<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1997
REGISTRATION STATEMENT NO. 333-21865
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 zip 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 zip 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 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 Securityholder Prospectus"). The Prospectus and
the Selling Securityholder Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholder Prospectus included
herein which are labeled "Alternate Page for Selling Securityholders
Prospectus."
ii
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 8, 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."
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 of the Registration Statement,
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 16.
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>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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, 927563 ONTARIO INC. AND 927564 ONTARIO INC., THEIR WHOLLY-OWNED
SUBSIDIARIES, MED-EMERG, INC. ("MED") AND MED-PLUS HEALTH CENTERS LTD. ("MPHC"),
RESPECTIVELY, AND GLENDERRY WALK-IN CLINIC ("GWIC"), A PARTNERSHIP WHICH IS
MANAGED AND OPERATED, AND 33% OWNED BY, MEI.
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 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 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 under contract to the Company. Under the direction of the
Company's management, the Company's physician pool provides emergency medical
services to 14 emergency rooms located in Ontario, Canada.
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 medical staff and specific clinical departments, to better
control costs, and to assist in meeting their
3
<PAGE>
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 operates four clinics in Canada,
including two in Toronto's International Airport. In addition, the Company
operates the Glenderry clinic in which it owns a 33.33% interest. 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 eight million travelers who use the airport each
year. The staff is comprised of highly qualified critical care nurses who are
on-site and emergency physicians who are on-call.
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 emergency-trained physician 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 second 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 each Urgent Care Centre. See "Use of Proceeds."
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 medical practice but also
in consumer defined quality attributes such as waiting times, quality of
environment,
4
<PAGE>
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. In
Ontario, although there are 20,084 physicians active in the practice of
medicine, only 323 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.
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; 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; 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.). 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.
6
<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) 3,399,883
Total Assets....................................................................... 4,222,870 8,960,514
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 and the repayment of the 8% promissory notes issued in connection
with the Bridge Financing ("Bridge Notes").
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
December 31, 1996, the Company had an accumulated deficit of approximately
$6,954,380 and a working capital deficit of approximately $(1,192,641). 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, one year renewable terms and
termination on 60 days notice. 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 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 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,
8
<PAGE>
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. 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. This utilization adjustment or 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. Any 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. 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%. The government is currently in conflict with the
medical profession over these caps and clawbacks to their income. The Ontario
Medical Association has warned the government of large scale service withdrawal
unless substantive progress is achieved in negotiating a settlement. This
conflict has created greater uncertainty in the province and may result in a
substantial threat to the Company's existing core staffing business or it may
create opportunities for the Company. There can be no assurance as to what new
regulations will be imposed and what effect they will have on the Company.
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; ACQUISITION STRATEGY. As part of its business
strategy, the Company intends to pursue growth through acquisitions of related
and complementary businesses. 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 other systems and to add resources
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
9
<PAGE>
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 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 Underwriter.
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 any of the Company's management or key employees would likely
have a material adverse effect on the business of the Company. The Company
intends to procure key-man life insurance in the amount of $1,000,000 on Mr.
Pahapill prior to the Effective Date, although there can be no assurance that it
can be obtained. 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."
While there are no cumulative voting rights under the Company's Certificate of
Incorporation, 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 finances
the 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 finance
accounts receivable. There can be no assurance that receivables will ultimately
be collected from OHIP and the hospital. Accordingly, there can be no assurance
that the Company will not experience losses due to unsatisfied accounts
receivable which have been financed by the Company.
NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds
of the Offering 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$1,190,000 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."
LIMITED PUBLIC MARKET FOR THE COMPANY'S SECURITIES; NO ASSURANCE OF PUBLIC
TRADING MARKET; PENNY STOCK REGULATION. 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 intends to apply 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, 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
10
<PAGE>
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 US$2,000,000 in total assets, US$1,000,000 in total capital
and surplus, US$1,000,000 in market value of public float, a minimum bid price
of US$1.00 per share and 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. Recently, a
proposal has been made to increase the criteria for continued listing on the
Nasdaq SmallCap Market. If implemented as proposed, stricter criteria for
continued listing on The Nasdaq SmallCap Market would be imposed, including the
implementation of a US$2,000,000 net tangible assets test, higher public float
and market value of public float criteria and the implementation of new
corporate governance rules. No assurance can be given that such proposal will be
adopted or if adopted, that it 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.
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. See
"Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 29.75% of the
net proceeds of the Offering will be applied to working capital and general
corporate purposes. Accordingly, management of the Company will have broad
discretion over the use of proceeds. See "Use of Proceeds."
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 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
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
11
<PAGE>
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 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
12
<PAGE>
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."
13
<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%
Emergency Service Contracts (2).................................... 1,150,000 28.75%
Repayment of Bridge Notes (3)...................................... 510,000 12.75%
Computer Equipment(4).............................................. 150,000 3.75%
Repayment of Line of Credit(5)..................................... $ 100,000 2.50%
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 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 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."
(3) Represents repayment of the principal and accrual interest on the Bridge
Notes in January 1997 in connection with the Bridge Financing. These Bridge
Notes are due 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 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."
(5) Represents repayment of US$100,000 loan against line of credit provided to
the Company by Robert Rubin, a director of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
(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.
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 will 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, 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
14
<PAGE>
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.
The Company estimates that the net proceeds from this Offering 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.
15
<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 $4,500,000 of Convertible Preferred Stock
which is convertible into 500,000 shares of Common Stock at $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.
16
<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
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED (1)
------------ ---------------
Short Term Debt
Promissory Note................................................................. $ 101,368 $ 101,368
8% Bridge Notes................................................................. 680,000 --
------------ ---------------
781,368 101,368
------------ ---------------
------------ ---------------
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......................................................... 336,058 $ 5,554,469
Total Capitalization.............................................................. $ 1,117,426 $ 5,655,837
------------ ---------------
------------ ---------------
</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."
17
<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.
18
<PAGE>
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 either on a fixed fee or fee-for-service
basis. The Company's fees are based on the individual requirements of each
hospital as it relates to the hours of coverage, the patient volume at the
particular hospital, the hospital's location and the availability of a local
physician pool.
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.
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 will collect all fees due to the physician for rendering services.
In exchange for placing the physician and overseeing the collection of fees, the
Company keeps a percentage of the fees and other amounts generated by the
physician. Such percentage ranges from 35% to 43% for clinical physicians and 8%
to 20% for physicians under hospital contracts.
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.
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 6.5% 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
19
<PAGE>
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 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.
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 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. 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 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
20
<PAGE>
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.
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 hospital staffing contracts from 13 to 15 contracts in 1995.
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.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 first Urgent Care Centre is planned to open in the second 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.
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 the net worth covenant and one of
22
<PAGE>
its financial ratio covenants. 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 and is not
in compliance with its net worth covenant and one of its financial ratio
covenants.
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, 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.
23
<PAGE>
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
24
<PAGE>
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. 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
upon two months written notice, and automatically renew if not terminated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company currently has in place contracts for the provision in Ontario of
emergency care services by its contracted physicians with 14 hospitals.
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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 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
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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 CO 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:
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 eight million travelers who use
the airport each year and walk-in services to the 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,
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massage therapy, weight loss program, acupuncture, Chinese medicine and
professional family counseling. The Glenderry clinic is a partnership, of which
the Company owns a 33.33% interest.
The Company recently acquired the assets and physician contracts of a Health
Services Organization (HSO). 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 at the HSO consist of a variety of general medical services.
The Company has 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 Urgent Care Centres which 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 emergency-trained physician 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, 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 second 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
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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 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
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government reduced the fees received under OHIP by prescribed percentages. This
utilization adjustment or 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. Any
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.
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
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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 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 the President of the Urgent Care Clinic Association of
Ontario and is also one of the founders of two urgent care clinics in the
Kitchener-Waterloo region. 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.
