patient volume, the Company may
receive a subsidy from the hospital. Pursuant to such contracts, the Company
assumes responsibility for billing and collection and assumes risks of
administrative error and subsequent non-payment. All of these factors are taken
into consideration by the Company, in arriving at appropriate contractual
arrangements with healthcare institutions and professionals. The hospital
contracts are generally for one year, are generally terminable by either party
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upon two months written notice, and automatically renew if not terminated.
Details of the Company's hospital contracts are as described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the hospital,
the Company considers several factors including location of the hospital in
relation to the availability of physicians, number of physicians from which to
draw, the number of physician shifts required, and patient volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee) the physicians are paid on
the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is usually not a pre-set renewal fee
stated within the contract, however, on occasion there may be a stated renewal
fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador and promote the services provided by
the Company.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staffs salary relates directly to the hospital staffing
business. When the Company receives a new contract and there exists a
shortage of physicians, the Company's recruiting staff will work towards
increasing the Company's supply or emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
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(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, 2nd on-call coverage, Local Medical Director's accommodation costs
and any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs generated by the physician.
The Company currently has in place contracts for the provision in Ontario of
emergency care services by its contracted physicians with 14 hospitals.
THE EMS DIVISION'S OPERATIONS
The principal operating activities of the Emergency Medical Services
Division include the following:
RECRUITMENT AND CREDENTIALS The recruitment and certifying of credentials
of qualified independent contract physicians is a central aspect of the
Company's operations. Three full-time employees of the Company are dedicated to
recruiting and certifying credentials of the independent contact physicians for
the Company. The Company recruits physicians from three groups. The first group
is recruited directly from post graduate programs. Seminars are held in most of
the teaching hospitals in Ontario to inform all the residents of family medicine
and specialty training about career opportunities in the Company. The second and
third groups recruited are family physicians with an interest in emergency
medicine and full-time emergentologists. As part of its recruiting strategy, the
Company intends to seek regulatory approval to establish a stock option plan in
which its contracted physicians can participate. The Company believes that this
will encourage physicians to make long-term commitments.
QUALITY ASSURANCE. Quality assurance systems are designed to ensure
consistency in clinical practice performance. These systems are subject to
review and examination by independent hospital credential and regulatory
agencies. As part of the Company's quality assurance program, all physicians are
required to have ACLS and ATLS certification, provide a Certificate of
Professional Conduct from the College of Physicians and Surgeons of Ontario, be
approved by the credentialing committee in their respective hospitals that are
governed by the Public Hospital Act, maintain adequate malpractice coverage, and
maintain continuing medical education credits. Principally, quality assurance is
the responsibility of Dr. Nimigan, the Company's Executive Medical Director, as
well as the Medical Director assigned to such hospital. There are currently four
Medical Directors responsible for quality assurance activities, including Dr.
Zacharias. The efficacy of these systems, and the performance of its contract
physicians, are critical to maintaining a good relationship with the hospitals,
as well as minimizing the exposure of the Company to liability claims.
TIME SCHEDULING. The scheduling of physician hours is performed monthly.
Hospitals are provided a monthly physician coverage schedule prior to the first
of each month. Under some of the hospital contracts, multiple physician coverage
is required during certain periods. Because of varying other demands on the
contract physicians, the scheduling process is complex and requires significant
management attention. The Company has two full-time employees dedicated to
scheduling issues.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage are comprised of two elements: (i) hospital administrative fees; and
(ii) physician services. Under each hospital contract, the Company has the
responsibility for the billing and collection of physician fees. The Company's
bad debt experience in collection of physician fees has been less than 1% of
allowable billings. In addition, the Company charges each hospital a fee for its
recruiting and staffing services either on a fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides
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for the administration of fringe benefit programs, which may include but are not
limited to life insurance, health insurance, professional dues and disability
insurance.
CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. Hospitals have increasingly
turned to consulting specialists with specialized skills to strengthen the
management of their professional medical staff and specific clinical
departments, to better control costs, and to assist hospitals in meeting their
healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring physician. In the past three years,
consulting contracts have been conducted with Hotel-Dieu Grace Hospital and The
Wellesley Hospital.
The Company has also conducted several international consulting assignments
for healthcare clients in Saipan, the Cayman Islands, Malaysia and Russia,
including feasibility studies, identification of medical service needs, planning
of healthcare delivery systems and developing marketing strategies. The Company
is currently engaged in two consulting assignments, the first of which is to
provide an accident and emergency consulting study for the State of Kerala in
India, the costs of which are funded in part by the Canadian government and in
part by the Ministry of Health in Kerala, and the second of which is to provide
an integrated strategic plan for the delivery of health and social services in
the Northwest Territories in Canada, the costs of which are being funded by the
Northwest Territory Provincial government.
With respect to the Company's international business strategy, the Company
intends to pursue additional consulting assignments, primarily in North America.
Management believes that its prior consulting experiences, along with its
emergency medical service and clinical operations experiences, will enable the
Company to successfully pursue specialized consulting assignments.
The Company expects to continue its growth through staffing additional
hospital contracts. In particular, the Company intends to both strategically
target hospitals and physician groups. Management actively seeks opportunities
to competitively bid for hospital contracts.
In addition, the Company intends to take advantage of the government's plans
to restructure the delivery of Canadian medical care through fewer but more
efficient hospitals and hospital groups. It is expected that hospitals will
increasingly look to outsourcing from third party providers. Specifically, the
Company expects that hospitals will seek opportunities for emergency care
specialists not only to staff the emergency departments but also to administer
and operate all aspects of those departments.
Hospital restructuring has become a political focus in Ontario. The
provincial government is reducing expenditures in the hospital sector as part of
the restructuring. Historically, restructuring has been generally related to
downsizing within a single organization. In Ontario, realizing additional
savings in hospital medical services will be increasingly difficult without
significant program reductions. There is a need, therefore, for new solutions
which reduce the excess physical capacity in the healthcare system (e.g., number
of facilities), reduce administrative overhead and rationalize medical services.
In order to achieve this magnitude of change, the Company believes it will
be necessary for hospitals to go outside their organization and consider means
by which they can cooperate with other organizations. Management believes that
the new wave of hospital restructuring will result in many hospital mergers and
some hospitals will close. The government of Ontario recently enacted the
Savings and Restructuring Act (Bill 26), a Bill that enables the Government to
proceed with its restructuring plans.
The Company believes that its experience in the provision of emergency
medicine as well as its consulting expertise in reducing hospital costs can
demonstratively convince hospitals to out-source emergency department services
to the Company.
THE CLINICAL OPERATIONS DIVISION
The Company owns and operates four clinics in Canada, including two clinics
in Toronto's Lester B. Pearson International Airport. In addition, the Company
operates the Glenderry clinic in which it owns a 33.33% interest. The locations
of and services provided at the Company's clinics are as follows:
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AIRPORT. The Company has contracted with the Ministry of Transportation to
provide emergency services for both Terminal 1 and 2 Medical Clinics Toronto's
Lester B. Pearson International Airport. The airport clinics provide emergency
services throughout the airport to approximately twenty-eight million travelers
who use the airport each year and walk-in services to the approximately 35,000
employees. The staff consists of highly qualified critical care nurses who are
on-site and emergency physicians who are on call. Other services provided in the
clinic are chiropractic, massage therapy and audio testing which services are
generally provided to employees of the airport.
GLENDERRY, POND MILLS, CENTRAL. The Company operates three clinics which
offer both family practice and walk-in services for patients. Other services
provided at the clinics are travel medicine, chiropractic, massage therapy,
weight loss program, acupuncture, Chinese medicine and professional family
counseling. The Glenderry clinic is a partnership, in which the Company acquired
a 33.33% interest in December 1995 for consideration of $27,208. The remaining
66.67% is held by two physicians unaffiliated with the Company. The Company
manages the walk-in clinic by providing scheduling, staffing, recruiting,
billing, collections and accounting services to the clinic. In return for
managing the clinic, the Company receives a monthly fee of $1,500. In addition,
as an owner of the 33.33% interest, the Company receives one-third of any
distributions.
The Company recently acquired the assets and physician contracts of St.
George Medical Clinic, a Health Services Organization (HSO), for aggregate
consideration of $284,257. The funding mechanism is a contractual agreement with
the Ministry of Health to provide primary care at a clinic for a specified
number of registered patients. The Ministry allocates a specific payment for
each patient on a monthly basis, whether the services are used or not. The
services provided under an HSO clinic as compared to a fee-for-service clinic
are identical. The difference that arises between an HSO clinic vs a
fee-for-service clinic is in the funding provided by the Ontario Ministry of
Health. Under the HSO model, the Ministry pays a monthly flat fee for a patient
listed with the HSO regardless of whether the patient visit the clinic or not.
The monthly fee is determined by the age and sex of the patient and is referred
to as the capitation rate. Under the fee-for-service model, a fee is billed to
the Ministry only when a patient visits the clinic and a service is performed.
The fee-for-service rates are set by the Ministry and vary depending on the type
of medical service performed. The St. George clinic operations was transferred
to the Central Clinic in an effort to take advantage of the Central Clinic's
convenient location. As a result, the Company also transferred the physician
contracts to its Central Clinic.
URGENT CARE CENTRES.
The Company plans to develop a chain of Urgent Care Centres, initially in
Ontario and then in other Canadian provinces, that will gain public recognition
and government support as a quality deliverer of urgent health care. There can
be no assurance that they will gain such recognition or support.
Due to government funding constraints, many primary care physicians in
Canada have moved to other countries to practice medicine, retired from the
practice of medicine, or have closed their practices to become a member of a
group of physicians that provide only limited access to health care.
Consequently, approximately 1 in 4 residents of Ontario is without a primary
care physician.
The Company's plan is to develop its Urgent Care Centre services, through
which it intends to offer on-site, one-stop medical care comparable to the
services provided in a traditional emergency department. The Urgent Care Centre
concept consists of a group of emergency trained physicians, a medical
laboratory, a diagnostic radiology service, and a pharmacy, each of which must
be present for the others to co-exist, and each of which is provided by a
separately owned company. The Company, through its wholly-owned subsidiary
Med-Emerg Urgent Care Centre, Inc., intends to provide emergency medical
services, including emergency physician staffing, emergency nurse staffing,
receptionist staffing, physician billing services, all financial services,
inventory control, Medical Directorship and other operational components such as
quality improvement and risk management initiatives. Each emergency-trained
physician working at an Urgent Care Centre will have critical care expertise to
treat most clinical problems. Unlike most
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walk-in clinics and family physician offices, the Company's management believes
its Urgent Care Centres will generally be able to treat 90% of the cases seen in
a typical Ontario emergency department. In certain cases requiring
hospitalization, the Company intends that the Urgent Care Centre will stabilize
the patient and then transfer them to hospitals.
The Company plans to open its first centre in the third quarter of 1997 with
up to nine additional centres scheduled over the following eighteen months. The
Company estimates that it will cost approximately $200,000 to open each Urgent
Care Centre. See "Use of Proceeds" and "Managements Discussion and Analysis of
Financial Condition and Results of Operations, Liquidity and Capital Resources."
It is expected that the Urgent Care Centres will be "community based" and
offer less restricted access to non-hospital based health care. Management
believes that the centres will offer high quality service not only in clinical
practice but also in consumer defined quality attributes such as waiting times,
quality of environment, quality of personal interaction and courtesy.
Management's plan is that the Urgent Care Centres will be designed to be less
costly to the publicly funded health care system than traditional emergency
departments.
The vast majority of emergency services in Ontario are delivered by
qualified family or general practitioners in local communities. In Ontario,
there are 20,084 physicians active in the practice of medicine although only 323
physicians are certified in emergency medicine. Notwithstanding this small
proportion of physicians focusing on emergency medicine, the demand for
emergency care has grown significantly over the past ten years. The Company
believes, although there can be no assurance, that there is a need for an
alternate provider of emergency medical services and expects this need to grow
due to their anticipated cost efficiency and the funding problems facing the
healthcare system.
The success of the Urgent Care Centre concept will depend on the Company
realizing several strategic objectives. The Company desires to offer
comprehensive medical care at a level comparable to traditional hospital based
emergency departments. In order to accomplish this objective, it must recruit
sufficient physicians and nurses with appropriate critical care expertise to
ensure quality care for all clinical problems, recruit experienced providers of
diagnostic imaging, medical laboratory services, and pharmacy services to be
co-participants in each centre, manage day-to-day operations with an experienced
Medical Director for quality assurance and an experienced Clinical Director for
operational efficiency, and operate in a cost effective manner to maximize
profitability.
The Company believes that customer service is essential to its success. The
Company believes that the following steps will increase patient satisfaction:
Overlap physician staffing to suit volume so that the average waiting time from
the moment the patient enters the Centre is 30 minutes or less; On-site location
of diagnostic imaging, laboratory services and a pharmacy to reduce patient
delays; Periodic patient satisfaction surveys to identify problems at an early
stage and prevent reoccurrence of the same type of complaints; Customer access
to waiting rooms with televisions and radios, air conditioning, current
magazines, and coloring books and toys for children; and Clean sanitary
facilities, particularly washrooms.
The Company plans to establish or acquire existing Urgent Care Centres in
locations having the following attributes: Residential populations of at least
150,000 within a 5 km (approximately 3 miles) to 8 km (5 miles) radius,
preferably with a 25,000 day-time working population, largely families with
children or teenagers, with lower to middle average household incomes; Locations
near high density retail locations which offer convenience and visibility;
Locations with accessibility for both ambulances and patients. The Company is
not currently involved in any negotiations regarding an acquisition of a
currently operating urgent care centre.
NOVEMBER 1996 RECAPITALIZATION
On November 1, 1996 the Board of Directors authorized the following capital
restructuring: The controlling shareholders exchanged 2,203,333 common shares
for 500,000 voting preferred shares, having a value of $4,500,000 US at the date
of issuance. Each of the preferred shares entitled the previous
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controlling shareholders to eight votes per share until the Company completes a
public offering of its securities, at which time each preferred share will be
entitled to one vote per share.
Each preferred share is convertible into common stock of the Company at the
option of the holder at a price equal to $9.00 US per common share for a
ten-year period from the date of issuance. At the end of the ten-year period,
the Company may, at its option, either redeem any remaining outstanding
preferred shares, or issue the equivalent number of common shares based upon
their then-market value. The preferred shares are entitled to receive a
cumulative dividend of $.27 US per share, payable in cash, or equivalent common
shares based on their then-quoted market value. In addition, as part of the
capital restructuring, all of the common share purchase warrants previously
issued by the Company were surrendered. No consideration was paid by the
Company, however, in the event that the initial public offering contemplated by
the letter of intent dated September 5, 1996 has not closed by September 5,
1997, the Company will reissue, as soon as reasonably practicable, common share
purchase warrants in substantially the same terms as the holders of the
surrendered warrants.
This capital restructuring was effected to reposition the shareholdings of
the Company prior to the completion of an initial public offering of stock. In
particular, the former controlling shareholder agreed to a substantial reduction
in percentage of voting stock held of the Company subsequent to the Company
completing its initial public offering, in exchange for the long-term preferred
share commitment by the Company. Management is of the opinion that this
restructuring is in the best interests of all shareholders of Med-Emerg, and
provides a long-term capital structure from which the Company may pursue its
strategic growth objectives.
GOVERNMENT REGULATION
The provision of medical services in Canada is for the most part, under
provincial jurisdiction. Under the Health Insurance Act, the government of
Ontario is responsible for paying physicians for the provision of insured
services to residents of Ontario. In 1993, the government placed an overall hard
cap of approximately $3.8 billion on the amount physicians could collectively
bill the Ontario Health Insurance Plan (OHIP) for insured services. As
physicians' billings exceeded this hard cap in successive years, the government
reduced the fees received under OHIP by prescribed percentages ("clawbacks").
This clawback is subject to constant revision and review. In addition to the
hard cap, individual physicians' billings under OHIP are subject to threshold
amounts, or soft caps. Once a physician reaches a prescribed level in the
12-month period beginning April 1 of each year, the government reduces payments
to the physician by a prescribed fraction. In May 1997, the Ontario provincial
government reached an agreement with the medical profession wherein it was
agreed that the soft cap imposed against the individual physicians shall be
cancelled on all services rendered after February 28, 1998. This agreement is
due to expire on March 31, 2000. Further, this agreement has no effect on the
hard cap. Any further change in reimbursement regulations, policies, practices,
interpretations or statutes that places material limitations on reimbursement
amounts or practices could adversely affect the operations of the Company,
absent, or prior to, satisfactory renegotiation of contracts with clients and
arrangements with contracted physicians.
Under a combination of statutory provisions, both Federal and provincial,
physicians are prohibited from billing their patients for fees in excess of
those payable for insured services by OHIP. The Canada Health Act allows for
cash contributions by the Federal government in respect of insured health
services provided under provincial healthcare insurance plans. In order for a
province to qualify for a full cash contribution, there is a requirement that
the provincial healthcare insurance plan satisfy the criteria set out in the
Canada Health Act. In addition, the province must ensure that no payments are
permitted in respect of insured health services that have been subject to extra
billing. Physicians who bill patients directly for the balance of their bill
which has been reduced due to clawback may be guilty of an offense, and on
conviction, liable to significant financial penalties and possibly subject to
proceedings for professional misconduct. However, clawbacks with respect to
individual physicians, as discussed above, will be cancelled on February 28,
1998.
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Continuing budgetary constraints at both the Federal and provincial level
and the rapidly escalating costs of healthcare and reimbursement programs have
led, and may continue to lead, to relatively significant reductions in
government and other third party reimbursements for certain medical charges. The
Company's independent contracted physicians as well as the Company are subject
to periodic audits by government reimbursement programs to determine the
adequacy of coding procedures and reasonableness of charges.
Business corporations are legally prohibited from providing, or holding
themselves out as providers of, medical care in many provinces. While the
Company will seek to structure its operations to comply with the corporate
practice of medicine laws of each province in which it operates, there can be no
assurance that, given varying and uncertain interpretations of such laws, the
Company would be found in compliance with restrictions on the corporate practice
of medicine in all provinces. A determination that the Company is in violation
of applicable restrictions on the practice of medicine in any province in which
it operates or could operate could have a material adverse effect on the Company
if the Company were unable to restructure its operations to comply with the
requirements of such province.
PROPOSED HEALTHCARE LEGISLATION
The Health Services Restructuring Commission (HSRC), established under Bill
26, will have the mandate and authority to facilitate and accelerate hospital
restructuring in Ontario. This legislation contains measures intended to control
public and private spending on healthcare as well as to provide universal public
access to the healthcare system. The Company cannot predict the ultimate effect
of this and what other healthcare legislation, if any, will be enacted.
Significant changes in Canada's healthcare system are likely to have a gradual
but substantial impact on the manner in which the Company conducts its business
and could have a material effect on the results of the Company.
Despite pronouncements by the Ontario Minister of Health that managed care
options, such as in the United States, are being considered, it is not evident
that U.S. styled managed care will play a significant role in the
fee-for-service sector of the publicly funded healthcare system. Government
actions have to date indicated a strategy to let the healthcare system proceed
without intervening directly in the management of patient care as long as
budgetary targets can be met. Should the current strategy fail, a greater
emphasis may be placed on such managed care tools as utilization review,
guidelines, and fee schedule-tightening. The current move away from traditional
fee-for-service mechanisms may have a similar effect as physicians attempt to
minimize the risk they face and as the government strives for accountability and
value-for-dollar assurances.
COMPETITION
Competition in the industry is based on the scope, quality and cost of
services provided. Certain of the Company's actual or potential competitors have
substantially greater financial resources available to them. While management
believes that it competes on the basis of the quality of its services, the
larger resources of its competitors may give them certain cost advantages over
the Company (e.g., in the areas of malpractice insurance, cost, savings from
internal billing and collection and a broader scope of services). While various
local physician groups provide hospitals with emergency staffing alternatives,
to date, the Company is the largest province wide provider of emergency staffing
services to hospitals. The clinics operated by the CO Division competes with
hospital and other private physicians. The Urgent Care Centres would compete
with hospital emergency rooms. The Company believes that the varied physician
practice alternatives coupled with competitive remuneration plans create a
significant incentive for physicians to provide patient services through
Med-Emerg.
LEGAL PROCEEDINGS
The Company is not presently a party to any material legal proceedings.
However, as part of the November 1996 Recapitalization, The Estate of Dr. Donald
Munro ("Estate") contributed 75,000 of its 150,000 shares of Common Stock to the
capital of the Company. The Estate recently notified the Company
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that it has taken the position that it continues to be the beneficial owner of
150,000 shares of Common Stock. The Company disagrees with the Estate's position
and has so informed the Estate. To date, no legal proceedings have been
commenced.
In addition, in the future, the Company could be subject to claims arising
from its contracts with hospitals or other institutions or professional
associations to which it provides services.
EMPLOYEES
On March 31, 1997, the Company had 29 full-time employees, of whom three
were in general executive positions and 25 were in administration. In addition,
as of such date approximately 140 independent physicians were independent
contractors of the Company. The physicians are not employees of the Company.
None of the Company's employees is represented by a collective bargaining
agreement, and the Company considers its employee relations to be satisfactory.
PROPERTY
The Company's offices are located at 2550 Argentia Road, Suite 205,
Mississauga, Ontario, L5N 5R1. The Company occupies approximately 5,000 square
feet of space under a lease which expires in February 2001 at an average annual
rental rate of approximately $88,675.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ramesh Zacharias, M.D., FRCSC........................ 44 Chief Executive Officer, Director
Carl W. Pahapill, CA................................. 38 Chief Operating Officer, President and Director
Wayne Nimigan, M.D., FRCP............................ 49 Executive Medical Director
Kathryn Gamble, CA................................... 29 Vice President of Finance, Chief Financial Officer,
Secretary
Keith Burk, M.D...................................... 38 Director of Urgent Care Operations
William Thomson, CA.................................. 55 Chairman of the Board
Larry Grossman....................................... 53 Director
Peter Deeb........................................... 29 Director
Victoria Zacharias................................... 47 Director
Robert M. Rubin...................................... 56 Director
Patrick G. Michaud................................... 45 Director
</TABLE>
RAMESH ZACHARIAS, M.D., FRCSC. Dr. Ramesh Zacharias is the founder and
Chief Executive Officer of Med-Emerg Inc. He has acted as Chief Executive
Officer and a director of the Company since its inception. He has practiced
medicine in Canada since 1981 and has extensive experience in the delivery of
emergency medical care. He functions as the Medical Director and on-call
physician for the Terminal 1 and 2 Medical Clinics at Toronto's Lester B.
Pearson International Airport. He also provided consulting services regarding
the delivery of emergency care in the Caribbean, Saipan and Malaysia and
provided management consulting services regarding the operation of medical
clinics in Canada, the United States and Russia. Mr. Zacharias is the husband of
Victoria Zacharias, a director of the Company.
CARL W. PAHAPILL, CA. Mr. Pahapill, joined the Company as Chief Operating
Officer in February 1996 and became a director of the Company in October 1996.
From September 1995 to January 1996, Mr. Pahapill acted as a consultant to the
Company. From 1994 to 1995, Mr. Pahapill was the Chief Operating Officer of
Signature Brands Limited, a publicly traded food processing Company (TSE). From
1984 to 1993, Mr. Pahapill was a Partner at BDO Dunwoody Chartered Accountants.
Prior to that, Mr. Pahapill was a supervisor at Ernst & Young Chartered
Accountants.
WAYNE NIMIGAN, M.D., FRCP. Dr. Nimigan has been the Executive Medical
Director since October 1993. Since 1978, Dr. Nimigan has been a clinical
lecturer at the University of Ottawa, Department of Family Medicine. Dr. Nimigan
is also a physician and principal shareholder of the Orleans Urgent Care Centre,
a private emergency facility in Ottawa, Ontario. Dr. Nimigan was formerly the
Director of the Emergency Department in the Commonwealth Health Centre in
Saipan, an American commonwealth territory in the western Pacific. Dr. Nimigan
has international experience in clinical practice in the former Soviet Union,
Zaire, India, Malaysia and the Czech Republic.
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KATHRYN GAMBLE, CA. Ms. Gamble joined the Company in January 1996 serving
as the Company's Vice President of Finance and became the Company's Chief
Financial Officer in October 1996. From February 1995 to December 1995, Ms.
Gamble was the Corporate Controller for Signature Brands Limited, a publicly
traded ("TSE") food processing company. From February 1993 to February 1995, Ms.
Gamble was an Audit Analyst with Abitibi Price Inc., a publicly traded company
(TSE, NYSE). From 1989 to February 1993, Ms. Gamble was a senior accountant at
Iscove, Gold & Glatt Chartered Accountants.
WILLIAM THOMSON, CA. Mr. Thomson has been a director of the Company since
January 1996. Mr. Thomson has been an advisor of Med-Emerg Inc. since January
1991. From 1978 to the present, Mr. Thomson has served as the President of
William E. Thomson Associates Inc., a management consulting firm specializing in
crisis management and turn around operations. From 1992 to the present he has
served as Chairman of Cyphertech Systems, Inc., a company he founded. From 1993
to 1995, he served as Chairman of Votek Systems, Inc., a software development
company. In addition, from 1991 to 1994, he served as Chairman of Accomodex
Franchise Management Inc. Mr. Thomson serves as a director of numerous
companies, including Asia Media Group, Inc., a public company.
PETER DEEB. Mr. Deeb has been a director of the Company since January 1996.
Mr. Deeb founded the North American engineering and construction firm,
Deeb-Wallaus Corporation where he served as Chairman and Chief Executive Officer
from 1987 to 1993. Mr. Deeb is currently a Principal and Director of the Toronto
investment banking firm of Thomson Kernaghan & Co. Ltd.
In addition, Mr. Deeb holds the position of Chairman and CEO of the New York
based merchant banking firm, Hampton House International Corp., and as Chief
Executive of its Canadian subsidiary, Carlton International Brands Limited. Mr.
Deeb also serves on the board of Lynx Investment Advisory, Inc. (Washington DC)
and Capital Investment Circle Plc. (Dublin, Ireland).
LARRY GROSSMAN. Mr. Grossman has been a director of the Company since
January 1996. He has been an advisor of Med-Emerg Inc. since January 1993. Since
1990, Mr. Grossman has been a partner at the law firm of Blaney, McMurtry,
Stapells, Friedman and its predecessor. He has also served as Head of Investment
Banking for Richardson Greenshields and as President and CEO of Canada's 9th
largest Trust Company. Mr. Grossman also serves on the board of directors of
numerous companies. In addition, Mr. Grossman has served in a variety of
political positions in the Province of Ontario, including but not limited to,
the Parliamentary Assistance to Attorney General in 1976, Minister of Health in
1982, Treasurer and Minister of Economics in 1983, Minister of Education and
Colleges and Universities in 1985; and as the Elected Leader of the Progressive
Conservative Party of Ontario and Leader of the Official Opposition in 1985.
KEITH BURK, M.D.. Dr. Burk is a consultant to the Company and in such
capacity has been the Company's Medical Director of Urgent Care Operations since
May 1996. Dr. Burk is also the President of the Urgent Care Clinic Association
of Ontario and is one of the founders of two urgent care clinics in the
Kitchener-Waterloo region. Dr. Burk intends to dedicate at least two days per
week to the Company's Urgent Care project in his capacity as a Medical Director.
Since 1991, Dr. Burk has been a working physician at the Kitchener-Waterloo
Urgent Care Clinics as well as the Medical Director at those two sites.
ROBERT M. RUBIN. Mr. Rubin has served as a director of the Company since
October 1996. Since June 1992, Mr. Rubin has served as a director of Diplomat
Corporation, a publicly traded company involved in the sale of infantwear and
babycare products. Since December 5, 1995, Mr. Rubin has been a director of Help
at Home, Inc., a public company engaged in the business of providing homemaker
and general housekeeping services to elderly and disabled persons at home. Since
June 1994, Mr. Rubin has been a Director of Kaye Kotts Associates, Inc., a
public company that provides representation for delinquent taxpayers before tax
authorities.
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Since November 20, 1992, Mr. Rubin has served as the Chairman of the Board
of Directors of Western Power & Equipment Corp. ("WPEC"), a construction
equipment distributor. Between November 20, 1992 and March 7, 1993, Mr. Rubin
served as Chief Executive Officer of WPEC. Between October, 1990 and January 1,
1994, Mr. Rubin served as the Chairman of the Board and Chief Executive Officer
of American United Global Inc., a technology and communication company and
majority owner of WPEC ("AUGI") and since January 1, 1994, solely as Chairman of
the Board of AUGI. Mr. Rubin was the founder, President, Chief Executive Officer
and a Director of Superior Care, Inc. ("SCI") from its inception in 1976 until
May 1986 and continued as a Director of SCI (now known as Olsten Corporation
("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange
listed company, is engaged in providing home care and institutional staffing
services and health care management services. Mr. Rubin was formerly a Director
and Vice Chairman, and is a minority stockholder, of American Complex Care,
Incorporated ("ACCI"), a public company which provided on-site health care
services, including intradermal infusion therapies. In April 1995, the principal
operating subsidiaries of ACCI petitioned in the Circuit Court of Broward
County, Florida for an assignment for the benefit of creditors. Mr. Rubin is
also a Director, Chairman and minority stockholder of Response USA, Inc., a
public company engaged in the sale and distribution of personal emergency
response systems. Mr. Rubin is also Chairman and Chief Executive Officer and a
principal stockholder of ERD Waste Corp., a public company specializing in the
management and disposal of municipal solid waste, industrial and commercial
nonhazardous solid waste and hazardous waste.
Mr. Rubin's involvement with all of the aforementioned companies may result
in conflicting demands for his time. Management believes that the Company has
taken adequate measures to assure that Mr. Rubin will devote the amount of time
to the Company that it deems necessary. However, there can be no assurance that
all such conflicting demands will be resolved in favor of the Company.
VICTORIA ZACHARIAS. Ms. Zacharias has been a director of Med-Emerg Inc. and
the Company since their inceptions July 1983 and December 1995, respectively. In
1972, Ms. Zacharias received her nursing degree from The Wellesley School of
Nursing in Toronto, Canada. Ms. Zacharias has approximately 25 years of nursing
experience in a variety of hospitals located in Ontario, Canada. Ms. Zacharias
is the wife of Ramesh Zacharias, the Company's Chief Executive Officer.
PATRICK MICHAUD. Mr. Michaud has been a director of the Company since April
1997. Since September 1993, Mr. Michaud has been self-employed as an independent
financial consultant. From April 1992 to September 1993, Mr. Michaud was Senior
Vice-President and Chief Financial Officer of Majestic Electronic Stores, Inc.,
a publicly traded specialty electronics retailer. From 1990 to 1993, Mr. Michaud
was a director of Continental Pharma Cryosan, a company which at the time was a
publicly traded healthcare company. Mr. Michaud received his BA in Engineering
Civil in 1974 from the Royal Military College of Canada, his MBA in 1980 from
the University of Western Ontario, and a certified general accounting degree in
1985 from the Certified General Accountants Association of Ontario.
All directors shall serve for a term of one year or until their respective
successors have been duly elected. With the exception of Robert M. Rubin,
outside directors of the Company will receive approximately $10,000 per year for
acting in such capacities and will be reimbursed for all reasonable expenses
incurred in connection with activities on behalf of the Company. The Company has
entered into an agreement with Mr. Rubin which provides that Mr. Rubin will
receive 50,000 shares of Common Stock in 1997 for acting as a director of the
Company. In accordance with Canadian law, Mr. Rubin will receive such shares
monthly in proportional increments. In addition, the Company granted Mr.Rubin an
option to purchase up to 700,000 shares of Common Stock at US $.75 per share
which option is immediately exercisable. The Company granted Mr. Rubin the
options because of his extensive experience in the healthcare industry and his
ability to assist the Company in identifying and evaluating potential
acquisitions and joint ventures.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation, as well as certain
other compensation paid or accrued to the Company's Chairman, Chief Executive
Officer and Chief Operating Officer for the fiscal years ended December 31, 1994
and 1995. No other executive officer has a total annual salary and bonus of more
than $100,000 (U.S.) during the reporting periods.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------ --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Ramesh Zacharias................................ 1996 $ 169,462 $ 0 $ 19,582(1)
Chief Executive Officer 1995 $ 73,000 $ 0 $ 104,857(1)
1994 $ 73,000 $ 0 $ 69,506
Carl Pahapill................................... 1996 $ 131,845 $ 15,000 $ 9,000(2)
Chief Operating Officer, President 1995 $ 0 $ 0 $ 31,000(2)
All Officers and Directors as a Group
(9 people).................................... 1996 $ 454,686 $ 17,500 $ 28,582
</TABLE>
- ------------------------
(1) In addition to being the Chief Executive Officer of the Company, Dr.
Zacharias on occasion covers physician assignments that the Company is
otherwise unable to fill. For each assignment that Dr. Zacharias covers, he
is paid as an independent contracting physician. This amount represents fees
paid to Dr. Zacharias for services rendered as a physician.
(2) Represents fees paid to Mr. Pahapill for acting as a consultant to the
Company from September 1995 through December 1995.
EMPLOYMENT AGREEMENTS
All of the Company's executive officers intend to devote their full business
time to the affairs of the Company. The Company entered into an employment
agreement with Dr. Zacharias which becomes effective upon the closing of this
Offering. The agreement provides that Dr. Zacharias will devote all of his
business time to the Company in consideration of an annual salary of $204,000
for the first year increasing to $225,000 per year during the final year. The
agreement is for a term of three years, but may be terminated by the Company for
cause, or without cause with penalty. Prior to the Effective Date, the Company
intends to enter into an employment agreement with Mr. Pahapill. The Company has
no current plans to enter into employment agreements with Ms. Gamble, Dr.
Nimigan or Dr. Burk.
STOCK OPTION PLAN
In April 1997, the Board of Directors and shareholders adopted and approved
the Company's 1997 Stock Option Plan (the "Plan" or the "1997 Stock Option
Plan"). The Plan is to be administered by the Board of Directors or by a
committee appointed by the Board (the "Plan Administrator"). Pursuant to the
Plan, options to acquire an aggregate of 638,000 shares of Common Stock may be
granted, 228,500 of which have been granted. The Plan is to provide for grants
to employees and directors of the Company.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, the Company purchased a 33.33% partnership interest in the
Glenderry Medical Clinic from Dr. Zacharias for $27,208. Such partnership
interest represented all of Dr. Zacharias' interest in the Glenderry Medical
Clinic at the time of the purchase. Dr. Zacharias used the proceeds of such sale
to repay the Company the amount of $27,208 outstanding on a non-interest bearing
loan that the Company made to Dr. Zacharias as a shareholder advance.
Between 1994 and 1996, the Company loaned, and such amount is currently
outstanding, an aggregate of $141,864 to Dr. Zacharias and Victoria Zacharias
and two of their affiliated companies. Of such loans, $48,224 was used to
acquire a residence, $37,255 arose in connection with the transfer of shares of
an unrelated company's stock from two of the Company's subsidiaries to two
unrelated companies owned by the Zacharias', and $39,247 was loaned to satisfy
tax liabilities of the Zacharias'. These loans are non-interest bearing with no
specific repayment terms. The Company has agreed to repurchase, prior to the
completion of the Offering, 37,456 shares of its common stock from Ramesh and
Victoria Zacharias at a purchase price of US $2.75 per share. The US $2.75 price
was based on what the company believed to be an appropriate discount to the IPO
price. The aggregate consideration payable by the Company will be used to repay
all outstanding amounts owed by Dr. Zacharias and Victoria Zacharias and their
affiliated companies.
