<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION STATEMENT NO. 333-21899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MED-EMERG INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CANADA 3842 NA
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code) Identification
incorporation or organization) No.)
</TABLE>
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Address, including postal code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
CARL PAHAPILL
PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
MED-EMERG INTERNATIONAL, INC.
2550 ARGENTIA ROAD
SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Name, address, including postal code and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
JAY M. KAPLOWITZ, ESQ. JACK BECKER, ESQ.
ARTHUR S. MARCUS, ESQ. SNOW BECKER KRAUSS P.C.
GERSTEN, SAVAGE, KAPLOWITZ, 605 THIRD AVENUE
FREDERICKS & CURTIN, LLP NEW YORK, NEW YORK 10158-0125
101 EAST 52ND STREET (212) 687-3860
NEW YORK, NEW YORK 10022
(212) 752-9700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier, effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box / /
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- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT BEING OFFERING PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value....................... 1,437,500(2) $3.90 $ 5,606,250 $ 1,698.86
Class A Warrants................................. 1,437,500(3) $0.10 $ 143,750 $ 43.56
Common Stock issuable upon exercise of
Warrants....................................... 1,437,500(4) $5.00 $ 7,187,500 $ 2,178.03
Underwriters' Warrant to Purchase Common Stock... 125,000 $5.85 $ 731,250 $ 221.59
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) $5.00 $ 625,000 $ 189.39
Common Stock being Registered for Selling
Stockholders................................... 125,000 $4.00 $ 500,000 $ 151.52
Total Registration Fee........................... $ 4,488.63
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Includes 187,500 shares of Common Stock subject to an over-allotment option
granted to the Underwriters, including 140,625 shares to be offered by
certain stockholders of the Company.
(3) Includes 187,500 Warrants subject to an over-allotment option granted to the
Underwriters.
(4) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional shares of Common Stock issuable as a
result of any future anti-dilution adjustments in accordance with the terms
of the Class A Common Stock Purchase Warrants.
------------------------
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus"); and (ii) one to be
used in connection with the sale of Common Stock by certain selling
securityholders (the "Selling Securityholders Prospectus"). The Prospectus and
the Selling Securityholders Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholders Prospectus included
herein which are labeled "Alternate Page for Selling Securityholders
Prospectus."
i
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 24, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
MED-EMERG INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MED-EMERG INTERNATIONAL, INC. (the "Company") is hereby offering, separately
and not as units, (the "Offering") 1,250,000 shares of the Company's common
stock, no par value (the "Common Stock"), and 1,250,000 Class A Redeemable
Common Stock Purchase Warrants (the "Warrants") (the "Offering"), through
Network 1 Financial Securities, Inc. and Century City Securities, Inc.
(collectively, the "Underwriters"). Each of the Warrants entitles the registered
holder thereof to purchase one share of Common Stock at a price of $5.00 per
share, subject to adjustment in certain circumstances, at any time commencing
one year from the effective date of the registration statement of which this
Prospectus is a part (the "Effective Date") and thereafter to , 2002,
the fifth anniversary of the Effective Date. The Warrants are subject to
redemption by the Company at $.10 per Warrant at any time commencing
, 1999 [two years after the Effective Date] on not less than 30 days
prior written notice to the holders of the Warrants, provided the closing bid
price of the Common Stock has been at least $8.00 for 20 consecutive trading
days ending on the third day prior to the date on which the Company gives notice
of redemption. The Warrants will be exercisable until the close of business on
the day immediately preceding the date fixed for redemption.
Prior to the Offering, there has been no public market for the Common Stock
and Warrants and no assurance can be given that any such market will develop
upon completion of the Offering. Application has been made to have the Common
Stock and Warrants included for quotation on The Nasdaq SmallCap Market under
the symbols "MEDE" and "MEDEW," respectively, and for listing on the Boston
Stock Exchange under the symbols "MED" and "MEDW," respectively. The initial
public offering price of the Common Stock and the Warrants and the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and the Underwriters and do not necessarily bear any
relation to the Company's earnings, assets, book value, net worth or any other
recognized criteria of value. See "Underwriting." Approximately $250,000 (6.25%)
of the net proceeds of this Offering will be used to repay two notes held by a
director of the Company.
Concurrently with this Offering, 125,000 shares of Common Stock ("Selling
Securityholders' Shares") have been registered by the Company under the
Securities Act of 1933, as amended ("Act"), on behalf of certain of its
stockholders ("Selling Securityholders"), pursuant to a Selling Securityholder
Prospectus included within the Registration Statement of which this Prospectus
forms a part. The Selling Securityholders' Shares are not part of this
underwritten offering. The Selling Securityholder Shares may not be sold prior
to twenty-four months from the Effective Date without the prior written consent
of the Underwriters ("lock-up"). Although the Company will not receive any
proceeds from the sale of the Selling Securityholders' Shares, a director of the
Company, who is also a Selling Securityholder, will receive the proceeds of the
sale of 37,500 shares of Common Stock. The Underwriters have advised the Company
that any decision to release any Selling Securityholder from the lock-up is
dependent on market conditions, particularly its desire to preserve an orderly
market for the Common Stock and Warrants.
AN INVESTMENT IN THE SHARES OF COMMON STOCK AND WARRANTS OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON 8 AND DILUTION ON PAGE 17.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. U.S. $3.90 U.S. $0.39 U.S. $3.51
Per Warrant............................ U.S. $0.10 U.S. $0.01 U.S. $0.09
Total.................................. U.S. $5,000,000 U.S. $500,000 U.S. $4,500,000
</TABLE>
(1) Does not include additional consideration to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds, of which U.S. $50,000 has been paid, (ii) warrants
(the "Underwriters' Warrants") entitling the Underwriters to purchase up to
125,000 shares of Common Stock and 125,000 Warrants at a price per share of
Common Stock or Warrant equal to 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 has also agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended, and to pay
the Underwriters, under certain circumstances, a warrant solicitation fee of
5% of the exercise price of each Warrant exercised. See "Underwriting."
(2) Before deducting expenses of this Offering estimated at US $500,000 payable
by the Company, including the non-accountable expense allowance of US
$150,000 (US $172,500 if the Underwriters' over-allotment option is
exercised in full).
(3) The Company and certain of its securityholders ("Selling Allotment
Securityholders") have granted the Underwriters an option, exercisable
within 45 days after the date of this Prospectus, to purchase up to 187,500
shares of Common Stock (140,625 of which are being granted by the Selling
Allotment Securityholders) and 187,500 Warrants (the "Over-Allotment
Option") upon the same terms as set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in its
entirety, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company and the Selling Allotment Securityholders will be US
$5,750,000, US $575,000 and US $4,626,562.50 and US$548,437.50,
respectively. See "Underwriting" and "Selling Allotment Stockholders."
The Common Stock and Warrants are being offered by the Underwriters subject
to prior sale, when, as and if delivered to the Underwriters and subject to
their right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of certificates will be made against
payment therefor at the offices of Network 1 Financial Securities, Inc.,
Galleria, Building 2, 2 Bridge Avenue, Redbank, New Jersey 07701, on or about
, 1997.
NETWORK 1 FINANCIAL SECURITIES, INC. CENTURY CITY SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABLIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
EXCHANGE RATE
ALL DOLLAR AMOUNTS SET FORTH IN THIS PROSPECTUS FOR THE COMPANY ARE
EXPRESSED IN CANADIAN DOLLARS, EXCEPT WHERE OTHERWISE NOTED. The following table
sets forth (i) the rates of exchange for the Canadian dollar, expressed in U.S.
dollars, in effect at the end of each of the periods indicated; (ii) the average
of exchange rates in effect on the last day of each month during such periods;
and (iii) the high and low exchange rates during such periods, in each case
based on the noon buying rate in New City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RATE AT END OF PERIOD...................... $ 0.7874 $ 0.7576 $ 0.7143 $ 0.7353 $ 0.7299
AVERAGE RATE DURING PERIOD................. 0.8264 0.7752 0.7299 0.7299 0.7353
HIGH....................................... 0.7874 0.7519 0.7092 0.7299 0.7299
LOW........................................ 0.7874 0.7576 0.7143 0.7353 0.7299
</TABLE>
On July 21, 1997, the noon buying rate for Canadian dollars was U.S. $.7275
= $1.00 Canadian.
This Prospectus contains conversions of certain Canadian dollar amounts into
U.S. dollars, as indicated by the symbol U.S.$, 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. $.7370 =
$1.00 Canadian, the noon buying rate on January 7, 1997.
CIVIL LIABILITIES
The Company is a corporation incorporated under the Business Corporations
Act of Ontario (the "OBCA") and most of the directors, controlling persons and
officers of the Company, as well as experts named herein, are residents of
Canada. Moreover, substantial portions of the Company's assets and the assets of
such persons are located in Canada. As a result, it may be difficult to effect
service of process within the United States upon the Company or such persons or
to enforce, in United States federal or state courts, judgments against them
obtained in such courts and predicated on the civil liability provisions of the
United States federal or state securities laws. The Company has been advised by
its Canadian counsel, Borden & Elliot, that there is doubt as to whether
Canadian courts would enforce (i) judgments of United States federal or state
courts obtained in actions against the Company or such persons predicated on the
civil liability provisions of the United States federal or state securities
laws; or (ii) in original actions, liabilities against the Company or such
persons predicated solely on the United States federal or state securities laws.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
WARRANTS, THE OVER-ALLOTMENT OPTION OR THE UNDERWRITER'S WARRANTS. AS USED
HEREIN, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, THE
"COMPANY" REFERS TO MED-EMERG INTERNATIONAL, INC. ("MEI"), ITS WHOLLY-OWNED
SUBSIDIARIES, MED-EMERG URGENT CARE CENTRES, INC., 927563 ONTARIO INC. AND
927564 ONTARIO INC., ITS INDIRECT WHOLLY-OWNED SUBSIDIARIES, MED-EMERG, INC.
("MED") AND MED-PLUS HEALTH CENTERS LTD. ("MPHC"), WHO ARE WHOLLY-OWNED BY
927563 ONTARIO, INC. AND 927564 ONTARIO, INC., RESPECTIVELY, THE COMPANY ALSO
OWNS 33.33% OF GLENDERRY WALK-IN CLINIC ("GWIC"), A PARTNERSHIP WHICH IT MANAGES
AND OPERATES.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services in the Province of Ontario, Canada. The broad range
of services offered by the Company include operational consulting and healthcare
management services, physician and nurse staffing, and healthcare educational
services.
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care, and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million residents of the Province of Ontario (37% of all of Canada). Inefficient
hospitals run the risk of the loss of public funding if they fail to meet the
objectives of the Commission. Accordingly, the incentives are in place to induce
public hospitals to find solutions to achieve the desired efficiencies,
including outsourcing available from and through private sector organizations,
such as the Company.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's soon-to-be launched
Urgent Care Centres program is intended to expand clinic operations. The Company
intends to aggressively market its facilities and services as a viable outsource
alternative to public hospitals' present emergency room operations.
THE EMS DIVISION
The EMS Division of the Company provides physician staffing and
administrative support to emergency departments and physician recruitment
services to Canadian hospitals and emergency physician groups from a pool of
approximately 140 independent, non-employee physicians and other healthcare
professionals who have entered into physician contracts with the Company. Under
the direction of the Company's management, the Company's physician pool provides
emergency medical services to 14 hospital emergency rooms located in Ontario,
Canada. See "Business -- Contractual Arrangements."
Management believes that competitive pressures have focused the attention of
many hospital administrators on the need for better management of their
professional medical staff. In the experience of management, hospitals have
increasingly turned to contract management firms with specialized skills to help
solve physician contract and scheduling problems, to strengthen the management
of their professional
3
<PAGE>
medical staff and specific clinical departments, to better control costs, and to
assist in meeting their healthcare coverage needs and obligations. Using its
management skills and experience, and the economies of scale which the size and
specialization of its operations permit, the Company provides a management
alternative to hospitals while offering a flexible practice and lifestyle
alternative to physicians. The EMS Division also provides management consulting
services to healthcare facilities and the Ministry of Health, Province of
Ontario, and prepares business plans and feasibility studies to improve
efficiency at such facilities.
The marketing strategy for the Company's EMS Division is to procure
contracts to oversee the management of entire emergency departments for
hospitals. In Canada, as indicated by the Savings and Restructuring Act enacted
by the provincial government of Ontario, there is significant pressure to
increase cost effectiveness and efficiency of services within the public
hospital sectors. Accordingly, public sector/private sector partnerships and
joint ventures, such as the outsourcing of entire emergency department services
including physician support, nursing support and administrative services may be
an attractive, cost effective alternative for hospitals, and one to which the
Company has addressed its marketing efforts.
For the years ended December 31, 1996 and December 31, 1995, the EMS
Division represented 81.2% and 86.54% of the Company's revenues, respectively.
For the three months ended March 31, 1997 and March 31, 1996, the EMS Division
represented 78.1% and 85.7% of the Company's revenues, respectively.
THE CLINICAL OPERATIONS DIVISION
The Company's Clinical Operations division owns and operates four clinics in
Canada, including two in Toronto's International Airport. Generally, the clinics
offer a variety of services, including family practice, walk-in services for
patients, and chiropractic and massage therapy. In addition, the airport clinics
provide walk-in services to the employees of the airport and emergency services
to the approximately 28 million travelers who use the airport each year. The
support staff at the airport clinics are employees of the Company. The emergency
physicians, who are not employees of the Company, are on-call for the airport
clinics and on-site for the other two clinics. The Company and its employees do
not provide billable medical services. All billable medical services are
provided by the non-employee physicians.
In addition, the Company operates the Glenderry clinic in which it owns a
33.33% interest. The Company manages the walk-in clinic by providing scheduling,
staffing, recruiting, billing, collections and accounting services to the
clinic. In return for managing the clinic, the Company receives a monthly fee of
$1,500. In addition, as a 33.33% owner of the clinic, the Company receives one
third of all distributions made by the clinic and is responsible for 33.33% of
any losses related to the clinic.
For the years ended December 31, 1996 and December 31, 1995, the Clinical
Operation's division represented 18.8% and 13.46% of the Company's revenues,
respectively. For the three months ended March 31, 1997 and March 31, 1996, the
Clinical Operation's division represented 21.9% and 14.3% of the Company's
revenues, respectively.
URGENT CARE CENTRES
The Company intends to develop a chain of Urgent Care Centres beginning in
the Province of Ontario and then expanding to other provinces in Canada.
Management expects that these centres will offer on-site, emergency medical care
services comparable to the services provided in a traditional emergency
department. The Urgent Care Centre concept consists of a group of emergency
trained physicians, a medical laboratory, a diagnostic radiology service and a
pharmacy, each of which must be present for the others to co-exist, and each of
which is provided by a separately owned company. The Company, through its
wholly-owned subsidiary Med-Emerg Urgent Care Centre, Inc., intends to provide
the provision of emergency medical services at the urgent care centre. Each
emergency-trained physician
4
<PAGE>
working at an Urgent Care Centre will have critical care expertise to treat most
clinical problems. Unlike most walk-in clinics and family physician offices, its
Urgent Care Centres will be staffed to treat 90% of the cases seen in a typical
Ontario emergency department. The Company plans to open its first centre in the
third quarter of 1997 with up to nine additional centres scheduled over the
following eighteen months. The Company estimates that it will cost approximately
$200,000 to establish the Company's participation in each Urgent Care Centre.
See "Use of Proceeds."
Urgent Care Centres will be "community based" and offer convenient access to
non-hospital based health care. Management believes that the centres will offer
high quality service not only in clinical medical practice but also in consumer
defined quality attributes such as waiting times, quality of environment,
quality of personal interaction and courtesy. The Company intends to design
Urgent Care Centres to be less costly to the publicly funded health care system
than traditional emergency departments.
As indicated below, there is a growing need for an alternative provider of
emergency medical services due to the funding problems facing the Canadian
health care system. At present, the vast majority of emergency services are
delivered by qualified family or general practitioners in local communities
rather than emergency specialists as are staffed in hospital emergency rooms.
Notwithstanding that the number of physicians focusing on emergency medicine is
relatively small when compared to the number of medical physicians, the demand
for emergency care has grown significantly over the past ten years.
GROWTH STRATEGY
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any specific acquisitions.
The structure of the Company is as follows: Med-Emerg International, Inc.
oversees the operations of each of its wholly-owned direct and indirect
subsidiaries; Med-Emerg Urgent Care Centres, Inc. is a wholly-owned subsidiary
of the Company which will oversee the Company's expansion and operations with
respect to its planned Urgent Care facilities; 927563 Ontario Inc. and 927564
Ontario Inc. are now holding companies which, prior to the incorporation of
Med-Emerg International, Inc., managed the businesses of their respective
subsidiaries Med-Emerg, Inc. and Med-Plus Health Centres Ltd.; Med-Emerg, Inc.,
the wholly-owned subsidiary of 927563 Ontario Inc., is the operating company
with respect to the Company's EMS Division and is the parent of Canadian Medical
Center Prague, a limited liability company organized under the laws of the Czech
Republic ("CMC"); and Med-Plus Health Centers Ltd., the wholly-owned subsidiary
of 927564 Ontario Inc., is the operating company with respect to the Company's
Clinical Operations Division.
Med-Emerg International, Inc. was incorporated in the Province of Ontario on
December 28, 1995 (under its former name 1162209 Ontario Inc.). Med-Emerg Urgent
Care Centres, Inc. was incorporated in the Province of Ontario on December 2,
1996. 927563 Ontario Inc. and 927564 Ontario Inc. were incorporated in the
Province of Ontario on March 22, 1991, Med-Emerg Inc. was incorporated in the
Province of Ontario in July 1983 and Med Plus Health Centers Ltd. was
incorporated in the Province of Ontario in March 1985. The Company's offices are
located at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1 Canada
and its telephone number is (905) 858-1368.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......... 1,250,000 shares of Common Stock
Warrants Offered............. 1,250,000 Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock. See "Description of
Securities."
Offering Prices.............. US $3.90 per share of Common Stock
US $0.10 per Warrant.
Common Stock Outstanding
Prior to the Offering(1)... 1,952,000
After the Offering(1)...... 3,202,000
Warrants Outstanding:
Prior to the Offering...... 0
After the Offering......... 1,250,000
Terms of Warrants:
Exercise Price............. The exercise price is US $5.00 per share, subject to
adjustment in certain circumstances.
Exercise Period............ The Warrants are exercisable for a period of four years
commencing on , 1998 (one year after the Effective
Date) and expiring on , 2002 (five years after the
Effective Date).
Redemption................. The Warrants are redeemable by the Company, commencing
, 1999, two years from the Effective Date (or sooner
with the consent of the Underwriters), at a redemption price
of $0.10 per Warrant on not less than 30 days written
notice, provided that the closing bid price per share of
Common Stock, for 20 consecutive trading days ending on the
third business day prior to the date of the redemption
notice, is at least US $8.00, subject to adjustment for
certain events. See "Description of Securities--Class A
Warrants."
Risk Factors............... The securities offered hereby involve a high degree of risk
and immediate substantial dilution to public investors. See
"Risk Factors" and "Dilution".
Use of Proceeds............ The net proceeds of the Offering will be used primarily for
the development of a chain of Urgent Care Centres, expansion
of the Emergency Services Division, the repayment of certain
indebtedness and for working capital and general corporate
purposes. See "Use of Proceeds".
</TABLE>
<TABLE>
<S> <C> <C>
Proposed NASDAQ MEDE
Symbols(2)............... Common Stock: MEDEW
Class A Warrants
Proposed BSE Symbols(2).... Common Stock: MED
Class A MEDW
Warrants:
</TABLE>
- ------------------------
(1) Does not include 928,500 shares of Common Stock issuable upon exercise of
outstanding options and 500,000 shares of Common Stock issuable upon
conversion of 500,000 shares of Preferred Stock outstanding. See "Principal
Stockholders," "Management" and "Description of Securities."
(2) The proposed Nasdaq and Boston Stock Exchange trading symbols do not imply
that a liquid and active market will be developed or sustained for the
Shares and/or Warrants upon completion of the Offering.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from and should be read in conjunction with the financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
All references to dollar amounts are stated in Canadian dollars unless otherwise
noted.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31
-------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
On a Canadian GAAP basis: (1)
Revenue................................ $ 2,836,034 $ 2,677,942 $ 10,817,048 $ 10,983,553 $ 10,474,754
Physician Fees and Other Direct
Costs................................ 2,007,062 2,072,800 8,554,396 8,406,631 7,977,679
Gross Profit........................... 828,972 605,142 2,262,652 2,576,922 2,497,075
Operating Expenses..................... 652,378 827,793 3,616,269 2,860,892 2,218,420
Other Income (Expense)................. (45,582) (6,634) (55,461) 54,930 (51,879)
Income (loss) Before Taxes............. 131,012 (229,285) (1,409,078) (229,040) 226,776
Provision for Income Taxes
(recovery)........................... 32,753 (68,786) (146,554) 71,447 52,245
Net Income (Loss)...................... 98,259 (160,499) (1,262,524) (300,487) 174,531
Net Income per Common Share(2)......... $ 0.05 $ (0.05) $ (0.42) $ (0.13) $ 0.07
On a U.S. GAAP basis: (1)
Operating Expenses(4).................. 693,222 827,793 6,006,643 2,860,892 2,218,420
Other Income (Expense)(5).............. (70,304) (6,634) (55,461) 54,930 (51,879)
Income (loss) Before Taxes............. 65,446 (229,285) (3,799,452) (229,040) 226,776
Provision for Income Taxes
(recovery)........................... 31,753 (68,786) (94,554) 71,447 52,245
Net Income (Loss)...................... 33,693 (160,499) (3,704,898) (300,487) 174,531
Primary Earnings (loss) Per Share...... $ 0.01 $ (0.07) $ (1.53) $ (0.13) $ 0.08
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
------------- --------------
Working Capital.................................................................... $ (1,337,761) $ 4,102,239
Total Assets....................................................................... $ 4,222,870 $ 7,860,514
Accumulated Deficit................................................................ $ (6,856,121) $ (7,077,710)
Shareholders' Equity............................................................... $ 336,058 $ 5,554,469
</TABLE>
- ------------------------
(1) 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 17 to the Company's consolidated financial statements.
(2) Net income per share reflects a weighted average of 1,900,944 shares of
Common Stock outstanding at March 31, 1997, 3,038,214 shares of Common Stock
outstanding at December 31, 1996, 2,988,889 shares of Common Stock
outstanding at March 31, 1996, and 2,333,333 shares of Common Stock
outstanding prior to such dates.
(3) Reflects the issuance of 1,250,000 shares of the Company's Common Stock and
1,250,000 Warrants offered hereby and the application of the net proceeds
therefrom. See "Use of Proceeds."
(4) At March 31, 1997, U.S. GAAP requires the inclusion of a $21,360
compensation expense for stock issued to a director as compensation and the
inclusion of $19,484, as additional write-off of deferred development and
start-up costs.
At December 31, 1996, U.S. GAAP requires the inclusion of a $2,331,800
compensation expense for 610,000 shares issued to a shareholder as part of
the November 1996 Recapitalization and the issuance of 700,000 stock options
to a director. In addition, under U.S. GAAP, $58,574 is included as
additional write-off of deferred development and start-up costs.
(5) U.S. GAAP requires the inclusion of an additional $24,722 as amortization on
the deferred financing charges relating to the issuance of 125,000 common
shares to promissory note holders in the January 1997 bridge financing.
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE COMPANY.
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
AS WELL AS OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
OPERATING LOSSES; ACCUMULATED DEFICIT; WORKING CAPITAL DEFICIT. The Company
incurred a net loss of $1,262,524 for the year ended December 31, 1996 and a net
loss of $300,487 for its year ended December 31, 1995, as compared to net income
of $174,531 for the year ended December 31, 1994. The losses in the year ended
December 31, 1996 and year ended December 31, 1995 were primarily the result of
write-downs of $509,337 and $663,448, respectively, for an investment in a
clinic in Prague, The Czech-Republic, which is currently being closed. In
addition, in 1996 there was a charge of $610,000 for stock compensation. As of
March 31, 1997 and December 31, 1996, the Company had an accumulated deficit of
approximately $6,856,121 and $6,954,380, respectively, and a working capital
deficit of approximately $(1,337,761) and $(1,192,641), respectively. There can
be no assurance as to the future profitability of the Company. See "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON CONTRACTS WITH HOSPITALS. The Company derives the majority of
its revenues from contracts with hospitals. The standard hospital contract
provides for an initial one or two-year term, which renews automatically unless
terminated on 60 days notice. The Company has at times experienced a periodic
reduction in the number of its hospital contracts. This reduction is the direct
result of the Ontario Hospital's Restructuring Committee's reduction and/or
amalgamation of the number of hospital emergency departments, the defined nature
of the crisis management service for hospitals that the Company provides and the
risk that a physician elects to remain in the community and work on a full time
basis for the hospital thus eliminating the need for the Company's services. In
addition, in each of the Company's hospital contracts, each party is able to
terminate the contract upon two or three months prior written notice. In some
contracts, the hospital has the right to terminate immediately if it pays two to
three months of management fees. There can be no assurance that the Company will
be able to maintain its current level of hospital contracts. The loss of several
hospital contracts would have a material adverse affect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE OF URGENT CARE CENTRES. Upon completion of
the Offering, the Company intends to develop a chain of Urgent Care Centres
which will provide on-site emergency medical services. The success of these
centres depends on several factors, including the ability of the Company to
attract qualified physicians and other health care providers and the public's
willingness to seek emergency medical care at such centres. There can be no
assurance that the Company will be able to obtain the necessary qualified
personnel or that the Urgent Care Centre concept will be accepted by the market.
CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS; POTENTIAL TAX
LIABILITY. The Company contracts with physicians as independent contractors,
rather than employees, to fulfill its contractual obligations to hospitals.
Therefore, the Company did not historically, and the Company does not currently,
withhold income taxes, make Unemployment Insurance and Canada Pension Plan
payments, or provide worker's compensation insurance with respect to such
independent contractors. The payment of applicable taxes is regarded as the
responsibility of such independent contractors. A determination by taxing
authorities that the Company is required to treat the physicians as employees
could have an adverse effect on the Company and its operations.
ADVERSE EFFECT OF PROVINCIAL LAWS REGARDING THE CORPORATE PRACTICE OF
MEDICINE. Business corporations are legally prohibited in many Canadian
provinces from providing or holding themselves out as providers of medical care.
While the Company has structured its operations to comply with the corporate
practice of medicine laws of Ontario and will seek to structure its operations
in the future to comply with the laws of any province in which it seeks to
operate, there can be no assurance that, given
8
<PAGE>
varying and uncertain interpretations of such laws, the Company would be found
to be in compliance with restrictions on the corporate practice of medicine in
such province. A determination that the Company is in violation of applicable
restrictions on the practice of medicine in any province in which it operates
could have a materially adverse effect on the Company if the Company were unable
to restructure its operations to comply with the requirements of such province.
Such regulations may limit the provinces in which the Company can operate,
thereby inhibiting future expansion of the Company into potential markets in
other jurisdictions or states.
CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES. Due to the nature of its
business, the Company and certain physicians who provided services on its behalf
may be the subject of medical malpractice claims, with the attendant risk of
substantial damage awards. The sources of potential liability in this regard
include the alleged negligence of physicians placed by the Company at contract
hospitals, and liabilities in connection with medical services provided at the
clinics. The Company currently maintains the following insurance policies
related to professional liabilities: (i) $10,000,000 with respect to general
commercial liability; and (ii) $10,000,000 with respect to errors and omissions
caused by a negligent act, error or omission by the Company, or any person for
whom the Company is legally liable, arising out of the conduct of the Company's
business. In addition, physicians staffed by the Company maintain their own
malpractice insurance. To the extent such physicians were regarded as agents of
the Company in the practice of medicine, there can be no assurance that a
patient would not sue the Company for any medical negligence of such physicians.
In addition, in the event that the Company becomes liable, there can be no
assurance that its current insurance policy will be adequate to cover any
liabilities.
GOVERNMENT REGULATION. The Company's operations are subject to extensive
Federal and provincial government regulation. The provision of medical services
in Canada is for the most part, under provincial jurisdiction. Under the Health
Insurance Act, the government of Ontario is responsible for paying physicians
for the provision of insured services to residents of Ontario. In 1993, the
government placed an overall maximum ("hard cap") of approximately $3.8 billion
on the amount physicians could collectively bill the Ontario Health Insurance
Plan (OHIP) for insured services. As physicians' billings exceeded this hard cap
in successive years, the government reduced the fees received under OHIP by
prescribed percentages ("clawback"). This clawback is subject to constant
revision and review. In addition to the hard cap, individual physicians'
billings under OHIP are subject to threshold amounts ("soft caps"). Once a
physician reaches a prescribed level in the 12-month period beginning April 1 of
each year, the government reduces payments to the physician by a prescribed
fraction. For the period ended March 31, 1997 there was no clawback expense as
compared to a charge to earnings of $28,352 for the period ended March 31, 1996.
