<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2000
REGISTRATION STATEMENT NO. 333-___
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
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PROVINCE OF ONTARIO, CANADA 3842 N/A
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code 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)
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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)
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COPIES TO:
JAY M. KAPLOWITZ, ESQ.
GERSTEN, SAVAGE & KAPLOWITZ, LLP
101 EAST 52ND STREET, 9TH FLOOR
NEW YORK, NEW YORK 10022 U.S.A.
(212) 752-9700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effectiveness of this Registration Statement.
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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. [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF NUMBER OF SHARES PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES BEING REGISTERED TO BE REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION FEE
PER SHARE(2) OFFERING PRICE
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Shares of Common Stock (no par value) (1)............. 1,167,543 $2.25 $2,626,971.75 $ 693.52
Shares of Common Stock (no par value) (1)............. 89,120 $2.00 178,240.00 47.06
Shares of Common Stock (no par value) (1)............. 389,181 $3.00 1,167,543.00 308.24
- ---------------------------------------------------------------------------------------------------------------------------
Total Registration Fee................................ $ 1,048.82
</TABLE>
(1) Represents the maximum number of shares of common stock of Med-Emerg
International Inc. that may be issued to shareholders of Laser
Rejuvenation Clinics Ltd., pursuant to the transactions described
herein based on (a) the exchange rate of 7.782% of one Med-Emerg share
of common stock for every LRC share of common stock; (b) 389,181 shares
of common stock that may be issued upon the exercise of the Series C
Warrants based on 2.594% of a Med-Emerg Series C Warrant at $3.00US for
every LRC share of common stock and (c) 89,120 shares of common stock
that may be issued upon the exercise of stock options based upon 7.782%
of one Med-Emerg stock option for every LRC stock option.
(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$2.25 per share of 1,167,543 Med-Emerg Common Stock as
of April 26, 2000, as quoted on the NASDAQ SmallCap Market, at US$2.00
per share of 89,120 Med-Emerg Stock Options and US$3.00 per share of
389,181 Med-Emerg Series C Warrants, and the maximum number of shares
of Laser Rejuvenation Clinics Ltd. 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.
<PAGE>
[MED-EMERG CHAIRMAN'S LETTER]
---------- --, -------
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Med-Emerg International Inc. ("Med-Emerg" or "Company") on __________ __,
__________ (the "Med-Emerg Special Meeting"), at which shareholders of Med-Emerg
will be asked to approve the combination of the businesses of Med-Emerg and
Laser Rejuvenation Clinics Ltd. ("LRC") through a tender offer by Med-Emerg for
all of the outstanding securities of LRC and the issuance of securities of
Med-Emerg in connection therewith. Upon the consummation of this Business
Combination, LRC will become a wholly-owned subsidiary of Med-Emerg.
Upon the terms of the tender offer, each outstanding share of the
Common Stock of LRC will be exchanged for 0.07782 shares of Med-Emerg Common
Stock and 0.02594 of a Med-Emerg Series C Warrant at $3.00US for a three (3)
year period.
Immediately following the Business Combination, the former holders of
Med-Emerg Common Stock will collectively hold, on a diluted basis, approximately
86.2% of the issued and outstanding shares of Med-Emerg Common Stock and the
former holders of LRC Common Stock will collectively hold, on a diluted basis,
approximately 13.8% of the issued and outstanding shares of Med-Emerg Common
Stock, giving effect to the exercise of any options or warrants.
The accompanying Joint Prospectus/Proxy Statement provides you with
detailed information concerning the Med-Emerg Special Meeting, 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 LRC.
Your Board, by unanimous vote, 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 Special 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 SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________ __, _______
Mississauga, Ontario
Canada
Notice is hereby given that the special meeting of shareholders (the
"Med-Emerg Special Meeting") of Med-Emerg International Inc. ("Med-Emerg") will
be held on __________ __, _____, at ______a.m. local time, at
_______________________, ____________________________________, for the following
purpose:
1. To consider and vote on a proposal to approve the issuance of
an aggregate of up to 1,645,844 additional shares of Med-Emerg
pursuant to a tender offer and to adopt the Business
Combination Agreement whereby each outstanding share of the
commom stock of LRC will be exchanged for 0.07782 shares of
Med-Emerg Common Stock and 0.02594 of a Med-Emerg Series C
Warrant at $3.00US for a three (3) year period and in
connection with (but not as part of) the offer, with respect
to the outstanding LRC stock options, there will be
substituted the right to acquire Med-Emerg Common Shares on
the basis that, for every 12.85 LRC stock options held, there
will be substituted the right to acquire one Med-Emerg Common
Share at a price of U.S. $2.00 per share.
2. To conduct such other business as may properly come before the
Med-Emerg Special Meeting.
Shareholders of record at the close of business on __________ __, _____
will be entitled to receive notice of, and to vote at, the Med-Emerg Special
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 Special Meeting is necessary to constitute a quorum at the Med-Emerg
Special Meeting. 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 the proposal to be voted upon at the Med-Emerg Special Meeting.
Please note that attendance at the Med-Emerg Special 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 Special 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 SPECIAL
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 SPECIAL MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO THE
MED-EMERG SPECIAL 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. AS USED HEREIN,
UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, MED-EMERG OR THE
COMPANY 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., JC MEDICAL MANAGEMENT INC., YFMC HEALTHCARE INC., HEALTHYCONNECT.COM, INC.
(INCORPORATED IN THE STATE OF DELAWARE) AND HEALTHYCONNECT.COM INC.
(INCORPORATED IN THE PROVINCE OF ONTARIO), ITS INDIRECT WHOLLY-OWNED
SUBSIDIARIES, MED-EMERG INC., AND MED PLUS HEALTH CENTERS LTD., ITS 45% INTEREST
IN 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. LASER REJUVENATION CLINICS LTD. IS REFERRED TO
HEREIN AS "LRC".
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 16 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.
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.
OUR PHYSICIAN AND NURSE RECRUITMENT DIVISION
Competitive pressures have focused the attention of many hospital
administrators in the public sector 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.
<PAGE>
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. The
Company's hospital physician staffing services are reimbursed either based on a
monthly fee payable by the hospital or on a per shift basis. As of March 31,
2000, the Company had 14 hospital physician contracts, of which 10 were
contracted to pay monthly administration fees, two were contracted to pay on a
per-shift basis and two were contracted to pay based on a percentage of billings
generated by the physicians on each shift. As of March 31, 2000, the Company was
providing physician coverage for a total of approximately 550 shifts per month,
representing over 6,300 hours per month.
The Company's nurse staffing services are reimbursed at a fixed rate per hour of
coverage provided. The Company had six hospital nursing contracts as at March
31, 2000, representing approximately 1,650 hours per month.
OUR PHYSICIAN MANAGEMENT SERVICES DIVISION
We have an ownership interest in and manage twenty eight medical
clinics and urgent care centres in the provinces of Ontario, Alberta and Quebec.
Generally, the clinics offer a variety of services, including family practice,
walk-in services for patients, psychological care, physiotherapy and other
paramedical services such as chiropractic and massage therapy, nutrition and
footcare. 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 acquire a chain of Urgent Care Centres and
clinics throughout Canada. Our management expects that the Urgent Care 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.
The Urgent Care Centres and medical clinics will be "community based"
and offer less restricted access to medical based health care. Our management
believes that the Urgent Care Centres and medical clinics 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. The Urgent Care Centres will be designed to
be less costly to the publicly funded health care system than traditional
emergency departments. We currently operate two urgent care centres.
OUR HEALTHYCONNECT.COM INTERNET-BASED HEALTHCARE DIVISION
HealthyConnect.com, an internet-based e-commerce health portal, was
launched on March 22, 2000. HealthyConnect.com has been strategically designed
to provide an end to end solution for the information needs of the healthcare
sector. We will pursue both a business to business and business to consumer
e-commerce strategy connecting 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 purchasers of HealthyConnect.com on line applications are consumers,
healthcare institutions, 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 records, access to a
physician management health and wellness centre and convenient at-home shopping
for healthcare products and services.
HealthyConnect.com's secure, 128-bit encrypted web browser system incorporates
<PAGE>
state-of-the-art security and privacy, and is fully compliant with healthcare
industry guidelines. The web-based products have been field-tested over the past
3 months. 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 and web
casting. 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.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing capability
and e-commerce goods and services to its customers. Two such partners are
AstraTek, a software product development firm, who assisted in the development
and launch of the HealthyConnect.com portal and Data General, a leading supplier
of servers and storage systems, and services for information systems users
worldwide who will provide a consolidated computing infrastructure to support
HealthyConnect.com including hardware, software and network support.
CORPORATE INFORMATION
Med-Emerg was incorporated in the Province of Ontario in January, 1996.
Our offices are located at 2550 Argentia Road, Suite 205, Mississauga, Ontario
L5N 5R1 Canada and our telephone number is (905) 858-1368.
LASER REJUVENATION CLINICS LTD.
LRC was incorporated as 623200 ALBERTA LTD. under the laws of the
province of Alberta on August 31, 1994. LRC amended its articles on June 12,
1996 to change its name to "Laser Rejuvenation Clinics Ltd." LRC began trading
as a publicly listed company on January 12, 1998 on the Alberta Stock Exchange,
now the Canadian Venture Exchange, under the symbol "ZAP.A". The registered
office of LRC is located at 1000, 400 - 3rd Avenue S.W., Calgary, Alberta, T2P
4H2, and LRC's head office is located at 102, 4616 Valiant Drive N.W., Calgary,
Alberta, T3A 0X9.
GENERAL OVERVIEW OF LRC
LRC is a corporation that offers, through its own facilities and its
relationship with medical and dental professionals, a variety of cosmetic
treatments to individuals desiring to maintain a more youthful, attractive and
healthy appearance. The primary technologies used are lasers with emphasis on
the removal of body hair, wrinkles, age-related sunspots and sun damage and
cosmetic surgery focused on liposuction and body contouring.
LRC, through its wholly owned subsidiaries, LRC (Calgary) Ltd., LRC (Toronto)
Ltd., LRC (Winnipeg) Ltd., and LRC (Vancouver) Ltd, operates five clinics under
the registered trade name Laser Rejuvenation Clinics servicing Calgary, Toronto,
Oakville, Vancouver and Winnipeg. Each clinic has a common theme of offering
full service customer-focused cosmetic procedures. However, the set-up and
structure of each is unique for the requirements of the market and the goal of
attracting appropriate medical personnel.
REASONS FOR THE TRANSACTION
The Business Combination with LRC provides additional support 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.
<PAGE>
THE SPECIAL MEETING
MED-EMERG
The special meeting of Med-Emerg's shareholders ("Med-Emerg Special
Meeting") will be held at ___________________________ on ________ __, ____,
starting at _______ a.m., local time. At the Med-Emerg Special Meeting on
___________ __, ____, Med-Emerg shareholders will be asked to approve the
combination of the businesses of Med-Emerg and Laser Rejuvenation Clinics Ltd.
("LRC") through a tender offer by Med-Emerg for all of the outstanding
securities of LRC 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
__________ __, ______ (the "Med-Emerg Record Date"), then you have the right to
receive notice of, and to vote at, the Med-Emerg Special Meeting. On the
Med-Emerg Record Date, there were approximately 5,267,188 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 Special Meeting is required to approve the proposal to
be voted upon at the Med-Emerg Special Meeting. Your proxy may be revoked by
notice of revocation or a later signed and dated proxy or by attending the
Med-Emerg Special Meeting and voting in person. Attendance at the Med-Emerg
Special Meeting will not in itself constitute the revocation of a proxy.
See "The Special 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 LRC SHAREHOLDERS WILL RECEIVE IN THE TRANSACTION
If the transaction whereby the businesses of Med-Emerg and LRC are
combined is approved, LRC shareholders will receive for each LRC Common Share,
0.07782 shares of Med-Emerg Common Shares and 0.02594 of a Med-Emerg Series C
Warrant at $3.00US for a three (3) year period. The former holders of Med-Emerg
Common Shares will collectively hold, on a diluted basis, approximately 86.2% of
the issued and outstanding shares of Med-Emerg Common Shares and, on a diluted
basis, the former holders of common stock and options of LRC will hold, on a
diluted basis, approximately 13.8% of the equity interests in Med-Emerg upon
consummation of the transaction. See "The Transaction."
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 LRC Common Stock of Cdn$0.24 per share as
reported on the Canadian Venture Exchange on February 16, 2000, the last trading
date prior to the date the proposed business combination was announced, and (ii)
the closing price of shares of LRC Common Stock of Cdn$0.18 per share as
reported on the Canadian Venture Exchange on April 26, 2000, using the exchange
ratio for each share of LRC of 0.07782 shares of Med-Emerg Common Stock based on
Med-Emerg's closing price of US$2.25 on the most recent practicable date prior
to the mailing of this Joint Prospectus/Proxy Statement.
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MARKET VALUE MARKET VALUE
(CLOSING PRICE ON (CLOSING PRICE ON
FEBRUARY 16, 2000 APRIL 26, 2000
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LRC Common Stock......................................................... Cdn$0.24 Cdn$0.18
Med-Emerg Exchange Securities
Common Stock............................................................. US$2.688 US$2.25
</TABLE>
<PAGE>
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 LRC Common Stock before the exchange will be
indicative of the value of Med-Emerg Common Stock. See "The Transaction".
RECOMMENDATION OF LRC BOARD OF DIRECTORS
The LRC Board of Directors (the "LRC 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, LRC and the holders of LRC Common
Stock and recommends that holders of LRC Common Stock accept the terms of the
offer whereby each outstanding share of the Common Stock of LRC will be
exchanged for 0.07782 shares of Med-Emerg Common Stock and 0.02594 of a
Med-Emerg Series C Warrant at $3.00US for a three (3) year period (the "Offer").
See "The Transaction - Recommendation of LRC Board".
The combination of LRC and Med-Emerg will broaden the existing medical
services of Med-Emerg to include a broad range of laser and cosmetic procedures.
The LRC 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 LRC's and Med-Emerg's
reasons for the Transaction, See "The Transaction - Reasons for the
Transaction".
BOARD OF DIRECTORS AND MANAGEMENT OF MED-EMERG
Following the consummation of the Transaction, the Med-Emerg Board will
remain the same, consisting of William Thomson, Carl Pahapill, Dr. Ramesh
Zacharias, Jeffrey Lyons, Robert Rubin, Martin Scullion and Camille Chebeir.
Following the consummation of the Transaction, Dr. Ramesh Zacharias
will remain the Chief Executive Officer, Carl Pahapill will remain President and
Chief Operating Officer, Kathryn Gamble will remain Chief Financial Officer,
Vice-President of Finance and Secretary, Martin Scullion will remain General
Manager of Clinical Operations and it is anticipated that Dr. Tom Woo will be
the medical director for LRC.
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 LRC. 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
Transaction - Business Combination Agreement".
COMPULSORY ACQUISITION
Pursuant to the provisions of the OBCA, if the Offer is accepted by 90%
of the LRC shareholders holding 90% or more of LRC shares subject to the Offer,
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 Transaction -
Compulsory Acquisition of LRC Shares".
MARKET PRICE INFORMATION
LRC Common Shares are listed on the Canadian Venture Exchange under the
<PAGE>
trading symbol "ZAP.A". On February 16, 2000, the last full trading day prior to
the public announcement of the proposed business combination, the closing price
of LRC common stock on the Canadian Venture Exchange was Cdn$0.24 per share. On
April 26, 2000, the closing price of LRC Common Shares on the Canadian Venture
Exchange was Cdn$0.18 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 February 16, 2000, the last full
trading day prior to the public announcement of the proposed Business
Combination, the closing price of Med-Emerg Common Shares and purchase warrants
were US$2.6875 and US$0.9375, respectively. On April 26, 2000, the closing price
of Med-Emerg common stock and purchase warrants were US$2.25 and US$1.25,
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
LRC 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. We can not presently ascertain the value of the Med-Emerg
Common Shares LRC shareholders will receive upon the consummation of the
business combination which will depend upon the market price of Med-Emerg Common
Shares, which in turn will be affected by, among other factors, the market price
of LRC 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 LRC. The
exchange ratios were determined on February 16, 2000.
OUR ABILITY TO MANAGE RAPID EXPANSION AND THE INTEGRATION OF OUR BUSINESS AND
LRC 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 LRC 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, introduce new products, as they become available and incur
significant 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, maintain
and service our products or if new employees are unable to achieve performance
levels, our business, operating
<PAGE>
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 $1,012,663 (on revenues of $12,648,428)
during the year ended December 31, 1999, as compared to a net loss of $224,009
(on revenues of $10,308,103) during the year ended December 31, 1998. As of
December 31, 1999, we had an accumulated deficit of $3,322,903. There can be no
assurance that we will operate profitably in the future. See "Summary Historical
Financial Data of Med-Emerg International Inc." and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Med-Emerg."