In January 1996, Dr. Zacharias and his wife Victoria Zacharias exchanged all
of the capital stock of 927563 Ontario Inc. and 927564 Ontario Inc. for
2,333,333 shares of the Company's common stock.
In January 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock and 1,000,000 warrants for gross proceeds of $1,000,000. Hampton
House International Corp. ("Hampton House"), a company of which Peter Deeb is
the CEO and a shareholder, purchased 60,000 shares. The 1,000,000 Warrants were
subsequently returned to the Company as part of the Recapitalization (as such
term is defined herein).
In June 1996, the Company loaned $60,000 to Carl Pahapill, the Company's
President, to purchase 100,000 shares of Common Stock in the Company. The loan
is non-interest bearing, unsecured and repayable over a five year period with
principal payments commencing two years from the effective date of his
employment agreement.
On November 1, 1996, the Company effected a recapitalization (the
"Recapitalization") whereby Dr. Zacharias, the Company's Chief Executive Officer
and Director, and Victoria Zacharias, a Director of the Company, converted an
aggregate of 2,203,333 shares of Common Stock into an aggregate of 500,000
shares of preferred stock. As part of the Recapitalization, the Company issued
Hampton House an aggregate of 610,000 shares of Common Stock, valued at
$610,000, for past services rendered, including the identification of potential
acquisition candidates, including the St. George's Medical Clinic, and assisting
the Company in developing a strategic business plan. See "Business--November
1996 Recapitalization" for a description of the Recapitalization, and
"Description of Securities--Preferred Stock" for a description of the terms of
the preferred stock.
On November 1, 1996, the Company granted Robert Rubin, a director, an option
to purchase 700,000 shares of Common Stock at US$.75 per share. Mr. Rubin
extended the Company a US$500,000 line of credit which bears interest at 2%
above the prime rate. There is currently a US$100,000 outstanding balance under
such line of credit.
In connection with the Bridge Financing, the Company issued 8% promissory
notes in the principal amount of US$500,000 and an aggregate of 125,000 shares
of Common Stock to four investors for gross proceeds of US$500,000. Robert
Rubin, a director of the Company, purchased a promissory note in the principal
amount of US$150,000 and 37,500 shares of Common Stock.
In April 1997, the Company granted options to purchase an aggregate of
228,500 shares of Common Stock pursuant to the 1997 Stock Option Plan to certain
of its directors, executive officers and employees. The options are exercisable
at US$2.50 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as at the date of this Prospectus, certain
information with respect to stock ownership of (i) all persons known by the
Company to be beneficial owners of 5% or more of its outstanding shares of
Common Stock; (ii) each director; and (iii) all directors and officers as a
group, together with their respective percentage ownership of such shares before
the Offering and as adjusted to reflect the sale of the 1,250,000 shares of
Common Stock offered hereby. Unless otherwise indicated, the beneficial owners
have sole voting and investment power over the shares of Common Stock listed
below:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP
SHARES OF BEFORE AFTER
NAME(1) COMMON STOCK OFFERING OFFERING
- ------------------------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
Ramesh Zacharias,(2)..................................................... 895,000 35.6% 23.8%
M.D., FRCSC
Victoria Zacharias(3).................................................... 895,000 35.6% 23.8%
Carl W. Pahapill,(4)..................................................... 165,000 8.2% 5.1%
CA
Robert Rubin(5).......................................................... 749,500 28.3% 19.2%
Hampton House............................................................ 410,000 21.0% 12.8%
International(6)
Peter Deeb(7)............................................................ 425,000 21.6% 13.2%
William Thomson, CA(8)................................................... 15,000 * *
Larry Grossman(8)........................................................ 15,000 * *
Kathryn Gamble(8)........................................................ 15,000 * *
Patrick Michaud.......................................................... 0 * *
Ambrose Group............................................................ 170,000 8.7% 5.3%
John H. Sununu........................................................... 130,000 6.7% 4.1%
All Officers and Directors as a group(2)(3)(4)(5)(7)(8).................. 2,279,500 68.2% 49.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Med-Emerg International,
Inc., 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1, Canada.
(2) Includes (i) 165,000 shares owned by Dr. Zacharias' wife, Victoria Zacharias
who is a director of the Company (ii) 65,000 shares issuable upon exercise
of currently exercisable options granted under the Company's 1997 Stock
Option Plan, and (iii) 500,000 shares of Common stock issuable upon
conversion of up to 500,000 shares of Convertible Redeemable Preferred
Stock, 50% of which is owned by Dr. Zacharias and 50% of which is owned by
Mrs. Zacharias. These shares of preferred stock are convertible into Common
Stock at $9.00 per share and are automatically redeemable in ten years
either into cash or Common Stock at the Company's option. The number of
shares of Common Stock issuable upon conversion of the Preferred Stock was
calculated by assuming a one-for-one conversion. See "Description of
Securities." Dr. Zacharias disclaims beneficial ownership of the shares
owned by his wife.
(3) Includes (i) 165,000 shares owned by Dr. Zacharias, (ii) 65,000 shares
issuable upon exercise of currently exercisable options granted under the
Company's 1997 Stock Option Plan, all of which are owned by Dr. Zacharias,
and (iii) 500,000 shares of Common stock issuable upon conversion of up to
500,000 shares of Convertible Redeemable Preferred Stock 50% of which is
owned by Dr. Zacharias and 50% of which is owned by Mrs. Zacharias. The
Preferred Shares are convertible into Common Stock at $9.00 per share and
are automatically redeemable in ten years either into cash or Common Stock
at the Company's option. The number of shares of Common Stock issuable upon
conversion of
43
<PAGE>
the Preferred Stock was calculated by assuming a one-for-one conversion.
Mrs. Zacharias disclaims beneficial ownership of the Shares owned by her
husband.
(4) Includes 65,000 shares issuable upon exercise of currently exercisable
options granted under the Company's 1997 Stock Opiton Plan.
(5) Includes 700,000 shares of Common Stock currently issuable upon exercise of
options. See "Management."
(6) These shares may be deemed to be owned by Peter Deeb, a director of the
Company. Mr. Deeb owns 75% of Hampton House and is its Chairman and Chief
Executive Officer.
(7) Includes (i) 410,000 shares of Common Stock held in the name of Hampton
House, and (ii) 15,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the Company's 1997 Stock Option
Plan.
(8) Represents shares of Common Stock issuable upon exercise of currently
exercisable options issued under the Company's 1997 Stock Option Plan.
SELLING ALLOTMENT SECURITYHOLDERS
The table below sets forth with respect to each Selling Allotment
Securityholder the number of shares of Common Stock beneficially owned by each
Selling Allotment Securityholder included for sale in this Prospectus in
connection with the Underwriters' Over-Allotment Option.
<TABLE>
<CAPTION>
SHARES OWNED
BEFORE SHARES/PERCENT OWNED
SELLING ALLOTMENT STOCKHOLDER OVER-ALLOTMENT SHARES OFFERED HEREBY AFTER OVER-ALLOTMENT
- ---------------------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
Hampton House Int'l........................... 410,000 60,625 349,375/10.91%
I. Boulos Bou Dib............................. 100,000 20,000 80,000/2.50%
Jane Kingswood................................ 80,000 12,000 68,000/2.12%
W. David Wood................................. 50,000 12,000 38,000/1.19%
Husein El Dada................................ 30,000 8,000 22,000/*
Robert Moskofian.............................. 40,000 8,000 32,000/*
Mark Wilder................................... 20,000 6,000 14,000/*
Peter J. Tanous............................... 20,000 5,000 15,000/*
Thomas Nassif................................. 20,000 5,000 15,000/*
Elizabeth Huntly-Harmen....................... 20,000 4,000 16,000/*
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
44
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of an unlimited
number of shares of Common Stock, with no par value, and unlimited number of
Preferred Stock, with no par value per share. The following descriptions contain
all material terms and features of the Securities of the Company, are qualified
in all respects by reference to the Certificate of Incorporation and Bylaws of
the Company, copies of which are filed as Exhibits to the Registration Statement
of which this Prospectus is a part.
As of the date of this Prospectus, shares of Common Stock which were
beneficially held by 25 people and 500,000 shares of Convertible Redeemable
Preferred Stock held by Dr. Zacharias and Vicki Zacharias were issued and
outstanding.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to share
ratably on a share-for-share basis with respect to any dividends when, as an if
declared by the Board of Directors out of funds legally available therefor. Each
holder of Common Stock is entitled to one vote for each share held of record and
are not entitled to cumulative voting rights. The Common Stock is not entitled
to conversion or preemptive rights and is not subject to redemption. There are
no limitations on the right of nonresident or foreign owners to hold or vote the
Company's Common Stock. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution to stockholders after payment of all
obligations of the Company and after provision has been made with respect to
each class of stock,if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have subscription rights. The shares of Common
Stock presently outstanding are, and the shares of Common Stock offered hereby
will be, upon issuance and payment therefor, validly issued, fully paid and
non-assessable. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will upon issuance be, fully paid and
non-assessable.
Of the 1,952,000 shares of Common Stock outstanding as of the date of this
Prospectus, 745,000 (38.4%) are held in the United States by nine record
holders.
CLASS A WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of price of $5.00, subject to adjustment in certain
circumstances, for a period of four years commencing on , 1998 (one year
after the Effective Date). The Common Stock and Warrants may only be purchased
as Units in the Offering, but are separately tradeable immediately upon
issuance.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriter and Continental Stock Transfer &
Trust Company, the warrant agent, and will be evidenced by warrant certificates
in registered form.
The exercise price of the Warrants and the number and kind of Common Stock
or other securities and property issuable upon the exercise of the Warrants are
subject to adjustment in certain circumstances, including a stock split of,
stock dividend on, or a subdivision, combination or capitalization of the Common
Stock. Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Warrants to purchase the kind and number of shares or other securities or
property (including cash) receivable in such event by a holder of the number of
shares of Common Stock that might otherwise have been purchased upon exercise of
the Warrants.
The Warrants do not confer upon the holder any voting or other rights of a
stockholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
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<PAGE>
Warrants may be exercised upon surrender of the warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of the warrant agent,
with the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check payable to the order of the warrant
agent) for the number of the Warrants being exercised.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors--Current Prospectus and State Blue
Sky Registration Required to Exercise Warrants."
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder of a Warrant exercises all Warrants then owned of record, the
Company will pay to that holder, in lieu of the issuance of any fractional share
which would be otherwise issuable, an amount in cash equal to such fractional
interest based on the market value of the Common Stock on the last trading day
prior to the exercise date.
The Warrants are redeemable by the Company commencing , 1999, two
years from the Effective Date (or sooner with the consent of the Underwriters)
at a redemption price of $0.10 per Warrant on not less that 30 days written
notice, provided that the closing high bid price per share of Common Stock, if
traded on NASDAQ, or the last sale price, if listed on a national exchange, for
20 consecutive trading days ending on the third business day prior to the date
of redemption notice, equals or exceeds $8.00 (subject to adjustment for certain
events). The Warrants shall be exercisable until the close of the business day
preceding the date fixed for redemption. In addition, subject to the rules of
the NASD, the Company has agreed to engage the Underwriters as its exclusive
warrant solicitation agents, in connection with which the Underwriters would be
entitled to a 5% fee upon exercise of the Warrants. See "Underwriting."
PREFERRED STOCK
The Company has 500,000 shares of Preferred Stock outstanding, 250,000 of
which are owned by each of Dr. Zacharias and his wife, Victoria Zacharias, both
Canadian citizens. Each share of Preferred Stock entitles the holder to eight
votes per share until the Company engages in a public offering of its securities
at which time each share of Preferred Stock shall entitle the holder to one vote
per share. Each share of Preferred Stock entitles the holder to an annual
cumulative dividend of US $.27 per share commencing on the date the Company
consummates an initial public offering, payable quarterly at the Board of
Directors discretion in cash or Common Stock. Commencing November 1, 2006, the
Company has an option to redeem the Preferred Stock for an aggregate of US
$4,500,000 (or US $9 per share of Preferred Stock) or an amount of shares of
Common stock derived by dividing $4,500,000 by the current market price of the
Company's Common Stock. In addition, the holders of the Preferred Stock have the
immediate right to convert the Preferred Stock into Common Stock on a basis of
one share of Preferred Stock for one share of Common Stock. The Preferred Stock
contains a provision which prohibits the payment of any Common Stock dividends
until all cumulative dividends on the Preferred Stock have been paid.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Bylaws of the Company provide for indemnification of each director and
officer or former director or officer or any other person who may have served at
the request of the Company as a director or officer of another corporation in
which the Company owns shares of capital stock or is a creditor. The
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<PAGE>
Company will indemnify against reasonable costs and expenses incurred in
connection with any action, suit or proceeding to which any of the individuals
described above were made a party by reason of his or her being or having been
such a director or officer, unless such director has been adjudicated to have
been liable for negligence or misconduct in his or her corporate duties. As of
the date of this Prospectus, the Company is not aware of any existing or pending
litigation involving a former or current director that will require the
indemnification of the Company.
Notwithstanding the foregoing indemnification provisions of the Company's
Bylaws, the Company has been informed that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act is against
public policy and is therefore unenforceable.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10005.
TAX ASPECTS OF THE OFFERING
INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK OR WARRANTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX CODE AS WELL AS TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAX JURISDICTION.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS RESIDENT IN CANADA
NO DISCLOSURE IS OR IS DEEMED TO BE MADE IN THE PROSPECTUS AS TO INCOME TAX
CONSEQUENCES APPLICABLE TO A RESIDENT OF CANADA AS TO ACQUIRING, HOLDING,
CONVERTING OR DISPOSING OF COMMON STOCK OR WARRANTS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS NOT RESIDENT IN CANADA
In the opinion of Borden & Elliot, special Canadian counsel to the Company,
the following are the principal Canadian federal income tax considerations under
the Income Tax Act (Canada) and the regulations thereunder (collectively, the
"Canadian Act"), the administrative practices of Revenue Canada, Customs, Excise
& Taxation and proposed amendments to the Canadian Act and the regulations
thereunder publicly announced by the Minister of Finance prior to the date
hereof generally applicable to acquiring, holding and disposing of Common Stock
and Warrants. There is no assurance that any proposed amendments to the Tax Act
or the regulations thereunder will be enacted as proposed, if at all. It is
assumed that at all material times the Common Stock and Warrants will be listed
on NASDAQ, or some other Canadian or foreign stock exchange. Currently, neither
NASDAQ nor any other foreign stock exchange is prescribed for the purpose of
section 115 of the Canadian Act. Proposals in Bill C-69 (first reading December
2, 1996) which if enacted will have effect from April 29, 1995 will prescribe
NASDAQ and certain other foreign stock exchanges for the purposes of section 115
of the Canadian Act. Comment is restricted to prospective investors (each an
"Investor") who for the purposes of the Canadian Act are not resident in Canada,
hold all such Common Stock and Warrants and will hold all Common Stock acquired
on exercise thereof, solely as capital property, who deal at arm's length with
the Company and whose warrants and Common Stock will not at any material time
constitute "taxable Canadian property" for the purpose of the Canadian Act.
Generally, neither a share of Common Stock, nor a Warrant will constitute
"taxable Canadian property" of an Investor provided, among other things, that
the Company is a public company in that at least one class of its shares are
listed on a prescribed stock exchange in Canada. However, Bill C-69 proposes
that after April 26, 1995 shares listed on certain U.S. stock exchanges,
including NASDAQ, will not be "taxable Canadian property" provided either that
the Investor did not hold such security as capital property used in carrying on
a business in Canada, or that neither the Investor nor persons with whom the
Investor did not deal at arm's length alone or together owned 25% or more of the
issued shares of any class of the Company at any time in the five years
immediately preceding a
47
<PAGE>
disposition of the Common Stock or Warrants. For these purposes, a right or
option to acquire a share, including on exercise of a Warrant, is considered to
be equivalent to a share.
This opinion does not take into account any provincial or foreign income tax
legislation or considerations nor does it take into account or anticipate any
changes in law or administrative practice including by way of judicial decision
or legislative action.
This opinion is of a general nature and is not, and should not be construed
as, advice to any particular Investor as to Canadian Tax consequences applicable
to the Investor. Each Investor is urged to consult with the Investor's legal
professional advisors regarding tax and other legal consequences applicable to
the Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability for Canadian tax upon exercise of a
Warrant. The cost of the Investor of Common Stock acquired on exercise of a
Warrant will equal the adjusted cost base of the Warrant so exercised, plus any
amount paid by the Investor to exercise the Warrant.
DIVIDENDS ON COMMON STOCK
An Investor will be liable to pay Canadian withholding tax equal to 25% (or
such lesser rate as may be provided under an applicable tax treaty) of the gross
amount of any dividend actually or deemed to have been paid or credited to the
Investor on the Investor's Common Stock. An Investor who is a resident of the
United States for purposes of the Canada-U.S. Income Tax Convention is subject
to a lesser tax of 15% of the gross amount of any dividend actually or deemed to
have been paid or credited to the Investor on the investor's Common Stock if the
Investor holds less than 10% of the voting stock of the Company, or 5% if the
Investor holds 10% or more of the voting stock of the Company. The Company will
be required to withhold the tax from the gross amount of the dividend, and to
remit the tax to the Receiver General of Canada for the account of the Investor.
Investors who are entitled to reduced withholding tax under an applicable treaty
must provide appropriate evidence of that entitlement satisfactory to the
Company.
DISPOSING OF COMMON STOCK
An Investor will not incur liability for Canadian tax upon disposing of
Common Stock except where the Common Stock is redeemed or repurchased by the
Company, in which case a dividend could be deemed to result (see Dividends on
Common Stock above).
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 1,952,000 shares of Common Stock of the Company outstanding as of the
date of this Prospectus, 1,827,000 are "restricted securities." Of this amount,
840,000 are owned by "affiliates" of the Company, as those terms are defined in
Rule 144 promulgated under the Securities Act. Absent registration under the
Securities Act, the sale of such shares is subject to Rule 144, as promulgated
under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least one year is entitled to sell in brokerage transactions, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or if the Common Stock
is quoted on NASDAQ or a stock exchange, the average weekly trading volume
during the four calendar weeks preceding the sale. Rule 144 also permits a
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years to sell such shares
without regard to any of the volume limitations as described above. An aggregate
of 125,000 shares of Common Stock are being registered concurrently with this
Offering. Robert Rubin, a Director, owns, holds options to purchase an aggregate
of 700,000 shares of Common Stock. In the event Mr. Rubin exercises such
options, the shares will be eligible for resale under Rule 144 commencing one
year after he exercises the option, subject to the volume limitations. All of
the Company's existing securityholders, have agreed not to sell or otherwise
dispose of any of their shares of Common stock now owned or issuable upon the
exercise of currently exercisable warrants for a period of two years from the
date of this Prospectus, without the prior written consent of the Underwriter,
except for holders of an aggregate of 500,000 shares of Common Stock who have
agreed to an identical restriction for a period of one year. No prediction can
be made as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices of the
Company's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
RESTRICTIONS ON SALE IN CANADA
None of the securities including the Common Stock, the Warrants, or the
Common Stock issuable upon or exercise of the Warrants (together, the
"Securities") has been qualified for sale in any of the provinces of Canada or
to any person who is a resident in any of the provinces of Canada.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell, and the Underwriters have agreed to purchase from
the Company, 1,250,000 shares of Common Stock and 1,250,000 Class A Redeemable
Common Stock Purchase Warrants. The Underwriters are committed to purchase all
of the shares of Common Stock and Warrants offered hereby on a "firm commitment"
basis, if any are purchased. The Underwriters have severally agreed to purchase
from the Company the number of shares of Common Stock and Redeemable Warrants
set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES REDEEMABLE WARRANTS
------------- --------------------
<S> <C> <C>
Network 1 Financial Securities, Inc.....................................
Century City Securities, Inc............................................
------------- --------------------
------------- --------------------
------------- --------------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock and Warrants to the public at the prices set forth on the
cover page of this Prospectus and to certain dealers at such prices less
concessions not in excess of $ per share of Common Stock and $ per Warrant.
The Company and certain of its stockholders have granted to the Underwriters
an option, exercisable during the 45 calendar day period after the closing of
the Offering, to purchase from the Company and such stockholders at the initial
public offering price less underwriting discounts and the non-accountable
expense allowance, up to an aggregate of 187,500 shares of Common Stock and
187,500 Warrants for the sole purpose of covering over-allotments, if any.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of 3% of the gross proceeds of this Offering (US $50,000 of which has
been paid). Further, the Company has agreed to reimburse the Underwriters for
certain accountable expenses relating to this Offering.
All of the Company's stockholders (other than holders of 500,000 shares as
described in the next sentence) have agreed not to sell or otherwise dispose of
any of their shares of Common Stock for a period of twenty-four (24) months from
the date of this Prospectus without the prior written consent of the
Underwriters, which consent may be granted prior to the expiration of the
lock-up period but not prior to the exercise or expiration of the Underwriters'
Over-allotment Option. Holders of an aggregate of 500,000 shares of Common Stock
have agreed to identical lock-ups except that they shall be for a period of
twelve 12 months. Notwithstanding these lock-up agreements, all such persons may
make private transfers, provided that the transferees agree to be bound by the
same restrictions. An appropriate legend will be marked on the face of
certificates representing all such securities.
The Company has agreed, if requested by the Underwriters at any time within
three years after the Effective Date, to designate an individual to serve, as a
non-voting advisor to the Company's Board of Directors. The Underwriters have
not advised the Company whether they will exercise such right or, if they do so,
whom they will designate. The Underwriters' designee will receive the same
compensation, if any, for such service as other outside directors of the Board.
The Company has also agreed to retain the Underwriters, pursuant to a
consulting agreement (the "Consulting Agreement"), as the Company's financial
consultants at an aggregate monthly rate of US $5,000 for two year period
commencing on the Effective Date, all of which (US $120,000) is payable at the
closing of this Offering. Pursuant to the Consulting Agreement, the Underwriters
will render certain financial advisory and investment banking services to the
Company, including advice as to the Company's financial public relations,
internal operations, corporate finance matters, and other related matters.
The Company has granted the Underwriters a three-year right of first refusal
with respect to subsequent offerings, if any.
50
<PAGE>
In connection with the Offering, the Company has agreed to sell to the
Underwriters, for nominal consideration, a warrant to purchase from the Company
125,000 shares of Common Stock and 125,000 Warrants, each at 120% of the
offering price (the "Underwriters' Warrants"). The Shares of Common Stock and
Warrants issuable upon exercise of the Underwriters' Warrant will be identical
to the Shares of Common Stock and Warrants being offered hereby. The
Underwriters' Warrant contains anti-dilution provisions providing for adjustment
of the exercise price upon the occurrence of certain events.
The Underwriters' Warrant will be nontransferable for a period of one year
from the date of this Prospectus except to officers of the Underwriters, other
underwriters, selected dealers, or their respective officers or partners. The
holder(s) of the Underwriters' Warrant will have no voting, dividend or other
rights of shareholders of the Company until such time as the Underwriters'
Warrant is exercised. Any gain from the sale of the Underwriters' Warrant or the
securities issuable upon exercise thereof may be deemed to be additional
underwriting compensation.
At the request of a majority of the holders of the Underwriters' Warrants
and/or underlying securities during the four-year period commencing one year
after the date of this Prospectus, the Company has agreed to file, at its
expense and on one occasion, and to use its best efforts to cause to become
effective, a new registration statement or prospectus required to permit the
public sale of the securities underlying the Underwriter's Warrant. In addition,
if at any time during the four-year period commencing one year after the date of
this Prospectus, the Company registers any of its securities or exempts such
securities from registration under the provisions of Regulation A or any
equivalent thereto, the holders of the Underwriters' Warrants will have the
right, subject to certain conditions, to include in such registration statement
at the Company's expense, all or any part of the securities underlying the
Underwriters' Warrants.
A new registration statement will be required to be filed and declared
effective before distribution to the public of the securities underlying the
Underwriters' Warrants. The Company will be responsible for the cost of
preparing such a registration statement.
During the term of the Underwriters' Warrants, the holders of the
Underwriters' Warrants are given the opportunity to profit from a rise in the
market price of the Common Stock and Warrants. To the extent that the
Underwriters' Warrants are exercised, dilution of the interests of the Company's
stockholders will occur. The Underwriters and their transferee(s) may be deemed
to be "underwriters" under the Securities Act with respect to the sale of the
Common Stock and Warrants to be received upon exercise of the Underwriters'
Warrants, and any profit realized upon such sale may be deemed to be additional
underwriting compensation. Further, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holder of the Underwriters' Warrants can be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
on terms more favorable to the Company than those provided in the Underwriters'
Warrants.
In addition, subject to the rules of the NASD, the Company has agreed to
engage the Underwriters as warrant solicitation agents, in connection with which
it would be entitled to a 5% fee upon exercise of the Warrants. In accordance
with NASD Notice to Members 81-38, no fee shall be paid: (i) upon the exercise
where the market price of the underlying Common Stock is lower than the exercise
price; (ii) for the exercise of Warrants held in any discretionary account;
(iii) upon the exercise of Warrants where disclosure of compensation
arrangements has not been made and documents provided to customers both as part
of the original Offering and at the time of exercise; (iv) upon the exercise of
Warrants in unsolicited transactions; or (v) unless the soliciting NASD member
is designated in writing. Notwithstanding the foregoing, no fees will be paid to
the Underwriters or any other NASD members upon exercise of the Warrants within
the first twelve months after the Effective Date. The certificates representing
the Warrants provide a space where a holder must affirmatively identify the NASD
member who solicited the exercise of such Warrant. Pursuant to the Warrant
Agreement, the Warrant Agent is responsible for determining when the fee is
owed. The Company has agreed not to engage any other firm as a warrant
solicitation agent.
51
<PAGE>
In connection with this Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock and Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Underwriters may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to shares of Common Stock and Warrants that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock and
Warrants at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are undertaken they may be discontinued at any time.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Securities Act. To the extent this section may purport to
provide exculpation from possible liabilities arising under the Federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Underwriters' Warrant, and the Consulting Agreement and does not
purport to be complete. Reference is made to the copies of the Underwriting
Agreement, the Underwriters' Warrant Agreement, the Warrant Agreement and the
Consulting Agreement which are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
Prior to the Offering, there has been no public market for the Common Stock
and the Warrants offered hereby. Consequently, the initial public offering price
of the Common Stock and the Warrants and the exercise prices and other terms of
the Warrants have been determined by the Company and the Underwriters and is not
related to the Company's asset value, earnings, book value or other such
criteria of value. Factors considered in determining the initial public offering
price of the Common Stock and the Warrants and the exercise price of the
Warrants include primarily the prospects for the industry in which the Company
operates, the Company's management, the general condition of the securities
markets and the demand for securities in similar industries.
SERVICE AND ENFORCEMENT OF LEGAL PROCESS
Service of process upon the Company, its directors and the experts named
herein, most of whom reside outside the United States, may be difficult to
obtain within the United States. Furthermore, since substantially all of the
Company's and such persons' assets are outside the United States, any judgment
obtained in the United States against the Company or such person may not be
collectible within the United States. The Company has appointed Borden & Elliot
as its agent to receive service of process in any action against the Company in
any federal court or court in the State of New York arising out of the offering
make hereby or any purchase or sale of securities in connection therewith.
52
<PAGE>
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliott (Canadian counsel) and Gersten, Savage,
Kaplowitz, Fredericks & Curtin, LLP (U.S. counsel), 101 East 52nd Street, New
York, New York 10022. Gersten Savage has in the past represented Network 1
Financial Securities, Inc. and may continue to do so in the future. Certain
legal matters will be passed upon for the Underwriters by Snow Becker Krauss
P.C., 605 Third Avenue, New York 10158-0125.
EXPERTS
The financial statements of the Company as of December 31, 1996, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1996,
have been included herein and in the registration statement in reliance upon
reports of KPMG and Zaritsky Penny, chartered accountants, appearing elsewhere
herein, and upon the authority of said firms as experts in accounting and
auditing.
53
<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG, Chartered Accountant.................................................. F-2
Report of Zaritsky Penny, Chartered Accountant........................................ F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Operations and Retained Earnings........................... F-5
Consolidated Statements of Changes in Financial Position.............................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Med-Emerg International,
Inc. as at December 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings (deficit) and changes in financial position for
each of the years in the two year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Med-Emerg International, Inc. as at
December 31, 1996 and 1995 and the results of its operations and the changes in
its financial position for each of the years in the two year period ended
December 31, 1996 in accordance with accounting principles generally accepted in
Canada.
Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations for each of the years in the
two-year period ended December 31, 1996 and the shareholders' equity as of
December 31, 1996 and 1995, to the extent summarized in note 17 to the
consolidated financial statements.
The consolidated balance sheet of Med-Emerg, Inc. (a wholly owned subsidiary
of Med-Emerg International, Inc.) as at December 31, 1994 and the consolidated
statements of earnings and changes in financial position for the year then
ended, were audited and reported on separately by other auditors who expressed
an opinion without reservation on those statements in their report dated March
15, 1995. We have audited the statements of earnings and changes in financial
position of Med-Plus Health Centres Ltd. (a wholly owned subsidiary of Med-Emerg
International, Inc.) for the year ended December 31, 1994. The contribution of
Med-Plus Health Centres Ltd. to revenues and net income of Med-Emerg
International, Inc. for the year ended December 31, 1994 represented 14% and 17%
of the respective restated totals. We also audited the combination of the
accompanying consolidated statements of operations and retained earnings
(deficit) and changes in financial position of Med-Emerg International, Inc. for
the year ended December 31, 1994. In our opinion, such consolidated statements
have been properly combined on the basis described in note 1(a) of the notes to
the consolidated financial statements.
/s/ KPMG
KPMG
Chartered Accountants
Mississauga, Canada
March 26, 1997
F-2
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Med-Emerg, Inc. as at
December 31, 1994 and the consolidated statements of operations and retained
earnings and changes in financial position for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1994 and the results of its operations and the changes in its financial position
for the year then ended in accordance with generally accepted accounting
principles.
/s/ Zaritsky Penny
ZARITSKY PENNY
Chartered Accountants
London, Ontario
March 15, 1995
F-3
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------------- --------------------------
1997 1996 1996 1995
------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... 290,105 $ 4,410 $ 75,135 $ 5,035
Accounts receivable.................................... 2,036,957 2,423,529 2,108,139 2,223,808
Prepaid and other...................................... 153,989 52,488 63,109 156,304
Loan receivable (Note 4)............................... 68,000 -- -- --
------------- ------------ ------------ ------------
2,549,051 2,480,427 2,246,383 2,385,147
Loans to shareholders and directors (note 5)............. 87,471 48,224 87,471 50,268
Due from affiliates (note 6)............................. 54,393 40,383 52,227 37,255
Loan to officer (note 7)................................. 60,000 -- 60,000 --
Capital assets (note 8).................................. 287,292 149,803 246,520 154,357
Deferred taxes........................................... 113,801 41,467 146,554 --
Other assets (note 9).................................... 1,070,862 81,525 700,668 72,342
------------- ------------ ------------ ------------
$ 4,222,870 $ 2,841,829 $ 3,539,823 $ 2,699,369
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bank indebtedness (note 10)............................ 1,363,008 $ 794,166 $ 1,308,940 $ 1,225,295
Accounts payable and accrued liabilities............... 1,742,436 1,529,839 1,986,352 1,613,008
Income taxes payable................................... -- -- -- 27,319
Promissory note payable (notes 2 and 11)............... 781,368 -- 143,732 --
------------- ------------ ------------ ------------
3,886,812 2,324,005 3,439,024 2,865,622
Shareholders' equity:
Capital stock (note 11)................................ 7,192,179 844,765 7,055,179 189
Deficit................................................ (6,856,121) (326,941) (6,954,380) (166,442)
------------- ------------ ------------ ------------
336,058 517,824 100,799 (166,253)
Commitments and contingencies (notes 10, 14 and 18)......
------------- ------------ ------------ ------------
$ 4,222,870 $ 2,841,829 $ 3,539,823 $ 2,699,369
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 YEARS ENDED DECEMBER 31
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 2,836,034 $ 2,677,942 $ 10,817,048 $ 10,983,553 $ 10,474,754
Physician fees and other direct
costs.............................. 2,007,062 2,072,800 8,554,396 8,406,631 7,977,679
------------- ------------ ------------- ------------- -------------
828,972 605,142 2,262,652 2,576,922 2,497,075
Expenses:
Salaries and benefits.............. 364,314 356,921 1,450,320 1,327,912 1,394,181
Occupancy costs and supplies....... 88,797 68,004 355,603 375,071 340,289
General and administration......... 134,721 128,681 469,721 335,943 319,367
Travel and marketing............... 34,609 50,104 142,909 109,176 118,570
Stock compensation (note 11(b)).... -- 610,000 -- --
Depreciation and amortization...... 29,937 14,248 78,379 49,342 46,013
Write-off of deferred start-up
costs (note 3)................... -- 209,835 509,337 663,448 --
------------- ------------ ------------- ------------- -------------
652,378 827,793 3,616,269 2,860,892 2,218,420
------------- ------------ ------------- ------------- -------------
Income (loss) before interest,
financing and dividends............ 176,594 (222,651) (1,353,617) (283,970) 278,655
Interest, financing and dividend
income (expense), net.............. (45,582) (6,634) (55,461) 54,930 (51,879)
------------- ------------ ------------- ------------- -------------
Income (loss) before income taxes.... 131,012 (229,285) (1,409,078) (229,040) 226,776
Income taxes (recovery).............. 32,753 (68,786) (146,554) 71,447 52,245
------------- ------------ ------------- ------------- -------------
Net income (loss).................... 98,259 (160,499) (1,262,524) (300,487) 174,531
Retained earnings (deficit),
beginning of period................ (6,954,380) (166,442) (166,442) 338,051 163,520
Dividends............................ -- -- -- (80,383) --
Excess of redemption price over
issuance price of preference shares
(note 11(a))....................... -- -- (5,525,414) -- --
Excess of redemption price over
issuance price of common shares
(note 11).......................... -- -- -- (123,623) --
------------- ------------ ------------- ------------- -------------
Retained earnings (deficit), end of
period............................. $ (6,856,121) $ (326,941) $ (6,954,380) $ (166,442) $ 338,051
------------- ------------ ------------- ------------- -------------
Basic earnings (loss), per share
(note 16).......................... $ 0.05 $ (0.05) $ (0.42) $ (0.13) $ 0.07
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash provided by (used for):
Operations:
Net income (loss)........................................ $ 98,259 $ (160,499) $(1,262,524) $ (300,487) $ 174,531
Items not involving cash: Depreciation and
amortization........................................... 29,937 14,248 78,379 49,342 46,013
Deferred income taxes.................................... 32,753 (41,467) (146,554) -- --
Stock compensation....................................... -- -- 610,000 -- --
Changes in non-cash operating working capital:
Accounts Receivable...................................... 71,182 (153,026) 235,367 (883,474) (440,753)
Prepaid and other........................................ (90,880) 106,820 98,340 (71,887) (62,299)
Accounts payable and accrued liabilities................. (243,916) (119,821) 65,824 793,848 174,710
Income taxes payable..................................... -- (27,319) (27,319) 7,036 93,418
---------- ---------- ---------- ----------- ---------
(102,665) (381,064) (348,487) (405,622) (14,380)
Investing:
Acquisition (note 2)..................................... -- (40,606) (324,863) -- --
Additions to capital assets.............................. (59,750) (4,204) (94,794) (63,291) (34,979)
Loan receivable.......................................... (68,000) -- -- -- --
Loans to shareholders and directors...................... -- 2,044 (37,203) (43,915) (1,650)
Loan to officer.......................................... -- -- (60,000) -- --
Other assets............................................. (381,153) 12,886 (196,534) 15,000 3,512
---------- ---------- ---------- ----------- ---------
(508,903) (29,880) (713,394) (92,206) (33,117)
Financing:
Issuance of common shares................................ 137,000 844,576 919,576 -- 2
Issuance of promissory note payable (notes 2 and 11)..... 680,000 -- 193,732 --
Repayment of promissory note payable (notes 2 and 11).... (42,364) -- (50,000) -- --
Dividends................................................ -- -- -- (80,383) --
Due from affiliates...................................... (2,166) (3,128) (14,972) (37,255) 46,532
Redemption of shares..................................... -- -- -- (123,640) --
---------- ---------- ---------- ----------- ---------
772,470 841,448 1,048,336 (241,278) 46,534
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Increase (decrease) in cash position....................... 160,902 430,504 (13,545) (739,106) (963)
Cash position, beginning of period......................... (1,233,805) (1,220,260) (1,220,260) (481,154) (480,191)
---------- ---------- ---------- ----------- ---------
Cash position, end of period............................... $(1,072,903) $ (789,756) $(1,233,805) $(1,220,260) $(481,154)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Cash position is defined as:
Cash..................................................... $ 290,105 $ 4,410 $ 75,135 $ 5,035 $ 4,961
Bank indebtedness........................................ (1,363,008) (794,166) (1,308,940) (1,225,295) (486,115)
---------- ---------- ---------- ----------- ---------
$(1,072,903) $ (789,756) $(1,233,805) $(1,220,260) $(481,154)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
On January 22, 1996, the newly incorporated Med-Emerg International, Inc.
