<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION STATEMENT NO. 333-21899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MED-EMERG INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CANADA 3842 NA
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code) Identification
incorporation or organization) No.)
</TABLE>
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Address, including postal code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
CARL PAHAPILL
PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
MED-EMERG INTERNATIONAL, INC.
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Name, address, including postal code and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
JAY M. KAPLOWITZ, ESQ. JACK BECKER, ESQ.
ARTHUR S. MARCUS, ESQ. SNOW BECKER KRAUSS P.C.
GERSTEN, SAVAGE, KAPLOWITZ & 605 THIRD AVENUE
FREDERICKS, LLP 25TH FLOOR
101 EAST 52ND STREET NEW YORK, NEW YORK 10158-0125
NEW YORK, NEW YORK 10022 (212) 687-3860
(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) $4.25 $ 6,109,375 $ 1,851.33
Redeemable Common Stock Purchase Warrants........ 1,437,500(3) $0.10 $ 143,750 $ 43.56
Common Stock issuable upon exercise of Redeemable
Common Stock Purchase.......................... 1,437,500(4) $4.50 $ 6,468,750 $ 1,960.23
Underwriters' Warrant to Purchase Common Stock... 125,000 $6.375 $ 796,875 $ 241.48
Underwriters' Warrant to purchase
Warrants....................................... 125,000 $0.15 $ 18,750 $ 5.68
Common Stock issuable upon exercise of Warrants
issuable upon exercise of Underwriters'
Warrants....................................... 125,000(4) $6.75 $ 843,750 $ 255.68
Common Stock being Registered for Selling
Stockholders................................... 62,500 $4.25 $ 265,625 $ 80.49
Total Registration Fee........................... $ 4,438.45
</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 by certain stockholders of the Company.
(3) Includes 187,500 Redeemable Common Stock Purchase Warrants subject to an
over-allotment option granted to the Underwriters.
(4) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional shares of Common Stock issuable as a
result of any future anti-dilution adjustments in accordance with the terms
of the Redeemable Common Stock Purchase Warrants.
------------------------
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus"); and (ii) one to be
used in connection with the sale of Common Stock by certain selling
securityholders (the "Selling Securityholders Prospectus"). The Prospectus and
the Selling Securityholders Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholders Prospectus included
herein which are labeled "Alternate Page for Selling Securityholders
Prospectus."
i
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 9, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
MED-EMERG INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MED-EMERG INTERNATIONAL, INC. (the "Company") is hereby offering (the
"Offering"), separately and not as units, 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"). Each of the Warrants entitles the
registered holder thereof to purchase one share of Common Stock at a price of
$4.50 per share, subject to adjustment in certain circumstances, at any time
during the period commencing one year from the date upon which the registration
statement (the "Registration Statement") of which this Prospectus is a part is
declared effective (the "Effective Date") by the Securities and Exchange
Commission and ending on , 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] (or sooner with the consent of Network 1 Financial Securities,
Inc.) 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 Network 1 Financial Securities, Inc. (the
"Representative"), the representative of the underwriters named herein
("Underwriters") and do not necessarily bear any relation to the Company's
earnings, assets, book value, net worth or any other recognized criteria of
value. See "Underwriting." Approximately $300,000 (6.73%) of the net proceeds of
this Offering will be used to repay two notes held by a director of the Company.
See "Use of Proceeds."
Concurrently with the Offering, 62,500 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. The Selling Securityholders' Shares may not be sold prior to
twenty-four months from the Effective Date without the prior written consent of
the Representative ("lock-up"). The Company will not receive any proceeds from
the sale of the Selling Securityholders' Shares. The Representative has 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 and that certain Selling
Securityholders owning an aggregate of 62,500 shares of Common Stock may not be
released during the first year of the lock-up.
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 PAGE 8 AND DILUTION ON PAGE 18.
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. $4.25 U.S. $0.425 U.S. $3.825
Per Warrant............................ U.S. $0.10 U.S. $0.01 U.S. $0.09
Total(3)............................... U.S. $5,437,500 U.S. $543,750 U.S. $4,893,750
</TABLE>
(1) Does not include additional consideration in the form of (i) a
non-accountable expense allowance payable to the Representative equal to 3%
of the gross offering proceeds, of which U.S. $50,000 has been paid, (ii)
warrants (the "Underwriter's Warrants") entitling the Underwriter's 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 150% of the initial
public offering price and (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. The Company also has agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended, and to pay the Representative, 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 approximately
$435,000 payable by the Company, including the non-accountable expense
allowance of US $163,125 (US $163,687.50 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 (all 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
$6,253,125, US $625,312.50 and US $4,746,937.50 and US$693,281.25,
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.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABLIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
EXCHANGE RATE
ALL DOLLAR AMOUNTS SET FORTH IN THIS PROSPECTUS FOR THE COMPANY ARE
EXPRESSED IN CANADIAN DOLLARS, EXCEPT WHERE OTHERWISE NOTED. The following table
sets forth (i) the rates of exchange for the Canadian
dollar, expressed in U.S. dollars, in effect at the end of each of the periods
indicated; (ii) the average of exchange rates in effect on the last day of each
month during such periods; and (iii) the high and low exchange rates during such
periods, in each case based on the noon buying rate in New York 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....................................... 0.7729 0.7416 0.7097 0.7009 0.7212
LOW........................................ 0.7871 0.8065 0.7642 0.7533 0.7526
</TABLE>
On December 3, 1997, the noon buying rate for Canadian dollars was U.S.
$.7053 = $1.00 Canadian.
This Prospectus contains conversions of certain Canadian dollar amounts into
U.S. dollars, as indicated by the symbol U.S.$, 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. $.7353 =
$1.00 Canadian.
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 appointed
Gersten, Savage, Kaplowitz & Fredericks, LLP as its agent for 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. 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 UNDERWRITERS' WARRANTS. AS USED
HEREIN, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, THE
"COMPANY" REFERS TO MED-EMERG INTERNATIONAL, INC. ("MEI"), ITS WHOLLY-OWNED
SUBSIDIARIES, MED-EMERG URGENT CARE CENTRES, INC., 927563 ONTARIO INC. AND
927564 ONTARIO INC., ITS INDIRECT WHOLLY-OWNED SUBSIDIARIES, MED-EMERG, INC.
("MED") AND MED-PLUS HEALTH CENTERS LTD. ("MPHC"), WHO ARE WHOLLY-OWNED BY
927563 ONTARIO, INC. AND 927564 ONTARIO, INC., RESPECTIVELY, THE COMPANY ALSO
OWNS 33.33% OF GLENDERRY WALK-IN CLINIC ("GWIC"), A PARTNERSHIP WHICH IT MANAGES
AND OPERATES.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services in the Province of Ontario, Canada. The broad range
of services offered by the Company include operational consulting and healthcare
management services, physician and nurse staffing, and healthcare educational
services.
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care, and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million residents of the Province of Ontario (37% of all of Canada). Inefficient
hospitals run the risk of the loss of public funding if they fail to meet the
objectives of the Commission. Accordingly, the incentives are in place to induce
public hospitals to find solutions to achieve the desired efficiencies,
including outsourcing available from and through private sector organizations,
such as the Company.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's recently launched Urgent
Care Centres program, which provides on-site emergency medical services, 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 189 independent, non-employee physicians and other healthcare
professionals who have entered into physician contracts with the Company. Under
the direction of the Company's management, the Company's physician pool provides
emergency medical services to 16 hospital emergency rooms located in Ontario,
Canada. See "Business -- Contractual Arrangements."
Management believes that competitive pressures have focused the attention of
many hospital administrators on the need for better management of their
professional medical staff. In the experience of management, hospitals have
increasingly turned to contract management firms with specialized skills to help
solve physician contract and scheduling problems, to strengthen the management
of their professional
3
<PAGE>
medical staff and specific clinical departments, to better control costs, and to
assist in meeting their healthcare coverage needs and obligations. Using its
management skills and experience, and the economies of scale which the size and
specialization of its operations permit, the Company provides a management
alternative to hospitals while offering a flexible practice and lifestyle
alternative to physicians. The EMS Division also provides management consulting
services to healthcare facilities and the Ministry of Health, Province of
Ontario, and prepares business plans and feasibility studies to improve
efficiency at such facilities.
The marketing strategy for the Company's EMS Division is to procure
contracts to oversee the management of entire emergency departments for
hospitals. In Canada, as indicated by the Savings and Restructuring Act enacted
by the provincial government of Ontario, there is significant pressure to
increase cost effectiveness and efficiency of services within the public
hospital sectors. Accordingly, public sector/private sector partnerships and
joint ventures, such as the outsourcing of entire emergency department services
including physician support, nursing support and administrative services may be
an attractive, cost effective alternative for hospitals, and one to which the
Company has addressed its marketing efforts.
For the years ended December 31, 1996 and December 31, 1995, the EMS
Division represented 81.2% and 86.5% of the Company's revenues, respectively.
For the six months ended June 30, 1997 and June 30, 1996, the EMS Division
represented 77.4% and 83.3% of the Company's revenues, respectively.
THE CLINICAL OPERATIONS DIVISION
The Company's Clinical Operations division owns and operates four clinics in
Canada, including two in Toronto's International Airport. Generally, the clinics
offer a variety of services, including family practice, walk-in services for
patients, and chiropractic and massage therapy. In addition, the airport clinics
provide walk-in services to the employees of the airport and emergency services
to the approximately 28 million travelers who use the airport each year. The
support staff at the airport clinics are employees of the Company. The emergency
physicians, who are not employees of the Company, are on-call for the airport
clinics and on-site for the other two clinics. The Company and its employees do
not provide billable medical services. All billable medical services are
provided by the non-employee physicians.
In addition, the Company operates the Glenderry clinic in which it owns a
33.33% interest. The Company manages the walk-in clinic by providing scheduling,
staffing, recruiting, billing, collections and accounting services to the
clinic. In return for managing the clinic, the Company receives a monthly fee of
$1,500. In addition, as a 33.33% owner of the clinic, the Company receives one
third of all distributions made by the clinic and is responsible for 33.33% of
any losses related to the clinic.
For the years ended December 31, 1996 and December 31, 1995, the Clinical
Operation's division represented 18.8% and 13.5% of the Company's revenues,
respectively. For the six months ended June 30, 1997 and June 30, 1996, the
Clinical Operation's division represented 22.6% and 16.7% of the Company's
revenues, respectively.
URGENT CARE CENTRES
The Company intends to develop a chain of Urgent Care Centres beginning in
the Province of Ontario and then expanding to other provinces in Canada.
Management expects that these centres will offer on-site, emergency medical care
services comparable to the services provided in a traditional emergency
department. The Urgent Care Centre concept consists of a group of emergency
trained physicians, a medical laboratory, a diagnostic radiology service and a
pharmacy, each of which must be present for the others to co-exist, and each of
which is provided by a separately owned company. The Company, through its
wholly-owned subsidiary Med-Emerg Urgent Care Centre, Inc., intends to provide
emergency medical services at the urgent care centre. Each emergency-trained
physician working at an Urgent Care Centre will have critical care expertise to
treat most clinical problems. Unlike most walk-in
4
<PAGE>
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 opened its first centre in September 1997 and plans to open up to nine
additional centres over the following eighteen months. The Company estimates
that it will cost approximately $200,000 to establish the Company's
participation in each of the remaining Urgent Care Centre. See "Use of
Proceeds."
Urgent Care Centres will be "community based" and offer convenient access to
non-hospital based health care. Management believes that the centres will offer
high quality service not only in clinical medical practice but also in consumer
defined quality attributes such as waiting times, quality of environment,
quality of personal interaction and courtesy. The Company intends to design
Urgent Care Centres to be less costly to the publicly funded health care system
than traditional emergency departments.
As indicated below, there is a growing need for an alternative provider of
emergency medical services due to the funding problems facing the Canadian
health care system. At present, the vast majority of emergency services are
delivered by qualified family or general practitioners in local communities
rather than emergency specialists as are staffed in hospital emergency rooms.
Notwithstanding that the number of physicians focusing on emergency medicine is
relatively small when compared to the number of medical physicians, the demand
for emergency care has grown significantly over the past ten years.
GROWTH STRATEGY
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any specific acquisitions.
The structure of the Company is as follows: Med-Emerg International, Inc.
oversees the operations of each of its wholly-owned direct and indirect
subsidiaries; Med-Emerg Urgent Care Centres, Inc. is a wholly-owned subsidiary
of the Company which will oversee the Company's expansion and operations with
respect to its planned Urgent Care facilities; 927563 Ontario Inc. and 927564
Ontario Inc. are now holding companies which, prior to the incorporation of
Med-Emerg International, Inc., managed the businesses of their respective
subsidiaries Med-Emerg, Inc. and Med-Plus Health Centres Ltd.; Med-Emerg, Inc.,
the wholly-owned subsidiary of 927563 Ontario Inc., is the operating company
with respect to the Company's EMS Division and is the parent of Canadian Medical
Center Prague, a limited liability company organized under the laws of the Czech
Republic ("CMC"); and Med-Plus Health Centers Ltd., the wholly-owned subsidiary
of 927564 Ontario Inc., is the operating company with respect to the Company's
Clinical Operations Division.
Med-Emerg International, Inc. was incorporated in the Province of Ontario on
December 28, 1995 (under its former name 1162209 Ontario Inc.). Med-Emerg Urgent
Care Centres, Inc. was incorporated in the Province of Ontario on December 2,
1996. 927563 Ontario Inc. and 927564 Ontario Inc. were incorporated in the
Province of Ontario on March 22, 1991, Med-Emerg Inc. was incorporated in the
Province of Ontario in July 1983 and Med Plus Health Centers Ltd. was
incorporated in the Province of Ontario in March 1985. The Company's offices are
located at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1 Canada
and its telephone number is (905) 858-1368.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......... 1,250,000 shares of Common Stock
Warrants Offered............. 1,250,000 Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock. See "Description of
Securities."
Offering Prices.............. US $4.25 per share of Common Stock
US $0.10 per Warrant.
Common Stock Outstanding
Prior to the Offering(1)... 1,889,500
After the Offering(1)...... 3,139,500
Warrants Outstanding:
Prior to the Offering...... 0
After the Offering......... 1,250,000
Terms of Warrants:
Exercise Price............. The exercise price is US $4.50 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 Representative), 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, including possible acquisitions. 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 994,300 shares of Common Stock issuable upon exercise of
outstanding options, 62,500 shares of Common Stock to be surrendered to the
Company for cancellation without consideration upon the closing of the
offering by certain investors in the Company's January 1997 private
offering, 750,000 shares of Common Stock issuable upon conversion of 500,000
shares of Preferred Stock outstanding, and 38,000 shares of common stock
approved for issuance but not yet issued. 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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30 DECEMBER 31
-------------------- ----------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
On a Canadian GAAP basis: (1)
Revenue............................................ $5,543,346 $5,288,293 $10,817,048 $10,983,553 $10,474,754
Physician Fees and Other Direct Costs.............. 4,014,092 4,151,324 8,554,396 8,406,631 7,977,679
Gross Profit....................................... 1,529,254 1,136,969 2,262,652 2,576,922 2,497,075
Operating Expenses (2)............................. 1,323,099 1,702,449 3,006,269 2,860,892 2,218,420
Operating Income (Loss)(2)......................... 206,155 (565,480) (743,617) (283,970) 278,655
Other Income (Expense)............................. (190,188) (12,614) (55,461) 54,930 (51,879)
Income (loss) Before Taxes and Stock
Compensation..................................... 15,967 (578,094) (799,078) (229,040) 226,776
Stock Compensation Expense (6)..................... -- -- 2,941,800 -- --
Provision for Income Taxes (recovery).............. 3,992 (60,232) (146,554) 71,447 52,245
Net Income (Loss).................................. 11,975 (517,862) (3,594,324) (300,487) 174,531
Net Income per Common Share(3)..................... $ 0.01 $ (0.16) $ (1.18) $ (0.13) $ 0.07
On a U.S. GAAP basis: (1)
Operating Expenses(2)(5)........................... 1,336,884 1,704,154 3,064,843 2,860,892 2,218,420
Operating Income (Loss)(2)......................... 192,370 (567,185) (802,191) (283,970) 278,655
Other Income (Expense)............................. (190,188) (12,614) (55,461) 54,930 (51,879)
Income (loss) Before Taxes and Stock
Compensation..................................... 2,182 (579,799) (857,652) (229,040) 226,776
Stock Compensation Expense (6)..................... -- -- 2,941,800 -- --
Provision for Income Taxes (recovery).............. 3,992 (60,232) (146,554) 71,447 52,245
Net Income (Loss).................................. (1,810) (519,567) (3,652,898) (300,487) 174,531
Primary Earnings (loss) Per Share.................. $ (0.00) $ (0.22) $ (1.51) $ (0.13) $ 0.08
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
------------------------
AS
ACTUAL ADJUSTED(4)
---------- ------------
<S> <C> <C>
Working Capital............................................................ $(1,414,324) $4,628,316
Total Assets............................................................... $4,331,937 $8,218,118
Accumulated Deficit........................................................ $(9,274,205) $(9,443,884)
Preference shares.......................................................... $6,120,000 $6,120,000
Common shares.............................................................. $2,401,839 $8,291,989
Contributed Surplus (6).................................................... $1,246,000 $1,246,000
Shareholders' Equity....................................................... $ 493,634 $6,214,105
</TABLE>
- ------------------------
(1) The Company prepares its financial statements in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP") which may differ
in certain respects from accounting principles in the United States ("U.S.
GAAP"). For an explanation of the differences between Canadian GAAP and U.S.
GAAP, see Note 18 to the Company's consolidated financial statements.
(2) Does not include stock compensation expense.
(3) Net income per share reflects a weighted average of 1,926,613 shares of
Common Stock outstanding at June 30, 1997, 3,038,214 shares of Common Stock
outstanding at December 31, 1996, 3,211,786 shares of Common Stock
outstanding at June 30, 1996, and 2,333,333 shares of Common Stock
outstanding prior to such dates.
(4) Reflects the surrender for cancellation without consideration of 62,500
shares of Common Stock to the Company by certain investors in the Company's
January 1997 private offering and the issuance of 1,250,000 shares of the
Company's Common Stock and 1,250,000 Warrants offered hereby and the
application of the net proceeds therefrom. See "Use of Proceeds."
(5) At June 30, 1997 and June 30, 1996, U.S. GAAP requires the inclusion of
$13,785 and $1,705, respectively, as additional write-off of deferred
development and start-up costs. At December 31, 1996, under U.S. GAAP,
$58,574 is included as additional write-off of deferred development and
start-up costs.
(6) At December 31, 1996, stock compensation expense included $1,695,800 for
610,000 shares issued to a shareholder as part of the November 1996
Recapitalization and $1,246,000 for the issuance of 700,000 stock options to
a director.
(7) Contributed surplus arises from the difference between the fair market value
of $2.78 and the exercise price of $1.00 for the 700,000 stock options
issued to a director.
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 $3,594,324 (on revenues of approximately $10,800,000) for
the year ended December 31, 1996, as compared to a net loss of $300,487 (on
revenues of approximately $10,900,000) for its year ended December 31, 1995,
primarily as a result of write-downs of $509,337 and $663,448, respectively, for
an investment in a clinic in Prague, The Czech-Republic, which has been closed.
In addition, in 1996 there was a charge of $2,941,800 for stock compensation. As
of June 30, 1997, the Company had an accumulated deficit of approximately
$9,274,000 and a working capital deficit of approximately $1,414,000. In
addition, operating expenses have increased during the past three years
($2,218,420 for 1994, $2,860,892 for 1995 and $5,948,069 for 1996, of which
$2,941,800 represents stock compensation charge) while revenues have remained
relatively constant. There can be no assurance as to the future profitability of
the Company. See "Selected Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON CONTRACTS WITH HOSPITALS. The Company derives the majority of
its revenues from contracts with hospitals. The standard hospital contract
provides for an initial one or two-year term, which renews automatically unless
terminated on 60 days notice. The Company has at times experienced a periodic
reduction in the number of its hospital contracts. This reduction is the direct
result of the Ontario Hospital's Restructuring Committee's reduction and/or
amalgamation of the number of hospital emergency departments, the defined nature
of the crisis management service for hospitals that the Company provides and the
risk that a physician elects to remain in the community and work on a full time
basis for the hospital thus eliminating the need for the Company's services. In
addition, in each of the Company's hospital contracts, each party is able to
terminate the contract upon two or three months prior written notice. In some
contracts, the hospital has the right to terminate immediately if it pays two to
three months of management fees. There can be no assurance that the Company will
be able to maintain its current level of hospital contracts. The loss of several
hospital contracts would have a material adverse affect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE OF URGENT CARE CENTRES. Upon completion of
the Offering, the Company intends to develop a chain of Urgent Care Centres
which will provide on-site emergency medical services. See "Business--Urgent
Care Centres." 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 attain market acceptance.
CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS; POTENTIAL TAX
LIABILITY. The Company contracts with physicians as independent contractors,
rather than employees, to fulfill its contractual obligations to hospitals.
Therefore, the Company did not historically, and the Company does not currently,
withhold income taxes, make Unemployment Insurance and Canada Pension Plan
payments, or provide worker's compensation insurance with respect to such
independent contractors. The payment of applicable taxes is regarded as the
responsibility of such independent contractors. A determination by taxing
authorities that the Company is required to treat the physicians as employees
could have an adverse effect on the Company and its operations.
ADVERSE EFFECT OF PROVINCIAL LAWS REGARDING THE CORPORATE PRACTICE OF
MEDICINE. Business corporations are legally prohibited in many Canadian
provinces from providing or holding themselves out
8
<PAGE>
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, with the attendant risk of
substantial damage awards. The sources of potential liability in this regard
include the alleged negligence of physicians placed by the Company at contract
hospitals, and liabilities in connection with medical services provided at the
clinics. The Company currently maintains the following insurance policies
related to professional liabilities: (i) $10,000,000 with respect to general
commercial liability; and (ii) $10,000,000 with respect to errors and omissions
caused by a negligent act, error or omission by the Company, or any person for
whom the Company is legally liable, arising out of the conduct of the Company's
business. In addition, physicians staffed by the Company maintain their own
malpractice insurance. To the extent such physicians were regarded as agents of
the Company in the practice of medicine, there can be no assurance that a
patient would not sue the Company for any medical negligence of such physicians.
In addition, in the event that the Company becomes liable, there can be no
assurance that its current insurance policy will be adequate to cover any
liabilities.
GOVERNMENT REGULATION. The Company's operations are subject to extensive
Federal and provincial government regulation. The provision of medical services
in Canada is for the most part, under provincial jurisdiction. Under the Health
Insurance Act, the government of Ontario is responsible for paying physicians
for the provision of insured services to residents of Ontario. In 1993, the
government placed an overall maximum ("hard cap") of approximately $3.8 billion
on the amount physicians could collectively bill the Ontario Health Insurance
Plan (OHIP) for insured services. As physicians' billings exceeded this hard cap
in successive years, the government reduced the fees received under OHIP by
prescribed percentages ("clawback"). This clawback is subject to constant
revision and review. In addition to the hard cap, individual physicians'
billings under OHIP are subject to threshold amounts ("soft caps"). Once a
physician reaches a prescribed level in the 12-month period beginning April 1 of
each year, the government reduces payments to the physician by a prescribed
fraction. For the period ended June 30, 1997 there was no clawback expense as
compared to a charge to earnings of $84,701 for the period ended June 30, 1996.
For the twelve months ended December 31, 1996, a total of $143,261 compared to
the amount of $176,949 for the twelve months ended December 31, 1995 was
reflected as clawback expense. Substantially all of the Company's operating
revenue is derived from government funded and administered programs. In Canada,
the health care system is publicly administered and is largely considered not
for profit. A large for profit health care sector nevertheless co-exists within
the non-profit section. OHIP fee for service over the past three years has been
"clawed back" to ensure a total spending freeze of $3.8 billion per year in
Ontario. In fiscal year 1996-97, the government announced a lowering of billing
thresholds for all physicians in the province. The thresholds were lowered to
levels which are estimated to affect as many as 30% of physicians. Once billings
exceed these thresholds, further billings are discounted by 33%, 66% and 75%. In
May 1997, the Ontario provincial government reached an agreement with the
medical profession wherein it was agreed that the soft cap imposed against the
individual physicians shall be cancelled on all services rendered after February
28, 1998. This agreement is due to expire on March 31, 2000. Further, this
agreement has no effect on the hard cap. Any further change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of the Company, absent, or prior to, satisfactory
9
<PAGE>
renegotiation of contracts with clients and arrangements with contracted
physicians. There can be no assurance as to what new regulations, whether now
with respect to hard caps or in the future with respect to soft caps, will be
imposed and what effect they will have on the Company.
In addition the Health Services Restructuring Commission (HSRC), established
under Bill 26, will have the mandate and authority to facilitate and accelerate
hospital restructuring in Ontario. This legislation contains measures intended
to control public and private spending on healthcare as well as to provide
universal public access to the healthcare system. The Company cannot predict the
ultimate effect of this and what other healthcare legislation, if any, will be
enacted. Significant changes in Canada's healthcare system are likely to have a
gradual but substantial impact on the manner in which the Company conducts its
business and could have a gradual but substantial impact on the manner in which
the Company conducts its business and could have a material effect on the
results of the Company.
ABILITY TO MANAGE GROWTH; RISK OF UNSPECIFIED ACQUISITIONS. As part of its
business strategy, the Company intends to pursue growth through acquisitions of
related and complementary businesses in both Canada and the United States. The
Company's growth strategy will require expanded client services and support,
increased personnel throughout the Company, expanded operational and financial
systems and the implementation of new control procedures. There can be no
assurance that the Company will be able to achieve rapid growth or be able to
manage expanded operations effectively. Moreover, failure to implement financial
and operating systems and to add professional and necessary support personnel
could have a material adverse impact on the Company's results of operations and
financial condition. The Company has no present commitments, understandings or
agreements for any acquisitions. The Company's acquisitions could involve a
number of risks including the diversion of management's attention to the
assimilation of the companies to be acquired, unforeseen difficulties in the
acquired operations, adverse effects on the Company's operating results,
amortization of acquired intangible assets and dilution in the ownership
interest of stockholders as a result of the issuance of additional Common Stock
or Preferred Stock. The consummation of any acquisition will likely include the
issuance by the Company of additional equity and/or debt securities. In
addition, the Company may utilize a portion of the proceeds of this Offering.
Any new issues of equity will likely result in additional dilution to the
investors in this Offering. The Company is prohibited from issuing any Common
Stock or Preferred Stock for a period of 24 months from the date of this
Prospectus without the prior written consent of the Representative. There can be
no assurance the Company will consummate any acquisition transaction. The
Company is not required to seek an independent appraisal of any potential
acquisitions.
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 33.3% of the net
proceeds of the Offering will be applied to working capital and general
corporate purposes. In addition, the application of the balance of the proceeds
may differ considerably from the estimates set forth herein due to changes in
the economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses. Accordingly, management of the
Company will have broad discretion over the use of proceeds. See "Use of
Proceeds."
DEPENDENCE ON KEY PERSONNEL. The success of the Company is largely
dependent upon the efforts and abilities of certain members of its management,
including but not limited to, Ramesh Zacharias, M.D., its Chief Executive
Officer and Carl Pahapill, its President and Chief Operating Officer. The loss
of the services of either Dr. Zacharias or Mr. Pahapill would likely have a
material adverse effect on the business of the Company. Although the Company has
procured key-man life insurance in the amount of $1,000,000 on Mr. Pahapill, it
has no key-man life insurance on any other employees. See "Business--Personnel"
and "Officers and Directors."
CONTROL BY MANAGEMENT AND/OR EXISTING STOCKHOLDERS. Following completion of
the Offering, the Company's officers and directors will own or have rights to
acquire an aggregate of approximately 53% of the voting power of the Company's
capital stock. See "Principal Stockholders" and "Description of Securities."
Accordingly, such stockholders will possess the ability to generally exert
substantial control over the business and operations of the Company. In
addition, in the event that the holders of the
10
<PAGE>
convertible preferred stock convert such stock into common stock of the Company
prior to November 1, 2006, management of the Company will control an additional
750,000 shares of the outstanding common stock. In the event that the preferred
stock is converted after November 1, 2006, due to the fact that it is
convertible at the then current market value of the Company's common stock, the
preferred stock may be convertible into substantially more than 750,000 shares
of common stock. See "Description of Securities-- Preferred Stock."
COMPANY FINANCING OF ACCOUNTS RECEIVABLES. One of the services provided by
the Company's EMS Division is the collection of fees for services performed by
the independent physician contractors. In the event that the Company does not
collect these fees by the time payment is due to the physician, it is
nevertheless obligated to pay the physician. In practice, the Company uses its
working capital to finance the accounts receivable and pays the physician. As
stated in the "Use of Proceeds" section, a portion of the proceeds of this
Offering will be used to augment the Company's working capital which is, in
part, used to finance accounts receivable. Historically, bad debts are less than
1% of gross billings since substantially all of the physician services billed to
OHIP are for Ontario residents who are automatically covered by OHIP for the
medical services performed. However, there can be no assurance that accounts
receivables will ultimately be collected from OHIP and the hospital.
Accordingly, there can be no assurance that the Company will not experience
significant 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 together with available cash flows will be sufficient to finance
the Company's working capital requirements for a period of at least 12 months
following the completion of the Offering. The Company has allocated US$1,483,750
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. Failure to obtain
additional financing when and as needed may have a material adverse effect on
the Company's operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION. The healthcare industry is highly competitive. The Company
competes based on the scope, quality and cost of services provided. Certain of
the Company's actual or potential competitors have substantially greater
financial resources available to them. While management believes that it
competes on the basis of the quality of its services, the larger resources of
its competitors may give them certain cost advantages over the Company (e.g., in
the areas of malpractice insurance, cost, savings from internal billing and
collection and a broader scope of services). The Company also competes with
various local physician groups which provide hospitals with emergency staffing
alternatives. The clinics operated by the CO Division compete with hospital and
other private physicians. The Urgent Care Centres will compete with hospital
emergency rooms. There can be no assurance that the Company will not encounter
increased competition in the future which could adversely affect the Company's
operating results.
OFFERING PROCEEDS BENEFIT AFFILIATED PERSON; PROCEEDS TO REPAY INDEBTEDNESS
TO INSIDERS. The Company will use a portion of the net proceeds of this
Offering to repay one of its directors the following amounts: (i) US$150,000
principal amount plus interest borrowed against a line of credit granted to the
Company by such director, and (ii) US$150,000 principal amount plus interest
which the director invested in the January 1997 private placement. See "Use of
Proceeds."
POTENTIAL CONFLICTS OF INTEREST. As discussed in this Prospectus, Robert
Rubin, a director of the Company, has provided the Company with a line of credit
in the amount of US$500,000. As of September 30, 1997, there was an outstanding
balance of US$150,000 on the line of credit. Although all outstanding amounts on
the line of credit will be repaid out of the proceeds of this Offering, the
Company
11
<PAGE>
may borrow against the line of credit in the future. In the event that the
Company does borrow in the future and Mr. Rubin becomes a creditor of the
Company, there can be no assurance that Mr. Rubin's relationships with the
Company as a creditor and director will not give rise to conflicts with respect
to future transactions by the Company. See "Certain Transactions."
TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL STOCKHOLDERS. The Company has in
the past loaned money to members of management and principal stockholders. As of
June 30, 1997, amount outstanding is $197,719, $137,719 of which will be repaid
prior to the completion of this Offering, and $60,000 of which is being repaid
over a period of five years beginning two years from the completion of this
Offering. These loans bear no interest. The Company does not at present
contemplate entering into additional related party transactions. In the future,
the Company plans to present all proposed transactions with affiliated parties
to the Board of Directors for its consideration and approval. Any interested
party transaction will be approved by a majority of the disinterested directors.
NON COMPLIANCE WITH BANKING AGREEMENT. The Company currently has an
aggregate line of credit with its bank credit facility in the amount of
$1,200,000. At June 30, 1997 the Company had an outstanding balance of
$1,092,917, but was not in compliance with certain maintenance criteria of the
banking agreement because (i) the Company's net worth as calculated under the
banking agreement was less than $275,000, and (ii) the Company did not have a
debt service coverage ratio of 1.5:1. Although the Company is repaying the
outstanding balance out of the proceeds of the Offering, there can be no
assurance that the Company's current non-compliance with these financial
covenants will not affect the Company's ability to obtain lines of credit or
other financing in the future with this lender or other financial institutions.
RISK RELATED TO INVESTMENT IN CANADIAN CORPORATION. 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.
In addition, 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.
LIMITED PUBLIC MARKET FOR THE COMPANY'S SECURITIES; NO ASSURANCE OF PUBLIC
TRADING MARKET. Prior to the Offering, there has been no market for the Common
Stock or Warrants. No assurance can be given that a public market for such
securities will develop or that a public trading market, if developed, will be
sustained. The Company has applied for listing of the Common Stock and Warrants
on The Nasdaq Stock Market, Inc. ("Nasdaq") SmallCap Market. If a trading market
does in fact develop for the Common Stock and Warrants, there can be no
assurance that it will be maintained. If for any reason the Company's
12
<PAGE>
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 any bank or
financial institution will accept such securities as collateral, which could
have a materially adverse effect in developing or sustaining any market for the
securities.
For continued listing on The Nasdaq SmallCap Market, a company, among other
things, must have (i) US$2,000,000 in net tangible assets, US$35,000,000 in
market capitalization, or net income of US$500,000 in two of the last three
years, (ii) US$1,000,000 in market value of public float, (iii) a minimum bid
price of US$1.00 per share, and (iv) have a minimum of two (2) market makers. If
the Company is listed on Nasdaq, and the Company is unable to satisfy the
requirements for continued listing, trading, if any, in the Common Stock would
be conducted in the "pink sheets" or on the NASD OTC Electronic Bulletin Board.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current prices and volume information with respect to
transactions in such securities are provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
securities.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock.
Dividends on the Preferred Stock will accrue at a rate of US$135,000 per year.
See "Dividend Policy" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate and
substantial dilution to investors. Purchasers of Common Stock in the Offering
will incur an immediate dilution of US$4.34 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
102% of the initial public offering price per share of Common Stock. Investors
in the Offering will pay US$4.25 per share, as compared with an average cash
price of US$.87 per share of Common Stock paid by existing stockholders. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 1,889,500 shares of Common Stock of
the Company outstanding as of the date of this Prospectus (after giving effect
to the surrender for cancellation without consideration to the Company upon
closing of this Offering of 62,500 shares of Common Stock from certain investors
in the Company's January 1997 private offering), 1,764,500 are "restricted
securities," 802,500 of which 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
13
<PAGE>
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 described above. An aggregate of
62,500 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 Representative. Options to purchase an additional 294,300
shares of Common Stock have been granted pursuant to the Company's 1997 Stock
Option Plan. There can be no assurance that the Company will not issue
additional options currently available for issuance. No prediction can be made
as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices of the
Company's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of US$.10 per Warrant,
commencing two years after the Effective Date (or earlier with the consent of
the Representative) 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
, 1998, 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
14
<PAGE>
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 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 or Common 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 Representative 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
Representative. 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."
15
<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. $4,458,750 (U.S.
$4,474,125 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 22.43%
Repayment of Lines of Credit (2)................................... 958,000 21.49%
Repayment of Bridge Notes (3)...................................... 525,000 11.77%
Emergency Service Contracts (4).................................... 342,000 7.67%
Computer Equipment (5)............................................. 150,000 3.36%
Working Capital and General Corporate Purposes and potential
acquisitions (6)................................................. 1,483,750 33.28%
------------- -----------
$ 4,458,750 100.00%
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Represents the estimated capital and working capital costs related to
establishing the Company's participation in the first 10 Urgent Care
Centres. In addition, the Company intends to secure bank financing and third
party lease financing of at least U.S.$500,000 to fund the costs of opening
the first 10 Urgent Care Centres. See "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
(2) Represents repayment of an aggregate of US$150,000 of loans against line of
credit provided to the Company by Robert Rubin, a director of the Company.
These loans are to be repaid on the earlier to occur of (i) the consummation
of this Offering, and (ii) May 16, 1998 for the first US$100,000 and July
28, 1998 for the remaining US$50,000. The loan bears interest at 2% over the
prime rate in effect from time to time as reported in The Wall Street
Journal. The Company used these loans for working capital and certain costs
associated with the opening of the first urgent care centre. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions." Also represents repayment of
approximately $1,100,000 (US$808,000) against the Company's outstanding
balance on its bank credit facility, such balance bearing interest on an
annual basis at the facility's announced prime rate plus 1.5%. The proceeds
borrowed from the bank credit facility were used by the Company as working
capital.
(3) Represents repayment of the principal and accrual interest on the 8%
promissory notes sold in the January 1997 private placement ("Bridge
Financing"). The proceeds from the Bridge Financing were applied to reduce
the Company's bank borrowings. These Bridge Notes bear interest at a rate of
8% per annum and are due in June 1998, or earlier upon receipt of gross
proceeds of at least US$4,000,000 (debt or equity) from an underwritten
public offering. Robert Rubin, a director of the Company, is the holder of a
bridge note in the principal amount of US$150,000. See "Certain
Relationships and Related Transactions."
(4) Represents the cost of financing accounts receivable for emergency service
contracts that the Company anticipates receiving over the next 24 months,
although there can be no assurance of the receipt thereof. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(5) Represents the estimated cost of upgrading the Company's management
information systems, particularly its accounting and billing systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
16
<PAGE>
(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 may differ from the estimates set forth herein due to changes in the
economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company and will be within
the categories listed above.
The Company estimates that the net proceeds from this Offering together with
available cash flows will be sufficient to meet the Company's liquidity and
working capital requirements for a period of 12 months from the completion of
this Offering. In the event that the Company consummates any acquisition,
although no specific acquisition has been identified, such funds will be derived
from the funds currently allocated to working capital or from revenues generated
from the Company's operations. There can be no assurance that the Company will
generate sufficient revenues for such acquisitions.
Pending application, the net proceeds will be invested in short-term money
market instruments and direct or indirect Canadian or U.S. Government
obligations.
17
<PAGE>
DILUTION
1. DILUTION AS CALCULATED WITHOUT GIVING EFFECT TO CONVERSION OF PREFERRED
STOCK. (1)
At June 30, 1997, the Company had a net tangible book value (deficit) of (US
$4,728,904) or (US$2.50) per share of outstanding common stock after giving pro
forma effect to the surrender for cancellation without consideration to the
Company upon closing of this Offering of 62,500 shares of Common Stock from
certain investors in the Company's January 1997 private offering. Net tangible
book value represents the Company's total tangible assets less total liabilities
and preferred shares, divided by the number of shares of common 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 $270,154) or approximately (US $0.09) per share of
outstanding common stock at June 30, 1997. This represents immediate dilution of
US $4.34 per share, or 102% to purchasers of the Common Stock 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 $4.25
Net tangible book value at June 30, 1997............................ (US $2.50)
Increase per share attributable to the sale of the Common Stock
offered hereby.................................................... US $2.41
----------
Pro forma net tangible book value after the Offering................ (US $0.09)
----------
Dilution per share to new investors................................. US $4.34
----------
----------
</TABLE>
2. DILUTION AS CALCULATED WHEN GIVING EFFECT TO CONVERSION OF THE PREFERRED
STOCK. (2)
At June 30, 1997, the Company had a net tangible book value (deficit) of (US
$228,904) or (US$0.12) per share of outstanding capital stock after giving pro
forma effect to the surrender for cancellation without consideration to the
Company upon closing of this Offering of 62,500 shares of Common Stock from
certain investors in the Company's January 1997 private offering. 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 $4,229,846
or approximately US $1.01 per share of outstanding capital stock at June 30,
1997. This represents immediate dilution of US $3.24 per share, or 76% to
purchasers of the Common Stock 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 $4.25
Net tangible book value at June 30, 1997.............................. (US $0.12)
Increase per share attributable to the sale of the Common Stock
offered hereby...................................................... US $1.13
---------
Pro forma net tangible book value after the Offering.................. US $1.01
---------
Dilution per share to new investors................................... US $3.24
---------
---------
</TABLE>
The following table summarizes the number and percentages of shares of
Common Stock purchased from the Company through the date of this Prospectus, the
amount and percentage of cash consideration
18
<PAGE>
paid and the average price per share paid to the Company by existing
stockholders and by new investors pursuant to the Offering:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION PAID AVERAGE
SHARES PURCHASED ---------------------------- PRICE
NUMBER/PERCENTAGE AMOUNT PERCENT PER SHARE
----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Existing Stockholders(3)................ 1,889,500/60.2% US$ 1,638,301 23.6% US$0.87
New Investors........................... 1,250,000/39.8% US 5,312,500 76.4% US$4.25
----------------- --------------- -----
3,139,500/100% US$ 6,950,801 100.0%
----------------- --------------- -----
----------------- --------------- -----
</TABLE>
- ------------------------
(1) In calculating dilution, the first presentation does not give effect to the
conversion of an aggregate of US$4,500,000 of Convertible Preferred Stock
which is convertible into 750,000 shares of Common Stock at US$6.00 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 June 30, 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 $4.25 per share.
(3) Excludes 62,500 shares of Common Stock being surrendered for cancellation
without consideration to the Company upon closing of this Offering by
certain investors in the Company's January 1997 private offering and 38,000
shares of common stock approved for issuance but not yet issued.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 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, and the surrender for cancellation without consideraton to the
Company of 62,500 shares of Common Stock by certain investors in the Company's
January 1997 private offering. This information should be read in conjunction
with the consolidated financial statements and related notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
AS ADJUSTED
ACTUAL (1)
------------ --------------
<S> <C> <C>
Short Term Debt:
Bank Operating Facility.......................................................... $ 1,092,917 $ --
Promissory Note.................................................................. 78,742 78,742
8% Bridge Notes.................................................................. 680,000 --
Line of Credit................................................................... 136,000
------------ --------------
$ 1,987,659 $ 78,742
------------ --------------
------------ --------------
Stockholders' Equity:
Convertible 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 3,139,500 (as adjusted).................................. 2,401,839 8,291,989
Accumulated Deficit................................................................ (9,274,205) (9,443,884)
Contributed surplus................................................................ 1,246,000 1,246,000
------------ --------------
Total Shareholders' Equity......................................................... $ 493,634 $ 6,214,105
------------ --------------
------------ --------------
</TABLE>
- --------------------------
(1) Gives effect the surrender for cancellation without consideration to the
Company of 62,500 shares of Common Stock by certain investors in the
Company's January 1997 private offering and 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
Since January 1, 1994, the Company has paid $80,383 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 of US$135,000 per year have been paid on the Preferred Stock. See
"Description of Securities--Preferred Stock."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company believes that emergency departments, which are often the first
point of contact with patients, play an important role in providing the
individual with continuous access to the healthcare system. The Company's
history dates back to 1983 when its founder identified the need for a private
sector company that could provide emergency physician contract staffing and
recruitment. A tenet of the Company's strategy has been that third party
providers of specialized emergency care medicine can play an important role in
reducing the costs of publicly funded healthcare systems while ensuring the
highest quality of care.
Socialized medicine has been in place in the Province of Ontario for a
quarter of a century. As the Canadian government's healthcare program is the
most expensive government program, it is therefore an obvious and unavoidable
target for restraints. It was built with a recognition that the transfer from
private health care to state-funded care would be a complex transition. Since
the transition, there has been a reluctance to address major reforms.
Consequently, the system has grown rapidly in both cost and complexity.
Demand for emergency care has grown significantly over the past ten years,
notwithstanding the small proportion of physicians focusing on emergency
medicine. Moreover, recruitment of experienced emergency medicine practitioners
by hospitals in other countries is intense and such demand is expected to
continue for some time. Given the uncertainties associated with patient volumes
in several Ontario hospital emergency departments, the pool of available
physicians willing to practice emergency medicine has been declining.
In the last five to ten years, major changes have been occurring in the way
services are delivered within hospitals in Canada. The length of time patients
stay in hospitals has been dropping substantially. Overall, the average length
of stay in acute care hospitals has decreased 20% in the last five years.
Patients who five years ago would generally have spent up to ten days in
hospital are now often being operated on using minimally invasive surgery which
results in their being discharged within a day or two of being admitted.
Day surgery as a percentage of all surgery has increased from 53% to 70% in
five years. As a result, in many hospitals the majority of surgery is now done
on an outpatient basis. Many other services previously provided mainly on an
inpatient basis are shifting to outpatient programs (e.g., dialysis,
chemotherapy and diagnostic testing).
Thus, governments have been studying alternatives to the existing
fee-for-service funding of physicians in order to reduce health care costs.
Since 1988, close to 3,500 acute care hospital beds have been closed in the
Toronto Metropolitan area alone, a 30% decrease. Although the number of acute
care beds has decreased by 30% and similar bed decreases have occurred in other
areas, the number of hospitals remains unchanged. Scarce public health dollars
continue to be spent on the overhead and infrastructure of independent
facilities even though the amount of time patients spend in these facilities has
decreased. Among hospitals, 25% to 30% of funds are spent on administrative,
overhead and infrastructure costs.
Funding constraints for health care in Ontario have resulted in billing
caps, with a sliding scale claw-back. This claw-back reduces the amount a
physician can bill after total annual billing exceeds $275,000. Other solutions
under consideration include rostered patient care. Rostering is a reimbursement
plan based on a fixed fee per patient as opposed to Fee-For-Service. The patient
would assume financial responsibility for non-emergency care when such care is
obtained outside the rostered family practice but within a defined geographic
proximity if it is accessed merely for convenience. However, proponents of
various roster-based models have not offered any concrete proven solutions to
decrease emergency department utilization. Under the current Health Services
Organization ("HSO") model, the Ontario Ministry of Health pays a monthly flat
fee to the Company on behalf of the patient's physician for each
21
<PAGE>
patient enrolled under the HSO program regardless of whether the patient visits
the clinic or not. The monthly fee is determined by the age and sex of the
patient and is referred to as the capitation rate. At June 30, 1997, the average
monthly capitation rate was $12.40 per patient with approximately 6,551 patients
enrolled under the HSO program.
Fees charged by the Company for emergency department staffing services are
comprised of two elements: (i) hospital services; and (ii) physician services.
Under each hospital contract, the Company has the responsibility for the billing
and collection of physician fees. The Company charges each hospital a fee for
its recruiting and staffing services on a fixed fee basis. Details of the
Company's hospital contracts are described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the
particular hospital, the Company considers several factors including location of
the hospital in relation to the availability of physicians, number of physicians
from which to draw, the number of physician shifts required, and patient
volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee contracts) the physicians are
paid on the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is generally not a pre-set renewal fee
stated within the contract, however, on occasion the contract contains a stated
renewal fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador, promote the services provided by
the Company, to provide orientation to new physicians at a facility, and
to screen all new physician applicants.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staff's salary relates directly to the hospital staffing
business. When the Company receives a new contract and there
22
<PAGE>
exists a shortage of physicians, the Company's recruiting staff will work
towards increasing the Company's supply of emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, back-up coverage, local medical director's accommodation costs and
any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs.
The Company's hospital contracts are designed to transfer to the hospital
certain financial risks arising from changes in patient volume. Because the
majority of such contracts are reimbursed from government healthcare insurance
plans, the Company's bad debt experience in collection of physician fees has
been less than 1% of allowable billings, primarily due to administrative errors.
Fee-for-service contractual arrangements involve a credit risk related to
services provided to uninsured individuals. The Company's working capital needs
are generally a function of the acquisition of new hospital contracts or the
conversion of fixed fee contracts to fee-for-service contracts. As discussed
below in Results of Operations, the Company has sometimes experienced a
reduction in the number of its hospital contracts, making the acquisition of new
contracts particularly important. See "Risk Factors -- Loss of Hospital and
Physician Contracts."
The Company's physician contracts are entered into between the Company and
individual physicians and are either part time or full-time. A physician working
with the Company assigns the right to bill and provides a consent to the Company
to perform both the billing and collection function for the medical services
performed. The Ontario Ministry of Health is notified of the physician's consent
for the Company to perform these functions through the use of an authorization
form. The Company pays the physician for the services provided based on the
terms of the contract between the Company and the physician. The Company does
not purchase receivables from the physicians. In general, each contracted
physician will be placed in a functioning facility by the Company and the
Company will collect all fees due to the physician for rendering medical
services. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of total OHIP billings, plus the administrative fees charged to the
hospital.
In the Clinic operations, revenue is generated when the contracted physician
performs a medical service which in turn is billed by the Company to the
Ministry of Health. The fee-for-services billed to the Ministry of Health are
based on rates set by the Ministry of Health and vary depending on the type of
medical service performed. The Ministry of Health pays the Company on a monthly
basis for these services billed and the Company in turn pays the physician
according to the contract between the physician and the Company. In addition,
the Company owns and manages its clinic and provides staffing, administration,
management and financial support. Therefore, the Company received a monthly
management fee from each clinic and is entitled to 100% of any distributions
made from the clinic.
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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 SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
NET SERVICE REVENUES. Revenues increased by $255,053 or 4.8% from
$5,288,293 for the six months ended June 30, 1996 to $5,543,346 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 six months
ended June 30, 1997, revenue from this clinic totaled $486,801. The net increase
in revenue from the clinics was offset by a reduction in revenue generated from
hospital contracts.
For the six months ended June 30, 1997, revenues of Emergency Medical
Services division decreased by $114,560 or 2.6% to $4,293,153 from $4,407,713
for the six months ended June 30, 1996. The marginal decline of revenues was due
to: (i) the termination of seven fixed fee hospital contracts that were replaced
by three new fixed fee contracts, and one fee-for-service contract, (ii) the
termination of two fixed fee contracts for correctional institutions, (iii) a
marginal decline in fee-for-service contracts from two hospitals.
For the six months ended June 30, 1997, operating income of Emergency
Medical Services division increased by $93,935 to $4,950 from a loss of $88,985
for the six months ended June 30, 1996. This increase was due to a decrease in
operating expenses and income from consulting projects.
For the six months ended June 30, 1997, revenues of Clinical Operations
increased by $369,613 or 42.0% to $1,250,193 from $880,580 for the six months
ended June 30, 1996. The increase in revenues was due to the acquisition of a
new clinic during the third quarter of the prior fiscal period.
For the six months ended June 30, 1997, operating income for the Clinical
Operations increased by $677,700 to $201,205 from a loss of $476,495 for the six
months ended June 30, 1996. The increase was due to greater revenues from the
newly acquired clinic, as well as reductions in operating costs as a result of
the amalgamation of the new clinic with one of the Company's other medical
clinics. At June 30, 1996, the operating loss included the write-off of deferred
start-up project costs of $365,291. There was no write-off of deferred start-up
costs at June 30, 1997.
PHYSICIAN FEES AND OTHER DIRECT 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 for the six months
ended June 30 decreased by $137,232 or 3.3% from $4,151,324 in 1996 to
$4,014,092 in 1997 due to the reduction in the number of hospital staffing
contracts. Physician fees and other direct costs represented 78.5% of net
revenues for the six months ended June 30, 1996 and 72.4% of net revenues the
six months ended June 30, 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 six months
ended June 30, 1996 totaled $84,701. Other direct costs include travel,
marketing and consulting costs related to international projects. These costs
represent 5.2% of net revenues for the six months ended June 30, 1997 and 1.6%
of net revenues for the six months ended June 30, 1996. The 1997 costs relate to
the undertaking of a consulting project in the Northwest Territories, Canada and
the 1996 costs relate to the undertaking of consulting projects in Hungary,
India and Malaysia.
OPERATING EXPENSES. Operating expenses decreased by $379,350 or 22.3% from
$1,702,449 for the six months ended June 30, 1996 to $1,323,099 for the six
months ended June 30, 1997. Operating costs include general operating expenses
and the write-off of deferred start-up costs. The general operating expenses
excluding the write-off of deferred start-up costs represents 24.5% of net
revenues for the six months
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<PAGE>
ended June 30, 1996 and 23.9% of net revenues for the six months ended June 30,
1997. The 1996 write-off of deferred start-up costs in the amount of $365,291
relate to an investment in a clinic in Prague, Czech Republic. The 1996
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 remaining 1996 write-down of $42,875 relates to
start-up project costs for a healthcare consulting project in Malaysia. Under
U.S. GAAP, operating expenses for the period ending June 30, 1997 includes
additional charges of $13,785 for development and start-up costs as compared to
$1,705 at June 30, 1996.
For U.S. GAAP, the start-up costs of $13,785 at June 30, 1997 and $1,705 at
June 30, 1996 are expensed as incurred whereas under Canadian GAAP these costs
are deferred and amortized over a prescribed benefit period.
OTHER EXPENSE. Other expense increased by $177,574 or 1,408% from $12,614
to $190,188 for the six months ended June 30, 1996 and 1997 respectively. The
increase in other expense is due primarily to interest on increased bank
borrowings, interest charged on the bridge promissory notes and the amortization
of deferred financing charges relating to the bridge shares issued in January
1997. For the six months ended June 30, 1997, interest expense on bank
borrowings was $41,135, $25,122 was charged as interest on the promissory notes
and $123,931 was amortized as financing costs.
NET INCOME. As a result of the above items, the Company had a net income of
$11,975 for the six months ended June 30, 1997 as compared to a net loss of
$517,862 for the six months ended June 30, 1996.
Under U.S. GAAP, the Company reported net loss of $1,810 for the six months
ended June 30, 1997 as compared to a net loss of $519,567 for the six months
ended June 30, 1996.
FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
NET SERVICE REVENUES. Revenues decreased by $166,505 or 1.5% from
$10,983,553 in 1995 to $10,817,048 in 1996. The decrease in revenue can be
attributed to the reduction in the number of hospital staffing contacts and the
closure of an unprofitable medical clinic in October 95. The reduction in
revenue from hospital contracts was offset by revenues generated from the
Glenderry Medical Clinic acquisition in December 1995 and the St. George Medical
Clinic acquisition in September 1996.
For the fiscal year ended December 31, 1996, revenues from Emergency Medical
Services decreased by $722,310 or 7.6% to $8,783,309 from $9,505,619 for the
year ended December 31, 1995. The decline in revenues was due to: (i) the loss
of four fixed fee hospital contracts during the year which were replaced by four
lower fee generating contracts, (ii) reductions in fee income from two contracts
serving correctional institutions, (iii) a marginal increase in two
fee-for-service contracts, and (iv) reductions in several contracts in place the
prior year due to reductions in funding to hospitals from the provincial
government.
For the fiscal year ended December 31, 1996, before stock compensation
expense, operating income from Emergency Medical Services decreased by $689,802
to a loss of $332,644, from a profit of $357,158 for the fiscal year ended
December 31, 1995. The decrease was due to the attendant loss of revenues from
the loss of hospital contracts during the year that were replaced by lower fee
contracts, reductions in prior year contracts together with a delay in reducing
the level of staffing to reflect the reduced demand for physicians. The loss of
hospital contracts is the direct result of the Ontario Hospital's Restructuring
Committee's reduction and/or amalgamation of the number of hospital emergency
departments, the defined nature of the crisis management service for hospitals
that the Company provides and the risk that a physician elects to remain in the
community and work on a full time basis for the hospital thus eliminating the
need for the Company's services. The December 31, 1996 loss also includes a
write-off of advances relating to the Malaysia project in the amount of $42,875.
For the fiscal year ended December 31, 1996, revenues of Clinical Operations
increased by $555,805 or 37.6% to $2,033,739 from $1,477,934 for the year ended
December 31, 1995. The increase in revenues was due to revenues of two new
clinics that were acquired in December 1995 and September 1996.
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<PAGE>
For the fiscal year ended December 31, 1996, operating income of Clinical
Operations increased by $230,155 or 35.9% to a loss of $410,973, from a loss of
$641,128 for the fiscal year ended December 31, 1995. The reduction of loss in
operating income resulted from the increase in revenues from St. George's clinic
combined with staff reductions and salary reductions in all of the Company's
clinics, the closure of an unprofitable clinic in October 1995, reduction in
management support staff and a lower write-off of deferred start up costs in the
amount of $196,986 in connection with the Company's CMC clinic.
PHYSICIAN FEES AND OTHER COSTS. Physician fees and other costs increased
$147,765 or 1.8% from $8,406,631 in 1995 to $8,554,396 in 1996. 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, excluding the 1996 stock
compensation charge of $2,941,800, increased by $145,377 or 5.1% from $2,860,892
in 1995 to $3,006,269 in 1996. Operating costs include general operating
expenses and the write-off of deferred start-up costs. In anticipation of
growth, the Company had increased its administrative, management and marketing
support. This increase in administrative, management and marketing support was
comprised primarily of personnel additions, whose aggregate salaries and
associated payroll expenses amounted to approximately $245,000. This increase in
staffing was due in part to the opening of two new medical clinics during 1996
as well as in preparation to expand the Company's operations in the business of
managing urgent care centres. More recently, the Company has restructured its
operating overhead in an effort to better position itself as a competitive
deliverer of emergency related health services. The primary components of this
restructuring involved: (i) the elimination of two administrative staff
positions and one operations staff position; (ii) the renegotiation and
reduction of lease expense at one of the Company's medical clinics; (iii) the
termination of a consulting contract with respect to the Company's decision to
discontinue the operations of the clinic in Prague, Czech Republic; and (iv) the
reduction of communication and delivery expenses for the medical clinics in
Canada. The balance of the increase in operating expenses during 1996, compared
to 1995, resulted from a write-off of deferred start-up costs amounting to
$509,337 in 1996 as compared to $663,448 for the same period in 1995. The
general operating expenses excluding the write-off of deferred start-up costs
represent 20.0% and 23.1% of net revenues in 1995 and 1996, respectively.
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.
Under U.S. GAAP, operating expenses for the 12 months ending December 31,
1996 include an additional charges for development and start-up costs of
$58,574.
For U.S. GAAP, the start-up costs of $58,574 are expensed as incurred
whereas under Canadian GAAP, these costs are deferred and amortized over a
prescribed benefit period.
26
<PAGE>
OTHER INCOME (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.
STOCK COMPENSATION EXPENSE The stock compensation charge of $2,941,800 in
1996 is a result of the share restructuring that occurred in November 1996. As
part of the recapitalization of the company, Hampton House International was
issued 610,000 common shares in consideration of past services. The value of
$2.78 per share was ascribed to the common shares. In addition, Robert Rubin, a
director of the Company, was granted a stock option to purchase 700,000 common
shares of the Company at an exercise price of US$0.75 per share. The difference
between $2.78 CDN and the exercise price resulted in a stock compensation charge
of $1,246,000.
NET INCOME. As a result of the above items, the Company had a net loss of
$3,594,324 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.
Under U.S. GAAP, the Company reported a net loss of $3,652,898 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 fee income from fixed fee hospital staffing contracts as five new
contracts replaced four lower fee contracts.
For the fiscal year ended December 31, 1995, revenues of the Emergency
Medical Services division increased by $508,492 or 5.7% to $9,505,619 from
$8,997,127 for the year ended December 31, 1994. The increase in revenues was
due to the net addition of one hospital contract during the year, and a marginal
increase in average fee income from contracts that were operating in the prior
year.
For the fiscal year ended December 31, 1995, operating income of the
Emergency Medical Services division increased by $108,251 or 43.5% to $357,158
from $248,907 for the fiscal year ended December 31, 1994. The increase was
largely due to the closure of an unprofitable clinic.
For the fiscal year ended December 31, 1995, revenues of the Clinical
Operations division remained constant at $1,477,934 compared to $1,477,627 for
the year ended December 31, 1994. For the fiscal year ended December 31, 1995,
operating income of Clinical Operations decreased by $670,876 to a loss of
$641,128 from a profit of $29,748 for the fiscal year ended December 31, 1994.
The decrease was primarily due to the write-off of deferred start up costs in
the amount of $663,448 in connection with the Company's CMC clinic.
PHYSICIAN FEES AND OTHER COSTS: Physician fees and other costs increased
$428,952 or 5.4% from $7,977,679 in 1994 to $8,406,631 in 1996. 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
27
<PAGE>
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.
OTHER INCOME (EXPENSE). Other income (expense) increased $106,809 or 206%
from an expense of $51,879 in 1994 to income of $54,930 in 1995. In 1995,
dividend income of $123,623, resulting from a redemption of common shares,
offset interest expense of $68,693. In 1994, no dividend income was reported.
Interest expense increased $16,814, or 32.4% from $68,693 in 1995 as
compared to $51,879 in 1994. The increase is attributable to an increase in
borrowings to finance accounts receivable due to the 5% growth in net revenues,
largely derived from billings to government healthcare insurance plans for
services rendered by the Company's physicians.
NET INCOME. As a result of the above items, the Company had a net loss of
$300,487 in 1995 as compared to a net income of $174,531 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the provision of Clinical
Operations.
The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups. The assets
employed by the Company to support the Emergency Medical Services operations are
primarily working capital to finance accounts receivable which are generated by
individual physicians but collected by the Company pursuant to contractual
agreements between the Company and the independent contracted physicians. The
average age of collection of the accounts receivable balances averages
approximately 45 days; however, the physicians are paid after approximately 27
days. Thus, the liquidity of the Company is significantly affected by the volume
of billings generated by the Emergency Medical Services operations which
fluctuates from month to month.
Clinical Operations, include family practices, walk-in services and
chiropractic and massage therapy to patients. In addition to a similar
requirement to finance the accounts receivable which are generated by individual
physicians but collected by the Company pursuant to contractual agreements
between the Company and the independent contracted physicians, the Company must
also finance assets utilized in the operations of the clinics. These assets
include leasehold improvements and fixtures, medical equipment, information
systems and office furniture and supplies. Thus the average amount of assets
employed by the Company to support the Clinical operations is generally greater
than Emergency Medical Services operations calculated on a per physician basis.