34
<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>
1996 $ 169,462 $ 0 $ 19,582(1)
Ramesh Zacharias.................................. 1995 $ 73,000 $ 0 $ 104,857(1)
Chief Executive Officer 1994 $ 73,000 $ 0 $ 69,506
Carl Pahapill..................................... 1996 $ 131,845 $ 0 $ 9,000(2)
Chief Operating Officer, President 1995 $ 0 $ 0 $ 31,000(2)
</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. Prior to the Effective Date, the Company
intends to enter into employment agreements with each of Dr. Zacharias and 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 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 certain
assets from two of the Company's subsidiaries to two unaffiliated companies
owned by the Zacharias', and $39,247 was loaned in connection with tax
liabilities. 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
$610,000, for past services rendered, including the identification potential
acquisition candidates and assisting the Company in developing a strategic
business plan. See "Business--November 1996 Recapitalization" for a description
of the Recapitalization, and "Description of Securities--Preferred Stock" for a
description of the terms of the preferred stock.
On November 1, 1996, the Company granted Robert Rubin, a director, an option
to purchase 700,000 shares of Common Stock at US$.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
37
<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>
SELLING ALLOTMENT STOCKHOLDER NUMBER OF 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
</TABLE>
38
<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. 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.
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
39
<PAGE>
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 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
40
<PAGE>
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 summarizes 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 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.
41
<PAGE>
This summary 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 summary 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.
43
<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.
44
<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.
45
<PAGE>
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.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP,
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.
46
<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 Sheet............................................................ F-4
Consolidated Statement of Operations and Retained Earnings............................ F-5
Consolidated Statement 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 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.
The Company's clinical operations and urgent care centres provide family
practice and walk-in medical services to patients. The Company recognizes
revenues as 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 will bill for all fees relating to
services rendered by the physician. The Company then pays the physician for the
services provided based on the terms of the contract between the Company and the
physician. The Company's gross margin on such physician's services ranges from
35% to 43% for clinical physicians and 8% to 20% for physicians under hospital
contracts.
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.
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: (CONTINUED)
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..................................................................... (46,894) (45,106)
---------- ------------
Equity.................................................................................. $ 5,554 $ 14,863
---------- ------------
</TABLE>
Summarized unaudited results of operations 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................................................................................ $ (4,389) $ 2,874
----------- ------------
----------- ------------
</TABLE>
The proportionate taxable income or loss of the partnership is included in
the taxable income of the respective partners. Accordingly, no provisions 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>
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)
3. WRITE-OFF OF DEFERRED START-UP COSTS: (CONTINUED)
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 the Company.
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.
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>
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)
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>
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.
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)
10. BANK INDEBTEDNESS: (CONTINUED)
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>
<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-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)
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, the Company redeemed and cancelled 17 common shares for cash
consideration of $123,640 from a related party.
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
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. 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.
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)
(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 date of issuance or receipt by the Company of at least U.S.
$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 $1 per common share. The value ascribed to the
common shares was accounted for as a financing cost and is being deferred and
charged to income over the term to maturity of the Bridge Notes.
At March 31, 1997, the Company had issued 12,000 common shares to Mr. Rubin
for services rendered in his capacity as a director of the Company. The issuance
of these shares was accounted for as compensation expense as the related
services are rendered by Mr. Rubin. The Company will issue an additional 38,000
over the remaining nine months for services rendered.
Under a stock option plan, Mr. Robert Rubin will be granted an option to
purchase 700,000 common shares of the Company at an exercise price of U.S.$.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 reasonable be determined due to the unusual related party aspects of
these instruments.
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)
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-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)
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 $3.90 U.S. and $0.10
U.S. respectively for an aggregate public offering of $5,000,000 U.S. Each
warrant entitles the holder to purchase one share of common stock at a price of
$5.00 U.S. 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
Current effect of (SFAS No. 109).......................... 1,000 -- -- -- --
Deferred charges.......................................... (19,484) -- (58,574) -- --
--------- ---------- ------------- ----------- ----------
Net income (loss) based on United States GAAP............. 79,775 (160,499) $ (1,321,098) $ (300,487) $ 174,531
--------- ---------- ------------- ----------- ----------
Primary earnings (loss) per share......................... $ 0.03 $ (0.07) $ (0.54) $ (0.13) $ 0.08
--------- ---------- ------------- ----------- ----------
--------- ---------- ------------- ----------- ----------
</TABLE>
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)
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
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....................................... $ 147,000 $ 517,824 $ (69,775) $ (166,253) $ 338,259
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</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-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)
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-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 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:
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 based on the relative fair
values at the date of issuance. Under U.S. GAAP, based on an ascribed fair value
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)
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
Adjustment to share capital based on ascribed fair value of
share purchase warrants issued............................ (50,000) (50,000) (50,000) --
------------ ---------- ------------ -----------
Capital stock--U.S. GAAP.................................... 7,142,179 794,765 7,005,179 189
Share purchase loan to officer.............................. (60,000) -- (60,000) --
------------ ---------- ------------ -----------
Net capital stock--U.S. GAAP................................ 7,082,179 794,765 6,945,179 189
Contributed surplus--U.S. GAAP.............................. 50,000 -- 50,000 --
Deficit--U.S. GAAP.......................................... (6,985,179) (256,676) (7,064,954) (166,442)
------------ ---------- ------------ -----------
Shareholders' equity (deficit)--U.S. GAAP................... $ 147,000 $ 538,089 $ (69,775) $ (166,253)
------------ ---------- ------------ -----------
------------ ---------- ------------ -----------
</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 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
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)
18. CONTINGENCIES: (CONTINUED)
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.................................... $ 668,796 $ 631,260 $ 842,439 $ 379,468 $ 61,471
Clawback Receivable................................... 514,430 588,953 620,621 471,681 --
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
provided 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-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)
provided at the clinics. 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.
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 in
chiropractic and massage therapy to patients.
Details are as follows:
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1997 SERVICES SERVICES CONSOLIDATED
- ------------------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Revenue.................................................................. $ 2,215,505 $ 620,529 $2,836,034
Operating income......................................................... 555,542 273,430 828,972
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-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)
19. SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1996 SERVICES SERVICES CONSOLIDATED
- ------------------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Revenue.................................................................. $ 2,294,529 $ 383,413 $2,677,942
Operating income......................................................... 461,417 143,725 605,142
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 SERVICES CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................... $ 8,783,309 $ 2,033,739 $ 10,817,048
Operating income...................................................... 1,508,027 754,625 2,262,652
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 SERVICES CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................... $ 9,505,619 $ 1,477,934 $ 10,983,553
Operating income...................................................... 2,026,140 550,782 2,576,922
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 SERVICES CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................... $ 8,997,127 $ 1,477,627 $ 10,474,754
Operating income...................................................... 1,941,174 555,901 2,497,075
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>
F-23
<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................................. 14
Dilution........................................ 16
Capitalization.................................. 17
Dividends....................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business........................................ 24
Management...................................... 32
Certain Relationships and Related
Transactions.................................. 36
Principal Stockholders.......................... 37
Selling Allotment Securityholders............... 38
Description of Securities....................... 39
Shares Eligible for Future Sale................. 43
Underwriting.................................... 44
Legal Matters................................... 46
Experts......................................... 46
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.
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>
[Alternate Page for Selling Securityholders Prospectus]
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.
14
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15
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17
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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.
42
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44
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[Alternate Page for Selling Securityholders Prospectus]
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.
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 Montreal Trust
Company of Canada 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.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP,
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.
45
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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
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.
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
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,
II-3
<PAGE>
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. 1 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 May 8, 1997.
MED-EMERG INTERNATIONAL, INC.
BY: /S/ CARL PAHAPILL
-----------------------------------------
Carl Pahapill, President
By: /s/ KATHRYN GAMBLE
-----------------------------------------
Kathryn Gamble
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints 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
- ------------------------------ --------------------------- -------------------
/s/ RAMESH ZACHARIAS, M.D., Chief Executive Officer,
FRCSC Director
- ------------------------------ May 8, 1997
Ramesh Zacharias, M.D., Frcsc
/s/ CARL W. PAHAPILL Chief Operating Officer,
- ------------------------------ President and Director May 8, 1997
Carl W. Pahapill
/s/ KATHRYN GAMBLE, CA Vice President of Finance,
- ------------------------------ Chief Financial Officer, May 8, 1997
Kathryn Gamble, CA Secretary
/s/ WILLIAM THOMSON, CA Chairman of the Board
- ------------------------------ May 8, 1997
William Thomson, CA
/s/ LARRY GROSSMAN Director
- ------------------------------ May 8, 1997
Larry Grossman
/s/ PETER DEEB Director
- ------------------------------ May 8, 1997
Peter Deeb
/s/ VICTORIA ZACHARIAS Director
- ------------------------------ May 8, 1997
Victoria Zacharias
/s/ ROBERT M. RUBIN Director
- ------------------------------ May 8, 1997
Robert M. Rubin
/s/ PATRICK MICHAUD Director
- ------------------------------ May 8, 1997
Patrick Michaud
<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
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
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.