(the "Company") acquired all of the shares of two related companies, 927563
Ontario Inc. and 927564 Ontario Inc., in exchange for 2,333,333 shares of the
Company and has been recorded at the acquired companies aggregate net book
values of $(166,253).
The Company and its wholly owned subsidiaries, 927563 Ontario Limited,
927564 Ontario Limited, and their wholly owned subsidiaries, Med-Emerg Inc. and
Med-Plus Health Centres Ltd. and Urgent Care Centres Inc. respectively are
incorporated under the Ontario Business Corporations Act. The Companies operate
under the trade name Med-Emerg International, in two areas of emergency related
healthcare, the providing of Emergency Medical Services and the providing of
Clinical Operations, in both the Canadian and international marketplace.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of consolidation:
The formation of the Company and the transfer to it of the shares of 927563
Ontario Inc. and 927564 Ontario Inc. constituted the combination of companies
under common control; accordingly, these transactions have been recorded in a
manner similar to a pooling of interest and the consolidated balance sheet of
the Company as of the date of acquisition of the numbered companies reflects the
combination of the book values of the assets and liabilities of the predecessor
companies. The consolidated statements of operations for periods prior to the
formation of the Company reflect the combination of the historical results of
operations of the predecessor entities for all years presented.
(b) Principles of consolidation:
The consolidated statements include the accounts of Med-Emerg International,
Inc. and its subsidiaries (collectively called the "Company").
Investments in jointly controlled partnerships are accounted for using the
proportionate consolidation method whereby the Company's proportionate share of
revenues, expenses, assets and liabilities is recorded in the accounts.
Significant intercompany accounts and transactions have been eliminated on
consolidation.
(c) Development and start-up costs:
Direct costs incurred, net of any revenue, during the development and
start-up period for a new clinic are deferred until the clinic reaches a
commercial level of activity, and amortized on a straight-line basis over three
years. If a subsequent decision is made to discontinue the clinic, or if there
is no longer reasonable assurance that the amounts deferred are recoverable from
operations of the clinic, the unamortized balance is written off.
(d) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-7
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(e) Capital assets:
Capital assets are stated at cost. Depreciation is provided on the carrying
values of the assets using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----------------------------------------- ----------------------------------------- ---------
<S> <C> <C>
Furniture and fixtures Declining balance 20%
Computer software Declining balance 100%
Computer hardware Declining balance 30%
Leasehold improvements Straight line 5 years
</TABLE>
(f) Goodwill:
Goodwill is recorded at cost and is being amortized over a period of 10
years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected future operating results. Impairment, if any, is
measured based upon an estimate of the fair value of the goodwill. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating results are not achieved.
(g) Revenue recognition:
The Company provides emergency department physician staffing and
administrative support services to hospitals pursuant to contracts under which
the Company's services are provided on a monthly fee basis or on a per shift
basis. The Company recognizes revenues under its contracts with hospitals as its
services are rendered, based on an accrual of the monthly fee or actual shifts
worked, in accordance with the terms of the contracts. The Company's fees are
based on the individual requirements of each hospital as it relates to the hours
of coverage, the patient volume, the hospital's location and the availability of
a local physician pool. In addition, the Company recognizes revenues as medical
services are rendered by physicians under contract with the Company, in
accordance with the Ontario Health Insurance Plan (OHIP). The Company bills and
collects from OHIP all fees relating to medical services rendered by the
physician. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of OHIP billings plus the administrative fees charged to the hospital.
The Company's clinical operations and urgent care centres provide family
practice and walk-in medical services to patients. The Company recognizes
revenues as medical services are rendered and billed in accordance with the
Ontario Health Insurance Plan. The Company's physician contracts are entered
into between the Company and individual physicians and are either part-time or
full-time. In general, each contracted physician will be placed in a functioning
facility by the Company and the Company bills and collects from OHIP all fees
relating to medical services rendered by the physician. The Company then pays
the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
such physician's medical services ranges from 35% to 43%.
F-8
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
2. ACQUISITIONS:
Effective August 1, 1996, the Company purchased certain assets and assumed
certain liabilities of the St. George Medical Clinic, a Health Services
Organization ("HSO"), for cash of $15,525 a non-interest bearing promissory note
payable of $193,732, payable in 15 equal monthly instalments and 75,000 common
shares of the Company valued at $75,000.
Effective January 1, 1996, the Company purchased a 33-1/3% interest in
Glenderry Medical Clinic, Partnership for consideration of $27,208.
The following is a summary of assets purchased and liabilities assumed:
<TABLE>
<CAPTION>
ST. GEORGE GLENDERRY TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Total assets................................................................ $ 127,588 $ 55,189 $ 182,777
Goodwill.................................................................... 427,537 22,069 449,606
Less liabilities assumed.................................................... (270,868) (36,652) (307,520)
----------- ---------- -----------
284,257 40,606 324,863
Cash........................................................................ -- (13,398) (13,398)
----------- ---------- -----------
$ 284,257 $ 27,208 $ 311,465
----------- ---------- -----------
</TABLE>
Summarized unaudited balance sheet information of the Company's
proportionately consolidated 33-1/3% interest in Glenderry Medical Clinic,
Partnership at March 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Current assets.......................................................................... $ 50,696 $ 58,222
Capital assets, net..................................................................... 1,752 1,747
Current liabilities..................................................................... (47,729) (50,861)
---------- ------------
Equity.................................................................................. $ 4,719 $ 9,108
---------- ------------
</TABLE>
Summarized unaudited results of operations and cash flow information of the
Company's proportionately consolidated partnership interest for the three months
ended March 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Revenue................................................................................. $ 56,217 $ 253,117
Expenses................................................................................ 60,606 250,243
----------- ------------
Net (loss) income....................................................................... $ (4,389) $ 2,874
Changes in non-cash components of working capital....................................... 10,002 (4,705)
----------- ------------
Cash flows from operations.............................................................. 5,613 (1,831)
Cash flow from investing activities..................................................... (102) (393)
----------- ------------
Increase (decrease) in cash position.................................................... $ 5,511 $ (2,224)
----------- ------------
----------- ------------
</TABLE>
F-9
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
2. ACQUISITIONS: (CONTINUED)
The proportionate taxable income or loss of the partnership is included in
the taxable income of the respective partners. Accordingly, no provision for
income taxes on this entity is included in the above amounts.
3. WRITE-OFF OF DEFERRED START-UP COSTS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
----- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Write-off of deferred start-up project costs............................. $ -- $ 166,960 $ 466,462 $ 663,448
Write-off of advances relating to Malaysia project....................... -- 42,875 42,875 --
--- ---------- ---------- ----------
$ -- $ 209,835 $ 509,337 $ 663,448
--- ---------- ---------- ----------
--- ---------- ---------- ----------
<CAPTION>
<S> <C>
1994
-----
<S> <C>
Write-off of deferred start-up project costs............................. $ --
Write-off of advances relating to Malaysia project....................... --
---
$ --
---
---
</TABLE>
Effective September 18, 1995, the Company acquired 60% of the outstanding
shares of Canadian Medical Centres s.r.o., a medical clinic in Prague, Czech
Republic by agreeing to fund development and start-up costs. The remaining 40%
of the shares were acquired by December 31, 1995 as part of the continued
funding.
Subsequent to the acquisition, the Company determined that there was no
reasonable assurance that the deferred development and start-up costs would be
recovered from future operations. Deferred development and start-up costs
totalling $663,448 have been written off at December 31, 1995. Additional costs
incurred subsequent to the acquisition in the year ended December 31, 1996 in
the amount of $466,462, and in the three months ended March 31, 1996 in the
amount of $166,960, have been written off.
The Company is no longer providing funding for the clinic in Prague.
4. LOAN RECEIVABLE:
The loan to Emergency Care Specialist Inc. in the amount of US $50,000 bears
interest at prime plus 1% and is due August 21, 1997, and is secured by all of
the assets of Emergency Care Specialist Inc.
5. LOANS TO SHAREHOLDERS AND DIRECTORS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Loans to shareholders and directors, unsecured, non-interest bearing,
no specific terms of repayment...................................... $ 87,471 $ 48,224 $ 87,471 $ 50,268
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Concurrent with the initial public offering disclosed in note 15, the
Company will repurchase 37,456 common shares held by directors, as consideration
for the repayment of loans to directors and shareholders totalling $87,471, as
well as amounts due from affiliates totalling $54,393.
The purchase of the 33-1/3% partnership interest in Glenderry Medical
Clinic, as described in note 2, was purchased from a director, the Chief
Executive Officer of the Company.
F-10
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
5. LOANS TO SHAREHOLDERS AND DIRECTORS: (CONTINUED)
The proceeds of the sale were used to repay a loan from the Company to the
Chief Executive Officer.
6. DUE FROM AFFILIATES:
The amounts due from affiliates are non-interest bearing and due on demand.
Repayment of these amounts is described in note 5 above.
7. LOAN TO OFFICER:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- ----- --------- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Loan to officer, unsecured, non-interest bearing, repayable over a five-year
period with principal repayments commencing December 1998................... $ 60,000 $ -- $ 60,000 $ --
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
8. CAPITAL ASSETS:
<TABLE>
<CAPTION>
MARCH 31 (UNAUDITED)
----------------------
1997 1996
---------- ----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Furniture and fixtures.............................................. $ 222,825 $ 116,646 $ 106,179 $ 57,642
Computer software................................................... 79,924 73,216 6,708 1,941
Computer hardware................................................... 290,741 172,246 118,495 82,641
Leasehold improvements.............................................. 136,158 80,248 55,910 7,579
---------- ------------ ---------- ----------
$ 729,648 $ 442,356 $ 287,292 $ 149,803
---------- ------------ ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Furniture and fixtures......................................... $ 205,049 $ 113,493 $ 91,556 $ 58,133
Computer software.............................................. 79,925 65,216 14,709 1,834
Computer hardware.............................................. 287,768 166,287 121,481 88,210
Leasehold improvements......................................... 97,791 79,017 18,774 6,180
---------- ------------ ---------- ----------
$ 670,533 $ 424,013 $ 246,520 $ 154,357
---------- ------------ ---------- ----------
</TABLE>
F-11
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
9. OTHER ASSETS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------------------- ---------------------
1997 1996 1996 1995
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Goodwill (note 2) (net of accumulated amortization of $28,772
($17,814 at December 31, 1996))................................. $ 420,834 $ 22,069 $ 431,792 $ --
Deferred start-up costs........................................... 78,058 -- 58,574 --
Deferred charges relating to proposed financing (note 15)......... 311,865 -- 153,907 --
Loan to Preventative Health Innovations Inc., unsecured,
non-interest bearing, with no specific repayment terms.......... 42,895 54,456 48,895 42,342
Deferred financing charges relating to bridge note financing (net
of accumulated amortization of $13,890)......................... 209,710 -- -- --
Other............................................................. 7,500 5,000 7,500 30,000
------------ --------- ---------- ---------
$ 1,070,862 $ 81,525 $ 700,668 $ 72,342
------------ --------- ---------- ---------
</TABLE>
10. BANK INDEBTEDNESS:
The bank indebtedness forms part of the Company's bank credit facilities
totalling $1,200,000 which may be drawn on by demand loans at the bank's prime
rate plus 1-1/2%. Both the bank indebtedness and the bank loan are secured by a
general security agreement over all of the Company's assets.
The terms of the banking agreement contain, among other provisions,
requirements for maintaining defined levels of net worth and financial ratios.
At March 31, 1997 and December 31, 1996, the Company did not comply with the net
worth covenant and one of its financial ratio covenants. As a result of these
defaults, the bank is in a position to demand repayment of its loan.
11. CAPITAL STOCK:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------ -----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------ ---------- ------------ ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of preference shares, redeemable at US$9 per
share, having a cumulative dividend of US$0.27 per share......
Unlimited number of Class "A", redeemable retractable,
non-cumulative preferred shares...............................
Unlimited number of Class "B", redeemable, retractable,
non-cumulative preferred shares...............................
Unlimited number of common shares...............................
Issued:
500,000 redeemable preference shares............................ $ 6,120,000 $ -- $ 6,120,000 $ --
1,952,000 common shares......................................... 1,072,179 844,765 935,179 189
------------ ---------- ------------ ---------
$ 7,192,179 $ 844,765 $ 7,055,179 $ 189
</TABLE>
F-12
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
11. CAPITAL STOCK: (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------ -----------------------
1997 1996 1996 1995
------------ ---------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
------------ ---------- ------------ ---------
</TABLE>
<TABLE>
<CAPTION>
COMMON SHARES
-------------------------
<S> <C> <C>
NUMBER AMOUNT
----------- ------------
Balance, December 31, 1994............................................................ 200 $ 206
Share redemption...................................................................... (17) (17)
----------- ------------
Balance, December 31, 1995............................................................ 183 189
Shares redeemed on reorganization..................................................... (183) (189)
Issuance of shares upon reorganization................................................ 2,333,333 189
Shares issued on private placement.................................................... 1,000,000 844,576
----------- ------------
Balance, March 31, 1996............................................................... 3,333,333 844,765
Shares issued on purchase of St. George Medical Clinic, Partnership................... 75,000 75,000
Share exchange........................................................................ (2,203,333) (594,586)
Shares issued in connection with past services........................................ 610,000 610,000
----------- ------------
Balance, December 31, 1996............................................................ 1,815,000 935,179
Shares issued related to bridge financing in January 1997............................. 125,000 125,000
Shares issued to director as compensation............................................. 12,000 12,000
----------- ------------
Balance, March 31, 1997............................................................... 1,952,000 $ 1,072,179
----------- ------------
----------- ------------
</TABLE>
F-13
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
11. CAPITAL STOCK: (CONTINUED)
In connection with the acquisition of all of the common shares of 927563
Ontario Inc. and 927564 Ontario Inc. as described in note 1(a), the Company
issued as consideration 2,333,333 common shares.
In 1995, 927563 Ontario Inc. and 927564 Ontario Inc. redeemed and cancelled
an aggregate 17 shares from the controlling shareholders for cash consideration
of $123,640. The consideration paid approximated $0.57 per share taking into
consideration the retroactive effect of the capital restructuring that occurred.
On January 22, 1996, the Company completed a private stock offering, issuing
1,000,000 common shares for net proceeds of $844,576 after deducting issue costs
of $155,424, and 1,000,000 warrants to acquire common shares at $2.00 per share,
expiring in January 1999.
In connection with the acquisition of St. George Medical Clinic, Partnership
described in note 2, on August 1, 1996, the Company issued 150,000 common shares
at an ascribed value of $1.00 per share. In connection with the capital
restructuring, the shareholder contributed 75,000 shares of such common stock to
the share capital of the Company (See note 18; Legal Proceedings).
On November 1, 1996, the Board of Directors authorized the following capital
restructuring:
(a) The controlling shareholders exchanged 2,203,333 common shares for
500,000 voting preferred shares, having an ascribed value of US$4,500,000 at
the date of issuance. Each share entitles the holder to eight votes per
share until the Company engages in a public offering of its securities at
which time each share will be entitled to one vote per share having a
redemption price of US$9.00 per share or US$4,500,000. Each share is
convertible into common stock of the Company at the option of the holder at
a price equal to US$9.00 per common share for a ten year period from the
date of issuance. At the end of the ten year period, the Company has the
obligation to redeem the preferred shares for their redemption price or
issue the equivalent number of common shares based upon their then market
value.
The preferred shares are entitled to receive a cumulative dividend of
US$0.27 per share payable in cash or equivalent common shares based on their
then quoted market value.
The issuance of the preferred shares was recorded in the amount of
$6,120,000 based on the value ascribed to the shares, translated at the
exchange rate in effect at the date of issuance, and resulted in a charge of
$5,525,414 to retained earnings, which represents the excess of the value
ascribed to the preferred shares issued over the carrying value of the
common shares cancelled.
In the event that the initial public offering contemplated by the letter
of intent dated September 5, 1996 (see note 15) has not closed by September
5, 1997, the holders of any preferred shares of the Company, shall have the
right, at any time up to November 30, 1997, to convert such preferred shares
into common shares in the capital of the Company as will result in such
holders owning common shares of the Company in the same percentage as the
original holders of preferred shares owned at September 5, 1996.
(b) The Company issued of 610,000 common shares to a shareholder in
consideration of past services rendered including the identification of
potential acquisition candidates and assisting the
F-14
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
11. CAPITAL STOCK: (CONTINUED)
Company in developing a strategic business plan. The issuance of the common
shares was recorded at an ascribed value determined at $1.00 per share or
$610,000 as a charge to compensation expense in the Company's 1996
consolidated statement of operations.
(c) All of the common share purchase warrants issued by the Company on
January 22, 1996 were surrendered. No consideration was paid.
In the event that the initial public offering contemplated by the letter
of intent dated September 5, 1996 has not closed by September 5, 1997, the
Company will return as soon as reasonably practicable, common share purchase
warrants with substantially the same terms to holders of the surrendered
warrants.
In January 1997, the Company completed a private offering and sale of
promissory notes ("Bridge Notes") with a principal amount of US$500,000. The
promissory notes bear interest at a rate of 8% and are due on the earlier of 18
months from the date of issuance or receipt by the Company of at least
US$4,000,000 from the sale of its debt and/or equity securities in a public or
private financing. The Bridge Note holders also received 125,000 common shares
having an ascribed value of $1 per common share. The value ascribed to the
common shares was accounted for as a financing cost and is being deferred and
charged to income over the term to maturity of the Bridge Notes.
At March 31, 1997, the Company had issued 12,000 common shares to Mr. Rubin
for services rendered in his capacity as a director of the Company. The issuance
of these shares was accounted for as compensation expense as the related
services are rendered by Mr. Rubin. The Company will issue an additional 38,000
over the remaining nine months for services rendered.
Under a stock option plan, Mr. Robert Rubin was granted an option on
November 1, 1996 to purchase 700,000 common shares of the Company at an exercise
price of US$.75 per share.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of cash, accounts receivable and accounts payable
approximate the fair values because of the short-term nature of these
instruments.
Other financial instruments held or issued by the Company include
non-interest bearing amounts due from related parties and a promissory note
payable. The Company does not have plans to sell these financial instruments to
third parties and will realize or settle them in the ordinary course of
business. The fair value of these instruments cannot be reasonably estimated
because no active and liquid market exists for these instruments, and a market
rate of interest (for instruments having similar terms and characteristics)
required to use estimation techniques such as discounted cash flow analysis
cannot reasonably be determined due to the unusual related party aspects of
these instruments.
F-15
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
13. INCOME TAXES:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- ---------- ----------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................................. $ $ (27,319) $ -- $ 71,447 $ 52,245
Deferred................................................ 32,753 (41,467) (146,554) -- --
--------- ---------- ----------- --------- ---------
$ 32,753 $ (68,786) $ (146,554) $ 71,447 $ 52,245
--------- ---------- ----------- --------- ---------
--------- ---------- ----------- --------- ---------
</TABLE>
The effective rate of income taxes provided in the statement of operations
varies from the combined federal and provincial statutory income rates as
follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED) % %
<S> <C> <C> <C> <C>
Income tax expense (recovery) computed at statutory income tax rate............. 44.6 (44.6) (44.6) (44.6)
Reduction for small business deduction.......................................... (19.6) 22.0 22.0 22.0
Write-off of non-deductible start-up costs...................................... -- -- 12.2 66.0
Other........................................................................... -- (7.4) -- (12.3)
--------- --------- --------- ---------
25.0 (30.0) (10.4) 31.1
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
<S> <C>
1994
---------
%
<S> <C>
Income tax expense (recovery) computed at statutory income tax rate............. 44.3
Reduction for small business deduction.......................................... (21.3)
Write-off of non-deductible start-up costs...................................... --
Other........................................................................... --
---------
23.0
---------
---------
</TABLE>
At March 31, 1997, the Company has available non-capital loss carryforwards
of $455,000 to utilize against future taxable income, computed at the statutory
income tax rate. These losses expire in 2003. In addition, the Company has
capital loss carryforwards of approximately $766,000, which may be applied
against future taxable capital gains. No accounting recognition has been given
to these capital loss carryforwards.
14. COMMITMENTS:
The Company is committed to payments under operating leases for certain of
its premises and equipment totalling $709,000. Annual payments for the next five
years are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 185,000
1998.............................................................................. 143,000
1999.............................................................................. 148,000
2000.............................................................................. 121,000
2001 and thereafter............................................................... 112,000
---------
$ 709,000
---------
---------
</TABLE>
Rent expense charged to operations at March 31, 1997 was $47,909 (December
31, 1996--$208,050; March 31, 1996--$42,797; December 31, 1995--$214,744;
December 31, 1994--$234,024).
F-16
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
15. SUBSEQUENT EVENTS:
The Company has entered into a letter of intent dated September 5, 1996 with
an underwriting firm and is proceeding to complete an initial public offering of
1,250,000 shares of Common Stock and 1,250,000 Class A Redeemable Common Stock
Purchase Warrants at an initial public offering price of US$3.90 and US$0.10
respectively for an aggregate public offering of US$5,000,000. Each warrant
entitles the holder to purchase one share of common stock at a price of US$5.00
for a four year period commencing one year from the date of completion of the
offering. Upon successful completion of the offering, the Company will apply to
have its stock listed on NASDAQ.
In April 1997, the Board of Directors obtained shareholder approval of the
Company's Stock Option Plan (the "Plan"). Pursuant to the Plan, options to
acquire an aggregate of 250,000 shares of common stock may be granted. The Plan
is to provide for grants to employees, consultants and directors of the Company
to enable them to purchase shares. The Company has granted options to purchase
an aggregate of 228,500 shares of Common Stock at an exercise price of US$2.50
per share.
16. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share immediately prior to the initial public
offering described in note 15 is calculated based on the weighted average number
of common shares outstanding during the period. Fully diluted earnings per share
are $0.04 at March 31, 1997. Fully diluted earnings per share for prior periods
has not been presented because stock options and warrants outstanding are
anti-dilutive due to the losses incurred by the Company.
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
Consolidated statements of operations:
If United States GAAP were employed, net income (loss) for the period would
be adjusted as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- ---------- ------------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss) based on Canadian GAAP.................. 98,259 (160,499) $ (1,262,524) $ (300,487) $ 174,531
Effect of SFAS No. 109.................................... 1,000 -- (52,000) -- --
Deferred charges.......................................... (19,484) -- (58,574) -- --
--------- ---------- ------------- ----------- ----------
Net income (loss) based on United States GAAP............. 79,775 (160,499) $ (1,373,098) $ (300,487) $ 174,531
--------- ---------- ------------- ----------- ----------
Primary earnings (loss) per share......................... $ 0.03 $ (0.07) $ (0.56) $ (0.13) $ 0.08
--------- ---------- ------------- ----------- ----------
--------- ---------- ------------- ----------- ----------
</TABLE>
F-17
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
If United States GAAP were employed, shareholders' equity (deficit) for the
period would be adjusted as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
-------------- ---------- -------------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Shareholders' equity (deficit) based on
Canadian GAAP............................. $ 336,058 $ 517,824 $ 100,799 $ (166,253) $ 338,259
Redeemable Preference Shares................ (6,120,000) -- (6,120,000) -- --
Cumulative effect of (SFAS No. 109)......... (51,000) -- (52,000) -- --
Deferred charges............................ (78,058) -- (58,574) -- --
Share purchase loan to officer.............. (60,000) -- (60,000) -- --
-------------- ---------- -------------- ----------- ----------
Shareholders' equity (deficit) based on
United States GAAP........................ $ (5,973,000) $ 517,824 $ (6,189,775) $ (166,253) $ 338,259
-------------- ---------- -------------- ----------- ----------
-------------- ---------- -------------- ----------- ----------
Redeemable Preference Shares................ $ 6,120,000 -- $ 6,120,000 -- --
-------------- ---------- -------------- ----------- ----------
-------------- ---------- -------------- ----------- ----------
</TABLE>
(a) Deferred income taxes:
The Company follows the "deferral method" of accounting for deferred income
taxes under Canadian GAAP pursuant to which the Company records deferred income
taxes on "timing differences" (differences between accounting and tax treatment
of revenues and expenses), using rates effective for the year in which the
timing differences arise.
In addition, the Company did not recognize future tax benefits in connection
with capital losses carried forward because the Company did not have virtual
certainty that it would realize these tax benefits.
Under U.S. GAAP, the Company is required to follow Statement of Financial
Accounting Standards (SFAS No. 109) "Accounting for Income Taxes", which
requires the use of the "asset and liability method" of accounting for deferred
income taxes, which gives recognition to deferred taxes on all "temporary
differences" (differences between accounting basis and tax basis of the
Company's assets and liabilities, such as the non-deductible values attributed
to assets in a business combination) using current enacted tax rates. In
addition, SFAS No. 109 requires the Company to record all deferred tax assets,
including future tax benefits of capital losses carried forward, and to record a
"valuation allowance" for any deferred tax assets where it is more likely than
not that the asset will not be realized.
F-18
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ----------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 196,300 $ 95,000 $ 258,000 $ -- $ --
Bridge financing loan costs................................ 3,700 -- -- -- --
---------- ---------- ----------- ---------- ----------
200,000 95,000 258,000
Less:
Valuation allowance...................................... (86,199) (53,533) (111,446) -- --
---------- ---------- ----------- ---------- ----------
113,801 41,467 146,554 -- --
Deferred tax liabilities:
Goodwill................................................. (51,000) -- (52,000) -- --
---------- ---------- ----------- ---------- ----------
Net deferred tax........................................... $ 62,801 $ 41,467 $ 94,554 $ -- $ --
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
The balance sheet effect of applying SFAS No. 109 would be as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- --------- ---------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax asset (as previously shown)....................... $ 113,801 $ 41,467 $ 146,554 $ -- $ --
Adjustments to deferred taxes as a result of additional
goodwill arising on acquisition.............................. (51,000) -- (52,000) -- --
---------- --------- ---------- --------- ---------
Deferred taxes--U.S. GAAP...................................... $ 62,801 $ 41,467 $ 95,554 $ -- $ --
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
</TABLE>
CONSOLIDATED BALANCE SHEETS
DEFERRED TAXES:
As a result of adopting Statement 109, at March 31, 1997, net deferred
income tax assets would have been reduced by $51,000 (December 31,
1996--$52,000) with an offsetting debit to goodwill of $51,000 (December 31,
1996--$52,000).
(b) Deferred start-up costs:
Under Canadian GAAP, development and start-up costs, which meet certain
criteria, are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.
F-19
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
17. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES: (CONTINUED)
(c) Earnings per share
United States GAAP requires common shares and warrants to purchase common
shares, issued or exercisable at prices below the initial public offering
("IPO") price and which were issued within one year prior to the initial filing
of the registration statement relating to the IPO, to be treated as if the
common shares were outstanding from the beginning of the period in the
calculation of weighted average number of common shares outstanding and loss per
share, even where such inclusion is anti-dilutive. Primary earnings per common
share is determined using the weighted average number of shares outstanding
during the year, adjusted to reflect the application of the treasury stock
method for outstanding options and warrants in accordance with United States
GAAP.
(d) Stock compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), was issued by the Financial Accounting
Standards Board in October, 1995. SFAS 123 establishes financial accounting and
reporting standards for transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees, as well as
stock-based employee compensation plans. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are to be accounted for based on the fair value of the consideration received or
the fair value of the equity instrument issued, whichever is more reliably
measurable.
For those transactions described in note 11 and under SFAS 123:
- the issuance of 610,000 shares to a shareholder (note 11(b)) has resulted
in an additional charge to income equal to $610,000 in 1996 denoted as
stock compensation under Canadian GAAP;
- the issuance of 125,000 common shares to promissory note holders resulted
in an additional charge to income (finance expense) over the term of the
related promissory note payable, equal to $125,000 under Canadian GAAP;
- the issuance of 50,000 shares to a director for services to be rendered in
the forthcoming year will be accounted for as compensation expense under
Canadian GAAP.
As these issuances of shares or agreements to issue shares and options all
took place at the fair value of the underlying common shares, there is no U.S.
GAAP difference relating to these transactions.
(e) Shareholders' equity:
Pursuant to the Securities and Exchange Commission regulations the
redeemable preferred shares are mandatorily redeemable preferred shares and
cannot be included in shareholders' equity. Rather they must be presented as a
separate caption outside of shareholders' equity.
Under U.S. GAAP, loans issued to officers to acquire stock are presented as
a deduction from shareholders' equity (deficit).
Under Canadian GAAP, the detachable stock purchase warrants issued as in
conjunction with the private stock offering on January 22, 1996 and subsequently
surrendered, all as described in note 11, have been given no recognition in the
financial statements.
Under U.S. GAAP, detachable stock purchase warrants are given separate
recognition from the primary security issued. Upon initial recognition, the
carrying amount of the two securities is allocated
F-20
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES: (CONTINUED)
based on the relative fair values at the date of issuance. Under U.S. GAAP,
based on an ascribed fair value of $.05 for each of the 1,000,000 share warrants
issued, share capital would be lower by $50,000 and, given that the stock
purchase warrants were cancelled during the year, the carrying amount of
contributed surplus would be increased by $50,000.
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------- ---------- ------------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Capital stock (as previously shown)....................... $ 7,192,179 $ 844,765 $ 7,055,179 $ 189
Adjustments to share capital:
Ascribed fair value of share purchase warrants issued..... (50,000) (50,000) (50,000) --
Redeemable Preference Shares.............................. (6,120,000) -- (6,120,000) --
------------- ---------- ------------- -----------
Capital stock--U.S. GAAP.................................. 1,022,179 794,765 885,179 189
Share purchase loan to officer............................ (60,000) -- (60,000) --
------------- ---------- ------------- -----------
Net capital stock--U.S. GAAP.............................. 962,179 794,765 825,179 189
Contributed surplus--U.S. GAAP............................ 50,000 50,000 50,000 --
Deficit--U.S. GAAP........................................ (6,985,179) (326,941) (7,064,954) (166,442)
------------- ---------- ------------- -----------
Shareholders' equity (deficit)--U.S. GAAP................. $ (5,973,000) $ 517,824 $ (6,189,775) $ (166,253)
------------- ---------- ------------- -----------
------------- ---------- ------------- -----------
Redeemable Preference Shares.............................. $ 6,120,000 -- $ 6,120,000 --
------------- ---------- ------------- -----------
------------- ---------- ------------- -----------
</TABLE>
(f) Consolidated statement of changes in financial position:
Under United States GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of changes in financial
position. Accordingly, the $54,068 increase (decrease) at March 31, 1997
(December 31, 1996--$83,645; March 31, 1996--($431,129); December 31,
1995--$739,180; December 31, 1994--$5,276 increase) would be presented as a
financing activity for each year.
In addition, under United States GAAP, the acquisition of the St. George
Medical Clinic (note 2) would be reported on a cash basis in the consolidated
statement of changes in financial position. Accordingly, under investing
activities, acquisitions of $324,863, reported as of December 31, 1996 would be
reduced by $268,732, with reductions under financing activities to Issuance of
Promissory Notes of $193,732 and issuance of common shares of $75,000.
18. CONTINGENCIES:
LEGAL PROCEEDINGS:
As part of the November 1996 restructuring (see note 11), the Estate of Dr.
Donald Munro ("Estate") contributed 75,000 shares of its 150,000 shares of
Common Stock to the capital of the Company. The Estate recently notified the
Company that it has taken the position that it continues to be the beneficial
owner of 150,000 shares of Common Stock. The Company disagrees with the Estate's
position and has so
F-21
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
18. CONTINGENCIES: (CONTINUED)
informed the Estate. To date, no legal proceedings have been commenced. In the
event that the initial public offering contemplated by the letter of intent
dated September 5, 1996 has not closed by September 5, 1997, the Company will
return, as soon as reasonably practicable, the 75,000 contributed common shares
to the shareholder.
REVENUE:
The Company's operations are subject to extensive federal and provincial
government regulation. Substantially all of the Company's operating revenue is
derived from government funded and administered programs. In Canada, the health
care system is publicly administered and is largely considered not-for-profit. A
large for-profit health care sector nevertheless co-exists within the non-profit
section. Ontario Health Insurance Plan fee for service over the past three years
has been "clawed back" to ensure a total spending freeze of $3.8 billion per
year in Ontario.
Clawback adjustments for prior periods, and management's best estimates of
clawback adjustments for the current year have been reflected as a liability and
are charged to operations. Management's best estimates of clawback adjustments
recoverable from physicians and hospitals are recorded in accounts receivable
and offset the amount of clawback charged to operations.
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Clawback Liability.................................... $ 651,738 $ 631,260 $ 724,713 $ 379,468 $ 61,471
Clawback Receivable................................... 497,372 588,953 510,475 471,681 --
Clawback Expense...................................... -- 28,352 143,261 176,949 124,546
</TABLE>
PARTNERSHIP INTEREST:
The Company may become contingently liable for some or all of the
obligations of the partnership in which it has a direct interest. However,
against this contingent liability, the Company would have a claim upon the
assets of the partnership and, in certain limited cases, their partners.
CONTRACTS WITH PHYSICIANS:
The Company contracts with physicians as independent contractors, rather
than employees, to fulfill its contractual obligations to hospitals. Therefore,
the Company did not historically, and the Company does not currently, withhold
income taxes, make Employment Insurance and Canada Pension Plan payments, or
provide Workers' Compensation Insurance with respect to such independent
contractors. The payment of applicable taxes is regarded as the responsibility
of such independent contractors. A determination by taxing authorities that the
Company is required to treat the physicians as employees could have an adverse
effect on the Company and its operations.