WE DEPEND ON OUR CONTRACTS WITH HOSPITALS.
We derive a significant portion of our revenues from contracts with
hospitals. The standard hospital contract we have entered into provides for an
initial one or two-year term. Generally, the contracts may be terminated by
either party upon two or three months notice. The contracts, generally,
automatically renew unless terminated on such 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 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.
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
<PAGE>
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 may 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 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. Individual physicians' billings under Ontario
Health Insurance Plan ("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 the
Company, 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. The Company's
independent contracted physicians as well as the Company are subject to periodic
audits by government reimbursement programs to determine the adequacy of coding
procedures and reasonableness of charges.
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, 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 the Company.
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. The Company 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 the Company conducts its business and
could have a material effect on its results of operations.
<PAGE>
Despite pronouncements by the Ontario Minister of Health that managed care
options, such as in the United States, are being considered, it is not evident
that U.S. styled managed care will play a significant role in the
fee-for-service sector of the publicly funded healthcare system. 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.
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 "Directors and Executive Officers of
Med-Emerg".
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 46.1%
of the voting power of our capital stock. See "Ownership of Securities" 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 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. 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
<PAGE>
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 accrue at a rate of US$135,000
per year. See "Dividend Record and Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE.
Of the 5,267,188 Med-Emerg Common Shares outstanding as of the date of
this Joint Prospectus/Proxy Statement, 1,185,973 are "restricted securities",
1,488,487 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 641,667 shares of Med-Emerg Common Shares and on December 31, 1999
has exercised options for 58,333 Med-Emerg Common Shares. Upon Mr. Rubin
exercising such options, the Med-Emerg Common Shares will be eligible for resale
under Rule 144 commencing one year from the exercise of the options. The two
principal shareholders of LRC have agreed not to sell or otherwise dispose of
2/3 of their shares of common stock for a period of 6 months (50% of 2/3 of
their shares) and 18 months (50% of 2/3 of their shares), respectively, from the
date the LRC shares are acquired by Med-Emerg. 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.
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
<PAGE>
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. 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. Med-Emerg Series A
Warrants and Med-Emerg Series B Warrants are not quoted or listed on Nasdaq or
on any market.
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 and 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 broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules.
<PAGE>
THE TRANSACTION
GENERAL
The purpose of the Offer is to enable Med-Emerg to acquire, directly or
indirectly, all of the outstanding LRC Common Shares in exchange for Med-Emerg
Common Shares and Series C Warrants in order to complete a Business Combination
involving Med-Emerg and LRC.
LRC entered into the Business Combination Agreement with Med-Emerg
pursuant to which Med-Emerg agreed to make the Offer whereby the LRC Common
Shares would be exchanged for the Med-Emerg Common Shares and Series C Warrants.
Pursuant to a lock-up agreement, the LRC principal shareholders, holders of
approximately 39% of the issued and outstanding LRC Common 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 LRC Common Shares available in
accordance with applicable law, including a subsequent acquisition transaction.
If Med-Emerg acquires 66 2/3% of the LRC Common Shares under the Offer,
Med-Emerg will own sufficient LRC Common Shares to effect such subsequent
acquisition transaction. See "The Transaction - Compulsory Acquisition of LRC
Shares".
BUSINESS COMBINATION AGREEMENT
Pursuant to the Business Combination Agreement entered into between
Med-Emerg and LRC, Med-Emerg agreed to make an offer on the terms set out
therein to purchase all of the issued and outstanding LRC Common Shares on the
basis of 0.07782 share of Med-Emerg Common Stock and 0.02594 of a Med-Emerg
Series C Warrant at $3.00US (three (3) year period) for every LRC Common Share.
As well, there shall be substituted for the right to acquire LRC Common
Shares under the LRC Stock Option Plan the right to acquire Med-Emerg Common
Shares on an exchange basis consistent with that of the share exchange under the
Offer. Specifically, Med-Emerg will substitute for every 12.85 options to
acquire LRC Common Shares under the LRC Stock Option Plan, the right to acquire
one Med-Emerg Common Share at an exercise price of US$2.00 per share.
The Business Combination Agreement also includes representations and
warranties of Med-Emerg and LRC and its principal shareholders. Under the
Business Combination Agreement, the Board of Directors of LRC agreed to support
the Offer and recommend acceptance of the Offer by the LRC shareholders and to
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 LRC to
Med-Emerg, and given by Med-Emerg to the principal shareholders of LRC, shall in
each case survive the completion of the transaction contemplated by the Offer
for a period of 15 months.
RECOMMENDATION OF LRC BOARD
THE LRC BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE TERMS OF THE
BUSINESS COMBINATION AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, LRC
AND THE HOLDERS OF LRC COMMON STOCK AND RECOMMENDS THAT HOLDERS OF LRC COMMON
STOCK ACCEPT THE OFFER.
In reaching its determination to approve the Business Combination
Agreement and the transactions contemplated thereby, the LRC Board consulted
with LRC 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 LRC 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 LRC
as a separate
<PAGE>
entity and of LRC 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 LRC management and its financial and legal advisors
regarding Med-Emerg; (iv) the risks and benefits of completing the Business
Combination with the exchange ratios; (v) the existing cash position of LRC
and the recognition of the need for capital for LRC; (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
Med-Emerg launched its internet healthcare technology business on March
22, 2000 which links 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, 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.
In this context, the business combination with LRC provides additional
support for the launch of HealthyConnect.com. Some of the expected benefits from
the business combination are set forth below:
1. Med-Emerg will be able to broaden its existing medical services offered
to its 750,000 patient network to include a broad range of cosmetic and
laser procedures.
2. The number of medical professionals, medical product suppliers and
healthcare consumers will increase with this acquisition providing
additional "backbone" to an internet-based health portal,
HealthyConnect.com.
3. Through HealthyConnect.com, the combined services of Med-Emerg and LRC
will provide internet visibility and connectivity to potential cosmetic
service consumers.
4. The combined companies are expected to generate strong positive cashflow
from operations by immediate rationalization of duplicate corporate
overheads and aggressive cross marketing.
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the Business Combination and the recommendation of LRC's
Board with respect to the transaction, the holders of LRC Common Shares and the
holders of Med-Emerg Common Shares should be aware that certain members of the
management of LRC and Med-Emerg have interests in the Business Combinaion that
may be different from, or in addition to, the interests of the holders of LRC
Common Shares and the holders of Med-Emerg Common Shares generally.
ACCOUNTING TREATMENT
LRC 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 LRC. 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."
REGULATORY APPROVALS
The Business Combination 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 LRC 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 LRC
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 LRC 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.
COMPULSORY ACQUISITION OF LRC SHARES
If within 120 days after the date hereof, the offer has been accepted
by holders of not less than 90% of any class of LRC Securities which are the
subject of the offer, other than LRC 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 LRC 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 LRC 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 termination of the
Offer and 180 days from the termination of the Offer. Within 20 days of giving
the Offeror's Notice, Med-Emerg must pay or transfer to LRC 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 by such Dissenting
Offeree to LRC, 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
<PAGE>
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 LRC 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 OBCA. 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.
SUBSEQUENT ACQUISITIONS
If the foregoing statutory right of compulsory acquisition is not
available, Med-Emerg intends to consider other means of acquiring, directly or
indirectly, all of the equity interest in LRC available in accordance with
applicable law, including a Subsequent Acquisition. In order to effect a
Subsequent Acquisition, Med-Emerg may seek to cause a special meeting of holders
of LRC Commons Shares to be called to consider an amalgamation, statutory
arrangement or other transaction involving Med-Emerg (or a wholly-owned
subsidiary of Med-Emerg) and LRC and/or the shareholders for the purposes of LRC
becoming, directly or indirectly, a wholly-owned subsidiary of Med-Emerg or
effecting an amalgamation or merger of LRC's business and assets with or into
Med-Emerg (or a wholly-owned subsidiary of Med-Emerg). Depending upon the nature
and terms of the Subsequent Acquisition, the approval of at least 66 2/3% of the
votes cast by holders of the outstanding LRC Common Shares may be required at a
meeting duly called and held for the purpose of approving the Subsequent
Acquisition. Med-Emerg would cause the LRC Common Shares acquired under the
Offer to be voted in favour of such a transaction.
The details of any Subsequent Acquisition, including the timing of its
implementation and the consideration to be received by the other holders of LRC
Common Shares would necessarily be subject to a number of considerations,
including the number of LRC Common Shares acquired pursuant to the Offer. There
can be no assurance that any such transaction will be proposed or, if proposed,
effected.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF MED-EMERG
DIRECTORS AND OFFICERS
It is expected that, following the consummation of the Business
Combination, the Board of Directors of Med-Emerg will remain the same,
consisting of William Thomson, Ramesh Zacharias, Carl Pahapill, Robert Rubin,
Jeffrey Lyons, Martin Scullion and Camille Chebeir.
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:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ---------
<S> <C> <C>
William Thomson, C.A.................................................... 58 Chairman of the Board, Director
Ramesh Zacharias, M.D., FRCSC........................................... 48 Chief Executive Officer, Director
Carl W. Pahapill, C.A................................................... 41 Chief Operating Officer, President and Director
Kathryn Gamble, C.A..................................................... 32 Vice President of Finance, Chief Financial
Officer, Secretary
Stephen Fowler, M.D..................................................... 50 Executive Medical Director
Martin Scullion......................................................... 54 General Manager, Director
Donald Wilson, M.D...................................................... 40 Executive Medical Director
Robert M. Rubin......................................................... 58 Director
Jeffery Lyons........................................................... 59 Director
Camille Chebeir......................................................... 62 Director
Alex Kalpaxis........................................................... 46 Chief Technology Officer
Donald Ross............................................................. 48 Chair, Health Application
Development
Tom Woo, M.D............................................................ 44 Executive Medical Director (LRC)
</TABLE>
WILLIAM E. THOMSON, C.A. Mr. William Thomson has been a Director of the Company
since January 1996 and is currently the non-executive Chairman. Mr. Thomson is
President of William E. Thomson Associates Inc., one of Canada's best known
crisis management firms. Mr. Thomson has been a director since 1996.
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, and Esna
Technologies Ltd. In addition, Mr. Thomson acts as a director of the following
companies: TPI Plastics Ltd., Elegant Communications Ltd., Imperial Plastech
Corp., Electrical Contacts Ltd., The Aurora Fund and Media Groupings Far East
Ptc Ltd.
RAMESH ZACHARIAS, M.D., FRCSC. Dr. Ramesh Zacharias is the founder and the Chief
Executive Officer of Med-Emerg Inc. He is a surgeon and leading expert in the
design and delivery of emergency care. He has provided consulting services
regarding the delivery of emergency care in the Caribbean, Saipan and Malaysia
and provided management consulting services regarding the operation of medical
clinics in Canada, the United States and Russia. Dr. Zacharias provides medical
leadership to the Company, including its on-line subsidiary, HealthyConnect.com,
Inc.
CARL W. PAHAPILL, C.A. Mr. Carl Pahapill joined the Company as President in
February 1996 and became a Director of the Company in October 1996. From 1994 to
1995, Mr. Pahapill was the Chief Operating Officer of Signature Brands Limited,
a publicly traded food processing company (TSE). From 1984 to 1993, Mr. Pahapill
was a Partner at BDO Dunwoody Chartered Accountants. Mr. Pahapill provides
business strategy leadership for the company's operations, including its drive
to deliver its web-based portal, HealthyConnect.com.
KATHRYN GAMBLE, C.A. Ms. Kathryn Gamble joined the Company in January 1996
serving as the Company's Vice President of Finance and became the Company's
Chief Financial Officer in October 1996. From February 1995 to December 1995,
Ms. Gamble was the Corporate Controller for Signature Brands Limited, a publicly
<PAGE>
traded food processing company listed on the TSE. From February 1993 to February
1995, Ms. Gamble was an Audit Analyst with Abitibi Price Inc., a publicly traded
company (TSE, NYSE).
STEPHEN FOWLER, MD. Dr. Fowler functions as the Executive Medical Director and
is responsible for medical oversight of the Company'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 the same hospital 1991 to 1997. Dr. Fowler joined the
Company in 1996 as Associate Medical Director.
MARTIN SCULLION. Mr. Scullion joined YFMC Healthcare Inc. 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 listed on 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 Healthcare Inc. in 1992 and served as
its president prior to joining Med-Emerg. He has practiced family medicine since
1988 and is licenced in Quebec and Ontario. Dr. Wilson is responsible for
quality assurance and the integration of new services into the Company's clinic
operations division.
ROBERT M. RUBIN. Mr. Rubin has served as a director of the Company since October
1996. Since June 1992, Mr. Rubin has served as a director of Diplomat
Corporation, a publicly traded company involved in the sale of 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 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, a New York Stock Exchange listed company, is engaged in providing home
care and institutional staffing services and health care management services.
Mr. Rubin is also a director and minority stockholder of Response USA, Inc., a
public company engaged in the sale and distribution of personal emergency
response systems.
JEFFERY LYONS, Q.C. 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 Vice Chair of the Toronto Police
Services Board and as a Director of VIA Rail Canada Inc., CAMVEC Corporation,
and Inforcorp Computer Solutions Ltd. He was the former Chairman of the Toronto
Transit Commission and was on the governing body (Bencher) of the Law Society of
Upper Canada from 1983-1991. Mr. Lyons is also a member of the Molson Indy Board
of Trustees and Governor's Council of North York General Hospital.
CAMILLE CHEBEIR. Mr. Chebeir is President of Sedco Services, Inc., New York,
which is responsible for a prominent Saudi family on its off-shore investments
and overseeing management of its U.S. portfolio. Mr. Chebeir serves as a
Managing Director of Metro West, a multipurpose Real Estate Development -
Florida. He is a member of the boards of several U.S. and overseas companies
within Sedco's business activities. Mr. Chebeir was previously with the National
Commercial Bank, New York, serving from 1983 to 1989 as Vice
President-Operations and from 1989 to 1992 as Executive Vice President managing
its New York branch. Mr. Chebeir is a former President of Arab Bankers
Association of North America. From 1960 to 1983, Mr. Chebeir held a number of
executive positions with Citibank, N.A. offices in Beirut, Lebanon, Manama,
Brahrain and Athens, Greece. Mr. Chebeir holds Degrees in Banking from St.
Joseph University, Beirut, Lebanon.
ALEX KALPAXIS. Mr. Kalpaxis is currently the Chairman of AstraTek Inc. In his
role as HealthyConnect.com's Chief Technology Officer, Mr. Kalpaxis is
responsible for the technology vision, direction and proprietary product
<PAGE>
development of HealthyConnect.com. He is a recognized expert in advanced
software technology. Recently speaking at the "Object Oriented Technology for
Securities Industry" seminar sponsored by the Institute for International
Research. Before founding AstraTek, he had a fourteen year career at Bankers
Trust. As the Bank's Chief Technologist, he led projects in infrastructure
development, LAN systems, databases and tools, object technology, and
engineering. Mr. Kalpaxis is one of the key leaders who developed the global
Bankers Trust Technical Architecture. This multi-year effort defined the
strategies and standards for technology for the next five to ten years,
including design, development, deployment and operation. Previously at Bankers
Trust he managed the Micro Systems and Networks Group where he developed a
number of innovative projects, including the original version of the BTAS
security system, the PC version of the BIDDs trading system, the PC version of
the FSDX publisher/subscriber system and a stream encryption driver for LANs.
Before he joined Bankers Trust he was a research engineer for the Photonics
Laser Institute at the City University of New York, a nationally renowned
institute, were he obtained several patents related to electronics and optical
fields. He has received several awards, including the Simon Sokin Medal for
Excellence in Experimental Physics. Tadeo Holdings Inc. is a holding company,
which recently acquired AstraTek, a wholly owned subsidiary. AstraTek is a
software product development and professional services firm, delivering advanced
technologies to Fortune 1000 companies and financial institutions. AstraTek's
Visual Audit product for Excel are now part of Viasoft's (NASDAQ symbol VIAS)
OnMark 2000 suite of software solutions for the Year 2000 problem.
DR. DONALD ROSS. Dr. Ross is an experienced health care executive specializing
in regulatory, scientific and operational issues in not-for-profit public and
private health care. Dr. Ross built a successful integrated health management
company for a major international health care organization. Dr. Ross, with both
academic and professional experience in quality assurance, utilization
management, outcome research and clinical decision making, has spoken at
numerous national and international conferences on trends and opportunities in
healthcare and has created an extensive national and international network. In
addition to his professional experience, Dr. Ross holds a Masters degree in
Clinical Epidemiology, is a Doctor of Dental Medicine, and has an honors
Bachelors degree in neurophysiology from the University of British Columbia.