One Financial Galleria
2 Bridge Avenue
Red Bank, New Jersey 07701
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. (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 150,000 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 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." Any and all redeemable warrants
to purchase Common Stock to be purchased pursuant to such option are referred to
herein as the "Option Warrants," and the Firm Warrants
<PAGE>
and any 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 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 the average closing bid quotations of Common Stock as reported on the
Nasdaq Stock Market if traded thereon, or if not traded thereon, the average
closing sale price if listed on 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 Underwriters that:
(a) A registration statement on Form F-1(File No. 333- _____), 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
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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
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 that registration statement or any amendment
thereto (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
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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.
(c) The Company has been duly incorporated 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 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
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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).
(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 generally accepted accounting principles, 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 & Associates], 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
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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 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 or by-laws, (ii) violation in any material
respect of any law, statute, regulation,
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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 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").
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(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 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
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will conform to the description thereof in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(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 the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Shares at a purchase
price of $3.51 per share and the Firm Warrants at a purchase price of $9.09 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 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
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Firm Closing Date shall be deemed, for purposes of this paragraph (c), to refer
to such Option Securities and Option Closing Date, respectively.
(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.
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
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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 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.
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(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 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
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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 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.
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(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 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 this 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
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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 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.
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(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 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
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Carl Pahapill and Kathryn Gamble, as attorneys-in-fact (the
"Attorneys-in-Fact"), and, such Custody 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
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Company, (iv) the preparation, issuance and delivery to the Underwriter of any
certificates evidencing the Securities, including transfer agent's, warrant
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.
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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 stock is greater than the exercise price of the
Warrants on the date of exercise; (ii) the exercise of the Warrants is solicited
by a member of the NASD; (iii) the Warrants are not held in a discretionary
account; (iv) the disclosure of compensation arrangements is made both at the
time of this offering and at the time of the exercise of the Warrant; and (v)
the solicitation of the Warrant exercise is not in violation of Rule 10b-6 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 the broker/dealer to receive
compensation for 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 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 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 Gersten, Savage, Kaplowitz, Fredericks & Curtin LLP, counsel to
the Company, to the effect that:
(1) the Company and each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
state of its
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incorporation 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 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 Shares have been approved for inclusion in The Nasdaq
Small Cap Market and the Boston Stock Exchange;
(5) 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 law;
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(6) 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;
(7) the statements set forth in the Prospectus under the
caption "Description of Securities" in the Prospectus, 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 in the
Prospectus, insofar as those statements constitute matters of law 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;
(8) 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 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;
(9) 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;
(10) the Company and each of the Subsidiaries possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal or state 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;
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(11) neither the Company nor the 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.
(12) 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;
(13) 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 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; and
(14) 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.
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 them 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
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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.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) 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 August 31, 1996 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,
1995 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 August 31, 1996 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 August 31, 1996 balance sheet included in the
Registration Statement or, during the period from August 31, 1996 through 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.
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<PAGE>
(d) 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 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.
(e) 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.
(f) 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).
(g) 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 (d) through (f) above.
(h) 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.
(i) 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.
(j) The Underwriter shall have received Lock-up Agreements executed
by the persons listed on Schedule 2 annexed hereto.
(k) 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.
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<PAGE>
(l) 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.
(m) 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 and the Selling Shareholders.
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:
(i) 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
27
<PAGE>
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 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:
(i) 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,
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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 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
29
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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 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
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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 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. 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.
10. 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.
(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
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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 or the NASD, 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 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.
11. Information Supplied by the Underwriter. The statements set forth in
the penultimate paragraph on page 3, in the third and eleventh 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
sections 1 (b) and 8(b) hereof. The Underwriter confirm that such statements (to
such extent) are correct.
12. 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 at: Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Attn: Carl Pahapill
Fax: (905) ____________
To the Underwriter at: Network 1 Financial Securities, Inc.
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One Financial Galleria
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Corporate Finance Department
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.
13. 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.
14. 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.
15. 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.
16. 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 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.
17. 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.
18. 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.
33
<PAGE>
19. 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.
20. 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.
21. 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.
22. 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.
23. 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.
24. 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.
34
<PAGE>
25. 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:
35
<PAGE>
Exhibit 1.2
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the day of , 1997 between
Network 1 Financial Securities, Inc. a New Jersey corporation ("Network 1"), and
Med-Emerg International, Inc., a corporation organized under the laws of the
Province of Ontario, Canada (the "Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Network 1 for the term specified in
Paragraph 2 hereof to render advice to the Company as an investment banker
relating to financial and similar matters upon the terms and conditions set
forth herein.
2. Term: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective from _________, 1997 to _________________, 1999.
3. Duties of Network 1: During the term of this Agreement, Network 1
shall, upon the request of the Company, provide the Company with corporate
finance and related financial advisory services, advice with respect to
potential acquisitions and other business transactions and advice with respect
to stockholder relations matters. All obligations of the Consultant contained
herein shall be subject to the Consultant's availability to perform such
services and the amount of notice received from the Company. The Consultant
shall devote such time and effort to the
<PAGE>
performance of its duties hereunder as the Consultant shall determine is
reasonably necessary. The Consultant may look to such others for such factual
information, investment recommendations, economic advice and/or research, upon
which to base its advice to the Company hereunder, as it shall deem appropriate.
The Company recognizes that Network 1 now renders and may continue to render
financial and other advisory services to other companies which may or may not
have policies and conduct activities similar to those of the Company, and
acknowledges that Network 1 shall be free to render advice and to perform those
services for such other companies.
4. Compensation: In consideration for the services rendered by Network 1
to the Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 5 hereof), the Company shall pay Network 1 a
non-refundable fee of $120,000, payable in advance, upon the execution of this
Agreement. In addition, if any Transaction (as defined below) occurs during the
term of this Agreement or within twelve months thereafter, the Company shall pay
fees to Network 1 as follows:
Consideration Fee
------------- ---
First $1,000,000 5% of First $1,000,000
Second $1,000,000 4% of Second $1,000,000
Third $1,000,000 3% of Third $1,000,000
Fourth $1,000,000 2% of Fourth $1,000,000
Consideration in excess of the 1% of Consideration in excess
fourth $1,000,0000 of the fourth $1,000,000
2
<PAGE>
For the purposes of this Agreement, a "Transaction" shall mean (i) any
transaction originated by Network 1, other than in the ordinary course of trade
or business of the Company, whereby, directly or indirectly, control of, or a
material interest in, the Company and its subsidiaries or the business or assets
of the Company and its subsidiaries, is transferred for Consideration, or (ii)
any transaction originated by Network 1 whereby the Company acquires any other
company, or the assets of any other company or an interest in any other company;
and "Consideration" shall mean the total market value on the day of the closing
of stock, cash, assets and all other property (real or personal) exchanged or
received, directly or indirectly by the Company or any of its security holders
in connection with any Transaction. Any co-broker retained by Network 1 shall be
paid by Network 1. All Transaction fees to be paid pursuant to this Agreement,
except as otherwise specified, are due and payable to Network 1 in cash at the
closing or closings of a Transaction. In the event that this Agreement shall not
be renewed or is terminated for any reason, notwithstanding any such non-renewal
or termination, Network 1 shall be entitled to the entire fee provided in this
Paragraph 4, for any Transaction for which the discussions were initiated during
the term of this Agreement and which is consummated within a period of twelve
months after non-renewal or termination of this Agreement. Nothing herein shall
impose any obligation on the part of the Company to enter into any Transaction.
