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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1999
REGISTRATION STATEMENT NO. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
PROVINCE OF ONTARIO, CANADA 3842 N/A
(Primary Standard (IRS Employer I.D. No.)
Industrial
(State or other jurisdiction of Classification Code
incorporation or organization) Number)
</TABLE>
2550 ARGENTIA ROAD, SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------------------
MR. CARL PAHAPILL
PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
MED-EMERG INTERNATIONAL INC.
2550 ARGENTIA ROAD, SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
(905) 858-1368
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
--------------------------
COPIES TO:
JAY M. KAPLOWITZ, ESQ.
GERSTEN, SAVAGE & KAPLOWITZ, LLP
101 EAST 52ND STREET, 9TH FLOOR
NEW YORK, NEW YORK 10022
(212) 752-9700
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effectiveness of this Registration Statement.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
NUMBER OF SHARES PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock................................ 1,799,502 US$1.875 $3,374,066 $938.00
Total Registration Fee...................... $938.00
</TABLE>
(1) Represents the maximum number of shares of common stock of Med-Emerg
International that may be issued to shareholders of YFMC Healthcare Inc.,
pursuant to the transactions described herein based on (a) the exchange rate
of one Med-Emerg share of common stock for every 6.875 YFMC shares of common
stock and (b) 44,585 shares of common stock that may be issued upon the
exercise of the Series A Warrants, 44,585 shares of common stock which may
be issued upon the exercise of the Series B warrants and 100,000 shares of
common stock being issued to the YFMC preferred shareholders.
(2) Pursuant to rules 457(f)(1) and 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on a price of
US$1.875 per share of Med-Emerg common stock as of September 4, 1999, as
quoted on the Nasdaq SmallCap Market and the maximum number of shares of
YFMC Healthcare Inc. common stock that may be outstanding immediately prior
to the consummation of the transactions contemplated hereby as set forth in
Footnote (1) above.
------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
[MED-EMERG CHAIRMAN'S LETTER]
September 3, 1999
Dear Fellow Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Med-Emerg International Inc. ("Med-Emerg" or "Company") on November 19, 1999
(the "Med-Emerg Annual Meeting"), at which shareholders of Med-Emerg will be
asked to: (i) elect the Board of Directors of Med-Emerg for the ensuing year;
(ii) ratify the appointment of Schwartz Levitsky Feldman, Chartered Accountants,
as the Company's independent auditors for the ensuing year; and (iii) approve
the combination of the businesses of Med-Emerg and YFMC Healthcare Inc. ("YFMC")
through a tender offer by Med-Emerg for all of the outstanding securities of
YFMC and the issuance of securities of Med-Emerg in connection therewith. Upon
the consummation of this business combination, YFMC will become a wholly-owned
subsidiary of Med-Emerg.
Upon the terms of the tender offer, each outstanding share of the Common
Stock of YFMC will be exchanged for 0.14545 shares of Med-Emerg common stock (or
6.875 shares of YFMC common stock for 1 share of Med-Emerg common stock).
Each outstanding YFMC Series A Warrant will be entitled to 0.125 of a
Med-Emerg Series A Warrant.
Each outstanding YFMC Series B Warrant will be entitled to 0.125 of a
Med-Emerg Series B Warrant.
Immediately following the business combination, the former holders of
Med-Emerg common stock will collectively hold approximately 65.8% of the issued
and outstanding shares of Med-Emerg common stock and the former holders of YFMC
common stock will collectively hold approximately 34.2% of the issued and
outstanding shares of Med-Emerg common stock, without giving affect to the
exercise of any options or warrants.
The accompanying Joint Prospectus/Proxy Statement provides you with detailed
information concerning the Med-Emerg Annual Meeting, election of the Company's
Board of Directors, the ratification of the Company's independent auditors, the
proposed business combination and the Med-Emerg common stock to be issued in
connection with the transaction as required by Nasdaq rules.
Your Board of Directors (the "Board") has carefully reviewed and considered
the terms and conditions of the proposed business combination and believes that
the proposed business combination will provide opportunities to achieve
substantial benefits for Med-Emerg shareholders and customers through the more
efficient utilization of the combined assets, management and personnel of
Med-Emerg and YFMC.
Your Board, by unanimous vote, (i) recommends a vote for election to the
Board of Directors of the Company each of the nominees, (ii) recommends a vote
for the ratification of the appointment of Schwartz Levitsky Feldman, Chartered
Accountants as the Company's independent auditors for the ensuing year, and
(iii) has determined that the terms and provisions of the proposed business
combination are fair to, and in the best interests of, Med-Emerg, and the
shareholders of Med-Emerg and recommends that you vote FOR the proposal to
approve the business combination and issuance of stock thereunder.
Please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to revoke your proxy by attending the Med-Emerg Annual Meeting and voting
in person.
Sincerely yours,
William Thomson
CHAIRMAN OF THE BOARD
<PAGE>
MED-EMERG INTERNATIONAL INC.
2550 ARGENTIA ROAD, SUITE 205
MISSISSAUGA, ONTARIO L5N 5R1
CANADA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 19, 1999
Mississauga, Ontario
Canada
Notice is hereby given that the annual meeting of shareholders (the
"Med-Emerg Annual Meeting") of Med-Emerg International Inc. ("Med-Emerg") will
be held on November 19, 1999 at 10:00 a.m. local time, at Hotel
Intercontinental, 111 East 48(th) Street, New York, New York, 10017 for the
following purposes:
1. To elect the Board of Directors of Med-Emerg for the ensuing year;
2. To consider and vote on a proposal to approve the issuance of an
aggregate of 1,799,502 additional shares of Med-Emerg pursuant to a
tender offer and to adopt the Business Combination Agreement whereby
Med-Emerg shall exchange 1 share of Med-Emerg common stock for every
6.875 YFMC shares, 0.125 of a Med-Emerg Series A Warrant for each YFMC
Series A Warrant, 0.125 of a Med-Emerg Series B Warrant for each YFMC
Series B Warrant, 0.125 Med-Emerg stock options for every YFMC stock
option and 0.10 Med-Emerg common stock for every YFMC first preferred
share;
3. To ratify the appointment of Schwartz Levitsky Feldman, Chartered
Accountants, as the Company's independent auditors for the ensuing year;
and
4. To transact such other business as may properly come before the
Med-Emerg Annual Meeting.
Shareholders of record at the close of business on October 15, 1999 will be
entitled to receive notice of, and to vote at, the Med-Emerg Annual Meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Med-Emerg common stock entitled to vote at the Med-Emerg Annual
Meeting is necessary to constitute a quorum at the Med-Emerg Annual Meeting.
Pursuant to Med-Emerg's Articles of Incorporation, as amended, the affirmative
vote, in person or by proxy, of the holders of a majority of the shares present
and entitled to vote at the meeting is required to approve each of the proposals
to be voted upon at the Med-Emerg Annual Meeting.
Please note that attendance at the Med-Emerg Annual Meeting will be limited
to shareholders of Med-Emerg as of the record date (or their authorized
representatives). If your shares are held by a bank or broker, please bring to
the Med-Emerg Annual Meeting evidence from your bank or broker of your
beneficial ownership of Med-Emerg common stock.
Please advise Med-Emerg's transfer agent of any changes in your address.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MED-EMERG ANNUAL MEETING,
PLEASE PROMPTLY MARK, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN
THE ENCLOSED PREPAID ENVELOPE. SHAREHOLDERS WHO DECIDE TO ATTEND THE MED-EMERG
ANNUAL MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO THE MED-EMERG ANNUAL
MEETING AND VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors,
William Thomson
CHAIRMAN OF THE BOARD
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT
PROSPECTUS/PROXY STATEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE TRANSACTION FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE TRANSACTION, YOU SHOULD CAREFULLY READ
THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO. SEE "ADDITIONAL
INFORMATION." AS USED HEREIN, UNLESS OTHERWISE INDICATED OR THE CONTEXT
OTHERWISE REQUIRES, MED-EMERG REFERS TO MED-EMERG INTERNATIONAL INC., ITS
WHOLLY-OWNED SUBSIDIARIES 927563 ONTARIO INC., 927564 ONTARIO INC., MED-EMERG
URGENT CARE INC., MED-EMERG ELMVALE CLINIC INC., MED-EMERG BRITTANIA URGENT CARE
INC., MED-HEALTH CENTRES INC. AND JC MEDICAL MANAGEMENT INC., ITS INDIRECT
WHOLLY-OWNED SUBSIDIARIES, MED-EMERG INC., AND MED PLUS HEALTH CENTERS LTD., ITS
INDIRECT 45%-OWNED SUBSIDIARY MEDICAL URGENT CARE INC, AND ITS INDIRECT
51%-OWNED SUBSIDIARIES CAREMEDICS (ELMVALE) INC. AND YORK LANES HEALTH CENTRES
INC. AND ITS INDIRECT 75%-OWNED SUBSIDIARY DOCTORS ON CALL LTD. YFMC HEALTHCARE
INC. IS REFERRED TO HEREIN AS "YFMC".
ABOUT OUR COMPANY
We are a provider of a broad range of quality healthcare management
services. We were established in 1983, and specialize in the coordination and
contract staffing of emergency physicians for hospitals and clinics in Canada.
Though emergency-related services are still an important component of our
business, we have expanded our business to offer a wide variety of medical
services including nurse staffing, physician management services and an
internet-based healthcare network.
We are positioned to establish industry leadership in Canada by providing
integrated professional management services in the delivery of healthcare to the
Canadian healthcare consumer. Our operations are divided into three divisions:
(1) Physician and Nurse Recruitment Services;
(2) Physician Management Services; and
(3) an internet based healthcare network called HealthyConnect.com.
Our strategy is to remain focused on these three divisions while continuing
to broaden our consolidation of physicians over a wider geographic base. We
believe that we are well positioned to benefit from the aging of the baby boomer
population and to capitalize on recent developments within the North American
healthcare environment and internet technology. Specifically, our strategy is to
leverage our 15 years of physician recruitment experience to become a dominant
player in Physician Management Services and to develop an internet-based
healthcare network that connects physicians, patients, third party payors and
consumers to a "virtual world" of healthcare products and services.
OUR PHYSICIAN AND NURSE RECRUITMENT DIVISION
Our Physician and Nurse Recruitment Division provides physician staffing and
administrative support to emergency departments and physician recruitment
services to Canadian hospitals and emergency physician groups. In connection
therewith, we contract with a wide range of physicians and other healthcare
professionals. Under the direction of our management, our physician pool of
approximately 165 emergency physicians provides emergency medical services to 15
emergency rooms in hospitals located in Ontario, Canada.
Competitive pressures have focused the attention of many hospital
administrators on the need for better management of their professional medical
staff. Hospitals have increasingly turned to contract staffing firms with
specialized skills to help solve physician and nurse contract and scheduling
problems, strengthen the management of their professional medical staff and
specific clinical departments, better control costs, and assist in meeting their
healthcare coverage needs and obligations. Using our management skills and
experience, and the economies of scale which the size and specialization of its
operations permit, we provide an alternative to hospitals while offering a
flexible practice and lifestyle alternative to physicians and nurses.
OUR PHYSICIAN MANAGEMENT SERVICES DIVISION
We have an ownership interest in and manage ten clinics in Canada, including
two in Toronto's Pearson International Airport. Generally, the clinics offer a
variety of services, including family practice, walk-in services
2
<PAGE>
for patients and chiropractic and massage therapy. We manage the clinics by
providing scheduling, recruiting, billing, collections and accounting services
to the clinics. In the clinics where we do not own 100% of the outstanding
capital stock, we have entered into a 5-year management services contract
whereby we receive a monthly management fee for our services.
We plan to continue to develop a chain of Urgent Care Centres, initially in
the Province of Ontario and then expanding to other provinces in Canada. Our
management expects that these centres will offer on-site emergency medical care
services comparable to the services provided in a traditional emergency
department of a hospital. The Urgent Care Centre concept consists of a group of
emergency trained physicians, a medical laboratory, a diagnostic radiology
service and a pharmacy.
These Urgent Care Centres will be "community based" and offer less
restricted access to non-hospital based health care. Our 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. These Urgent Care
Centres will be designed to be less costly to the publicly funded health care
system than traditional emergency departments.
OUR HEALTHYCONNECT.COM INTERNET-BASED HEALTHCARE DIVISION
HealthyConnect.com is our internet-based healthcare network division
currently under development. This network will connect physicians, hospitals,
third party payors and consumers and will allow all participants to access and
exchange healthcare related information, purchase healthcare products and
services, and communicate more cost-effectively with one another.
HealthyConnect.com will deliver healthcare services and products and provide
timely access to reliable healthcare information through the utilization of
advanced telecommunication technology. Targeted users of HealthyConnect.com are
consumers, physicians and other healthcare providers and healthcare product
suppliers.
Consumers will benefit from 24-hour, 7-day a week access, via the internet
and telephone, to Med-Emerg's healthcare service provider network. In addition,
consumers will have multiple site secure access to their own and their family
members' electronic medical record, access to a physician management health and
wellness centre and convenient at-home shopping for healthcare products and
services.
HealthyConnect.com will enable physicians and other healthcare providers to
access reliable information and provide them with additional support in
delivering cost effective, high quality healthcare services. Benefits include
24-hour coverage for patients, access to a comprehensive physician medical
reference database, online continuing medical education courses, tools for
chronic disease management, and participation in clinical trials.
HealthyConnect.com will link healthcare product and service suppliers with
our clinical network family. Convenient and secure access and at home/office
browsing and purchasing capabilities will facilitate direct sales opportunities
for member suppliers. Healthcare product and service suppliers that may benefit
from using HealthyConnect.com include pharmaceutical companies, insurance
companies, employers, government, managed care organizations, physicians and
hospitals.
CORPORATE INFORMATION
Med-Emerg was incorporated in the Province of Ontario in January, 1996.
927563 Ontario Inc. and 927564 Ontario Inc. were incorporated in the Province of
Ontario in March, 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. Our offices are located at 2550 Argentia
Road, Suite 205, Mississauga, Ontario L5N 5R1 Canada and our telephone number is
(905) 858-1368. The other subsidiaries were incorporated in the Province of
Ontario as follows: Med-Emerg Urgent Care Inc. in December, 1996; JC Medical
Management Inc. in November, 1990; Med-Emerg Elmvale Clinic Inc. in March, 1999;
Med-Emerg Brittania Urgent Care Inc. in January, 1999; and Med-Health Centres
Inc. in January, 1998.
YFMC HEALTHCARE INC.
YFMC was continued under the BUSINESS CORPORATIONS ACT (Ontario) on November
4, 1998. YFMC's principal and registered office is located at Suite 250, 441
Maclaren Street, Ottawa, Ontario K2P 2H3.
3
<PAGE>
YFMC was originally incorporated under the BUSINESS CORPORATIONS ACT
(Alberta) as TransPacific Minerals Inc. In June, 1998, TransPacific Minerals
Inc. acquired all of the issued and outstanding securities of 1189543 Ontario
Inc. in a reverse takeover bid transaction 1189543 owned and operated medical
clinics in Ontario, Quebec and Alberta. By articles of amendment, TransPacific
Minerals Inc. changed its name to YFMC Healthcare Inc.
GENERAL OVERVIEW OF YFMC
YFMC was formed in response to the growing need to provide health care
professionals with quality practice management support services, and to furnish
communities with accessible, extended-hours medical care within a family
practice setting. YFMC's operations have grown to become a network of family
medical clinics staffed by over 80 family physicians, physiotherapists,
psychotherapists, dietitians and podiatrists. At present YFMC operates a group
of (20) "primary care" medical facilities in Ontario, Alberta and Quebec.
YFMC is a medical management company that offers physicians a professional
clinic environment and an established patient base, without the prohibitive
financial burden associated with start-up costs and the time consuming
administrative tasks dictated by day-to-day office management. In return, YFMC
generates revenue from management fees charged to its affiliated physicians.
In management's view, many physicians prefer to work as independent
practitioners within a group practice setting. As a result, YFMC's strategy to
provide a turn-key clinic/management operation empowers each staff physician to
preserve that entrepreneurial perspective by being free to focus on the practice
of medicine unencumbered by administrative responsibility.
YFMC clinics function as a blended operation of "immediate care" and
"appointment based" patient centres. Each clinic provides the local community
with a primary care mix comprised of family medical care, psychological care,
and other paramedical services such as nutrition, foot care and massage therapy.
Clinics are generally located in visible, high traffic areas, such as
shopping malls, and strategically positioned as "patient friendly locations"
with free parking and easy access, as well as convenient 9:00 am to 9:00 pm
weekday operating hours and 9:00 a.m. to 5:00 p.m. on weekends.
OUR BUSINESS STRATEGY AND GOALS
Using the secure web-enabled technology of HealthyConnect.com, we will be
uniquely positioned as the premier provider of health care information,
connectivity and e-commerce for health education and triage, home health
monitoring, drug trials and compliance programs and health industry management.
Through HealthyConnect.com we intend to capture significant market share through
our ability to enhance, expedite and provide better access to health care
services in cooperation with health organizations and our partner clients.
In this context, the Business Combination with YFMC provides the framework
for the launch of HealthyConnect.com. Please see "Reasons for the Transaction"
for a more detailed description of the expected benefits of the Business
Combination.
4
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THE ANNUAL MEETING
MED-EMERG
The annual meeting of Med-Emerg's shareholders ("Med-Emerg Annual Meeting")
will be held at Hotel Intercontinental, 111 East 48(th) Street, New York, New
York, 10017 on November 19, 1999, starting at 10:00 a.m., local time. At the
Med-Emerg Annual Meeting, Med-Emerg shareholders will be asked to (i) elect the
Board of Directors of Med-Emerg for the ensuing year; (ii) ratify the
appointment of Schwartz Levitsky Feldman, Chartered Accountants, as the
Company's independent auditors for the ensuing year; and (iii) approve the
combination of the businesses of Med-Emerg and YFMC Healthcare Inc. ("YFMC")
through a tender offer by Med-Emerg for all of the outstanding securities of
YFMC and the issuance of securities of Med-Emerg in connection therewith.
Shareholder approval of the business combination is required pursuant to the
change of control and corporate governance rules of the Nasdaq Stock Market
which generally require shareholder approval of issuances of over 20% of the
then outstanding stock of a corporation. See "The Transaction."
If you are a Med-Emerg common shareholder at the close of business on
October 15, 1999 (the "Med-Emerg Record Date"), then you have the right to
receive notice of, and to vote at, the Med-Emerg Annual Meeting. On the
Med-Emerg Record Date, there were approximately 3,095,544 shares of Med-Emerg
common stock issued and outstanding and entitled to vote. Each share of
Med-Emerg common stock ("Med-Emerg Common Share") outstanding on the Med-Emerg
Record Date is entitled to one vote. The affirmative vote, in person or by
proxy, of the holders of a majority of the shares present, in person or by
proxy, at the Med-Emerg Annual Meeting is required to approve each of the
proposals to be voted upon at the Med-Emerg Annual Meeting. Your proxy may be
revoked by notice of revocation or a later signed and dated proxy or by
attending the Med-Emerg Annual Meeting and voting in person. Attendance at the
Med-Emerg Annual Meeting will not in itself constitute the revocation of a
proxy. See "The Annual Meeting."
THE TRANSACTION
THE BUSINESS COMBINATION AGREEMENT IS ATTACHED AS APPENDIX I TO THIS JOINT
PROSPECTUS/PROXY STATEMENT. WE ENCOURAGE YOU TO READ THE BUSINESS COMBINATION
AGREEMENT AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THIS TRANSACTION.
WHAT YFMC SHAREHOLDERS WILL RECEIVE IN THE TRANSACTION
If the transaction whereby the businesses of Med-Emerg and YFMC are combined
is approved, YFMC shareholders will receive one Med-Emerg Common Share for every
6.875 YFMC common stock ("YFMC Common Share"). The holder of each YFMC Series A
Warrants will receive 0.125 of a Med-Emerg Series A Warrant while the holder of
each YFMC Series B Warrant will receive 0.125 of a Med-Emerg Series B Warrant.
The holder of each YFMC First Preferred Share will receive 0.1 of a Med-Emerg
Common Share. The former holders of Med-Emerg Common Shares will collectively
hold, on a diluted basis, approximately 78.2% of the issued and outstanding
shares of Med-Emerg Common Shares and, on a diluted basis, the former holders of
common stock, preferred shares, options and warrants of YFMC will hold, on a
diluted basis, approximately 21.8% of the equity interests in Med-Emerg upon
consummation of the transaction. See "The Transaction."
Each Med-Emerg Series A Warrant entitles the holder thereof to purchase one
Med-Emerg share of common stock at an exercise price of US$2.70 until June 12,
2000. Each Med-Emerg Series B Warrant entitles the holder thereof to purchase
one Med-Emerg share of common stock at an exercise price of US$3.40 until June
12, 2000.
RELATIVE EXCHANGE RATIOS AND CONSIDERATION
The following table sets forth the market value of the shares of Med-Emerg
common stock to be received upon the exchange calculated based on (i) the last
sale price of shares of YFMC common stock of Cdn$0.34 per share as reported on
the Alberta Stock Exchange on June 18, 1999, the last trading date prior to the
date the proposed business combination was announced, and (ii) the closing price
of shares of YFMC common stock of Cdn$0.345 per share as reported on the Alberta
Stock Exchange on August 31, 1999, using the exchange ratio
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for each share of YFMC of 0.14545 shares of Med-Emerg Common Stock based on
Med-Emerg's closing price of US$2.00 on the most recent practicable date prior
to the mailing of this Joint Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE
(CLOSING PRICE (CLOSING PRICE
ON ON
JUNE 18, 1999) AUGUST 31, 1999)
---------------- ----------------
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YFMC Common Stock................................................................... Cdn$0.34 Cdn$0.345
Med-Emerg Exchange Securities
Common Stock...................................................................... US$1.875 US$2.00
</TABLE>
These values are shown for illustrative purposes only. Actual values
received will be dependent upon the market value of Med-Emerg common stock.
There can be no assurance that the values reflected in this table will be
achieved or that the value of YFMC common stock before the exchange will be
indicative of the value of Med-Emerg common stock after the exchange. See "The
Transaction".
RECOMMENDATION OF YFMC BOARD OF DIRECTORS
The YFMC Board of Directors (the "YFMC Board"), by unanimous vote, has
determined that the terms and provisions of the Business Combination Agreement
are fair to, and in the best interests of, YFMC and the holders of YFMC common
stock and recommends that holders of YFMC common stock vote in favor of approval
of the Business Combination Agreement. See "The Transaction -- Recommendation of
YFMC Board".
The combination of YFMC and Med-Emerg will create an integrated medical
management company with extensive assets and customers in Canada. The YFMC Board
and Med-Emerg Board of Directors (the "Med-Emerg Board") believe that the
business combination will provide opportunities to achieve substantial benefits
for the respective shareholders of both companies. The Boards further believe
that the combined entities will be better and more quickly able to capitalize on
opportunities in the medical management industry, both domestically and
internationally, and be better positioned to compete effectively in the rapidly
changing industry than either of the entities on a stand-alone basis. For a more
complete discussion of YFMC's and Med-Emerg's reasons for the Transaction, See
"The Transaction -- Reasons for the Transaction".
BOARD OF DIRECTORS AND MANAGEMENT OF MED-EMERG
It is expected that, following the consummation of the Transaction, the
Med-Emerg Board will consist of William Thomson, Carl Pahapill, Dr. Ramesh
Zacharias, Jeffrey Lyons, Robert Rubin and Martin Scullion.
Following the consummation of the Transaction, Dr. Ramesh Zacharias will be
Chief Executive Officer, Carl Pahapill will be President and Chief Operating
Officer, Kathryn Gamble will be Chief Financial Officer, Vice-President of
Finance and Secretary, Martin Scullion will be Director of Clinical Operations
and Dr. Donald Wilson will be Executive Medical Director, YFMC Operations.
ACCOUNTING TREATMENT
We expect that the business combination will be accounted for using the
purchase method of accounting. The purchase method of accounting allocates the
consideration paid by Med-Emerg among the tangible and intangible assets and
liabilities of YFMC. See "The Transaction -- Accounting Treatment". The
unaudited pro forma financial information contained in this Joint
Prospectus/Proxy Statement has been prepared using the purchase accounting
method to account for the merger.
TERMINATION OF THE BUSINESS COMBINATION AGREEMENT
The Business Combination Agreement may be terminated prior to the effective
date of the transaction under certain circumstances. See "The Business
Combination Agreement -- Termination" and "-- Effect of Termination".
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COMPULSORY ACQUISITION
Pursuant to the provisions of the OBCA, if the Exchange Offer is accepted by
90% of the YFMC shareholders, Med-Emerg may compulsorily acquire any unacquired
shares on the same terms subject to certain appraisal rights. In addition,
Med-Emerg may acquire any unacquired shares, even if less than 90% of the shares
are tendered, through other direct and indirect acquisition transactions. See
"The Business Combination Agreement -- Compulsory Acquisition" and
"-- Subsequent Acquisitions Transactions".
APPRAISAL RIGHTS
If YFMC Shareholders do not desire to accept the Offer, YFMC Shareholders
may be entitled to exercise certain appraisal rights. See "The
Transaction -- Appraisal Rights".
MARKET PRICE INFORMATION
YFMC Common Shares are listed on the Alberta Stock Exchange under the
trading symbol "YFM.AL". On June 18, 1999, the last full trading day prior to
the public announcement of the proposed business combination, the closing price
of YFMC common stock on the Alberta Stock Exchange was Cdn$0.34 per share. On
August 31, 1999, the closing price of YFMC Common Shares on the Alberta Stock
Exchange was Cdn$0.345 per share. Med-Emerg Common Shares and purchase warrants
are listed for trading under the symbols "MDER" and "MDERW", respectively, on
the NASDAQ Small Cap Market and under the symbols "MEI" and "MEIW",
respectively, on the Boston Stock Exchange. On June 18, 1999, the last full
trading day prior to the public announcement of the business combination, the
closing price on Med-Emerg Common Shares and purchase warrants were US$1.875 and
US$.4375, respectively. On August 31, 1999, the closing price of Med-Emerg
common stock and purchase warrants were US$2.00 and US$0.4375, respectively. You
are urged to obtain current market quotations of the Med-Emerg Common Shares
prior to making any decision with respect to the business combination.
RISK FACTORS
MED-EMERG SECURITIES ARE HIGHLY SPECULATIVE. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS, AS WELL AS OTHER INFORMATION SET FORTH ELSEWHERE IN
THIS JOINT PROSPECTUS/PROXY STATEMENT.
RISKS ASSOCIATED WITH THE BUSINESS COMBINATION
YFMC SHAREHOLDERS WILL RECEIVE SHARES OF MED-EMERG COMMON SHARES BASED ON A
FIXED EXCHANGE RATIO.
The exchange ratios are expressed as fixed ratios in the Business
Combination Agreement. The Business Combination Agreement does not contain any
provisions for adjustment of the exchange ratios based upon fluctuations in the
market price of YFMC Common Shares or Med-Emerg Common Shares or purchase
warrants. Therefore we can not presently ascertain the value of the Med-Emerg
Common Shares and purchase warrants YFMC shareholders will receive upon the
consummation of the business combination which will depend upon the market price
of Med-Emerg Common Shares and purchase warrants, which in turn will be affected
by, among other factors, the market price of YFMC common stock and our common
stock immediately prior to the closing of the business combination and the value
our business and of the business of YFMC. The exchange ratios were determined on
August 10, 1999.
OUR ABILITY TO MANAGE RAPID EXPANSION AND THE INTEGRATION OF OUR BUSINESS AND
YFMC HAS NOT BEEN TESTED AND MAY NOT BE SUCCESSFUL.
The proposed business combination involves the integration of two companies
which will impose many risks on us, including risks associated with assimilating
the operations, services, products and personnel of the two companies. There can
be no assurance that we will not encounter significant difficulties in
integrating the respective operations of our company and YFMC or that the
benefits and revenue growth expected from such integration will be realized. The
achievement of the benefits and revenue growth expected from such integration
will require us to, among other things, access significant amounts of growth
capital, rapidly expand our sales force and customer service department,
introduce new products, as they become available and incur significant
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costs in connection with the integration of the two companies operations,
financial reporting and accounting systems, as well as other costs relating to
transitional planning and implementation. The incurrence of any such costs, as
well as any unexpected costs or delays in connection with such integration,
could have a material adverse effect on our financial condition, results of
operations and cash flow.
RISKS RELATED TO THE COMPANY
OUR RESOURCES MAY NOT BE SUFFICIENT TO MANAGE OUR EXPECTED GROWTH.
We anticipate a period of rapid growth which we expect to place a strain on
our administrative, financial and operational resources. Our ability to manage
any staff and facilities growth effectively will require us to continue to
improve our operational, financial and management controls, reporting systems
and procedures, install new management information and control systems and
train, motivate and manage our employees. There can be no assurance that we will
install such management information and control systems in an efficient and
timely manner or that the new systems will be adequate to support our future
operations. If we are unable to manage growth effectively, such as if our sales
and marketing efforts exceed our capacity to install, maintain and service our
products or if new employees are unable to achieve performance levels, our
business, operating results and financial condition could be materially
adversely affected.
WE HAVE INCURRED OPERATING LOSSES AND HAVE AN ACCUMULATED DEFICIT.
We incurred a net loss of $157,536 (on revenues of approximately
$15,283,000) during the year ended December 31, 1998, as compared to a net loss
of $472,085 (on revenues of approximately $11,573,000) during the year ended
December 31, 1997. As of June 30, 1999 we had an accumulated deficit of
approximately $4,895,416. There can be no assurance that we will operate
profitably in the future. See "Selected Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE DEPEND ON OUR CONTRACTS WITH HOSPITALS.
We derive the majority of our revenues from contracts with hospitals. The
standard hospital contract we have entered into provides for an initial one or
two-year term, which renews automatically unless terminated on 60 days notice.
We have at times experienced a periodic reduction in the number of our 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 we provide 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 our services. In addition, in each of our 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. The loss of
several hospital contracts would have a material adverse effect on our business.
WE CLASSIFY OUR PHYSICIANS AND NURSES AS INDEPENDENT CONTRACTORS WHICH MAY
RESULT IN A TAX LIABILITY.
We contract with physicians and nurses as independent contractors, rather
than employees, to fulfill our contractual obligations to hospitals. Therefore,
we have not historically, and do not currently, withhold income taxes, make
unemployment insurance or 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 we are required to treat
the physicians and nurses as employees could have an adverse effect on our
business.
THE MARKET ACCEPTANCE OF URGENT CARE CENTRES IS UNCERTAIN.
We intend to continue to develop a chain of Urgent Care Centres which will
provide on-site emergency medical services. We currently manage and operate two
Urgent Care Centres, the Dundas Urgent Care Centre and Britannia Urgent Care
Centre. The success of these and future Urgent Care Centres depends on several
factors, including our ability to attract qualified physicians and other health
care providers to work at such centres and the public's willingness to seek
emergency medical care at such centres. There can be no assurance
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that we will be able to obtain the necessary qualified personnel or that the
Urgent Care Centre concept will attain market acceptance.
PROVINCIAL LAWS REGARDING THE CORPORATE PRACTICE OF MEDICINE MAY ADVERSELY
AFFECT OUR BUSINESS.
Business corporations are legally prohibited in many Canadian provinces from
providing or holding themselves out as providers of medical care. While we have
structured our operations to comply with the corporate practice of medicine laws
of Ontario and will seek to structure our operations in the future to comply
with the laws of any province in which we plan to operate, there can be no
assurance that, given varying and uncertain interpretations of such laws, we
would be found to be in compliance with restrictions on the corporate practice
of medicine in such province. If it is determined that we are in violation of
applicable restrictions on the practice of medicine in any province in which we
operate there could be a material adverse effect on our business if we were
unable to restructure our operations to comply with the requirements of such
province. Such regulations may limit the jurisdictions in which we can operate,
thereby inhibiting our future expansion into potential markets in other
jurisdictions.
OUR COMPANY IS EXPOSED TO PROFESSIONAL LIABILITY.
Due to the nature of our business, we and the physicians and nurses who
provide services on our 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
and nurses under contract which we place at hospitals and liabilities in
connection with medical services provided at the clinics. We currently maintain
the following insurance policies related to professional liabilities: (i)
CDN$10,000,000 with respect to general commercial liability; and (ii)
CDN$10,000,000 with respect to errors and omissions caused by a negligent act,
error or omission by us, or any person for whom we are legally liable, arising
out of the conduct of our business. In addition, physicians staffed by us
maintain their own malpractice insurance. To the extent such physicians are to
be regarded as agents of our company in the practice of medicine, there can be
no assurance that a patient would not sue us for any negligence of such
physicians. In addition, in the event that we become liable, there can be no
assurance that our current insurance policy will be adequate to cover any such
liabilities.
GOVERNMENT REGULATION.
The provision of medical services in Canada is for the most part governed
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 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. Any changes in
reimbursement regulations, policies, practices, interpretations or statutes that
place material limitations on reimbursement amounts or practices could adversely
affect our operations, absent, or prior to, satisfactory renegotiations 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 services listed in the OHIP Schedule of Benefits. 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 provincial plan must ensure
that no payments are permitted in respect of insured health services that have
been subject to extra billing.
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 significant reductions in government and other
third party reimbursements for certain medical charges. Our independent
contracted
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physicians as well as our company are subject to periodic audits by government
reimbursement programs to determine the adequacy of coding procedures and
reasonableness of charges.
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, in 1997 the Province of Ontario 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 ("HSRC"), which has
broad decision making authority over every aspect of a public hospital's
operations, including 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 Ontario to improve the quality of health care and particularly to
install efficiencies of cost in the delivery of medical services to the
population of Ontario. 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 our company.
The HSRC, established under Bill 26, has 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. We
cannot predict what effect, if any, this and other healthcare legislation will
have on our operations. Significant changes in Canada's healthcare system are
likely to have a gradual but substantial impact on the manner in which we
conduct business and could have a material effect on our results of operations.
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 American style managed care will play a significant role in the
fee-for-service sector of the publicly funded healthcare system. Management
believes that legislation to date indicates that the Ontario government's
current intention is to let the healthcare system proceed without intervening
directly in the management of patient care, although there can be no assurance
thereof. In the future, greater emphasis may be placed on such managed care
tools as utilization review, practice guidelines, and outcome measurement. 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.
WE ARE DEPENDENT ON OUR KEY EMPLOYEES.
Our success is largely dependent upon the efforts and abilities of Dr.
Ramesh Zacharias, our Chief Executive Officer, Carl Pahapill, our President and
Chief Operating Officer and Kathryn Gamble, our Chief Financial Officer. If we
lost the services of any of Dr. Zacharias, Mr. Pahapill or Ms. Gamble, our
business would be materially adversely affected. We have procured key-man life
insurance in the amount of $1,000,000 for Mr. Pahapill, but do not have key-man
life insurance for any other employee. See "Business -- Personnel" and "Officers
and Directors".
CONTROL BY MANAGEMENT AND/OR EXISTING STOCKHOLDERS.
Following completion of the business combination our officers and directors
will own or have rights to acquire an aggregate of approximately 52.0% of the
voting power of our capital stock. See "Principal Stockholders" and "Description
of Securities". As a result, they will be in a position to exercise significant
influence over the Company and the election of directors and otherwise
essentially control the outcome of all matters requiring stockholder approval.
WE MAY EXPERIENCE ADDITIONAL LOSSES THROUGH THE FINANCING OF ACCOUNTS
RECEIVABLES.
One of the services provided by our Physician and Nurse Recruitment Services
Division is the collection of fees for services performed by the independent
physician and nurse contractors. In event that we do not collect these fees by
the time payment is due to the physicians and nurses, we are nevertheless
obligated to pay the physicians and nurses for the duties they have fulfilled.
In practice, we use our working capital to finance the
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accounts receivable and pay the physicians and nurses. Historically, bad debts
are less than 1% of gross billings since substantially all of the physician
services billed to OHIP are for Ontario residents who are automatically covered
by OHIP for the medical services performed. However, there can be no assurance
that accounts receivables will ultimately be collected from OHIP and the
hospitals. Accordingly, there can be no assurance we will not experience
significant losses due to unpaid accounts receivables which we have financed.
WE MAY NEED ADDITIONAL FINANCING TO ACHIEVE OUR GROWTH STRATEGY.
We believe that we will need additional financing to continue to pursue our
growth strategy. We have no commitment for any debt or equity financing and we
may not be able to obtain sufficient financing on favorable terms, if at all. If
we do not obtain additional financing when required, we may be required to
modify, delay or abandon some or all of our expansion plans, which may have a
material adverse effect on our business.
COMPETITION IN THE HEALTHCARE INDUSTRY MAY ADVERSELY AFFECT OUR REVENUES AND
MARKET POSITION.
The healthcare industry is highly competitive. We compete based on scope,
quality and cost of services provided. Many of our existing and 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 us (e.g., in the areas of malpractice insurance, cost, savings
from internal billing and collection and a broader scope of services). We also
compete with various local physician groups which provide hospitals with
emergency staffing alternatives. The medical clinics compete with hospitals and
other private physicians. The Urgent Care Centres compete with hospital
emergency rooms. We may not be able to compete effectively.
RISK RELATED TO INVESTMENT IN A CANADIAN CORPORATION.
We are a corporation incorporated under the OBCA and most of our directors,
controlling persons and officers, as well as experts named herein, are residents
of Canada. Moreover, substantial portions of our 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 our 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.
WE HAVE NOT, AND DO NOT INTEND TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We do not intend to pay any dividends on our common stock in the foreseeable
future. We currently intend to retain any earnings to finance our operations. In
addition, our 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 our preferred stock will accrue at a rate of US$135,000 per year.
See "Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE.
Of the 3,095,544 Med-Emerg Common Shares outstanding as of the date of this
Joint Prospectus/Proxy Statement, 1,865,000 are "restricted securities", 840,000
of which are owned by "affiliates" of our company, as those terms are defined in
Rule 144 promulgated under the US Securities Act (the "Act"). Absent
registration under the Act, the sale of such shares is subject to Rule 144. In
general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including our affiliates, who have 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 listed on 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 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. Robert Rubin, a director, holds options to purchase an
aggregate of 700,000 shares of Med-Emerg Common Shares. In the event Mr. Rubin
exercises such options, the Med-Emerg Common Shares will be eligible for resale
under Rule 144 commencing one year from the exercise of the
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options. All of our officers and directors have agreed not to sell or otherwise
dispose of any of their shares of Common Shares until February 12, 2000 and
YFMC's officers and directors have agreed not to sell or otherwise dispose of
any of their shares of common stock for a period of 18 months from the date of
this Joint Prospectus/ Proxy Statement. No prediction can be made as to the
effect, if any, that sales of shares of Med-Emerg Common Shares or the
availability of such shares for sale will have on the market prices of our
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 our common stock and could impair
our ability to raise capital in the future through the sale of our equity
securities. See "Shares Eligible for Future Sale".
OUR BOARD OF DIRECTORS MAY ISSUE PREFERRED STOCK AND COMMON STOCK WHICH COULD
ADVERSELY AFFECT THE VALUE OF YOUR SECURITIES.
Our 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 Med-Emerg Board. Accordingly, the Med-Emerg Board 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
Med-Emerg Common Shares. The issuance of the preferred stock or Med-Emerg Common
Shares may be used, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of our company. Except for 500,000
shares of preferred stock currently held by Dr. Ramesh Zacharias and Victoria
Zacharias, we have no present intention to issue any shares of our preferred
stock. However, there can be no assurance that we will not issue shares of
preferred stock or Med-Emerg Common Shares in the future. We agreed with the
representative of our initial public offering that, except for issuances
disclosed in or contemplated by our initial public offering prospectus, we will
not issue any securities without the prior written consent of the such
representative, until February 12, 2000. See "Certain Transactions" and
"Description of Securities -- Preferred Stock."
RISKS RELATED TO THE MARKET
THERE IS A LIMITED PUBLIC MARKET FOR OUR SECURITIES AND THERE CAN BE NO
ASSURANCE THAT A PUBLIC TRADING MARKET WILL CONTINUE.
Med-Emerg Common Shares and purchase warrants are quoted on NASDAQ and
listed on the BSE. Currently, there is no public trading market in Canada for
our securities. There are no assurances that a public trading market for our
securities in the United States will be maintained. In any event, because
certain restrictions may be placed upon the sale of such securities, unless such
securities qualify for an exemption from the "penny stock" rules (such as being
listed on NASDAQ) some brokerage firms will not effect transactions in common
stock and it is unlikely that any bank or financial institution will accept such
securities as collateral, which could have a material adverse effect in
developing or sustaining any market for such securities.
For continued quoting on NASDAQ, 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) a minimum of two (2) market makers. If we are unable to satisfy the
requirements for continued quoting, trading, Med-Emerg Common Shares would be
conducted in the "pink sheets" or on the NASDAQ OTC 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 United States
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
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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 stork 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.
THE TRANSACTION
GENERAL
The purpose of the Offer is to enable Med-Emerg to acquire, directly or
indirectly, all of the outstanding YFMC Securities in exchange for corresponding
Med-Emerg Securities in order to complete a business combination involving
Med-Emerg and YFMC.
YFMC entered into the Business Combination Agreement with Med-Emerg pursuant
to which Med-Emerg agreed to make the Offer whereby the YFMC Securities would be
exchanged for the Med-Emerg Securities. Pursuant to the Lock-Up Agreement, the
YFMC Principals, holders of 63.2% of the issued and outstanding YFMC Common
Shares and 96.9% of the YFMC First Preferred Shares, have agreed to tender such
securities under the Exchange.
If Med-Emerg takes up and pays for securities validly deposited under the
Exchange and acquires not less than 90% of the issued and outstanding securities
of any class which is subject of the Offer, Med-Emerg intends, to the extent
possible, to acquire the remaining securities of any such class pursuant to the
compulsory acquisition provisions of the OBCA. If Med-Emerg takes up and pays
for securities validly deposited under the Offer and acquires less than such
number thereof or the compulsory acquisition provisions of the OBCA are
otherwise unavailable, Med-Emerg intends to consider other means of acquiring,
directly or indirectly, all of the outstanding YFMC Securities available in
accordance with applicable law, including a subsequent acquisition transaction.
If the Minimum Condition is satisfied, Med-Emerg will own sufficient YFMC
Securities to effect such subsequent acquisition transaction. See "ACQUISITION
OF SECURITIES NOT DEPOSITED".
BUSINESS COMBINATION AGREEMENT
Pursuant to the Business Combination Agreement entered into between
Med-Emerg and YFMC, Med-Emerg agreed to make an offer on the terms set out
therein to purchase all of the issued and outstanding YFMC Common Shares on the
basis of one share of Med-Emerg common stock for every 6.875 YFMC common shares,
each outstanding YFMC Series A Warrant will be entitled to 0.125 of a Med-Emerg
Series A Warrant and each outstanding YFMC Series B Warrant will be entitled to
0.125 of a Med-Emerg Series B Warrant.
In addition to the foregoing, Med-Emerg has agreed to offer to holders of
the YFMC Preferred Shares, for every ten YFMC Preferred Shares, one Med-Emerg
Common Share to be held in escrow. See "Escrow Agreements".
As well, there shall be substituted for the right to acquire YFMC Common
Shares under the YFMC Stock Option Plan the right to acquire Med-Emerg Common
Shares on an exchange basis consistent with that of the warrant exchange under
the Offer. Specifically, Med-Emerg will substitute for every eight options to
acquire YFMC Common Shares under the YFMC Stock Option Plan, the right to
acquire one Med-Emerg Common Share at an exercise price of US$1.75 per share.
The Business Combination Agreement also includes representations and
warranties of Med-Emerg and YFMC and its principal shareholders. Under the
Business Combination Agreement, the Board of Directors of YFMC agreed to support
the Offer and recommended acceptance of the Offer by the YFMC shareholders and
prepare, file and mail as required by applicable law a directors' circular
recommending the Offer. The representations and warranties contained in the
Business Combination Agreement and given by the principal shareholders of YFMC
to Med-Emerg, and given by Med-Emerg to the principal shareholders of YFMC,
shall in each case survive the completion of the transaction contemplated by the
Offer for a period of 18 months.
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RECOMMENDATION OF YFMC BOARD
THE YFMC BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE TERMS OF THE
BUSINESS COMBINATION AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, YFMC
AND THE HOLDERS OF YFMC COMMON STOCK AND RECOMMENDS THAT HOLDERS OF YFMC COMMON
STOCK ACCEPT THE BUSINESS COMBINATION AGREEMENT.
In reaching its determination to approve the Business Combination Agreement
and the transactions contemplated thereby, the YFMC Board consulted with YFMC
management and financial and legal advisors and considered the proposed terms of
the Business Combination Agreement and the related agreements. In reaching its
conclusions, the YFMC Board also considered the strategic advantages of the
Transaction described below under "-- Reasons for the Transaction," as well as,
among other things the following: (i) information concerning the financial
performance and condition, business operations, capital levels, asset quality
and prospects of Med-Emerg and the projected future financial performance of
YFMC as a separate entity and of YFMC and Med-Emerg on a combined basis; (ii)
current industry, economic and market conditions and trends, including the
likelihood of continuing consolidation and increasing competition in Med-Emerg's
industry; (iii) presentations by YFMC management and its financial and legal
advisors regarding Med-Emerg; (iv) the risks and benefits of completing the
Transaction with the exchange ratios; (v) the existing cash position of YFMC and
the recognition of the need for capital for YFMC; (vi) expectations for revenue
growth of the combined businesses and expectations for cost savings from
termination of redundant operations; (vii) the synergies among the combined and
complementary management teams; and (viii) the risks associated with the
Transaction which, among other things, include the ability of the two businesses
to manage change and to maintain operations during the merger process, the
ability to integrate the business, the impact upon employees and customers, the
need for capital to achieve the business plan of the combined organizations and
competition.
REASONS FOR THE TRANSACTION
By the end of the current fiscal year, Med-Emerg is planning to launch a
healthcare e-commerce business by linking participants, medical service
providers, medical product suppliers and member healthcare consumers using an
Internet based health portal.
Changes in the healthcare sector, including the development of managed care
and the emergence of new medical and pharmaceutical treatments, are placing
increasing pressure on consumers to inform themselves of their healthcare
options. In addition, the healthcare industry is experiencing consolidation and
increased competition, pressuring hospitals and other healthcare organizations
to find new ways to attract patients and deliver services more efficiently.
One of the critical elements to improving efficiency in healthcare is
improving and integrating the method of handling and integrating data and
information. Most healthcare professionals are intensive users of
administrative, communications and information services, such as electronic data
interchange services, transcription services, after-hours answering services,
paging, voice mail and medical references. These services often are provided by
multiple vendors, are not integrated, require users to become familiar with
multiple devices and are invoiced separately.
It is becoming clear that the healthcare sector can benefit from the
Internet's open, low cost, flexible technology for exchanging information and
executing commercial transactions. The Internet has the potential to help
healthcare providers and consumers quickly access relevant healthcare
information, identify and communicate with hospitals, other doctors, patients
and healthcare organizations and make better informed evaluations of treatment
alternatives and healthcare products. The Internet is empowering consumers to
educate themselves on health conditions and treatments, share experiences with
other patients, and better manage their health.
Through HealthyConnect.com, a healthcare information technology division, we
see a significant opportunity emerging for healthcare organizations to use new
web-based technologies to increase practice efficiency, achieve measurable cost
savings and improve the quality of patient care.
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In this context, the business combination with YFMC provides the framework
for the launch of HealthyConnect.com. Some of the expected benefits from the
business combination are set forth below:
1. The number of clinics owned and/or managed by Med-Emerg will increase
three-fold, demonstrating our ability to become the pre-eminent Canadian
clinic management company able to bring together the services of medical
professionals, medical product suppliers and healthcare consumers as the
backbone to an Internet based health portal, HealthyConnect.com.
2. Physicians and patients will benefit from Med-Emerg's national market
penetration. Med-Emerg healthcare professionals will provide care for over
approximately one million Canadian citizens over the next twelve months.
This provides a significant patient base for the success of
HealthyConnect.com.
3. The contacts and resources of YFMC management combined with the strong
financial position of Med-Emerg allows the combined companies to expedite
their acquisition programs, adding to the framework for HealthyConnect.com.
4. The combined companies are expected to generate strong positive cashflow
from operations, which will be available for reinvestment in further medical
clinic acquisitions and the development of HealthyConnect.com.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the business combinations and the recommendation of YFMC's
Board with respect to the transaction, the holders of YFMC Common Shares and the
holders of Med-Emerg Common Shares should be aware that certain members of the
management of YFMC and Med-Emerg have interests in the Transaction that may be
different from, or in addition to, the interests of the holders of YFMC Common
Shares and the holders of Med-Emerg Common Shares generally.
EMPLOYMENT AGREEMENTS
YFMC and Dr. Donald Wilson have entered into an employment agreement whereby
Dr. Wilson will serve as executive medical director of the combined business,
following the acquisition by Med-Emerg of the YFMC Securities.
Such employment agreement, for a term expiring on December 31, 2001, provide
that Dr. Wilson receive a salary of $4,000 per month, increasing to $5,000 per
month commencing on June 1, 2000 and $6,000 per month commencing April 1, 2001
upon commencement of employment increasing to $5,000 per month commencing on
June 1, 2000 and $6,000 per month commencing April, 2001, plus a car allowance
and other benefits. Dr. Wilson's responsibilities as executive medical director
will include recruiting qualified physicians, organizing physicians' shifts,
developing an organization-wide quality assurance program, contributing to the
combined business' strategy and plans for growth and developing health programs
for the clinics managed or operated by the combined business. Dr. Wilson will
also receive, as a one-time bonus, 10,000 MEII common shares at the time that
YFMC is acquired by Med-Emerg. He will also receive options to acquire 12,500
common shares of Med-Emerg at the time that YFMC is acquired by Med-Emerg, and
additional grants of options to acquire 10,000 Med-Emerg common shares at the
end of each of the years 2000 and 2001. In the event that Dr. Wilson's
employment is terminated prior to December 31, 2001, he shall receive his full
base salary for a period of one year.
YFMC and Martin Scullion have also entered into an employment agreement
whereby Med-Emerg will employ Martin Scullion to serve as a general manager of
medical clinic operations for the combined business following the acquisition by
Med-Emerg of the YFMC Securities.
Such employment agreement provides that Martin Scullion receive a salary of
$90,000.00 per year, increasing to $100,000 a year upon his relocation to
Med-Emerg's principal office and to $110,000 per year of the first anniversary
date of the agreement and upon the relocation of the Executive to Mississauga,
the salary rate per year shall be $100,000 and on the first anniversary date the
salary rate per year shall be $110,000, plus a car allowance and other benefits.
As the general manager of medical clinic operations, Martin Scullion's duties
will include working with operational staff to plan, co-ordinate and execute the
Company's clinic business
15
<PAGE>
operations, including liaison where appropriate with all physicians, clinic
staff, third party service providers, recruiters and schedulers to maximize
operating income, and to integrate facilities which may be acquired from time to
time. Mr. Scullion is also entitled to receive options to acquire 12,500
Med-Emerg common shares at the time YFMC is acquired by Med-Emerg. If Mr.
Scullion's employment with Med-Emerg is terminated, he shall be entitled to
receive his full salary for a one-year period.
ACCOUNTING TREATMENT
YFMC and Med-Emerg expect that the business combination will be accounted
for using the purchase method of accounting. The purchase method of accounting
allocates the consideration paid by Med-Emerg among the tangible and intangible
assets and liabilities of YFMC. The purchase method of accounting differs from
pooling of interest accounting which assumes that the combining companies were
merged from inception and the historical financial statements for the periods
prior to consummation of the merger are restated as though the companies had
been combined from inception subject to certain adjustments. The unaudited pro
forma financial information contained in this Joint Prospectus/Proxy Statement
has been prepared using the purchase accounting method to account for the
business combination. See "Unaudited Pro Forma Combined Condensed Financial
Statements."
COMPULSORY ACQUISITION OF YFMC SHARES
As described under the heading "Acquisition of Securities not
Deposited -- Compulsory Acquisition", YFMC Securities may be acquired, in
certain circumstances, pursuant to the compulsory acquisition provisions of the
OBCA.
REGULATORY APPROVALS
The Transaction is not subject to any state or federal regulatory approvals.
US FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Med-Emerg Common Stock received by holders of YFMC Common
Stock in the transaction will be freely transferable, under US Securities laws
except that shares of Med-Emerg Common Stock received by persons who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of YFMC
prior to the transaction may be resold by them only in transactions permitted by
the resale provisions of Rule 145 promulgated under the Securities Act (or Rule
144 in the case of such persons who become affiliates of Med-Emerg) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of YFMC or Med-Emerg generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
shareholders of such party.
APPRAISAL RIGHTS -- YFMC
If within 120 days after the date hereof, the offer has been accepted by
holders of not less than 90% of any class of YFMC Securities which are the
subject of the offer, other than YFMC Securities held on the date of the offer
by or on behalf of Med-Emerg or its affiliates and associates, and Med-Emerg
acquires such deposited securities, Med-Emerg intends, to the extent possible,
to acquire the remainder of the securities of each class of YFMC Securities on
the same terms as securities of such class were acquired under the offer
pursuant to the provisions of the OBCA.
To exercise such statutory right, Med-Emerg must give notice (the "Offeror's
Notice") to each holder of YFMC Securities who did not accept the offer (and
each person who subsequently acquires any such securities) (in each case a
"Dissenting Offeree") and to the Director under the OBCA of such proposed
acquisition on or before the earlier of 60 days from the Expiry Time and 180
days from the date of the offer. Within 20 days of giving the Offeror's Notice,
Med-Emerg must pay or transfer to YFMC the consideration Med-Emerg would have
had to pay or transfer to the Dissenting Offerees if they had elected to accept
the offer, to be held in trust for the Dissenting Offerees. In accordance with
section 188 of the OBCA, within 20 days after receipt of the Offeror's Notice,
each Dissenting Offeree must send the certificates representing the applicable
securities held
16
<PAGE>
by such Dissenting Offeree to YFMC, and may, within 20 days after the date of
Offeror's Notice, elect either to transfer such securities to Med-Emerg on the
terms of Med-Emerg or to demand payment of the fair value of such securities
held by such holder by so notifying Med-Emerg and by applying to a court having
jurisdiction to hear an application to fix the fair value of such securities. If
a Dissenting Offeree has elected to demand payment of the fair value of such
securities, Med-Emerg may apply to a court having jurisdiction to hear an
application to fix the fair value of such securities of that Dissenting Offeree
within 20 days after it made the payment or transferred the consideration to
YFMC referred to above. If there is no such application by the Dissenting
Offeree within the period referred to above, the Dissenting Offeree will be
deemed to have elected to transfer such securities to Med-Emerg on the terms of
the offer. Any judicial determination of the fair value of the securities could
be more or less than the amount paid pursuant to the offer.
The foregoing is a summary only. Reference is made to sections 187 to 190 of
the OBC. Such sections are complex and may require strict adherence to notice
and timing provisions, failing which such rights may be lost or altered. Persons
who wish to be better informed about these provisions should consult their legal
advisors.
17
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF MED-EMERG
DIRECTORS AND OFFICERS
It is expected that, following the consummation of the Transaction, the
Board of Directors of Med-Emerg will consist of William Thomson, Ramesh
Zacharias, Carl Pahapill, Robert Rubin, Jeffrey Lyons and Martin Scullion.
It is expected that, following the consummation of the business combination,
Med-Emerg Board's audit committee will be responsible for reviewing Med-Emerg's
annual audit and meeting with YFMC's independent accountants to review YFMC's
internal controls and financial management practices.