For the twelve months ended December 31, 1996, a total of $143,261 compared to
the amount of $176,949 for the twelve months ended December 31, 1995 was
reflected as clawback expense. Substantially all of the Company's operating
revenue is derived from government funded and administered programs. In Canada,
the health care system is publicly administered and is largely considered not
for profit. A large for profit health care sector nevertheless co-exists within
the non-profit section. OHIP fee for service over the past three years has been
"clawed back" to ensure a total spending freeze of $3.8 billion per year in
Ontario. In fiscal year 1996-97, the government announced a lowering of billing
thresholds for all physicians in the province. The thresholds were lowered to
levels which are estimated to affect as many as 30% of physicians. Once billings
exceed these thresholds, further billings are discounted by 33%, 66% and 75%. In
May 1997, the Ontario provincial government reached an agreement with the
medical profession wherein it was agreed that the soft cap imposed against the
individual physicians shall be cancelled on all services rendered after February
28, 1998. This agreement is due to expire on March 31, 2000. Further, this
agreement has no effect on the hard cap. Any further change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of the Company, absent, or prior to, satisfactory
renegotiation of contracts with clients and arrangements with contracted
physicians. There can be no assurance as to what new regulations, whether now
with respect to hard caps or in the future with respect to soft caps, will be
imposed and what effect they will have on the Company.
9
<PAGE>
In addition the Health Services Restructuring Commission (HSRC), established
under Bill 26, will have the mandate and authority to facilitate and accelerate
hospital restructuring in Ontario. This legislation contains measures intended
to control public and private spending on healthcare as well as to provide
universal public access to the healthcare system. The Company cannot predict the
ultimate effect of this and what other healthcare legislation, if any, will be
enacted. Significant changes in Canada's healthcare system are likely to have a
gradual but substantial impact on the manner in which the Company conducts its
business and could have a gradual but substantial impact on the manner in which
the Company conducts its business and could have a material effect on the
results of the Company.
ABILITY TO MANAGE GROWTH; RISK OF UNSPECIFIED ACQUISITIONS. As part of its
business strategy, the Company intends to pursue growth through acquisitions of
related and complementary businesses in both Canada and the United States. The
Company's growth strategy will require expanded client services and support,
increased personnel throughout the Company, expanded operational and financial
systems and the implementation of new control procedures. There can be no
assurance that the Company will be able to achieve rapid growth or be able to
manage expanded operations effectively. Moreover, failure to implement financial
and operating systems and to add professional and necessary support personnel
could have a material adverse impact on the Company's results of operations and
financial condition. The Company has no present commitments, understandings or
agreements for any acquisitions. The Company's acquisitions could involve a
number of risks including the diversion of management's attention to the
assimilation of the companies to be acquired, unforeseen difficulties in the
acquired operations, adverse effects on the Company's operating results,
amortization of acquired intangible assets and dilution in the ownership
interest of stockholders as a result of the issuance of additional Common Stock
or Preferred Stock. The consummation of any acquisition will likely include the
issuance by the Company of additional equity and/or debt securities. In
addition, the Company may utilize a portion of the proceeds of this Offering.
Any new issues of equity will likely result in additional dilution to the
investors in this Offering. The Company is prohibited from issuing any Common
Stock or Preferred Stock for a period of 24 months from the date of this
Prospectus without the prior written consent of the Underwriters. There is no
assurance the Company will be successful in consummating any acquisition
transactions.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is largely
dependent upon the efforts and abilities of certain members of its management,
including but not limited to, Ramesh Zacharias, M.D., its Chief Executive
Officer and Carl Pahapill, its President and Chief Operating Officer. The loss
of the services of either Dr. Zacharias or Mr. Pahapill would likely have a
material adverse effect on the business of the Company. Although the Company has
procured key-man life insurance in the amount of $1,000,000 on Mr. Pahapill, it
has no key-man life insurance on any other employees. See "Business--Personnel"
and "Officers and Directors."
CONTROL BY MANAGEMENT AND/OR EXISTING STOCKHOLDERS. Following completion of
the Offering, the Company's officers and directors will own or have rights to
acquire an aggregate of approximately 49% of the voting power of the Company's
capital stock. See "Principal Stockholders" and "Description of Securities."
Accordingly, such stockholders will possess the ability to generally exert
substantial control over the business and operations of the Company. In
addition, in the event that the holders of the convertible preferred stock
convert such stock into common stock of the Company, management of the Company
will control an additional 500,000 shares of the outstanding common 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
10
<PAGE>
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.
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 27.25% of the
net proceeds of the Offering will be applied to working capital and general
corporate purposes. In addition, the application of the balance of the proceeds
may differ considerably from the estimates set forth herein due to changes in
the economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses. Accordingly, management of the
Company will have broad discretion over the use of proceeds. See "Use of
Proceeds."
NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds
of the Offering together with available cash flows will be sufficient to finance
the Company's working capital requirements for a period of at least 12 months
following the completion of the Offering. The Company has allocated US$1,090,000
of proceeds of the Offering for working capital purposes. In addition, although
the Company has not entered into any formal commitments, the Company's strategy
is to acquire companies with related and complementary businesses. The continued
expansion and operation of the Company's business beyond such 12 month period
and its ability to make acquisitions may be dependent upon its ability to obtain
additional financing. There can be no assurance that additional financing will
be available on terms acceptable to the Company, or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION. The healthcare industry is highly competitive. The Company
competes based on the scope, quality and cost of services provided. Certain of
the Company's actual or potential competitors have substantially greater
financial resources available to them. While management believes that it
competes on the basis of the quality of its services, the larger resources of
its competitors may give them certain cost advantages over the Company (e.g., in
the areas of malpractice insurance, cost, savings from internal billing and
collection and a broader scope of services). The Company also competes with
various local physician groups which provide hospitals with emergency staffing
alternatives. The clinics operated by the CO Division compete with hospital and
other private physicians. The Urgent Care Centres will compete with hospital
emergency rooms. There can be no assurance that the Company will not encounter
increased competition in the future which could adversely affect the Company's
operating results.
OFFERING PROCEEDS BENEFIT AFFILIATED PERSON; PROCEEDS TO REBAY
INDEBTEDNESS. The Company will use a portion of the net proceeds of this
Offering to (i) repay US$100,000 principal amount plus interest borrowed against
a line of credit granted to the Company by one of its directors, and (ii) repay
US$150,000 principal amount plus interest to a director of the Company who
invested in the January 1997 private placement. See "Use of Proceeds."
TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL STOCKHOLDERS. The Company has in
the past loaned money to members of management and principal stockholders. As of
March 31, 1997, amount outstanding is $201,864, $141,864 of which will be repaid
prior to the completion of this Offering, and $60,000 of which is being repaid
over a period of five years beginning two years from the completion of this
Offering. These loans bear no interest. The Company does not at present
contemplate entering into additional related party transactions. In the future,
the Company plans to present all proposed transactions with affiliated parties
to the Board of Directors for its consideration and approval. Any Board member
who has an interest in such transaction will abstain from voting thereon.
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 March 31, 1997 the Company had an outstanding balance of
$1,072,963, but was not in compliance with certain maintenance criteria of the
banking agreement because (i) the Company's net worth was less than $250,000,
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
11
<PAGE>
with these financial covenants will not affect the Company's ability to obtain
lines of credit or other financing in the future with this facility or other
financial institutions.
LIMITED PUBLIC MARKET FOR THE COMPANY'S SECURITIES; NO ASSURANCE OF PUBLIC
TRADING MARKET. Prior to the Offering, there has been no market for the Common
Stock or Warrants. No assurance can be given that a public market for such
securities will develop or that a public trading market, if developed, will be
sustained. The Company has applied for listing of the Common Stock and Warrants
on The Nasdaq Stock Market, Inc. ("Nasdaq") SmallCap Market. If a trading market
does in fact develop for the Common Stock and Warrants, there can be no
assurance that it will be maintained. If for any reason the Company's securities
are not listed on Nasdaq or a public trading market does not develop, purchasers
of the Company's securities may have difficulty in selling their securities
should they desire to do so. In any event, because certain restrictions may be
placed upon the sale of the securities, unless such securities qualify for an
exemption from the "penny stock" rules, such as listing on the Nasdaq Small Cap
Market, some brokerage firms will not effect transactions in the Company's
securities and it is unlikely that any bank or financial institution will accept
such securities as collateral, which could have a materially adverse effect in
developing or sustaining any market for the securities.
For continued listing on The Nasdaq SmallCap Market, a company, among other
things, must have (i) US$2,000,000 in net tangible assets, US$35,000,000 in
market capitalization, or net income of US$500,000 in two of the last three
years, (ii) US$1,000,000 in market value of public float, (iii) a minimum bid
price of US$1.00 per share, and (iv) have a minimum of two (2) market makers. If
the Company is listed on Nasdaq, and the Company is unable to satisfy the
requirements for continued listing, trading, if any, in the Common Stock would
be conducted in the "pink sheets" or on the NASD OTC Electronic Bulletin Board.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current prices and volume information with respect to
transactions in such securities are provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
securities.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock.
Dividends on the Preferred Stock will accrue at a rate of US$135,000 per year.
See "Dividend Policy" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate and
substantial dilution to investors. Purchasers of Common Stock in the Offering
will incur an immediate dilution of US$4.16 per share (assuming no value is
ascribed to the Warrants) in the net tangible book value of their investment
from the initial public offering price, which dilution amounts to approximately
107% of the initial public offering price per share of Common Stock. Investors
in the Offering will pay US$3.90 per share, as compared with an average cash
price of US$.40 per share of Common Stock paid by existing stockholders.
12
<PAGE>
Upon completion of this Offering, the Company will still have a negative net
tangible book value. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 1,952,000 shares of Common Stock of
the Company outstanding as of the date of this Prospectus, 1,827,000 are
"restricted securities," and 840,000 are owned by "affiliates" of the Company,
as those terms are defined in Rule 144 promulgated under the Securities Act.
Absent registration under the Securities Act, the sale of such shares is subject
to Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least one year is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of 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 125,000 shares of Common Stock are being
registered concurrently with this Offering. Robert Rubin, a Director, holds
options to purchase an aggregate of 700,000 shares of Common Stock. In the event
Mr. Rubin exercises such options, the shares will be eligible for resale under
Rule 144 commencing two years from the exercise of the options. All of the
Company's existing securityholders have agreed not to sell or otherwise dispose
of any of their shares of Common stock for a period of two years from the date
of this Prospectus, without the prior written consent of the Underwriter.
Options to purchase an additional 228,500 shares of Common Stock have been
granted pursuant to the Company's 1997 Stock Option Plan. There can be no
assurance that the Company will not issue additional options currently available
for issuance. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices of the Company's securities prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold under Rule 144
into the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of equity securities. See "Shares Eligible for Future
Sale."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of US$.10 per Warrant,
commencing two years after the Effective Date (or earlier with the consent of
the Underwriters) and prior to their expiration; provided that (i) prior notice
of not less than 30 days is given to the Warrantholders; (ii) the closing bid
price of the Common Stock on each of the 20 consecutive trading days ending on
the third business day prior to the date on which the Company gives notice of
redemption has been at least US$8.00; and (iii) Warrantholders shall have
exercise rights until the close of the business day preceding the date fixed for
redemption. Notice of redemption of the Warrants could force the holders to
exercise the Warrants and pay the Exercise Price at a time when it may be
disadvantageous for them to do so, or to sell the Warrants at the current market
price when they might otherwise wish to hold them, or to accept the redemption
price, which may be substantially less than the market value of the Warrants at
the time of redemption. See "Description of Securities--Warrants."
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise, (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Securities and
Exchange Commission, and (ii) such Common Stock is then qualified for sale or
exempt therefrom under applicable state securities laws in the jurisdictions in
which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) any time after nine months subsequent to the effective
date when any
13
<PAGE>
information contained in the prospectus is over sixteen months old, (ii) when
facts or events have occurred which represent a fundamental change in the
information contained in the registration statement, or (iii) when any material
change occurs in the information relating to the plan of distribution of the
securities registered by such registration statement. The Company anticipates
that this Registration Statement will remain effective for at least nine months
following the date of this Prospectus or until , 1997, assuming a
post-effective amendment is not filed by the Company. The Warrants will be
separately tradeable and separately transferable from the Common Stock offered
hereby immediately commencing on the date of this Prospectus. The Company
intends to qualify the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants in a limited number of states, although certain
exemptions under state securities ("blue sky") laws may permit the Warrants to
be transferred to purchasers in states other than those in which the Warrants
were initially qualified. The Company will be prevented, however, from issuing
shares of Common Stock upon exercise of the Warrants in those states where
exemptions are unavailable and the Company has failed to qualify the Common
Stock issuable upon exercise of the Warrants. The Company may decide not to
seek, or may not be able to obtain qualification of the issuance of such Common
Stock in all of the states in which the holders of the Warrants reside. In such
a case, the Warrants of those holders will expire and have no value if such
Warrants cannot be exercised or sold. See "Description of Securities."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK AND COMMON
STOCK. The Company's Certificate of Incorporation authorizes the issuance of an
unlimited number of shares of Common Stock and "blank check" preferred stock
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue an unlimited number of shares of Common
Stock for any purpose without stockholder approval or issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock and adversely affect the relative voting power or other rights of
the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. Except
for 500,000 shares of Preferred Stock currently held by Ramesh and Victoria
Zacharias, the Company has no present intention to issue any shares of its
preferred stock. However, there can be no assurance that the Company will not
issue shares of preferred stock or common stock in the future. The Company has
agreed with the Underwriters that, except for issuances disclosed in or
contemplated by this Prospectus, it will not issue any securities, including but
not limited to any shares of preferred stock, for a period of 24 months
following the Effective Date, without the prior written consent of the
Underwriters. See "Certain Transactions" and "Description of
Securities--Preferred Stock."
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no exemption
to such registration or qualification was available in such jurisdiction, in
order to realize any economic benefit from the purchase of the Warrants, a
holder might have to sell the Warrants rather than exercising them. No assurance
can be given, however, as to the ability of the Company to effect any required
registration or qualification of the Common Stock or Warrants in any
jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities--Warrants."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby, after deducting underwriting discounts and commissions
and other expenses of the Offering, are estimated to be U.S. $4,000,000 (U.S.
$4,172,500 if the Over-allotment Option is exercised in full). The Company
intends to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------- -----------
<S> <C> <C>
(U.S.
DOLLARS)
Urgent Care Centres (1)............................................ $ 1,000,000 25.00%
Repayment of Lines of Credit (2)................................... $ 908,000 22.70%
Repayment of Bridge Notes (3)...................................... 510,000 12.75%
Emergency Service Contracts (4).................................... 342,000 8.55%
Computer Equipment (5)............................................. 150,000 3.75%
Working Capital and General Corporate Purposes and potential
acquisitions (6)................................................. 1,090,000 27.25%
------------- -----------
$ 4,000,000 100.00%
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Represents the estimated capital and working capital costs related to
establish the Company's participation in the first 10 Urgent Care Centres.
In addition, the Company intends to secure bank financing and third party
lease financing of at least U.S.$500,000 to fund the costs of opening the
first 10 Urgent Care Centres. See "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
(2) Represents repayment of US$100,000 loan against line of credit provided to
the Company by Robert Rubin, a director of the Company. This loan is to be
repaid on the earlier to occur of (i) the consummation of this Offering, and
(ii) May 16, 1998. The loan bears interest on an annual basis at the prime
rate plus two percent (2%). The Company used this loan as working capital,
including certain costs associated with the anticipated 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. Until required,
these funds will be invested in short-term instruments to remain available
to finance the new emergency service contracts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(5) Represents the estimated cost of upgrading the Company's management
information systems, particularly its accounting and billing systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
15
<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. Any proceeds received upon exercise of the Warrants and the
Over-allotment Option, as well as income from investments, if any, will be added
to working capital.
16
<PAGE>
DILUTION
1. DILUTION AS CALCULATED WITHOUT GIVING EFFECT TO CONVERSION OF PREFERRED
STOCK. (1)
At March 31, 1997, the Company had a net tangible book value (deficit) of
(US $4,857,606) or (US$2.48) per share of outstanding common stock. Net tangible
book value represents the Company's total tangible assets less total liabilities
and redeemable 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 $857,606) or approximately (US $.26) per share of
outstanding common stock at March 31, 1997. This represents immediate dilution
of US $4.16 per share, or 107% to purchasers of the Common Stock and Warrants in
the Offering. The following table illustrates the per share dilution to be
incurred by the public investors in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share............................ US $3.90
Net tangible book value at March 31, 1997........................... (US $2.48)
Increase per share attributable to the sale of the Common Stock
offered hereby.................................................... US $2.22
----------
Pro forma net tangible book value after the Offering................ (US $.26)
----------
Dilution per share to new investors................................. US $4.16
----------
----------
</TABLE>
2. DILUTION AS CALCULATED WHEN GIVING EFFECT TO CONVERSION OF THE PREFERRED
STOCK. (2)
At March 31, 1997, the Company had a net tangible book value (deficit) of
(US $357,606) or (US$.18) per share of outstanding capital stock. Net tangible
book value represents the Company's total tangible assets less total
liabilities, divided by the number of shares of capital stock outstanding. After
giving effect to the sale of the Common Stock and the Warrants offered hereby
(assuming no value is ascribed to the Warrants), the adjusted pro forma net
tangible book value of the Company would have been approximately US $3,642,394
or approximately US $.84 per share of outstanding capital stock at March 31,
1997. This represents immediate dilution of US $3.06 per share, or 78% to
purchasers of the Common Stock and Warrants in the Offering. The following table
illustrates the per share dilution to be incurred by the public investors in the
Offering:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share.............................. US $3.90
Net tangible book value at March 31, 1997............................. (US $0.18)
Increase per share attributable to the sale of the Common Stock
offered hereby...................................................... US $1.02
---------
Pro forma net tangible book value after the Offering.................. US $.84
---------
Dilution per share to new investors................................... US $3.06
---------
---------
</TABLE>
The following table summarizes the number and percentages of shares of
Common Stock purchased from the Company through the date of this Prospectus, the
amount and percentage of cash consideration paid and the average price per share
paid to the Company by existing stockholders and by new investors pursuant to
the Offering:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION PAID AVERAGE
SHARES PURCHASED ---------------------------- PRICE
NUMBER/PERCENTAGE AMOUNT PERCENT PER SHARE
----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Existing Stockholders................... 1,952,000/60.9% US$ 788,367 13.9% US$0.40
New Investors........................... 1,250,000/39.1% US 4,875,000 86.1% US$3.90
----------------- --------------- -----
3,202,000/100% US$ 5,663,367 100.0%
----------------- --------------- -----
----------------- --------------- -----
</TABLE>
- ------------------------
(1) In calculating dilution, the first presentation does not give effect to the
conversion of an aggregate of US$4,500,000 of Convertible Preferred Stock
which is convertible into 500,000 shares of Common Stock at US$9.00 per
share for a period of ten years from the date of issuance. Issuance of the
Convertible Preferred Stock resulted in a charge to retained earnings of
$5,525,414 (US$4,062,804); however, the stated capital of the Convertible
Preferred Stock does not form part of the net tangible book value available
to the common shareholders as adjusted March 31, 1997.
(2) In calculating dilution, the second presentation gives effect to the
conversion of an aggregate of the convertible preferred stock into an
equivalent number of shares of Common Stock at $3.90 per share.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1997, (i) the actual
capitalization, and (ii) the capitalization of the Company as adjusted to give
effect to the sale by the Company of 1,250,000 shares of Common Stock and
1,250,000 Warrants offered hereby and the application of the estimated net
proceeds thereof. This information should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
AS ADJUSTED
ACTUAL (1)
------------ --------------
<S> <C> <C>
Short Term Debt
Bank Operating Facility.......................................................... $ 1,072,903 --
Promissory Note.................................................................. $ 101,368 $ 101,368
8% Bridge Notes.................................................................. 680,000 --
------------ --------------
1,854,272 101,368
------------ --------------
------------ --------------
Stockholders' Equity:
Convertible Redeemable Preferred Stock no par value; authorized unlimited shares,
500,000 shares issued and outstanding (actual and as adjusted)................... 6,120,000 6,120,000
Common Stock--no par value authorized unlimited, Shares issued and outstanding
1,952,000 (actual), and 3,202,000 (as adjusted).................................. 1,072,179 6,512,179
Accumulated Deficit................................................................ (6,856,121) (7,077,710)
------------ --------------
Total Shareholders' Equity and Capitalization...................................... 336,058 $ 5,554,469
------------ --------------
------------ --------------
</TABLE>
- --------------------------
(1) Gives effect to the sale of 1,250,000 shares of Common Stock and 1,250,000
Warrants and the application of the net proceeds thereof. See "Use of
Proceeds."
DIVIDENDS
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 have been paid on the Preferred Stock. See "Description of
Securities--Preferred Stock."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company believes that emergency departments, which are often the first
point of contact with patients, play an important role in providing the
individual with continuous access to the healthcare system. The Company's
history dates back to 1983 when its founder identified the need for a private
sector company that could provide emergency physician contract staffing and
recruitment. A tenet of the Company's strategy has been that third party
providers of specialized emergency care medicine can play an important role in
reducing the costs of publicly funded healthcare systems while ensuring the
highest quality of care.
Socialized medicine has been in place in the Province of Ontario for a
quarter of a century. As the Canadian government's healthcare program is the
most expensive government program, it is therefore an obvious and unavoidable
target for restraints. It was built with a recognition that the transfer from
private health care to state-funded care would be a complex transition. Since
the transition, there has been a reluctance to address major reforms.
Consequently, the system has grown rapidly in both cost and complexity.
Demand for emergency care has grown significantly over the past ten years,
notwithstanding the small proportion of physicians focusing on emergency
medicine. Moreover, recruitment of experienced emergency medicine practitioners
by hospitals in other countries is intense and such demand is expected to
continue for some time. Given the uncertainties associated with patient volumes
in several Ontario hospital emergency departments, the pool of available
physicians willing to practice emergency medicine has been declining.
In the last five to ten years, major changes have been occurring in the way
services are delivered within hospitals in Canada. The length of time patients
stay in hospitals has been dropping substantially. Overall, the average length
of stay in acute care hospitals has decreased 20% in the last five years.
Patients who five years ago would generally have spent up to ten days in
hospital are now often being operated on using minimally invasive surgery which
results in their being discharged within a day or two of being admitted.
Day surgery as a percentage of all surgery has increased from 53% to 70% in
five years. As a result, in many hospitals the majority of surgery is now done
on an outpatient basis. Many other services previously provided mainly on an
inpatient basis are shifting to outpatient programs (e.g., dialysis,
chemotherapy and diagnostic testing).
Thus, governments have been studying alternatives to the existing
fee-for-service funding of physicians in order to reduce health care costs.
Since 1988, close to 3,500 acute care hospital beds have been closed in the
Toronto Metropolitan area alone, a 30% decrease. Although the number of acute
care beds has decreased by 30% and similar bed decreases have occurred in other
areas, the number of hospitals remains unchanged. Scarce public health dollars
continue to be spent on the overhead and infrastructure of independent
facilities even though the amount of time patients spend in these facilities has
decreased. Among hospitals, 25% to 30% of funds are spent on administrative,
overhead and infrastructure costs.
Funding constraints for health care in Ontario have resulted in billing
caps, with a sliding scale claw-back. This claw-back reduces the amount a
physician can bill after total annual billing exceeds $275,000. Other solutions
under consideration include rostered patient care. Rostering is a reimbursement
plan based on a fixed fee per patient as opposed to Fee-For-Service. The patient
would assume financial responsibility for non-emergency care when such care is
obtained outside the rostered family practice but within a defined geographic
proximity if it is accessed merely for convenience. However, proponents of
various roster-based models have not offered any concrete proven solutions to
decrease emergency department utilization. Under the current Health Services
Organization ("HSO") model, the Ontario Ministry of Health pays a monthly flat
fee to the Company on behalf of the patient's physician for each
19
<PAGE>
patient enrolled under the HSO program regardless of whether the patient visits
the clinic or not. The monthly fee is determined by the age and sex of the
patient and is referred to as the capitation rate. At March 31, 1997, the
average monthly capitation rate was $12.89 per patient with approximately 6,596
patients enrolled under the HSO program.
Fees charged by the Company for emergency department staffing services are
comprised of two elements: (i) hospital services; and (ii) physician services.
Under each hospital contract, the Company has the responsibility for the billing
and collection of physician fees. The Company charges each hospital a fee for
its recruiting and staffing services on a fixed fee basis. Details of the
Company's hospital contracts are described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the
particular hospital, the Company considers several factors including location of
the hospital in relation to the availability of physicians, number of physicians
from which to draw, the number of physician shifts required, and patient
volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee contracts) the physicians are
paid on the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is generally not a pre-set renewal fee
stated within the contract, however, on occasion the contract contains a stated
renewal fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador, promote the services provided by
the Company, to provide orientation to new physicians at a facility, and
to screen all new physician applicants.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staff's salary relates directly to the hospital staffing
business. When the Company receives a new contract and there
20
<PAGE>
exists a shortage of physicians, the Company's recruiting staff will work
towards increasing the Company's supply of emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, back-up coverage, local medical director's accommodation costs and
any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs.
The Company's hospital contracts are designed to transfer to the hospital
certain financial risks arising from changes in patient volume. Because the
majority of such contracts are reimbursed from government healthcare insurance
plans, the Company's bad debt experience in collection of physician fees has
been less than 1% of allowable billings, primarily due to administrative errors.
Fee-for-service contractual arrangements involve a credit risk related to
services provided to uninsured individuals. The Company's working capital needs
are generally a function of the acquisition of new hospital contracts or the
conversion of fixed fee contracts to fee-for-service contracts. As discussed
below in Results of Operations, the Company has sometimes experienced a
reduction in the number of its hospital contracts, making the acquisition of new
contracts particularly important. See "Risk Factors -- Loss of Hospital and
Physician Contracts."
The Company's physician contracts are entered into between the Company and
individual physicians and are either part time or full-time. A physician working
with the Company assigns the right to bill and provides a consent to the Company
to perform both the billing and collection function for the medical services
performed. The Ontario Ministry of Health is notified of the physician's consent
for the Company to perform these functions through the use of an authorization
form. The Company pays the physician for the services provided based on the
terms of the contract between the Company and the physician. The Company does
not purchase receivables from the physicians. In general, each contracted
physician will be placed in a functioning facility by the Company and the
Company will collect all fees due to the physician for rendering medical
services. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of total OHIP billings, plus the administrative fees charged to the
hospital.
In the Clinic operations, revenue is generated when the contracted physician
performs a medical service which in turn is billed by the Company to the
Ministry of Health. The fee-for-services billed to the Ministry of Health are
based on rates set by the Ministry of Health and vary depending on the type of
medical service performed. The Ministry of Health pays the Company on a monthly
basis for these services billed and the Company in turn pays the physician
according to the contract between the physician and the Company. In addition,
the Company owns and manages its clinic and provides staffing, administration,
management and financial support. Therefore, the Company received a monthly
management fee from each clinic and is entitled to 100% of any distributions
made from the clinic.
21
<PAGE>
The Company's management believes that the Company is positioned as a viable
solution to some of the existing problems in the healthcare system and therefore
has expanded its original offering of physician staffing and recruitment to
provide a broader range of services to fit needs in the emergency and related
health services marketplace.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
NET SERVICE REVENUES. Revenues increased by $158,092 or 5.9% from
$2,677,942 for the three months ended March 31, 1996 to $2,836,034 for the
comparable period in 1997. The increase is due primarily from revenue generated
from the St. George acquisition completed in August 1996. For the three months
ended March 31, 1997, revenue from this clinic totaled $239,834. The increase in
revenue from the clinic was offset by a slight reduction in revenue generated
from hospital contracts.
For the three months ended March 31, 1997, revenues of Emergency Medical
Services division decreased by $79,024 or 3.4% to $2,215,505 from $2,294,529 for
the three months ended March 31, 1996. The marginal decline of revenues was due
to: (i) the termination of seven fixed fee hospital contracts that were replaced
by four new fixed fee contracts, (ii) the termination of two fixed fee contracts
for correctional institutions, (iii) a marginal decline in fee-for-service
contracts from two hospitals.
For the three months ended March 31, 1997, operating income of Emergency
Medical Services division increased by $82,268 to $64,763 from a loss of $17,505
for the three months ended March 31, 1996. The increase was due to a decrease in
operating expenses and income from consulting projects.
For the three months ended March 31, 1997, revenues of Clinical Operations
increased by $237,116 or 61.8% to $620,529 from $383,413 for the three months
ended March 31, 1996. The increase in revenues was due to the acquisition of a
new clinic during the third quarter of the prior fiscal year.