Currently, Don is completing a Masters in Business Administration. He is a
member of the Canadian College of Health Service Executives as well as board
member of First Canadian Health Inc.
DR. TOM WOO. Dr. Woo is a dermatologist with over fifteen years of experience in
laser surgery, practicing in both Canada and the U.S.A. Dr. Woo is a world
renowned expert in the area of laser hair removal. He has trained with the
founders of the laser facial rejuvenation techniques in the U.S.A. Dr. Woo
currently operates a successful dermatology practice in Calgary and is highly
regarded in his field of expertise. Dr. Woo has multiple awards, scholarships,
medical publication credits and teaching experiences, and has led numerous
research initiatives in the areas of UVA/UVB exposure, skin cancer as well as
several other studies in the field of dermatology.
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 years
ended December 31, 1999, 1998 and 1997. No other executive officer received a
total special salary and bonus of more than US$100,000 during the most recent
completed year.
<PAGE>
<TABLE>
<CAPTION>
OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- ------- -------- ------------
(US$)
<S> <C> <C> <C> <C>
Ramesh Zacharias........................................................... 1999 $179,048 $67,300 $4,938(1)
Chief Executive Officer 1998 $151,088 $ 0 $5,186(1)
1997 $147,349 $ 0 $9,436(1)
Carl Pahapill.............................................................. 1999 $152,771 $67,730 $6,730
Chief Operating Officer and President 1998 $118,038 $16,863 $6,745
1997 $126,403 $ 0 $7,223
</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.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
As of December 31, 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 (US$43,940). Such indebtedness is
owing to Med-Emerg by Carl Pahapill.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION INVOLVEMENT OF LARGEST AMOUNT AMOUNT FINANCIALLY SECURITY FOR
MED-EMERG OR OUTSTANDING OUTSTANDING AS AT ASSISTED SECURITY INDEBTEDNESS
SUBSIDIARY DURING 1999 DECEMBER 31, 1999 PURCHASES DURING
(CDN$) (CDN$) 1999 (#)
<S> <C> <C> <C> <C> <C>
Carl Pahapill, Chief Operating Lender $60,000 $60,000 Nil None
Officer and President...........
</TABLE>
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NAME SECURITIES AGGREGATE VALUE UNEXERCISED OPTIONS/SARS VALUE OF UNEXERCISED
ACQUIRED ON REALIZED (US$) AT DECEMBER 31, 1999 (#) IN-THE-MONEY
EXERCISE (#) EXERCISABLE/UNEXERCISABLE OPTIONS/SARS AT DECEMBER
31, 1999 (US$)
EXERCISABLE/
UNEXERCISABLE
<S> <C> <C> <C> <C>
Dr. Ramesh Zacharias.................. Nil nil 165,000/400,000 nil/nil
Carl Pahapill......................... Nil nil 165,000/400,000 nil/nil
</TABLE>
An additional 400,000 options were granted to each of Dr. Ramesh
Zacharias and Carl Pahapill on August 1, 1999. These options are exercisable
upon the happening of certain events at an exercise price of US$1.50.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with both Dr. Zacharias
and Mr. Pahapill. Dr. Zacharias' agreement provides that he will devote
substantially the whole of his business time to the Company in consideration of
an annual salary of US$225,000 effective August 1, 1999 and a bonus of US
$67,300
<PAGE>
based on performance. The annual salary increases to US$250,000 on the
first anniversary. The agreement is for a term of three years, but may be
terminated by the Company for cause, or without cause with six month's notice.
Mr. Pahapill's agreement is for a term of three years, but may be terminated by
the Company for cause or without cause with six month's notice. The agreement
provides that Mr. Pahapill devote substantially the whole of his business time
to the Company in consideration of an annual salary of US$200,000 effective
August 1, 1999 and a bonus of US$67,300 based on performance. The annual salary
increases to US$225,000 on the first anniversary.
STOCK OPTION PLAN
In 1997, the Board of Directors and Shareholders adopted and approved
the Company's Stock Option Plan (the "Plan"). The Plan was amended in November
1999. The Plan is to be administered by the Board of Directors or a committee
appointed by the Board. Pursuant to the Plan, options to acquire an aggregate of
1,000,000 shares of Common Stock may be granted, 710,900 of which have been
granted as of March 20, 2000. The Plan provides for grants of options to acquire
Common Shares to employees, directors, service providers and consultants of the
Company. During the fiscal 1999, Med-Emerg granted 440,000 options to eligible
employees under the Plan at exercise prices between US$1.25 and US$1.87, and
800,000 options to the Named Executive Officers at an exercise price of US$1.50.
No options were granted to eligible physicians during the year ended December
31, 1999.
OWNERSHIP OF MED-EMERG
It is anticipated that, after giving effect to the Business
Combination, approximately 6,434,731 shares of Med-Emerg Common Stock will be
issued and outstanding and approximately 478,301 additional shares will be
reserved for issuance upon the exercise of options and warrants to acquire
Med-Emerg Common Stock being assumed in connection with the Business
Combination.
The following table sets forth information concerning the beneficial
ownership of Med-Emerg Common Shares as of April 20, 2000, after giving effect
to the business combination by (a) each person or group of persons known to LRC
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 U.S. 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 April 20, 2000 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 community property laws, each shareholder has sole voting and investment
power with respect to the shares shown.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OWNED
<S> <C> <C>
Ramesh Zacharias, M.D., FRCSC(2).................................................... 1,607,544 22.3%
1245841 Ontario Inc.(3)............................................................. 1,042,544 14.4%
William Thomson, C.A.(4)............................................................ 70,000 1.0%
Carl W. Pahapill, C.A(5)............................................................ 665,000 9.2%
Kathryn Gamble, C.A.(6)............................................................. 95,000 1.3%
Robert M. Rubin(7).................................................................. 750,000 10.4%
Jeffrey Lyons(8).................................................................... 55,000 *
Hampton House....................................................................... 274,375 3.8%
Donald Wilson, M.D.(9).............................................................. 570,450 7.9%
Martin Scullion(10)................................................................. 550,029 7.6%
Camille Chebeir(11)................................................................. 85,000 1.2%
Tom Woo, M.D.(12)................................................................... 372,175 5.2%
All Officers and Directors as a Group (10 persons).................................. 4,820,198 66.8%
</TABLE>
<PAGE>
- -----------
* 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 one-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 70,000 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) 580,283 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.
(10) Includes: (i) 535,061 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.
(11) Includes 25,000 shares of common stock issuable upon the exercise of
options.
(12) Includes: (i) 308,119 shares upon the closing of the offer; (ii) 21,556
shares of common stock issuable upon the exercise of options.
<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 December 31, 1999, the exchange rate was
US$1.00 per Cdn$1.44.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1996 1997 1998 1999
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATE AT END OF PERIOD............................................. $0.7353 $0.7299 $0.6991 $0.6532 $0.6929
AVERAGE RATE DURING PERIOD........................................ 0.7299 0.7353 0.7223 0.6745 0.6730
HIGH.............................................................. 0.7009 0.7212 0.6945 0.6376 0.6462
LOW............................................................... 0.7533 0.7526 0.7493 0.7061 0.6935
</TABLE>
COMPARATIVE PER SHARE MARKET PRICE
LRC Common Stock is listed on the Canadian Venture Exchange under the
symbol "ZAP.A". Following the Business Combination LRC Common Stock will not
trade on any market. Med-Emerg Common Stock and Purchase Warrants are listed on
the NASDAQ SmallCap Market under the symbols "MDER" and "MDERW" respectively and
under the symbols "MEI" and "MEIW" respectively on the Boston Stock Exchange.
The following table sets forth for the period indicated the high and
low per share and per warrant closing prices for Med-Emerg and LRC's securities
on their respective exchanges.
<TABLE>
<CAPTION>
HIGH LOW HIGH LOW HIGH LOW
MED-EMERG COMMON MED-EMERG PURCHASE LRC COMMON
STOCK US$ WARRANTS US$ STOCK CDN$
CLOSING PRICE
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter (from 2/12/98 for Med-Emerg, from (1/12/98 for LRC)..... 4.75 3.375 1.4375 .50 1.80 .60
Second Quarter........................................................ 4.00 2.8125 .50 .4375 1.76 1.00
Third Quarter......................................................... 3.25 1.6875 .6563 .25 1.15 .60
Fourth Quarter........................................................ 2.00 1.00 .375 .1563 .70 .40
1999
First Quarter......................................................... 2.25 1.031 .5938 .25 .75 .40
Second Quarter........................................................ 2.50 1.0625 .875 .25 .60 .34
Third Quarter......................................................... 2.063 1.50 .688 .375 .50 .30
Fourth Quarter........................................................ 2.688 1.125 .688 .50 .40 .16
2000
First Quarter......................................................... 5.00 1.563 2.00 .625 .36 .16
</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 February 16, 2000, 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$2.6875 and of the Med-Emerg Purchase Warrants on
NASDAQ was US$0.9375.
There were 37 holders of record of Med-Emerg Common Shares and 2
holders of record of the Med-Emerg Purchase Warrants as of April 20, 2000.
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.
<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
years ended December 31, 1999, 1998, 1997, 1996, and 1995, 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>
STATEMENT OF OPERATIONS DATA: US $
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 12,648,428 $10,308,103 $8,358,937 $ 7,953,775 $ 8,016,895
Physician Fees and Other Direct Costs 8,877,139 7,984,116 6,319,934 6,290,047 6,136,000
Gross Profit 3,771,289 2,323,987 2,039,004 1,663,728 1,880,895
Operating Expenses before Depreciation
and Amortization (1) and
HealthyConnect.com
-- Canadian GAAP 3,707,127 2,246,225 1,995,439 4,315,983 2,052,150
-- U.S. GAAP 3,680,332 2,422,974 2,101,456 4,359,053 2,052,150
Depreciation and Amortization 361,332 124,239 92,548 57,632 36,015
HealthyConnect.com 798,943 84,530 - - -
Operating Income (Loss)
-- Canadian GAAP (1,096,113) (131,007) (48,983) (2,709,887) (207,270)
-- U.S. GAAP (1,069,318) (307,756) (155,001) (2,752,957) (207,270)
Other Income (Expense) (44,494) (12,584) (321,335) (40,780) 40,093
Provision for Income Taxes (Recovery) (262,138) (37,333) (29,332) (107,761) 52,149
Net Income (Loss)
-- Canadian GAAP (878,469) (106,258) (340,987) (2,642,906) (219,325)
-- U.S. GAAP (851,675) (283,007) (447,004) (2,685,976) (219,325)
Net Income (Loss) per Common Share (2)
-- Canadian GAAP $ (0.26) $ (0.04) $ (0.18) $ (0.87) $ (0.09)
Basic and Diluted Income (Loss) per
Common Share (2)
-- Canadian GAAP $ (0.30) $ (0.08) $ (0.18) $ (0.87) $ (0.09)
Primary and Diluted Income (Loss) per
Common Share
-- U.S. GAAP $ (0.25) $ (0.10) $ (0.23) $ (0.88) $ (0.09)
BALANCE SHEET DATA:
Working Capital $(882,232) $1,499,329 $(1,349,530) $ (870,509) $ (353,293)
Total Assets 10,066,936 5,455,832 3,636,418 2,583,717 1,984,846
Long-term Debt 518,338 66,837 55,475 - -
Shareholders' Equity 5,230,931 3,703,504 9,760 196,335 (227,845)
OTHER DATA:
EBITDA (3)
-- Canadian GAAP $ (734,781) $ (6,768) $ 43,565 $(2,652,255) $(234,628)
-- U.S. GAAP $ (707,986) $ (183,517) $ (62,452) $(2,695,325) $(234,628)
</TABLE>
(1) At December 31, 1997, operating expenses included stock compensation
expense of $100,400 for shares issued to a director. At December 31, 1996,
operating expenses included stock compensation expenses of $1,271,214 for
shares issued to a shareholder and $934,033 for the issuance of stock
options to a director.
<PAGE>
(2) 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.
(3) EBITDA is the sum of income (loss) 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.
SELECTED HISTORICAL DATA OF LASER REJUVENATION CLINICS LTD.
Set forth below is a summary of certain consolidated financial
information with respect to Laser Rejuvenation Clinics Ltd. and its subsidiaries
as at and for the six months ended December 31, 1999 and 1998 and as at and for
the years ended June 30, 1999, 1998 and 1997. More comprehensive financial
information is available in the financial statements and related documents of
Laser Rejuvenation Clinics Ltd., 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>
1999 1998 1999 1998 1997(2)
SIX MONTHS ENDED YEAR ENDED JUNE 30
DECEMBER 31 (1)
IN U.S. $ (4) IN U.S. $ (4)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross Revemue $2,124,423 $1,577,304 $3,164,292 $1,395,243 $ 497,531
Physician Remittances 537,826 298,050 728,031 204,339 57,926
---------- ---------- ---------- ---------- ----------
Net Revenue 1,586,597 1,279,254 2,436,261 1,190,904 439,605
Operating Expenses before Dep'n & Amortization 1,755,559 1,228,530 2,716,293 1,446,760 383,730
Depreciation & Amortization 270,479 238,893 481,084 251,464 53,580
---------- ---------- ---------- ---------- ----------
Operating Income (439,441) (188,169) (761,116) (507,320) 2,295
Other income (expense) 16,980 26,300 38,196 31,287 4,321
Provision for Income Taxes - - - - -
Non-Controlling Interest 38,067 27,371 86,543 13,807 -
---------- ---------- ---------- ---------- ----------
Net Income (Loss) (384,394) (134,498) (636,377) (462,226) 6,616
Basic and Diluted Income per Common Share (0.03) (0.01) (0.05) (0.05) -
BALANCE SHEET DATA:
Working Capital (364,658) 314,808 (177,205) 1,155,283 570,838
Total Assets 3,139,056 3,729,819 3,533,915 3,155,422 1,538,315
Long-Term Debt 320,434 364,503 324,854 140,137 20,095
Shareholder's Equity 1,780,536 2,668,422 2,165,451 2,621,199 1,341,159
OTHER DATA:
EPITDA(3) (89,585) 117,441 (120,157) (206,456) 61,029
</TABLE>
- -----------
(1) Unaudited.
(2) Business commenced on September 10, 1996.
(3) 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.
(4) These consolidated statements have historically been expressed in
Canadian
<PAGE>
dollars, which is the functional currency of LRC. These consolidated
statements have been translated into U.S. dollars using the foreign
exchange ratios of December 31, 1999 of 1.4433 (the translation of
convenience method).
<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 LRC
transaction for balance sheet purposes as at December 31, 1999 and for
purposes of the results of operations for the year ended December 31, 1999.
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 LRC 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 LRC
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 December 31, 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 December 31, 1999. The pro forma consolidated statements
of operations for the year ended December 31, 1999 give effect to these
transactions as if they had occurred on January 1, 1999.
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.