3
<PAGE>
5. Expenses of Network 1: In addition to the fees payable hereunder and
regardless of whether any Transaction is proposed or consummated, the Company
shall reimburse Network 1 for the reasonable fees and disbursements of Network
1's counsel and Network 1's reasonable travel and out-of-pocket expenses
incurred in connection with the services performed by Network 1 pursuant to this
Agreement and at the request of the Company, including without limitation,
hotels, food and associated expenses and long-distance telephone calls.
6. Liability of Network 1:
(a) In furnishing the Company with advice and other services as
herein provided, neither Network 1 nor any officer, director or agent thereof
shall be liable to the Company or its creditors for errors of judgment or for
anything, except for the Consultant's intentional or willful misconduct in the
performance of its duties under this Agreement.
(b) It is further understood and agreed that Network 1 may rely upon
information furnished to it reasonably believed to be accurate and reliable and
that, except as herein provided, Network 1 shall not be accountable for any loss
suffered by the Company by reason of the Company's action or inaction on the
basis of any advice, recommendation or approval of Network 1, its partners,
employees or agents.
(c) The Company acknowledges that all opinions and advice (written
or oral) given by Network 1 to the Company in connection with Network 1's
engagement are intended solely for the
4
<PAGE>
benefit and use of the Company in considering the transaction to which they
relate, and the Company agrees that no person or entity other than the Company
shall be entitled to make use of or rely upon the advice of Network 1 to be
given hereunder, and no such opinion or advice shall be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in any
manner or for any purpose, nor may the Company make any public references to
Network 1, or use Network 1's name in any annual reports or any other reports or
releases of the Company without Network 1's prior written consent.
(d) The Company acknowledges that Network 1 makes no commitment
whatsoever as to making a market in the Company's securities or to recommending
or advising its clients to purchase the Company's securities. Research reports
or corporate finance reports that may be prepared by Network 1 will, when and if
prepared, be done solely on the merits based upon an analysis performed by
Network 1 and its corporate finance personnel.
7. Company Information:
(a) The Company shall furnish to the Consultant all data, material
and other information relevant to the performance by the Consultant of its
obligations under this Agreement, or particular projects as to which the
Consultant is acting as advisor, which will permit the Consultant to know all
facts material to the advice to be rendered, and all material or information
reasonably requested by the Consultant. The Company acknowledges and agrees that
in performing its services under this
5
<PAGE>
engagement, Network 1 may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In the event that the Company fails or refuses
to furnish any such data, material or information reasonably requested by the
Consultant, and thus prevents or impedes the Consultant's performance hereunder,
any inability of the Consultant to perform shall not be a breach of its
obligations hereunder.
(b) Except as contemplated by the terms hereof or as required by
applicable law, Network 1 shall keep confidential all non-public information
provided to it by the Company and shall not disclose such information to any
third party without the Company's prior written consent, other than to such of
its employees and advisors as Network 1 determines in its sole judgment need to
have access thereto. Notwithstanding the foregoing, the Consultant shall not be
required to maintain confidentiality with respect to information (i) which is or
becomes part of the public domain; (ii) of which it had independent knowledge
prior to disclosure; (iii) which comes into the possession of the Consultant or
its employees or agents in the normal and routine course of its own business
from and through independent non-confidential sources; or (iv) which is required
to be disclosed by the Consultant pursuant to legal process or in accordance
with governmental or regulatory requirements. If the Consultant is requested or
required (by oral questions, interrogatories, requests for information or
document subpoenas,
6
<PAGE>
civil investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, the Consultant shall, unless prohibited by law, promptly notify
the Company of such request(s) so that the Company may seek an appropriate
protective order.
8. Indemnification: The Company agrees to indemnify and hold harmless the
Consultant, its partners, employees, agents, representatives and controlling
persons (and the officers, directors, employees, agents, representatives and
controlling persons of each of them) from and against any and all losses,
claims, damages, liabilities, costs and expenses (and all actions, suits,
proceedings or claims in respect thereof) and any legal or other expenses in
giving testimony or furnishing documents in response to a subpoena or otherwise
(including, without limitation, the costs of investigating, preparing or
defending any such action, suit, proceeding or claim, whether or not in
connection with any action, suit, proceeding or claim in which the Consultant is
a party), as and when incurred, directly or indirectly, caused by, relating to,
based upon or arising out of the Consultant's service pursuant to this
Agreement. The Company further agrees that the Consultant shall incur no
liability to the Company or any other party on account of this Agreement or any
acts or omissions arising out of or related to the actions of the Consultant
relating to this Agreement or the performance or failure to perform any services
under this Agreement, except for the Consultant's intentional or
7
<PAGE>
willful misconduct. The obligations of the Company under the Section shall
survive the termination of this Agreement.
9. Independent Contractor: Network 1 shall perform its services hereunder
as an independent contractor and not as an employee of the Company or an
affiliate thereof. It is expressly understood and agreed to by the parties
hereto that Network 1 shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
10. Miscellaneous:
(a) This Agreement between the Company and Network 1 constitutes the
entire agreement and understanding of the parties hereto and supersedes any and
all previous agreements and understandings, whether oral or written, between the
parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder
shall be in writing and shall be deemed sufficiently given if hand-delivered or
sent (i) postage prepaid by registered mail, return receipt requested, or (ii)
by facsimile, to the respective parties as set forth below, or to such other
address as either party may notify the other in writing:
If to the Company, to: Med-Emerg International, Inc.
2559 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Attn: Carl Pahapill
Telecopy No.:
8
<PAGE>
with a copy to: Jay M. Kaplowitz, Esq.
Gersten, Savage, Kaplowitz,
Fredericks & Curtin
101 East 52nd Street
New York, New York 10022
Telecopy No.: (212) 980-5192
If to Network 1, to: Network 1 Financial
Securities, Inc.
One Financial Galleria
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Virginia Sourlis, Esq.
Telecopy No.: (908) 758-6671
with a copy to: Jack Becker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Telecopy No.: (212) 949-7052
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts,
each of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to conflict
of law principles. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit to
the
9
<PAGE>
exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the Federal District Court for the Southern District of
New York with respect to any action or legal proceeding commenced by any party,
and they irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, in care of the address set forth in Section 10(b) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NETWORK 1 FINANCIAL
SECURITIES, INC.
By:________________________________
Name:
Title:
MED-EMERG INTERNATIONAL, INC.
By:________________________________
Carl Pahapill
President
10
<PAGE>
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Item 3 1. The present name of the corporation is:
[ILLEGIBLE]
Corporation M E D - E M E R G I N T E R N A T I O N A L I N C.
Act
2. The name of the corporation is charges
to (if applicable):
N O T A P P L I C A B L E
3. Date of incorporation/amalgamation
28 DECEMBER 1995
-----------------------------------------------------------------
(Day, Month, Year)
4. The articles of the corporation are
amended as follows:
A. The provisions in section 8 (restrictions on the issue,
transfer or ownership of shares) are hereby deleted in
their entirety.
B. The provisions in sections 9A (restriction on number of
shareholders) and 9B (restrictions on invitation to
public to subscribe for shares) are hereby deleted in
their entirety.
<PAGE>
Item 3
[ILLEGIBLE]
Corporation
Act
5. The amendment has been duly
authorized as required by
sections 160 and 170 (as
applicable) of the Business
Corporations Act.
6. The resolution authorizing
the amendment was approved by
the shareholders/directors
(as applicable) of the
corporation on
1997
-----------------------------------------------------------------
(Day, Month, Year)
These articles are signed in duplicate.
MED-EMERG INTERNATIONAL INC.
-------------------------------
(Name of Corporation)
By/Par: /s/ Carl Pahapill
(Signature)
Carl Pahapill
President
<PAGE>
BY-LAW NO. 4
A by-law relating generally to the transaction
of the business and affairs of
MED-EMERG INTERNATIONAL INC.
CONTENTS
Part Description
I - Interpretation
II - General
III - Directors
IV - Officers
V - Meeting of Shareholders
VI - Protection of Directors, Officers
and Others
VII - Dividends and Rights
VIII - Notices
IX - Effective Date
BE IT ENACTED as a by-law of Med-Emerg International Inc. (hereinafter
referred to as the "Corporation") as follows:
PART I
INTERPRETATION
1.01 Definitions. In this by-law, unless the context otherwise requires:
(a) "Act" means the Business Corporations Act (Ontario) and any statute
that may be substituted therefor, as from time to time amended;
(b) "Board" means the board of directors of the Corporation;
(c) "by-laws" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
<PAGE>
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(d) "holiday" has the meaning ascribed to that term by the Interpretation
Act (Canada) and any statute that may be substituted therefor, as from
time to time amended; and
(e) "meeting of shareholders" includes an annual meeting of shareholders
and a special meeting of shareholders.