For the three months ended March 31, 1997, operating income for the Clinical
Operations increased by $316,977 to $111,831 from a loss of $205,146 for the
three months ended March 31, 1996. The increase was due to greater revenues from
the newly acquired clinic, as well as reductions in operating costs as a result
of the amalgamation of the new clinic with one of the Company's other medical
clinics. At March 31, 1996, the operating loss included the write-off of
deferred start-up project costs of $166,960. There was no write-off of deferred
start-up costs at March 31, 1997.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees
to contract physicians, represents the largest single variable expense. These
fees are earned primarily through the Company's emergency medical services to
the hospital emergency department contracts. Physician fees for the three months
ended March 31 decreased by $244,064 or 11.8% from $2,072,800 in 1996 to
$2,007,062 in 1997 due to the reduction in the number of hospital staffing
contracts. Physician fees represented 77.4% of net revenues for the three months
ended March 31, 1996 and 70.8% of net revenues for the three months ended March
31, 1997. Included in physician fees is clawback expense, which is a recovery of
billings due to over utilization of medical services. The clawback rate for 1997
was 0% compared to the rate of 10% set by the Ontario Ministry of Health for the
1996 period. The clawback charge for the three months ended March 31, 1996
totaled $28,352. Other direct costs include travel, marketing and consulting
costs related to international projects. These costs represent 6.3% of net
revenues for the three months ended March 31, 1997. There were no related
international costs for the three months ended March 31, 1996. The 1997 costs
relate to the undertaking of a consulting project in the Northwest Territories,
Canada.
OPERATING EXPENSES. Operating expenses decreased by $175,415 or 21.2% from
$827,793 for the three months ended March 31, 1996 to $652,378 for the three
months ended March 31, 1997. Operating costs include general operating expenses
and the write-off of deferred start-up costs. The general operating expenses
excluding the write-off of deferred start-up costs represents 23.0% of net
revenues for both the three months ended March 31, 1996 and March 31, 1997. The
write-off or deferred start-up costs in the amount of $166,960 relate to an
investment in a clinic in Prague, Czech Republic. The write-off was due to
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an unanticipated difficulty in penetrating the market and generating a
sufficient return on capital invested from that clinic. Given the domestic
opportunities available, the Company had decided to focus its efforts on
domestic operations. The remaining write-down of $42,875 relates to start-up
project costs for the healthcare consulting project in Malaysia. Under U.S.
GAAP, operating expenses for the period ending March 31, 1997 includes
additional charges of $19,484 for development and start-up costs and $21,360 as
compensation expense for shares issued to a director.
For U.S. GAAP, the start-up costs of $19,484 are expensed as incurred
whereas under Canadian GAAP these costs are deferred and amortized over a
prescribed benefit period.
Furthermore, under Canadian GAAP, the issuance of shares to a director was
measured at the ascribed value of $1.00 CDN per share. Pursuant to the
Securities and Exchange Commission regulations, the issuance of shares to a
director are required to be measured at a value of $2.05 US ($2.78 CDN) per
share, resulting in a charge of $21,360.
INTEREST EXPENSE. Interest expense increased by $38,948 or 587% from $6,634
to $45,582 for the three months ended March 31, 1996 and 1997 respectively. The
increase in interest expense is due primarily to increased bank borrowings,
interest charged on the bridge promissory notes and the amortization of deferred
financing charges relating to the shares of Common Stock issued in the January
1997 bridge financing. For the three months ended March 31, 1997, a total of
$10,478 was charged as interest on the promissory notes and $13,890 was
amortized as financing costs.
Under U.S. GAAP, the amortization of deferred financing charges resulted in
an additional charge of $24,722. Pursuant to the Securities and Exchange
Commission regulations, the issuance of shares of Common Stock in the January
1997 bridge financing are required to be measured at a value of $2.05 US ($2.78
CDN) per share, thus increasing the amount of amortization of the deferred
financing charge.
NET INCOME. As a result of the above items, the Company had a net income of
$98,259 for the three months ended March 31, 1997 as compared to a net loss of
$160,499 for the three months ended March 31, 1996.
Under U.S. GAAP, the Company reported net income of $33,693 for the three
months ended March 31, 1997 as compared to a net loss of $160,499 for the three
months ended March 31, 1996.
FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
NET SERVICE REVENUES. Revenues decreased by $166,505 or 1.5% from
$10,983,553 in 1995 to $10,817,048 in 1996. The decrease in revenue can be
attributed to the reduction in the number of hospital staffing contacts and the
closure of an unprofitable medical clinic in October 95. The reduction in
revenue from hospital contracts was offset by revenues generated from the
Glenderry Medical Clinic acquisition in December 1995 and the St. George Medical
Clinic acquisition in September 1996.
For the fiscal year ended December 31, 1996, revenues from Emergency Medical
Services decreased by $722,310 or 7.6% to $8,783,309 from $9,505,619 for the
year ended December 31, 1995. The decline in revenues was due to: (i) the loss
of four fixed fee hospital contracts during the year which were replaced by four
lower fee generating contracts, (ii) reductions in fee income from two contracts
serving correctional institutions, (iii) a marginal increase in two
fee-for-service contracts, and (iv) reductions in several contracts in place the
prior year due to reductions in funding to hospitals from the provincial
government.
For the fiscal year ended December 31, 1996, operating income from Emergency
Medical Services decreased by $689,802 to a loss of $332,644, from a profit of
$357,158 for the fiscal year ended December 31, 1995. The decrease was due to
the attendant loss of revenues from the loss of hospital contracts during the
year that were replaced by lower fee contracts, reductions in prior year
contracts together with a delay in reducing the level of staffing to reflect the
reduced demand for physicians. The loss of hospital contracts is the direct
result of the Ontario Hospital's Restructuring Committee's reduction and/or
amalgamation of the number of hospital emergency departments, the defined nature
of the crisis management service for hospitals that the Company provides and the
risk that a physician elects to remain
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in the community and work on a full time basis for the hospital thus eliminating
the need for the Company's services. The December 31, 1996 loss also includes a
write-off of advances relating to the Malaysia project in the amount of $42,875.
For the fiscal year ended December 31, 1996, revenues of Clinical Operations
increased by $555,805 or 37.6% to $2,033,739 from $1,477,934 for the year ended
December 31, 1995. The increase in revenues was due to revenues of two new
clinics that were acquired in December 1995 and September 1996.
For the fiscal year ended December 31, 1996, operating income of Clinical
Operations increased by $230,155 or 35.9% to a loss of $410,973, from a loss of
$641,128 for the fiscal year ended December 31, 1995. The reduction of loss in
operating income resulted from the increase in revenues from St. George's clinic
combined with staff reductions and salary reductions in all of the Company's
clinics, the closure of an unprofitable clinic in October 1995, reduction in
management support staff and a lower write-off of deferred start up costs in the
amount of $196,986 in connection with the Company's CMC clinic.
PHYSICIAN FEES AND OTHER COSTS. Physician fees, which represent fees to
contract physicians, represent the largest single variable expense. These fees
are earned primarily through the Company's emergency medical services to the
hospital emergency department contracts. Physician fees declined $90,434 or 1.1%
from $8,385,712 in 1995 to $8,295,278 in 1996 due to the reduction in the number
of hospital staffing contracts. Physician fees represented 76.3% of net revenues
for 1995 and 76.6% of net revenues in 1996. Included in physician fees is
clawback expense, which is a recovery of billings due to over utilization of
medical services. The clawback rate of 10% set by the Ontario Ministry of Health
resulted in a charge of $176,949 in 1995 compared to a clawback rate of 6.5%
resulting in a charge of $143,261 in 1996. Clawback expense decreased by $33,688
or 19.0% in 1996 compared to 1995 due to the reduction in hospital contract
revenue and the reduction in the clawback rate imposed by the Ontario Ministry
of Health. Other direct costs include travel, marketing and consulting costs
related to international projects. These costs represent .19% of net revenues
for 1995 and 2.4% of net revenues in 1996 and are slightly higher in 1996 due to
the undertaking of the consulting project in the State of Kerala in India.
OPERATING EXPENSES. Operating expenses increased by $755,377 or 26.4% from
$2,860,892 in 1995 to $3,616,269 in 1996. Operating costs include general
operating expenses, a stock compensation charge and the write-off of deferred
start-up costs. In anticipation of growth, the Company had increased its
administrative, management and marketing support. This increase in
administrative, management and marketing support was comprised primarily of
personnel additions, whose aggregate salaries and associated payroll expenses
amounted to approximately $245,000. This increase in staffing was due in part to
the opening of two new medical clinics during 1996 as well as in preparation to
expand the Company's operations in the business of managing urgent care centres.
More recently, the Company has restructured its operating overhead in an effort
to better position itself as a competitive deliverer of emergency related health
services. The primary components of this restructuring involved: (i) the
elimination of two administrative staff positions and one operations staff
position; (ii) the renegotiation and reduction of lease expense at one of the
Company's medical clinics; (iii) the termination of a consulting contract with
respect to the Company's decision to discontinue the operations of the clinic in
Prague, Czech Republic; and (iv) the reduction of communication and delivery
expenses for the medical clinics in Canada. The balance of the increase in
operating expenses during 1996, compared to 1995, resulted from a stock
compensation charge of $610,000 in 1996, and write-off of deferred start-up
costs amounting to $509,337 in 1996 as compared to $663,448 for the same period
in 1995. The general operating expenses excluding the stock compensation charge
and the write-off of deferred start-up costs represent 20.0% and 23.1% of net
revenues in 1995 and 1996, respectively.
The stock compensation charge of $610,000 in 1996 is a result of the share
restructuring that occurred in November 1996. As part of the recapitalization of
the company, Hampton House International was issued 610,000 common shares in
consideration of past services. The value of $1.00 per share was ascribed to the
common shares.
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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 includes additional charges for development and start-up costs of $58,574,
and stock compensation expenses of $1,246,000 and $1,085,800.
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.
Furthermore, pursuant to the Securities and Exchange Commission regulations,
the issuance of 610,000 shares to a shareholder as part of the November 1996
Recapitalization and the issuance of 700,000 stock options to a director are
required to be measured at a value of $2.05 US ($2.78 CAN) per share. Under
Canadian GAAP, these transactions are measured at the ascribed value of $1.00
CDN per share. This difference has resulted in a total stock compensation charge
of $2,331,800 under U.S. GAAP.
INTEREST EXPENSE. Interest expense and dividend income increased by
$110,391 or 200% from income of $54,930 to an expense of $55,461 in 1995 and
1996, respectively. In 1996, there was no dividend income as compared to 1995
which reported dividend income of $123,623 as a result of a redemption of common
shares. Interest expense totaled $68,693 for 1995 compared to $55,461 for 1996.
The decrease in interest expense of $13,232 or 19.2% is due primarily to reduced
bank borrowings.
NET INCOME. As a result of the above items, the Company had a net loss of
$1,262,524 for the twelve months ended December 31, 1996 as compared to a net
loss of $300,487 for the twelve months ended December 31, 1995.
Under U.S. GAAP, the Company reported a net loss of $3,704,898 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, which represent fees to
contract physicians, represent the largest single variable expense. These fees
are earned primarily through the Company's provision of
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emergency medical services to hospital emergency department contracts. Contract
physician fees increased $435,000, or 5.5% from $7,950,712 to $8,385,712 and
represent 76.3% of net revenues for 1995 compared with 75.9% of net revenues for
1994. The increase in physician fees is consistent with the increase in the
number of hospital staffing contracts in 1995. Included in physician fees is
clawback expense, which is a recovery of billings due to over utilization of
medical services. The clawback rate set by the Ontario Ministry of Health for
1994 was 7.5% compared to the rate of 10% for 1995 and resulted in a charge of
$124,546 in 1994 compared to $176,949 in 1995. Clawback expense increased by
$52,403 or 42.1% in 1995 compared to 1994 due to the rate change imposed by the
Ministry. Other direct costs include travel, marketing and consulting costs
related to international projects. These costs represent .25% of net revenues
for 1994 and .19% of net revenues in 1995.
OPERATING EXPENSES Operating expenses increased by $642,472 or 28.9% from
$2,218,420 in 1994 to $2,860,892 in 1995. These expenses represent 21.2% of
revenues and 26.0% of revenues in 1994 and 1995, respectively. The increase in
operating costs is primarily due to a write-down of $663,448 for an investment
in a clinic in Prague, Czech Republic and Malaysia. The write-down was due to an
unanticipated difficulty in penetrating the market and generating a sufficient
return on capital invested from that clinic. Given the domestic opportunities
available, the Company had decided to focus its efforts on domestic operations.
INTEREST EXPENSE. Interest expense increased $16,814, or 32.4% from $68,693
in 1995 as compared to $51,879 in 1994. The increase is attributable to an
increase in borrowings to finance accounts receivable due to the 5% growth in
net revenues, largely derived from billings to government healthcare insurance
plans for services rendered by the Company's physicians.
NET INCOME. As a result of the above items, the Company had a net loss of
$300,487 in 1995 as compared to a net income of $174,531 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the provision of Clinical
Operations.
The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups. The assets
employed by the Company to support the Emergency Medical Services operations are
primarily working capital to finance accounts receivable which are generated by
individual physicians but collected by the Company pursuant to contractual
agreements between the Company and the independent contracted physicians. The
average age of collection of the accounts receivable balances averages
approximately 45 days; however, the physicians are paid after 15 days. Thus, the
liquidity of the Company is significantly affected by the volume of billings
generated by the Emergency Medical Services operations which fluctuates from
month to month.
Clinical Operations, include family practices, walk-in services and
chiropractic and massage therapy to patients. In addition to a similar
requirement to finance the accounts receivable which are generated by individual
physicians but collected by the Company pursuant to contractual agreements
between the Company and the independent contracted physicians, the Company must
also finance assets utilized in the operations of the clinics. These assets
include leasehold improvements and fixtures, medical equipment, information
systems and office furniture and supplies. Thus the average amount of assets
employed by the Company to support the Clinical operations is generally greater
than Emergency Medical Services operations calculated on a per physician basis.
The capital requirements of the Company arise in four major areas. These are
(i) the need for additional capital to increase business through new service
contracts for hospital emergency departments, (ii) the commencement of new
specialty healthcare clinics, (ii) marketing expenses associated with consulting
services both in Canada and international markets, and (iv) the need for capital
to increase
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administrative capabilities, including centralized billing and collection
services and management information systems.
Marketing expenses associated with consulting services both in Canada and
international markets are not expected to be material in the next 24 months as
the Company's resources will be focused on developing new hospital contracts in
Canada and the development of Urgent Care Centres.
The Company is planning to develop a chain of Urgent Care Centres, initially
in Ontario and then in other provinces, that it believes will gain public
recognition and government support as a quality deliverer of emergency health
care. The Company intends to develop these centres through both the opening of
new centres and the acquisition of currently operating centres. No specific
acquisition candidates have been identified. The first Urgent Care Centre is
planned to open in the third quarter of 1997 with up to nine additional centres
scheduled over the following eighteen months. Any decision to expand this base
of 10 centres will be based on realized profitability and capital resources. The
Company anticipates that the funding required to support this plan will amount
to about $2.0 million. The Company estimates that bank financing and third party
lease financing of at least $500,000 can be secured, thus approximately $1.5
million of the net proceeds from the Offering will be used to support the
long-term capital and working capital requirements of the Urgent Care Centres.
As of the date of this Prospectus, the Company has not secured any bank
financing or third party financing, and there can be no assurance that such
additional funding will be obtained on terms favorable to the Company, or at
all. See "Use of Proceeds."
In January 1996, the Company consummated a private offering of 1,000,000
shares of Common Stock for net proceeds of approximately $845,000 together with
warrants to purchase 1,000,000 shares at an exercise price of $2.00 per share.
The Company consummated this private offering because it needed working capital
funds, including money to fund its bank credit facility. As part of the
Company's November 1996 Recapitalization (as such term is hereinafter defined),
all holders of the warrants surrendered their outstanding warrants.
In September 1996, the Company acquired all of the assets and physician
contracts of the St. Georges Health Services Organization (HSO) for a $193,732
promissory note, 75,000 shares of the Company's Common Stock, and the assumption
of $270,868 of liabilities . This HSO was a contractual agreement with the
Ministry of Health to provide primary care at a clinic for a specified number of
registered patients.
In January 1997, the Company completed a private placement of its securities
("Bridge Financing"), in which it sold 8% promissory notes in the aggregate
principle amount of US$500,000 and 125,000 shares of its Common Stock and raised
aggregate gross proceeds of US $500,000. The net proceeds of US $425,000 were
initially applied to reduce the Company's bank borrowings. The principal and
accrued interest on the notes are due and payable upon the earlier of 18 months
from the date of issuance or receipt by the Company of at least US $4,000,000
from the sale of its debt and\or equity securities in a public or private
financing.
Robert Rubin, a director of the Company, has extended the Company a $500,000
line of credit which bears interest at 2% above the prime rate. As of the date
hereof, there is a $100,000 outstanding balance under such line of credit.
In addition, the Company currently has an aggregate line of credit of
$1,200,000 with its bank credit facilities. This credit may be drawn on by the
Company at the bank's prime rate plus 1 1/2%. All bank loans are secured by a
general security agreement covering all of the Company's assets. The terms of
the banking agreement contain, among other provisions, requirements for
maintaining defined levels of net worth and financial ratios. At March 31, 1997,
the Company did not comply with (i) the net worth covenant because the net worth
of the Company was less than $250,000 and (ii) the financial ratio covenants
requiring a debt service coverage ratio of 1.5:1. The Company has not requested
or received a waiver of these defaults. As a result of these defaults, the bank
is in a position to demand repayment of its loan; however, the Company utilized
the proceeds of the Bridge Financing to reduce the Company's bank borrowings. As
of March 31, 1997, the Company has an outstanding balance of $1,072,903 on its
line of credit. The Company intends to repay the outstanding balance out of the
net proceeds of the Offering. See "Use of Proceeds."
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The Company believes, although there can be no assurance, that net proceeds
of the Offering and operating revenues will provide sufficient capital to
finance the Company's capital requirements during the 12 months following
completion of the Offering. If the Company encounters unexpected expenses during
such period, or if after such period, revenues from operations are not
sufficient to fund operations or growth, the Company may require additional
financing. There can be no assurance that the Company will be able to obtain
additional financing on acceptable terms, or at all.
Inflation has not had, nor is it expected to have, a material impact on the
operations and financial condition of the Company.
CHANGE IN ACCOUNTANTS
Zaritsky Penny was previously the auditors for Med-Emerg Inc. which is a
significant subsidiary of the Company. During the fiscal year ended December 31,
1995, that firm's appointment as auditors for Med-Emerg Inc. was terminated and
KPMG was engaged as auditors for Med-Emerg Inc. (KPMG was also appointed
auditors of Med-Plus Health Centers Ltd. another significant subsidiary of the
Company.) The decision to change auditors was approved by the Company's board of
directors.
In connection with the audit of Med-Emerg Inc. for the year ended December
31, 1994, and the subsequent interim period through to the appointment of KPMG,
there were no disagreements with Zaritsky Penny on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The audit report of Zaritsky Penny on the financial statements of Med-Emerg
Inc. as of and for the year ended December 31, 1994, did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
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BUSINESS
BACKGROUND
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare system
was not fiscally efficient, the Province of Ontario recently enacted the Savings
and Restructuring Act, which gives its provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission with broad decision
making authority over every aspect of a public hospital's operations. This
includes all aspects of operations, fiscal policy, public funding and even the
continuance or cessation of a public hospital's existence. The objective of the
legislation is to induce public hospitals' care delivery systems in the Ontario
health care area to improve the quality of health care and particularly to
install efficiencies of cost in the delivery of medical services to the 11
million population of the Province of Ontario (37% of all of Canada).
Inefficient hospitals run the risk of the loss of public funding if they fail to
meet the objectives of the Commission. Accordingly, the incentives are in place
to induce public hospitals to find solutions to achieve the desired
efficiencies, including outsourcing available from and through private sector
organizations, such as the Company.
THE COMPANY
The Company specializes in the coordination and delivery of emergency
related healthcare services. The broad range of services currently offered by
the Company include operational consulting and healthcare management services,
management of special purpose health clinics, physician and nurse staffing, and
health educational services.
As part of its business strategy, the Company intends to pursue rapid
growth, including possible acquisitions of, and joint ventures with, related and
complementary businesses. The Company has no present commitments, undertakings
or agreements for any particular acquisitions.
The Company presently provides emergency medical services to hospitals and
to other medical groups through its Emergency Medical Services Division ("EMS
Division"), and clinical medical services to the public in Company-owned clinics
through its Clinical Operations Division. The Company's soon-to-be launched
Urgent Care Centres program is intended to expand clinic operations. The Company
intends to aggressively market its facilities and services as a viable outsource
alternative to public hospitals' present emergency room operations.
THE EMS DIVISION
Competitive pressures have focused the attention of many healthcare
administrators, in both the private and public sectors, on the need for better
staffing of their medical professionals. Hospitals have increasingly turned to
contract staffing firms with specialized skills to help solve physician contract
and scheduling problems.
The EMS Division was established in 1983 as a medical staffing and
recruitment business. The Company provides physician staffing and administrative
support to emergency departments and physician recruitment services to Canadian
hospitals and emergency physician groups. The administrative services include
billing, maintenance of records and coordinating with third party payors. Under
its contracts with hospitals, the Company is obligated to provide emergency
department physician coverage. The Company also coordinates the scheduling of
staff physicians which provides emergency department coverage and assists the
hospital's administrative and medical staff in such areas as quality assurance,
risk management, departmental accreditation and marketing. Under the direction
of the Company's management, the Company's physician pool of approximately 140
emergency physicians undergo a rigorous accreditation program in order to ensure
the quality of doctors who provide services on behalf of the Company.
The Company's services are reimbursed either based on a monthly fee payable
by the hospital or alternately on a per shift basis. As of March 31, 1997, the
Company had 14 hospital contracts, of which 11
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were contracted to pay monthly administration fees and three were contracted to
pay based on per shift billings.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in hospitals
which have contracted for the Company's contract staffing services. The Company
then enters into contracts with physicians who meet its qualifications and
provides those physicians as candidates for admission to the hospital's medical
staff. While each hospital with which the Company contracts, ultimately
determines whether a physician must be board certified in emergency medicine to
provide medical services in its emergency room, in general, the hospitals do not
require physicians to be so certified. The Company requires all physicians to be
currently licensed to practice medicine in the Province of Ontario and to be
Advanced Cardiac Life Support ("ACLS") or Advanced Training Life Support
("ATLS") certified before entering into a contract for the physician's services.
The Company bills and collects the professional fees for the medical
services provided. Professional fees payable to the physician are disbursed by
the Company pursuant to each physician's contract. Physicians are generally paid
on the basis of the greater of a fixed hourly rate or fee for service patient
billings. As independent contractors, the physicians are responsible for their
own income taxes and statutory remittances to the respective federal and
provincial governments, as well as professional liability insurance. See "Risk
Factors--Classification of Physicians as Independent Contractors; Potential Tax
Liability."
The terms and conditions of the Company's contracts with physicians
generally provide that the Company, on a best efforts basis, bears the primary
responsibility to provide physician coverage to various facilities under
contract as provided for in each physician contract, each contracted physician
will be placed in a functioning facility by the Company and the Company will
collect all fees due to the physician for rendering services. The Company then
pays the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
hospital contracts is comprised of approximately 8% to 20% of OHIP billings plus
the administrative fees charged to the hospital. These contracts contain the
following provisions: Each physician is not an employee of the Company but is
instead an independent contractor of services to various medical facilities
under contract with the Company; Each physician must remain in good standing
with the College of Physicians & Surgeons of the Province of Ontario and be
licensed to practice medicine in the Province of Ontario; Each physician must
remain in good standing with the Canadian Medical Protective Association
("CMPA") and have appropriate CMPA coverage to provide physician services to
patients while working with the Company; Each physician is expected to maintain
an acceptable level of Continuing Medical Education ("CME") in order to qualify
for reimbursement; Physicians are bound by a non-competition restriction not to
provide services at any hospital where the Company has a contract for one year
following the contract term. Each physician full-time contract has a term of
twelve months.
CONTRACTS WITH HOSPITALS. The Company coordinates the scheduling of staff
physicians to provide coverage on a negotiated basis to a hospital's emergency
department.
The Company generally provides contract physician staffing services to
hospitals on the following arrangements: fee-for-service contracts and
physicians per shift that the Company provides to the hospital. In addition,
physicians under contract to the Company authorize the Company to bill and
collect fees. Depending upon the hospital patient volume, the Company may
receive a subsidy from the hospital. Pursuant to such contracts, the Company
assumes responsibility for billing and collection and assumes risks of
administrative error and subsequent non-payment. All of these factors are taken
into consideration by the Company, in arriving at appropriate contractual
arrangements with healthcare institutions and professionals. The hospital
contracts are generally for one year, are generally terminable by either party
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upon two months written notice, and automatically renew if not terminated.
Details of the Company's hospital contracts are as described below.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross margin
targets set by the Company, the location of the hospital in relation to the
supply of physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the hospital,
the Company considers several factors including location of the hospital in
relation to the availability of physicians, number of physicians from which to
draw, the number of physician shifts required, and patient volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being provided.
For a few of the Company's contracts, the fee is not due until the end of the
month for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee) the physicians are paid on
the 15th of each month for services rendered the prior month.
All of the Company's hospital staffing contracts are based on a specific
period of time, generally one year. At the end of the term of the contract, both
parties have the right to renegotiate any part of the Agreement, including the
Company's monthly management fee. There is usually not a pre-set renewal fee
stated within the contract, however, on occasion there may be a stated renewal
fee.
If the contract is not renegotiated or terminated by the end of the term of
the contract, the contract automatically renews on the same terms and conditions
until a renewal agreement is completed, a new contract is negotiated, or the
contract is officially terminated.
In each of the Company's hospital staffing contracts, both parties have the
right to terminate the contract upon written notice, generally 2 or 3 months. In
some contracts, the hospital is able to terminate the contract without written
notice if it pays a penalty equal to 2 or 3 months of management fees.
For the majority of the Company's hospital staffing contracts there exists
no renegotiation rights for either party until the term of the contract expires.
There are some contracts that have a volume clause which states that both the
Company's fee and the physicians remuneration model have been based on a certain
level of volume. If this volume level were to dramatically change for a
significant period of time, both parties would have the right to renegotiate
either the monthly fee or the physicians remuneration, or both.
The following are the direct costs associated with the Company's hospital
staffing contracts:
(i) REGIONAL MEDICAL DIRECTORS -- The Company pays four (4) of its
physicians a monthly fee to handle any issues that may arise at any given
hospital, to attend Emergency Services Committee meetings within each
hospital and to act as an ambassador and promote the services provided by
the Company.
(ii) SALARIES FOR RECRUITING PERSONNEL -- A portion of the Company's
recruiting staffs salary relates directly to the hospital staffing
business. When the Company receives a new contract and there exists a
shortage of physicians, the Company's recruiting staff will work towards
increasing the Company's supply or emergency physicians.
(iii) SALARIES FOR SCHEDULERS -- The salaries of the Company's scheduling
department are a direct cost incurred because they are meeting the
scheduling requirements of each of the Company's hospital contracts.
(iv) ACCOMMODATION COSTS -- On occasion, there exists the need to book hotel
accommodations for physicians in order to meet the Company's scheduling
requirements. These costs are often paid by the Company without
reimbursement by the hospital. With some of the Company's hospital
contracts, these costs are recovered from the hospital, in other hospital
contracts these are direct costs to us.
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(v) OTHER SUPPORT STAFF SALARIES -- A portion of the salaries of other
employees who dedicate time towards the hospital staffing contracts
should also be considered a direct cost.
Several hospital staffing contracts contain a clause that provides that the
hospital will guarantee the revenue necessary to fund all physician related
service costs.
The Company tracks all physician related service costs, including physician
remuneration, 2nd on-call coverage, Local Medical Director's accommodation costs
and any costs which may have arisen due to government policies, and bills the
hospital for the difference between the revenue guaranteed by the hospital and
the service costs generated by the physician.
The Company currently has in place contracts for the provision in Ontario of
emergency care services by its contracted physicians with 14 hospitals.
THE EMS DIVISION'S OPERATIONS
The principal operating activities of the Emergency Medical Services
Division include the following:
RECRUITMENT AND CREDENTIALS The recruitment and certifying of credentials
of qualified independent contract physicians is a central aspect of the
Company's operations. Three full-time employees of the Company are dedicated to
recruiting and certifying credentials of the independent contact physicians for
the Company. The Company recruits physicians from three groups. The first group
is recruited directly from post graduate programs. Seminars are held in most of
the teaching hospitals in Ontario to inform all the residents of family medicine
and specialty training about career opportunities in the Company. The second and
third groups recruited are family physicians with an interest in emergency
medicine and full-time emergentologists. As part of its recruiting strategy, the
Company intends to seek regulatory approval to establish a stock option plan in
which its contracted physicians can participate. The Company believes that this
will encourage physicians to make long-term commitments.
QUALITY ASSURANCE. Quality assurance systems are designed to ensure
consistency in clinical practice performance. These systems are subject to
review and examination by independent hospital credential and regulatory
agencies. As part of the Company's quality assurance program, all physicians are
required to have ACLS and ATLS certification, provide a Certificate of
Professional Conduct from the College of Physicians and Surgeons of Ontario, be
approved by the credentialing committee in their respective hospitals that are
governed by the Public Hospital Act, maintain adequate malpractice coverage, and
maintain continuing medical education credits. Principally, quality assurance is
the responsibility of Dr. Nimigan, the Company's Executive Medical Director, as
well as the Medical Director assigned to such hospital. There are currently four
Medical Directors responsible for quality assurance activities, including Dr.