<PAGE>
MED-EMERG INTERNATIONAL INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS AT DECEMBER 31, 1999
STATED IN $US
<TABLE>
<CAPTION>
Proforma
Adjustments
Purchase Pro forma
Notes Med-Emerg LRC Subtotal Price Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 2.3 $ 229,966 $ 127,789 $ 357,755 $ (170,000) $ 187,755
Accounts receivable 2,453,700 502,178 2,955,878 2,955,878
Note receivable from director - - - -
Prepaid and other 281,385 171,249 452,634 452,634
-------------------------------------------------------------------
2,965,051 801,216 3,766,267 (170,000) 3,596,267
LOANS AND ADVANCES - - - -
CAPITAL ASSETS 2,329,847 1,651,440 3,981,287 - 3,981,287
OTHER ASSETS 2.4 4,005,768 160,608 4,166,376 (160,608) 4,005,768
GOODWILL 2.8 - 653,581 653,581 (156,051) 2,964,960
2.4 - (653,581)
2.7 3,121,011
DEFERRED INCOME TAXES 2.4 766,270 - 766,270 22,095 788,365
-------------------------------------------------------------------
$10,066,936 $ 3,266,845 $13,333,781 $ 2,002,866 $15,336,647
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 1,401,096 $ 228,654 $ 1,629,750 $ 1,629,750
Accounts payable and accrued liabilities 1,917,153 299,411 2,216,564 2,216,564
Deferred revenue - 444,552 444,552 444,552
Restructuring reserve 356,889 - 356,889 356,889
Current portion of obligations under
capital lease - 172,471 172,471 172,471
Current portion of long-term debt 172,145 20,786 192,931 192,931
-------------------------------------------------------------------
3,847,283 1,165,874 5,013,157 - 5,013,157
DEFERRED TAX CREDIT 470,384 - 470,384 470,384
LONG TERM DEBT 518,338 77,369 595,707 595,707
OBLIGATIONS UNDER CAPITAL LEASE - 182,158 182,158 182,158
RELATED PARTY LOAN - 60,908 60,908 60,908
DUE TO MINORITY SHAREHOLDERS - - - -
-------------------------------------------------------------------
4,836,005 1,486,309 6,322,314 - 6,322,314
MINORITY INTEREST - - - -
SHAREHOLDERS' EQUITY
Capital Stock 2.1 8,251,290 3,256,919 11,508,209 3,138,355 11,219,645
2.3 (170,000)
2.6 (3,256,919)
Convertible debenture 405,371 - 405,371 405,371
Contributed surplus 2.2 1,022,100 - 1,022,100 971,098 1,993,198
Retained Earnings/(Deficit) 2.6 (4,335,566) (1,476,383) (5,811,949) 2,268,477 (4,335,566)
2.4 (792,094)
Cumulative translation adjustment (112,264) - (112,264) (112,264)
-------------------------------------------------------------------
5,230,931 1,780,536 7,011,467 2,158,917 9,170,384
-------------------------------------------------------------------
$10,066,936 $ 3,266,845 $13,333,781 $ 2,158,917 $15,492,698
===================================================================
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
STATED IN US$
<TABLE>
<CAPTION>
Proforma
Adjustments
Purchase Pro forma
Notes Med-Emerg LRC Subtotal Price Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $12,648,428 $ 3,740,288 $16,388,716 $16,388,716
Physician fees and other direct costs 8,877,139 1,250,282 10,127,421 10,127,421
------------------------------------------------------------------
Gross Margin 3,771,289 2,490,006 6,261,295 - 6,261,295
------------------------------------------------------------------
Operating Expenses
Salaries and benefits 1,838,276 1,129,179 2,967,455 2,967,455
General and administration 493,541 94,673 588,214 588,214
Occupancy costs and supplies 872,109 872,006 1,744,115 1,744,115
Public company costs 301,591 79,894 381,485 381,485
Travel and marketing 201,610 738,676 940,286 940,286
HealthyConnect.com development costs 798,943 - 798,943 798,943
------------------------------------------------------------------
4,506,070 2,914,428 7,420,498 - 7,420,498
EARNINGS (LOSS) FROM OPERATIONS (734,781) (424,422) (1,159,203) - (1,159,203)
Interest and financing expense 44,494 46,422 90,916 90,916
Depreciation expense 2.8 194,097 460,095 654,192 156,051 810,243
------------------------------------------------------------------
NET INCOME BEFORE TAXES (973,372) (930,939) (1,904,311) (156,051) (2,060,362)
Income tax recovery (expense) 262,138 262,138 - 262,138
------------------------------------------------------------------
NET INCOME (LOSS) BEFORE GOODWILL AMORTIZATION (711,234) (930,939) (1,642,173) (156,051) (1,798,224)
Goodwill amortization 167,235 52,575 219,810 219,810
------------------------------------------------------------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST $ (878,469) $ (983,514) $(1,861,983) $ (156,051) $(2,018,034)
Minority Interest $ - $ 97,239 $ 97,239 $ - $ 97,239
------------------------------------------------------------------
NET INCOME (LOSS) BEFORE PREFERRED SHARE DIVIDENDS $ (878,469) $ (886,275) $(1,764,744) $ (156,051) $(1,920,795)
Preferred Dividends $ (134,194) $ - $ (134,194) $ - $ (134,194)
------------------------------------------------------------------
NET INCOME (LOSS) $ (1,012,663) $ (886,275) $(1,898,938) $ (156,051) $(2,054,989)
==================================================================
NET LOSS BEFORE PREFERRED SHARE DIVIDEND,
PER COMMON SHARE $ (0.26) $ (0.42)
PREFERRED SHARE DIVIDENDS, PER SHARE (0.04) (0.03)
------------ -----------
BASIC AND FULLY DILUTED LOSS, PER SHARE $ (0.30) $ (0.45)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,371,322 1,167,543 4,538,865
============ ======================
</TABLE>
<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 February
16, 2000. 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 audited consolidated financial
statements of Med-Emerg as at and for the year ended December 31,
1999, respectively, and the unaudited consolidated financial
statements of LRC as at and for the year ended December 31, 1999,
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 consolidated financial statements. The pro
forma adjustments include those adjustments necessary to conform the
LRC 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 LRC.
The pro forma statements should be read in conjunction with the
description of the transaction in this Prospectus, the audited
consolidated financial statements of Med-Emerg as at and for the
year ended December 31, 1999, and notes thereto, incorporated by
reference in this Prospectus, and the unaudited consolidated
financial statements for LRC as at and for the six months ended
December 31, 1999, the consolidated financial statements for LRC as
at and for the year ended June 30, 1999, and notes thereto, also
incorporated by reference in this Prospectus.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The pro forma statements incorporate the following assumptions:
1. Completion of the transactions contemplated by the Business
<PAGE>
Combination Agreement, as more fully described elsewhere
herein, resulting in the combination of the business of
Med-Emerg and LRC.
1.1 Absence of any material transactions by, or changes in
operations of, Med-Emerg and LRC subsequent to December 31,
1999 other than as described elsewhere in this Prospectus.
These pro forma statements give effect to the following assumptions
and adjustments (as if they had occurred on December 31, 1999 in
respect of the pro forma consolidated balance sheet for the year
ended December 31, 1999, and on January 1, 1999 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 1,167,543 Common Shares at $2.688
per share, and 389,181 Med Emeg Series C Warrants, exercisable
at $3.00 with a life of three years from date of issue, in
exchange for 15,003,122 outstanding shares of LRC Common
Shares, as of February 16, 2000, on the basis of an exchange
ratio of one share of Med-Emerg Common Shares for every 12.85
shares of LRC- Common Shares. $770,578 was recorded as
contributed surplus to reflect the cost to Med-Emerg of
issuing the Series C Warrants as part of the transaction.
2.2 LRC STOCK OPTIONS
To record $200,520 as contributed surplus to reflect the cost
to Med-Emerg of assuming LRC stock options. A total of 89,120
Med-Emerg stock options were issued to replace 1,145,200 LRC
stock options.
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 6.71%, expected life based on the expiry date
of each instrument, and expected volatility of 127%.
2.3 To record the estimated costs of $170,000 associated with the
transaction, which will be reflected as a reduction in the
share capital, consistent with Med-Emerg's policy.
2.4 To eliminate LRC's goodwill prior to allocation of the
purchase price by Med-Emerg.
CONFORMING ADJUSTMENTS
2.5 There are no conforming adjustments required, but LRC has made
limited reclassifications to approximate Med-Emerg's
accounting policies.
ADJUSTMENTS TO RECORD THE PURCHASE
2.6 To eliminate on consolidation the shareholders' equity
attributable to LRC Common Shares after taking into
consideration the adjustment described in 2.4.
2.7 To allocate the aggregate purchase price to LRC's net assets,
in accordance with the purchase method of accounting as
follows:
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-----------
<S> <C>
Fair value of the shares to be issued.................................... $3,138,355
Cost of warrants and options............................................. 971,098
----------
Total purchase price..................................................... $4,109,453
Common shareholders' equity acquired before adjustment described in 2.4.. $1,780,536
Deduct effect of goodwill adjustment described in 2.4.................... (653,581)
----------
Pro forma book value of net tangible assets acquired..................... 1,126,955
----------
Deferred tax asset....................................................... 22,095
Deferred Development Costs............................................... (160,608)
Goodwill................................................................. 3,121,011
----------
Total purchase price $4,109,453
</TABLE>
2.8 To record amortization of goodwill as a result of the
purchase price allocation as reflected 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).
3. CAPITAL STOCK AND COMMON SHARES
The number of pro forma common shares outstanding after giving
effect to the transaction are:
<TABLE>
<S> <C>
Med-Emerg shares outstanding at February 16, 2000.............................. 4,912,434
LRC shares outstanding at February 16,2000 converted
to equivalent Med-Emerg shares (15,003,122 * 0.007782)...................... 1,167,543
---------
Pro forma common shares outstanding............................................ 6,079,977
---------
</TABLE>
<PAGE>
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 and expanding into the areas of
cosmetic laser treatments.
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 YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Med-Emerg average shares outstanding.................. 3,371,322
Med-Emerg shares issued in exchange for LRC shares.... 1,167,543
---------
Total................................................. 4,538,865
---------
</TABLE>
6. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These proforma 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") for the year ended December 31,
1999 except with respect to the following:
If United States GAAP were employed, net loss for the period would be
adjusted as follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss based on Canadian GAAP (1,920,795)
Start-up costs amortized/(deferred) 77,543
Goodwill amortization (8,925)
-------------
Net loss based on United States GAAP $(1,852,177)
-------------
Primary loss per share $ (0.41)
=============
</TABLE>
<PAGE>
If United States GAAP were employed, deficit, other assets, deferred start-up
costs, and total liabilities would be adjusted as follows:
<TABLE>
<S> <C>
Deficit based on Canadian GAAP $(4,335,566)
Start-up costs deferred (255,040)
Goodwill amortization (8,925)
-----------
$(4,599,531)
===========
Other assets based on Canadian GAAP $ 4,005,768
Start-up costs deferred (255,040)
Goodwill on purchase of YFMC Healthcare Inc. 1,087,872
-----------
$ 4,838,600
===========
Total liabilities based on Canadian GAAP $ 6,194,525
Convertible debenture 405,371
-----------
$ 6,599,896
===========
</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 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) 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.
(d) 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.
(e) 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
<PAGE>
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 9 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 $2.05 per share equal to $256,250 of which
$196,943 has been charged to earnings in the year ended December 31, 1997
and $50,470 has been charged to earnings in the year ended December 31,
1998.
* the issuance of 50,000 shares to a director for services rendered resulted
in a charge to income at $2.05 per share equal to $100,400 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 9) has resulted in a charge to income equal to
$934,033 in 1996 based on $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.
(f) Goodwill
Under U.S. GAAP, the purchase price of an acquisition involving the issuance
of shares is determined based on the share price for the period surrounding
the announcement date of the acquisition. The share price used for the YFMC
Healthcare Inc. acquisition under U.S. GAAP was $1.859. Under Canadian GAAP,
the purchase price is determined based on the share price on the date the
transaction is consummated. The share price used for the YFMC Healthcare Inc.
acquisition under Canadian GAAP was $1.25.
(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 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 $0.364 for each of the 1,000,000 share warrants issued, share
capital would be lower by $36,406 and, given that the stock purchase warrants
were cancelled during the year, the carrying amount of contributed surplus
would be increased by $36,406.
The effect on shareholders' equity would be as follows:
<TABLE>
<S> <C>
Capital stock (as previously shown) $11,219,645
Captial stock issued on purchase of YFMC Healthcare Inc. 1,087,872
Ascribed fair value of share purchase warrants issued (36,406)
-----------
Capital stock - U.S. GAAP 12,271,111
Share purchase loan to officer (44,978)
-----------
Net capital stock - U.S. GAAP $12,226,133
-----------
Convertible debenture (as previously shown) $ 405,371
Convertible debenture included in long-term debt (405,371)
-----------
Convertible debenture - U.S. GAAP $ -
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Contributed surplus (as previously shown) $ 1,993,198
Share purchase warrants 36,406
-----------
Contributed surplus - U.S. GAAP $ 2,029,604
-----------
Deficit - U.S. GAAP $(4,599,531)
-----------
Shareholders equity (deficit) - U.S. GAAP $ 9,656,206
===========
</TABLE>
(h) 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.
<TABLE>
<S> <C>
Net income (loss) (US GAAP) $(1,852,177)
Foreign currency translation adjustment (4,565)
-----------
Comprehensive income $(1,856,742)
===========
</TABLE>
<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.
On March 22, 2000, the Company launched HealthyConnect.com, an internet-based
e-commerce health portal. HealthyConnect.com has been strategically designed to
provide an end to end solution for the information needs of the healthcare
sector. The Company will pursue both a business to business and business to
consumer e-commerce strategy connecting 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 purchasers of HealthyConnect.com on line applications are consumers,
healthcare institutions, 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 records, access to a
physician management health and wellness centre and convenient at-home shopping
for healthcare products and services.
<PAGE>
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 and web
casting. 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.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing capability
and e-commerce goods and services to its customers. HealthyConnect.com has
negotiated, amongst others, a relationship with AstraTek, a software product
development firm, delivering advanced technologies to Fortune 1000 companies and
financial institutions and Data General, a leading supplier of servers and
storage systems, and services for information systems users worldwide. AstraTek
assisted in the development and launch of the HealthyConnect.com portal. Data
General will provide a consolidated computing infrastructure to support
HealthyConnect.com including hardware, software and network support.
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.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement to purchase all of the issued and outstanding shares of
Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common
share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
US$3.00 per share for every 12.85 shares of LRC. The closing of the transaction
is subject to regulatory and shareholders approval. LRC is a publicly listed
company on the Canadian Venture Exchange that offers a full range of laser
cosmetic procedures in its clinic operations located in the provinces of
Ontario, Alberta and British Columbia.
On November 5, 1999, the shareholders of the Company approved the issuance of up
to 1,799,502 additional common shares in connection with the take over bid by
the Company for all the issued and outstanding securities of YFMC Healthcare
Inc. ("YFMC"), a Canadian physician management services organization that owns
and manages 22 medical clinics. Pursuant to the business combination agreement,
dated August 10, 1999, the Company mailed a take-over bid circular on November
5, 1999 to all YFMC shareholders making an offer to purchase all the issued and
outstanding securities of YFMC on the following basis:
In the case of holders of YFMC Common Shares, one Med-Emerg Common Share for
every 6 7/8 shares of YFMC
In the case of holders of YFMC Series A Warrants, one Med-Emerg Series A
Warrant for every 8 warrants of YFMC In the case of holders of YFMC Series B
Warrants, one Med-Emerg Series B Warrant for every 8 warrants of YFMC
In the case of holders of YFMC Preferred Shares, one Med-Emerg Common
Share, subject to certain conditions, one Med-Emerg Common Shares for every 10
YFMC First Preferred Shares.
The Company issued 1,758,556 Common Shares to complete the transaction. In
addition, Med-Emerg substituted 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.
In March 1999, the Company purchased 51% of the outstanding capital of
Caremedics (Elmvale) Inc. ("Elmvale"), a multi-physician primary healthcare
clinic located in Ottawa, Canada. The Company entered into a five-year
management services agreement to manage the clinic for a monthly fee based on
revenues generated by the clinic.
<PAGE>
In February 1999, the Company became party to a lease for the clinic located
within York University ("York Lanes") 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. ("MUCI"). 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.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
REVENUES. Revenues increased by $2,340,325 or 22.7% from $10,308,103 in 1998 to
$12,648,428 in 1999. The revenue growth is attributable to the acquisition of
YFMC, the acquisitions of MUCI, York Lanes and Elmvale, growth in existing
clinic business and growth in nurse staffing.
Revenues generated by Physician Management Services increased by $2,317,822 or
92.8% from $2,498,898 in 1998 to $4,816,720 during 1999. The three acquisitions
that were completed in the second and third quarters of 1998 contributed
$685,188 additional revenue to 1999. The three acquisitions that were completed
during the first quarter of 1999 contributed $562,615 additional revenue to
1999. The acquisition of YFMC Healthcare Inc. added total revenue of $547,141
for the two months of operations included in the consolidated results of the
Company. The Dundas Urgent Care Centre was a start-up operation in 1998. In
1999, this Centre contributed $395,746 to revenue. 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 $25,559 to $7,831,708
during 1999 from $7,806,149 during 1998. Revenues from contracts in the
Physician Recruiting decreased $582,650 due to a net decrease in the number of
physician staffing contracts from 16 contracts to 12. The decrease in Physician
Recruiting revenue was offset by revenue of $294,790 generated from a one-time
short-term contract with Customs and Immigration Canada for the provision of
physicians and nurses to Bosnia refugees. In addition, the nurse staffing
component of this division contributed an additional $270,740 to revenue in 1999
as compared to 1998. This increase came from a significant increase in the
provision of services to one hospital under an existing contract plus the net
addition of five contracts.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which
primarily represents fees to contract physicians, increased $893,023 or 11.2%
from $7,984,116 in 1998 to $8,877,139 in 1999. Physician fees and other direct
costs decreased as a percent of revenue, representing 70.2% of revenues for 1999
and 77.5% of revenues for 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 in 1999 include $798,943 of expenses
relating to the development of HealthyConnect.com, an internet based e-commerce
health portal. Operating expenses before HealthyConnect.com have increased by
$1,376,373 or 59.1% from $2,246,199 in 1998. There are several factors
contributing to the increase in operating expenses, including the clinic
acquisitions in 1998 and 1999, and the operations of the Dundas Urgent Care
Centre.