Directors who are employees of Med-Emerg or its subsidiaries will not
receive any compensation for service on the Med-Emerg Board, but will be
reimbursed by Med-Emerg for expenses incurred in attending meetings of the
Med-Emerg Board or any committees thereof.
The directors and the senior management team of Med-Emerg are expected to be
comprised of the following individuals, upon completion of the Business
Combination and the approval of Med-Emerg shareholders at the Annual Meeting,
many of whom are currently officers and/or directors of YFMC or Med-Emerg:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------- --- --------------------------------------
<S> <C> <C>
William Thomson, C.A...................................................... 57 Chairman of the Board, Director
Ramesh Zacharias, M.D., FRCSC............................................. 47 Chief Executive Officer, Director
Carl W. Pahapill, C.A..................................................... 40 Chief Operating Officer, President and
Director
Kathryn Gamble, C.A....................................................... 31 Vice President of Finance, Chief
Financial Officer, Secretary
Stephen Fowler, M.D....................................................... 49 Executive Medical Director
Martin Scullion........................................................... 53 General Manager -- YFMC, Director
Donald Wilson, M.D........................................................ 40 Executive Medical Director, YFMC
Robert M. Rubin........................................................... 57 Director
Jeffery Lyons............................................................. 58 Director
</TABLE>
WILLIAM E. THOMSON, C.A. Mr. William Thomson has been a Director of
Med-Emerg since January 1992 and is currently the Chairman. Mr. Thomson is
President of William E. Thomson Associates Inc., one of Canada's best known
crisis management firms. His assignments at Thomson Associates Inc. include the
operation of companies in crisis; monitoring the clients of financial
institutions; counselling boards of directors, chief executive officers and
senior management during periods of change, growth, initial public offerings and
other financings; and general consulting and financial intermediation services.
Mr. Thomson has operated companies in diverse fields including manufacturing,
hospitality, forest products, medical services, transportation and tier two
automotive supplies.
Mr. Thomson has been President and Chief Executive Officer of Speedware
Corporation, a TSE listed information technology company, since June 1998. Mr.
Thomson is Chairman of Asia Media Group Corp. in Singapore. In addition, Mr.
Thomson serves as a director of the following companies: TPI Plastics Ltd.,
Elegant Communications Ltd., Imperial Plastech Corp., Electrical Contacts Ltd.,
The Aurora Fund, Media Groupings Far East Pte Ltd. and Esna Technologies Ltd.
RAMESH ZACHARIAS, M.D., FRCSC. Dr. Ramesh Zacharias is the founder and
Chief Executive Officer of Med-Emerg. He has been a Director of Med-Emerg since
the Company's inception. He has practiced medicine in Canada since 1981 and has
extensive experience in the delivery of emergency medical care. He has provided
consulting services regarding the delivery of emergency care in the Caribbean,
Saipan and Malaysia and has
18
<PAGE>
provided management consulting services regarding the operation of medical
clinics in Canada, the United States and Russia.
CARL W. PAHAPILL, C.A. Mr. Carl Pahapill joined Med-Emerg as President in
February 1996 and became a Director of Med-Emerg in October 1996. From September
1995 to January 1996, Mr. Pahapill acted as a consultant to Med-Emerg. From 1994
to 1995, Mr. Pahapill was the Chief Operating Officer of Signature Brands
Limited, a publicly traded food processing company whose shares are listed on
the Toronto Stock Exchange. 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.
KATHRYN GAMBLE, C.A. Ms. Kathryn Gamble joined Med-Emerg in January, 1996
as Med-Emerg's Vice President of Finance and became Med-Emerg's Chief Financial
Officer in October, 1996. From February, 1995 to December, 1995, Ms. Gamble was
the Corporate Controller for Signature Brands Limited, a publicly traded food
processing company whose shares are listed on the Toronto Stock Exchange. From
February 1993 to February 1995, Ms. Gamble was an Audit Analyst with Abitibi
Price Inc., a publicly traded company whose shares are listed on the Toronto
Stock Exchange and the New York Stock Exchange.
STEPHEN FOWLER, MD. Dr. Fowler serves as the Executive Medical Director of
Med-Emerg and is responsible for medical oversight of Med-Emerg's operations.
Dr. Fowler has over 20 years experience in the delivery of emergency medicine
and primary care family services. He was formerly the Chief of Family Medicine
at Credit Valley Hospital in Mississauga, Ontario, from 1985 to 1992 and then
the Emergency Department Director at such hospital from 1991 to 1997. Dr. Fowler
joined Med-Emerg in 1996 as Associate Medical Director.
MARTIN SCULLION. Mr. Scullion joined YFMC in 1996 and served as its CEO
from 1998 to 1999. From 1988 to 1995 he was president of PEL Plastics Ltd. From
1974 to 1988 Mr. Scullion was vice-president, marketing for FCA International
Ltd., a publicly traded company of the Montreal Stock Exchange and Toronto Stock
Exchange. Mr. Scullion is responsible for operations of the physician management
services division.
DONALD WILSON, MD. Dr. Wilson founded YFMC in 1992 and served as its
president prior to joining Med-Emerg. He has practices family medicine since
1988 and is licenced in Quebec and Ontario. Dr. Wilson is responsible for
quality assurance and the integration of new services.
ROBERT M. RUBIN. Mr. Rubin has served as a director of Med-Emerg 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 infant wear and
babycare products through direct mail order catalogues.
Since November 20, 1992, Mr. Rubin has served as the Chairman of the Board
of Directors of Western Power & Equipment Corp. ("WPEC"), a construction
equipment distributor. Between 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 offeror 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) until
the latter part of 1987. Olsten Corporation, a New York Stock Exchange listed
company, is engaged in providing home care and institutional staffing services
and health care management services. Mr. Rubin is also a member of the Board of
Directors and minority stockholder of Response USA, Inc., a public company
engaged in the sale and distribution of personal emergency response systems.
JEFFERY LYONS, Q.C. Mr. Lyons recently joined the Board of Directors of
Med-Emerg. Mr. Lyons practices municipal law, administrative law and public
policy with Morrison, Brown, Sosnovitch, Barristers and Solicitors in Toronto,
Ontario. He currently serves as the Commissioner of the Toronto Police Services
Board and as a Director of VIA Rail Canada Inc., BDP Business Data Services
Limited, CAMVEC Corporation, Toronto International Film Festival and Toronto
Police Benefit Fund. Mr. Lyons is also a member of the Molson Indy Board of
Trustees, Governor's Council of North York General Hospital and the Contract
Settlement Board, Supply and Services Canada. In addition to several previous
offices and directorships held, Mr. Lyons was a Director of International
Managed Healthcare Inc. from 1996 to 1998.
19
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation, as well as certain
other compensation paid or accrued to Med-Emerg's Chief Executive Officer Dr.
Ramesh Zacharias and Chief Operating Officer and President Carl Pahapill
(collectively, the "Named Executive Officers") for the fiscal year ended
December 31, 1998, 1997 and 1996. No other executive officer received a total
annual salary and bonus of more than US$100,000 during the reporting periods.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (CDN.$)
------------------------------------
OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- -------------------------------------------------------------------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Ramesh Zacharias.......................................................... 1998 $ 224,000 $ 0 $ 7,688(1)
Chief Executive Officer 1997 $ 204,000 $ 0 $ 13,064(1)
1996 $ 169,462 $ 0 $ 19,582(1)
Carl Pahapill............................................................. 1998 $ 175,000 $ 25,000 $ 10,000
Chief Operating Officer and President 1997 $ 175,000 $ 0 $ 10,000
1996 $ 131,845 $ 15,000 $ 9,000(2)
</TABLE>
- ------------------------
(1) In addition to being the Chief Executive Officer, Dr. Ramesh Zacharias
occasionally covers physician assignments that Med-Emerg is otherwise unable
to fill. For each assignment that Dr. Ramesh Zacharias covers, he is paid as
an independent contracting physician. This amount represents fees paid to
him for such services.
(2) Represents fees paid to Mr. Pahapill for acting as a consultant to Med-Emerg
prior to joining Med-Emerg on a full-time basis.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
As of June 30, 1999, the aggregate indebtedness outstanding to Med-Emerg or
any of its subsidiaries of all officers, directors, employees and former
officers, directors and employees of Med-Emerg or any of its subsidiaries, in
connection with the purchase of securities of Med-Emerg or any of its
subsidiaries, is equal to Cdn$60,000. Such indebtedness is owing to Med-Emerg by
Carl Pahapill.
<TABLE>
<CAPTION>
LARGEST AMOUNT
INVOLVEMENT AMOUNT OUTSTANDING FINANCIALLY
OF MED-EMERG OUTSTANDING AS AS JUNE ASSISTED SECURITY
OR DURING 1998 30, 1999 PURCHASES DURING SECURITY FOR
NAME AND PRINCIPAL POSITION SUBSIDIARY (CDN$) (CDN$) 1998 (#) INDEBTEDNESS
- -------------------------------------------------- ------------ ----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Carl Pahapill, Chief Operating Officer and Lender
President....................................... $ 60,000 $ 60,000 nil None
</TABLE>
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SECURITIES DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON AGGREGATE VALUE (#) EXERCISABLE/ (US$) EXERCISABLE/
NAME EXERCISE (#) REALIZED (US$) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------- --------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Dr. Ramesh Zacharias............................... nil nil 65,000/nil nil/nil
Carl Pahapill...................................... nil nil 65,000/nil nil/nil
</TABLE>
An additional 100,000 options were granted to each of Dr. Ramesh Zacharias
and Carl Pahapill on January 6, 1999. These options are exercisable immediately
at an exercise price of US$1.25.
20
<PAGE>
EMPLOYMENT AGREEMENTS
All of Med-Emerg's executive officers offer their full business time to the
affairs of Med-Emerg. Med-Emerg has entered into employment agreements with both
Dr. Zacharias and Mr. Pahapill. Dr. Zacharias' agreement provides that he will
devote all of his business time to Med-Emerg in consideration of an annual
salary of $204,000 effective January 1, 1997 increasing to $225,000 per year
during the final year of the agreement's three year term. The agreement is for a
term of three years, but may be terminated by Med-Emerg for cause, or without
cause upon payment of his salary to February 20, 2001, plus $300,000 for
termination on or before February 20, 2000 with a lesser amount payable for
termination thereafter in lieu of notice. Mr. Pahapill's agreement was for a
term of two years, but may be terminated by Med-Emerg for cause or without cause
upon payment of one year's salary in lieu of notice. Such agreement provides
that Mr. Pahapill devote all of his business time to Med-Emerg in consideration
of an annual salary of $175,000. The terms of future employment arrangements
between Med-Emerg and Dr. Zacharias and Mr. Pahapill are currently under
negotiation.
STOCK OPTION PLAN
In April, 1997, the Med-Emerg Board and shareholders adopted and approved
the 1997 Stock Option Plan (the "Plan"). The Plan is to be administered by the
Board or a committee appointed by the Board. Pursuant to the Plan, options to
acquire an aggregate of 638,000 Med-Emerg Common Shares may be granted, 495,000
of which have been granted as of June 30, 1999. The Plan provides for grants to
Med-Emerg's employees, independent physician contractors, consultants, officers
and directors. During the fiscal year ended December 31, 1998, Med-Emerg granted
1,500 options to eligible employees at an exercise price of US$2.50 and 19,400
options to eligible physicians at an exercise price of US$4.25 under the Plan.
No options were granted during the fiscal year ended December 31, 1998 to the
Named Executive Officers.
OWNERSHIP OF MED-EMERG
It is anticipated that, after giving effect to the business combination,
approximately 4,805,970 shares of Med-Emerg Common Stock will be issued and
outstanding, approximately 239,545 additional shares will be reserved for
issuance upon the exercise of options and warrants to acquire YFMC Common Shares
and Med-Emerg Common Stock assumed by Med-Emerg.
The following table sets forth information concerning the beneficial
ownership of Med-Emerg Common Shares as of August 10, 1999 after giving effect
to the business combination by (a) each person or group of persons known to YFMC
and Med-Emerg expected to beneficially own more than five percent (5%) of the
outstanding shares of Med-Emerg Common Shares, (b) each person who is (or, upon
consummation of the business combination, will be) an executive officer,
director or director nominee of Med-Emerg and (c) all such executive officers
and directors of Med-Emerg as a group. The information contained in this table
with respect to beneficial ownership reflects "beneficial ownership" as defined
in Rule 13d-3 under the Exchange Act, which means generally any person who,
directly or indirectly, has or shares voting power or investment power with
respect to a security. Med-Emerg Common Shares not outstanding but deemed
beneficially owned by virtue of the right of an individual or group to acquire
such shares within 60 days after August 10, 1999 are treated as outstanding only
when determining the amount and percentage of Med-Emerg Common Shares owned by
such individual or group. All information with respect to the beneficial
ownership of any principal shareholder was furnished by such principal
shareholder and Med-Emerg believes that, except as otherwise noted or pursuant
to
21
<PAGE>
community property laws, each shareholder has sole voting and investment power
with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS(1) OWNED PERCENTAGE
- ---------------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Ramesh Zacharias, M.D., FRCSC(2)........................................................ 1,207,544 21.1%
1245841 Ontario Inc.(3)................................................................. 1,042,544 18.8%
William Thomson, C.A.(4)................................................................ 45,000 *
Carl W. Pahapill, C.A(5)................................................................ 265,000 5.3%
Kathryn Gamble, C.A.(6)................................................................. 55,000 1.1%
Robert M. Rubin(7)...................................................................... 750,000 13.6%
Jeffrey Lyons(8)........................................................................ 30,000 *
Hampton House........................................................................... 274,375 5.7%
Donald Wilson, M.D.(9).................................................................. 615,283 12.4%
Martin Scullion(10)..................................................................... 560,061 11.5%
All Officers and Directors as a Group (8 persons)....................................... 3,517,888 52.0%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of the class.
(1) Unless otherwise indicated, the address is c/o Med-Emerg International Inc.,
2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1, Canada.
(2) Includes: (i) 292,544 shares owned by 1245841 Ontario Inc., which is owned
by Dr. and Mrs. Zacharias; (ii) options to purchase up to 165,000 shares
common stock; and (iii) 750,000 shares of common stock issuable upon the
conversion of up to 500,000 shares of convertible preferred stock, such
preferred stock currently held by 1245841 Ontario Inc., which is owned by
Dr. and Mrs. Zacharias. For a period of ten years from issuance, each share
of preferred stock is convertible into 1.5 shares of common stock and
thereafter into such number of shares of common stock as is equal to
US$4,500,000 divided by the then current market price of the common stock on
the date of conversion. For purposes of the above chart, the number of
shares of common stock issuable upon conversion of the preferred stock was
calculated by assuming a one for one and on-half conversion. See
"Description of Securities."
(3) 1245841 Ontario Inc. is an Ontario company in which the beneficial ownership
is held by Ramesh and Victoria Zacharias.
(4) Includes 45,000 shares of common stock issuable upon the exercise of
options.
(5) Includes 165,000 shares of common stock issuable upon the exercise of
options.
(6) Includes 55,000 shares of common stock issuable upon the exercise of
options.
(7) Includes 700,000 shares of common stock issuable upon the exercise of
options.
(8) Includes 30,000 shares of common stock issuable upon the exercise of
options.
(9) Includes: (i) 529,648 shares owned by 977675 Ontario Inc., which is
beneficially owned by Donald Wilson; (ii) 25,000 shares of common stock
issuable upon the exercise of options; (iii) 50,635 shares of common stock
that will be converted from YFMC preferred shares.
(10) Includes: (i) 488,751 shares owned by Page Raymond & Associates, which is
beneficially owned by Martin Scullion; (ii) 25,000 shares of common stock
issuable upon the exercise of options; (ii) 46,310 shares of common stock
that will be converted from YFMC preferred shares.
22
<PAGE>
EXCHANGE RATE DATA
Med-Emerg International Inc. maintains its books of account in Canadian
dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the exchange rates on the last day of each month during such
periods. On May 31, 1999, the exchange rate was US$1.00 per Cdn$1.48.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1995 1996 1997 1998
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RATE AT END OF PERIOD............................................ $ 0.7143 $ 0.7353 $ 0.7299 $ 0.6991 $ 0.6532
AVERAGE RATE DURING PERIOD....................................... 0.7299 0.7299 0.7353 0.7223 0.6745
HIGH............................................................. 0.7092 0.7009 0.7212 0.6945 0.7061
LOW.............................................................. 0.7642 0.7533 0.7526 0.7493 0.6376
</TABLE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
YFMC common stock is listed on the Alberta Stock Exchange under the symbol
"YFM.AL". Following the Transaction YFMC Common Stock will not trade on any
market. Med-Emerg common stock and warrants are listed on the Nasdaq SmallCap
Market under the symbols "MDER" and "MDERW" respectively and under the symbols
"MEI" and "MEIW" respectively on the Boston Stock Exchange.
The following table sets forth for the period indicated the high and low per
share and per warrant closing prices for Med-Emerg and YFMC's securities on
their respective exchanges.
<TABLE>
<CAPTION>
CLOSING PRICE
-----------------------------------------------------
MED-EMERG COMMON MED-EMERG PURCHASE YFMC
COMMON
STOCK US$ WARRANTS US$ STOCK
-------------------- -------------------- CDN$
HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1998
First Quarter (from 2/12/98 for Med-Emerg)........................... 4.75 3.375 1.4375 .50 .28
Second Quarter....................................................... 4.00 2.8125 .50 .4375 .29
Third Quarter........................................................ 3.25 1.6875 .6563 .25 .30
Fourth Quarter....................................................... 2.00 1.00 .375 .1563 .49
1999
First Quarter........................................................ 2.25 1.031 .5938 .25 .46
Second Quarter....................................................... 2.50 1.0625 .875 .25 .45
Third Quarter (through August 9, 1999)............................... 2.00 1.50 0.625 0.50 0.36
<CAPTION>
LOW
---------
<S> <C>
1998
First Quarter (from 2/12/98 for Med-Emerg)........................... .15
Second Quarter....................................................... .15
Third Quarter........................................................ .20
Fourth Quarter....................................................... .26
1999
First Quarter........................................................ .31
Second Quarter....................................................... .26
Third Quarter (through August 9, 1999)............................... 0.28
</TABLE>
THE QUOTATIONS IN THE ABOVE TABLES REFLECT INTER-DEALER PRICES WITHOUT
RETAIL MARK-UP, MARK-DOWN OR COMMISSIONS AND MAY NOT REPRESENT ACTUAL
TRANSACTIONS.
On June 18, 1999, the last full trading day prior to the public announcement
of the proposed business combination, the price of the Med-Emerg Common Shares
on Nasdaq was US$1.875 and of the Med-Emerg Purchase Warrants on Nasdaq was
US$0.4375.
There were 23 holders of record of Med-Emerg Common Shares and 4 holders of
record of the Med-Emerg Purchase Warrants as of August 9, 1999. Med-Emerg has
not declared any dividends on the Med-Emerg Common Shares in the last two fiscal
years.
There were no unregistered sales of Med-Emerg Securities during the last
fiscal year.
23
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF MED-EMERG INTERNATIONAL, INC.
Set forth below is a summary of certain consolidated financial information
with respect to Med-emerg and its subsidiaries as at and for the six months
ended June 30, 1999 and 1998, as at and for the years ended December 31, 1998,
1997, 1996, 1995, and 1994, excerpted from documents filed with the Commission,
except for earnings before interest, taxes, depreciation and amortization
("EBITDA"). More comprehensive financial information is included in such
statements and reports and other documents filed by Med-Emerg with the
Commission, and the financial information summary set forth below is qualified
in its entirety by reference to, and should be read in conjunction with, such
reports and other documents, and all the financial statements, including the
notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,(1)
-----------
1999
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 8,768,298
Physician Fees and Other Direct Costs...................................................................... 6,332,448
Gross Profit............................................................................................... 2,435,850
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 2,628,278
-- U.S. GAAP............................................................................................. 2,594,858
Depreciation and Amortization.............................................................................. 207,849
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (400,277)
-- U.S. GAAP............................................................................................. (366,857)
Other Income (Expense)..................................................................................... (11,175)
Provision for Income Taxes (Recovery)...................................................................... (181,039)
Net Income (Loss)
-- Canadian GAAP......................................................................................... (230,413)
-- U.S. GAAP............................................................................................. (196,993)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ (0.07)
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (0.10)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (0.10)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ 1,461,307
Total Assets............................................................................................... 8,520,808
Long-term Debt............................................................................................. 422,266
Shareholders' Equity....................................................................................... 5,338,000
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ (192,428)
-- U.S. GAAP............................................................................................. $ (159,008)
<CAPTION>
1998
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 7,171,300
Physician Fees and Other Direct Costs...................................................................... 5,704,514
Gross Profit............................................................................................... 1,466,786
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 1,417,678
-- U.S. GAAP............................................................................................. 1,578,468
Depreciation and Amortization.............................................................................. 69,922
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (20,814)
-- U.S. GAAP............................................................................................. (181,604)
Other Income (Expense)..................................................................................... 24,886
Provision for Income Taxes (Recovery)...................................................................... 1,099
Net Income (Loss)
-- Canadian GAAP......................................................................................... 2,973
-- U.S. GAAP............................................................................................. (157,817)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ 0.00
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (0.02)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (0.08)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ 3,172,110
Total Assets............................................................................................... 8,217,771
Long-term Debt............................................................................................. 146,239
Shareholders' Equity....................................................................................... 5,614,798
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ 49,108
-- U.S. GAAP............................................................................................. $ (111,682)
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1998
------------
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 15,282,584
Physician Fees and Other Direct Costs...................................................................... 11,837,088
Gross Profit............................................................................................... 3,445,496
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 3,455,530
-- U.S. GAAP............................................................................................. 3,717,575
Depreciation and Amortization.............................................................................. 184,194
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (194,228)
-- U.S. GAAP............................................................................................. (456,273)
Other Income (Expense)..................................................................................... (18,657)
Provision for Income Taxes (Recovery)...................................................................... (55,349)
Net Income (Loss)
-- Canadian GAAP......................................................................................... (157,536)
-- U.S. GAAP............................................................................................. (419,581)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ (0.05)
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (0.11)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (0.20)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ 2,295,360
Total Assets............................................................................................... 8,352,468
Long-term Debt............................................................................................. 102,322
Shareholders' Equity....................................................................................... 5,670,806
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ (10,034)
-- U.S. GAAP............................................................................................. $ (272,079)
<CAPTION>
1997
------------
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 11,572,667
Physician Fees and Other Direct Costs...................................................................... 8,749,735
Gross Profit............................................................................................... 2,822,932
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 2,762,618
-- U.S. GAAP............................................................................................. 2,909,395
Depreciation and Amortization.............................................................................. 128,130
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (67,816)
-- U.S. GAAP............................................................................................. (214,593)
Other Income (Expense)..................................................................................... (444,878)
Provision for Income Taxes (Recovery)...................................................................... (40,609)
Net Income (Loss)
-- Canadian GAAP......................................................................................... (472,085)
-- U.S. GAAP............................................................................................. (618,862)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ (0.24)
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (0.24)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (0.31)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ (1,930,382)
Total Assets............................................................................................... 5,201,571
Long-term Debt............................................................................................. 79,352
Shareholders' Equity....................................................................................... 115,214
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ 60,314
-- U.S. GAAP............................................................................................. $ (86,463)
<CAPTION>
1996
------------
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 10,817,048
Physician Fees and Other Direct Costs...................................................................... 8,554,396
Gross Profit............................................................................................... 2,262,652
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 5,869,690
-- U.S. GAAP............................................................................................. 5,928,264
Depreciation and Amortization.............................................................................. 78,379
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (3,685,417)
-- U.S. GAAP............................................................................................. (3,743,991)
Other Income (Expense)..................................................................................... (55,461)
Provision for Income Taxes (Recovery)...................................................................... (146,554)
Net Income (Loss)
-- Canadian GAAP......................................................................................... (3,594,324)
-- U.S. GAAP............................................................................................. (3,652,898)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ (1.18)
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (1.18)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (1.51)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ (1,192,641)
Total Assets............................................................................................... 3,539,823
Long-term Debt............................................................................................. --
Shareholders' Equity....................................................................................... 100,799
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ (3,607,038)
-- U.S. GAAP............................................................................................. $ (3,665,612)
<CAPTION>
1995
------------
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 10,983,553
Physician Fees and Other Direct Costs...................................................................... 8,406,631
Gross Profit............................................................................................... 2,576,922
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 2,811,550
-- U.S. GAAP............................................................................................. 2,811,550
Depreciation and Amortization.............................................................................. 49,342
Operating Income (Loss)
-- Canadian GAAP......................................................................................... (283,970)
-- U.S. GAAP............................................................................................. (283,970)
Other Income (Expense)..................................................................................... 54,930
Provision for Income Taxes (Recovery)...................................................................... 71,447
Net Income (Loss)
-- Canadian GAAP......................................................................................... (300,487)
-- U.S. GAAP............................................................................................. (300,487)
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ (0.13)
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ (0.13)
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ (0.13)
BALANCE SHEET DATA:
Working Capital............................................................................................ $ (480,475)
Total Assets............................................................................................... 2,699,369
Long-term Debt............................................................................................. --
Shareholders' Equity....................................................................................... (166,253)
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ (234,628)
-- U.S. GAAP............................................................................................. $ (234,628)
<CAPTION>
1994
------------
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................................................... $ 10,474,754
Physician Fees and Other Direct Costs...................................................................... 7,977,679
Gross Profit............................................................................................... 2,497,075
Operating Expenses before Depreciation and Amortization(2)
-- Canadian GAAP......................................................................................... 2,172,407
-- U.S. GAAP............................................................................................. 2,172,407
Depreciation and Amortization.............................................................................. 46,013
Operating Income (Loss)
-- Canadian GAAP......................................................................................... 278,655
-- U.S. GAAP............................................................................................. 278,655
Other Income (Expense)..................................................................................... (51,879)
Provision for Income Taxes (Recovery)...................................................................... 52,245
Net Income (Loss)
-- Canadian GAAP......................................................................................... 174,531
-- U.S. GAAP............................................................................................. 174,531
Net Income per Common Share(3)
Canadian GAAP............................................................................................ $ 0.07
Basic and Fully Diluted Income (Loss) per Common Share(3)
-- Canadian GAAP......................................................................................... $ 0.07
Primary and Fully Diluted Income (Loss) per Common Share
-- U.S. GAAP $ 0.08
BALANCE SHEET DATA:
Working Capital............................................................................................ $ 104,154
Total Assets............................................................................................... 1,663,815
Long-term Debt............................................................................................. --
Shareholders' Equity....................................................................................... 338,257
OTHER DATA:
EBITDA(1)(4)
-- Canadian GAAP......................................................................................... $ 324,668
-- U.S. GAAP............................................................................................. $ 324,668
</TABLE>
- ----------------------------------
(1) Unaudited
(2) At December 31, 1997, operating expenses included stock compensation
expenses of $139,000 for shares issued to a director. At December 31, 1996,
operating expenses included stock compensation expenses of $1,695,800 for
shares issued to a shareholder and $1,246,000 for the issuance of stock
options to a director.
(3) Net income (loss) per common share reflects net income (loss) before
preferred share dividends divided by the weighted average number of common
shares outstanding. Basic and fully diluted income (loss) per common share
reflects net income (loss) available to common shareholders divided by the
weighted average number of common shares outstanding.
(4) EBITDA is the sum of income before interest, taxes, depreciation and
amortization expense. EBITDA should not be considered as an alternative to
net income (loss) or to cash flows from operating activities (all as
determined in accordance with generally accepted accounting principles).
EBITDA is presented because it is a widely used financial indicator of a
company's ability to service indebtedness and other factors.
24
<PAGE>
SELECTED HISTORICAL DATA OF YFMC HEALTHCARE INC.
Set forth below is a summary of certain consolidated financial information
with respect to YFMC Healthcare Inc. and its subsidiaries as at and for the six
months ended June 30, 1999 and 1998 and as at and for the years ended December
31, 1998, 1997, 1996 and 1995. Financial information as at and for the year
ended December 31, 1994 is not available. More comprehensive financial
information is available in the financial statements and related documents of
YFMC Healthcare Inc., and the financial information is qualified in its entirety
by reference to, and should be read in conjunction with, such financial
statements and related documents, including the notes thereto.
<TABLE>
<CAPTION>
YEAR
ENDED
SIX MONTHS ENDED DECEMBER
JUNE 30,(1) 31,
-------------------- ---------
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenue............................................................................... $1,911,537 $1,415,913 $3,037,231
Operating Expenses before Depreciation and Amortization................................... 1,845,513 1,281,112 2,777,172
Depreciation and Amortization............................................................. 50,610 44,400 117,912
Operating Income (Loss)................................................................... 14,414 90,401 142,147
Other Income (Expense).................................................................... (11,510) (5,023) (12,266)
Provision for Income Taxes (Recovery)..................................................... 1,300 34,000 43,805
Net Income (Loss)......................................................................... 1,604 51,378 86,076
Basic and Fully Diluted Income per Common Share(2)........................................ $ 0.00 $ 0.01 $ 0.01
BALANCE SHEET DATA:
Working Capital........................................................................... $ 113,220 $ 303,861 $ 26,197
Total Assets.............................................................................. 2,386,064 1,260,300 1,547,124
Long-term Debt............................................................................ 506,165 97,424 169,348
Shareholders' Equity...................................................................... 1,001,214 683,406 699,111
OTHER DATA:
EBITDA(1)(3).............................................................................. 65,024 134,801 260,059
<CAPTION>
1997 1996(1) 1995(1)
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenue............................................................................... $2,139,630 $1,522,009 $ 959,211
Operating Expenses before Depreciation and Amortization................................... 1,891,204 1,487,249 1,029,834
Depreciation and Amortization............................................................. 77,756 51,892 74,877
Operating Income (Loss)................................................................... 170,670 (17,132) (145,500)
Other Income (Expense).................................................................... (7,756) -- --
Provision for Income Taxes (Recovery)..................................................... 45,000 -- --
Net Income (Loss)......................................................................... 117,914 (17,132) (145,500)
Basic and Fully Diluted Income per Common Share(2)........................................ $ 0.02 n/a n/a
BALANCE SHEET DATA:
Working Capital........................................................................... $(189,181) $(164,635) $ (99,357)
Total Assets.............................................................................. 868,061 780,895 723,949
Long-term Debt............................................................................ 91,185 76,185 121,222
Shareholders' Equity...................................................................... 117,924 (55,184) (38,052)
OTHER DATA:
EBITDA(1)(3).............................................................................. 214,062 34,760 (70,623)
</TABLE>
- ------------------------------
(1) Unaudited.
(2) There were no shares outstanding for the years ended December 31, 1996 and
1995 because the assets and operations of YFMC were held in a partnership.
(3) See Note (4) in "SELECTED HISTORICAL FINANCIAL DATA OF MED-EMERG
INTERNATIONAL, INC."
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF
MED-EMERG INTERNATIONAL, INC.
The following unaudited pro forma consolidated financial information of
Med-Emerg was prepared to illustrate the estimated effects of the YFMC
transaction for balance sheet purposes as at June 30, 1999 and for purposes of
the results of operations for the six months ended June 30, 1999 and for the
year ended December 31, 1998.
Based upon the terms of the Business Combination Agreement, and the
resulting attributes of the transaction, the pro forma statements have been
prepared in accordance with Canadian GAAP using the purchase method of
accounting for the transaction which is consistent in all material respects with
the method expected to be used under U.S. GAAP, except as indicated in Note 1.
The unaudited pro forma consolidated financial information of Med-Emerg
presented is derived from a combination of YFMC financial information and
Med-Emerg financial information, both of which are prepared in accordance with
Canadian GAAP.
The balance sheets and statements of operations of Med-Emerg and YFMC have
been summarized and reclassified so that they may be presented on a consistent
basis for purposes of the unaudited pro forma consolidated financial information
of Med-Emerg. The pro forma consolidated balance sheet as at June 30, 1999 gives
effect to the transactions set out in the Business Combination Agreement, more
fully described in Note 2, as though they had occurred on June 30, 1999. The pro
forma consolidated statements of operations for the six months ended June 30,
1999 and the year ended December 31, 1998 give effect to these transactions as
if they had occurred on January 1, 1998.
The allocation of the aggregate purchase price reflected in the unaudited
pro forma consolidated financial information of Med-Emerg is preliminary. The
actual purchase price allocation to reflect the fair values of assets acquired
and liabilities assumed will be based upon management's evaluation of such
assets and liabilities following the effective date of the transaction and,
accordingly, the adjustments that have been included will change based upon the
final allocation of the total purchase price (including any purchase price
adjustment). Such allocation may differ significantly from the preliminary
allocation included herein.
26
<PAGE>
MED-EMERG INTERNATIONAL INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS AT JUNE 30, 1999
(IN CDN$)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
PURCHASE PRO FORMA
NOTES MED-EMERG YFMC SUBTOTAL PRICE CONFORMING CONSOLIDATED
----- ----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash...................... 2.3 $ 284,453 $ 158,311 $ 442,764 $(250,000) $ 192,764
Accounts receivable....... 3,071,253 729,268 3,800,521 -- 3,800,521
Note receivable from
director................ -- -- -- --
Prepaid and other......... 724,558 104,326 828,884 828,884
----------- --------- --------- --------- ----------- -----------
4,080,264 991,905 5,072,169 (250,000) $ -- 4,822,169
Loans and advances.......... 130,975 -- 130,975 130,975
Capital assets.............. 2.7 1,392,946 741,213 2,134,159 1,474,955 3,609,114
Other assets................ 2.3 2,017,662 652,946 2,670,608 250,000 5,070,082
2.4 (652,946)
2.7 2,802,420
Deferred income taxes....... 898,961 -- 898,961 898,961
----------- --------- --------- --------- ----------- -----------
$8,520,808 $2,386,064 $10,906,872 $3,624,429 $ -- 1$4,531,301
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness......... $ 142,558 $ 436,332 $ 578,890 $ 578,890
Accounts payable and
accrued liabilities..... 2,383,329 290,615 2,673,944 2,673,944
Note payable.............. -- -- --
Income taxes payable...... 4,891 4,891 4,891
Current portion of
long-term debt.......... 93,070 146,847 239,917 239,917
----------- --------- --------- --------- ----------- -----------
2,618,957 878,685 3,497,642 $ -- $ -- 3,497,642
Deferred tax credit......... 2.7 -- -- -- 764,532 764,532
Long term debt.............. 392,129 454,574 846,703 846,703
Due to a director........... -- 51,591 51,591 51,591
Due to minority
shareholders.............. 30,137 -- 30,137 30,137
----------- --------- --------- --------- ----------- -----------
3,041,223 1,384,850 4,426,073 764,532 -- 5,190,605
Minority interest........... 141,585 -- 141,585 141,585
Shareholders' equity
Capital stock............. 2.1 8,325,811 695,621 9,021,432 3,771,489 11,997,300
2.6 (795,621)
Convertible debenture..... 590,625 100,000 690,625 690,625
Contributed surplus....... 2.2 1,316,980 -- 1,316,980 89,621 1,406,601
Retained earnings......... 2.6 (4,895,416) 205,593 (4,689,823) 447,353 (4,895,416)
2.4 (652,946)
----------- --------- --------- --------- ----------- -----------
5,338,000 1,001,214 6,339,214 2,859,896 -- 9,199,110
----------- --------- --------- --------- ----------- -----------
$8,520,808 $2,386,064 $10,906,872 $3,624,429 $ -- 1$4,531,301
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
</TABLE>
27
<PAGE>
MED-EMERG INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN CDN$)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
PURCHASE PRO FORMA
NOTES MED-EMERG YFMC SUBTOTAL PRICE CONFORMING CONSOLIDATED
----- ----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $8,768,298 $2,120,347 $10,888,645 1$0,888,645
Physician fees and other
direct costs.............. 6,332,448 468,538 6,800,986 6,800,986
----------- --------- --------- --------- ----------- -----------
Gross margin................ 2,435,850 1,651,809 4,087,659 $ -- $ -- 4,087,659
----------- --------- --------- --------- ----------- -----------
Operating expenses
Salaries and benefits..... 1,116,253 732,859 1,849,112 1,849,112
General and
administration.......... 2.5 385,305 233,252 618,557 (40,477) 578,080
Occupancy costs and
supplies................ 479,494 546,366 1,025,860 1,025,860
Product development....... 306,747 -- 306,747 306,747
Public company costs...... 228,656 18,501 247,157 247,157
Travel and marketing...... 111,823 38,169 149,992 149,992
----------- --------- --------- --------- ----------- -----------
2,628,278 1,569,147 4,197,425 -- (40,477) 4,156,948
Earnings (loss) from
operations................ (192,428) 82,662 (109,766) -- 40,477 (69,289)
Interest and financing
expense................. 11,175 29,149 40,324 40,324
Depreciation and
amortization............ 2.8 207,849 50,610 258,459 65,138 502,617
2.8 179,020
----------- --------- --------- --------- ----------- -----------
Net income (loss) before
taxes..................... (411,452) 2,903 (408,549) (244,158) 40,477 (612,230)
Income tax recovery
(expense)............... 2.5 181,039 (1,300) 179,739 (18,126) 215,328
2.9 53,715
----------- --------- --------- --------- ----------- -----------
Net income (loss)........... (230,413) 1,603 (228,810) (190,443) 22,351 (396,902)
Preferred share dividends... (100,035) -- (100,035) (100,035)
----------- --------- --------- --------- ----------- -----------
Net income (loss) applicable
to common shares.......... $(330,448) $ 1,603 $(328,845) $(190,443) $ 22,351 $(496,937)
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
Net loss before preferred
share dividend, per common
share..................... $ (0.07) $ (0.08)
Preferred share dividends,
per share................. (0.03) (0.02)
----------- -----------
Basic and fully diluted
loss,
per share................. $ (0.10) $ (0.10)
----------- -----------
----------- -----------
Weighted average number of
common shares............. 3,095,544 4,805,970
----------- -----------
----------- -----------
</TABLE>
28
<PAGE>
MED-EMERG INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN CDN$)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
PURCHASE PRO FORMA
NOTES MED-EMERG YFMC SUBTOTAL PRICE CONFORMING CONSOLIDATED
----- ----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... 1$5,282,584 $3,037,231 $18,319,815 1$8,319,815
Physician fees and other
direct costs.............. 11,837,088 -- 11,837,088 11,837,088
----------- --------- --------- --------- ----------- -----------
Gross margin................ 3,445,496 3,037,231 6,482,727 $ -- $ -- 6,482,727
----------- --------- --------- --------- ----------- -----------
Operating expenses
Salaries and benefits..... 1,886,679 1,382,998 3,269,677 3,269,677
General and
administration.......... 753,345 373,807 1,127,152 -- 1,127,152
Occupancy costs and
supplies................ 554,040 945,505 1,499,545 1,499,545
Travel and marketing...... 261,466 74,862 336,328 336,328
----------- --------- --------- --------- ----------- -----------
3,455,530 2,777,172 6,232,702 -- -- 6,232,702
Earnings (loss) from
operations................ (10,034) 260,059 250,025 -- -- 250,025
Interest and financing
expense................. 18,657 12,266 30,923 30,923
Depreciation and
amortization............ 2.8 184,194 117,912 302,106 130,275 728,069
2.8 295,688
----------- --------- --------- --------- ----------- -----------
Net income before taxes..... (212,885) 129,881 (83,004) (425,963) -- (508,967)
Income tax recovery
(expense)............... 55,349 (43,805) 11,544 -- 118,973
2.9 107,429
----------- --------- --------- --------- ----------- -----------
Net income (loss)........... (157,536) 86,076 (71,460) (318,534) -- (389,994)
Preferred share dividends... (175,576) -- (175,576) (175,576)
----------- --------- --------- --------- ----------- -----------
Net income (loss) applicable
to common shares.......... $(333,112) $ 86,076 $(247,036) $(318,534) $ -- $(565,570)
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
Net loss before preferred
share dividend, per common
share..................... $ (0.05) $ (0.08)
Preferred share dividends,
per share................. (0.06) (0.04)
----------- -----------
Basic and fully diluted
loss,
per share................. $ (0.11) $ (0.12)
----------- -----------
----------- -----------
Weighted average number of
common shares............. 2,975,853 4,686,279
----------- -----------
----------- -----------
</TABLE>
29
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The pro forma statements have been prepared using the purchase method of
accounting for the transaction. The total purchase price will be allocated
to the assets acquired and liabilities assumed, based on their respective
fair values. The allocation of the aggregate purchase price reflected in the
pro forma statements is preliminary and is based upon the Med-Emerg share
price on August 1, 1999. The actual purchase allocation to reflect the fair
values of the assets acquired and liabilities assumed will be based upon
management's evaluation of such assets and liabilities and, accordingly, the
adjustments that have been included in the pro forma statements will change
based upon the final allocation of the total purchase price (including any
purchase price adjustment). Such allocation may differ significantly from
the preliminary allocation included herein. In addition, a significant
difference between the Canadian GAAP and the U.S. GAAP calculation of the
total purchase price may result. Under Canadian GAAP, the purchase price
will be determined based on Med-Emerg's stock price on the date of the
transaction (which cannot be determined at this time). Under U.S. GAAP, the
purchase price is determined based on the period surrounding the
announcement date.
The accompanying pro forma statements have been prepared by management of
Med-Emerg based on the unaudited and audited consolidated financial
statements of Med-Emerg as at and for the six months ended June 30, 1999 and
for the year ended December 31, 1998, respectively, and the unaudited and
audited consolidated financial statements of YFMC as at and for the six
months ended June 30, 1999 and for the year ended December 31, 1998,
respectively, adjusted to reflect classifications consistent with the
presentation adopted by Med-Emerg. The accounting policies used in the
preparation of the pro forma statements are those disclosed in Med-Emerg's
audited and unaudited consolidated financial statements. The pro forma
adjustments include those adjustments necessary to conform the YFMC
financial statements with the accounting policies used by Med-Emerg in the
preparation of its consolidated financial statements, except as described in
note 4.
In the opinion of the management of Med-Emerg, these pro forma statements
include all adjustments necessary for a fair presentation of pro forma
financial statements.
The pro forma statements also are not necessarily indicative of the results
that actually would have been achieved if the transactions reflected therein
had been completed on the dates indicated or the results which may be
obtained in the future. In preparing these pro forma statements, no
adjustments have been made to reflect transactions which have occurred since
the dates indicated or to reflect the operating benefits and general and
administrative cost savings expected to result from combining the operations
of Med-Emerg and YFMC.
The pro forma statements should be read in conjunction with the description
of the transaction in this Prospectus, the unaudited and audited
consolidated financial statements of Med-Emerg as at and for the six months
ended June 30, 1999 and for the year ended December 31, 1998, respectively,
and notes thereto, incorporated by reference in this Prospectus, and the
unaudited and audited consolidated financial statements for YFMC as at and
for the six months ending June 30, 1999 and as at and for the year ended
December 31, 1998, respectively, and notes thereto, also incorporated by
reference in this Prospectus.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The pro forma statements incorporate the following assumptions:
- Completion of the transactions contemplated by the Business Combination
Agreement, as more fully described elsewhere herein, resulting in the
combination of the business of Med-Emerg and YFMC.
- Absence of any material transactions by, or changes in operations of,
Med-Emerg and YFMC subsequent to June 30, 1999 other than as described
elsewhere in this Prospectus.
30
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In respect of YFMC, certain adjustments described in 2.5 below are required
to achieve conformity with the accounting methods used by Med-Emerg, and
ultimately will be used following completion of the transaction.
These pro forma statements give effect to the following assumptions and
adjustments (as if they had occurred on June 30, 1999 in respect of the pro
forma consolidated balance sheet for the six months ended June 30, 1999, and
on January 1, 1998 in respect of the pro forma consolidated statements of
operations):
TRANSACTIONS GIVING EFFECT TO THE BUSINESS COMBINATION AND AGREEMENTS
RELATED THERETO
2.1 The issuance by Med-Emerg of 1,610,426 Common Shares at US$1.50 per
share in exchange for 11,071,679 outstanding shares of YFMC Common
Shares, as of August 1, 1999, on the basis of an exchange ratio of one
share of Med-Emerg Common Shares for every 6 7/8 shares of YFMC Common
Shares and to record the issuance by Med-Emerg of 100,000 Common Shares
at US$1.50 per share in exchange for 1,000,000 outstanding Convertible
Preferred Shares of YFMC. The 100,000 Common Shares of Med-Emerg issued
in exchange for the YFMC Convertible Preferred Shares are to be held in
escrow until Med-Emerg shares trade at a minimum price of US$3.40 for 20
consecutive days.
2.2 YFMC STOCK OPTIONS AND WARRANTS
To record $89,621 as contributed surplus to reflect the cost to Med-Emerg
of assuming YFMC stock options and warrants. A total of 150,375 Med-Emerg
stock options, 44,585 Med-Emerg Warrants at US$2.70, and 44,585 Med-Emerg
Warrants at US$3.40 were issued to replace 1,203,000 YFMC stock options,
356,680 YFMC Warrants A at Cdn$0.40, and 356,680 YFMC Warrants B at
Cdn$0.50, respectively.
The fair values attributed to the above-mentioned Med-Emerg instruments
were estimated using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 3.0%, expected life
based on the expiry date of each instrument, and expected volatility of
50.0%.
2.3 To record the estimated costs of $250,000 associated with the
transaction, which will be capitalized as goodwill.
2.4 To eliminate YFMC's goodwill prior to allocation of the purchase price
by Med-Emerg.
CONFORMING ADJUSTMENTS
2.5 To capitalize costs directly associated with acquisitions, previously
expensed by YFMC. Med-Emerg's policy is to defer all direct costs
associated with an acquisition and include the costs in the allocation of
the purchase price for that acquisition. The amount was subsequently
eliminated during the allocation of the purchase price.
ADJUSTMENTS TO RECORD THE PURCHASE
2.6 To eliminate on consolidation the shareholders' equity attributable to
YFMC Common Shares after taking into consideration the adjustment
described in 2.4.
31
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2.7 To allocate the aggregate purchase price to YFMC's net assets, in
accordance with the purchase method of accounting as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
<S> <C>
Common shareholders' equity acquired before adjustment described in 2.4......... $ 1,001,214
Deduct effect of adjustment described in 2.4.................................... (652,946)
-------------
Pro forma book value of net tangible assets acquired............................ $ 348,268
Fair value of the shares to be issued........................................... $ 3,771,489
Cost of warrants and options.................................................... 89,621
Estimated acquisition costs..................................................... 250,000
-------------
Total purchase price............................................................ 4,111,110
-------------
Excess of purchase price over book value of net tangible
assets acquired............................................................... $ 3,762,842
Allocation of purchase price in excess of book value of net tangible assets acquired:
Capital assets.................................................................. $ 1,474,955
Deferred tax credit............................................................. (764,532)
Goodwill........................................................................ 3,052,420
-------------
$ 3,762,842
</TABLE>
2.8 To record amortization of capital assets (June 30, 1999 -- $179,020,
December 31, 1998 -- $295,688), and goodwill (June 30, 1999 -- $65,138,
December 31, 1998 -- $130,275) as a result of the purchase price
allocation as reflected in 2.7 above.
The above amortization adjustments are preliminary and could vary
significantly based upon the final allocation of the total purchase price
(including any purchase price adjustment).
The impact on the pro forma net loss of these amortizations was a charge
of $318,534 ($0.07 per share) for the year ended December 31, and
$190,443 ($0.04 per share) 1998 for the six months ended June 30, 1999.
The actual amortization of goodwill and capital assets will take place
subsequent to the effective date of the transaction.
2.9 To record the deferred tax effect resulting from the difference between
the tax value and fair value of the capital assets acquired (June 30,
1999 -- $54,636, December 31, 1998 -- $109,272).
3. CAPITAL STOCK AND COMMON SHARES
The components of the pro forma capital stock as at June 30, 1999 are:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NOTES MED-EMERG YFMC ADJUSTMENTS CONSOLIDATED
--------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Preferred shares................................... 2.7 $ 594,586 $ 7,832 $ (7,832) $ 594,586
Common shares...................................... 2.7 7,680,484 687,789 (687,789) 11,351,973
2.8 3,771,489
Common stock purchase Warrants..................... 50,741 -- -- 50,741
------------ ---------- ------------ -------------
Total.............................................. $ 8,325,811 $ 695,621 $ 3,075,868 $ 11,997,300
------------ ---------- ------------ -------------
------------ ---------- ------------ -------------
</TABLE>
32
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The number of pro forma common shares outstanding after giving effect to the
transaction are:
<TABLE>
<S> <C>
Med-Emerg shares outstanding at August 10, 1999................................... 3,095,544
YFMC shares outstanding at August 10, 1999 converted to equivalent Med-Emerg
shares (11,071,679 X 0.14545)................................................... 1,610,426
YFMC preferred shares converted to Med-Emerg common shares (1,000,000 X 0.1)...... 100,000
---------
Pro forma common shares outstanding............................................... 4,805,970
---------
---------
</TABLE>
4. ITEMS NOT ADJUSTED
The pro forma statements do not reflect any operating efficiencies, cost
savings and other benefits or expenses related to the Business Combination
anticipated by Med-Emerg's management. Those benefits include potential
opportunities for increased revenue that arise from an increased number of
clinic facilities forming the foundation for Med-Emerg's internet-based
network.
5. PER SHARE INFORMATION
The pro forma net loss per common share, basic and diluted, was calculated
after deducting dividends on preferred shares from the net loss and was
based on the weighted average number of common shares outstanding during the
period as calculated below:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 1999
-------------
<S> <C>
Med-Emerg average shares outstanding................................................................ 3,095,544
Med-Emerg shares issued in exchange for YFMC shares................................................. 1,610,426
Med-Emerg shares issued in exchange for YFMC convertible preferred shares........................... 100,000
-------------
Total............................................................................................... 4,805,970
-------------
-------------
</TABLE>
6. RECONCILIATION OF PRO FORMA RESULTS REPORTED UNDER CANADIAN GAAP WITH U.S.
GAAP
Med-Emerg's accounting policies are consistent in all material respects with
U.S. GAAP with the following exceptions:
NET PRO FORMA LOSS RECONCILIATION
If United States GAAP were employed, net pro forma loss would be adjusted as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1999 1998
------------- ------------
<S> <C> <C>
Net pro forma loss based on Canadian GAAP............................................ $ (358,464) $ (425,332)
Deferred start-up costs amortized/(deferred)(a)...................................... (39,377) (262,045)
------------- ------------
Net pro forma loss based on United States GAAP....................................... $ (319,087) $ (641,153)
------------- ------------
Primary loss per share............................................................... $ (0.07) $ (0.14)
------------- ------------
------------- ------------
</TABLE>
33
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
If United States GAAP were employed, certain pro forma balance sheet items
would be adjusted as follows:
<TABLE>
<CAPTION>
JUNE 30,
1999
-------------
<S> <C> <C>
Pro forma deficit based on Canadian GAAP............................................. $ (4,895,416)
Deferred start-up costs(a)........................................................... (490,063)
-------------
Pro forma deficit based on US GAAP................................................... $ (5,385,479)
-------------
-------------
Pro forma other assets based on Canadian GAAP........................................ $ 4,822,169
Deferred start-up costs(a)........................................................... (490,063)
-------------
Pro forma other assets based on US GAAP.............................................. $ 4,332,106
-------------
-------------
Total pro forma liabilities based on Canadian GAAP................................... $ 5,190,605
Convertible debenture(b)............................................................. 690,625
-------------
Total pro forma liabilities based on US GAAP......................................... $ 5,881,230
-------------
-------------
Pro forma capital stock based on Canadian GAAP....................................... $ 11,997,300
Ascribed fair value of share purchase warrants issued(c)............................. (50,000)
-------------
Pro forma capital stock -- U.S. GAAP................................................. 11,947,300
Share purchase loan to officer(c).................................................... (60,000)
-------------
Net pro forma capital stock -- U.S. GAAP............................................. $ 11,887,300
-------------
-------------
Pro forma convertible debenture based on Canadian GAAP............................... $ 690,625
Convertible debenture included in long-term debt(b).................................. (690,625)
-------------
Pro forma convertible debenture -- U.S. GAAP......................................... $ --
-------------
Pro forma contributed surplus based on Canadian GAAP................................. $ 1,406,601
Share purchase warrants(c)........................................................... 50,000
-------------
Pro forma contributed surplus -- U.S. GAAP........................................... $ 1,456,601
-------------
Pro forma deficit -- U.S. GAAP....................................................... $ (5,385,479)
-------------
Pro forma shareholders' equity -- U.S. GAAP.......................................... $ 7,958,422
-------------
-------------
</TABLE>
- ------------------------
(a) 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.
(b) Convertible Debenture
Under U.S. GAAP, convertible debentures are presented as liabilities,
regardless of the attributes of the convertible debenture, and transferred
to equity upon conversion, whereas, under Canadian GAAP, the likelihood of
conversion to equity is considered in determining the classification between
liability or equity.
(c) Shareholders' Equity
Under U.S. GAAP, loans issued to officers to acquire stock are presented as
a deduction from shareholders' equity (deficit).
34
<PAGE>
MED-EMERG INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Under Canadian GAAP, the detachable stock purchase warrants issued as in
conjunction with the private stock offering on January 22, 1996 and
subsequently surrendered 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 $0.05 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.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MED-EMERG
OVERVIEW
Med-Emerg International, Inc. ("Med-Emerg" or the "Company"), based in
Ontario, Canada, is a provider of a broad range of quality healthcare management
services. Established in 1983, the Company specializes in the coordination and
contract staffing of emergency physicians for hospitals and clinics in Canada.
Though emergency-related services are still an important component of the
Company's business, Med-Emerg has expanded to offer a wide variety of medical
services including recruitment, nurse staffing, physician management services
and an internet-based healthcare network.
Med-Emerg is positioned to establish industry leadership by providing
integrated professional management services in the delivery of healthcare to the
healthcare consumer. The Company's operations are divided into three divisions:
Physician and Nurse Recruitment Services, Physician Management Services and an
internet based healthcare network called HealthyConnect.com. Med-Emerg's
strategy is to remain focussed on these three divisions while continuing to
broaden its consolidation of physicians over a wider geographic base. Med-Emerg
believes that it is well positioned to benefit from the aging of the baby boomer
population, to capitalize on recent developments within the North American
healthcare environment and to integrate opportunities available through internet
technology. Specifically, the Company's strategy is to leverage its 15 years of
physician recruitment experience in becoming a dominant player in Physician
Management Services and to develop an internet-based healthcare network that
connects physicians, patients, third party payors and consumers to a "virtual
world" of healthcare products, services and health information.
The Company continues to promote its medical manpower staffing services
throughout Canada. 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.
The Company's ability to provide solutions and source physicians and highly
skilled nurses will be enhanced by its success in developing its dominant status
in the Physician Management Services Organization (PMSO) sector. The Company's
business strategy is to integrate and through its physicians program offer the
family physician a comprehensive practice opportunity. Management believes that
the creation of a dominant PMSO status will significantly contribute to the
Company's efforts in growing its emergency services recruitment division. It is
management's intention to continue to market its PMSO services to the Canadian
physician community, which totals approximately 55,000 members strong and
collects annual billings of approximately $11.0 billion.
In July 1999, Med-Emerg formed a strategic alliance with Laser Rejuvenation
Clinics Ltd. (LRC), a publicly listed company on the Alberta Stock Exchange
offering a full range of laser cosmetic procedures in its clinic operations
located in Ontario, Alberta, Manitoba and British Columbia, Canada. The
co-management agreement calls for the cross-marketing of LRC's full range of
laser and cosmetic procedures to Med-Emerg's patient base throughout both
Med-Emerg and LRC's clinic network. The co-management agreement includes the use
of LRC's fully trained staff and portable laser equipment in certain Med-Emerg
clinics with no capital equipment investment required by Med-Emerg, which will
result in increasing the revenue per square foot generated by Med-Emerg's
physician management services group.