Due to the nature of its business, the Company and certain physicians who
provide services on its behalf may be the subject of medical malpractice claims,
with the attendant risk of substantial damage awards. The most significant
source of potential liability in this regard includes the alleged negligence of
physicians placed by the Company at contract hospitals and liabilities in
connection with medical services
F-22
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
18. CONTINGENCIES: (CONTINUED)
provided at the clinics. Physicians staffed by the Company maintain their own
malpractice insurance. To the extent such physicians may be regarded as agents
of the Company in the practice of medicine, there can be no assurance that a
patient would not sue the Company for any medical negligence of such physicians.
The Company does not believe it could be held liable for an act of a physician
staffed by it unless it could be shown that the Company was negligent in
assessing the qualifications of such physician. In addition, in the event that
the Company becomes liable, there can be no assurance that its current insurance
policy will be adequate to cover any liability.
FINANCING:
The Company believes, although there can be no assurance, that the proceeds
of the public offering discussed in note 15 and operating revenues will provide
sufficient capital to finance the Company's anticipated growth during the 12
months following completion of the offering. If the Company encounters
unexpected expenses during such period, or if after such period, revenues from
operations are not sufficient to fund operations or growth, the Company may
require additional financing. There can be no assurance that the Company will be
able to obtain the requisite additional financing on acceptable terms, that the
Company will be able to sell any securities or obtain bank borrowings or other
debt financing, or what the terms of the equity transactions or borrowings might
be.
19. SEGMENTED INFORMATION:
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the providing of Clinical
Operations.
The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups.
Clinical operations include offering family practices, walk-in services and
chiropractic and massage therapy to patients.
Details are as follows:
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1997 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue............................................................... $ 2,215,505 $ 620,529 $2,836,034
Operating income...................................................... 64,763 111,831 176,594
Assets employed at year-end........................................... 3,313,514 909,356 4,222,870
Depreciation.......................................................... 14,000 15,937 29,937
Capital expenditures.................................................. 49,082 10,668 59,750
</TABLE>
F-23
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
19. SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1996 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue............................................................... $ 2,294,529 $ 383,413 $2,677,942
Operating loss........................................................ (17,505) (205,146) (222,651)(i)
Assets employed at year-end........................................... 2,427,127 414,702 2,841,829
Depreciation.......................................................... 10,456 3,792 14,248
Capital expenditures.................................................. 4,204 -- 4,204
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1996 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,783,309 $ 2,033,739 $ 10,817,048
Operating loss before Stock Compensation........................... (332,644) (410,973) (743,617)(i)
Stock Compensation................................................. -- -- (610,000)
-------------
Operating loss..................................................... (1,353,617)
Assets employed at year-end........................................ 2,621,707 918,116 3,539,823
Depreciation....................................................... 40,679 37,700 78,379
Capital expenditures............................................... 85,304 9,490 94,794
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1995 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 9,505,619 $ 1,477,934 $ 10,983,553
Operating income (loss)............................................ 357,158 (641,128) (283,970)(i)
Assets employed at year-end........................................ 2,358,583 340,786 2,699,369
Depreciation....................................................... 36,906 12,436 49,342
Capital expenditures............................................... 59,266 4,025 63,291
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1994 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,997,127 $ 1,477,627 $ 10,474,754
Operating income................................................... 248,907 29,748 278,655
Assets employed at year-end........................................ 1,405,015 258,800 1,663,815
Depreciation....................................................... 32,280 13,733 46,013
Capital expenditures............................................... 34,019 960 34,979
</TABLE>
(i) Operating profit of the Clinical Operations Division for the three months
ended March 31, 1996, as well as the years ended December 31, 1996 and
December 31, 1995, include the non-recurring write-off of startup costs in
the amount of $209,835, $509,337 and $663,448 respectively.
Total operating loss for the year ended December 31, 1996 includes a
$610,000 general corporate charge for Stock Compensation costs paid to an
investment advisor.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CON-TAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 15
Dilution........................................ 17
Capitalization.................................. 18
Dividends....................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business........................................ 28
Management...................................... 38
Certain Relationships and Related
Transactions.................................. 42
Principal Stockholders.......................... 43
Selling Allotment Securityholders............... 44
Description of Securities....................... 45
Shares Eligible for Future Sale................. 49
Underwriting.................................... 50
Legal Matters................................... 53
Experts......................................... 53
Financial Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
MED-EMERG
INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 CLASS A REDEEMABLE COMMON
STOCK PURCHASE WARRANTS.
NETWORK 1
FINANCIAL SECURITIES, INC.
CENTURY CITY
SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
MED-EMERG INTERNATIONAL INC.
125,000 SHARES OF COMMON STOCK
This Prospectus relates to 125,000 shares of common stock, no par value (the
"Common Stock") of MED-EMERG INTERNATIONAL INC. (the "Company") that may be sold
by the selling securityholders named herein (the "Selling Securityholders"). See
"Selling Securityholders." The 125,000 shares of Common Stock being offered
hereby were issued in connection with a bridge financing completed by the
Company in January 1997. The Company will not receive any proceeds from the sale
of the Common Stock. The expenses in connection with the preparation of this
Prospectus and the registration of the Common Stock will be paid by the Company.
The Selling Securityholders have agreed not to sell or otherwise dispose of the
Common Stock for two years from the date of this Prospectus without the prior
written consent of Network 1 Financial Securities, Inc., the underwriter for a
concurrent public offering of units of the Company's securities.
The Selling Securityholders may sell the shares of Common Stock from time to
time directly to purchasers, or through broker-dealers who may receive
compensation in the form of discounts or commissions from the Selling
Securityholders or purchasers. Sales of the shares of Common Stock may be
effected by broker-dealers in ordinary brokerage transactions or block
transactions on the Nasdaq SmallCap Market, through sales to one or more dealers
who may resell as principals, in privately negotiated transactions or otherwise,
at the market price prevailing at the time of sale, a price related to such
prevailing market price or at a negotiated price. Usual and customary or
specifically negotiated brokerage fees may be paid by the Selling
Securityholders in connection therewith. To the Company's knowledge, none of the
Selling Securityholders has entered into any underwriting agreements. The
Company has offered, by separate Prospectus dated the date hereof, 1,250,000
shares of Common Stock and 1,250,000 Redeemable Common Stock Purchase Warrants
(the "IPO"). Each of the Selling Securityholders has agreed not to sell or
otherwise dispose of the Common Stock for two years from the date of this
Prospectus without the prior written consent of Network 1 Financial Securities,
Inc., the underwriter of the IPO.
Prior to the Offering, there has been no public market for the Common Stock
and Warrants and no assurance can be given that any such market will develop
upon completion of the Offering. Application has been made to have the Common
Stock and Warrants included for quotation on the NASDAQ SmallCap Market under
the symbols "MEDE" and "MEDEW," respectively and for listing on the Boston Stock
Exchange under the symbols "MED" and "MEDW," respectively. The initial public
offering price of the Common Stock and the Warrants and the exercise price and
other terms of the Warrants have been determined by negotiation between the
Company and the Underwriter and do not necessarily bear any relation to the
Company's earnings, assets, book value, net worth or any other recognized
criteria of value. See "Underwriting."
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON AND DILUTION ON PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Act") and any profits
realized by them may be deemed to be underwriting commissions. Any
broker-dealers that participate in the distribution of the shares of Common
Stock also may be deemed to be "underwriters," as defined in the Act, and any
commissions or discounts paid to them, or any profits realized by them upon the
resale of any securities purchased by them as principals, may be deemed to be
underwriting commissions or discounts under the Act. The sale of the Common
Stock by the Selling Securityholders is subject to the prospectus delivery
requirements of the Act.
The shares of Common Stock offered hereby have been registered pursuant to
registration rights granted to the Selling Securityholders. The Selling
Securityholders are responsible for payment of brokerage commissions and
discounts incurred in connection with the sale of the Common Stock. The Company
has agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Act.
2
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
THE SELLING SECURITYHOLDERS' OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 125,000 shares of Common Stock, no par value.
See "Description of Securities."
Common Stock Outstanding(1).................. 3,202,000
Risk Factors................................. The securities offered hereby involve a high
degree of risk and immediate substantial
dilution to public investors. See "Risk
Factors" and "Dilution".
NASDAQ Symbol(2)............................. Common Stock: MEDE
BSE Symbols(2)............................... Common Stock: MED
</TABLE>
- ------------------------
(1) Does not include 928,500 shares of Common Stock issuable upon exercise of
outstanding options and 500,000 shares of Common Stock issuable upon
conversion of 500,000 shares of Preferred Stock outstanding. See "Principal
Stockholders" and "Management" and "Description of Securities."
(2) The proposed Nasdaq and Boston Stock Exchange trading symbols do not imply
that a liquid and active market will be developed or sustained for the
Common Stock upon completion of this Offering.
6
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
This page intentionally left blank
7
<PAGE>
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that such proposal will be adopted or if adopted, will be adopted in its current
form.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
common stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock. See
"Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 1,940,000 shares of Common Stock of
the Company outstanding as of the date of this Prospectus, 1,827,000 are
"restricted securities," and 840,000 are owned by "affiliates" of the Company,
as those terms are defined in Rule 144 promulgated under the Securities Act.
Absent registration under the Securities Act, the sale of such shares is subject
to Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
Rule 144 also permits a person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least
three years to sell such shares without regard to any of the volume limitations
as described above. An aggregate of 125,000 shares of Common Stock are being
registered herein. Robert Rubin, a Director, holds options to purchase an
aggregate of 700,000 shares of Common Stock. In the event Mr. Rubin exercises
such options, the shares will be eligible for resale under Rule 144 commencing
two years from the exercise of the options. All of the Company's existing
securityholders have agreed not to sell or otherwise dispose of any of their
shares of Common stock for a period of two years from the date of this
Prospectus, without the prior written consent of the Underwriter, except for
holders of an aggregate of 500,000 shares of Common Stock who have agreed to an
identical restriction for a period of one year. An aggregate of 228,500 shares
of Common Stock are issuable upon exercise of options issued under the Company's
1997 Stock Option Plan. There can be no assurance that the Company will not
issue additional options currently available for issuance. No prediction can be
made as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices of the
Company's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,202,00 shares of Common Stock outstanding upon completion of the
IPO, 1,827,000 shares are "restricted securities." Of such amount, 840,000 are
owned by "affiliates" of the Company, as those terms are defined in Rule 144
promulgated under the Securities Act. Absent registration under the Securities
Act, the sale of such shares is subject to Rule 144, as promulgated under the
Securities Act. In general, under Rule 144, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company, who
has beneficially owned restricted shares of Common Stock for at least two years
is entitled to sell in brokerage transactions, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on NASDAQ
or a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person who presently is not
and who has not been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least three years to sell such shares without regard to any
of the volume limitations as described above. An aggregate of 125,000 shares of
Common Stock are being registered herein. Robert Rubin, a Director, owns, holds
options to purchase an aggregate of 700,000 shares of Common Stock. In the event
Mr. Rubin exercises such options, the shares will be eligible for resale under
Rule 144 commencing two years after he exercises the option. An aggregate of
228,500 shares of Common Stock are issuable upon exercise of options issued
under the Company's 1997 Stock Option Plan. All of the Company's existing
securityholders have agreed not to sell or otherwise dispose of any of their
shares of Common stock now owned or issuable upon the exercise of currently
exercisable warrants for a period of two years from the date of this Prospectus,
without the prior written consent of the Underwriter, except for holders of an
aggregate of 500,000 shares of Common Stock who have agreed to an identical
restriction for a period of one year. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's securities
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
RESTRICTIONS ON SALE IN CANADA
The Common Stock has not been qualified for sale in any of the provinces of
Canada or to any person who is a resident in any of the provinces of Canada.
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CONCURRENT OFFERING
Concurrently with this Offering, 1,250,000 shares of Common Stock and
1,250,000 Redeemable Common Stock Purchase Warrant (not including the
underwriter's over-allotment option) have been registered by the Company under
the Act, pursuant to the Company Prospectus included within the Registration
Statement of which this Prospectus forms a part. The Common Stock offered hereby
may not be sold prior to twenty-four months from the date of this prospectus
without the consent of the underwriter of the IPO.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliot (Canadian counsel) and Gersten, Savage,
Kaplowitz, Fredericks & Curtin, LLP (U.S. Counsel), 101 East 52nd Street, New
York, New York 10022. Gersten Savage has in the past represented the Underwriter
of the IPO and may continue to do so in the future. Certain legal matters will
be passed upon for the Underwriter by Snow Becker Krauss P.C., 605 Third Avenue,
New York 10158-0125.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995, have
been included herein and in the registration statement in reliance upon reports
of KPMG and Zaritsky Penny & Associates, independent chartered accountants,
appearing elsewhere herein, and upon the authority of said firms as experts in
accounting and auditing.
52
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[Alternate Page for Selling Securityholders Prospectus]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The table below sets forth with respect to each Selling Securityholder the
number of shares of Common Stock beneficially owned by each Selling
Securityholder and the number of such securities included for sale in this
Prospectus. Although there can be no assurance that the Selling Securityholders
will sell any or all of the shares of Common Stock offered hereby, the following
table assumes that each of the Selling Securityholders will sell all shares of
Common Stock offered by this Selling Securityholder Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OF COMMON SHARES OF OWNERSHIP OF COMMON
STOCK COMMON STOCK STOCK
PRIOR TO SALE TO BE SOLD AFTER SALE
------------------- --------------- -------------------
<S> <C> <C> <C>
SELLING SECURITYHOLDER
- ----------------------------------------------
Aleph Mad Family
Limited Partnership....................... 12,500 12,500 0
Robert M. Rubin(2)............................ 737,500 37,500 700,000
Whatechapel Management
Limited..................................... 50,000 50,000 0
Fred Kassner.................................. 25,000 25,000 0
</TABLE>
- ------------------------
(1) Each of these shares of Common Stock were acquired in connection with the
Company's January 1997 private placement, except for 700,000 shares
beneficially owned by Mr. Rubin.
(2) Represents 700,000 shares of common stock issuable upon exercise of
currently exercisable options. See "Management."
The shares of Common Stock may be sold by one or more of the following
methods: (a) a block trade in which a broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; and (c) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Securityholders may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissioner discounts from
Selling Securityholders in amounts to be negotiated. Such brokers and dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Act in connection with such sales.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Use of Proceeds.................................
Dividend........................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
Business........................................
Management......................................
Certain Relationships and Related
Transactions..................................
Principal Stockholders..........................
Description of Securities.......................
Shares Eligible for Future Sale.................
Legal Matters...................................
Experts.........................................
Selling Securityholders and Plan of
Distribution..................................
Financial Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
MED-EMERG, INC.
125,000 SHARES OF COMMON STOCK
NETWORK 1 FINANCIAL SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 124(1) of the Business Corporations Act of Ontario (the "OBCA")
provides that, except in respect of an action by or on behalf of a corporation
or body corporate 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
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and 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 body corporate,
if:
(a) he acted honestly and in good faith with a view to the best
interests of the corporations; and
(b) in the case of a criminal or administrative proceeding that is
enforced by a monetary penalty; he had reasonable grounds for believing that
his conduct was lawful.
Section 124(2) of the CBCA provides that a corporation may with the approval
of a court indemnify a person referred to in subsection (1) 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 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 paragraphs (1)(a) and (b) above.
Part VII, Section 7.02 of the Registrant's by-laws provides that, subject to
the OBCA, 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 requests as a director or officer of a body
corporate of which the Registrant 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 Registrant or body corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of the Registrant; and
(b) in the case of a criminal or administrative proceeding that is
enforced by a monetary penalty; he had reasonable grounds for believing that
his conduct was lawful.
The Registrant shall also indemnify such persons in such other circumstances
as the OBCA permits or requires. Nothing contained in said Section 7:02 shall
limit the right of any person entitled to indemnity to claim indemnity apart
from the provisions of said Section.
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following tab sets forth the various statement of the estimated expenses
(other than underwriting discounts and commissions) to be paid by the Company in
connection with the issuance and distribution of
II-1
<PAGE>
the securities being registered. With the exception of the SEC Registration Fee
and the NASD Filing Fee, all amounts shown are estimates (all stated in US
dollars):
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 4,433.18
NASD Filing Fee................................................ 1,916.25
Nasdaq Listing Fees and Expenses............................... *10,000.00
BSE Listing Fee................................................ *15,000.00
Printing Expenses.............................................. *75,000.00
Legal Fees and Expenses (other than Blue Sky).................. *100,000.00
Accounting Fees and Expenses................................... *75,000.00
Blue Sky Fees and Expenses (including legal and filing fees)... *30,000.00
Transfer Agent and Registrar Fees and Expenses................. *3,500.00
Non-Accountable Expenses....................................... 150,000.00
Miscellaneous Expenses......................................... 35,150.57
----------
Total.................................................... $500,000.00
----------
----------
</TABLE>
- ------------------------
* Estimated
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, the Company has issued securities to a limited
number of persons, as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In January 1996, pursuant to an exemption provided by Rule 3(a)(10) under
the Act, the Company issued an aggregate of 2,333,333 shares of Common Stock to
Ramesh and Victoria Zacharias in exchange for all of the outstanding capital
stock of 927563 Ontario Inc. and 927564 Ontario Inc.
In January 1996, the Company sold to 15 investors an aggregate of 1,000,000
shares of Common Stock and 1,000,000 common stock purchase warrants for an
aggregate consideration of $1,000,000. The warrants are exercisable to purchase
1,000,000 shares of Common Stock at $2.00 per share. The warrants were
subsequently surrendered for cancellation. This transaction was exempt from
registration pursuant to Section 4(2) of the Act.
In November 1996, the Company granted Robert Rubin, a Director of the
Company, an option to purchase 700,000 shares of Common Stock at US $.75 per
share. This transaction was exempt from registration pursuant to Section 4(2) of
the Act.
In November 1996, the Company issued an aggregate of 500,000 shares of its
Preferred Stock to Ramesh and Victoria Zacharias in exchange for 2,203,333
shares of Common Stock owned by the Zacharias'. This transaction was exempt from
registration pursuant to Section 3(a)(9) of the Act.
In November 1996, the Company issued 350,000 shares of Common Stock to
Hampton House in consideration for services rendered. This transaction was
exempt from registration pursuant to Section 4(2) of the Act.
In January 1997, in an underwritten bridge financing, the Company issued
Notes in the principal amount of $500,000 and an aggregate of 125,000 shares of
Common Stock to four investors for an aggregate consideration of $500,000. This
transaction was exempt from registration pursuant to Rule 506 as promulgated
under the Act.
In March 1997, the Company issued options to purchase an aggregate of
228,500 shares of common stock under its 1997 Stock Option Plan to 10
individuals, all of whom are affiliated with the Company. This transaction was
exempt from registration pursuant to Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3** The Selling Shareholder Irrevocable Power of Attorney Custody Agreement and Lock-up Agreement
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1 Form of Underwriter's Warrant Agreement
4.2 Form of Warrant Agreement
4.3** Specimen Common Stock Certificate
4.4** Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the Company.
10.1 Employment Agreement between the Company and Ramesh Zacharias
10.2** Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5** Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill.
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias.
10.8 Corporate Resolution Regarding November Recapitalization.
10.9 Agreement between the Company and Toronto-Dominion Bank.
10.10 Form of Hospital Contract
10.11 Form of Physician Contract for Clinical Operations
10.12 Form of Physician Contract for Emergency Services.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (to be included in Exhibit 5.1 to this
Registration Statement)
23.2 Consent of KPMG, Chartered Accountants
23.3 Consent of Zaritsky Penny Chartered Accountants
23.4 Consent of Borden & Elliot, Canadian counsel to the Company.
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to any charter provision, by-law contract
arrangements statute, 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 Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer 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 small business issuer 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 Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) 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;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
(2) 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.
(3) 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.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h), under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement at that time as the initial bona fide offering of those
securities.
(6) To provide to the Underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(7) To file a post-effective amendment to this Registration Statement to
include any financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering. The financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the Registrant includes in the Prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (7) and other information necessary to ensure that all other
information in the Prospectus is at least as current as the date of these
financial statements.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form F-1 and has duly caused this Amendment No. 2 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on June 6, 1997.
MED-EMERG INTERNATIONAL, INC.
BY: /S/ CARL PAHAPILL
-----------------------------------------
Carl Pahapill, President
By: /s/ KATHRYN GAMBLE
-----------------------------------------
Kathryn Gamble
Chief Financial Officer/Principal
Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and has appointed Carl Pahapill, President, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chief Executive Officer,
- ------------------------------ Director June 6, 1997
Ramesh Zacharias, M.D., Frcsc
/s/ CARL W. PAHAPILL Chief Operating Officer,
- ------------------------------ President and Director June 6, 1997
Carl W. Pahapill
/s/ KATHRYN GAMBLE, CA Vice President of Finance,
- ------------------------------ Chief Financial Officer, June 6, 1997
Kathryn Gamble, CA Secretary
* Chairman of the Board
- ------------------------------ June 6, 1997
William Thomson, CA
* Director
- ------------------------------ June 6, 1997
Larry Grossman
* Director
- ------------------------------ June 6, 1997
Peter Deeb
* Director
- ------------------------------ June 6, 1997
Victoria Zacharias
* Director
- ------------------------------ June 6, 1997
Robert M. Rubin
* Director
- ------------------------------ June 6, 1997
Patrick Michaud
<TABLE>
<S> <C>
/s/ CARL W. PAHAPILL
--------------------------------------
*By: By Virtue of Power-of-Attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3** Irrevocable Power of Attorney
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1 Form of Underwriter's Warrant Agreement
4.2 Form of Warrant Agreement
4.3** Specimen Common Stock Certificate
4.4** Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the Company.
10.1 Employment Agreement between the Company and Ramesh Zacharias
10.2** Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5* Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias
10.8 Corporate Resolution Regarding November Recapitalization.
10.9 Agreement between the Company and Toronto-Dominion Bank.
10.10 Form of Hospital Contract
10.11 Form of Physician Contract for Clinical Operations
10.12 Form of Physician Contract for Emergency Services.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (to be included in Exhibit 5.1
to this Registration Statement)
23.2 Consent of KPMG, Chartered Accountants
23.3 Consent of Zaritsky Penny Chartered Accountants.
23.4 Consent of Borden & Elliot, Canadian counsel to the Company.
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
<PAGE>
EXHIBIT 1.1
MED-EMERG INTERNATIONAL, INC.
1,250,000 Shares of Common Stock
and
1,250,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
___________, 1997
Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701
Century City Securities, Inc.
1900 Avenue of the Stars
Los Angeles, CA 90067
Gentlemen:
Med-Emerg International, Inc., a corporation organized under the laws of
the Province of Ontario, Canada (the "Company"), hereby confirms its agreement
with Network 1 Financial Securities, Inc. ("Network") and Century City
Securities, Inc. ("Century"; Network and Century, collectively, the
"Underwriter") as set forth below.
The Company proposes to issue and sell to the Underwriter an aggregate of
(i) 1,250,000 shares (the "Firm Shares") of the Company's common stock, no par
value (the "Common Stock"), and (ii) 1,250,000 redeemable warrants to purchase
Common Stock (the "Firm Warrants"). In addition, for the sole purpose of
covering over-allotments from the sale of the Firm Shares and the Firm Warrants,
(A) the Company proposes to grant to the Underwriter an option to purchase (i)
an additional 46,875 shares of Common Stock (the "Company Option Shares") and
(ii) an additional 187,500 redeemable warrants to purchase Common Stock (the
"Option Warrants", and together with the Company Option Shares, the "Company
Option Securities") and (B) each of the Selling Shareholders named on Schedule 1
annexed hereto ("Schedule 1") proposes to grant to the Underwriter an option to
purchase the number of shares of Common Stock set forth opposite his or its name
on Schedule 1 (the "Selling Shareholders Option Shares," and together with the
Company Option Shares, the "Option Shares"), all as provided in section 2(c) of
this agreement (the "Agreement"). The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." The Firm Warrants and the
Option Warrants are collectively referred to herein as the "Warrants." Any
shares of Common Stock issuable upon the exercise of any Warrants are referred
to herein as "Warrant Shares." The Firm Shares and the Firm Warrants are
collectively referred to herein as the "Firm Securities;" the Option Shares and
the Option Warrants are collectively referred
<PAGE>
to herein as the "Option Securities;" and the Firm Securities, the Option
Securities and the Warrant Shares are collectively referred to herein as the
"Securities."
Pursuant to an agreement to be entered into among the Company, the
Underwriter and Continental Stock Transfer and Trust Company (the "Warrant
Agreement"), each Warrant will be exercisable during the period commencing on
the first anniversary of the effective date of the Registration Statement (as
hereinafter defined) (the "Effective Date") and expiring on the fifth
anniversary thereof, subject to redemption by the Company (as described below),
at an initial exercise price (subject to adjustment as set forth in the Warrant
Agreement) of $5.00 per share. The Warrants will be redeemable at a price of
$.10 per Warrant, commencing on the second anniversary of the Effective Date (or
earlier with the consent of the Underwriter) and prior to their expiration, upon
not less than 30 days prior written notice to the holders of the Warrants,
provided that the closing bid price of the Common Stock as reported on the
Nasdaq SmallCap Market if traded thereon, or if not traded thereon, the closing
sale price if listed on the Nasdaq National Market or a national or regional
securities exchange (or other reporting system that provides last sales prices),
shall have been at least $8.00 per share, subject to adjustment, for 20
consecutive trading days ending three days prior to the date on which the
Company gives notice of redemption, subject to the right of the holder to
exercise such Warrants prior to redemption.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form F-1 (File No. 333-21865), with
respect to the Securities and the Underwriter's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "), and one
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriter. After the
execution of this Agreement, the Company will file with the Commission either
(i) if the registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriter prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriter prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes of registering
certain additional Securities, which registration statement shall become
effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
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<PAGE>
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriter copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act. If the Company
has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement
has not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use therein.
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<PAGE>
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the Province of Ontario, Canada,
and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of its property or the conduct of its business requires such
qualification or authorization.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) Except for the subsidiaries listed in Exhibit 21.1 to the
Registration Statement (the "Subsidiaries"), the Company does not own, directly
or indirectly, an interest in any corporation, partnership, limited liability
company, joint venture, trust or other business entity. Each Subsidiary is duly
qualified and licensed and in good standing in its jurisdiction of formation and
as a foreign corporation in each jurisdiction where the ownership or leasing of
its property or the conduct of its business requires such qualification or
licensing. Each Subsidiary has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
properties and conduct its business as now being conducted and as proposed to be
conducted as described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus)
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares and the Warrant Shares have been duly
authorized, and the Warrant Shares have been duly reserved for issuance, by all
necessary corporate action on the part of the Company and, when the Shares are
issued and delivered to and paid for by the Underwriter pursuant to this
Agreement and the Warrant Shares are issued and delivered to and paid for by the
holders of Warrants upon exercise of the Warrants in accordance with the terms
thereof, the Shares and the Warrant Shares will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). No holder of outstanding securities of the
Company is entitled as such to any preemptive or other right to subscribe for
any of the Securities, and no person is entitled to have securities registered
by the Company under the Registration Statement or otherwise under the Act other
than as described in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
4
<PAGE>
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. Except
as previously disclosed in writing to the Underwriter, no compensation was paid
to or on behalf of any member of the National Association of Securities Dealers,
Inc. ("NASD"), or any affiliate or employee thereof, in connection with any such
issuance.
(i) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its subsidiaries as of the dates indicated and the
results of operations of the Company and its subsidiaries for the periods
specified. Such consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada, consistently
applied, except to the extent that certain footnote disclosures regarding
unaudited interim periods may have been omitted in accordance with the
applicable rules of the Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The consolidated financial data set forth under the
caption "Summary Consolidated Financial Information" in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present, on the basis stated in the Prospectus (or such Preliminary
Prospectus), the information included therein.
(j) KMPG and Zaritsky Penny, who have audited certain financial
statements of the Company and delivered their report with respect to the
consolidated financial statements included in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder.
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company and the Subsidiaries, whether or not arising in the ordinary course of
business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company or the Subsidiaries and no commitments
made by the Company or the Subsidiaries that, individually or in the aggregate,
are material with respect to the Company and the Subsidiaries, (iii) there has
not been any change in the capital stock or indebtedness of the Company and the
Subsidiaries, and (iv) there has been no dividend or distribution of any kind
declared, paid or made by the Company in respect of any class of its capital
stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this Agreement, the Warrant Agreement and the
Underwriter's Warrant
5
<PAGE>
Agreement (as hereinafter defined). The execution and delivery of this Agreement
and the Underwriter's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this Agreement, the
Warrant Agreement and the Underwriter's Warrant Agreement have each been duly
executed and delivered by the Company and each is a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and except as rights to indemnity and contribution under this Agreement
may be limited by applicable law. The issuance, offering and sale by the
Company to the Underwriter of the Securities pursuant to this Agreement or the
Underwriter's Securities pursuant to the Underwriter's Warrant Agreement, the
compliance by the Company with the provisions of this Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement, and the consummation of the
other transactions contemplated by this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement do not (i) require the consent, approval,
authorization, registration or qualification of or with any court or
governmental or regulatory authority, except such as have been obtained or may
be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) conflict
with or result in a breach or violation of, or constitute a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of its
property is bound or subject, or the certificate of incorporation or by-laws of
the Company or any Subsidiary, or any statute or any rule, regulation, judgment,
decree or order of any court or other governmental or regulatory authority or
any arbitrator applicable to the Company or any Subsidiary.
(m) No legal or governmental proceedings are pending to which the
Company or any Subsidiary is a party or to which the property of the Company or
any Subsidiary is subject, and no such proceedings have been threatened against
the Company or any Subsidiary or with respect to any of its property, except
such as are described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). No contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (and, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) or filed as required.
(n) Neither the Company nor any Subsidiary is in (i) violation of its
certificate of incorporation, by-laws or other governing documents, (ii)
violation in any material respect of any law, statute, regulation, ordinance,
rule, order, judgment or decree of any court or any governmental or regulatory
authority applicable to it, or (iii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or
6
<PAGE>
instrument to which it is a party or by which it or any of its property may be
bound or subject, and no event has occurred which with notice or lapse of time
or both would constitute such a default.
(o) The Company and the Subsidiaries currently own or possess
adequate rights to use all intellectual property, including all trademarks,
service marks, trade names, copyrights, inventions, know-how, trade secrets,
proprietary technologies, processes and substances, or applications or licenses
therefor, that are described in the Prospectus (and if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and any other rights or
interests in items of intellectual property as are necessary for the conduct of
the business now conducted or proposed to be conducted by them as described in
the Prospectus (or, such Preliminary Prospectus), and, except as disclosed in
the Prospectus (and such Preliminary Prospectus), the Company is not aware of
the granting of any patent rights to, or the filing of applications therefor by,
others, nor is the Company aware of, nor has the Company received notice of,
infringement of or conflict with asserted rights of others with respect to any
of the foregoing. All such intellectual property rights and interests are (i)
valid and enforceable and (ii) to the best knowledge of the Company, not being
infringed by any third parties.
(p) The Company and each Subsidiary possesses adequate licenses,
orders, authorizations, approvals, certificates or permits issued by the
appropriate federal, state or foreign regulatory agencies or bodies necessary to
conduct its business as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and, except as disclosed in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), there
are no pending or, to the best knowledge of the Company, threatened, proceedings
relating to the revocation or modification of any such license, order,
authorization, approval, certificate or permit.
(q) The Company and each Subsidiary has good and marketable title to
all of the properties and assets reflected in the Company's consolidated
financial statements or as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind, except those reflected in such consolidated financial
statements or as described in the Registration Statement and the Prospectus (and
such Preliminary Prospectus). Except as disclosed in the Prospectus, the Company
and each Subsidiary occupies its leased properties under valid and enforceable
leases conforming to the description thereof set forth in the Registration
Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in
a manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) Except as listed on Schedule 2 hereto, the Company has obtained
and delivered to the Underwriter the agreements (the "Lock-up Agreements") with
the officers, directors and other security holders owning or having rights to
acquire shares of Common Stock or preferred stock to
7
<PAGE>
the effect that, among other things, each such person (i) will not, commencing
on the Effective Date and continuing for the period thereafter set forth
opposite their names on Schedule 2, directly or indirectly, sell, offer or
contract to sell or grant any option to purchase, transfer, assign or pledge, or
otherwise encumber, or dispose of any shares of Common Stock or preferred stock
or any securities convertible into or exercisable for Common Stock or preferred
stock now or hereafter owned by such person without the prior written consent of
the Underwriter, and (ii) will comply with any additional restriction or
condition on the disposition of such Common Stock or preferred stock which may
be required to qualify the offering of the Securities in any state in accordance
with the blue sky or securities laws of such state.
(t) No labor dispute with the employees of the Company or any
Subsidiary exists, is threatened or, to the best of the Company's knowledge, is
imminent that could result in a material adverse change in the condition
(financial or otherwise), business, prospects, net worth or results of
operations of the Company and the Subsidiaries, except as described in or
contemplated by the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(u) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any Subsidiary has
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company and the Subsidiaries, except as described in or contemplated by the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(v) The Underwriter's Warrants (as hereinafter defined) will conform
to the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Underwriter in accordance with
the Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The shares of Common
Stock issuable upon exercise of the Underwriter's Warrants and the Warrants
issuable upon exercise thereof (the "Underwriter's Warrant Shares") have been
duly authorized and reserved for issuance upon exercise of the Underwriter's
Warrants and the Warrants issuable upon exercise thereof by all necessary
corporate action on the part of the Company and, when issued and delivered and
paid for upon such exercise in accordance with the terms of the Underwriter's
Warrant Agreement, the Underwriter's Warrants, and the Warrants issuable upon
exercise thereof, respectively, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
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(w) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for services as
a finder for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Underwriter.
(x) The Company and each Subsidiary has filed all federal, state,
local and foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same are
material and have become due.
(y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND THE UNDERWRITER'S
WARRANTS.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each Underwriter, and each
Underwriter agrees to purchase from the Company, severally and not jointly, the
number of Firm Shares as set forth opposite its name on Schedule 3 annexed
hereto ("Schedule 3"), at a purchase price of $3.51 per share and the Firm
Warrants at a purchase price of $.09 per Warrant.