1.02 Words and Phrases. Words and phrases defined in the Act and used herein
shall, unless the context otherwise requires, have the same meaning herein as in
the Act.
1.03 Number and Gender. In this by-law, words importing the singular number only
shall include the plural and vice versa; words importing gender shall include
all genders; words importing persons shall include individuals, bodies
corporate, corporations, partnerships, trusts and any number or aggregate of
persons.
1.04 Interpretation Net Affected by Headings. The insertion of headings in this
by-law is for convenience of reference only and shall not affect the
construction or interpretation hereof.
1.05 Conflict with Act. The by-laws are made pursuant to and should be read in
conjunction with the Act. In case of conflict between the provisions of any
by-law and any provision of the Act, the applicable provision of the Act shall
govern.
1.06 Calculation of Time. The computation of time, and any period of days shall
be determined in accordance with the provisions of the Interpretation Act
(Canada), and any statute that may be substituted therefor, as from time to time
amended.
PART II
GENERAL
2.01 Execution of Documents. Deeds, transfers, assignments, contracts,
obligations, certificates and other instruments (except a document arising in
the ordinary course of the Corporation's business) may be signed on behalf of
the Corporation:
(i) by such person or persons as shall have been appointed by resolution
of the Board to sign such document or such class of document,
including through the use of facsimile reproduction of signatures; or
(ii) in the absence of any such resolution, by any two of the Chairman, the
President, a Vice-President, the Secretary, the Treasurer or any two
directors, or any one
<PAGE>
-3-
of the foregoing persons together with any Assistant Secretary,
Controller or Assistant Treasurer
and when so signed shall be binding upon the Corporation without further act or
formality.
2.02 Corporate Seal. The Corporation may but need not have a corporate seal. Any
corporate seal adopted for the Corporation shall be such as the Board may by
resolution from time to time approve. The corporate seal of the Corporation may,
when deemed desirable, be affixed to any document by the person or persons
authorized to sign such Document on behalf of the Corporation.
2.03 Information for Shareholders. No shareholder shall be entitled to discovery
of any information respecting the Corporation's business which, in the opinion
of the Board, would not be in the best interests of the shareholders or the
Corporation to communicate to the public. The Board may from time to time
determine whether and to what extent and at what time and place and under what
conditions and regulations the accounts, records and documents of the
Corporation or any of them shall be open to the inspection of shareholders or
other persons and no shareholder or other person shall have any right of
inspecting any account, record or document of the Corporation except as
conferred by the Act or by any other applicable legislation or as authorized by
the Board.
PART III
DIRECTORS
3.01 Number of Directors and Quorum. Subject to the articles, the board shall
consist of the number of directors specified in the articles; if the articles
provide for a minimum and maximum number of directors, the board shall consist
of the number of directors determined from time to time by a special resolution
(or, if the directors are empowered by a special resolution to determine the
number, by a resolution of the board) within such minimum and maximum. A
majority of the number of directors to specified or determined shall constitute
a quorum at any meeting of the board.
3.02 Calling of Meetings. Meetings of the Board may be held from time to time at
such place, at such time, on such day and in such manner as the Chairman, the
President or any two directors may determine, and the Secretary shall call
meetings when directed or authorized by the Chairman, the President or such two
directors. Notice of every meeting so called shall be given to each director not
less than forty-eight hours (excluding any part of a Saturday or of a holiday)
before the time when the meeting is to be held, save that no notice of a meeting
shall be necessary if all the directors are present or if those absent waive
notice of or otherwise signify in writing their consent to the holding of such
meeting, either before or after such meeting.
<PAGE>
-4-
3.03 Chairman of Meeting. The Chairman or, in this absence, the President or, in
his absence, a Vice-President who is a director shall be chairman of any meeting
of the Board. If no such person is present, the directors present shall choose
one of their members to be chairman of the meeting.
3.04 Votes to Govern. At all meetings of the Board, every question to be decided
by the Board shall be decided by a majority of the votes cast on the question.
The chairman of the meeting shall not have a second or casting vote.
PART IV
OFFICERS
4.01 Officers. The Board shall appoint a Chairman, a President, a Chief
Executive Officer and a Secretary and such other officers, if any, as the Board
in its discretion shall from time to time deem advisable. The Board may by
resolution specify the duties of officers.
PART V
MEETING OF SHAREHOLDERS
5.01 Special Meeting. The Board, the Chairman or the President may at any time
call a special meeting of the shareholders for the transaction of any business,
the nature of which is specified in the notice calling the meeting. Any special
meeting of the shareholders may be held in conjunction with an annual meeting of
shareholders.
5.02 Chairman and Secretary of Meeting. The Chairman or, in his absence, the
President or, in their absence, a Vice-President who is a director of the
Corporation, shall preside as chairman at any meeting of shareholders. If no
such officer is present within thirty minutes after the time appointed for the
holding of the meeting, the persons present and entitled to vote thereat shall
choose one of their number to be chairman. The Secretary of the Corporation
shall be the secretary of any meeting of shareholders but if the Secretary of
the Corporation is not present, the chairman of the meeting shall appoint some
person who need not be a shareholder to act as secretary of the meeting.
5.03 Persons Entitled to be Present. The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the auditors of
the Corporation and others who, although not entitled to vote, are entitled or
required under any provision of the Act or the by-laws to be present at the
meeting. Any other person may be admitted only on the invitation of the chairman
of the meeting and with the consent of the meeting.
<PAGE>
-5-
5.04 Quorum. A quorum for the transaction of business at any meeting of
shareholders shall be two individuals present in person each being a shareholder
entitled to vote thereat or being a duly appointed proxy for an absent
shareholder so entitled and together holding or representing by proxy shares
carrying at least five percent (5%) of the vote entitled to be cast at such
meeting.
5.05 Scrutineers. If desired, one or more scrutineers may be appointed to serve
at the meeting of shareholders by a resolution of the meeting or by the chairman
of the meeting with the consent of the meeting. Such scrutineers need not be
shareholders of the Corporation.
5.06 Votes to Govern. All questions proposed for the consideration of the
shareholders at a meeting of shareholders shall, unless otherwise required by
the Act, the articles or the by-laws, be determined by the majority of the votes
cast.
5.07 Show of Hands. At any meeting of shareholders every motion shall, subject
to be provisions of the Act, be decided by a show of hands unless a ballot
thereon is required by the chairman of the meeting or is demanded by any
shareholder entitled to vote and present in person or by proxy. Upon a show of
hands every person who is present and entitled to vote shall have one vote.
Before or after a show of hands has been taken upon any motion, the chairman may
require or any shareholder entitled to vote and present in person or by proxy
may demand a ballot thereon. Unless a ballot thereon is required or demanded, a
declaration by the chairman of the meeting that the vote upon a motion has been
carried or carried by a particular majority or not carried shall be the decision
of the shareholders upon the motion and an entry in the minutes of the meeting
to the effect that the chairman of the meeting declared the motion to be carried
shall be admissible in evidence as prima facie proof of the fact without proof
of the number or proportion of votes recorded in favour of or against the
motion. A demand for a ballot may be withdrawn at any time prior to the taking
of the ballot.
5.06 Ballot. If a ballot is required by the chairman of the meeting or is duly
demanded by any shareholder entitled to vote and present in person or by proxy
and the demand is not withdrawn, a ballot upon the motion shall be taken in such
manner as the chairman of the meeting shall direct. Upon a ballot, each
shareholder who is present in person or represented by proxy, unless the Act or
articles otherwise requires, shall be entitled to one vote for each share in
respect of which he is entitled to vote at the meeting and the result of the
ballot shall be the decision of the shareholders upon the motion. An entry in
the minutes of the meeting of shareholders to the effect that the chairman
declared the motion to be carried shall be admissible in evidence as prima facie
proof of the fact without proof of the number or proportion of votes recorded in
favour of or against the motion on the ballot.