The capital requirements of the Company arise in four major areas. These are
(i) the need for additional capital to increase business through new service
contracts for hospital emergency departments, (ii) the commencement of new
specialty healthcare clinics, (ii) marketing expenses associated with consulting
services both in Canada and international markets, and (iv) the need for capital
to increase administrative capabilities, including centralized billing and
collection services and management information systems.
Marketing expenses associated with consulting services both in Canada and
international markets are not expected to be material in the next 24 months as
the Company's resources will be focused on developing new hospital contracts in
Canada and the development of Urgent Care Centres.
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The Company is planning to develop a chain of Urgent Care Centres, initially
in Ontario and then in other provinces, that it believes will gain public
recognition and government support as a quality deliverer of emergency health
care. The Company intends to develop these centres through both the opening of
new centres and the acquisition of currently operating centres. No specific
acquisition candidates have been identified. The first Urgent Care Centre opened
in September 1997, with plans to open 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 $150,000 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 June 30, 1997,
the Company did not comply with (i) the net worth covenant because the net worth
of the Company as calculated under the banking agreement was less than $275,000
and (ii) the financial ratio covenants requiring a debt service coverage ratio
of 1.5:1. The Company has not requested or received a waiver of these defaults.
As a result of these defaults, the bank is in a position to demand repayment of
its loan; however, the Company utilized the proceeds of the Bridge Financing to
reduce the Company's bank borrowings. As of June 30, 1997, the Company has an
outstanding balance of $1,092,917 on its line of credit. The Company intends to
repay the outstanding balance out of the net proceeds of the Offering. See "Use
of Proceeds."
The Company believes, although there can be no assurance, that net proceeds
of the Offering and operating revenues will provide sufficient capital to
finance the Company's capital requirements during the 12 months following
completion of the Offering. If the Company encounters unexpected expenses during
such period, or if after such period, revenues from operations are not
sufficient to fund operations or
29
<PAGE>
growth, the Company may require additional financing. There can be no assurance
that the Company will be able to obtain additional financing on acceptable
terms, or at all.
Inflation has not had, nor is it expected to have, a material impact on the
operations and financial condition of the Company.
CHANGE IN ACCOUNTANTS
Zaritsky Penny was previously the auditors for Med-Emerg Inc. which is a
significant subsidiary of the Company. During the fiscal year ended December 31,
1995, that firm's appointment as auditors for Med-Emerg Inc. was terminated and
KPMG was engaged as auditors for Med-Emerg Inc. (KPMG was also appointed
auditors of Med-Plus Health Centers Ltd. another significant subsidiary of the
Company.) The decision to change auditors was approved by the Company's board of
directors.
In connection with the audit of Med-Emerg Inc. for the year ended December
31, 1994, and the subsequent interim period through to the appointment of KPMG,
there were no disagreements with Zaritsky Penny on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The audit report of Zaritsky Penny on the financial statements of Med-Emerg
Inc. as of and for the year ended December 31, 1994, did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
30
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BUSINESS
BACKGROUND
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million population of the Province of Ontario (37% of all of Canada).
Inefficient hospitals run the risk of the loss of public funding if they fail to
meet the objectives of the Commission. Accordingly, the incentives are in place
to induce public hospitals to find solutions to achieve the desired
efficiencies, including outsourcing available from and through private sector
organizations, such as the Company.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services. The broad range of services currently offered by
the Company include operational consulting and healthcare management services,
management of special purpose health clinics, physician and nurse staffing, and
health educational services.
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any particular acquisitions.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's recently launched Urgent
Care Centres program, which provides on-site emergency medical services, 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 December 1, 1997, the
Company had 16 hospital contracts, of which
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12 were contracted to pay monthly administration fees and four were contracted
to pay based on per shift billings.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in hospitals
which have contracted for the Company's contract staffing services. The Company
then enters into contracts with physicians who meet its qualifications and
provides those physicians as candidates for admission to the hospital's medical
staff. While each hospital with which the Company contracts, ultimately
determines whether a physician must be board certified in emergency medicine to
provide medical services in its emergency room, in general, the hospitals do not
require physicians to be so certified. The Company requires all physicians to be
currently licensed to practice medicine in the Province of Ontario and to be
Advanced Cardiac Life Support ("ACLS") or Advanced Training Life Support
("ATLS") certified before entering into a contract for the physician's services.
The Company bills and collects the professional fees for the medical
services provided. Professional fees payable to the physician are disbursed by
the Company pursuant to each physician's contract. Physicians are generally paid
on the basis of the greater of a fixed hourly rate or fee for service patient
billings. As independent contractors, the physicians are responsible for their
own income taxes and statutory remittances to the respective federal and
provincial governments, as well as professional liability insurance. See "Risk
Factors--Classification of Physicians as Independent Contractors; Potential Tax
Liability."
The terms and conditions of the Company's contracts with physicians
generally provide that the Company, on a best efforts basis, bears the primary
responsibility to provide physician coverage to various facilities under
contract as provided for in each physician contract, each contracted physician
will be placed in a functioning facility by the Company and the Company will
collect all fees due to the physician for rendering services. The Company then
pays the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
hospital contracts is comprised of approximately 8% to 20% of OHIP billings plus
the administrative fees charged to the hospital. These contracts contain the
following provisions: Each physician is not an employee of the Company but is
instead an independent contractor of services to various medical facilities
under contract with the Company; Each physician must remain in good standing
with the College of Physicians & Surgeons of the Province of Ontario and be
licensed to practice medicine in the Province of Ontario; Each physician must
remain in good standing with the Canadian Medical Protective Association
("CMPA") and have appropriate CMPA coverage to provide physician services to
patients while working with the
Company; Each physician is expected to maintain an acceptable level of
Continuing Medical Education ("CME") in order to qualify for reimbursement;
Physicians are bound by a non-competition restriction not to provide services at
any hospital where the Company has a contract for one year following the
contract term. Each physician full-time contract has a term of twelve months.
CONTRACTS WITH HOSPITALS. The Company coordinates the scheduling of staff
physicians to provide coverage on a negotiated basis to a hospital's emergency
department.
The Company generally provides contract physician staffing services to
hospitals on the following arrangements: fee-for-service contracts and
physicians per shift that the Company provides to the hospital. In addition,
physicians under contract to the Company authorize the Company to bill and
collect fees. Depending upon the hospital patient volume, the Company may
receive a subsidy from the hospital. Pursuant to such contracts, the Company
assumes responsibility for billing and collection and assumes risks of
administrative error and subsequent non-payment. All of these factors are taken
into consideration by the Company, in arriving at appropriate contractual
arrangements with healthcare institutions and professionals. The hospital
contracts are generally for one year, are generally terminable by either party
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upon two months written notice, and automatically renew if not terminated.
Details of the Company's hospital contracts are as described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the hospital,
the Company considers several factors including location of the hospital in
relation to the availability of physicians, number of physicians from which to
draw, the number of physician shifts required, and patient volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee) the physicians are paid on
the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is usually not a pre-set renewal fee
stated within the contract, however, on occasion there may be a stated renewal
fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador and promote the services provided by
the Company.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staffs salary relates directly to the hospital staffing
business. When the Company receives a new contract and there exists a
shortage of physicians, the Company's recruiting staff will work towards
increasing the Company's supply or emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
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(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, 2nd on-call coverage, Local Medical Director's accommodation costs
and any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs generated by the physician.
The Company currently has in place contracts for the provision in Ontario of
emergency care services by its contracted physicians with 14 hospitals.
THE EMS DIVISION'S OPERATIONS
The principal operating activities of the Emergency Medical Services
Division include the following:
RECRUITMENT AND CREDENTIALS The recruitment and certifying of credentials
of qualified independent contract physicians is a central aspect of the
Company's operations. Three full-time employees of the Company are dedicated to
recruiting and certifying credentials of the independent contact physicians for
the Company. The Company recruits physicians from three groups. The first group
is recruited directly from post graduate programs. Seminars are held in most of
the teaching hospitals in Ontario to inform all the residents of family medicine
and specialty training about career opportunities in the Company. The second and
third groups recruited are family physicians with an interest in emergency
medicine and full-time emergentologists. As part of its recruiting strategy, the
Company intends to seek regulatory approval to establish a stock option plan in
which its contracted physicians can participate. The Company believes that this
will encourage physicians to make long-term commitments.
QUALITY ASSURANCE. Quality assurance systems are designed to ensure
consistency in clinical practice performance. These systems are subject to
review and examination by independent hospital credential and regulatory
agencies. As part of the Company's quality assurance program, all physicians are
required to have ACLS and ATLS certification, provide a Certificate of
Professional Conduct from the College of Physicians and Surgeons of Ontario, be
approved by the credentialing committee in their respective hospitals that are
governed by the Public Hospital Act, maintain adequate malpractice coverage, and
maintain continuing medical education credits. Principally, quality assurance is
the responsibility of Dr. Nimigan, the Company's Executive Medical Director, as
well as the Medical Director assigned to such hospital. There are currently four
Medical Directors responsible for quality assurance activities, including Dr.
Zacharias. The efficacy of these systems, and the performance of its contract
physicians, are critical to maintaining a good relationship with the hospitals,
as well as minimizing the exposure of the Company to liability claims.
TIME SCHEDULING. The scheduling of physician hours is performed monthly.
Hospitals are provided a monthly physician coverage schedule prior to the first
of each month. Under some of the hospital contracts, multiple physician coverage
is required during certain periods. Because of varying other demands on the
contract physicians, the scheduling process is complex and requires significant
management attention. The Company has two full-time employees dedicated to
scheduling issues.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage are comprised of two elements: (i) hospital administrative fees; and
(ii) physician services. Under each hospital contract, the Company has the
responsibility for the billing and collection of physician fees. The Company's
bad debt experience in collection of physician fees has been less than 1% of
allowable billings. In addition, the Company charges each hospital a fee for its
recruiting and staffing services either on a fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides
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for the administration of fringe benefit programs, which may include but are not
limited to life insurance, health insurance, professional dues and disability
insurance.
CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. Hospitals have increasingly
turned to consulting specialists with specialized skills to strengthen the
management of their professional medical staff and specific clinical
departments, to better control costs, and to assist hospitals in meeting their
healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring physician. In the past three years,
consulting contracts have been conducted with Hotel-Dieu Grace Hospital and The
Wellesley Hospital.
The Company has also conducted several international consulting assignments
for healthcare clients in Saipan, the Cayman Islands, Malaysia and Russia,
including feasibility studies, identification of medical service needs, planning
of healthcare delivery systems and developing marketing strategies. The Company
is currently engaged in one consulting assignment 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's
consulting services are performed on a cost plus basis. Fees billed on
consulting assignments are generally a markup over direct salaries and
consultant fees incurred. The Company anticipates that consulting work will
continue to be performed as an extension of the Company's core business, the
provision of emergency and related health care services. However, it does not
intend to strategically pursue rapid growth of its consulting business.
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.
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THE CLINICAL OPERATIONS DIVISION
The Company owns and operates four clinics in Canada, including two clinics
in Toronto's Lester B. Pearson International Airport. In addition, the Company
operates the Glenderry clinic in which it owns a 33.33% interest. The locations
of and services provided at the Company's clinics are as follows:
AIRPORT. The Company has contracted with the Ministry of Transportation to
provide emergency services for both Terminal 1 and 2 Medical Clinics Toronto's
Lester B. Pearson International Airport. The airport clinics provide emergency
services throughout the airport to approximately twenty-eight million travelers
who use the airport each year and walk-in services to the approximately 35,000
employees. The staff consists of highly qualified critical care nurses who are
on-site and emergency physicians who are on call. Other services provided in the
clinic are chiropractic, massage therapy and audio testing which services are
generally provided to employees of the airport.
GLENDERRY, POND MILLS, CENTRAL. The Company operates three clinics which
offer both family practice and walk-in services for patients. Other services
provided at the clinics are travel medicine, chiropractic, massage therapy,
weight loss program, acupuncture, Chinese medicine and professional family
counseling. The Glenderry clinic is a partnership, in which the Company acquired
a 33.33% interest in December 1995 for consideration of $27,208. The remaining
66.67% is held by two physicians unaffiliated with the Company. The Company
manages the walk-in clinic by providing scheduling, staffing, recruiting,
billing, collections and accounting services to the clinic. In return for
managing the clinic, the Company receives a monthly fee of $1,500. In addition,
as an owner of the 33.33% interest, the Company receives one-third of any
distributions.
The Company recently acquired the assets and physician contracts of St.
George Medical Clinic, a Health Services Organization (HSO), for aggregate
consideration of $284,257. The funding mechanism is a contractual agreement with
the Ministry of Health to provide primary care at a clinic for a specified
number of registered patients. The Ministry allocates a specific payment for
each patient on a monthly basis, whether the services are used or not. The
services provided under an HSO clinic as compared to a fee-for-service clinic
are identical. The difference that arises between an HSO clinic vs a
fee-for-service clinic is in the funding provided by the Ontario Ministry of
Health. Under the HSO model, the Ministry pays a monthly flat fee for a patient
listed with the HSO regardless of whether the patient visit the clinic or not.
The monthly fee is determined by the age and sex of the patient and is referred
to as the capitation rate. Under the fee-for-service model, a fee is billed to
the Ministry only when a patient visits the clinic and a service is performed.
The fee-for-service rates are set by the Ministry and vary depending on the type
of medical service performed. The St. George clinic operations was transferred
to the Central Clinic in an effort to take advantage of the Central Clinic's
convenient location. As a result, the Company also transferred the physician
contracts to its Central Clinic.
URGENT CARE CENTRES.
The Company plans to develop a chain of Urgent Care Centres, initially in
Ontario and then in other Canadian provinces, that will gain public recognition
and government support as a quality deliverer of urgent health care. There can
be no assurance that they will gain such recognition or support.
Due to government funding constraints, many primary care physicians in
Canada have moved to other countries to practice medicine, retired from the
practice of medicine, or have closed their practices to become a member of a
group of physicians that provide only limited access to health care.
Consequently, approximately 1 in 4 residents of Ontario is without a primary
care physician.
The Company's plan is to develop its Urgent Care Centre services, through
which it intends to offer on-site, one-stop medical care comparable to the
services provided in a traditional emergency department. The Urgent Care Centre
concept consists of a group of emergency trained physicians, a medical
laboratory, a diagnostic radiology service, and a pharmacy, each of which must
be present for the others to co-exist, and each of which is provided by a
separately owned company. The Company will own and
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operate the clinic component of the Urgent Care Centre and the support staff
will be employees of the Company. The Company, through its wholly-owned
subsidiary Med-Emerg Urgent Care Centre, Inc., intends to provide emergency
medical services, including emergency physician staffing, emergency nurse
staffing, receptionist staffing, physician billing services, all financial
services, inventory control, Medical Directorship and other operational
components such as quality improvement and risk management initiatives. Each
emergency-trained physician working at an Urgent Care Centre will have critical
care expertise to treat most clinical problems. Unlike most 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 will bill and collect the professional fees for medical services
provided at its Urgent Care Centres. Fees are billable to the Ontario Ministry
of Health "OHIP" in accordance with prescribed fee for service billing
guidelines. In addition, for medical services not covered by OHIP, the Company
will bill the patient directly. Management anticipates that direct patient
billing will represent a small portion of the Company's billings. Subsequent to
the receipt by the Company of its billings for medical services, professional
fees payable to the physician will be disbursed pursuant to each physician's
contract. The Company anticipates that the direct costs associated with each
Urgent Care Centre will be those associated with employing the nursing and
administrative support staff, the facility lease costs and the cost of supplies.
The profitability of each Urgent Care Centre will be directly effected by the
number of patients that each centre services. The Company believes that its
experience in recruitment of physicians, its clinic operating experience and the
capital available from this public offering will enable it to achieve its
planned rate of openings for its Urgent Care Centres.
The Company opened its first centre on September 19, 1997, and plans to open
up to nine additional centres scheduled over the following eighteen months. The
Company estimates that it will cost approximately $200,000 to open each new
Urgent Care Centre. See "Use of Proceeds" and "Managements Discussion and
Analysis of Financial Condition and Results of Operations, Liquidity and Capital
Resources."
It is expected that the Urgent Care Centres will be "community based" and
offer less restricted access to non-hospital based health care. Management
believes that the centres will offer high quality service not only in clinical
practice but also in consumer defined quality attributes such as waiting times,
quality of environment, quality of personal interaction and courtesy.
Management's plan is that the Urgent Care Centres will be designed to be less
costly to the publicly funded health care system than traditional emergency
departments.
The vast majority of emergency services in Ontario are delivered by
qualified family or general practitioners in local communities. In Ontario,
there are 20,084 physicians active in the practice of medicine although only 323
physicians are certified in emergency medicine. Notwithstanding this small
proportion of physicians focusing on emergency medicine, the demand for
emergency care has grown significantly over the past ten years. The Company
believes, although there can be no assurance, that there is a need for an
alternate provider of emergency medical services and expects this need to grow
due to their anticipated cost efficiency and the funding problems facing the
healthcare system.
The success of the Urgent Care Centre concept will depend on the Company
realizing several strategic objectives. The Company desires to offer
comprehensive medical care at a level comparable to traditional hospital based
emergency departments. In order to accomplish this objective, it must recruit
sufficient physicians and nurses with appropriate critical care expertise to
ensure quality care for all clinical problems, recruit experienced providers of
diagnostic imaging, medical laboratory services, and pharmacy services to be
co-participants in each centre, manage day-to-day operations with an experienced
Medical Director for quality assurance and an experienced Clinical Director for
operational efficiency, and operate in a cost effective manner to maximize
profitability.
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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, in order to restructure the Company at the request of
the Underwriter and decrease the outstanding capital of the Company, 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. These preferred
shares were subsequently transferred to a Canadian corporation which is
controlled by the former preferred shareholders. 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 one and one-half shares of the
Company's Common Stock at the option of the holder for a ten-year period from
the date of issuance. At the end of the ten-year period, the holder may convert
at its option the preferred shares into such number of shares of the Company's
Common Stock as is equal to US$4,500,000 divided by the then current market
price of the Company's Common Stock. 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 December 20,
1997, the Company will reissue, as soon as reasonably practicable, common share
purchase warrants in substantially the same terms as the holders of the
surrendered warrants.
This capital restructuring was effected to reposition the shareholdings of
the Company prior to the completion of an initial public offering of stock. In
particular, the former controlling shareholder agreed to a substantial reduction
in percentage of voting stock held of the Company subsequent to the Company
completing its initial public offering, in exchange for the long-term preferred
share commitment by the Company. Management is of the opinion that this
restructuring is in the best interests of all shareholders of Med-Emerg, and
provides a long-term capital structure from which the Company may pursue its
strategic growth objectives.
GOVERNMENT REGULATION
The provision of medical services in Canada is for the most part, under
provincial jurisdiction. Under the Health Insurance Act, the government of
Ontario is responsible for paying physicians for the provision of insured
services to residents of Ontario. In 1993, the government placed an overall hard
cap of approximately $3.8 billion on the amount physicians could collectively
bill the Ontario Health Insurance Plan (OHIP) for insured services. As
physicians' billings exceeded this hard cap in successive years, the government
reduced the fees received under OHIP by prescribed percentages ("clawbacks").
This
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clawback is subject to constant revision and review. In addition to the hard
cap, individual physicians' billings under OHIP are subject to threshold
amounts, or soft caps. Once a physician reaches a prescribed level in the
12-month period beginning April 1 of each year, the government reduces payments
to the physician by a prescribed fraction. In May 1997, the Ontario provincial
government reached an agreement with the medical profession wherein it was
agreed that the soft cap imposed against the individual physicians shall be
cancelled on all services rendered after February 28, 1998. This agreement is
due to expire on March 31, 2000. Further, this agreement has no effect on the
hard cap. Any further change in reimbursement regulations, policies, practices,
interpretations or statutes that places material limitations on reimbursement
amounts or practices could adversely affect the operations of the Company,
absent, or prior to, satisfactory renegotiation of contracts with clients and
arrangements with contracted physicians.
Under a combination of statutory provisions, both Federal and provincial,
physicians are prohibited from billing their patients for fees in excess of
those payable for insured services by OHIP. The Canada Health Act allows for
cash contributions by the Federal government in respect of insured health
services provided under provincial healthcare insurance plans. In order for a
province to qualify for a full cash contribution, there is a requirement that
the provincial healthcare insurance plan satisfy the criteria set out in the
Canada Health Act. In addition, the province must ensure that no payments are
permitted in respect of insured health services that have been subject to extra
billing. Physicians who bill patients directly for the balance of their bill
which has been reduced due to clawback may be guilty of an offense, and on
conviction, liable to significant financial penalties and possibly subject to
proceedings for professional misconduct. However, clawbacks with respect to
individual physicians, as discussed above, will be cancelled on February 28,
1998.
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
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emphasis may be placed on such managed care tools as utilization review,
guidelines, and fee schedule-tightening. The current move away from traditional
fee-for-service mechanisms may have a similar effect as physicians attempt to
minimize the risk they face and as the government strives for accountability and
value-for-dollar assurances.
COMPETITION
Competition in the industry is based on the scope, quality and cost of
services provided. Certain of the Company's actual or potential competitors have
substantially greater financial resources available to them. While management
believes that it competes on the basis of the quality of its services, the
larger resources of its competitors may give them certain cost advantages over
the Company (e.g., in the areas of malpractice insurance, cost, savings from
internal billing and collection and a broader scope of services). While various
local physician groups provide hospitals with emergency staffing alternatives,
to date, the Company is the largest province wide provider of emergency staffing
services to hospitals. The clinics operated by the CO Division competes with
hospital and other private physicians. The Urgent Care Centres would compete
with hospital emergency rooms. The Company believes that the varied physician
practice alternatives coupled with competitive remuneration plans create a
significant incentive for physicians to provide patient services through
Med-Emerg.
LEGAL PROCEEDINGS
The Company is presently party to one legal proceeding which was commenced
on July 4, 1997 in the General Division of the Ontario Court. This proceeding
relates to the November 1996 Recapitalization, in which 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, the applicant in the proceeding, 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 intends to
defend this action vigorously. However, in the event that the Company is
unsuccessful in its action, the Company will be required to return to the Estate
the 75,000 shares which were previously surrendered in the November 1996
Recapitalization.
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 December 1, 1997, the Company had 28 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.
40
<PAGE>
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................................. 39 Chief Operating Officer, President and Director
Wayne Nimigan, M.D., FRCP............................ 49 Executive Medical Director
Kathryn Gamble, CA................................... 30 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
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.
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
41
<PAGE>
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).
KEITH BURK, M.D.. Dr. Burk is a consultant to the Company and in such
capacity has been the Company's Medical Director of Urgent Care Operations since
May 1996. Dr. Burk is also the President of the Urgent Care Clinic Association
of Ontario and is one of the founders of two urgent care clinics in the
Kitchener-Waterloo region. Dr. Burk intends to dedicate at least two days per
week to the Company's Urgent Care project in his capacity as a Medical Director.
Since 1991, Dr. Burk has been a working physician at the Kitchener-Waterloo
Urgent Care Clinics as well as the Medical Director at those two sites.
ROBERT M. RUBIN. Mr. Rubin has served as a director of the Company since
October 1996. Since June 1992, Mr. Rubin has served as a director of Diplomat
Corporation, a publicly traded company involved in the sale of infantwear and
babycare products through direct mail order catalogues.
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 is also a Director 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 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.
42
<PAGE>
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 and
providing services to 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.
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
43
<PAGE>
years ended December 31, 1994 and 1995. No other executive officer has a total
annual salary and bonus of more than $100,000 (U.S.) during the reporting
periods.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------ --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Ramesh Zacharias................................ 1996 $ 169,462 $ 0 $ 19,582(1)
Chief Executive Officer 1995 $ 73,000 $ 0 $ 83,004(1)
1994 $ 77,000 $ 0 $ 94,639
Carl Pahapill................................... 1996 $ 131,845 $ 15,000 $ 9,000(2)
Chief Operating Officer, President 1995 $ 0 $ 0 $ 31,000(2)
All Officers and Directors as a Group
(9 people).................................... 1996 $ 454,686 $ 17,500 $ 28,582
</TABLE>
- ------------------------
(1) In addition to being the Chief Executive Officer of the Company, Dr.
Zacharias on occasion covers physician assignments that the Company is
otherwise unable to fill. For each assignment that Dr. Zacharias covers, he
is paid as an independent contracting physician. This amount represents fees
paid to Dr. Zacharias for services rendered as a physician.
(2) Represents fees paid to Mr. Pahapill for acting as a consultant to the
Company from September 1995 through December 1995.
EMPLOYMENT AGREEMENTS
All of the Company's executive officers intend to devote their full business
time to the affairs of the Company. The Company entered into employment
agreements with both Dr. Zacharias and Mr. Pahapill. The agreements become
effective upon the closing of this Offering. Dr. Zacharias' agreement provides
that he will devote all of his business time to the Company in consideration of
an annual salary of $204,000 for the first year increasing to $225,000 per year
during the final year. The agreement is for a term of three years, but may be
terminated by the Company for cause, or without cause with penalty. Mr.
Pahapill's agreement is for a term of two years, but may be terminated by the
Company for cause or without cause with penalty. The agreement provides that Mr.
Pahapill devote all of his business time to the Company in consideration of an
annual salary of $175,000. 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, 294,300 of which have been granted. The Plan is to provide for grants
to employees and directors of the Company. Of the 294,300 granted options,
130,000 were granted to Mr. Pahapill, 65,000 were granted to Dr. Zacharias and
15,000 were granted to each of Mr. Thomson, Ms. Gamble, Mr. Deeb, and 10,000
were granted to each of Mr. Nimigan and Mr. Burk. The remaining 34,300 were
granted to key employees of the Company.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, the Company purchased a 33.33% partnership interest in the
Glenderry Medical Clinic from Dr. Zacharias for $27,208. Such partnership
interest represented all of Dr. Zacharias' interest in the Glenderry Medical
Clinic at the time of the purchase. Dr. Zacharias used the proceeds of such sale
to repay the Company the amount of $27,208 outstanding on a non-interest bearing
loan that the Company made to Dr. Zacharias as a shareholder advance.
Between 1994 and 1996, the Company loaned, and such amount is currently
outstanding, an aggregate of $137,719 to Dr. Zacharias and Victoria Zacharias
and two of their affiliated companies. Of such loans, $48,224 was used to
acquire a residence, $37,255 arose in connection with the transfer of shares of
an unrelated company's stock from two of the Company's subsidiaries to two
unrelated companies owned by the Zacharias', and $39,247 was loaned to satisfy
tax liabilities of the Zacharias'. These loans are non-interest bearing with no
specific repayment terms. The Company has agreed to repurchase, prior to the
completion of the Offering, 37,456 shares of its common stock from Ramesh and
Victoria Zacharias at a purchase price of US $2.75 per share. The US $2.75 price
was based on what the Company believed to be an appropriate discount to the IPO
price. The aggregate consideration payable by the Company will be used to repay
all outstanding amounts owed by Dr. Zacharias and Victoria Zacharias and their
affiliated companies.
In January 1996, Dr. Zacharias and his wife Victoria Zacharias exchanged all
of the capital stock of 927563 Ontario Inc. and 927564 Ontario Inc. for
2,333,333 shares of the Company's common stock.
In January 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock and 1,000,000 warrants for gross proceeds of $1,000,000. Hampton
House International Corp. ("Hampton House"), a company of which Peter Deeb is
the CEO and a shareholder, purchased 60,000 shares. The 1,000,000 Warrants were
subsequently returned to the Company as part of the Recapitalization (as such
term is defined herein).
In June 1996, the Company loaned $60,000 to Carl Pahapill, the Company's
President, to purchase 100,000 shares of Common Stock in the Company. The loan
is non-interest bearing, unsecured and repayable over a five year period with
principal payments commencing two years from the effective date of his
employment agreement.
On November 1, 1996, in order to restructure the Company at the request of
the Representative and decrease the outstanding capital of the Company, 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. In
October 1997, the Company and the Zacharias' voluntarily agreed to change the
terms of the preferred stock to eliminate the redemption feature of the
Preferred Stock which was treated as debt and resulted in the Company failing to
meet the net tangible asset criteria for listing on Nasdaq. In connection
therewith, in December 1997 the Company and the Zacharias' agreed to modify the
conversion feature of the preferred stock. See "Description of Securities--
Preferred Stock" for a description of the terms of the preferred stock. As part
of the Recapitalization, the Company issued Hampton House an aggregate of
610,000 shares of Common Stock, valued at $1,695,800, for past services
rendered, including the identification of potential acquisition candidates,
including the St. George's Medical Clinic, and assisting the Company in
developing a strategic business plan. See "Business--November 1996
Recapitalization" for a description of the Recapitalization.
On November 1, 1996, the Company granted Robert Rubin, a director, an option
to purchase 700,000 shares of Common Stock at US$.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$150,000 outstanding balance under
such line of credit, which is to be repaid out of the proceeds of the Offering.
45
<PAGE>
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. Mr. Rubin and another
investor have agreed to surrender for cancellation without consideration to the
Company upon closing of this Offering, an aggregate of 62,500 shares of Common
Stock purchased in the Bridge Financing.
In April and December 1997, the Company granted options to purchase an
aggregate of 294,300 shares of Common Stock pursuant to the 1997 Stock Option
Plan to certain of its directors, executive officers and employees. Of these
options, 229,300 are exercisable at US$2.50 per share and 65,000 are exercisable
at US$4.25 per share.
Except with respect to the non-interest bearing loans made to the Zacharias'
and Mr. Pahapill, the Company believes all previous transactions between the
Company and its officers, directors or 5% stockholders, and their affiliates
were made on terms no less favorable to the Company than those available from
unaffiliated parties. See "Risk Factors--Transactions with Management and
Principal Stockholders." In the future, the Company will present all proposed
transactions with affiliated parties to the Board of Directors for its
consideration and approval. Any such transaction will be approved by a majority
of the disinterested directors.
46
<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>
1245841 Ontario Inc.(2).................................................. 1,080,000 40.9% 27.8%
Ramesh Zacharias(3)...................................................... 1,145,000 42.3% 29.0%
M.D., FRCSC
Victoria Zacharias(4).................................................... 1,145,000 42.3% 29.0%
Carl W. Pahapill(5)...................................................... 230,000 11.8% 7.2%
CA
Robert Rubin(6).......................................................... 750,000 28.5% 19.3%
Hampton House............................................................ 410,000 21.7% 13.0%
International(7)
Peter Deeb(8)............................................................ 425,000 22.3% 13.5%
William Thomson, CA(9)................................................... 15,000 * *
Kathryn Gamble, CA(9).................................................... 15,000 * *
Patrick Michaud.......................................................... 0 * *
Ambrose Group............................................................ 170,000 9.0% 5.4%
John H. Sununu........................................................... 130,000 6.9% 4.1%
All Officers and Directors as a group(3)(4)(5)(6)(8)(9).................. 2,580,000 71.32% 53.0%
</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) 1245841 Ontario Inc. is a Canadian company in which the beneficial ownership
is held by Ramesh and Victoria Zacharias.