In June 1999, Med-Emerg entered into a letter of intent to purchase YFMC
Healthcare Inc., a publicly listed company on the Alberta Stock Exchange, to be
acquired by Med-Emerg through a stock swap. A Business Combination Agreement was
entered into on August 10, 1999 in connection therewith. YFMC Healthcare Inc. is
a leading Canadian physician management services organization that owns and
manages 20 medical clinics with annual gross revenues of approximately $11.2
million. The transaction is expected to close at the end of the third quarter of
1999.
In March 1999, the Company purchased 51% of the outstanding capital of
Caremedics (Elmvale) Inc., a multi-physician primary healthcare clinic located
in Ottawa, Canada. The Company entered into a five-year
36
<PAGE>
management services agreement to manage the clinic for a monthly fee based on
revenues generated by the clinic.
In February 1999, the Company became party to a lease for the clinic located
within York University in Toronto, Canada. The Company has entered into a
five-year management services agreement to manage the clinic for a monthly fee
based on revenues generated by the clinic. The Company has a 51% interest in the
company that owns the clinic.
In January 1999, the Company acquired a 45% interest in an Urgent Care
Centre, Medical Urgent Care Inc. The Company developed and opened its first
Urgent Care Centre in September 1997. 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 manages the clinic component of the Urgent Care Centre and provides the
support staff for this component. Ownership of Medical Urgent Care Inc. is
shared with the group of emergency trained physicians that provides the medical
service in the clinic component.
In the first quarter of 1999, the company launched an internet-based
healthcare network, called HealthyConnect.com, that will provide a secured
virtual private internet-based healthcare network connecting physicians,
hospitals, third party payers, and consumers. HealthyConnect.com's network will
allow its customers and strategic partners to access and exchange healthcare
related information, purchase healthcare products and services, and communicate
more efficiently with one another. Through its electronic platform,
HealthyConnect.com will facilitate the business of healthcare through advanced
internet and voice telecommunication technology. HealthyConnect.com will link
healthcare product and service suppliers with the clinical network patient
family. Convenient and secure access and at home/at office browsing and
purchasing capabilities will facilitate direct sales opportunities for member
suppliers.
HealthyConnect.com will empower the consumer by providing them with improved
access to validated healthcare information. Physicians and other healthcare
providers will have access to reliable information and additional support in
delivering cost effective, high quality healthcare services using all available
technologies. Med-Emerg anticipates that HealthyConnect.com will generate
revenue from three sources; provider subscription, advertising, and e-commerce
commissions. Through Med-Emerg's existing medical clinics, HealthyConnect.com
has an immediately accessible potential customer base of physician practices and
patients who have at one time or another been patients of those practices. These
physicians and patients will comprise the initial customer base from which
HealthyConnect.com will derive provider subscription fees and transaction or
commission fees from e-commerce sales. Advertising sponsorship is anticipated
from pharmaceutical companies, community pharmacies and companies with services
and products interested in accessing HealthyConnect.com's network of patients
and physicians.
Management of Med-Emerg sees HealthyConnect.com as a significant opportunity
to create a profitable business line while providing healthcare organizations
with new web-based technologies to increase practice efficiency, achieve
measurable cost savings and improve the quality of care.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased by $972,912 or 27.3% from $3,566,201 in the
second quarter of 1998 to $4,539,113 in the second quarter of 1999. Year-to-date
revenue increased by $1,596,998 or 22.3% to $8,768,298 for the six months ended
June 30, 1999 compared to $7,171,300 for the same period in 1998. The revenue
growth is attributable to the clinic acquisitions, growth in existing clinic
business and growth in nurse staffing. In addition, during the second quarter of
1999, Med-Emerg realized revenues of approximately $282,000 from a one-time
contract with Citizenship and Immigration Canada (the "CIC contract") to provide
medical services to Kosovo refugees.
Revenues generated by Physician Management Services increased by $861,447 or
110% from $782,269 in the second quarter of 1998 to $1,643,716 during the second
quarter of 1999. For the six months ended June 30, 1999, Physician Management
Services revenue was $3,197,038, which represents an increase of $1,694,122 over
37
<PAGE>
the six months ended June 30, 1998. The three acquisitions that were completed
in the second and third quarters of 1998 contributed $435,134 additional revenue
to the second quarter of 1999 and $885,715 additional revenue to the six months
ended June 30, 1999. The three acquisitions that were completed during the first
quarter of 1999 contributed $179,712 to second quarter revenue and $310,744 to
revenue for the six months ended June 30, 1999. The Dundas Urgent Care Centre
was a start-up operation in 1998. In 1999, this Centre contributed $163,443 to
second quarter revenues and $343,717 for the six months ended June 30, 1999. The
remaining increase in Physician Management Services revenue is a result of
increased patient volumes and additional physicians working in the family
practice and walk-in clinics.
Revenues from Physician and Nurse Recruiting increased by $111,465 or 4.0%
to $2,895,397 during the second quarter of 1999 from $2,783,932 during the same
period for 1998. Revenues for the six months ended June 30, 1999 were
$5,571,260, a $97,124 decrease from the same period in 1998. The decrease in
revenue for the six months occurred in the physician staffing component of this
division. Two new contracts entered into in the latter part of fiscal 1998 and
the one-time CIC contract contributed to revenue in the first six months of
1999, but five contracts in place during the first six months of 1998 were not
renewed. The CIC contract contributed to the increase in revenue during the
second quarter of 1999 compared to 1998. The nurse staffing component
contributed an additional $188,403 to revenue in the first six months of 1999 as
compared to the same period last year. This increase came from a significant
increase in the provision of services to one hospital under an existing contract
plus the net addition of three contracts.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs,
which primarily represents fees to contract physicians, increased $434,338 or
15.4% from $2,823,072 in the second quarter of 1998 to $3,257,410 in the second
quarter of 1999. For the six months ended June 30, 1999, physician fees and
direct costs increased $627,934 11.0% to $6,332,448 from $5,704,514 for the six
months ended June 30, 1998. Physician fees and other direct costs decreased as a
percent of revenue, representing 72.2% of revenues for the six months ended June
30, 1999 and 79.5% of revenues for the six months ended June 30, 1998. The
decrease as a percent of revenue is largely due to the mix of revenue between
Physician & Nurse Recruiting and Physician Management Services. As the Physician
Management Services revenues increase, the larger gross margin related to
Physician Management Services results in a decrease in physician fees and other
direct costs as a percent of revenue.
OPERATING EXPENSES. Operating expenses have increased by $1,210,600 or
85.4% to $2,628,278 in the first six months of 1999 from $1,417,678 in the first
six months of 1998. For the second quarter ended June 30, 1999, operating
expenses were $1,403,375, which represents an increase of $657,382 or 88.1%
increase over operating expenses for the second quarter ended June 30, 1998.
There are several factors contributing to the increase in operating expenses,
including the development of the HealthyConnect.com division, the clinic
acquisitions in 1998 and 1999, and the operations of the Dundas Urgent Care
Centre.
The company recently launched an integrated health services delivery network
called HealthyConnect.com. This internet-based healthcare network will connect
physicians, hospitals, third party payors and consumers and allow all
participants to access and exchange healthcare related information, purchase
products and services, and communicate more cost-effectively with one another.
During the second quarter of 1999, the company expensed $152,252 on the
development of this concept, for a total year-to-date HealthyConnect.com
development expense of $307,400.
During the second and third quarters of 1998, the company completed the
acquisitions of two companies, JC Medical Management Inc. and Doctors On Call
Ltd., and acquired the remaining two-thirds of the Glenderry Medical Walk-in
Clinic. These acquisitions added $144,294 to operating expenses in the second
quarter of 1999 and $274,111 for the six months ended June 30, 1999. During the
first quarter of 1999, the company completed the acquisition of a controlling
interest in three other companies, all of which operate medical clinics. These
acquisitions added $237,856 to operating expenses in the second quarter of 1999
and $349,212 to operating expenses for the six months ended June 30, 1999.
During the first quarter of 1998, the Dundas Urgent Care Centre was
considered a start-up operation. During the first six months of 1999, this
Urgent Care Centre added $142,787 to operating expenses and $63,844 to the
second quarter of 1999 compared to the second quarter of 1998. The remaining
increase in operating
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expenses of $137,743 for the six months ended June 30, 1999 compared to the same
period in 1998 and $59,790 from first quarter of 1998 to first quarter of 1999
relates to an increase in general overhead costs.
NET LOSS. As a result of the above items, the Company reported a net loss
of $135,780 for the three months ended June 30, 1999 as compared to net loss of
$8,056 for the three months ended June 30, 1998. Net loss for the six months
ended June 30, 1999 was $230,413 as compared to net income of $2,973 for the six
months ended June 30, 1998. The company's effective tax rate increased to
approximately 44% in 1999 from approximately 26% in 1998 due to the change in
status under Canadian taxation rules from a privately-held company to a company
with shares that are publicly traded.
FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SERVICE REVENUES. Revenues increased by $3,709,917 or 32.1% from
$11,572,667 for the year ended December 31, 1997 to $15,282,584 for the
comparable period in 1998. The increase is due to: (i) revenue generated from
the acquisitions of JC Medical Management Inc. and Doctors on Call Ltd., (ii)
additional revenue recorded on the increase in ownership of Glenderry Walk-in
Clinic from 33 1/3% to 100%, (iii) revenue generated from the emergency nurse
staffing service launched in 1998, and (iv) general increase in patient volumes
in both the physician staffing service and clinic operations.
For the year ended December 31, 1998, revenues of Physician and Nurse
Recruitment division increased by $2,484,439 or 27.3% to $11,576,670 from
$9,092,231 for the year ended December 31, 1997. The launch of the nurse
staffing service in April 1998 contributed $444,439 to the increase in revenue
during 1998. Revenue from the physician staffing service increased as a result
of: (i) a significant increase in the amount of physician coverage provided
under two hospital contracts, (ii) two new hospital contracts during 1998 and
two contracts that commenced during the fourth quarter of 1997 and continued
throughout 1998, (iii) three new hospital contracts under which the Company
provided coverage for the summer months only. The increase in revenue was offset
by the termination of one large and four smaller hospital contracts, the
one-time consulting fee that was received in 1997 and a one-time overseas
physician placement for the Canadian government during the fourth quarter of
1997.
For the year ended December 31, 1998, operating income from the Physician
and Nurse Recruiting division decreased by $45,484 to $1,045,811 from income of
$1,091,295 for the year ended December 31, 1997. During 1997, operating income
of $317,296 was earned on a one-time consulting fee. This decrease in income was
offset in 1998 by the operating income of $78,228 earned from the nurse staffing
service launched in April 1998 and the gross margin realized on the increased
revenue from physician staffing contracts.
For the year ended December 31, 1998, revenues of the Physician Management
Services division increased by $1,225,478 or 49.4% to $3,705,914 from $2,480,436
for the year ended December 31, 1997. The acquisitions of JC Medical Management
Inc. in June 1998 and Doctors on Call Ltd. in September 1998 contributed
$450,058 and 57,060, respectively, to the increase in revenue. In addition, the
consolidation of Glenderry Medical Walk-in Clinic at 100% since August 1998
versus 33 1/3% in 1997, resulted in an increase in revenue of $258,202. In
September 1997, the Company opened its first Urgent Care Centre. During the
start-up period, no revenue was recognized from the operations of this Urgent
Care Centre. Upon completion of the start-up period, the Company recognized
$110,306 in revenue in 1998 from the Urgent Care Centre. In addition, the
services provided to the two clinics at the Lester B. Pearson International
Airport were increased in April 1998, resulting in additional revenue of
$140,925. The remaining increase in revenue is attributable to increased patient
volumes in 1998 compared to 1997 at the Pond Mills and Central clinics.
For the year ended December 31, 1998, operating income for the Physician
Management Services division increased by $43,436 to $431,324 from $387,888 for
the year ended December 31, 1997. The increase was due to the operating income
from the acquisitions of JC Medical Management Inc., Doctors on Call Ltd. and
Glenderry Medical Walk-in Clinic, which was offset by increased head office
costs for salaries and general overhead related to the overall management of the
clinics.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees
to contract physicians, represent the largest single variable expense. These
fees are earned primarily through the Company's Physician and Nurse Recruiting
services to the hospital emergency department contracts. Physician fees and
other direct
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costs for the year ended December 31 increased by $3,087,353 or 35.3% from
$8,749,735 in 1997 to $11,837,088 in 1998. Physician fees and other direct costs
represented 75.6% of net revenues for the year ended December 31, 1997 and 77.5%
of net revenues for the year ended December 31, 1998. In 1997 other direct costs
include travel, marketing and consulting costs related to international
projects, representing 2.4% of net revenues for the year. The 1997 costs relate
to the undertaking of a consulting project in the Northwest Territories, Canada.
OPERATING EXPENSES. In 1997, operating expenses increased by $748,976 or
25.9% from $2,890,748 for the year ended December 31, 1997 to $3,639,724 for the
year ended December 31, 1998. Operating costs include general operating expenses
and stock compensation expense. The general operating expenses, excluding stock
compensation expense, represents 23.9% of net revenues for the year ended
December 31, 1998 and 23.8% of net revenues for the year ended December 31,
1997. The stock compensation expense of $139,000 in 1997 represents shares
issued to a director.
Under U.S. GAAP, operating expenses for the period ending December 31, 1998
includes additional charges of $215,821 for development and start-up costs as
compared to $146,777 at December 31, 1997. For U.S. GAAP, the start-up costs of
$215,821 at December 31, 1998 and $146,777 at December 31, 1997 are expensed as
incurred whereas under Canadian GAAP these costs are deferred and amortized over
a prescribed benefit period.
OTHER EXPENSE. Other expense decreased by $426,221 or 95.8% from $444,878
to $18,657 for the year ended December 31, 1997 and 1998 respectively. In 1998,
other expense includes interest expense for less than two months on the bridge
promissory notes. In 1997, other expense is due primarily to interest on
increased bank borrowings, interest charged on the bridge promissory notes,
foreign exchange loss on the U.S. dollar promissory notes and the amortization
of deferred financing charges relating to the bridge shares issued in January
1997.
NET LOSS. As a result of the above items, the Company had a net loss of
$157,536 for the year ended December 31, 1998 as compared to a net loss of
$472,085 for the year ended December 31, 1997.
Under U.S. GAAP, the Company reported net loss of $419,581 for the year
ended December 31, 1998 as compared to a net loss of $618,862 for the year ended
December 31, 1997.
FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
NET SERVICE REVENUES. Revenues increased by $755,619 or 7.0% from
$10,817,048 for the year ended December 31, 1996 to $11,572,667 for the
comparable period in 1997. The increase is due to: (i) revenue generated from
the St. George acquisition completed in August 1996, and (ii) revenue earned on
a one-time consulting project. For the year ended December 31, 1997, revenue
from the St. George clinic totaled $686,529 compared to $286,272 in 1996.
Revenue for the year ended December 31, 1997 includes $591,177 consulting fees
earned from a one-time consulting project performed by Med-Emerg in the first
and second quarters of 1997. The increase in revenue from the St. George clinic
and the consulting project was offset by a small reduction in revenue generated
from hospital contracts.
For the year ended December 31, 1997, revenues of the Physician and Nurse
Recruiting division increased by $308,922 or 3.5% to $9,092,231 from $8,783,309
for the year ended December 31, 1996. The increase in revenue is due to the
one-time consulting project that earned $591,177 in fees. This increase in
revenue was offset by the reduction of revenues due to: (i) the termination of
eight fixed fee hospital contracts that were replaced by three new fixed fee
contracts, and one fee-for-service contract, (ii) the termination of two fixed
fee contracts for correctional institutions, (iii) a marginal decline in
fee-for-service contracts from two hospitals.
For the year ended December 31, 1997, operating income before stock
compensation from the Physician and Nurse Recruiting division increased by
$193,780 to $1,091,295 from $897,515 for the year ended December 31, 1996. This
increase was due to the profit earned on the one-time consulting project that
was offset by additional salaries and overhead in anticipation of Med-Emerg's
requirements upon completion of the initial public offering, and the write-off
of a loan receivable in the amount of $48,895.
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For the year ended December 31, 1997, revenues of the Physician Management
Services division increased by $446,697 or 22.0% to $2,480,436 from $2,033,739
for the year ended December 31, 1996. The increase in revenues was due to the
acquisition of a new clinic during the third quarter of the 1996 fiscal period.
For the year ended December 31, 1997, operating income before stock
compensation for the Physician Management Services division increased by
$798,861 to $387,888 from a loss of $410,973 for the year ended December 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 Med-Emerg's other medical clinics. At December 31, 1996,
the operating loss included the write-off of deferred start-up project costs of
$466,462. There was no write-off of deferred start-up costs at December 31,
1997.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees
to contract physicians, represent the largest single variable expense. These
fees are earned primarily through Med-Emerg's Physician and Nurse Recruiting
services to the hospital emergency department contracts. Physician fees and
other direct costs for the year ended December 31 increased by $195,339 or 2.3%
from $8,554,396 in 1996 to $8,749,735 in 1997. Physician fees and other direct
costs represented 79.0% of net revenues for the year ended December 31, 1996 and
75.6% of net revenues the year ended December 31, 1997. Included in physician
fees is clawback expense, which is a recovery of billings due to
over-utilization of medical services. The clawback rate for 1997 was 0% compared
to the rate of 6.5% set by the Ontario Ministry of Health for the 1996 period.
The clawback charge for the year ended December 31, 1996 totaled $143,261. Other
direct costs include travel, marketing and consulting costs related to
international projects. These costs represent 2.4% of net revenues for the year
ended December 31, 1997 and 2.4% of net revenues for the year ended December 31,
1996. The 1997 costs relate to the undertaking of a consulting project in the
Northwest Territories, Canada and the 1996 costs relate to the undertaking of
consulting projects in Hungary, India and Malaysia.
OPERATING EXPENSES. Operating expenses decreased by $3,057,321 or 51.4%
from $5,948,069 for the year ended December 31, 1996 to $2,890,748 for the year
ended December 31, 1997. Operating costs include general operating expenses, the
write-off of deferred start-up costs and stock compensation expense. The general
operating expenses excluding the write-off of deferred start-up costs and stock
compensation expenses represents 23.1% of net revenues for the year ended
December 31, 1996 and 23.8% of net revenues for the year ended December 31,
1997. The 1996 write-off of deferred start-up costs in the amount of $466,462
relate to an investment in a clinic in Prague, Czech Republic. The 1996
write-down was due to an unanticipated difficulty in penetrating the market and
generating a sufficient return on capital invested from that clinic. Given the
domestic opportunities available, Med-Emerg had decided to focus its efforts on
domestic operations. The remaining 1996 write-down of $42,875 relates to
start-up project costs for a healthcare consulting project in Malaysia.
Under U.S. GAAP, operating expenses for the period ending December 31, 1997
includes additional charges of $146,777 for development and start-up costs as
compared to $58,574 at December 31, 1996. For U.S. GAAP, the start-up costs of
$146,777 at December 31, 1997 and $58,574 at December 31, 1996 are expensed as
incurred whereas under Canadian GAAP these costs are deferred and amortized over
a prescribed benefit period.
OTHER EXPENSE. Other expense increased by $389,417 or 702% from $55,461 to
$444,878 for the year ended December 31, 1996 and 1997 respectively. The
increase in other expense is due primarily to interest on increased bank
borrowings, interest charged on the bridge promissory notes, foreign exchange
loss on the U.S. dollar promissory notes and the amortization of deferred
financing charges relating to the bridge shares issued in January 1997. For the
year ended December 31, 1997, interest expense on bank borrowings was $68,029,
$66,683 was charged as interest on the promissory notes, foreign exchange loss
was $37,518, and $272,647 was amortized as financing costs.
NET LOSS. As a result of the above items, Med-Emerg had a net loss of
$472,085 for the year ended December 31, 1997 as compared to a net loss of
$3,594,324 for the year ended December 31, 1996.
Under U.S. GAAP, Med-Emerg reported net loss of $618,862 for the year ended
December 31, 1997 as compared to a net loss of $3,652,898 for the year ended
December 31, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
Med-Emerg operates in three areas of healthcare, Physician and Nurse
Recruitment Services, Physician Management Services and an internet-based
healthcare network called HealthyConnect.com.
The Physician and Nurse Recruitment Services operations involve providing
physician and nurse staffing and administrative support to emergency departments
and physician recruitment services to hospitals and physician groups. The assets
employed by Med-Emerg to support the Physician and Nurse Recruiting operations
are primarily working capital to finance accounts receivable which are generated
by individual physicians but collected by Med-Emerg pursuant to contractual
agreements between Med-Emerg and the independent contracted physicians. The
average age of collection of the accounts receivable balances averages
approximately 56 days; however, the physicians are paid after approximately 27
days. Thus, the liquidity of Med-Emerg is significantly affected by the volume
of billings generated by the Physician and Nurse Recruiting operations which
fluctuates from month to month.
The Physician Management Services 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 Med-Emerg pursuant to contractual
agreements between Med-Emerg and the independent contracted physicians,
Med-Emerg 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 Med-Emerg to support the Physician Management Services
operations is generally greater than Physician and Nurse Recruiting operations
calculated on a per physician basis.
Med-Emerg is launching its third division, an internet-based healthcare
network called HealthyConnect.com. The assets currently employed by this
division are primarily working capital to finance the development costs of
HealthyConnect.com.
The capital requirements of Med-Emerg arise in four major areas. These are
(i) the development of an internet-based healthcare network (ii) the need for
additional capital to increase business through new service contracts for
hospital emergency departments, (iii) the commencement of new specialty
healthcare clinics, and (iv) the need for capital to increase administrative
capabilities, including centralized billing and collection services and
management information systems.
In January, 1996, Med-Emerg completed 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.
Med-Emerg consummated this private offering because it needed working capital
funds, including funds to partially repay its bank credit facility. As part of
Med-Emerg's November 1996 Recapitalization (as such term is hereinafter
defined), all holders of the warrants surrendered their outstanding warrants.
In September, 1996, Med-Emerg acquired all of the assets and physician
contracts of the St. George Health Services Organization (HSO) for a $193,732
promissory note, 75,000 shares of Med-Emerg'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, Med-Emerg completed a private placement of its securities
("Bridge Financing"), in which it sold 8% promissory notes in the aggregate
principal 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 Med-Emerg's bank borrowings. The principal and
accrued interest on the notes were repaid from the net proceeds of Med-Emerg's
Initial Public Offering, which was completed on February 20, 1998.
In February, 1998, Med-Emerg completed its Initial Public Offering of
1,250,000 Med-Emerg Common Shares and 1,437,500 Med-Emerg Purchase Warrants for
an aggregate public offering of US$5,456,250. Each Med-Emerg Purchase Warrant
entitles the holder to purchase one share of common stock at a price of US$4.50
for a four year period commencing one year from the date of completion of the
offering.
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Med-Emerg established a new credit facility in 1998 with the Hongkong Bank
of Canada. The new facility provides an available demand, revolving, operating
line of credit amounting to $2,000,000, bearing interest at the bank's prime
lending rate plus 0.5% per annum with interest payable monthly, and an available
demand, non-revolving, capital line of credit amounting to $1,000,000, primarily
intended for the acquisition of fixed assets relating to the development of
Urgent Care Centres. The capital line of credit bears interest at the bank's
prime lending rate plus 0.75% per annum with interest payable monthly. As
security, Med-Emerg will provide a first-ranking general assignment of accounts
receivable, a general security agreement constituting a first charge over all
present and future personal property of Med-Emerg, a chattel mortgage over all
equipment financed by the capital loan, an assignment of all risk insurance
policies and an assignment of key man life insurance of a director in the amount
of $1,000,000.
In October, 1998, Med-Emerg's Board of Directors approved the repurchase of
up to 5% of its outstanding common stock over a three-month period. Med-Emerg
repurchased and cancelled 44,500 common shares for total cash consideration of
$115,367 from October 1998 to January 1999.
Through its acquisitions completed in the first quarter of 1999, the Company
assumed bank term loans with current balances totaling $337,773. Approximately
$236,390 was loaned to subsidiaries of the Company under the Small Business
Investment Loans program in which the Canadian government guarantees 75% to 90%
of the principal balance of the loan. The remaining balance consists of capital
loans for asset purchases.
The Company's cash position at June 30, 1999 was $284,453. Approximately
$265,000 of the Company's cash is currently tied up in the CIC contract. The
Company has paid physicians and nurses working for the Company relating to the
contract, but has not yet received payment from CIC. Installment payments have
been received to date and the remaining balance is expected to be received in
mid-August of 1999. The collection risk for this cash is very low.
As at June 30, 1999, the company's working capital totaled $1,461,307. In
addition, the company has available credit facilities for up to approximately
$3,000,000. The Company established credit facilities in June 1998 that provide
an available demand, revolving, operating line of credit amounting to
$2,000,000, bearing interest at the bank's prime lending rate plus 0.5% per
annum with interest payable monthly, and an available demand, non-revolving,
capital line of credit amounting to $1,000,000. The capital line of credit bears
interest at the bank's prime lending rate plus 0.75% per annum with interest
payable monthly. The company believes that the combination of funds available
under the company's bank credit facility, together with its current cash
position, should be sufficient to meet the company's operating requirements
through 1999.
In addition, in order to provide the funds necessary for the further
development of HealthyConnect.com and the continued pursuit of the company's
long-term acquisition strategy, the company expects to issue equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. There can be no assurance that such additional financing will
be available on terms acceptable to the company.
Inflation has not had, nor is it expected to have, a material impact on the
operations and financial condition of Med-Emerg.
YEAR 2000
Med-Emerg has developed a program designed to identify, assess, and
remediate potential malfunctions and failures that may result from the inability
of computers and embedded computer chips within Med-Emerg's information systems
and equipment to appropriately identify and utilize date-sensitive information
relating to periods subsequent to December 31, 1999. This issue is commonly
referred to as the "Year 2000 issue" and affects not only Med-Emerg, but
virtually all companies and organizations with which Med-Emerg does business.
To address the Year 2000 issue, Med-Emerg has formed a Year 2000 committee
comprised of representatives from a cross-section of Med-Emerg's operations. The
committee developed a plan to address the Year 2000 issue within all facets of
Med-Emerg's operations. The plan includes processes to inventory, assess,
remediate or replace as necessary Med-Emerg's information systems and equipment.
In addition, the committee is assessing the compliance of all companies and
organizations with which Med-Emerg does business.
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<PAGE>
Med-Emerg has completed the inventory phase of its plan and is in the
process of assessing the identified systems and equipment. Based on the
assessments completed to date, Med-Emerg estimates that expenditures to remedy
or replace potential Year 2000 problems will not exceed $50,000. This includes
amounts in connection with standardizing certain of the information systems at
the clinic level that would have been spent regardless of the Year 2000 issue.
The foregoing estimates and conclusions regarding Med-Emerg's Year 2000 plan
contain forward looking statements and are based on management's best estimates
of future events. Risks to completing the Year 2000 plan include availability of
resources, Med-Emerg's ability to discover and correct potential Year 2000
problems that could have a serious impact on specific systems, equipment or
facilities, the ability of material suppliers and businesses to achieve Year
2000 compliance, the proper functioning of new systems and the integration of
those systems and related software into Med-Emerg's operations. Some of these
risks are beyond Med-Emerg's control.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF YFMC
This discussion and analysis of the financial condition of YFMC Healthcare
Inc. and the results of operations should be read in conjunction with the
financial statements and the related notes.
OVERVIEW
YFMC Healthcare Inc. (the "Company") became a listed company on The Alberta
Stock Exchange in June 1998, following the purchase of all outstanding shares of
1189543 Ontario Inc. by Transpacific Minerals Inc. The Company's strategy is to
become a national provider of primary care health services through the
acquisition of established medical facilities and allied health service
providers across Canada.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
During the six month period ending June 30, 1999 revenues increased from
$1,415,913 in 1998 to $1,911,537 in 1999, an increase of 35%. This increase is
attributable to clinic acquisitions, and growth from existing clinic locations.
The company's earnings from operations before the costs of new business
development decreased from $215,939 for the comparable period in 1998 to
$138,890 during the period under review. Earnings before interest, depreciation,
amortization, and taxes decreased from $215,939 in the 6 months ending June
30(th), 1998, to $65,024 for the 6 month period ending June 30(th), 1999.
Operating expenses have increased from $ 1,199,974 in the first 6 months of
1998 to $1,772,646 in the current year. Several factors contributed to the
increase in operating expenses including ramp up costs at the Whitby clinic,
integration costs relating to the new clinics in Alberta, and additional
administrative costs relating to the development of policies and processes to
efficiently manage the Company's expanded operational base.
During the 2(nd) quarter the Company acquired the McKnight Medical Centre
and the Martindale Medical Centre both in Calgary Alberta, the Pringle Creek
Medical Centre in Whitby, Ontario, and the West Edmonton Medical Centre in
Edmonton Alberta. It is expected that these acquisitions will begin contributing
to net revenue in the 3(rd) quarter. Subsequent to June 30, 1999, the Company
announced it had entered into a Business Combination Agreement with Med-Emerg
International, Inc. to exchange shares on a ratio of 6.875 YFMC shares for 1
Med-Emerg share. Med-Emerg, which is listed on NASDAQ (MDER) operates medical
centres in central Ontario, and is also under contract to provide emergency
physician and nursing services to 14 hospitals. Med-Emerg is currently
developing an Internet based health network that uses enabling technology to
link patients, physicians and service providers. It is anticipated that the
combined entity will have revenues of approximately $28,000,000 annually with
operations in Canada's three largest provinces. Management strongly believes
that joining forces with Med-Emerg will create a larger platform for growth,
achieve synergies, cost savings and generate positive earnings.
FOR THE YEAR ENDED DECEMBER 31, 1998
Net income for the year decreased from $117,914 in 1997 to $86,076 in 1998,
a change of 27%. The decrease in net revenue was due in part to one time costs
associated with becoming a public company and expenses related to acquisition
activities.
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<PAGE>
REVENUES
During 1998, revenues from operations rose to $3,037,000 from $2,140,000 an
increase of 41%. EBITDA increased to $260,000 from $214,000 in 1997, an increase
of 21%. Included are the results from the following operations (revenue recorded
from date of acquisition):
<TABLE>
<CAPTION>
NUMBER OF MONTHS
LOCATION REVENUE IN 1998 % OWNERSHIP
- ------------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C>
PSA & Associates............................................................... 10 100
Spirotech Health Services...................................................... 5 70
Orleans Medical Centre......................................................... 4 100
CareSource Physiotherapy....................................................... 3 85
CareSource Physiotherapy....................................................... 1 100
Jasper Medical Centre 1 100
</TABLE>
For the most part, the increase in revenue can be attributed to increased
patient flow at existing locations. Management expects that the full impact of
the acquisitions made in 1998 will be realized in 1999.
EXPENSES
Total operating expenses increased 43% from $1,925,568 to 2,779,372 in
fiscal 1998. The increase is due in part to an increase in administration costs
resulting from the integration of the companies acquired during the year. Also
the Company incurred the costs of establishing a regional office in Calgary,
Alberta, to manage the acquisition process. As the Company establishes a
critical mass in each market, it is expected that expenses, as a percent of
revenue, will decrease.
LIQUIDITY AND CAPITAL RESOURCES
The Company earned $86,076 from operating activities compared with $117,914
in the previous year and accounts receivable increased from $336,658 to
$652,400. In addition, the Company obtained $264,000 in cash as a result of the
reverse takeover of Transpacific Minerals Inc. These funds were used primarily
to finance business acquisitions and the expansion of existing facilities.
Subsequent to the year end, the Company has obtained credit facilities from a
chartered bank in the amount of $750,000. These funds are available for future
acquisitions and ongoing obligations.
COMPETITIVE RISKS
To managements' knowledge, there is at present no national provider of
primary health care services in Canada, and management estimates there to be
less than 12 large scale PPM (Physician Practice Management) organizations
nationwide. The PPM market is expected to grow as more physicians move away from
solo practices to enjoy the benefits of participating in a group setting. As an
early stage innovator in Canada, management believes that, as competition
increases so will the Company's ability to attract future acquisition
candidates. The Company's established systems, training methods, and strong
commitment to patient satisfaction, are key components in the operating model.
YEAR 2000
The Company has established a committee chaired by a senior member of the
executive team to coordinate and assess the Company's readiness relating to deal
with the fact that date-sensitive functions in computer based systems may fail
to accurately process dates after January 1, 2000. 'Mission Critical' systems,
both hardware and software have been reviewed, and the Company is confident that
these systems will be Y2K compliant. The Company does not anticipate the costs
of compliance to be material.
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OUTLOOK
This outlook may contain certain forward-looking statements with respect to
the Company. These forward-looking statements, by their nature, necessarily
involve risks and uncertainty that could cause actual results to differ
materially from those contemplated by the forward-looking statement.
The Company expects patient volumes from existing locations to continue to
grow as the convenience and availability of our medical clinics becomes an
increasingly attractive choice for patients. Our acquisition strategies should
allow us to expand into other geographical areas, and the resulting economies of
scale will improve our operational efficiencies.
YFMC's Corporate Health Program is expected to be operational in 1999, and
become a contributor to the revenue stream.
INFORMATION REGARDING MED-EMERG INTERNATIONAL INC.
HISTORY AND BUSINESS
Med-Emerg was incorporated under the OBCA. Med-Emerg, directly or indirectly
through its subsidiaries, owns all of the outstanding shares of Med-Emerg Urgent
Care Centres Inc., Med-Emerg Family Health Centre Inc., JC Medical Management
Inc., 927563 Ontario Inc., 927564 Ontario Inc., Med-Emerg, Inc. and Med-Plus
Health Centres Ltd. Med-Emerg, directly or indirectly, also has an ownership
interest in the following:
(i) a 75% interest in Doctors on Call Ltd.;
(ii) a 45% interest in Medical Urgent Care Inc.;
(iii) a 51% interest in Caremedics (Elmvale) Inc.; and
(iv) a 51% interest in York Lanes Health Centres Inc.
As used herein, unless otherwise indicated or the context otherwise
requires, Med-Emerg refers to Med-Emerg International Inc. its wholly-owned
subsidiaries as listed above and its ownership interests as listed above.
Med-Emerg's head office is located at 2550 Argentia Road, Suite 205,
Mississauga, Ontario L5N 5R1.
BUSINESS
Med-Emerg is a provider of a broad range of quality healthcare management
services and specializes in the coordination and contract staffing of emergency
physicians for hospitals and clinics in Canada. The healthcare services provided
by Med-Emerg include physician and nurse staffing, physician management services
and the maintenance of an internet-based healthcare network. Med-Emerg's
operations are divided into three divisions:
(i) the Physician and Nurse Recruitment Services division;
(ii) the Physician Management Services division; and
(iii) the internet-based healthcare network HealthyConnect.com division.
PHYSICIAN AND NURSE RECRUITMENT SERVICES DIVISION
The Physician and Nurse Recruitment Services division was established in
1983 as a medical staffing and recruitment operation. Med-Emerg provides
physician staffing, nurse staffing and administrative support services to
hospital emergency departments and provides physician recruitment services to
Canadian hospitals and physician groups. Pursuant to contracts entered into
between Med-Emerg and various hospitals, Med-Emerg also coordinates schedules
for staff physicians that provide emergency department coverage and assists the
hospitals' administrative and medical staff in such areas as quality assurance,
risk management, department accreditation and marketing. The administrative
services provided by Med-Emerg include maintaining records, billing and
coordinating with third party payors.
As of June 30, 1999, Med-Emerg had 15 contracts with hospitals to provide
physician staffing services. Med-Emerg identifies, recruits and screens
potential candidates to serve emergency department physicians in hospitals that
have contracted with Med-Emerg to provide physician staffing services. Med-Emerg
enters into contracts with those physicians who meet its qualifications and
offers such physicians as candidates for admission to the hospital's medical
staff. As of June 30, 1999, Med-Emerg was providing physician staffing coverage
for a
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total of approximately 562 shifts per month, representing over 6,445 hours per
month. Med-Emerg is compensated for it physician staffing services to hospitals
on a month fee or per shift basis. Depending on the hospital patient volume,
Med-Emerg may also receive a subsidy from the hospital. Pursuant to the
contracts Med-Emerg has entered into with the hospitals for its physician
staffing services, Med-Emerg assumes responsibility for billing and collecting
and assumes the risks of administrative error and subsequent non-payment.
Generally, such contracts with the hospitals are for terms of one year and may
be terminated by either party upon two months written notice and are
automatically renewed if not terminated.
As of June 30, 1999, Med-Emerg had contracts with seven hospitals to provide
nurse staffing services. Med-Emerg identifies, recruits and screen potential
candidates to serve as emergency department nurses to those hospitals that have
entered into contracts with Med-Emerg for nurse staffing services. Under such
contracts, Med-Emerg provides nurse staffing coverage to hospital emergency
departments on a shift-by-shift basis. Med-Emerg charges a fixed hourly rate for
each hour of nurse staffing coverage provided. The contracts with respect to
providing nurse staffing coverage to hospitals are generally for terms of one
year, may be terminated by either party upon three months written notice and are
automatically renewed for subsequent one years terms if not terminated.
Med-Emerg also maintains a Quality Assurance program designed to ensure
consistency in clinical practice performance. As part of Med-Emerg's Quality
Assurance Program, all physicians are required to have Advanced Cardiac Life
Support and Advanced Trauma Life Support certification, have and maintain
adequate malpractice insurance coverage and maintain continuing medical
education credits. The effectiveness of Med-Emerg's Quality Assurance program
and the performance of Med-Emerg's contract physicians are critical to
maintaining a good relationship with the hospitals as well as minimizing the
exposure of Med-Emerg to liability claims.
PHYSICIAN MANAGEMENT SERVICES DIVISION
As of June 30, 1999, Med-Emerg had an ownership interest in and managed ten
clinics in Ontario. The locations of and services provided at Med-Emerg's
clinics are as follows:
LESTER B. PEARSON INTERNATIONAL AIRPORT (MISSISSAUGA, ONTARIO). Med-Emerg
has a contract with the Greater Toronto Airport Authority to provide emergency
services for both the Terminal 1 and 2 Medical Clinics at Toronto's Lester B.
Pearson International Airport. The Airport clinics are available to provide
emergency services in the airport to the approximately twenty-eight million
travellers using the airport each year and walk-in services to the approximately
35,000 airport employees. The staff consists of highly qualified critical care
nurses on-site and emergency physicians on call. Other services, generally
provided to employees of the airport, include chiropractic, massage therapy and
audio testing services.
GLENDERRY (MISSISSAUGA, ONTARIO), POND MILLS (LONDON, ONTARIO), ST. CLAIR
MEDICAL CENTRE (TORONTO, ONTARIO), ELMVALE (OTTAWA, ONTARIO), YORK LANES
(TORONTO, ONTARIO), CENTRAL CLINIC (LONDON, ONTARIO). Med-Emerg operates six
clinics that offer both family practice and walk-in services for patients. Other
services that may be provided at the clinics are travel medicine, chiropractic,
massage therapy, weight loss program, internal medicine, paediatrics,
haematology and professional family counselling services. Med-Emerg manages the
clinics by providing scheduling, staffing, recruiting, billing, collections and
accounting services to the clinic. With respect to the Elmvale and York Lanes
clinics where Med-Emerg does not own 100% of the outstanding capital stock,
Med-Emerg has entered into a 5-year management services contract whereby
Med-Emerg receives a monthly management fee to provide the clinics with
management services.
The Central Clinic is funded under a contractual agreement with the Ontario
Ministry of Health to provide primary care for a specified number of registered
patients. The Ontario Ministry of Health allocates a specific payment for each
registered patient on a monthly basis, whether the clinic's services are used or
not. The monthly fee is determined by the age and gender of the patient and is
referred to as the capitation rate. As at June 30, 1999, the average monthly
capitation rate was $12.43 per patient with approximately 5,786 patients
enrolled under the HSO program. The Central Clinic also provides medical
services on a fee-for-service basis.
DUNDAS URGENT CARE CENTRE (MISSISSAUGA, ONTARIO), BRITANNIA URGENT CARE
CENTRE (MISSISSAUGA, ONTARIO). Med-Emerg plans to continue 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 provider
of urgent healthcare services.
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Med-Emerg'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 medical clinic staffed by a group of emergency trained
physicians, a medical laboratory, a diagnostic radiology service and a pharmacy.
Med-Emerg will operate the medical clinic component of the Urgent Care Centre
and the support staff will be employed by Med-Emerg. Med-Emerg also intends to
provide emergency medical services, including emergency physician staffing,
emergency nurse staffing, receptionist staffing, physician billing services, all
financial services, inventory control and other operational and/or management
services to the Urgent Care Centre. Each emergency-trained physician working at
an Urgent Care Centre will have critical care expertise to treat most clinical
problems.
Med-Emerg opened its first Urgent Care Centre, the Dundas Urgent Care
Centre, on September 19, 1997. In January, 1999, Med-Emerg acquired a 45%
interest in Medical Urgent Care Inc., a company that operates the Britannia
Urgent Care Centre. Med-Emerg has a 5-year agreement to provide management
services to the Britannia Urgent Care Centre and receives a percentage of the
revenues generated by the medical clinic component of this Urgent Care Centre.
HEALTHYCONNECT.COM DIVISION
HealthyConnect.com is an internet-based healthcare network currently under
development that will connect physicians, hospitals, third party payors and
consumers. This network will allow all participants to access and exchange
healthcare related information, purchase healthcare products and services, and
communicate more cost-effectively with one another. HealthyConnect.com will
deliver healthcare services and products and provide timely access to reliable
healthcare information through the utilization of advanced telecommunication
technology. Targeted users of HealthyConnect.com are consumers, physicians and
other healthcare providers and healthcare product suppliers.
Consumers will benefit from 24-hour, 7-day a week access, via the internet
and telephone, to Med-Emerg's healthcare service provider network. In addition,
consumers will have multiple site secure access to their own and their family
members' electronic medical record, access to a physician management health and
wellness centre and convenient at-home shopping for healthcare products and
services.
HealthyConnect.com will enable physicians and other healthcare providers to
access reliable information and provide them with additional support in
delivering cost effective, high quality healthcare services. Benefits include
24-hour coverage for patients, access to a comprehensive physician medical
reference database, online continuing medical education courses, tools for
chronic disease management, and participation in clinical trials.
HealthyConnect.com will link healthcare product and service suppliers with
Med-Emerg's clinical network family. Convenient and secure access and at
home/office browsing and purchasing capabilities will facilitate direct sales
opportunities for member suppliers. Healthcare product and service suppliers
that may benefit from using HealthyConnect.com include pharmaceutical companies,
insurance companies, employers, government, managed care organizations,
physicians and hospitals.
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 Ontario government placed an
overall hard cap of approximately $3.8 billion on the amount physicians could
collectively bill 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. Any changes in reimbursement regulations, policies,
practices, interpretations or statutes that place material limitations on
reimbursement amounts or practices could adversely affect the operations of
Med-Emerg, absent, or prior to, satisfactory renegotiations of contracts with
clients and arrangements with contracted physicians.
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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 services listed in the OHIP Schedule of Benefits. 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 provincial plan must ensure
that no payments are permitted in respect of insured health services that have
been subject to extra billing.
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 significant reductions in government and other
third party reimbursements for certain medical charges. Med-Emerg's independent
contracted physicians as well as Med-Emerg 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 Med-Emerg
will seek to structure its operations to comply with the corporate practice of
the laws of each province in which it operates, there can be no assurance that,
given varying and uncertain interpretations of such laws, Med-Emerg would be
found in compliance with legislation on the corporate practice of medicine in
all provinces. A determination that Med-Emerg is in violation of applicable
restrictions on the practice of medicine in any province in which it operates or
may operate could have a material adverse effect on Med-Emerg if Med-Emerg were
unable to restructure its operations to comply with the requirements of such
province.
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, in 1997 the Province of Ontario enacted the Savings
and Restructuring Act. Such Act gives the provincial government the ability to
implement a health care system restructuring plan. The new legislation
established the Health Services Restructuring Commission, which has broad
decision making authority over every aspect of a public hospital's operations,
including 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 person 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 Med-Emerg.
HEALTHCARE LEGISLATION
The Health Services Restructuring Commission (HSRC), established under Bill
26, has 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. Med-Emerg cannot predict what effect, if any,
this and other healthcare legislation will have on its operations. Significant
changes in Canada's healthcare system are likely to have a gradual but
substantial impact on the manner in which Med-Emerg conducts its business and
could have a material effect on its results of operations.
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 American style managed care will play a significant role in the
fee-for-service sector of the publicly funded healthcare system. Management
believes that government actions in the area of legislation to date indicate a
present intent to let the healthcare system proceed without intervening directly
in the management of patient care, although there can be no assurance thereof.
In the future, greater emphasis may be placed on such managed care tools as
utilization review, practice guidelines, and outcome measurement. 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.
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COMPETITION
Competition in the industry is based on the scope, quality and cost of
services provided. Certain of Med-Emerg's current and potential competitors have
substantially greater financial resources than Med-Emerg. 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
Med-Emerg (e.g., in the areas of malpractice insurance, cost savings from
internal billing and collection and a broader scope of services). The clinics
operated by the Physician Management Services division compete with hospitals
and other clinics. The Urgent Care Centre competes with hospital emergency
rooms. Med-Emerg 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.
EMPLOYEES
As of June 30, 1999, Med-Emerg had 42 full-time employees, of whom 3 were
employed in general executive positions, 15 were employed in administration and
24 were employed in Med-Emerg's clinics. In addition, as of such date,
approximately 221 physicians and 33 nurses were actively working as independent
contractors of Med-Emerg. These physicians and nurses are not employees of
Med-Emerg. Approximately 19 nurses working at the Airport clinic are represented
by the Ontario Nurses Association Med-Emerg considers its employee relations to
be satisfactory.
REAL PROPERTY LOCATIONS
Med-Emerg's head office is located at 2550 Argentia Road, Suite 205,
Mississauga, Ontario. The head office occupies approximately 5,560 square feet
of space under a lease that expires in February, 2001 at an average annual
rental rate of approximately $105,700.
The Central Clinic is located at 458 Central Avenue, London, Ontario. The
Clinic occupies approximately 6,400 square feet of space under a lease that
expires December 31, 2002 at an average annual rental rate of approximately
$94,900. The Pond Mills clinic is located at 1166 Commissioners Road East,
London, Ontario, N5Z 4R3. This lease is currently on a month-to-month basis for
approximately $4,470 per month. The Glenderry Clinic is located at 2760 Derry
Road West, Mississauga, Ontario, L5N 3N5. The Clinic occupies approximately
2,600 square feet at an annual rental rate of approximately $69,200.
The St. Clair Medical Centre is located at 50 St. Clair Avenue East,
Toronto, Ontario. The Clinic occupies approximately 2,000 square feet at an
annual rental rate of approximately $29,200. The lease expires in December,
2005.
The Dundas Urgent Care Centre is located at 801 Dundas Street East,
Mississauga, Ontario. Med-Emerg occupies approximate 2,700 square feet of the
Urgent Care Centre and pays an annual rental rate of approximately $41,775. The
lease expires in September, 2002.
The Britannia Urgent Care Centre is located at 1201 Britannia Road West,
Mississauga, Ontario. The Urgent Care Centre occupies approximately 11,000
square feet at an annual rental rate of approximately $78,500. The lease expires
February 28, 2008. A total of 3,000 square feet is subleased by Med-Emerg to
service providers, such as pharmacy, radiology, laboratory and physiotherapy and
rehabilitation services. The service providers contribute approximately $80,000
in annual rent and the subleases expire in March and May, 2003.
The Elmvale Clinic is located at 1910 St. Laurent Boulevard, Ottawa,
Ontario. Annual rent totals approximately $46,000 for 2,936 square feet. The
lease expires in June, 2003.
The York Lanes Clinic is located within York University at Unit #28, 4700
Keele Street, Toronto, Ontario. The annual rent is approximately $142,000 for
4,693 square feet. The lease expires in February, 2004.
LEGAL PROCEEDINGS
Med-Emerg is presently party to one legal proceeding that was commenced on
July 4, 1997 in the General Division of the Ontario Court. This proceeding
relates to the recapitalization of Med-Emerg, which occurred in November, 1996,
in which the Estate of Dr. Donald Munro ("Estate") contributed 75,000 of its
150,000
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Med-Emerg Common Shares to the capital of Med-Emerg. The Estate, the applicant
in the proceeding, has taken the position that it continues to be the beneficial
owner of 150,000 shares of Med-Emerg Common Shares. Med-Emerg disagrees with the
Estate's position and intends to defend this action vigorously. However, in the
event that Med-Emerg is unsuccessful in its action, Med-Emerg may be required to
return to the Estate the 75,000 Med-Emerg Common Shares which were previously
surrendered. There has been no further correspondence or action with respect to
this claim since 1997.
In addition, in the future, Med-Emerg could be subject to claims arising
from its contracts with hospitals or other institutions or professional
associations to which it provides services.
RECENT EVENTS
In June, 1998, Med-Emerg acquired all of the outstanding capital stock in JC
Medical Management Inc. JC Medical Management Inc. operates the St. Clair
Medical Centre, a family practice clinic in Toronto, Ontario. In September,
1998, Med-Emerg acquired 75% of the outstanding capital of Doctors on Call Ltd.,
a company that provides a 24-hour on-call physician service.
During the first quarter of 1999, Med-Emerg acquired a 45% interest in
Medical Urgent Care Inc., a 51% interest in Caremedics (Elmvale) Inc. and a 51%
interest in York Lanes Health Centres Inc., and also entered into management
service agreements with these three companies. Medical Urgent Care Inc. operates
the Britannia Urgent Care Centre in Mississauga, Ontario. Caremedics (Elmvale)
Inc. operates the Elmvale Clinic in Ottawa, Ontario. York Lanes Health Centres
Inc. operates the York Lanes Clinic in Toronto, Ontario.
SHARE CAPITAL
Med-Emerg's authorized share capital consists of an unlimited number of the
following classes of shares and warrants with the following features:
MED-EMERG PREFERENCE SHARES. Voting, non-redeemable, non-retractable,
having a cumulative dividend of US$0.27 per share, convertible into one and
one-half Med-Emerg Common Shares at the option of the holder for a 10 year
period from the date of issuance. At the end of the 10 year period, the
Med-Emerg Preference Shares are convertible at the option of the holder into
such number of Med-Emerg Common Shares as is equal to the ascribed value of
US$4,500,000 divided by the then current market price of the Med-Emerg Common
Shares.
CLASS "A" PREFERRED SHARES. Redeemable, retractable, non-cumulative.
CLASS "B" PREFERRED SHARES. Redeemable, retractable, non-cumulative.
SPECIAL SHARES. Issuable in Series, with rights, privileges and
restrictions to be fixed by the directors.
MED-EMERG COMMON SHARES. Shares, no par value, in the common stock of
Med-Emerg.
MED-EMERG PURCHASE WARRANTS. Redeemable, entitling the holder to purchase
one Med-Emerg Common Share at US$4.50 per share at any time commencing February
12, 1999 and expiring February 11, 2003. The Med-Emerg Purchase Warrants are
subject to redemption by Med-Emerg at US$0.10 per warrant at any time commencing
February 12, 2000 on not less than 30 days prior written notice to the holders
of such warrants, provided that the closing bid price of the Med-Emerg has been
at least US$8.00 for 20 consecutive trading days ending on the third day prior
to the date on which Med-Emerg gives notice of such redemption. The Med-Emerg
Purchase Warrants will be exercisable until the close of business on the day
immediately proceeding the date dated fixed for such redemption.
MED-EMERG SERIES A WARRANTS. Warrants entitling the holder to purchase one
Med-Emerg Common Share at US$2.70 per share, expiring June 12, 2000.
MED-EMERG SERIES B WARRANTS. Warrants entitling the holder to purchase one
Med-Emerg Common Share at US$3.40 per share, expiring June 12, 2000.
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DIVIDEND RECORD AND POLICY
Med-Emerg has not paid any dividends on the Med-Emerg Common Shares and has
no present intention of paying dividends on such shares. Currently, Med-Emerg
intends to retain any earnings to finance its operations. The future payment of
dividends will be dependent upon the financial requirements of Med-Emerg to fund
future operations and growth, Med-Emerg's financial condition and other factors
the Med-Emerg Board of Directors may consider appropriate in the circumstances.
In addition, Med-Emerg Preference Shares prohibits the payment of any dividends
on Med-Emerg Common Shares until all accrued dividends on Med-Emerg Preferred
Shares have been paid. Dividends on Med-Emerg Preference Shares will accrue at a
rate of US$135,000 per year.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Between 1994 and 1996, Med-Emerg loaned an aggregate of $137,719 to Dr.
Ramesh Zacharias, Med-Emerg's Chief Executive Officer, and his spouse Victoria
Zacharias. In February, 1998, Med-Emerg repurchased 37,456 Med-Emerg Common
Shares from Dr. Ramesh Zacharias and Victoria Zacharias at a purchase price of
US$2.75 per share. The aggregate consideration payable by Med-Emerg was used to
repay all outstanding amounts owed by Dr. Ramesh Zacharias and Victoria
Zacharias and their affiliated companies.
In June, 1996, Med-Emerg loaned $60,000 to Carl Pahapill, Med-Emerg's
President, to purchase 100,000 Med-Emerg Common Shares. The loan is non-interest
bearing, unsecured and repayable over a five year period with principal payments
commencing in February 2000.
On November 1, 1996, Med-Emerg effected a recapitalization whereby Dr.
Ramesh Zacharias and Victoria Zacharias converted an aggregate of 2,203,333
Med-Emerg Common Shares into an aggregate of 500,000 shares of preferred stock.
In 1997, the shares were transferred to 1245841 Ontario Inc., a company owned by
them.
On November 1, 1996, Med-Emerg granted Robert Rubin, a director, an option
to purchase 700,000 Med-Emerg Common Shares at US$.75 per share and approved the
issuance of 50,000 Med-Emerg Common Shares, all of which shares were issued in
1997 in consideration of services he rendered to Med-Emerg as director. Under a
US$800,000 line of credit previously established between Mr. Rubin and
Med-Emerg, Mr. Rubin advanced an aggregate of US$250,000 to Med-Emerg from July,
1997 to January, 1998. The full amount plus interest was repaid in February 1998
from the proceeds of the initial public offering.
In connection with a bridge financing carried out by Med-Emerg in January,
1997, Med-Emerg issued 8% promissory notes in the principal amount of US$500,000
and an aggregate of 125,000 Med-Emerg Common Shares to four investors for gross
proceeds of US$500,000. Robert Rubin purchased a promissory note in the
principal amount of US$150,000 and 37,500 shares of Med-Emerg. To comply with
the requirements of the National Association of Securities Dealers, Inc., Mr.
Rubin and the another investor agreed to surrender to Med-Emerg for cancellation
without consideration an aggregate of 62,500 Med-Emerg Common Shares obtained in
connection with such bridge financing. Med-Emerg remained obligated to repay the
promissory notes issued to the two investors in the aggregate principal amount
of $250,000 upon the closing of Med-Emerg's Initial Public Offering in February,
1998. The full amount of US$500,000 was repaid in February 1998 from the
proceeds from the initial public offering.
Except with respect to the non-interest bearing loans made to Dr. Ramesh
Zacharias and Victoria Zacharias and Mr. Pahapill, Med-Emerg believes all
previous transactions between Med-Emerg and its officers, directors or 5%
shareholders, and their affiliates were made on terms no less favorable to
Med-Emerg than those available from unaffiliated parties. In the future,
Med-Emerg will present all proposed transactions with affiliated parties to the
Board of Directors for its consideration and approval. Any such transaction will
be approved by a majority of the disinterested directors.