<PAGE>
-6-
PART VI
PROTECTION OF DIRECTORS AND OFFICERS
6.01 Limitation of Liability. No director or officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or for any
loss, damage or expense happening to the Corporation through the insufficiency
or deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or upon
which any of the moneys of the Corporation shall be invested, or for any loss or
damage arising from the bankruptcy, insolvency or tortious acts of any person
with whom any of the moneys, securities or effects of the Corporation shall be
deposited, or for any loss occasioned by any error of judgement or oversight on
his part, or for any other loss, damage or misfortune whatever which shall
happen in the execution of the duties of his office or in relation thereto;
provided that nothing herein shall relieve any director or officer from the duty
to act in accordance with the Act and the regulations thereunder or from
liability for any breach thereof.
6.02 Indemnity. Subject to the limitations contained in the Act, the Corporation
shall indemnify a director or officer, a former director or officer, or a person
who acts or acted at the Corporation's request as a director or officer of a
body corporate of which the Corporation is or was a shareholder or creditor and
his heirs and legal representatives, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgement, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the Corporation or such body corporation, if
(a) he acted honestly and in good faith with a view to the best interests of
the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he had reasonable grounds for believing
that his conduct was lawful.
The Corporation shall also indemnify such person in such other circumstances as
the Act permits or requires. Nothing in this by-law shall limit the right of any
person entitled to indemnity apart from the provisions of this by-law.
6.03 Insurance. The Corporation may purchase and maintain insurance for the
benefit of any person referred to in section 6.02 against such liabilities and
in such amounts as the board may from time to time determine and are permitted
by the Act.
<PAGE>
-7-
PART VII
DIVIDENDS AND RIGHTS
7.01 Dividend Cheques. A dividend payable in cash may be paid by cheque drawn on
the Corporation's bankers or at any one of them to the order of each registered
holder of shares of the class or series in respect of which it has been declared
and mailed by ordinary mail, postage prepaid, to such registered holder at his
address appearing on the register of shareholders, unless such holder otherwise
directs. In the case of joint holders the cheque shall, unless such joint
holders otherwise direct, be made payable to the order of all of such joint
holders and mailed to them at the address appearing on the register of
shareholders in respect of such joint holding or to the first address so
appearing if there are more than one. The mailing of such cheque as aforesaid,
unless the same be not paid on due presentation, shall satisfy and discharge the
liability for the dividend to the extent of the sum represented thereby plus the
amount of any tax which the Corporaton is required to and does withhold.
7.02 Non-receipt of Cheques. In the event of non-receipt of any cheque by the
person to who it is sent as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount upon such terms as to indemnity
and evidence of non-receipt and of title as the Board may from time to time
prescribe, whether generally or in any particular case.
7.03 Unclaimed Dividends. Any dividend unclaimed after a period of six years
from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
PART VIII
NOTICES
8.01 Method of Giving Notices. Any notice (which term includes any communication
or document) to be given, sent, delivered or served pursuant to the Act, the
articles, the by-laws or otherwise to a shareholder, director, officer or
auditor shall be sufficiently given if delivered personally to the person to
whom it is to be given or if delivered to his recorded address or if mailed to
him at his recorded address by ordinary mail, postage prepaid, or if sent to
him at his recorded address by telegram, telex, telecopy or other similar
method of recorded electronic communication. A notice so delivered shall be
deemed to have been given when it is delivered personally or at the address
aforesaid; a notice so mailed shall be deemed to have been given when deposited
in a post office or public letter box; and a notice sent by recorded electronic
communication shall be deemed to have been given when dispatched or when
delivered to the appropriate communication company or its representative for
dispatch. The term "recorded address" means, in the case of a shareholder, his
address as recorded in the register of shareholders and in the case of a
director, officer or auditor his address as recorded in the
<PAGE>
-8-
records of the Corporation. The Secretary may change or cause to be changed
the recorded address of any shareholder, director, officer or auditor in
accordance with any information believed by him to be reliable.
8.22 Notice to Joint Shareholders. If two or more persons are registered as
joint holders of any share, notice to one of such persons shall be sufficient
notice to all of them. Any notice shall be addressed to all of such joint
holders and the address to be used for the purposes of Section 8.01 shall be the
address appearing on the register of shareholders in respect of such joint
holding, or the first address so appearing if there are more than one.
8.03 Omissions and Errors. The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of any Committee of the Board
or the non-receipt of any notice by any such person or any error in any notice
not affecting the substance thereof shall not invalidate such notice or any
action taken at any meeting held pursuant to such notice or otherwise founded
thereon.
PART IX
EFFECTIVE DATE
9.01 Effective Date. This by-law shall be effective on the date of the closing
of an initial public offering of any securities of the Corporation.
9.02 Repeal. By-laws Nos. 1, 2 and 3 (and any amendments thereto) of the
Corporation are repealed as of the effective date of this by-law. Such repeal
shall not affect the previous operaton of any by-law so repealed or affect the
validity of any act done or right, privilege, obligation or liability acquired
or incurred under, or the validity of any contract or agreement made pursuant
to, or the validity of any articles (as defined in the Act) or predecessor
charter documents of the Corporation obtained pursuant to any such by-law prior
to its repeal. All officers and persons acting under any by-law so repealed
shall continue to act as if apponted under the provisions of this by-law and
all resolutions of the shareholders or the board with continuing effect passed
under any repealed by-law shall continue good and valid except to the extent
inconsistent with this by-law and until amended or repealed.
<PAGE>
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PASSED by the board on the 20 day of March, 1997
/s/ Carl Pahapill /s/ Kathryn Gable
- ---------------------- -------------------------
President Secretary
CONFIRMED by the shareholders in accordance with the Act on the 23 day of
April, 1997.
/s/ Kathryn Gable
-------------------------
Secretary
<PAGE>
Exhibit 4.1
MED-EMERG INTERNATIONAL, INC.
AND
NETWORK 1 FINANCIAL SECURITIES, INC.
UNDERWRITER'S
WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of _____________, 1997
between MED-EMERG INTERNATIONAL, INC. (the "Company") and NETWORK 1 FINANCIAL
SECURITIES, INC. (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
$4.90 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 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
("Holders" 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
2
<PAGE>
Holders thereof, in whole or in part, as to the whole number of shares of Common
Stock or Warrants purchasable therewith (but 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,
3
<PAGE>
Chief Executive Officer, President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
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 and their respective officers and
partners, 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
4
<PAGE>
9 of the Warrant Agreement, which provisions are hereby incorporated by
reference herein and made a part hereof.
7. Registration Rights.
(a) Registration Under the Securities Act of 1933. The Underwriter's
Warrants have not been registered under the Act. The Underwriter's Warrant
Certificates shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not
be offered for sale or sold except pursuant to (i) an effective
registration statement under the Act, or (ii) an opinion of counsel,
if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available.
(b) 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
5
<PAGE>
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(b) 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 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.
(c) 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
6
<PAGE>
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(b). Notwithstanding the provisions of this Section 7(c) and the provisions of
Section 7(d), the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7(c) (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.
d. Covenants of the Company With Respect to Registration. In
connection with any registrations under Sections 7(b) and 7(c) 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(b); 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
7
<PAGE>
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(b) and 7(c) 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(d), 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.
(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,
8
<PAGE>
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 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(b) hereof without the prior written consent of the
Holders of a Majority of the Registrable Securities.
9
<PAGE>
(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 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
<PAGE>
(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 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
11
<PAGE>
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.
e. 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(d) 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 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
12
<PAGE>
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 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
13
<PAGE>
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; 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
14
<PAGE>
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
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
<PAGE>
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 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
16
<PAGE>
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.
17
<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.
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:
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 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 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 and Network 1 Financial Securities, Inc. (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.
A-1
<PAGE>
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
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.
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. (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.
<PAGE>
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 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
2
<PAGE>
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 5:00
p.m. New York 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 or
Assistant Secretary 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
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
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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 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 equal to or greater 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") , (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in
7
<PAGE>
documents provided to the holders of the Warrants, and (v) the solicitation of
the exercise of the Warrant is not in violation of Rule 102 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.