(3) Includes (i) 165,000 shares owned by 1245841 Ontario Inc., which is owned by
Dr. and Mrs. Zacharias (ii) 65,000 shares issuable upon exercise of
currently exercisable options granted under the Company's 1997 Stock Option
Plan, and (iii) 750,000 shares of Common stock issuable upon conversion of
up to 500,000 shares of Convertible Preferred Stock, such preferred stock
currently held by 1245841 Ontario Inc., which is owned by Dr. and Mrs.
Zacharias. For a period of ten years from issuance, each share of preferred
stock is convertible into 1.5 shares of Common Stock and thereafter into
such number of shares of Common Stock as is equal to U.S.$4,500,000 divided
by the then current market price of the Common Stock on the date of
conversion. For purposes of the above chart, the number of shares of Common
Stock issuable upon conversion of the Preferred Stock was calculated by
assuming a one for one and one-half conversion. See "Description of
Securities." Dr. Zacharias disclaims beneficial ownership of the shares
owned by his wife.
(4) Includes (i) 165,000 shares owned by 1245841 Ontario Inc., which is owned by
Dr. and Mrs. 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) 750,000 shares of
Common stock issuable upon conversion of up to 500,000 shares of Convertible
Redeemable Preferred Stock
47
<PAGE>
such preferred stock currently held by 1245841 Ontario Inc., which is owned
by Dr. and Mrs. Zacharias. For a period of ten years from issuance, each
share of preferred stock is convertible into 1.5 shares of Common Stock, and
thereafter into such number of shares of Common Stock as is equal to
U.S.$4,500,000 divided by the then current market price on the date of
conversion. For purposes of the above chart, the number of shares of Common
Stock issuable upon conversion of the Preferred Stock was calculated by
assuming a one for one and one-half conversion. Mrs. Zacharias disclaims
beneficial ownership of the shares owned by her husband.
(5) Includes 130,000 shares issuable upon exercise of currently exercisable
options granted under the Company's 1997 Stock Option Plan.
(6) Includes 700,000 shares of Common Stock currently issuable upon exercise of
options and 50,000 shares of Common Stock for acting as director, 38,000 of
which have been approved for issuance but not yet issued. See "Management."
(7) 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.
(8) 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.
(9) 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 (i) the number of shares of Common Stock beneficially owned by
each Selling Allotment Securityholder prior to the Offering, (ii) the number of
shares of Common Stock included for sale in this Prospectus in connection with
the Underwriters' Over-Allotment Option, and (iii) the number of shares
beneficially owned immediately after the offering and the sale of such shares.
<TABLE>
<CAPTION>
SHARES OWNED
BEFORE SHARES/PERCENT OWNED
SELLING ALLOTMENT STOCKHOLDER OVER-ALLOTMENT SHARES OFFERED HEREBY AFTER OVER-ALLOTMENT
- ---------------------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
1245841 Ontario Inc.**........................ 1,080,000 46,875 1,033,125/26.12%
Hampton House Int'l........................... 410,000 31,625 378,375/12.05%
I. Boulos Bou Dib............................. 100,000 20,000 80,000/2.55%
Nadim Jebara.................................. 60,000 10,000 50,000/1.59%
Jane Kingswood................................ 80,000 12,000 68,000/2.17%
W. David Wood................................. 50,000 12,000 38,000/1.21%
Glen Shelton.................................. 70,000 10,000 60,000/1.91%
Husein El Dada................................ 30,000 8,000 22,000/*
Robert Moskofian.............................. 40,000 8,000 32,000/1.02
Mark Wilder................................... 20,000 6,000 14,000/*
Peter J. Tanous............................... 20,000 5,000 15,000/*
Thomas Nassif................................. 20,000 5,000 15,000/*
Elizabeth Huntly-Harmen....................... 20,000 4,000 16,000/*
Issa Baconi................................... 20,000 5,000 15,000/*
Ramzi Bishuh.................................. 10,000 4,000 6,000/*
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
** 1245841 Ontario Inc. is owned by Dr. and Mrs. Zacharias.
48
<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, the outstanding shares of Common Stock
were beneficially held by 25 people and the 500,000 shares of Convertible
Preferred Stock held by 1245841 Ontario Inc., a company beneficially owned and
controlled by Dr. Zacharias and Vicki Zacharias.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to share
ratably on a share-for-share basis with respect to any dividends when, as an if
declared by the Board of Directors out of funds legally available therefor. Each
holder of Common Stock is entitled to one vote for each share held of record and
are not entitled to cumulative voting rights. The Common Stock is not entitled
to conversion or preemptive rights and is not subject to redemption. There are
no limitations on the right of nonresident or foreign owners to hold or vote the
Company's Common Stock. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution to stockholders after payment of all
obligations of the Company and after provision has been made with respect to
each class of stock,if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have subscription rights. The shares of Common
Stock presently outstanding are, and the shares of Common Stock offered hereby
will be, upon issuance and payment therefor, validly issued, fully paid and
non-assessable. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will upon issuance be, fully paid and
non-assessable.
Of the 1,889,500 shares of Common Stock outstanding as of the date of this
Prospectus (after giving effect to the surrender for cancellation without
consideration of 62,500 shares of Common Stock to the Company by certain
investors in the Company's January 1997 private offering), 682,500 (36.12%) are
held in the United States by nine record holders.
WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of price of $4.50, 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 Representative 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 and for any issuance of Common Stock for less than the lesser of the
market price of a share of Common Stock or the exercise price of the Warrants.
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.
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<PAGE>
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 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 Underwriter) at
a redemption price of $0.10 per Warrant on not less that 30 days written notice,
provided that the closing 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, is at least $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 Representative as its exclusive warrant
solicitation agents, in connection with which the Representative 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, all of which
are held in the name of 1245841 Ontario Inc., which is owned by Ramesh and
Victoria Zacharias. 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
holders of the Preferred Stock may convert the Preferred Stock for an amount of
shares of Common stock as is equal to U.S.$4,500,000 divided by the then 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 and one half
shares 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.
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<PAGE>
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 being or having been such a director
or officer, unless such director has been adjudicated to have been liable for
negligence or misconduct in his or her corporate duties. As of the date of this
Prospectus, the Company is not aware of any existing or pending litigation
involving a former or current director that will require the indemnification of
the Company.
Notwithstanding the foregoing indemnification provisions of the Company's
Bylaws, the Company has been informed that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act is against
public policy and is therefore unenforceable.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10005.
TAX ASPECTS OF THE OFFERING
INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK OR WARRANTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX CODE AS WELL AS TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAX JURISDICTION.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS RESIDENT IN CANADA
NO DISCLOSURE IS OR IS DEEMED TO BE MADE IN THE PROSPECTUS AS TO INCOME TAX
CONSEQUENCES APPLICABLE TO A RESIDENT OF CANADA AS TO ACQUIRING, HOLDING,
CONVERTING OR DISPOSING OF COMMON STOCK OR WARRANTS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS NOT RESIDENT IN CANADA
In the opinion of Borden & Elliot, special Canadian counsel to the Company,
the following are the
principal Canadian federal income tax considerations under the Income Tax Act
(Canada) and the regulations thereunder (collectively, the "Canadian Act"), the
administrative practices of Revenue Canada, Customs, Excise & Taxation and
proposed amendments to the Canadian Act and the regulations thereunder publicly
announced by the Minister of Finance prior to the date hereof generally
applicable to acquiring, holding and disposing of Common Stock and Warrants.
There is no assurance that any proposed amendments to the Tax Act or the
regulations thereunder will be enacted as proposed, if at all. It is assumed
that at all material times the Common Stock and Warrants will be listed on
NASDAQ, or some other Canadian or foreign stock exchange. Currently, neither
NASDAQ nor any other foreign stock exchange is prescribed for the purpose of
section 115 of the Canadian Act. Proposals in former Bill C-69 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, the Ministry of Finance proposes that after
April 26, 1995 shares listed on certain U.S. stock exchanges, including NASDAQ,
will
51
<PAGE>
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.
This opinion does not take into account any provincial or foreign income tax
legislation or considerations nor does it take into account or anticipate any
changes in law or administrative practice including by way of judicial decision
or legislative action.
This opinion is of a general nature and is not, and should not be construed
as, advice to any particular Investor as to Canadian Tax consequences applicable
to the Investor. Each Investor is urged to consult with the Investor's legal
professional advisors regarding tax and other legal consequences applicable to
the Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability for Canadian tax upon exercise of a
Warrant. The cost of the Investor of Common Stock acquired on exercise of a
Warrant will equal the adjusted cost base of the Warrant so exercised, plus any
amount paid by the Investor to exercise the Warrant.
DIVIDENDS ON COMMON STOCK
An Investor will be liable to pay Canadian withholding tax equal to 25% (or
such lesser rate as may be provided under an applicable tax treaty) of the gross
amount of any dividend actually or deemed to have been paid or credited to the
Investor on the Investor's Common Stock. An Investor who is a resident of the
United States for purposes of the Canada-U.S. Income Tax Convention is subject
to a lesser tax of 15% of the gross amount of any dividend actually or deemed to
have been paid or credited to the Investor on the investor's Common Stock if the
Investor holds less than 10% of the voting stock of the Company, or 5% if the
Investor holds 10% or more of the voting stock of the Company. The Company will
be required to withhold the tax from the gross amount of the dividend, and to
remit the tax to the Receiver General of Canada for the account of the Investor.
Investors who are entitled to reduced withholding tax under an applicable treaty
must provide appropriate evidence of that entitlement satisfactory to the
Company.
DISPOSING OF COMMON STOCK
An Investor will not incur liability for Canadian tax upon disposing of
Common Stock except where the Common Stock is redeemed or repurchased by the
Company, in which case a dividend could be deemed to result (see Dividends on
Common Stock above).
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 1,889,500 shares of Common Stock of the Company outstanding as of the
date of this Prospectus (after giving effect to the surrender for cancellation
without consideration of 62,500 shares of Common Stock to the Company by certain
investors in the Company's January 1997 private offering), 1,764,500 are
"restricted securities." Of this amount, 802,500 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 62,500 shares of
Common Stock are being registered concurrently with this Offering. Robert Rubin,
a Director, owns, holds options to purchase an aggregate of 700,000 shares of
Common Stock. In the event Mr. Rubin exercises such options, the shares will be
eligible for resale under Rule 144 commencing one year after he exercises the
option, subject to the volume limitations. All of the Company's existing
securityholders, have agreed not to sell or otherwise dispose of any of their
shares of Common stock now owned or issuable upon the exercise of currently
exercisable warrants for a period of two years from the date of this Prospectus,
without the prior written consent of the Underwriter, except for holders of an
aggregate of 500,000 shares of Common Stock who have agreed to an identical
restriction for a period of one year. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's securities
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
See "Shares Eligible for Future Sale."
RESTRICTIONS ON SALE IN CANADA
None of the securities including the Common Stock, the Warrants, or the
Common Stock issuable upon or exercise of the Warrants (together, the
"Securities") has been qualified for sale in any of the provinces of Canada or
to any person who is a resident in any of the provinces of Canada.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell, and the Underwriters named below have agreed
severally but not jointly to purchase from the Company on a "firm commitment"
basis, 1,250,000 shares of Common Stock and 1,250,000 Redeemable Common Stock
Purchase Warrants. The Underwriters have committed to purchase, on a "firm
commitment" basis, the number of shares of Common Stock and Warrants set forth
below opposite each such Underwriter's name:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK NUMBER OF WARRANTS
- ------------------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Network 1 Financial Securities, Inc.
----------------- ----------
1,250,000 1,250,000
----------------- ----------
----------------- ----------
</TABLE>
The Representative has advised the Company that the Underwriters 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 Underwriters have informed the Company that they do not expect to make
sales to discretionary accounts.
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 (all of
which are being offered by the Selling Allotment Securityholders) and 187,500
Warrants for the sole purpose of covering over-allotments, if any.
The Company has agreed to pay to the Representative 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
Representative 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
Representative, which consent, with respect to certain holders of an aggregate
of 62,500 shares of Common Stock, may not be granted during the first 12 month
period from the date of this Prospectus. 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 and not subject to any consensual sale by
the Representative. 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 Representative 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
Representative has not advised the Company whether it will exercise such right
or, if it does so, whom it will designate. The Representative's 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 Representative, 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
54
<PAGE>
closing of this Offering. Pursuant to the Consulting Agreement, the
Representative 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.
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 150% 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, except that the
exercise price of such warrants shall be US$6.75 instead of US$4.50. The
Underwriters' Warrant contains anti-dilution provisions providing for adjustment
of the exercise price upon the occurrence of certain events.
The Underwriters' Warrants are not transferable for a period of one year
from the date of this Prospectus, except to officers of the Underwriters,
members of the selling group and their respective officers and 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 Representative as its warrant solicitation agent, 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 Representative 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
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<PAGE>
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.
In connection with this Offering, the Underwriters' and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock and
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. An Underwriter also may create a short position for
the account of such Underwriter by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. An Underwriter may also cover all or a portion
of such short position by exercising the Over-Allotment Option. In addition, an
Underwriter may impose "penalty bids" under contractual arrangements with such
Underwriter whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriter, the selling concession
with respect to shares of Common Stock and Warrants that are distributed in the
Offering but subsequently purchased for the account of the Underwriter in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock and Warrants at a level above
that which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken they may be
discontinued at any time.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Securities Act. To the extent this section may purport to
provide exculpation from possible liabilities arising under the Federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Underwriters' Warrant, and the Consulting Agreement and does not
purport to be complete. Reference is made to the copies of the Underwriting
Agreement, the Underwriters' Warrant Agreement, the Warrant Agreement and the
Consulting Agreement which are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
Prior to the Offering, there has been no public market for the Common Stock
and the Warrants offered hereby. Consequently, the initial public offering price
of the Common Stock and the Warrants and the exercise prices and other terms of
the Warrants have been determined by the Company and the Representative 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 Gersten, Savage,
Kaplowitz & Fredericks, LLP 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.
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<PAGE>
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliott (Canadian counsel) and Gersten, Savage,
Kaplowitz & Fredericks, LLP (U.S. counsel), 101 East 52nd Street, New York, New
York 10022. Gersten Savage has in the past represented Network 1 Financial
Securities, Inc. and may continue to do so in the future. Certain legal matters
will be passed upon for the Underwriters by Snow Becker Krauss P.C., 605 Third
Avenue, New York 10158-0125.
EXPERTS
The financial statements of the Company as of December 31, 1996, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1996,
have been included herein and in the registration statement in reliance upon
reports of KPMG and Zaritsky Penny, chartered accountants, appearing elsewhere
herein, and upon the authority of said firms as experts in accounting and
auditing.
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<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG, Chartered Accountant.................................................. F-2
Report of Zaritsky Penny, Chartered Accountant........................................ F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Operations and Retained Earnings........................... F-5
Consolidated Statements of Changes in Financial Position.............................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Med-Emerg International,
Inc. as at December 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings (deficit) and changes in financial position for
each of the years in the two year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Med-Emerg International, Inc. as at
December 31, 1996 and 1995 and the results of its operations and the changes in
its financial position for each of the years in the two year period ended
December 31, 1996 in accordance with accounting principles generally accepted in
Canada.
Under date of March 26, 1997 we expressed an unqualified opinion on the
Company's consolidated financial statements as at December 31, 1996 and for the
year then ended. As discussed in note 2, subsequent to March 26, 1996, material
adjustments have been reflected in the attached consolidated financial
statements as at December 31, 1996 and for the year then ended. Because of the
material effect of these adjustments, we hereby withdraw our previously issued
report dated March 26, 1997.
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 18 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, except for Note 2 for which the date is December 5, 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------------------- --------------------------
1997 1996 1996 1995
------------- ------------ ------------ ------------
(UNAUDITED) (RESTATED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... 340,000 $ -- $ 75,135 $ 5,035
Accounts receivable.................................... 1,778,156 2,356,318 2,108,139 2,223,808
Prepaid and other...................................... 236,441 121,888 63,109 156,304
Loan receivable (Note 5)............................... 69,382 -- -- --
------------- ------------ ------------ ------------
2,423,979 2,478,206 2,246,383 2,385,147
Loans to shareholders and directors (note 6)............. 87,471 87,471 87,471 50,268
Due from affiliates (note 7)............................. 50,248 36,724 52,227 37,255
Loan to officer (note 8)................................. 60,000 -- 60,000 --
Capital assets (note 9).................................. 288,443 169,403 246,520 154,357
Deferred taxes........................................... 142,562 60,232 146,554 --
Other assets (note 10)................................... 1,279,234 83,215 700,668 72,342
------------- ------------ ------------ ------------
$ 4,331,937 $ 2,915,251 $ 3,539,823 $ 2,699,369
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bank indebtedness (note 11)............................ 1,432,917 $ 1,228,782 $ 1,308,940 $ 1,225,295
Accounts payable and accrued liabilities............... 1,510,644 1,526,008 1,986,352 1,613,008
Income taxes payable................................... -- -- -- 27,319
Promissory note payable (notes 3 and 12)............... 894,742 -- 143,732 --
------------- ------------ ------------ ------------
3,838,303 2,754,790 3,439,024 2,865,622
Shareholders' equity:
Capital stock (note 12)................................ 8,521,839 844,765 8,140,979 189
Contributed surplus (note 12).......................... 1,246,000 -- 1,246,000 --
Deficit................................................ (9,274,205) (684,304) (9,286,180) (166,442)
------------- ------------ ------------ ------------
493,634 160,461 100,799 (166,253)
Commitments and contingencies (notes 11, 15 and 19)......
------------- ------------ ------------ ------------
$ 4,331,937 $ 2,915,251 $ 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>
SIX MONTHS ENDED JUNE 30 YEARS ENDED DECEMBER 31
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------ ------------- ------------- -------------
(UNAUDITED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 5,543,346 $ 5,288,293 $ 10,817,048 $ 10,983,553 $ 10,474,754
Physician fees and other direct
costs.............................. 4,014,092 4,151,324 8,554,396 8,406,631 7,977,679
------------- ------------ ------------- ------------- -------------
1,529,254 1,136,969 2,262,652 2,576,922 2,497,075
Expenses:
Salaries and benefits.............. 735,055 713,504 1,450,320 1,327,912 1,394,181
Occupancy costs and supplies....... 176,648 175,053 355,603 375,071 340,289
General and administration......... 290,224 250,961 469,721 335,943 319,367
Travel and marketing............... 60,029 127,765 142,909 109,176 118,570
Stock compensation (note 12)....... -- -- 2,941,800 -- --
Depreciation and amortization...... 61,143 27,000 78,379 49,342 46,013
Write-off of deferred start-up
costs (note 4)................... -- 408,166 509,337 663,448 --
------------- ------------ ------------- ------------- -------------
1,323,099 1,702,449 5,948,069 2,860,892 2,218,420
------------- ------------ ------------- ------------- -------------
Income (loss) before interest, bridge
financing and dividends............ 206,155 (565,480) (3,685,417) (283,970) 278,655
Interest, bridge financing and
dividend income (expense), net..... (190,188) (12,614) (55,461) 54,930 (51,879)
------------- ------------ ------------- ------------- -------------
Income (loss) before income taxes.... 15,967 (578,094) (3,740,878) (229,040) 226,776
Income taxes (recovery).............. 3,992 (60,232) (146,554) 71,447 52,245
------------- ------------ ------------- ------------- -------------
Net income (loss).................... 11,975 (517,862) (3,594,324) (300,487) 174,531
Retained earnings (deficit),
beginning of period................ (9,286,180) (166,442) (166,442) 338,051 163,520
Dividends............................ -- -- -- (80,383) --
Excess of redemption price over
issuance price of preference shares
(note 12(a))....................... -- -- (5,525,414) -- --
Excess of redemption price over
issuance price of common shares
(note 12).......................... -- -- -- (123,623) --
------------- ------------ ------------- ------------- -------------
Retained earnings (deficit), end of
period............................. $ (9,274,205) $ (684,304) $ (9,286,180) $ (166,442) $ 338,051
------------- ------------ ------------- ------------- -------------
Basic earnings (loss), per share
(note 17).......................... $ 0.01 $ (0.16) $ (1.18) $ (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>
SIX MONTHS ENDED JUNE
30 YEARS ENDED DECEMBER 31
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (RESTATED)
Cash provided by (used for):
Operations:
Net income (loss)........................................ $ 11,975 $ (517,862) $(3,594,324) $ (300,487) $ 174,531
Items not involving cash: Depreciation and
amortization........................................... 61,143 27,000 78,379 49,342 46,013
Items not involving cash: Amortization of bridge
financing costs........................................ 123,931 -- -- -- --
Deferred income taxes.................................... 3,992 (60,232) (146,554) -- --
Stock compensation....................................... -- -- 2,941,800 -- --
Changes in non-cash operating working capital:
Accounts Receivable...................................... 329,983 (85,815) 235,367 (883,474) (440,753)
Prepaid and other........................................ (173,332) 37,420 98,340 (71,887) (62,299)
Accounts payable and accrued liabilities................. (475,708) (123,652) 65,824 793,848 174,710
Income taxes payable..................................... -- (27,319) (27,319) 7,036 93,418
---------- ---------- ---------- ----------- ---------
(118,016) (750,460) (348,487) (405,622) (14,380)
Investing:
Acquisition (note 3)..................................... -- (40,606) (324,863) -- --
Additions to capital assets.............................. (81,687) (36,556) (94,794) (63,291) (34,979)
Loan receivable.......................................... (69,382) -- -- -- --
Loans to shareholders and directors...................... -- (37,203) (37,203) (43,915) (1,650)
Loan to officer.......................................... -- -- (60,000) -- --
Other assets............................................. (723,876) 11,196 (196,534) 15,000 3,512
---------- ---------- ---------- ----------- ---------
(874,945) (103,169) (713,394) (92,206) (33,117)
Financing:
Issuance of common shares................................ 380,860 844,576 919,576 -- 2
Issuance of promissory note payable (notes 3 and 12)..... 816,000 -- 193,732 --
Repayment of promissory note payable (notes 3 and 12).... (64,990) -- (50,000) -- --
Dividends................................................ -- -- -- (80,383) --
Due from affiliates...................................... 1,979 531 (14,972) (37,255) 46,532
Redemption of shares..................................... -- -- -- (123,640) --
---------- ---------- ---------- ----------- ---------
1,133,849 845,107 1,048,336 (241,278) 46,534
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Increase (decrease) in cash position....................... 140,888 (8,522) (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............................... $(1,092,917) $(1,228,782) $(1,233,805) $(1,220,260) $(481,154)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Cash position is defined as:
Cash..................................................... $ 340,000 $ -- $ 75,135 $ 5,035 $ 4,961
Bank indebtedness........................................ (1,432,917) (1,228,782) (1,308,940) (1,225,295) (486,115)
---------- ---------- ---------- ----------- ---------
$(1,092,917) $(1,228,782) $(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 six months ended June 30, 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(e) Capital assets:
Capital assets are stated at cost. Depreciation is provided on the carrying
values of the assets using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----------------------------------------- ----------------------------------------- ---------
<S> <C> <C>
Furniture and fixtures Declining balance 20%
Computer software Declining balance 100%
Computer hardware Declining balance 30%
Leasehold improvements Straight line 5 years
</TABLE>
(f) Goodwill:
Goodwill is recorded at cost and is being amortized over a period of 10
years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected future operating results. Impairment, if any, is
measured based upon an estimate of the fair value of the goodwill. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating results are not achieved.
(g) Revenue recognition:
The Company provides emergency department physician staffing and
administrative support services to hospitals pursuant to contracts under which
the Company's services are provided on a monthly fee basis or on a per shift
basis. The Company recognizes revenues under its contracts with hospitals as its
services are rendered, based on an accrual of the monthly fee or actual shifts
worked, in accordance with the terms of the contracts. The Company's fees are
based on the individual requirements of each hospital as it relates to the hours
of coverage, the patient volume, the hospital's location and the availability of
a local physician pool. In addition, the Company recognizes revenues as medical
services are rendered by physicians under contract with the Company, in
accordance with the Ontario Health Insurance Plan (OHIP). The Company bills and
collects from OHIP all fees relating to medical services rendered by the
physician. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of OHIP billings plus the administrative fees charged to the hospital.
The Company's clinical operations and urgent care centres provide family
practice and walk-in medical services to patients. The Company recognizes
revenues as medical services are rendered and billed in accordance with the
Ontario Health Insurance Plan. The Company's physician contracts are entered
into between the Company and individual physicians and are either part-time or
full-time. In general, each contracted physician will be placed in a functioning
facility by the Company and the Company bills and collects from OHIP all fees
relating to medical services rendered by the physician. The Company then pays
the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
such physician's medical services ranges from 35% to 43%.
F-8
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
2. REVISION AND RESTATEMENT OF 1996 CONSOLIDATED FINANCIAL STATEMENTS:
During 1996, the Company undertook a capital restructuring, as described in
Note 12 to the financial statements. The Company recorded the issuance of these
shares or agreements to issue shares and options at the ascribed value of $1.00
per share in the December 31, 1996 financial statements. In 1997, the Company
determined that the ascribed value of $1.00 per share used to record these
transactions was an inappropriate measure of fair value of the shares,
accordingly the financial statements for the year ended December 31, 1996 have
been restated. The transactions have been measured at a value of $2.78 Cdn.
($2.05 U.S.) per share.
The impact of the restatement of the 1996 consolidated financial statements
for these issuances of shares is an increased loss of $2,331,800, for the year
ended December 31, 1996 compared to the amount previously presented.
3. ACQUISITIONS:
Effective August 1, 1996, the Company purchased certain assets and assumed
certain liabilities of the St. George Medical Clinic, a Health Services
Organization ("HSO"), for cash of $15,525 a non-interest bearing promissory note
payable of $193,732, payable in 15 equal monthly instalments and 75,000 common
shares of the Company valued at $75,000.
Effective January 1, 1996, the Company purchased a 33-1/3% interest in
Glenderry Medical Clinic, Partnership for consideration of $27,208.
The following is a summary of assets purchased and liabilities assumed:
<TABLE>
<CAPTION>
ST. GEORGE GLENDERRY TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Total assets................................................................ $ 127,588 $ 55,189 $ 182,777
Goodwill.................................................................... 427,537 22,069 449,606
Less liabilities assumed.................................................... (270,868) (36,652) (307,520)
----------- ---------- -----------
284,257 40,606 324,863
Cash........................................................................ -- (13,398) (13,398)
----------- ---------- -----------
$ 284,257 $ 27,208 $ 311,465
----------- ---------- -----------
</TABLE>
Summarized unaudited balance sheet information of the Company's
proportionately consolidated 33-1/3% interest in Glenderry Medical Clinic,
Partnership at June 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Current assets.......................................................................... $ 42,756 $ 58,222
Capital assets, net..................................................................... 1,663 1,747
Current liabilities..................................................................... (41,914) (50,861)
---------- ------------
Equity.................................................................................. $ 2,505 $ 9,108
---------- ------------
</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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
3. ACQUISITIONS: (CONTINUED)
Summarized unaudited results of operations and cash flow information of the
Company's proportionately consolidated partnership interest for the six months
ended June 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Revenue................................................................................ $ 109,966 $ 253,117
Expenses............................................................................... 116,569 250,243
---------- ------------
Net (loss) income...................................................................... $ (6,603) $ 2,874
Changes in non-cash components of working capital...................................... 3,993 (4,705)
---------- ------------
Cash flows from operations............................................................. (2,610) (1,831)
Cash flow from investing activities.................................................... (102) (393)
---------- ------------
Increase (decrease) in cash position................................................... $ (2,712) $ (2,224)
---------- ------------
---------- ------------
</TABLE>
The proportionate taxable income or loss of the partnership is included in
the taxable income of the respective partners. Accordingly, no provision for
income taxes on this entity is included in the above amounts.
4. WRITE-OFF OF DEFERRED START-UP COSTS:
<TABLE>
<CAPTION>
JUNE 30 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............................. $ -- $ 365,291 $ 466,462 $ 663,448
Write-off of advances relating to Malaysia project....................... -- 42,875 42,875 --
--- ---------- ---------- ----------
$ -- $ 408,166 $ 509,337 $ 663,448
--- ---------- ---------- ----------
--- ---------- ---------- ----------
<CAPTION>
<S> <C>
1994
-----
<S> <C>
Write-off of deferred start-up project costs............................. $ --
Write-off of advances relating to Malaysia project....................... --
---
$ --
---
---
</TABLE>
Effective September 18, 1995, the Company acquired 60% of the outstanding
shares of Canadian Medical Centres s.r.o., a medical clinic in Prague, Czech
Republic by agreeing to fund development and start-up costs. The remaining 40%
of the shares were acquired by December 31, 1995 as part of the continued
funding.
Subsequent to the acquisition, the Company determined that there was no
reasonable assurance that the deferred development and start-up costs would be
recovered from future operations. Deferred development and start-up costs
totalling $663,448 have been written off at December 31, 1995. Additional costs
incurred subsequent to the acquisition in the year ended December 31, 1996 in
the amount of $466,462, and in the six months ended June 30, 1996 in the amount
of $365,291, have been written off.
The Company is no longer providing funding for the clinic in Prague.
5. 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 November 19, 1997, and is secured by all of
the assets of Emergency Care Specialist Inc.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
6. LOANS TO SHAREHOLDERS AND DIRECTORS:
<TABLE>
<CAPTION>
JUNE 30 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 $ 87,471 $ 87,471 $ 50,268
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Concurrent with the initial public offering disclosed in note 16, 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 $50,248.
The purchase of the 33-1/3% partnership interest in Glenderry Medical
Clinic, as described in note 3, 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.
7. DUE FROM AFFILIATES:
The amounts due from affiliates are non-interest bearing and due on demand.
Repayment of these amounts is described in note 6 above.
8. LOAN TO OFFICER:
<TABLE>
<CAPTION>
JUNE 30 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-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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
9. CAPITAL ASSETS:
<TABLE>
<CAPTION>
JUNE 30 (UNAUDITED)
----------------------
1997 1996
---------- ----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Furniture and fixtures.............................................. $ 234,078 $ 123,373 $ 110,705 $ 74,298
Computer software................................................... 80,609 75,696 4,913 1,405
Computer hardware................................................... 302,875 183,130 119,745 85,580
Leasehold improvements.............................................. 134,658 81,578 53,080 8,120
---------- ------------ ---------- ----------
$ 752,220 $ 463,777 $ 288,443 $ 169,403
---------- ------------ ---------- ----------
</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>
10. OTHER ASSETS:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------------- ---------------------
1997 1996 1996 1995
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Goodwill (note 3) (net of accumulated amortization of $39,193
($17,814 at December 31, 1996))................................. $ 410,415 $ 22,069 $ 431,792 $ --
Deferred start-up costs........................................... 72,359 1,705 58,574 --
Deferred charges relating to proposed financing (note 16)......... 427,396 -- 153,907 --
Loan to Preventative Health Innovations Inc., unsecured,
non-interest bearing, with no specific repayment terms.......... 36,895 54,441 48,895 42,342
Deferred financing charges relating to bridge note financing (net
of accumulated amortization of $123,931)........................ 322,169 -- -- --
Other............................................................. 10,000 5,000 7,500 30,000
------------ --------- ---------- ---------
$ 1,279,234 $ 83,215 $ 700,668 $ 72,342
------------ --------- ---------- ---------
</TABLE>
11. 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-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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
11. 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 June 30, 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.