During the second and third quarters of 1998, the company completed the
acquisitions of two companies, JC Medical Management Inc. and Doctors On Call
<PAGE>
Ltd., and acquired the remaining two-thirds of the Glenderry Medical Walk-in
Clinic. These acquisitions added $133,438 to operating expenses in 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, adding a total of $542,830 to operating expenses. The acquisition of
YFMC Healthcare Inc. in the fourth quarter of 1999 added $349,740 to operating
expenses.
During the first ten months of 1998, the Dundas Urgent Care Centre was
considered a start-up operation. During 1999, this Urgent Care Centre added
$169,170 to operating expenses. The remaining increase in operating expenses of
$265,749 for 1999 compared to 1998 relates to an increase in general overhead
costs.
NET LOSS. As a result of the above items, the Company reported a net loss of
$878,469 for 1999 as compared to net loss of $106,257 for 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.
Under U.S GAAP, the Company reported a net loss before preferred share dividends
of $878,469 for the year ended December 31, 1999 as compared to a net loss of
$106,257 for the year ended December 31, 1998.
FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SERVICE REVENUES. Revenues increased by $1,949,166 or 23.3% from $8,358,937
for the year ended December 31, 1997 to $10,308,103 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 $1,238,831 or 18.9% to $7,806,149 from
$6,567,318 for the year ended December 31, 1997. The launch of the nurse
staffing service in April 1998 contributed $299,633 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 increased by $246 to $814,022 from income of $813,776
for the year ended December 31, 1997. During 1997, operating income of $229,194
was earned on a one-time consulting fee. This decrease in income was offset in
1998 by the operating income of $52,746 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 $707,279 or 39.5% to $2,498,898 from $1,791,619
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
$303,458 and 38,473, 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 $163,939. 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
$74,375 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
$79,239.
<PAGE>
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 decreased by $6,027 to $341,159 from $347,186 for
the year ended December 31, 1997. The decrease was due to the increase in
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 costs for the year ended December 31 increased by $1,664,182 or
26.3% from $6,319,934 in 1997 to $7,984,116 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 1998, operating expenses increased by $335,315 or 16.8%
from $1,995,439 for the year ended December 31, 1997 to $2,330,754 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 22.6% of net revenues for the year ended
December 31, 1998 and 22.7% of net revenues for the year ended December 31,
1997. The stock compensation expense of $100,400 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 $179,749 for development and start-up costs as
compared to $106,017 at December 31, 1997. For U.S. GAAP, the start-up costs of
$145,520 at December 31, 1998 and $106,017 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 $308,751 or 96.1% from $321,335 to
$12,584 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 $106,257
for the year ended December 31, 1998 as compared to a net loss of $340,987 for
the year ended December 31, 1997.
Under U.S. GAAP, the Company reported net loss of $283,007 for the year ended
December 31, 1998 as compared to a net loss of $447,044 for the year ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Through its acquisitions completed in the first quarter of 1999, the Company
assumed bank term loans with current balances totaling $526,711. Approximately
$148,903 was loaned to a subsidiary of the Company under the Small Business
Investment Loans program in which the Canadian government guarantees 90% of the
principal balance of the loan. The remaining balance consists of capital loans
for asset purchases and clinic acquisitions.
As at December 31, 1999, the company's working capital deficit totaled $882,234.
The company has available credit facilities for up to approximately
CDN$4,500,000 (US$3,117,855). The Company established credit facilities that
provide operating lines of credit amounting to CDN$2,600,000 (US$1,801,427),
bearing interest at the bank's prime lending rate plus 0.5% to 1.0% per annum
<PAGE>
with interest payable monthly, and capital lines of credit amounting to
CDN$850,000 (US$588,928). The capital lines of credit bear varying interest
rates from the bank's prime lending rate plus 0.75% to 9.65% per annum. As at
December 31, 1999, the Company has drawn approximately CDN$2,022,202
(US$1,401,096) against the operating facility and CDN$381,744 (US$264,494)
against the capital facility. Subsequent to year end, the Company has drawn an
additional CDN$85,137 (US$58,988) against a capital facility.
On March 1, 2000, the Company issued a Private Placement Memorandum for equity
financing. The Company currently is in the process of raising gross proceeds of
US$1,700,000 for the issuance of 935,000 common shares. As at April 20, 2000,
US$500,000 has been raised.
In order to provide the financing 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.
Forward-looking statements of Med-Emerg International Inc. included herein or
incorporated by reference including, but not limited to, those regarding future
business prospects, the acquisition of additional clinics, the adequacy of
capital resources and other statements regarding trends relating to various
revenue and expense items, could be affected by a number of uncertainties and
other factors beyond management's control.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF LRC
The discussion and analysis of the financial condition of Laser Rejuvenation
Clinics Ltd. and the results of operation should be read in conjunction with the
financial statements and the related notes.
OVERVIEW
Laser Rejuvenation Clinics Ltd. (the "Company") became a listed on The
Alberta Stock Exchange, now the Canadian Venture Exchange in January 1998 and is
trading under the symbol ZAP.A.
RESULTS OF OPERATIONS (STATED IN U.S. DOLLARS)
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1998
FINANCIAL
Procedure Sales Contracts and Revenues:
During the six month period ended December 31, 1999 net revenues increased from
$1,279,254 in 1998 to $1,586,597 in 1999, an increase of 24 percent. This
increase is attributable to sales contracts increasing by 28 percent to 10,884
for the six-months ended December 31, 1999. The increase in sales contracts was
attributable to both internal growth and excellent results from the Oakville,
Ontario acquisition completed in September 1998. The comparable six-month period
last year only included four months of Oakville's contribution.
Operations:
The net loss for the six months ended December 31, 1999 increased to $384,394 or
$0.03 per share compared to a loss of $134,498 or $0.01 per share for the
comparable period in 1998.
Clinic operating costs and general and administrative expenses as a percentage
of gross revenues stayed consistent at 62 percent and 12 percent respectively,
compared to the comparable period last year.
Depreciation and amortization expense increased to $270,479, an increase of
$31,586 over the comparable period in 1998, or 13 percent. The increase is a
result of a full six months of depreciation and amortization of goodwill
associated with the Oakville facilities.
Management is still focused on improving profitability at the Company's newest
startup locations, in Vancouver and Winnipeg. Particular emphasis will be placed
on growing net facility revenue at Vancouver in the coming months. Analysis of
this startup operation has shown that expanded attention needs to be directed
toward marketing a broader range of procedures than has been the case and that
this should improve overall results going forward.
YEAR ENDED JUNE 30, 1999 COMPARED WITH YEAR ENDED JUNE 30, 1998
FINANCIAL
Procedure Sales Contracts:
Sales contracts increased 130 percent over the prior year, to 20,837. The mature
clinics operations in Calgary and Toronto reflected same store growth in
procedure contracts rising 15% to 9,494 in fiscal 1999, up from 8,240 in the
prior year. Start up locations in Vancouver and Winnipeg showed a strong ramp up
of procedure contracts during the year, with Q4 procedures of 2,124 representing
193% of Q1 procedure contracts.
The acquisition of the Vein and Laser Centres Inc. at August 31, 1998 has been
responsible for approximately 50 percent of the incremental growth in procedure
contracts for fiscal 1999. LRC has successfully implemented a full service
<PAGE>
concept at this facility in Oakville, which is reflected in the growth in
procedure contracts ramping up to 2,517 for Q4, an increase of 80% from the
first complete quarter of operations after the acquisition took place.
Revenues:
Gross revenues are determined as the total physician and facility procedure
fees. Net revenues include only the facility fee component which is exclusive of
amounts retained by affiliated physicians.
The expanded number of procedures contracted for in fiscal 1999 resulted in
gross revenues of $3.2 million or $2.4 million in net revenues. This represents
an increase of 105% in net revenues over the prior year.
During the year more than 45 percent of the Company's net revenues were derived
from laser hair removal procedures, 9 percent from hair transplants and 6
percent for each of laser resurfacing and liposuction.
Operations:
The net loss for fiscal 1999 rose to $636,377 or $0.05 per share compared to a
loss of $462,226 or $0.05 per share in fiscal 1998. The loss is attributable to
the following:
- - As expected, two start-up clinic locations in Vancouver and Winnipeg had
not fully established their revenue stream. These clinics are expected to
fully ramp up over the course of fiscal 2000 and become cash-flow positive.
- - An increase in overhead associated with the company building infrastructure
to allow for the consolidation and acquisition of cosmetic clinics in
Canada and the USA over the course of the next year.
- - Interest on long term debt increased as additional locations were equipped and
acquired.
- - Depreciation and amortization increased 91 percent primarily associated with
the Oakville acquisition.
Clinic operating costs as a percentage of gross revenues decreased from 76
percent in 1998 compared to 65 percent in 1999. The decrease in attributable to
the four start-up clinics maturing in their markets and achieving higher
revenues for a larger portion of the year, as compared to the prior year.
General and administrative expenses as a percentage of gross revenue decreased
from 24 percent in 1998 to 14 percent of gross revenues for fiscal 1999. This
was a direct result of the growth in revenue experienced across five clinic
locations absorbing the Company's head office overhead and public company costs.
The net increase of general and administrative expenses by $106,925 over the
prior year was due to the Company continuing to build its management and systems
infrastructure for the implementation of its consolidation strategy. In
addition, the costs associated with being a public company rose by approximately
$51,964 over the prior year, when the company was only public for several
months.
Interest expense rose by $30,830 over the prior year, in direct correlation to
the increase in obligations under the capital leases which rose by more the
$250,000, or 136 percent compared to the prior year. The majority of the
increase in the leases were assumed through the acquisition of the Oakville
location.
Depreciation and amortization expense increased to $481,084, an increase of
$229,620 over the prior year, or 91 percent. Approximately $168,000 of this
increase is a result of a full year of depreciation on the facilities and
start-up costs associated with Vancouver, Winnipeg, and the Oakville locations.
In addition, amortization of goodwill was $60,601 associated with the Vein and
Laser Centres Inc. purchase during the year. Goodwill is amortized on a
straight-line basis over 10 years.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, LRC became operationally self-supporting, and reached
positive EBITDA prior to the effect of an accounting change in estimate in
revenue recognition, reflected through the third and fourth quarters. The
Company has financed its operations to date through cashflow, the issuance of
Common Shares and borrowings and capital lease financing. During the year, $1.1
million in Special Warrant financing raised in fiscal 1998 was used to fund the
Oakville acquisition and invest in leading edge technology. The warrants
converted to Common Shares on April 30, 1999 without additional consideration.
No additional share capital was issued during the year.
Working capital decreased to negative $177,205 compared to positive $1,155,283
from the prior year due to the investment of the special warrant financing into
clinic acquisition and the financing of additional technology and expansion of
facilities. In addition, a large portion of working capital and short-term
lending facilities were re-invested in information technology infrastructure
during the year.
Net cash used from operations decreased to $71,688, compared to a use of cash of
$278,066 in the prior year. This position will continue to improve as LRC
continues to acquire cash-flow positive clinics and further ramp up the
Vancouver and Winnipeg locations. Cash resources from operations were used to
finance existing operations and invest in the infrastructure required for future
expansion efforts.
The Company re-negotiated its credit facilities with a Canadian commercial bank
to borrow up to Cnd$400,000 in operating lines of credit and a Cnd$200,000 term
demand facility.
YEAR ENDED JUNE 30, 1998 COMPARED WITH YEAR ENDED JUNE 30, 1997
FINANCIAL
Revenues:
LRC concluded fiscal 1998 with gross revenues from all clinics of $1,395,243
compared to $497,531 for fiscal 1997, a ten-month period of operations. This
represents an increase of 180 percent in gross sales revenue. The growth in
revenue during the year is attributable to:
- - the increase in gross revenues from the opening of two additional
operational clinic sites during the year,
- - the increase in the number of procedures contracted for, and
- - the introduction of new services into the marketplace.
The Company's Calgary clinic concluded its first full year of operation and
showed increases in net revenues and profitability. Net revenues increased by
100 percent to $878,000 in fiscal 1998 and results show a steady increase of
procedure sales contracts. Total sales contracts during the fourth quarter of
fiscal 1998 rose to 1,823, an increase of 31 percent over the third quarter of
fiscal 1998.
The Toronto location began operations in July 1997. It experienced level
quarterly results during the first nine months of start-up and is now profitable
in a very competitive market. The clinic turned a profit in the last month of
fiscal 1998. Net revenues for the year were $224,000. Fourth quarter procedure
contracts rose by 147 percent to 1,020 procedures, compared to the third quarter
of fiscal 1998 at 413 procedure contracts.
The Vancouver and Winnipeg clinics were formed with physician equity partners.
Vancouver began operations in mid-march 1998 and showed net revenues of $89,000
during the initial start-up months. Winnipeg is now fully equipped and will
become operational during the second quarter of fiscal 1999.
Overall, consolidated net revenues were $1,190,904 for the year, compared to
$439,605 for the 10-month period prior. This is a direct result of the number of
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procedures contracted increasing by 304 percent to 9,064 from 2,244 in the prior
fiscal year. Of these contracts, net revenues were derived primarily from two
sources: hair removal facility fees ($788,000-1998, $331,000 - 1997) and skin
resurfacing facility fees ($114,000-1998, $63,000 - 1997). The introduction of
additional services such as Endermologie-TM- and ultrasonic liposuction during
the third quarter provided increased volumes in additional profit centres. The
volume of procedures done is anticipated to increase dramatically over the next
year as growth in these new services begins to mature in all locations.
Operations:
Clinic operating expenses have increased to $1,066,306 from $242,641 in fiscal
1997. The increase resulted from added fixed costs associated with the opening
of two additional clinic sites in the year; higher variable expenses associated
with a 304 percent increase in the number of procedures contracted for over the
prior year; and increased marketing costs related to new clinic locations. The
major cost components include salaries and wages, clinic leasing costs and
marketing and promotion.
General and administrative expenses increased by 189 percent to $338,301 in
fiscal 1998 due to the building of infrastructure to focus on the Company's
growth strategy to open and support new clinics.
Depreciation and amortization increased from $53,580 to $251,464 as capital
expenditures increased dramatically with the preparation of three additional
clinic sites in the year. In addition, deferred development costs continue to be
written down. Both depreciation and interest expense are anticipated to increase
as additional clinics are opened.
As anticipated, the start up of the Toronto and Vancouver clinics during fiscal
1998 and the overheads associated with the expansion of the corporate
infrastructure to prepare for the opening and support of new clinic locations
resulted in a consolidated net loss of $462,226 or $0.05 per share, compared to
a marginal profit of $6,616 in fiscal 1997. EBITDA was negative $206,456 as the
majority of clinics were entering their markets. Management estimates that
typically it takes up to 12 to 18 months for a new start-up clinic to become
operationally profitable.
LIQUIDITY AND CAPITAL RESOURCES
The June 30, 1998 consolidated balance sheet of LRC reflects a strong financial
position. The strong working capital position is primarily due to the gross
proceeds from the Company's private placement of Special Warrants completed in
April 1998 for $1,154,819. The capital will be used to fund acquisitions in
fiscal 1999 and invest in leading edge technology. During the year the Company
also raised $831,428 from its initial public offering of Class A Common Shares
on December 22, 1997. These funds were utilized to fund the capital requirement
to complete the Vancouver clinic and begin developing the Winnipeg location. The
Company used cash from operations of $278,066, compared to cash used from
operations of $9,200 in fiscal 1997.
LRC will continue to fund clinic expansions and asset purchases through a
combination of lease financing and the use of other long-term debt facilities.
The Company believes is working capital is adequate to fund expansion plans in
fiscal 1999.
BUSINESS ENVIRONMENT AND RISKS
COMPETITION AND NEW TECHNOLOGY
The equipment utilized by the Company may be subject to obsolescence and
restrictive regulatory guidelines and the Company may be required to incur
additional costs from time to time as new technology becomes available or as new
regulations are enforced. The availability of the Company's financing
alternatives, including leasing arrangements, allows LRC to continue to maintain
state-of- the-art technology in all locations.
The industry the Company is engaged in is subject to market forces, including
competition and changes in technology. LRC differentiates itself from its
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competitors by having the ability to offer full service cosmetic and dermatology
procedures in an up-scale, client focused setting. In addition, through the
specialized knowledge of Dr. Tom Woo, National Medical Director, the Company
continues to provide clients with state-of-the-art technology and exceptional
service.
REGULATORY ENVIRONMENT
The Company provides medical and cosmetic treatments that are subject to the
regulatory guidelines and oversight of the College of Physicians and Surgeons in
each of the provinces where LRC operates. Adverse impacts could arise through
requirements for additional certified personnel. Policies or their application
may be subject to amendment for change in a manner that may adversely affect the
business of LRC. Currently, no regulatory changes that would be significantly
detrimental to LRC's business are foreseen.