INFORMATION REGARDING YFMC
YFMC Healthcare Inc. ("YFMC") was continued under the OBCA on November 4,
1998. YFMC's principal and registered office is located at Suite 250, 441
Maclaren Street, Ottawa, Ontario K2P 2H3.
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YFMC was originally formed under the laws of Alberta as TransPacific
Minerals Inc. In June, 1998, TransPacific Minerals Inc. acquired all of the
issued and outstanding securities of 1189543 Ontario Inc. in a reverse take-over
bid transaction. 1189543 Ontario Inc. managed and operated several medial
clinics under the banner "Your Family Medical Centre". By articles of amendment,
TransPacific Minerals Inc. changed its name to YFMC Healthcare Inc.
GENERAL OVERVIEW
YFMC was formed in response to the growing need to provide healthcare
professionals with quality practice management support services, and to furnish
communities with accessible, extended-hours medical care within a family
practice setting. YFMC's operations have grown to become a network of family
medical clinics staffed by over 80 family physicians, physiotherapists,
psychotherapists, dieticians and podiatrists. At present YFMC operates a group
of 20 "primary care" medical facilities in Ontario, Alberta and Quebec.
YFMC is a medical management company that offers physicians a professional
clinic environment and an established patient base, without the prohibitive
financial burden associated with start-up costs and the time consuming
administrative tasks dictated by day-to-day office management. In return, YFMC
generates revenue from management fees charged to its affiliated physicians.
In management's view, many physicians prefer to work as independent
practitioners within a group practice setting. As a result, YFMC's strategy to
provide a turn-key clinic/management operation empowers each staff physician to
preserve that entrepreneurial perspective by being free to focus on the practice
of medicine unencumbered by administrative responsibility.
YFMC clinics function as a blended operation of "immediate care" and
"appointment based" patient centres. Each clinic provides the local community
with a primary care mix comprised of family medical care, psychological care,
and other paramedical services such as nutrition, foot care and massage therapy.
YFMC clinics are generally located in visible, high traffic areas, such as
shopping malls, and strategically positioned as "patient friendly locations"
with free parking and easy access, as well as convenient 9:00 a.m. to 9:00 p.m.
weekday operating hours, 9:00 a.m. to 5:00 p.m. on weekends.
BUSINESS AND OPERATIONS OF YFMC
MARKET OVERVIEW: THE CANADIAN HEALTH CARE SYSTEM
Canada's health care system is comprised of many components. Facilities
include hospitals, community health centres, clinics and nursing homes. The
spectrum of health care workers ranges from physicians, dentists, optometrists
and nurses, to physical and occupational therapists, chiropractors, podiatrists
and midwives. A wide variety of care is provided including prevention, cure,
rehabilitation and palliation.
With the passage of the Canada Health Act (the "Health Act") in 1984, health
care became, in part, a federal as well as provincial responsibility. The Health
Act indexed the increase in the federal contribution to each province in Gross
Domestic Product and federal responsibility was defined as determining which
services would be paid for, the population to be covered, formulas for cost
sharing and enforcement of the Health Act's principles. Provincial
responsibilities entailed negotiation of physicians fees, hospital operating
budgets, control of capital acquisitions and the distribution of expensive high
technology.
Today, health care costs have grown to represent about 10% of the Gross
National Product of Canada and about one-third of provincial budgets. In the
view of management, these rising costs coupled with reduced provincial transfer
payments have left the provinces straining to maintain their health care
delivery systems. To illustrate the severity of the situation, transfer payments
for the 1996 to 1997/8 period alone are projected to be reduced by $6.6 billion.
The Health Act strengthened and reaffirmed the principles of universality,
portability, comprehensiveness and public administration. Of significance, it
added accessibility which prohibited extra billing by doctors and user fees by
hospitals. Having entrenched these principles, management believes the challenge
is how to sustain them in the face of economic adversity.
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An initial consolidation phase is taking place throughout much of Canada
whereby hospitals, diagnostic services and health care professionals are being
eliminated in order to meet provincial budgets. As more and more hospitals
close, the private sector is playing an increasingly pivotal role in providing
ambulatory care or home care once provided by hospitals or by government
agencies. New opportunities are emerging.
CORE BUSINESS
YFMC's core business includes primary medical care, in-clinic paramedical
services (podiatry, nutrition, massage therapy), clinical psychology therapy in
addition to physician practice management services. YFMC's short-term expansion
strategy is to increase its sectors of operation to encompass corporate medical
programs, in which private or government groups are provided with turnkey health
packages, rehabilitative services, nursing and home health care services, and
extended practice management services with specific emphasis on medical billing.
Each clinic provides health care services for a broad range of patient
needs. Patients, however, can be effectively categorized into four distinct
groups:
1. Family health care -- primary care for adults and children.
2. Geriatric care -- patients 70+ years of age.
3. Specialty care -- paramedical services.
4. Corporate health care -- specialty services for employees and management.
YFMC also provides administrative expertise to various health care groups.
COMPETITION
YFMC's competition, in its current sphere of operation, is fragmented and
made up of many simple walk-in clinic operations representing a limited number
of Ottawa locations. They do not provide the broad range of family and specialty
health care services that YFMC furnishes, nor are they able to offer the
corporate and psychological services from a network as extensive as YFMC.
Currently, YFMC owns and operates three times as many family practice medical
clinics as its nearest competitor. In management's view, no competitor to date
has assembled the critical mass necessary to expand into the corporate or
home-care sectors. These potentially profitable target markets provide an
opportunity for YFMC to establish a position in advance of its competition.
Nevertheless, as a result of YFMC's growing success, it is anticipated
competition will develop in the months and years ahead.
CORPORATE NICHE
YFMC's corporate strategy is to leverage its clinic network and patient base
to effect a reduction in administrative costs and supply services through the
provision of primary care medical services. Ancillary strategies include the
establishment of ambulatory services including podiatry, massage therapy,
physiotherapy and psychological counseling and initiating and coordinating
progressive programs such as corporate health care and rehabilitative services.
YFMC FACILITIES
<TABLE>
<CAPTION>
CLINIC LOCATION
- ---------------------------------------------------------------------------- ----------------------
<S> <C>
Beacon Hill Family Medical Centre Gloucester, Ontario
Clinique Medicale Place du Centre Hull, Quebec
Elgin Family Medical Centre Ottawa, Ontario
Fisher Family Medical Centre Ottawa, Ontario
Greenbank Family Medical Centre Nepean, Ontario
Herongate Family Medical Centre Ottawa, Ontario
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
CLINIC LOCATION
- ---------------------------------------------------------------------------- ----------------------
<S> <C>
Kanata Family Medical Centre Kanata, Ontario
Minto Place Family Medical Centre Ottawa, Ontario
Rosemount Family Medical Centre Ottawa, Ontario
Vanier Family Medical Centre Vanier, Ontario
Westgate Family Medical Centre Ottawa, Ontario
PSA & Associates Ottawa, Ontario
Care Source Physiotherapy & Rehabilitation Centre Ottawa, Ontario
Spiro Tech Health Services Inc. Ottawa, Ontario
Pringle Creek Medical Centre Whitby, Ontario
Jasper Avenue Medical Clinic Edmonton, Alberta
McKnight Village Medical Centre Calgary, Alberta
Medical Centre West Edmonton Mall Edmonton, Alberta
Martindale Medical Centre Calgary, Alberta
Orleans Gardens Family Medical Centre Gloucester, Ontario
</TABLE>
As of June 30, 1999, YFMC's clinics average 7,000 patients per week of which
approximately 2,000 are appointment-based. Eighty staff physicians handle the
patient load assisted by 125 support staff.
The clinics range in size from about 1,000 to 2,200 sq. ft. and each clinic
includes a reception area, treatment room, laboratory and anywhere from three to
six examination rooms. Operations are standardized and each practice facility is
staffed by a medical secretary and registered nurse (in the case of a
psychological practice, a practice coordinator) and can support three to four
doctors working concurrently at any given time. Each facility is fully automated
and equipped according to the practice needs of the health professional.
BILLING PROCEDURES
Patients are generally billed under their respective health plans. If they
are not covered, payment is on a cash basis at the time of the visit. Insured
billings are transmitted by computer (in some cases, by mail) to the insurance
authority where, upon review, claims are paid to the physician or therapist
within a mean period of 45 days after the service was provided. Upon
confirmation of payment, YFMC healthcare providers are billed for their overhead
costs at a predetermined rate which averages 35% of billings for physicians and
40% for therapists.
POLICIES AND QUALITY CONTROL PROCEDURES
Accounting, marketing, purchasing, finance and administration services are
managed, coordinated and controlled from YFMC's central office. Management
personnel from the central administrative office regularly conduct facility
inspections, meeting with clinic staff to review operations, identify and help
resolve problem areas, and address the ongoing needs of the individual clinic.
Centralized control enables the senior management team to manage more
effectively by identifying and addressing problem areas more expeditiously.
In addition, each clinic is assigned a "captain" who is responsible for the
efficient day-to-day operations by adhering to guidelines set out in YFMC's
Operations Manual. Medical policies are observed as stipulated by the College of
Physicians & Surgeons.
HUMAN RESOURCES
As of June 30, 1999 YFMC had 125 employees, 80 physicians, and 6
administrative personnel managing accounting, marketing and administrative
services. YFMC plans to retain additional physicians and clinical support staff
as well as hire select marketing and administrative people as required to keep
pace with company expansion.
56
<PAGE>
MARKETING
Management of YFMC believes that physician organizations will play a growing
role in Canada's health care scheme to reduce deficit spending at federal and
provincial levels by providing cost-effective primary care services in support
of new government initiatives. It is also believed that YFMC has the potential
to be a central force in this reform while building a significant health care
company.
Immediate care clinics have grown in popularity since their introduction in
the late 1980s. This has been chiefly due to their convenience: specifically,
easy access locations, extended hours of operation, and the fact that no
appointment is needed to see a doctor.
To date, YFMC has generated the bulk of its business primarily as a result
of conveniently located clinics situated in high pedestrian traffic areas. This
fact is supported by an in-house patient survey which revealed that
approximately 50% of the patient base was created due to high visibility clinic
signage. Almost 25% was as a result of either a friend or family referral. The
remaining percentage was generated from a combination of direct mail, yellow
pages advertising and referrals.
YFMC's market is broad and plans call for a more proactive strategy to
increase existing business as well as to expand into new markets. Unlike
standard business marketing practices, however, there are certain anomalies
unique to health care service providers which define what can and cannot be
leveraged as strategies in the overall marketing mix. Though in some instances
this can be a limiting factor, anticipated changes to Canada's health care
system are expected to provide new opportunities.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of YFMC consists of an unlimited number of YFMC
Common Shares without nominal or par value, of which 10,710,143 YFMC Common
Shares are issued and outstanding as fully paid and non-assessable as at the
date hereof 1,003,000 YFMC Common Shares are reserved for issuance under a stock
option. YFMC is also authorized to issue an unlimited number of First Preferred
Shares and Second Preferred Shares, both issuable in series without nominal or
par value. To date, YFMC has issued 1,000,000 First Preferred Shares, Series A
("YFMC Preferred Shares"). No other preferred shares have been issued.
YFMC COMMON SHARES
The holders of YFMC Common Shares are entitled to dividends as and when
declared by the board of directors of YFMC, to one vote per share at meetings of
shareholders of YFMC and, upon liquidation, to receive such assets of YFMC as
are distributable to the holders of the YFMC Common Shares.
FIRST PREFERRED SHARES
The First Preferred Shares may be issued from time to time in one or more
series, each series consisting of the number of shares and having the
designation, rights, privileges, restrictions and conditions which the board of
directors of YFMC determines prior to the issue thereof. The First Preferred
Shares rank prior to the Second Preferred Shares and the YFMC Common Shares with
respect to the payment of dividends and distribution in the event of
liquidation, dissolution or winding-up of YFMC.
FIRST PREFERRED SHARES, SERIES A
YFMC has created a Series A First Preferred Share ("YFMC Series A Preferred
Shares") which is non-redeemable and has a cumulative dividend of 2% per annum,
payable annually. Each YFMC Preferred Share is convertible at the election of
the holder into one YFMC Common Share for no additional consideration, at any
date on which the current market price of the YFMC Common Shares exceeds $0.50
per YFMC Common Share. The YFMC Preferred Share terms specifically provide that
the same are not convertible into YFMC Common Shares if, at the date of such
conversion, the aggregate number of YFMC Common Shares held by directors and
officers of YFMC, and related parties to such individuals, would exceed 80% of
the issued and outstanding YFMC Common Shares.
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<PAGE>
SECOND PREFERRED SHARES
The Second Preferred Shares may be issued from time to time in one or more
series, each series consisting of the number of shares and having the
designation, rights, privileges, restrictions and conditions which the board of
directors of YFMC determines prior to the issue thereof. The Second Preferred
Shares rank prior to the YFMC Common Shares and subordinate to the First
Preferred Shares with respect to the payment of dividends and distribution in
the event of liquidation, dissolution or winding-up of YFMC.
YFMC WARRANTS
YFMC has also issued 356,680 YFMC Series A Warrants and 356,680 YFMC Series
B Warrants (collectively, the "YFMC Warrants"). Each YFMC Series A Warrant
entitles the holders thereof to purchase one YFMC Common Share at a price of
$0.40 per share until June 12, 2000. Each YFMC Series B Warrant entitles the
holders thereof to purchase one YFMC Common Share at a price of $0.50 per share
until June 12, 2000.
The warrants contain provisions to the effect that in the event of any
subdivision, consolidation, change, reclassification or alteration of the YFMC
Common Shares or in the event of the consolidation, amalgamation or a merger of
YFMC with any other corporation, a proportionate adjustment or change will be
made to the number and kind of securities issuable on exercise of the YFMC
Warrants and in the exercise price per YFMC Common Share. No adjustment in the
exercise price of the YFMC Warrants is required to be made unless the cumulative
effect of such adjustment or adjustments would change the exercise price of the
YFMC Warrants by at least 1%.
To the extent that the holder of a YFMC Warrants would otherwise be entitled
to purchase a fraction of a YFMC Common Share, such right may be exercised only
in conjunction with other rights which, in the aggregate, entitle the holder to
purchase a whole number of YFMC Common Shares. No adjustment as to dividends
will be made upon any exercise of YFMC Warrants. Holders of YFMC Warrants do not
have any voting or pre-emptive rights or any other rights as shareholders of
YFMC.
PRINCIPAL HOLDERS OF SECURITIES
As at the date hereof, no person or company owns of record, or is known by
YFMC's directors and senior officers to own beneficially, directly or
indirectly, or to exercise control or direction, over 10% or more of the YFMC
Common Shares except as set forth below.
<TABLE>
<CAPTION>
TYPE OF NUMBER OF PERCENTAGE
NAME AND MUNICIPALITY OF RESIDENCE OWNERSHIP SHARES OF CLASS
- ----------------------------------------------------------------------------- ---------------- ---------- -----------
<S> <C> <C> <C>
977675 Ontario Inc.(1)....................................................... Beneficial and 3,641,331 34.1%
Ottawa, Ontario of Record
Page Raymond & Associates Ltd.(2)............................................ Beneficial and 3,360,165 31.4%
Ottawa, Ontario of Record
CDS & Co..................................................................... Of Record 1,784,000 16.7%
</TABLE>
- ------------------------
Notes:
(1) The beneficial owner of such securities is Dr. Donald Wilson. 977675 Ontario
Inc. also holds 506,359 YFMC Preferred Shares, each of which is convertible
into one (1) YFMC Common Share in certain events. See "THE DESCRIPTION OF
SHARE CAPITAL".
(2) The beneficial owner of such securities is Mr. Martin Scullion. Page Raymond
& Associates Ltd. also holds 493,641 YFMC Preferred Shares, each of which is
convertible into one (1) YFMC Common Share in certain events. See "THE
DESCRIPTION OF SHARE CAPITAL".
58
<PAGE>
DIRECTORS AND OFFICERS
The following are names and municipalities of residence of the directors and
officers of YFMC, their positions and offices with YFMC and their principal
occupations during the last 5 years:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY
OF RESIDENCE OFFICE HELD PRINCIPAL OCCUPATION
- --------------------- -------------------------- --------------------------------------------------------------------
<S> <C> <C>
Donald Wilson President President of YFMC since 1996 and Physician
Ottawa, Ontario
Martin Scullion Chief Executive Officer Chief Executive officer of YFMC since 1996; Vice-President,
Ottawa, Ontario marketing -- FCA International Limited from 1978 to 1988; Owner,
Plastiques P.E.I. Canada Limited from 1988 to 1994.
Marc E. Smith Vice President Corporate Counsel of YFMC since October 1998; Barrister and
Ottawa, Ontario Solicitor with Doucet McBride from 1996 to 1998.
Ed Belanger Vice President President of International Health Consultants Inc. since 1998;
Ottawa, Ontario President and Chief Executive Officer of Gamble Vision International
Inc. and Vice President; Corporate Development of Gamble Eye Center
from 1995-1998.
James Raymond Director Investment Banker
Montreal, Quebec
Tim Tycholis Director President of TransPacific Minerals from October, 1996 to June, 1998;
Calgary, Alberta Vice-President, Corporate Development and Director of Blue Range
Resources Corporation, a public company from July, 1995 to July,
1997; President, Pipestone Petroleum Inc., a junior natural resource
company from August, 1993 to July, 1995; Vice-President, PowerWest
Financial Ltd. from August, 1990 to August, 1993.
Peter McKeown Director Vice-President, Finance, Axia Multimedia Corporation, a public
Calgary, Alberta multimedia software company, and its predecessor from June, 1995 to
present; President, Player Securities Inc., a private investment
company, since March, 1993. President of Senex Petroleum
Corporation, a public natural resource company, from January, 1988
to March, 1993.
Geoffrey Smith Director President, Panache Investments Ltd. since January, 1997;
Calgary, Alberta Vice-President Corporate Development, Canadian 88 Energy Corp. from
May, 1990 to January, 1997.
</TABLE>
As of the date hereof, the directors and senior officers of YFMC and, to the
knowledge of the directors and senior officers of YFMC, after reasonable
inquiry, their respective associates, as a group beneficially owned, director or
indirectly, or exercise control or direction over 8,079,696 YFMC Common Shares
representing approximately 75.4% of the issued and outstanding YFMC Common
Shares, 969,460 YFMC Preferred Shares, representing 96.9% of the issued and
outstanding YFMC Preferred Shares, 222,000 YFMC Series A Warrants, representing
approximately 62.2% of the issued and outstanding YFMC Series A Warrants, and
222,000 YFMC Series B Warrants, representing approximately 62.2% of the issued
and outstanding YFMC Series B Warrants, all of which are expected to be tendered
pursuant to the Offer.
59
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the annual and long term compensation paid to
each of the President and Chief Executive Officer of YFMC (the "Named Executive
Officers") during the most recently completed fiscal year end completed December
31, 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
SECURITIES RESTRICTED
UNDER STOCK SHARES OR
FISCAL YEAR OTHER ANNUAL OPTIONS RESTRICTED LTIP
NAME AND ENDED DECEMBER SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS
PRINCIPAL POSITION 31 ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Donald Wilson, 1998 N/A 60,000 N/A 100,000 - N/A
President
Martin Scullion, 1998 N/A 15,000 39,996 100,000 - N/A
Chief Executive
Officer
<CAPTION>
<S> <C>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
<S> <C>
Donald Wilson, N/A
President
Martin Scullion, N/A
Chief Executive
Officer
</TABLE>
REMUNERATION
To date, other than as described herein, no compensation has been paid to
the officers of YFMC in their capacities as officers, aside from the annual
salary paid to each of Marc E. Smith and Ed Belanger of $43,000 and $60,000,
respectively. Mr. Smith's salary commenced being paid on October 1, 1998. Mr.
Belanger's consulting fee commenced being paid on September 15, 1998.
DIRECTORS
Directors are not remunerated in their capacities as such, aside from the
payment of an attendance fee of $300 to each director who is not also an officer
of YFMC for attendance at meetings of directors. Out-of-pocket expenses of
directors incurred in connection with the performance of their duties as
directors pursuant to their attendance at meetings of the board of directors of
YFMC are also paid by YFMC. Directors of YFMC have received options to purchase,
in the aggregate, 475,000 YFMC Common Shares.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
Management of YFMC is not aware of any indebtedness outstanding by, or any
guarantees, support agreements, letters of credit or other similar arrangements
provided by YFMC or any of its subsidiaries to, any of the directors, executive
officers or senior officers of YFMC or any of their associates at any time,
other than in the regular course of business of YFMC.
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The directors, officers and principal shareholders of YFMC (and the known
associates and affiliates of such persons) have no direct or indirect interest
in any material transaction involving YFMC.
PROMOTERS
Dr. Donald Wilson and Martin Scullion may be considered to be promoters of
YFMC under applicable securities laws by reason of having taken the initiative
in founding and organizing the business and enterprise of YFMC. Dr. Wilson and
Mr. Scullion have had no direct or indirect interest in any material transaction
involving YFMC.
60
<PAGE>
DIVIDEND RECORD AND POLICY
YFMC has not paid any dividends on the YFMC Common Shares and has no present
intention of paying dividends on such shares. The future payment of dividends
will be dependent upon the financial requirements of YFMC to fund future growth,
the financial condition of YFMC and other factors the board of directors of YFMC
may consider appropriate in the circumstances.
THE ANNUAL MEETING
GENERAL
MED-EMERG. This Joint Prospectus/Proxy Statement is being furnished to
holders of Med-Emerg Common Stock in connection with the solicitation of proxies
by the Med-Emerg Board for use at the Med-Emerg Annual Meeting to consider and
vote, upon: (i) the election of the Board of Directors for the ensuing year;
(ii) the appointment of Schwartz Levitsky Feldman, Chartered Accountants, as the
Company's independent auditors for the ensuing year; (iii) the Business
Combination Agreement and the approval of the issuance of Med-Emerg shares and
warrants in the aggregate number of 1,710,332 shares and 89,170 warrants
pursuant thereto; and (iv) to transact such other business as may properly come
before the Med-Emerg Annual Meeting.
The Med-Emerg board has unanimously approved each of the above proposals and
unanimously recommends that the holders of Med-Emerg common stock vote for the
approval of each of the above proposals. Except for the Nasdaq rules,
shareholder approval of the Business Combination Agreement and the stock
issuance related thereto would not be required. Accordingly, Med-Emerg
shareholders have no appraisal rights.
RECORD DATE
MED-EMERG. The Med-Emerg Board has fixed the close of business on October
15, 1999 as the Med-Emerg Record Date for the determination of the holders of
Med-Emerg Common Stock entitled to receive notice of, and to vote at, the
Med-Emerg Annual Meeting.
TIMES AND PLACES; PURPOSES
MED-EMERG. The Med-Emerg Annual Meeting will be held at Hotel
Intercontinental, 111 East 48(th) Street, New York, New York, 10017 on November
19, 1999, starting at 10:00 a.m. local time. At the Med-Emerg Annual Meeting,
the holders of Med-Emerg Common Stock will be asked to consider and vote upon
(i) the election of the Board of Directors of Med-Emerg for the ensuing year;
(ii) the appointment of Schwartz Levitsky Feldman, Chartered Accountants, as the
Company's independent auditors for the ensuing year; (iii) the Business
Combination Agreement and the stock issuance related thereto and (iv) such other
matters as may properly come before the Med-Emerg Annual Meeting, including
adjournment of the Med-Emerg Annual Meeting to solicit additional proxies.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
MED-EMERG. Only holders of record of shares of Med-Emerg Voting Stock on
the Med-Emerg Record Date are entitled to notice of and to vote at the Med-Emerg
Annual Meeting. On the Med-Emerg Record Date, there were 3,095,544 shares of
Med-Emerg Common Stock outstanding and entitled to vote at the Med-Emerg Annual
Meeting.
Each holder of record of Med-Emerg Common Stock, as of the Med-Emerg Record
Date, is entitled to cast one vote per share. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of Med-Emerg
Common Stock entitled to vote is necessary to constitute a quorum at the
Med-Emerg Annual Meeting. The affirmative vote, in person or by proxy, of the
holders of a majority of the outstanding shares of Med-Emerg Common Stock
present in person or by proxy, at the meeting entitled to vote thereon is
required to approve each of the proposals to be voted on. The affirmative vote
of the holders of a majority of the Med-Emerg Common Stock represented in person
or by proxy at the Med-Emerg Annual Meeting, at which a quorum is not present,
is required to approve an adjournment of the Annual Meeting. Proxies may be
revoked by notice of revocation or a later signed and dated proxy or by
attending the Med-Emerg Annual Meeting and
61
<PAGE>
voting in person. Attendance at the Med-Emerg Annual Meeting will not in itself
constitute the revocation of a proxy.
PROXIES
All shares of Med-Emerg Common Stock represented by properly executed
proxies received prior to or at the Med-Emerg Annual Meeting and not
subsequently revoked will be voted in accordance with the instructions indicated
on such proxies. If no instructions are indicated on a properly executed and
returned proxy, such proxy will be voted FOR each of the proposals to be voted
on. A properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the applicable Annual Meeting, will not be voted.
Holders of Med-Emerg Common Stock will not be entitled to present any matter
for consideration at the Annual Meeting. A holder of Med-Emerg Common Stock may
revoke his or her proxy at any time prior to the voting of the proxy by
delivering to the Secretary of Med-Emerg a signed notice of revocation or a
later dated signed proxy or by attending the applicable Annual Meeting and
voting in person. Attendance at the Med-Emerg Annual Meeting will not itself
constitute the revocation of a proxy. The cost of solicitation of proxies will
be paid by Med-Emerg. In addition to solicitation by mail, arrangements may be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to beneficial owners, and Med-Emerg will, upon request,
reimburse them for their reasonable expenses in so doing.
THE BUSINESS COMBINATION AGREEMENT
Pursuant to the Business Combination Agreement entered into between
Med-Emerg and YFMC, Med-Emerg agreed to make an offer on the terms set out
therein to purchase all of the issued and outstanding YFMC Securities on the
basis of one share of Med-Emerg common stock for every 6.875 YFMC common shares.
Each outstanding YFMC Series A Warrant will be entitled to 0.125 Med-Emerg
Series A Warrant.
Each outstanding YFMC Series B Warrant will be entitled to 0.125 Med-Emerg
Series B Warrant.
In addition to the foregoing, Med-Emerg has agreed to offer to holders of
the YFMC Preferred Shares, for every ten (10) YFMC Preferred Shares, one
Med-Emerg Common Share, subject to certain escrow conditions.
As well, for each of the outstanding options to acquire YFMC Common shares
under the YFMC Stock Option Plan, there shall be substituted eight (8) YFMC
options one (1) replacement option to acquire one (1) Med-Emerg Common Share at
an exercise price of US$1.75 per share.
The Business Combination Agreement also includes representations and
warranties of both Med-Emerg and YFMC.
COMPARISON OF SHAREHOLDER RIGHTS
Upon completion of the Business Combination, YFMC Shareholders will receive
shares of Med-Emerg common stock, and the rights of such shareholders will be
governed by the laws of the Province of Ontario, the Certificate of
Incorporation of Med-Emerg and the By-laws of Med-Emerg. As Med-Emerg and YFMC
are both incorporated under the laws of the Province of Ontario, YFMC
shareholders will continue to be afforded the same shareholder rights after the
Business Combination upon the receipt of Med-Emerg common stock.
DESCRIPTION OF SECURITIES
The following summary description of Med-Emerg's securities is qualified in
its entirety by reference to Med-Emerg's Certificate of Incorporation, as
amended, and its By-laws, copies of which have been filed as Exhibits to the
Registration Statement of which this Joint Proxy/Prospectus is a part.
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
62
<PAGE>
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.
COMMON SHARES
The holders of outstanding shares of Common Shares 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 Shares is entitled to one vote for each share held of record
and are not entitled to cumulative voting rights. The Common Shares 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 Shares. Upon liquidation, dissolution or winding up
of the Company, the holders of Common Shares are entitled to share ratably in
the net assets legally available for distribution to Sharesholders after payment
of all obligations of the Company and after provision has been made with respect
to each class of Shares, if any, having preference over the Common Shares.
Holders of shares of Common Shares do not have subscription rights. The shares
of Common Shares presently outstanding are, and the shares of Common Shares
offered hereby will be, upon issuance and payment therefor, validly issued,
fully paid and non-assessable. All outstanding shares of Common Shares are, and
the shares of Common Shares offered hereby will upon issuance be, fully paid and
non-assessable.
PURCHASE WARRANTS
Each Warrant entitles its holder to purchase one share of Common Shares at
an exercise price of price of $4.50, subject to adjustment in certain
circumstances, for a period of four years commencing on February 4, 1999. The
Common Shares and Warrants may only be purchased as Units in the Offering, but
are separately tradeable immediately upon issuance.
The exercise price of the Warrants and the number and kind of Common Shares
or other securities and property issuable upon the exercise of the Warrants are
subject to adjustment in certain circumstances, including a Shares split of,
Shares dividend on, or a subdivision, combination or capitalization of the
Common Shares and for any issuance of Common Shares for less than the lesser of
the market price of a share of Common Shares or the exercise price of the
Warrants. Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Warrants to purchase the kind and number of shares or other securities or
property (including cash) receivable in such event by a holder of the number of
shares of Common Shares 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
Sharesholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Warrants may be exercised upon surrender of the warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of the warrant agent,
with the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check payable to the order of the warrant
agent) for the number of the Warrants being exercised.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Shares 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 Shares 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.
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
63
<PAGE>
fractional share which would be otherwise issuable, an amount in cash equal to
such fractional interest based on the market value of the Common Shares on the
last trading day prior to the exercise date.
The Warrants are redeemable by the Company commencing February 4, 2000 (or
sooner with the consent of the Representative) at a redemption price of $0.10
per Warrant on not less that 30 days written notice, provided that the closing
bid price per share of Common Shares, if traded on NASDAQ, or the last sale
price, if listed on a national exchange, for 20 consecutive trading days ending
on the third business day prior to the date of redemption notice, is at least
$8.00 (subject to adjustment for certain events). The Warrants shall be
exercisable until the close of the business day preceding the date fixed for
redemption. In addition, subject to the rules of the NASD, the Company has
agreed to engage Network 1 Financial Securities, Inc. as its exclusive warrant
solicitation agent, in connection with which Network 1 would be entitled to a 5%
fee upon exercise of the Warrants.
PREFERRED SHARES
The Company has 500,000 shares of Preferred Shares outstanding, all of which
are held in the name of 1245841 Ontario Inc., which is owned by Ramesh and
Victoria Zacharias. Each share of Preferred Shares entitles the holder to eight
votes per share until the Company engages in a public offering of its securities
at which time each share of Preferred Shares shall entitle the holder to one
vote per share. Each share of Preferred Shares entitles the holder to an annual
cumulative dividend of US$.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 Shares. Commencing November 1, 2006, the
holders of the Preferred Shares may convert the Preferred Shares for an amount
of shares of Common Shares as is equal to US$4,500,000 divided by the then
current market price of the Company's Common Shares. In addition, the holders of
the Preferred Shares have the immediate right to convert the Preferred Shares
into Common Shares on a basis of one share of Preferred Shares for one and one
half shares of Common Shares. The Preferred Shares contains a provision which
prohibits the payment of any Common Shares dividends until all cumulative
dividends on the Preferred Shares have been paid.
LEGAL MATTERS
The validity of the Med-Emerg Common Shares to be issued in connection with
the Transaction will be passed upon by Gersten, Savage & Kaplowitz, LLP. Matters
entered under the heading "The Transaction -- Certain United States Federal
Income Tax Consequences of the Merger -- YFMC" have been passed upon by Gersten,
Savage & Kaplowitz, LLP and are included herein in reliance upon the authority
of such firm as experts.
EXPERTS
The consolidated financial statements of YFMC at December 31, 1998 and 1997
included herein and made a part of the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part, have been audited by BDO Dunwoody
independent chartered accountants, as set forth in their report thereon included
elsewhere herein. Such consolidated financial statements of YFMC are included
herein in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Med-Emerg at December 31, 1998 and
1997 included herein and made part of the Registration Statement of which this
Joint Prospectus/Proxy Statement is a part, have been audited by Schwartz
Levitsky Feldman, independent chartered accountants, as set forth in their
report therein included elsewhere herein. Such financial statements of Med-Emerg
are included herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
It is expected that representatives of Schwartz Levitsky Feldman will be
present at the Annual Meetings to respond to appropriate questions of
shareholders and to make a statement if they desire.
64
<PAGE>
FUTURE SHAREHOLDER PROPOSALS
The next annual meeting of the public Shareholders of Med-Emerg will be held
simultaneously with the Annual Meeting. Commission rules set forth standards as
to what Shareholder proposals are required to be included in a proxy statement.
AVAILABLE INFORMATION
THIS JOINT PROSPECTUS/PROXY STATEMENT INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT YFMC AND MED-EMERG THAT IS NOT INCLUDED IN OR
DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST TO MS. KATHRYN GAMBLE, CHIEF FINANCIAL OFFICER,
MED-EMERG INTERNATIONAL INC., 2550 ARGENTIA ROAD, SUITE 205, MISSISSAUGA,
ONTARIO, L5N 5R1.
TO OBTAIN TIMELY DELIVERY OF SUCH INFORMATION, SECURITY HOLDERS MUST REQUEST
THIS INFORMATION NO LATER THAN NOVEMBER 5, 1999.
Med-Emerg is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Upon consummation of the Transaction,
Med-Emerg will remain subject to the information reporting requirements of the
Exchange Act and will be required to file reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington,
D.C. 20549 and at the Regional Offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a Web site on the Internet that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission including
YFMC and Med-Emerg (http://www.sec.gov).
Med-Emerg has filed a registration statement on Form F-4 (together with all
amendments thereto and all schedules and exhibits filed or incorporated by
reference as a part thereof, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to up to 1,799,502
shares of Med-Emerg Common Shares that are proposed to be issued in connection
with the Transactions to holders of outstanding shares of YFMC Common Shares and
shares underlying warrants to be issued to in connection with the
Transactions.This Joint Prospectus/Proxy Statement also constitutes the
Prospectus of Med-Emerg filed as part of the Registration Statement.
This Joint Prospectus/Proxy Statement does not include all of the
information set forth in the Registration Statement filed by Med-Emerg with the
Commission under the Securities Act, as permitted by the rules and regulations
of the Commission. The Registration Statement is available for inspection and
copying as set forth above. Statements contained in this Joint Prospectus/Proxy
Statement or in any document incorporated herein by reference or included herein
concerning the contents of any contract or other document referred to herein or
therein are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, and each statement shall be
deemed qualified in its entirety by such reference.
No person has been authorized to give any information or make any
representation other than those contained or incorporated by reference in this
Joint Prospectus/Proxy Statement, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Joint
Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy the securities covered by this Joint
Prospectus/Proxy Statement or a solicitation of a Proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Joint Prospectus/Proxy Statement nor
any distribution of securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of YFMC,
Med-Emerg or Med-Emerg since the date hereof or that the information contained
or incorporated herein by reference is correct as of any time subsequent to its
date.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
MED-EMERG INTERNATIONAL INC.
Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998................................... F-2
Consolidated Statements of Operations for the three months and six months ended June 30, 1999 (unaudited) and
1998 (unaudited)............................................................................................... F-3
Consolidated Statements of Changes in Financial Position for the six months ended June 30, 1999 (unaudited) and
1998 (unaudited)............................................................................................... F-4
Report of Schwartz Levitsky Feldman, Chartered Accountants....................................................... F-5
Consolidated Balance Sheet as at December 31, 1998............................................................... F-6
Consolidated Statement of Operations for the year ended December 31, 1998........................................ F-7
Consolidated Statement of Deficit for the year ended December 31, 1998........................................... F-8
Consolidated Statement of Changes in Financial Position for the year ended December 31, 1998..................... F-9
Notes to Consolidated Financial Statements....................................................................... F-10
YFMC HEALTHCARE INC.
Consolidated Balance Sheet (unaudited as at June 30, 1999 and 1998).............................................. F-25
Consolidated Statement of Earnings (unaudited for the 6 months ended June 30, 1999 and 1998)..................... F-26
Consolidated Statement of Changes in Financial Position (unaudited for the 6 months ended June 20, 1999 and
1998).......................................................................................................... F-27
Report of BDO Dunwoody, Chartered Accountants.................................................................... F-28
Consolidated Balance Sheets as at December 31, 1998 and 1997..................................................... F-29
Consolidated Statement of Operations and Retained Earnings for the years ended December 31, 1998 and 1997........ F-30
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997............................. F-31
Summary of Significant Accounting Policies....................................................................... F-32
Notes to Consolidated Financial Statements....................................................................... F-34
</TABLE>
F-1
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
1998
JUNE 30 -------------
1999 CDN$
------------
CDN$
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash..................................................................................... $ 284,453 $ 1,669,899
Accounts receivable...................................................................... 3,071,253 2,765,491
Prepaid expenses and other............................................................... 724,558 439,310
------------ -------------
4,080,264 4,874,700
LOANS AND ADVANCES......................................................................... 130,975 135,175
CAPITAL ASSETS............................................................................. 1,392,946 883,463
OTHER ASSETS............................................................................... 2,017,662 1,763,330
DEFERRED INCOME TAXES...................................................................... 898,961 695,800
------------ -------------
$ 8,520,808 $ 8,352,468
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness........................................................................ $ 142,558 $ 209,281
Accounts payable and accrued liabilities................................................. 2,383,329 2,282,658
Lease obligation -- current portion...................................................... 93,070 87,401
------------ -------------
2,618,957 2,579,340
BANK TERM LOAN............................................................................. 337,773 --
OBLIGATION UNDER CAPITAL LEASE............................................................. 54,356 102,322
DUE TO MINORITY SHAREHOLDERS............................................................... 30,137 --
------------ -------------
3,041,223 2,681,662
------------ -------------
MINORITY INTEREST.......................................................................... 141,585 --
SHAREHOLDERS' EQUITY
Capital Stock............................................................................ 8,325,811 8,328,164
Convertible debenture.................................................................... 590,625 590,625
Contributed surplus...................................................................... 1,316,980 1,316,980
Deficit.................................................................................. (4,895,416) (4,564,963)
------------ -------------
5,338,000 5,670,806
------------ -------------
$ 8,520,808 $ 8,352,468
------------ -------------
------------ -------------
</TABLE>
F-2
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 30 JUNE 30 JUNE 30
1998 1999 1998
------------ ------------ ------------
JUNE 30 CDN$ CDN$ CDN$
1999
------------
CDN$
<S> <C> <C> <C> <C>
REVENUE........................................................ $ 4,539,113 $ 3,566,201 $ 8,768,298 $ 7,171,000
PHYSICIAN FEES AND OTHER DIRECT COSTS.......................... 3,257,410 2,823,072 6,332,448 5,704,000
------------ ------------ ------------ ------------
1,281,703 743,129 2,435,850 1,466,000
------------ ------------ ------------ ------------
EXPENSES
Salaries and benefits........................................ 596,736 423,104 1,116,253 838,000
General and administrative................................... 223,883 117,363 385,305 212,000
Occupancy costs and supplies................................. 267,047 113,084 479,494 201,000
HealthyConnect.com development............................... 151,598 -- 306,747 --
Public company costs......................................... 110,053 32,728 228,656 67,000
Travel and marketing......................................... 54,058 59,714 111,823 97,000
------------ ------------ ------------ ------------
1,403,375 745,993 2,628,278 1,417,000
------------ ------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS................................ (121,672) (2,864) (192,428) 49,000
Interest and financing expense............................... 8,510 (30,133) 11,175 (24,000)
Amortization................................................. 112,282 38,101 207,849 69,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE TAXES................................. (242,464) (10,832) (411,452) 4,000,000
Income tax recovery.......................................... 106,684 2,776 181,039 1,000,000
------------ ------------ ------------ ------------
NET INCOME (LOSS).............................................. $ (135,780) $ (8,056) $ (230,413) $ 2,000,000
PREFERRED SHARE DIVIDENDS...................................... (49,116) (49,632) (100,035) (70,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES.................. $ (184,896) $ (57,688) $ (330,448) $ (67,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE PREFERRED SHARE DIVIDEND, PER COMMON
SHARE........................................................ $ (0.04) $ (0.00) $ (0.07) $ (0.00)
PREFERRED SHARE DIVIDEND, PER COMMON SHARE..................... $ (0.02) $ (0.02) $ (0.03) $ (0.00)
------------ ------------ ------------ ------------
BASIC & FULLY DILUTED INCOME (LOSS), PER COMMON SHARE.......... $ (0.06) $ (0.02) $ (0.10) $ (0.00)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES....................... 3,095,544 3,140,044 3,095,544 3,140,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-3
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
JUNE 30
1998
JUNE 30 ------------
1999 CDN$
-------------
CDN$
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period......................................................... $ (230,413) $ 2,973
Items not affecting cash
Amortization........................................................................... 207,849 69,922
Deferred income taxes.................................................................. (203,161) (8,478)
------------- ------------
(225,725) 64,417
Changes in non-cash working capital
Accounts receivable.................................................................... (265,762) (192,281)
Prepaid and other...................................................................... (285,259) 26,667
Accounts payable and accrued liabilities............................................... 100,672 (238,431)
------------- ------------
Cash provided by (used in) operating activities.......................................... (676,074) (339,628)
------------- ------------
INVESTING ACTIVITIES
Acquisitions............................................................................. (194,520) (787,500)
Additions of capital assets.............................................................. (639,829) (230,935)
Loans and advances....................................................................... (20,123) 8,387
Other assets............................................................................. (152,987) 405,249
Minority interest........................................................................ 141,585 --
------------- ------------
(865,874) (604,799)
------------- ------------
FINANCING ACTIVITIES
Bank term loan........................................................................... 337,773 --
Issuance of common shares and warrants................................................... -- 4,976,605
Issuance of convertible debenture........................................................ -- 590,625
Repurchase of common shares.............................................................. (2,353) --
Obligation under capital lease........................................................... (42,297) 102,388
Repayment of promissory note............................................................. -- (941,074)
Due to minority shareholders............................................................. 30,137 --
Preferred share dividends................................................................ (100,035) (70,619)
------------- ------------
223,225 4,657,925
------------- ------------
Increase (decrease) in cash during in the period........................................... (1,318,723) 3,713,498
Cash position, beginning of period......................................................... 1,460,618 (851,834)
------------- ------------
Cash position, end of period............................................................... $ 141,895 $ 2,861,664
------------- ------------
------------- ------------
Cash position is comprised of:
Cash..................................................................................... $ 284,453 $ 3,001,084
Bank indebtedness........................................................................ (142,558) (139,420)
------------- ------------
$ 141,895 $ 2,861,664
------------- ------------
------------- ------------
</TABLE>
F-4
<PAGE>
MED-EMERG INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUDITORS' REPORT
To the Shareholders of
Med-Emerg International Inc.
We have audited the consolidated balance sheets of Med-Emerg International
Inc. as at December 31, 1998 and 1997 and the consolidated statements of
operations and deficit and changes in financial position for each of the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
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, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and the changes in its financial
position for each of the years then ended in accordance with generally accepted
accounting principles.
Canadian generally accepted accounting principles differ in some respects
from those applicable in the United States of America (note 16).
/s/ SCHWARTZ LEVITSKY FELDMAN
Chartered Accountants
Toronto, Ontario
February 5, 1999, except for Note 15
for which the date is March 2, 1999
F-5
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
$ $
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash....................................................................................... 1,669,899 554,432
Accounts receivable (note 4)............................................................... 2,765,491 2,164,883
Prepaid and other.......................................................................... 439,310 357,308
----------- -----------
4,874,700 3,076,623
LOANS AND ADVANCES (NOTE 5).................................................................. 135,175 204,531
CAPITAL ASSETS (NOTE 6)...................................................................... 883,463 551,019
OTHER ASSETS (NOTE 7)........................................................................ 1,763,330 1,182,518
DEFERRED INCOME TAXES........................................................................ 695,800 186,880
----------- -----------
8,352,468 5,201,571
----------- -----------
----------- -----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 8)................................................................. 209,281 1,464,085
Accounts payable and accrued liabilities................................................... 2,282,658 2,553,796
Lease obligations -- current portion....................................................... 87,401 48,050
Promissory notes payable (note 9).......................................................... -- 941,074
----------- -----------
2,579,340 5,007,005
OBLIGATIONS UNDER CAPITAL LEASES (NOTE 14)................................................... 102,322 79,352
----------- -----------
2,681,662 5,086,357
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 14 AND 17)
SHAREHOLDERS' EQUITY
CAPITAL STOCK (NOTE 10)...................................................................... 8,328,164 8,627,479
CONVERTIBLE DEBENTURE (NOTE 11).............................................................. 590,625 --
CONTRIBUTED SURPLUS (NOTE 12)................................................................ 1,316,980 1,246,000
DEFICIT...................................................................................... (4,564,963) (9,758,265)
----------- -----------
5,670,806 115,214
----------- -----------
8,352,468 5,201,571
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
$ $
------------ ------------ 1996
$
------------
(NOTE 21)
<S> <C> <C> <C>
REVENUE....................................................................... 15,282,584 11,572,667 10,817,048
Physician fees and other direct costs....................................... 11,837,088 8,749,735 8,554,396
------------ ------------ ------------
3,445,496 2,822,932 2,262,652
------------ ------------ ------------
EXPENSES
Salaries and benefits....................................................... 1,886,679 1,570,452 1,450,320
General and administration.................................................. 753,345 514,808 469,721
Occupancy costs and supplies................................................ 554,040 374,679 355,603
Travel and marketing........................................................ 261,466 163,679 142,909
Stock compensation.......................................................... -- 139,000 2,941,800
Depreciation and amortization............................................... 184,194 128,130 78,379
Write-off of deferred start-up costs........................................ -- -- 509,337
------------ ------------ ------------
3,639,724 2,890,748 5,948,069
------------ ------------ ------------
LOSS BEFORE INTEREST AND BRIDGE FINANCING COSTS............................... 194,228 67,816 3,685,417
INTEREST AND BRIDGE FINANCING COSTS........................................... 18,657 444,878 55,461
------------ ------------ ------------
LOSS BEFORE INCOME TAXES...................................................... 212,885 512,694 3,740,878
Income tax recovery -- deferred............................................. (55,349) (40,609) (146,554)
------------ ------------ ------------
NET LOSS...................................................................... 157,536 472,085 3,594,324
PREFERRED SHARE DIVIDENDS..................................................... 175,576 -- --
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES.......................................... 333,112 472,085 3,594,324
------------ ------------ ------------
------------ ------------ ------------
NET LOSS BEFORE PREFERRED SHARE DIVIDEND, PER COMMON SHARE.................... 0.05 0.24 1.18
PREFERRED SHARE DIVIDENDS, PER SHARE.......................................... 0.06 -- --
------------ ------------ ------------
BASIC AND FULLY DILUTED LOSS, PER COMMON SHARE................................ 0.11 0.24 1.18
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES...................................... 2,975,853 1,941,510 3,038,214
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
$ $
----------- ----------- 1996
$
-----------
(NOTE 21)
<S> <C> <C> <C>
DEFICIT, BEGINNING OF YEAR..................................................... (9,758,265) (9,286,180) (166,442)
Net loss..................................................................... (157,536) (472,085) (3,594,324)
Restatement of excess of redemption price over issuance price of preference
shares (note 10b).......................................................... 5,525,414 -- (5,525,414)
Dividends on preference shares............................................... (174,576) -- --
----------- ----------- -----------
DEFICIT, END OF YEAR........................................................... (4,564,963) (9,758,265) (9,286,180)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
$ $ $
(NOTE 21)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................................ (157,536) (472,085) (3,594,324)
Items not affecting cash
Depreciation and amortization................................................. 184,194 128,130 78,379
Amortization of bridge financing costs........................................ -- -- 272,648
Deferred income taxes recovery................................................ (508,920) (40,326) (146,554)
Stock compensation............................................................ -- 139,000 2,941,800
---------- ---------- ----------
(482,262) 27,367 (720,699)
Changes in non-cash operating items
Accounts receivable........................................................... (600,608) (56,744) 235,367
Prepaid and other............................................................. (82,002) (566,847) 98,340
Accounts payable and accrued liabilities...................................... (271,138) 567,444 65,824
Income taxes payable.......................................................... -- -- (27,319)
---------- ---------- ----------
Cash provided by (used in) operating activities................................. (1,436,010) (28,780) (348,487)
---------- ---------- ----------
INVESTING ACTIVITIES
Business acquisitions (note 3).................................................. (904,875) -- (324,863)
Additions to capital assets..................................................... (438,505) (389,874) (94,794)
Loans to (repayments from) shareholders and directors........................... 87,471 -- (37,203)
Note receivable................................................................. (75,175) -- --
Other assets.................................................................... 245,930 (524,605) (196,534)
Loan to officer................................................................. -- -- (60,000)
---------- ---------- ----------
Cash used in investing activities............................................... (1,085,154) (914,479) (713,394)
---------- ---------- ----------
FINANCING ACTIVITIES
Issuance of common shares (note 10a)............................................ 5,570,832 347,500 919,576
Issuance of warrants (note 10c)................................................. 150,741 -- --
Repurchase and cancellation of common shares (note 10a)......................... (113,025) -- --
Cancellation of surrendered common shares (note 10a)............................ (173,750) -- --
Repurchase and cancellation of common shares from directors..................... (137,719) -- --
Issuance of convertible debenture (notes 3 & 11)................................ 590,625 -- --
Issuance of promissory note payable............................................. -- 929,825 193,732
Repayment of promissory note payable............................................ (941,074) (132,483) (50,000)
Obligation under capital lease.................................................. 62,321 127,402 --
Due from affiliates............................................................. 57,060 (4,833) (14,972)
Dividends paid on preference shares............................................. (174,576) -- --
---------- ---------- ----------
Cash provided by financing activities........................................... 4,891,435 1,267,411 1,048,336
---------- ---------- ----------
INCREASE (DECREASE) IN CASH....................................................... 2,370,271 324,152 (13,545)
Bank indebtedness, beginning of year............................................ (909,653) (1,233,805) (1,220,260)
---------- ---------- ----------
CASH (BANK INDEBTEDNESS), END OF YEAR............................................. 1,460,618 (909,653) (1,233,805)
---------- ---------- ----------
---------- ---------- ----------
REPRESENTED BY
Cash............................................................................ 1,669,899 554,432 75,135
Bank indebtedness............................................................... (209,281) (1,464,085) (1,308,940)
---------- ---------- ----------
1,460,618 (909,653) (1,233,805)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. is a publicly traded company listed on the
NASDAQ Exchange. The Company completed its initial public offering in
February, 1998.
Med-Emerg International Inc. is a physician management services organization
specializing in the delivery of emergency and primary healthcare related
services. The Company is committed through information technology and its
platform as a management services organization to delivering an
internet-based healthcare network with the objective of delivering quality,
timely and access to healthcare products and services.
The Company's operations are divided into three divisions, Physician and
Nurse Recruitment, Physician Management Services and Integrated Health
Services Delivery Network.
On a contractual basis, the Company provides emergency department physician
and nurse recruitment, staffing and administrative support services to
hospitals. At December 31, 1998, the Company had 18 contracts under its
management.
Under physician management services, the Company owns and manages medical
clinic facilities providing physicians with the ability to practice within a
professional managed network enabling the physician to concentrate on the
clinical aspects of their practices. All the clinic assets including medical
equipment are owned by the company. At December 31, 1998, the Company owned
and managed 7 clinics and subsequently purchased an ownership interest in an
additional 3 clinics.
The Company has newly created a division called Integrated Health Service
Delivery Network (IHSDN). IHSDN is an internet-based network that connects
physicians, patients, third party payors and consumers to a "virtual world"
of healthcare products and services. The Company is electronically
connecting its clinical facilities and establishing strategic partnerships
in delivering a comprehensive healthcare program.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are expressed in Canadian dollars and
are prepared in accordance with Canadian generally accepted accounting
principles. Differences between Canadian and United States accounting
principles are described in Note 16.
(a) BASIS OF CONSOLIDATION
The financial statements consolidate the accounts of Med-Emerg
International Inc. and its subsidiaries (collectively called the
"Company").
Investments in jointly controlled partnerships were accounted for using
the proportionate consolidation method whereby the Company's
proportionate share of revenues, expenses, assets and liabilities are
recorded in the accounts.
Significant intercompany accounts and transactions have been eliminated.
(b) 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 is then amortized on a straight-line
basis over five years.
F-10
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting 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.
(d) CAPITAL ASSETS
Capital assets are recorded at cost and are amortized over their
estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Furniture and fixtures 20% Declining balance
Medical Equipment 10% Declining balance
Computer software 100% Declining balance
Computer hardware 30% Declining balance
5-10
Leasehold improvements years Straight-line
</TABLE>
(e) GOODWILL
Goodwill is recorded at cost and is being amortized over a period of 10
to 20 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 on discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds or based on the fair value of the related business
unit or activity. The assessment of the recoverability of intangible
assets will be impacted if estimated future operating cash flows are not
achieved.
(f) REVENUE RECOGNITION
The Company recognizes revenues in its physician and Nurse Recruiting
division 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. 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 recognizes revenues in its Physician Management Services
division as medical services are rendered and billed in accordance with
the Ontario Health Insurance Plan. The Company bills and collects from
OHIP all fees relating to medical services rendered by the physician.
(g) DEFERRED INCOME TAXES
The Company follows the "asset and liability method" of accounting for
deferred income taxes under Canadian GAAP pursuant to which recognition
is given to deferred taxes on all "temporary differences" (differences
between accounting basis and tax basis of the Company's assets and
liabilities) using current enacted tax rates. The Company records
deferred tax assets for the future tax benefits of capital losses carried
forward, less a provision for any deferred tax assets where it is more
likely than not that the asset will not be realized.
F-11
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company did not recognize future tax benefits in connection with
capital losses carried forward because it is not currently likely that
the company would realize these tax benefits.
3. BUSINESS ACQUISITIONS
Effective June 1, 1998, the Company purchased all of the issued and
outstanding shares of J C Medical Management Inc. for cash of $196,875 and a
convertible debenture in the amount of $590,625 (note 11), plus legal costs.
J C Medical Management Inc. is a company that owns the assets of a medical
clinic located in Toronto, Canada and manages a group of primary care
physicians.
Effective September 15, 1998, the Company purchased 75% of the issued and
outstanding shares of Doctors on Call Ltd. for consideration of $117,375,
plus legal costs. Doctors on Call Ltd. is an after-hours on-call service
that provides patients with 24-hour access to primary care services.
Effective August 1, 1998, the Company acquired all of the assets and assumed
all of the liabilities of Glenderry Medical Clinic. The Company previously
had a 33 1/3% interest in Glenderry Medical Clinic Partnership. Glenderry
Medical Clinic provides walk-in and family practice health care services to
the local community.
The following is a summary of assets purchased and liabilities assumed:
<TABLE>
<CAPTION>
DOCTORS ON
GLENDERRY J C MEDICAL CALL TOTAL
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Total assets.............................................. $ 182,177 $ 151,441 $ 14,549 $ 348,167
Goodwill.................................................. 13,272 744,656 133,321 891,249
Less liabilities assumed.................................. (195,449) (108,597) (30,495) (334,541)
----------- ----------- ---------- -----------
$ -- $ 787,500 $ 117,375 $ 904,875
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Trade receivables................................................................. $ 2,824,971 $ 2,202,299
Allowance for doubtful accounts................................................... (59,480) (37,416)
------------ ------------
$ 2,765,491 $ 2,164,883
------------ ------------
------------ ------------
</TABLE>
5. LOANS AND ADVANCES
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note receivable............................................................................ $ 75,175 $ --
Loans to shareholders and directors, unsecured, non-interest bearing, with no specific
terms of repayment....................................................................... -- 87,471
Due from affiliates........................................................................ -- 57,060
Loan to officer, unsecured, non-interest bearing, repayable over a five-year period with
principal repayments commencing February, 2000........................................... 60,000 60,000
---------- ----------
$ 135,175 $ 204,531
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. LOANS AND ADVANCES (CONTINUED)
NOTE RECEIVABLE
On June 29, 1998, the company purchased a note receivable, payable by the
Estate of Dr. Donald Munro ("Estate"). The security for the note includes
the 150,000 shares of common Shares of the company described in Note 17 and
any proceeds from the sale of the common Shares by the Estate must be
applied to repay the note. The company may demand repayment of the note on
or after April 1, 1999.