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(b) Certificates in definitive form for the Firm Securities that the
Underwriter has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriter requests
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriter, against
payment by or on behalf of the Underwriter of the purchase prices therefor by
certified or official bank check or checks drawn upon or by a New York Clearing
House bank and payable in next-day funds to the order of the Company. Such
delivery of and payment for the Firm Securities shall be made at the offices of
Counsel for the Underwriter, 605 Third Avenue, New York, New York at 9:30 A.M.,
New York City time on ___________, 1997, or at such other place, time or date as
the Underwriter and the Company may agree upon, such time and date of delivery
against payment being herein referred to as the "Firm Closing Date. The Company
will make such certificates for the Firm Securities available for checking and
packaging by the Underwriter, at such offices as may be designated by the
Underwriter, at least 24 hours prior to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
any or all of the Company Option Securities and the Selling Shareholders hereby
grant the Underwriter an option to purchase the Selling Shareholder Option
Shares, which options are exercisable by the Underwriter on behalf of and for
the account of the Underwriter. The purchase price to be paid for any of the
Option Securities shall be the same price per share or Warrant as the price per
share or Warrant for the Firm Securities set forth above in paragraph (a) of
this section 2. The option granted hereby may be exercised as to all or any part
of the Option Securities from time to time within 45 calendar days after the
Firm Closing Date. The Underwriter shall not be under any obligation to purchase
any of the Option Securities prior to the exercise of such option. The
Underwriter may from time to time exercise the option granted hereby by giving
notice in writing or by telephone (confirmed in writing) to the Company and the
Selling Shareholders (in the case of the Selling Shareholder Option Shares)
setting forth the aggregate number of Option Securities as to which the
Underwriter is then exercising the option and the date and time for delivery of
and payment for such Option Securities. Any such date of delivery shall be
determined by the Underwriter but shall not be earlier than two business days or
later than three business days after such exercise of the option and, in any
event, shall not be earlier than the Firm Closing Date. The time and date set
forth in such notice, or such other time on such other date as the Underwriter
and the Company may agree upon, is herein called the "Option Closing Date" with
respect to such Option Securities. Upon exercise of the option as provided
herein, the Company and/or the Selling Shareholders shall become obligated to
sell to the Underwriter, and, subject to the terms and conditions herein set
forth, the Underwriter shall become obligated to purchase from the Company and
the Selling Shareholders, the Option Securities as to which the Underwriter is
then exercising its option. If the option is exercised as to all or any portion
of the Option Securities, certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (b) of this section 2, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Securities and Option Closing Date,
respectively.
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(d) On the Firm Closing Date, the Company will further issue and sell
to the Underwriter or, at the direction of the Underwriter, to bona fide
officers of the Underwriter, for an aggregate purchase price of $10, warrants to
purchase Common Stock and redeemable warrants to purchase Common Stock (the
"Underwriter's Warrants") entitling the holders thereof to purchase an aggregate
of 125,000 shares of Common Stock and 125,000 redeemable warrants to purchase
Common Stock for a period of four years, such period to commence on the first
anniversary of the Effective Date. The Underwriter's Warrants shall be
exercisable at a price equal to 120% of the initial public offering price of the
Common Stock and Warrants, respectively, and shall contain terms and provisions
more fully described herein below and as set forth more particularly in the
warrant agreement relating to the Underwriter's Warrants to be executed by the
Company on the Effective Date (the "Underwriter's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Underwriter's Warrants. As provided in the Underwriter's Warrant Agreement,
the Underwriter may designate that the Underwriter's Warrants be issued in
varying amounts directly to bona fide officers of the Underwriter. As further
provided, no sale, transfer, assignment, pledge or hypothecation of the
Underwriter's Warrants shall be made for a period of 12 months from the
Effective Date, except (i) by operation of law or reorganization of the Company,
or (ii) to the Underwriter and bona fide partners, officers of the Underwriter
and selling group members. The shares of Common Stock issuable upon exercise of
the Underwriter's Warrants and the Warrants issuable upon exercise thereof are
referred to herein as the "Underwriter's Warrant Shares"; and the Underwriter's
Warrants, the Warrants issuable upon exercise thereof, and the Underwriter's
Warrant Shares are collectively referred to herein as the "Underwriter's
Securities."
3. OFFERING BY THE UNDERWRITER. The Underwriter proposes to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
During any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
Section (a) (i) hereof, any amendment or supplement to such
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prospectus or any amendment to the Registration Statement as to which the
Underwriter shall not previously have been advised and furnished with a copy for
a reasonable period of time prior to the proposed filing and as to which filing
the Underwriter shall not have given its consent. The Company will prepare and
file with the Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Underwriter or counsel to the
Underwriter, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in connection
with the distribution of the Securities by the Underwriter, and will use its
best efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible. The Company will
advise the Underwriter, promptly after receiving notice thereof, of the time
when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence satisfactory to the Underwriter of each
such filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Underwriter,
arrange for the qualification of the Securities for offering and sale under the
blue sky or securities laws of such jurisdictions as the Underwriter may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriter thereof and, subject to section 4(a) hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) So long as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance
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with the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to the
Underwriter and any dealer as many copies of each such Prospectus as the
Underwriter or dealer may reasonably request. The Company shall not call for
redemption of the Warrants unless a registration statement covering the
securities underlying the Warrants has been declared effective by the Commission
and remains current at least until the date fixed for redemption. In addition,
for so long as any Warrant is outstanding, the Company will promptly notify the
Underwriter of any material change in the business, financial condition or
prospects of the Company. So long as any of the Warrants remain outstanding, the
Company will timely deliver and supply to its Warrant Agent sufficient copies of
the Company's current Prospectus, as will enable such Warrant agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(f) The Company will, without charge, provide to the Underwriter and
to counsel for the Underwriter (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriter may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriter may reasonably request and (iii) so long as a prospectus relating to
the Securities is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Underwriter may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriter an earnings statement
of the Company that satisfies the provisions of section 11 (a) of the Act and
Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and the Underwriter's Warrants (including
the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus. The Company
will timely file, and will provide or cause to be provided to the Underwriter
and counsel to the Underwriter a copy of the report on Form SR required to be
filed by the Company pursuant to Rule 463 under the Act.
(j) The Company will not, without the prior written consent of the
Underwriter, directly or indirectly offer, agree to sell, sell, grant any option
to purchase or otherwise dispose (or announce any offer, agreement to sell,
sales grant of any option to purchase or other disposition) of any shares of
Common Stock, preferred stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or preferred stock for a
period of 24 months after the Effective Date, except (i) the Shares and Warrants
issued pursuant to this Agreement, (ii) the Warrant Shares issuable upon
exercise of the Warrants, (iii) the Warrants, (iv) the Underwriter's Warrant
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Shares and Warrants issuable upon the exercise of the Underwriter's Warrants,
and (v) shares of Common Stock issuable upon the exercise of options granted and
to be granted under the Company's Stock Option Plan as in effect as of the date
hereof. The Company also will not for a period of 36 months following the
Effective Date, without the prior written consent of the Underwriter, (i) issue
or sell any of its securities pursuant to Regulation S promulgated under the Act
or (ii) file a registration on Form S-8 for the sale of securities by a person
other than an employee of the Company or a Subsidiary.
(k) Prior to the Closing Date or the Option Closing Date (if any),
the Company will not, directly or indirectly, without prior written consent of
the Underwriter, issue any press release or other public announcement or hold
any press conference with respect to the Company or its activities with respect
to the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included in The
Nasdaq Small Cap Market and the Boston Stock Exchange on the Effective Date and
to maintain such listings thereafter. The Company will file with The Nasdaq
Small Cap Market and the Boston Stock Exchange all documents and notices that
are required by companies with securities that are traded on The Nasdaq Small
Cap Market and the Boston Stock Exchange.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion.
(o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Underwriter, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed Continental Stock Transfer & Trust
Company as transfer agent for the Common Stock and warrant agent for the
Warrants, subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the
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Firm Closing Date without first obtaining the written consent of the
Underwriter. For a period of three years after the Effective Date, the Company
shall cause the transfer agent and warrant agent to deliver promptly to the
Underwriter a duplicate copy of the daily transfer sheets relating to trading of
the Securities. The Company shall also provide to the Underwriter, promptly upon
their request, up to four times in any calendar year, copies of DTC or
equivalent transfer sheets.
(q) During the period of 180 days after the date of this Agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock or the
Warrants to facilitate the sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale of
any shares of Common Stock pursuant to Rule 144 under the Act if any such sale
would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company
will provide the Underwriter and its designees with three bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Underwriter.
(t) The Company shall consult with the Underwriter prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.
(u) The Company and the Underwriter will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent the Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriter will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(v) The Company will, for a period of no less than three years
commencing immediately after the Effective Date, engage a designee by the
Underwriter as advisor (the "Advisor") to the Company's Board of Directors, who
shall attend meetings of the Board, receive all notices and other correspondence
and communications sent by the Company to its Board of Directors and receive
compensation equal to that of other non officer directors; provided, that in
lieu of the Underwriter's right to designate an Advisor, the Underwriter shall
have the right during such three-year period, in its sole discretion, to
designate one person for election as a director of the Company and the Company
will utilize its best efforts to obtain the election of such person who shall be
entitled to receive the same compensation, expense reimbursements and other
benefits as set forth above. In
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addition, such Advisor shall be entitled to receive reimbursement for all costs
incurred in attending such meetings including, but not limited to, food, lodging
and transportation. The Company, during said three-year period, shall schedule
no less than four formal meetings (at least one of which shall be "in person"
and the others may be held telephonically) of its Board of Directors in each
such year at which meetings such Advisor shall be permitted to attend (in
person, for each meeting held "in person") as set forth herein; said meetings
shall be held quarterly each year and advance notice of such meetings identical
to the notice given to directors shall be given to the Advisor. The Company and
its principal stockholders shall, during such three year period, give the
Underwriter timely prior written notice of any proposed acquisitions, mergers,
reorganizations or other similar transactions. The Company shall indemnify and
hold the Underwriter and such Advisor or director harmless against any and all
claims, actions, damages, costs and expenses, and judgments arising solely out
of the attendance and participation of such Advisor or director at any such
meeting described herein, and, if the Company maintains a liability insurance
policy affording coverage for the acts of its officers and directors, it shall,
if possible, include such Advisor or director as an insured under such policy.
(w) The Company shall first submit to the Underwriter certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(x) The Company shall engage the Underwriter's counsel to provide the
Underwriter, at the closing of any sale of Securities hereunder and quarterly
thereafter, with an opinion, setting forth those states in which the Common
Stock and Warrants may be traded in non-issuer transactions under the blue sky
or securities laws of the 50 states. The Company shall pay such counsel a
one-time fee of $12,500 for such opinions at the closing of the sale of the Firm
Securities.
(y) The Company will prepare and file a registration statement with
the Commission pursuant to section 12 of the 1934 Act, and will use its best
efforts to have such registration statement declared effective by the Commission
on an accelerated basis on the day after the Effective Date. For this purpose
the Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(z) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited consolidated financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such consolidated financial statements shall be those required by Rule
14a-3 under the 1934 Act and shall be included in an annual report pursuant to
the requirements of such Rule.
(aa) Prior to the Effective Date, the Company shall obtain key-man
life insurance in the minimum amount of $1,000,000 on Carl Pahapill on such
terms and conditions as are
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reasonably satisfactory to the Underwriter, assuming such coverage is available
on commercially reasonable terms.
(bb) The Company shall retain the Underwriter as a financial advisor
at an annual fee of $60,000 for a 24-month period commencing on the Closing
Date. The entire fee of $120,000 shall be payable on the Closing Date.
(cc) The Company will engage a financial public relations firm
reasonably satisfactory to the Underwriter on or before the Firm Closing Date,
and continuously engage such firm, or a substitute firm reasonably acceptable to
the Underwriter, for a period of twelve (12) months following the Firm Closing
Date.
(dd) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date.
(ee) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up Agreements.
4A. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
SHAREHOLDERS. Each of the Selling Shareholders (to the extent applicable)
severally represents and warrants to, and agrees with, the Underwriter as
follows:
(a) On the Effective Date, and at all times subsequent thereto up to
and on each Option Closing Date (i) all information with respect to such Selling
Shareholder contained in the Registration Statement does not and will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading, and (ii) all
information with respect to such Selling Shareholder contained in the
Prospectus, as amended or supplemented, does not and will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that, as to such Selling
Shareholder, the representations and warranties contained in this subsection (a)
only apply to statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company or the Underwriter, by or
on behalf of such Selling Shareholder, specifically for inclusion in
Registration Statement or the Prospectus.
(b) Such Selling Shareholder has duly authorized, executed and
delivered on ___________, 1997 the Irrevocable Power of Attorney, Custody
Agreement and Lock-Up Agreement (the "Custody Agreement") with the Company, as
custodian (the "Custodian"), and Carl Pahapill and Kathryn Gamble, as
attorneys-in-fact (the "Attorneys-in-Fact"), and, such Custody
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Agreement constitutes the valid, legal and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms; such Selling Shareholder
has pursuant to the Custody Agreement, duly authorized each and all of the
Attorneys-in-Fact to execute and deliver this Agreement on behalf of such
Selling Shareholder, and otherwise to act, and to execute documents and
instruments, on behalf of such Selling Shareholder in connection with the
transactions contemplated by this Agreement, and the Attorneys-in-Fact and the
Custodian are each duly authorized by such Selling Shareholder under the Custody
Agreement to deliver the Shares to be sold by such Selling Shareholder pursuant
to the Agreement, and to accept payment therefor. When executed and delivered
by one or more of the Attorneys-in-Fact on behalf of such Selling Shareholder in
accordance with the Custody Agreement and this Agreement will have been duly
authorized, executed and delivered on behalf of such Selling Shareholder.
(c) No consent, approval, authorization or order of any court,
government, governmental agency or body or financial institution, domestic or
foreign (other than under the Securities Act and state securities or blue sky
laws), is required for the consummation by such Selling Shareholder of the
transactions contemplated in this Agreement or the Custody Agreement, including,
without limitation, the sale of the Shares to the Underwriter, as contemplated
herein or therein (other than those that have been obtained and are in full
force and effect).
(d) The execution and delivery of this Agreement and the Custody
Agreement, and the consummation of the transactions contemplated herein and
therein, including, without limitation, the sale of the Shares by the
Underwriter, as contemplated herein or therein, will not (i) result in a breach
by such Selling Shareholder of, or constitute a default by such Selling
Shareholder under, any agreement or instrument or any decree, judgement or order
to which such Selling Shareholder is a party or by which such Selling
Shareholder is bound or the properties of such Selling Shareholder are subject
or (ii) violate any provision of the certificate of incorporation, by-laws, or
comparable governing documents of such Selling Shareholder (if such Selling
Shareholder is a corporation), or any law, rule or regulation, domestic or
foreign, applicable to such Selling Shareholder or to which its properties are
subject.
(e) Such Selling Shareholder who is a Selling Shareholder has, and
will on each Option Closing Date have, good and marketable title to the Shares
to be sold by such Selling Shareholder pursuant to this Agreement, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, or restriction on voting or other rights as a
shareholder of any nature, other than pursuant to this Agreement and the Custody
Agreement; such Selling Shareholder has full right, power and authority to sell,
transfer and deliver the Shares, pursuant to this Agreement; upon delivery of
such Shares and payment of the purchase price therefor as contemplated in this
Agreement the Underwriter will receive good and marketable title to the Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind or of
any restriction on transfer or voting or other rights as a shareholder of any
nature.
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(f) Certificates for the Shares to be sold by such Selling
Shareholder pursuant to this Agreement in suitable form for transfer by delivery
or accompanied by duly executed instruments of transfer or assignment, executed
in blank, have been placed in custody with the Custodian pursuant to the Custody
Agreement for purpose of effecting delivery, in accordance with the Custody
Agreement and this Agreement.
(g) Each Selling Shareholder hereby agrees that for a period of
twenty-four months from the Effective Date (the "Lock-Up-Period"), such Selling
Shareholder will not, without prior written consent of the Underwriter, directly
or indirectly, offer, sell or grant any option to purchase, transfer or
otherwise dispose of or contract to dispose of (or announce any offer, sale,
grant of any option to purchase, or other disposition of), for value or
otherwise, any shares of Common Stock, options or warrants to purchase Common
Stock, or any securities convertible into or exchangeable for Common Stock,
owned directly by such person or with respect to which such person has the power
of disposition, other than the sale of the Shares under this Agreement.
(h) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, violate Rule 102 of Regulation M under the 1934 Act, or cause or
result in stabilization or manipulation of the price of the Common Stock; and
such Selling Shareholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
(i) In the event the Selling Shareholder is a corporation, such
Selling Shareholder is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, as the case
may be, with all necessary power and authority to execute, deliver and perform
the Custody Agreement and this Agreement and to sell and deliver the Shares to
the Underwriter in accordance with this Agreement, and upon execution and
delivery thereof by one or more of the Attorneys-in-Fact, such agreements will
be duly executed and delivered and enforceable against such Selling Shareholder
in accordance with their respective terms.
5. EXPENSES
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) the preparation, issuance and delivery to
the Underwriter of any certificates evidencing the Securities, including
transfer agent's, warrant
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agent's and registrar's fees or any transfer or other taxes payable thereon, (v)
the qualification of the Securities under state blue sky or securities laws,
including filing fees and fees and disbursements of counsel for the Underwriter
relating thereto (such counsel fees not to exceed $35,000, of which $10,000
shall be due and payable upon the commencement of blue sky filing, together with
the related filing fees) and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
Nasdaq Small Cap Market, the Boston Stock Exchange and in the Standard and
Poor's Corporation Descriptions Manual, (viii) any "road shows" or other
meetings with prospective investors in the Securities, including transportation,
accommodation, meal, conference room, audio-visual presentation and similar
expenses of the Underwriter or its representatives or designees (other than as
shall have been specifically approved by the Underwriter to be paid for by the
Underwriter) and (ix) the placing of "tombstone advertisements" in The Wall
Street Journal and the Investment Dealers Digest and the manufacture of
prospectus memorabilia. In addition to the foregoing, the Company shall
reimburse the Underwriter for its expenses on the basis of a non-accountable
expense allowance in the amount of 3.00% of the gross offering proceeds to be
received by the Company, $50,000 of which has been paid by the Company to the
Underwriter. The Underwriter hereby acknowledges receipt of such $50,000, which
shall be credited against the non-accountable expense allowance to be paid by
the Company. The unpaid portion of the expense allowance, based on the gross
proceeds from the sale of the Firm Securities, shall be deducted from the funds
to be paid by the Underwriter in payment for the Firm Securities, pursuant to
section 2 of this Agreement, on the Firm Closing Date. To the extent any Option
Securities are sold, any remaining non-accountable expense allowance based on
the gross proceeds from the sale of the Option Securities shall be deducted from
the funds to be paid by the Underwriter in payment for the Option Securities,
pursuant to section 2 of this Agreement, on the Option Closing Date. The Company
warrants, represents and agrees that all such payments and reimbursements will
be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the
offering of the Securities contemplated hereby is terminated for any reason, the
Company agrees that, in addition to the Company paying its own expenses as
described in subparagraph (a) above, (i) the Company shall reimburse the
Underwriter only for its actual accountable out-of-pocket expenses (in addition
to blue sky legal fees and expenses referred to in subparagraph (a) above), and
(ii) the Underwriter shall be entitled to retain the non-accountable expense
allowance paid by the Company pursuant to subparagraph (a) above; provided,
however, that the amount retained pursuant to this clause (ii) shall not exceed
the Underwriter's expenses on an accountable basis to the date of such
cancellation and that all unaccounted for amounts shall be refunded to the
Company. Such expenses shall include, but are not to be limited to, fees for the
services and time of counsel for the Underwriter to the extent not covered by
clause (i) above, plus any additional expenses and fees, including, but not
limited to, travel expenses, postage expenses, duplication expenses,
long-distance telephone expenses, and other expenses incurred by the Underwriter
in connection with the proposed offering.
6. WARRANT SOLICITATION FEE. The Company agrees to pay the Underwriter a
fee of five percent (5%) of the aggregate exercise price of the Warrants if (i)
the market price of the Common
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stock is not less than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrants is solicited by the Underwriter at
such time as it is a member of the NASD, and the Underwriter is designated in
writing by the holder of the Warrants as the NASD member soliciting the
exercise; (iii) the Warrants are not held in a discretionary account; (iv) the
disclosure of compensation arrangements is made both at the time of the Offering
and at the time of the exercise; and (v) the solicitation of the Warrant
exercise is not in violation of Rule 101 of Regulation M promulgated under the
1934 Act. The Company agrees not to solicit the exercise of any Warrant other
than through the Underwriter and will not authorize any other dealer to engage
in such solicitation without the prior written consent of the Underwriter which
will not be unreasonably withheld. The Warrant solicitation fee will not be paid
in a non solicited transaction. Any request for exercise will be presumed to be
unsolicited unless the customer states in writing that the transaction was
solicited and designates in writing that the Underwriter solicited the exercise.
No Warrant solicitation by the Underwriter will occur for a period of 12 months
after the Effective Date.
7. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company and the Selling Shareholders contained herein as of
the date hereof and as of the Firm Closing Date as if made on and as of the Firm
Closing Date, to the accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the registration
statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 11 A.M., New York City time, on the date on which the amendment to
such registration statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriter; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of Borden & Elliot, counsel to the Company, to the effect that:
(1) the Company and each Subsidiary has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of any properties or the conduct
of
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its business requires such qualification, except where the failure to so qualify
would not have a materially adverse effect upon the Company;
(2) the Company and each Subsidiary has full corporate power and
authority to own or lease its property and conduct its business as now being
conducted and as proposed to be conducted, as described in the Registration
Statement and the Prospectus, and the Company has full corporate power and
authority to enter into this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Shares have been duly authorized and the Warrant Shares and
the Underwriter's Warrant Shares have been duly reserved for issuance by all
necessary corporate action on the part of the Company and, the Shares when
issued and delivered to and paid for by the Underwriter pursuant to this
Agreement, the Warrant Shares when issued upon payment of the exercise price
specified in the Warrants, Underwriter's Warrants when issued and delivered and
paid for in accordance with this Agreement and the Underwriter's Warrant
Agreement by the Underwriter and the Warrant Shares when issued upon payment of
the exercise price specified in the Underwriter's Warrants, will be validly
issued, fully paid, nonassessable and free of preemptive rights and will conform
to the description thereof in the Prospectus; to the knowledge of such counsel,
no holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares, the Warrant
Shares, or the Underwriter's Warrant Shares; and to the knowledge of such
counsel, no person is entitled to have securities registered by the Company
under the Registration Statement or otherwise under the Act other than as
described in the Prospectus;
(4) the execution and delivery of this Agreement, the Warrant
Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and
Investment Banking Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement, the Warrant
Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and
Investment Banking Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement may be limited by applicable securities laws and the public
policy underlying such laws;
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<PAGE>
(5) the Underwriter's Warrants conform to the description
thereof in the Registration Statement and in the Prospectus and are duly
authorized and upon payment of the purchase price therefore specified in Section
2(d) of this Agreement are validly issued and constitute valid and binding
obligations of the Company entitled to the benefits of the Underwriter's Warrant
Agreement; and the certificates representing the Securities are in due and
proper form under the laws of Canada and any political subdivision thereof;
(6) the statements set forth in the Prospectus under the
caption "Description of Securities" insofar as those statements purport to
summarize the terms of the capital stock and warrants of the Company, provide a
fair summary of such terms; the statements set forth in the Prospectus
describing Canadian or provincial statutes and regulations and with respect to
matters of Canadian or Ontario law, including the statements under the captions
"Risk Factors - Classification of Physicians as Independent Contractors;
Potential Tax Liability," "Risk Factors - Adverse Effect of Provincial Laws
Regarding the Corporate Practice of Medicine," "Risk Factors - Corporate
Exposure to Professional Liabilities," "Risk Factors - Government Regulations,"
"Business - Government Regulation," "Business - Proposed Healthcare
Legislation," "Tax Aspects of the Offering - Canadian Federal Income Tax
Considerations - Persons Not Resident Canada" and the descriptions of the
consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; the statements in the Prospectus, insofar as those statements
constitute summaries of the contracts, instruments, leases or licenses referred
to therein, constitute a fair summary of those contracts, instruments, leases or
licenses and include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriter of the Securities pursuant
to this Agreement and the Underwriter's Warrant Securities pursuant to the
Underwriter's Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement and the consummation of the transactions contemplated hereby
and thereby, (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws, (2) conflicts with or results in a breach or violation of, or
constitutes a default under, any material contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other material agreement or instrument
known to us to which the Company is a party or by which the Company or any of
its property is bound or subject, or the certificate of incorporation or by-laws
of the Company, or any material statute or any judgment, decree, order, rule or
regulation of any court or other governmental or regulatory authority known to
us applicable to the Company, or (3) subjects the Company or investors in the
Securities to any tax imposed by Canada or any political subdivision thereof.
(8) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or a Subsidiary is a
party or to which the property of the Company or a Subsidiary is subject and (B)
no contract or other document is required to be
23
<PAGE>
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein or filed as
required;
(9) the Company and each of the Subsidiaries possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate Canadian, provincial or local regulatory agencies or bodies
necessary to conduct its business as described in the Registration Statement and
the Prospectus, and, to the knowledge of such counsel, there are no pending or
threatened proceedings relating to the revocation or modification of any such
license, order, authorization, approval, certificate or permit, except as
disclosed in the Registration Statement and the Prospectus; and
(10) neither the Company nor any Subsidiary is in violation
or breach of, or in default with respect to, any term of its certificate of
incorporation or by-laws, and to the knowledge of such counsel, neither the
Company nor any Subsidiary is in (i) violation in any material respect of any
law, statute, regulation, ordinance, rule, order, judgment or decree of any
court or any governmental or regulatory authority applicable to it, or (ii)
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
material agreement or instrument to which it is a party or by which it or any of
its property may be bound or subject, and no event has occurred which with
notice, lapse of time or both would constitute such a default.
(c) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of Gersten, Savage, Kaplowitz, Fredericks & Curtin LLP, counsel to
the Company, to the effect that:
(1) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; and to the knowledge of such counsel, no person is entitled to
have securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(2) the Shares have been approved for inclusion on The Nasdaq
SmallCap Market and the Boston Stock Exchange;
(3) this Agreement, the Warrant Agreement, the Underwriter's
Warrant Agreement and the Financial Advisory and Investment Banking Agreement
have been duly executed and delivered by the Company, and each is a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and except as rights to indemnity and
24
<PAGE>
contribution under this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement may be limited by applicable securities laws and the public
policy underlying such laws;
(4) none of (A) the execution and delivery of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriter of the Securities pursuant
to this Agreement and the Underwriter's Warrant Securities pursuant to the
Underwriter's Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement and the consummation of the transactions contemplated hereby
and thereby, (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws, or (2) conflicts with or results in a breach or violation of,
or constitutes a default under, any material contract, indenture, mortgage, deed
of trust, loan agreement, note, lease or other material agreement or instrument
known to us to which the Company is a party or by which the Company or any of
its property is bound or subject, or any material statute or any judgment,
decree, order, rule or regulation of any court or other governmental or
regulatory authority known to us applicable to the Company;
(5) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or a Subsidiary is a
party or to which the property of the Company or a Subsidiary is subject and (B)
no contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(6) to the knowledge of such counsel, neither the Company nor
any Subsidiary is in default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice, lapse of time or both would constitute such a
default; and the statements in the Prospectus, insofar as those statements
constitute matters of United States Federal or New York State laws and
regulations or legal conclusions, or summaries of the contracts, agreement
instruments, leases or licenses referred to therein, constitute a fair summary
of those matters, legal conclusions, contracts, agreement instruments, leases or
licenses and include all material terms thereof, as applicable;
(7) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(8) the registration statement originally filed with respect to
the Securities and each amendment thereto and the Prospectus (in each case,
other than the financial statements and
25
<PAGE>
schedules and other financial and statistical information contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the rules and
regulations of the Commission thereunder;
(9) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company Act;
and
(10) the Company's appointment of Borden & Elliot as its agent to
receive service of process in any action against it in any federal or state
court sitting in the County of New York arising out of the transactions
contemplated by this Agreement, assuming the Company's due authorization
thereof, is binding upon and enforceable against the Company in accordance with
its terms.
(d) On each Option Closing Date, the Underwriters shall have received
the opinion, dated the Option Closing Date, of [insert name of counsel for the
Selling Shareholders] in its capacity as counsel for the Selling Shareholders,
to the effect set forth below:
(i) Each Selling Shareholder has full legal right power and
authority to enter into this Agreement and to sell, assign, transfer and deliver
in the manner provided herein the Option Shares sold by such Selling
Shareholder; this Agreement has been duly executed and delivered by such Selling
Shareholder; and this Agreement, assuming due authorization, execution and
delivery by each other party thereto and further assuming it is a valid and
binding agreement of each of the Underwriters, is a valid and binding agreement
of such Selling Shareholder, enforceable against such Selling Shareholder in
accordance with the terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors' rights generally and by general principles
of equity relating to the availability of remedies and except as rights to
indemnity and contribution may be limited by applicable securities laws and the
public policy underlying such laws);
(ii) None of the execution, delivery or performance of this
Agreement, the Power of Attorney and the Custody Agreement by such Selling
Shareholder and the consummation by such Selling Shareholder of the transactions
herein and therein contemplated, conflict with or result in a breach of, or
default under, any indenture, mortgage, deed of trust, voting trust agreement,
Shareholders agreement, note agreement or other agreement or other instrument
known to such counsel to which such Selling Shareholder is a party or by which
such Selling Shareholder is bound or to which any of the property of any of the
Selling Shareholders is subject, or the charter or by-laws of any of the Selling
Shareholders and nothing has come to such counsel's attention which causes such
counsel to believe that such actions will result in any violation of any law,
rule, administrative regulation or court decree applicable to such Selling
Shareholder (other than state or provincial securities or blue sky laws or
regulations, as to which such counsel need not express any opinion);
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<PAGE>
(iii) A Power of Attorney and the Custody Agreement have been
duly executed and delivered by each Selling Shareholder and, assuming the due
authorization, execution and delivery of the Custody Agreement by the other
parties thereto, each constitutes the valid and binding agreement of such
Selling Shareholder enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general principles of equity relating to the availability
of remedies and except rights to indemnity or contribution may be limited by
applicable securities laws and the public policy underlying such laws;
(iv) Upon the delivery of the Option Shares to be sold hereunder
by the Selling Shareholders and payment therefor in accordance with the terms of
this Agreement and assuming that each of the Underwriters which has severally
purchased such Option Shares acquires such Option Shares without notice of any
adverse claim (within the meaning of the Uniform Commercial Code) such
Underwriter will have acquired all of the rights of such Selling Shareholder to
the Option Shares sold by such Selling Shareholder hereunder, and in addition
will have acquired title to such Option Shares free and clear of any adverse
claim; and
(v) Under the laws of Canada or the Province of Ontario, the
submission by such Selling Shareholder to the jurisdiction of any United States
federal or state court sitting in the City of New York and the designation of
the law of the State of New York to apply to this Agreement is binding upon such
Selling Shareholder and, if properly brought to the attention of the court or
administrative body in accordance with the laws of Canada, or the Province of
Ontario, would be enforceable in any judicial or administrative proceeding in
Canada or the Province of Ontario.
Each such counsel also shall state in its opinion that it has
participated in the preparation of the Registration Statement and the Prospectus
and that nothing has come to its attention that has caused it to believe that
the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an 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 not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriter, in form and substance acceptable to
the Underwriter, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriter's reliance upon such opinion is justified.
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<PAGE>
References to the Registration Statement and the Prospectus in paragraph
(b), (c) and (d) of this Section shall include any amendment or supplement
thereto at the date of such opinion.
(e) The Underwriter shall have received from KPMG, a letter dated the
Firm Closing Date and dated each Option Closing Date (as defined below), if
applicable, in form and substance satisfactory to the Underwriter, to the effect
that (i) they are independent public accountants with respect to the Company
within the meaning of the Act and the applicable rules and regulations
thereunder; (ii) in their opinion, the consolidated financial statements audited
by them and included in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder; (iii) based
upon procedures set forth in detail in such letter, nothing has come to their
attention which causes them to believe that (A) the unaudited financial
statements as of March 31, 1997 included in the Registration Statement was not
determined on a basis substantially consistent with that used in determining the
corresponding amounts in the audited financial statements as of December 31,
1996 included in the Registration Statement or (B) at a specified date not more
than five days prior to the date of this Agreement, there has been any change in
the capital stock of the Company, any increase in the long-term debt or decrease
in net sales of the Company and its Subsidiaries, as compared with the amounts
shown in the March 31, 1997 balance sheet included in the Registration Statement
or as of the date of the most recent financial statements made available by the
Company there has been any change in the capital stock of the Company, any
increase in the long-term debt or any decrease in net sales, working capital or
net assets of the Company and its Subsidiaries as compared with the amounts
shown in the March 31, 1997 balance sheet included in the Registration Statement
or, during the period from April 1, 1997 through the date of the most recent
financial statement made available by the Company and its Subsidiaries, there
were any decreases, as compared with the corresponding period in the preceding
year, in revenues, or any increase in net loss of the Company, except in all
instances for changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur; and (iv) in addition to
the audit referred to in their opinion and the limited procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information (including the summary of consolidated financial
information and secured financial information) which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriter, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company identified in such letter. References to the Registration Statement
and the Prospectus in this paragraph (c) with respect to the letter referred to
above shall include any amendment or supplement thereto at the date of such
letter.
(f) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the
28
<PAGE>
statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Firm Closing Date.
(g) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company and the Subsidiaries, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(i) The Underwriter shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (f) through (h) above.
(j) The Common Stock and Warrants shall be qualified in such
jurisdictions as the Underwriter may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Firm Closing Date.
(k) The Company shall have executed and delivered to the Underwriter
the Underwriter's Warrant Agreement and a certificate or certificates evidencing
the Underwriter's Warrants, in each case in a form acceptable to the
Underwriter.
(l) The Underwriter shall have received Lock-up Agreements executed
by the persons listed on Schedule 2 annexed hereto.
(m) The Underwriter shall have received on each Closing Date a
certificate from each Selling Shareholder selling Shares, under this Agreement
on such Closing Date to the affect that, and the Underwriter shall be satisfied
that, the representations and warranties of such Selling Shareholder contained
in this Agreement are true and correct as if made on and as of such Closing
Date, and that such Selling Shareholder has complied with all agreements and
satisfied all conditions on its part to be complied with or satisfied at or
prior to such Closing Date.
(n) The Selling Shareholders shall have each delivered to the
Underwriter on or prior to the date hereof a fully executed Custody Agreement.
Each such Selling Shareholder shall also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
shares held by such persons, except in compliance with the Custody Agreement and
this Agreement.
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(o) On or before the Firm Closing Date, the Underwriter and counsel
for the Underwriter shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company, the Selling Shareholders, and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Underwriter and counsel for the Underwriter shall reasonably request.
The obligation of the Underwriter to purchase and pay for any Option
Securities shall be subject, in its discretion, to each of the foregoing
conditions to purchase the Firm Securities, except that all references to the
Firm Securities and the Firm Closing Date shall be deemed to refer to such
Option Securities and the related Option Closing Date, respectively.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each Selling Shareholder and each person, if any, who controls the
Underwriter or such Selling Shareholder within the meaning of section 15 of the
Act or section 20 of the 1934 Act against any losses, claims, damages, or
liabilities, joint or several, to which the Underwriter, such Selling
Shareholder or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged
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<PAGE>
untrue statement or omission or alleged omission made in such registration
statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Application in reliance upon and
in conformity with written information furnished to the Company by the
Underwriter or such Selling Shareholder, as the case may be, specifically for
use therein. This indemnity agreement will be in addition to any liability
which the Company may otherwise have. The Company will not, without the prior
written consent of the Underwriter, such Selling Shareholder or controlling
person, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Underwriter or any
person who controls the Underwriter or such Selling Shareholder within the
meaning of section 15 of the Act or section 20 of the 1934 Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Underwriter or such Selling
Shareholder and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless the Company, each director of the Company and each
officer of the Company who signed the Registration Statement, the Underwriter
and each person, if any, who controls the Company or the Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act against any
losses, claims, damages, liabilities, joint or several, to which the Company,
such director or officer of the Company, the Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding,
in each case to the extent, but only to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or the
Underwriter by the Selling Shareholder specifically for use therein. This
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indemnity agreement will be in addition to any liability which the Selling
Shareholder may otherwise have. The Selling Shareholder will not, without the
prior written consent of the Company and the Underwriter, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not the Company or the Underwriter or any person who
controls the Company or the Underwriter within the meaning of section 15 of the
Act or section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company, the Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
(c) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, each Selling Shareholder, and each person, if any, who controls the
Company or such Selling Shareholder within the meaning of section 15 of the Act
or section 20 of the Exchange Act against, any losses, claims, damages or
liabilities to which the Company or any such director, officer, Selling
Shareholder or controlling person may become subject under the Act or otherwise,
but only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer, such Selling Shareholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it
32
<PAGE>
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriter shall
not be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by the Underwriter
under this Agreement, less the aggregate amount of any damages that the
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of
33
<PAGE>
fraudulent misrepresentation (within the meaning of section 11 (f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each person,
if any, who controls an Underwriter within the meaning of section 15 of the Act
or section 20 of the 1934 Act shall have the same rights to contribution as the
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of section 15 of the Act or section 20 of the 1934
Act, shall have the same rights to contribution as the Company.
9. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Securities hereunder, or shall fail to take up
and pay for the number of Firm Securities set forth opposite names in Schedule 3
hereto upon tender of such Firm Securities in accordance with the terms hereof,
then:
(a) If the aggregate number of Firm Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriter shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Firm Securities, the remaining Underwriter shall have
the right to take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase. If such remaining Underwriter does
not, at the Firm Closing Date, take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase, the time for delivery of
the Firm Securities shall be extended to the next business day to allow the
remaining Underwriter the privilege of substituting within twenty-four hours
(including nonbusiness hours) another underwriter or underwriters satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Firm Securities may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the Company
the privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the Firm Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriter or substituted Underwriters to
take up the Firm Securities of the defaulting Underwriter as provided in this
section, (i) the Company or the underwriter shall have the right to postpone the
time of delivery for a period of not more than seven business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other document or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Firm Securities to be purchased by the remaining
Underwriters or substituted
34
<PAGE>
Underwriters shall be taken as the basis of the underwriting obligation for all
purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriter shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 3(c) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which it
became obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Underwriter by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied under Section 7 hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively:
35
<PAGE>
(1) the Company sustains a loss by reason of explosion, fire,
flood, accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants shall have been
suspended by the Commission, the NASD or on Nasdaq, or trading in securities
generally on the New York Stock Exchange shall have been suspended or minimum or
maximum prices shall have been established on either such exchange or quotation
system;
(4) a banking moratorium shall have been declared by Canadian,
New York or United States authorities;
(5) there shall have been (A) an outbreak of hostilities between
the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement;
(6) termination of this Agreement pursuant to this section 10
shall be without liability of any party to any other party, except as provided
in section 5(b) and section 8 hereof.
12. INFORMATION SUPPLIED BY THE UNDERWRITER. The statements set forth in
the first paragraph on page 2, in the first (as to the underwriting commitment
of each Underwriter) and second paragraphs under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriter) constitute the only information furnished by the
Underwriter to the Company for the purposes of section 8(b) hereof. The
Underwriter confirms that such statements (to such extent) are correct.
36
<PAGE>
13. NOTICES. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Attn: Carl Pahapill
Fax: (905) 858-1399
To the Underwriter: Network 1 Financial and Century City
Securities, Inc. Securities, Inc.
The Galleria, Penthouse 1900 Avenue of the Stars
2 Bridge Avenue Los Angeles, CA 90067
Red Bank, New Jersey 07701 Attn: Corporate Finances
Dept.
Attn: Corporate Finance Department Fax: 310-286-2373
Fax: (908) 758-6671
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
14. AMENDMENT. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
15. WAIVER. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
16. APPLICABLE LAW. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
17. JURISDICTION. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other
37
<PAGE>
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, waives any objection to venue in the County of New York,
State of New York, or such District and agrees that service of any summons,
complaint, notice or other process relating to such suit, action or other
proceeding may be effected in the manner provided by clause (ii) of Section 12.
18. REMEDIES. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
19. ATTORNEYS' FEES. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
20. SEVERABILITY. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
21. COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
22. SUCCESSORS. This agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
23. TITLES AND CAPTIONS. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
38
<PAGE>
24. GRAMMATICAL CONVENTIONS. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
25. REFERENCES. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
26. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
MED-EMERG INTERNATIONAL, INC.
By:
---------------------------------------
Name: Carl Pahapill
Title: President
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
NETWORK 1 FINANCIAL SECURITIES, INC.
By:
-------------------------------------------
Name:
Title:
CENTURY CITY SECURITIES, INC.
By:
-------------------------------------------
Name:
Title:
39
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
NUMBER OF OPTION SHARES TO BE PURCHASED BY
NETWORK 1 FINANCIAL CENTURY CITY TOTAL NUMBER OF
SELLING SHAREHOLDER SECURITIES, INC. SECURITIES, INC. OPTION SHARES
- ------------------- ------------------------ ---------------- -------------
<S> <C>
Hampton House Int'l 27,625
I. Boulos Bou Dib 20,000
Nadim Jebara 14,000
Jane Kingswood 12,000
W. David Wood 12,000
Glen Shelton 10,000
Husein El Dada 8,000
Robert Moskofian 8,000
Mark Wilder 6,000
Peter J. Tanous 5,000
Thomas Nassif 5,000
Issa Baconi 5,000
Ramzi Bishuti 4,000
Elizabeth Huntly-Harmen 4,000
Total
</TABLE>
<PAGE>
Schedule 2 - Lock-Up Agreements
NAME AND ADDRESS OF HOLDER TERM
[name]
<PAGE>
Schedule 3
NUMBER OF
UNDERWRITER NUMBER OF SHARES REDEEMABLE WARRANTS
- ----------- ---------------- -------------------
Network I Financial
Securities, Inc.
Century City
Securities, Inc.
---------------- -------------------
Total 1,250,000 1,250,000
42
<PAGE>
EXHIBIT 4.1
Draft of June 6, 1997
MED-EMERG INTERNATIONAL, INC.,
NETWORK 1 FINANCIAL SECURITIES, INC.
AND
CENTURY CITY SECURITIES, INC.
UNDERWRITER'S
WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of _____________, 1997 between
MED-EMERG INTERNATIONAL, INC. (the "Company"), NETWORK 1 FINANCIAL SECURITIES,
INC. and CENTURY CITY SECURITIES, INC. (Collectively, the "Underwriter").
PRELIMINARY STATEMENT
The Underwriter has agreed, pursuant to an underwriting agreement (the
"Underwriting Agreement") dated ______________, 1997, between the Underwriter
and the Company, to act as the underwriter in connection with the Company's
proposed initial public offering of 1,250,000 shares of the Company's common
stock, no par value (the "Common Stock"), and 1,250,000 Redeemable Common Stock
Purchase Warrants (the "Warrants"), at an initial public offering price of
$3.90 per share of Common Stock and $.10 per Warrant (the "Initial Public
Offering").
The Company proposes to issue to the Underwriter at the closing of the
Initial Public Offering as part of the Underwriter's compensation in connection
therewith, warrants (the "Underwriter's Warrants") to purchase an aggregate of
125,000 shares of Common Stock and/or 125,000 Warrants. The Warrants being
offered in the Initial Public Offering and the Warrants purchasable upon
exercise of the Underwriter's Warrants will be identical in all respects and
will be issued pursuant to, and governed by, the provisions of a Warrant
Agreement among the Company, the Underwriter and Continental Stock Transfer and
Trust Company, as Warrant Agent (the "Warrant Agreement").
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of Ten Dollars ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. GRANT. The Holders (as defined in Section 3 below) are hereby
granted the right to purchase, at any time from __________, 1998 until 5:00
p.m., New York City time, on _________, 2002 an aggregate of 125,000 shares of
Common Stock and/or 125,000 Warrants, at an initial purchase price of $4.68 per
share of Common Stock (subject to adjustment as provided in Section 6 hereof)
and $.12 per Warrant (120% of the Initial Public Offering price of the Common
Stock and Warrants, respectively), subject to the terms and conditions of this
Agreement.
2. WARRANT CERTIFICATES. The warrant certificates (the
"Underwriter's Warrant Certificates") to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. EXERCISE OF UNDERWRITER'S WARRANTS. The Underwriter's Warrants
are exercisable during the term set forth in Section 1 hereof and the Purchase
Price (as hereinafter defined) is payable by certified or cashier's check or
money order payable in lawful money of the United States. Upon surrender of an
Underwriter's Warrant Certificate with the annexed Form of Election to Purchase
duly executed, together with payment of the Purchase Price for the shares of
Common Stock or Warrants issuable upon exercise thereof (and such other amounts,
if any, arising pursuant to Section 4 hereof) at the Company's principal office
(presently located at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N
5R1 Canada), the registered holder of an Underwriter's Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock or Warrants so purchased. The
purchase rights represented by each Underwriter's Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or in part, as to the
whole number of shares of Common Stock or Warrants purchasable therewith (but
2
<PAGE>
not as to fractions thereof). In the case of the purchase of less than all the
shares of Common Stock or Warrants purchasable upon the exercise of the
Underwriter's Warrants represented by an Underwriter's Warrant Certificate, the
Company shall cancel the Underwriter's Warrant Certificate represented thereby
upon the surrender thereof and shall execute and deliver a new Underwriter's
Warrant Certificate of like tenor for the number of Underwriter's Warrants which
have not been exercised.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Underwriter's
Warrants and payment of the Purchase Price therefor, the issuance of
certificates representing the shares of Common Stock or Warrants issuable upon
exercise thereof shall be made forthwith (and in any event within five (5)
business days thereafter) without further charge to the Holder thereof, and such
certificates shall (subject to the provisions of Sections 5 hereof) be issued in
the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder, and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid. The Underwriter's Warrant
Certificates and the certificates representing the shares of Common Stock or
Warrants (and such other securities, property or rights as may be represented by
certificates) issuable upon exercise thereof shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors, Chief Executive Officer, President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile
3
<PAGE>
signature of the then Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. Underwriter's Warrant Certificates shall be dated the
date of issuance thereof by the Company upon initial issuance, transfer or
exchange, or in lieu of mutilated, lost, stolen or destroyed Underwriter's
Warrant Certificates.
5. RESTRICTION ON TRANSFER OF UNDERWRITER'S WARRANTS. The Holder of
an Underwriter's Warrant Certificate (and its Permitted Transferees, as defined
below), by its acceptance thereof, covenants and agrees that the Underwriter's
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Underwriter's Warrants may be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, to any
person (a "Permitted Transferee"), provided such transfer, assignment,
hypothecation or other disposition is made in accordance with the provisions of
the Securities Act of 1933, as amended (the "Act"); and provided, further, that
until ____________, 1998 [one year following the effective date of the Initial
Public Offering] only officers and partners of the Underwriter or any selling
group member in the Initial Public Offering, shall be Permitted Transferees.
6. PURCHASE PRICE. The initial purchase price of the Underwriter's
Warrants shall be $4.68 per share of Common Stock (the "Common Stock Purchase
Price") and $.12 per Warrant. The Common Stock Purchase Price shall be subject
to adjustment in accordance with the provisions of Section 9 of the Warrant
Agreement, which provisions are hereby incorporated by reference herein and made
a part hereof.
4
<PAGE>
7. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. (i) At any time commencing one (1) year and
expiring five (5) years after the effective date of the Company's Registration
Statement relating to the Initial Public Offering (the "Effective Date"), the
Holders of a majority (as hereinafter defined) of the shares of Common Stock
purchased and purchasable upon exercise of the Underwriter's Warrants and the
Warrants purchasable therewith shall have the right, exercisable by written
notice to the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), solely on one (1) occasion, a
registration statement on Form F-1 (or other appropriate form), and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Holders, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale for
a period of nine (9) months of the shares of Common Stock and Warrants purchased
or purchasable by such Holders and any other Holders of the Underwriter's
Warrants upon exercise of the Underwriter's Warrants and the Warrants
purchasable therewith (such shares of Common Stock and Warrants being
hereinafter referred to as the "Registrable Securities"). The Holders of the
Underwriter's Warrants may demand registration without exercising the
Underwriter's Warrants, and are never required to exercise same. The Company
covenants and agrees to give written notice of any registration request under
this Section 7(a) to all other registered Holders of the Underwriter's Warrants
and the Registrable Securities within ten (10) days from the date of the receipt
of any such registration request and upon the written request of any Holder
within fifteen (15) days after receipt of such notice to include in such
registration statement the Registrable Securities of such Holder. As used
herein, the term "Majority" in reference to the Holders of the Underwriter's
Warrants shall mean in excess of fifty
5
<PAGE>
percent (50%) of the shares of Common Stock issued or issuable upon exercise of
the Underwriter's Warrants and the Warrants purchasable therewith that (i) are
not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith, or (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
(b) PIGGYBACK REGISTRATION. If, at any time within the period
commencing one (1) year and expiring five (5) years after the Effective Date,
the Company should file a registration statement with the Commission under the
Securities Act (other than in connection with a merger or other business
combination transaction or pursuant to Form S-8) it will give written notice by
registered mail, at least thirty (30) calendar days prior to the filing of each
such registration statement, to the Underwriter and to all other Holders of the
Underwriter's Warrants and the shares of Common Stock and Warrants purchased or
purchasable upon exercise thereof of its intention to do so. If the Holders of
the Registrable Securities notify the Company within twenty (20) calendar days
after receipt of any such notice of its or their desire to include any
Registrable Securities in such proposed registration statement, the Company
shall afford the Holders of the Registrable Securities the opportunity to have
such Registrable Securities included in such registration statement, unless the
underwriter for each proposed objects to the inclusion of the Registrable
Securities in such registration statement. However, in such event, the Company
will, within six (6) months of completion of such underwritten offering, file at
the expense of the Company, a registration statement so as to permit a public
offering and sale of the Registrable Securities so excluded for a period of
nine (9) months, which shall be in addition to any registration statement
required to be filed pursuant to Section 7(a). Notwithstanding the provisions
of this Section 7(b) and the provisions of Section
6
<PAGE>
7(c), the Company shall have the right at any time after it shall have given
written notice pursuant to this Section 7(b) (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(c) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registrations under Sections 7(a) and 7(b) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within forty-five (45) calendar days of receipt of any
demand therefor pursuant to section 7(a); provided, however, that the Company
shall not be required to produce audited or unaudited financial statements for
any period prior to the date such financial statements are required to be filed
in a report on Form 20-F. The Company shall use its best efforts to have any
registration statement declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Registrable Securities such number of
prospectuses as shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees and expenses
of Holders' counsel and any underwriting discounts or selling fees, expenses or
commissions), fees and expenses in connection with any registration statement
filed pursuant to Sections 7(a) and 7(b) hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses. If the Company shall fail to comply with the provisions of Section
7(c), the Company shall, in addition to any other equitable or other relief
available to the Holders, be liable for any or all incidental and special
damages and damages due to loss of profit sustained by the Holders requesting
registration of their Registrable Securities.
7
<PAGE>
(3) The Company will take all necessary action which may be
required to qualify or register the Registrable Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holders, provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(4) The Company shall indemnify the Holders of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, arising
from such registration statement, but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriter contained in Section 8 of the Underwriting Agreement, and the
Holders shall indemnify the Company to the same extent and with the same effect
as the provisions pursuant to which the Underwriter has agreed to indemnify the
Company contained in Section 8 of the Underwriting Agreement.
(5) The Holders of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability to which they may become subject under the Securities Act, the
Exchange Act or otherwise, arising from information furnished by or on behalf of
such Holders, or their successors or assigns, for
8
<PAGE>
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 8 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(6) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Underwriter's Warrants (or the Warrants
purchasable upon exercise thereof) prior to the initial filing of any
registration statement or the effectiveness thereof.
(7) The Company shall not be entitled to include any securities
other than the Registrable Securities in any registration statement filed
pursuant to Section 7(a) hereof without the prior written consent of the Holders
of a Majority of the Registrable Securities.
(8) The Company shall furnish to a designated representative of
the Holders participating in the offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and if such registration relates to an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration relates to an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement (the
"Accountants"), in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of the accountants' "cold comfort" letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in "cold comfort" letters, with
respect to events subsequent to the date of such financial
9
<PAGE>
statements, as are customarily covered in opinions of issuer's counsel and in
"cold comfort" letters delivered to underwriters in underwritten public
offerings of securities.
(9) The Company shall as soon as practicable after the effective
date of the registration statement make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings statement
(which need not be audited) complying with Section 11(a) of the Securities Act
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(10) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
any managing underwriter copies of all correspondence between the Commission and
the Company, its counsel or Accountants with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and representatives of the Accountants, all to such reasonable
extent and at such reasonable times and as often as any such Holder shall
reasonably request.
(11) The Company shall enter into an underwriting agreement with
the managing underwriter selected for such underwriting by Holders holding a
Majority of the Registrable Securities requested to be included in such
underwriting; provided, however, that (i) such managing underwriter shall be
reasonably acceptable to the Company, except that in connection with an offering
for which the Holders have piggyback rights, the Company shall have the sole
right to select the
10
<PAGE>
managing underwriter, and (ii) the Holders shall be responsible for any selling
fees or commissions in connection with such underwriting. Such underwriting
agreement shall be satisfactory in form and substance to the Company, a Majority
of such Holders and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Registrable Securities and may, at their
option, require that any or all the representations, warranties and covenants of
the Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(d) FURTHER REGISTRATIONS. The Company will cooperate with the
Holders of the Registrable Securities in preparing and signing any registration
statement, in addition to the registration statements discussed above, required
in order to sell or transfer the Underwriter's Securities and will supply all
information required therefor, but such additional registration statement
expenses or offering statement expenses will be prorated between the Company and
the Holders of the Registrable Securities according to the aggregate sales price
of the securities being issued. The provisions of Section 7(c) shall apply to
any such registration statement.
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Underwriter's Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holders at the principal executive office of
the Company, for a new Underwriter's Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same
11
<PAGE>
number of shares of Common Stock and/or Warrants in such denominations as shall
be designated by the Holders thereof at the time of such surrender. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any Underwriter's Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Underwriter's
Warrant Certificates, if mutilated, the Company will make and deliver a new
Underwriter's Warrant Certificate of like tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Underwriter's Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests; provided, however, that
if a Holder exercises all Underwriter's Warrants held of record by such Holder,
the fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock.
10. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Underwriter's
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of Underwriter's Warrants and payment of the
Purchase Price therefor, all the shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that as long as
12
<PAGE>
the Underwriter's Warrants shall be outstanding, the Company shall use its best
efforts to cause the Common Stock and Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Common Stock and
the Warrants issued in the Initial Public Offering may then be listed or
quoted.
11. NOTICES TO UNDERWRITER'S WARRANT HOLDERS. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Underwriter's Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
13
<PAGE>
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
12. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holders of the Underwriter's Warrants,
to the address of such Holders as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
13. SUPPLEMENTS AND AMENDMENTS. The Company and the Underwriter may
from time to time supplement or amend this Agreement without the approval of any
Holders of Underwriter's Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
14
<PAGE>
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Underwriter's Warrant Certificates.
14. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Underwriter,
the Holders and their respective successors and assigns hereunder.
15. TERMINATION. This Agreement shall terminate at the close of
business on _____________, 2002. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on the expiration of any applicable statute of limitations.
16. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Agreement and
each Underwriter's Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said state without giving effect to
the rules of said state governing the conflicts of laws. The Company, the
Underwriter and the Holders hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
12
15
<PAGE>
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
17. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. Subject to Section 13, this Agreement may not
be modified or amended except by a writing duly signed by the Company and the
Holders of a Majority of the Registrable Securities.
18. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
19. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
20. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holders of the Underwriter's Warrant
Certificates or Registrable Securities any legal or equitable right, remedy or
claim under this Agreement, and this Agreement shall be for the sole and
exclusive benefit of the Company and the Underwriter and any other Holders of
the Underwriter's Warrant Certificates or Registrable Securities.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
16
<PAGE>
22. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, the Underwriter and their respective successors and
assigns and the Holders from time to time of the Underwriter's Warrant
Certificates.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
MED-EMERG INTERNATIONAL, INC.
By:
--------------------------------------
Carl Pahapill, President
NETWORK 1 FINANCIAL SECURITIES, INC.
By:
--------------------------------------
Name:
Title:
CENTURY CITY SECURITIES, INC.
By:
--------------------------------------
Name:
Title:
18
<PAGE>
EXHIBIT A
MED-EMERG INTERNATIONAL, INC.
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING______________, 1998 THROUGH
5:00 P.M., NEW YORK CITY TIME ON_____________, 2002
No. UW-1 125,000 Warrants
This Warrant Certificate certifies that _____________, or registered
assigns, is the registered holder of 125,000 Warrants to purchase initially, at
any time from _____________, 1998 until 5:00 p.m., New York City time on
________________ (the "Expiration Date"), 125,000 fully paid and non-assessable
shares of Common Stock, no par value (the "Common Stock"), of Med-Emerg
International, Inc., a corporation organized under the laws of the Province of
Ontario, Canada (the "Company") at a purchase price of $4.68 per share (the
"Common Stock Purchase Price"), and/or 125,000 Redeemable Common Stock Purchase
Warrants ("Warrants") of the Company at the purchase price of $.12 per Warrant
(the "Warrant Purchase Price"), upon the surrender of this Warrant Certificate
and payment of the applicable Purchase Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______________, 1997 (the "Warrant Agreement") between
the Company, Network 1 Financial Securities, Inc. and Century City Securities,
Inc. (collectively, the "Underwriter"). Payment of the applicable Purchase Price
shall be made by certified or cashier's check or money order payable to the
order of the Company.
No Warrant may be exercised after 5:00 p.m., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
A-1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement between
the Company and the Underwriter, which Warrant Agreement is hereby incorporated
by reference in and made a part of this instrument and is hereby referred to for
a description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the respective Purchase Prices and the type and/or number of the Company's
securities issuable upon the exercise of this Warrant, may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Purchase Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange as provided herein,
without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate this
____ day of _____________________, 1997.
MED-EMERG INTERNATIONAL, INC.
By:
--------------------------
Carl Pahapill, President
ATTEST:
By:
----------------------------
Secretary
A-3
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint his or its attorney-in-fact
to transfer the within Warrant Certificate on the books of Med-Emerg
International, Inc., with full power of substitution.
Dated:
Signature
-----------------------------
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
-------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right represented by
this Warrant Certificate to purchase:
___________shares of Common Stock
___________Redeemable Common Stock Warrants
and herewith tenders in payment for such securities a certified or cashier's
check or money order payable to the order of Med-Emerg International, Inc. in
the amount of $ , all in accordance with the terms hereof.
The undersigned requests that certificates for such securities be registered in
the name of whose address is and that such certificates be delivered to ________
________________________________________________________________________________
whose address is________________________________________________________.
Dated:
------------------
Signature
-------------------------
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
AMONG
MED-EMERG INTERNATIONAL, INC.,
NETWORK 1 FINANCIAL SECURITIES, INC.,
CENTURY CITY SECURITIES, INC.
and
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. APPOINTMENT OF WARRANT AGENT..............................................1
2. FORM OF WARRANT...........................................................2
3. COUNTERSIGNATURE AND REGISTRATION.........................................3
4. TRANSFERS AND EXCHANGES...................................................4
5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE.................5
6. PAYMENT OF TAXES..........................................................9
7. MUTILATED OR MISSING WARRANTS.............................................9
8. RESERVATION OF COMMON STOCK..............................................10
9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SECURITIES....................11
10. FRACTIONAL INTERESTS.....................................................22
11. NOTICES TO WARRANTHOLDERS................................................22
12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS..........................24
13. REDEMPTION OF WARRANTS...................................................24
14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
WARRANT AGENT............................................................25
15. DUTIES OF WARRANT AGENT..................................................26
16. CHANGE OF WARRANT AGENT..................................................29
17. IDENTITY OF TRANSFER AGENT...............................................30
18. NOTICES..................................................................30
19. SUPPLEMENTS AND AMENDMENTS...............................................31
20. NEW YORK CONTRACT........................................................32
21. BENEFITS OF THIS AGREEMENT...............................................32
22. SUCCESSORS...............................................................32
i
<PAGE>
WARRANT AGREEMENT, dated as of __________ ___, 1997, among Med-Emerg
International, Inc., a corporation organized under the laws of the Province of
Ontario, Canada (the "Company"), Network 1 Financial Securities, Inc. and
Century City Securities, Inc. (together, the "Underwriter") and Continental
Stock Transfer and Trust Company, as warrant agent (the "Warrant Agent").
The Company proposes to issue and sell through an initial public offering
(the "IPO") underwritten by the Underwriter, an aggregate of 1,250,000 shares of
common stock, without par value (the "Common Stock"), and 1,250,000 redeemable
Common Stock purchase warrants ("Warrants") and, pursuant to the Underwriter's
over-allotment option (the "Over-allotment Option"), an additional 187,500
shares of Common Stock and 187,500 Warrants.
In connection with the IPO the Company proposes to sell to the Underwriter
warrants (the "Underwriter's Warrants") to purchase 125,000 shares of Common
Stock and 125,000 Warrants.
Each Warrant will entitle the holder to purchase one share of Common Stock.
The Company desires the Warrant Agent to act on behalf of the Company, and
the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants.
THEREFORE, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Upon the execution of this Agreement, certificates representing 1,250,000
Warrants to purchase an aggregate of 1,250,000 shares of Common Stock (subject
to modification and adjustment
<PAGE>
as provided in Section 9 hereof) shall be executed by the Company and delivered
to the Warrant Agent.
Upon the exercise of the Over-allotment Option, certificates representing
up to 187,500 Warrants to purchase an aggregate of 187,500 shares of Common
Stock (subject to adjustment as provided in Section 9 hereof) shall be executed
by the Company and delivered to the Warrant Agent.
Upon exercise of the Underwriters' Warrant as provided therein,
certificates representing 125,000 Warrants to purchase an aggregate of 125,000
shares of Common Stock (subject to adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
SECTION 2. FORM OF WARRANT. The text of the Warrants and the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in EXHIBIT A attached hereto (the provisions of which
are hereby incorporated herein). All of the certificates for the Warrants may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. Each Warrant shall initially entitle the registered holder thereof to
purchase one share of Common Stock at a purchase price of five dollars ($5.00)
(as adjusted as hereinafter provided, the "Warrant Price"), at any time during
the period (the "Exercise Period") commencing on __________ __ 1998 [the first
anniversary of the date of the Company's prospectus (the "Prospectus") pursuant
to which the Warrants are being sold in the IPO] and expiring at
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5:00 p.m. New York City time, on __________ __, 2002 [the fifth anniversary of
the date of the Prospectus]. The Warrant Price and the number of shares of
Common Stock issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events, all as hereinafter provided. The
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board or Vice Chairman,
Chief Executive Officer, President or Vice President of the Company, and
attested to by the manual or facsimile signature of the present or any future
Secretary, Treasurer or Assistant Secretary or Assistant Treasurer of the
Company.
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a day
that is not a business day, then the Warrants shall expire at 5:00 p.m. New York
City time on the next succeeding business day. For purposes hereof, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
SECTION 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the
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Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
SECTION 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall transfer,
from time to time, any outstanding Warrants upon the books to be maintained by
the Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock. No certificates for
Warrants shall be issued except for (i) Warrants initially issued hereunder in
accordance with Section 1 hereof, (ii) Warrants issued upon any transfer or
exchange of Warrants, (iii) Warrants issued in replacement of lost, stolen,
destroyed or mutilated certificates for Warrants pursuant to Section 7 hereof,
and (iv) at the option of the Board of Directors of the Company, Warrants in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Warrant Price or the number of shares of Common
Stock purchasable upon exercise of the Warrants made pursuant to Section 9
hereof.
SECTION 5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and
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<PAGE>
purchase the number of fully paid and non-assessable shares of Common Stock
specified in such Warrants upon presentation and surrender of such Warrants to
the Company at the corporate office of the Warrant Agent, with the exercise form
on the reverse thereof duly executed, and upon payment to the Company of the
Warrant Price, determined in accordance with the provisions of Sections 2, 9 and
10 of this Agreement, for the number of shares of Common Stock in respect of
which such Warrants are then exercised. Payment of such Warrant Price shall be
made in cash or by certified or bank check payable to the Company. Subject to
Section 6 hereof, upon such surrender of Warrants and payment of the Warrant
Price, the Warrant Agent on behalf of the Company shall cause to be issued and
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of such Warrants. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such shares of Common Stock immediately prior to the close of business
on the date of the surrender of such Warrants and payment of the Warrant Price
as aforesaid. The rights of purchase represented by the Warrants shall be
exercisable during the Exercise Period, at the election of the registered
holders thereof, either as an entirety or from time to time for a portion of the
shares specified therein and, in the event that any Warrant is exercised in
respect of less than all of the shares of Common Stock specified therein at any
time prior to the date of expiration of the Warrants, a new Warrant or Warrants
will be issued to the registered holder for the remaining number of shares of
Common Stock specified in the Warrant so surrendered, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrants pursuant to the provisions of this Section and
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<PAGE>
of Section 3 of this Agreement and the Company, whenever requested by the
Warrant Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose. Upon the exercise of any one or more
Warrants, the Warrant Agent shall promptly notify the Company in writing of such
fact and of the number of securities delivered upon such exercise and, subject
to the provisions below, shall cause all payments of an amount, in cash or by
check made payable to the order of the Company, equal to the aggregate Warrant
Price for such Warrants, less any amounts payable to the Underwriter, as
provided below, to be deposited promptly in the Company's bank account. The
Company and Warrant Agent shall determine, in their sole and absolute
discretion, whether a Warrant certificate has been properly completed for
exercise by the registered holder thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant will
be exercisable and the Company shall not be obligated to deliver any securities
pursuant to the exercise of any warrant unless at the time of exercise the
Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of such Warrant and such registration
statement shall have been declared and shall remain effective and shall be
current, and such shares have been registered or qualified or be exempt under
the securities laws of the state or other jurisdiction of residence of the
holder of such Warrant and the exercise of such Warrant in any such state or
other jurisdiction shall not otherwise be unlawful. During the Exercise Period,
the Company shall use its best efforts to have a current registration statement
on file with the Securities and Exchange Commission covering the issuance of
Common Stock underlying the Warrants so as to permit the Company to deliver to
each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a) (3) of the Act
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<PAGE>
and otherwise complying therewith, and will deliver such prospectus to each such
person. During the Exercise Period, the Company shall also use its best efforts
to effect appropriate qualifications of the Common Stock underlying the Warrants
under the laws and regulations of the states and other jurisdictions in which
the Common Stock and Warrants are sold by the Underwriters in the IPO in order
to comply with applicable laws in connection with the exercise of the Warrants.
(a) If at the time of exercise of any Warrant (i) the market price of the
Common Stock is not less than the then exercise price of the Warrant, (ii) the
exercise of the Warrant is solicited by the Underwriter at such time as it is a
member of the National Association of Securities Dealers, Inc. ("NASD") and the
Underwriter is designated in writing by the holder of the Warrants as the NASD
member soliciting the exercise, (iii) the Warrant is not held in a discretionary
account, (iv) disclosure of the compensation arrangement is made in documents
provided to the holders of the Warrants, and (v) the solicitation of the
exercise of the Warrant is not in violation of Rule 101 of Regulation M (as such
rule or any successor rule may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, as amended, then the
Underwriter shall be entitled to receive from the Company following exercise of
each of the Warrants so exercised a fee of five percent (5%) of the aggregate
exercise price of the Warrants so exercised (the "Exercise Fee") The procedures
for payment of the Exercise Fee are set forth in Section 5(b) below.
(b) (i) Within five (5) days after the last day of each month commencing
with __________ ___, 1998, the Warrant Agent will notify the Underwriter of each
Warrant certificate which has been properly completed for exercise by holders of
Warrants during the last month. The Warrant Agent will provide the Underwriter
with such information, in connection with the exercise of each Warrant, as the
Underwriter shall reasonably request.
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<PAGE>
(ii) The Company hereby authorizes and instructs the Warrant
Agent to deliver to the Underwriter the Exercise Fee, if payable, in respect of
each exercise of Warrants, promptly after receipt by the Warrant Agent from the
Company of a check payable to the order of the Underwriter in the amount of such
Exercise Fee. In the event that an Exercise Fee is paid to the Underwriter with
respect to a Warrant which the Company or the Warrant Agent determines is not
properly completed for exercise or in respect of which the Underwriter is not
entitled to an Exercise Fee, the Underwriter will return such Exercise Fee to
the Warrant Agent which shall forthwith return such fee to the Company.
The Underwriter and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5 (a)
and 5 (b) may not be modified, amended or deleted without the prior written
consent of the Underwriter.
SECTION 6. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid or that no such tax is required to be paid.
8
<PAGE>
SECTION 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity or bond, if requested, also satisfactory to them. Applicants
for such substitute Warrants shall also comply with such other reasonable
regulations and pay such reasonable charges as the Company or the Warrant Agent
may prescribe.
SECTION 8. RESERVATION OF COMMON STOCK. There have been reserved, and the
Company shall at all times keep reserved, out of its authorized shares of Common
Stock, a number of shares of Common Stock sufficient to provide for the exercise
of the rights of purchase represented by the Warrants, and the transfer agent
for the shares of Common Stock and every subsequent transfer agent for any
shares of Common Stock issuable upon the exercise of any of the aforesaid rights
of purchase are irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock as shall be required for such
purpose. The Company agrees that all shares of Common Stock issued upon
exercise of the Warrants shall be, at the time of delivery of the certificates
for such shares against payment of the Warrant Price therefor, validly issued,
fully paid and nonassessable and listed on any national securities exchange or
included in any interdealer automated quotation system upon or in which the
other shares of outstanding Common Stock are then listed or included. The
Company will keep a copy of this Agreement on file with the transfer agent for
the shares of Common Stock (which may be the Warrant Agent) and with every
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<PAGE>
subsequent transfer agent for any shares of Common Stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Warrant
Agent is irrevocably authorized to requisition from time to time from such
transfer agent stock certificates required to honor outstanding Warrants. The
Company will supply such transfer agent with duly executed stock certificates
for that purpose. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled by the Warrant Agent and shall thereafter
be delivered to the Company, and such cancelled Warrants shall constitute
sufficient evidence of the number of shares of Common Stock which have been
issued upon the exercise of such Warrants. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding, and thereafter no shares of
Common Stock shall be subject to reservation in respect of such Warrants which
shall have expired.
SECTION 9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SECURITIES.
(a) COMPUTATION OF ADJUSTED PRICE. Except as hereinafter provided,
in case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the IPO (the "Closing Date"), issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 9 (f)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Section 9(h) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock (i) for
a consideration per share less than the lesser of (A) the "Market Price" (as
defined in Section 9(a)(vi)
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<PAGE>
hereof) per share of Common Stock on the trading day immediately preceding such
issuance or sale and (B) the Warrant Price in effect immediately prior to such
issuance or sale, or (ii) without consideration, then forthwith upon such
issuance or sale, the Warrant Price shall (until another such issuance or sale)
be reduced to the price (calculated to the nearest full cent) determined by
multiplying the Warrant Price in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the Warrant Price immediately prior to such issuance or sale plus
(2) the consideration received by the Company upon such issuance or sale, and
the denominator of which shall be the product of (x) the total number of shares
of Common Stock outstanding immediately after such issuance or sale, multiplied
by (y) the Warrant Price immediately prior to such issuance or sale; provided,
however, that in no event shall the Warrant Price be adjusted pursuant to this
computation to an amount in excess of the Warrant Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 9(c) hereof.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in
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<PAGE>
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 9(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of options, warrants or rights and upon the conversion or exchange of
convertible or exchangeable securities.