(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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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, for a
consideration per share less than both the "Market Price" (as defined in Section
9(a)(vi) hereof) per share of Common Stock on the trading day immediately
preceding such
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issuance or sale and the Warrant Price in effect immediately prior to such
issuance or sale, or 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
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therefrom any compensation paid or discount allowed in 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
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exercise of options, warrants or rights and upon the conversion or exchange of
convertible or exchangeable securities.
(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 in the Nasdaq Stock Market, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq Stock Market, the closing bid quotation as
furnished by the National Association of Securities Dealers, Inc. through Nasdaq
or a similar organization if Nasdaq is no longer reporting such information, or
if the Common Stock is not quoted on Nasdaq, 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 Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the Nasdaq Stock 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
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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 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
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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 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
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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) .
(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
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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 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.
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(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 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
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(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, or
(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 (5(cent)) 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 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
20
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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 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
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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 Warrant holder 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
price upon the exercise of a Warrant, setting forth
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<PAGE>
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
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deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, 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 average closing bid quotation of the Common Stock as
reported on the Nasdaq Stock Market, if
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traded thereon, or if not traded thereon, the average closing sale price if
listed on a national securities exchange (or other reporting system that
provides last sale prices), has been at least $8.00 per share for a period of 20
consecutive 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
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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.
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.
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(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, 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
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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 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.
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(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 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
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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.
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
30
<PAGE>
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: ____________________
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:
Network 1 Financial Securities, Inc.
One Financial Galleria
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
31
<PAGE>
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 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.
32
<PAGE>
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:
33
<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. (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
1
<PAGE>
and shall execute 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 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 average closing bid quotation of the Common Stock as reported
on The Nasdaq Stock Market, if traded thereon, or if not traded thereon, the
average closing sale price if listed on national exchange (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
2
<PAGE>
Company 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., please check the following 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>
Exh. 10.4
1997
STOCK OPTION PLAN
A. Purpose
The purpose of the Stock Option Plan (the "Plan") is to provide a means
whereby the Corporation may, through the grant of options to purchase common
shares of the Corporation ("common shares") to officers, directors,
employees, service providers, consultants and contractors of the Corporation,
and of any affiliate or subsidiary of the Corporation, motivate officers,
directors, employees and other service providers, consultants and contractors
(including officers and directors who are not employees) to exert their best
efforts on behalf of the Corporation, and any affiliate or subsidiary, and
closely align the personal interests of such officers, directors, employees,
service providers, consultants and contractors with those of the
shareholders. Options may be granted by the Corporation from time to time to
officers, directors, key employees, service providers, consultants and
contractors or to a personal holding corporation controlled by such optionees
or to a registered retirement savings plan established by such optionees of
the Corporation, or of any affiliate or subsidiary of the Corporation, to
purchase common shares (such persons, corporations and plans shall be
considered to be the class of eligible optionees hereunder).
B. Number of Shares Available Under Plan
Common shares to be issued upon exercise of an option granted under the
Plan shall be reserved on the date of the grant of an option for issuance
upon exercise of such option.
(1) Maximum Number. Subject to adjustment as provided in Subparagraph
D(8) below, the aggregate number of common shares which may be reserved for
issuance under the Plan shall not exceed 638,000 common shares.
(2) Insiders. Notwithstanding anything else herein contained:
(a) the number of common shares which may be reserved for issuance
under the Plan and under any other employee stock option plans
or other share compensation arrangements of the Corporation to
insiders (as defined in the Securities Act (Ontario)) of the
Corporation, and of any affiliate or subsidiary of the
Corporation, shall not exceed 10% of the outstanding issue (as
hereinafter defined);
<PAGE>
2
(b) the number of common shares which may be issued within a one-
year period pursuant to the Plan and under any other employee
stock option plans or other share compensation arrangements of the
Corporation to insiders of the Corporation, shall not exceed 10%
of the outstanding issue; and
(c) the number of common shares which may be issued within a
one-year period pursuant to the Plan and under any other employee
stock option plans or other share compensation arrangements of
the Corporation to any one insider of the Corporation, and such
insider's associates shall not exceed 5% of the outstanding
issue.
For the purposes of Subparagraph B(2)(a), "outstanding issue" means the
number of common shares outstanding on a non-diluted basis, subject to
applicable adjustments as provided for in the by-laws and rules of any stock
exchange having jurisdiction. For the purposes of subparagraph B(2)(b) and
(c), "outstanding issue" is determined on the basis of the number of common
shares that are outstanding immediately prior to the share issuance in
question, excluding common shares issued pursuant to share compensation
arrangements over the preceding one-year period. For the purposes of
Paragraph B(2), an entitlement granted prior to the grantee becoming an
insider may be excluded in determining the number of shares issuable to
insiders.
(3) Individual. The aggregate number of common shares which may be
reserved for issuance to any one person under the Plan shall not exceed the
number of common shares remaining after:
i) the aggregate number of common shares reserved for issuance
under the Plan and under any other employee stock option plus
or other share compensation arrangements of the Corporation held
by such person on the date of the grant of any option;
is subtracted from
ii) 5% of the aggregate number of common shares issued and
outstanding (on a non-diluted basis) on the date of the grant of
such option.
(4) Termination Expiry, etc. If any option granted under the Plan shall
terminate, expire or, with the consent of the optionee, be cancelled as to
any common shares, new options may thereafter be granted covering such common
shares, subject to applicable regulatory requirements.
<PAGE>
3
C. Administration
(1) Supervision by Board. The Plan shall be administered under the
supervision of the board of directors of the Corporation or by the
compensation committee of the board of directors which is charged with the
responsibility of administering the Plan (both of which are referred to
hereinafter as the "Board").
(2) Powers of Board. Subject to the provisions of the Plan, the Board
shall have the power to:
(a) determine and designate from time to time those officers, directors,
employees, service providers, consultants and contractors of the
Corporation, or of any affiliate or subsidiary of the Corporation, to
whom options are to be granted and the number of common shares to be
optioned to each officer, director, employee, service provider,
consultant or contractor; and
(b) determine the time or times when, and the manner in which, each
option shall be exercisable and the duration of the exercise period
for each proposed option.
(3) Other Options and Purchase Plans. An officer, director, employee,
service provider, consultant or contractor who has been granted an option
may, if the person is otherwise eligible, be granted an additional option or
options under this Plan or any other option or purchase plans of the
Corporation if the Board shall so determine.
(4) Interpretation: Rules and Regulations. The Board may interpret the
Plan, prescribe, amend and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, and make such other
determinations and take such other actions as it deems necessary or
advisable. Without limiting the generality of the foregoing, the Board may,
in its discretion, treat all or any portion of any period during which an
optionee is on an approved leave of absence from the Corporation, or an
affiliate or subsidiary of the Corporation, as a period of employment of such
optionee by the Corporation, or such affiliate or subsidiary, as the case may
be, for the purpose of accrual of the optionee's rights under the optionee's
option. Any interpretation, determination or other action made or taken by
the Board shall be final, binding and conclusive.
<PAGE>
4
D. Terms and Conditions
Each option granted under the Plan shall be evidenced by an agreement, in
a form approved by the Board, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the Board may
deem appropriate:
(1) Option Period. Each option agreement shall specify the period for
which the option thereunder is exercisable (which in no event shall exceed 5
years from the date of grant) and shall provide that the option shall expire
at the end of such period.
(2) Option Price. The option price per common share shall be determined by
the Board at the time any option is granted but in no event shall such price
be lower than the Market Price (as hereinafter defined) at the time of the
grant.
""Market Price'' means:
(a) at any time during which the common shares are listed and posted
for trading or are quoted on any stock exchange, the closing sale
price for board lots of common shares on such exchange on the last
business day on which a trade occurred immediately prior to the date
of the grant; and
(b) at any other time, the fair market value of the common shares, as
determined by the Board, with due regard being had to any
over-the-counter sale prices, asked and bid prices, volume
quotations, value of assets and liabilities of the Corporation,
income and prospects of the Corporation, and such other
considerations as the Board shall in its sole discretion determine
to be relevant.