PROFESSIONAL LIABILITY
While the technology used by LRC is modern, accurate and precise, as with any
medical procedure, there is an attendant risk to certain treatments provided by
the Company. The Company maintains insurance to help protect itself from these
risks and the physicians retained by the Company are also required to maintain
their own insurance for such events. Both company and physician policies are
reviewed by the Board of Directors of the Company to ensure prudent levels of
coverage are maintained.
OUTLOOK/RECENT DEVELOPMENTS
LRC has proven its ability to grow revenue from clinical development and
acquisition in Canada. The Company's future growth and profitability are
affected by the extent of LRC's ability to raise capital and strategically
select acquisitions which will allow it to further penetrate the Canadian market
and effectively move into the USA.
The Company will continue to focus on creating shareholder value through the
development and consolidation of patient focused full service cosmetic
facilities. Expansion efforts are currently focused on establishing its
co-management referral networks through strategic initiatives with general
practice management organizations with a large concentration of patient lives or
clients under management and physician resources. These co-management networks
with practice management organizations will also provide opportunities for LRC
to boutique into clinic facilities in advance of entering a new market with a
full-service clinic hub.
Other developments include the expansion of services offered at LRC clinics. The
Vancouver clinic has been a pilot site in fiscal 1999 for laser dentistry, with
the intent to partner with our affiliate dentists in expanding this service to
other locations.
<PAGE>
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., Med-Plus Health Centres Ltd., YFMC Healthcare Inc., HealthyConnect.com,
Inc. (incorporated in the state of Delaware) and HealthyConnect.com Inc.
(incorporated under the OBCA). 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 or the Company 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.
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 16 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.
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.
PHYSICIAN AND NURSE RECRUITMENT SERVICES DIVISION
Competitive pressures have focused the attention of many healthcare
administrators, in the public sector on the need for better staffing of their
medical professionals. Hospitals have increasingly turned to contract staffing
firms with specialized skills to help solve physician contract and scheduling
problems.
<PAGE>
The Physician and Nurse Recruitment Division was established in 1983 as a
medical staffing and recruitment business. The Company provides physician
staffing, nurse staffing and administrative support to emergency departments and
physician recruitment services to Canadian hospitals and physician groups. The
administrative services include billing, maintenance of records and coordinating
with third party payors. Under its contracts with hospitals, the Company
provides emergency department physician coverage. The Company also coordinates
the scheduling of staff physicians which provides emergency department coverage
and assists the hospital's administrative and medical staff in such areas as
quality assurance, risk management, departmental accreditation and marketing.
The Company's hospital physician staffing services are reimbursed either based
on a monthly fee payable by the hospital or on a per shift basis. As of February
29, 2000, the Company had 14 hospital physician contracts, of which 10 were
contracted to pay monthly administration fees, two were contracted to pay on a
per-shift basis and two were contracted to pay based on a percentage of billings
generated by the physicians on each shift. As of February 29, 2000, the Company
was providing physician coverage for a total of approximately 550 shifts per
month, representing over 6,300 hours per month.
The Company's nurse staffing services are reimbursed at a fixed rate per hour of
coverage provided. The Company had six hospital nursing contracts as at February
29, 2000, which provided a total of approximately 1,648 hours in the month of
February.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in hospitals
that have contracted for the Company's contract staffing services. The Company
then enters into contracts with physicians who meet its qualifications and
provides those physicians as candidates for admission to the hospital's medical
staff. The Company requires all physicians to be currently licensed to practice
medicine in the Province of Ontario and to be Advanced Cardiac Life Support
("ACLS") or Advanced Trauma Life Support ("ATLS") certified before entering into
a contract for the physician's services.
The terms and conditions of the Company's contracts with physicians generally
provide that the Company, on a best efforts basis, will place the physician in a
functioning facility and the Company will collect all fees due to the physician
for rendering services. The Company then pays the physician for the medical
services provided based on the terms of the contract between the Company and the
physician. These contracts contain the following provisions: each physician is
not an employee of the Company but is instead an independent contractor of
services to various medical facilities under contract with the Company; each
physician must remain in good standing with the College of Physicians & Surgeons
of the Province of Ontario and be licensed to practice medicine in the Province
of Ontario and each physician must remain in good standing with the Canadian
Medical Protective Association ("CMPA") and have appropriate CMPA coverage to
provide physician services to patients while under contract with the Company.
Physicians are bound by a non-competition restriction not to provide services at
any hospital where the Company has a contract for one year following the
contract term. Each Physician full-time contract has a term of twelve months and
renews automatically for an additional twelve months.
CONTRACTS WITH HOSPITALS FOR PHYSICIAN STAFFING. The Company coordinates the
scheduling of staff physicians to provide coverage on a negotiated basis to a
hospital's emergency department.
The Company generally provides contract physician staffing services to
hospitals on the following arrangements: fee-for-service contracts and
physicians per shift that the Company provides to the hospital. In addition,
physicians under contract to the Company authorize the Company to bill and
collect fees. Depending upon the hospital patient volume, the Company may
receive a subsidy from the hospital. Pursuant to such contracts, the Company
assumes responsibility for billing and collection and assumes risks of
administrative error and subsequent non-payment. All of these factors are
taken into consideration by the Company in arriving at appropriate
contractual arrangements with healthcare institutions and professionals.
Generally, the contracts may be terminated by either party upon two
<PAGE>
or three months notice. The contracts, generally, automatically renew unless
terminated on such notice.
When determining the split arrangement to be used in the physician compensation
model for the Company's fee-for-service contracts, the Company considers a
hospital's emergency room patient volume, the monthly gross margin targets set
by the Company, the location of the hospital in relation to the supply of
physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the hospital, the
Company considers several factors including location of the hospital in relation
to the availability of physicians, number of physicians from which to draw, the
number of physician shifts required, and patient volumes.
For the majority of the hospital staffing contracts, the Company's monthly fee
is due on the 1st of the month for which shift coverage is being provided. For a
few of the Company's contracts, the fee is not due until the end of the month
for which shift coverage was provided. For all of the Company's hospital
staffing contracts (fee-for-service and fixed fee) the physicians are paid on
the 15th of each month for services rendered up to the 15th of the prior month.
CONTRACTS WITH NURSES. The Company identifies, recruits and screens potential
candidates to serve as emergency room nurses in hospitals that have contracted
for the Company's staffing services. The Company then enters into contracts with
nurses who meet its qualifications. The Company requires all nurses to be Basic
Life Support ("BLS") certified and prefers Advanced Cardiac Life Support
("ACLS") certification. Nurses must have a minimum of two years' experience in
emergency departments and pass a written examination that tests their skills as
a critical care nurse.
The Company bills a fixed hourly rate to the hospital for each hour of service
provided by a nurse under contract with the Company. The nurses are paid a lower
fixed hourly rate on the 15th and 30th of each month.
CONTRACTS WITH HOSPITALS FOR NURSE STAFFING. The Company provides nursing
coverage to hospital emergency departments on a shift-by-shift basis. The
Company charges a fixed hourly rate for every hour of nursing coverage provided.
Generally, the contracts may be terminated by either party upon two or three
months notice. The contracts, generally, automatically renew unless terminated
on such notice.
THE PHYSICIAN AND NURSE RECRUITMENT DIVISION'S OPERATIONS
The principal operating activities of the Physician and Nurse Recruitment
Division include the following:
RECRUITMENT AND CREDENTIALS. Med-Emerg has developed into one of the larger
providers of physician recruitment and placement services to many communities
and hospitals across Canada. Services include the complete assessment of a
community's needs, practice opportunities, the development of a recruitment
strategy and implementation process.
The recruitment and certifying of credentials of qualified independent
contract physicians is a central aspect of the Company's operations.
Full-time employees of the Company are dedicated to recruiting and certifying
credentials of the independent contract physicians for the Company. The
Company recruits physicians from three groups. The first group is recruited
directly from postgraduate training programs. Seminars are currently held in
most of the teaching hospitals in Ontario, with plans to provide seminars
across Canada to educate all the residents in family medicine and other
specialties about career opportunities in the Company. The second and third
groups recruited are established family physicians with an interest in
emergency medicine and full-time emergentologists. The Company has developed
a database that tracks the physicians during their medical career. This
database enhances the Company's ability to maximize the medical service
contribution of each physician. In the Canadian healthcare environment where
there exists a significant shortage of qualified physicians, one measure of
value of a physician management organization, such as the Company, is its
ability to access in a timely manner the quantity of physicians in an
organization's database. As part of its recruiting strategy, the Company has
established a stock option plan and group benefits plan in which its
contracted
<PAGE>
physicians can participate. The Company believes that this will encourage
physicians to make long-term commitments.
Qualified independent contract nurses are recruited through advertising,
word-of-mouth and trade shows. Nurses must have two years of experience in
critical care nursing and possess Basic Life Support ("BLS") training and
preferably Advanced Cardiac Life Support ("ACLS") training.
QUALITY ASSURANCE. The Company maintains a Quality Assurance program designed to
ensure consistency in clinical practice performance. These systems are subject
to review and examination by independent hospital credential and regulatory
agencies. As part of the Company's quality assurance program, all physicians are
required to have ACLS and ATLS certification, provide a Certificate of
Professional Conduct from the College of Physicians and Surgeons of Ontario, be
approved by the credentialing committee in their respective hospitals that are
governed by the Public Hospital Act, maintain adequate malpractice coverage, and
maintain continuing medical education credits. Principally, quality assurance is
the responsibility of Dr. Stephen Fowler, the Company's Executive Medical
Director. The efficiency of these systems, and the performance of the Company's
contract physicians, are critical to maintaining a good relationship with the
hospitals, as well as minimizing the exposure of the Company to liability
claims.
TIME SCHEDULING. The scheduling of physician hours and nurse hours is performed
monthly. For physician services, hospitals are provided a monthly physician
coverage schedule prior to the first of each month. Under some of the hospital
contracts, multiple physician coverage is required during certain periods. For
nursing services, hospitals contact the Company with their shift requirements.
Because of varying other demands on the contract nurses and physicians, the
scheduling process is complex and requires significant management attention.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage of physicians are comprised of two elements: (i) hospital
administrative fees; and (ii) physician services. Under each hospital contract,
the Company has the responsibility for the billing and collection of physician
fees. The Company's bad debt experience in collection of physician fees has
historically been less than 1% of allowable billings. In addition, the Company
charges each hospital a fee for its recruiting and staffing services either on a
fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides for the administration of
fringe benefit programs, which may include but are not limited to life
insurance, health insurance, professional dues and disability insurance.
CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. Hospitals have increasingly
turned to consulting specialists with specialized skills to strengthen the
management of their professional medical staff and specific clinical
departments, to better control costs, and to assist hospitals in meeting their
healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring physician. In the past few years,
consulting contracts have been conducted with Hotel-Dieu Grace Hospital in
Windsor, Canada and The Wellesley Hospital in Toronto, Canada. In 1998, a
consulting contract was completed for the Chatham-Kent Health Alliance and the
Company is currently working on a consulting contract with Northumberland Health
Care Corporation.
The Company has also conducted several international consulting assignments for
healthcare clients in Saipan, the Cayman Islands, Malaysia and India, including
feasibility studies, identification of medical service needs, planning of
healthcare delivery systems and developing marketing strategies. In 1997, the
Company completed a consulting assignment to provide an integrated strategic
plan for the delivery of health and social services in the Northwest Territories
in Canada, the costs of which were funded by the Northwest Territory Provincial
government.
The Company expects to continue its growth through staffing additional hospital
contracts. In particular, the Company intends to both strategically target
hospitals and physician groups. Management actively seeks opportunities to
competitively bid for hospital contracts.
<PAGE>
In addition, the Company intends to take advantage of the government's plans to
restructure the delivery of Canadian medical care through fewer but more
efficient hospitals and hospital groups. Management expects that hospitals will
increasingly look to outsourcing from third party providers. Specifically, the
Company expects that hospitals will seek opportunities for emergency care
specialists not only to staff the emergency departments but also to administer
and operate all aspects of those departments.
PHYSICIAN MANAGEMENT SERVICES DIVISION
As of March 31, 2000, the Company has an ownership interest in and
manages 28 clinics in Canada.
The Company's clinics 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, nutrition, footcare, weight loss
program, internal medicine, paediatrics, haemotology and professional family
counseling. The Company manages the clinics by providing scheduling, staffing,
recruiting, billing, collections and accounting services to the clinic. In the
clinics where the Company does not own 100% of the outstanding capital stock,
the Company has entered into a 5 year management services contract whereby the
Company receives a monthly management fee to provide the management services.
In August 1996, the Company acquired the assets and physician contracts of St.
George Medical Clinic, a Health Services Organization (HSO), and merged the
operations into the Central Clinic. The clinic is funded under a contractual
agreement with the Ministry of Health to provide primary care at a clinic for a
specified number of registered patients. The Ministry allocates a specific
payment for each patient on a monthly basis, whether the services are used or
not. The monthly fee is determined by the age and sex of the patient and is
referred to as the capitation rate. As at December 31, 1999, the average monthly
capitation rate was $12.83 CAD per patient with approximately 5,444 patients
enrolled under the HSO program. Under the fee-for-service model, a fee is billed
to the Ministry only when a patient visits the clinic and a service is
performed. The fee-for-service rates are set by the Ministry and vary depending
on the type of medical service performed. The locations of the Company's clinics
are set forth below under "Real Property Locations".
In addition to family practice and walk-in clinics, the Company has an ownership
interest in and manages two Urgent Care Centres through which it offers on-site,
one-stop medical care comparable to the services provided in a traditional
emergency department. The Urgent Care Centre concept consists of a group of
emergency trained physicians, a medical laboratory, a diagnostic radiology
service, and a pharmacy, each of which must be present for the others to
co-exist, and each of which is provided by a separately owned company. The
Company operates the clinic component of the Urgent Care Centre. The Company
provides emergency medical services, including emergency physician staffing,
emergency nurse staffing, receptionist staffing, physician billing services, all
financial services, inventory control, Medical Directorship and other
operational components such as quality improvement and risk management
initiatives.
The Company opened its first Urgent Care Centre on September 19, 1997. In
January 1999, the Company acquired a 45% interest in Medical Urgent Care Inc., a
company that operates the Britannia Urgent Care Centre. The Company has a 5 year
agreement to provide management services to the Britannia Urgent Care Centre for
a percentage of the revenues generated by the clinic component.
HEALTHYCONNECT.COM DIVISION
HealthyConnect.com, an internet-based e-commerce health portal, was
launched on March 22, 2000. HealthyConnect.com has been strategically designed
to provide an end to end solution for the information needs of the healthcare
sector. We will pursue both a business to business and business to consumer
e-commerce strategy connecting 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
<PAGE>
healthcare services and products and provide timely access to reliable
healthcare information through the utilization of advanced telecommunication
technology.
Targeted purchasers of HealthyConnect.com on line applications, are consumers,
healthcare institutions, 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 records, access to a
physician management health and wellness centre and convenient at-home shopping
for healthcare products and services.
HealthyConnect.com's secure, 128-bit encrypted web browser system incorporates
state-of-the-art security and privacy, and is fully compliant with healthcare
industry guidelines. The web-based products have been field-tested over the past
3 months. 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 and web
casting. 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.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing capability
and e-commerce goods and services to its customers. HealthyConnect.com has
negotiated a relationship with AstraTek, headquartered in New York, N.Y.
AstraTek is a software product development firm, delivering advanced
technologies to Fortune 1000 companies and financial institutions. AstraTek
provides mission critical computing such as distributed computing, multi-tier
client-server systems, and object-oriented technology. The core proficiencies at
AstraTek include Windows NT development from driver level to application level,
using Visual C++, Visual Basic, MFC, ATL and OLE automation. AstraTek assisted
in the development and launch of the HealthyConnect.com portal.
HealthyConnect.com has also negotiated a relationship with Data General,
headquartered in Westborough, Massachusetts. Data General is a leading supplier
of servers and storage systems, and services for information systems users
worldwide. Data General designs, manufactures, markets, and supports two major
families of open systems, AViion-Registered Trademark- servers and
CLARiion-Registered Trademark- mass storage
products, which represent over 90 percent of current product revenues. Data
General and its subsidiaries, distributors and representatives serve customers
in more than 70 countries. Data General works closely with leading software and
services suppliers who understand specific customer problems and provide
effective and affordable business solutions. Data General will provide a
consolidated computing infrastructure to support HealthyConnect.com including
hardware, software and network support.
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. 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 the Company, 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
<PAGE>
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. The Company's
independent contracted physicians as well as the Company are subject to periodic
audits by government reimbursement programs to determine the adequacy of coding
procedures and reasonableness of charges.