12. CAPITAL STOCK:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
------------------------ -----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------ ---------- ------------ ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of preference shares...........................
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 preference shares, convertible and having a cumulative
dividend of US$0.27 per share................................. $ 6,120,000 $ -- $ 6,120,000 $ --
1,952,000 common shares......................................... 2,401,839 844,765 2,020,979 189
------------ ---------- ------------ ---------
$ 8,521,839 $ 844,765 $ 8,140,979 $ 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, June 30, 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 1,695,800
----------- ------------
Balance, December 31, 1996............................................................ 1,815,000 2,020,979
Shares issued related to bridge financing in January 1997............................. 125,000 347,500
Shares issued to director as compensation............................................. 12,000 33,360
----------- ------------
Balance, June 30, 1997................................................................ 1,952,000 $ 2,401,839
----------- ------------
----------- ------------
</TABLE>
F-13
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the six months ended June 30, 1997 and 1996 is
unaudited)
12. CAPITAL STOCK: (CONTINUED)
In connection with the acquisition of all of the common shares of 927563
Ontario Inc. and 927564 Ontario Inc. as described in note 1(a), the Company
issued as consideration 2,333,333 common shares.
In 1995, 927563 Ontario Inc. and 927564 Ontario Inc. redeemed and cancelled
an aggregate 17 shares from the controlling shareholders for cash consideration
of $123,640. The consideration paid approximated $0.57 per share taking into
consideration the retroactive effect of the capital restructuring that occurred.
On January 22, 1996, the Company completed a private stock offering, issuing
1,000,000 common shares for net proceeds of $844,576 after deducting issue costs
of $155,424, and 1,000,000 warrants to acquire common shares at $2.00 per share,
expiring in January 1999.
In connection with the acquisition of St. George Medical Clinic, Partnership
described in note 3, 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 19; Legal Proceedings).
On November 1, 1996, the Board of Directors authorized the following capital
restructuring:
(a) The controlling shareholders exchanged 2,203,333 common shares for
500,000 voting preferred shares, having an ascribed value of US$4,500,000 at
the date of issuance. Each share entitles the holder to eight votes per
share until the Company engages in a public offering of its securities at
which time each share will be entitled to one vote per share. Each preferred
share is convertible into one and one-half shares of common stock of the
Company at the option of the holder for a ten year period from the date of
issuance. At the end of the ten year period, the Preferred Shares are
convertible at the option of the holder into such number of shares of the
Company's Common Stock as is equal to the ascribed value of US$4,500,000
divided by the then current market value of the Common Stock.
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 December
20, 1997, the holders of any preferred shares of the Company, shall have the
right to convert such preferred shares into common shares in the capital of
the Company as will result in such holders owning common shares of the
Company in the same percentage as the original holders of preferred shares
owned at September 5, 1996.
(b) The Company issued of 610,000 common shares to a shareholder in
consideration of past services rendered including the identification of
potential acquisition candidates and assisting the Company in developing a
strategic business plan. The issuance of the common shares was recorded at
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
12. CAPITAL STOCK: (CONTINUED)
an ascribed value determined at $2.78 per share or $1,695,800 as a charge to
compensation expense in the Company's 1996 consolidated statement of
operations.
(c) All of the common share purchase warrants issued by the Company on
January 22, 1996 were surrendered. No consideration was paid.
In the event that the initial public offering contemplated by the letter
of intent dated September 5, 1996 has not closed by December 20, 1997, the
Company will return as soon as reasonably practicable, common share purchase
warrants with substantially the same terms to holders of the surrendered
warrants.
In January 1997, the Company completed a private offering and sale of
promissory notes ("Bridge Notes") with a principal amount of US$500,000. The
promissory notes bear interest at a rate of 8% and are due on the earlier of 18
months from the date of issuance or receipt by the Company of at least
US$4,000,000 from the sale of its debt and/or equity securities in a public or
private financing. The Bridge Note holders also received 125,000 common shares
having an ascribed value of $2.78 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.
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 638,000 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 229,300 shares of Common Stock at an exercise price of US$2.50
per share and 65,000 at an exercise price of US$4.25.
At June 30, 1997, the Company had issued 12,000 common shares to Mr. Rubin
for services rendered in his capacity as a director of the Company. The issuance
of these shares was accounted for as compensation expense as the related
services are rendered by Mr. Rubin. The Company will issue an additional 38,000
shares as services are rendered.
Under a stock option plan, Mr. Robert Rubin was granted an option on
November 1, 1996 to purchase 700,000 common shares of the Company at an exercise
price of US$.75 per share. The difference of $1,246,000 between the fair market
value of $2.78 CDN ($2.05 US) per share and the exercise price of $1.00 CDN
($.75 US) per share has been charged to earnings and contributed surplus.
In addition, Mr. Robert Rubin has extended the Company a US$500,000 line of
credit which bears interest at 2% above the prime rate. As of June 30, 1997,
US$100,000 (CDN$136,000) is outstanding under this line of credit, which has
been reflected in promissory notes payable. An additional US$50,000 was advanced
in July 1997 under this line of credit.
13. 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.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
Other financial instruments held or issued by the Company include
non-interest bearing amounts due from related parties and a promissory note
payable. The Company does not have plans to sell these financial instruments to
third parties and will realize or settle them in the ordinary course of
business. The fair value of these instruments cannot be reasonably estimated
because no active and liquid market exists for these instruments, and a market
rate of interest (for instruments having similar terms and characteristics)
required to use estimation techniques such as discounted cash flow analysis
cannot reasonably be determined due to the unusual related party aspects of
these instruments.
14. INCOME TAXES:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
---------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- ----------- ----------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................................... $ -- $ -- $ -- $ 71,447 $ 52,245
Deferred.............................................. 3,992 (60,232) (146,554) -- --
--------- ----------- ----------- --------- ---------
$ 3,992 $ (60,232) $ (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>
JUNE 30 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 12.2 66.0
Stock compensation.............................................................. -- -- 6.5 --
Other........................................................................... -- -- -- (12.3)
--------- --------- --------- ---------
25.0 (10.4) (3.9) 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...................................... --
Stock compensation.............................................................. --
Other........................................................................... --
---------
23.0
---------
---------
</TABLE>
At June 30, 1997, the Company has non-capital losses available for carryback
of $420,000, 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.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
15. COMMITMENTS:
The Company is committed to payments under operating leases for certain of
its premises and equipment totalling $838,000. Annual payments for the next five
years are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 195,000
1998.............................................................................. 167,000
1999.............................................................................. 172,000
2000.............................................................................. 150,000
2001 and thereafter............................................................... 154,000
---------
$ 838,000
---------
---------
</TABLE>
Rent expense charged to operations at June 30, 1997 was $94,244 (December
31, 1996--$208,050; June 30, 1996--$102,615; December 31, 1995--$214,744;
December 31, 1994--$234,024).
16. 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 for an aggregate public offering of US$5,437,500. Each warrant
entitles the holder to purchase one share of common stock at a price of US$4.50
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.
Upon the closing of the Offering, certain investors in the Company's January
1997 private offering, as described in Note 12, will surrender for cancellation
an aggregate of 62,500 common shares. The effect of this event is a reduction in
shareholders' equity of $173,750 and an equal reduction in other assets. After
giving effect to the surrender, the number of common shares outstanding is
1,889,500.
17. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share immediately prior to the initial public
offering described in note 16 is calculated based on the weighted average number
of common shares outstanding during the period. Fully diluted earnings per share
are $0.01 at June 30, 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.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
18. 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>
JUNE 30 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................ $ 11,975 $ (517,862) $ (3,594,324) $ (300,487) $ 174,531
Deferred charges........................................ (13,785) (1,705) (58,574) -- --
---------- ----------- ------------- ----------- ----------
Net income (loss) based on United States GAAP........... $ (1,810) $ (519,567) $ (3,652,898) $ (300,487) $ 174,531
---------- ----------- ------------- ----------- ----------
Primary earnings (loss) per share....................... $ (0.00) $ (0.22) $ (1.51) $ (0.13) $ 0.08
---------- ----------- ------------- ----------- ----------
---------- ----------- ------------- ----------- ----------
</TABLE>
If United States GAAP were employed, retained earnings (deficit) for the
period would be adjusted as follows:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
---------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------------- ----------- --------------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Retained earnings (deficit) based on
Canadian GAAP.......................... $ (9,274,205) $ (684,304) $ (9,286,180) $ (166,442) $ 338,051
Deferred charges......................... (72,359) (1,705) (58,574) -- --
--------------- ----------- --------------- ----------- ----------
Retained earnings (deficit) based on
United States GAAP..................... $ (9,346,564) $ (686,009) $ (9,344,754) $ (166,442) $ 338,051
--------------- ----------- --------------- ----------- ----------
--------------- ----------- --------------- ----------- ----------
</TABLE>
(a) Deferred income taxes:
The Company follows the "deferral method" of accounting for deferred income
taxes under Canadian GAAP pursuant to which the Company records deferred income
taxes on "timing differences" (differences between accounting and tax treatment
of revenues and expenses), using rates effective for the year in which the
timing differences arise.
In addition, the Company did not recognize future tax benefits in connection
with capital losses carried forward because the Company did not have virtual
certainty that it would realize these tax benefits.
Under U.S. GAAP, the Company is required to follow Statement of Financial
Accounting Standards (SFAS No. 109) "Accounting for Income Taxes", which
requires the use of the "asset and liability method" of accounting for deferred
income taxes, which gives recognition to deferred taxes on all "temporary
differences" (differences between accounting basis and tax basis of the
Company's assets and liabilities, such as the non-deductible values attributed
to assets in a business combination) using current enacted tax rates. In
addition, SFAS No. 109 requires the Company to record all deferred tax assets,
including future tax benefits of capital losses carried forward, and to record a
"valuation allowance" for any deferred tax assets where it is more likely than
not that the asset will not be realized.
F-18
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
18. 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>
JUNE 30 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 available for carryback............... $ 162,004 $ 105,000 $ 258,000 $ -- $ --
Bridge financing loan costs................................ 18,000 -- -- -- --
---------- ---------- ----------- ---------- ----------
180,004 105,000 258,000
Less:
Valuation allowance...................................... (37,442) (44,768) (111,446) -- --
---------- ---------- ----------- ---------- ----------
142,562 60,232 146,554 -- --
Deferred tax liabilities:
Goodwill................................................. (50,000) -- (52,000) -- --
---------- ---------- ----------- ---------- ----------
Net deferred tax........................................... $ 92,562 $ 60,232 $ 94,554 $ -- $ --
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
The balance sheet effect of applying SFAS No. 109 would be as follows:
<TABLE>
<CAPTION>
JUNE 30 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)....................... $ 142,562 $ 60,232 $ 146,554 $ -- $ --
Adjustments to deferred taxes as a result of additional
goodwill arising on acquisition.............................. (50,000) -- (52,000) -- --
---------- --------- ---------- --------- ---------
Deferred taxes--U.S. GAAP...................................... $ 92,562 $ 60,232 $ 94,554 $ -- $ --
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
</TABLE>
CONSOLIDATED BALANCE SHEETS
DEFERRED TAXES:
As a result of adopting Statement 109, at June 30, 1997, net deferred income
tax assets would have been reduced by $50,000 (December 31, 1996--$52,000) with
an offsetting debit to goodwill of $50,000 (December 31, 1996--$52,000).
(b) Deferred start-up costs:
Under Canadian GAAP, development and start-up costs, which meet certain
criteria, are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.
F-19
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the six months ended June 30, 1997 and 1996 is
unaudited)
18. 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 12 and under SFAS 123:
- the issuance of 610,000 shares to a shareholder (note 12(b)) has resulted
in a charge to income equal to $1,695,800 in 1996 denoted as stock
compensation based on $2.05 US ($2.78 CDN) per share;
- the issuance of 125,000 common shares to promissory note holders resulted
in a charge to income (finance expense) over the term of the related
promissory note payable, at $2.05 US ($2.78 CDN) per share equal to
$347,500, of which $123,931 has been charged to earnings in the six months
ending June 30, 1997;
- 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. To
June 30, 1997, 12,000 shares had been issued, resulting in a charge to
compensation expense of $33,360 in the six month period ended June 30,
1997;
- the issuance of an option on November 1, 1996 to Mr. Rubin to acquire
700,000 shares (note 12) has resulted in a charge to income equal to
$1,246,000 in 1996 based on $2.05 US ($2.78 CDN) per share, and the
"minimum value" method of calculation permitted under SFAS 123 for
non-public entities.
As allowed by SFAS 123, the Company has decided to continue to use
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" in accounting for the Company's Stock Option Plan (the "Plan") for US
GAAP purposes, pursuant to which there is no significant difference between US
and Canadian GAAP in the accounting for the granting of options under the Plan.
(e) Shareholders' equity:
Under U.S. GAAP, loans issued to officers to acquire stock are presented as
a deduction from shareholders' equity (deficit).
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES: (CONTINUED)
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 12, 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
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>
JUNE 30 DECEMBER 31
------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------- ---------- ------------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Capital stock (as previously shown)....................... $ 8,521,839 $ 844,765 $ 8,140,979 $ 189
Adjustments to share capital:
Ascribed fair value of share purchase warrants issued..... (50,000) (50,000) (50,000) --
------------- ---------- ------------- -----------
Capital stock--U.S. GAAP.................................. 8,471,839 794,765 8,090,979 189
Share purchase loan to officer............................ (60,000) -- (60,000) --
------------- ---------- ------------- -----------
Net capital stock--U.S. GAAP.............................. 8,411,839 794,765 8,030,979 189
Contributed surplus (as previously shown)................. 1,246,000 -- 1,246,000 --
Share purchase warrants................................... 50,000 50,000 50,000 --
------------- ---------- ------------- -----------
Contributed surplus--U.S. GAAP............................ 1,296,000 50,000 1,296,000 --
Deficit--U.S. GAAP........................................ (9,346,564) (686,009) (9,344,754) (166,442)
------------- ---------- ------------- -----------
Shareholders' equity (deficit)--U.S. GAAP................. $ 361,275 $ 158,756 $ (17,775) $ (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 $123,977 increase (decrease) at June 30, 1997
(December 31, 1996--$83,645; June 30, 1996--$3,487; 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 3) 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.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
19. CONTINGENCIES:
LEGAL PROCEEDINGS:
The Company is presently party to one legal proceeding which was commenced
on July 4, 1997. This proceeding relates to the November 1996 restructuring (see
note 12), in which 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, the applicant in the proceeding, 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 intends to defend this action
vigorously. However, in the event that the Company is unsuccessful in its
action, the Company will be required to return to this Estate, the 75,000 shares
which were previously surrendered in the November 1996 recapitalization. No
amount has been accrued in the accounts in respect of this matter. In the event
that the initial public offering contemplated by the letter of intent dated
September 5, 1996 has not closed by December 20, 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>
JUNE 30 DECEMBER 31
---------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Clawback Liability.................................... $ 590,229 $ 710,738 $ 724,713 $ 379,468 $ 61,471
Clawback Receivable................................... 448,983 487,321 510,475 471,681 --
Clawback Expense...................................... -- 84,701 143,261 176,949 124,546
</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.
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
19. CONTINGENCIES: (CONTINUED)
CONTRACTS WITH PHYSICIANS:
The Company contracts with physicians as independent contractors, rather
than employees, to fulfill its contractual obligations to hospitals. Therefore,
the Company did not historically, and the Company does not currently, withhold
income taxes, make Employment Insurance and Canada Pension Plan payments, or
provide Workers' Compensation Insurance with respect to such independent
contractors. The payment of applicable taxes is regarded as the responsibility
of such independent contractors. A determination by taxing authorities that the
Company is required to treat the physicians as employees could have an adverse
effect on the Company and its operations.
Due to the nature of its business, the Company and certain physicians who
provide services on its behalf may be the subject of medical malpractice claims,
with the attendant risk of substantial damage awards. The most significant
source of potential liability in this regard includes the alleged negligence of
physicians placed by the Company at contract hospitals and liabilities in
connection with medical services provided at the clinics. Physicians staffed by
the Company maintain their own malpractice insurance. To the extent such
physicians may be regarded as agents of the Company in the practice of medicine,
there can be no assurance that a patient would not sue the Company for any
medical negligence of such physicians. The Company does not believe it could be
held liable for an act of a physician staffed by it unless it could be shown
that the Company was negligent in assessing the qualifications of such
physician. In addition, in the event that the Company becomes liable, there can
be no assurance that its current insurance policy will be adequate to cover any
liability.
FINANCING:
The Company believes, although there can be no assurance, that the proceeds
of the public offering discussed in note 16 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.
20. SEGMENTED INFORMATION:
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the providing of Clinical
Operations.
The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups.
Clinical operations include offering family practices, walk-in services and
chiropractic and massage therapy to patients.
F-23
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
20. SEGMENTED INFORMATION: (CONTINUED)
Details are as follows:
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
JUNE 30, 1997 SERVICES OPERATIONS CONSOLIDATED
- --------------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenue.............................................................. $ 4,293,153 $ 1,250,193 $5,543,346
Operating income..................................................... 4,950 201,205 206,155
Assets employed...................................................... 3,477,895 854,042 4,331,937
Depreciation......................................................... 30,200 30,943 61,143
Capital expenditures................................................. 73,057 8,630 81,687
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
JUNE 30, 1996 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue............................................................... $ 4,407,713 $ 880,580 $5,288,293
Operating loss........................................................ (88,985) (476,495) (565,480)(i)
Assets employed....................................................... 2,495,180 420,071 2,915,251
Depreciation.......................................................... 19,830 7,170 27,000
Capital expenditures.................................................. 35,884 672 36,556
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1996 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,783,309 $ 2,033,739 $ 10,817,048
Operating loss before Stock Compensation........................... (332,644) (410,973) (743,617)(i)
Stock Compensation................................................. -- -- (2,941,800)
-------------
Operating loss..................................................... (3,685,417)
Assets employed at year-end........................................ 2,621,707 918,116 3,539,823
Depreciation....................................................... 40,679 37,700 78,379
Capital expenditures............................................... 85,304 9,490 94,794
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1995 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 9,505,619 $ 1,477,934 $ 10,983,553
Operating income (loss)............................................ 357,158 (641,128) (283,970)(i)
Assets employed at year-end........................................ 2,358,583 340,786 2,699,369
Depreciation....................................................... 36,906 12,436 49,342
Capital expenditures............................................... 59,266 4,025 63,291
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1994 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,997,127 $ 1,477,627 $ 10,474,754
Operating income................................................... 248,907 29,748 278,655
Assets employed at year-end........................................ 1,405,015 258,800 1,663,815
Depreciation....................................................... 32,280 13,733 46,013
Capital expenditures............................................... 34,019 960 34,979
</TABLE>
(i) Operating profit of the Clinical Operations Division for the six months
ended June 30, 1996, as well as the years ended December 31, 1996 and
December 31, 1995, include the non-recurring write-off of startup costs in
the amount of $408,166, $509,337 and $663,448 respectively.
Total operating loss for the year ended December 31, 1996 includes a
$2,941,800 general corporate charge for Stock Compensation costs paid to an
investment advisor and stock options granted to a director below fair market
value.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CON-TAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 16
Dilution........................................ 18
Capitalization.................................. 19
Dividends....................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 20
Business........................................ 30
Management...................................... 40
Certain Relationships and Related
Transactions.................................. 44
Principal Stockholders.......................... 46
Selling Allotment Securityholders............... 47
Description of Securities....................... 48
Shares Eligible for Future Sale................. 52
Underwriting.................................... 53
Service and Enforcement of Legal Process........ 55
Legal Matters................................... 56
Experts......................................... 56
Financial Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
MED-EMERG
INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS.
NETWORK 1
FINANCIAL SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
MED-EMERG INTERNATIONAL INC.
62,500 SHARES OF COMMON STOCK
This Prospectus relates to 62,500 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 62,500 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 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........................... 62,500 shares of Common Stock, no par value.
See "Description of Securities."
Common Stock Outstanding(1).................. 3,139,500
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 994,300 shares of Common Stock issuable upon exercise of
outstanding options and 750,000 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
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7
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
because certain restrictions may be placed upon the sale of the securities,
unless such securities qualify for an exemption from the "penny stock" rules,
such as listing on the Nasdaq Small Cap Market, some brokerage firms will not
effect transactions in the Company's securities and it is unlikely that any bank
or financial institution will accept such securities as collateral, which could
have a materially adverse effect in developing or sustaining any market for the
securities.
For continued listing on The Nasdaq SmallCap Market, a company, among other
things, must have (i) US$2,000,000 in net tangible assets, US$35,000,000 in
market capitalization, or net income of US$500,000 in two of the last three
years, (ii) US$1,000,000 in market value of public float, (iii) a minimum bid
price of US$1.00 per share, and (iv) have a minimum of two (2) market makers. If
the Company is listed on Nasdaq, and the Company is unable to satisfy the
requirements for continued listing, trading, if any, in the Common Stock would
be conducted in the "pink sheets" or on the NASD OTC Electronic Bulletin Board.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current prices and volume information with respect to
transactions in such securities are provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
securities.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock.
Dividends on the Preferred Stock will accrue at a rate of US$135,000 per year.
See "Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 3,139,500 shares of Common Stock of
the Company outstanding as of the date of this Prospectus (after giving effect
to the return to the Company upon closing of this Offering of 62,500 shares of
Common Stock from certain investors in the Company's January 1997 private
offering), 1,764,500 are "restricted securities," and 802,500 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
13
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
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 described above. An aggregate of 62,500 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
Representative. Options to purchase an additional 294,300 shares of Common Stock
have been granted pursuant to the Company's 1997 Stock Option Plan. There can be
no assurance that the Company will not issue additional options currently
available for issuance. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold under
Rule 144 into the public market may adversely affect prevailing market prices
for the Common Stock and could impair the Company's ability to raise capital in
the future through the sale of equity securities. See "Shares Eligible for
Future Sale."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered as
part of the IPO 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 Representative) 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
, 1998, 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
14
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,139,500 shares of Common Stock outstanding upon completion of the
IPO, 1,764,500 shares are "restricted securities." Of such amount, 802,500 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 62,500 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
294,300 shares of Common Stock are issuable upon exercise of options issued
under the Company's 1997 Stock Option Plan. All of the Company's existing
securityholders have agreed not to sell or otherwise dispose of any of their
shares of Common stock now owned or issuable upon the exercise of currently
exercisable warrants for a period of two years from the date of this Prospectus,
without the prior written consent of the Underwriter, except for holders of an
aggregate of 500,000 shares of Common Stock who have agreed to an identical
restriction for a period of one year. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's securities
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
RESTRICTIONS ON SALE IN CANADA
The Common Stock has not been qualified for sale in any of the provinces of
Canada or to any person who is a resident in any of the provinces of Canada.
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55
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CONCURRENT OFFERING
Concurrently with this Offering, 1,250,000 shares of Common Stock and
1,250,000 Redeemable Common Stock Purchase Warrant (not including the
underwriter's over-allotment option) have been registered by the Company under
the Act, pursuant to the Company Prospectus included within the Registration
Statement of which this Prospectus forms a part. The Common Stock offered hereby
may not be sold prior to twenty-four months from the date of this prospectus
without the consent of the underwriter of the IPO.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliot (Canadian counsel) and Gersten, Savage,
Kaplowitz & Fredericks, LLP (U.S. Counsel), 101 East 52nd Street, New York, New
York 10022.
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.
57
<PAGE>
[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(1) TO BE SOLD AFTER SALE
------------------- --------------- -------------------
<S> <C> <C> <C>
SELLING SECURITYHOLDER
- ----------------------------------------------
Aleph Mad Family
Limited Partnership....................... 12,500 12,500 0
Whitechapel Management
Limited..................................... 50,000 50,000 0
</TABLE>
- ------------------------
(1) Each of these shares of Common Stock were acquired in connection with the
Company's January 1997 private placement.
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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 136(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 136(2) of the OBCA 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........................................... $ 4,660.99
NASD Filing Fee................................................ 1,916.25
Nasdaq Listing Fees and Expenses............................... *10,000.00
Printing Expenses.............................................. *75,000.00
Legal Fees and Expenses (other than Blue Sky).................. *100,000.00
Accounting Fees and Expenses................................... *50,000.00
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....................................... 163,125.00
----------
Total.................................................... $438,202.24
----------
----------
</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. At the Closing of the Offering, 62,500 of these shares will be
surrendered for cancellation.
In March and August 1997, the Company issued options to purchase an
aggregate of 228,500 and 15,800 shares of common stock, respectively, under its
1997 Stock Option Plan, to individuals whom are all affiliated with the Company.
These transactions were exempt from registration pursuant to Section 4(2) of the
Act.
In December 1997, the Company issued options to purchase an aggregate of
65,000 shares of common stock under its 1997 Stock Option Plan to Carl Pahapill.
These options are exercisable at US$4.25 per share. This transaction was exempt
from registration pursuant to Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3* The Selling Shareholder Irrevocable Power of Attorney Custody Agreement and Lock-up Agreement
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1 Form of Underwriter's Warrant Agreement
4.2 Form of Warrant Agreement
4.3* Specimen Common Stock Certificate
4.4* Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP, counsel to the Company.
8.1 Short form tax opinion of Borden & Elliot, Canadian counsel to the Company.
10.1* Employment Agreement between the Company and Ramesh Zacharias
10.2* Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5* Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill.
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias.
10.8* Corporate Resolution Regarding November Recapitalization.
10.9* Agreement between the Company and Toronto-Dominion Bank.
10.10* Form of Hospital Contract
10.11* Form of Physician Contract for Clinical Operations
10.12* Form of Physician Contract for Emergency Services.
10.13 Schedule of Contracts for Clinical Operations, Emergency Services and Hospitals.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz & Fredericks, 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 (included in Exhibit 8.1 to this
Registration Statement).
24.1 Power of Attorney (included on the signature page of this Registration Statement)
</TABLE>
- ------------------------
* Previously filed
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to any charter provision, by-law contract
arrangements statute, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h), under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement at that time as the initial bona fide offering of those
securities.
(6) To provide to the Underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(7) To file a post-effective amendment to this Registration Statement to
include any financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering. The financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the Registrant includes in the Prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (7) and other information necessary to ensure that all other
information in the Prospectus is at least as current as the date of these
financial statements.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form F-1 and has duly caused this Amendment No. 5 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 December 5, 1997.
MED-EMERG INTERNATIONAL, INC.
BY: /S/ CARL PAHAPILL
-----------------------------------------
Carl Pahapill, President
By: /s/ KATHRYN GAMBLE
-----------------------------------------
Kathryn Gamble
Chief Financial Officer/Principal
Accounting Officer
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chief Executive Officer,
- ------------------------------ Director December 5, 1997
Ramesh Zacharias, M.D., Frcsc
/s/ CARL W. PAHAPILL Chief Operating Officer,
- ------------------------------ President and Director December 5, 1997
Carl W. Pahapill
/s/ KATHRYN GAMBLE, CA Vice President of Finance,
- ------------------------------ Chief Financial Officer, December 5, 1997
Kathryn Gamble, CA Secretary
* Chairman of the Board
- ------------------------------ December 5, 1997
William Thomson, CA
* Director
- ------------------------------ December 5, 1997
Peter Deeb
* Director
- ------------------------------ December 5, 1997
Victoria Zacharias
* Director
- ------------------------------ December 5, 1997
Robert M. Rubin
* Director
- ------------------------------ December 5, 1997
Patrick Michaud
/s/ ARTHUR MARCUS Authorized U.S.
- ------------------------------ Representative
Gersten, Savage, Kaplowitz & December 5, 1997
Fredericks, LLP
By Arthur Marcus, Partner
<TABLE>
<S> <C>
/s/ CARL W. PAHAPILL
--------------------------------------
*By: By Virtue of Power-of-Attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3* The Selling Shareholder Irrevocable Power of Attorney Custody Agreement and Lock-up Agreement
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1 Form of Underwriter's Warrant Agreement
4.2 Form of Warrant Agreement
4.3* Specimen Common Stock Certificate
4.4* Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP, counsel to the Company.
8.1 Short form tax opinion of Borden & Elliot, Canadian counsel to the Company.
10.1* Employment Agreement between the Company and Ramesh Zacharias
10.2* Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5* Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill.
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias.
10.8* Corporate Resolution Regarding November Recapitalization.
10.9* Agreement between the Company and Toronto-Dominion Bank.
10.10* Form of Hospital Contract
10.11* Form of Physician Contract for Clinical Operations
10.12* Form of Physician Contract for Emergency Services.
10.13 Schedule of Contracts for Clinical Operations, Emergency Services and Hospitals.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz & Fredericks, 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 (included in Exhibit 8.1 to this
Registration Statement).
24.1 Power of Attorney (included on the signature page of this Registration Statement)
</TABLE>
- ------------------------
* Previously filed
<PAGE>
EXHIBIT 1.1
MED-EMERG INTERNATIONAL, INC.
1,250,000 Shares of Common Stock
and
1,250,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
___________, 1997
Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701
Gentlemen:
Med-Emerg International, Inc., a corporation organized under the laws of
the Province of Ontario, Canada (the "Company"), hereby confirms its agreement
with Network 1 Financial Securities, Inc. ("Network"), as representative (the
"Representative") of the several underwriters listed on Schedule 1 annexed
hereto (the "Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters 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 Underwriters an option to purchase an
additional 187,500 redeemable warrants to purchase Common Stock (the "Option
Warrants") and (B) each of the Selling Shareholders named on Schedule 2 annexed
hereto ("Schedule 2") proposes to grant to the Underwriters an option to
purchase the number of shares of Common Stock set forth opposite his or its name
on Schedule 2 (the "Option Shares"), all as provided in section 2(c) of this
agreement (the "Agreement"). The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." The Firm Warrants and the
Option Warrants are collectively referred to herein as the "Warrants." Any
shares of Common Stock issuable upon the exercise of any Warrants are referred
to herein as "Warrant Shares." The Firm Shares and the Firm Warrants are
collectively referred to herein as the "Firm Securities;" the Option Shares and
the Option Warrants are collectively referred 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
<PAGE>
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 Representative) and prior to their expiration,
upon not less than 30 days prior written notice to the holders of the Warrants,
provided that the closing bid price of the Common Stock as reported on the
Nasdaq SmallCap Market if traded thereon, or if not traded thereon, the closing
sale price if listed on the Nasdaq National Market or a national or regional
securities exchange (or other reporting system that provides last sales prices),
shall have been at least $8.00 per share, subject to adjustment, for 20
consecutive trading days ending three days prior to the date on which the
Company gives notice of redemption, subject to the right of the holder to
exercise such Warrants prior to redemption.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form F-1 (File No. 333-21865), with
respect to the Securities and the Underwriters' 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 Underwriters. 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
Underwriters 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 Underwriters prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes of registering
certain additional Securities, which registration statement shall become
effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no
2
<PAGE>
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
Underwriters copies of each Preliminary Prospectus and has consented to the use
of those copies for the purposes permitted by the Act. If the Company has
elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement has
not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriters specifically for use therein.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the Province of Ontario, Canada,
and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of its property or the conduct of its business requires such
qualification or authorization.