LOANS TO SHAREHOLDERS AND DIRECTORS
Concurrent with the initial public offering disclosed in note 10a, the
Company repurchased 37,456 common shares held by directors, as consideration
for the repayment of loans to directors and shareholders totalling $87,471,
as well as amounts due from affiliates totalling $50,248.
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------
ACCUMULATED
COST AMORTIZATION NET NET
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Furniture and fixtures....................... $ 182,896 $ 102,010 $ 80,886 $ 69,127
Medical equipment............................ 225,999 65,698 160,301 114,341
Computer software............................ 102,276 85,899 16,377 1,706
Computer hardware............................ 539,325 257,369 281,956 107,500
Leasehold improvements....................... 501,396 157,453 343,943 258,345
--------- ----------- --------- ---------
$1,551,892 $ 668,429 $ 883,463 $ 551,019
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
7. OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Goodwill (net of accumulated amortization of $127,021; $60,569 at December 31,
1997)........................................................................... $ 1,213,834 $ 389,037
Deferred start-up costs........................................................... 434,957 219,136
Deferred charges relating to proposed financing................................... 104,539 564,345
Other............................................................................. 10,000 10,000
------------ ------------
$ 1,763,330 $ 1,182,518
------------ ------------
------------ ------------
</TABLE>
8. BANK INDEBTEDNESS
The Company used a portion of the proceeds from the initial public offering
to fully repay the bank line of credit. The bank line of credit was repaid
on February 25, 1998. On March 23, 1998, the Company signed a letter of
agreement with another bank to establish a $2,000,000 demand revolving
operating facility and a $1,000,000 demand non-revolving capital facility.
The Company established a new credit facility with its bankers. The new
facility provides an available demand, revolving, operating line of credit
amounting to $2,000,000, bearing interest at the bank's prime lending rate
plus 0.5% per annum with interest payable monthly, and an available demand,
non-revolving, capital line of credit amounting to $1,000,000, for use in
the acquisition of unspecified fixed assets, bearing interest at the bank's
prime lending rate plus 0.75% per annum with interest payable monthly. As
security,
F-13
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. BANK INDEBTEDNESS (CONTINUED)
the Company has provided a first-ranking general assignment of accounts
receivable, a general security agreement constituting a first charge over
all present and future personal property of the Company, a chattel mortgage
over all equipment financed by the capital loan, an assignment of all risk
insurance policies and an assignment of key man life insurance of a director
in the amount of $1,000,000.
As at December 31, 1998, the Company has drawn $96,750 against the capital
line of credit. The Company has not drawn against the operating line of
credit.
The Company established a capital credit facility and an operating line with
the Royal Bank of Canada in September 1997 to fund the opening of its first
Urgent Care Centre. The capital credit facility bears interest at the bank's
prime lending rate plus 1.75% per annum with interest payable monthly. The
principal is being repaid in equal monthly installments over a 4-year period
ending August, 2002. The operating line is due on demand and bears interest
at the bank's prime lending rate plus 1.5% per annum.
At December 31, 1998, the Company had $50,944 outstanding on the capital
credit facility and had drawn $61,587 against the operating line of credit.
9. PROMISSORY NOTES PAYABLE
Promissory notes payable are represented by the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(a) Bridge financing repayable from the proceeds of the initial public offering....... $ -- $ 715,250
(b) Promissory notes with interest at prime plus 2% repayable from the proceeds of the
initial public offering........................................................... -- 214,575
---------- ----------
-- 929,825
(c) Note payable on acquisition....................................................... -- 11,249
---------- ----------
$ -- $ 941,074
---------- ----------
---------- ----------
</TABLE>
10. CAPITAL STOCK
AUTHORIZED
Unlimited number of the following classes of shares and warrants:
Preference shares, voting, non-redeemable, non-retractable, having a
cumulative dividend of US$0.27 per share, convertible to common shares
Class "A", redeemable, retractable, non-cumulative preferred shares,
Class "B", redeemable, retractable, non-cumulative preferred shares,
Special Shares, issuable in series, with rights, privileges and restrictions
to be fixed by the directors
Common shares
Common Share purchase warrants, redeemable, entitling holder to purchase
one share of common stock at a price of US$4.50 per share up to February
11, 2003
F-14
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. CAPITAL STOCK (CONTINUED)
ISSUED
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
500,000 Preference shares.............................................................. $ 594,586 $ 6,120,000
3,096,544 Common shares (1,990,000 in 1997)............................................ 7,582,837 2,507,479
1,437,500 Common stock purchase warrants............................................... 150,741 --
------------ ------------
$ 8,328,164 $ 8,627,479
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
COMMON SHARES
------------------------
NUMBER AMOUNT
---------- ------------
<S> <C> <C>
Balance, December 31, 1996.............................................................. 1,815,000 $ 2,020,979
Shares issued related to bridge financing in January 1997............................. 125,000 347,500
Shares issued to director as compensation............................................. 50,000 139,000
---------- ------------
Balance, December 31, 1997.............................................................. 1,990,000 $ 2,507,479
Shares surrendered for cancellation................................................... (62,500) (173,750)
Shares repurchased for directors and cancelled........................................ (37,456) (137,719)
Shares issued in connection with initial public offering.............................. 1,250,000 5,570,832
Shares repurchased and cancelled...................................................... (43,500) (184,005)
---------- ------------
Balance, December 31, 1998.............................................................. 3,096,544 $ 7,582,837
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
WARRANTS
----------------------
NUMBER AMOUNT
---------- ----------
<S> <C> <C>
Balance, December 31, 1997................................................................ -- $ --
Warrants issued in connection with initial public offering.............................. 1,437,500 150,741
---------- ----------
Balance, December 31, 1998................................................................ 1,437,500 $ 150,741
---------- ----------
---------- ----------
</TABLE>
(a) COMMON SHARES
On February 20, 1998 the Company completed an Initial Public Offering
(the "Offering") of 1,250,000 shares of Common Stock and 1,437,500 Class
A Redeemable Common Stock Purchase Warrants for net initial public
offering proceeds of $5,570,832. The Company's stock is listed in NASDAQ
under the symbol MDERF and the warrants are listed under MDEWF.
Concurrent with the closing of the Offering, the Company repurchased
37,456 Common Shares held by a director to repay loans as described in
note 5.
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 Bridge Note holders also received 125,000 common shares having an
ascribed value of $2.78 per common share. The value ascribed to the
common shares was accounted for as a financing. Upon closing of the
Offering, the Company repaid the principal balance of US$500,000 plus
interest on the promissory notes. In addition, the Company repaid
US$150,000 due to a director of the Company. Immediately preceding the
closing of the Offering, certain investors in the Company's January 1997
private offering surrendered for cancellation
F-15
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. CAPITAL STOCK (CONTINUED)
an aggregate of 62,500 common shares. The effect of this event is a
reduction in shareholders' equity of $173,750 and an equal reduction of
other assets.
At December 31, 1997, the Company had issued 50,000 common shares to a
director of the Company. The issuance of these shares was accounted for
as compensation expense as the related services were rendered by the
director.
In October 1998, the Board of Directors approved the repurchase over a
three-month period of up to 5% of the outstanding common Shares of the
Company. The Company repurchased and cancelled 43,500 common shares for
an aggregate cost of $113,025. Share capital was reduced by $184,005
based on the assigned value per share and contributed surplus was
increased by $70,980.
(b) PREFERENCE SHARES
Each preferred share is convertible into one and one-half shares of
common stock of the Company at the option of the holder for a ten year
period from the date of issuance. At the end of the ten year period, the
Preferred Shares are convertible at the option of the holder into such
number of shares of the Company's Common Shares as is equal to the
ascribed value of US$4,500,000 divided by the then current market value
of the Common Shares. 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 from the date of
closing of the initial public offering. The preference shares were, at
the time of their issue, redeemable and retractable by the holder. On
October 24, 1997, the attributes of the shares were changed and the
shares ceased to be redeemable and retractable.
On August 21, 1998, the shareholders approved a reduction in the stated
capital of the preferred shares. The issuance of the preferred shares was
originally 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 1998, the Company reduced the value of the preferred shares
by $5,525,414 and reduced the deficit by the same amount.
(c) WARRANTS AND STOCK OPTION PLANS
In April 1997, the Board of Directors obtained shareholder approval of
the Company's Stock Option Plan (The "Plan"). Pursuant to the Plan,
options to acquire an aggregate of 638,000 shares of common stock may be
granted. The Plan is to provide for grants to employees, consultants and
directors of the Company to enable them to purchase shares. The Company
has granted options to purchase an aggregate of 226,500 shares of common
stock at an exercise price of US$2.50 per share and 19,400 shares of
common stock at an exercise price of US$4.25 per share.
Under a stock option plan, a director was granted an option on November
1, 1996 to purchase 700,000 common shares of the Company at an exercise
price of US$0.75 per share. The difference of $1,246,000 between the fair
market value of $2.78 (US$2.05) per share and the exercise price of $1.00
(US$0.75) per share has been charged to earnings and contributed surplus
in 1996.
In connection with the Initial Public Offering, the Company issued
1,437,500 Class A Redeemable Common Stock Purchase Warrants for gross
proceeds of US$0.10 per warrant. Each warrant entitles the holder to
purchase one share of common stock at a price of US$4.50 for a four year
period commencing one year from the date of completion of the offering.
In addition, the Underwriters were
F-16
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. CAPITAL STOCK (CONTINUED)
granted 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.
During 1998, the Company granted warrants to purchase 125,000 shares of
common stock to a private investor. Each warrant entitles the holder to
purchase one share of common stock at a price of US$4.65 for a one-year
period following the effective date of a registration statement to be
filed with the Securities and Exchange Commission to register the warrant
stock.
11. CONVERTIBLE DEBENTURE
As part of the consideration for the purchase of JC Medical Management Inc.
described in Note 3, the company issued a convertible debenture in the
amount of $590,625. The debenture is convertible into 132,000 shares of
common stock of the company if the company's stock meets a certain trading
threshold within two years. Until the trading threshold is met, the company
must pay a fixed monthly fee of $5,000. It is management's expectation that
the trading threshold will be met within the two-year period.
12. CONTRIBUTED SURPLUS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Stock compensation -- difference between fair market value and exercise price (note
10c)................................................................................. $ 1,246,000 $ 1,246,000
Share repurchase -- difference between cost per share and assigned value (note 10a).... 70,980 --
------------ ------------
$ 1,316,980 $ 1,246,000
------------ ------------
------------ ------------
</TABLE>
13. INCOME TAXES
In fiscal 1998, the Company implemented the recommendations of CICA Handbook
Section 3465, Accounting for Income Taxes. Under the new recommendations,
the "asset and liability method" of accounting for deferred income taxes is
used, which gives recognition to deferred taxes on all "temporary
differences" (differences between accounting basis and tax basis of the
Company's assets and liabilities) using current enacted tax rates. In
addition, the new recommendations 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. Prior
to the adoption of the new recommendations, income tax expense was
determined using the deferral method of tax allocation. There is no material
impact on the financial statements resulting from this change.
The components of the future tax benefit classified by source of temporary
differences that gave rise to the benefit are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ----------
<S> <C> <C>
Accounting depreciation in excess of tax depreciation................................... $ 15,307 $ 50,565
Losses available to offset future income taxes.......................................... 817,539 181,201
Share issue costs....................................................................... 894,352 24,246
Valuation allowance..................................................................... (1,031,398) (69,132)
------------- ----------
Deferred income taxes................................................................... $ 695,800 $ 186,880
------------- ----------
------------- ----------
</TABLE>
F-17
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
13. INCOME TAXES (CONTINUED)
At December 31, 1998, the Company has non-capital losses available for
carry-forward of $1,858,000. These losses expire between 2003 and 2005. In
addition, the Company has capital loss carry-forwards of approximately
$368,000, which may be applied against future taxable capital gains. No
accounting recognition has been given to the capital loss carry-forwards.
14. COMMITMENTS
The Company is committed to payments under operating leases of its premises
and equipment totaling $889,000. Annual payments under operating leases are
as follows:
<TABLE>
<S> <C>
1999....................................................................... $ 267,000
2000....................................................................... 236,000
2001....................................................................... 143,000
2002....................................................................... 124,000
2003....................................................................... 40,000
Thereafter................................................................. 79,000
---------
$ 889,000
---------
---------
</TABLE>
Obligations under capital lease of total $195,000. Annual payments under
capital leases are as follows:
<TABLE>
<S> <C>
1999....................................................................... $ 102,000
2000....................................................................... 64,000
2001....................................................................... 21,000
2002....................................................................... 7,000
2003....................................................................... 1,000
---------
$ 195,000
---------
---------
</TABLE>
Rent and leasing expenses charged to operations for the year ended December
31, 1998 was $285,902 (December 31, 1997 -- $205,463).
15. SUBSEQUENT EVENTS
On January 29, 1999, the Company purchased 45% of the issued and outstanding
shares of Medical Urgent Care Inc., an urgent care centre, for consideration
of $142,050. The Company entered into a Management Services Agreement with
Medical Urgent Care Inc. to manage the urgent care centre for an annual fee
based on gross revenues.
On February 26, 1999, the Company, through a 51% owned subsidiary, became
party to a lease for the premises known as York Lanes Health Centres Inc., a
primary care health centre located at York University, Toronto, Canada. The
Company has entered into a Management Services Agreement with York Lanes
Health Centres Inc. to manage the clinic for an annual fee based on gross
revenues.
On March 2, 1999, the Company purchased 51% of the issued and outstanding
shares of Caremedics (Elmvale) Inc., a walk-in and family practice health
care clinic, for total consideration of $84,000. The Company entered into a
Management Services Agreement with Caremedics (Elmvale) Inc. to manage the
clinic for an annual fee based on gross revenues.
F-18
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP"),
which conform in all material respects applicable to the Company, with those
in the United States ("U.S. GAAP") during the periods presented except with
respect to the following:
CONSOLIDATED STATEMENTS OF OPERATIONS
If United States GAAP were employed, net loss for the period would be
adjusted as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
(NOTE 21)
Net loss based on Canadian GAAP...................................... $ (157,536) $ (472,085) $ (3,594,324)
Deferred start-up costs.............................................. (215,821) (146,777) (58,574)
Deferred acquisition costs........................................... (46,224) -- --
----------- ----------- -------------
Net loss based on United States GAAP................................. $ (419,581) $ (618,862) $ (3,652,898)
----------- ----------- -------------
Primary loss per share............................................... $ (0.20) $ (0.31) $ (1.51)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
If United States GAAP were employed, deficit, other assets, prepaid and
other assets, and total liabilities would be adjusted as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(NOTE 21)
Deficit based on Canadian GAAP................................... $ (4,564,963) $ (9,758,265) $ (9,286,180)
Deferred start-up costs.......................................... (421,172) (205,351) (58,574)
Deferred acquisition costs....................................... (46,224) -- --
------------- ------------- -------------
$ (5,032,359) $ (9,963,616) $ (9,344,754)
------------- ------------- -------------
------------- ------------- -------------
Other assets based on Canadian GAAP.............................. $ 1,763,330 $ 1,182,518 $ 700,668
Deferred start-up costs.......................................... (421,172) (205,351) (58,574)
------------- ------------- -------------
$ 1,342,158 $ 977,167 $ 642,094
------------- ------------- -------------
------------- ------------- -------------
Prepaid and other assets based on Canadian GAAP.................. $ 439,310 $ 357,308 $ 63,109
Deferred acquisition costs....................................... (46,224) -- --
------------- ------------- -------------
------------- ------------- -------------
$ 393,086 $ 357,308 $ 63,109
------------- ------------- -------------
------------- ------------- -------------
Total liabilities based on Canadian GAAP......................... $ 2,681,662 $ 5,086,357 $ 3,439,024
Convertible debenture............................................ 590,625 -- --
------------- ------------- -------------
$ 3,272,287 $ 5,086,357 $ 3,439,024
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(a) DEFERRED INCOME TAXES
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
F-19
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED)
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. The Company has followed this method under Canadian
GAAP.
(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.
(c) DEFERRED ACQUISITION COSTS
Under Canadian GAAP, pre-acquisition costs, which meet certain criteria,
are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.
(d) CONVERTIBLE DEBENTURE
Under U.S. GAAP, convertible debentures are presented as liabilities,
regardless of the attributes of the convertible debenture, and
transferred to equity upon conversion, whereas, under Canadian GAAP, the
likelihood of conversion to equity is considered in determining the
classification between liability or equity.
(e) EARNINGS PER SHARE
U.S. GAAP requires common shares and warrants to purchase common shares,
issued or exercisable at prices below the initial public offering
("I.P.O.") price and which were issued within one year prior to the
initial filing of the registration statement relating to the I.P.O., 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 U.S. GAAP.
(f) STOCK COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), was issued by the Financial
Accounting Standards Board in October 1995. SFAS 123 establishes
financial accounting and reporting standards for transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees, as well as stock-based employee compensation plans. All
transactions in which goods or services are the consideration received
for the issuance of equity instruments are to be accounted for based on
the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable.
For those transactions described in note 10 and under SFAS 123:
- the issuance of 125,000 common shares to promissory note holders
resulted in a charge to income (finance expense) over the term of the
related promissory note payable, at $2.78 (US$2.05) per share equal to
$347,500 of which $272,648 has been charged to earnings in the year
ended December 31, 1997 and $74,852 has been charged to earnings in the
year ended December 31, 1998.
F-20
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED)
- the issuance of 50,000 shares to a director for services rendered
resulted in a charge to income at $2.78 (US$2.05) per share equal to
$139,000 in the year ended December 31, 1997.
- the issuance of an option on November 1, 1996 to a director to acquire
700,000 shares (note 13) has resulted in a charge to income equal to
$1,246,000 in 1996 based on $2.78 (US$2.05) per share, and the "minimum
value" method of calculation permitted under SFAS 123 for non-public
entities.
As allowed by SFAS 123, the Company has decided to continue to use
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" in accounting for the Company's Stock Option Plan (the
"Plan") for U.S. GAAP purposes, pursuant to which there is no significant
difference between U.S. and Canadian GAAP in the accounting for the
granting of options under the Plan.
(g) SHAREHOLDERS' EQUITY
Under U.S. GAAP, loans issued to officers to acquire stock are presented
as a deduction from shareholders' equity (deficit).
Under Canadian GAAP, the detachable stock purchase warrants issued as in
conjunction with the private stock offering on January 22, 1996 and
subsequently surrendered, all as described in note 13, 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 $0.50 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>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(NOTE 21)
Capital stock (as previously shown).................... $ 8,328,164 $ 8,627,479 $ 8,140,979
Ascribed fair value of share purchase warrants
issued............................................... (50,000) (50,000) (50,000)
------------- ------------- -------------
Capital stock -- U.S. GAAP............................. 8,278,164 8,577,479 8,090,979
Share purchase loan to officer......................... (60,000) (60,000) (60,000)
------------- ------------- -------------
Net capital stock -- U.S. GAAP......................... 8,218,164 8,517,479 8,030,979
------------- ------------- -------------
Convertible debenture (as previously shown)............ 590,625 -- --
Convertible debenture included in
long-term debt....................................... (590,625) -- --
------------- ------------- -------------
Convertible debenture -- U.S. GAAP..................... -- -- --
------------- ------------- -------------
Contributed surplus (as previously shown).............. 1,316,980 1,246,000 1,246,000
Share purchase warrants................................ 50,000 50,000 50,000
------------- ------------- -------------
Contributed surplus -- U.S. GAAP....................... 1,366,980 1,296,000 1,296,000
------------- ------------- -------------
Deficit -- U.S. GAAP................................... (5,032,359) (9,963,616) (9,344,754)
------------- ------------- -------------
Shareholders' equity (deficit) -- U.S. GAAP............ $ 4,552,785 $ (150,137) $ (17,775)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-21
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
16. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED)
(h) CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
Operating activities reflect interest paid of $69,248 during the year
ended December 31, 1998 (December 31, 1997 -- $121,640; December 31,
1996 -- $55,461) and income taxes paid of nil during the year ended
December 31, 1998 (December 31, 1997 -- nil; December 31,
1996 -- $27,319).
Under U.S. GAAP, bank indebtedness would not be included as a component
of cash position in the consolidated statement of changes in financial
position. Accordingly, the $1,254,804 decrease at December 31, 1998
(December 31, 1997 -- $155,145 increase) would be presented as a
financing activity for each year.
(i) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), was issued by the Financial Accounting
Standards Board in June 1997. SFAS 123 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier period provided for comparative purposes is required. The
adoption of SFAS 130 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
17. CONTINGENCIES
The Company is presently party to one legal proceeding, which was commenced
on July 4, 1997. The applicant in the proceeding has taken the position that
it continues to be the beneficial owner of the 75,000 shares of Common Stock
that it contributed to the capital of the Company in November 1996. The
Company disagrees with the Estate's position and intends to defend this
action vigorously. No amount has been accrued in the accounts in respect of
this matter.
REVENUE
Substantially all of the Company's operating revenue is derived from
government funded and administered programs. In previous years, revenue was
"clawed back" by the government in an effort to reduce government spending.
Clawback adjustments for prior periods have been reflected as a liability
and were 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>
1998 1997
---------- ----------
<S> <C> <C>
Clawback liability.................................................................... $ 447,008 $ 501,170
Clawback receivable................................................................... 385,430 392,317
</TABLE>
18. SEGMENTED INFORMATION
The Company operates under three divisions: Physician and Nurse Recruitment,
Physician Management Services and Integrated Health Services Delivery
network (IHSDN).
F-22
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
18. SEGMENTED INFORMATION (CONTINUED)
The Physician and Nurse Recruitment involves contracting with hospitals for
the provision of physician staffing, nurse staffing and administrative
support services. The Company also contracts with clinical facilities and
local communities for the locum or permanent placement of a physician in a
community.
The Physician Management Services division owns and manages medical clinic
facilities, which provide physicians with the ability to practice medicine
in a professionally managed environment. The clinics include family
practice, walk-in services, and other related services such as massage
therapy and chiropractic services.
The IHSDN division, launched in 1998, involves electronically linking
clinical facilities and other healthcare service providers into a network.
This internet-based network will provide healthcare professionals and
consumers access to medical services, products, communications and
information tools.
Details are as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------
PHYSICIAN PHYSICIAN
& NURSE MANAGEMENT
RECRUITING SERVICES IHSDN CONSOLIDATED
---------- ----------- --------- ----------
Revenue................................... $11,576,670 $3,705,914 $ -- $15,282,584
<S> <C> <C> <C> <C>
Gross margin.............................. 1,933,571 1,511,925 -- 3,445,496
Operating income before Corporate Overhead
& Public Company-related costs.......... 1,045,811 431,324 (125,360) 1,425,310
Corporate Overhead........................ (1,319,289)
Public Company-related costs.............. (300,249)
Operating loss............................ (194,228)
Assets employed at year end............... 5,917,022 2,284,683 150,763 8,352,468
Depreciation and amortization............. 63,163 121,031 -- 184,194
Capital expenditures...................... 229,514 208,991 -- 438,505
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------
PHYSICIAN PHYSICIAN
& NURSE MANAGEMENT
RECRUITING SERVICES CONSOLIDATED
--------- ----------- ----------
Revenue.............................................. $9,092,231 $2,480,436 $11,572,667
<S> <C> <C> <C>
Gross margin......................................... 1,766,035 1,056,897 2,822,932
Operating income before Corporate Overhead & Stock
Compensation....................................... 1,091,295 387,888 1,479,183
Corporate Overhead................................... (1,407,999)
Operating loss before Stock Compensation............. 71,184
Stock Compensation................................... (139,000)
Operating loss....................................... (67,816)
Assets employed at year end.......................... 3,447,169 1,754,402 5,201,571
Depreciation and amortization........................ 65,041 63,089 128,130
Capital expenditures................................. 92,011 297,863 389,874
</TABLE>
F-23
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
18. SEGMENTED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 (NOTE 21)
----------------------------------
PHYSICIAN PHYSICIAN
& NURSE MANAGEMENT
RECRUITING SERVICES CONSOLIDATED
--------- ----------- ----------
Revenue.............................................. $8,783,309 $2,033,739 $10,817,048
<S> <C> <C> <C>
Gross margin......................................... 1,508,027 754,625 2,262,652
Operating income (loss) before Corporate Overhead &
Stock Compensation................................. 897,515 (410,973) 486,542
Corporate Overhead................................... (1,230,159)
Operating loss before Stock Compensation............. (743,617)
Stock Compensation................................... (2,941,800)
Operating loss....................................... (3,685,417)
Assets employed at year end.......................... 2,621,707 918,116 3,539,823
Depreciation and amortization........................ 40,679 37,700 78,379
Capital expenditures................................. 85,304 9,490 94,794
</TABLE>
Operating loss of Physician Management Services for the year ended December
31, 1996 includes the non-recurring write-off of start-up costs in the
amount of $509,337.
Total operating loss for the year ended December 31, 1996 includes a
$2,941,800 general corporate charge for Stock Compensation costs paid to an
investment advisor and stock options granted to a director below fair market
value.
19. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could effect any entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
20. COMPARATIVE FIGURES
Certain figures in the 1997 financial statements have been reclassified to
conform with the basis of presentation in 1998.
21. AUDIT BY ANOTHER FIRM
The Company's 1996 figures were audited by another firm of chartered
accountants.
F-24
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED AS AT JUNE 30)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash........................................................................................ 158,311 6,939
Accounts Receivables........................................................................ 729,268 684,161
Due To/From Related Parties................................................................. 0 24,658
Inventory of Supplies....................................................................... 78,800 31,500
Prepaid Expenses............................................................................ 25,526 18,310
Deferred Expenses........................................................................... 0 17,763
---------- ----------
991,905 783,331
CAPITAL ASSETS................................................................................ 741,213 311,506
GOODWILL...................................................................................... 652,946 165,463
---------- ----------
2,386,064 1,260,300
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Bank Indebtedness........................................................................... 436,332 0
Accounts Payable and Accrued Liabilities.................................................... 290,615 319,582
Note Payable................................................................................ 0 9,265
Income Taxes Payable........................................................................ 4,891 41,133
Current Portion of Long-Term Debt........................................................... 146,847 109,490
---------- ----------
878,685 479,470
LONG-TERM DEBT................................................................................ 454,575 19,589
DUE TO DIRECTORS.............................................................................. 51,590 77,835
---------- ----------
1,384,850 576,894
SHAREHOLDERS' EQUITY
CAPITAL STOCK................................................................................. 795,621 506,808
RETAINED EARNINGS............................................................................. 205,593 176,598
---------- ----------
2,386,064 1,260,300
---------- ----------
---------- ----------
</TABLE>
F-25
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED FOR THE 6 MONTHS ENDED JUNE 30)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
<S> <C> <C>
REVENUE....................................................................................... 1,911,537 1,415,913
OPERATING EXPENSES............................................................................ 1,772,646 1,199,974
---------- ----------
EARNINGS FROM OPERATIONS...................................................................... 138,891 215,939
NEW BUSINESS DEVELOPMENT EXPENSES............................................................. 73,867 0
---------- ----------
EARNINGS FROM OPERATIONS...................................................................... 65,024 215,939
Amortization of Goodwill.................................................................... 10,333 6,500
Depreciation of Capital Assets.............................................................. 40,277 37,900
Interest on Long-Term Debt.................................................................. 11,510 5,023
---------- ----------
62,120 49,423
EARNINGS BEFORE OTHER EXPENSES................................................................ 2,904 166,516
OTHER EXPENSES
Income Taxes................................................................................ 1,300 34,000
---------- ----------
NET EARNINGS.................................................................................. 1,604 132,516
RETAINED EARNINGS -- BEGINNING OF PERIOD...................................................... 203,990 125,220
---------- ----------
205,594 257,736
Non-Recurring Expenses Related to Major Transaction......................................... 0 81,138
---------- ----------
RETAINED EARNINGS -- END OF PERIOD............................................................ 205,594 176,598
---------- ----------
---------- ----------
NET EARNINGS PER COMMON SHARE................................................................. 0.00 0.01
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
YFMC HEALTHCARE INC
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(UNAUDITED FOR THE 6 MONTHS ENDED JUNE 30)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Earnings Year to Date......................................................................... 1,603 132,516
Items not Involving Cash Amortization of Capital Assets & Goodwill............................ 50,610 44,400
---------- ----------
52,213 176,916
CHANGES IN NON-CASH WORKING CAPITAL BALANCES
Accounts Receivable........................................................................... (76,868) (325,570)
Inventory of Supplies......................................................................... (18,000) 0
Prepaid Expenses.............................................................................. (6,462) (9,763)
Deferred Expenses............................................................................. 0 (17,763)
Accounts Payable and Accrued Liabilities...................................................... (5,050) 17,974
Note Payable.................................................................................. 0 (5,735)
Income Taxes Payable.......................................................................... (40,569) (3,867)
---------- ----------
(94,736) (167,808)
INVESTING ACTIVITIES
Purchase of Capital Assets.................................................................... (224,910) (30,303)
Purchase of Goodwill.......................................................................... (427,629) (45,963)
Note Receivable From a Shareholder............................................................ 22,629 (338)
---------- ----------
(629,910) (76,604)
FINANCING ACTIVITIES
Deferred Revenue.............................................................................. 0 (30,031)
Long-Term Debt Issued......................................................................... 491,032 0
Long-Term Debt Repayment...................................................................... (58,958) (20,713)
Share Capital Issued.......................................................................... 300,500 506,798
Due to a Shareholder.......................................................................... 30,595 0
Due to Related Parties........................................................................ (57,934) 0
Non-Recurring Expenses Related To Major Transaction........................................... 0 (81,138)
Cash Assumed on Purchase of Business.......................................................... 0 7,306
---------- ----------
705,235 382,222
---------- ----------
INCREASE (DECREASE) IN CASH DURING THE PERIOD................................................... (19,411) 137,810
CASH -- BEGINNING OF PERIOD..................................................................... (258,610) (130,871)
---------- ----------
CASH -- END OF PERIOD........................................................................... (278,021) 6,939
---------- ----------
---------- ----------
</TABLE>
F-27
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AUDITORS' REPORT
TO THE DIRECTORS OF
YFMC HEALTHCARE INC.
We have audited the consolidated balance sheets of YFMC Healthcare Inc. as
at December 31, 1998 and 1997 and the consolidated statements of operations and
retained earnings and cash flows for the years 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 audits.
We conducted our audits in accordance with Canadian 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,
1998 and 1997 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
/s/ BDO DUNWOODY
Chartered Accountants
Ottawa, Ontario, Canada
February 26, 1999
except for Note 16, dated August 16, 1999
F-28
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT
Accounts receivable (Note 3)................................................................ $ 652,400 $ 336,658
Due from related parties (Note 3)........................................................... 22,629 46,253
Inventories................................................................................. 60,800 31,500
Prepaid expenses............................................................................ 19,064 8,547
------------ ----------
754,893 422,958
CAPITAL ASSETS (Note 4)....................................................................... 556,581 319,103
GOODWILL AND INTANGIBLES (Note 5)............................................................. 235,650 126,000
------------ ----------
$ 1,547,124 $ 868,061
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness (Note 6).................................................................. $ 258,610 $ 130,871
Accounts payable and accrued liabilities.................................................... 295,665 301,109
Income taxes payable........................................................................ 45,460 45,000
Due to related parties (Note 3)............................................................. 57,934 78,334
Current portion of long-term debt (Note 8).................................................. 71,027 56,825
------------ ----------
728,696 612,139
LONG-TERM DEBT (Note 8)....................................................................... 98,321 34,360
DEFERRED CONTRACTUAL OBLIGATION............................................................... 20,996 103,638
------------ ----------
848,013 750,137
------------ ----------
CONTINGENT LIABILITY (Note 2)
SHAREHOLDERS' EQUITY
Share capital (Note 9)...................................................................... 495,121 10
Retained earnings........................................................................... 203,990 117,914
------------ ----------
699,111 117,924
------------ ----------
$ 1,547,124 $ 868,061
------------ ----------
------------ ----------
</TABLE>
On behalf of the Board:
___________________________________________
Director
___________________________________________
Director
The accompanying summary of significant accounting policies and notes are an
integral part of
these financial statements.
F-29
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUE..................................................................................... $ 3,037,231 $ 2,139,630
EXPENSES
Amortization of capital assets and goodwill............................................... 117,912 77,756
Interest on long-term debt................................................................ 12,266 7,756
Operating expenses........................................................................ 2,779,372 1,891,204
------------ ------------
2,909,550 1,976,716
------------ ------------
INCOME BEFORE INCOME TAXES.................................................................. 127,681 162,914
INCOME TAXES (Note 7)....................................................................... 43,805 45,000
------------ ------------
INCOME BEFORE MINORITY INTEREST............................................................. 83,876 117,914
MINORITY INTEREST........................................................................... 2,200 --
------------ ------------
NET INCOME FOR THE YEAR..................................................................... 86,076 117,914
RETAINED EARNINGS, beginning of year........................................................ 117,914 --
RETAINED EARNINGS, end of year.............................................................. $ 203,990 $ 117,914
------------ ------------
------------ ------------
EARNINGS PER SHARE
Basic and fully diluted................................................................... $ 0.0102 $ 0.0165
------------ ------------
------------ ------------
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of
these financial statements.
F-30
<PAGE>
YFMC HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net Income for the year...................................................................... $ 86,076 $ 117,914
Items not involving cash
Amortization of capital assets and goodwill................................................ 117,912 77,756
Amortization of deferred contractual obligations........................................... (82,642) (54,456)
Minority interest.......................................................................... (2,200) --
Net change in non-cash working capital balances (Note 12).................................... (418,282) 30,624
----------- ----------
(299,136) 171,838
----------- ----------
INVESTING ACTIVITIES
Acquisition of Transpacific Minerals Inc. (Note 1(a))........................................ 267,412 --
Other acquisitions (Note 1(b))............................................................... (45,596) (328,658)
Decrease in amounts due from related parties................................................. 23,624 56,972
Purchase of capital assets................................................................... (122,022) (93,293)
Purchase of intangibles...................................................................... (12,725) --
----------- ----------
110,693 (364,979)
----------- ----------
FINANCING ACTIVITIES
Receipt of contractual inducements........................................................... -- 83,963
Increase (decrease) in amounts due to related parties........................................ (20,400) 73,334
Net increase (decrease) in demand loan....................................................... (58,000) 58,000
Principal repayment of long-term debt........................................................ (61,311) (95,037)
Proceeds from issue of share capital......................................................... 166,100 10
Share issue costs............................................................................ (23,685) --
----------- ----------
2,704 120,270
----------- ----------
DECREASE IN CASH DURING THE YEAR............................................................... (185,739) (72,871)
BANK OVERDRAFT, beginning of year (Note 6)..................................................... (72,871) --
----------- ----------
BANK OVERDRAFT, end of year (Note 6)........................................................... $ (258,610) $ (72,871)
----------- ----------
----------- ----------
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of
these financial statements.
F-31
<PAGE>
YFMC HEALTHCARE INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C>
NATURE OF BUSINESS The company was incorporated on August 22, 1996 under the
laws of Ontario and commenced operations on January 1, 1997.
The company was established to provide management and
administrative services to medical practitioners working in
various clinics throughout Eastern Ontario, Western Quebec
and Alberta.
BASIS OF CONSOLIDATION The consolidated financial statements include the accounts
of the parent company YFMC Healthcare Inc., and of the
following operating subsidiaries:
1189543 Ontario Inc. 100% owned
YFMC Healthcare (Alberta) Inc. 100% owned
1180668 Ontario Inc. 100% owned
1024528 Ontario Inc. 100% owned
1292363 Ontario Corp. 100% owned
Spirotech Health Services Ltd. 70% owned
FINANCIAL INSTRUMENTS Unless otherwise noted, it is management's opinion that the
company is not exposed to significant interest, currency or
credit risks arising from its financial instruments.
The fair values of the financial instruments with short term
maturity approximate their carrying values. The fair value
of the company's long-term debt is not materially different
from the carrying value.
INVENTORIES Inventory is stated at the lower of cost and net realizable
value. Cost is generally determined on a first-in, first out
basis.
CAPITAL ASSETS Capital assets are stated at cost less accumulated
amortization. Amortization based on the estimated useful
life of the asset is calculated as follows:
Medical equipment -- 20% diminishing balance basis
Furniture and fixtures -- 20% diminishing balance basis
Computer hardware -- 30% diminishing balance basis
Computer software -- 100% diminishing balance basis
Leasehold improvements -- straight line basis over term of
lease
In the year of acquisition, one half of the above rates is
used.
GOODWILL Goodwill being the excess of cost over assigned values of
net assets acquired for various medical practices is stated
at cost less amortization. Amortization is provided on a
straight-line basis over five to 10 years. The value of
goodwill is regularly evaluated by reviewing the returns of
the related business, taking into account the risk
associated with the investment. Any impairment in the value
of the goodwill is written off against earnings.
DEFERRED CONTRACTUAL INDUCEMENTS Deferred contractual inducements consists of amounts
received under an agreement with a laboratory service and
are being amortized to revenue on a straight-line basis over
the remaining term of the agreement.
</TABLE>
F-32
<PAGE>
YFMC HEALTHCARE INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
EARNINGS PER COMMON SHARE Net income per common share has been computed by dividing
income applicable to common shareholders by the weighted
average number of shares of common stock outstanding during
the respective years.
<S> <C>
The calculation of fully diluted earnings per share assumes
that, if a dilutive effect is produced, all outstanding
options and warrants had been exercised at the later of the
beginning of the fiscal period and the option issue date and
all first preferred shares were converted on the date of
issue and the funds derived therefrom were invested at
market rates.
REVENUE RECOGNITION Revenue from services is recognized in these financial
statements as services are rendered to participating medical
practitioners.
CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash on hand and
balances with banks, including bank overdrafts.
</TABLE>
F-33
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION
(a) REVERSE TAKEOVER
On June 26, 1998, 1189543 Ontario Inc. ("YFMC") completed, by way of an
exchange of shares a reverse takeover of Transpacific Minerals Inc.
("TRP"). The business combination was accounted for by the purchase
method with YFMC being deemed the acquirer, because this exchange of
shares left the former shareholders of YFMC with the majority of the
shares of TRP. As a result, the balance sheet of YFMC is recorded at book
value and the balance sheet of TRP is recorded at the fair value of
$264,056. The consolidated financial statements are considered a
continuation of YFMC. The net assets of TRP, at fair value, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash.................................................................... $ 267,412
Other assets............................................................ 2,638
Liabilities............................................................. (5,994)
----------
Net assets acquired for shares.......................................... $ 264,056
----------
----------
</TABLE>
Upon the business combination, TRP became the legal parent and changed
its name to YFMC Healthcare Inc. (the company) and 1189543 Ontario Inc.
became its wholly-owned subsidiary.
(b) BUSINESS COMBINATIONS
During the years ended December 31, 1998 and 1997 the company made
several acquisitions of businesses in the healthcare management business.
The acquisitions have been accounted for by the purchase method and the
results of operations have been reflected in the financial statements
from the date of acquisition. The acquisitions are accounted for at their
fair values except as noted below. The acquisitions made during 1998 and
1997 are as follows:
(i) Effective February 17, 1998 the corporation acquired 100% of the
shares of 1180668 Ontario Inc., an entity which was 66 2/3%
controlled by shareholders of the company. This portion of the
transaction was recorded at the carrying amount of the net assets of
$2,390. The other 33 1/3% of the assets were recorded at fair
values.
(ii) Effective August 1, 1998 the company acquired 70% of the
outstanding shares of Spirotech Health Services Inc.
(iii) Effective September 1, 1998 the company acquired 100% of the shares
of 1292363 Ontario Inc.
(iv) Effective September 1, 1998 the company acquired 85% of the shares
of 1024528 Ontario Ltd. Effective December 13, 1998 the company
acquired the remaining 15%.
(v) Effective November 27, 1998 the company incorporated a new
subsidiary in the province of Alberta called YFMC Healthcare
(Alberta) Inc.
(vi) Effective January 1, 1997 the company acquired the majority of
assets and liabilities of Your Family Medical Centre, a partnership
whose former partners are now shareholders of the company.
(vii) Effective May 17, 1997 the company acquired the assets and
liabilities of SRI Inc.
F-34
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION (CONTINUED)
The net assets acquired and the consideration given for the above
acquisitions are summarized as follows. The excess of the purchase
price over the net assets acquired has been allocated to goodwill.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash........................................................................... $ 17,187 $ --
Other current assets........................................................... 67,350 388,638
Capital assets................................................................. 211,022 289,566
Goodwill....................................................................... 119,271 140,000
Bank indebtedness.............................................................. (10,526) (253,658)
Other current liabilities...................................................... (121,733) (298,324)
Minority interest.............................................................. (2,200) --
Long-term liabilities.......................................................... (114,474) (121,222)
----------- -----------
$ 165,897 $ 145,000
----------- -----------
----------- -----------
</TABLE>
The company issued common shares with a value of $88,640
(1997 -- none) and a promissory note of $25,000 (1997 -- $70,000) as
part of the consideration and the remainder in cash. The net cash
outflow for the acquisition is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash............................................................. $ 52,257 $ 75,000
Add: Bank indebtedness assumed................................... 10,526 253,658
Less: Cash acquired.............................................. (17,187) --
--------- ---------
Net cash paid.................................................... $ 45,596 $ 328,658
--------- ---------
--------- ---------
</TABLE>
2. CONTINGENT LIABILITY
The company purchased the majority of assets and liabilities of Your Family
Medical Centres, a partnership on January 1, 1997. The purchase and sale
agreement contained a deferred consideration clause that required the
company to pay an additional $60,000 per year, to a maximum of $120,000,
until December 31, 2000 to the extent that the pre-tax qualifying income
derived from the pre-existing clinics exceeds $180,000 before management
bonuses. For the year ended December 31, 1997 a provision for $60,000 was
made and included in goodwill. For the period ended December 31, 1998 no
such provision was applicable.
3. RELATED PARTY TRANSACTIONS
The following table summarizes the company's related party transactions for
the year:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
REVENUE
Management fees charged to a director..................................................... $ 117,501 $ 83,088
EXPENSES
Consulting fees paid to a director........................................................ -- 36,667
OTHER
Acquisition of 1180668 Ontario Inc........................................................ 2,390 --
</TABLE>
F-35
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The revenue and expense transactions are in the normal course of operations
and are measured at the exchange value (the amount of consideration
established and agreed to by the related parties). The business acquisition
has been measured at its carrying value as explained in note 1(b)(i).
At the end of the year, the amounts due from (to) related parties are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Due from director (trade accounts receivable).............................................. $ 80,910 $ 22,083
Due from related parties................................................................... 22,629 46,253
Due to related parties..................................................................... (57,934) (78,334)
</TABLE>
These balances are interest-free, and have varying due dates. The amounts
due from related parties arose as part of a purchase and sale agreement of
assets from the former partnership as explained in note 1(b)(vi). The
amounts due to related parties resulted from loans made to the company by
related parties.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST AMORTIZATION VALUE COST AMORTIZATION VALUE
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Medical equipment.................... $ 166,835 $ 41,830 $ 125,005 $ 109,025 $ 17,805 $ 91,220
Furniture and fixtures............... 101,995 26,507 75,488 55,670 10,930 44,740
Computer hardware.................... 59,992 18,968 41,024 37,868 5,639 32,229
Computer software.................... 28,382 28,382 -- 28,382 14,191 14,191
Leasehold improvements............... 358,699 43,635 315,064 151,914 15,191 136,723
---------- ------------ ---------- ---------- ------------ ----------
$ 715,903 $ 159,322 $ 556,581 $ 382,859 $ 63,756 $ 319,103
---------- ------------ ---------- ---------- ------------ ----------
---------- ------------ ---------- ---------- ------------ ----------
</TABLE>
5. GOODWILL AND INTANGIBLES
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cost....................................................................................... $ 272,831 $ 140,000
Less: Accumulated amortization............................................................. 37,181 14,000
---------- ----------
Net book value............................................................................. $ 235,650 $ 126,000
---------- ----------
---------- ----------
</TABLE>
6. BANK INDEBTEDNESS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Bank overdraft............................................................................. $ 258,610 $ 72,871
Demand loan................................................................................ -- 58,000
---------- ----------
$ 258,610 $ 130,871
---------- ----------
---------- ----------
</TABLE>
The bank overdraft and the operating loans are due on demand and bear
interest at the bank's prime rate plus 1.25% and 2.00% respectively,
calculated and payable monthly. The overdraft facility provides for a
maximum $350,000 protection. Amounts are secured by a general security
agreement covering all assets and a personal guarantees of some directors
and officers.
F-36
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
6. BANK INDEBTEDNESS (CONTINUED)
The agreement governing the operating loan facility contains certain
covenants regarding (i) restrictions on new borrowing by the company,
(ii) interest coverage and net worth tests, and (iii) restrictions on the
payment of common share dividends without the lender's consent.
7. INCOME TAXES
The company's effective income tax rate is made up as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Combined basic federal and provincial income tax rate and surtax.................................... 44.6% 44.6%
-- Small business deduction....................................................................... (8.0) (16.0)
-- Other items.................................................................................... (2.3) (1.0)
--- ---------
Effective income tax rate........................................................................... 34.3% 27.6%
--- ---------
--- ---------
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Loan payable, interest at 8.25%, repayable in equal monthly installments of $1,895 principal
and interest, due April 2000.............................................................. $ 27,118 $ 48,243
Bank loan, interest at prime plus 1.75%, repayable in equal monthly instalments of $1,866
principal plus interest, secured by a general security agreement and personal guarantee of
a director, due March 1999................................................................ 5,550 27,942
Promissory note payable, interest at 5.00% per annum commencing January 1, 1999, due April
30, 1999.................................................................................. 25,000 --
Bank loan, interest at 9.65%, repayable in equal monthly instalments of $2,431 principal
plus interest, secured by personal guarantee of a shareholder, due August 2003............ 111,680 --
Loan payable, interest free, due March 15, 1998............................................. -- 15,000
---------- ---------
169,348 91,185
Less amounts due within one year included in current liabilities............................ 71,027 56,825
---------- ---------
$ 98,321 $ 34,360
---------- ---------
---------- ---------
</TABLE>
The agreement with respect to the bank loans payable contains certain
covenants regarding (i) restrictions on new borrowing by the company,
(ii) interest coverage and net worth tests, and (iii) restrictions on the
payment of common share dividends without the lender's consent.
Principal repayments for the next five years are as follows:
<TABLE>
<S> <C>
1999....................................... $ 71,027
2000....................................... 27,050
2001....................................... 23,212
2002....................................... 25,663
2003....................................... 22,396
---------
$ 169,348
---------
---------
</TABLE>
F-37
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. SHARE CAPITAL
<TABLE>
<C> <S>
Authorized
1,000,000 First preferred shares, series A dividends at 2% of the stated value of $0.25,
cumulative, convertible at $0.50 per share with restrictions, non-voting
Unlimited Number of second preferred shares, non-voting
Unlimited Number of common shares
</TABLE>
ISSUED SHARES
The issued share capital is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES CONSIDERATION
------------ -------------
<S> <C> <C>
Share transactions
Balance, December 31, 1997 and December 31, 1996.................................... 10,000 $ 10
Issued during 1998 for cash and shares.............................................. 1,159 58,740
Issued pursuant to a private placement.............................................. 664,000 166,000
------------ -------------
675,159 $ 224,750
------------ -------------
------------ -------------
Reverse takeover share exchange (Note 1)
Common shares..................................................................... 7,164,000 $ 216,918
Preferred shares.................................................................. 1,000,000 7,832
------------ -------------
8,164,000 224,750
Common shares issued to the shareholders of Transpacific Minerals Inc. on reverse
takeover (Note 1)................................................................. 2,500,000 264,056
Share issue costs................................................................... -- (23,685)
Common shares issued for assets acquired............................................ 75,000 30,000
------------ -------------
Balance, December 31, 1998............................................................ 10,739,000 $ 495,121
------------ -------------
------------ -------------
Comprised of:
Common shares....................................................................... 9,739,000 $ 487,289
First preferred shares, series A.................................................... 1,000,000 7,832
------------ -------------
10,739,000 $ 495,121
------------ -------------
------------ -------------
</TABLE>
STOCK OPTIONS
The company has 1,073,000 outstanding common stock options with expiry dates
ranging from September 1, 1999 to June 12, 2003 and with exercise prices
ranging from $0.20 to $0.36.
WARRANTS
The company has 356,680 Series "A" warrants and 356,680 Series "B" warrants
issued pursuant to a private placement. Series "A" warrants and Series "B"
warrants are exercisable at $0.40 and $0.50 each respectively, and expire on
June 26, 2000.
ESCROWED SHARES
The company has 7,301,496 of its common shares and 1,000,000 of its First
Preferred Shares, Series A held in escrow.
F-38
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
10. COMMITMENTS
The company is currently committed to rental leases for the various family
clinics. The annual lease amounts using current rates for operating expenses
total $799,918.
The leases have various expiration dates from 1999 to 2003. Most leases
contain a renewal option and/or it is management's intention to renew these
leases.
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000.
If the Year 2000 Issue is not addressed by the company and its major
suppliers and other third party business associates, the impact on the
company's operations and financial reporting may range from minor errors to
significant systems failure which could affect the company's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the company, including those
related to the efforts of suppliers, or other third parties, will be fully
resolved.
12. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
The net change in non-cash working capital balances consists of changes in
the following accounts which represent a source (use) of cash from operating
activities.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Accounts receivable....................................................................... $ (256,054) $ (80,228)
Inventories............................................................................... (19,300) (12,400)
Prepaid expenses.......................................................................... (10,217) 1,336
Accounts payable and accrued liabilities.................................................. (133,171) 76,916
Income taxes payable...................................................................... 460 45,000
----------- ----------
$ (418,282) $ 30,624
----------- ----------
----------- ----------
</TABLE>
The net change above excludes the effects of working capital acquired in the
business acquisitions throughout 1998 and 1997.
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(a) CASH FLOW INFORMATION
Cash paid for interest................................................................... $ 12,266 $ 7,756
Cash paid for income taxes............................................................... 43,345 --
(b) NON-CASH FINANCING AND INVESTING
Shares issued for business acquisition................................................... 88,640 --
Promissory note issued for business acquisition.......................................... 25,000 70,000
</TABLE>
F-39
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. STATEMENT OF CHANGE IN CASH FLOWS
In accordance with the revised recommendations of the Canadian Institute of
Chartered Accountants, the company has adopted financial statement
presentation changes for its statement of cash flows for 1998. The 1997
statement of cash flows has also been restated.
15. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) IN CANADA WITH UNITED STATES ("US") GAAP
The company's accounting policies do not differ materially from accounting
principles generally accepted in the United States ("US GAAP") except for
the following:
(a) CASH AND CASH EQUIVALENTS
Under Canadian GAAP, cash and cash equivalents includes bank overdrafts
when the balance fluctuates regularly between positive and negative but,
under US GAAP the changes in bank overdrafts in the amount of $175,213
(1997 -- $72,871) would be included as a decrease under financing
activities.
(b) RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivatives Instruments and Hedging
Activities" requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair market value. Gains or losses
resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for
hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. Management believes that the
adoption of SFAS No. 133 will have no material effect on its financial
statements.
In March 1998 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, which requires
that certain internal use software costs be capitalized once certain
criteria are met. In April 1998 the American Institute of Certified
Public Accountants issued SOP 98-5, Reporting the Cost of Startup
Activities, which requires that the cost of startup activities including
organization costs be expensed as incurred. Both SOP's are effective for
fiscal years beginning after December 15, 1998. Management believes that
the adoption of SOP 98-1 and 98-5 will have no material effect on its
financial statements.
16. SUBSEQUENT EVENTS
(a) PROPOSED SHARE EXCHANGE
On June 16, 1999 Med-Emerg International Inc. filed a Letter of Intent to
acquire all of the outstanding securities of YFMC Healthcare Inc on the
following basis: YFMC shareholders will receive one share of Med-Emerg
common stock for every 6.875 YFMC shares. The holder of each YFMC Series
A Warrants will receive 0.125 Med-Emerg Series A Warrants while the
holder of each YFMC Series B Warrant will receive 0.125 Med-Emerg Series
B Warrant. The acquisition is pending approval of the shareholders.
(b) BUSINESS COMBINATIONS
Subsequent to the year end, the company made several acquisitions of
businesses in the healthcare management business. The acquisitions will
be accounted for by the purchase method and the results
F-40
<PAGE>
YFMC HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
16. SUBSEQUENT EVENTS (CONTINUED)
of operations will be reflected in the 1999 financial statements from the
date of acquisition. The acquisitions made subsequent to year end are as
follows:
(i) Effective April 1, 1999 the corporation acquired substantially all of
the assets of Y. Seedat Professional Corporation and S.K. Rajpal
Professional Corporation operating as McKnight Village Medical Clinic
(ii) Effective June 1, 1999 the corporation acquired substantially all of
the assets of 540074 Alberta Ltd operating as Martindale Medical Clinic
and the assets of Dr. Alex J. Robson Professional Corporation operating
as Medical Centre West Edmonton Mall.
(iii) Effective August 16, 1999 the corporation acquired substantially all of
the assets of Dr. George Schroeder operating as McLeod Medical Centre.
The net assets acquired and the consideration given for the above
acquisitions are summarized as follows. The excess of the purchase price
over the net assets acquired has been allocated to goodwill.
<TABLE>
<S> <C>
Other current assets........................................................... $ 23,000
Capital assets................................................................. 292,000
Goodwill....................................................................... 297,500
---------
$ 612,500
---------
---------
</TABLE>
The company issued common shares with a value of $187,500, a promissory
note of $100,000, and convertible debentures of $30,000 as part of the
consideration and the remainder in cash.
(c) DEFERRED CONSIDERATION
The deferred consideration clause referred to in Note 2 of the financial
statements, will be paid in 1999 regardless of the 1999 pre-tax
qualifying income as part of the Business Combination with Med-Emerg
International Inc.
(d) CONTINGENT LIABILITY
On July 15, 1999 a statement of claim was filed against 1292363 Ontario
Corporation (a subsidiary of YFMC Healthcare Inc.) seeking an injunction
against the use of the name Orleans Gardens Family Medical Centre,
$200,000 in general damages and other special damages and costs. The
action is being defended by YFMC Healthcare Inc. The injunction has been
granted to the claimants, however the likelihood and amount of damages
being awarded is not determinable at this time.
F-41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 136(l) 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 Med-Emerg's by-laws provides that, subject to the
OBCA, Med-Emerg shall indemnify a director or officer of the company, a former
director or officer of the company or a person who acts or acted at the
comapny's requests as a director or officer of a body corporate of which the
company 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 company or body corporate, if:
(a) he acted honestly and in good faith with a view to the best interests of
the company; 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 company 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 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1* Business Combination Agreement dated August 10, 1999
2.2* Lock-up Agreement
2.3* Working Agreement
2.4* Escrow Agreement for Common Shares
2.5* Escrow Agreement for Preferred Shares
3.1** Certificate of Incorporation and Amendments thereto of the Company
3.2** By-laws of the Company
4.2** Form of Warrant Agreement
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
4.3** Specimen Common Stock Certificate
4.4** Specimen Warrant Certificate
5.1* Opinion of Gersten, Savage & Kaplowitz, 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.