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<PAGE>
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported by the Nasdaq Stock Market, Inc. ("Nasdaq")
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market, but is quoted on
The Nasdaq SmallCap Market or the NASD's Electronic Bulletin Board, the closing
bid quotation as reported by Nasdaq or the National Quotation Bureau
Incorporated or a similar organization, or if the Common Stock is not quoted on
Nasdaq or the Electronic Bulletin Board, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day of such issuance or sale and the day immediately after such
issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the Nasdaq National Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the Nasdaq National Market; provided that if the Common Stock
is listed or admitted to trading on the New York Stock Exchange, the Market
Price shall be determined as hereinabove provided by reference to the prices
reported by such exchange.
(b) OPTIONS, RIGHTS, WARRANTS AND CONVERTIBLE AND EXCHANGEABLE SECURITIES.
Except in the case of the Company issuing rights to subscribe for shares of
Common Stock distributed pursuant to Section 9(h) hereof, if the Company shall
at any time after the Closing Date issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, in each case other than the
issuances or sales referred
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<PAGE>
to in section 9 (f) hereof, (i) for a consideration per share less than the
lesser of (a) the Warrant Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, and (b) the Market Price on the trading day immediately preceding
such issuance, or (ii) without consideration, the Warrant Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 9(a) hereof; provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of Section 9(a)), if any, received by the Company for the options, rights
or warrants, and if no minimum purchase price is provided in the options, rights
or warrants, then the minimum purchase price shall be equal to zero; provided,
however, that upon the expiration or other termination of the options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subsection (b)
(and for the purposes of subsection (v) of Section 9(a) hereof) shall be reduced
by such number of shares as to which options, warrants or rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Warrant Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the
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<PAGE>
issuance only of shares actually issued or issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not have
expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities shall
be deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration (determined in
the same manner as consideration received on the issue or sale of shares of
Common Stock in accordance with the terms of Section 9 (a)) received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof; provided, however, that
upon the expiration or other termination of the right to convert or exchange
such convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares deemed to be issued and outstanding pursuant to
this subsection (ii) (and for the purpose of subsection (v) of Section 9(a)
hereof) shall be reduced by such number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding, and the Warrant
Price then in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the issuance
only of the shares actually issued or issuable upon the conversion or exchange
of those convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminated unexercised. No adjustment
will be made pursuant to this subsection (ii) upon the issuance by the Company
of any convertible or exchangeable securities pursuant to the exercise of any
option, right or warrant exercisable therefor, to the extent that adjustments in
respect of such options, rights or warrants were previously made pursuant to the
provisions of subsection (i) of this subsection 9 (b) .
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(iii) If any change shall occur in the price per share provided for
in any of the options, rights or warrants referred to in subsection (i) of this
Section 9 (b), or in the price per share at which the securities referred to in
subsection (ii) of this Section 9(b) are convertible or exchangeable, or if any
such options, rights or warrants are exercised at a price greater than the
minimum purchase price provided for in such options, rights or warrants, or any
such securities are converted or exercised for more than the minimum
consideration receivable by the Company upon such conversion or exchange, the
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities; provided, however,
that no adjustment shall be made pursuant to this subsection (iii) with respect
to any change in the price per share provided for in any of the options, rights
or warrants referred to in subsection (b) (i) of this Section 9 (b), or in the
price per share at which the securities referred to in subsection (b) (ii) of
this Section 9(b) are convertible or exchangeable, which change results from the
application of the anti-dilution provisions thereof in connection with an event
for which, subject to subsection (iv) of this Section 9(f), an adjustment to the
Warrant Price and the number of securities issuable upon exercise of the
Warrants will be required to be made pursuant to this Section 9.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at any time
after the Closing Date subdivide or combine the outstanding shares of Common
Stock, the Warrant Price shall
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forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the Warrant
Price pursuant to the provisions of this Section 9, the number of shares of
Common Stock issuable upon the exercise of the Warrants shall be adjusted to the
nearest full whole number by multiplying a number equal to the Warrant Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Price.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Warrant Price in effect immediately prior to the record
date for such
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reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised the Warrant.
(f) NO ADJUSTMENT OF WARRANT PRICE IN CERTAIN CASES. Notwithstanding
anything herein to the contrary, no adjustment of the Warrant Price shall be
made:
(i) Upon the issuance or sale of the Underwriters' Warrant, the
shares of Common Stock or Warrants issuable upon the exercise of the
Underwriters' Warrant or the shares of Common Stock issuable upon exercise of
the Warrants underlying the Underwriters' Warrant; or
(ii) Upon the issuance or sale of (A) the shares of Common Stock or
Warrants issued by the Company in the IPO (including pursuant to the
Over-allotment Option) or other shares of Common Stock or warrants issued by the
Company upon consummation of the IPO or, (B) the shares of Common Stock (or
other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the Company's stock
option plan in effect on the date hereof or as hereafter amended in accordance
with the terms thereof or any other employee or executive stock option plan
approved by stockholders of the Company or the sale by the Company of any shares
of Common Stock pursuant to the exercise of any such options, (ii) the sale by
the Company of any shares of Common Stock pursuant to the exercise of any
options or warrants issued and outstanding on the date of closing of the sale of
Common Stock and Warrants pursuant to the IPO; or
(iv) If the amount of said adjustment shall be less than five cents
(5CENTS) per share of Common Stock.
(g) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time after the Closing
Date and prior to the exercise or
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<PAGE>
expiration of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to the holders of
Common Stock any monies, assets, property, rights, evidences of indebtedness,
securities (other than such a cash dividend or distribution or dividend
consisting solely of shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same monies, property, assets,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution as if the Holders were the owners of the shares of Common Stock
underlying such Warrants. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 9(g).
(h) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER SECURITIES. In
case the Company or an affiliate of the Company shall at anytime after the date
hereof and prior to the exercise of all the Warrants issue any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all the holders of Common Stock, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights at the time such rights are distributed to the other
stockholders of the Company but only to the extent of the number of shares of
Common Stock, if any, for which the Warrants remain exercisable.
(i) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Warrants shall
terminate on a date fixed by the
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<PAGE>
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to each registered holder of the Warrants, as the
same shall appear on the books of the Company maintained by the Warrant Agent,
by registered mail at least thirty (30) days prior to such termination date.
(j) COMPUTATIONS. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 9, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 9.
SECTION 10. FRACTIONAL INTERESTS. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the Market Price on the last
trading day prior to the exercise date.
SECTION 11. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
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<PAGE>
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company shall also mail such notice to the holders of the Warrants at their
respective addresses appearing in the Warrant register. Failure to give or mail
such notice, or any defect therein, shall not affect the validity of the
adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock upon its Common
Stock or make any distribution (other than regular cash dividends) to the
holders of Common Stock; or
(ii) the Company shall offer for subscription pro rata to all of the
holders of Common Stock any additional shares of stock of any class or other
rights; or
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice to the Warrant Agent and the holders of
the Warrants in the manner set forth in Section 11(a) of the date on which (A) a
record shall be taken for such dividend, distribution or subscription rights, or
(B) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution,
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<PAGE>
liquidation or winding-up, as the case may be. Such notice shall be given at
least ten (10) days prior to the action in question and not less than ten (10)
days prior to the record date in respect thereof. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents that are sent to its stockholders
to be sent by an identical class of mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
SECTION 12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall promptly forward to the Company all
monies received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of these Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
SECTION 13. REDEMPTION OF WARRANTS. The Warrants are redeemable by the
Company commencing on the second anniversary of the date of the Prospectus (or
earlier with the consent of the Underwriter), in whole or in part, on not less
than thirty (30) days' prior written notice at a redemption price of $.10 per
Warrant, provided the closing bid quotation of the Common Stock as reported on
The Nasdaq SmallCap Market, if traded thereon, or if not traded thereon, the
closing sale price if listed on a national securities exchange or the Nasdaq
National Market (or other reporting system that provides last sale prices), has
been at least $8.00 per share for a period of 20 consecutive
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<PAGE>
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. Any redemption in part shall be made pro rata to
all Warrant holders. The redemption notice shall be mailed to the holders of
the Warrants at their respective addresses appearing in the Warrant register.
Any such notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given in accordance with this Agreement whether or
not the registered holder receives such notice. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a registered holder of a
Warrant (i) to whom notice was not mailed or (ii) whose notice was defective.
An affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. Holders of the
Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption.
SECTION 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
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<PAGE>
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in this Agreement.
SECTION 15. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in
the Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in reliance
on any notice, resolution, waiver,
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<PAGE>
consent, order, certificate or other instrument believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expenses unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and indemnity
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding. Any such action, suit
or proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrants, as their respective rights and interests
may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company
25
<PAGE>
or become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, and the Warrant Agent shall not
be answerable or accountable for any such attorneys, agents or employees or for
any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
SECTION 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by mailing such notice to
the holders at their respective addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect.
The Warrant Agent may be removed by like notice to the Warrant Agent
26
<PAGE>
from the Company and the like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or shall otherwise become
incapable of action, the Company shall appoint a successor to the Warrant Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent or
after the Company has received such notice from a registered holder of a Warrant
(who shall, with such notice, submit his Warrant for inspection by the Company),
then the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under New York
or federal law. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants, records and property at the time held by it hereunder, and
execute and deliver any further assurance or conveyance necessary for this
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
SECTION 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of
any transfer agent (other than Continental Stock Transfer and Trust Company) for
the shares of Common Stock or of any subsequent transfer agent for the shares of
Common Stock, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
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<PAGE>
SECTION 18. NOTICES. Any notice pursuant to this Agreement to be given by
the Warrant Agent or the registered holder of any Warrant to the Company, shall
be sufficiently given if sent by first-class mail, postage prepaid, addressed
(until another is filed in writing by the Company with the Warrant Agent) as
follows:
Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Messissauga, Ontario L5N 5R1
Canada
Attention: Carl Pahapill
and a copy thereof to:
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Any notice pursuant to this Agreement to be given by the Company or the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10005
Attention: Steve Nelson
Any notice pursuant to this Agreement to be given by the Warrant Agent or
the Company to the Underwriter shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Warrant Agent) as follows:
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<PAGE>
Network 1 Financial Securities, Inc. and Century City Securities, Inc.
The Galleria, Penthouse ADDRESS
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Virginia Sourlis, Esq.
and a copy thereof to:
Snow Becker Krauss, P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Jack Becker, Esq.
SECTION 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
materially adversely affect the interest of the holders of Warrants; and in
addition the Company and the Warrant Agent may modify, supplement or alter this
Agreement with the consent in writing of the registered holders of the Warrants
representing not less than a majority of the Warrants then outstanding.
SECTION 20. NEW YORK CONTRACT. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
SECTION 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the
29
<PAGE>
registered holders of the Warrants any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the registered holders of the
Warrants.
SECTION 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.MED-EMERG INTERNATIONAL, INC.
By: ________________________________
Name: Carl Pahapill
Title: President
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: ________________________________
Name:
Title:
NETWORK 1 FINANCIAL SECURITIES, INC.
By: ________________________________
Name:
Title:
CENTURY CITY SECURITIES, INC.
By: ________________________________
Name:
Title:
30
<PAGE>
No. W_______________________ VOID AFTER_____________, 2002
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
MED-EMERG INTERNATIONAL., INC..
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, no par value
(the "Common Stock"), of Med-Emerg International, Inc. a corporation organized
under the laws of the Province of Ontario, Canada (the "Company"), at any time
from _________ __, 1998 (the "Initial Warrant Exercise Date") , and prior to
the Expiration Date (as hereinafter defined) upon the presentation and surrender
of this Warrant Certificate with the Exercise Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
2 Broadway, New York 10005, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.00, subject to adjustment (the "Exercise
Price"), in lawful money of the United States of America in cash or by certified
or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of ___________ ___, 1997 (the "Warrant
Agreement"), among the Company, Network 1 Financial Securities, Inc. and Century
City Securities, Inc. (together, the "Underwriter") and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute
<PAGE>
and deliver a new Warrant Certificate or Warrant Certificates of like tenor,
which the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time)
on_________ ___, 2002 [the date which is the fifth anniversary of the Initial
Warrant Exercise Date]; provided, that if such date is not a business day, it
shall mean 5:00 p.m., New York City time, on the next following business day.
For purposes hereof, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in New York City, New
York, are authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of the Warrants represented hereby and such
registration statement has been declared and shall remain effective and shall be
current, and such securities have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
such state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing __________ ___, 1998 [the second anniversary of
the date of the Prospectus] (or earlier with the consent of the Underwriter),
provided that the closing bid quotation of the Common Stock as reported on The
Nasdaq SmallCap Market, if traded thereon, or if not traded thereon, the closing
sale price if listed on a national exchange or the Nasdaq National Market (or
other reporting system that provides last sale prices), shall have for a period
of 20 consecutive trading days ending three days prior to the date on which the
Company gives the Notice of Redemption (as defined below) exceeded $8.00 per
share. Notice of redemption (the "Notice of Redemption") shall be given by the
Company
2
<PAGE>
no less than thirty days before the date fixed for redemption, all as provided
in the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no right with respect to this Warrant except to
receive the $0.10 per Warrant upon surrender of this Certificate.
Under certain circumstances described in the Warrant Agreement, the
Underwriter shall be entitled to receive as a solicitation fee an aggregate of
five percent (5%) of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated __________ ___, 1997
SEAL MED-EMERG INTERNATIONAL, INC.
By: ____________________________________
Carl Pahapill, President
By: ____________________________________
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By: __________________________________________________
Authorized Officer
3
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
(please print or type name and address)
and be delivered to
__________________________
__________________________
__________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Network 1 Financial
Securities, Inc.[] or Century City Securities, Inc.,[] please check
the appropriate box.
2. The exercise of this Warrant was solicited by
_______________________________________________________________
4
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. / /
Dated: _____________________________ X__________________________________
__________________________________
__________________________________
Address
___________________________________
Social Security or Taxpayer
Identification Number
___________________________________
Signature Guaranteed
5
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
______________________________________ as its/his/her attorney-in-fact to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ______________________ x_______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
6
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
MEMORANDUM OF AGREEMENT made the day of May, 1997.
B E T W E E N:
MED-EMERG INTERNATIONAL INC., a corporation incorporated
under the BUSINESS CORPORATIONS ACT (Ontario)
(hereinafter referred to as the "Corporation")
OF THE FIRST PART
- and -
RAMESH ZACHARIAS of the Municipality of Metropolitan Toronto
(hereinafter referred to as the "Executive")
OF THE SECOND PART
WHEREAS the Corporation desires to employ the Executive as its Chief
Executive Officer and whereas the Executive is willing to accept such
employment, all on the terms and conditions and for the remuneration as
hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
covenants, agreements and payments herein set out and provided for, the parties
hereto hereby respectively covenant and agree as follows:
1. EFFECTIVE DATE
Employment of the Executive hereunder and this agreement shall take effect
on the closing of the initial public offering of the Corporation's common shares
(the "Commencement Date").
<PAGE>
-2-
2. TITLE
The Corporation will employ the Executive and the Executive will serve the
Corporation as Chief Executive Officer.
3. DURATION OF AGREEMENT
This agreement shall continue until the end of the month in which the third
anniversary of the Commencement Date occurs and shall continue thereafter from
month to month, unless terminated earlier (a) upon 180 days' notice by either
the Corporation or the Executive at any time after the end of the 30th clear
month after the Commencement Date or (b) in accordance with paragraph 11.
4. DUTIES
Schedule "A" sets out the purpose of the position of Chief Executive
Officer, his duties and responsibilities, his authority, his requirement to
establish and maintain relationships and the standards for measuring his
performance. The Executive hereby agrees to serve the Corporation loyally,
faithfully, diligently and to the best of his ability and shall use his utmost
efforts to promote and advance the business and welfare of the Corporation and
its affiliates, as described in Schedule "A". The term "affiliate" as used in
this agreement has the meaning given to it by the SECURITIES ACT of Ontario.
The Executive will be entitled to work a maximum of six shifts per month as
a physician in hospital emergency departments or urgent care clinics upon
compensation similar to any physician working on those shifts. Any physician
on-call requirements will be compensated at the same rates paid to any
Corporation physician. These emergency and on-call shifts are to preserve the
Executive's expertise as a practising physician which is in integral part of his
position
<PAGE>
-3-
as Chief Executive Officer of the Corporation. They are not to interfere with
his duties as Chief Executive Officer of the Corporation.
5. HOURS OF WORK
The Executive shall devote to the affairs of the Corporation substantially
the whole of his time, attention and abilities during normal business hours and
at such other times as his duties may reasonably require, unless prevented by
ill-health.
6. SALARY
The Corporation will pay the Executive by way of remuneration for his
services under this agreement (in addition to compensation payable pursuant to
paragraph 4) a salary of $204,000 per annum during the period from January 1,
1997 and during the first year after the Commencement Date, $214,000 per annum
during the second year after the Commencement Date and $225,000 per annum
during the third year after the Commencement Date of his employment hereunder,
which shall be paid bi-weekly. Accrued but unpaid salary at the rate of
$204,000 per annum from January 1, 1997 to the closing referred to in paragraph
1 shall be included in the Executive's pay on the immediately following
bi-weekly pay day.
In addition, the Corporation may provide to the Executive performance
bonuses on a mutually acceptable basis.
7. EXPENSES
The Executive shall be required to undertake such reasonable travel as is
required by the Corporation and the Corporation shall immediately pay all proper
travelling, hotel,
<PAGE>
-4-
entertainment and other expenses incurred by him in the performance of his
duties, upon the Corporation's receipt of corporate credit card invoices.
8. HOLIDAYS
The Executive shall be entitled, in addition to statutory holidays, to six
weeks' holiday in each 12-month period under this agreement. Unused holiday
entitlement may not be carried forward to the next 12-month period unless
otherwise agreed with the Corporation.
9. ADDITIONAL BENEFITS
Subject as hereinafter provided, during the continuance of this agreement,
the Corporation will provide to the Executive the benefits described in Schedule
"B" to this agreement. The benefits described in paragraph 1 of Schedule "B"
are the benefits currently available to senior employees of the Corporation and
its affiliates. Paragraph 1 of Schedule "B" may be amended from time to time at
the Corporation's discretion so long as such amended benefits are made available
to senior employees of the Corporation and its affiliates and are not a dilution
or reduction of then current benefits taken as a whole.
10. OPTIONS
The Corporation confirms the grant to the Executive of options to purchase
65,000 common shares of the Corporation under the Corporation's director and
employee stock option plan. Such options are fully vested and will be escrowed,
or the shares taken up thereunder will be escrowed, if required, pursuant to the
initial public offering of the Corporation's common shares.
11. TERMINATION
<PAGE>
-5-
(a) This agreement may be terminated by the Corporation immediately and
without any liability for any damages or compensation for breach of contract,
wrongful dismissal or otherwise, if the Executive shall:
(i) become mentally incapacitated or, for any 26 weeks in any 12
consecutive months, become physically incapacitated such that
he is unable to perform his obligations under this agreement;
or
(ii) be convicted of any indictable offence for which a sentence of
imprisonment can be imposed by law; or
(iii) commit any act of dishonesty; or
(iv) be guilty of any misconduct relating to the discharge of his
duties hereunder; or
(v) be guilty of any neglect in the discharge of his duties
hereunder or commit any wilful or persistent breach of any of
the provisions of this agreement.
(b) If this agreement is terminated by the Corporation other than pursuant
to the immediately preceding clause (a) or other than by notice pursuant to the
clause (a) of paragraph 3, then the Corporation shall forthwith pay to the
Executive his salary (less usual and statutory deductions) as if he were
employed through the third anniversary of the Commencement Date (provided that,
if such termination is at any time after the second anniversary of the
Commencement Date, the Corporation shall forthwith pay to the Executive one
year's salary less usual and statutory deductions). In addition, the
Corporation shall pay the following:
<PAGE>
-6-
(i) $400,000 if the Executive's employment is terminated by the
Corporation for any reason other than as described in
paragraph 11(a) during the first year of his employment under
this agreement;
(ii) $300,000 if the Executive's employment is terminated by the
Corporation for any reason other than as described in
paragraph 11(a) during the second year of his employment under
this agreement;
(iii) $200,000 if the Executive's employment is terminated by the
Corporation for any reason other than as described in
paragraph 11(a) during the third year of his employment under
this agreement; or
(iv) $100,000 if the Executive's employment is not extended by the
Corporation for a fourth year or is terminated by the
Corporation for any reason other than as described in
paragraph 11(a) during the fourth year of his employment under
this agreement;
The Corporation may terminate this agreement at any time so long as it
undertakes to make such payments forthwith; employment shall be reinstated if
such payment is not made.
Any severance payments will be payable to the Executive on the most
favourable tax basis to him, provided that such tax planning does not have an
adverse effect on the Corporation's tax position.
12. NO OTHER COMMERCIAL INTERESTS
The Executive shall not at any time during the continuance of this
agreement be or become a director of any Corporation or be engaged, concerned or
interested in, directly or
<PAGE>
-7-
indirectly, and whether independently or as any employee of, any other business,
trade or occupation, except that the Executive may:
(i) become engaged, concerned or interested in any other business,
trade or occupation or become a director of another Corporation,
with the prior written consent of the Corporation; or
(ii) hold or become beneficially interested in not more than 5% of any
class of securities in any Corporation if such class of securities
is listed on a recognized stock exchange or an unlisted securities
market unless the Corporation otherwise requires on the grounds
that such Corporation carries on a business competitive with that
of the Corporation or its affiliates.
Notwithstanding the foregoing or any other provision of this Agreement, the
Executive may carry on the activities identified in Schedule "C".
13. DIVIDENDS ON PREFERRED SHARES
Dividends declared and payable on any preferred shares of the Corporation
held by the Executive or any member of his immediately family are to paid out in
cash if shares which could be paid out as dividends would not be tradeable free
of any restriction, holding period or escrow, whether contained in the
Corporation's constating documents, required by law, imposed by securities
regulators or agreements with underwriters, or otherwise.
14. CONFIDENTIALITY
The Executive shall not at any time, other than in the course of his
duties, without the prior consent in writing of the Corporation, divulge or make
known to anyone any secrets of any
<PAGE>
-8-
technical, commercial or financial nature or other information of a confidential
nature, unless such information is already in the public domain, relating to the
business or customers of the Corporation or its affiliates. All papers and
documents used by the Executive in the course of his employment are and will
remain the property of the Corporation and will be delivered up to the
Corporation on termination of this agreement. The provisions of this paragraph
shall survive the expiration or earlier termination for any reason whatsoever of
this agreement.
15. PATENTS, SECRETS AND IMPROVEMENTS
(a) Any discovery, invention, secret process, improvement, formula, plan,
idea, know-how or adaptation or improvement thereto or to any existing idea,
process or other property of the Corporation including, without limitation, any
new, or any adaptation of existing, software or hardware, whether or not
patentable or otherwise subject to legal protection, made, discovered, conceived
or created by the Executive while in the service of the Corporation, whether
before or after the date of this agreement in any way affecting or relating to
the business of the Corporation or capable of being used or adapted for use
therein or in connection therewith shall forthwith be disclosed to the
Corporation and shall belong to and be the absolute property of the Corporation.
(b) The Executive shall if and whenever required so to do by the
Corporation at the expense of the Corporation, apply to join with the
Corporation in applying for patents, copyrights or other legal protection in
Canada and in any part of the world for any such discovery, invention, process
or improvement as aforesaid and shall at the expense of the Corporation execute
all instruments and do all things necessary for vesting the said patent,
copyright or other legal protection when obtained and all right, title to and
interest in the same in the Corporation absolutely and as sole beneficial owner
or in any such other person as the Corporation may specify. The Executive
hereby irrevocably appoints the Corporation to be his attorney in his name and
on his behalf to execute any such instrument and to do any such thing
<PAGE>
-9-
and generally to use his name for the purpose of giving the Corporation the full
benefit of the provisions of this paragraph but not otherwise and in favour of
any third party, and a certificate in writing signed by any director or the
secretary of the Corporation that any instrument or act falls within the
authority hereby conferred shall be conclusive evidence that such is the case.
16. CONDUCT
By accepting employment and continuing to be employed by the Corporation,
the Executive hereby undertakes and covenants with the Corporation as follows:
(i) not without the previous consent of the Corporation directly or
indirectly to receive (other than as agent for the Corporation) or
retain any discount, rebate, fee, gratuity, commission or payment
from a third party for any service, matter or thing connected
directly or indirectly with his duties and services as an employee
of the Corporation;
(ii) not within 12 months after ceasing to be employed (except with the
written consent of the Corporation which shall not be unreasonably
withheld) whether on his own behalf or on behalf of any person,
firm or corporation directly or indirectly to seek to procure
orders from or do business with any person, firm or corporation who
on the date of his ceasing to be employed or at any time in the 12
months prior to that date was a client or customer of the
Corporation and with whom in the course of his employment with the
Corporation had dealings, provided always that the preceding
covenants contained in this paragraph 16(ii) shall not shall be
deemed to prohibit the Executive from seeking or procuring orders
or from doing business in any business endeavour (including,
without limitation, the medical and emergency care service area) as
long as the preceding covenants contained in this paragraph 16(ii)
are fully and completely complied
<PAGE>
-10-
with (for purposes of greater certainty, a client or customer shall
be the actual hospital or other specific entity for which the
Corporation is providing services or with which the Corporation has
contracted to provide services, for example, if the Corporation is
providing services to a specific hospital, the Executive will be
precluded from soliciting work from or doing work for that hospital
in accordance with the terms of this restriction, but will not be
precluded from soliciting or providing services to other hospitals
or health providers not directly serviced by the Corporation or
from dealing with OHIP in general; the intention of this
restriction is to ensure that, if the relationship between the
Corporation and the Executive is terminated, direct contacts of the
Corporation are not be interfered with, but that the Executive is
able to carry on work in the medical and emergency care service
area); and
(iii) not during this agreement hereunder nor for a period of 24 months
thereafter to solicit, entice, procure or endeavour to persuade any
other employee of the Corporation to leave the employment of the
Corporation.
Although the Executive and the Corporation recognize and accept that the
above restrictions are reasonable having regard to the nature of the
Corporation's business and the Corporation's interest in preserving its goodwill
and customer connections, the Corporation will only withhold its consent to (i)
or (ii) above where it is evident that the business of the Corporation will be
prejudiced by not withholding such consent and to that extent, should any of the
foregoing restrictions be found to be unreasonable and unenforceable, they shall
be deemed to be modified only to the extent necessary to give effect to the
remaining provisions of this paragraph.
17. NOTICES
<PAGE>
-11-
Any notice, direction or other instrument required or permitted to be given
to the Executive hereunder shall be in writing and may be given by mailing the
same, postage prepaid, or delivering the same (by facsimile, telex or otherwise)
addressed to the Executive at 1486 Hollywell Avenue, Mississauga, Ontario L5N
4T2. Any notice, direction or other instrument required or permitted to be given
to the Corporation hereunder shall be in writing and may be given by mailing the
same, postage prepaid, or delivering the same (by facsimile, telex or otherwise)
addressed to the Corporation at 2550 Argentia Road, Suite 205, Mississauga,
Ontario L5N 5R1, Attention: President.
Any notice, direction or other instrument aforesaid if delivered shall be
deemed to have been given or made on the date on which it was delivered or if
mailed, shall be deemed to have been given or made on the second business day
following the day on which it was mailed.
The Executive or the Corporation may change his or its address for service
from time to time by notice given in accordance with the foregoing.
18. ENTIRE AGREEMENT AND SEVERABILITY
This agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof. There are not and shall not be any
verbal statements, representations, warranties, undertakings or agreements
between the parties with respect to the subject matter hereof. No waiver of any
breach of this agreement shall be effective unless made in writing by the party
giving such waiver and, unless otherwise provided in the written waiver, shall
be limited to the specific breach waived. The invalidity or unenforceability of
any term, covenant or condition contained in this agreement shall not affect the
validity or enforceability of any other term, covenant or condition hereof, but
shall be deemed to be severable and upon such severance, the remainder of the
agreement shall be valid and enforceable.
<PAGE>
-12-
Notwithstanding the foregoing, this agreement may be amended or modified in
any respect from time to time by written instrument signed by the parties
hereto.
19. GOVERNING LAW
This agreement shall in all respects be construed and enforced in
accordance with and governed by the laws of the Province of Ontario. Each of
the parties hereto hereby irrevocably attorns to the jurisdiction of the courts
of the Province of Ontario.
20. BINDING EFFECT
Neither this agreement nor any portion thereof may be assigned by the
Executive. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and permitted assigns.
21. COSTS
All legal and accounting costs and disbursements incurred by the Executive
in the negotiation and signing of this agreement shall be paid by the
Corporation up to a maximum of $15,000 plus GST.
22. DISPUTE RESOLUTION
<PAGE>
-13-
The parties hereto acknowledge that in the event of a dispute under this
agreement they shall make submissions under and shall be bound by the rules of
the Private Court in Ontario and any order whether interlocutory or final is an
award which is enforceable under the ARBITRATION ACT, 1991 of Ontario.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto.
MED-EMERG INTERNATIONAL
INC.
by
-----------------------------
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
) l/s
-----------------------------
- ------------------------ ) Ramesh Zacharias
<PAGE>
SCHEDULE "A"
<PAGE>
SCHEDULE "B"
BENEFITS
1. Standard Employee Benefit Program of the Corporation.
2. The Corporation shall pay the Executive's annual professional fees to
maintain his status as a member of the Ontario Medical Association and the
American College of Emergency Physicians. In addition, the Corporation
shall pay the Executive's medical malpractice insurance premiums.
3. The Corporation shall pay the Executive up to $10,000 annually in monthly
instalments as a car allowance. The Corporation shall also pay for gas for
such car upon production of appropriate receipts. All other expenses with
respect to such car, for example, insurance premiums, repairs, shall be
paid by the Executive.
4. The Corporation shall pay the premiums in respect of a $1 million life
insurance policy on the life of the Executive. The Executive may designate
the beneficiary.
<PAGE>
SCHEDULE "C"
1. The Executive may pursue international work in any area (including, without
limitation, the health care and emergency services fields), provided that
he devotes his full time and attention as Chief Executive Officer of the
Corporation as required for the due performance of his position as Chief
Executive Officer of the Corporation. His pursuit of international
opportunities shall be conducted only on his free time and vacation time
and they shall not interfere with his duties as Chief Executive Officer of
the Corporation. The Corporation will have a right of first refusal on any
international projects, but if it declines to participate, the Executive
will be able to pursue these international projects on his own free time
and on the basis that they do not interfere with the performance of his
duties as Chief Executive Officer of the Corporation.
2. The Executive may sit on boards of other health care and information
technology firms unless there is a reasonable basis upon which the
Corporation may deny him the right to do so.
<PAGE>
EXHIBIT 10.8.
MED-EMERG INTERNATIONAL, INC.
DIRECTORS' RESOLUTIONS
SHARE CERTIFICATE
BE IT RESOLVED THAT
the form of share certificate for the preferred shares in the capital of the
Corporation which is annexed hereto as Schedule "A" be and the same is
hereby approved and adopted.
CONVERSION OF COMMON SHARES INTO PREFERRED SHARES
WHEREAS Ramesh Zacharias has delivered a certificate representing 1,101,667
common shares in the capital of the Corporation and has requested that the
Corporation convert such shares into 250,000 preferred shares on the date
hereof;
BE IT RESOLVED THAT
1. the 1,101,667 common shares are hereby converted into 250,000 preferred
shares; and
2. any officer or director of the Corporation be and is hereby authorized
and directed to issue and deliver to Ramesh Zacharias a certificate
evidencing 250,000 preferred shares in the capital of the Corporation.
CONVERSION OF COMMON SHARES OF PREFERRED SHARES
WHEREAS Victoria Zacharias has delivered a certificate representing
1,101,666 common shares in the capital of the Corporation and has requested that
the Corporation convert such shares into 250,000 preferred shares on the date
hereof;
BE IT RESOLVED THAT
1. the 1,101,666 common shares are hereby converted into 250,000 preferred
shares; and
2. any officer or director of the Corporation be and is hereby authorized
and directed to issue and deliver to Victoria Zacharias a certificate
evidencing 250,000 preferred shares in the capital of the Corporation.
ALLOTMENT AND ISSUANCE OF COMMON SHARES
WHEREAS the Corporation has agreed to issue 610,000 common shares to Hampton
House International Corp. in consideration for consulting services previously
performed for the Corporation (the "Past Services");
BE IT RESOLVED THAT
1. in consideration of the Past Services to the Corporation, 610,000 common
shares in the capital of the Corporation be and the same are hereby
allotted and issued to Hampton House International Corp. to be held as
fully paid and non-assessable shares;
2. the directors of the Corporation hereby determine that the amount of
money the Corporation would have received if the 610,000 common shares to
be issued to Hampton House International Corp. had been issued for money
is $610,000;
3. the directors of the Corporation hereby determine that the aggregate
fair market value of the Past Services is not less than the amount of
money referred to above;
4. any officer or director of the Corporation and is hereby authorized and
directed to issue and deliver to Hampton House International Corp., or as
Hampton House International Corp. may in
<PAGE>
writing direct, a certificate or certificates evidencing 610,000 common
shares in the capital of the Corporation.
CONTRIBUTION TO CAPITAL
BE IT RESOLVED THAT
the contribution to capital of 75,000 common shares from The Estate of Dr.
Donald Munro be and it is hereby accepted.
PRIVATE OFFERING IN UNITED STATES OF UP TO $250,000 IN PROMISSORY NOTES
AND 62,500 COMMON SHARES
BE IT RESOLVED THAT
1. the Corporation raise additional capital through a private offering and
sale of promissory notes in the aggregate principal amount of up to
$250,000 and 62,500 common shares of the Corporation (the "Shares"); and
2. the officers of the Corporation be, and each hereby is, authorized,
empowered and directed to take any action and to execute for and on
behalf of the Corporation, and to deliver and file any and all
applications, covenants, powers of attorneys, consents to service of
process, and all other documents which may be required or advisable, as
conclusively evidenced by the execution and delivery of the same, by any
state securities of "blue sky" laws, or any state or other regulatory
body, for the purpose of the registration or other qualification for sale
in any jurisdiction or state of the Shares on the terms set forth in the
Corporation's confidential private offering memorandum, or which may be
advisable to secure such qualification or other registration.
SURRENDER OF COMMON SHARE PURCHASE WARRANTS
WHEREAS the Corporation has received surrenders of all common share purchase
warrants issued by the Corporation;
BE IT RESOLVED THAT
if the initial public offering contemplated by the letter of intent dated
September 5, 1996 between Network 1 Financial Services, Inc. and Med-Emerg
Inc. has not closed by September 5, 1997, the Corporation will reissue, as
soon as reasonably practicable, common share purchase warrants in
substantially the same terms to holders who surrendered their warrants.