3
<PAGE>
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) Except for the subsidiaries listed in Exhibit 21.1 to the
Registration Statement (the "Subsidiaries"), the Company does not own, directly
or indirectly, an interest in any corporation, partnership, limited liability
company, joint venture, trust or other business entity. Each Subsidiary is duly
qualified and licensed and in good standing in its jurisdiction of formation and
as a foreign corporation in each jurisdiction where the ownership or leasing of
its property or the conduct of its business requires such qualification or
licensing. Each Subsidiary has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
properties and conduct its business as now being conducted and as proposed to be
conducted as described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus)
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares and the Warrant Shares have been duly
authorized, and the Warrant Shares have been duly reserved for issuance, by all
necessary corporate action on the part of the Company and, when the Shares are
issued and delivered to and paid for by the Underwriter pursuant to this
Agreement and the Warrant Shares are issued and delivered to and paid for by the
holders of Warrants upon exercise of the Warrants in accordance with the terms
thereof, the Shares and the Warrant Shares will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). No holder of outstanding securities of the
Company is entitled as such to any preemptive or other right to subscribe for
any of the Securities, and no person is entitled to have securities registered
by the Company under the Registration Statement or otherwise under the Act other
than as described in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(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 Representative, no compensation was
paid to or on behalf of any member of the National
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Association of Securities Dealers, Inc. ("NASD"), or any affiliate or employee
thereof, in connection with any such issuance.
(i) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its subsidiaries as of the dates indicated and the
results of operations of the Company and its subsidiaries for the periods
specified. Such consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada, consistently
applied, except to the extent that certain footnote disclosures regarding
unaudited interim periods may have been omitted in accordance with the
applicable rules of the Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The consolidated financial data set forth under the
caption "Summary Consolidated Financial Information" in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present, on the basis stated in the Prospectus (or such Preliminary
Prospectus), the information included therein.
(j) KMPG and Zaritsky Penny, who have audited certain financial
statements of the Company and delivered their report with respect to the
consolidated financial statements included in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder.
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company and the Subsidiaries, whether or not arising in the ordinary course of
business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company or the Subsidiaries and no commitments
made by the Company or the Subsidiaries that, individually or in the aggregate,
are material with respect to the Company and the Subsidiaries, (iii) there has
not been any change in the capital stock or indebtedness of the Company and the
Subsidiaries, and (iv) there has been no dividend or distribution of any kind
declared, paid or made by the Company in respect of any class of its capital
stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this Agreement, the Warrant Agreement and the
Underwriters' Warrant Agreement (as hereinafter defined). The execution and
delivery of this Agreement and the Underwriters' 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 Underwriters' 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
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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 Underwriters of the Securities
pursuant to this Agreement or the Underwriters' Securities pursuant to the
Underwriters' Warrant Agreement, the compliance by the Company with the
provisions of this Agreement, the Warrant Agreement and the Underwriters'
Warrant Agreement, and the consummation of the other transactions contemplated
by this Agreement, the Warrant Agreement and the Underwriters' Warrant Agreement
do not (i) require the consent, approval, authorization, registration or
qualification of or with any court or governmental or regulatory authority,
except such as have been obtained or may be required under state securities or
blue sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of, or constitute a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of its property is bound or subject, or the
certificate of incorporation or by-laws of the Company or any Subsidiary, or any
statute or any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the Company
or any Subsidiary.
(m) No legal or governmental proceedings are pending to which the
Company or any Subsidiary is a party or to which the property of the Company or
any Subsidiary is subject, and no such proceedings have been threatened against
the Company or any Subsidiary or with respect to any of its property, except
such as are described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). No contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (and, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) or filed as required.
(n) Neither the Company nor any Subsidiary is in (i) violation of its
certificate of incorporation, by-laws or other governing documents, (ii)
violation in any material respect of any law, statute, regulation, ordinance,
rule, order, judgment or decree of any court or any governmental or regulatory
authority applicable to it, or (iii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or 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
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intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company and each Subsidiary possesses adequate licenses,
orders, authorizations, approvals, certificates or permits issued by the
appropriate federal, state or foreign regulatory agencies or bodies necessary to
conduct its business as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and, except as disclosed in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), there
are no pending or, to the best knowledge of the Company, threatened, proceedings
relating to the revocation or modification of any such license, order,
authorization, approval, certificate or permit.
(q) The Company and each Subsidiary has good and marketable title to
all of the properties and assets reflected in the Company's consolidated
financial statements or as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind, except those reflected in such consolidated financial
statements or as described in the Registration Statement and the Prospectus (and
such Preliminary Prospectus). Except as disclosed in the Prospectus, the Company
and each Subsidiary occupies its leased properties under valid and enforceable
leases conforming to the description thereof set forth in the Registration
Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in
a manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) Except as listed on Schedule 3 hereto, the Company has obtained
and delivered to the Representative 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 3, 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
Representative, and (ii) will comply with any additional restriction or
condition on the disposition of such Common Stock or preferred
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<PAGE>
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 Underwriters' 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 Underwriters in accordance
with the Underwriters' 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 Underwriters' Warrant Agreement. The shares of
Common Stock issuable upon exercise of the Underwriters' Warrants and the
Warrants issuable upon exercise thereof (the "Underwriters' Warrant Shares")
have been duly authorized and reserved for issuance upon exercise of the
Underwriters' 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
Underwriters' Warrant Agreement, the Underwriters' Warrants, and the Warrants
issuable upon exercise thereof, respectively, will be validly issued, fully
paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(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,
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<PAGE>
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 Representative.
(x) The Company and each Subsidiary has filed all federal, state,
local and foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same are
material and have become due.
(y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND THE UNDERWRITER'S
WARRANTS.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each Underwriter, and each
Underwriter agrees to purchase from the Company, severally and not jointly, the
number of Firm Shares as set forth opposite its name on Schedule 4 annexed
hereto ("Schedule 4"), at a purchase price of $3.825 per share and the Firm
Warrants at a purchase price of $.09 per Warrant.
(b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
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 Underwriters, against
payment by or on behalf of the Underwriters 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 Underwriters, 605 Third Avenue, New York, New
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<PAGE>
York at 9:30 A.M., New York City time on ___________, 1997, or at such other
place, time or date as the Underwriters 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 Underwriters, at such offices as may
be designated by the Representative, at least 24 hours prior to the Firm Closing
Date. In lieu of physical delivery, the closing may occur by "DTC" delivery.
(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 Option Warrants and the Selling Shareholders hereby grant the
Underwriters an option to purchase the Option Shares, which options are
exercisable by the Representative on behalf of and for the account of the
Underwriters. 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 Underwriters shall not be under any obligation to purchase any of the
Option Securities prior to the exercise of such option. The Representative may
from time to time exercise the option granted hereby on behalf of the
Underwriters by giving notice in writing or by telephone (confirmed in writing)
to the Company and the Selling Shareholders (in the case of the Option Shares)
setting forth the aggregate number of Option Securities as to which the
Underwriters are 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 Underwriters 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
Representative 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 Underwriters, and, subject to the terms and
conditions herein set forth, each Underwriter shall become obligated to purchase
from the Company and the Selling Shareholders, the Option Securities as to
which the Underwriter is then exercising its option. If the option is exercised
as to all or any portion of the Option Securities, certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (b) of this section 2, except that reference therein to
the Firm Securities and the Firm Closing Date shall be deemed, for purposes of
this paragraph (c), to refer to such Option Securities and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further issue and sell
to the Underwriters or, at the direction of the Underwriters, to bona fide
officers of the Underwriters, for an aggregate purchase price of $10, warrants
to purchase Common Stock and redeemable warrants to purchase Common Stock (the
"Underwriters' 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
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Effective Date. The Underwriters' Warrants shall be exercisable at a price equal
to 150% 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 Underwriters' Warrants to be executed by the Company on the Effective Date
(the "Underwriters' 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 Underwriters' Warrants. As
provided in the Underwriters' Warrant Agreement, the Underwriters may designate
that the Underwriters' Warrants be issued in varying amounts directly to bona
fide officers of the Underwriters. As further provided, no sale, transfer,
assignment, pledge or hypothecation of the Underwriters' 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 Underwriters and bona fide
partners, officers of the Underwriters and selling group members. The shares of
Common Stock issuable upon exercise of the Underwriters' Warrants and the
Warrants issuable upon exercise thereof are referred to herein as the
"Underwriters' Warrant Shares"; and the Underwriters' Warrants, the Warrants
issuable upon exercise thereof, and the Underwriters' Warrant Shares are
collectively referred to herein as the "Underwriters' Securities."
3. OFFERING BY THE UNDERWRITERS. The Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
During any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
Section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriters 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 Underwriters
shall not have given their 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 Underwriters or counsel to the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
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Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters, 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
Underwriters, 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 Underwriters of each such
filing or effectiveness.
(b) The Company will advise the Underwriters, 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
Underwriters, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriters 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 Underwriters thereof and, subject to section 4(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) So long as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance 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 Underwriters and any dealer as many
copies of each such Prospectus as the Underwriters 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
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until the date fixed for redemption. In addition, for so long as any Warrant is
outstanding, the Company will promptly notify the Underwriters 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 Underwriters and
to counsel for the Underwriters (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 Underwriters may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriters 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 Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters 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 Underwriters' 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.
(j) The Company will not, without the prior written consent of the
Representative, directly or indirectly offer, agree to sell, sell, grant any
option to purchase or otherwise dispose (or announce any offer, agreement to
sell, sales grant of any option to purchase or other disposition) of any shares
of Common Stock, preferred stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or preferred stock for a
period of 24 months after the Effective Date, except (i) the Shares and Warrants
issued pursuant to this Agreement, (ii) the Warrant Shares issuable upon
exercise of the Warrants, (iii) the Warrants, (iv) the Underwriters' Warrant
Shares and Warrants issuable upon the exercise of the Underwriters' 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 Representative, (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.
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(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 Representative, 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 Representative, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed Continental Stock Transfer & Trust
Company as transfer agent for the Common Stock and warrant agent for the
Warrants, subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without first
obtaining the written consent of the Representative. 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 Underwriters a duplicate copy of the daily
transfer sheets relating to trading of the Securities. The Company shall also
provide to the Representative, promptly upon its 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
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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 Underwriters and their 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
Underwriters.
(t) The Company shall consult with the Representative 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 Underwriters 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 Representative for review
prior to such distribution.
(u) The Company and the Underwriters will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent the Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriters 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 of the
Representative 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 Representative's right to designate an Advisor, the
Representative shall have the right during such three-year period, in its sole
discretion, to designate one person for election as a director of the Company
and the Company will utilize its best efforts to obtain the election of such
person who shall be entitled to receive the same compensation, expense
reimbursements and other benefits as set forth above. In 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
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Representative timely prior written notice of any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Company shall
indemnify and hold the Representative 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 Representative 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 Underwriters' counsel to provide the
Underwriters, at the closing of any sale of Securities hereunder and quarterly
thereafter, with an opinion, setting forth those states in which the Common
Stock and Warrants may be traded in non-issuer transactions under the blue sky
or securities laws of the 50 states. The Company shall pay such counsel a
one-time fee of $12,500 for such opinions at the closing of the sale of the Firm
Securities.
(y) The Company will prepare and file a registration statement with
the Commission pursuant to section 12 of the 1934 Act, and will use its best
efforts to have such registration statement declared effective by the Commission
on an accelerated basis on the day after the Effective Date. For this purpose
the Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(z) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited consolidated financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such consolidated financial statements shall be those required by Rule
14a-3 under the 1934 Act and shall be included in an annual report pursuant to
the requirements of such Rule.
(aa) Prior to the Effective Date, the Company shall obtain key-man
life insurance in the minimum amount of $1,000,000 on Carl Pahapill on such
terms and conditions as are reasonably satisfactory to the Representative,
assuming such coverage is available on commercially reasonable terms.
(bb) The Company shall retain the Representative 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.
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(cc) The Company will engage a financial public relations firm
reasonably satisfactory to the Representative on or before the Firm Closing
Date, and continuously engage such firm, or a substitute firm reasonably
acceptable to the Representative, 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 Underwriters 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 Underwriters, by or
on behalf of such Selling Shareholder, specifically for inclusion in
Registration Statement or the Prospectus.
(b) Such Selling Shareholder has duly authorized, executed and
delivered on ___________, 1997 the Irrevocable Power of Attorney, Custody
Agreement and Lock-Up Agreement (the "Custody Agreement") with the Company, as
custodian (the "Custodian"), and Carl Pahapill and Kathryn Gamble, as attorneys-
in-fact (the "Attorneys-in-Fact"), and, such Custody 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
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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 Underwriters, 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
Underwriters, 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 each 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.
(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
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written consent of the Representative 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 Underwriters 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 Underwriters of copies of the foregoing documents, (iii) the
fees and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) the preparation, issuance and delivery to
the Underwriters 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 Underwriters 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 SmallCap Market, the Boston Stock
Exchange and in the Standard and Poor's Corporation Descriptions Manual, (viii)
any "road shows"
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or other meetings with prospective investors in the Securities, including
transportation, accommodation, meal, conference room, audio-visual presentation
and similar expenses of the Underwriters or their representatives or designees
(other than as shall have been specifically approved by the Underwriters to be
paid for by the Underwriters) and (ix) the publication of "tombstone
advertisements" in newspapers or other publications selected by the
Representative, and the manufacture of prospectus memorabilia. In addition to
the foregoing, the Company shall reimburse the Representative 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 Representative. The Representative 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 Representative 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
Representative 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
Representative 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 Representative 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 Representative'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 Underwriters 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
Representative in connection with the proposed offering. If the amount of the
Representative's actual accountable out-of-pocket expenses is less than $50,000,
then the Representative shall promptly repay the Company the difference between
the $50,000 advanced by the Company and the Representative's actual accountable
out-of-pocket expenses.
6. WARRANT SOLICITATION FEE. The Company agrees to pay the Representative
a fee of five percent (5%) of the aggregate exercise price of the Warrants if
(i) the market price of the Common Stock is not less than the exercise price of
the Warrants on the date of exercise; (ii) the exercise of the Warrants is
solicited by the Representative at such time as it is a member of the NASD and
the Representative is designated in writing by the holder of the Warrants as the
NASD member soliciting the exercise; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure
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of compensation arrangements is made both at the time of the Offering and at the
time of the exercise; and (v) the solicitation of the Warrant exercise is not in
violation of Rule 101 of Regulation M promulgated under the 1934 Act. The
Company agrees not to solicit the exercise of any Warrant other than through the
Representative and will not authorize any other dealer to engage in such
solicitation without the prior written consent of the Representative which will
not be unreasonably withheld. The Warrant solicitation fee will not be paid in a
non solicited transaction. Any request for exercise will be presumed to be
unsolicited unless the customer states in writing that the transaction was
solicited and designates in writing that the Representative solicited the
exercise. No Warrant solicitation by the Representative will occur for a period
of 12 months after the Effective Date.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Firm Shares shall be subject, in the
Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company and the Selling Shareholders contained herein as of
the date hereof and as of the Firm Closing Date as if made on and as of the Firm
Closing Date, to the accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the registration
statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such registration statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriters; 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 Underwriters, 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 Underwriters shall have received an opinion, dated the Firm
Closing Date, of Borden & Elliot, counsel to the Company, to the effect that:
(1) the Company and each Subsidiary has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of any properties or the conduct
of its business requires such qualification, except where the failure to so
qualify would not have a materially adverse effect upon the Company;
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(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
Underwriters' 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 Underwriters' 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 Underwriters, pursuant to this
Agreement, the Warrant Shares when issued upon payment of the exercise price
specified in the Warrants, the Underwriters' Warrants when issued and delivered
and paid for in accordance with this Agreement and the Underwriters' Warrant
Agreement by the Underwriters and the Warrant Shares when issued upon payment of
the exercise price specified in the Underwriters' 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 Underwriters' Warrant Shares; and to the knowledge of such counsel, no
person is entitled to have securities registered by the Company under the
Registration Statement or otherwise under the Act other than as described in the
Prospectus;
(4) the execution and delivery of this Agreement, the Warrant
Agreement, the Underwriters' 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 Underwriters' 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 Underwriters'
Warrant Agreement may be limited by applicable securities laws and the public
policy underlying such laws;
(5) the Underwriters' 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 Underwriters' Warrant
Agreement; and the certificates representing the Securities are in due and
proper form under the laws of Canada and any political subdivision thereof;
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(6) the statements set forth in the Prospectus under the
caption "Description of Securities" insofar as those statements purport to
summarize the terms of the capital stock and warrants of the Company, provide a
fair summary of such terms; the statements set forth in the Prospectus
describing Canadian or provincial statutes and regulations and with respect to
matters of Canadian or Ontario law, including the statements under the captions
"Risk Factors - Classification of Physicians as Independent Contractors;
Potential Tax Liability," "Risk Factors - Adverse Effect of Provincial Laws
Regarding the Corporate Practice of Medicine," "Risk Factors - Corporate
Exposure to Professional Liabilities," "Risk Factors - Government Regulations,"
"Business - Government Regulation," "Business - Proposed Healthcare
Legislation," "Tax Aspects of the Offering - Canadian Federal Income Tax
Considerations - Persons Not Resident Canada" and the descriptions of the
consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; the statements in the Prospectus, insofar as those statements
constitute summaries of the contracts, instruments, leases or licenses referred
to therein, constitute a fair summary of those contracts, instruments, leases or
licenses and include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement,
the Warrant Agreement and the Underwriters' Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriters of the Securities pursuant
to this Agreement and the Underwriters' Warrant Securities pursuant to the
Underwriters' Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this Agreement, the Warrant Agreement and the Underwriters'
Warrant Agreement and the consummation of the transactions contemplated hereby
and thereby, (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws, (2) conflicts with or results in a breach or violation of, or
constitutes a default under, any material contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other material agreement or instrument
known to such counsel to which the Company is a party or by which the Company or
any of its property is bound or subject, or the certificate of incorporation or
by-laws of the Company, or any material statute or any judgment, decree, order,
rule or regulation of any court or other governmental or regulatory authority
known to us applicable to the Company, or (3) subjects the Company or investors
in the Securities to any tax imposed by Canada or any political subdivision
thereof.
(8) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or a Subsidiary is a
party or to which the property of the Company or a Subsidiary is subject and (B)
no contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(9) the Company and each of the Subsidiaries possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate Canadian, provincial or local regulatory agencies or bodies
necessary to conduct its business as described in the Registration Statement and
the Prospectus, and, to the knowledge of such counsel, there are no
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pending or threatened proceedings relating to the revocation or modification of
any such license, order, authorization, approval, certificate or permit, except
as disclosed in the Registration Statement and the Prospectus; and
(10) neither the Company nor any Subsidiary is in violation
or breach of, or in default with respect to, any term of its certificate of
incorporation or by-laws, and to the knowledge of such counsel, neither the
Company nor any Subsidiary is in (i) violation in any material respect of any
law, statute, regulation, ordinance, rule, order, judgment or decree of any
court or any governmental or regulatory authority applicable to it, or (ii)
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
material agreement or instrument to which it is a party or by which it or any of
its property may be bound or subject, and no event has occurred which with
notice, lapse of time or both would constitute such a default.
(c) The Underwriters shall have received an opinion, dated the Firm
Closing Date, of Gersten, Savage, Kaplowitz & Fredericks LLP, counsel to the
Company, to the effect that:
(1) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; and to the knowledge of such counsel, no person is entitled to
have securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(2) the Shares have been approved for inclusion on The Nasdaq
SmallCap Market and the Boston Stock Exchange;
(3) this Agreement, the Warrant Agreement, the Underwriters'
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 Underwriters' Warrant Agreement may be limited by
applicable securities laws and the public policy underlying such laws;
(4) none of (A) the execution and delivery of this Agreement,
the Warrant Agreement and the Underwriters' Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriters of the Securities pursuant
to this Agreement and the Underwriters' Warrant Securities pursuant to the
Underwriters' Warrant Agreement, nor (C) the compliance by the
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Company with the other provisions of this Agreement, the Warrant Agreement and
the Underwriters' Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby, (1) requires the consent, approval,
authorization, registration or qualification of or with any court or
governmental authority known to us, except such as have been obtained and such
as may be required under state blue sky or securities laws, or (2) conflicts
with or results in a breach or violation of, or constitutes a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to us to which the Company
is a party or by which the Company or any of its property is bound or subject,
or any material statute or any judgment, decree, order, rule or regulation of
any court or other governmental or regulatory authority known to us applicable
to the Company;
(5) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or a Subsidiary is a
party or to which the property of the Company or a Subsidiary is subject and (B)
no contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(6) to the knowledge of such counsel, neither the Company nor
any Subsidiary is in default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice, lapse of time or both would constitute such a
default;
(7) the statements in the Prospectus under the caption
"Description of Securities" in the Prospectus, insofar as such statements
purport to summarize the terms of the capital stock and warrants of the Company,
provide a fair summary of such terms; and 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) 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;
(9) 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
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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;
(10) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company Act;
and
(11) the Company's appointment of Borden & Elliot as its agent to
receive service of process in any action against it in any federal or state
court sitting in the County of New York arising out of the transactions
contemplated by this Agreement, assuming the Company's due authorization
thereof, is binding upon and enforceable against the Company in accordance with
its terms.
(d) On each Option Closing Date, the Underwriters shall have received
the opinion, dated the Option Closing Date, of [insert name of counsel for the
Selling Shareholders] in its capacity as counsel for the Selling Shareholders,
to the effect set forth below:
(i) Each Selling Shareholder has full legal right power and
authority to enter into this Agreement and to sell, assign, transfer and deliver
in the manner provided herein the Option Shares sold by such Selling
Shareholder; this Agreement has been duly executed and delivered by such Selling
Shareholder; and this Agreement, assuming due authorization, execution and
delivery by each other party thereto and further assuming it is a valid and
binding agreement of each of the Underwriters, is a valid and binding agreement
of such Selling Shareholder, enforceable against such Selling Shareholder in
accordance with the terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors' rights generally and by general principles
of equity relating to the availability of remedies and except as rights to
indemnity and contribution may be limited by applicable securities laws and the
public policy underlying such laws);
(ii) None of the execution, delivery or performance of this
Agreement, the Power of Attorney and the Custody Agreement by such Selling
Shareholder and the consummation by such Selling Shareholder of the transactions
herein and therein contemplated, conflict with or result in a breach of, or
default under, any indenture, mortgage, deed of trust, voting trust agreement,
shareholders agreement, note agreement or other agreement or other instrument
known to such counsel to which such Selling Shareholder is a party or by which
such Selling Shareholder is bound or to which any of the property of any of the
Selling Shareholders is subject, or the charter or by-laws of any of the Selling
Shareholders and nothing has come to such counsel's attention which causes such
counsel to believe that such actions will result in any violation of any law,
rule, administrative regulation or court decree applicable to such Selling
Shareholder (other than state or provincial securities or blue sky laws or
regulations, as to which such counsel need not express any opinion);
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(iii) A Power of Attorney and the Custody Agreement have been
duly executed and delivered by each Selling Shareholder and, assuming the due
authorization, execution and delivery of the Custody Agreement by the other
parties thereto, each constitutes the valid and binding agreement of such
Selling Shareholder enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general principles of equity relating to the availability
of remedies and except rights to indemnity or contribution may be limited by
applicable securities laws and the public policy underlying such laws;
(iv) Upon the delivery of the Option Shares to be sold hereunder
by the Selling Shareholders and payment therefor in accordance with the terms of
this Agreement and assuming that each of the Underwriters which has severally
purchased such Option Shares acquires such Option Shares without notice of any
adverse claim (within the meaning of the Uniform Commercial Code) such
Underwriters will have acquired all of the rights of such Selling Shareholder to
the Option Shares sold by such Selling Shareholder hereunder, and in addition
will have acquired title to such Option Shares free and clear of any adverse
claim; and
(v) Under the laws of Canada or the Province of Ontario, the
submission by such Selling Shareholder to the jurisdiction of any United States
federal or state court sitting in the City of New York and the designation of
the law of the State of New York to apply to this Agreement is binding upon such
Selling Shareholder and, if properly brought to the attention of the court or
administrative body in accordance with the laws of Canada, or the Province of
Ontario, would be enforceable in any judicial or administrative proceeding in
Canada or the Province of Ontario.
Each such counsel also shall state in its opinion that it has
participated in the preparation of the Registration Statement and the Prospectus
and that nothing has come to its attention that has caused it to believe that
the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriters, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriters, in form and substance acceptable to
the Underwriters, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriters' reliance upon such opinion is justified.
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References to the Registration Statement and the Prospectus in paragraph
(b), (c) and (d) of this Section shall include any amendment or supplement
thereto at the date of such opinion.
(e) The Underwriters 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 Underwriters, 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 June 30, 1997 included in the Registration Statement was not
determined on a basis substantially consistent with that used in determining the
corresponding amounts in the audited financial statements as of December 31,
1996 included in the Registration Statement or (B) at a specified date not more
than five days prior to the date of this Agreement, there has been any change in
the capital stock of the Company, any increase in the long-term debt or decrease
in net sales of the Company and its Subsidiaries, as compared with the amounts
shown in the June 30, 1997 balance sheet included in the Registration Statement
or as of the date of the most recent financial statements made available by the
Company there has been any change in the capital stock of the Company, any
increase in the long-term debt or any decrease in net sales, working capital or
net assets of the Company and its Subsidiaries as compared with the amounts
shown in the June 30, 1997 balance sheet included in the Registration Statement
or, during the period from July 1, 1997 through the date of the most recent
financial statement made available by the Company and its Subsidiaries, there
were any decreases, as compared with the corresponding period in the preceding
year, in revenues, or any increase in net loss of the Company, except in all
instances for changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur; and (iv) in addition to
the audit referred to in their opinion and the limited procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information (including the summary of consolidated financial
information and secured financial information) which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company identified in such letter. References to the Registration Statement
and the Prospectus in this paragraph (c) with respect to the letter referred to
above shall include any amendment or supplement thereto at the date of such
letter.
(f) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the
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<PAGE>
statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Firm Closing Date.
(g) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company and the Subsidiaries, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(i) The Underwriters shall have received a certificate, dated the
Firm Closing Date, of the Chief Executive Officer and the Secretary of the
Company to the effect set forth in subparagraphs (f) through (h) above.
(j) The Common Stock and Warrants shall be qualified in such
jurisdictions as the Underwriters may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Firm Closing Date.
(k) The Company shall have executed and delivered to the Underwriters
the Underwriters' Warrant Agreement and a certificate or certificates evidencing
the Underwriters' Warrants, in each case in a form acceptable to the
Underwriters.
(l) The Underwriters shall have received Lock-up Agreements executed
by the persons listed on Schedule 3 annexed hereto.
(m) The Underwriters 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 Underwriters shall be satisfied
that, the representations and warranties of such Selling Shareholder contained
in this Agreement are true and correct as if made on and as of such Closing
Date, and that such Selling Shareholder has complied with all agreements and
satisfied all conditions on its part to be complied with or satisfied at or
prior to such Closing Date.
(n) The Selling Shareholders shall have each delivered to the
Underwriters on or prior to the date hereof a fully executed Custody Agreement.
Each such Selling Shareholder shall also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
shares held by such persons, except in compliance with the Custody Agreement and
this Agreement.
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(o) On or before the Firm Closing Date, the Underwriters and counsel
for the Underwriters shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company, the Selling Shareholders, and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and counsel
for the Underwriters. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall reasonably
request.
The obligation of the Underwriters 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
Underwriters, each Selling Shareholder and each person, if any, who controls
the Underwriters 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 Underwriters, such Selling
Shareholder or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriters and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriters 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
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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 Underwriters 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 Underwriters, 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
Underwriters or any person who controls the Underwriters 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
Underwriters 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 Underwriters
and each person, if any, who controls the Company or the Underwriters 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 Underwriters or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriters and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriters or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding,
in each case to the extent, but only to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or the
Underwriters by the Selling Shareholder specifically
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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 Underwriters,
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 Underwriters or any
person who controls the Company or the Underwriters 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 Underwriters and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
(c) The Underwriters 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
Underwriters 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 Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under this section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses
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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 Underwriters 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 Underwriters. 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
Underwriters, 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
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Securities purchased by the
Underwriters under this Agreement, less the aggregate amount of any damages that
the Underwriters has otherwise
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<PAGE>
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 Underwriters 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 Underwriters, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of section 15
of the Act or section 20 of the 1934 Act, shall have the same rights to
contribution as the Company.
9. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Securities hereunder, or shall fail to take up
and pay for the number of Firm Securities set forth opposite names in Schedule 1
hereto upon tender of such Firm Securities in accordance with the terms hereof,
then:
(a) If the aggregate number of Firm Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriter shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Firm Securities, the remaining Underwriter shall have
the right to take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase. If such remaining Underwriter does
not, at the Firm Closing Date, take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase, the time for delivery of
the Firm Securities shall be extended to the next business day to allow the
remaining Underwriter the privilege of substituting within twenty-four hours
(including nonbusiness hours) another underwriter or underwriters satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Firm Securities may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the Company
the privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the Firm Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriter or substituted Underwriters to
take up the Firm Securities of the defaulting Underwriter as provided in this
section, (i) the Company or the underwriter shall have the right to postpone the
time of delivery for a period of not more than seven business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other document or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Firm Securities to be purchased by the remaining
Underwriters or substituted
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Underwriters shall be taken as the basis of the underwriting obligation for all
purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriter shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 3(c) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which it
became obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Underwriter by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all
35
<PAGE>
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 or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants shall have been
suspended by the Commission, the NASD or on Nasdaq, or trading in securities
generally on the New York Stock Exchange shall have been suspended or minimum or
maximum prices shall have been established on either such exchange or quotation
system;
(4) a banking moratorium shall have been declared by Canadian,
New York or United States authorities;
(5) there shall have been (A) an outbreak of hostilities between
the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement;
(6) termination of this Agreement pursuant to this section 10
shall be without liability of any party to any other party, except as provided
in section 5(b) and section 8 hereof.
12. INFORMATION SUPPLIED BY THE UNDERWRITERS. The statements set forth in
the first paragraph on page 2, in the first (as to the underwriting commitment
of each Underwriter) and second paragraphs under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information
36
<PAGE>
furnished by the Underwriters to the Company for the purposes of section 8(b)
hereof. The Underwriters confirm that such statements (to such extent) are
correct.