10.13** Schedule of Contracts for Clinical Operations, Emergency Services and
Hospitals.
10.14** Letter of Credit Agreement dated April 17, 1997 between the Company and
Robert Rubin.
10.15** Amendment to April 17, 1997 Letter of Credit Agreement between the Company
and Robert Rubin dated January 30, 1998.
21.1** List of Subsidiaries
23.1* Consent of Gersten, Savage & Kaplowitz, LLP (to be included in Exhibit 5.1
to this Registration Statement)
23.2 Deleted
23.3 Deleted
23.4* Consent of Schwartz Levitsky Feldman, Chartered Accountants
23.5* Consent of BDO Dunwoody LLP Chartered Accountants
</TABLE>
- ------------------------
* Filed herewith.
** Incorporated by reference herein from the Company's registration statement
on Form F-1 Registration Statement number 333-21899, filed with the U.S.
Securities and Exchange Commission and declared effective on February 4,
1998.
(b) Financial Statement Schedules
All schedules for which provision has been made in the applicable accounting
regulations of the Commission are either not required under the related
instructions, are not applicable (and therefore have been omitted), or the
required disclosures are contained in the financial statements included herein.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that
II-2
<PAGE>
a claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(i) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of
Form F-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means; and
(ii) To arrange or provide for a facility in the U.S. for the purpose of
responding to such requests.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Mississauga, Province of
Ontario on September 7, 1999.
<TABLE>
<S> <C> <C>
MED-EMERG INTERNATIONAL INC.
By: /s/ CARL PAHAPILL
------------------------------------------
Carl Pahapill
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM THOMSON
- ------------------------------ Chairman September 7, 1999
William Thomson, C.A.
/s/ RAMESH ZACHARIAS
- ------------------------------ Chief Executive Officer September 7, 1999
Ramesh Zacharias, M.D. and Director
/s/ CARL W. PAHAPILL
- ------------------------------ Chief Operating Officer, September 7, 1999
Carl W. Pahapill, C.A. President and Director
/s/ KATHRYN GAMBLE Vice President of Finance,
- ------------------------------ Chief Financial Officer September 7, 1999
Kathryn Gamble, C.A. and Secretary
- ------------------------------ Director
Robert M. Rubin
- ------------------------------ Director
Jeffrey Lyons
</TABLE>
<PAGE>
EXHIBIT 2.1
BUSINESS COMBINATION AGREEMENT
THIS BUSINESS COMBINATION AGREEMENT dated as of the 10th day of August, 1999.
BETWEEN:
MED-EMERG INTERNATIONAL INC., a corporation incorporated under
the laws of Ontario
(hereinafter referred to as "MEII")
- and -
YFMC HEALTHCARE INC., a corporation continued under the laws
of Ontario
(hereinafter referred to as "YFMC")
- and -
DONALD WILSON
(hereinafter referred to as "Wilson")
- and -
MARTIN SCULLION
(hereinafter referred to as "Scullion")
(Wilson and Scullion are hereinafter referred to as the
"Principals")
- and -
977675 ONTARIO INC., a corporation incorporated under the laws
of Ontario
(hereinafter referred to as "977675")
- and -
<PAGE>
- 2 -
PAGE RAYMOND & ASSOCIATES LTD., a corporation incorporated
under the laws of Ontario
(hereinafter referred to as "PRAL")
(977675 and PRAL are hereinafter referred to as the "Principal
Shareholders")
WITNESSES THAT:
WHEREAS MEII intends to make an offer to purchase all of the issued and
outstanding securities of YFMC in accordance with the provisions hereof;
AND WHEREAS Wilson is an officer, director and principal shareholder of
977675;
AND WHEREAS Scullion is an officer, director and principal shareholder
of PRAL;
AND WHEREAS the Principal Shareholders have agreed, subject to
regulatory approval, to tender all of their securities of YFMC to MEII's
offer in accordance with the provisions hereof;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
by each of the parties hereto, the parties hereto hereby covenant and agree
as follows:
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS: In this Agreement, unless there is something in
the subject matter or context inconsistent therewith, the following
capitalized words and terms shall have the following meanings:
"AGREEMENT" means this Business Combination Agreement, including the
schedules, annexes and exhibits hereto, as the same may be supplemented or
amended from time to time and the expressions "Article", "Section",
"subsection" and "Exhibit" followed by a number or letter means and refers to
the specified Article, Section, subsection or Exhibit of this Agreement;
"ASC" means the Alberta Securities Commission;
"ASE" means The Alberta Stock Exchange;
"BSE" means the Boston Stock Exchange;
<PAGE>
- 3 -
"BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory
holiday in the Province of Ontario;
"CHARTER DOCUMENTS" means articles and by-laws of a corporation;
"COMMISSIONS" means collectively, the securities commissions or similar
securities regulatory authorities of the Provinces of Ontario, Quebec and
Alberta;
"ITA" means the INCOME TAX ACT (Canada), as amended from time to time;
"INTERIM MEII FINANCIAL STATEMENTS" means the interim unaudited financial
statements of MEII, together with the notes thereto, for the three months
ended March 31, 1999;
"INTERIM YFMC FINANCIAL STATEMENTS" means the interim unaudited financial
statements of YFMC, together with the notes thereto, for the three months
ended March 31, 1999;
"LOCK-UP AGREEMENT" has the meaning ascribed thereto in Section 2.2;
"MATERIAL ADVERSE CHANGE" means any change (or any condition, event or
development involving a prospective change) in the business, operations,
affairs, assets, liabilities (including any contingent liability that may
arise through outstanding, pending or threatened litigation or otherwise),
capitalization, financial condition, licences, permits, rights or privileges
or prospects of a Person which could reasonably be expect to materially and
adversely affect a Person;
"MATERIAL FACT", "MATERIAL CHANGE" and "MISREPRESENTATION" are used as
defined under the SECURITIES ACT (Ontario);
"MEII ANNUAL REPORT" means the annual report of MEII for the financial year
ended December 31, 1998;
"MEII ASSETS" means the assets, property and undertakings of MEII and its
Subsidiaries;
"MEII FINANCIAL STATEMENTS" means the audited financial statements of MEII,
together with the notes thereto, for the financial years ended December 31,
1997 and December 31, 1998;
"MEII PRESS RELEASES" means press releases of MEII issued since December 31,
1997;
"MEII SECURITIES" means MEII Shares, Series A Warrants and Series B Warrants;
"MEII SHARES" means the common shares of MEII, as the same are constituted on
the date hereof;
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System Inc.;
<PAGE>
- 4 -
"NON-ARM'S LENGTH TRANSACTIONS" means any contract or agreement by YFMC or
any Subsidiary and any officer, director, employee of YFMC and/or any
Subsidiary or any Person not dealing at arm's length (within the meaning of
the ITA) with any of them or any affiliate of any of them;
"OBCA" means the Business Corporations Act (Ontario), R.S.O. 1990, c.B.16, as
amended;
"OFFER" has the meaning ascribed thereto in Section 2.1;
"OSC" means the Ontario Securities Commission;
"PERSON" means and includes an individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, a trustee, executor, administrator or
other legal representative and the Crown or any agency or instrumentality
thereof, and words importing "PERSONS" have a similar meaning;
"SEC" means the United States Securities and Exchange Commission;
"SERIES A WARRANTS" means Series A warrants of MEII, such that each Series A
warrant entitles the holder thereof to acquire one MEII Share at an exercise
price of US$2.70 per share expiring June 12, 2000;
"SERIES B WARRANTS" means Series B warrants of MEII, such that each Series B
warrant entitles the holder thereof to acquire one MEII Share at an exercise
price of US$3.40 per share expiring June 12, 2000;
"SUBSIDIARY" means, with respect to a specified body corporate, a body
corporate of which more than 50% of the outstanding shares ordinarily
entitled to elect a majority of the directors thereof, whether or not shares
of any other class or classes shall or might be entitled to vote upon the
happening of any event or contingency, are at the time owned, directly or
indirectly, by such specified body corporate, and includes a body corporate
in like relation to a Subsidiary;
"TAKE-OVER BID CIRCULAR" has the meaning ascribed thereto in Section 2.3;
"WORKING AGREEMENT" means an agreement dated as of the date hereof between
MEII and YFMC concerning the operation of their respective businesses pending
completion of the Offer;
"YFMC ASSETS" means the assets, property and undertaking of YFMC and its
Subsidiaries;
<PAGE>
- 5 -
"YFMC FINANCIAL STATEMENTS" mean the audited consolidated financial
statements of YFMC, together with the notes thereto, for the financial years
ended December 31, 1997 and December 31, 1998;
"YFMC OPTIONS" means outstanding options to purchase an aggregate of
1,003,000 YFMC Shares at prices ranging from $0.20 to $0.36 per share;
"YFMC PREFERRED SHARES" means the 1,000,000 outstanding first preferred
shares, Series A, of YFMC, as the same are constituted on the date hereof;
"YFMC PRESS RELEASES" means press releases of YFMC issued since June 12, 1998;
"YFMC SHARES" means the common shares of YFMC, as the same are constituted on
the date hereof;
"YFMC SECURITIES" means YFMC Shares, YFMC Preferred Shares, YFMC Series A
Warrants, YFMC Series B Warrants and YFMC Options;
"YFMC SERIES A WARRANTS" means the 356,680 outstanding common share purchase
warrants of YFMC, each such warrant entitling the holder thereof to acquire
one YFMC Share at an exercise price of $0.40 per share for a period of two
years from the date of issuance; and
"YFMC SERIES B WARRANTS" means the 356,680 outstanding common share purchase
warrants of YFMC, each such warrant entitling the holder thereof to acquire
one YFMC Share at an exercise price of $0.50 per share for a period of two
years from the date of issuance.
SECTION 1.2 CURRENCY. All amounts of money which are referred to in this
Agreement are expressed in lawful money of Canada, unless otherwise specified.
SECTION 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS. The division of this
Agreement into articles, sections, subsections, paragraphs and subparagraphs
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of the provisions of this
Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and
similar expressions refer to this Agreement and the schedules hereto as a
whole and not to any particular article, section, subsection, paragraph or
subparagraph hereof and include any agreement or instrument supplementary or
ancillary hereto.
SECTION 1.4 NUMBER AND GENDER. Unless the context otherwise requires, words
importing the singular number only shall include the plural and vice versa
and words importing the use of either gender shall include both genders and
the neuter and words importing persons shall include firms and corporations.
<PAGE>
- 6 -
SECTION 1.5 DATE FOR ANY ACTION. In the event that any date on which any
action is required to be taken hereunder by any of the parties hereto is not
a Business Day, such action shall be required to be taken on the next
succeeding day which is a Business Day.
SECTION 1.6 MEANING. Words and phrases used herein and defined in the OBCA
shall have the same meaning herein as in the OBCA, unless the context
otherwise requires.
SECTION 1.7 EXHIBITS. The following are the Exhibits attached and
incorporated in this Agreement by reference and are deemed to be a part
hereof:
Exhibit A - Form of Lock-Up Agreement
Exhibit B - Form of Series A Warrant Certificate
Exhibit C - Form of Series B Warrant Certificate
Exhibit D - Form of Working Agreement
ARTICLE TWO
BUSINESS COMBINATION
SECTION 2.1 Offer. (a) MEII agrees to make an offer (the "Offer") on
substantially the terms and conditions provided for in this Agreement to
purchase all of the issued and outstanding YFMC Securities (other than YFMC
Options) on the basis of:
(i) one MEII Share for every 6.875 YFMC Shares;
(ii) one Series A Warrant for every eight YFMC Series A
Warrants held;
(iii) one Series B Warrant for every eight YFMC Series B
Warrants held; and
(iv) one MEII Share for each ten YFMC Preferred Shares held.
In addition, in connection with, but not as part of the Offer, with respect
to the outstanding YFMC Options, YFMC and MEII agree to substitute, subject
to obtaining all necessary approvals or consents of any Person, the right to
acquire MEII Shares at a price of US$1.75 per share on a basis consistent
with the exchange ratio for the YFMC Series A and Series B Warrants set out
above. MEII and YFMC agree to use reasonable commercial efforts to accomplish
the foregoing, including obtaining all necessary regulatory approvals or
consents of any Person, in a form acceptable to MEII and YFMC, acting
reasonably.
<PAGE>
- 7 -
(b) The Offer will be made as promptly as practicable after the date
hereof, but in any event not later than 21 days following the date that all
of the conditions set out in Section 2.2 and Article 5 have been satisfied.
SECTION 2.2 LOCK-UP AGREEMENT. The Offer is subject to the conditions set
out in Article 5 including, without limitation, the execution by the
Principal Shareholders of a lock-up agreement (the "LOCK-UP AGREEMENT") which
will be substantially in the form of Exhibit A annexed hereto.
SECTION 2.3 MAILING OF TAKE-OVER BID CIRCULAR. (a) Subject to the
conditions set out in Article 5 hereof, upon the Principal Shareholders
executing the Lock-Up Agreement and depositing their YFMC Shares pursuant
thereto, MEII shall mail, and file with the Commissions, a take-over bid
circular (the "TAKE-OVER BID CIRCULAR") in order to effect the Offer.
(b) YFMC agrees to provide such information with respect to itself as
MEII may require, acting reasonably, for insertion in the Take-Over Bid
Circular and take all such steps and do all such acts and things as are
necessary or desirable to give full effect to the Offer, including providing
MEII with a current list of YFMC's securityholders of all classes, including
names, addresses and number of securities held and advising YFMC's registrar
and transfer agent to assist MEII in completing the Offer and the
transactions contemplated thereby and permitting YFMC's registrar and
transfer agent to act as depositary under the Offer.
SECTION 2.4 DIRECTORS' CIRCULAR. Forthwith after MEII mails the Take-Over
Bid Circular to YFMC's shareholders, YFMC agrees to cause its board of
directors to:
(a) support the Offer and recommend acceptance of the Offer by the
securityholders of YFMC; and
(b) prepare, file and mail, as required by applicable law, a directors'
circular recommending the Offer.
SECTION 2.5 COMPULSORY ACQUISITION. Subject to completion of the Offer,
MEII may acquire all outstanding YFMC Shares which it did not acquire
pursuant to the terms of the Offer under the compulsory acquisition
provisions of applicable corporate legislation.
SECTION 2.6 INVESTIGATIONS. (a) Until completion of the Offer, MEII and its
solicitors, accountants, appraisers and other advisers shall, during normal
business hours, have full and complete access to the premises, books, leases
and other records of YFMC for the purposes of investigating its affairs. In
addition, YFMC shall make available to MEII such documents and data as MEII
may request, acting reasonably, relating to YFMC. All information, records
and data furnished to MEII and its representatives pursuant to this Section
shall, to the best of YFMC's knowledge and belief, be accurate in all
material respects.
<PAGE>
- 8 -
(b) Until completion of the Offer, YFMC and its solicitors,
accountants, appraisers and other advisers shall, during normal business
hours, have full and complete access to the premises, books, leases and other
records of MEII for the purpose of investigating its affairs. In addition,
MEII shall make available to YFMC such documents and data as YFMC may
request, acting reasonably, relating to MEII. All information, records and
data furnished to MEII and its representatives pursuant to this Section
shall, to the best of MEII's knowledge and belief, be accurate in all
material respects.
SECTION 2.7 RETURN OF DOCUMENTS. If the Offer shall not be completed in
accordance with its provisions, YFMC shall return to MEII all books,
accounts, records and other data of MEII (including any copies thereof) that
are in YFMC's possession, and MEII shall return to YFMC all books, accounts,
records and other data of YFMC (including any copies thereof) that are in
MEII's possession.
SECTION 2.8 CONFIDENTIALITY. Notwithstanding any other provision of this
Agreement, in the event of the termination of this Agreement, MEII shall keep
confidential any information obtained relating to YFMC, and YFMC shall keep
confidential any information obtained relating to MEII (unless, in each case,
the information is readily ascertainable from public or published information
or until the same become so ascertainable) and shall return to the
appropriate party all copies of any exhibits, statements or other written
information obtained in connection herewith.
SECTION 2.9 EFFECTIVE DATE. The business combination contemplated hereby
shall become effective upon completion of the Offer.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF MEII. Subject to the
disclosure set out in the Take-Over Bid Circular, the MEII Annual Report, the
MEII Financial Statements, the MEII Press Releases, the Interim MEII
Financial Statements and the schedules hereto, MEII hereby represents and
warrants to and in favour of YFMC and the Principal Shareholders that:
(a) MEII has been duly incorporated and is a valid and subsisting
corporation under the provisions of the OBCA, has all requisite
corporate power and authority to carry on its business as now being
carried on by it and to own or lease and operate its properties and
assets and is duly licenced or otherwise qualified to carry on
business in each jurisdiction in which a material amount of its
business is conducted or wherein the character of the properties
and assets now owned by it makes such qualification necessary;
<PAGE>
- 9 -
(b) as of the date hereof, the issued and outstanding share capital of
MEII consists of 3,095,544 MEII Shares and 500,000 preferred
shares, all of which are outstanding as fully paid and
non-assessable shares;
(c) to the best of its knowledge, MEII is in compliance with the UNITED
STATES SECURITIES AND EXCHANGE ACT OF 1933, the rules and
regulations of the SEC and the rules and policies of NASDAQ, and no
material change relating to MEII has occurred within the past 24
months which has not been publicly disclosed;
(d) all press releases, material change reports and other documents
required to be filed with NASDAQ within the past 24 months have
been filed by or on behalf of MEII and were true and correct in all
material respects, provided full, true and plain disclosure of the
matters referred to therein and did not contain any
misrepresentation, as at the respective dates of such filings;
(e) no order ceasing or suspending trading in securities of MEII or
prohibiting the sale of securities by MEII has been issued and, to
the knowledge of MEII, no proceedings for this purpose have been
instituted or are pending, contemplated or threatened;
(f) the execution, delivery and performance of this Agreement, the
consummation of the Offer and the agreements, documents and
transactions contemplated herein are within the corporate power and
authority of MEII and, subject to MEII obtaining the approval of
the Offer by the holders of MEII Shares, have been duly authorized
by all necessary corporate action and this Agreement constitutes a
valid and binding obligation of MEII, enforceable in accordance
with its terms, subject to the customary qualifications for a
commercial transaction of this nature;
(g) none of MEII or any of its Subsidiaries has any outstanding
agreements, subscriptions, warrants, options or commitments, nor
has it granted any rights or privileges capable of becoming an
agreement, subscription, warrant, option or commitment obligating
MEII or its Subsidiaries, as the case may be, to issue any
additional shares or other securities, except as disclosed in the
MEII Financial Statements or the Take-Over Bid Circular or in
connection with the transactions contemplated by Section 4.1;
(h) the MEII Financial Statements present fairly all of the assets and
liabilities of MEII on a consolidated basis and the financial
condition and results of operations of MEII as at the dates thereof
and for the financial periods then ended and have been prepared in
accordance with Canadian generally accepted accounting principles
applied on a consistent basis with that of prior periods, except as
otherwise stated in the notes to the MEII Financial Statements;
<PAGE>
- 10 -
(i) since December 31, 1998, there has been no Material Adverse Change
with respect to MEII, on a consolidated basis, from that shown in
the MEII Financial Statements, except as disclosed in the Interim
MEII Financial Statements, the MEII Annual Report or the Take-Over
Bid Circular;
(j) except for security granted by MEII and certain of its Subsidiaries
to HongKong Bank of Canada or security granted in the ordinary
course of business or as disclosed in the Take-Over Bid Circular or
in the Interim MEII Financial Statements, each of MEII and its
Subsidiaries is the beneficial owner of the properties and assets
described as being owned by it in the Take-Over Bid Circular with
good and marketable title thereto free and clear of material
encumbrances and, in particular, MEII is the beneficial owner of
the shares of its Subsidiaries as described in the Take-Over Bid
Circular with good and marketable title thereto free and clear of
any material covenant, condition or restriction on sale or other
disposition, lien, charge, security interest or encumbrance, and no
person has any agreement, option, right or privilege (including,
without limitation, by law, pre-emptive right, contract or
otherwise) to purchase, convert into, exchange for or otherwise
acquire, nor any agreement, option, right or privilege capable of
becoming any such agreement, option, right or privilege, any of
such shares or any interest therein;
(k) none of MEII or any of its Subsidiaries has any liability or
obligation, whether accrued, absolute, contingent or otherwise,
other than contingent liability for GST, not reflected in the MEII
Financial Statements, the Interim MEII Financial Statements or the
Take-Over Bid Circular, except liabilities and obligations incurred
in the ordinary course of its business since December 31, 1998,
which liabilities and obligations are not materially adverse in the
aggregate or which are disclosed in the Take-Over Bid Circular.
(l) each of the Subsidiaries of MEII that carries on a material portion
of the business of MEII or which owns a material portion of the
MEII Assets on a consolidated basis (meaning any Subsidiary the
total assets of which constitute more than 10% of the consolidated
assets of MEII or the total revenues of which constitute more than
10% of the consolidated revenues of MEII, in each case, for the
period ended March 31, 1999) is duly incorporated and is a valid
and subsisting corporation under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority
to carry on its business as now carried on by it and to own or
lease and to operate its properties and assets and is duly licenced
or otherwise qualified in each jurisdiction in which a material
amount of its business is conducted or wherein the character of the
properties and assets now owned by it makes such qualification
necessary;
<PAGE>
- 11 -
(m) except as described in the Take-Over Bid Circular or as disclosed
in the MEII Financial Statements or in the Interim MEII Financial
Statements, there are no actions, suits, proceedings,
investigations or outstanding claims or demands, whether or not
purportedly on behalf of MEII or any of its Subsidiaries,
instituted, pending or, to the knowledge of MEII, threatened
against or affecting MEII or any of its Subsidiaries, at law or in
equity or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator, nor is there any judgment, order, decree or
award of any court or other governmental authority having
jurisdiction, obtained, pending or, to the knowledge of MEII, or
any of its Subsidiaries, threatened, against MEII, or any of its
Subsidiaries, which would prevent or materially hinder the
consummation of the Offer or the other transactions contemplated by
this Agreement or which would involve the reasonable possibility of
any material judgment or liability, whether or not covered by
insurance, or which in the aggregate would have a material adverse
effect on the business, operations, properties, assets or
condition, financial or otherwise, of MEII and its Subsidiaries on
a consolidated basis and, to the knowledge of MEII, there are no
grounds upon which any such actions, suits, proceedings,
investigations, claims or demands may be commenced or made with a
reasonable likelihood of success;
(n) except as set out in the Interim MEII Financial Statements with
respect to quarterly dividends payable on MEII's preferred shares,
since December 31, 1998, MEII has not declared or paid any
dividends or made any distribution of its properties or assets to
its shareholders and none of MEII or any of its Subsidiaries has
disposed of any of its material properties or assets or incurred
any material indebtedness except in the ordinary course of business
or among its wholly-owned subsidiaries, except as disclosed in the
Take-Over Bid Circular, the MEII Annual Report, the MEII Financial
Statements or the Interim MEII Financial Statements;
(o) the business of MEII and its Subsidiaries is being conducted in all
material respects in compliance with all material applicable laws,
regulations and ordinances of all authorities having jurisdiction;
(p) each contract or agreement between MEII or any of its Subsidiaries
and any other Person which is material to the ownership, use or
operation of a material portion of the business, properties or
assets of MEII or its Subsidiaries on a consolidated basis, is in
full force and effect and, to the knowledge of MEII, is valid,
binding and enforceable against each of the parties thereto in
accordance with its terms, subject to the customary qualifications
for a commercial transaction of such nature, and no material breach
or default exists in respect thereof on the part of any party
thereto,
<PAGE>
- 12 -
and no event has occurred which, with the giving of notice or the
lapse of time or both, would constitute such a material breach or
default;
(q) With the exception of obtaining the consent of NASDAQ and related
MEII shareholder approval, the BSE and the SEC, MEII is not a party
to or bound by any outstanding contract or agreement which requires
the prior approval of any third parties to the completion of the
Offer or of any other transaction contemplated hereby and none of
the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or the fulfillment of or
compliance with the terms and provisions hereof do or will, nor
will they with the giving of notice or the lapse of time or both:
(i) violate any provision of any material, law or administrative
regulation or any material judicial or administrative order,
award, judgment or decree applicable to MEII or any of its
Subsidiaries;
(ii) conflict with any of the terms, conditions or provisions of
the Charter Documents of MEII or any of its Subsidiaries;
(iii) conflict with, result in a breach of, constitute a default
under, or accelerate or permit the acceleration of the
performance required by, any material agreement, covenant,
undertaking, commitment, instrument, judgment, order, decree
or award to which MEII or any of its Subsidiaries is a party
or by which it is bound or to which its property is subject;
or
(iv) result in the cancellation, suspension or material alteration
in the terms of any material licence, permit or authority
held by MEII or any of its Subsidiaries or in the creation of
any lien, charge, security interest or encumbrance in a
material amount upon any of the material assets of MEII or
any of its Subsidiaries under any such material agreement,
covenant, undertaking, commitment, instrument, judgment,
order, decree or award or give to any other Person any
material interest or rights, including rights of purchase,
termination, cancellation or acceleration, under any such
material agreement, covenant, undertaking, commitment,
instrument, judgment, order, decree or award;
(r) except as described in the Take-Over Bid Circular, MEII has not
incurred any liability for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in connection
with this Agreement or the transactions contemplated hereby;
(s) the Take-Over Bid Circular contains full, true and plain disclosure
of all material facts relating to MEII and does not contain an
untrue statement of
<PAGE>
- 13 -
any material fact concerning MEII and does not omit to state a
material fact concerning MEII that is required to be stated or that
is necessary to make a statement contained therein not misleading
in light of the circumstances in which it was made;
(t) other than as disclosed in writing to YFMC or as disclosed in the
MEII Financial Statements or the Take-Over Bid Circular, MEII has
no material Subsidiaries or agreements of any nature to acquire any
Subsidiary or any interest in any other Person or to acquire or
lease any other business operations out of the ordinary course (for
purposes hereof, ordinary course includes the direct or indirect
acquisition of businesses related to the business of MEII);
(u) since March 31, 1999, MEII has:
(i) not amended its articles, by-laws or other constating
documents;
(ii) conducted its business and that of each of its Subsidiaries
in all material respects in the ordinary course (for
purposes hereof, ordinary course includes the direct or
indirect acquisition of businesses related to the business
of MEII);
(iii) not suffered (on a consolidated basis) any Material Adverse
Change or any occurrences or circumstances which have
resulted or might reasonably be expected to result in a
Material Adverse Change;
(iv) not made any change in its accounting principles and
practices as theretofore applied, including, without
limitation, the basis upon which its assets and liabilities
are recorded on its books and its earnings and profits and
losses are ascertained; and
(v) other than as disclosed to YFMC and except for changes
resulting from negotiations currently ongoing with certain
senior officers, maintained in effect (on a consolidated
basis) salary and other compensation levels in accordance with
its then existing salary administration program;
(v) all filings made by MEII or any of its Subsidiaries under which it
has received or is entitled to government incentives, have been
made in accordance, in all material respects, with all applicable
legislation and contain no misrepresentations of material fact or
omit to state any material fact which could cause any amount
previously paid to MEII or its Subsidiaries or previously accrued
on the accounts thereof to be recovered or disallowed;
<PAGE>
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(w) MEII has not received any notices of material violation or alleged
material violation of the provisions of any agreement in respect of
the MEII Assets and, to the knowledge of MEII, the properties and
assets comprising the MEII Assets have been used and operated, as
the case may be, in accordance with all material agreements that
relate to them;
(x) all ad valorem, property, production, severance and similar taxes and
assessments based on or measured by the ownership of the MEII Assets
or the receipt of proceeds therefrom payable in respect of or in
relation to any MEII Assets have been properly and fully paid and
discharged or have been properly accrued on the books of MEII and
each of its Subsidiaries;
(y) all material documents and agreements of whatsoever nature and kind
affecting title to the MEII Assets which are in the possession of
MEII or of which MEII is otherwise aware have been made available for
review by YFMC;
(z) to its knowledge, MEII has done no act or thing, nor has MEII
suffered or permitted any act or omission, whereby its title to any
of the MEII Assets may be cancelled or terminated, except as
disclosed in the MEII Annual Report or the Take-Over Bid Circular;
(aa) to MEII's knowledge, MEII has been and is in compliance in all
material respects with all governmental laws, regulations, orders,
decrees or ordinances with respect to environmental, health and
safety matters (collectively, "Environmental Laws") and MEII has
received no written notice of non-compliance, and for greater
certainty and without limiting the foregoing, to MEII's knowledge:
(i) there have been no unrectified spills, releases, deposits or
discharges of hazardous or toxic substances, contaminants or
wastes on any of the real property owned or leased by MEII or
any of its Subsidiaries or under their respective control, nor
has any such real property been used at any time by any person
as a landfill or waste disposal site;
(ii) there have been no releases, deposits or discharges in
violation of Environmental Laws of any hazardous or toxic
substances, contaminants or wastes into the earth, air or into
any body of water or any municipal or other sewer or drain
water systems by any of MEII or its Subsidiaries;
(iii) no orders, directions or notices have been issued and remain
outstanding pursuant to any Environmental Laws relating to the
business or assets of MEII or any of its Subsidiaries; and
<PAGE>
- 15 -
(iv) each of MEII and its Subsidiaries holds all material licences,
permits and approvals required under any Environmental Laws in
connection with the operation of its business and the
ownership and use of its assets, all such licences, permits
and approvals are in full force and effect and none of MEII
or its Subsidiaries has received any notification pursuant to
any Environmental Laws that any repairs, construction or
capital expenditures are required to be made by it as a
condition of continued compliance with any Environmental Laws,
or any licence, permit or approval issued pursuant thereto, or
that any licence, permit or approval referred to above is
about to be reviewed, made subject to limitations or
conditions, revoked, withdrawn or terminated;
(bb) each of MEII and/or its Subsidiaries has all necessary governmental
authorizations and permits required to enable them to carry on their
respective businesses as conducted by them and all such licenses,
permits and approvals are in full force and effect;
(cc) MEII is not aware of any material Y2K issues relating to the business
and operations of MEII and its Subsidiaries, other than those
disclosed in the public record of MEII or disclosed to YFMC;
(dd) the board of directors of MEII has reserved and allotted to the
holders of YFMC Securities that accept the Offer a sufficient number
of MEII Securities to give effect to the Offer, and upon acceptance
of the Offer in accordance with the terms thereof, the MEII
Securities issuable in connection therewith will be validly issued
and, in the case of the MEII Shares, will be fully paid and
non-assessable to previous holders of YFMC Securities who accept the
Offer and MEII is not aware of any restrictions which would preclude
it from effecting the grant of options to acquire MEII Shares
contemplated by Section 2.1 hereof;
(ee) the MEII Shares will, upon the closing of the Offer, be qualified
investments for trusts governed by registered retirement savings
plans and registered retirement income funds, in each case, within
the meaning of the ITA; and
(ff) MEII acknowledges that it has been advised of the claim of Wilson
against Dr. Benoit, and notwithstanding anything to the contrary
contained herein, MEII has no objection to, and agrees that no
provision of this Agreement shall preclude, Wilson from pursuing
such claim.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF YFMC AND THE PRINCIPALS.
Subject to the disclosure set out in the Take-Over Bid Circular, the YFMC
Financial Statements, the YFMC Press Releases and the Interim YFMC Financial
Statements, each of YFMC
<PAGE>
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and, to the best of their knowledge, information and belief, the Principals
hereby represent and warrant to and in favour of MEII that:
(a) YFMC has been duly continued and is a valid and subsisting
corporation under the provisions of the OBCA, has all requisite
corporate power and authority to carry on its business as now being
carried on by it and to own or lease and operate its properties and
assets and is duly licenced or otherwise qualified to carry on
business in each jurisdiction in which a material amount of its
business is conducted or wherein the character of the properties and
assets now owned by it makes such qualification necessary;
(b) as of the date hereof, the issued and outstanding share capital of
YFMC consists of 10,710,143 YFMC Shares and 1,000,000 YFMC Preferred
Shares, all of which are issued and outstanding as fully paid and
non-assessable shares;
(c) YFMC is a reporting issuer "not in default" under the securities laws
of Alberta and Ontario and, to the best of the knowledge of YFMC and
the Principals, is in compliance with the by-laws, rules and
regulations of the ASE and no material change relating to YFMC has
occurred within the past 24 months which has not been publicly
disclosed;
(d) all press releases, material change reports and other documents
required to be filed with the OSC or the ASE within the past 24
months have been filed by or on behalf of YFMC and were true in all
material respects, provided full, true and plain disclosure of the
matters referred to therein and did not contain any
misrepresentation, as at the respective dates of such filings;
(e) no order ceasing or suspending trading in securities of YFMC or
prohibiting the sale of securities by YFMC has been issued and, to
the knowledge of YFMC and the Principals, no proceedings for this
purpose have been instituted, or are pending, contemplated or
threatened.
(f) the execution, delivery and performance of this Agreement, the
consummation of the Offer and the agreements, documents and
transactions contemplated herein are within the corporate power and
authority of YFMC and have been duly authorized by all necessary
corporate action and this Agreement constitutes a valid and binding
obligation of YFMC, enforceable in accordance with its terms, subject
to customary qualifications for a commercial transaction of this
nature;
(g) none of YFMC or any of its Subsidiaries has any outstanding
agreements, subscriptions, warrants, options or commitments, nor has
it granted any rights or privileges capable of becoming an agreement,
subscription,
<PAGE>
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warrant, option or commitment obligating YFMC or its Subsidiaries as
the case may be, to issue any additional shares or other securities,
except for YFMC Preferred Shares, YFMC Series A Warrants, YFMC Series
B Warrants, YFMC Options and up to an aggregate of 361,536 YFMC
Shares which may be issued within the next 30 days;
(h) the YFMC Financial Statements present fairly all of the assets and
liabilities of YFMC and the financial condition and results of
operations of YFMC as at the dates thereof and for the financial
periods then ended and have been prepared in accordance with Canadian
generally accepted accounting principles applied on a consistent
basis with that of prior periods, except as otherwise stated in the
notes to the YFMC Financial Statements;
(i) with the exception of the lost contract with Dynacare Laboratories,
which has been previously been disclosed to MEII in writing, since
December 31, 1998, there has been no Material Adverse Change with
respect to YFMC from that shown in the YFMC Financial Statements,
except as disclosed in the Interim YFMC Financial Statements, the
Take-Over Bid Circular;
(j) except for security granted by YFMC and certain of its subsidiaries
to the Bank of Nova Scotia in respect of a $350,000 operating line
and a lending facility in the aggregate principal amount of $350,000,
of which approximately $58,000 has been drawn down, the
Toronto-Dominion Bank with respect to a $250,000 operating line and a
lending facility of $500,000, of which approximately $300,000 has
been drawn down, in favour of YFMC Healthcare (Alberta) Inc., in each
case, with such bank, S.K. Rajpal Professional Corporation and Y.
Seedat Professional Corporation pursuant to a general security
agreement (with respect to the McKnight principals) and 540074
Alberta Ltd. with respect to a general security agreement granted by
YFMC Healthcare (Alberta) Inc., which obligations are guaranteed by
YFMC to the aggregate amount of $100,000 (with respect to the
Martindale principal) or security granted in the ordinary course of
business or as disclosed in the Take-Over Bid Circular or in the
Interim YFMC Financial Statements, each of YFMC and its Subsidiaries
is the beneficial owner of the properties and assets described as
being owned by it in the Take-Over Bid Circular with good and
marketable title thereto free and clear of material encumbrances,
and, in particular, YFMC is the beneficial owner of the shares of its
Subsidiaries as described in the Take-Over Bid Circular with good and
marketable title thereto free and clear of any material covenant,
condition or restriction on sale or other disposition, lien, charge,
security interest or encumbrance, and no person has any agreement,
option, right or privilege (including, without limitation, by law,
pre-emptive right, contract or otherwise) to
<PAGE>
- 18 -
purchase, convert into, exchange for or otherwise acquire, nor any
agreement, option, right or privilege capable of becoming any such
agreement, right, option or privilege, any of such securities or any
interest therein;
(k) none of YFMC or any of its Subsidiaries has any liability or
obligation, whether accrued, absolute, contingent or otherwise, not
reflected in the YFMC Financial Statements, the Interim YFMC
Financial Statements or the Take-Over Bid Circular, except
liabilities and obligations incurred in the ordinary course of
business since December 31, 1998, which liabilities and obligations
are not materially adverse in the aggregate or which are disclosed
in the Take-Over Bid Circular;
(l) each of the Subsidiaries of YFMC that carries on a material portion
of the business of YFMC or which owns a material portion of the YFMC
Assets on a consolidated basis (meaning any Subsidiary the total
assets of which constitute more than 10% of the consolidated assets
of YFMC or the total revenues of which constitute more than 10% of
the consolidated revenues of YFMC, in each case, for the period
ended March 31, 1999) is duly incorporated and is a valid and
subsisting corporation under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to
carry on its business as now carried on by it and to own or lease and
to operate its properties and assets and is duly licenced or
otherwise qualified in each jurisdiction in which a material amount
of its business is conducted or wherein the character of the
properties and assets now owned by it makes such qualification
necessary;
(m) except as described in the Take-Over Bid Circular, or as disclosed in
the YFMC Financial Statements or in the Interim YFMC Financial
Statements, there are no actions, suits, proceedings, investigations
or outstanding claims or demands, whether or not purportedly on
behalf of YFMC or any of its Subsidiaries, instituted, pending, or,
to the knowledge of YFMC and the Principals, threatened against or
affecting of YFMC or any of its Subsidiaries at law or in equity or
before or by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or before any
arbitrator, nor is there any judgment, order, decree or award of any
court or other governmental authority having jurisdiction, obtained,
pending or, to the knowledge of YFMC and the Principals, threatened
against YFMC or any of its Subsidiaries which would prevent or
materially hinder the consummation of the Offer or the other
transactions contemplated by this Agreement or which would involve
the reasonable possibility of any material judgment or liability,
whether or not covered by insurance, or which in the aggregate would
have a material adverse effect on the business, operations,
properties, assets or condition, financial or otherwise, of YFMC and
its
<PAGE>
- 19 -
Subsidiaries, on a consolidated basis, and to the knowledge of YFMC
and the Principals, there are no grounds upon which any such actions,
suits, proceedings, investigations, claims or demands may be
commenced or made with a reasonable likelihood of success;
(n) with the exception of an aggregate of approximately $5,000 in accrued
dividends payable on the YFMC Preferred Shares which relate to a
period prior to June 30, 1999, since December 31, 1998, YFMC has not
declared or paid any dividends or made any distribution of its
properties or assets to its shareholders and none of YFMC or any of
its Subsidiaries has disposed of any of its material properties or
assets or incurred any material indebtedness, with the exception of
financial arrangements which YFMC has entered into with the
Toronto-Dominion Bank, except in the ordinary course of business or
among its wholly-owned subsidiaries, except as disclosed in the
Take-Over Bid Circular, the YFMC Financial Statements or the Interim
YFMC Financial Statements;
(o) the business of YFMC and its Subsidiaries is being conducted in all
material respects in compliance with all material applicable laws,
regulations and ordinances of all authorities having jurisdiction;
(p) each contract or agreement between YFMC or any of its Subsidiaries
and any other Person which is material to the ownership, use or
operation of a material portion of the business, properties or assets
of YFMC or its Subsidiaries on a consolidated basis, is in full force
and effect and, to the knowledge of YFMC and the Principals, is
valid, binding and enforceable against each of the parties thereto in
accordance with its terms, subject to the customary qualifications
for a commercial transaction of this nature, and no material breach
or default exists in respect thereof on the part of any party thereto
and no event has occurred which, with the giving of notice or the
lapse of time or both, would constitute such a material breach or
default;
(q) with the exception of obtaining the consent of the ASE and the ASC
for the release from escrow of the YFMC Shares of the Principal
Shareholders and certain other shareholders and consents required
pursuant to change of control clauses in leases with landlords and
the financial institutions set forth in a list dated July 29, 1999
provided to MEII, none of the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby
or the fulfillment of or compliance with the terms and provisions
hereof do or will, nor will they with the giving of notice or the
lapse of time or both:
<PAGE>
- 20 -
(i) violate any provision of any material law or administrative
regulation or any material judicial or administrative order,
award, judgment or decree applicable to YFMC or any of its
Subsidiaries;
(ii) conflict with any of the terms, conditions or provisions of
the Charter Documents of YFMC or any of its Subsidiaries;
(iii) conflict with, result in a breach of, constitute a default
under, or accelerate or permit the acceleration of the
performance required by, any material agreement, covenant,
undertaking, commitment, instrument, judgment, order, decree
or award to which YFMC or any of its Subsidiaries is a party
or by which any of them is bound or to which the property of
any of them is subject; or
(iv) result in the cancellation, suspension or material alteration
in the terms of any material licence, permit or authority held
by YFMC or any of its Subsidiaries or in the creation of any
lien, charge, security interest or encumbrance in a material
amount upon any material assets of YFMC or any of its
Subsidiaries under any such material agreement, covenant,
undertaking, commitment, instrument, judgment, order, decree
or award or give to any other Person any material interest or
rights, including rights of purchase, termination,
cancellation or acceleration, under any such material
agreement, covenant, undertaking, commitment, instrument,
judgment, order, decree or award;
(r) except as described in the Take-Over Bid Circular, YFMC has not
incurred any liability for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in connection with
this Agreement or the transactions contemplated hereby;
(s) the Take-Over Bid Circular contains full, true and plain disclosure
of all material facts relating to YFMC and does not contain an untrue
statement of a material fact concerning YFMC and does not omit to
state a material fact concerning YFMC that is required to be stated
or that is necessary to make a statement contained therein not
misleading in the light of the circumstances in which it was made;
(t) other than as disclosed in writing to MEII or as disclosed in the
YFMC Financial Statements or the Take-Over Bid Circular, YFMC has no
material Subsidiaries or agreements of any nature to acquire any
Subsidiary or any interest in any other Person, or to acquire or
lease any other business operations out of the ordinary course;
<PAGE>
- 21 -
(u) the respective minute books of YFMC and its Subsidiaries are complete
and correct in all material respects and contain the minutes of all
meetings and all resolutions of the directors and shareholders
thereof;
(v) since December 31, 1998, YFMC has:
(i) not amended its articles, by-laws or other constating
documents;
(ii) conducted its business and that of each of its Subsidiaries in
all material respects in the ordinary course;
(iii) not suffered (on a consolidated basis) any Material Adverse
Change or any occurrences or circumstances which have resulted
or might reasonably be expected to result in a Material
Adverse Change;
(iv) not made any change in its accounting principles and practices
as theretofore applied including, without limitation, the
basis upon which its assets and liabilities are recorded on
its books and its earnings and profits and losses are
ascertained; and
(v) maintained in effect (on a consolidated basis) salary and
other compensation levels in accordance with its then existing
salary administration program;
(w) each of YFMC and its Subsidiaries:
(i) has duly and in a timely manner filed all returns, elections,
filings and reports required pursuant to any income, sales or
value added tax legislation of any jurisdictions having
jurisdiction over the affairs of YFMC or any of its
Subsidiaries for all prior periods in respect of which such
filings have heretofore been required, and such filings are
substantially true, complete and correct, the tax liability of
YFMC and each of its Subsidiaries is as indicated by the above
returns and filings, and YFMC and each of its Subsidiaries has
made timely payment of or has duly and properly accrued on the
books thereof, the taxes (including interest and penalties
thereon) shown in these returns and filings, with respect to
periods ending on or prior to the date hereof, and any
subsequent assessments, reassessments or determinations
thereof;
(ii) has made adequate provision for taxes or other amounts payable
pursuant to any legislation referred to in (i) above for the
current period for which returns, reports, elections or other
filings are not yet required to be filed, and has paid all
required installments of
<PAGE>
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income, capital, property and business taxes payable on
account of the current period;
(iii) is not aware of any contingent tax liability or any grounds
that could prompt an assessment or reassessment, other than a
potential PST liability in the Province of Quebec estimated at
approximately $10,000, and has not received any indication
from any taxation authorities that an assessment or
reassessment, regardless of its merits, is proposed or is
under consideration, other than as disclosed in the YFMC
Financial Statements or the Take-Over Bid Circular;
(iv) is not a party to any agreements or waivers extending the
statutory period of limitations applicable to any federal,
provincial or other tax return for any period;
(v) has withheld, and will continue to withhold until the date of
closing of the Offer, from each payment made to any of its
officers, directors and employees, former officers, directors
and employees and to all non-residents of Canada and other
persons with respect to whom it is required by law to withhold
any amounts, the amount of all taxes (including, without
limitation, income tax) and other deductions required to be
withheld therefrom and has paid the same to the proper tax or
other authority within the time required under any applicable
legislation; and
(vi) has not undergone an acquisition of control, for the purposes
of the ITA or any relevant provincial statute, that would
affect any taxation years of such corporations ending before
the date hereof, except as a result of transactions
contemplated by this Agreement;
(x) all filings made by YFMC or any of its Subsidiaries under which it
has received or is entitled to government incentives, have been made
in accordance, in all material respects, with all applicable
legislation and contain no misrepresentations of material fact or
omit to state any material fact which could cause any amount
previously paid to YFMC or its Subsidiaries or previously accrued on
the accounts thereof to be recovered or disallowed;
(y) neither YFMC nor any of its Subsidiaries is a party to any written
contracts of employment, management services contracts or collective
bargaining agreements, other than as disclosed in the Take-Over Bid
Circular or entered into in the ordinary course of business;
<PAGE>
- 23 -
(z) YFMC has not received any notices of material violation or alleged
material violation of the provisions of any agreement in respect of
the YFMC Assets and to the knowledge of YFMC and the Principals, the
properties and assets comprising the YFMC Assets have been used and
operated in accordance with all material agreements that relate to
them;
(aa) all ad valorem, property, production, severance and similar taxes and
assessments based on or measured by the ownership of the YFMC Assets
or the receipt of proceeds therefrom payable in respect of or in
relation to any YFMC Assets have been properly and fully paid and
discharged or have been properly accrued on the books of YFMC and
each of its Subsidiaries;
(bb) all material documents and agreements of whatsoever nature and kind
affecting title to the YFMC Assets which are in the possession of
YFMC or of which YFMC is otherwise aware have been made available
for review by MEII;
(cc) to the knowledge of YFMC and the Principals, YFMC has done no act or
thing, nor has YFMC suffered or permitted any act or omission,
whereby its title to any material YFMC Assets may be cancelled or
terminated, except as disclosed in the Take-Over Bid Circular;
(dd) to the knowledge of YFMC and the Principal Shareholders, YFMC has
been and is in compliance in all material respects with all
Environmental Laws and YFMC has received no written notice of
non-compliance, and does not know, and does not have reasonable
grounds to know, of any facts which could give rise to a notice of
non-compliance, and for greater certainty and without limiting the
foregoing, to the knowledge of YFMC and the Principals:
(i) there have been no unrectified spills, releases, deposits or
discharges of hazardous or toxic substances, contaminants or
wastes on any of the real property owned or leased by YFMC or
any of its Subsidiaries or under their respective control,
nor has any such real property been used at any time by any
person as a landfill or waste disposal site;
(ii) there have been no releases, deposits or discharges in
violation of Environmental Laws of any hazardous or toxic
substances, contaminants or wastes into the earth, air or into
any body of water or any municipal or other sewer or drain
water systems by YFMC or its Subsidiaries;
<PAGE>
- 24 -
(iii) no orders, directions or notices have been issued and remain
outstanding pursuant to any Environmental Laws relating to the
business or assets of YFMC or any of its Subsidiaries; and
(iv) each of YFMC and its Subsidiaries holds all material licences,
permits and approvals required under any Environmental Laws in
connection with the operation of its business and the
ownership and use of its assets, all such licences, permits
and approvals are in full force and effect, and none of YFMC
or its Subsidiaries has received any notification pursuant to
any Environmental Laws that any work, repairs, construction or
capital expenditures are required to be made by it as a
condition of continued compliance with any Environmental Laws
or any licence, permit or approval issued pursuant thereto, or
that any licence, permit or approval referred to above is
about to be reviewed, made subject to limitations or
conditions, revoked, withdrawn or terminated;
(ee) there is no fact which YFMC has not disclosed to MEII in writing with
reasonable specificity and detail of which any of its directors,
officers or members of senior management is aware and which has or
would reasonably be expected to have a material adverse effect on
YFMC or materially impede the completion of the Offer or the other
transactions contemplated in this Agreement;
(ff) each of YFMC and/or its Subsidiaries has all necessary governmental
authorizations and permits required to enable them to carry on their
respective businesses as conducted by them and all such licenses,
permits and approvals are in full force and effect and neither YFMC
or its Subsidiaries has received any notification pursuant to
applicable laws that any matters must be undertaken by them as a
condition of the continued compliance of any such licenses, permits
and approvals or any license, permit or approval issued to them is
about to be reviewed, made subject to limitations or conditions,
revoked, withdrawn or terminated;
(gg) YFMC is not aware of any material Y2K issues relating to the business
and operations of YFMC and its Subsidiaries, other than those
disclosed in the public record of YFMC; and
(hh) to the knowledge of YFMC, based solely on a review of its
shareholders' list of recent date, all of the registered and
beneficial owners of YFMC securities are residents of Ontario,
Alberta and Quebec.
<PAGE>
- 25 -
SECTION 3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS AND
MEII.
The representations and warranties contained herein and given by the
Principals to MEII and given by MEII to the Principals shall, in each case,
survive the completion of the transaction contemplated by the Offer for a
period of 18 months thereafter.
ARTICLE FOUR
COVENANTS
SECTION 4.1 COVENANTS OF MEII. Until the transaction contemplated by the
Offer is completed or this Agreement is terminated, MEII hereby covenants and
agrees with YFMC and the Principals as follows:
(a) MEII and its Subsidiaries will carry on business in the ordinary
course consistent with past practice (for purposes hereof, carrying
on business in the ordinary course includes the direct or indirect
acquisition of businesses related to the business of MEII), except as
contemplated in the Working Agreement, this Agreement, the Interim
MEII Financial Statements, the MEII Annual Report or the Take-Over
Bid Circular, or as disclosed in writing to YFMC or as otherwise
agreed in writing by YFMC, acting reasonably and MEII shall keep
YFMC apprised of all material developments relating thereto;
(b) MEII will not, and will not permit any of its Subsidiaries to, alter
or amend its Charter Documents as the same exist at the date of this
Agreement;
(c) MEII will not, and will not permit any of its Subsidiaries to,
subdivide, consolidate, redeem, purchase, offer to purchase or
otherwise acquire or reclassify any of its outstanding shares of any
class, declare any dividends (with the exception of dividends paid on
MEII's preferred shares in the ordinary course) or make other
distributions (whether in cash, shares or property, or any
combination thereof) or reduce the stated capital in respect of its
shares of any class;
(d) MEII will:
(i) make all required filings pursuant to the SECURITIES EXCHANGE
ACT OF 1934, as amended; and
(ii) use its reasonable best efforts to maintain the NASDAQ
SmallCap Market listing of the MEII Shares;
<PAGE>
- 26 -
(e) MEII will use its reasonable best efforts to obtain listing on NASDAQ
and the BSE of the MEII Shares to be issued pursuant to the Offer and
the MEII Shares issuable upon exercise of MEII Securities issued
pursuant to or in connection with the Offer which contain rights to
receive MEII Shares;
(f) subject to Section 2.1 hereof, MEII will, in a timely and expeditious
manner, file the Take-Over Bid Circular in all jurisdictions where it
is required to be filed and mail the same to YFMC's shareholders in
accordance with applicable law;
(g) MEII will use its reasonable best efforts to do all such other acts
and things as may be necessary or required in order to give effect to
the Offer and, without limiting the generality of the foregoing, MEII
will use its reasonable best efforts to apply for and/or obtain such
other consents, orders and approvals as counsel may advise are
necessary or desirable for the implementation of the Offer, including
those referred to in Sections 5.1 and 5.2 hereof;
(h) MEII will use its reasonable best efforts to cause each of the
conditions precedent set forth in Article Five hereof to be complied
with on or before the date of closing of the Offer and will not take
or fail to take any action reasonably within its control which would
result in a condition precedent to the Offer not being satisfied;
(i) except as may be required to complete the Offer, MEII nor any other
party acting jointly or in concert with MEII shall acquire or dispose
of securities of YFMC, directly or indirectly, except pursuant to
existing rights and obligations, during the period commencing on the
date hereof and ending on the date of termination of this Agreement;
(j) at the meeting of MEII shareholders held to approve the transaction,
MEII shall include a proposal to reconstitute its board of directors
such that the same will include one (1) nominee of YFMC, who will be
either Martin Scullion or Donald Wilson, with the understanding that
the resignation of such individual(s) shall be held by Blake, Cassels
& Graydon, in trust and shall be released to MEII if the Offer does
not proceed or is not consummated and shall be of no force and effect
if MEII takes up and pays for the YFMC Securities of PRAL or 977675,
as applicable, under the Offer; and
(k) MEII shall not withdraw the Offer prior to the time of expiry of the
Offer and will take up and pay for the YFMC Securities tendered
pursuant to the Offer if all of the conditions to the Offer are
satisfied or waived.