Zacharias. The efficacy of these systems, and the performance of its contract
physicians, are critical to maintaining a good relationship with the hospitals,
as well as minimizing the exposure of the Company to liability claims.
TIME SCHEDULING. The scheduling of physician hours is performed monthly.
Hospitals are provided a monthly physician coverage schedule prior to the first
of each month. Under some of the hospital contracts, multiple physician coverage
is required during certain periods. Because of varying other demands on the
contract physicians, the scheduling process is complex and requires significant
management attention. The Company has two full-time employees dedicated to
scheduling issues.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage are comprised of two elements: (i) hospital administrative fees; and
(ii) physician services. Under each hospital contract, the Company has the
responsibility for the billing and collection of physician fees. The Company's
bad debt experience in collection of physician fees has been less than 1% of
allowable billings. In addition, the Company charges each hospital a fee for its
recruiting and staffing services either on a fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides
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for the administration of fringe benefit programs, which may include but are not
limited to life insurance, health insurance, professional dues and disability
insurance.
CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. Hospitals have increasingly
turned to consulting specialists with specialized skills to strengthen the
management of their professional medical staff and specific clinical
departments, to better control costs, and to assist hospitals in meeting their
healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring physician. In the past three years,
consulting contracts have been conducted with Hotel-Dieu Grace Hospital and The
Wellesley Hospital.
The Company has also conducted several international consulting assignments
for healthcare clients in Saipan, the Cayman Islands, Malaysia and Russia,
including feasibility studies, identification of medical service needs, planning
of healthcare delivery systems and developing marketing strategies. The Company
is currently engaged in two consulting assignments, the first of which is to
provide an accident and emergency consulting study for the State of Kerala in
India, the costs of which are funded in part by the Canadian government and in
part by the Ministry of Health in Kerala, and the second of which is to provide
an integrated strategic plan for the delivery of health and social services in
the Northwest Territories in Canada, the costs of which are being funded by the
Northwest Territory Provincial government.
With respect to the Company's international business strategy, the Company
intends to pursue additional consulting assignments, primarily in North America.
Management believes that its prior consulting experiences, along with its
emergency medical service and clinical operations experiences, will enable the
Company to successfully pursue specialized consulting assignments.
The Company expects to continue its growth through staffing additional
hospital contracts. In particular, the Company intends to both strategically
target hospitals and physician groups. Management actively seeks opportunities
to competitively bid for hospital contracts.
In addition, the Company intends to take advantage of the government's plans
to restructure the delivery of Canadian medical care through fewer but more
efficient hospitals and hospital groups. It is expected that hospitals will
increasingly look to outsourcing from third party providers. Specifically, the
Company expects that hospitals will seek opportunities for emergency care
specialists not only to staff the emergency departments but also to administer
and operate all aspects of those departments.
Hospital restructuring has become a political focus in Ontario. The
provincial government is reducing expenditures in the hospital sector as part of
the restructuring. Historically, restructuring has been generally related to
downsizing within a single organization. In Ontario, realizing additional
savings in hospital medical services will be increasingly difficult without
significant program reductions. There is a need, therefore, for new solutions
which reduce the excess physical capacity in the healthcare system (e.g., number
of facilities), reduce administrative overhead and rationalize medical services.
In order to achieve this magnitude of change, the Company believes it will
be necessary for hospitals to go outside their organization and consider means
by which they can cooperate with other organizations. Management believes that
the new wave of hospital restructuring will result in many hospital mergers and
some hospitals will close. The government of Ontario recently enacted the
Savings and Restructuring Act (Bill 26), a Bill that enables the Government to
proceed with its restructuring plans.
The Company believes that its experience in the provision of emergency
medicine as well as its consulting expertise in reducing hospital costs can
demonstratively convince hospitals to out-source emergency department services
to the Company.
THE CLINICAL OPERATIONS DIVISION
The Company owns and operates four clinics in Canada, including two clinics
in Toronto's Lester B. Pearson International Airport. In addition, the Company
operates the Glenderry clinic in which it owns a 33.33% interest. The locations
of and services provided at the Company's clinics are as follows:
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AIRPORT. The Company has contracted with the Ministry of Transportation to
provide emergency services for both Terminal 1 and 2 Medical Clinics Toronto's
Lester B. Pearson International Airport. The airport clinics provide emergency
services throughout the airport to approximately twenty-eight million travelers
who use the airport each year and walk-in services to the approximately 35,000
employees. The staff consists of highly qualified critical care nurses who are
on-site and emergency physicians who are on call. Other services provided in the
clinic are chiropractic, massage therapy and audio testing which services are
generally provided to employees of the airport.
GLENDERRY, POND MILLS, CENTRAL. The Company operates three clinics which
offer both family practice and walk-in services for patients. Other services
provided at the clinics are travel medicine, chiropractic, massage therapy,
weight loss program, acupuncture, Chinese medicine and professional family
counseling. The Glenderry clinic is a partnership, in which the Company acquired
a 33.33% interest in December 1995 for consideration of $27,208. The remaining
66.67% is held by two physicians unaffiliated with the Company. The Company
manages the walk-in clinic by providing scheduling, staffing, recruiting,
billing, collections and accounting services to the clinic. In return for
managing the clinic, the Company receives a monthly fee of $1,500. In addition,
as an owner of the 33.33% interest, the Company receives one-third of any
distributions.
The Company recently acquired the assets and physician contracts of St.
George Medical Clinic, a Health Services Organization (HSO), for aggregate
consideration of $284,257. The funding mechanism is a contractual agreement with
the Ministry of Health to provide primary care at a clinic for a specified
number of registered patients. The Ministry allocates a specific payment for
each patient on a monthly basis, whether the services are used or not. The
services provided under an HSO clinic as compared to a fee-for-service clinic
are identical. The difference that arises between an HSO clinic vs a
fee-for-service clinic is in the funding provided by the Ontario Ministry of
Health. Under the HSO model, the Ministry pays a monthly flat fee for a patient
listed with the HSO regardless of whether the patient visit the clinic or not.
The monthly fee is determined by the age and sex of the patient and is referred
to as the capitation rate. Under the fee-for-service model, a fee is billed to
the Ministry only when a patient visits the clinic and a service is performed.
The fee-for-service rates are set by the Ministry and vary depending on the type
of medical service performed. The St. George clinic operations was transferred
to the Central Clinic in an effort to take advantage of the Central Clinic's
convenient location. As a result, the Company also transferred the physician
contracts to its Central Clinic.
URGENT CARE CENTRES.
The Company plans to develop a chain of Urgent Care Centres, initially in
Ontario and then in other Canadian provinces, that will gain public recognition
and government support as a quality deliverer of urgent health care. There can
be no assurance that they will gain such recognition or support.
Due to government funding constraints, many primary care physicians in
Canada have moved to other countries to practice medicine, retired from the
practice of medicine, or have closed their practices to become a member of a
group of physicians that provide only limited access to health care.
Consequently, approximately 1 in 4 residents of Ontario is without a primary
care physician.
The Company's plan is to develop its Urgent Care Centre services, through
which it intends to offer on-site, one-stop medical care comparable to the
services provided in a traditional emergency department. The Urgent Care Centre
concept consists of a group of emergency trained physicians, a medical
laboratory, a diagnostic radiology service, and a pharmacy, each of which must
be present for the others to co-exist, and each of which is provided by a
separately owned company. The Company will own and 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
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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 plans to open its first centre in the third quarter of 1997 with
up to nine additional centres scheduled over the following eighteen months. The
Company estimates that it will cost approximately $200,000 to open each Urgent
Care Centre. See "Use of Proceeds" and "Managements Discussion and Analysis of
Financial Condition and Results of Operations, Liquidity and Capital Resources."
It is expected that the Urgent Care Centres will be "community based" and
offer less restricted access to non-hospital based health care. Management
believes that the centres will offer high quality service not only in clinical
practice but also in consumer defined quality attributes such as waiting times,
quality of environment, quality of personal interaction and courtesy.
Management's plan is that the Urgent Care Centres will be designed to be less
costly to the publicly funded health care system than traditional emergency
departments.
The vast majority of emergency services in Ontario are delivered by
qualified family or general practitioners in local communities. In Ontario,
there are 20,084 physicians active in the practice of medicine although only 323
physicians are certified in emergency medicine. Notwithstanding this small
proportion of physicians focusing on emergency medicine, the demand for
emergency care has grown significantly over the past ten years. The Company
believes, although there can be no assurance, that there is a need for an
alternate provider of emergency medical services and expects this need to grow
due to their anticipated cost efficiency and the funding problems facing the
healthcare system.
The success of the Urgent Care Centre concept will depend on the Company
realizing several strategic objectives. The Company desires to offer
comprehensive medical care at a level comparable to traditional hospital based
emergency departments. In order to accomplish this objective, it must recruit
sufficient physicians and nurses with appropriate critical care expertise to
ensure quality care for all clinical problems, recruit experienced providers of
diagnostic imaging, medical laboratory services, and pharmacy services to be
co-participants in each centre, manage day-to-day operations with an experienced
Medical Director for quality assurance and an experienced Clinical Director for
operational efficiency, and operate in a cost effective manner to maximize
profitability.
The Company believes that customer service is essential to its success. The
Company believes that the following steps will increase patient satisfaction:
Overlap physician staffing to suit volume so that the average waiting time from
the moment the patient enters the Centre is 30 minutes or less; On-site location
of diagnostic imaging, laboratory services and a pharmacy to reduce patient
delays; Periodic patient satisfaction surveys to identify problems at an early
stage and prevent reoccurrence of the same type of complaints; Customer access
to waiting rooms with televisions and radios, air conditioning, current
magazines, and coloring books and toys for children; and Clean sanitary
facilities, particularly washrooms.
The Company plans to establish or acquire existing Urgent Care Centres in
locations having the following attributes: Residential populations of at least
150,000 within a 5 km (approximately 3 miles) to 8 km (5 miles) radius,
preferably with a 25,000 day-time working population, largely families with
children or teenagers, with lower to middle average household incomes; Locations
near high density retail locations which offer convenience and visibility;
Locations with accessibility for both ambulances and patients. The Company is
not currently involved in any negotiations regarding an acquisition of a
currently operating urgent care centre.
NOVEMBER 1996 RECAPITALIZATION
On November 1, 1996, 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
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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 common stock of the Company at the
option of the holder at a price equal to $9.00 US per common share for a
ten-year period from the date of issuance. At the end of the ten-year period,
the Company may, at its option, either redeem any remaining outstanding
preferred shares, or issue the equivalent number of common shares based upon
their then-market value. The preferred shares are entitled to receive a
cumulative dividend of $.27 US per share, payable in cash, or equivalent common
shares based on their then-quoted market value. In addition, as part of the
capital restructuring, all of the common share purchase warrants previously
issued by the Company were surrendered. No consideration was paid by the
Company, however, in the event that the initial public offering contemplated by
the letter of intent dated September 5, 1996 has not closed by September 5,
1997,
the Company will reissue, as soon as reasonably practicable, common share
purchase warrants in substantially the same terms as the holders of the
surrendered warrants.
This capital restructuring was effected to reposition the shareholdings of
the Company prior to the completion of an initial public offering of stock. In
particular, the former controlling shareholder agreed to a substantial reduction
in percentage of voting stock held of the Company subsequent to the Company
completing its initial public offering, in exchange for the long-term preferred
share commitment by the Company. Management is of the opinion that this
restructuring is in the best interests of all shareholders of Med-Emerg, and
provides a long-term capital structure from which the Company may pursue its
strategic growth objectives.
GOVERNMENT REGULATION
The provision of medical services in Canada is for the most part, under
provincial jurisdiction. Under the Health Insurance Act, the government of
Ontario is responsible for paying physicians for the provision of insured
services to residents of Ontario. In 1993, the government placed an overall hard
cap of approximately $3.8 billion on the amount physicians could collectively
bill the Ontario Health Insurance Plan (OHIP) for insured services. As
physicians' billings exceeded this hard cap in successive years, the government
reduced the fees received under OHIP by prescribed percentages ("clawbacks").
This clawback is subject to constant revision and review. In addition to the
hard cap, individual physicians' billings under OHIP are subject to threshold
amounts, or soft caps. Once a physician reaches a prescribed level in the
12-month period beginning April 1 of each year, the government reduces payments
to the physician by a prescribed fraction. In May 1997, the Ontario provincial
government reached an agreement with the medical profession wherein it was
agreed that the soft cap imposed against the individual physicians shall be
cancelled on all services rendered after February 28, 1998. This agreement is
due to expire on March 31, 2000. Further, this agreement has no effect on the
hard cap. Any further change in reimbursement regulations, policies, practices,
interpretations or statutes that places material limitations on reimbursement
amounts or practices could adversely affect the operations of the Company,
absent, or prior to, satisfactory renegotiation of contracts with clients and
arrangements with contracted physicians.
Under a combination of statutory provisions, both Federal and provincial,
physicians are prohibited from billing their patients for fees in excess of
those payable for insured services by OHIP. The Canada Health Act allows for
cash contributions by the Federal government in respect of insured health
services provided under provincial healthcare insurance plans. In order for a
province to qualify for a full cash contribution, there is a requirement that
the provincial healthcare insurance plan satisfy the criteria set out in the
Canada Health Act. In addition, the province must ensure that no payments are
permitted in respect of insured health services that have been subject to extra
billing. Physicians who bill patients directly for the balance of their bill
which has been reduced due to clawback may be guilty of an offense, and on
conviction, liable to significant financial penalties and possibly subject to
proceedings for professional
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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
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.
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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, believes its
claim is without merit 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 March 31, 1997, the Company had 29 full-time employees, of whom three
were in general executive positions and 25 were in administration. In addition,
as of such date approximately 140 independent physicians were independent
contractors of the Company. The physicians are not employees of the Company.
None of the Company's employees is represented by a collective bargaining
agreement, and the Company considers its employee relations to be satisfactory.
PROPERTY
The Company's offices are located at 2550 Argentia Road, Suite 205,
Mississauga, Ontario, L5N 5R1. The Company occupies approximately 5,000 square
feet of space under a lease which expires in February 2001 at an average annual
rental rate of approximately $88,675.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ramesh Zacharias, M.D., FRCSC........................ 44 Chief Executive Officer, Director
Carl W. Pahapill, CA................................. 38 Chief Operating Officer, President and Director
Wayne Nimigan, M.D., FRCP............................ 49 Executive Medical Director
Kathryn Gamble, CA................................... 29 Vice President of Finance, Chief Financial Officer,
Secretary
Keith Burk, M.D...................................... 38 Director of Urgent Care Operations
William Thomson, CA.................................. 55 Chairman of the Board
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
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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. Since December 5, 1995, Mr. Rubin has been a director of Help
at Home, Inc., a public company engaged in the business of providing homemaker
and general housekeeping services to elderly and disabled persons at home. Since
June 1994, Mr. Rubin has been a Director of Kaye Kotts Associates, Inc., a
public company that provides representation for delinquent taxpayers before tax
authorities.
Since November 20, 1992, Mr. Rubin has served as the Chairman of the Board
of Directors of Western Power & Equipment Corp. ("WPEC"), a construction
equipment distributor. Between November 20, 1992 and March 7, 1993, Mr. Rubin
served as Chief Executive Officer of WPEC. Between October, 1990 and January 1,
1994, Mr. Rubin served as the Chairman of the Board and Chief Executive Officer
of American United Global Inc., a technology and communication company and
majority owner of WPEC ("AUGI") and since January 1, 1994, solely as Chairman of
the Board of AUGI. Mr. Rubin was the founder, President, Chief Executive Officer
and a Director of Superior Care, Inc. ("SCI") from its inception in 1976 until
May 1986 and continued as a Director of SCI (now known as Olsten Corporation
("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange
listed company, is engaged in providing home care and institutional staffing
services and health care management services. Mr. Rubin was formerly a Director
and Vice Chairman, and is a minority stockholder, of American Complex Care,
Incorporated ("ACCI"), a public company which provided on-site health care
services, including intradermal infusion therapies. In April 1995, the principal
operating subsidiaries of ACCI petitioned in the Circuit Court of Broward
County, Florida for an assignment for the benefit of creditors. Mr. Rubin is
also a
40
<PAGE>
Director, Chairman and minority stockholder of Response USA, Inc., a public
company engaged in the sale and distribution of personal emergency response
systems. Mr. Rubin is also Chairman and Chief Executive Officer and a principal
stockholder of ERD Waste Corp., a public company specializing in the management
and disposal of municipal solid waste, industrial and commercial nonhazardous
solid waste and hazardous waste.
Mr. Rubin's involvement with all of the aforementioned companies may result
in conflicting demands for his time. Management believes that the Company has
taken adequate measures to assure that Mr. Rubin will devote the amount of time
to the Company that it deems necessary. However, there can be no assurance that
all such conflicting demands will be resolved in favor of the Company.
VICTORIA ZACHARIAS. Ms. Zacharias has been a director of Med-Emerg Inc. and
the Company since their inceptions July 1983 and December 1995, respectively. In
1972, Ms. Zacharias received her nursing degree from The Wellesley School of
Nursing in Toronto, Canada. Ms. Zacharias has approximately 25 years of nursing
experience in a variety of hospitals located in Ontario, Canada. Ms. Zacharias
is the wife of Ramesh Zacharias, the Company's Chief Executive Officer.
PATRICK MICHAUD. Mr. Michaud has been a director of the Company since April
1997. Since September 1993, Mr. Michaud has been self-employed as an independent
financial consultant. From April 1992 to September 1993, Mr. Michaud was Senior
Vice-President and Chief Financial Officer of Majestic Electronic Stores, Inc.,
a publicly traded specialty electronics retailer. From 1990 to 1993, Mr. Michaud
was a director of Continental Pharma Cryosan, a company which at the time was a
publicly traded healthcare company. Mr. Michaud received his BA in Engineering
Civil in 1974 from the Royal Military College of Canada, his MBA in 1980 from
the University of Western Ontario, and a certified general accounting degree in
1985 from the Certified General Accountants Association of Ontario.
All directors shall serve for a term of one year or until their respective
successors have been duly elected. With the exception of Robert M. Rubin,
outside directors of the Company will receive approximately $10,000 per year for
acting in such capacities and will be reimbursed for all reasonable expenses
incurred in connection with activities on behalf of the Company. The Company has
entered into an agreement with Mr. Rubin which provides that Mr. Rubin will
receive 50,000 shares of Common Stock in 1997 for acting as a director of the
Company. In accordance with Canadian law, Mr. Rubin will receive such shares
monthly in proportional increments. In addition, the Company granted Mr.Rubin an
option to purchase up to 700,000 shares of Common Stock at US $.75 per share
which option is immediately exercisable. The Company granted Mr. Rubin the
options because of his extensive experience in the healthcare industry and his
ability to assist the Company in identifying and evaluating potential
acquisitions and joint ventures.
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
41
<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, 228,500 of which have been granted. The Plan is to provide for grants
to employees and directors of the Company.
42
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, the Company purchased a 33.33% partnership interest in the
Glenderry Medical Clinic from Dr. Zacharias for $27,208. Such partnership
interest represented all of Dr. Zacharias' interest in the Glenderry Medical
Clinic at the time of the purchase. Dr. Zacharias used the proceeds of such sale
to repay the Company the amount of $27,208 outstanding on a non-interest bearing
loan that the Company made to Dr. Zacharias as a shareholder advance.
Between 1994 and 1996, the Company loaned, and such amount is currently
outstanding, an aggregate of $141,864 to Dr. Zacharias and Victoria Zacharias
and two of their affiliated companies. Of such loans, $48,224 was used to
acquire a residence, $37,255 arose in connection with the transfer of shares of
an unrelated company's stock from two of the Company's subsidiaries to two
unrelated companies owned by the Zacharias', and $39,247 was loaned to satisfy
tax liabilities of the Zacharias'. These loans are non-interest bearing with no
specific repayment terms. The Company has agreed to repurchase, prior to the
completion of the Offering, 37,456 shares of its common stock from Ramesh and
Victoria Zacharias at a purchase price of US $2.75 per share. The US $2.75 price
was based on what the company believed to be an appropriate discount to the IPO
price. The aggregate consideration payable by the Company will be used to repay
all outstanding amounts owed by Dr. Zacharias and Victoria Zacharias and their
affiliated companies.
In January 1996, Dr. Zacharias and his wife Victoria Zacharias exchanged all
of the capital stock of 927563 Ontario Inc. and 927564 Ontario Inc. for
2,333,333 shares of the Company's common stock.
In January 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock and 1,000,000 warrants for gross proceeds of $1,000,000. Hampton
House International Corp. ("Hampton House"), a company of which Peter Deeb is
the CEO and a shareholder, purchased 60,000 shares. The 1,000,000 Warrants were
subsequently returned to the Company as part of the Recapitalization (as such
term is defined herein).
In June 1996, the Company loaned $60,000 to Carl Pahapill, the Company's
President, to purchase 100,000 shares of Common Stock in the Company. The loan
is non-interest bearing, unsecured and repayable over a five year period with
principal payments commencing two years from the effective date of his
employment agreement.
On November 1, 1996, in order to restructure the Company at the request of
the Underwriter 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. As part of the
Recapitalization, the Company issued Hampton House an aggregate of 610,000
shares of Common Stock, valued at $610,000, for past services rendered,
including the identification of potential acquisition candidates, including the
St. George's Medical Clinic, and assisting the Company in developing a strategic
business plan. See "Business-- November 1996 Recapitalization" for a description
of the Recapitalization, and "Description of Securities--Preferred Stock" for a
description of the terms of the preferred stock.
On November 1, 1996, the Company granted Robert Rubin, a director, an option
to purchase 700,000 shares of Common Stock at US$.75 per share. Mr. Rubin
extended the Company a US$500,000 line of credit which bears interest at 2%
above the prime rate. There is currently a US$100,000 outstanding balance under
such line of credit.
In connection with the Bridge Financing, the Company issued 8% promissory
notes in the principal amount of US$500,000 and an aggregate of 125,000 shares
of Common Stock to four investors for gross proceeds of US$500,000. Robert
Rubin, a director of the Company, purchased a promissory note in the principal
amount of US$150,000 and 37,500 shares of Common Stock.
In April 1997, the Company granted options to purchase an aggregate of
228,500 shares of Common Stock pursuant to the 1997 Stock Option Plan to certain
of its directors, executive officers and employees. The options are exercisable
at US$2.50 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as at the date of this Prospectus, certain
information with respect to stock ownership of (i) all persons known by the
Company to be beneficial owners of 5% or more of its outstanding shares of
Common Stock; (ii) each director; and (iii) all directors and officers as a
group, together with their respective percentage ownership of such shares before
the Offering and as adjusted to reflect the sale of the 1,250,000 shares of
Common Stock offered hereby. Unless otherwise indicated, the beneficial owners
have sole voting and investment power over the shares of Common Stock listed
below:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP
SHARES OF BEFORE AFTER
NAME(1) COMMON STOCK OFFERING OFFERING
- ------------------------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
1245841 Ontario Inc.(2) 830,000 33.8% 22.4%
Ramesh Zacharias,(3)..................................................... 895,000 35.6% 23.8%
M.D., FRCSC
Victoria Zacharias(4).................................................... 895,000 35.6% 23.8%
Carl W. Pahapill,(5)..................................................... 165,000 8.2% 5.1%
CA
Robert Rubin(6).......................................................... 749,500 28.3% 19.2%
Hampton House............................................................ 410,000 21.0% 12.8%
International(7)
Peter Deeb(8)............................................................ 425,000 21.6% 13.2%
William Thomson, CA(9)................................................... 15,000 * *
Kathryn Gamble, CA(9).................................................... 15,000 * *
Patrick Michaud.......................................................... 0 * *
Ambrose Group............................................................ 170,000 8.7% 5.3%
John H. Sununu........................................................... 130,000 6.7% 4.1%
All Officers and Directors as a group(3)(4)(5)(6)(8)(9).................. 2,264,500 68.1% 49.5%
</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) 500,000 shares of Common stock issuable upon conversion of
up to 500,000 shares of Convertible Redeemable Preferred Stock, such
preferred stock currently held by 1245841 Ontario Inc., which is owned by
Dr. and Mrs. Zacharias. These shares of preferred stock are convertible into
Common Stock at $9.00 per share and are automatically redeemable in ten
years either into cash or Common Stock at the Company's option. The number
of shares of Common Stock issuable upon conversion of the Preferred Stock
was calculated by assuming a one-for-one conversion. See "Description of
Securities." Dr. Zacharias disclaims beneficial ownership of the shares
owned by his wife.
(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) 500,000 shares of
Common stock issuable upon conversion of up to 500,000 shares of Convertible
Redeemable Preferred Stock such preferred stock currently held by 1245841
Ontario Inc., which is owned by Dr. and Mrs.
44
<PAGE>
Zacharias. The Preferred Shares are convertible into Common Stock at $9.00
per share and are automatically redeemable in ten years either into cash or
Common Stock at the Company's option. The number of shares of Common Stock
issuable upon conversion of the Preferred Stock was calculated by assuming a
one-for-one conversion. Mrs. Zacharias disclaims beneficial ownership of the
Shares owned by her husband.
(5) Includes 65,000 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. 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 the number of shares of Common Stock beneficially owned by each
Selling Allotment Securityholder included for sale in this Prospectus in
connection with the Underwriters' Over-Allotment Option.
<TABLE>
<CAPTION>
SHARES OWNED
BEFORE SHARES/PERCENT OWNED
SELLING ALLOTMENT STOCKHOLDER OVER-ALLOTMENT SHARES OFFERED HEREBY AFTER OVER-ALLOTMENT
- ---------------------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
Hampton House Int'l........................... 410,000 60,625 349,375/10.91%
I. Boulos Bou Dib............................. 100,000 20,000 80,000/2.50%
Jane Kingswood................................ 80,000 12,000 68,000/2.12%
W. David Wood................................. 50,000 12,000 38,000/1.19%
Husein El Dada................................ 30,000 8,000 22,000/*
Robert Moskofian.............................. 40,000 8,000 32,000/*
Mark Wilder................................... 20,000 6,000 14,000/*
Peter J. Tanous............................... 20,000 5,000 15,000/*
Thomas Nassif................................. 20,000 5,000 15,000/*
Elizabeth Huntly-Harmen....................... 20,000 4,000 16,000/*
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
45
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of an unlimited
number of shares of Common Stock, with no par value, and unlimited number of
Preferred Stock, with no par value per share. The following descriptions contain
all material terms and features of the Securities of the Company, are qualified
in all respects by reference to the Certificate of Incorporation and Bylaws of
the Company, copies of which are filed as Exhibits to the Registration Statement
of which this Prospectus is a part.
As of the date of this Prospectus, shares of Common Stock which were
beneficially held by 25 people and 500,000 shares of Convertible Redeemable
Preferred Stock held by Dr. Zacharias and Vicki Zacharias were issued and
outstanding.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to share
ratably on a share-for-share basis with respect to any dividends when, as an if
declared by the Board of Directors out of funds legally available therefor. Each
holder of Common Stock is entitled to one vote for each share held of record and
are not entitled to cumulative voting rights. The Common Stock is not entitled
to conversion or preemptive rights and is not subject to redemption. There are
no limitations on the right of nonresident or foreign owners to hold or vote the
Company's Common Stock. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution to stockholders after payment of all
obligations of the Company and after provision has been made with respect to
each class of stock,if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have subscription rights. The shares of Common
Stock presently outstanding are, and the shares of Common Stock offered hereby
will be, upon issuance and payment therefor, validly issued, fully paid and
non-assessable. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will upon issuance be, fully paid and
non-assessable.
Of the 1,952,000 shares of Common Stock outstanding as of the date of this
Prospectus, 745,000 (38.4%) are held in the United States by nine record
holders.
CLASS A WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of price of $5.00, subject to adjustment in certain
circumstances, for a period of four years commencing on , 1998 (one year
after the Effective Date). The Common Stock and Warrants may only be purchased
as Units in the Offering, but are separately tradeable immediately upon
issuance.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriter and Continental Stock Transfer &
Trust Company, the warrant agent, and will be evidenced by warrant certificates
in registered form.
The exercise price of the Warrants and the number and kind of Common Stock
or other securities and property issuable upon the exercise of the Warrants are
subject to adjustment in certain circumstances, including a stock split of,
stock dividend on, or a subdivision, combination or capitalization of the Common
Stock. Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Warrants to purchase the kind and number of shares or other securities or
property (including cash) receivable in such event by a holder of the number of
shares of Common Stock that might otherwise have been purchased upon exercise of
the Warrants.
The Warrants do not confer upon the holder any voting or other rights of a
stockholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
46
<PAGE>
Warrants may be exercised upon surrender of the warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of the warrant agent,
with the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check payable to the order of the warrant
agent) for the number of the Warrants being exercised.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors--Current Prospectus and State Blue
Sky Registration Required to Exercise Warrants."
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder of a Warrant exercises all Warrants then owned of record, the
Company will pay to that holder, in lieu of the issuance of any fractional share
which would be otherwise issuable, an amount in cash equal to such fractional
interest based on the market value of the Common Stock on the last trading day
prior to the exercise date.