13. NOTICES. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Attn: Carl Pahapill
Fax: (905) 858-1399
To the Representative: Network 1 Financial Securities, Inc. and
The Galleria, Penthouse
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.
14. AMENDMENT. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
15. WAIVER. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
16. APPLICABLE LAW. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
37
<PAGE>
17. JURISDICTION. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
18. REMEDIES. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
19. ATTORNEYS' FEES. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
20. SEVERABILITY. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
21. COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
22. SUCCESSORS. This agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
38
<PAGE>
23. TITLES AND CAPTIONS. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
24. GRAMMATICAL CONVENTIONS. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
25. REFERENCES. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
26. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
MED-EMERG INTERNATIONAL, INC.
By:
---------------------------------
Name: Carl Pahapill
Title: President
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
NETWORK 1 FINANCIAL SECURITIES, INC.
as representative of the several underwriters listed
on Schedule l annexed hereto
By:
-------------------------------------------
Name:
Title:
39
<PAGE>
Schedule 1
NUMBER OF
UNDERWRITER NUMBER OF SHARES REDEEMABLE WARRANTS
- ----------- ---------------- -------------------
Network I Financial
Securities, Inc.
---------------- -------------------
Total 1,250,000 1,250,000
40
<PAGE>
Schedule 2
NUMBER OF OPTION SHARES
TO BE PURCHASED BY
NETWORK 1 FINANCIAL TOTAL NUMBER
SELLING SHAREHOLDER SECURITIES, INC. OF OPTION SHARES
1245841 Ontario Inc. 46,875
Hampton House Int'l 31,625
I. Boulos Bou Dib 20,000
Nadim Jebara 10,000
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
Elizabeth Huntly-Harmen 4,000
Issa Baconi 5,000
Ramzi Bishuti 4,000
-------
Total 187,500
41
<PAGE>
Schedule 3 - Lock-Up Agreements
NAME OF HOLDER TERM
- --------------- ----
Ramesh Zacharias. . . . . . . . . . . . . . . . . . . . . . . . . . .12 months
Victoria Zacharias. . . . . . . . . . . . . . . . . . . . . . . . . .12 months
Carl W. Pahapill. . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Robert Rubin. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Peter Deeb. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
William Thomson . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Kathryn Gamble. . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Patrick Michaud . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Ambrose Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
John H. Sununu. . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Hampton House Int'l . . . . . . . . . . . . . . . . . . . . . . . . .24 months
I. Boulos Bou Dib . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Nadim Jebara. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Jane Kingswood. . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
W. David Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Glen Shelton. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Husein El Dada. . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Robert Moskofian. . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Mark Wilder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
42
<PAGE>
Schedule 3 - Lock-Up Agreements (cont.)
NAME OF HOLDER TERM
- --------------- ----
Peter J. Tanous . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Thomas Nassif . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Elizabeth Huntly-Harmen . . . . . . . . . . . . . . . . . . . . . . .24 months
Issa Baconi . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Ramzi Bishuti . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Fred Kassner. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 months
Aleph Mad Family Trust. . . . . . . . . . . . . . . . . . . . . . . .24 months
Whitechapel Management. . . . . . . . . . . . . . . . . . . . . . . .24 months
43
<PAGE>
EXHIBIT 4.1
MED-EMERG INTERNATIONAL, INC.,
NETWORK 1 FINANCIAL SECURITIES, INC.
UNDERWRITERS'
WARRANT AGREEMENT
<PAGE>
UNDERWRITERS' WARRANT AGREEMENT dated as of _____________, 1997 between
MED-EMERG INTERNATIONAL, INC. (the "Company") and NETWORK 1 FINANCIAL
SECURITIES, INC. (the "Representative"), as the representative of the
underwriters named in the Underwriting Agreement referred to below (the
"Underwriters").
PRELIMINARY STATEMENT
The Underwriters have agreed, pursuant to an underwriting agreement
(the "Underwriting Agreement") dated ______________, 1997, between the
Underwriters and the Company, to act as the underwriters 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 at an initial public offering price of $4.25 per share
of Common Stock and $.10 per Redeemable Common Stock Purchase Warrant (the
"Initial Public Offering").
The Company proposes to issue to the Underwriters at the closing of
the Initial Public Offering as part of the Underwriters' compensation in
connection therewith, warrants to purchase an aggregate of 125,000 shares of
Common Stock (the "Stock Warrants") and/or 125,000 Common Stock Purchase
Warrants (the "Warrants", and together with the Stock Warrants, the
"Underwriters' Warrants").
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriters 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:
1. GRANT. The Holders (as defined in Section 3 below) are hereby
granted the right to purchase, at any time from __________, 1998 until 5:00
p.m., New York City time, on
<PAGE>
_________, 2002 an aggregate of 125,000 shares of Common Stock and/or 125,000
Warrants, at an initial purchase price of $6.38 per share of Common Stock
(subject to adjustment as provided in Section 6 hereof) and $.15 per Warrant
(150% of the Initial Public Offering price of the Common Stock and Common Stock
Purchase Warrants, respectively), subject to the terms and conditions of this
Agreement. Each Warrant shall entitle the holder thereof to purchase one share
of Common Stock at any time from _______________, 1998 until 5:00 p.m. New York
City time on _________________, 2002 at an exercise price of $6.75 per share,
subject to adjustment as provided in Section 6 hereof.
2. WARRANT CERTIFICATES. The warrant certificates evidencing the
Stock Warrants and the Warrants to be delivered pursuant to this Agreement shall
be in the forms annexed hereto as Exhibits A and B, respectively (collectively,
the "Underwriters' Warrants Certificates") and made a part hereof, with such
appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. EXERCISE OF UNDERWRITERS' WARRANTS. The Underwriters' Warrants
are exercisable during the term set forth in Section 1 hereof and the Purchase
Price (as hereinafter defined) or exercise price provided therein is payable by
certified or cashier's check or money order payable in lawful money of the
United States. Upon surrender of an Underwriters' Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Purchase Price or exercise 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 thereof ("Holder" or "Holders") shall be entitled
2
<PAGE>
to receive a certificate or certificates for the shares of Common Stock or
Common Stock Purchase Warrants so purchased. The purchase rights represented by
each Underwriters' Warrant Certificate are exercisable at the option of the
Holders thereof, in whole or in part, as to the whole number of shares of Common
Stock or Common Stock Purchase 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 Common Stock Purchase Warrants purchasable upon the exercise of
the Underwriters' Warrants represented by an Underwriters' Warrant Certificate,
the Company shall cancel the Underwriters' Warrant Certificate represented
thereby upon the surrender thereof and shall execute and deliver a new
Underwriters' Warrant Certificate of like tenor for the number of Underwriters'
Warrants which have not been exercised.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Underwriters'
Warrants and payment of the purchase price or exercise price provided therein,
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 Underwriters'
Warrant Certificates and the certificates representing the shares of Common
Stock or
3
<PAGE>
Warrants (and such other securities, property or rights as may be represented by
certificates) issuable upon exercise thereof shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors, Chief Executive Officer, President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then Secretary or Assistant
Secretary or Treasurer or Assistant Treasurer of the Company. Underwriters'
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 Underwriters' Warrant Certificates.
5. RESTRICTION ON TRANSFER OF UNDERWRITERS' WARRANTS. The Holder of
an Underwriters' Warrant Certificate (and its Permitted Transferees, as defined
below), by its acceptance thereof, covenants and agrees that the Underwriters'
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Underwriters' 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 Underwriters or any selling
group member in the Initial Public Offering shall be Permitted Transferees.
6. PURCHASE PRICE; ADJUSTMENTS. The initial purchase price (the
"Purchase Price") of the Underwriters' Warrants shall be $6.38 per share of
Common Stock (the "Common Stock Purchase Price") and $.15 per Warrant (the
"Warrant Purchase Price"). The initial exercise price of the Warrants shall be
$6.75 per share of Common Stock (the "Warrant Exercise Price").
4
<PAGE>
The Common Stock Purchase Price and the Warrant Exercise Price (but not the
Warrant Purchase Price) shall be subject to adjustment in accordance with the
provisions of this Section 6.
(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 the
Common Stock and Common Stock Purchase Warrants pursuant to the Initial Public
Offering (the "Closing Date"), issue or sell any shares of Common Stock (other
than the issuances or sales referred to in Section 6(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 6(j) 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 6(a)(vi) hereof) per share
of Common Stock on the trading day immediately preceding such issuance or sale
and the Common Stock Purchase Price (in the case of the Stock Warrants) and the
Warrant Exercise Price (in the case of the Warrants) in effect immediately prior
to such issuance or sale, or without consideration, then forthwith upon such
issuance or sale, the Common Stock Purchase Price and the Warrant Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) determined by multiplying the Common Stock Purchase
Price (in the case of the Stock Warrants) and the Warrant Exercise Price
5
<PAGE>
(in the case of the Warrants) 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 Common Stock Purchase Price (in the case of the Stock
Warrants) and the Warrant Exercise Price (in the case of the Warrants)
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 Common Stock
Purchase Price (in the case of the Stock Warrants) and the Warrant Exercise
Price (in the case of the Warrants), immediately prior to such issuance or sale;
provided, however, that in no event shall the Common Stock Purchase Price or the
Warrant Exercise Price, be adjusted pursuant to this computation to an amount in
excess of the Common Stock Purchase Price or Warrant Exercise 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 6(c) hereof. For the
purposes of this Section 6, the term "Common Stock Purchase Price" shall mean
the exercise price per share of Common Stock issuable upon exercise of the Stock
Warrant (initially $6.38 per share) and the term "Warrant Exercise Price" shall
mean the exercise price per share of Common Stock issuable upon exercise of the
Warrants (initially $6.75 per share), in each case as adjusted from time to time
pursuant to the provisions of this Section 6.
For the purposes of any computation to be made in accordance with this
Section 6(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in
6
<PAGE>
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders 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 subparagraph (ii) of this Section 6(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
7
<PAGE>
(vi) As used herein, the phrase "Market Price" at any date shall
be deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported 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
Common Stock distributed pursuant to Section 6(j) 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
8
<PAGE>
to in Section 6(f) hereof, (i) for a consideration per share less than the
lesser of (a) the Common Stock Purchase Price (in the case of the Stock
Warrants) or the Warrant Exercise Price (in the case of the Warrants) in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or (b) the Market Price on the trading
day immediately preceding such issuance, or (ii) without consideration, the
Common Stock Purchase Price (in the case of the Stock Warrants) and the Warrant
Exercise Price (in the case of the Warrants) in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, shall be reduced to a price determined by making a
computation in accordance with the provisions of Section 6(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 6 (a) hereof), if any, received by the Company for the options,
rights or warrants, and if no minimum purchase price is provided in the options,
rights or warrants, then the minimum purchase price shall be equal to zero;
provided, however, that upon the expiration or other termination of the options,
rights or warrants, if any thereof shall not have been exercised, the number of
shares of Common Stock deemed to be issued and outstanding pursuant to this
subsection (b) (and for the purposes of subSection (v) of Section 6(a) hereof)
shall be reduced by such number of shares as to which options, warrants and/or
rights shall have expired or terminated unexercised, and such number
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of shares shall no longer be deemed to be issued and outstanding, and the Common
Stock Purchase Price (in the case of the Stock Warrants) and the Warrant
Exercise Price (in the case of the Warrants) 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 6(a) hereof) 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 6(a) hereof) shall be reduced by such number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Common Stock Purchase Price (in the case of the Stock
Warrants) and the Warrant Exercise Price (in the case of the Warrants) 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
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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 Section 6(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 6(b), or in the price per share at which the securities referred to in
subsection (ii) of this Section 6(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 with 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 (i) of this Section 6, or in the price per
share at which the securities referred to in subsection (ii) of this Section
6(b) are
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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 Section 6(f), an adjustment to the Common Stock Purchase
Price (in the case of the Stock Warrants) and the Warrant Exercise Price (in the
case of the Warrants), and the number of securities issuable upon exercise of
the Stock Warrants and the Warrants will be required to be made pursuant to this
Section 6.
(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 Common Stock Purchase Price (in the case of the Stock
Warrants) and the Warrant Exercise Price (in the case of the Warrants), 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
Common Stock Purchase Price or the Warrant Exercise Price, pursuant to the
provisions of this Section 6, the number of shares of Common Stock issuable upon
the exercise of the Stock Warrants and/or the Warrants shall be adjusted to the
nearest full whole number by multiplying a number equal to the Common Stock
Purchase Price (in the case of the Stock Warrants) and the Warrant Exercise
Price (in the case of the Warrants) in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Stock Warrants or the Warrants, as the case may be, immediately prior to such
adjustment and dividing the product so obtained by the adjusted Common Stock
Purchase Price (in the case of the Stock Warrants) and the Warrant Exercise
Price (in the case of the Warrants).
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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 purchasable upon exercise of the Stock Warrants and 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 Stock Warrants or the Warrants,
as the case may be, and (y) the Common Stock Purchase Price (in the case of the
Stock Warrants) and the Warrant Exercise Price (in the case of the Warrants), in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Stock Warrants and the Warrants.
(f) NO ADJUSTMENT IN CERTAIN CASES. Notwithstanding anything herein
to the contrary, no adjustment of the Common Stock Purchase Price or Warrant
Exercise Price shall be made:
(i) Upon the issuance or sale of the Stock Warrants or the
Warrants, the shares of Common Stock issuable upon the exercise of the Stock
Warrants or the Warrants; or
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(ii) Upon the issuance or sale of (A) the shares of Common Stock
or Common Stock Purchase Warrants issued by the Company in the Public Offering
(including pursuant to the Over-allotment Option) or other shares of Common
Stock or Warrants issued by the Company upon consummation of the Initial Public
Offering, or (B) the shares of Common Stock (or other securities) issuable upon
exercise of the Common Stock Purchase Warrants; or
(iii) Upon (i) the issuance of options pursuant to the Company's
stock option plan in effect on the date hereof 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 Warrents issued and outstanding on the date of closing of the
sale of Common Stock and Common Stock Purchase Warrants pursuant to the Initial
Public Offering.
(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 and expiration of the Underwriters' Warrant, the
Stock Warrants or the Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to the
Holders of Common Stock any monies, assets, property, rights, evidences of
indebtedness, securities (other than such a cash dividend or distribution or
dividend consisting solely of shares of Common Stock), whether issued by the
Company or by another person or entity, or any other thing of value, the Holders
of the unexercised Stock Warrants or 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 Stock Warrants or
Warrants, as the case may be, the same monies, property,
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<PAGE>
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
issuable upon exercise of the Stock Warrants or the 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 6(g).
(h) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER
SECURITIES. In case the Company or an affiliate of the Company shall at any
time after the date hereof and prior to the exercise of the Stock Warrants or
the Warrants in full 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 Stock Warrants or Warrants shall be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Stock Warrants or 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 Stock Warrants or the Warrants, as the case may be, remain
exercisable.
(i) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Stock Warrants
and 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
effectiveness. Notice of such termination of purchase rights shall be given to
the registered Holders of the Stock Warrants and the Warrants as the same shall
appear on the books and records of the Company, by registered mail at least
thirty (30) days prior to such termination date.
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(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 6, 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 6.
7. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. (i) At any time commencing one (1) year and
expiring five (5) years after the effective date of the Company's Registration
Statement relating to the Initial Public Offering (the "Effective Date"), the
Holders of a majority (as hereinafter defined) of the shares of Common Stock
purchased and purchasable upon exercise of the Stock Warrants and the Warrants
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 purchased or purchasable by such Holders and any
other Holders of the Stock Warrants and the Warrants upon exercise thereof (such
shares of Common Stock being hereinafter referred to as the "Registrable
Securities"). The Holders of the Stock Warrants and Warrants may demand
registration without exercising the Stock Warrants or Warrants, and are never
required to exercise same. The Company covenants and agrees to give written
notice of any registration request under this Section 7(a) to all other
registered Holders of the Stock Warrants and the Warrants and the Registrable
Securities within ten (10) days from the date of the receipt of any such
registration
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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 Stock Warrants and the Warrants shall mean in
excess of fifty percent (50%) of the shares of Common Stock issued or issuable
upon exercise of the Stock Warrants and the Warrants that (i) are not held by
the Company, an affiliate, officer, creditor, employee or agent thereof or any
of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith, or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
(b) PIGGYBACK REGISTRATION. If, at any time within the period
commencing one (1) year and expiring five (5) years after the Effective Date,
the Company should file a registration statement with the Commission under the
Securities Act (other than in connection with a merger or other business
combination transaction or pursuant to Form S-8) it will give written notice by
registered mail, at least thirty (30) calendar days prior to the filing of each
such registration statement, to the Representative and to all other Holders of
the Stock Warrants, the Warrants and the shares of Common Stock purchased or
purchasable upon exercise thereof of its intention to do so. If the Holders of
the Registrable Securities notify the Company within twenty (20) calendar days
after receipt of any such notice of its or their desire to include any
Registrable Securities in such proposed registration statement, the Company
shall afford the Holders of the Registrable Securities the opportunity to have
such Registrable Securities included in such registration statement, unless the
underwriter for each proposed objects to the inclusion of the Registrable
Securities in such registration statement. However, in such event, the Company
will, within six (6) months of completion of such underwritten offering, file at
the expense of the Company, a registration
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<PAGE>
statement so as to permit a public offering and sale of the Registrable
Securities so excluded for a period of nine (9) months, which shall be in
addition to any registration statement required to be filed pursuant to Section
7(a). Notwithstanding the provisions of this Section 7(b) and the provisions of
Section 7(c), the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7(b) (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(c) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registrations under Sections 7(a) and 7(b) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within forty-five (45) calendar days of receipt of any
demand therefor pursuant to section 7(a); provided, however, that the Company
shall not be required to produce audited or unaudited financial statements for
any period prior to the date such financial statements are required to be filed
in a report on Form 20-F. The Company shall use its best efforts to have any
registration statement declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Registrable Securities such number of
prospectuses as shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees and expenses
of Holders' counsel and any underwriting discounts or selling fees, expenses or
commissions), fees and expenses in connection with any registration statement
filed pursuant to Sections 7(a) and 7(b) hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses. If the Company shall fail to comply with the provisions of Section
7(c), the Company shall, in addition to any other equitable or other relief
available to the Holders, be
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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,
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 Underwriters 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 Underwriters have 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
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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 Underwriters have agreed to
indemnify the Company.
(6) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Stock Warrants or the Warrants prior to
the initial filing of any registration statement or the effectiveness thereof.
(7) The Company shall not be entitled to include any securities
other than the Registrable Securities in any registration statement filed
pursuant to Section 7(a) hereof without the prior written consent of the Holders
of a Majority of the Registrable Securities.
(8) The Company shall furnish to a designated representative of
the Holders participating in the offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and if such registration relates to an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration relates to an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement (the
"Accountants"), in each case covering
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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) 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.
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(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 to an underwritten sale of their Registrable
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(d) FURTHER REGISTRATIONS. The Company will cooperate with the
Holders of the Registrable Securities in preparing and signing any registration
statement, in addition to the registration statements discussed above, required
in order to sell or transfer the Underwriters' 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
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Holders of the Registrable Securities according to the aggregate sales price of
the securities being issued. The provisions of Section 7(c) shall apply to any
such registration statement.
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Underwriters' 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 Underwriters' 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 Underwriters' 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 Underwriters' Warrant Certificates, if
mutilated, the Company will make and deliver a new Underwriters' 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 Underwriters' 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 Underwriters' 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 Underwriters'
Warrants, such number of shares of Common Stock or other
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securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of Underwriters' 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
Underwriters' Warrants shall be outstanding, the Company shall use its best
efforts to cause the Common Stock to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock may then be
listed or quoted.
11. NOTICES TO UNDERWRITERS' WARRANT HOLDERS. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Underwriters' 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
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(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 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. REDEMPTION OF WARRANTS. The Warrants are redeemable by the
Company commencing on ______________, 1999 [the second anniversary of the date
of the Prospectus relating to the Initial Public Offering] (or earlier with the
consent of the Representative), in whole or in part, on not less than thirty
(30) days' prior written notice at a redemption price of $.10 per Warrant,
provided the closing bid quotation of the Common Stock as reported on The Nasdaq
SmallCap Market, if traded thereon, or if not traded thereon, the closing sale
price if listed on a national securities exchange or the Nasdaq National Market
(or other reporting system that provides last sale prices), has been at least
$8.00 per share for a period of 20 consecutive 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
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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 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.
13. 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 Underwriters' 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.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Representative
may from time to time supplement or amend this Agreement without the approval of
any Holders of Underwriters' Warrant Certificates (other than the
Representative) 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
26
<PAGE>
hereunder which the Company and the Representative may deem necessary or
desirable and which the Company and the Representative deem shall not adversely
affect the interests of the Holders of Underwriters' Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the
Representative, the Holders and their respective successors and assigns
hereunder.
16. 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.
17. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Agreement and
each Underwriters' 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
Representative 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
Representative 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 Representative 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,
27
<PAGE>
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.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. Subject to Section 14, 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.
19. 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.
20. 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.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holders of the Underwriters' 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 Representative and any other Holders of
the Underwriters' Warrant Certificates or Registrable Securities.
28
<PAGE>
22. 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.
23. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, the Representative and their respective successors
and assigns and the Holders from time to time of the Underwriters' Warrant
Certificates.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
MED-EMERG INTERNATIONAL, INC.
By:
----------------------------
Carl Pahapill, President
NETWORK 1 FINANCIAL SECURITIES, INC.
By:
----------------------------
Name:
Title:
30
<PAGE>
EXHIBIT A
MED-EMERG INTERNATIONAL, INC.
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING______________, 1998 THROUGH
5:00 P.M., NEW YORK CITY TIME ON_____________, 2002
No. UW-1 125,000 Warrants
This Warrant Certificate certifies that _____________, or registered
assigns, is the registered holder of 125,000 Warrants to purchase initially, at
any time from _____________, 1998 until 5:00 p.m., New York City time on
____________, 2002 (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 $6.38 per
share and/or 125,000 Common Stock Purchase Warrants ("Warrants") of the Company
at the purchase price of $.15 per Warrant, 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
"Representative"). 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 City 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 Representative, 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.
A-2
<PAGE>
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.
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 ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right represented by
this Warrant Certificate to purchase:
___________shares of Common Stock
___________Common Stock Purchase 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)
A-4
<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)
A-5
<PAGE>
EXHIBIT B
MED-EMERG INTERNATIONAL, INC.
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING______________, 1998 THROUGH
5:00 P.M., NEW YORK CITY TIME ON_____________, 2002
No. UWW-1 125,000 Warrants
This Warrant Certificate certifies that _____________, or registered
assigns, is the registered holder of 125,000 Warrants to purchase initially, at
any time from _____________, 1998 until 5:00 p.m., New York City time on
__________, 2002 (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 $6.75 per share (the
"Purchase Price"), upon the surrender of this Warrant Certificate and payment of
the 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 "Representative"). Payment of the Purchase
Price shall be made by certified or cashier's check or money order payable to
the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
B-1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement between
the Company and the Representative, 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.
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 __________ ___, 1999 [the second anniversary of
the date of the Prospectus] (or earlier with the consent of the Representative),
provided that the closing bid quotation of the Common Stock as reported on The
Nasdaq SmallCap Market, if traded thereon, or if not traded thereon, the closing
sale price if listed on a national exchange or the Nasdaq National Market (or
other reporting system that provides last sale prices), shall have been at least
$8.00 per share for a period of 20 consecutive trading days ending three days
prior to the date on which the Company gives notice of redemption, as provided
herein. Notice of redemption shall be given by the 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.
B-2
<PAGE>
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.
IN WITNESS WHEREOF, the undersigned has executed this certificate this ____
day of _____________________, ______..
MED-EMERG INTERNATIONAL, INC.
By:
------------------------
Carl Pahapill, President
ATTEST:
By:
------------------------------------------
Secretary
B-3
<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 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)
B-4
<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)
B-5
<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. ("Network
1") 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 a group of underwriters (the
"Underwriters") for whom Network 1 will act as representative, 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. Each Warrant
will entitle the holder to purchase one share of Common Stock.
The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants.
THEREFORE, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Upon the execution of this Agreement, certificates representing
1,250,000 Warrants to purchase an aggregate of 1,250,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 9 hereof) shall
be executed by the Company and delivered to the Warrant Agent.
<PAGE>
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.
SECTION 2. FORM OF WARRANT. The text of the Warrants and the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in EXHIBIT A attached hereto (the provisions of which
are hereby incorporated herein). All of the certificates for the Warrants may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. Each Warrant shall initially entitle the registered holder thereof to
purchase one share of Common Stock at a purchase price of four dollars and fifty
cents ($4.50) (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 City time, on __________ __, 2002 [the fifth
anniversary of the date of the Prospectus]. The Warrant Price and the number of
shares of Common Stock issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, all as hereinafter provided.
The Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman of the Board or Vice
Chairman, Chief Executive Officer, President or Vice President of the Company,
and attested to by the manual or
2
<PAGE>
facsimile signature of the present or any future Secretary, Treasurer or
Assistant Secretary or Assistant Treasurer of the Company.
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a
day that is not a business day, then the Warrants shall expire at 5:00 p.m. New
York City time on the next succeeding business day. For purposes hereof, the
term "business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
SECTION 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the 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
3
<PAGE>
instructions for transfer. Upon any such transfer, a new Warrant shall be issued
to the transferee and the surrendered Warrant shall be cancelled by the Warrant
Agent. Warrants so cancelled shall be delivered by the Warrant Agent to the
Company from time to time upon request. Warrants may be exchanged at the option
of the holder thereof, when surrendered at the office of the Warrant Agent, for
another Warrant, or other Warrants of different denominations of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. No certificates for Warrants shall be issued except for (i)
Warrants initially issued hereunder in accordance with Section 1 hereof, (ii)
Warrants issued upon any transfer or exchange of Warrants, (iii) Warrants issued
in replacement of lost, stolen, destroyed or mutilated certificates for Warrants
pursuant to Section 7 hereof, and (iv) at the option of the Board of Directors
of the Company, Warrants in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Warrant Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants made
pursuant to Section 9 hereof.
SECTION 5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and 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
4
<PAGE>
by certified or bank check payable to the Company. Subject to Section 6 hereof,
upon such surrender of Warrants and payment of the Warrant Price, the Warrant
Agent on behalf of the Company shall cause to be issued and delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrants and in such name or names as such registered holder may designate,
a certificate or certificates for the number of full shares of Common Stock so
purchased upon the exercise of such Warrants. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such shares of
Common Stock immediately prior to the close of business on the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid. The
rights of purchase represented by the Warrants shall be exercisable during the
Exercise Period, at the election of the registered holders thereof, either as an
entirety or from time to time for a portion of the shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
shares of Common Stock specified therein at any time prior to the date of
expiration of the Warrants, a new Warrant or Warrants will be issued to the
registered holder for the remaining number of shares of Common Stock specified
in the Warrant so surrendered, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrants pursuant to
the provisions of this Section and 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
5
<PAGE>
Warrant Price for such Warrants, less any amounts payable to Network 1, as
provided below, to be deposited promptly in the Company's bank account. The
Company and Warrant Agent shall determine, in their sole and absolute
discretion, whether a Warrant certificate has been properly completed for
exercise by the registered holder thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant
will be exercisable and the Company shall not be obligated to deliver any
securities pursuant to the exercise of any warrant unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of such Warrant and such
registration statement shall have been declared and shall remain effective and
shall be current, and such shares have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
holder of such Warrant and the exercise of such Warrant in any such state or
other jurisdiction shall not otherwise be unlawful. During the Exercise Period,
the Company shall use its best efforts to have a current registration statement
on file with the Securities and Exchange Commission covering the issuance of
Common Stock underlying the Warrants so as to permit the Company to deliver to
each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a) (3) of the Act 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 issuable upon exercise of 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.
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(a) If at the time of exercise of any Warrant (i) the market price of
the Common Stock is not less than the then exercise price of the Warrant, (ii)
the exercise of the Warrant is solicited by Network 1 at such time as it is a
member of the National Association of Securities Dealers, Inc. ("NASD") and
Network 1 is designated in writing by the holder of the Warrants as the NASD
member soliciting the exercise, (iii) the Warrant is not held in a discretionary
account, (iv) disclosure of the compensation arrangement is made in documents
provided to the holders of the Warrants, and (v) the solicitation of the
exercise of the Warrant is not in violation of Rule 101 of Regulation M (as such
rule or any successor rule may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, as amended, then Network
1 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 Network 1 of each
Warrant certificate which has been properly completed for exercise by holders of
Warrants during the last month. The Warrant Agent will provide Network 1 with
such information, in connection with the exercise of each Warrant, as Network 1
shall reasonably request.
(ii) The Company hereby authorizes and instructs the Warrant Agent
to deliver to Network 1 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 Network 1 in the amount of such
Exercise Fee. In the event that an Exercise Fee is paid to Network 1 with
respect to a Warrant which the Company or the Warrant Agent determines is not
properly completed
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for exercise or in respect of which Network 1 is not entitled to an Exercise
Fee, Network 1 will return such Exercise Fee to the Warrant Agent which shall
forthwith return such fee to the Company.
Network 1 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 Network 1.
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 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,
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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 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
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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. NUMBER
OF SECURITIES
(a) COMPUTATION OF ADJUSTED PRICE. Except as hereinafter provided, in
case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the IPO (the "Closing Date"), issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 9 (f)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Section 9(h) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock (i) for
a consideration per share less than the lesser of (A) the "Market Price" (as
defined in Section 9(a)(vi) hereof) per share of Common Stock on the trading day
immediately preceding such issuance or sale and (B) the Warrant Price in effect
immediately prior to such issuance or sale, or (ii) without consideration, then
forthwith upon such issuance or sale, the Warrant Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Warrant Price in effect immediately prior to
such issuance or sale by a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding
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immediately prior to such issuance or sale multiplied by the Warrant Price
immediately prior to such issuance or sale plus (2) the consideration received
by the Company upon such issuance or sale, and the denominator of which shall be
the product of (x) the total number of shares of Common Stock outstanding
immediately after such issuance or sale, multiplied by (y) the Warrant Price
immediately prior to such issuance or sale; provided, however, that in no event
shall the Warrant Price be adjusted pursuant to this computation to an amount in
excess of the Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Section 9(c) hereof.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in 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
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<PAGE>
be deemed to be the value of such consideration as determined in good faith by
the Board of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 9(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of options, warrants or rights and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported by the Nasdaq Stock Market, Inc. ("Nasdaq")
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the
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Nasdaq National Market, but is quoted on The Nasdaq SmallCap Market or the
NASD's Electronic Bulletin Board, the closing bid quotation as reported by
Nasdaq or the National Quotation Bureau Incorporated or a similar organization,
or if the Common Stock is not quoted on Nasdaq or the Electronic Bulletin Board,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it for the day immediately
preceding such issuance or sale, the day of such issuance or sale and the day
immediately after such issuance or sale. If the Common Stock is listed or
admitted to trading on a national securities exchange and also quoted on the
Nasdaq National Market, the Market Price shall be determined as hereinabove
provided by reference to the prices reported in the Nasdaq National Market;
provided that if the Common Stock is listed or admitted to trading on the New
York Stock Exchange, the Market Price shall be determined as hereinabove
provided by reference to the prices reported by such exchange.