ISSUE OF COMMON SHARES TO MR. ROBERT RUBIN
BE IT RESOLVED THAT
1. 50,000 common shares of the Corporation are hereby allotted subject to
payment therefor to Mr. Robert Rubin;
2. the board of directors hereby fixes the sum of $50,000 as the aggregate
consideration for the issuance of the said common 50,000 shares;
3. upon receipt by the Corporation each month of payment in full for the
said common shares by past services to the Corporation by Mr. Robert
Rubin in his capacity as a consultant from January 1, 1997 through
December 31, 1997, 4,000 common shares be issued and fully paid and
non-assessable and certificates therefor be issued at the end of each
month, commencing January 31, 1997 to him or as he may in writing direct,
provided that 6,000 common shares and certificates therefor be issued on
January 1, 1998.
<PAGE>
OPTION FOR COMMON SHARES TO MR. ROBERT RUBIN
BE IT RESOLVED THAT
1. the granting to Mr. Robert Rubin of an option to purchase up to 700,000
common shares of the Corporation on the terms and conditions set out in
the draft option agreement annexed to hereto as Schedule "B" be and the
same is hereby approved; and
2. the directors and/or the proper officers of the Corporation be and they
are hereby authorized and directed to execute under the corporate seal of
the Corporation and to deliver to Mr. Robert Rubin an option agreement
substantially in the terms of the said draft option agreement and to do
all acts or things in their opinion necessary or desirable in connection
with the granting of the said option.
APPOINTMENT OF OFFICERS
BE IT RESOLVED THAT
the following persons be and they are hereby elected or appointed officers
of the Corporation to hold the offices referred to opposite their respective
names for the ensuing year, or until their respective successors should be
elected or appointed:
<TABLE>
<CAPTION>
<S> <C>
Ramesh Zacharias.................................... Chief Executive Officer
Carl Pahapill....................................... President and Chief Operating Officer
Kathryn Gamble...................................... Chief Financial Officer, Vice President Finance
and Secretary
</TABLE>
EACH OF THE FOREGOING RESOLUTIONS is hereby consented to by all of the
directors of the Corporation pursuant to the BUSINESS CORPORATIONS ACT, as
evidenced by their signatures hereto.
DATED the 1st day of November, 1996.
<TABLE>
<S> <C>
Peter Deeb Lawrence Grossman
Joseph Maierovits William Thomson
Ramesh Zacharias Victoria Zacharias
</TABLE>
<PAGE>
EXHIBIT 10.9
[LOGO] THE TORONTO-DOMINION BANK
Commercial Banking Centre
385 Richmond St. & King St.
P.O. Box 3177
London, Ontario N6A 4K2
Telephone No. 663-5717
Fax No. (619)667-4052
May 11, 1995
PRIVATE & CONFIDENTIAL
Medi-Emerg Inc.
458 Central Avenue
London, Ontario
N6B 2E5
Attention: Dr. Ramesh Zacharias and
Mr. Brian Wood
- ------------------------------------
Dear Sirs:
We are pleased to make available the credit facility as noted below:
Borrower: Med-Emerg Inc.
Lender: The Toronto-Dominion Bank ("the Bank").
Type of Loan
and Amount: #1 Operating - Overdraft (via Mirror Accounting)
and/or Letters of Credit - $1,200,000.
Purpose: #1 To assist with monthly expenses pending the
collection of OHIP receivables.
Interest Rate: #1 Direct Borrowings - The Bank's prime rate plus
1 1/2% per annum, calculated and payable monthly on
the number of days elapsed.
Letters of Credit - 2% per annum, payable in
advance.
Drawdown: #1 As funds are required.
Repayment: #1 On demand.
Prepayment: #1 Permitted without penalty.
Security: General Security Agreement, representing a first
floating charge on all assets and undertakings of
the Borrower. Initial RZ
---
<PAGE>
- 2 -
Assignment of fire insurance on the above assets,
showing the Bank as first loss payee.
Unlimited Guarantee signed by Dr. Ramesh Zacharias.
Unlimited Guarantee signed by Victoria Zacharias.
$60,000 collateral second mortgage on residential
property at 1486 Hollywell Avenue, Mississauga, Ontario
registered in the name(s) of Ramesh and/or Victoria
Zacharias.
Assignment of fire insurance on the above real
property, showing the Bank as first loss payee.
Unlimited Guarantee signed by Med Plus Health Centres
Ltd. ("Med Plus"), with Resolution and Solicitor's
Letter of Opinion.
Unlimited Guarantee signed by 927563 Ontario Limited
("927563"), with Resolution and Solicitor's Letter of
Opinion.
Above Guarantee supported by General Security Agreement
from 927563, with Solicitor's Letter of Opinion.
$300,000 TD Greenplan Credit Insurance on the life of
Dr. Ramesh Zacharias (also used to secure borrowings in
the name of Glenderry Medical Walk-In Clinic
Partnership).
Indemnity Agreement re: Letter of Credit.
Letter of Opinion from the Borrower's Solicitor
indicating that doctors employed by the Borrower are
unsecured creditors of the Borrower.
Inter-company Mirror Accounting Agreement between Med
Plus, 927563 and 927564 Ontario Inc. as participants
and the Borrower as participant and concentrator.
Initial RZ
---
<PAGE>
- 3 -
Conditions: 1. Cross default provision is to apply involving the
Borrower, Med Plus and Dr. Ramesh Zacharias relating to
loans made by the Bank to the aforementioned parties.
2. The Bank is to be provided with signed, audited
financial statements for the Borrower and signed,
accountant-prepared financial statements for Med Plus,
within 90 days of their fiscal year ends.
3. Monthly aged lists of accounts receivable and monthly
financial statements as prepared by the Borrower and
Med Plus are to be provided for both companies by the
25th day of the month following (except for the
financial statements for the year ending December 31
which are to be submitted by February 25). Monthly
financial statements are to be submitted on a combined
and non-combined basis.
4. Borrowings under Facility #1 (Direct and Letters of
Credit) are not to exceed 100% of OHIP receivables, net
of over 90 day accounts, for the Borrower and Med Plus
combined.
5. The Borrower and Med Plus are to maintain a minimum
Combined Effective Net Worth of not less than $275,000
at all times. Combined Effective Net Worth is defined
as shareholder's equity plus amounts due to
shareholder, related and/or affiliated companies, less
amounts due from shareholder, related and/or affiliated
companies and less intangible assets (e.g. goodwill,
organization costs, etc.).
NOTE: CURRENTLY IN DEFAULT.
6. The maximum availability under Facility #1 for Letters
of Credit is $50,000.
Initial RZ
----
<PAGE>
- 4 -
7. The Borrower and Med Plus are to maintain a Combined
Debt Service Coverage Ratio of not less than 1.5:1,
based on the annual accountant-prepared financial
statements for the Borrower and Med Plus. Combined Debt
Service Coverage Ratio is defined as the sum of income
before income taxes and interest expense, less
dividends declared, divided by the sum of interest
expense and principal payments during the concurrent
fiscal year for both the Borrower and Med Plus
combined.
8. All costs and charges associated with the registration
of security and subsequent renewals of same are the
responsibility of the Borrower.
Loan Activity
Fee: $75 per month.
Management Fee: $3,000 (to be taken at the rate of $250 per month).
Should there be a breach of or non-compliance with any term or condition hereof
or any security hereunder and such breach or non-compliance is not remedied
within the period specified in the Bank's written request to you for the remedy
thereof, or should such breach or non-compliance or any other matter cause the
Bank, in good faith, to deem itself insecure, the Bank may, at its option,
consider this offer of financing or the facility afforded thereby, as the case
may be, at an end and, without notice to you, take whatever steps it considers
necessary to protect its interests.
We appreciate having the opportunity to review your banking requirements and
would ask that you acknowledge your acceptance of these arrangements by signing
and returning the duplicate copy attached hereto.
Initial RZ
---
<PAGE>
- 5 -
Should you have any questions or require any clarification of the terms and
conditions recited herein, please do not hesitate to contact the undersigned.
Yours truly,
/s/ Peter T. Coutts
Peter T. Coutts
Account Manager
/s/ R.G. Bergen
R.G. Bergen
Manager, Commercial Services
We hereby accept the terms and conditions as outlined herein.
Dated this 11th day of September, 1995.
Med-Emerg Inc.
/s/ Brian Wood ON BEHALF OF MED-EMERG INC.
- -------------------------------------------
- ----------------------------
Initial RZ
---
<PAGE>
- 6 -
The undersigned agree that the terms and conditions set out above are for the
exclusive benefit of the Bank and that no alteration or waiver of any of these
terms and conditions shall in any way limit the liability of the undersigned to
the Bank in a guarantee of the undersigned held by the Bank.
/s/ Ramesh Zacharias September 11th, 1995
- ------------------------ ------------------------
Dr. Ramesh Zacharias Date
/s/ Vicki Zacharias September 11th, 1995
- ------------------------ -------------------------
Vicki Zacharias Date
Med Plus Health Centres Ltd.
/s/ Brian Wood ON BEHALF OF MED-PLUS September 11th, 1995
- ------------------------------------- ------------------------
Date
- ------------------------- ------------------------
Date
Initial RZ
---
<PAGE>
- 7 -
927563 Ontario Inc.
/s/ Vicki Zacharias September 11, 1995
- -------------------------- -------------------------
Date
- -------------------------- --------------------------
Date
Initial RZ
---
<PAGE>
EXHIBIT 10.10
TERMS OF ENGAGEMENT BETWEEN
THE WELLESLEY HOSPITAL
MEDICAL EMERGENCY SERVICES
AND
MED-EMERG INC
(1) All conditions applying to this agreement between all three parties are
listed in this document. Any further changes to this agreement during the
term of this contract must be signed by both parties in order to alter this
arrangement.
Section A: Conditions applying to Med-Emerg Inc (MEI)
Section B: Conditions applying to Medical Emergency Services (MES)
Section C: Conditions applying to Wellesley Hospital (WH)
(2) The terms of this agreement between MEI, WH and MES will be from March 21st
to June 30th, 1994. If this agreement has not been renewed or terminated
by June 30th, all conditions defined within this agreement will continue as
stated until the agreement has been altered or terminated.
(3) Both parties have the right to terminate this agreement upon 30 days
written notice to the other parties. All terms and conditions will
continue to apply during and after the contract as stated in this
agreement.
All three parties have reviewed and accepted the terms of engagements outlined
in this agreement and the attached schedules. The undersigned are legally
authorized to bind their respective organizations to this agreement.
Dr. Ramesh Zacharias Date
President, Med-Emerg Inc
Dr. Jelenich Date
Vice President: Medical Affairs
The Wellesley Hospital
Dr. Allan Campbell Date
Director of Emergency Services
Medical Emergency Services
<PAGE>
SECTION A
CONDITIONS APPLYING TO MED-EMERG INC
(1) MEI will provide variable ER physician coverage based on a predetermined
schedule provided by MES to MEI by the 15th day of the month immediately
prior to the month in which the work is to be performed.
(2) On the pre-scheduled shifts, MEI will notify MES if MEI is unable to
provide physician coverage. If this written notification is provided less
than 7 full days before coverage is scheduled and if MEI's inability to
staff is related to neither sudden sickness, disability or death, MEI will
pay WH $500/missed shift (upon receipt of an invoice from WH).
(3) In the event that MES may require short term assistance in staffing a
shift, MEI may provide assistance in providing a physician replacement.
MEI will not be bound by the same non-delivery clause mentioned in section
2.
(4) The MEI schedule applying to MEI ER physician staffing will be completed on
a monthly basis by MEI and provided to MES at least one week prior to the
beginning of each staffing month.
(5) MEI physicians are expected to provide supervision to PG-1 residents and
clinical clerks working in the Emergency Department.
(6) MEI physicians are obligated to abide by any rules or regulations, bylaws,
policies or procedures adopted by WH at all times and will be granted
privileges in accordance with the said bylaws. MEI shall ensure that all
MEI physicians shall meet the credentials as set out in WH bylaws and will
make the credentialling file available to WH within sufficient time to
enable WH to review these credentials. This process will include:
(a) CVs for all staff (evidencing current ER experience)
(b) An opportunity for Dr. Campbell to interview proposed MEI
physicians (as applicable)
(c) Completed WH application forms
(7) The MEI emergency physician is not required to provide ward coverage
outside of the Emergency Department. MEI physicians are intended to work
in the ER only and are not to be redirected by WH/MES to other areas
without the written consent of MEI. Service to the ER remains the primary
intent of this contract.
(8) MEI will carry a company errors & omissions insurance policy of Ten Million
($10,000,000) Dollars. This MEI insurance policy provides coverage for the
<PAGE>
actions of MEI administrative support staff in providing qualified MEI
physicians to fill pre scheduled shifts.
(9) Since MEI physicians work under self-employed status with MEI, each
physician providing direct delivery of patient care is responsible to carry
the appropriate level of CMPA liability insurance.
(10) All MEI physicians will have ACLS and ATLS qualifications in order to work
in the Emergency Department.
(11) MEI agrees to indemnify and save harmless MES and WH from any and all loss,
action, causes of action, claims and demands which either of them may
suffer by reason of any damage, loss or injury, to person or property,
arising from the implementation of the terms and provisions of this
agreement and the failure by MEI to comply with any of the responsibilities
assigned to MEI under this agreement.
(12) MEI will inform all other parties regarding communication with Ministry
official, media or other groups referring to this agreement on a timely
fashion prior to public disclosure. MEI will not mention this arrangement
or provide any information with any person, hospital or other organization
or utilize this information in any external marketing information without
the prior approval of WH.
(13) MEI will not directly or indirectly offer employment to or contract with
any MES provided physicians (or former MES physicians) unless the physician
has not performed services on behalf of MES for a period of one year in the
WH Emergency Department. This clause may be waived upon written
pre-approval from WH or MES, approval of which will not be unreasonably
withheld.
(14) MEI physicians shall not be employees of the Wellesley Hospital for any
purpose.
SECTION B
CONDITIONS APPLYING TO EMERGENCY MEDICAL SERVICES
(1) The director of Emergency Services will be responsible to schedule all
non-MEI physicians and provide MEI with a schedule of open un-booked shifts
at least 15 days prior to each month of desired coverage. There will be a
fair & equitable distribution of day, night, weekday and weekend shifts
between MEI and MES based on the usual staffing rotation of physicians now
in practise.
(2) The Director of Emergency Services will remain primarily responsible for
addressing on-site issues.
<PAGE>
(3) ER procedural changes impacting MEI physicians in the ER will be discussed
with MEI (where possible) at least 2 weeks prior to planned implementation.
(4) MES agrees to pay MEI physicians at the going rate paid to WH emergency
physicians ($80/hr). If the going rate increases at any time during this
agreement, the rate paid to MEI physicians will also be increased
accordingly. MES will pay MEI physicians directly for service provided to
the WH Emergency Department, with payment on the same payment cycle and
frequency as regular WH ER physicians.
(5) MES agrees to indemnify and save harmless MEI and WH from any and all loss,
action, causes of action, claims and demands which either of them may
suffer by reason of any damage, loss or injury, to person or property,
arising from the implementation of the terms and provisions of this
agreement and the failure by MES to comply with any of the responsibilities
assigned to MES under this agreement.
(6) MES will inform all other parties regarding communication with Ministry
official, media or other groups referring to this agreement on a timely
fashion prior to public disclosure.
(7) MES will not directly or indirectly offer employment to or contract with
any MEI provided physicians (or former MEI physicians) unless the physician
has not performed services on behalf of MEI for a period of one year in any
MEI facility. This clause may be waived upon written pre-approval from
MEI, approval of which will not be unreasonably withheld.
<PAGE>
SECTION C
CONDITIONS APPLYING TO WELLESLEY HOSPITAL
(1) WH will provide a monthly payment to MEI based on the following graduated
payment system. All administrative payments will be directed to the MEI
administrative office based in London, Ontario.
(a) Monthly deposit for 10 or less shifts/month paid on these dates;
March 21st = $3,000 + GST April 1st = $3,000 + GST
May 1st = $3,000 + GST June 1st = $3,000 + GST
(b) Based on the number of shifts worked, MEI will issue a secondary
invoice within 1 week following each month of coverage. Payment of
this additional invoice will be issued within 2 weeks of receipt of a
MEI invoice.
11-20 Shifts/month an additional $2,000 + GST above the deposit
paid in section A.
Greater than 20 shifts/month a. an additional $2,000 + GST above the
deposit paid in Section A, and
b. an additional $150 + GST for each
additional shift worked above 20
shifts/month
(2) WH acknowledges that MEI represents the physicians group servicing the
Emergency Department (ER). All discussions relating to the conditions of
the engagement shall be directed to MEI rather that the physicians either
individually or as a group.
(3) ER procedural changes impacting MEI physicians in the ER will be discussed
with MEI (where possible) at least 2 weeks prior to planned implementation.
(4) WH will be consulted in the formulation and implementation of all MEI
strategy which could affect present/future patient volumes at WH.
(5) WH agrees to indemnify and save harmless MEI and MES from any and all loss,
action, causes of action, claims and demands which either of them may
suffer by reason of any damage, loss or injury, to person or property,
arising from the implementation of the terms and provisions of this
agreement and the failure by WH to comply with any of the responsibilities
assigned to WH under this agreement.
<PAGE>
(6) WH will inform all other parties regarding communication with Ministry
official, media or other groups referring to this agreement on a timely
fashion prior to public disclosure.
(7) WH will not directly or indirectly offer employment to or contract with any
MEI provided physicians (or former MEI physicians) unless the physician has
not performed services on behalf of MEI for a period of one year in any MEI
facility.
This clause may be waived upon written pre-approval from MEI. This clause
may be waived upon written pre-approval from MEI, approval of which will
not be unreasonably withheld.
<PAGE>
EXHIBIT 10.11
PHYSICIAN CONSULTING AGREEMENT
This Agreement made the 24 DAY OF JANUARY 1997, between MED-PLUS HEALTH CENTRE
hereinafter referred to as the Clinic, and ______________, hereinafter referred
to as _________ sets forth the respective rights and obligations of the Clinic
and the Consultant.
THIS AGREEMENT WITNESSES THAT in consideration of the following covenants
and agreements, the parties agree as follows:
ARTICLE 1 - CONSULTANT SERVICES
1.1 CONSULTANT SERVICES
Subject to the following terms and conditions, the Clinic and _______
mutually agree that for a period of 1 year, ________ shall carry
out examinations, assessments and consultations with patients, physicians and
other professionals unless _________ is, as a result of injury or disease,
unable to perform the essential tasks of the consultant services.
1.2 HOURS AND LOCATION OF PRACTICE
__________shall perform his obligations for a minimum average of 32
hours per week at the Clinic's present location at 1166 Commissioners Rd. E.,
London Ontario and/or at such other location as may be agreed upon between the
parties.
1.3 OBLIGATIONS OF THE CLINIC
The Clinic shall without charge provide all nursing and support staff
and all furniture, equipment and supplies reasonably required by ___________ in
the performance of his obligations hereunder. The Clinic will not interfere in
____________ family practice style.
1.4 TERM OF AGREEMENT
The Consulting Agreement will remain in force for 1 Year from the date
the Agreement is executed. The Agreement may be terminated by either party with
60days written notice.
<PAGE>
ARTICLE 2 - REMUNERATION OF CONSULTANTS
2.1 FEE FOR SERVICE
(1) The Clinic shall pay ______________ for the services rendered by him
at an amount of 65% of the amounts that could have been invoiced by
______________ to the Ministry directly for family practice patients. The
Clinic shall pay ______________ 60% of the amounts for dedicated walk-in
patients. There is a guarantee of $60.00 per hour for all dedicated walk-in
shifts calculated on a shift by shift basis.
2.2 PAYMENT
The Clinic will to pay ______________ once a month at the end of the
month for fee for service revenue submitted and collected from OHIP.
2.3 GROUP BENEFITS
All costs of group benefit plans in respect of ______________ shall be
shared 50/50 with the Clinic and ______________.
It is agreed that ______________ will be able to participate in the
employee stock option plan which will be implemented effective with the
successful completion of the initial public offering of Med-Emerg International
Inc.______________'s option benefits will be calculated retroactive to January
1,1997.It is anticipated that the details of the stock option plan and share
purchase plan will be completed by February 15,1997.
2.4 FEES FOR REPORTS
The Clinic will continue to be entitled to all fees and other
amounts generated by ______________ in respect of immigration visits, third
party services, medical-legal reports, WCB special reports, insurance
reports, and similar reports and verbal interviews, provided that
______________ is entitled to 65% of such fees in respect of reports prepared
by him or verbal interviews, such amounts to be paid to ______________
forthwith following receipt of payment in respect thereof by the Clinic.
2.5 GOVERNMENTAL REDUCTIONS
Any reductions of fees, billings or other amounts to physicians
imposed by the Ministry or provincial governments, including reductions from
a "Social Contract", or agreed to by The Ontario Medical Association or
otherwise binding on the Clinic shall result in proportional reductions of
remuneration to ______________ the amounts of such reductions to be
determined by the Clinic acting reasonably.
<PAGE>
Under existing government regulation, Health Care Services are zero
rated for GST. In the event this changes, MEI will be responsible for the GST.
ARTICLE 3 - COVENANTS OF CONSULTANT
3.1 SERVICES
(1) In the performance of his obligations hereunder, ______________
shall act honestly, professionally and in good faith with a view to the best
interests of the Clinic and its patients. ______________ shall report to
and be subject to the supervision of the Clinic.
(2) ______________ shall at any times follow and comply with the General
Preamble to the Ministry's Schedule of Benefits. ______________'s invoicing
for patient consultations shall during the term of this Agreement fall within
the parameters for ______________ set out in the Provincial Averages for
Physician's Services.
3.2 LICENSES AND PERMITS
______________ shall be responsible for (i) obtaining and
maintaining at his expense all necessary licenses and permits (including, in
the case of a consultant who is a physician, a license to practice medicine
in Ontario and memberships with the Ontario College of Physicians and
Surgeons and the Canadian Medical Protective Association) and (ii) complying
with all applicable federal, provincial and municipal laws, codes and
regulations and all professional laws, codes and rules of conduct and ethics,
in connection with the performance of his obligations hereunder.
______________ shall when requested provide the Clinic with adequate evidence
of his compliance with this Sections 3.2.
3.3 LAB TESTING
Subject always to the best interests of the patients of the Clinic
and to any applicable professional or legal restrictions, ______________
shall make use of such laboratory facilities for testing and other purposes
as may be specified from time to time by the Clinic.
3.4 INDEMNITY
(1) ______________ shall indemnify and save the Clinic harmless from and
against all claims, actions, losses, expenses, costs and damages of every
nature and kind whatsoever which the Clinic or its officers, employees,
consultants, physicians or agents may suffer as a result of the performance
of non-performance of this Agreement and the services required hereunder by
or from ______________, whether as a result of ______________'s negligence or
otherwise.
<PAGE>
(2) The Clinic shall indemnify and save ______________ harmless from and
against all claims, actions, losses, expenses, costs and damages of every
nature and kind whatsoever which ______________ may suffer as a result of the
performance or non-performance of this Agreement by the Clinic, whether as a
result of the Clinic's negligence of otherwise.
3.5 NON-DISCLOSURE
______________ shall not disclose any information relating to the
private or confidential affairs of the Clinic to any person other than for
the Clinic's purposes.
3.6 CLINIC SHALL USE ___________ NUMBER
______________ agrees that the Clinic shall submit claims for
fee-for-service patient consultations under ______________ O.H.I.P. billing
number 096313 at the Clinic's location. If required, ______________ agrees
to assign his interest in such billings to the Clinic. ______________ shall
direct the Ministry to directly deposit all such O.H.I.P. billings into the
Clinic's bank account. If any such billings are paid to ______________, such
amounts shall forthwith be paid over to the Clinic.
ARTICLE 4 - INDEPENDENT CONTRACTORS
4.1 _____________ NOT AN EMPLOYEE
______________ is not an employee of the Clinic and shall not be
entitled to receive from the Clinic any employment benefits whatsoever. The
Clinic shall not be required to make contributions for unemployment
insurance, Canada Pension, worker's compensation or other similar levies in
respect of the amounts to be paid to ______________ pursuant to this
Agreement.
4.2 ______________ SHALL NOT BIND CLINIC
______________ shall not, without the prior written consent of the
Clinic, enter into any contract or commitment in the name of or on behalf of
the Clinic or bind the Clinic in any respect whatsoever.
<PAGE>
ARTICLE 5 - TERMINATION
5.1 OWNERSHIP OF FILES, ETC.
(1) All patient, medical and other records, reports and files which relate
to patients of ______________ shall at all times remain the property of
______________, such that:
(a) upon completion of the term of this agreement, in the event that
_________ chooses to practice elsewhere, the Clinic shall be entitled
to make copies of all patient files , charts and records at the
Clinic's expense and
(b) either party shall have access to such charts, records, reports and
files in the event that he is audited or becomes involved in a legal
proceeding to the extent reasonably required as a result of such audit
or proceeding.
ARTICLE 6 - GENERAL
6.1 BENEFIT OF THE AGREEMENT
This Agreement shall ensure to the benefit of and be binding upon the
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns of the parties.
6.2 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties. There are no agreements
between the parties other than as expressly set out in this Agreement.
6.3 AMENDMENTS AND WAIVER
No modification of or amendment to this Agreement shall be valid or
binding unless made in writing and duly executed and delivered by both of the
parties.
6.4 ASSIGNMENT
______________ may not assign this Agreement or any of his rights or
obligations hereunder without the prior written consent of the Clinic. The
Clinic may assign this Agreement provided that the assignee or assignees
undertakes with the Clinic
<PAGE>
to be bound by the provisions of this Agreement in all respects and to the same
extent as the Clinic is bound.
6.5 NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing by personal delivery, courier or
registered mail addressed to the recipient at the last known address of the
recipient.
6.6 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
6.7 EXTENDED MEANINGS
In this Agreement, words importing the singular number only shall
include the plural and VICE VERSA, words importing the masculine gender shall
include the feminine and neuter genders and VICE VERSA, and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and VICE VERSA.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
SIGNED, SEALED AND
DELIVERED in the presence of
Witness _________________
Witness DIRECTOR, OPERATIONS
<PAGE>
EXHIBIT 10.12
LETTER OF AGREEMENT
BETWEEN
EMERGENCY DEPARTMENT PHYSICIAN
AND
MED-EMERG INC.
This Agreement made the _______day of _________19___, between Med-Emerg Inc.
hereinafter referred to as MEI and Dr.__________________________, hereinafter
referred to as the PHYSICIAN, sets forth the respective rights and obligations
of MEI and the PHYSICIAN providing various medical services.
EXPECTED PERIOD OF COVERAGE: ___________________to __________________
MM/DD/YY MM/DD/YY
STATUS OF PHYSICIAN:
Full Time Physician: Part-Time Physician:
If the provision of services extends past the expected period of coverage, the
terms and conditions will continue until either termination of service occurs or
this contract is amended and issued to the PHYSICIAN.
GENERAL:
1. MEI bears the primary responsibility to provide Emergency Department (ED)
physician coverage to various facilities under contract. All discussions
relating to the conditions of any engagements should be directed to the MEI
Regional Medical Director (RMD) rather than the facility administration.
2. The PHYSICIAN acknowledges and agrees that he/she is not an employee of MEI
but is instead an independent contractor of services to various medical
facilities under contract with MEI. As such the PHYSICIAN is responsible
for submission of all government taxes, agency premiums, etc.
3. The PHYSICIAN agrees that he/she:
(a) will retain membership in good standing with the College of Physicians
& Surgeons of Ontario.
(b) is licensed to practice medicine in the Province of Ontario.
(c) is a member in good standing with the Canadian Medical Protective
Association (CMPA). It is the sole responsibility of the PHYSICIAN to
ensure
<PAGE>
that he/she has appropriate CMPA coverage to provide emergency
services to patients while working with MEI in various facilities.
4. The PHYSICIAN shall conduct himself/herself in a courteous and professional
manner at all times, presenting a good image of MEI and the PHYSICIAN. In
the event the PHYSICIAN engages in conduct that is harmful to the interests
of MEI in relation to his/her treatment of patients, other physicians,
members of the nursing staff or other hospital staff, MEI may immediately
cancel the balance of any remaining shifts on this agreement without any
liability for any further remuneration to the PHYSICIAN.
5. During the term of the Agreement, the PHYSICIAN is expected to maintain an
acceptable level of Continuing Medical Education (CME) credits as defined
by the Medical Director. This will consist of a minimum of 50 CME hours
per year, as currently recommended by CFPC or CAEP. The PHYSICIAN shall
also maintain ACLS certification (recertification required every three (3)
years) and ATLS certification (recertification required every four (4)
years),
FOR FULL-TIME PHYSICIANS ONLY:
Reimbursement for expenses associated with recertification and/or CME has
been outlined on Addendum "A", Section 3. (Note that the PHYSICIAN must
work an average of 30 hours/week, in MEI scheduled facilities, during the
term of this Agreement in order to qualify for reimbursement.)
6. The PHYSICIAN may terminate this Agreement on sixty days' written notice to
MEI. MEI may also terminate this Agreement on sixty days' written notice
to the PHYSICIAN.
7. During the course of this Agreement and for a period of one year after the
date of termination of this Agreement, the PHYSICIAN, agrees that he/she
shall not directly or indirectly provide physician services to a Hospital
where MEI has a contract.
This restriction shall apply to any Hospital where MEI had a contract to
provide services unless the expiration or termination of the contract is more
than 1 year ago. It is acknowledged that all contracts between MEI and the
hospitals include similar restrictions on the hospitals to offer employment to
MEI physicians.
This restriction may be waived if the physician wishes to establish a
permanent practice in the community.
The purpose of this restriction is to protect the integrity of contracts
between MEI and each hospital. These contracts provide stable practice options
for MEI and local physicians and ensure that MEI is able to recover the cost of
recruitment, marketing and development of financial and staffing solutions at
each hospital site.
<PAGE>
SCHEDULING:
8. MEI PHYSICIANS are obligated to abide by any rules or regulations, bylaws,
policies or procedures adopted by THE FACILITY at all times (including
timely completion of clinical records) and will be granted privileges in
accordance with the said bylaws.
9. FOR FULL-TIME PHYSICIANS ONLY:
The PHYSICIAN is expected to provide service based on the terms outlined on
Addendum "A" with remuneration and benefits as stated on that attachment.
10. The PHYSICIAN shall, for the duration of this agreement, provide coverage
at such place and times scheduled by MEI and agreed upon by the PHYSICIAN.
If the PHYSICIAN is unable to work a scheduled shift it will be the
PHYSICIAN'S responsibility to ensure that a qualified MEI physician (WITH
PRIVILEGES IN THAT PARTICULAR FACILITY) is available to cover his/her shift
and to notify the MEI scheduling office in Mississauga. MEI will assist
the PHYSICIAN in finding a replacement (given sufficient notice).
11. The PHYSICIAN shall notify MEI at least 60 days in advance of any requested
leave, in order not to compromise the ability of MEI to ensure adequate
medical coverage to our hospitals.
12. MEI physicians are intended to work in the ED and are not to be redirected
by the Hospital to other areas without the written consent of MEI and at
the discretion of the on-call physician. An exception will exist in the
event that another physician is unavailable to respond to a cardiac arrest
and the ED physician is requested to attend.
The Hospital will contact the Second on-call physician to attend as soon as
possible, thereby allowing the MEI physician to return to the ED.
<PAGE>
PHYSICIAN PAYMENT:
13. The PHYSICIAN will receive remuneration in accordance with the terms of
each facility and will be responsible for covering any and all OHIP
Holdback deductions (plus any applicable taxes), unless otherwise
negotiated by MEI on behalf of the physicians with that particular
facility. Physician remuneration terms may be changed at any time. MEI
shall pay the physician as soon as possible after receiving payment from
OHIP or other funding sources.
The PHYSICIAN acknowledges that net monthly income for the PHYSICIAN will
vary according to the hours worked during any calendar period.
14. All patient billings for scheduled ED shifts are to be submitted by MEI
directly and not the individual physician, where applicable.
All patient encounter forms will be completed on-site and deposited into
the courier repository in the Emergency Department for shipment to MEI's
London billing office, where applicable.
15. It is recognized that PHYSICIAN payments may be adjusted to reflect source
deductions taken at the source by OHIP beyond the control of MEI. It will
be the responsibility of the PHYSICIAN to cover any possible future
government policy change which may affect physician remuneration including
caps, thresholds or any other government policy which will affect physician
remuneration, unless otherwise negotiated. (e.g. OHIP holdback is increased
beyond the current level of 10%).
16. Payment of OMA membership dues and other membership or licensing fees is
the sole responsibility of the PHYSICIAN. In the event that any of these
amounts are deducted from source revenue, these deductions will be passed
on to the physician.
<PAGE>
DECLARATION
The Undersigned PHYSICIAN agrees to the terms of this Agreement.
Signature of Physician_____________________________________
_____________________________________
(Print Name)
Signed this ____________day of ____________________19_______
MEI Representative__________________________________________
__________________________________________
(Print Name)
Signed this__________day of _____________________19_______
<PAGE>
ADDENDUM A
FOR FULL-TIME PHYSICIANS ONLY:
Physicians are expected to work an average of 30 hours/week, in MEI facilities,
during the term of this Agreement. If the physician maintains this average
throughout the contract year, the physician will be entitled to the following
benefits:
1. The PHYSICIAN is entitled to participate in the MEI medical, dental and
disability plan. MEI will pay 50% of the premiums for the benfit plan
after the physician has completed an initial three-month probationary
period.
2. Subscription to Emergency Medical Abstracts will be made on the behalf of
the PHYSICIAN by MEI.
3. The PHYSICIAN will be reimbursed for expenses associated with Accredited
CME events attended to a maximum of $1,000 (CDN) per year. MEI will make
payment to the PHYSICIAN on completion of each 12 month work period and
receipt of supporting documentation.
4. Repayment for CAEP (Canadian Association of Emergency Physicians)
membership will be paid to the PHYSICIAN on completion of each 12 month
work period and receipt of proof of membership.
<PAGE>
EXHIBIT 23.2
[KPMG LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
Med-Emerg International Inc.
We consent to the use of our audit report dated March 26, 1997 on the
consolidated balance sheets of Med-Emerg International Inc. as at December 31,
1996 and 1995, and the consolidated statements of income, retained earnings and
changes in financial position for each of the years in the two-year period ended
December 31, 1996 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG
KPMG
Mississauga, Ontario, Canada
June 6, 1997
<PAGE>
EXHIBIT 23.3
[ZARITSKY PENNY LOGO]
ACCOUNTANTS' CONSENT
The Board of Directors
Med-Emerg International Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ Zaritsky Penny
Chartered Accountants
London, Ontario
June 6, 1997
<PAGE>
EXHIBIT 23.4
[BORDEN & ELLIOT LETTERHEAD]
The Board of Directors
Med-Emerg International, Inc.
We consent to the use of our name in connection with references to Canadian
laws, regulations, treaties and potential liabilities in Amendment No. 2 to
Med-Emerg International, Inc.'s Registration Statement. We note that our name is
specificially referred to on page 2 under the heading "Civil Liabilities," and
page 47 in connection with the information contained under the heading "Tax
Aspects of the Offering" in the Prospectus.
/s/ Borden & Elliot
/s/ Borden & Elliot
Borden & Elliot
Toronto, Canada
June 4, 1997