<PAGE>
- 27 -
SECTION 4.2 COVENANTS OF YFMC AND THE PRINCIPALS. Until the transaction
contemplated by the Offer is completed or this Agreement is terminated, YFMC
hereby covenants and agrees with MEII, and the Principals covenant and agree
with MEII to use their reasonable best efforts to cause YFMC, to do the
following:
(a) YFMC and its Subsidiaries will carry on business in the ordinary
course consistent with past practice and will not enter into any
transaction or incur any material obligation or liability out of
the ordinary course of business, except as contemplated in the
Working Agreement, this Agreement, the Interim YFMC Financial
Statements, the Take-Over Bid Circular or as otherwise agreed in
writing by MEII, acting reasonably and YFMC shall keep MEII
apprised of material developments relating thereto;
(b) with the exception of matters previously disclosed in writing to
MEII prior to the date hereof, without the prior written consent of
MEII, which consent will not be unreasonably withheld, YFMC will not,
and will not permit any of its Subsidiaries to, merge into or with,
or amalgamate or consolidate with, or enter into any other corporate
reorganization with, any other corporation or person or perform any
act or enter into any transaction or negotiation which interferes or
is inconsistent with the completion of the transactions contemplated
hereby or would render inaccurate in any material respect any of the
representations and warranties set forth in Section 3.2 hereof if
such representations and warranties were made at a date subsequent to
such act, negotiation or transaction and all references to the date
of this Agreement were deemed to be such later date, as contemplated
in this Agreement, the Take-Over Bid Circular, the Interim YFMC
Financial Statements, and, without limiting the generality of the
foregoing, YFMC will not, and will not permit any of its
Subsidiaries to:
(i) make any distribution by way of dividend, return of capital or
otherwise to or for the benefit of its shareholders;
(ii) issue any shares, except upon the due exercise of outstanding
options, warrants or other rights to purchase YFMC Shares, or
other securities convertible into or exchangeable for shares
or enter into any commitment or agreement therefor except as
contemplated in the Take-Over Bid Circular;
(iii) increase or decrease its paid-up capital; or
(iv) enter into any Non-Arm's Length Transactions;
<PAGE>
- 28 -
(c) YFMC will not, and will not permit any of its Subsidiaries to,
alter or amend its Charter Documents as the same exist at the date of
this Agreement;
(d) YFMC will not, and will not permit any of its Subsidiaries to,
subdivide, consolidate, redeem, purchase, offer to purchase or
otherwise acquire or reclassify any of its outstanding shares,
declare any dividends or make other distributions (whether in cash,
shares or property, or any combination thereof) or reduce the stated
capital in respect of its shares;
(e) YFMC will use its reasonable best efforts to maintain its status as a
reporting issuer "not in default" under the securities laws of
Alberta and Ontario and will use its reasonable best efforts to
remain in compliance with the by-laws, rules and regulations of the
ASE such that no order ceasing or suspending trading in securities of
YFMC or prohibiting the sale of securities by YFMC will be
instituted, contemplated or threatened;
(f) YFMC will use it reasonable best efforts to assist MEII in obtaining
listing on NASDAQ and the BSE of the MEII Shares to be issued
pursuant to or in connection with the Offer and the MEII Shares
issuable upon the exercise of MEII Securities issued pursuant to the
Offer which contain rights to receive MEII Shares;
(g) YFMC will not, and will not permit any of its Subsidiaries to, engage
in any business, enterprise or activity materially different from
that carried on by it at the date of this Agreement or enter into any
transaction or incur any obligation if the same would have a material
adverse effect on YFMC or the Offer, other than in the ordinary
course of business;
(h) YFMC will use its reasonable best efforts to do all such other acts
and things as may be necessary or required in order to give effect to
the Offer and, without limiting the generality of the foregoing, YFMC
will use its reasonable best efforts to apply for and/or obtain such
other consents, orders and approvals as counsel may advise are
necessary or desirable for the implementation of the Offer, including
those referred to in Section 5.1 hereof;
(i) YFMC will use its reasonable best efforts to cause each of the
conditions precedent set forth in Article Five hereof to be complied
with on or before the date of closing of the Offer and will not take
or fail to take any action reasonably within its control which would
result in a condition precedent to the Offer not being satisfied;
(j) YFMC agrees that it shall not solicit any offers to purchase any of
its shares or any of its material assets and will not initiate,
encourage or participate, directly or indirectly, in any discussions
or negotiations with
<PAGE>
- 29 -
any third party with respect to such a transaction or similar
business combination during the period commencing on the date hereof
and ending on the date of termination of this Agreement;
(k) YFMC nor any other party acting jointly or in concert with YFMC shall
acquire or dispose of securities of MEII, directly or indirectly,
except pursuant to existing rights and obligations, during the period
commencing on the date hereof and ending on the date of termination
of this Agreement;
(l) YFMC agrees to use its best reasonable efforts to assist MEII to
successfully complete the Offer, including co-operating in making all
requisite regulatory filings and mailings to shareholders;
(m) YFMC will not take any action of any kind which may reduce the
likelihood of success of or delay the take up and payment of YFMC
Shares deposited under the Offer or the completion of the Offer,
including but not limited to any action to continue, solicit,
initiate, assist or encourage inquiries, submissions, proposals or
offers from any other Person, entity or group relating to, and will
not continue or participate in any discussions or negotiations
regarding or furnish to any other Person, entity or group any
information with respect to, or otherwise cooperate in any way with
or assist or participate in, or encourage any effort or attempt with
respect to:
(i) the direct or indirect acquisition or disposition of all or any
shares or any other securities of YFMC; or
(ii) any amalgamation, merger, sale (other than a sale in the
ordinary course of business consistent with past practice) of
any part of YFMC's assets, take-over bid, plan of arrangement,
reorganization, recapitalization, liquidation or winding-up or
reverse take-over or other business combination or similar
transaction involving YFMC or any of its assets;
(n) YFMC will use its reasonable best efforts to obtain the consents
required as a result of the transactions provided for herein pursuant
to any contract to which YFMC is a party or by which it is bound;
(o) YFMC will use its reasonable best efforts to do all such other acts
and things as may be necessary or required in order to give effect to
the Offer and, without limiting the generality of the foregoing, will
use its best efforts to apply for and obtain such consents, orders
and approvals as its solicitors may advise are necessary or desirable
for the implementation of the Offer;
<PAGE>
- 30 -
(p) YFMC will use its reasonable best efforts to obtain the execution of
the Lock-Up Agreement by the Principal Shareholders and the deposit
of YFMC Shares pursuant to the terms thereof;
(q) YFMC will use all reasonable efforts to cause each of the conditions
precedent set forth in Article 5 hereof to be complied with on or
before the commencement of the Offer; and
(r) other than the right to convert YFMC Options into options of MEII
neither YFMC nor any of its Subsidiaries shall adopt or amend or make
any contribution to any bonus, profit sharing, option, pension,
retirement, deferred compensation, insurance, incentive compensation,
other compensation or other similar plan, agreement, trust, fund or
arrangements for the benefit of employees, except as is necessary to
comply with law or with respect to existing provisions of any such
plans, programs, arrangements or agreements.
Notwithstanding anything to the contrary contained herein, the board of
directors of YFMC may withdraw, modify or change any recommendation regarding
the Offer if, in the opinion of the board of directors of YFMC, acting
reasonably, and upon the written advice of counsel, such withdrawal,
modification or change is required in the discharge of the fiduciary duties
of the board of directors of YFMC. Notwithstanding any termination of this
Agreement, if the board of directors of YFMC withdraws, modifies or changes
its recommendation regarding the Offer, other than by mutual agreement of the
parties or if MEII is in default of its material obligations, or there has
been a material breach by it of its material representations, warranties and
covenants under this Agreement, in each case which constitute a Material
Adverse Change in respect of MEII, YFMC shall forthwith pay MEII a break-up
fee of $500,000.
ARTICLE FIVE
CONDITIONS
SECTION 5.1 MEII CONDITIONS PRECEDENT. Notwithstanding Section 2.1, MEII
shall not be required to make the Offer (and MEII may, without prejudice to
any other rights, by notice to YFMC, terminate this Agreement) if:
(a) YFMC shall not have taken all steps requested by MEII, acting
reasonably (other than steps which would have a material adverse
effect on YFMC's business if the Offer was not completed) in
connection with the Offer, including, without limitation, any steps
required up to the date of the Offer to satisfy the regulatory
requirements or approvals (domestic or foreign) in order for MEII to
purchase the YFMC Shares;
<PAGE>
- 31 -
(b) any representation or warranty of YFMC in this Agreement shall not
have been, as of the date made and as of the date that the Offer is
required to be made pursuant to Section 2.1, true and correct;
(c) YFMC shall not have performed or complied in all material respects
with any of its covenants or agreements and such non-performance or
non-compliance gives rise to a Material Adverse Change; or
(d) the YFMC Shares and YFMC Preferred Shares currently being held in
escrow pursuant to certain escrow agreements between certain YFMC
shareholders and Montreal Trust Company of Canada pursuant to
requirements of the ASE and the ASC, as applicable, have not been
released from escrow.
The foregoing conditions are for the sole benefit of MEII, may be waived by
MEII at any time and shall be deemed to have been waived by the making of the
Offer.
SECTION 5.2 YFMC CONDITIONS PRECEDENT. (a) Notwithstanding Sections 2.3 and
2.4 or any provision to the contrary contained herein, YFMC shall not be
required to recommend acceptance of the Offer by its shareholders until YFMC
shall have received confirmation to its satisfaction that the MEII Shares to
be issued to YFMC shareholders have been registered pursuant to the
SECURITIES ACT OF 1933, as amended, and, provided such shares are traded on
NASDAQ or the BSE, contain no resale restrictions as to such shares, with the
exception of any restrictions applicable to Persons deemed to be affiliates.
(b) Notwithstanding Sections 2.3 and 2.4 or any provision to the
contrary herein contained, YFMC shall not be required to recommend acceptance
of the Offer by its shareholders if the representations and warranties of
MEII contained in this Agreement shall be untrue or incorrect on and as of
the date of the Offer as if made on and as of such date (except as affected
by transactions contemplated or permitted by this Agreement) or if MEII is in
default of its material obligations or covenants under this Agreement on or
before the date the Offer is made, where the facts which are the subject of
such untrue or incorrect representation or warranty or such breach of
obligation or covenant constitute a Material Adverse Change in respect of
MEII.
The foregoing are for the sole benefit of YFMC and may be waived by YFMC
at any time and shall be deemed to have been waived by the mailing of the
directors' circular referred to in Section 2.4.
SECTION 5.3 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties hereto to give effect to the making of the Offer shall be subject to
the satisfaction of the following conditions:
(a) prior to the making of the Offer (i) no act, action, suit or
proceeding shall have been taken before or by any domestic or foreign
arbitrator, court or
<PAGE>
- 32 -
tribunal or governmental agency or other regulatory authority or
administrative agency or commission or by any elected or appointed
public official or private person (including, without limitation,
any individual, corporation, firm, group or other entity) in Canada
or elsewhere, whether or not having the force of law; or (ii) no
law, regulation, rule or policy shall have been proposed, enacted,
promulgated or applied, in the case of (i) or (ii) above:
(i) to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the sale to
MEII of the YFMC Securities or the rights of MEII to own or
exercise full rights or ownership of the YFMC Securities; or
(ii) which has resulted in, or if the Offer was consummated would
result in, a Material Adverse Change,
provided that in the judgment of MEII or YFMC, acting reasonably,
there is a reasonable risk that the circumstances referred to above
would result in the occurrence of any of the consequences referred
to above and further provided, however, MEII shall not be required
to make the Offer and YFMC shall not be obligated to fulfill its
obligations hereunder as a result of any action, suit or proceeding
taken by a private Person only if such act, action, suit or
proceeding shall be been resolved in favour of such private Person
as evidenced by an order, ruling or decision by any domestic or
foreign arbitrator, court or tribunal or governmental agency or
other regulatory authority or administrative agency or commission
in Canada or elsewhere having jurisdiction in respect of MEII, YFMC
or the Offer, or if, in the opinion of MEII's or YFMC's solicitors,
respectively, acting reasonably, there is a reasonable risk that
such act, action, suit or proceeding will be so resolved in favour
of such private person;
(b) at the time MEII proposes to make the Offer, there shall exist no
prohibition at law against MEII making the Offer or taking up and
paying for the YFMC Securities under the Offer;
(c) all regulatory approvals, orders and consents required or necessary
(i) for making the Offer; and
(ii) to ensure no resale restrictions attach, other than those
applicable to "control persons" or as contemplated by the
Lock-Up Agreement, to the first trade of MEII Securities on
NASDAQ issued to YFMC Shareholders pursuant to the Offer
shall have been obtained or received from the persons, authorities
or bodies having jurisdiction in the circumstances, including, for
greater
<PAGE>
- 33 -
certainty, approval of such related matters by the OSC or the SEC,
as applicable;
(d) there shall be no action taken under any existing applicable law or
regulation, nor any statute, rule, regulation or order which is
enacted, enforced, promulgated or issued by any court, department,
commission, board, regulatory body, government or governmental
authority or similar agency, domestic or foreign, that:
(i) makes it illegal or otherwise directly or indirectly
restrains, enjoins or prohibits the Offer or any other
transactions contemplated herein;
(ii) results in a judgment or assessment of material damages
directly or indirectly relating to the transactions
contemplated herein; or
(iii) prohibits MEII's or YFMC's ownership or operation of all or
any material portion of their respective business or assets
or compels MEII to dispose of or hold separately all or any
portion of the business or assets of YFMC or MEII;
(e) prior to the making of the Offer, there shall have been no Material
Adverse Change since the date hereof with respect to MEII or its
Subsidiaries on a consolidated basis or YFMC or its Subsidiaries on
a consolidated basis or any occurrences or circumstances which have
resulted or might reasonably be expected to result in a Material
Adverse Change thereto;
(f) none of the consents, orders or approvals contemplated herein
pursuant to subsection 5.3(c) shall contain terms or conditions or
require undertakings or security deemed unsatisfactory or
unacceptable by any of the parties hereto, acting reasonably; and
(g) this Agreement shall not have been terminated pursuant to the
provisions of Article Six.
SECTION 5.4 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligation of each
of the YFMC and MEII and to complete the transactions contemplated by this
Agreement is further subject to the condition, which may be waived by each of
YFMC or MEII, without prejudice to its right to rely on any other condition
in favour of YFMC or MEII, that the covenants of the other party hereto to be
performed on or before the commencement of the Offer pursuant to the
provisions of this Agreement shall have been duly performed by such other
party and that, except as affected by the transactions contemplated by this
Agreement, the representations and warranties of such other party shall be
true and correct as at the commencement of the Offer, with the same effect as
if such representations and warranties had been made at, and as of, such time
and each of
<PAGE>
- 34 -
YFMC and MEII shall receive a certificate, dated the commencement of the
Offer, of a senior officer of YFMC or MEII, as the case may be, to such
effect.
ARTICLE SIX
TERMINATION
SECTION 6.1 RIGHTS OF TERMINATION. (1) If any of the conditions contained
in Sections 5.1, 5.2 or 5.3 shall not be fulfilled or performed on or before
November 30, 1999, either of YFMC or MEII, as applicable, may terminate this
Agreement by notice to the other party hereto, and in such event YFMC and
MEII shall be released from all obligations under this Agreement (with the
exception of the obligations contained in Section 2.8), all rights of
specific performance by any such party shall terminate and, unless such party
can show that the condition or conditions the non-performance of which has
caused such party to terminate this Agreement where reasonably capable of
being performed by the other party, then the other party shall also be
released from all obligations hereunder; provided that such party can show
that the other party could reasonably have performed such condition or
conditions, then that party shall not be released from its obligations
hereunder, and further provided that any of such conditions may be waived in
full or in part by any of the parties without prejudice to its rights of
termination in the event of the non-fulfillment or non-performance of any
other condition.
(2) In addition, and notwithstanding anything to the contrary contained
herein, this Agreement shall terminate without further notice or agreement if
the Offer is not completed by January 31, 2000. Upon such termination, the
parties hereto shall be released from all further obligations under this
Agreement (with the exception of the obligations contained in Section 2.8)
and all rights of specific performance by any of the parties hereto shall
terminate.
(3) In addition, this Agreement may be terminated:
(a) at any time with the mutual consent of all of the parties hereto;
(b) by either MEII or YFMC, if MEII shall not have taken up and paid
for the YFMC Securities tendered under the Offer on or before the
required time period following the Expiry Time (as defined in the
Take-Over Bid Circular) (as such time may be extended) of the Offer
unless the absence of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform the
obligations under this Agreement required to be performed by it;
(c) by either MEII or YFMC, if a court of competent jurisdiction or a
governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting
any of the
<PAGE>
- 35 -
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable,
provided that the party seeking to terminate this Agreement
pursuant to this section shall have used all commercially
reasonable efforts to remove such order, decree, ruling or
injunction; or
(d) by MEII, if YFMC does not consent to any matter for which YFMC's
consent is required pursuant to subsection 4.1(a) hereof.
SECTION 6.2 NOTICE OF UNFULFILLED CONDITIONS. If any party shall determine
at any time prior to the closing of the transactions contemplated by the Offer
that it intends to refuse to consummate any of the transactions contemplated
hereby because of any unfulfilled or unperformed condition precedent contained
in this Agreement on the part of another party to be fulfilled or performed,
such party shall so notify the other party forthwith upon making such
determination in order that any one or more of the other parties shall have the
right and opportunity to take such steps, at their own expense, as may be
necessary for the purpose of fulfilling or performing such condition precedent
within a reasonable period of time, but in no event later than January 31, 2000.
ARTICLE SEVEN
GENERAL
SECTION 7.1 NOTICES. All notices which may or are required to be given
pursuant to any provision of this Agreement shall be given or made in writing
and shall be served personally or by telecopy, in each case addressed to the
attention of the following persons at:
(a) in the case of MEII:
Med-Emerg International, Inc.
2550 Argentia Road
Suite 205
Mississauga, Ontario
L5N 5R1
Attention: President
Telecopy number: (905) 858-1299
<PAGE>
- 36 -
with a copy to:
Blake, Cassels & Graydon
Suite 2800
199 Bay Street
Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: John Tuzyk
Telecopy number: (416) 863-2653
(b) in the case of YFMC:
YFMC Health Care Inc.
Suite 250-441 MacLaren Street
Ottawa, Ontario
K2P 2H3
Attention: President
Telecopy number: (613) 230-1379
with a copy to:
Burnet, Duckworth & Palmer
1400, 350-7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Jeff Lawson
Telecopy number: (403) 260-0337
(c) in the case of Wilson and 977675:
977675 Ontario Inc.
c/o Suite 250-441 MacLaren Street
Ottawa, Ontario
K2P 2H3
Attention: Donald Wilson
Telecopy number: (613) 230-1379
<PAGE>
- 37 -
with a copy to:
Burnet, Duckworth & Palmer
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Jeff Lawson
Telecopy number: (403) 260-0337
(d) in the case of Scullion and PRAL:
Page Raymond & Associates Ltd.
c/o Suite 250-441 MacLaren Street
Ottawa, Ontario
K2P 2H3
Attention: Martin Scullion
Telecopy No.: (613) 230-1379
with a copy to:
Burnet, Duckworth & Palmer
1400, 350-7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Jeff Lawson
Telecopy number: (403) 260-0337
SECTION 7.2 ASSIGNMENT. A party may not assign its rights or obligations
under this Agreement without the prior written consent of the other parties
hereto.
SECTION 7.3 BINDING EFFECT. This Agreement shall be binding upon and shall
enure to the benefit of the parties hereto and their respective successors
and permitted assigns.
SECTION 7.4 WAIVER. Any waiver or release of any of the provisions of this
Agreement, to be effective, must be in writing and executed by the party
granting such waiver or release.
SECTION 7.5 GOVERNING LAW. This Agreement shall be governed by and be
construed in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein and shall be treated in all respects as an
Ontario contract.
<PAGE>
- 38 -
SECTION 7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
SECTION 7.7 ENTIRE AGREEMENT. This Agreement and all agreements and other
documents herein referred to, constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral
or written, between the parties hereto with respect to the subject matter
hereof.
SECTION 7.8 EXPENSES. All expenses incurred in connection with this
Agreement and the transactions contemplated hereby and thereby shall be paid
by the party incurring such expense. The provisions of this Section 7.8 shall
survive the termination of this Agreement.
SECTION 7.9 TIME OF ESSENCE. Time is of the essence of this Agreement.
SECTION 7.10 CONFIDENTIALITY. The parties to this Agreement agree to hold
in confidence all confidential information disclosed to them by the other
party or parties or as a result of these negotiations, except with respect to
the individuals and entities listed in the immediately following sentence,
and except for any information that (a) was or is in the public domain, (b)
was previously known to the other party, as the case may be, (c) becomes
generally available to the public other than through the breach of any
obligation of confidentiality by any party hereto, (d) is obtained in good
faith from a third party, (e) is independently developed by the other party,
or (f) the disclosure of which is required by operation of law. The parties
to this Agreement also agree that, without the express written consent of the
other party, they shall not disclose to any third party (other than to their
respective advisors, officers, directors and subsidiaries) the confidential
information of the other party. The parties to this Agreement further agree
(y) that the confidentiality provisions of this Agreement shall apply to its
employees and advisors and (z) to advise such employees and advisors of the
confidential nature of such information. If the transaction is not
consummated, the parties to this Agreement agree that they will not, directly
or indirectly, use such confidential information for their own benefit, and
the parties shall, upon written request of the other party, return, and shall
cause their advisors to return, to the other party all such confidential
information in their possession and shall destroy, and shall cause their
advisors to destroy, portions of any notes, projections and other
internally-created documents to be the extent they contain such confidential
information.
SECTION 7.11 PRESS RELEASES. MEII and YFMC agree that, other than as may be
required by applicable law or the requirements of the ASE or NASDAQ, all
press releases issued in connection with the Offer shall be joint press
releases of such companies.
SECTION 7.12 NO THIRD PARTY BENEFICIARIES. Nothing contained herein shall
confer any rights or benefits on any third party.
<PAGE>
- 39 -
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first written above.
SIGNED, SEALED AND DELIVERED )
In the presence of: )
) MED-EMERG INTERNATIONAL INC.
)
) /s/Ramesh Zacharias
) Per: --------------------------------
) Authorized Signing Officer
)
) /s/Kathryn Gamble
) Per: --------------------------------
) Authorized Signing Officer
)
)
) YFMC HEALTHCARE INC.
)
) /s/Donald Wilson
) Per: --------------------------------
) Authorized Signing Officer
)
) /s/Martin Scullion
) Per: --------------------------------
) Authorized Signing Officer
)
/s/Marc Smith ) /s/Donald Wilson
- ------------------------------------- ) --------------------------------
Witness ) Donald Wilson
)
/s/Marc Smith ) /s/Martin Scullion
- ------------------------------------- ) --------------------------------
Witness ) Martin Scullion
977675 ONTARIO INC.
Per: /s/Donald Wilson
--------------------------------
Authorized Signing Officer
<PAGE>
- 40 -
PAGE RAYMOND & ASSOCIATES LTD.
Per: /s/Martin Scullion
-------------------------------
Authorized Signing Officer
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
<PAGE>
EXHIBIT B
FORM OF SERIES A WARRANT CERTIFICATE
<PAGE>
DRAFT: AUGUST 5, 1999
SERIES A WARRANT CERTIFICATE
Void after 5:00 p.m. Toronto time on the 12th day of June, 2000.
Number of Warrants: [-] Warrant Certificate No. [-]
MED-EMERG INTERNATIONAL INC.
(Incorporated under the laws of Ontario)
This is to certify that, for value received, the bearer of this Warrant (the
"Holder") shall have the right to purchase from Med-Emerg International Inc.
(hereinafter the "Corporation"), at any time on or after [-], 1999 (the
"Issue Date") and up to 5:00 p.m. (Toronto time) on June 12, 2000 (the
"Expiry Time"), one fully paid and non-assessable Common Share in the capital
stock of the Corporation for each warrant (collectively, the "Warrants" and
individually, a "Warrant") represented hereby at the price of US$2.70 per
share (the "Exercise Price"), upon and subject to the following terms and
conditions:
1. For the purpose of this Warrant, the term "Common Shares" means common
shares without nominal or par value in the capital of the Corporation as
constituted on the date hereof; provided that in the event of a Common Share
Reorganization (as hereinafter defined), or successive such Common Share
Reorganizations, then subject to the adjustments, if any, having been made in
accordance with the provisions of this Warrant Certificate, "Common Shares"
shall thereafter mean the shares, other securities or other property
resulting from such Common Share Reorganization(s).
2. All Warrant Certificates shall be signed by an officer of the
Corporation holding office at the time of signing, and notwithstanding any
change in any of the persons holding said offices between the time of actual
signing and the delivery of the Warrant Certificate and notwithstanding that
such officer signing may not have held office at the date of the delivery of
the Warrant Certificate, the Warrant Certificate so signed shall be valid and
binding upon the Corporation. Warrant Certificates shall be dated as of the
Issue Date regardless of their date of issue.
3. All rights under any of the Warrants in respect of which the right of
subscription and purchase herein provided for shall not theretofore have been
exercised shall wholly cease and terminate and such Warrants shall be wholly
void and of no valid or binding effect after the Expiry Time.
4. The right to purchase Common Shares of the Corporation pursuant to the
Warrants may only be exercised by the Holder on or after the Issue Date and
at or before the Expiry Time by:
<PAGE>
- 2 -
(a) duly completing and executing a subscription substantially in the
form attached hereto, in the manner therein indicated; and
(b) surrendering this Warrant Certificate and the duly completed and
executed subscription form to the Corporation at its principal office
(which address is currently 2550 Argentia Road, Suite 205,
Mississauga, Ontario, L5N 5R1) [OR TO THE REGISTERED TRANSFER AGENT
FOR THE WARRANTS], together with payment of the purchase price for
the Common Shares subscribed for in the form of cash or a certified
cheque payable to the Corporation or other manner acceptable to the
Corporation in an amount equal to the then applicable Exercise Price
multiplied by the number of Common Shares subscribed for.
5. Upon such delivery and payment as aforesaid, the Corporation shall cause
to be issued to the Holder the number of Common Shares to be issued and the
Holder shall become a shareholder of the Corporation in respect of such
Common Shares with effect from the date of such delivery and payment and
shall be entitled to delivery of a certificate or certificates evidencing
such Common Shares. The Corporation shall cause such certificate or
certificates to be mailed to the Holder at the address or addresses specified
in such subscription form within five (5) business days of such delivery and
payment as herein provided or, if so instructed by the Holder, held for
pick-up by the Holder at the principal office of the transfer agent of the
Corporation.
6. The holding of a Warrant shall not constitute the Holder a shareholder
of the Corporation nor entitle him, her or it to any right or interest in
respect thereof except as herein expressly provided.
7. The Corporation covenants and agrees that until the Expiry Time, while
any of the Warrants shall be outstanding, it shall reserve and there shall
remain unissued out of its authorized capital a sufficient number of Common
Shares to satisfy the right of purchase herein provided, as such right of
purchase may be adjusted pursuant to section 8 hereof and shall use its
reasonable best efforts to: (i) maintain its status as a reporting issuer in
the Province of Ontario and Alberta; and (ii) preserve and maintain its
corporate existence. All Common Shares which shall be issued upon the
exercise of the right to purchase herein provided for, upon payment therefor
of the amount at which such Common Shares may at the time be purchased
pursuant to the provisions hereof, shall be issued as fully paid and
non-assessable shares and the holders thereof shall not be liable to the
Corporation or its creditors in respect thereof.
8. If and whenever at any time after the date hereof and prior to the
Expiry Time the Corporation shall:
(i) issue Common Shares or securities exchangeable for or convertible
into Common Shares without the receipt of any consideration
therefor to all or substantially all of the holders of the Common
Shares by way of stock dividend or other distribution;
(ii) subdivide its outstanding Common Shares into a greater number of
Common Shares;
<PAGE>
- 3 -
(iii) consolidate its outstanding Common Shares into a lesser number
of Common Shares;
(iv) issue rights, options or warrants to all or substantially all of
the holders of Common Shares under which such holders are entitled
to subscribe for or purchase Common Shares or securities
exchangeable for or convertible into Common Shares;
(v) reclassify its Common Shares at any time outstanding or change the
Common Shares into other shares or other securities; or
(vi) consolidate, amalgamate, arrange or merge the Corporation with or
into any other corporation or other entity,
which event in the opinion of the directors of the Corporation would
materially affect the rights of Holders (such an event herein called a
"Common Share Reorganization"), then, subject to regulatory approval, the
Exercise Price and/or the number or kind of Common Shares or securities
purchasable upon exercise shall be adjusted in such manner, if any, and at
such time, by action by the directors, in their sole discretion as they
may determine to be equitable in the circumstances, but subject in all
cases to any necessary regulatory approval. Failure of the taking of
action by the directors so as to provide for an adjustment on or prior to
the effective date of any action by the Corporation affecting the Common
Shares shall be conclusive evidence that the board of directors of the
Corporation has determined that it is equitable to make no adjustment in
the circumstances. In the event that any questions arise with respect to
the adjustments provided herein, subject to regulatory approval, such
questions shall be conclusively determined by the auditors of the
Corporation. Such auditors shall have access to all necessary records of
the Corporation and such determination by the auditors shall be binding on
the Corporation and the Holder.
9. The Corporation shall, promptly after such adjustment is determinable,
give notice to Holders specifying the particulars of such event and, if
determinable, the required adjustment and the computation of such adjustment.
10. The Corporation shall not be required to deliver certificates for Common
Shares while the share transfer books of the Corporation are properly closed,
having regard to the provisions of section 8 hereof, prior to any meeting of
shareholders or for the payment of dividends or for any other purpose and in
the event of the surrender of any Warrant in accordance with the provisions
hereof and the making of any subscription and payment for the Common Shares
called for thereby during any such period, delivery of certificates for
Common Shares may be postponed for not more than five (5) days after the date
of the re-opening of said share transfer books. Provided, however, that any
such postponement of delivery of certificates shall be without prejudice to
the right of the Holder so surrendering the same and making payment during
such period to receive after the share transfer books shall have been
re-opened such certificates for the Common Shares called for, as the same may
be adjusted pursuant to section 8 hereof as a result of the completion of the
event in respect of which the transfer books were closed.
<PAGE>
- 4 -
11. Subject as hereinafter provided, all or any of the rights conferred upon
the Holder by the terms hereof may be enforced by the Holder by appropriate
legal proceedings. No recourse under or upon any obligation, covenant or
agreement contained herein shall be had against any past, present or future
shareholder, director or officer of the Corporation either directly or
through the Corporation, it being expressly agreed and declared that the
obligations under the Warrants are solely corporate obligations and that no
personal liability whatever shall attach to or be incurred by the past,
present or future shareholders, directors or officers of the Corporation or
any of them in respect thereof, any and all rights and claims against every
such past, present or future shareholder, officer or director being hereby
expressly waived as a condition of and as a consideration for the issue of
the Warrants.
12. The Holder may subscribe for and purchase any lesser whole number of
Common Shares than the number of shares expressed in the Warrant Certificate.
In the case of any subscription for a lesser number of Common Shares than
expressed in any Warrant Certificate, the Holder hereof shall be entitled to
receive at no cost to the Holder a new Warrant Certificate in respect of the
balance of the Warrants not then exercised. Such new Warrant Certificate
shall be mailed to the Holder by the Corporation or, at its direction, the
transfer agent, contemporaneously with the mailing of the certificate or
certificates representing the Common Shares issued pursuant to section 5.
13. The Corporation shall not be required to issue fractional Common Shares
in satisfaction of its obligations hereunder nor make any payment to a Holder
in lieu of delivering any fractional Common Shares.
14. If any Warrant Certificate becomes stolen, lost, mutilated or destroyed,
the Corporation shall, on such terms as it may in its discretion acting
reasonably impose, issue and sign a new Warrant Certificate of like
denomination, tenor and date as the Warrant Certificate so stolen, lost,
mutilated or destroyed for delivery to the Holder.
15. The Corporation shall cause to be kept (a) a register of holders in
which shall be entered the names and addresses of the holders of the Warrants
and of the number of Warrants held by them and (b) a register of transfers in
which shall be entered the date and other particulars of each transfer of
Warrants.
16. The transferee of a Warrant Certificate shall, after the transfer form
attached to the Warrant Certificate or any other form of transfer acceptable
to the Corporation, acting reasonably, is duly completed and the Warrant
Certificate is lodged with the Corporation and upon compliance with all other
conditions in that regard required by this Warrant or by law, be entitled to
have his name entered on the register of holders as the owner of the Warrants
represented thereby free from all equities or rights of set-off or
counterclaim between the Corporation and the transferor or any previous
holder of such Warrant, save in respect of equities of which the Corporation
or the transferee is required to take notice by statute or by order of a
court of competent jurisdiction. No transfer shall be entered in the register
for a period of 40 days from the Issue Date.
17. The registers hereinbefore referred to shall be open at all reasonable
times for inspection by any Holder or any other person so entitled at law.
<PAGE>
- 5 -
18. (a) Warrant Certificates may, upon compliance with the reasonable
requirements of the Corporation, be exchanged for Warrant
Certificates in any other denomination representing in the aggregate
the same number of Warrants. The Corporation shall sign, in
accordance with section 2 hereof, all Warrant Certificates necessary
to carry out the exchanges contemplated herein.
(b) Warrant Certificates may be exchanged only at the principal office
of the Corporation [OR OF THE REGISTERED TRANSFER AGENT FOR THE
WARRANTS] in the City of Mississauga, Ontario. Any Warrant
Certificates tendered for exchange shall be surrendered to the
Corporation and cancelled.
(c) Except as otherwise herein provided, the Corporation may charge
Holders requesting an exchange a reasonable sum for each new Warrant
Certificate issued; and payment of such charges and reimbursement of
the Corporation for any and all stamp taxes or governmental or other
charges required to be paid shall be made by the party requesting
such exchange as a condition precedent to such exchange.
19. The Corporation may deem and treat the registered holder of any Warrant
Certificate as the absolute owner of the Warrants represented thereby for all
purposes. In addition, the Corporation shall not be affected by any notice or
knowledge to the contrary except where the Corporation is required to take
notice by statute or by order of a court of competent jurisdiction. A Holder
shall be entitled to the rights evidenced by such Warrant free from all
equities or rights of set-off or counterclaim between the Corporation and the
original or any intermediate holder thereof and all persons may act
accordingly and the receipt by any such Holder of the Common Shares
purchasable pursuant to such Warrant shall be a good discharge to the
Corporation for the same and the Corporation shall not be bound to inquire
into the title of any such Holder except where the Corporation is required to
take notice by statute or by order of a court of competent jurisdiction.
20. Holders shall have the power from time to time by an extraordinary
resolution (as hereinafter defined):
(a) to agree to any modification, abrogation, alteration or compromise of
the rights of Holders against the Corporation, whether such rights
arise under this Warrant Certificate, or otherwise, which shall be
agreed to by the Corporation;
(b) to amend, alter or appeal any extraordinary resolution previously
passed or sanctioned by Holders;
(c) to assent to any modification of or change in or omission from the
provisions contained herein or in any instrument ancillary or
supplemental hereto which shall be agreed to by the Corporation;
(d) to restrain any Holder from taking or instituting any suit or
proceedings against the Corporation for the enforcement of any of the
covenants on the part of the Corporation conferred upon the Holders
by the terms of the Warrants; and/or
<PAGE>
- 6 -
(e) to direct any Holder who, as such, has brought any suit, action or
proceeding, to stay or to discontinue or otherwise to deal with the
same upon such terms as Holders may determine.
Any such extraordinary resolution as aforesaid shall be binding upon all
the Holders of Warrants whether or not assenting in writing or otherwise to
any such extraordinary resolution, and each Holder of any of the Warrants
shall be bound to give effect thereto accordingly. Such extraordinary
resolution shall, where applicable, be binding on the Corporation which shall
give effect thereto accordingly.
The Corporation shall forthwith upon receipt of an extraordinary
resolution provide notice to all Holders of the date and text of such
resolution. The Holders of Warrants assenting to an extraordinary resolution
agree to provide the Corporation forthwith with a copy of any extraordinary
resolution passed.
Any one or more of the powers or any combination of the powers in this
Warrant Certificate stated to be exercisable by the Holders of Warrants by
extraordinary resolution or otherwise may be exercised from time to time and
the exercise of any one or more of such powers or any combination of powers
from time to time shall not be deemed to exhaust the right of the Holders of
Warrants to exercise such power or powers or combination of powers then or
thereafter from time to time.
The term "extraordinary resolution" when used herein shall mean a
resolution assented to in writing, in one or more counterparts, by the
Holders of Warrants entitled to purchase not less than sixty-six and
two-thirds per cent (66 2/3%) of the aggregate number of Common Shares which
can be purchased pursuant to all of the Warrants which are, at the applicable
time, outstanding.
21. From time to time, the Corporation (when authorized by action by the
directors) may, subject to the provisions hereof, execute and deliver by its
proper officers, certificates, or instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more or all of the
following purposes:
(a) setting forth any adjustments resulting from the application of a
Common Share Reorganization in accordance with the provisions of
section 8;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of counsel, are necessary
or advisable in the premises;
(c) giving effect to any extraordinary resolution passed as provided in
section 20;
(d) making such provisions not inconsistent with this Warrant
Certificate, and which are not detrimental to the Holder, as may be
necessary or desirable with respect to matters or questions arising
hereunder;
<PAGE>
- 7 -
(e) adding to or altering the provisions hereof in respect of the
transfer of Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof and which is
not detrimental to the Holder;
(f) modifying any of the provisions of this Warrant Certificate, by
providing for the creation and the authority to issue additional
Warrants, or relieving the Corporation from any of the obligations,
conditions or restrictions herein contained; and
(g) for any other purpose not inconsistent with the terms of this Warrant
Certificate, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes
or omissions herein.
22. All notices to be sent hereunder shall be deemed to be validly given to
the Holders if delivered or if sent by mail, postage prepaid by letter
addressed to such Holders at their respective addresses appearing in the
register of Warrant holders caused to be maintained by the Corporation
pursuant to section 15 hereof, and such notice shall be deemed to have been
given, if delivered personally when so delivered, and if sent by post on the
third business day next following the posting thereof.
23. (a) The Corporation may not enter into any transaction whereby all or
substantially all of its undertaking, property and assets become the
property of any other corporation (herein called a "Successor
Corporation") whether by way of re-organization, restructuring,
consolidation, amalgamation, merger, transfer, sale, disposition or
otherwise, unless prior to or contemporaneously with the consummation
of such transaction the Corporation and the Successor Corporation
shall have executed such instruments and done such things, as, in the
opinion of counsel to the Holder, acting reasonably, are necessary or
advisable to establish that upon the consummation of such transaction:
(i) the Successor Corporation will have assumed all of the
covenants and obligations of the Corporation under this
Warrant; and
(ii) the Warrant will be a valid and binding obligation of the
Successor Corporation entitling the Holder, as against the
Successor Corporation, to all of the rights of the Holder under
this Warrant.
(b) Whenever the conditions of the foregoing subsection shall have been
duly observed and performed, the Successor Corporation shall possess,
and from time to time may exercise, each and every right and power of
the Corporation under this Warrant in the name of the Corporation or
otherwise and any act or proceeding by any provision hereof required
to be done or performed by any director or officer of the Corporation
may be done and performed with like force and effect by the directors
or officers of the Successor Corporation.
<PAGE>
- 8 -
24. This Warrant shall be governed by the laws of the Province of Ontario
and the federal laws of Canada applicable herein.
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate
to be signed by its duly authorized officer.
DATED as of the_______ day of _____________________, 1999.
MED-EMERG INTERNATIONAL INC.
Per: _________________________________
Carl Pahapill
President
<PAGE>
SUBSCRIPTION FORM
TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED:
The undersigned hereby subscribes for ______________________ Common Shares of
Med-Emerg International Inc. according to the terms and conditions set forth
in the annexed Warrant Certificate (or such number of other securities or
property to which such warrant entitles the undersigned to acquire under the
terms and conditions set forth in the annexed Warrant Certificate).
Address for Delivery of Shares: _________________________________________
_________________________________________
_________________________________________
Attention: ______________________________
Exercise Price
Tendered (US$2.70 per share or
as adjusted) $____________________
Dated at ____________, this ______ day of _____________, _____________.
Witness: ) ________________________________
) Holder's Name
)
) ________________________________
) Authorized Signature
)
) ________________________________
Title (if applicable)
Signature guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A CANADIAN CHARTERED BANK OR A MEMBER OF
A RECOGNIZED STOCK EXCHANGE OR OTHER ENTITY ACCEPTABLE TO MED-EMERG
INTERNATIONAL INC.
<PAGE>
ASSIGNMENT FORM
TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED:
TO: MED-EMERG INTERNATIONAL INC.
2550 Argentia Road
Suite 205
Mississauga, Ontario
L5N 5R1
FOR VALUE RECEIVED, ____________________ WARRANTS represented by this Warrant
Certificate are hereby transferred to ____________________________ residing
at ______________________________________.
You are hereby instructed to take the necessary steps to effect this transfer.
Dated at ____________, this ______ day of _____________, _____________.
Witness: ) ________________________________
) Holder's Name
)
) ________________________________
) Authorized Signature
)
) ________________________________
Title (if applicable)
Signature guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A CANADIAN CHARTERED BANK OR A MEMBER OF
A RECOGNIZED STOCK EXCHANGE OR OTHER ENTITY ACCEPTABLE TO MED-EMERG
INTERNATIONAL INC.
<PAGE>
EXHIBIT C
FORM OF SERIES B WARRANT CERTIFICATE
<PAGE>
DRAFT: AUGUST 5, 1999
SERIES B WARRANT CERTIFICATE
Void after 5:00 p.m. Toronto time on the 12th day of June, 2000.
Number of Warrants: [-] Warrant Certificate No. [-]
MED-EMERG INTERNATIONAL INC.
(Incorporated under the laws of Ontario)
This is to certify that, for value received, the bearer of this Warrant (the
"Holder") shall have the right to purchase from Med-Emerg International Inc.
(hereinafter the "Corporation"), at any time on or after [-], 1999 (the
"Issue Date") and up to 5:00 p.m. (Toronto time) on June 12, 2000 (the
"Expiry Time"), one fully paid and non-assessable Common Share in the capital
stock of the Corporation for each warrant (collectively, the "Warrants" and
individually, a "Warrant") represented hereby at the price of US$3.40 per
share (the "Exercise Price"), upon and subject to the following terms and
conditions:
1. For the purpose of this Warrant, the term "Common Shares" means common
shares without nominal or par value in the capital of the Corporation as
constituted on the date hereof; provided that in the event of a Common Share
Reorganization (as hereinafter defined), or successive such Common Share
Reorganizations, then subject to the adjustments, if any, having been made in
accordance with the provisions of this Warrant Certificate, "Common Shares"
shall thereafter mean the shares, other securities or other property
resulting from such Common Share Reorganization(s).
2. All Warrant Certificates shall be signed by an officer of the
Corporation holding office at the time of signing, and notwithstanding any
change in any of the persons holding said offices between the time of actual
signing and the delivery of the Warrant Certificate and notwithstanding that
such officer signing may not have held office at the date of the delivery of
the Warrant Certificate, the Warrant Certificate so signed shall be valid and
binding upon the Corporation. Warrant Certificates shall be dated as of the
Issue Date regardless of their date of issue.
3. All rights under any of the Warrants in respect of which the right of
subscription and purchase herein provided for shall not theretofore have been
exercised shall wholly cease and terminate and such Warrants shall be wholly
void and of no valid or binding effect after the Expiry Time.
4. The right to purchase Common Shares of the Corporation pursuant to the
Warrants may only be exercised by the Holder on or after the Issue Date and
at or before the Expiry Time by:
<PAGE>
- 2 -
(a) duly completing and executing a subscription substantially in the
form attached hereto, in the manner therein indicated; and
(b) surrendering this Warrant Certificate and the duly completed and
executed subscription form to the Corporation at its principal office
(which address is currently 2550 Argentia Road, Suite 205,
Mississauga, Ontario, L5N 5R1) [OR TO THE REGISTERED TRANSFER AGENT
FOR THE WARRANTS], together with payment of the purchase price for
the Common Shares subscribed for in the form of cash or a certified
cheque payable to the Corporation or other manner acceptable to the
Corporation in an amount equal to the then applicable Exercise Price
multiplied by the number of Common Shares subscribed for.
5. Upon such delivery and payment as aforesaid, the Corporation shall cause
to be issued to the Holder the number of Common Shares to be issued and the
Holder shall become a shareholder of the Corporation in respect of such
Common Shares with effect from the date of such delivery and payment and
shall be entitled to delivery of a certificate or certificates evidencing
such Common Shares. The Corporation shall cause such certificate or
certificates to be mailed to the Holder at the address or addresses specified
in such subscription form within five (5) business days of such delivery and
payment as herein provided or, if so instructed by the Holder, held for
pick-up by the Holder at the principal office of the transfer agent of the
Corporation.
6. The holding of a Warrant shall not constitute the Holder a shareholder
of the Corporation nor entitle him, her or it to any right or interest in
respect thereof except as herein expressly provided.
7. The Corporation covenants and agrees that until the Expiry Time, while
any of the Warrants shall be outstanding, it shall reserve and there shall
remain unissued out of its authorized capital a sufficient number of Common
Shares to satisfy the right of purchase herein provided, as such right of
purchase may be adjusted pursuant to section 8 hereof and shall use its
reasonable best efforts to: (i) maintain its status as a reporting issuer in
the Province of Ontario and Alberta; and (ii) preserve and maintain its
corporate existence. All Common Shares which shall be issued upon the
exercise of the right to purchase herein provided for, upon payment therefor
of the amount at which such Common Shares may at the time be purchased
pursuant to the provisions hereof, shall be issued as fully paid and
non-assessable shares and the holders thereof shall not be liable to the
Corporation or its creditors in respect thereof.
8. If and whenever at any time after the date hereof and prior to the
Expiry Time the Corporation shall:
(i) issue Common Shares or securities exchangeable for or convertible
into Common Shares without the receipt of any consideration
therefor to all or substantially all of the holders of the Common
Shares by way of stock dividend or other distribution;
(ii) subdivide its outstanding Common Shares into a greater number of
Common Shares;
<PAGE>
- 3 -
(iii) consolidate its outstanding Common Shares into a lesser number of
Common Shares;
(iv) issue rights, options or warrants to all or substantially all of
the holders of Common Shares under which such holders are entitled
to subscribe for or purchase Common Shares or securities
exchangeable for or convertible into Common Shares;
(v) reclassify its Common Shares at any time outstanding or change the
Common Shares into other shares or other securities; or
(vi) consolidate, amalgamate, arrange or merge the Corporation with or
into any other corporation or other entity,
which event in the opinion of the directors of the Corporation would
materially affect the rights of Holders (such an event herein called a
"Common Share Reorganization"), then, subject to regulatory approval, the
Exercise Price and/or the number or kind of Common Shares or securities
purchasable upon exercise shall be adjusted in such manner, if any, and at
such time, by action by the directors, in their sole discretion as they
may determine to be equitable in the circumstances, but subject in all
cases to any necessary regulatory approval. Failure of the taking of
action by the directors so as to provide for an adjustment on or prior to
the effective date of any action by the Corporation affecting the Common
Shares shall be conclusive evidence that the board of directors of the
Corporation has determined that it is equitable to make no adjustment in
the circumstances. In the event that any questions arise with respect to
the adjustments provided herein, subject to regulatory approval, such
questions shall be conclusively determined by the auditors of the
Corporation. Such auditors shall have access to all necessary records of
the Corporation and such determination by the auditors shall be binding on
the Corporation and the Holder.
9. The Corporation shall, promptly after such adjustment is determinable,
give notice to Holders specifying the particulars of such event and, if
determinable, the required adjustment and the computation of such adjustment.
10. The Corporation shall not be required to deliver certificates for Common
Shares while the share transfer books of the Corporation are properly closed,
having regard to the provisions of section 8 hereof, prior to any meeting of
shareholders or for the payment of dividends or for any other purpose and in
the event of the surrender of any Warrant in accordance with the provisions
hereof and the making of any subscription and payment for the Common Shares
called for thereby during any such period, delivery of certificates for
Common Shares may be postponed for not more than five (5) days after the date
of the re-opening of said share transfer books. Provided, however, that any
such postponement of delivery of certificates shall be without prejudice to
the right of the Holder so surrendering the same and making payment during
such period to receive after the share transfer books shall have been
re-opened such certificates for the Common Shares called for, as the same may
be adjusted pursuant to section 8 hereof as a result of the completion of the
event in respect of which the transfer books were closed.
<PAGE>
- 4 -
11. Subject as hereinafter provided, all or any of the rights conferred upon
the Holder by the terms hereof may be enforced by the Holder by appropriate
legal proceedings. No recourse under or upon any obligation, covenant or
agreement contained herein shall be had against any past, present or future
shareholder, director or officer of the Corporation either directly or
through the Corporation, it being expressly agreed and declared that the
obligations under the Warrants are solely corporate obligations and that no
personal liability whatever shall attach to or be incurred by the past,
present or future shareholders, directors or officers of the Corporation or
any of them in respect thereof, any and all rights and claims against every
such past, present or future shareholder, officer or director being hereby
expressly waived as a condition of and as a consideration for the issue of
the Warrants.
12. The Holder may subscribe for and purchase any lesser whole number of
Common Shares than the number of shares expressed in the Warrant Certificate.
In the case of any subscription for a lesser number of Common Shares than
expressed in any Warrant Certificate, the Holder hereof shall be entitled to
receive at no cost to the Holder a new Warrant Certificate in respect of the
balance of the Warrants not then exercised. Such new Warrant Certificate
shall be mailed to the Holder by the Corporation or, at its direction, the
transfer agent, contemporaneously with the mailing of the certificate or
certificates representing the Common Shares issued pursuant to section 5.
13. The Corporation shall not be required to issue fractional Common Shares
in satisfaction of its obligations hereunder nor make any payment to a Holder
in lieu of delivering any fractional Common Shares.
14. If any Warrant Certificate becomes stolen, lost, mutilated or destroyed,
the Corporation shall, on such terms as it may in its discretion acting
reasonably impose, issue and sign a new Warrant Certificate of like
denomination, tenor and date as the Warrant Certificate so stolen, lost,
mutilated or destroyed for delivery to the Holder.
15. The Corporation shall cause to be kept (a) a register of holders in
which shall be entered the names and addresses of the holders of the Warrants
and of the number of Warrants held by them and (b) a register of transfers in
which shall be entered the date and other particulars of each transfer of
Warrants.
16. The transferee of a Warrant Certificate shall, after the transfer form
attached to the Warrant Certificate or any other form of transfer acceptable
to the Corporation, acting reasonably, is duly completed and the Warrant
Certificate is lodged with the Corporation and upon compliance with all other
conditions in that regard required by this Warrant or by law, be entitled to
have his name entered on the register of holders as the owner of the Warrants
represented thereby free from all equities or rights of set-off or
counterclaim between the Corporation and the transferor or any previous
holder of such Warrant, save in respect of equities of which the Corporation
or the transferee is required to take notice by statute or by order of a
court of competent jurisdiction. No transfer shall be entered in the register
for a period of 40 days from the Issue Date.
17. The registers hereinbefore referred to shall be open at all reasonable
times for inspection by any Holder or any other person so entitled at law.
<PAGE>
- 5 -
18. (a) Warrant Certificates may, upon compliance with the reasonable
requirements of the Corporation, be exchanged for Warrant
Certificates in any other denomination representing in the aggregate
the same number of Warrants. The Corporation shall sign, in
accordance with section 2 hereof, all Warrant Certificates necessary
to carry out the exchanges contemplated herein.
(b) Warrant Certificates may be exchanged only at the principal office of
the Corporation [OR OF THE REGISTERED TRANSFER AGENT FOR THE
WARRANTS]. Any Warrant Certificates tendered for exchange shall be
surrendered to the Corporation and cancelled.
(c) Except as otherwise herein provided, the Corporation may charge
Holders requesting an exchange a reasonable sum for each new Warrant
Certificate issued; and payment of such charges and reimbursement of
the Corporation for any and all stamp taxes or governmental or other
charges required to be paid shall be made by the party requesting
such exchange as a condition precedent to such exchange.
19. The Corporation may deem and treat the registered holder of any Warrant
Certificate as the absolute owner of the Warrants represented thereby for all
purposes. In addition, the Corporation shall not be affected by any notice or
knowledge to the contrary except where the Corporation is required to take
notice by statute or by order of a court of competent jurisdiction. A Holder
shall be entitled to the rights evidenced by such Warrant free from all
equities or rights of set-off or counterclaim between the Corporation and the
original or any intermediate holder thereof and all persons may act
accordingly and the receipt by any such Holder of the Common Shares
purchasable pursuant to such Warrant shall be a good discharge to the
Corporation for the same and the Corporation shall not be bound to inquire
into the title of any such Holder except where the Corporation is required to
take notice by statute or by order of a court of competent jurisdiction.
20. Holders shall have the power from time to time by an extraordinary
resolution (as hereinafter defined):
(a) to agree to any modification, abrogation, alteration or compromise of
the rights of Holders against the Corporation, whether such rights
arise under this Warrant Certificate, or otherwise, which shall be
agreed to by the Corporation;
(b) to amend, alter or appeal any extraordinary resolution previously
passed or sanctioned by Holders;
(c) to assent to any modification of or change in or omission from the
provisions contained herein or in any instrument ancillary or
supplemental hereto which shall be agreed to by the Corporation;
(d) to restrain any Holder from taking or instituting any suit or
proceedings against the Corporation for the enforcement of any of the
covenants on the part of the Corporation conferred upon the Holders
by the terms of the Warrants; and/or
<PAGE>
- 6 -
(e) to direct any Holder who, as such, has brought any suit, action or
proceeding, to stay or to discontinue or otherwise to deal with the
same upon such terms as Holders may determine.
Any such extraordinary resolution as aforesaid shall be binding upon all
the Holders of Warrants whether or not assenting in writing or otherwise to
any such extraordinary resolution, and each Holder of any of the Warrants
shall be bound to give effect thereto accordingly. Such extraordinary
resolution shall, where applicable, be binding on the Corporation which shall
give effect thereto accordingly.
The Corporation shall forthwith upon receipt of an extraordinary
resolution provide notice to all Holders of the date and text of such
resolution. The Holders of Warrants assenting to an extraordinary resolution
agree to provide the Corporation forthwith with a copy of any extraordinary
resolution passed.
Any one or more of the powers or any combination of the powers in this
Warrant Certificate stated to be exercisable by the Holders of Warrants by
extraordinary resolution or otherwise may be exercised from time to time and
the exercise of any one or more of such powers or any combination of powers
from time to time shall not be deemed to exhaust the right of the Holders of
Warrants to exercise such power or powers or combination of powers then or
thereafter from time to time.
The term "extraordinary resolution" when used herein shall mean a
resolution assented to in writing, in one or more counterparts, by the
Holders of Warrants entitled to purchase not less than sixty-six and
two-thirds per cent (66 2/3%) of the aggregate number of Common Shares which
can be purchased pursuant to all of the Warrants which are, at the applicable
time, outstanding.
21. From time to time the Corporation (when authorized by action by the
directors) may, subject to the provisions hereof, execute and deliver by its
proper officers, certificates, or instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more or all of the
following purposes:
(a) setting forth any adjustments resulting from the application of a
Common Share Reorganization in accordance with the provisions of
section 8;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of counsel, are necessary
or advisable in the premises;
(c) giving effect to any extraordinary resolution passed as provided in
section 20;
(d) making such provisions not inconsistent with this Warrant
Certificate, and which are not detrimental to the Holder, as may be
necessary or desirable with respect to matters or questions arising
hereunder;
<PAGE>
- 7 -
(e) adding to or altering the provisions hereof in respect of the
transfer of Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof and which is
not detrimental to the Holder;
(f) modifying any of the provisions of this Warrant Certificate, by
providing for the creation and the authority to issue additional
Warrants, or relieving the Corporation from any of the obligations,
conditions or restrictions herein contained; and
(g) for any other purpose not inconsistent with the terms of this Warrant
Certificate, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes
or omissions herein.
22. All notices to be sent hereunder shall be deemed to be validly given to
the Holders if delivered or if sent by mail, postage prepaid by letter
addressed to such Holders at their respective addresses appearing in the
register of Warrant holders caused to be maintained by the Corporation
pursuant to section 15 hereof, and such notice shall be deemed to have been
given, if delivered personally when so delivered, and if sent by post on the
third business day next following the posting thereof.
23. (a) The Corporation may not enter into any transaction whereby all or
substantially all of its undertaking, property and assets become the
property of any other corporation (herein called a "Successor
Corporation") whether by way of re-organization, restructuring,
consolidation, amalgamation, merger, transfer, sale, disposition or
otherwise, unless prior to or contemporaneously with the consummation
of such transaction the Corporation and the Successor Corporation
shall have executed such instruments and done such things, as, in the
opinion of counsel to the Holder, acting reasonably, are necessary or
advisable to establish that upon the consummation of such transaction:
(i) the Successor Corporation will have assumed all of the
covenants and obligations of the Corporation under this
Warrant; and
(ii) the Warrant will be a valid and binding obligation of the
Successor Corporation entitling the Holder, as against the
Successor Corporation, to all of the rights of the Holder under
this Warrant.
(b) Whenever the conditions of the foregoing subsection shall have been
duly observed and performed, the Successor Corporation shall possess,
and from time to time may exercise, each and every right and power of
the Corporation under this Warrant in the name of the Corporation or
otherwise and any act or proceeding by any provision hereof required
to be done or performed by any director or officer of the Corporation
may be done and performed with like force and effect by the directors
or officers of the Successor Corporation.
<PAGE>
- 8 -
24. This Warrant shall be governed by the laws of the Province of Ontario
and the federal laws of Canada applicable herein.