Business corporations are legally prohibited from providing, or holding
themselves out as providers of, medical care in many provinces. While the
Company will seek to structure its operations to comply with the corporate
practice of medicine laws of each province in which it operates, there can be no
assurance that, given varying and uncertain interpretations of such laws, the
Company would be found in compliance with restrictions on the corporate practice
of medicine in all provinces. A determination that the Company is in violation
of applicable restrictions on the practice of medicine in any province in which
it operates or could operate could have a material adverse effect on the Company
if the Company were unable to restructure its operations to comply with the
requirements of such province.
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, 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 the Company.
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. The Company 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 the Company 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 U.S. styled 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.
<PAGE>
COMPETITION
Competition in the industry is based on the scope, quality and cost of
services provided. Certain of the Company's current and potential competitors
have substantially greater financial resources than the Company. While
management believes that it competes on the basis of the quality of its
services, the larger resources of its competitors may give them certain cost
advantages over the Company (e.g., in the areas of malpractice insurance, cost
savings from internal billing and collection and a broader scope of services).
The clinics operated by the Physician Management Services Division compete with
hospitals and other private physicians. The Urgent Care Centre competes with
hospital emergency rooms. The Company believes that the varied physician
practice alternatives coupled with competitive remuneration plans create a
significant incentive for physicians to provide patient services through the
Company.
EMPLOYEES
As of March 31, 2000, the Company had 94 full-time employees, of whom 4
were employed in general executive positions, 29 were employed in administration
and 61 were employed in the Company's clinics. In addition, as of such date,
approximately 310 physicians and 40 nurses were actively working as independent
contractors of the Company. These physicians and nurses are not employees of the
Company.
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 Cdn$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
Cdn$94,900.
The Pond Mills clinic is located at 1166 Commissioners Road East,
London, Ontario, N5Z 4R3. The Clinic occupies approximately 3,000 square feet
of space under a lease that expires October, 2004 at an annual rental rate of
approximately Cdn$61,300.
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 Cdn$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 a
annual rental rate of approximately Cdn$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
Cdn$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 Cdn$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 Cdn$141,000 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 Cdn$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
Cdn$142,000 for 4,693 square feet. The lease expires in February, 2004.
Approximately 671 square feet is subleased by Med-Emerg to a dentist who
contributes approximately Cdn$76,000 in annual rent and the sublease expires
May, 2001.
<PAGE>
The Beacon Hill Family Medical Centre is located at 2339 Ogilvie
Road, Ottawa, Ontario. Annual rent totals approximately Cdn$43,368 for 1,807
square feet. The lease expires in December 2001.
The Clinique Medicale Place du Centre is located at 200 Promenade du
Portage, Hull, Quebec. Annual rent totals approximately Cdn$20,700 for 1,100
square feet. This lease is currently on a month to month basis.
The Elgin Family Medical Centre is located at 270 Elgin Street,
Ottawa, Ontario. Annual rent totals approximately Cdn$39,000 for 1,800 square
feet. The lease expires in April, 2003.
The Fisher Family Medical Centre is located at 1896 Prince of Wales
Drive, Ottawa, Ontario. Annual rent totals approximately Cdn$28,098 for 1,364
square feet. The lease expires in January, 2001.
The Greenbank Family Medical Centre is located at 250 Greenbank
Road, Ottawa, Ontario. Annual rent totals approximately Cdn$28,566 for 2,400
square feet. The lease expires in August 2002.
The Herongate Family Medical Centre is located at 1670 Heron Road,
Ottawa, Ontario. Annual rent totals approximately Cdn$46,550 for 1,862 square
feet. The lease expires in July 2002.
The Kanata Family Medical Centre is located at 300 Earl Grey Drive,
Kanata, Ontario. Annual rent totals approximately Cdn$44,620 for 1,940 square
feet. The lease expires in June 2001.
The Minto Place Family Medical Centre is located at 344 Slater
Street, Ottawa, Ontario. Annual rent totals approximately Cdn$55,021 for
1,834 square feet. The lease expires in October 2002.
The Rosemount Family Medical Centre is located at 11 Rosemount
Avenue, Ottawa, Ontario. Annual rent totals approximately Cdn$21,777 for
1,281 square feet. The lease expires in April 2003.
The Vanier Family Medical Centre is located at 150 Montreal Road,
Ottawa, Ontario. Annual rent totals approximately Cdn$28,116 for 2,090 square
feet. The lease expires in November 2002.
The Westgate Family Medical Centre is located at 1309 Carling
Avenue, Ottawa, Ontario. Annual rent totals approximately Cdn$55,500 for
2,000 square feet. The lease expires in February 2002.
PSA & Associates is located at 2301 Carling Avenue, Ottawa, Ontario.
Annual rent totals approximately Cdn$17,790 for 1,368 square feet. The lease
expires in May 2002.
Care Source Physiotherapy & Rehabilitation is located at 888
Meadowlands Drive, Ottawa, Ontario. Annual rent totals approximately
Cdn$18,746 for 1,339 square feet. The lease expires in July 2003.
Spirotech Health Services Inc. is located at 4004 Kent Street,
Ottawa, Ontario. Annual rent totals approximately Cdn$6,432 for 318 square
feet. This lease is currently on a month to month basis.
The Jasper Avenue Medical Clinic is located at 11464 Jasper Avenue,
Edmonton, Alberta. Annual rent totals approximately Cdn$32,864 for 2,528
square feet. The lease expires in March 2004.
The McKnight Village Medical Centre is located at 5408 Falsbridge
Drive, N.E., Calgary, Alberta. Annual rent totals approximately Cdn$30,315
for 1,290 square feet. The lease expires in August 2002.
The Medical Centre West Edmonton Mall is located at 8770-170 Street,
Edmonton, Alberta. Annual rent totals approximately Cdn$74,400 for 1,764
square feet. The lease expires in April 2009.
<PAGE>
The Martindale Medical Centre is located at 200-126 Martindale
Drive, Calgary, Alberta. Annual rent totals approximately Cdn$24,180 for
1,860 square feet. The lease expires in May 2004.
The Orleans Gardens Family Health Centre is located at 1615 Orleans
Blvd., Ottawa, Ontario. Annual rent totals approximately Cdn$52,080 for 2,170
square feet. The lease expires in July 2003.
YFMC Healthcare Inc., the corporate offices, are located at 441
MacLaren Street, Ottawa, Ontario. Annual rent totals approximately Cdn$14,400
for 1,800 square feet. The lease expires in July 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 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 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 January 2000, Med-Emerg acquired all of the outstanding capital
stock in YFMC Healthcare Inc. YFMC Healthcare Inc., a physician practice
management company operates and manages primary care facilities, in-clinic
paramedical services, clinical psychology and physiotherapy. The clinics owned
and/or operated are Beacon Hill Family Medical Centre, Clinique Medicale Place
du Centre, Elgin Family Medical Centre, Fisher Family Medical Centre, Greenbank
Family Medical Centre, Herongate Family Medical Centre, Kanata Family Medical
Centre, Minto Place Family Medical Centre, Rosemount Family Medical Centre,
Vanier Family Medical Centre, Westgate Family Medical Centre, PSA & Associates,
Care Source Physiotherapy & Rehabilitation, Spirotech Health Services Inc.,
Kensington House Family Health Centre, Jasper Avenue Medical Clinic, McKnight
Village Medical Centre and Medical Centre West Edmonton Mall.
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.
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, the terms and conditions of the Med-Emerg
Preference Shares prohibit 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 accrue at a rate of US$135,000 per
year.
<PAGE>
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
On November 1, 1996, the Company effected a recapitalization whereby
Dr. Zacharias, the Company's Chief Executive Officer and Director, and
Victoria Zacharias, Dr. Zacharias' wife, converted an aggregate of 2,203,333
shares of Common Stock into an aggregate of 500,000 shares of preferred
stock. In 1997, the shares were transferred to 1245841 Ontario Inc., a
company owned by Dr. and Mrs. Zacharias.
On November 1, 1996, the Company granted Robert Rubin, a director,
an option to purchase 700,000 shares of Common Stock at US$.75 per share and
approved the issuance of 50,000 shares of Common Stock, all of which shares
were issued in 1997 in consideration of services rendered to the Company as
director. On December 31, 1999, Mr. Rubin exercised options for 58,333 common
shares. Under a US $800,000 line of credit previously established between Mr.
Rubin and the Company, Mr. Rubin advanced an aggregate of US $250,000 from
July 1997 to January 1998.
In connection with the Bridge Financing in January 1997, the Company
issued 8% promissory notes in the principal amount of US$500,000 and an
aggregate of 125,000 shares of Common Stock to four investors for gross
proceeds of US$500,000. Robert Rubin, a director of the Company, purchased a
promissory note in the principal amount of US$150,000 and 37,500 shares of
Common Stock. To comply with the National Association of Securities Dealers,
Inc., Mr. Rubin and the another investor agreed to surrender to the Company
for cancellation without consideration an aggregate of 62,500 shares of
Common Stock obtained in the Bridge Financing. The Company remained obligated
to repay the promissory notes issued to the two investors in the aggregate
principal amount of US$250,000, upon the closing of the Initial Public
Offering.
On February 25, 2000, HealthyConnect.com, Inc. issued to each of
Carl Pahapill and Dr. Ramesh Zacharias 500,000 fully vested non-escrowed
shares of HealthyConnect.com, Inc. and an additional 500,000 shares of
HealthyConnect.com, Inc. which are escrowed and which will be released upon
meeting certain conditions.
The Company presents 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 LRC
LRC was incorporated as 623200 ALBERTA LTD. under the laws of the province of
Alberta on August 31, 1994. LRC amended its articles on June 12, 1996 to
change its name to "Laser Rejuvenation Clinics Ltd." LRC began trading as a
publicly listed company on January 12, 1998 on the Alberta Stock Exchange,
now the Canadian Venture Exchange, under the symbol "ZAP.A". The registered
office of LRC is located at 1000, 400 - 3rd Avenue S.W., Calgary, Alberta,
T2P 4H2, and LRC's head office is located at 102, 4616 Valiant Drive N.W.,
Calgary, Alberta, T3A 0X9.
GENERAL OVERVIEW
LRC is a corporation that offers, through its own facilities and its
relationship with medical and dental professionals, a variety of cosmetic
treatments to individuals desiring to maintain a more youthful, attractive
and healthy appearance. The primary technologies used are lasers with
emphasis on the removal of body hair, wrinkles, age-related sunspots and sun
damage and cosmetic surgery focused on liposuction and body contouring.
LRC, through its wholly owned subsidiaries, LRC (Calgary) Ltd., LRC (Toronto)
Ltd., LRC (Winnipeg) Ltd., and LRC (Vancouver) Ltd, operates five clinics
under the registered trade name Laser Rejuvenation Clinics servicing Calgary,
Toronto, Oakville, Vancouver and Winnipeg. Each clinic has a common theme of
offering full service customer-focused cosmetic procedures. However, the
set-up and structure of each is unique for the requirements of the market and
the goal of attracting appropriate medical personnel.
<PAGE>
BUSINESS AND OPERATIONS OF LRC
PRODUCTS AND SERVICES OFFERED
LRC offers an extensive array of outpatient cosmetic procedures.
These include both physician and non-physician dependant services. LRC
provides its clients with both major "surgical" procedures, such as
liposuction, skin resurfacing and hair transplants along with minor
procedures such as laser hair removal, cosmetic dermatology and vein
treatment, cellulite reduction and body contouring and spa services and
products. The following is a more detailed description of these and other
services provided by LRC through its five facilities.
LIPOSUCTION
Liposuction provides for the permanent removal of fat from the body.
LRC uses the tumescent liposuction technique, which involves injecting large
volumes of dilute local anaesthesia beneath the skin. The fluid expands the
fat, pushing it away from the nerves and blood vessels, thereby reducing the
chance of damage and encouraging a pain free procedures. A small tube called
a canula is connected to a gentle vacuum machine and inserted into the fatty
tissues through tiny incisions. Some of LRC's clinics now incorporate a
refinement to this procedure, being ultrasonic liposuction which further
reduces pain and bruising.
SKIN RESURFACING (WRINKLE REMOVAL) AND BLEPHAROPLASTY (EYELID LIFTS)
Laser resurfacing removes old layers of the skin, thereby
stimulating collagen formation and elastin contraction, resulting in a
smoother, rejuvenated "youthful" appearance. LRC uses such resurfacing lasers
including carbon dioxide and Erbium Yag lasers. Laser-assisted blepharoplasty
is a technique to remove saggy, puffy skin around the eyes with minimal
bruising and discomfort, due to the use of laser during the procedure.
HAIR TRANSPLANTS
Hair transplants are an effective way to permanently restore hair
lost through balding. During the procedure, a "donor strip" of hair is
removed with a scalpel and cut into tiny grafts that are re-inserted into
small slits made in the balding area of the scalp. Like transplanted trees,
these grafts will grow as normal hair. This technique leaves very minimal to
no scarring, if any, and eliminates the "ugly-plug look" of the early
transplants.
LASER HAIR REMOVAL
Selective photothermolysis, the process used to remove the hair from
the follicle, involves selecting the intended target - in this case the
melanin pigment present in all hair follicles. A laser or pulsed-light device
uses a wavelength of light specific to the melanin, which is absorbed by the
melanin in the hair follicle, thereby damaging the hair follicle, without
damaging the skin. Treatment can be specifically tailored to different skin
types and hair colours in any area of the body.
COSMETIC DERMATOLOGY AND VEIN TREATMENT
Intense pulsed light from laser technologies is an effective
treatment for most leg or face spider veins because the wavelength of light
that penetrates the skin has a selective affinity for blood vessels. With the
thermo-kinetic selectivity of the laser, the blood vessels are treated with
slow-pulsed-width energy that has a chance to accumulate, or heat, in the
blood vessel, causing it to seal. For larger blood vessels, greater than two
millimetres in diameter, sclerotheraphy (injections) remains the treatment of
choice. A variety of laser technologies allows specialized cosmetic
procedures, such as the removal of age spots, moles, warts and tattoos.
ENDERMOLOGIE-TM- (CELLULITE REDUCTION AND BODY CONTOURING)
Endermologie-TM-, a new technology developed in France, is the
latest in solutions for cellulite. The technology uses a gentle vacuum-like
massage action to stretch the shrunken, shortened fibres in the connective
tissues that have caused the dimpling appearance of cellulite. The procedure
has the sensation of
<PAGE>
a deep tissue massage and has benefits of stimulating circulation in the
lymphatic system.
INJECTABLES
Collagen and Hylaform injections, Softform-permanent facial implants
and Botox therapy are all alternatives to fine line and wrinkle reduction
using implants to augment soft tissue, allowing easy and immediate correction
of wrinkles, scars, folds, and in the case of Collagen and Hylaform, lip
augmentation.
SPA SERVICES AND PRODUCTS
LRC offers a wide array of personalized skincare services and
products. Well-trained staff, supervised by dermatologists, are available to
help clients achieve and maintain skin health.
FACILITIES AND CLINIC OPERATIONS
LRC, through its wholly owned subsidiaries, LRC (Calgary) Ltd., LRC
(Toronto) Ltd., LRC (Vancouver) Ltd. and LRC (Winnipeg) Ltd., operates
clinics under the trade name Laser Rejuvenation Clinics in Calgary (the
"Calgary Clinic") at Suite 150, 10601 Southport Road S.W., Calgary, Alberta,
in Toronto (the "Toronto Clinic") at 87 Avenue Road, Toronto, Ontario, in
Oakville (the "Oakville Clinic") at Suite 208 435 Reynolds Street, Oakville,
Ontario, in Vancouver (the "Vancouver Clinic") at 1010 Mainland Street,
Vancouver, British Columbia, and in Winnipeg (the "Winnipeg Clinic") at 205
Edmonton Street, Winnipeg, Manitoba. The Calgary Clinic began operations
November 1996, followed by the Toronto Clinic in July 1997, the Vancouver
Clinic in March 1998 and the Winnipeg Clinic in November 1998. The Oakville
Clinic was acquired effective August 31, 1998.
Each clinic has a common theme of services. However, the set-up and
structure of each is unique for the requirements of the market and the goal
of attracting appropriate medical personnel. Each clinic has a local medical
director who is responsible for providing overall medical support and local
protocol setting, along with supplemental training to nursing staff.
Generally, the local medical director will have priority as the "surgical"
physician in the facility. LRC encourages the use of the facilities by other
affiliated physicians, in addition to the local medical director,
particularly if the medical director is not trained to perform a procedure
LRC would be offering. Each physician is responsible for any procedures that
they perform or delegate to nursing staff at the facility. LRC's policy is
that all physicians carry CMPA (Canadian Medical Protective Association)
liability insurance, or its equivalent. In addition, LRC carries an
additional $5 million in professional liability insurance which covers it and
all of its professional employees.