The Warrants are redeemable by the Company commencing , 1999, two
years from the Effective Date (or sooner with the consent of the Underwriters)
at a redemption price of $0.10 per Warrant on not less that 30 days written
notice, provided that the closing high bid price per share of Common Stock, if
traded on NASDAQ, or the last sale price, if listed on a national exchange, for
20 consecutive trading days ending on the third business day prior to the date
of redemption notice, equals or exceeds $8.00 (subject to adjustment for certain
events). The Warrants shall be exercisable until the close of the business day
preceding the date fixed for redemption. In addition, subject to the rules of
the NASD, the Company has agreed to engage the Underwriters as its exclusive
warrant solicitation agents, in connection with which the Underwriters would be
entitled to a 5% fee upon exercise of the Warrants. See "Underwriting."
PREFERRED STOCK
The Company has 500,000 shares of Preferred Stock outstanding, 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
Company has an option to redeem the Preferred Stock for an aggregate of US
$4,500,000 (or US $9 per share of Preferred Stock) or an amount of shares of
Common stock derived by dividing $4,500,000 by the current market price of the
Company's Common Stock. In addition, the holders of the Preferred Stock have the
immediate right to convert the Preferred Stock into Common Stock on a basis of
one share of Preferred Stock for one share of Common Stock. The Preferred Stock
contains a provision which prohibits the payment of any Common Stock dividends
until all cumulative dividends on the Preferred Stock have been paid.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Bylaws of the Company provide for indemnification of each director and
officer or former director or officer or any other person who may have served at
the request of the Company as a director or officer of another corporation in
which the Company owns shares of capital stock or is a creditor. The
47
<PAGE>
Company will indemnify against reasonable costs and expenses incurred in
connection with any action, suit or proceeding to which any of the individuals
described above were made a party by reason of his or her being or having been
such a director or officer, unless such director has been adjudicated to have
been liable for negligence or misconduct in his or her corporate duties. As of
the date of this Prospectus, the Company is not aware of any existing or pending
litigation involving a former or current director that will require the
indemnification of the Company.
Notwithstanding the foregoing indemnification provisions of the Company's
Bylaws, the Company has been informed that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act is against
public policy and is therefore unenforceable.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10005.
TAX ASPECTS OF THE OFFERING
INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK OR WARRANTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX CODE AS WELL AS TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAX JURISDICTION.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS RESIDENT IN CANADA
NO DISCLOSURE IS OR IS DEEMED TO BE MADE IN THE PROSPECTUS AS TO INCOME TAX
CONSEQUENCES APPLICABLE TO A RESIDENT OF CANADA AS TO ACQUIRING, HOLDING,
CONVERTING OR DISPOSING OF COMMON STOCK OR WARRANTS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS NOT RESIDENT IN CANADA
In the opinion of Borden & Elliot, special Canadian counsel to the Company,
the following are the principal Canadian federal income tax considerations under
the Income Tax Act (Canada) and the regulations thereunder (collectively, the
"Canadian Act"), the administrative practices of Revenue Canada, Customs, Excise
& Taxation and proposed amendments to the Canadian Act and the regulations
thereunder publicly announced by the Minister of Finance prior to the date
hereof generally applicable to acquiring, holding and disposing of Common Stock
and Warrants. There is no assurance that any proposed amendments to the Tax Act
or the regulations thereunder will be enacted as proposed, if at all. It is
assumed that at all material times the Common Stock and Warrants will be listed
on NASDAQ, or some other Canadian or foreign stock exchange. Currently, neither
NASDAQ nor any other foreign stock exchange is prescribed for the purpose of
section 115 of the Canadian Act. Proposals in Bill C-69 (first reading December
2, 1996) which if enacted will have effect from April 29, 1995 will prescribe
NASDAQ and certain other foreign stock exchanges for the purposes of section 115
of the Canadian Act. Comment is restricted to prospective investors (each an
"Investor") who for the purposes of the Canadian Act are not resident in Canada,
hold all such Common Stock and Warrants and will hold all Common Stock acquired
on exercise thereof, solely as capital property, who deal at arm's length with
the Company and whose warrants and Common Stock will not at any material time
constitute "taxable Canadian property" for the purpose of the Canadian Act.
Generally, neither a share of Common Stock, nor a Warrant will constitute
"taxable Canadian property" of an Investor provided, among other things, that
the Company is a public company in that at least one class of its shares are
listed on a prescribed stock exchange in Canada. However, Bill C-69 proposes
that after April 26, 1995 shares listed on certain U.S. stock exchanges,
including NASDAQ, will not be "taxable Canadian property" provided either that
the Investor did not hold such security as capital property used in carrying on
a business in Canada, or that neither the Investor nor persons with whom the
Investor did not deal at arm's length alone or together owned 25% or more of the
issued shares of any class of the Company at any time in the five years
immediately preceding a
48
<PAGE>
disposition of the Common Stock or Warrants. For these purposes, a right or
option to acquire a share, including on exercise of a Warrant, is considered to
be equivalent to a share.
This opinion does not take into account any provincial or foreign income tax
legislation or considerations nor does it take into account or anticipate any
changes in law or administrative practice including by way of judicial decision
or legislative action.
This opinion is of a general nature and is not, and should not be construed
as, advice to any particular Investor as to Canadian Tax consequences applicable
to the Investor. Each Investor is urged to consult with the Investor's legal
professional advisors regarding tax and other legal consequences applicable to
the Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability for Canadian tax upon exercise of a
Warrant. The cost of the Investor of Common Stock acquired on exercise of a
Warrant will equal the adjusted cost base of the Warrant so exercised, plus any
amount paid by the Investor to exercise the Warrant.
DIVIDENDS ON COMMON STOCK
An Investor will be liable to pay Canadian withholding tax equal to 25% (or
such lesser rate as may be provided under an applicable tax treaty) of the gross
amount of any dividend actually or deemed to have been paid or credited to the
Investor on the Investor's Common Stock. An Investor who is a resident of the
United States for purposes of the Canada-U.S. Income Tax Convention is subject
to a lesser tax of 15% of the gross amount of any dividend actually or deemed to
have been paid or credited to the Investor on the investor's Common Stock if the
Investor holds less than 10% of the voting stock of the Company, or 5% if the
Investor holds 10% or more of the voting stock of the Company. The Company will
be required to withhold the tax from the gross amount of the dividend, and to
remit the tax to the Receiver General of Canada for the account of the Investor.
Investors who are entitled to reduced withholding tax under an applicable treaty
must provide appropriate evidence of that entitlement satisfactory to the
Company.
DISPOSING OF COMMON STOCK
An Investor will not incur liability for Canadian tax upon disposing of
Common Stock except where the Common Stock is redeemed or repurchased by the
Company, in which case a dividend could be deemed to result (see Dividends on
Common Stock above).
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 1,952,000 shares of Common Stock of the Company outstanding as of the
date of this Prospectus, 1,827,000 are "restricted securities." Of this amount,
840,000 are owned by "affiliates" of the Company, as those terms are defined in
Rule 144 promulgated under the Securities Act. Absent registration under the
Securities Act, the sale of such shares is subject to Rule 144, as promulgated
under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least one year is entitled to sell in brokerage transactions, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or if the Common Stock
is quoted on NASDAQ or a stock exchange, the average weekly trading volume
during the four calendar weeks preceding the sale. Rule 144 also permits a
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years to sell such shares
without regard to any of the volume limitations as described above. An aggregate
of 125,000 shares of Common Stock are being registered concurrently with this
Offering. Robert Rubin, a Director, owns, holds options to purchase an aggregate
of 700,000 shares of Common Stock. In the event Mr. Rubin exercises such
options, the shares will be eligible for resale under Rule 144 commencing one
year after he exercises the option, subject to the volume limitations. All of
the Company's existing securityholders, have agreed not to sell or otherwise
dispose of any of their shares of Common stock now owned or issuable upon the
exercise of currently exercisable warrants for a period of two years from the
date of this Prospectus, without the prior written consent of the Underwriter,
except for holders of an aggregate of 500,000 shares of Common Stock who have
agreed to an identical restriction for a period of one year. No prediction can
be made as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices of the
Company's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
RESTRICTIONS ON SALE IN CANADA
None of the securities including the Common Stock, the Warrants, or the
Common Stock issuable upon or exercise of the Warrants (together, the
"Securities") has been qualified for sale in any of the provinces of Canada or
to any person who is a resident in any of the provinces of Canada.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell, and the Underwriters have agreed to purchase from
the Company, 1,250,000 shares of Common Stock and 1,250,000 Class A Redeemable
Common Stock Purchase Warrants. The Underwriters are committed to purchase all
of the shares of Common Stock and Warrants offered hereby on a "firm commitment"
basis, if any are purchased. The Underwriters have severally agreed to purchase
from the Company the number of shares of Common Stock and Redeemable Warrants
set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES REDEEMABLE WARRANTS
------------- --------------------
<S> <C> <C>
Network 1 Financial Securities, Inc.....................................
Century City Securities, Inc............................................
------------- --------------------
------------- --------------------
------------- --------------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock and Warrants to the public at the prices set forth on the
cover page of this Prospectus and to certain dealers at such prices less
concessions not in excess of $ per share of Common Stock and $ per Warrant.
The Company and certain of its stockholders have granted to the Underwriters
an option, exercisable during the 45 calendar day period after the closing of
the Offering, to purchase from the Company and such stockholders at the initial
public offering price less underwriting discounts and the non-accountable
expense allowance, up to an aggregate of 187,500 shares of Common Stock and
187,500 Warrants for the sole purpose of covering over-allotments, if any.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of 3% of the gross proceeds of this Offering (US $50,000 of which has
been paid). Further, the Company has agreed to reimburse the Underwriters for
certain accountable expenses relating to this Offering.
All of the Company's stockholders (other than holders of 500,000 shares as
described in the next sentence) have agreed not to sell or otherwise dispose of
any of their shares of Common Stock for a period of twenty-four (24) months from
the date of this Prospectus without the prior written consent of the
Underwriters, which consent may be granted prior to the expiration of the
lock-up period but not prior to the exercise or expiration of the Underwriters'
Over-allotment Option. Holders of an aggregate of 500,000 shares of Common Stock
have agreed to identical lock-ups except that they shall be for a period of
twelve 12 months. Notwithstanding these lock-up agreements, all such persons may
make private transfers, provided that the transferees agree to be bound by the
same restrictions. An appropriate legend will be marked on the face of
certificates representing all such securities.
The Company has agreed, if requested by the Underwriters at any time within
three years after the Effective Date, to designate an individual to serve, as a
non-voting advisor to the Company's Board of Directors. The Underwriters have
not advised the Company whether they will exercise such right or, if they do so,
whom they will designate. The Underwriters' designee will receive the same
compensation, if any, for such service as other outside directors of the Board.
The Company has also agreed to retain the Underwriters, pursuant to a
consulting agreement (the "Consulting Agreement"), as the Company's financial
consultants at an aggregate monthly rate of US $5,000 for two year period
commencing on the Effective Date, all of which (US $120,000) is payable at the
closing of this Offering. Pursuant to the Consulting Agreement, the Underwriters
will render certain financial advisory and investment banking services to the
Company, including advice as to the Company's financial public relations,
internal operations, corporate finance matters, and other related matters.
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
51
<PAGE>
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. The Underwriters' Warrant contains anti-dilution provisions
providing for adjustment of the exercise price upon the occurrence of certain
events.
The Underwriters' Warrant will be nontransferable for a period of one year
from the date of this Prospectus except to officers of the Underwriters, other
underwriters, selected dealers, or their respective officers or partners. The
holder(s) of the Underwriters' Warrant will have no voting, dividend or other
rights of shareholders of the Company until such time as the Underwriters'
Warrant is exercised. Any gain from the sale of the Underwriters' Warrant or the
securities issuable upon exercise thereof may be deemed to be additional
underwriting compensation.
At the request of a majority of the holders of the Underwriters' Warrants
and/or underlying securities during the four-year period commencing one year
after the date of this Prospectus, the Company has agreed to file, at its
expense and on one occasion, and to use its best efforts to cause to become
effective, a new registration statement or prospectus required to permit the
public sale of the securities underlying the Underwriter's Warrant. In addition,
if at any time during the four-year period commencing one year after the date of
this Prospectus, the Company registers any of its securities or exempts such
securities from registration under the provisions of Regulation A or any
equivalent thereto, the holders of the Underwriters' Warrants will have the
right, subject to certain conditions, to include in such registration statement
at the Company's expense, all or any part of the securities underlying the
Underwriters' Warrants.
A new registration statement will be required to be filed and declared
effective before distribution to the public of the securities underlying the
Underwriters' Warrants. The Company will be responsible for the cost of
preparing such a registration statement.
During the term of the Underwriters' Warrants, the holders of the
Underwriters' Warrants are given the opportunity to profit from a rise in the
market price of the Common Stock and Warrants. To the extent that the
Underwriters' Warrants are exercised, dilution of the interests of the Company's
stockholders will occur. The Underwriters and their transferee(s) may be deemed
to be "underwriters" under the Securities Act with respect to the sale of the
Common Stock and Warrants to be received upon exercise of the Underwriters'
Warrants, and any profit realized upon such sale may be deemed to be additional
underwriting compensation. Further, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holder of the Underwriters' Warrants can be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
on terms more favorable to the Company than those provided in the Underwriters'
Warrants.
In addition, subject to the rules of the NASD, the Company has agreed to
engage the Underwriters as warrant solicitation agents, in connection with which
it would be entitled to a 5% fee upon exercise of the Warrants. In accordance
with NASD Notice to Members 81-38, no fee shall be paid: (i) upon the exercise
where the market price of the underlying Common Stock is lower than the exercise
price; (ii) for the exercise of Warrants held in any discretionary account;
(iii) upon the exercise of Warrants where disclosure of compensation
arrangements has not been made and documents provided to customers both as part
of the original Offering and at the time of exercise; (iv) upon the exercise of
Warrants in unsolicited transactions; or (v) unless the soliciting NASD member
is designated in writing. Notwithstanding the foregoing, no fees will be paid to
the Underwriters or any other NASD members upon exercise of the Warrants within
the first twelve months after the Effective Date. The certificates representing
the Warrants provide a space where a holder must affirmatively identify the NASD
member who solicited the exercise of such Warrant. Pursuant to the Warrant
Agreement, the Warrant Agent is responsible for determining when the fee is
owed. The Company has agreed not to engage any other firm as a warrant
solicitation agent.
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
52
<PAGE>
Common Stock and Warrants. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such persons may bid for or purchase Common Stock or Warrants for the
purpose of stabilizing their respective market prices. The Underwriters also may
create a short position for the account of the Underwriters by selling more
shares of Common Stock or Warrants in connection with the Offering than they are
committed to purchase from the Company, and in such case may purchase shares of
Common Stock or Warrants in the open market following completion of the Offering
to cover all or a portion of such short position. The Underwriters may also
cover all or a portion of such short position by exercising the Over-Allotment
Option. In addition, the Underwriters may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offering) for the account of other
Underwriters, the selling concession with respect to shares of Common Stock and
Warrants that are distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock and Warrants at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken they may be discontinued at any time.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Securities Act. To the extent this section may purport to
provide exculpation from possible liabilities arising under the Federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Underwriters' Warrant, and the Consulting Agreement and does not
purport to be complete. Reference is made to the copies of the Underwriting
Agreement, the Underwriters' Warrant Agreement, the Warrant Agreement and the
Consulting Agreement which are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
Prior to the Offering, there has been no public market for the Common Stock
and the Warrants offered hereby. Consequently, the initial public offering price
of the Common Stock and the Warrants and the exercise prices and other terms of
the Warrants have been determined by the Company and the Underwriters and is not
related to the Company's asset value, earnings, book value or other such
criteria of value. Factors considered in determining the initial public offering
price of the Common Stock and the Warrants and the exercise price of the
Warrants include primarily the prospects for the industry in which the Company
operates, the Company's management, the general condition of the securities
markets and the demand for securities in similar industries.
SERVICE AND ENFORCEMENT OF LEGAL PROCESS
Service of process upon the Company, its directors and the experts named
herein, most of whom reside outside the United States, may be difficult to
obtain within the United States. Furthermore, since substantially all of the
Company's and such persons' assets are outside the United States, any judgment
obtained in the United States against the Company or such person may not be
collectible within the United States. The Company has appointed Borden & Elliot
as its agent to receive service of process in any action against the Company in
any federal court or court in the State of New York arising out of the offering
make hereby or any purchase or sale of securities in connection therewith.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliott (Canadian counsel) and Gersten, Savage,
Kaplowitz, Fredericks & Curtin, LLP (U.S. counsel), 101 East 52nd Street, New
York, New York 10022. Gersten Savage has in the past represented
53
<PAGE>
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.
54
<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG, Chartered Accountant.................................................. F-2
Report of Zaritsky Penny, Chartered Accountant........................................ F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Operations and Retained Earnings........................... F-5
Consolidated Statements of Changes in Financial Position.............................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Med-Emerg International,
Inc. as at December 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings (deficit) and changes in financial position for
each of the years in the two year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Med-Emerg International, Inc. as at
December 31, 1996 and 1995 and the results of its operations and the changes in
its financial position for each of the years in the two year period ended
December 31, 1996 in accordance with accounting principles generally accepted in
Canada.
Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations for each of the years in the
two-year period ended December 31, 1996 and the shareholders' equity as of
December 31, 1996 and 1995, to the extent summarized in note 17 to the
consolidated financial statements.
The consolidated balance sheet of Med-Emerg, Inc. (a wholly owned subsidiary
of Med-Emerg International, Inc.) as at December 31, 1994 and the consolidated
statements of earnings and changes in financial position for the year then
ended, were audited and reported on separately by other auditors who expressed
an opinion without reservation on those statements in their report dated March
15, 1995. We have audited the statements of earnings and changes in financial
position of Med-Plus Health Centres Ltd. (a wholly owned subsidiary of Med-Emerg
International, Inc.) for the year ended December 31, 1994. The contribution of
Med-Plus Health Centres Ltd. to revenues and net income of Med-Emerg
International, Inc. for the year ended December 31, 1994 represented 14% and 17%
of the respective restated totals. We also audited the combination of the
accompanying consolidated statements of operations and retained earnings
(deficit) and changes in financial position of Med-Emerg International, Inc. for
the year ended December 31, 1994. In our opinion, such consolidated statements
have been properly combined on the basis described in note 1(a) of the notes to
the consolidated financial statements.
/s/ KPMG
KPMG
Chartered Accountants
Mississauga, Canada
March 26, 1997
F-2
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Med-Emerg, Inc. as at
December 31, 1994 and the consolidated statements of operations and retained
earnings and changes in financial position for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1994 and the results of its operations and the changes in its financial position
for the year then ended in accordance with generally accepted accounting
principles.
/s/ Zaritsky Penny
ZARITSKY PENNY
Chartered Accountants
London, Ontario
March 15, 1995
F-3
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------------- --------------------------
1997 1996 1996 1995
------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... 290,105 $ 4,410 $ 75,135 $ 5,035
Accounts receivable.................................... 2,036,957 2,423,529 2,108,139 2,223,808
Prepaid and other...................................... 153,989 52,488 63,109 156,304
Loan receivable (Note 4)............................... 68,000 -- -- --
------------- ------------ ------------ ------------
2,549,051 2,480,427 2,246,383 2,385,147
Loans to shareholders and directors (note 5)............. 87,471 48,224 87,471 50,268
Due from affiliates (note 6)............................. 54,393 40,383 52,227 37,255
Loan to officer (note 7)................................. 60,000 -- 60,000 --
Capital assets (note 8).................................. 287,292 149,803 246,520 154,357
Deferred taxes........................................... 113,801 41,467 146,554 --
Other assets (note 9).................................... 1,070,862 81,525 700,668 72,342
------------- ------------ ------------ ------------
$ 4,222,870 $ 2,841,829 $ 3,539,823 $ 2,699,369
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bank indebtedness (note 10)............................ 1,363,008 $ 794,166 $ 1,308,940 $ 1,225,295
Accounts payable and accrued liabilities............... 1,742,436 1,529,839 1,986,352 1,613,008
Income taxes payable................................... -- -- -- 27,319
Promissory note payable (notes 2 and 11)............... 781,368 -- 143,732 --
------------- ------------ ------------ ------------
3,886,812 2,324,005 3,439,024 2,865,622
Shareholders' equity:
Capital stock (note 11)................................ 7,192,179 844,765 7,055,179 189
Deficit................................................ (6,856,121) (326,941) (6,954,380) (166,442)
------------- ------------ ------------ ------------
336,058 517,824 100,799 (166,253)
Commitments and contingencies (notes 10, 14 and 18)......
------------- ------------ ------------ ------------
$ 4,222,870 $ 2,841,829 $ 3,539,823 $ 2,699,369
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 YEARS ENDED DECEMBER 31
--------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 2,836,034 $ 2,677,942 $ 10,817,048 $ 10,983,553 $ 10,474,754
Physician fees and other direct
costs.............................. 2,007,062 2,072,800 8,554,396 8,406,631 7,977,679
------------- ------------ ------------- ------------- -------------
828,972 605,142 2,262,652 2,576,922 2,497,075
Expenses:
Salaries and benefits.............. 364,314 356,921 1,450,320 1,327,912 1,394,181
Occupancy costs and supplies....... 88,797 68,004 355,603 375,071 340,289
General and administration......... 134,721 128,681 469,721 335,943 319,367
Travel and marketing............... 34,609 50,104 142,909 109,176 118,570
Stock compensation (note 11(b)).... -- 610,000 -- --
Depreciation and amortization...... 29,937 14,248 78,379 49,342 46,013
Write-off of deferred start-up
costs (note 3)................... -- 209,835 509,337 663,448 --
------------- ------------ ------------- ------------- -------------
652,378 827,793 3,616,269 2,860,892 2,218,420
------------- ------------ ------------- ------------- -------------
Income (loss) before interest,
financing and dividends............ 176,594 (222,651) (1,353,617) (283,970) 278,655
Interest, financing and dividend
income (expense), net.............. (45,582) (6,634) (55,461) 54,930 (51,879)
------------- ------------ ------------- ------------- -------------
Income (loss) before income taxes.... 131,012 (229,285) (1,409,078) (229,040) 226,776
Income taxes (recovery).............. 32,753 (68,786) (146,554) 71,447 52,245
------------- ------------ ------------- ------------- -------------
Net income (loss).................... 98,259 (160,499) (1,262,524) (300,487) 174,531
Retained earnings (deficit),
beginning of period................ (6,954,380) (166,442) (166,442) 338,051 163,520
Dividends............................ -- -- -- (80,383) --
Excess of redemption price over
issuance price of preference shares
(note 11(a))....................... -- -- (5,525,414) -- --
Excess of redemption price over
issuance price of common shares
(note 11).......................... -- -- -- (123,623) --
------------- ------------ ------------- ------------- -------------
Retained earnings (deficit), end of
period............................. $ (6,856,121) $ (326,941) $ (6,954,380) $ (166,442) $ 338,051
------------- ------------ ------------- ------------- -------------
Basic earnings (loss), per share
(note 16).......................... $ 0.05 $ (0.05) $ (0.42) $ (0.13) $ 0.07
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MED-EMERG INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash provided by (used for):
Operations:
Net income (loss)........................................ $ 98,259 $ (160,499) $(1,262,524) $ (300,487) $ 174,531
Items not involving cash: Depreciation and
amortization........................................... 29,937 14,248 78,379 49,342 46,013
Deferred income taxes.................................... 32,753 (41,467) (146,554) -- --
Stock compensation....................................... -- -- 610,000 -- --
Changes in non-cash operating working capital:
Accounts Receivable...................................... 71,182 (153,026) 235,367 (883,474) (440,753)
Prepaid and other........................................ (90,880) 106,820 98,340 (71,887) (62,299)
Accounts payable and accrued liabilities................. (243,916) (119,821) 65,824 793,848 174,710
Income taxes payable..................................... -- (27,319) (27,319) 7,036 93,418
---------- ---------- ---------- ----------- ---------
(102,665) (381,064) (348,487) (405,622) (14,380)
Investing:
Acquisition (note 2)..................................... -- (40,606) (324,863) -- --
Additions to capital assets.............................. (59,750) (4,204) (94,794) (63,291) (34,979)
Loan receivable.......................................... (68,000) -- -- -- --
Loans to shareholders and directors...................... -- 2,044 (37,203) (43,915) (1,650)
Loan to officer.......................................... -- -- (60,000) -- --
Other assets............................................. (381,153) 12,886 (196,534) 15,000 3,512
---------- ---------- ---------- ----------- ---------
(508,903) (29,880) (713,394) (92,206) (33,117)
Financing:
Issuance of common shares................................ 137,000 844,576 919,576 -- 2
Issuance of promissory note payable (notes 2 and 11)..... 680,000 -- 193,732 --
Repayment of promissory note payable (notes 2 and 11).... (42,364) -- (50,000) -- --
Dividends................................................ -- -- -- (80,383) --
Due from affiliates...................................... (2,166) (3,128) (14,972) (37,255) 46,532
Redemption of shares..................................... -- -- -- (123,640) --
---------- ---------- ---------- ----------- ---------
772,470 841,448 1,048,336 (241,278) 46,534
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Increase (decrease) in cash position....................... 160,902 430,504 (13,545) (739,106) (963)
Cash position, beginning of period......................... (1,233,805) (1,220,260) (1,220,260) (481,154) (480,191)
---------- ---------- ---------- ----------- ---------
Cash position, end of period............................... $(1,072,903) $ (789,756) $(1,233,805) $(1,220,260) $(481,154)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
Cash position is defined as:
Cash..................................................... $ 290,105 $ 4,410 $ 75,135 $ 5,035 $ 4,961
Bank indebtedness........................................ (1,363,008) (794,166) (1,308,940) (1,225,295) (486,115)
---------- ---------- ---------- ----------- ---------
$(1,072,903) $ (789,756) $(1,233,805) $(1,220,260) $(481,154)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
On January 22, 1996, the newly incorporated Med-Emerg International, Inc.
(the "Company") acquired all of the shares of two related companies, 927563
Ontario Inc. and 927564 Ontario Inc., in exchange for 2,333,333 shares of the
Company and has been recorded at the acquired companies aggregate net book
values of $(166,253).
The Company and its wholly owned subsidiaries, 927563 Ontario Limited,
927564 Ontario Limited, and their wholly owned subsidiaries, Med-Emerg Inc. and
Med-Plus Health Centres Ltd. and Urgent Care Centres Inc. respectively are
incorporated under the Ontario Business Corporations Act. The Companies operate
under the trade name Med-Emerg International, in two areas of emergency related
healthcare, the providing of Emergency Medical Services and the providing of
Clinical Operations, in both the Canadian and international marketplace.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of consolidation:
The formation of the Company and the transfer to it of the shares of 927563
Ontario Inc. and 927564 Ontario Inc. constituted the combination of companies
under common control; accordingly, these transactions have been recorded in a
manner similar to a pooling of interest and the consolidated balance sheet of
the Company as of the date of acquisition of the numbered companies reflects the
combination of the book values of the assets and liabilities of the predecessor
companies. The consolidated statements of operations for periods prior to the
formation of the Company reflect the combination of the historical results of
operations of the predecessor entities for all years presented.
(b) Principles of consolidation:
The consolidated statements include the accounts of Med-Emerg International,
Inc. and its subsidiaries (collectively called the "Company").
Investments in jointly controlled partnerships are accounted for using the
proportionate consolidation method whereby the Company's proportionate share of
revenues, expenses, assets and liabilities is recorded in the accounts.
Significant intercompany accounts and transactions have been eliminated on
consolidation.
(c) Development and start-up costs:
Direct costs incurred, net of any revenue, during the development and
start-up period for a new clinic are deferred until the clinic reaches a
commercial level of activity, and amortized on a straight-line basis over three
years. If a subsequent decision is made to discontinue the clinic, or if there
is no longer reasonable assurance that the amounts deferred are recoverable from
operations of the clinic, the unamortized balance is written off.
(d) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-7
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(e) Capital assets:
Capital assets are stated at cost. Depreciation is provided on the carrying
values of the assets using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----------------------------------------- ----------------------------------------- ---------
<S> <C> <C>
Furniture and fixtures Declining balance 20%
Computer software Declining balance 100%
Computer hardware Declining balance 30%
Leasehold improvements Straight line 5 years
</TABLE>
(f) Goodwill:
Goodwill is recorded at cost and is being amortized over a period of 10
years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected future operating results. Impairment, if any, is
measured based upon an estimate of the fair value of the goodwill. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating results are not achieved.
(g) Revenue recognition:
The Company provides emergency department physician staffing and
administrative support services to hospitals pursuant to contracts under which
the Company's services are provided on a monthly fee basis or on a per shift
basis. The Company recognizes revenues under its contracts with hospitals as its
services are rendered, based on an accrual of the monthly fee or actual shifts
worked, in accordance with the terms of the contracts. The Company's fees are
based on the individual requirements of each hospital as it relates to the hours
of coverage, the patient volume, the hospital's location and the availability of
a local physician pool. In addition, the Company recognizes revenues as medical
services are rendered by physicians under contract with the Company, in
accordance with the Ontario Health Insurance Plan (OHIP). The Company bills and
collects from OHIP all fees relating to medical services rendered by the
physician. The Company then pays the physician for the medical services provided
based on the terms of the contract between the Company and the physician. The
Company's gross margin on hospital contracts is comprised of approximately 8% to
20% of OHIP billings plus the administrative fees charged to the hospital.