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate
to be signed by its duly authorized officer.
DATED as of the_______ day of _____________________, 1999.
MED-EMERG INTERNATIONAL INC.
Per: _______________________________
Carl Pahapill
President
<PAGE>
SUBSCRIPTION FORM
TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED:
The undersigned hereby subscribes for _________________ Common Shares of
Med-Emerg International Inc. according to the terms and conditions set forth
in the annexed Warrant Certificate (or such number of other securities or
property to which such warrant entitles the undersigned to acquire under the
terms and conditions set forth in the annexed Warrant Certificate).
Address for Delivery of Shares: _________________________________________
_________________________________________
_________________________________________
Attention: ______________________________
Exercise Price
Tendered (US$3.40 per share or
as adjusted) $____________________
Dated at ____________, this ______ day of _____________, _____________.
Witness: ) ________________________________
) Holder's Name
)
) ________________________________
) Authorized Signature
)
) ________________________________
Title (if applicable)
Signature guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A CANADIAN CHARTERED BANK OR A MEMBER OF
A RECOGNIZED STOCK EXCHANGE OR OTHER ENTITY ACCEPTABLE TO MED-EMERG
INTERNATIONAL INC.
<PAGE>
ASSIGNMENT FORM
TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED:
TO: MED-EMERG INTERNATIONAL INC.
2550 Argentia Road
Suite 205
Mississauga, Ontario
L5N 5R1
FOR VALUE RECEIVED, ___________________ WARRANTS represented by this Warrant
Certificate are hereby transferred to ____________________________ residing
at ______________________________________.
You are hereby instructed to take the necessary steps to effect this transfer.
Dated at ____________, this ______ day of _____________, _____________.
Witness: ) ________________________________
) Holder's Name
)
) ________________________________
) Authorized Signature
)
) ________________________________
Title (if applicable)
Signature guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A CANADIAN CHARTERED BANK OR A MEMBER OF
A RECOGNIZED STOCK EXCHANGE OR OTHER ENTITY ACCEPTABLE TO MED-EMERG
INTERNATIONAL INC.
<PAGE>
EXHIBIT D
FORM OF WORKING AGREEMENT
<PAGE>
EXHIBIT 2.2
LOCK-UP AGREEMENT
THIS AGREEMENT made as of the 10th day of August, 1999.
BETWEEN:
MED-EMERG INTERNATIONAL INC., a corporation incorporated under
the laws of the Province of Ontario
(hereinafter referred to as "MEII")
- and -
DONALD WILSON AND MARTIN SCULLION
(collectively, the "PRINCIPALS" and individually, a
"PRINCIPAL")
- and -
977675 ONTARIO INC. ("977675"), a corporation incorporated
under the laws of Ontario and PAGE, RAYMOND & ASSOCIATES LTD.
("PRAL"), a corporation incorporated under the laws of Ontario
(977675 and PRAL are hereinafter referred to as the "PRINCIPAL
SHAREHOLDERS")
- and -
YFMC HEALTHCARE INC., a corporation continued under the laws
of the Province of Ontario
(hereinafter referred to as "YFMC")
- and -
<PAGE>
- 2 -
MONTREAL TRUST COMPANY OF CANADA
(hereinafter referred to as the "ESCROW AGENT")
WHEREAS MEII, YFMC, the Principals and the Principal Shareholders
entered into the Business Combination Agreement pursuant to which MEII has
agreed, among other things, to make an offer to purchase all of the YFMC
Securities;
AND WHEREAS Donald Wilson is an officer, director and principal
shareholder of 977675; and
AND WHEREAS Martin Scullion is an officer, director and principal
shareholder of PRAL;
AND WHEREAS the Principal Shareholders are at the present time the
holders of the number of YFMC Securities as set out in Schedule "A" hereto;
AND WHEREAS the Principal Shareholders have mutually agreed with
each other and with MEII and YFMC to forthwith deposit all of their YFMC
Securities with the Escrow Agent pursuant to the terms hereof, such that such
securities will be deposited under the Offer;
AND WHEREAS the YFMC Common Shares and the YFMC Preferred Shares
set out in Schedule "A" hereto are currently being held in escrow pursuant to
certain agreements, in each case, between the Principal Shareholders and the
Escrow Agent pursuant to the requirements of the Alberta Stock Exchange and
the Alberta Securities Commission, as applicable (the "ASC/ASE Escrow");
NOW THEREFORE in consideration of the mutual covenants and
agreements contained in this Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged
by each of the parties), the parties hereto do hereby agree as follows:
ARTICLE 1
INTERPRETATIONS
1.1 DEFINITIONS. In this Agreement the following capitalized terms
shall have the following respective meanings ascribed thereto:
"AGREEMENT" means this agreement and all schedules attached hereto,
in each case as they may be supplemented or amended from time to
time and the expressions "HEREOF", "HEREIN", "HERETO", "HEREUNDER",
"HEREBY" and similar expressions refer to this agreement and,
unless otherwise indicated, references to Articles and Sections are
to the specified Articles and Sections in this Agreement;
"ASC/ASE ESCROW" has the meaning ascribed thereto in the recitals
hereto;
<PAGE>
- 3 -
"BUSINESS COMBINATION AGREEMENT" means the agreement made as of
even date among MEII, YFMC, the Principals and the Principal
Shareholders relating to, among other things, the Offer;
"BUSINESS DAY" means a day on which Canadian chartered banks are
open for business in Toronto, Ontario;
"DEPOSITED SECURITIES" means, prior to completion of the Offer, the
YFMC Common Shares and the YFMC Preferred Shares deposited by the
Principal Shareholders pursuant to Section 2.1;
"MEII" means Med-Emerg International, Inc.;
"MEII COMMON SHARES" means common shares of MEII, as constituted on
the date hereof;
"NON-ARM'S LENGTH TRANSACTION" means, except for contracts of
employment, any contract or agreement between YFMC or any
subsidiary and any officer, director, employee of YFMC and/or any
subsidiary or any person not dealing at arm's length (within the
meaning of the INCOME TAX ACT (Canada)) with any of them or any
affiliate of any of them;
"OFFER" means the offer to be made by MEII to purchase, among other
things, all of the YFMC Common Shares in exchange for MEII Common
Shares, as contemplated by the Business Combination Agreement;
"YFMC COMMON SHARES" means common shares of YFMC, as constituted on
the date hereof; and
"YFMC PREFERRED SHARES" means the 1,000,000 outstanding first
preferred shares, Series A of YFMC, as the same are constituted on
the date hereof;
"YFMC SECURITIES" means YFMC Common Shares, YFMC Preferred Shares
and YFMC Warrants; and
"YFMC SERIES A WARRANTS" means the 356,680 outstanding common share
purchase warrants of YFMC, each such warrant entitling the holder
thereof to acquire one YFMC Common Share at an exercise price of
$0.40 per share for a period of two years from the date of issuance;
"YFMC SERIES B WARRANTS" means the 356,680 outstanding common share
purchase warrants of YFMC, each such warrant entitling the holder
thereof to acquire one YFMC Common Share at an exercise price of
$0.50 per share for a period of two years from the date of
issuance; and
"YFMC WARRANTS" means the YFMC Series A Warrants and the YFMC
Series B Warrants, collectively.
<PAGE>
- 4 -
Capitalized terms which are not otherwise defined herein shall have the meanings
ascribed to them in the Business Combination Agreement.
1.2 MUTATIS MUTANDIS. The provisions of this Agreement relating to the
Deposited Securities shall apply MUTATIS MUTANDIS to any other securities
into which the Deposited Securities or any of them may be exchanged,
converted, changed, reclassified, subdivided or consolidated.
1.3 GENDER AND NUMBER. In this Agreement, unless the context otherwise
requires, words importing the singular include the plural and vice versa and
words importing gender include all genders.
1.4 INVALIDITY OF PROVISIONS. Each of the provisions of this Agreement
is distinct and severable and a declaration of invalidity or unenforceability
of any such provision by a court of competent jurisdiction shall not affect
the validity or enforceability of any other provision hereof.
1.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter of this Agreement. There
are no warranties, representations or agreements among the parties in
connection with such subject matter, except as specifically set forth or
referred to in this Agreement. No reliance is placed on any representation,
opinion, advice or assertion of fact made by any party or its directors,
officers and agents, except to the extent that the same has been reduced to
writing and included as a term of this Agreement. Accordingly, there shall be
no liability, either in tort or in contract, assessed in relation to any such
representation, opinion, advice or assertion of fact, except to the extent
aforesaid.
1.6 AMENDMENT, WAIVER. Except as expressly provided in this Agreement,
no amendment of this Agreement shall be binding unless executed in writing by
all of the parties hereto. No waiver of this Agreement shall be binding
unless executed in writing and no such waiver shall constitute a waiver of
any other provision, nor shall any waiver of any provision of this Agreement
constitute a continuing waiver, unless otherwise expressly provided.
1.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein, and shall in all respects be treated as an Ontario
contract.
1.8 TERMINATION. This Agreement and all obligations of MEII, YFMC, the
Principals and the Principal Shareholders hereunder shall terminate on the
earlier of: (a) January 31, 2000, if the Offer is not completed by MEII, (b)
the date upon which all of the Deposited Securities have been taken up and
paid for pursuant to the Offer or (c) at the option of MEII, YFMC or the
Principal Shareholders, if the Business Combination Agreement is terminated
in accordance with Article 6 thereof and written notice of the same is
provided by any party hereto to the Escrow Agent.
<PAGE>
- 5 -
ARTICLE 2
RELEASE FROM ASC/ASE ESCROW
2.1 APPLICATION. The Principals will, and the Principals agree to cause
the Principal Shareholders to, forthwith after the execution of this
Agreement, make an application to the Alberta Securities Commission and the
Alberta Stock Exchange for the release of all of the YFMC Common Shares and
the YFMC Preferred Shares subject to the ASC/ASE Escrow.
2.2 PURSUE DILIGENTLY. The Principals and the Principal Shareholders
agree to cause such application to be pursued diligently and expeditiously.
2.3 KEEP INFORMED. The Principals and the Principal Shareholders agree
to keep MEII and its counsel fully informed as to the status of the
application for the release of the YFMC Common Shares and the YFMC Preferred
Shares from the ASC/ASE Escrow and to fully consult with MEII's counsel with
respect thereto.
ARTICLE 3
ESCROW
3.1 DEPOSITED SECURITIES. Upon release of the YFMC Common Shares and
the YFMC Preferred Shares from the ASC/ASE Escrow, the Principal Shareholders
hereby agree to, and the Principals agree to cause the Principal Shareholders
to, place and deposit with the Escrow Agent the YFMC Common Shares and the
YFMC Preferred Shares held by the Principal Shareholders as set forth in
Schedule "A" to this Agreement. The Principal Shareholders hereby undertake
and agree forthwith to, and the Principals agree to cause the Principal
Shareholders to, deliver to the Escrow Agent duly completed and executed
powers of attorney permitting the transfer of such shares in blank (with
signatures guaranteed by a bank, trust company or investment dealer) to the
Escrow Agent for deposit.
ARTICLE 4
THE OFFER
4.1 AGREEMENT TO DEPOSIT UNDER THE OFFER
(1) Subject to the Deposited Securities being released from the ASC/ASE
Escrow and subject to Section 1.8 hereof, each of the Principal
Shareholders hereby irrevocably and unconditionally agrees to, and
the applicable Principal agrees to cause such Principal Shareholder
to, deposit all of the YFMC Common Shares and the YFMC Preferred
Shares owned by such Principal Shareholder under the Offer.
(2) Subject to the Deposited Securities being released from the ASC/ASE
Escrow and subject to Section 1.8 hereof, each of the Principal
Shareholders hereby irrevocably authorizes and directs the Escrow
Agent to, and the Principals agree to cause the Principal
Shareholders to, deposit with the Escrow Agent in its capacity as
depository with respect to the Offer all of the YFMC Common Shares
<PAGE>
- 6 -
and the YFMC Preferred Shares deposited hereunder under the Offer
and to execute and deliver for and on behalf of such Principal
Shareholder all instruments and documents as may be required to be
executed or delivered by such Principal Shareholder in connection
with the Offer and, notwithstanding the rights granted to each such
Principal Shareholder pursuant to applicable securities legislation
or the terms of the Offer, further irrevocably agrees that
thereafter the Principal or the Principal Shareholder will not
withdraw any of the Deposited Securities deposited by such
shareholder under the Offer until the date on which the Offer
expires or is terminated without MEII having taken up and paid for
the Deposited Securities under the Offer.
ARTICLE 5
ESCROW TERMS AND RELEASES FROM ESCROW
5.1 TRANSFER OF DEPOSITED SECURITIES. Upon completion of the Offer, any
Deposited Securities deposited under this Agreement shall be transferred to
MEII.
5.2 ESCROW AGENT. Once the Deposited Securities are deposited
hereunder, the Principal Shareholders hereby direct the Escrow Agent to
retain their respective securities and the certificates or agreements
representing the same (including any replacement securities, agreements or
certificates) and not to do or cause anything to be done to release the same
from escrow or to allow any transfer, hypothecation or alienation thereof,
except with and as directed by a written consent, order or direction as
contemplated herein. The Escrow Agent hereby accepts the responsibilities
placed on it hereby and agrees to perform the same in accordance with the
terms hereof and the written consents, orders or directions as contemplated
herein.
5.3 TRANSFER OF SECURITIES. The Escrow Agent shall at all times hold
the certificates and agreements representing the Deposited Securities held by
the Principal Shareholders and deposited hereunder on behalf of the Principal
Shareholders. The Principal Shareholders hereby irrevocably appoint MEII as
their attorney for the purpose of transferring their Deposited Securities
deposited hereunder in accordance with the terms of this Agreement. Any such
transfer shall be effected in accordance with the terms hereof.
5.4 RESTRICTIONS ON TRANSFER. The Principal Shareholders hereby agree
that the Deposited Securities deposited hereunder and the beneficial
ownership of or any interest in them and the certificates and agreements
representing them (including any replacement securities, agreements or
certificates) shall not be sold, assigned, pledged, mortgaged, hypothecated,
alienated or otherwise in any manner dealt with except in accordance with
this Agreement or except as may be required by reason of the death or
bankruptcy of one of the Principal Shareholders, in which case, the Escrow
Agent shall hold the said certificates or agreements, subject to this
Agreement, for whatever persons, firms or corporations shall be legally
entitled to be or become the registered owner thereof. Notwithstanding the
foregoing, there shall be no restriction or prohibition on any transfer of
any Deposited Securities deposited hereunder for estate or tax planning or
other similar purposes, provided that MEII's prior written approval to such
transfer is obtained (which approval will not be unreasonably withheld), and
further
<PAGE>
- 7 -
provided that the transferee agrees to be bound by the terms and conditions
of this Agreement and to execute such further documents or instruments as
MEII considers necessary or desirable.
5.5 RIGHTS OF SHAREHOLDERS. If during the period in which any of the
Deposited Securities are retained in escrow pursuant hereto, any cash
dividend is received by the Escrow Agent in respect of the Deposited
Securities, any such dividend shall be forthwith paid or transferred to the
respective Principal Shareholders entitled thereto. All voting rights
attached to the Deposited Securities shall at all times be exercised by the
respective registered owners thereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATIONS AND WARRANTIES. Each of the Principals severally
represents and warrants to MEII that:
(a) the Principal Shareholder owned by him is the registered and
beneficial owner of the YFMC Common Shares and the YFMC Preferred Shares
set forth opposite his name in Schedule "A" annexed hereto and the
Principal Shareholder owns such shares free and clear of all
encumbrances of any nature or kind and no person has any right to
purchase any such shares, except pursuant to the terms hereof and the
Offer;
(b) each of YFMC and its subsidiaries has not made any payment or loan
to, or borrowed any monies from or is otherwise indebted to, any person
pursuant to a Non-Arm's Length Transaction, except as disclosed in
YFMC's audited financial statements for its fiscal year ended December
31, 1998, the Business Combination Agreement or the take-over bid
circular prepared in connection with the Offer and except for usual
compensation paid in the ordinary course of business, consistent with
past practice; and
(c) except for contracts of employment or as disclosed in the Business
Combination Agreement or in the take-over bid circular prepared in
connection with the Offer, each of YFMC and its subsidiaries is not
party to any Non-Arm's Length Transaction.
ARTICLE 7
GENERAL CONTRACT PROVISIONS
7.1 NOTICES. Any notice herein required or permitted to be given by
any party to the others shall be in writing and shall be delivered or sent by
telex or facsimile transmission, personal delivery or pre-paid registered
mail to the applicable address set forth below:
(1) in the case of MEII, to the following:
Med-Emerg International Inc.
2550 Argentia Road,
Suite 205
Mississauga, Ontario
<PAGE>
- 8 -
L5N 5R1
Attention: The President
Facsimile: (905) 858-1399
(2) in the case of the Principals and the Principal Shareholders, to
the address therefor shown in the registers maintained by YFMC from
time to time or as otherwise shown in YFMC's records.
(3) in the case of YFMC, to:
YFMC Healthcare Inc.
Suite 250 - 441 MacLaren Street
Ottawa, Ontario
K2P 2H3
Attention: The President
Fax No.: (613) 230-1379
(4) in the case of the Escrow Agent, to:
Montreal Trust Company of Canada
Suite 600
530-8th Avenue S.W.
Calgary, Alberta
T2P 3S8
Attention: Wes Takeuchi
Fax No.: (403) 267-6518
Any notice delivered shall be deemed to have been validly and effectively
given on the day of such delivery. If the day of delivery is not a Business
Day, notice shall be deemed to have been given and received on the next
Business Day following such date. Any notice sent by telex or facsimile
transmission or other means of prepaid recorded communication shall be deemed
to have been validly and effectively given on the Business Day next following
the day on which it was sent.
7.2 TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement.
7.3 FURTHER ACTS. The parties hereto agree to sign such other papers,
cause such meetings to be held, resolutions (including special resolutions)
passed, by-laws enacted, exercise their vote and influence and do and perform
and cause to be done and performed such further and other acts and things as
may be necessary to give full effect and force to this Agreement.
7.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original and such counterparts together shall constitute one and the same
document.
<PAGE>
- 9 -
7.5 SUCCESSORS AND ASSIGNS. This Agreement shall enure to the benefit
of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
7.6 ESCROW AGREEMENT. Upon completion of the Offer, MEII and the
Principal Shareholders agree to enter into an escrow agreement with the
Escrow Agent substantially in the form annexed hereto as Schedule "B".
7.7 PREFERRED SHARE ESCROW AGREEMENT. Upon completion of the Offer,
MEII and the Principal Shareholders agree to enter into an escrow agreement
with the Escrow Agent substantially in the form annexed hereto as Schedule
"C".
IN WITNESS WHEREOF the parties hereto have executed these presents
as of the day and year first above-written.
SIGNED, SEALED AND DELIVERED )
In the presence of: )
) MED-EMERG INTERNATIONAL INC.
)
) /s/ Kathryn Gamble
) By: ---------------------------------
) Name:
) Title:
)
)
) YFMC HEALTHCARE INC.
)
) /s/ Martin Scullion
) By: ---------------------------------
) Name:
) Title:
)
)
) MONTREAL TRUST COMPANY OF CANADA
)
) By: _________________________________
) Name:
) Title:
)
)
) By: _________________________________
) Name:
) Title:
)
<PAGE>
- 10 -
)
/s/ Marc Smith ) /s/ Donald Wilson
- ------------------------------------- ) -------------------------------------
Witness ) DONALD WILSON
)
/s/ Marc Smith ) /s/ Martin Scullion
- ------------------------------------- ) -------------------------------------
Witness ) MARTIN SCULLION
)
) 977675 ONTARIO INC.
)
) /s/ Donald Wilson
) By: ---------------------------------
) Name:
) Title:
)
)
) PAGE, RAYMOND & ASSOCIATES LTD.
)
) /s/ Martin Scullion
) By: ---------------------------------
) Name:
) Title:
<PAGE>
SCHEDULE "A"
PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
- ------------------------------- ----------------------- ------------------ ------------- ---------------------
NAME OF PRINCIPAL NUMBER OF SHARE CERTIFICATE
SHAREHOLDER ADDRESS CLASS OF SHARES SHARES NUMBERS
- ------------------------------- ----------------------- ------------------ ------------- ---------------------
<S> <C> <C> <C> <C>
977675 Ontario Inc. 56 Tiffany Crescent Common 3,641,331 -
(Donald Wilson) Kanata, Ontario Preferred 506,354 1,2,3,7,8,9
K2K 1W2
- ------------------------------- ----------------------- ------------------ ------------- ---------------------
Page Raymond & Associates Ltd. 34 Oakhurst Crescent Common 3,360,165 -
(Martin Scullion) Gloucester, Ontario Preferred 463,102 4,5,6,10,11,12
K1B 4A6
- ------------------------------- ----------------------- ------------------ ------------- ---------------------
</TABLE>
<PAGE>
SCHEDULE "B"
ESCROW AGREEMENT
(for MEII Common Shares exchanged
for YFMC Common Shares)
<PAGE>
SCHEDULE "C"
PREFERRED SHARE ESCROW AGREEMENT
(for MEII Common Shares exchanged
for YFMC Preferred Shares)
<PAGE>
EXHIBIT 2.3
WORKING AGREEMENT
THIS AGREEMENT MADE THIS 10TH DAY OF AUGUST, 1999
B E T W E E N:
MED-EMERG INTERNATIONAL INC.
(HEREINAFTER REFERRED TO AS "MEII")
OF THE FIRST PART
- AND -
YFMC HEALTHCARE INC.
(HEREINAFTER REFERRED TO AS "YFMC")
OF THE SECOND PART
WHEREAS MEII intends to make an offer to purchase all of the issued and
outstanding securities of YFMC (the "Transaction");
AND WHEREAS the parties together with 997675 Ontario Inc. and Page
Raymond & Associates Ltd. (the "Principal Shareholders of YFMC") have entered
into the Business Combination Agreement;
AND WHEREAS the parties must obtain their respective regulatory and
shareholder approvals to proceed with the Transaction (the "Approvals");
AND WHEREAS the parties anticipate at least a ninety (90) day delay in
obtaining the appropriate Approvals and are desirous of establishing, pending
completion of the Transaction, a working agreement for the purposes of
carrying on business as a combined entity;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
by each of the parties hereto, the parties hereto hereby covenant and agree
as follows:
1. TERM:
This Agreement shall come into force and effect as of the date of the
execution of the Business Combination Agreement (the "Effective Date") and
shall continue in force until the earlier of:
<PAGE>
2
1. the successful closing of the Transaction; and
2. the termination of the Business Combination Agreement in accordance
with the termination provisions therein.
2. OBJECTIVES AND RELATIONSHIP OF THE PARTIES:
2.1 As of the Effective Date, MEII and YFMC agree to establish a working
agreement for the purpose of continuing carrying on their respective
businesses but as one combined entity ("MEII-YFMC").
2.2 During the term of this Agreement, MEII-YFMC will have the following
objectives:
1. to operate and to continue with the development of the Physician
Practice Management ("PPM") division, which includes, without
limitation, the acquisition of medical centres and the creation of
new health centres throughout Canada;
2. the development of the HealthyConnect.com (or other related name)
division of MEII;
3. the creation of strategic alliances; and
4. engaging in any other business which is for the benefit of
MEII-YFMC;
2.3 In conjunction with the Transaction, YFMC has offered employment or
consulting packages to YFMC management with MEII's consent. In order to
meet the mutual objectives of both parties of carrying on business as
MEII-YFMC, the following persons have agreed that the commencement date
of their term of employment or consulting arrangements will be the
Effective Date:
1. DR. DONALD WILSON: Dr. Wilson will act as an administrator and his
responsibilities will include recruiting qualified physicians,
organizing physician's shifts, developing an organization-wide
quality assurance program, contributing to the combined business'
strategy and plans for growth and developing health programs for
the clinics managed or operated by MEII-YFMC;
2. MARTIN SCULLION: Mr. Scullion will act as General Manager of
medical clinic operations and his responsibilities will include
overseeing the planning, coordination and execution of operations
at present and future medical clinics managed or operated by
MEII-YFMC;
3. MARC E. SMITH: Mr. Smith will act as General Corporate Counsel of
MEII-YFMC and his responsibilities will include managing all
corporate legal and compliance matters, lease negotiations,
contract development, acquisition related matters and be involved
in the development of business growth strategies; and
<PAGE>
3
4. ED BELANGER: International Health Consultants Inc. will provide
the services of Mr. Belanger to MEII-YFMC to serve as
Vice-President Corporate Finance and Development and as President
of YFMC Healthcare (Alberta) Inc.
3. CARRYING ON BUSINESS:
3.1 YFMC and MEII shall each continue operating their respective businesses
on the understanding that they shall consult one another in the same
fashion as if they were operating as one combined entity.
3.2 Each of YFMC and MEII, unless otherwise agreed upon, will, subject to
the Business Combination Agreement, continue to carry on business using
their respective credit facilities to fund day to day operation and the
acquisitions of new businesses. All new acquisitions and/or businesses
will, subject to the Business Combination Agreement, be concluded under
their respective banners, to be later converted into the combined new
entity, provided the successful completion of the Transaction.
3.3 Neither YFMC or MEII shall have the authority to act for the other or to
incur any obligation on behalf of the other.
4. TERMINATION AND DISPUTE RESOLUTION:
4.1 In the event that the Transaction does not successfully close and that
this Agreement is terminated, the parties agree to the following:
1. Without limitation thereon, all acquisitions, business development
and/or creation of strategic alliances which were secured either
prior to or during the term of this Agreement by YFMC or MEII,
shall remain the property of either YFMC or MEII, as the case may
be;
2. MEII will advance, from time to time, up to $50,000, as working
capital for YFMC. For greater certainty, the advances will not be
used by YFMC in respect of acquisitions. Such advances will be
evidenced by a promissory grid note with such rate of interest and
such other terms (including terms as to security) as may be
mutually agreed. The amount evidenced by such promissory note will,
in the event the Transaction is not completed, be repaid by January
31, 2000.
3. In the event the Transaction is not completed, YFMC and MEII agree
to reimburse one another for operational expenses incurred to
facilitate the combination of the
<PAGE>
4
business operations, such as traveling and out-of-pocket expenses
and which would not have been incurred but for the proposed
business combination. For greater certainty, expenses relating to
the negotiation and preparation of the Business Combination
Agreement and related expenses are not reimbursable by either party.
4. Within sixty days of the termination of this agreement and in the
event the Transaction has not been completed, both YFMC and MEII
shall provide one another with a summary of all expenses incurred
for which reimbursement is sought pursuant to this provision.
Within forty-five days of receipt of the summary, the parties
hereto shall consult and negotiate with one another in good faith
to reach a just and equitable resolution of the reimbursement of
such expenses.
5. To the extent amounts are reimbursable by one party to the other,
such amounts may be set-off against amounts otherwise owing by such
party to the other party.
4.2 If the aforementioned attempts referred to in paragraph 4.1(3) fail
within the forty-five (45) days provided, then such disagreement shall
be referred to arbitration pursuant to the Arbitration legislation of
the province of Ontario and in accordance with the following:
1. any party may by written notice to the other party request that the
disagreement be referred to arbitration with the reference being to
a single arbitrator who is reasonably knowledgeable in the health
related industry and mutually agreed to by the parties, provided
that, if the parties are unable to agree on an arbitrator within
twenty (20) days of receipt of the written notice, the arbitration
shall be to three arbitrators each being reasonably knowledgeable
in the aforementioned field, one of whom shall be appointed by YFMC
and one of whom shall be appointed by MEII and each party shall
provide notice to the other party of the arbitrator so appointed
within thirty (30) days of the written notice requesting
arbitration and the third arbitrator shall be appointed by the
arbitrators appointed by YFMC and MEII and such third arbitrator
shall be the chairperson; provided further that if either party
fails to give notice of the appointment of an arbitrator herein
provided the reference shall be to an arbitrator appointed in
accordance with this clause and as such the arbitrator shall be
considered to have been mutually agreed to by the parties;
2. where reference is to three arbitrators, decisions may be made by
the majority of the arbitrators provided that matters susceptible
to reduction to a number, such as a dollar amount, shall be decided
by closed ballot by averaging the two nearest numerical decisions
of the three arbitrators;
3. the arbitrator(s) may proceed to an award notwithstanding the
failure of one party to participate in the arbitration proceedings;
<PAGE>
5
4. the prevailing party shall be entitled to an award of reasonable
legal fees incurred in connection with the arbitration in such
amount as determined by the arbitrator(s); and
5. the award of the arbitrator(s) shall be enforceable in a court of
competent jurisdiction.
5. APPLICABLE LAW
5.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada
applicable in the Province of Ontario and shall be treated, in all
respects, as an Ontario contract. Each Party to this Agreement
irrevocably attorns to and submits to the jurisdiction of the Courts of
Ontario with respect to any matter arising under to relating to this
Agreement.
6. ACCOUNTING TERMS
6.1 All calculations are to be made and all financial data to be submitted
are to be prepared, in accordance with the generally accepted accounting
principles approved from time to time by the Canadian Institute of
Chartered Accountants, or any successor institute applied on a
consistent basis.
7. SEVERABILITY
7.1 Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the
extent of such prohibition or unenforceability and shall be severed from
the balance of this Agreement, all without affecting the remaining
provisions of this Agreement or affecting the validity or enforceability
of such provision in any other jurisdiction.
8. COUNTERPARTS
8.1 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together
shall be deemed to constitute one and the same instrument. Counterparts
may be executed either in original or faxed form and the parties adopt
any signatures received by fax machine as original signatures of the
parties; provided, however, that any party providing its signature in
such manner shall promptly forward to the other party an original of the
signed copy of this Agreement which was so faxed.
<PAGE>
6
IN WITNESS WHEREOF this agreement has been executed by the parties hereto.
)
)
) YFMC HEALTHCARE INC.
) /s/ Martin Scullion
) PER:
-----------------------------
) I have authority to bind the
) corporation
)
) MED-EMERG INTERNATIONAL
) INC.
) /s/ Kathryn Gamble
) PER:
-----------------------------
) I have authority to bind the
) corporation
With reference to paragraph 2.3 of this Agreement, Messrs. Donald Wilson, Martin
Scullion, Marc Smith and Ed Belanger and International Health Consultants Inc.
hereby agree to the terms thereof.
/s/ Donald Wilson /s/ Marc Smith
- ----------------------------- ------------------------------
Donald Wilson Marc E. Smith
/s/ Martin Scullion /s/ Ed Belanger
- ----------------------------- ------------------------------
Martin Scullion Ed Belanger
INTERNATIONAL HEALTH CONSULTANTS INC.
/s/ Ed Belanger
Per:
-----------------------------
I have the authority to bind the corporation
<PAGE>
EXHIBIT 2.4
THIS AGREEMENT made this ______ day of __________, 1999.
AMONG:
MED-EMERG INTERNATIONAL INC., a corporation incorporated
pursuant to the laws of the Province of Ontario
(herein called the "Issuer")
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust company authorized
to carry on business in each province of Canada
(herein called the "Escrow Agent")
- and -
THOSE PERSONS LISTED IN SCHEDULE "A" HERETO
(herein called the "Securityholders")
WHEREAS the Securityholders wish to deposit in escrow certain common
shares (the "Escrowed Shares") of the Issuer owned by them and have for that
purpose delivered to the Escrow Agent the security certificate(s) described
in SCHEDULE "A", the receipt of which certificates the Escrow Agent hereby
acknowledges;
AND WHEREAS the Escrow Agent has agreed to undertake and perform its
duties according to the terms and conditions hereof;
NOW THEREFORE this agreement witnesses that, in consideration of the sum
of one dollar ($1.00) paid by the parties to each other, receipt of this sum
being acknowledged by each of the parties, the Securityholders jointly and
severally, covenant and agree with the Issuer and with the Escrow Agent, and
the Issuer and the Escrow Agent covenant and agree each with the other and
with the Securityholders jointly and severally, as follows:
1. In this Escrow Agreement, or in any amendment or agreement supplemental
hereto, unless the context otherwise requires, the following terms shall
have the following meanings:
a. "BOARD OF DIRECTORS" means the board of directors of the Issuer;
b. "CHANGE OF CONTROL" means any of the:
i. the sale by the Issuer of all the assets of the Issuer or
substantially all the assets of the Issuer; or
ii. the amalgamation, arrangement, merger or other consolidation
of the Issuer with or into any one or more other corporations,
(1) pursuant to which a Person or company or combination of
Persons and/or companies thereafter hold a greater number
of Voting Shares or other securities of the successor or
continuing corporation having rights of purchase,
conversion or exchange into Voting Shares of the
successor or continuing corporation (assuming the
purchase, conversion or exchange of other securities
whether then purchasable, convertible or exchangeable or
not into the highest number of Voting Shares of the
successor or continuing corporation such Persons and/or
companies would be entitled to) than the number of Voting
Shares of the successor or continuing corporation held
directly and indirectly by former shareholders of the
Issuer; or
(2) such other amalgamation, arrangement, merger or other
consolidation which, in the opinion of the Board of
Directors, should be subject to this
<PAGE>
2
Change of Control definition in order to fairly protect
the rights of the Securityholders;
c. "DIRECTION" means a direction of the Issuer in the form attached as
SCHEDULE "B" hereto;
d. "PERSON" has the meaning ascribed to it in the BUSINESS CORPORATIONS
ACT (Ontario) and which, for the purposes of this Agreement, shall
include the Issuer;
e. "VOTING SHARES" means the voting securities of the Corporation
within the meaning of the SECURITIES ACT (Ontario).
2. Each of the Securityholders hereby places and deposits in escrow with
the Escrow Agent those of the Securityholder's securities of the Issuer
described in SCHEDULE "A" and the Escrow Agent hereby acknowledges
receipt of those certificates. Each of the Securityholders agrees to
deposit in escrow any replacement securities or certificates which may
at any time be issued for any escrowed securities.
3. Each of the Securityholders shall be entitled to a letter or receipt
from the Escrow Agent stating the number of securities represented by
certificates held for the Securityholder by the Escrow Agent subject to
the terms of this agreement. It is expressly understood and agreed by
the parties to this Escrow Agreement that such letter or receipt shall
not be assignable.
4. Except as provided in Section 5, the securities deposited in escrow as
described shall remain in escrow and shall not be sold, assigned,
hypothecated, pledged, charged, alienated, released from escrow,
transferred within escrow or otherwise in any manner dealt with, without
the prior written consent of the Issuer to the Escrow Agent. The
foregoing shall not prevent any transfer or assignment which may be
required by reason of the death or bankruptcy of any Securityholder, in
which case the Escrow Agent shall hold the said securities and
certificates in escrow, subject to the provisions of this agreement, for
whatever person or company shall be legally entitled to be or become the
registered owner thereof.
5. The Issuer agrees with the Securityholders that the Escrowed Shares
shall be released to the Securityholders upon the earlier of:
a. February 9, 2001;
b. that date on which the prior twenty day weighted average share price
of the Issuer's common shares exceeds U.S. $3.40, provided that, if
the Direction is received:
i. on or prior to February 9, 2000, one-third (1/3) of the
Escrowed Shares of each Securityholder shall be automatically
released on each of February 9, 2000, August 9, 2000 and
February 9, 2001;
ii. subsequent to February 9, 2000 but prior to August 9, 2000,
one-third (1/3) of the Escrowed Shares of each Securityholder
shall be released immediately, one-third (1/3) shall be
automatically released on August 9, 2000, and the remaining
one-third (1/3) shall be released on February 9, 2001;
iii. subsequent to August 9, 2000 but prior to February 9, 2001,
two-thirds (2/3) of the escrowed shares will be released
immediately with the balance of the escrowed shares released
on February 9, 2001;
c. in the event of the liquidation, dissolution or winding-up of the
Issuer, whether voluntary or involuntary, or any other distribution
of assets of the Issuer among its shareholders for the purpose
winding-up its affairs; and
d. in the event of a Change of Control of the Issuer.
In the case of subsection 5.a. above, the Trustee shall automatically
release the Escrowed Shares. In the case of subsections 5.b. through and
including 5.d. above, the Issuer shall provide the Direction to the
Trustee to
<PAGE>
3
effect such release and, subject to the release terms of Section 5.b.
above, the Trustee shall immediately release the Escrowed Shares.
6. If during the period in which any of the Escrowed Shares are retained in
escrow pursuant hereto any cash dividend is received by the Issuer in
respect of the Escrowed Shares, any such cash dividend shall be
forthwith paid or transferred to the respective Securityholders entitled
thereto. If during the period in which any of the Escrowed Shares are
retained in escrow pursuant hereto, any share dividend or other
distribution of securities is received by the Escrow Agent in respect of
the Escrowed Shares, any certificates representing such share dividend
or securities will be held by the Escrow Agent on and subject to the
terms of this agreement. If during the period in which any of the
Escrowed Shares are retained in escrow pursuant hereto, any share
dividend or other distribution of securities is received by a
Securityholder in respect of the Escrowed Shares, any certificates
representing such share dividend or securities must be forthwith
deposited by the securityholders with the Escrow Agent to be held by the
Escrow Agent on and subject to the terms of this agreement.
7. Any Securityholder may hypothecate, pledge or charge any or all
securities owned by it and deposited in escrow hereunder to a financial
institution, provided that prior to such hypothecation, pledge or
charge, such financial institution enters into an agreement with the
particular Securityholder and the Issuer whereby it agrees to be bound
by the provisions of this agreement and acknowledges that the securities
so hypothecated, pledged or charged may not be sold, transferred or
otherwise dealt with except in accordance with the provisions of this
agreement, and provided that the Securityholder provides to the Escrow
Agent any and all documents that the Escrow Agent deems necessary or
required in order to effect to such hypothecation, pledge or charge.
8. All voting rights attached to the escrowed securities shall at all times
be exercised by the respective registered owners thereof and the Issuer
and the Escrow Agent shall take all necessary steps from time to time to
permit the registered owners to exercise such rights.
9. The Escrow Agent accepts the responsibilities placed on the Escrow Agent
by this agreement and agrees to perform them in accordance with the
terms hereof and with the applicable consent of the Issuer or the
Direction of the parties hereto.
10. The Issuer hereby acknowledges the terms and conditions of this
agreement and agrees to take all reasonable steps to facilitate the
Issuer's performance of this agreement and to pay the Escrow Agent's
proper charges for the Escrow Agent's services as trustee of this escrow.
11. The Securityholders and the Issuer hereby jointly and severally agree to
and do hereby release and indemnify and save harmless the Escrow Agent
and its employees, officers, directors and agents from and against all
claims, suits, demands, costs, damages and expenses which may be
occasioned by any of them by reason of the Escrow Agent's compliance in
good faith with the terms hereof.
12. If the Escrow Agent should wish to retire, the Escrow Agent shall
provide ninety (90) days' notice to the Issuer, and the Issuer may by
writing appoint another trustee in the Escrow Agent's place and such
appointment shall be binding on the Securityholders, and the new trustee
shall assume and be bound by the obligations of the Escrow Agent
hereunder.
13. This agreement may be amended upon agreement of the Issuer, the Escrow
Agent and the Securityholders.
14. This agreement may be executed in several counterparts in the same form
and the counterparts as so executed shall together constitute one
original agreement, and the parts, if more than one, shall be read
together and shall be construed as if all the signing parties hereto had
executed one copy of this agreement.
15. This agreement constitutes the entire understanding between the parties
to this agreement with respect to the subject matter of this agreement
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, between the parties and there are
no warranties, representations or other agreements between the parties
in connection with this agreement, except as specifically set forth in
this agreement.
16. This agreement shall be interpreted in accordance with and governed in
all respects by the laws of the Province of Ontario.
<PAGE>
4
17. Any provision or any portion of any provision or provisions of this
agreement determined by a court of competent jurisdiction to be invalid,
illegal or unenforceable shall be deemed stricken to the extent
necessary to eliminate any invalidity, illegality or unenforceability
and the rest of the agreement and all other provisions and parts of this
agreement shall remain in full force and effect and be binding on the
parties to this agreement as though the illegal or unenforceable
provision or provisions or part or parts of the agreement had never been
included in this agreement.
18. In this agreement, the expression "the Securityholders" shall include
the Securityholders' respective permitted transferees within escrow and
any person to whom the interest of a Securityholder may be transmitted
by operation of law as provided herein, and the expression "the Escrow
Agent" shall include a new trustee appointed hereunder, and wherever the
singular or masculine is used, the same shall be construed to include
the plural or feminine or neuter where the context so requires.
<PAGE>
5
19. This agreement shall enure to the benefit of and be binding on the
parties to this agreement and each of their heirs, executors,
administrators, successors and permitted assigns.
IN WITNESS WHEREOF the Issuer, the Escrow Agent and the Securityholders
have executed this Escrow Agreement as of the date and year first above
written.
MED-EMERG INTERNATIONAL INC.
Per: __________________________________
Per: __________________________________
MONTREAL TRUST COMPANY OF CANADA
Per: __________________________________
Per: __________________________________
SIGNED, SEALED AND DELIVERED by the respective Securityholder set out
below.
977675 ONTARIO INC.
Per: __________________________________
Donald Wilson
PAGE RAYMOND & ASSOCIATES LTD.
Per: __________________________________
Martin Scullion
<PAGE>
SCHEDULE "A" to the Escrow Agreement dated the _____ day of ________________,
1999 and made among Med-Emerg International Inc., Montreal Trust Company of
Canada and the parties listed on the execution page to the Escrow Agreement
(therein called the "Securityholders")
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
NUMBER OF
NAME OF SECURITYHOLDERS TYPE OF SECURITIES SECURITIES
- ----------------------- ------------------ -----------
<S> <C> <C>
977675 ONTARIO INC. Common Shares 50,636
(Donald Wilson)
PAGE RAYMOND & ASSOCIATES LTD. Common Shares 46,310
(Martin Scullion)
</TABLE>
<PAGE>
SCHEDULE "B" to the Escrow Agreement dated the _____ day of
________________, 1999 and made among Med-Emerg International Inc.,
Montreal Trust Company of Canada and the parties listed on the execution
page to the Escrow Agreement (therein called the "Securityholders")
DIRECTION
TO: Montreal Trust Company of Canada
Reference is made to the escrow agreement dated -, 1999 (the "Escrow
Agreement") among Med-Emerg International Inc., Montreal Trust Company of
Canada, 977675 Ontario Inc. and Page Raymond & Associates Ltd. Capitalized
terms which are not otherwise defined herein shall have the meaning ascribed
to such terms in the Escrow Agreement.
Montreal Trust Company of Canada is hereby authorized and directed to
proceed with a release of the Escrowed Shares of each Securityholder held in
escrow under the Escrow Agreement pursuant to the terms of Section 5___ of
the Escrow Agreement.
DATED this _______ day of _________________, 1999.
MED-EMERG INTERNATIONAL INC.
Per: __________________________________
<PAGE>
EXHIBIT 2.5
THIS AGREEMENT made this ______ day of _________________,
1999.
AMONG:
MED-EMERG INTERNATIONAL INC., a corporation incorporated
pursuant to the laws of the Province of Ontario
(herein called the "Issuer")
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust company authorized
to carry on business in each province of Canada
(herein called the "Escrow Agent")
- and -
THOSE PERSONS LISTED IN SCHEDULE "A" HERETO
(herein called the "Securityholders")
WHEREAS the Securityholders wish to deposit in escrow certain common
shares (the "Escrowed Shares") of the Issuer owned by them and have for that
purpose delivered to the Escrow Agent the security certificate(s) described
in SCHEDULE "A", the receipt of which certificates the Escrow Agent hereby
acknowledges;
AND WHEREAS the Escrow Agent has agreed to undertake and perform its
duties according to the terms and conditions hereof;
NOW THEREFORE this agreement witnesses that, in consideration of the sum
of one dollar ($1.00) paid by the parties to each other, receipt of this sum
being acknowledged by each of the parties, the Securityholders jointly and
severally, covenant and agree with the Issuer and with the Escrow Agent, and
the Issuer and the Escrow Agent covenant and agree each with the other and
with the Securityholders jointly and severally, as follows:
1. In this Escrow Agreement, or in any amendment or agreement supplemental
hereto, unless the context otherwise requires, the term "Direction" means
a direction of the Issuer in the form attached as SCHEDULE "B" hereto.
2. Each of the Securityholders hereby places and deposits in escrow with the
Escrow Agent those of the Securityholder's securities of the Issuer
described in SCHEDULE "A" and the Escrow Agent hereby acknowledges receipt
of those certificates. Each of the Securityholders agrees to deposit in
escrow any replacement securities or certificates which may at any time be
issued for any escrowed securities.
3. Each of the Securityholders shall be entitled to a letter or receipt from
the Escrow Agent stating the number of securities represented by
certificates held for the Securityholder by the Escrow Agent subject to
the terms of this agreement. It is expressly understood and agreed by the
parties to this Escrow Agreement that such letter or receipt shall not be
assignable.
4. Except as provided in Sections 5 and 6, the securities deposited in escrow
as described shall remain in escrow and shall not be sold, assigned,
hypothecated, pledged, charged, alienated, released from escrow,
transferred within escrow or otherwise in any manner dealt with, without
the prior written consent of the Issuer to the Escrow Agent. Any release
may be either total or partial; a partial release shall release from
escrow only the securities specified in it, and this agreement shall
continue in force with respect to those securities as may from time to
time remain in escrow until all the escrowed securities have been either
released pursuant to Sections 5 and 6, or on the written consent of the
Issuer. The foregoing shall not prevent any transfer or assignment which
may be required by reason of the death or bankruptcy of any
Securityholder, in which case the Escrow Agent shall hold the said
securities and certificates in escrow, subject to the provisions of this
agreement, for whatever person or company shall be legally entitled to be
or become the registered owner thereof.
<PAGE>
2
5. Subject to Section 6, the Escrowed Shares deposited with the Escrow Agent
pursuant to this agreement shall be automatically released as to one-third
(1/3) of the securities of each Securityholder subject to the escrow
requirements under this agreement on each of February 9, 2000, August 9,
2000 and February 9, 2001.
6. Notwithstanding the provisions of Section 5, the Issuer has agreed with
the Securityholders that, if at any time after the date of this agreement,
the 20 day weighted average share price of the Issuer's common shares
exceeds US $3.50, the Issuer shall release immediately 20% of the Escrowed
Shares to the Securityholders. In such circumstance, the Issuer shall
provide the Direction to the Escrow Agent, and the Escrow Agent shall
immediately release to the Securityholders 20% of the number of Escrowed
Shares of each Securityholder originally held in escrow such that, if the
20% release occurs:
a. prior the date which is February 9, 1999, 13-1/3% of the Escrowed
Shares will be released on February 9, 2000;
b. after the date which is February 9, 2000 and prior to August 9, 2000,
13-1/3% of the Escrowed Shares will be released on August 9, 2000; and
c. after the date which is August 9, 2000 and prior to the date which is
February 9, 2001, 13-1/3% of the Escrowed Shares will be released on
February 9, 2001.
7. If during the period in which any of the Escrowed Shares are retained in
escrow pursuant hereto any cash dividend is received by the Issuer in
respect of the Escrowed Shares, any such cash dividend shall be forthwith
paid or transferred to the respective Securityholders entitled thereto. If
during the period in which any of the Escrowed Shares are retained in
escrow pursuant hereto, any share dividend or other distribution of
securities is received by the Escrow Agent in respect of the Escrowed
Shares, any certificates representing such share dividend or securities
will be held by the Escrow Agent on and subject to the terms of this
agreement. If during the period in which any of the Escrowed Shares are
retained in escrow pursuant hereto, any share dividend or other
distribution of securities is received by a Securityholder in respect of
the Escrowed Shares, any certificates representing such share dividend or
securities must be forthwith deposited by the securityholders with the
Escrow Agent to be held by the Escrow Agent on and subject to the terms of
this agreement.
8. Any Securityholder may hypothecate, pledge or charge any or all securities
owned by it and deposited in escrow hereunder to a financial institution,
provided that prior to such hypothecation, pledge or charge, such
financial institution enters into an agreement with the particular
Securityholder and the Issuer whereby it agrees to be bound by the
provisions of this agreement and acknowledges that the securities so
hypothecated, pledged or charged may not be sold, transferred or otherwise
dealt with except in accordance with the provisions of this agreement, and
provided that the Securityholder provides to the Escrow Agent any and all
documents that the Escrow Agent deems necessary or required in order to
effect to such hypothecation, pledge or charge.
9. All voting rights attached to the escrowed securities shall at all times
be exercised by the respective registered owners thereof and the Issuer
and the Escrow Agent shall take all necessary steps from time to time to
permit the registered owners to exercise such rights.
10. The Escrow Agent accepts the responsibilities placed on the Escrow Agent
by this agreement and agrees to perform them in accordance with the terms
hereof and with the applicable consent of the Issuer or the Direction of
the parties hereto.
11. The Issuer hereby acknowledges the terms and conditions of this agreement
and agrees to take all reasonable steps to facilitate the Issuer's
performance of this agreement and to pay the Escrow Agent's proper charges
for the Escrow Agent's services as trustee of this escrow.
12. The Securityholders and the Issuer hereby jointly and severally agree to
and do hereby release and indemnify and save harmless the Escrow Agent and
its employees, officers, directors and
<PAGE>
3
agents from and against all claims, suits, demands, costs, damages and
expenses which may be occasioned by any of them by reason of the Escrow
Agent's compliance in good faith with the terms hereof.
13. If the Escrow Agent should wish to retire, the Escrow Agent shall provide
ninety (90) days' notice to the Issuer, and the Issuer may by writing
appoint another trustee in the Escrow Agent's place and such appointment
shall be binding on the Securityholders, and the new trustee shall assume
and be bound by the obligations of the Escrow Agent hereunder.
14. This agreement may be amended upon agreement of the Issuer, the Escrow
Agent and the Securityholders.
15. This agreement may be executed in several counterparts in the same form
and the counterparts as so executed shall together constitute one original
agreement, and the parts, if more than one, shall be read together and
shall be construed as if all the signing parties hereto had executed one
copy of this agreement.
16. This agreement constitutes the entire understanding between the parties to
this agreement with respect to the subject matter of this agreement and
supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, between the parties and there are no
warranties, representations or other agreements between the parties in
connection with this agreement, except as specifically set forth in this
agreement.
17. This agreement shall be interpreted in accordance with and governed in all
respects by the laws of the Province of Ontario.
18. Any provision or any portion of any provision or provisions of this
agreement determined by a court of competent jurisdiction to be invalid,
illegal or unenforceable shall be deemed stricken to the extent necessary
to eliminate any invalidity, illegality or unenforceability and the rest
of the agreement and all other provisions and parts of this agreement
shall remain in full force and effect and be binding on the parties to
this agreement as though the illegal or unenforceable provision or
provisions or part or parts of the agreement had never been included in
this agreement.
19. In this agreement, the expression "the Securityholders" shall include the
Securityholders' respective permitted transferees within escrow and any
person to whom the interest of a Securityholder may be transmitted by
operation of law as provided herein, and the expression "the Escrow Agent"
shall include a new trustee appointed hereunder, and wherever the singular
or masculine is used, the same shall be construed to include the plural or
feminine or neuter where the context so requires.
<PAGE>
4
20. This agreement shall enure to the benefit of and be binding on the parties
to this agreement and each of their heirs, executors, administrators,
successors and permitted assigns.
IN WITNESS WHEREOF the Issuer, the Escrow Agent and the Securityholders
have executed this Escrow Agreement as of the date and year first above
written.
MED-EMERG INTERNATIONAL INC.
Per: __________________________________
Per: __________________________________
MONTREAL TRUST COMPANY OF CANADA
Per: __________________________________
Per: __________________________________
SIGNED, SEALED AND DELIVERED by the respective Securityholder set
out below.
977675 ONTARIO INC.
Per: __________________________________
Donald Wilson
PAGE RAYMOND & ASSOCIATES LTD.
Per: __________________________________
Martin Scullion
<PAGE>
SCHEDULE "A" to the Escrow Agreement dated the _____ day of
________________, 1999 and made among Med-Emerg International Inc.,
Montreal Trust Company of Canada and the parties listed on the execution
page to the Escrow Agreement (therein called the "Securityholders")
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
NAME OF SECURITYHOLDERS TYPE OF SECURITIES NUMBER OF SECURITIES
- ----------------------------- ------------------ --------------------
<S> <C> <C>
977675 ONTARIO INC. Common Shares -
(Donald Wilson)
PAGE RAYMOND & ASSOCIATES LTD. Common Shares -
(Martin Scullion)
</TABLE>
<PAGE>
SCHEDULE "B" to the Escrow Agreement dated the _____ day of
________________, 1999 and made among Med-Emerg International Inc.,
Montreal Trust Company of Canada and the parties listed on the execution
page to the Escrow Agreement (therein called the "Securityholders")
DIRECTION
TO: Montreal Trust Company of Canada
Reference is made to the escrow agreement dated -, 1999 (the "Escrow
Agreement") among Med-Emerg International Inc., Montreal Trust Company of
Canada, 977675 Ontario Inc. and Page Raymond & Associates Ltd. Capitalized
terms which are not otherwise defined herein shall have the meaning ascribed
to such terms in the Escrow Agreement.
Montreal Trust Company of Canada is hereby authorized and directed to
proceed with an immediate release of 20% of the original number of Escrowed
Shares of each Securityholder held in escrow under the Escrow Agreement.
DATED this ___________ day of ___________________, 1999.
MED-EMERG INTERNATIONAL INC.
Per: __________________________________
<PAGE>
EXHIBIT 5.1
September 7, 1999
Med-Emerg International Inc.
2550 Argentia Road, Suite 205
Mississauga, Ontario L5N 5R1
Gentlemen:
We have acted as counsel to Med-Emerg International Inc. (the "Company")
in connection with its filing of a registration statement on Form F-4
(Registration No. 333-__________, the "Registration Statement") covering
1,799,502 shares of common stock no par value (the "Common Stock").
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and
the minutes and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we
have assumed conformity with the original documents of all documents
submitted to us as conformed or photostatic copies, the authenticity of all
documents submitted to us as originals and the genuineness of all signatures
on all documents submitted to us.
On the basis of the foregoing, we are of the opinion that:
The shares of Common Stock covered by this Registration Statement have
been validly authorized and will when sold as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting the Registration Statement.
Very truly yours,
/s/ GSK
--------------------------------
Gersten, Savage & Kaplowitz, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF GERSTEN, SAVAGE & KAPLOWITZ, LLP
The undersigned, Gersten, Savage & Kaplowitz, LLP, hereby consents to the use
of our name and of our opinion for Med-Emerg International Inc. (the
"Company") as filed with its Registration Statement on Form F-4, and any
amendments thereto.
/s/ GERSTEN, SAVAGE & KAPLOWITZ, LLP
------------------------------------
September 7, 1999 Gersten, Savage & Kaplowitz, LLP
<PAGE>
Exhibit 23.4
We consent to the use of our report dated February 5, 1999 (except for note 15
for which the date is March 2, 1999) on the consolidated balance sheets of
Med-Emerg International Inc. as at December 31, 1998 and 1997, and the
consolidated statements of operations and deficit and changes in financial
position for the years ended December 31, 1998 and 1997 in the Registration
Statement and Prospectus on Form F-4, and to the use of our name as it appears
under the caption "Experts".
/s/ Schwarts Levitsky Feldman
SCHWARTZ LEVITSKY FELDMAN
Toronto, Ontario
September 7, 1999
<PAGE>
EXHIBIT 23.5
We have issued our report dated February 26, 1999, accompanying the financial
statements of YFMC Healthcare Inc. contained in the Registration Statement
and Prospectus on Form F-4 for Med-Emerg International Inc. We consent to the
use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts".
/s/ BDO Dunwoody
Ottawa, Ontario
September 7, 1999