(b) OPTIONS, RIGHTS, WARRANTS AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Section 9(h) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred 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,
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<PAGE>
as the case may be, shall be reduced to a price determined by making a
computation in accordance with the provisions of Section 9(a) hereof; provided
that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of Section 9(a)), if any, received by the Company for the options, rights
or warrants, and if no minimum purchase price is provided in the options, rights
or warrants, then the minimum purchase price shall be equal to zero; provided,
however, that upon the expiration or other termination of the options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subsection (b)
(and for the purposes of subsection (v) of Section 9(a) hereof) shall be reduced
by such number of shares as to which options, warrants or rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Warrant Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the 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
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<PAGE>
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Common Stock in accordance with the terms of Section
9 (a)) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the expiration or other termination of the
right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares deemed to
be issued and outstanding pursuant to this subsection (ii) (and for the purpose
of subsection (v) of Section 9(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subsection (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of subsection
(i) of this subsection 9 (b).
(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
15
<PAGE>
converted or exercised for more than the minimum consideration receivable by the
Company upon such conversion or exchange, the options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to have
expired or terminated on the date when such price change became effective in
respect of shares not theretofore issued pursuant to the exercise or conversion
or exchange thereof, and the Company shall be deemed to have issued upon such
date new options, rights or warrants or convertible or exchangeable securities
at the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities; provided, however, that no adjustment
shall be made pursuant to this subsection (iii) with respect to any change in
the price per share provided for in any of the options, rights or warrants
referred to in subsection (b) (i) of this Section 9 (b), or in the price per
share at which the securities referred to in subsection (b) (ii) of this Section
9(b) are convertible or exchangeable, which change results from the application
of the anti-dilution provisions thereof in connection with an event for which,
subject to subsection (iv) of this Section 9(f), an adjustment to the Warrant
Price and the number of securities issuable upon exercise of the Warrants will
be required to be made pursuant to this Section 9.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at any time
after the Closing Date subdivide or combine the outstanding shares of Common
Stock, the Warrant Price shall 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
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number equal to the Warrant Price in effect immediately prior to such adjustment
by the number of shares of Common Stock issuable upon exercise of the Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Warrant Price.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Warrant Price in effect immediately prior to the record
date for such 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 to the Underwriters of Warrants to
purchase 125,000 shares of Common Stock and 125,000 Common Stock Purchase
Warrants (collectively, the
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"Underwriters' Warrant") in connection with the IPO, the shares of Common Stock
or Common Stock Purchase Warrants issuable upon the exercise of the
Underwriters' Warrant or the shares of Common Stock issuable upon exercise of
the Common Stock Purchase Warrants issuable upon exercise of the Underwriters'
Warrant; or
(ii) Upon the issuance or sale of (A) the shares of Common Stock or
Warrants issued by the Company in the IPO (including pursuant to the
Over-allotment Option) or other shares of Common Stock or warrants issued by the
Company upon consummation of the IPO, or (B) the shares of Common Stock (or
other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the Company's
stock option plan in effect on the date hereof or as hereafter amended in
accordance with the terms thereof or any other employee or executive stock
option plan approved by stockholders of the Company or the sale by the Company
of any shares of Common Stock pursuant to the exercise of any such options, (ii)
the sale by the Company of any shares of Common Stock pursuant to the exercise
of any options or warrants issued and outstanding on the date of closing of the
sale of Common Stock and Warrants pursuant to the IPO.
(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 issued by the Company or by another person or entity,
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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 effectiveness. Notice
of such termination of purchase rights shall be given to each registered holder
of the Warrants, as the same
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shall appear on the books of the Company maintained by the Warrant Agent, by
registered mail at least thirty (30) days prior to such termination date.
(j) COMPUTATIONS. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 9, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 9.
SECTION 10. FRACTIONAL INTERESTS. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the Market Price on the last
trading day prior to the exercise date.
SECTION 11. NOTICES TO WARRANTHOLDERS
(a) Upon any adjustment of the Warrant Price and the number of shares of
Common Stock issuable upon exercise of a Warrant, then and in each such case,
the Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. The Company
shall also mail such notice to the
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holders of the Warrants at their respective addresses appearing in the Warrant
register. Failure to give or mail such notice, or any defect therein, shall not
affect the validity of the adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock upon its Common
Stock or make any distribution (other than regular cash dividends) to the
holders of Common Stock; or
(ii) the Company shall offer for subscription pro rata to all of the
holders of Common Stock any additional shares of stock of any class or other
rights; or
(iii) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice to the Warrant Agent and the holders of
the Warrants in the manner set forth in Section 11(a) of the date on which (A) a
record shall be taken for such dividend, distribution or subscription rights, or
(B) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, 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
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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. 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 _____________, 1999 [the second anniversary of the date of
the Prospectus] (or earlier with the consent of Network 1), in whole or in part,
on not less than thirty (30) days' prior written notice at a redemption price of
$.10 per Warrant, provided the closing bid quotation of the Common Stock as
reported on The Nasdaq SmallCap Market, if traded thereon, or if not traded
thereon, the closing sale price if listed on a national securities exchange or
the Nasdaq National Market (or other reporting system that provides last sale
prices), has been at least $8.00 per share for a period of 20 consecutive
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
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Warrant holders. The redemption notice shall be mailed to the holders of the
Warrants at their respective addresses appearing in the Warrant register. Any
such notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given in accordance with this Agreement whether or not the
registered holder receives such notice. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a registered holder of a Warrant
(i) to whom notice was not mailed or (ii) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. Holders of the
Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption.
SECTION 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
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
23
<PAGE>
countersignature under its prior name and deliver Warrants so countersigned. In
all such cases such Warrants shall have the full force provided in the Warrants
and in this Agreement.
SECTION 15. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant for any action taken in reliance on
any notice, resolution, waiver, 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.
24
<PAGE>
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expenses unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding. Any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as Warrant Agent,
and any recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrants, as their respective rights and interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company 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
25
<PAGE>
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and its
duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or a Vice President or its Secretary or an Assistant
Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company.
SECTION 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by mailing such notice to
the holders at their respective addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent 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
26
<PAGE>
Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or after the Company
has received such notice from a registered holder of a Warrant (who shall, with
such notice, submit his Warrant for inspection by the Company), then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under New York
or federal law. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants, records and property at the time held by it hereunder, and
execute and deliver any further assurance or conveyance necessary for this
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
SECTION 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment
of any transfer agent (other than Continental Stock Transfer and Trust Company)
for the shares of Common Stock or of any subsequent transfer agent for the
shares of Common Stock, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
27
<PAGE>
SECTION 18. NOTICES. Any notice pursuant to this Agreement to be given
by the Warrant Agent or the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Messissauga, Ontario L5N 5R1
Canada
Attention: President
and a copy thereof to:
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
101 East 52nd Street
New York, New York 10022
Attention: Jay M. Kaplowitz, Esq.
Any notice pursuant to this Agreement to be given by the Company or the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10005
Attention: Steve Nelson
Any notice pursuant to this Agreement to be given by the Warrant Agent
or the Company to Network 1 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:
28
<PAGE>
Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn: Virginia Sourlis, Esq.
and a copy thereof to:
Snow Becker Krauss, P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Jack Becker, Esq.
SECTION 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
materially adversely affect the interest of the holders of Warrants; and in
addition the Company and the Warrant Agent may modify, supplement or alter this
Agreement with the consent in writing of the registered holders of the Warrants
representing not less than a majority of the Warrants then outstanding.
SECTION 20. NEW YORK CONTRACT. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
SECTION 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the
29
<PAGE>
registered holders of the Warrants any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the registered holders of the
Warrants.
SECTION 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
MED-EMERG INTERNATIONAL, INC.
By: ________________________________
Name: Carl Pahapill
Title: President
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: ________________________________
Name:
Title:
NETWORK 1 FINANCIAL SECURITIES, INC.
By: ________________________________
Name:
Title:
30
<PAGE>
No. W_______________________ VOID AFTER_____________, 2002
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
MED-EMERG INTERNATIONAL., INC..
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the
number of Redeemable Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock, no
par value (the "Common Stock"), of Med-Emerg International, Inc. a corporation
organized under the laws of the Province of Ontario, Canada (the "Company"), at
any time from _________ __, 1998 (the "Initial Warrant Exercise Date") , and
prior to the Expiration Date (as hereinafter defined) upon the presentation and
surrender of this Warrant Certificate with the Exercise Form on the reverse
hereof duly executed, at the corporate office of Continental Stock Transfer &
Trust Company, 2 Broadway, New York 10005, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $4.50, 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. ("Network
1") and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and
<PAGE>
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 City time)
on_________ ___, 2002 [the date which is the fifth anniversary of the Initial
Warrant Exercise Date]; provided, that if such date is not a business day, it
shall mean 5:00 p.m., New York City time, on the next following business day.
For purposes hereof, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in New York City, New
York, are authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of the Warrants represented hereby and such
registration statement has been declared and shall remain effective and shall be
current, and such securities have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
such state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing __________ ___, 1999 [the second anniversary of
the date of the Prospectus] (or earlier with the consent of Network 1), provided
that the closing bid quotation of the Common Stock as reported on The Nasdaq
SmallCap Market, if traded thereon, or if not traded thereon, the closing sale
price if listed on a national exchange or the Nasdaq National Market (or other
reporting system that provides last sale prices), shall have been at least $8.00
per share for a period of 20 consecutive trading days ending three days prior to
the date on which the Company gives notice of redemption, as provided herein.
Notice of redemption (the "Notice of Redemption") shall be given by the Company
no less
2
<PAGE>
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, Network
1 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. The exercise of this Warrant was solicited by Network 1 Financial
Securities, Inc.[ ]
2. The exercise of this Warrant was solicited by
---------------------------------------------------------------
4
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. |_|
Dated: _____________________________ X__________________________________
- ----------------------------------
- ----------------------------------
Address
- -----------------------------------
Social Security or Taxpayer
Identification Number
- -----------------------------------
Signature Guaranteed
5
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
-------------------------
-------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
______________________________________ as its/his/her attorney-in-fact to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ______________________ x_______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
6
<PAGE>
Exhibit 8.1
[BORDEN & ELLIOTT LETTERHEAD]
December 5, 1997
Med-Emerg International Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario
Canada M9L 2V4
Gentlemen:
You have requested our opinion as to certain Canadian federal income
tax considerations for persons not residents in Canada.
In the opinion of Borden & Elliott, special Canadian counsel to the
Company, the following are the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) and the regulations thereunder
(collectively, the "Canadian Act"), the administrative practices of Revenue
Canada, Customs, Excise & Taxation and proposed amendments to the Canadian Act
and the regulations thereunder publicly announced by the Minister of Finance
prior to the date hereof generally applicable to acquiring, holding and
disposing of Common Stock and Warrants. There is no assurance that any proposed
amendments tot he 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
former Bill C-69 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, the
Ministry of Finance 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 proceeding a disposition
<PAGE>
Med-Emerg International Inc.
December 5, 1997
Page 2
of the Common Stock or Warrants. For these purposes, a right or option to
acquire a share, including on exercise of a Warrant, is considered to be
equivalent to a share.
This opinion does not take into account any provincial or foreign
income tax legislation or considerations nor does it take into account or
anticipate any changes in law or administrative practice including by way of
judicial decision or legislative action.
This opinion is of a general nature and is not, and should not be
construed as, advice to any particular Investor as to Canadian Tax consequences
applicable to the Investor. Each Investor is urged to consult with the
Investor's legal professional advisors regarding tax and other legal
consequences applicable to the Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability for Canadian tax upon exercise of
a Warrant. The cost of the Investor of Common Stock acquired on exercise of a
Warrant will equal the adjusted cost base of the Warrant so exercised, plus any
amount paid by the Investor to exercise the Warrant.
DIVIDENDS ON COMMON STOCK
An Investor will be liable to pay Canadian withholding tax equal to
25% (or such lesser rate as may be provided under an applicable tax treaty) of
the gross amount of any dividend actually or deemed to have been paid or
credited to the Investor on the Investor's Common Stock. An Investor who is a
resident of the United States for purposes of the Canada-U.S. Income Tax
Convention is subject to a lesser tax of 15% of the gross amount of any dividend
actually or deemed to have been paid or credited to the Investor on the
investor's Common Stock if the Investor holds less than 10% of the voting stock
of the Company, or 5% if the Investor holds 10% or more of the voting stock of
the Company. The Company will be required to withhold the tax from the gross
amount of the dividend, and to remit the tax to the Receiver General of Canada
for the account of the Investor. Investors who are entitled to reduced
withholding tax under an applicable treaty must provide appropriate evidence of
that entitlement satisfactory tot he 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).
We consent to the use of our name and opinion in connection with
references to Canadian laws, regulations, treaties and potential liabilities in
<PAGE>
Med-Emerg International Inc.
December 5, 1997
Page 3
Med-Emerg International Inc.'s Registration Statement. We note that our name
is specifically referred to in the Registration Statement under the heading
"Civil Liabilities" and in connection with the information contained under
the heading "Tax Aspects of the Offering" and confirm that we are giving our
opinion with respect to the information indicated therein.
Very truly yours,
BORDON & ELLIOTT
By: /s/ Bordon & Elliott
________________________________
<PAGE>
MED-EMERG INC.
Summary of Renewal Dates
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Start Renewal
Hospital Name Date Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Barry's Bay April 1, 1996 March 31, 1998
Bracebridge - IM July 1, 1997 June 30, 1998
Branson April 1, 1997 March 31, 1998
Campbellford January 16, 1996 March 31, 1998
Corner Brook October 1, 1997 March 31, 1998
Deep River April, 1997 March 31, 1998
Douglas Memorial January 16, 1996 March 31, 1998
Grand River October 1, 1997 December 31, 1997
Port Colborne April 1, 1997 March 31, 1998
Port Hope January 1, 1997 April 30, 1997 rolling over each month
Queensway General February 1, 1994 rolling over each month
Renfrew Victoria July 1, 1997 June 30, 1998
Stephenville October 1, 1997 March 31, 1998
Wellesley - ER March 21, 1994 rolling over each month
Wellesley - IM July 1, 1997 June 30, 1998
Whitby General June 1, 1997 May 31, 1998
</TABLE>
<PAGE>
Med-Emerg International Inc.
Summary of Physician Contracts
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Physician's CLI, ER or Full-time/ Term of Physician
Name IM Physician Part-time Contract Remuneration
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABBOTT, C. CLI Part-time Jul/97 - Jul/98 53% of Gross Billings
ARAUJO, A. CLI Part-time Currently under negotiation 60% of Gross Billings
ARCIA, E. CLI Full-time Sep 1/97 - Sep 1/98 65% of Gross Billings
ASTAPHAN, C CLI Part-time Apr 18/97 - Apr 18/98 60% of Gross Billings
BAJWA, R. CLI Part-time Currently under negotiation 53% of Gross Billings
CHOI, D. CLI Part-time Currently under negotiation 60% of Gross Billings
CORRIN, D. CLI Full-time Feb 25/97 - Feb 25/98 60% of Gross Billings
GERENA, H. CLI Part-time Jan 24/97 - Jan 24/98 60% of Gross Billings
HAMBOYAN, H. CLI Part-time Currently under negotiation 60% of Gross Billings
HOLLIS, B. CLI Full-time Sep 1/97 - Sep 1/98 65% of Gross Billings
HUSSAIN CLI Part-time Currently under negotiation 60% of Gross Billings
JAIPARGOS, C. CLI Part-time Currently under negotiation 60% of Gross Billings
KASHANI, S. CLI Part-time Jan 15/97 - Jan 15/98 60% of Gross Billings
KAWAI, S. H. CLI Part-time Oct 30/97 - Oct 30/98 75% of Gross Billings
KHOURY, L.E. CLI Part-time May 21/97 - May 21/98 60% of Gross Billings
LALONDE, L. CLI Part-time Currently under negotiation 53% of Gross Billings
LEE, K. CLI Part-time Currently under negotiation 60% of Gross Billings
MARCHUK, P. CLI Part-time Currently under negotiation 53% of Gross Billings
MCNEIL, M. CLI Part-time July 30/97 - July 30/98 53% of Gross Billings
MORRISON, J. CLI Full-time Sep 1/97 - Sep 1/98 60% of Gross Billings
NEUMANN, G CLI Part-time Currently under negotiation 60% of Gross Billings
PARRAGA, R. CLI Part-time Jan 24/97 - Jan 24/98 60% of Gross Billings
PRASAD, S CLI Part-time Feb 28/97 - Feb 28/98 65% of Gross Billings
RAGULA, B. CLI Full-time Sep 1/97 - Sep 1/98 $9,166.67/month consulting fee
RAO CLI Part-time July 10/97 - Jul 10/98 53% of Gross Billings
RASTOGI, S. CLI Part-time Currently under negotiation 53% of Gross Billings
ROSENTHAL, S. CLI Part-time Currently under negotiation 53% of Gross Billings
SHEIVITZ, A. CLI Part-time Apr 18/97 - Apr 18/98 60% of Gross Billings
VIDETIC, G. CLI Part-time July 16/97 - July 16/98 53% of Gross Billings
VOCKENTENZ, B. CLI Full-time Sep 1/97 - Sep 1/98 65% of Gross Billings
WEISBROD, M. CLI Full-time Currently under negotiation 65% of Gross Billings
ACHARYA, S. ER Part-time Started Feb/94 $70/hr or 80% of Gross Billings
AITKEN, D. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
ALTER, L ER Part-time Started Oct/97 $70/hr or 80% of Gross Billings
ANDRUKO, B. ER Part-time Started Jun/95 $70/hr or 80% of Gross Billings
BARTLETT, N. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
BATEMAN, B. ER Part-time Started Nov/96 $70/hr or 80% of Gross Billings
BERGERON, P. ER Part-time Started Jun/97 $70/hr or 80% of Gross Billings
BIER, A. ER Part-time Started Sep/97 $70/hr or 80% of Gross Billings
BOYLE, S. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
BRADFORD, P. ER Part-time Started Jun/95 $70/hr or 80% of Gross Billings
BRAR, D. ER Full-time Started Jun/92 $70/hr or 80% of Gross Billings
BURNETT, S. ER Part-time Started Aug/96 $70/hr or 80% of Gross Billings
BUSH, K. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
BUSTOS, E. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
CAMERON, S.F. ER Part-time Started Nov/96 $70/hr or 80% of Gross Billings
CAPELLO, N. ER Part-time Started Oct/97 $70/hr or 80% of Gross Billings
CAPELLO, T. ER Part-time Started Jul/94 $70/hr or 80% of Gross Billings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CHADHA, A. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
CHAN, A. ER Part-time Started Jun/96 $70/hr or 80% of Gross Billings
CHEN, A. ER Part-time Started Apr/97 $70/hr or 80% of Gross Billings
CHEN, T.I. ER Part-time Started Sep/96 92% of Gross Billings
CHRISTINCK, R. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
CHU, N. ER Part-time Started May/96 $70/hr or 80% of Gross Billings
CHUNG, J. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
CHUNG, M. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
CLARK, C. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
CONWAY, E. ER Part-time Started Jun/95 $70/hr or 80% of Gross Billings
DARLING, J. ER Part-time Started Jun/97 $70/hr or 80% of Gross Billings
DEVIN, B. ER Part-time Started Nov/95 $70/hr or 80% of Gross Billings
DEW, B. ER Part-time Started Jan/94 $70/hr or 80% of Gross Billings
DOWNES, A. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
EDORA, F. ER Part-time Started Sep/97 $70/hr or 80% of Gross Billings
FALCIONI, M. ER Part-time Started May/96 $70/hr or 80% of Gross Billings
FARQUHARSON, S. ER Part-time Started Jun/97 $70/hr or 80% of Gross Billings
FRYE, H. ER Part-time Started Sep/97 $70/hr or 80% of Gross Billings
FOWLER, S. ER Part-time Started Mar/96 $70/hr or 80% of Gross Billings
GIUSTINO, J. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
GOLDMAN, R. ER Part-time Started Jan/95 $70/hr or 80% of Gross Billings
GOLDSTEIN, R. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
GRAY, S. ER Part-time Started May/95 $70/hr or 80% of Gross Billings
HAAS, Y. ER Part-time Started Apr/96 $70/hr or 80% of Gross Billings
HANLEY, B. ER Part-time Started Sep/97 $70/hr or 80% of Gross Billings
HEMENS, B. ER Part-time Started Mar/97 $70/hr or 80% of Gross Billings
HESTON, J. ER Part-time Started Nov/94 $70/hr or 80% of Gross Billings
JACKA, M. ER Part-time Started Jun/94 $70/hr or 80% of Gross Billings
JACOBSON, P. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
JAMES, D. ER Part-time Started Jun/97 $70/hr or 80% of Gross Billings
JOHNSTON, E. ER Part-time Started May/94 $70/hr or 80% of Gross Billings
JONASCH, E. ER Part-time Started Aug/94 $70/hr or 80% of Gross Billings
KAISER, J. ER Part-time Started Dec/95 $70/hr or 80% of Gross Billings
KERR, R. ER Part-time Started Apr/97 $70/hr or 80% of Gross Billings
KILLAM, S. ER Part-time Started Aug/97 92% of Gross Billings
KOPP, M. ER Part-time Started Jan/92 $70/hr or 80% of Gross Billings
KOZAR, J. ER Part-time Started Aug/96 $70/hr or 80% of Gross Billings
KU, J. ER Full-time Started May/95 92% of Gross Billings
KUDLAK, R. ER Part-time Started Sep/96 $70/hr or 80% of Gross Billings
LAIDLAW, S. ER Part-time Started Oct/96 $70/hr or 80% of Gross Billings
LAM, R. ER Part-time Started Jan/93 $70/hr or 80% of Gross Billings
LEE, A. ER Part-time Started Apr/97 $70/hr or 80% of Gross Billings
LEE, J.O. ER Part-time Started Dec/92 $70/hr or 80% of Gross Billings
LEUNG, F. ER Part-time Started Nov/94 $70/hr or 80% of Gross Billings
LI, K. ER Part-time Started Dec/96 $70/hr or 80% of Gross Billings
LIANG, W. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
LING, P. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
LINGERTAT, J. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
LLANO, M. ER Part-time Started Jul/95 $70/hr or 80% of Gross Billings
LLOYD, J. ER Part-time Started Nov/94 $70/hr or 80% of Gross Billings
LU, G. ER Part-time Started Oct/97 $70/hr or 80% of Gross Billings
LUKE, A. ER Full-time Started May/97 $70/hr or 80% of Gross Billings
MacDONALD, J. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
MacLEOD, H. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MAHESAN, D. ER Full-time Started Nov/93 $70/hr or 80% of Gross Billings
MAIER, P. ER Part-time Started Mar/97 $70/hr or 80% of Gross Billings
MALAYIL, N. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
MARTIN, A. ER Part-time Started Dec/96 $70/hr or 80% of Gross Billings
MARTINIUK, S. ER Part-time Started Jun/97 $70/hr or 80% of Gross Billings
MASGORET, J. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
MASTER, S. ER Part-time Started Feb/97 $70/hr or 80% of Gross Billings
MATHESON, J. ER Full-time Started Dec/93 92% of Gross Billings
McCLURE, D. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
McINTYRE, K. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
NAGPAL, S. ER Part-time Started Feb/95 $70/hr or 80% of Gross Billings
NEARY, E. ER Part-time Started Oct/94 $70/hr or 80% of Gross Billings
NG. D. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
NIMIGAN, W. ER Part-time Started Oct/93 $70/hr or 80% of Gross Billings
OMARALI, I. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
PARK, J.S. ER Full-time Started Oct/94 92% of Gross Billings
PARK, V. ER Part-time Started Apr/91 $70/hr or 80% of Gross Billings
QUIGLEY, C. ER Part-time Started Apr/97 $70/hr or 80% of Gross Billings
RAPTIS, S. ER Part-time Started Jun/92 $70/hr or 80% of Gross Billings
REIMER, D. ER Part-time Started Mar/97 $70/hr or 80% of Gross Billings
ROSS, C. ER Part-time Started Nov/96 $70/hr or 80% of Gross Billings
ROULEAU, K. ER Part-time Started Sep/95 $70/hr or 80% of Gross Billings
SABAN, S. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
SAINI, S. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
SARANCHUK, P. ER Part-time Started Sep/93 $70/hr or 80% of Gross Billings
SCHNECK, C. ER Part-time Started Feb/97 $70/hr or 80% of Gross Billings
SCHWEITZER, M. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
SEM, F. ER Part-time Started Nov/94 $70/hr or 80% of Gross Billings
SERGEANT, M. ER Full-time Started Aug/95 $70/hr or 80% of Gross Billings
SIEMINOWSKI, T. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
SILVERSTEIN, J. ER Part-time Started May/95 $70/hr or 80% of Gross Billings
SINGH, A. ER Part-time Started Aug/95 $70/hr or 80% of Gross Billings
SINGH, T. ER Part-time Started Jun/91 $70/hr or 80% of Gross Billings
SKALENDA, P. ER Part-time Started Jun/95 $70/hr or 80% of Gross Billings
SMYLIE, J. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
SOMOGYI, D. ER Part-time Started Jul/97 $70/hr or 80% of Gross Billings
SPIER, C. ER Part-time Started May/97 $70/hr or 80% of Gross Billings
STARODUB, J. ER Part-time Started Jul/93 $70/hr or 80% of Gross Billings
STEWART, G. ER Part-time Started Mar/95 $70/hr or 80% of Gross Billings
TALIANO, J. ER Part-time Started May/96 $70/hr or 80% of Gross Billings
THAM, E. ER Part-time Started Jan/95 $70/hr or 80% of Gross Billings
TIEN, H. ER Part-time Started Jul/93 $70/hr or 80% of Gross Billings
TRAN, K. ER Part-time Started Jun/94 $70/hr or 80% of Gross Billings
WASYLYK, R. ER Part-time Started May/95 $70/hr or 80% of Gross Billings
WHALEN, B. ER Part-time Started Apr/96 $70/hr or 80% of Gross Billings
WOLNIK, M. ER Part-time Started Sep/96 $70/hr or 80% of Gross Billings
WONG, K ER Part-time Started Oct/97 $70/hr or 80% of Gross Billings
WOODWARD, P. ER Part-time Started Jan/97 $70/hr or 80% of Gross Billings
WYMAN, R. ER Part-time Started Jul/96 $70/hr or 80% of Gross Billings
YOUNG, G. ER Part-time Started Jun/96 $70/hr or 80% of Gross Billings
AITKEN, S. IM Part-time Started Jan/97 100% of Gross Billings
ANTONIOU, M. IM Part-time Started Jun/97 100% of Gross Billings
BELLINI, A. IM Part-time Started Jul/96 100% of Gross Billings
CANTOR, W. IM Part-time Started Aug/96 100% of Gross Billings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CHAN, W.S. IM Part-time Started Aug/96 100% of Gross Billings
CULLETON, B. IM Part-time Started Oct/96 100% of Gross Billings
DEKETELE, A. IM Part-time Started Oct/96 100% of Gross Billings
EISEN, A. IM Part-time Started Jul/96 100% of Gross Billings
EPHTIMIOS, I. IM Part-time Started Nov/95 100% of Gross Billings
FISHER, Mark IM Part-time Started Aug/96 100% of Gross Billings
LEE, M. IM Part-time Started Oct/96 100% of Gross Billings
MacDONALD, B. IM Part-time Started Jul/96 100% of Gross Billings
MACE, S. IM Part-time Started Jul/97 100% of Gross Billings
MADARNAS, Y. IM Part-time Started Dec/96 100% of Gross Billings
MAK, V. IM Part-time Started Jan/97 100% of Gross Billings
O'CONNOR, C. IM Part-time Started Jun/97 100% of Gross Billings
PATNAIK, A. IM Part-time Started Jul/96 100% of Gross Billings
PHILLIPS, E. IM Part-time Started Aug/96 100% of Gross Billings
PURI, V. IM Part-time Started Aug/96 100% of Gross Billings
ROSENBLOOM, A. IM Part-time Started Jul/96 100% of Gross Billings
SILVERBERG, M. IM Part-time Started Jul/96 100% of Gross Billings
SITARAMAN, S. IM Part-time Started Sep/96 100% of Gross Billings
SONNENBERG, B. IM Part-time Started Nov/96 100% of Gross Billings
STEVENS, B. IM Part-time Started Nov/96 100% of Gross Billings
VALETTAS, N. IM Part-time Started Jun/97 100% of Gross Billings
VASUDEVAN, S. IM Part-time Started Sep/96 100% of Gross Billings
WANG, B. IM Part-time Started Jul/97 100% of Gross Billings
WOJCICKI, A. IM Part-time Started Dec/96 100% of Gross Billings
YEE, A. IM Part-time Started Jul/96 100% of Gross Billings
AWERBUCK, J. UC Part-time Started Oct/97 $70/hr or 68% of Gross Billings
CHUNG, M. UC Part-time Started Nov/97 $70/hr or 68% of Gross Billings
DHILLON, J. UC Part-time Started Oct/97 $70/hr or 68% of Gross Billings
GOEL, S. UC Part-time Started Nov/97 $70/hr or 68% of Gross Billings
HANS, L. UC Part-time Started Oct/97 $70/hr or 68% of Gross Billings
LAM, R. UC Full-time Started Sep/97 $70/hr or 68% of Gross Billings
LUKE, A. UC Full-time Started Oct/97 $70/hr or 68% of Gross Billings
PATEL, D. UC Part-time Started Sep/97 $70/hr or 68% of Gross Billings
</TABLE>
Note 1:
ER stands for Emergency Department Physicians
IM stands for Internal Medicine Physicians
CLI stand for Walk-in and Family Practice Physicians
Note 2:
The ER and IM physicians sign an agreement when they start working with
Med-Emerg, however, unlike the Walk-in and Family Practice physicians, the
agreement does not renew every year. It continues to roll over" until either
the Physician or Med-Emerg decide to terminate the agreement.
<PAGE>
EXHIBIT 23.2
[KPMG LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
Med-Emerg International Inc.
We consent to the use of our audit report dated March 26, 1997 (except for
Note 2, for which the date is December 5, 1997) on the consolidated balance
sheets of Med-Emerg International Inc. as at December 31, 1996 and 1995, and the
consolidated statements of income, retained earnings and changes in financial
position for each of the years in the two-year period ended December 31, 1996
included herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG
KPMG
Mississauga, Ontario, Canada
December 5, 1997
<PAGE>
EXHIBIT 23.3
[ZARITSKY PENNY LOGO]
ACCOUNTANTS' CONSENT
The Board of Directors
Med-Emerg International Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ Zaritsky Penny
Chartered Accountants
London, Ontario
December 5, 1997