The Company's clinical operations and urgent care centres provide family
practice and walk-in medical services to patients. The Company recognizes
revenues as medical services are rendered and billed in accordance with the
Ontario Health Insurance Plan. The Company's physician contracts are entered
into between the Company and individual physicians and are either part-time or
full-time. In general, each contracted physician will be placed in a functioning
facility by the Company and the Company bills and collects from OHIP all fees
relating to medical services rendered by the physician. The Company then pays
the physician for the medical services provided based on the terms of the
contract between the Company and the physician. The Company's gross margin on
such physician's medical services ranges from 35% to 43%.
F-8
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
2. ACQUISITIONS:
Effective August 1, 1996, the Company purchased certain assets and assumed
certain liabilities of the St. George Medical Clinic, a Health Services
Organization ("HSO"), for cash of $15,525 a non-interest bearing promissory note
payable of $193,732, payable in 15 equal monthly instalments and 75,000 common
shares of the Company valued at $75,000.
Effective January 1, 1996, the Company purchased a 33-1/3% interest in
Glenderry Medical Clinic, Partnership for consideration of $27,208.
The following is a summary of assets purchased and liabilities assumed:
<TABLE>
<CAPTION>
ST. GEORGE GLENDERRY TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Total assets................................................................ $ 127,588 $ 55,189 $ 182,777
Goodwill.................................................................... 427,537 22,069 449,606
Less liabilities assumed.................................................... (270,868) (36,652) (307,520)
----------- ---------- -----------
284,257 40,606 324,863
Cash........................................................................ -- (13,398) (13,398)
----------- ---------- -----------
$ 284,257 $ 27,208 $ 311,465
----------- ---------- -----------
</TABLE>
Summarized unaudited balance sheet information of the Company's
proportionately consolidated 33-1/3% interest in Glenderry Medical Clinic,
Partnership at March 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Current assets.......................................................................... $ 50,696 $ 58,222
Capital assets, net..................................................................... 1,752 1,747
Current liabilities..................................................................... (47,729) (50,861)
---------- ------------
Equity.................................................................................. $ 4,719 $ 9,108
---------- ------------
</TABLE>
Summarized unaudited results of operations and cash flow information of the
Company's proportionately consolidated partnership interest for the three months
ended March 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Revenue................................................................................. $ 56,217 $ 253,117
Expenses................................................................................ 60,606 250,243
----------- ------------
Net (loss) income....................................................................... $ (4,389) $ 2,874
Changes in non-cash components of working capital....................................... 10,002 (4,705)
----------- ------------
Cash flows from operations.............................................................. 5,613 (1,831)
Cash flow from investing activities..................................................... (102) (393)
----------- ------------
Increase (decrease) in cash position.................................................... $ 5,511 $ (2,224)
----------- ------------
----------- ------------
</TABLE>
F-9
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
2. ACQUISITIONS: (CONTINUED)
The proportionate taxable income or loss of the partnership is included in
the taxable income of the respective partners. Accordingly, no provision for
income taxes on this entity is included in the above amounts.
3. WRITE-OFF OF DEFERRED START-UP COSTS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
----- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Write-off of deferred start-up project costs............................. $ -- $ 166,960 $ 466,462 $ 663,448
Write-off of advances relating to Malaysia project....................... -- 42,875 42,875 --
--- ---------- ---------- ----------
$ -- $ 209,835 $ 509,337 $ 663,448
--- ---------- ---------- ----------
--- ---------- ---------- ----------
<CAPTION>
<S> <C>
1994
-----
<S> <C>
Write-off of deferred start-up project costs............................. $ --
Write-off of advances relating to Malaysia project....................... --
---
$ --
---
---
</TABLE>
Effective September 18, 1995, the Company acquired 60% of the outstanding
shares of Canadian Medical Centres s.r.o., a medical clinic in Prague, Czech
Republic by agreeing to fund development and start-up costs. The remaining 40%
of the shares were acquired by December 31, 1995 as part of the continued
funding.
Subsequent to the acquisition, the Company determined that there was no
reasonable assurance that the deferred development and start-up costs would be
recovered from future operations. Deferred development and start-up costs
totalling $663,448 have been written off at December 31, 1995. Additional costs
incurred subsequent to the acquisition in the year ended December 31, 1996 in
the amount of $466,462, and in the three months ended March 31, 1996 in the
amount of $166,960, have been written off.
The Company is no longer providing funding for the clinic in Prague.
4. LOAN RECEIVABLE:
The loan to Emergency Care Specialist Inc. in the amount of US $50,000 bears
interest at prime plus 1% and is due August 21, 1997, and is secured by all of
the assets of Emergency Care Specialist Inc.
5. LOANS TO SHAREHOLDERS AND DIRECTORS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Loans to shareholders and directors, unsecured, non-interest bearing,
no specific terms of repayment...................................... $ 87,471 $ 48,224 $ 87,471 $ 50,268
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Concurrent with the initial public offering disclosed in note 15, the
Company will repurchase 37,456 common shares held by directors, as consideration
for the repayment of loans to directors and shareholders totalling $87,471, as
well as amounts due from affiliates totalling $54,393.
The purchase of the 33-1/3% partnership interest in Glenderry Medical
Clinic, as described in note 2, was purchased from a director, the Chief
Executive Officer of the Company.
F-10
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
5. LOANS TO SHAREHOLDERS AND DIRECTORS: (CONTINUED)
The proceeds of the sale were used to repay a loan from the Company to the
Chief Executive Officer.
6. DUE FROM AFFILIATES:
The amounts due from affiliates are non-interest bearing and due on demand.
Repayment of these amounts is described in note 5 above.
7. LOAN TO OFFICER:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- ----- --------- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Loan to officer, unsecured, non-interest bearing, repayable over a five-year
period with principal repayments commencing December 1998................... $ 60,000 $ -- $ 60,000 $ --
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
8. CAPITAL ASSETS:
<TABLE>
<CAPTION>
MARCH 31 (UNAUDITED)
----------------------
1997 1996
---------- ----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Furniture and fixtures.............................................. $ 222,825 $ 116,646 $ 106,179 $ 57,642
Computer software................................................... 79,924 73,216 6,708 1,941
Computer hardware................................................... 290,741 172,246 118,495 82,641
Leasehold improvements.............................................. 136,158 80,248 55,910 7,579
---------- ------------ ---------- ----------
$ 729,648 $ 442,356 $ 287,292 $ 149,803
---------- ------------ ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Furniture and fixtures......................................... $ 205,049 $ 113,493 $ 91,556 $ 58,133
Computer software.............................................. 79,925 65,216 14,709 1,834
Computer hardware.............................................. 287,768 166,287 121,481 88,210
Leasehold improvements......................................... 97,791 79,017 18,774 6,180
---------- ------------ ---------- ----------
$ 670,533 $ 424,013 $ 246,520 $ 154,357
---------- ------------ ---------- ----------
</TABLE>
F-11
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
9. OTHER ASSETS:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------------------- ---------------------
1997 1996 1996 1995
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Goodwill (note 2) (net of accumulated amortization of $28,772
($17,814 at December 31, 1996))................................. $ 420,834 $ 22,069 $ 431,792 $ --
Deferred start-up costs........................................... 78,058 -- 58,574 --
Deferred charges relating to proposed financing (note 15)......... 311,865 -- 153,907 --
Loan to Preventative Health Innovations Inc., unsecured,
non-interest bearing, with no specific repayment terms.......... 42,895 54,456 48,895 42,342
Deferred financing charges relating to bridge note financing (net
of accumulated amortization of $13,890)......................... 209,710 -- -- --
Other............................................................. 7,500 5,000 7,500 30,000
------------ --------- ---------- ---------
$ 1,070,862 $ 81,525 $ 700,668 $ 72,342
------------ --------- ---------- ---------
</TABLE>
10. BANK INDEBTEDNESS:
The bank indebtedness forms part of the Company's bank credit facilities
totalling $1,200,000 which may be drawn on by demand loans at the bank's prime
rate plus 1-1/2%. Both the bank indebtedness and the bank loan are secured by a
general security agreement over all of the Company's assets.
The terms of the banking agreement contain, among other provisions,
requirements for maintaining defined levels of net worth and financial ratios.
At March 31, 1997 and December 31, 1996, the Company did not comply with the net
worth covenant and one of its financial ratio covenants. As a result of these
defaults, the bank is in a position to demand repayment of its loan.
11. CAPITAL STOCK:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------ -----------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------ ---------- ------------ ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of preference shares, redeemable at US$9 per
share, having a cumulative dividend of US$0.27 per share......
Unlimited number of Class "A", redeemable retractable,
non-cumulative preferred shares...............................
Unlimited number of Class "B", redeemable, retractable,
non-cumulative preferred shares...............................
Unlimited number of common shares...............................
Issued:
500,000 redeemable preference shares............................ $ 6,120,000 $ -- $ 6,120,000 $ --
1,952,000 common shares......................................... 1,072,179 844,765 935,179 189
------------ ---------- ------------ ---------
$ 7,192,179 $ 844,765 $ 7,055,179 $ 189
</TABLE>
F-12
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
11. CAPITAL STOCK: (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------ -----------------------
1997 1996 1996 1995
------------ ---------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
------------ ---------- ------------ ---------
</TABLE>
<TABLE>
<CAPTION>
COMMON SHARES
-------------------------
<S> <C> <C>
NUMBER AMOUNT
----------- ------------
Balance, December 31, 1994............................................................ 200 $ 206
Share redemption...................................................................... (17) (17)
----------- ------------
Balance, December 31, 1995............................................................ 183 189
Shares redeemed on reorganization..................................................... (183) (189)
Issuance of shares upon reorganization................................................ 2,333,333 189
Shares issued on private placement.................................................... 1,000,000 844,576
----------- ------------
Balance, March 31, 1996............................................................... 3,333,333 844,765
Shares issued on purchase of St. George Medical Clinic, Partnership................... 75,000 75,000
Share exchange........................................................................ (2,203,333) (594,586)
Shares issued in connection with past services........................................ 610,000 610,000
----------- ------------
Balance, December 31, 1996............................................................ 1,815,000 935,179
Shares issued related to bridge financing in January 1997............................. 125,000 125,000
Shares issued to director as compensation............................................. 12,000 12,000
----------- ------------
Balance, March 31, 1997............................................................... 1,952,000 $ 1,072,179
----------- ------------
----------- ------------
</TABLE>
F-13
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
11. CAPITAL STOCK: (CONTINUED)
In connection with the acquisition of all of the common shares of 927563
Ontario Inc. and 927564 Ontario Inc. as described in note 1(a), the Company
issued as consideration 2,333,333 common shares.
In 1995, 927563 Ontario Inc. and 927564 Ontario Inc. redeemed and cancelled
an aggregate 17 shares from the controlling shareholders for cash consideration
of $123,640. The consideration paid approximated $0.57 per share taking into
consideration the retroactive effect of the capital restructuring that occurred.
On January 22, 1996, the Company completed a private stock offering, issuing
1,000,000 common shares for net proceeds of $844,576 after deducting issue costs
of $155,424, and 1,000,000 warrants to acquire common shares at $2.00 per share,
expiring in January 1999.
In connection with the acquisition of St. George Medical Clinic, Partnership
described in note 2, on August 1, 1996, the Company issued 150,000 common shares
at an ascribed value of $1.00 per share. In connection with the capital
restructuring, the shareholder contributed 75,000 shares of such common stock to
the share capital of the Company (See note 18; Legal Proceedings).
On November 1, 1996, the Board of Directors authorized the following capital
restructuring:
(a) The controlling shareholders exchanged 2,203,333 common shares for
500,000 voting preferred shares, having an ascribed value of US$4,500,000 at
the date of issuance. Each share entitles the holder to eight votes per
share until the Company engages in a public offering of its securities at
which time each share will be entitled to one vote per share having a
redemption price of US$9.00 per share or US$4,500,000. Each share is
convertible into common stock of the Company at the option of the holder at
a price equal to US$9.00 per common share for a ten year period from the
date of issuance. At the end of the ten year period, the Company has the
obligation to redeem the preferred shares for their redemption price or
issue the equivalent number of common shares based upon their then market
value.
The preferred shares are entitled to receive a cumulative dividend of
US$0.27 per share payable in cash or equivalent common shares based on their
then quoted market value.
The issuance of the preferred shares was recorded in the amount of
$6,120,000 based on the value ascribed to the shares, translated at the
exchange rate in effect at the date of issuance, and resulted in a charge of
$5,525,414 to retained earnings, which represents the excess of the value
ascribed to the preferred shares issued over the carrying value of the
common shares cancelled.
In the event that the initial public offering contemplated by the letter
of intent dated September 5, 1996 (see note 15) has not closed by September
5, 1997, the holders of any preferred shares of the Company, shall have the
right, at any time up to November 30, 1997, to convert such preferred shares
into common shares in the capital of the Company as will result in such
holders owning common shares of the Company in the same percentage as the
original holders of preferred shares owned at September 5, 1996.
(b) The Company issued of 610,000 common shares to a shareholder in
consideration of past services rendered including the identification of
potential acquisition candidates and assisting the
F-14
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
11. CAPITAL STOCK: (CONTINUED)
Company in developing a strategic business plan. The issuance of the common
shares was recorded at an ascribed value determined at $1.00 per share or
$610,000 as a charge to compensation expense in the Company's 1996
consolidated statement of operations.
(c) All of the common share purchase warrants issued by the Company on
January 22, 1996 were surrendered. No consideration was paid.
In the event that the initial public offering contemplated by the letter
of intent dated September 5, 1996 has not closed by September 5, 1997, the
Company will return as soon as reasonably practicable, common share purchase
warrants with substantially the same terms to holders of the surrendered
warrants.
In January 1997, the Company completed a private offering and sale of
promissory notes ("Bridge Notes") with a principal amount of US$500,000. The
promissory notes bear interest at a rate of 8% and are due on the earlier of 18
months from the date of issuance or receipt by the Company of at least
US$4,000,000 from the sale of its debt and/or equity securities in a public or
private financing. The Bridge Note holders also received 125,000 common shares
having an ascribed value of $1 per common share. The value ascribed to the
common shares was accounted for as a financing cost and is being deferred and
charged to income over the term to maturity of the Bridge Notes.
At March 31, 1997, the Company had issued 12,000 common shares to Mr. Rubin
for services rendered in his capacity as a director of the Company. The issuance
of these shares was accounted for as compensation expense as the related
services are rendered by Mr. Rubin. The Company will issue an additional 38,000
over the remaining nine months for services rendered.
Under a stock option plan, Mr. Robert Rubin was granted an option on
November 1, 1996 to purchase 700,000 common shares of the Company at an exercise
price of US$.75 per share.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of cash, accounts receivable and accounts payable
approximate the fair values because of the short-term nature of these
instruments.
Other financial instruments held or issued by the Company include
non-interest bearing amounts due from related parties and a promissory note
payable. The Company does not have plans to sell these financial instruments to
third parties and will realize or settle them in the ordinary course of
business. The fair value of these instruments cannot be reasonably estimated
because no active and liquid market exists for these instruments, and a market
rate of interest (for instruments having similar terms and characteristics)
required to use estimation techniques such as discounted cash flow analysis
cannot reasonably be determined due to the unusual related party aspects of
these instruments.
F-15
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
13. INCOME TAXES:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- ---------- ----------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................................. $ $ (27,319) $ -- $ 71,447 $ 52,245
Deferred................................................ 32,753 (41,467) (146,554) -- --
--------- ---------- ----------- --------- ---------
$ 32,753 $ (68,786) $ (146,554) $ 71,447 $ 52,245
--------- ---------- ----------- --------- ---------
--------- ---------- ----------- --------- ---------
</TABLE>
The effective rate of income taxes provided in the statement of operations
varies from the combined federal and provincial statutory income rates as
follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED) % %
<S> <C> <C> <C> <C>
Income tax expense (recovery) computed at statutory income tax rate............. 44.6 (44.6) (44.6) (44.6)
Reduction for small business deduction.......................................... (19.6) 22.0 22.0 22.0
Write-off of non-deductible start-up costs...................................... -- -- 12.2 66.0
Other........................................................................... -- (7.4) -- (12.3)
--------- --------- --------- ---------
25.0 (30.0) (10.4) 31.1
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
<S> <C>
1994
---------
%
<S> <C>
Income tax expense (recovery) computed at statutory income tax rate............. 44.3
Reduction for small business deduction.......................................... (21.3)
Write-off of non-deductible start-up costs...................................... --
Other........................................................................... --
---------
23.0
---------
---------
</TABLE>
At March 31, 1997, the Company has available non-capital loss carryforwards
of $455,000 to utilize against future taxable income, computed at the statutory
income tax rate. These losses expire in 2003. In addition, the Company has
capital loss carryforwards of approximately $766,000, which may be applied
against future taxable capital gains. No accounting recognition has been given
to these capital loss carryforwards.
14. COMMITMENTS:
The Company is committed to payments under operating leases for certain of
its premises and equipment totalling $709,000. Annual payments for the next five
years are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 185,000
1998.............................................................................. 143,000
1999.............................................................................. 148,000
2000.............................................................................. 121,000
2001 and thereafter............................................................... 112,000
---------
$ 709,000
---------
---------
</TABLE>
Rent expense charged to operations at March 31, 1997 was $47,909 (December
31, 1996--$208,050; March 31, 1996--$42,797; December 31, 1995--$214,744;
December 31, 1994--$234,024).
F-16
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
15. SUBSEQUENT EVENTS:
The Company has entered into a letter of intent dated September 5, 1996 with
an underwriting firm and is proceeding to complete an initial public offering of
1,250,000 shares of Common Stock and 1,250,000 Class A Redeemable Common Stock
Purchase Warrants at an initial public offering price of US$3.90 and US$0.10
respectively for an aggregate public offering of US$5,000,000. Each warrant
entitles the holder to purchase one share of common stock at a price of US$5.00
for a four year period commencing one year from the date of completion of the
offering. Upon successful completion of the offering, the Company will apply to
have its stock listed on NASDAQ.
In April 1997, the Board of Directors obtained shareholder approval of the
Company's Stock Option Plan (the "Plan"). Pursuant to the Plan, options to
acquire an aggregate of 250,000 shares of common stock may be granted. The Plan
is to provide for grants to employees, consultants and directors of the Company
to enable them to purchase shares. The Company has granted options to purchase
an aggregate of 228,500 shares of Common Stock at an exercise price of US$2.50
per share.
16. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share immediately prior to the initial public
offering described in note 15 is calculated based on the weighted average number
of common shares outstanding during the period. Fully diluted earnings per share
are $0.04 at March 31, 1997. Fully diluted earnings per share for prior periods
has not been presented because stock options and warrants outstanding are
anti-dilutive due to the losses incurred by the Company.
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
Consolidated statements of operations:
If United States GAAP were employed, net income (loss) for the period would
be adjusted as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ------------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss) based on Canadian GAAP................. 98,259 (160,499) $ (1,262,524) $ (300,487) $ 174,531
Effect of SFAS No. 109................................... 1,000 -- (52,000) -- --
Deferred charges......................................... (19,484) -- (58,574) -- --
Stock compensation as result of issuance of options to
acquire 700,000 shares................................. -- -- (1,246,000) -- --
Additional stock compensation charge..................... (21,360) -- (1,085,800) -- --
Additional finance expense............................... (24,722) -- -- -- --
---------- ---------- ------------- ----------- ----------
Net income (loss) based on United States GAAP............ $ 33,693 (160,499) $ (3,704,898) $ (300,487) $ 174,531
---------- ---------- ------------- ----------- ----------
Primary earnings (loss) per share........................ $ 0.01 $ (0.07) $ (1.53) $ (0.13) $ 0.08
---------- ---------- ------------- ----------- ----------
---------- ---------- ------------- ----------- ----------
</TABLE>
F-17
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
If United States GAAP were employed, retained earnings (deficit) for the
period would be adjusted as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------------- ----------- --------------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Retained earnings (deficit) based on
Canadian GAAP.......................... $ (6,856,121) $ (326,941) $ (6,954,380) $ (166,442) $ 338,051
Additional stock compensation expense.... (1,107,160) -- (1,085,800) -- --
Additional finance expense............... (24,722) -- -- -- --
Additional compensation expense-- stock
option................................. (1,246,000) -- (1,246,000) -- --
Cumulative effect of (SFAS No. 109)...... (51,000) -- (52,000) -- --
Deferred charges......................... (78,058) -- (58,574) -- --
--------------- ----------- --------------- ----------- ----------
Retained earnings (deficit) based on
United States GAAP..................... $ (9,363,061) $ (326,941) $ (9,396,754) $ (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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ----------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 196,300 $ 95,000 $ 258,000 $ -- $ --
Bridge financing loan costs................................ 3,700 -- -- -- --
---------- ---------- ----------- ---------- ----------
200,000 95,000 258,000
Less:
Valuation allowance...................................... (86,199) (53,533) (111,446) -- --
---------- ---------- ----------- ---------- ----------
113,801 41,467 146,554 -- --
Deferred tax liabilities:
Goodwill................................................. (51,000) -- (52,000) -- --
---------- ---------- ----------- ---------- ----------
Net deferred tax........................................... $ 62,801 $ 41,467 $ 94,554 $ -- $ --
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
The balance sheet effect of applying SFAS No. 109 would be as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
--------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- --------- ---------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax asset (as previously shown)....................... $ 113,801 $ 41,467 $ 146,554 $ -- $ --
Adjustments to deferred taxes as a result of additional
goodwill arising on acquisition.............................. (51,000) -- (52,000) -- --
---------- --------- ---------- --------- ---------
Deferred taxes--U.S. GAAP...................................... $ 62,801 $ 41,467 $ 95,554 $ -- $ --
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
</TABLE>
CONSOLIDATED BALANCE SHEETS
DEFERRED TAXES:
As a result of adopting Statement 109, at March 31, 1997, net deferred
income tax assets would have been reduced by $51,000 (December 31,
1996--$52,000) with an offsetting debit to goodwill of $51,000 (December 31,
1996--$52,000).
(b) Deferred start-up costs:
Under Canadian GAAP, development and start-up costs, which meet certain
criteria, are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.
F-19
<PAGE>
MED-EMERG INTERNATIONAL, INC
Notes to Consolidated Financial Statements (Continued)
(in Canadian dollars)
Years ended December 31, 1996, 1995 and 1994
(information relating to the three months ended March 31, 1997 and 1996 is
unaudited)
17. CANADIAN AND UNITED STATES ACCOUNTING DIFFERENCES: (CONTINUED)
(c) Earnings per share
United States GAAP requires common shares and warrants to purchase common
shares, issued or exercisable at prices below the initial public offering
("IPO") price and which were issued within one year prior to the initial filing
of the registration statement relating to the IPO, to be treated as if the
common shares were outstanding from the beginning of the period in the
calculation of weighted average number of common shares outstanding and loss per
share, even where such inclusion is anti-dilutive. Primary earnings per common
share is determined using the weighted average number of shares outstanding
during the year, adjusted to reflect the application of the treasury stock
method for outstanding options and warrants in accordance with United States
GAAP.
(d) Stock compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), was issued by the Financial Accounting
Standards Board in October, 1995. SFAS 123 establishes financial accounting and
reporting standards for transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees, as well as
stock-based employee compensation plans. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are to be accounted for based on the fair value of the consideration received or
the fair value of the equity instrument issued, whichever is more reliably
measurable. Under Canadian GAAP, the issuances of shares or agreements to issue
shares and options all took place at the ascribed value of $1.00 per share.
Pursuant to the Securities and Exchange Commission regulations, these issuances
are required to be measured at a value of $2.05 US ($2.78 CDN) per share.
For those transactions described in note 11 and under SFAS 123:
- the issuance of 610,000 shares to a shareholder (note 11(b)) has resulted
in an additional charge to income equal to $1,085,800 in 1996 denoted as
stock compensation based on $2.05 US ($2.78 CDN) per share under U.S.
GAAP;
- the issuance of 125,000 common shares to promissory note holders resulted
in an additional charge to income (finance expense) over the term of the
related promissory note payable, at $2.05 US ($2.78 CDN) per share equal
to $222,500 under U.S. GAAP, of which $24,722 has been charged to earnings
in the three months ending March 31, 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 under
U.S. GAAP. To March 31, 1997, 12,000 shares had been issued, resulting in
a charge to compensation expense of $21,360 in the three month period
ended March 31, 1997;
(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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
17. 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 11, have been given no recognition in the
financial statements.
Under U.S. GAAP, detachable stock purchase warrants are given separate
recognition from the primary security issued. Upon initial recognition, the
carrying amount of the two securities is allocated based on the relative fair
values at the date of issuance. Under U.S. GAAP, based on an ascribed fair value
of $.05 for each of the 1,000,000 share warrants issued, share capital would be
lower by $50,000 and, given that the stock purchase warrants were cancelled
during the year, the carrying amount of contributed surplus would be increased
by $50,000.
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995
------------- ---------- ------------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Capital stock (as previously shown)....................... $ 7,192,179 $ 844,765 $ 7,055,179 $ 189
Adjustments to share capital:
Ascribed fair value of share purchase warrants issued..... (50,000) (50,000) (50,000) --
Additional stock compensation............................. 1,329,660 -- 1,085,800 --
------------- ---------- ------------- -----------
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
Share purchase warrants................................... 50,000 50,000 50,000 --
Stock compensation as a result of issuance of options to
acquire 700,000 shares.................................. 1,246,000 -- 1,246,000 --
------------- ---------- ------------- -----------
Contributed surplus--U.S. GAAP............................ 1,296,000 50,000 1,296,000 --
Deficit--U.S. GAAP........................................ (9,363,061) (326,941) (9,396,754) (166,442)
------------- ---------- ------------- -----------
Shareholders' equity (deficit)--U.S. GAAP................. $ 344,778 $ 517,824 $ (69,775) $ (166,253)
------------- ---------- ------------- -----------
------------- ---------- ------------- -----------
</TABLE>
(f) Consolidated statement of changes in financial position:
Under United States GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of changes in financial
position. Accordingly, the $54,068 increase (decrease) at March 31, 1997
(December 31, 1996--$83,645; March 31, 1996--($431,129); December 31,
1995--$739,180; December 31, 1994--$5,276 increase) would be presented as a
financing activity for each year.
In addition, under United States GAAP, the acquisition of the St. George
Medical Clinic (note 2) would be reported on a cash basis in the consolidated
statement of changes in financial position. Accordingly, under investing
activities, acquisitions of $324,863, reported as of December 31, 1996 would be
reduced by $268,732, with reductions under financing activities to Issuance of
Promissory Notes of $193,732 and issuance of common shares of $75,000.
F-21
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
18. CONTINGENCIES:
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 11), 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 believes the claim is without
merit 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
September 5, 1997, the Company will return, as soon as reasonably practicable,
the 75,000 contributed common shares to the shareholder.
REVENUE:
The Company's operations are subject to extensive federal and provincial
government regulation. Substantially all of the Company's operating revenue is
derived from government funded and administered programs. In Canada, the health
care system is publicly administered and is largely considered not-for-profit. A
large for-profit health care sector nevertheless co-exists within the non-profit
section. Ontario Health Insurance Plan fee for service over the past three years
has been "clawed back" to ensure a total spending freeze of $3.8 billion per
year in Ontario.
Clawback adjustments for prior periods, and management's best estimates of
clawback adjustments for the current year have been reflected as a liability and
are charged to operations. Management's best estimates of clawback adjustments
recoverable from physicians and hospitals are recorded in accounts receivable
and offset the amount of clawback charged to operations.
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Clawback Liability.................................... $ 651,738 $ 631,260 $ 724,713 $ 379,468 $ 61,471
Clawback Receivable................................... 497,372 588,953 510,475 471,681 --
Clawback Expense...................................... -- 28,352 143,261 176,949 124,546
</TABLE>
PARTNERSHIP INTEREST:
The Company may become contingently liable for some or all of the
obligations of the partnership in which it has a direct interest. However,
against this contingent liability, the Company would have a claim upon the
assets of the partnership and, in certain limited cases, their partners.
CONTRACTS WITH PHYSICIANS:
The Company contracts with physicians as independent contractors, rather
than employees, to fulfill its contractual obligations to hospitals. Therefore,
the Company did not historically, and the Company
F-22
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
18. CONTINGENCIES: (CONTINUED)
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 15 and operating revenues will provide
sufficient capital to finance the Company's anticipated growth during the 12
months following completion of the offering. If the Company encounters
unexpected expenses during such period, or if after such period, revenues from
operations are not sufficient to fund operations or growth, the Company may
require additional financing. There can be no assurance that the Company will be
able to obtain the requisite additional financing on acceptable terms, that the
Company will be able to sell any securities or obtain bank borrowings or other
debt financing, or what the terms of the equity transactions or borrowings might
be.
19. SEGMENTED INFORMATION:
The Company operates in two areas of emergency related healthcare, the
providing of Emergency Medical Services and the providing of Clinical
Operations.