(3) Exercise of Options. At the time of the grant of each option, the
Board shall determine when the option shall become exercisable, the
conditions, if any for the vesting of the option and the period of time over
which the option may be exercised, all within applicable regulatory limits.
The Board may determine whether the options shall be exercisable in
instalments, and may impose such other restrictions as it shall deem
appropriate.
(4) Payment of Purchase Price Upon Exercise. The purchase price of the
shares for which an option shall be exercised shall be paid in cash or by
certified cheque to the Corporation at the time of exercise.
<PAGE>
5
(5) Exercise in the Event of Death or Termination of Employment.
(a) With respect to an optionee who is an employee, officer, service
provider, consultant or contractor of the Corporation or an affiliate
or subsidiary of the Corporation, if any such optionee's (or, if the
optionee is a personal holding company controlled by, or a registered
retirement savings plan established by, an officer, employee, service
provider, consultant or contractor then if such person's) employment,
office with or services to the Corporation, or an affiliate or
subsidiary of the Corporation, shall terminate for any reason,
including the optionee's death, permanent disability or termination
of employment with or without cause, the optionee may exercise the
optionee's option, to the extent that the optionee may be entitled
to do so at the date of the termination of the optionee's employment,
office or services, at any time or from time to time, within 30 days
of the date of termination of the optionee's employment, office or
services, but in no event later than the expiration date specified in
accordance with Subparagraph D(1) above.
(b) With respect to any optionee who is a director of the Corporation or
an affiliate or subsidiary of the Corporation, if any such optionee's
(or, if the optionee is a personal holding company controlled by, or
a registered retirement savings plan established by a director, then
if such person's) directorship with the Corporation, or an affiliate
or subsidiary of the Corporation, shall be terminated for any reason,
including the optionee's death, permanent disability or termination
with or without cause, the optionee may exercise the optionee's
option, to the extent that the optionee would be entitled to do so at
the date of the termination of the optionee's directorship, at any
time or from time to time, within 60 days of the date of termination
of the optionee's directorship, but in no event later than the
expiration date specified in accordance with Subparagraph D(1) above.
(6) Non-transferability. No option granted under the Plan shall be
transferable or assignable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, an option shall be
exercisable only by such optionee.
<PAGE>
6
(7) Investment Representation, Listing and Regulation.
(a) Each option shall be subject to the requirement that if at any time
the Board shall determine, in its discretion, that the registration,
qualification or other approval of or in connection with the Plan or
the common shares covered thereby is necessary or desirable under any
governmental or regulatory authority, then such option may not be
exercised, in whole or in part, unless and until such registration,
qualification or approval shall have been obtained free of any
condition not acceptable to the Board. The optionee shall, to the
extent applicable, cooperate with the Corporation in relation thereto
and shall have no claim or cause of action against the Corporation or
any of its officers, directors or shareholders as the result of any
failure by the Corporation to take any steps to obtain any such
registration, qualification or approval.
(b) The granting of options and the issuance of common shares under the
Plan shall be carried out in compliance with applicable statutes and
with regulations of governmental authorities and applicable stock
exchanges.
(8) Adjustments in Event of Change of Common Shares. Subject to any
required approvals of applicable regulatory authorities and stock exchanges,
in the event of any change in the common shares by reason of any stock
dividend, recapitalization, merger, consolidation, split-up, combination or
exchange of shares, or rights offering to purchase common shares at a price
substantially below fair market value, or of any similar change affecting the
common shares, the number and kind of shares which thereafter may be optioned
and sold under the Plan and the number and kind of shares subject to option
in outstanding option agreements and the purchase price per share thereof
shall be appropriately adjusted consistent with such change in such manner as
the Board may deem equitable to prevent substantial dilution or enlargement
of the rights granted to, or available for, participants in the Plan.
(9) Liquidation. In the event the Board shall adopt a plan of complete
liquidation, all options shall become immediately exercisable in full,
notwithstanding that they may have been initially granted on an instalment
basis.
(10) No Rights as Shareholder. No optionee shall have any rights as a
shareholder with respect to any common shares subject to the optionee's
option prior to the date of issuance to such optionee of a certificate or
certificates for such shares.
<PAGE>
(11) No Rights to Continued Employment. The Plan and any option granted
under the Plan shall not confer upon any optionee any right with respect to
or service provider to the Corporation, or any affiliate or subsidiary of the
Corporation, nor shall they interfere in any way with the right of the
Corporation, or any affiliate or subsidiary of the Corporation, by which an
optionee is employed or of which the optionee is a director, consultant,
contractor or service provider to terminate the optionee's employment or
directorship or services at any time in accordance with applicable law.
E. Amendment and Discontinuance
Subject to applicable regulatory requirements, the Board may from time to
tome amend, suspend, terminate or discontinue the Plan provided, however,
that subject to the provisions of Subparagraph D(8) above, no action of the
Board may:
(1) Increase Limits. Increase the number of common shares
reserved for options pursuant to Paragraph B above;
(2) Change Eligibility. Change the class of eligible employees,
officers, directors or service providers to whom options may be granted;
(3) Lengthen Term. Permit the granting of options which expire
beyond the period provided for in Subparagraph D(1) above; or
(4) Reduce Price. Permit the granting of any option at an option
price less than that determined in accordance with Subparagraph D(2) above;
unless the Plan is required to be amended in order to otherwise comply with
changes in applicable laws.
F. Proceeds from Sales of Shares
Any cash proceeds from the sale of shares issued upon exercise of the
options shall be added to the general funds of the Corporation.
G. Term of Plan
Options may be granted only within 5 years from the date the Plan has been
adopted by the Board.
<PAGE>
8
H. Shareholder Approval
The Plan shall be presented to the Corporation's shareholders within 12
months or its adoption by the Board for approval by such shareholders.
Options may be granted prior to such approval, but such options shall be
contingent upon such approval being obtained any may not be exercised prior
to such approval.
<PAGE>
[LETTERHEAD OF MED-EMERG INC.]
April 7, 1997
Carl Pahapill
14 Pine Cliff Avenue
Mississauga, Ontario
L5N 1E3
Loan Agreement
This is to acknowledge that Med-Emerg Inc. loaned Carl Pahapill $60,000 CDN on
June 7, 1996. The loan is non-interest bearing and repayable over 5 years with
principal repayments commencing 2 years from the effective date of Mr.
Pahapill's employment agreement. The terms of the above loan are outlined in Mr.
Pahapill's employment agreement which becomes effective from the date of the
initial public offering.
The above party has agreed to the above arrangements.
/s/ Carl Pahapill
- -------------------------------
Carl Pahapill
April 7, 1997
- -------------------------------
Date
<PAGE>
[LETTERHEAD OF MED-EMERG INC.]
April 9, 1997
Ramesh and Victoria Zacharias
1486 Hollywell Avenue
Mississauga, Ontario
L5N 4P2
Loan Agreement
This is to acknowledge that Med-Emerg Inc. has loaned an aggregate of $139,698
to Dr. Zacharias, Vicki Zacharias and their affiliated companies. These loans
are non-interest bearing with no specific terms of repayment. Upon completion of
the initial public offering, the Company has agreed to repurchase 37,456 common
shares at purchase price of US $ 2.75 per share. The proceeds from this
transaction will be used to repay the outstanding amounts owed by Dr. Zacharias,
Victoria Zacharias and their affiliated companies.
The parties have agreed to the above arrangements.
/s/ Ramesh Zacharias /s/ Victoria Zacharias
- ------------------------------- -------------------------------
Ramesh Zacharias Victoria Zacharias
April 9, 1997 April 9, 1997
- ------------------------------- -------------------------------
Date Date
<PAGE>
EXHIBIT 21.1
927563 Ontario Inc.
927564 Ontario Inc.
Med-Emerg, Inc.
Med-Plus Health Centers Ltd.
Canadian Medical Center Prague
<PAGE>
[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.
KPMG
/S/ KPMG
MISSISSAUGA, ONTARIO, CANADA
MAY 8, 1997
<PAGE>
[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
May 7, 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. 1 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 36 in connection with the information contained under the heading "Tax
Aspects of the Offering" in the Prospectus.
/s/ Borden & Elliot
Borden & Elliot
Toronto, Canada
May 8, 1997