The Emergency Medical Services operations involve providing physician
staffing and administrative support to emergency departments and physician
recruitment services to hospitals and emergency physician groups.
Clinical operations include offering family practices, walk-in services and
chiropractic and massage therapy to patients.
Details are as follows:
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1997 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue............................................................... $ 2,215,505 $ 620,529 $2,836,034
</TABLE>
F-23
<PAGE>
MED-EMERG INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
19. SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1997 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Operating income...................................................... 64,763 111,831 176,594
Assets employed at year-end........................................... 3,313,514 909,356 4,222,870
Depreciation.......................................................... 14,000 15,937 29,937
Capital expenditures.................................................. 49,082 10,668 59,750
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
MARCH 31, 1996 SERVICES OPERATIONS CONSOLIDATED
- ---------------------------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Revenue............................................................... $ 2,294,529 $ 383,413 $2,677,942
Operating loss........................................................ (17,505) (205,146) (222,651)(i)
Assets employed at year-end........................................... 2,427,127 414,702 2,841,829
Depreciation.......................................................... 10,456 3,792 14,248
Capital expenditures.................................................. 4,204 -- 4,204
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1996 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,783,309 $ 2,033,739 $ 10,817,048
Operating loss before Stock Compensation........................... (332,644) (410,973) (743,617)(i)
Stock Compensation................................................. -- -- (610,000)
-------------
Operating loss..................................................... (1,353,617)
Assets employed at year-end........................................ 2,621,707 918,116 3,539,823
Depreciation....................................................... 40,679 37,700 78,379
Capital expenditures............................................... 85,304 9,490 94,794
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1995 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 9,505,619 $ 1,477,934 $ 10,983,553
Operating income (loss)............................................ 357,158 (641,128) (283,970)(i)
Assets employed at year-end........................................ 2,358,583 340,786 2,699,369
Depreciation....................................................... 36,906 12,436 49,342
Capital expenditures............................................... 59,266 4,025 63,291
</TABLE>
<TABLE>
<CAPTION>
EMERGENCY
MEDICAL CLINICAL
DECEMBER 31, 1994 SERVICES OPERATIONS CONSOLIDATED
- ------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenue............................................................ $ 8,997,127 $ 1,477,627 $ 10,474,754
Operating income................................................... 248,907 29,748 278,655
Assets employed at year-end........................................ 1,405,015 258,800 1,663,815
Depreciation....................................................... 32,280 13,733 46,013
Capital expenditures............................................... 34,019 960 34,979
</TABLE>
(i) Operating profit of the Clinical Operations Division for the three months
ended March 31, 1996, as well as the years ended December 31, 1996 and
December 31, 1995, include the non-recurring write-off of startup costs in
the amount of $209,835, $509,337 and $663,448 respectively.
Total operating loss for the year ended December 31, 1996 includes a
$610,000 general corporate charge for Stock Compensation costs paid to an
investment advisor.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CON-TAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 15
Dilution........................................ 17
Capitalization.................................. 18
Dividends....................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business........................................ 29
Management...................................... 39
Certain Relationships and Related
Transactions.................................. 43
Principal Stockholders.......................... 44
Selling Allotment Securityholders............... 45
Description of Securities....................... 46
Shares Eligible for Future Sale................. 50
Underwriting.................................... 51
Legal Matters................................... 54
Experts......................................... 54
Financial Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
MED-EMERG
INTERNATIONAL, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 CLASS A REDEEMABLE COMMON
STOCK PURCHASE WARRANTS.
NETWORK 1
FINANCIAL SECURITIES, INC.
CENTURY CITY
SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
MED-EMERG INTERNATIONAL INC.
125,000 SHARES OF COMMON STOCK
This Prospectus relates to 125,000 shares of common stock, no par value (the
"Common Stock") of MED-EMERG INTERNATIONAL INC. (the "Company") that may be sold
by the selling securityholders named herein (the "Selling Securityholders"). See
"Selling Securityholders." The 125,000 shares of Common Stock being offered
hereby were issued in connection with a bridge financing completed by the
Company in January 1997. The Company will not receive any proceeds from the sale
of the Common Stock. The expenses in connection with the preparation of this
Prospectus and the registration of the Common Stock will be paid by the Company.
The Selling Securityholders have agreed not to sell or otherwise dispose of the
Common Stock for two years from the date of this Prospectus without the prior
written consent of Network 1 Financial Securities, Inc., the underwriter for a
concurrent public offering of units of the Company's securities.
The Selling Securityholders may sell the shares of Common Stock from time to
time directly to purchasers, or through broker-dealers who may receive
compensation in the form of discounts or commissions from the Selling
Securityholders or purchasers. Sales of the shares of Common Stock may be
effected by broker-dealers in ordinary brokerage transactions or block
transactions on the Nasdaq SmallCap Market, through sales to one or more dealers
who may resell as principals, in privately negotiated transactions or otherwise,
at the market price prevailing at the time of sale, a price related to such
prevailing market price or at a negotiated price. Usual and customary or
specifically negotiated brokerage fees may be paid by the Selling
Securityholders in connection therewith. To the Company's knowledge, none of the
Selling Securityholders has entered into any underwriting agreements. The
Company has offered, by separate Prospectus dated the date hereof, 1,250,000
shares of Common Stock and 1,250,000 Redeemable Common Stock Purchase Warrants
(the "IPO"). Each of the Selling Securityholders has agreed not to sell or
otherwise dispose of the Common Stock for two years from the date of this
Prospectus without the prior written consent of Network 1 Financial Securities,
Inc., the underwriter of the IPO.
Prior to the Offering, there has been no public market for the Common Stock
and Warrants and no assurance can be given that any such market will develop
upon completion of the Offering. Application has been made to have the Common
Stock and Warrants included for quotation on the NASDAQ SmallCap Market under
the symbols "MEDE" and "MEDEW," respectively and for listing on the Boston Stock
Exchange under the symbols "MED" and "MEDW," respectively. The initial public
offering price of the Common Stock and the Warrants and the exercise price and
other terms of the Warrants have been determined by negotiation between the
Company and the Underwriter and do not necessarily bear any relation to the
Company's earnings, assets, book value, net worth or any other recognized
criteria of value. See "Underwriting."
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON AND DILUTION ON PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Act") and any profits
realized by them may be deemed to be underwriting commissions. Any
broker-dealers that participate in the distribution of the shares of Common
Stock also may be deemed to be "underwriters," as defined in the Act, and any
commissions or discounts paid to them, or any profits realized by them upon the
resale of any securities purchased by them as principals, may be deemed to be
underwriting commissions or discounts under the Act. The sale of the Common
Stock by the Selling Securityholders is subject to the prospectus delivery
requirements of the Act.
The shares of Common Stock offered hereby have been registered pursuant to
registration rights granted to the Selling Securityholders. The Selling
Securityholders are responsible for payment of brokerage commissions and
discounts incurred in connection with the sale of the Common Stock. The Company
has agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Act.
2
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[Alternate Page for Selling Securityholders Prospectus]
THE SELLING SECURITYHOLDERS' OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 125,000 shares of Common Stock, no par value.
See "Description of Securities."
Common Stock Outstanding(1).................. 3,202,000
Risk Factors................................. The securities offered hereby involve a high
degree of risk and immediate substantial
dilution to public investors. See "Risk
Factors" and "Dilution".
NASDAQ Symbol(2)............................. Common Stock: MEDE
BSE Symbols(2)............................... Common Stock: MED
</TABLE>
- ------------------------
(1) Does not include 928,500 shares of Common Stock issuable upon exercise of
outstanding options and 500,000 shares of Common Stock issuable upon
conversion of 500,000 shares of Preferred Stock outstanding. See "Principal
Stockholders" and "Management" and "Description of Securities."
(2) The proposed Nasdaq and Boston Stock Exchange trading symbols do not imply
that a liquid and active market will be developed or sustained for the
Common Stock upon completion of this Offering.
6
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7
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[Alternate Page for Selling Securityholders Prospectus]
that such proposal will be adopted or if adopted, will be adopted in its current
form.
NO DIVIDENDS. The Company does not intend to pay any dividends on its
common stock in the foreseeable future. The Company currently intends to retain
any earnings to finance the operations of the Company. In addition, the
Company's Preferred Stock prohibits the payment of any dividends on the Common
Stock until all accrued dividends have been paid on the Preferred Stock. See
"Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 1,940,000 shares of Common Stock of
the Company outstanding as of the date of this Prospectus, 1,827,000 are
"restricted securities," and 840,000 are owned by "affiliates" of the Company,
as those terms are defined in Rule 144 promulgated under the Securities Act.
Absent registration under the Securities Act, the sale of such shares is subject
to Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
Rule 144 also permits a person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least
three years to sell such shares without regard to any of the volume limitations
as described above. An aggregate of 125,000 shares of Common Stock are being
registered herein. Robert Rubin, a Director, holds options to purchase an
aggregate of 700,000 shares of Common Stock. In the event Mr. Rubin exercises
such options, the shares will be eligible for resale under Rule 144 commencing
two years from the exercise of the options. All of the Company's existing
securityholders have agreed not to sell or otherwise dispose of any of their
shares of Common stock for a period of two years from the date of this
Prospectus, without the prior written consent of the Underwriter, except for
holders of an aggregate of 500,000 shares of Common Stock who have agreed to an
identical restriction for a period of one year. An aggregate of 228,500 shares
of Common Stock are issuable upon exercise of options issued under the Company's
1997 Stock Option Plan. There can be no assurance that the Company will not
issue additional options currently available for issuance. No prediction can be
made as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices of the
Company's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
12
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13
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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.
15
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16
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17
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18
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,202,00 shares of Common Stock outstanding upon completion of the
IPO, 1,827,000 shares are "restricted securities." Of such amount, 840,000 are
owned by "affiliates" of the Company, as those terms are defined in Rule 144
promulgated under the Securities Act. Absent registration under the Securities
Act, the sale of such shares is subject to Rule 144, as promulgated under the
Securities Act. In general, under Rule 144, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company, who
has beneficially owned restricted shares of Common Stock for at least two years
is entitled to sell in brokerage transactions, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on NASDAQ
or a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person who presently is not
and who has not been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least three years to sell such shares without regard to any
of the volume limitations as described above. An aggregate of 125,000 shares of
Common Stock are being registered herein. Robert Rubin, a Director, owns, holds
options to purchase an aggregate of 700,000 shares of Common Stock. In the event
Mr. Rubin exercises such options, the shares will be eligible for resale under
Rule 144 commencing two years after he exercises the option. An aggregate of
228,500 shares of Common Stock are issuable upon exercise of options issued
under the Company's 1997 Stock Option Plan. All of the Company's existing
securityholders have agreed not to sell or otherwise dispose of any of their
shares of Common stock now owned or issuable upon the exercise of currently
exercisable warrants for a period of two years from the date of this Prospectus,
without the prior written consent of the Underwriter, except for holders of an
aggregate of 500,000 shares of Common Stock who have agreed to an identical
restriction for a period of one year. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's securities
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
RESTRICTIONS ON SALE IN CANADA
The Common Stock has not been qualified for sale in any of the provinces of
Canada or to any person who is a resident in any of the provinces of Canada.
49
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50
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51
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
CONCURRENT OFFERING
Concurrently with this Offering, 1,250,000 shares of Common Stock and
1,250,000 Redeemable Common Stock Purchase Warrant (not including the
underwriter's over-allotment option) have been registered by the Company under
the Act, pursuant to the Company Prospectus included within the Registration
Statement of which this Prospectus forms a part. The Common Stock offered hereby
may not be sold prior to twenty-four months from the date of this prospectus
without the consent of the underwriter of the IPO.
LEGAL MATTERS
The validity of the securities which are being offered hereby will be passed
upon for the Company by Borden & Elliot (Canadian counsel) and Gersten, Savage,
Kaplowitz, Fredericks & Curtin, LLP (U.S. Counsel), 101 East 52nd Street, New
York, New York 10022. Gersten Savage has in the past represented the Underwriter
of the IPO and may continue to do so in the future. Certain legal matters will
be passed upon for the Underwriter by Snow Becker Krauss P.C., 605 Third Avenue,
New York 10158-0125.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995, have
been included herein and in the registration statement in reliance upon reports
of KPMG and Zaritsky Penny & Associates, independent chartered accountants,
appearing elsewhere herein, and upon the authority of said firms as experts in
accounting and auditing.
52
<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 TO BE SOLD AFTER SALE
------------------- --------------- -------------------
<S> <C> <C> <C>
SELLING SECURITYHOLDER
- ----------------------------------------------
Aleph Mad Family
Limited Partnership....................... 12,500 12,500 0
Robert M. Rubin(2)............................ 737,500 37,500 700,000
Whitechapel Management
Limited..................................... 50,000 50,000 0
Fred Kassner.................................. 25,000 25,000 0
</TABLE>
- ------------------------
(1) Each of these shares of Common Stock were acquired in connection with the
Company's January 1997 private placement, except for 700,000 shares
beneficially owned by Mr. Rubin.
(2) Represents 700,000 shares of common stock issuable upon exercise of
currently exercisable options. See "Management."
The shares of Common Stock may be sold by one or more of the following
methods: (a) a block trade in which a broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; and (c) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Securityholders may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissioner discounts from
Selling Securityholders in amounts to be negotiated. Such brokers and dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Act in connection with such sales.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Use of Proceeds.................................
Dividend........................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
Business........................................
Management......................................
Certain Relationships and Related
Transactions..................................
Principal Stockholders..........................
Description of Securities.......................
Shares Eligible for Future Sale.................
Legal Matters...................................
Experts.........................................
Selling Securityholders and Plan of
Distribution..................................
Financial Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
MED-EMERG, INC.
125,000 SHARES OF COMMON STOCK
NETWORK 1 FINANCIAL SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 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........................................... $ 4,433.18
NASD Filing Fee................................................ 1,916.25
Nasdaq Listing Fees and Expenses............................... *10,000.00
BSE Listing Fee................................................ *15,000.00
Printing Expenses.............................................. *75,000.00
Legal Fees and Expenses (other than Blue Sky).................. *100,000.00
Accounting Fees and Expenses................................... *75,000.00
Blue Sky Fees and Expenses (including legal and filing fees)... *30,000.00
Transfer Agent and Registrar Fees and Expenses................. *3,500.00
Non-Accountable Expenses....................................... 150,000.00
Miscellaneous Expenses......................................... 35,150.57
----------
Total.................................................... $500,000.00
----------
----------
</TABLE>
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* Estimated
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, the Company has issued securities to a limited
number of persons, as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In January 1996, pursuant to an exemption provided by Rule 3(a)(10) under
the Act, the Company issued an aggregate of 2,333,333 shares of Common Stock to
Ramesh and Victoria Zacharias in exchange for all of the outstanding capital
stock of 927563 Ontario Inc. and 927564 Ontario Inc.
In January 1996, the Company sold to 15 investors an aggregate of 1,000,000
shares of Common Stock and 1,000,000 common stock purchase warrants for an
aggregate consideration of $1,000,000. The warrants are exercisable to purchase
1,000,000 shares of Common Stock at $2.00 per share. The warrants were
subsequently surrendered for cancellation. This transaction was exempt from
registration pursuant to Section 4(2) of the Act.
In November 1996, the Company granted Robert Rubin, a Director of the
Company, an option to purchase 700,000 shares of Common Stock at US $.75 per
share. This transaction was exempt from registration pursuant to Section 4(2) of
the Act.
In November 1996, the Company issued an aggregate of 500,000 shares of its
Preferred Stock to Ramesh and Victoria Zacharias in exchange for 2,203,333
shares of Common Stock owned by the Zacharias'. This transaction was exempt from
registration pursuant to Section 3(a)(9) of the Act.
In November 1996, the Company issued 350,000 shares of Common Stock to
Hampton House in consideration for services rendered. This transaction was
exempt from registration pursuant to Section 4(2) of the Act.
In January 1997, in an underwritten bridge financing, the Company issued
Notes in the principal amount of $500,000 and an aggregate of 125,000 shares of
Common Stock to four investors for an aggregate consideration of $500,000. This
transaction was exempt from registration pursuant to Rule 506 as promulgated
under the Act.
In March 1997, the Company issued options to purchase an aggregate of
228,500 shares of common stock under its 1997 Stock Option Plan to 10
individuals, all of whom are affiliated with the Company. This transaction was
exempt from registration pursuant to Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3 The Selling Shareholder Irrevocable Power of Attorney Custody Agreement and Lock-up Agreement
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1* Form of Underwriter's Warrant Agreement
4.2* Form of Warrant Agreement
4.3** Specimen Common Stock Certificate
4.4** Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the Company.
10.1* Employment Agreement between the Company and Ramesh Zacharias
10.2 Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5* Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill.
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias.
10.8* Corporate Resolution Regarding November Recapitalization.
10.9* Agreement between the Company and Toronto-Dominion Bank.
10.10* Form of Hospital Contract
10.11* Form of Physician Contract for Clinical Operations
10.12* Form of Physician Contract for Emergency Services.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (to be included in Exhibit 5.1 to this
Registration Statement)
23.2 Consent of KPMG, Chartered Accountants
23.3 Consent of Zaritsky Penny Chartered Accountants
23.4 Consent of Borden & Elliot, Canadian counsel to the Company.
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to any charter provision, by-law contract
arrangements statute, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h), under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement at that time as the initial bona fide offering of those
securities.
(6) To provide to the Underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(7) To file a post-effective amendment to this Registration Statement to
include any financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering. The financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the Registrant includes in the Prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (7) and other information necessary to ensure that all other
information in the Prospectus is at least as current as the date of these
financial statements.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form F-1 and has duly caused this Amendment No. 3 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 July 24, 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 July 24, 1997
Ramesh Zacharias, M.D., Frcsc
/s/ CARL W. PAHAPILL Chief Operating Officer,
- ------------------------------ President and Director July 24, 1997
Carl W. Pahapill
/s/ KATHRYN GAMBLE, CA Vice President of Finance,
- ------------------------------ Chief Financial Officer, July 24, 1997
Kathryn Gamble, CA Secretary
* Chairman of the Board
- ------------------------------ July 24, 1997
William Thomson, CA
* Director
- ------------------------------ July 24, 1997
Peter Deeb
* Director
- ------------------------------ July 24, 1997
Victoria Zacharias
* Director
- ------------------------------ July 24, 1997
Robert M. Rubin
* Director
- ------------------------------ July 24, 1997
Patrick Michaud
<TABLE>
<S> <C>
/s/ CARL W. PAHAPILL
--------------------------------------
*By: By Virtue of Power-of-Attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1* Form of Underwriting Agreement
1.2* Form of Advisory and Investment Banking Agreement Between the Company and Network 1 Financial
Securities, Inc.
1.3 Irrevocable Power of Attorney
3.1* Certificate of Incorporation and Amendments thereto of the Company
3.2* By-laws of the Company
4.1* Form of Underwriter's Warrant Agreement
4.2* Form of Warrant Agreement
4.3** Specimen Common Stock Certificate
4.4** Specimen Warrant Certificate
5.1** Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the Company.
10.1* Employment Agreement between the Company and Ramesh Zacharias
10.2 Employment agreement between the Company and Carl Pahapill
10.3** Operating lease covering the Company's facilities
10.4* 1997 Stock Option Plan
10.5* Consulting Agreement with the Northwest Territories
10.6* Loan Agreement between the Company and Carl Pahapill
10.7* Loan Agreement between the Company and Ramesh and Victoria Zacharias
10.8* Corporate Resolution Regarding November Recapitalization.
10.9* Agreement between the Company and Toronto-Dominion Bank.
10.10* Form of Hospital Contract
10.11* Form of Physician Contract for Clinical Operations
10.12* Form of Physician Contract for Emergency Services.
21.1* List of Subsidiaries
23.1** Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (to be included in Exhibit 5.1
to this Registration Statement)
23.2 Consent of KPMG, Chartered Accountants
23.3 Consent of Zaritsky Penny Chartered Accountants.
23.4 Consent of Borden & Elliot, Canadian counsel to the Company.
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
<PAGE>
EXHIBIT 1.3
SELLING SHAREHOLDER
IRREVOCABLE POWER OF ATTORNEY,
CUSTODY AGREEMENT AND LOCK-UP AGREEMENT
Carl Pahapill
Kathryn Gamble
As Attorneys-In-Fact
c/o Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Med-Emerg International, Inc.
As Custodian
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue
Red Bank, NJ 07701
Century City Securities, Inc.
1900 Avenue of the Stars
Los Angeles, CA 90067
Dear Sirs:
The undersigned shareholder of Med-Emerg International, Inc., a corporation
organized under the laws of the Province of Ontario, Canada (the "Company"),
and the other shareholders of the Company listed on Schedule 1 hereto (the
undersigned and such other shareholders being hereinafter collectively referred
to as the "Selling Shareholders") will enter into an Underwriting Agreement (the
"Agreement"), among the Company, the Selling Shareholders, Network 1 Financial
Securities, Inc. and Century City Securities, Inc., as the representatives (the
"Representatives") of the Underwriters (the "Underwriters"), for the public
offering (the "Offering") of 1,250,000 shares of the Company's common stock, no
par value (the "Common Stock"), and redeemable warrants to purchase an
additional 1,250,000 shares of Common Stock (the "Warrants"), pursuant to which
each of the Selling Shareholders may grant to the Underwriters, severally and
not jointly, an option to purchase up to the number of shares of Common Stock
set forth opposite such Selling Shareholder's name on Schedule 1 hereto (the
"Selling Shareholder Option Shares").
<PAGE>
The undersigned understands that the Company has filed with the United
States Securities and Exchange Commission (the "Commission") a registration
Statement on Form F-1, File No. 333-21899 (the "Registration Statement") in
connection with the Offering. The undersigned and the other Selling Shareholders
have, pursuant to the Underwriting Agreement, granted, severally and not
jointly, to the Underwriters an option to purchase the number of shares of
Common Stock owned by them set forth opposite their respective names on Schedule
1 hereto for the sole purpose of covering over-allotments in connection with the
Offering (the "Over-Allotment Option"), an aggregate of 140,625 shares of Common
Stock (the "Shares"). Accordingly, the Registration Statement will register
under the Securities Act of 1933, as amended (the "Securities Act"), all of the
Shares to be sold by the Selling Shareholders and all of the shares of Common
Stock and Warrants to be sold by the Company (including those which may be sold
pursuant to an over-allotment option granted to the Underwriters by the
Company).
The undersigned, by executing and delivering this Irrevocable Power of
Attorney, Custody Agreement and Lock-Up Agreement (the "Agreement"), confirms
the undersigned's willingness and intent to grant the Over-Allotment Option and
to sell its Shares to the Underwriters pursuant to the Underwriting Agreement,
and agrees, simultaneously with the execution and delivery hereof, to deposit
such Shares with the Company, acting in its capacity as custodian hereunder
(solely in such capacity, the "Custodian") all as hereinafter provided.
The undersigned hereby acknowledges receipt of (i) a form of Underwriting
Agreement, a copy of which is attached hereto as Exhibit A (the "Form
Underwriting Agreement") and (ii) a copy of the preliminary prospectus included
in the Registration Statement as filed with the Commission on July ___, 1997.
The undersigned understands that the Underwriting Agreement is to be executed
and delivered on behalf of the undersigned by one or more of the
Attorneys-in-Fact. The undersigned further understands that the Registration
Statement has not yet become effective under the Securities Act and is subject
to amendment.
To induce the Underwriter to enter into the Underwriting Agreement, and to
secure its performance, the undersigned agrees as follows:
1. AGREEMENT NOT TO SELL. The undersigned hereby agrees that for a
period of 24 months (the "Lock-up Period") from the Effective Date (as defined
in the Underwriting Agreement), the undersigned will not, without the prior
written consent of the Representatives, 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 the Underwriting Agreement.
2. APPOINTMENT OF ATTORNEYS-IN-FACT: GRANT OF AUTHORITY. For purposes of
effecting the sale of the undersigned's Shares pursuant to the Underwriting
Agreement, the undersigned
2
<PAGE>
irrevocably makes, constitutes and appoints Carl Pahapill and Kathryn Gamble,
and each of them, true and lawful agents and attorneys-in-fact of the
undersigned (each, an "Attorney-in-Fact" and, collectively, the
"Attorneys-in-Fact"), each with full power and authority, subject to the terms
and provisions hereof, to act hereunder, individually or, in the event of the
death or incapacity of any Attorney-in-Fact, through wholly appointed successor
attorneys-in-fact appointed by the other Attorney-in-Fact in his or their sole
discretion (it being understood and agreed that the Attorneys-in-Fact may,
unless otherwise specified herein, act individually), all as hereinafter
provided, in the name of and for and on behalf of the undersigned, as fully as
could the undersigned if present and acting in person, with respect to the
following matters in connection with and incident to the registration and sale
of the undersigned Shares in the Offering to:
(a) authorize and direct the Custodian and any other person or
entity to take any and all actions as may be necessary or deemed to be
advisable by the Attorneys-in-Fact or any of them to effect the sale,
transfer and disposition of any or all of the undersigned's Shares in
the Offering as the Attorneys-in-Fact or any of them may, in their
sole discretion, determine, including to direct the Custodian to
deliver to the Underwriters certificates evidencing any or all of the
Shares with appropriate stock powers or other instruments of transfer
duly endorsed or in blank, to effect the sale of any or all of the
Shares in the Offering to the Underwriters pursuant to the terms of
the Underwriting Agreement.
(b) execute and deliver the Underwriting Agreement on behalf of
the undersigned, in the form of the Form Underwriting Agreement, with
such additions or amendments thereto as the Attorneys-in-Fact or any
of them, in their sole discretion, may determine are necessary to
reflect the public offering price of the Shares and the Underwriters'
discounts and commissions and other matters deemed necessary or
advisable by any Attorney-in-Fact in connection with or incident to
the Offering;
(c) take all actions as may be necessary or deemed to be
advisable, with respect to the Registration Statement, including,
without limitation, the execution, acknowledgment and delivery of any
certificates, documents and consents which may be required by the
Commission, appropriate authorities of states or other jurisdictions,
the Underwriters or legal counsel or as may otherwise be necessary or
appropriate in connection with the registration of the Shares under
the Securities Act or the securities or blue sky laws of the various
states and jurisdictions or to facilitate sales of the Shares;
(d) authorize and direct the Transfer Agent for the Company's
Common Stock to place stop transfer orders against the Shares owned by
each Selling Shareholder during the Lock-up Period; and
3
<PAGE>
(e) take or cause to be taken any and all further actions, and
execute and deliver, or cause to be executed and delivered, any and
all such instruments, documents, stock certificates and share powers
and other instruments of transfer and closing or as may be required by
the Underwriting Agreement or this Agreement, including, without
limitation, Section 1 hereof, or as may otherwise be necessary or
deemed to be advisable in connection herewith and therewith, with such
changes or amendments thereto as the Attorneys-in-Fact or any of them
may, in their sole discretion, approve (such approval to be evidenced
by their signature thereof) or, as may be necessary or deemed to be
desirable by the Attorneys-in-Fact or any of them to effectuate,
implement and otherwise carry out the transactions contemplated by the
Underwriting Agreements and this Agreement, or as may be necessary or
deemed to be desirable in connection with the registration of the
Shares pursuant to the Securities Act or the sale of the Shares to the
Underwriters.
3. TERMS OF SALE. The undersigned agrees that in the event and only in
the event the Company has executed and delivered or has agreed to execute and
deliver the Underwriting Agreement, then the Attorneys-in-Fact or any of them
acting individually shall be irrevocably directed and obligated, to:
(a) execute and deliver the Underwriting Agreements on behalf of
the Selling Shareholders at such time as called for under the
Underwriting Agreement; and
(b) authorize and direct the Custodian and any other person or
entity to take any and all actions as may be necessary or deemed to be
advisable by the Attorneys-in-Fact or any of them to effect the sale,
transfer and disposition of the undersigned's Shares in the Offering,
and to deliver, or cause to be delivered, certificates representing
the undersigned's Shares so sold, transferred and disposed of to the
Underwriters on the applicable Option Closing Date (as defined in the
Underwriting Agreement), all in accordance with the terms and
conditions of the Underwriting Agreement.
4. SOLE AUTHORITY OF COMPANY. The undersigned agrees that the Company
has the sole authority to agree with the Underwriters upon the price at which
the Shares and any other shares of Common Stock will be sold to the Underwriters
in the Offering. The undersigned further agrees that, prior to the execution of
the Underwriting Agreement, the Company may withdraw the Registration Statement
and terminate the Offering in its sole discretion for any reason whatsoever or
for no reason, without any liability to any Selling Shareholder. Following
execution of the Underwriting Agreement, termination of the Offering by any
party will be governed by the terms and conditions of the Underwriting
Agreement.
5. IRREVOCABILITY. The undersigned has conferred and granted the power
of attorney and all other authority contained herein for the purpose of
completing the Offering and in consideration
4
<PAGE>
of the actions of the Company and the Underwriters in connection therewith.
Therefore, the undersigned hereby agrees that all power and authority hereby
conferred is coupled with an interest and is irrevocable, and, to the fullest
extent not prohibited by law, shall not be terminated by any act of the
undersigned or by operation of law or by the occurrence of any event whatsoever,
including, without limitation, the death, incapacity, dissolution, liquidation,
termination, bankruptcy, dissolution, of marital relationship or insolvency of
the undersigned or any similar event. If, after the execution of this Agreement,
any such event shall occur before the completion of the transactions
contemplated by the Underwriting Agreement and/or this Agreement, the
Attorneys-in-Fact and the Custodian are nevertheless authorized and directed to
complete all of such transactions, including the delivery of the certificates
for the undersigned Shares to be sold to the Underwriters, as if such event had
not occurred and regardless of notice thereof.
6. DEPOSIT AND DELIVERY OF SHARES. The undersigned hereby appoints the
Company as Custodian to hold the undersigned Shares and to deliver or to dispose
of them in accordance with the instructions of the Attorneys-in-Fact or any of
them as set forth herein, with full power in the name of, and for and on behalf
of, the undersigned.
(a) If stock certificates with respect to the undersigned Shares
are in the undersigned's possession, the undersigned has delivered to
and deposited such certificates with the Custodian upon execution of
this Agreement, duly endorsed to the Company or in blank, or
accompanied by proper instruments of transfer to the Company or in
blank.
(b) If certificates for any of the undersigned Shares are to be
delivered to the Custodian by someone other than the undersigned, the
undersigned has caused such certificates to be delivered to and
deposited with the Custodian upon execution of this Agreement, duly
endorsed to the Company or in blank, or accompanied by proper
instruments of transfer to the Company or in blank.
(c) The undersigned authorizes and directs the Custodian, upon
appropriate instructions from the Attorneys-in-Fact, to deliver to the
Underwriter such of the undersigned Shares as are to be purchased by
the Underwriters under the Underwriting Agreement and to deliver, or
cause to be delivered, certificates representing such Shares to the
Underwriters on the applicable Option Closing Date against receipt of
payment therefor.
(d) The undersigned hereby authorizes and directs the
Attorneys-in-Fact and the Custodian to issue appropriate receipts to
the Underwriter in the name of the undersigned as payee.
(e) The undersigned hereby authorizes and directs the
Attorneys-in-Fact and the Custodian, in the event the Over-Allotment
Option is not fully exercised and all of the undersigned Shares set
forth opposite the undersigned's name on Schedule
5
<PAGE>
1 hereto are not sold pursuant to the Underwriting Agreement, to return the
unsold Shares to the undersigned, which Shares shall remain subject to the
lock up restrictions in this Agreement in accordance with Section 1 hereof.
7. THE CUSTODIAN. The Custodian's execution of this Agreement shall
constitute the acceptance by the Custodian of the agency herein conferred, and
shall evidence its agreement to carry out and perform its duties under this
Agreement in accordance with the provisions hereof; subject, however, to the
following terms and conditions, which all signatories hereto agree shall govern
and control the rights, duties and immunities of the Custodian.
(a) The Custodian in its capacity as Custodian shall have no
duties to the undersigned hereunder except those expressly set forth
herein and shall not be liable in such regard except for the
performance of such duties as are specifically set out herein, subject
to Section 11 hereof. It shall not be responsible for the performance
of the powers of attorney contained herein by any signatory hereto, or
for the interpretation of any of the provisions of such powers of
attorney.
(b) If a controversy arises between two or more of the Selling
Shareholders, or between any of the Selling Shareholders and any other
person, as to whether or not or to whom the Custodian shall deliver
the certificates for the Shares or any funds held by it or to the
property held by the Custodian hereunder, the Custodian shall not be
required to determine the same and need not make any delivery of the
property or any portion thereof but may retain it, subject to the
provisions of Section 11 below, until the rights of the parties to the
dispute shall have finally been determined by agreement or by final
order of a court of competent jurisdiction; provided, however, that
the time for appeal for any such final order shall have expired
without an appeal having been made. The Custodian shall deliver the
certificates, funds or property or any portion thereof within 15 days
after it has received written notice of any such agreement or final
order (accompanied by an affidavit that the time for appeal has
expired without an appeal having been made) in accordance with the
terms of the final agreement or order. The Custodian shall be
entitled to assume that no such controversy has arisen unless it has
received a written notice that such a controversy has arisen which
refers specifically to this Agreement and identifies by name and
address the adverse claimants to the controversy and briefly
describing the nature of the controversy.
(c) The Custodian will acknowledge in writing to each of the
Selling Shareholders receipt by physical delivery of any certificates
representing the undersigned Shares when such certificates are
received.
8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The undersigned
represents, warrants and agrees that:
6
<PAGE>
(a) All authorizations and consents, including, but not limited
to, any releases necessary for the execution and delivery by the
undersigned of this Agreement and for the sale and delivery of the
undersigned Shares to the Underwriters as contemplated hereby and in
the Underwriting Agreement have been obtained and are in full force
and effect; and the undersigned has full right, power and authority to
enter into the Underwriting Agreement and this Agreement and to sell,
transfer and deliver the undersigned Shares to the Underwriters as
contemplated hereby and in the Underwriting Agreement.
(b) The undersigned has read and understands the Form
Underwriting Agreement including, without limitation, the
representations and warranties contained in Section 4A thereof (the
"Section 4A Representations and Warranties"), and confirms the
accuracy of such representations, warranties and agreements as of the
date hereof; the Section 4A Representations and Warranties are herein
incorporated by reference.
(c) The undersigned has not taken and will not take, directly or
indirectly, any action intended to constitute or which constitutes, or
which might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Common Stock; and to
assure compliance with Rule 102 of Regulation M under the Securities
Exchange Act of 1934, as amended, the undersigned will not make bids
for or purchases of, or induce bids for or purchases of, directly or
indirectly, any shares of Common Stock until the distribution of all
shares being sold in the Offering has been completed; the undersigned
has not and will not distribute any prospectus or other offering
material in connection with the Offering and sale of the Shares other
than the then current prospectus filed with the Commission or other
material permitted by the Securities Act.
The foregoing representations, warranties and agreements are for the
benefit of and may be relied upon by the Attorneys-in-Fact, the Underwriter and
their respective legal counsel.
9. PAYMENT. The undersigned hereby authorizes and directs the
Attorneys-in-Fact or any of them to take such action as may be required to
provide for the distribution of the net proceeds from the sale of the
undersigned Shares sold in the Offering for the account of the undersigned
(after deducting the undersigned's respective portion of the underwriting
discounts and commissions for such Shares, and the undersigned's proportionate
share of the Underwriters' non-accountable expense allowance, United States
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., filing fees, legal fees and expenses, and transfer taxes), to the
undersigned not later than the close of business on the fourth business day
following the date of receipt of the certified or official bank check described
in Section 2(b) of the Underwriting Agreement.
10. OWNERSHIP OF STOCK. Subject to the terms hereof, until payment of the
purchase price for the Shares being sold by the undersigned pursuant to the
Underwriting Agreement has been
7
<PAGE>
made by or for the account of the Underwriters, each of the Selling Shareholders
shall remain the owner of all of his or its respective Shares, to the extent
such ownership is not inconsistent with this Agreement. However, until the
Underwriting Agreement has been terminated and, if the Over Allotment has not
been fully exercised for all of the undersigned Shares, until permitted in
accordance with Section 1 of this Agreement, the undersigned agrees that the
undersigned will not give, sell, pledge, hypothecate, grant any lien on or
security interest in, transfer, deal with or contract with respect to the
undersigned Shares or any interest therein, except (i) to the Underwriters
pursuant to the Underwriting Agreement, (ii) to the Custodian as provided
herein, and (iii) if the Over-Allotment Option is not exercised in full, except
as may be permitted pursuant to Section l of this Agreement.
11. RELEASE. The undersigned hereby agrees to release the
Attorneys-in-Fact and each of them and the Custodian from any and all
liabilities, joint or several, to which they may become subject insofar as such
liabilities (or action in respect thereof) arise out of or are based upon any
action taken or permitted to be taken, including, but not limited to, not
executing the Underwriting Agreement or not proceeding with the Offering for any
reason whatsoever, by the Attorneys-in-Fact or the Custodian pursuant hereto,
except for their gross negligence or willful misconduct (it being understood
that any determination by the Company not to execute the Underwriting Agreement
or proceed with the Offering for any reason whatsoever (or no reason) shall not
constitute gross negligence or willful misconduct). This Section shall survive
termination of this Agreement.
12. TERMINATION. This Agreement, shall terminate upon the earliest to
occur of (i) prior to the sale of Shares pursuant to the Underwriting Agreement,
the date, if any, on which the Registration Statement is withdrawn and, if such
withdrawal occurs after the Underwriting Agreement has been executed and
delivered, the termination of the Underwriting Agreement in accordance with the
terms thereof; and (ii) excluding with respect to Section 1 hereof which shall
remain in full force and effect for the period specified therein notwithstanding
anything herein to the contrary, the date on which the sale of the Shares to be
sold in the Offering is consummated and the proceeds have been distributed to
the Selling Shareholders, including exercise or expiration of the Over-allotment
Option, whether or not all the Shares owned by the Selling Shareholders are sold
in the Offering. Following any such termination, the Attorneys-in-Fact and the
Custodian shall have no further responsibilities or liabilities to any of the
undersigned hereunder except in the case of a termination under Section 12(ii)
above to fulfill its duties in connection with the undersigned's obligations
under Section 1 hereof, and to redeliver its respective Shares and to deliver to
each of the Selling Shareholders its respective stock powers described in
Section 5 hereof held in custody in accordance with the terms hereof and to
distribute to each of the Selling Shareholders its respective portion of the net
proceeds of the Offering, if any.
13. NOTICES. Any notice required to be given pursuant to this Agreement
shall be deemed given if in writing and delivered in person, or if given by
telephone or telegraph is subsequently confirmed by letter, (i) to Carl Pahapill
and Kathryn Gamble, as Attorneys-in-Fact, c/oMedi-Emerg International, Inc.,
2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1, Canada, (ii) to
Medi-Emerg International, Inc., as Custodian, 2550 Argentia Road, Suite 205,
Mississauga, Ontario
8
<PAGE>
L5N 5R1, Canada, Attention: Carl Pahapill or to such other address as the
Custodian shall have specified in a written notice duly given to the undersigned
or (iii) to the Selling Shareholders at the addresses set forth in Schedule 1
hereto.
14. APPLICABLE LAW. The validity, enforceability, interpretation, and
construction of this Agreement shall be determined in accordance with the
substantive laws of the State of New York.
15. BINDING EFFECT. All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of the undersigned and this
Agreement shall inure to the benefit of, and shall be binding upon, the
undersigned and the undersigned's heirs, executors, administrators, successors
and assigns.
16. EFFECTIVE DATE. This Agreement shall become effective upon execution
by each of the Selling Shareholders, the Custodian and each of the
Attorneys-in-Fact.
17. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each executed counterpart constituting an original but all
together constituting only one instrument.
18. AMENDMENTS. The parties hereto (other than the undersigned) and the
other Selling Shareholders are entering into separate agreements identical
(other than for names of the parties thereto) to this Agreement (the "Identical
Agreements"). The parties hereto will not modify or grant any waiver or consent
under this Agreement or any Identical Agreement which shall in any material
respect change the relative rights and/or obligations of fewer than all of the
Selling Shareholders unless the same shall be in writing and a substantially
identical written modification, waiver or consent shall be executed by the
parties hereto (not the Attorneys-in-Fact) and to each Identical Agreement.
9
<PAGE>
This Irrevocable Power of Attorney, Custody Agreement and Lock-Up
Agreement has been entered into on this _____day of______________, 1997.
Very truly yours,
Name of Selling Shareholder
By:
-----------------------------
Name:
Title:
---------------------------------
Taxpayer Identification Number
or Social Security Number
A separate signature page should be executed and
filled in by each seller of shares.
(Signatures continued on next page)
10
<PAGE>
CUSTODIAN
Med-Emerg International, Inc. hereby accepts the appointment as Custodian
pursuant tot he foregoing Irrevocable Power of Attorney, Custody Agreement and
Lock-Up Agreement, and agrees to abide by and act in accordance with the terms
of said Agreement.
Dated: , 1997
---------------
MED-EMERG INTERNATIONAL, INC.
By:
-------------------------------------
Carl Pahapill
President
11
<PAGE>
ATTORNEYS-IN-FACT
Carl Pahapill hereby accepts the appointment as Attorney-in-Fact pursuant
to the foregoing Irrevocable Power of Attorney, Custody Agreement and Lock-Up
Agreement, and agrees to abide by and act in accordance with the terms of said
Agreement.
Dated: __________________, 1997
---------------------------------
Carl Pahapill
c/o Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
Kathryn Gamble, hereby accepts the appointment as Attorney-in-Fact pursuant
to the foregoing Irrevocable Power of Attorney, Custody Agreement and Lock-Up
Agreement, and agrees to abide by and act in accordance with the terms of said
Agreement.
Dated: __________________, 1997
-----------------------------------
Kathryn Gamble
c/o Med-Emerg International, Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Canada
12
<PAGE>
SCHEDULE 1
Number of Shares
of Common Stock Number of
Name and Address of to be Sold Certificate Shares
Selling Shareholder in the Offering Numbers Represented*
- ------------------- --------------- ------- -----------
Hampton House Int'l 60,625
33 East 67th Street
New York, NY 10021
I. Boulos Bou Dib 20,000
Alma Tripoli
North Lebanon
Lebanon
Jane Kingswood 12,000
155 Glenwood Ave.
Borentford, Ontario
N357R3
W. David Wood 12,000
3803-77 Harbour Square
Toronto M5J 252
Husein El Dada 8,000
157 Kensington Road
Garden City, NY 11530
Robert Moskofian 8,000
c/o IIda Kvikorians
8 Scott Hall Court
Unionville, Ontario
L6C1A4
________________
*To the extent that you hold certificates covering more shares than you
wish to sell, the Custodian will arrange for the issuance of certificates
representing the number of Shares to be deposited hereunder and will return to
you new certificates representing the balance of the shares that are not
deposited.
13
<PAGE>
Mark Wilder 6,000
175 Cumberland Street
Suite 1802
Toronto, Ontario
M5R349
Peter J. Tanous 5,000
Suite 540
1100 Connecticut Ave., N.W.
Washington, D.C. 20036
Thomas Nassif 5,000
2532 Calle Del Oro
La Jolla, CA 92037
Elizabeth Huntly-Harmen 4,000
Osiedle Rusa 32m2
Poznan Poland
TOTAL: ____________
140,625
14
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
MEMORANDUM OF AGREEMENT made the day of June, 1997.
B E T W E E N:
MED-EMERG INTERNATIONAL INC., a corporation incorporated
under the BUSINESS CORPORATIONS ACT (Ontario)
(hereinafter referred to as the "Corporation")
OF THE FIRST PART
- and -
CARL PAHAPILL of the City of Mississauga
(hereinafter referred to as the "Executive")
OF THE SECOND PART
WHEREAS the Corporation desires to employ the Executive as its President
and Chief Operating Officer and whereas the Executive is willing to accept such
employment, all on the terms and conditions and for the remuneration as
hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
covenants, agreements and payments herein set out and provided for, the parties
hereto hereby respectively covenant and agree as follows:
1. EFFECTIVE DATE
Employment of the Executive hereunder and this agreement shall take effect
on the closing of the initial public offering of the Corporation's common shares
(the "Commencement Date").
<PAGE>
-2-
2. TITLE
The Corporation will employ the Executive and the Executive will serve the
Corporation as President and Chief Operating Officer.
3. DURATION OF AGREEMENT
This agreement shall continue until the end of the month in which the
second anniversary of the Commencement Date occurs and shall continue thereafter
from month to month, unless terminated earlier (a) upon 180 days' notice at any
time after the end of the 18th clear month after the Commencement Date or (b) in
accordance with paragraph 11.
4. DUTIES
Schedule "A" sets out the purpose of the position of President and Chief
Operating Officer, his duties and responsibilities, his requirement to observe
and conduct relationships and the standards for measuring his performance. The
Executive hereby agrees to serve the Corporation loyally, faithfully, diligently
and to the best of his ability and shall use his utmost efforts to promote and
advance the business and welfare of the Corporation and its affiliates, as
described in Schedule "A". The term "affiliate" as used in this agreement has
the meaning given to it by the SECURITIES ACT of Ontario.
5. HOURS OF WORK
The Executive shall devote to the affairs of the Corporation substantially
the whole of his time, attention and abilities during normal business hours and
at such other times as his duties may reasonably require, unless prevented by
ill-health.
<PAGE>
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6. SALARY
The Corporation will pay the Executive by way of remuneration for his
services under this agreement a salary of $175,000 per annum, which shall be
paid bi-weekly. In addition, the Corporation may provide to the Executive
performance bonuses on a mutually acceptable basis.
7. EXPENSES
The Executive shall be required to undertake such travel as is required by
the Corporation and the Corporation shall reimburse the Executive all reasonable
travelling, hotel, entertainment and other expenses properly incurred by him in
the proper performance of his duties upon production of appropriate receipts.
8. HOLIDAYS
The Executive shall be entitled, in addition to statutory holidays, to four
weeks' holiday in each 12-month period under this agreement. Unused holiday
entitlement may not be carried forward to the next 12-month period unless
otherwise agreed with the Corporation.
9. ADDITIONAL BENEFITS
Subject as hereinafter provided, during the continuance of this agreement,
the Corporation will provide to the Executive the benefits described in Schedule
"B" to this agreement. The benefits described in paragraph 1 of Schedule "B"
are the benefits currently available to senior employees of the Corporation and
its affiliates. Paragraph 1 of Schedule "B" may be amended from time to time at
the Corporation's discretion so long as such amended benefits are made available
to senior employees of the Corporation and its affiliates.
<PAGE>
-4-
The Corporation has previously lent to the Executive $60,000 on an
interest-free basis. Such loan is unsecured and is evidenced by a promissory
note. Principal in 12 equal quarterly instalments shall be due and payable
commencing on June 30, 1999. Notwithstanding the foregoing, such note shall be
due on any termination of this agreement, except for termination pursuant to
clause (b) of paragraph 11.
10. OPTIONS
The Corporation confirms the grant to the Executive of options to purchase
65,000 common shares of the Corporation under the Corporation's director and
employee stock option plan. Such options are fully vested and will be escrowed,
or the shares taken up thereunder will be escrowed, if required, pursuant to the
initial public offering of the Corporation's common shares.
11. TERMINATION
(a) This agreement may be terminated by the Corporation immediately and
without any liability for any damages or compensation for breach of contract,
wrongful dismissal or otherwise, if the Executive shall:
(i) become mentally incapacitated or, for any 26 weeks in any 12
consecutive months, become physically incapacitated such that
he is unable to perform his obligations under this agreement;
or
(ii) be convicted of any indictable offence for which a sentence
of imprisonment can be imposed by law; or
(iii) commit any act of dishonesty; or
<PAGE>
-5-
(iv) be guilty of any misconduct relating to the discharge of his
duties hereunder; or
(v) be guilty of any neglect in the discharge of his duties
hereunder or commit any wilful or persistent breach of any of
the provisions of this agreement.
(b) If this agreement is terminated by the Corporation other than
pursuant to the immediately preceding clause (a) or other than by notice
pursuant to the clause (a) of paragraph 3, then the Corporation shall forthwith
pay to the Executive his salary (less usual and statutory deductions) as if he
were employed through the second anniversary of the Commencement Date; provided
that, if such termination is at any time after the first anniversary of the
Commencement Date, the Corporation shall forthwith pay to the Executive one
year's salary less usual and statutory deductions. The Corporation may
terminate this agreement at any time concurrent with such payment. Employment
shall be reinstated if such payment is not made. Any severance payments will be
payable to the Executive on the most favourable tax basis to him.
12. NO OTHER COMMERCIAL INTERESTS
The Executive shall not at any time during the continuance of this
agreement be or become a director of any Corporation or be engaged, concerned or
interested in, directly or indirectly, and whether independently or as any
employee of, any other business, trade or occupation, except that the Executive
may:
(i) become engaged, concerned or interested in any other business, trade
or occupation or become a director of another Corporation, with the
prior written consent of the Corporation; or
<PAGE>
-6-
(ii) hold or become beneficially interested in not more than 5% of any
class of securities in any Corporation if such class of securities
is listed on a recognized stock exchange or an unlisted securities
market unless the Corporation otherwise requires on the grounds that
such Corporation carries on a business competitive with that of the
Corporation or its affiliates.
Notwithstanding the foregoing, the Executive may sit on boards of other
health care and information technology firms unless there is a reasonable basis
upon which the Corporation may deny him the right to do so.
13. HEALTH AND SAFETY
The Corporation attaches great importance to the health and safety of its
employees and recognizes a duty to prevent, where possible, personal injury by
ensuring that the design, construction, operation and maintenance of all
equipment and facilities and systems are in accordance with all applicable
health and safety requirements. In order to achieve this aim, the Executive
must ensure not only that he complies with all requirements of the Corporation,
but also that appropriate training and instruction is given to all employees
whom the Executive controls, in order to prevent injury to themselves and
others.
14. CONFIDENTIALITY
The Executive shall not at any time, other than in the course of his
duties, without the prior consent in writing of the Corporation, divulge or make
known to anyone any secrets of any technical, commercial or financial nature or
other information of a confidential nature, unless such information is already
in the public domain, relating to the business or customers of the Corporation
or its affiliates. All papers and documents used by the Executive in the course
of his employment are and will remain the property of the Corporation and will
be delivered up to the
<PAGE>
-7-
Corporation on termination of this agreement. The provisions of this paragraph
shall survive the expiration or earlier termination for any reason whatsoever of
this agreement.
15. PATENTS, SECRETS AND IMPROVEMENTS
(a) As relating to the business of the Corporation, any discovery,
invention, secret process, improvement, formula, plan, idea, know-how or
adaptation or improvement thereto or to any existing idea, process or other
property of the Corporation including, without limitation, any new, or any
adaptation of existing, software or hardware, whether or not patentable or
otherwise subject to legal protection, made, discovered, conceived or created by
the Executive while in the service of the Corporation, during the term of this
agreement, in any way affecting or relating to the business of the Corporation
shall forthwith be disclosed to the Corporation and shall belong to and be the
absolute property of the Corporation.
(b) The Executive shall if and whenever required so to do by the
Corporation at the expense of the Corporation, apply to join with the
Corporation in applying for patents, copyrights or other legal protection in
Canada and in any part of the world for any such discovery, invention, process
or improvement as aforesaid and shall at the expense of the Corporation execute
all instruments and do all things necessary for vesting the said patent,
copyright or other legal protection when obtained and all right, title to and
interest in the same in the Corporation absolutely and as sole beneficial owner
or in any such other person as the Corporation may specify.
16. CONDUCT
By accepting employment and continuing to be employed by the Corporation,
the Executive hereby undertakes and covenants with the Corporation as follows:
<PAGE>
-8-
(i) not without the previous consent of the Corporation directly or
indirectly to receive (other than as agent for the Corporation) or
retain any discount, rebate, fee, gratuity, commission or payment
from a third party for any service, matter or thing connected with
his duties and services as an employee of the Corporation;
(ii) (as long as termination of employment hereunder is not pursuant to
clause (a) of paragraph 11, and if termination is pursuant to clause
(b) of paragraph 11, the payment referred to in such clause is made)
not within 12 months after ceasing to be employed (except with the
written consent of the Corporation which shall not be unreasonably
withheld) whether on his own behalf or on behalf of any person, firm
or corporation directly or indirectly to seek to procure orders from
or do business with any person, firm or corporation who on the date
of his ceasing to be employed or at any time in the 12 months prior
to that date was a client or customer of the Corporation and with
whom in the course of his employment with the Corporation had
dealings, provided always that nothing in this undertaking shall be
deemed to prohibit the Executive from seeking or procuring orders or
from doing business not in competition with the Corporation; and
(iii) not during this agreement hereunder nor for a period of 24 months
thereafter to solicit, entice, procure or endeavour to persuade any
other employee of the Corporation to leave the employment of the
Corporation.
Although the Executive and the Corporation recognize and accept that the
above restrictions are reasonable having regard to the nature of the
Corporation's business and the Corporation's interest in preserving its goodwill
and customer connections, the Corporation will only withhold its consent to (i)
or (ii) above where it is evident that the business of the Corporation will be
prejudiced by not withholding such consent and to that extent, should any of the
foregoing restrictions be found to be unreasonable and unenforceable, they shall
be deemed
<PAGE>
-9-
to be modified only to the extent necessary to give effect to the remaining
provisions of this paragraph.
17. NOTICES
Any notice, direction or other instrument required or permitted to be given
to the Executive hereunder shall be in writing and may be given by mailing the
same, postage prepaid, or delivering the same (by facsimile, telex or otherwise)
addressed to the Executive at 1705 Covington Terrace, Mississauga, Ontario -.
Any notice, direction or other instrument required or permitted to be given to
the Corporation hereunder shall be in writing and may be given by mailing the
same, postage prepaid, or delivering the same (by facsimile, telex or otherwise)
addressed to the Corporation at 2550 Argentia Road, Suite 205, Mississauga,
Ontario L5N 5R1, Attention: Chief Executive Officer.
Any notice, direction or other instrument aforesaid if delivered shall be
deemed to have been given or made on the date on which it was delivered or if
mailed, shall be deemed to have been given or made on the second business day
following the day on which it was mailed.
The Executive or the Corporation may change his or its address for service
from time to time by notice given in accordance with the foregoing.
18. LEGAL COSTS
The Corporation shall pay the Executive's legal costs incurred with respect
to the Executive's entering into of this agreement.
19. ENTIRE AGREEMENT AND SEVERABILITY
<PAGE>
-10-
This agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof. There are not and shall not be any
verbal statements, representations, warranties, undertakings or agreements
between the parties with respect to the subject matter hereof. No waiver of any
breach of this agreement shall be effective unless made in writing by the party
giving such waiver and, unless otherwise provided in the written waiver, shall
be limited to the specific breach waived. The invalidity or unenforceability of
any term, covenant or condition contained in this agreement shall not affect the
validity or enforceability of any other term, covenant or condition hereof, but
shall be deemed to be severable and upon such severance, the remainder of the
agreement shall be valid and enforceable.
Notwithstanding the foregoing, this agreement may be amended or modified in
any respect from time to time by written instrument signed by the parties
hereto.
20. GOVERNING LAW
This agreement shall in all respects be construed and enforced in
accordance with and governed by the laws of the Province of Ontario. Each of
the parties hereto hereby irrevocably attorns to the jurisdiction of the courts
of the Province of Ontario.
21. BINDING EFFECT
Neither this agreement nor any portion thereof may be assigned by the
Executive. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and permitted assigns.
22. DISPUTE RESOLUTION
The parties hereto acknowledge that in the event of a dispute under this
agreement they
<PAGE>
-11-
shall make submissions under and shall be bound by the rules of the Private
Court in Ontario and any order whether interlocutory or final is an award which
is enforceable under the ARBITRATION ACT, 1991 of Ontario.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto.
MED-EMERG INTERNATIONAL
INC.
by __________________________________________
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
) _____________________________________l/s
_________________________ ) Carl Pahapill
<PAGE>
SCHEDULE A
<PAGE>
SCHEDULE "B"
BENEFITS
1. Standard Employee Benefit Program of the Corporation for its senior
executives including long term disability insurance.
2. The Corporation shall pay the Executive's annual professional fees to
maintain his status as a member of the Institute of Chartered Accountants
of Ontario.
3. The Corporation shall pay the Executive up to $10,000 annually in monthly
instalments as a car allowance. The Corporation shall also pay for gas for
such car upon production of appropriate receipts. All other expenses with
respect to such car, for example, insurance premiums, repairs, shall be
paid by the Executive.
4. The Corporation shall pay the Executive up to $2,000 annually to be
disbursed by the Executive for continuing education and related expenses
(for example, travel, hotel). Appropriate receipts shall be delivered to
the Corporation.
5. The Corporation shall pay the premiums in respect of a $500,000 life
insurance policy on the life of the Executive. The Executive may designate
the beneficiary.
<PAGE>
EXHIBIT 23.2
[KPMG LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
Med-Emerg International Inc.
We consent to the use of our audit report dated March 26, 1997 on the
consolidated balance sheets of Med-Emerg International Inc. as at December 31,
1996 and 1995, and the consolidated statements of income, retained earnings and
changes in financial position for each of the years in the two-year period ended
December 31, 1996 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG
KPMG
Mississauga, Ontario, Canada
July 21, 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
July 21, 1997
<PAGE>
EXHIBIT 23.4
[BORDEN & ELLIOT LETTERHEAD]
The Board of Directors
Med-Emerg International, Inc.
We consent to the use of our name and opinion in connection with references
to Canadian laws, regulations, treaties and potential liabilities in Amendment
No. 3 to Med-Emerg International, Inc.'s Registration Statement. We note that
our name is specificially referred to on page 2 under the heading "Civil
Liabilities," and page 48 in connection with the information contained under the
heading "Tax Aspects of the Offering" in the Prospectus and confirm that we are
giving our opinion with respect to the information on pages 48 and 49, as
indicated therein.
/s/ Borden & Elliot
Borden & Elliot
Toronto, Canada
July 23, 1997