Revenue is generated in all clinics by a facility fee received from
medical procedures, such as laser resurfacing or liposuction (the physician
charges a physician fee) and a fee for a number of non-physician dependant
procedures such as laser hair removal or Endermologie-TM-.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of LRC consists of an unlimited number
of Class A Common Shares, Class B Common Shares and Class C Common Shares
(collectively, the "Common Shares") and an unlimited number of preferred
shares ("Preferred Shares").
COMMON SHARES
The Class A Common Shares and the Class B Common Shares are entitled to
notice of and to vote at all meetings of shareholders (except meetings at
which only holders of a specified class or series of shares are entitled to
vote) and are entitled to one vote per share. The Class C Common Shares are
non voting shares, and do not entitle the holder to the normal rights
privileges and restrictions normally attached to Common Shares. The holders
of each class of Common Shares are entitled to receive such dividends as the
Board of Directors declare and, upon liquidation, to receive such assets of
LRC as are distributable to holders of Common Shares.
<PAGE>
As of the date hereof, there were 15,003,122 issued and outstanding Class A
Common Shares. No Class B Common Shares or Class C Common Shares are
presently issued and outstanding.
PREFERRED SHARES
The Board of Directors of LRC may from time to time, and at any time, issue
the Preferred Shares in one or more series, each series to consist of such
number of shares as may before issuance thereof be determined by the
directors.
The Board of Directors of LRC may, by resolution (subject as hereinafter
provided) from time to time fix before issuance, the designation, rights,
restrictions, conditions and limitations to attach to the Preferred Shares of
each series, including, without limiting the generality of the foregoing, the
rate of preferential dividends, the dates of payment thereof, the redemption
price and terms and conditions of redemption, any voting rights and
conversion rights, and any sinking fund, purchase fund or other provisions
attaching to the Preferred Shares of such series, provided however, that no
shares of any series shall be issued until the Board of Directors have filed
articles of amendment.
The Preferred Shares are entitled to preference over the Common Shares of LRC
and any other shares of LRC ranking junior to the Preferred Shares with
respect to the payment of dividends, if any, and may also be given such other
preferences over the Common Shares of LRC and any other shares of LRC ranking
junior to the Preferred Shares as may be fixed by the resolution of the Board
of Directors as to the respective series authorized to be issued.
The Preferred Shares are entitled to preference over the Common Shares of LRC
and any other shares of LRC ranking junior to the Preferred Shares with
respect to the priority and payment of dividends and in the distribution of
assets in the event of liquidation, dissolution or winding up of LRC, whether
voluntary or involuntary.
There are no Preferred Shares presently issued and outstanding.
<PAGE>
DIRECTORS AND OFFICERS
The following are the names and municipalities of residence of the
directors and officers of LRC, their position and offices with LRC and their
principal occupations during the last five years:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY
OF RESIDENCE OFFICE PRINCIPAL OCCUPATION
- --------------------- ------ --------------------
<S> <C> <C>
Tom Y. Woo, M.D. F.R.C.P.(C) Chairman of the Board, President and Certified Dermatologist owning a private
Calgary, Alberta Director dermatology clinic.
Howard J. Coren(1) Director, Secretary-Treasurer and Chief Executive Officer with LRC from inception
Calgary, Alberta Chief Executive Officer (office to February 18, 2000 and prior thereto, Director
terminated February 18, 2000) of Corporate Affairs of Nathanial Captioning
Enterprises Inc.
Hank Swartout(1) Director Chief Executive Officer of Precision Drilling.
Calgary, Alberta
Fred Peacock(1) Director Retired Businessman. Prior to 1990, Agent
Calgary, Alberta General for the Asia Pacific Rim Area for the
Government of Alberta.
Karen Wall Chief Financial Officer Chartered Accountant, Chief Financial Officer of
Calgary, Alberta LRC from October 1997 to April 4, 2000 and prior
thereto, a public practitioner in the Independent
Business Advisory Services Assurance Practice
Group with KPMG, LLP from 1993 to October 1997.
Lori Maguire Chief Operations Officer Administration, Chief Operations Officer of LRC
Oakville, Ontario from March 1998 to March 17, 2000. Prior
thereto, General Manager of Logistics for Bell
Canada.
</TABLE>
NOTE:
(1) Member of the Audit Committee.
As of the date hereof, the directors and officers of LRC, as a group, owned,
directly or indirectly, 7,250,074 Class A Common Shares or approximately 48%
of the issued and outstanding Class A Common Shares.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation paid to the Chief
Executive Officer. None of LRC's other executive officers had a total salary and
bonus which exceeded $100,000CND. LRC paid its five executive officers aggregate
cash compensation of $259,542CND during the year ended June 30, 1999. The five
executive officers have options to purchase an aggregate of 884,000 Class A
Common Shares at prices varying from $0.15CND to $0.86CND. All options were
granted at the market price in effect on the date of the granting of the
respective options or at the allowed maximum discount per securities
regulations.
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
Name and (Canadian Funds) Securities Under
Principal Position Year Salary Bonus Other Options Granted
($) ($) ($) (#)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Howard Coren 1999 95,625 - - (60,000)
Chief Executive Officer 1998 75,000 - - -
1997 30,000 - - 337,000
Tom Woo, M.D. 1999 - - 35,853 (60,000)
President 1998 - - 101,197 -
1997 - - - 337,000
</TABLE>
ESCROWED SECURITIES
As at the date hereof, the following table sets out securities of
LRC held in escrow:
<TABLE>
<CAPTION>
Designation of Class Number of Securities Held in Escrow Percentage of Class
<S> <C> <C>
Class A Shares 3,477,855 Class A Shares 23%
</TABLE>
All the securities presently held in escrow are held by the current officers
and directors of LRC and were placed in escrow pursuant to an Escrow
Agreement dated December 2, 1997 with Montreal Trust Corporation of Canada
acting as the Trustee. Pursuant to the terms of the Escrow Agreement, 993,673
of the totalled escrow securities will be released from escrow on September
9, 2000 and September 9, 2001, with the remaining 1,490,509 Class A Shares
being released on September 9, 2002.
The following table sets forth the options which are outstanding as of the date
hereof:
<TABLE>
<CAPTION>
NAME NUMBER OF CLASS A COMMON DATE OF GRANT EXERCISE PRICE EXPIRY DATE
SHARES UNDER OPTION
<S> <C> <C> <C> <C>
Executive Officers 554,000 December 9, 1997 $0.60 December 9, 2002
60,000 December 9, 1997 $0.60 December 31, 2002
100,000 February 13, 1998 $0.86 March 31, 2003
50,000 March 15, 1999 $0.58 March 15, 2004
60,000 October 19, 1999 $0.23 October 19, 2004
60,000 December 1, 1999 $0.15 December 1, 2004
Directors (other than 140,000 December 9, 1997 $0.60 December 9, 2002
Executive officers)
Employees and 20,000 February 26, 1998 $0.90 February 26, 2003
Consultants 10,000 March 17, 1999 $0.58 March 17, 2004
41,000 July 19, 1999 $0.50 July 19, 2004
21,000 December 3, 1998 $0.59 December 3,2003
5,000 September 14, 1999 $0.85 September 14,2003
16,000 December 9, 1997 $0.60 December 31, 2002
2,500 October 19, 1999 $0.30 October 19, 1999
2,250 September 30, 1998 $0.79 September 30, 2003
3,450 March 31, 1998 $1.38 March 31, 2003
TOTAL 1,145,200
</TABLE>
<PAGE>
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
No director or senior officer, or any associate or affiliate of any
director or senior officer, is or has been indebted to LRC.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The directors, officers and principal shareholders of LRC (and the affiliates
of such persons) have had no direct or indirect interest in any material
transaction involving LRC during the 24 months preceding the date of this
prospectus not otherwise disclosed herein.
PRINCIPAL SHAREHOLDERS
To the knowledge of the directors and senior officers of LRC, the only persons
owning or exercising control or direction over Class A Common Shares
representing more than 10% of the voting rights attached to all outstanding
securities of LRC as at the date hereof are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE OF OWNERSHIP NUMBER OF SECURITIES CLASS A COMMON SHARES
OUTSTANDING
- ------------------------------------- ---------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Tom Y. Woo, M.D., F.R.C.P. Direct/Beneficial 3,959,333 26%
Calgary, Alberta
Howard J. Coren Direct/Beneficial 1,967,667 13%
Calgary, Alberta
</TABLE>
As at the date hereof, the number of voting shares beneficially owned,
directly or indirectly, by all directors, promoters and senior officers of
LRC and their associates, as a group, was 7,250,074 Class A Common Shares,
being approximately 48% of the issued and outstanding Class A Common Shares
of LRC. See "PRIOR SALES".
DIVIDEND RECORD
LRC has not declared or paid any dividends. The payment of dividends in the
future will depend, among other factors, on LRC's earnings, capital
requirements, operating and financial position and general business
conditions. LRC anticipates that earnings will be retained to finance future
growth of its business and operations, including further additional services
and clinic locations, and that no dividends will be paid on the Class A
Common Shares or any other shares in the foreseeable future.
PRIOR SALES
During the 12 months prior to the date of this prospectus, LRC issued Class A
Common Shares as set forth below:
<TABLE>
<CAPTION>
DATE OF ISSUE NUMBER OF ISSUE PRICE AGGREGATE
CLASS A COMMON PER SHARE ISSUE PRICE
SHARES
- ------------- -------------- ----------- -----------
<S> <C> <C> <C>
August 31, 1998 73,529 $1.02 $75,000
February 24, 1000 612,745 $1.02 $625,000
</TABLE>
<PAGE>
THE SPECIAL 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 Management for use at the Med-Emerg Special Meeting
to consider and vote, upon the Business Combination Agreement and the
approval of the issuance of Med-Emerg shares and warrants in the aggregate
number of 1,556,724 shares and 89,120 options pursuant thereto. The costs of
solicitation will be borne by the Company. This solicitation will be made
primarily by mail and may also be made by personal contact or by other means
of communication by directors, officers and employees of the Company, who
will not receive special compensation therefor.
The Med-Emerg board has unanimously approved the above proposal and
unanimously recommends that the holders of Med-Emerg Common Stock vote for
the approval of each of the above proposal. 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 or dissent rights.
RECORD DATE
MED-EMERG. The Med-Emerg Board has fixed the close of business on
__________ ___, ____ 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 Special Meeting.
TIMES AND PLACES; PURPOSES
MED-EMERG. The Med-Emerg Special Meeting will be held at
__________________________________________, starting at 10:00 a.m. local
time. At the Med-Emerg Special Meeting, the holders of Med-Emerg Common Stock
will be asked to consider and vote upon the Business Combination Agreement
and the stock issuance related thereto.
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 Special Meeting. in accordance with Med-Emerg's by-laws, the
directors have determined that only a person holding Common Shares of record
as of the record date shall be entitled to vote at the Meeting, except to the
extent that the person has transferred the ownership of his or her Common
Shares after the record date and the transferee of those Common Shares
establishes that he or she owns the Common Shares and demands not later than
10 days before the Meeting that his or her name be included in the list of
those entitled to vote at the Meeting, in which case the transferee shall be
entitled to vote those Common Shares at the Meeting. On the Med-Emerg Record
Date, there were 5,267,188 shares of Med-Emerg Common Stock outstanding and
entitled to vote at the Med-Emerg Special Meeting.
Each holder 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 Special 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 Special Meeting, at which a quorum is
not present, is required to approve an adjournment of the Special Meeting.
Proxies may be revoked by notice of revocation or a later signed and dated
proxy or by attending the Med-Emerg Special Meeting and voting in person.
Attendance at the Med-Emerg Special 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 Special Meeting and not
subsequently
<PAGE>
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 the proposal 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 Special Meeting, will not be voted.
The persons named in the enclosed form of proxy are directors and
officers of the Company. A shareholder submitting a form of proxy has the
right to appoint a person (who need not be a shareholder) to represent him or
her at the Special Meeting. To exercise this right, the shareholder should
legibly insert the name of the desired representative in the blank space
provided in the form of proxy and strike out the other names, or submit
another appropriate proxy. The instrument appointing a proxy must be in
writing and must be executed by the shareholder or his or her attorney
authorized in writing or, if the shareholder is a corporation, under its
corporate seal by an officer or attorney thereof duly authorized.
To be voted at the Special Meeting, proxies must be delivered no
less than 48 hours (excluding Saturdays and holidays) before the time for
holding the Meeting or any adjournment thereof. The Chairman of the meeting
may, in his discretion, refuse to consider any proxies received after such
time. In addition to revocation in any other manner permitted by law, a
shareholder who has given a proxy may revoke it as any matter on which a vote
has not already been cast pursuant to the authority conferred by it, by
instrument in writing executed by the Shareholder or his attorney authorized
in writing or, if the Shareholder is a corporation, under its corporate seal
or by an officer or attorney thereof duly authorized, and deposited either at
the head office of Med-Emerg at any time up to and including the last
business day before the Meeting, or any adjournment thereof, at which the
proxy is to be used, or with the Chairman of the Meeting on the day of the
Meeting, or any adjournment thereof, and upon either of such deposits, the
proxy is revoked.
The persons appointed under the form of proxy accompanying this
Statement are conferred with discretionary authority with respect to
amendments or variations of those matters specified in the form of proxy and
Notice of Meeting and with respect to any other matters which may properly be
brought before the Meeting or any adjournment thereof. At the time of
printing this Joint Prospectus/Proxy Statement, management knows of no such
amendment, variation, or other matter. If any such amendment variation or
other matter properly comes before the Meeting, the instrument of proxy will
be voted regarding such other matters in accordance with the best judgment of
the person voting the proxy.
Holders of Med-Emerg Common Stock will not be entitled to present
any matter for consideration at the Special 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
Special Meeting and voting in person. Attendance at the Med-Emerg Special
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 LRC, Med-Emerg agreed to make an offer on the terms set out
therein to purchase all of the issued and outstanding LRC Securities on the
basis of 0.07782 of one Med-Emerg share of common stock for every LRC share
of common stock and 0.02594 of a Med-Emerg Series C Warrant at $3.00US (three
(3) year period) for every LRC share of common stock.
As well, for each of the outstanding options to acquire LRC Common
shares under the LRC Stock Option Plan, there shall be substituted for every
12.85 LRC options to acquire one (1) Med-Emerg Common Share at an exercise
price of US$2.00 per share.
<PAGE>
The Business Combination Agreement also includes representations and
warranties of both Med-Emerg and LRC.
COMPARISON OF SHAREHOLDER RIGHTS
Upon completion of the Business Combination, LRC 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. LRC is incorporated
under the laws of the Province of Alberta. As the corporate legislation in
Ontario is similar to that of Alberta, LRC shareholders will continue to be
afforded substantially 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
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 Shareholders 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.
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 special 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.
<PAGE>
WARRANTS
PURCHASE WARRANTS
Each Warrant entitles its holder to purchase one share of Common
Shares at an exercise 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 Shareholder 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
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.
SERIES A WARRANTS
Warrants entitling the holder to purchase one Med-Emerg Common Share
at U.S. $2.70 per share, expiring June 12, 2000. As of March 31, 2000, there
were 44,585 Med-Emerg Series A Warrants outstanding.
<PAGE>
SERIES B WARRANTS
Warrants entitling the holder to purchase one Med-Emerg Common Share
at U.S. $3.40 per share, expiring June 12, 2000. As of March 31, 2000, there
were 44,585 Med-Emerg Series B Warrants outstanding.
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.
EXPERTS
The consolidated financial statements of LRC at June 30, 1998 and
1999 included herein and made a part of the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part, have been audited by KPMG,
LLP independent Chartered Accountants, as set forth in their report thereon
included elsewhere herein. Such consolidated financial statements of LRC 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,
1999 and 1998 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, LLP, 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.
FUTURE SHAREHOLDER PROPOSALS
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 LRC 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 _____________________.
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 LRC 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
<PAGE>
reference as a part thereof, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to up
to 1,556,724 shares of Med-Emerg Common Shares that are proposed to be issued
in connection with the Transactions to holders of outstanding shares of LRC
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 LRC,
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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
MED-EMERG INTERNATIONAL INC.
Auditor's Report of Schwartz Levitsky Feldman, LLP, Chartered Accountants............................................... F-1
Consolidated Balance Sheets at December 31, 1999 and 1998.............................................................. F-2
Consolidated Statements of Operations and Deficit for the years ended December 31, 1999 and 1998....................... F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998................................... F-4
Notes to Consolidated Financial Statements............................................................................. F-5
LASER REJUVENATION CLINICS LTD.
Consolidated Balance Sheets (unaudited as at December 31, 1999 and 1998)............................................... F-23
Consolidated Statements of Operations and Deficit (unaudited for the 3 and 6 months ended December 31, 1999 and 1998).. F-24
Consolidated Statement of Cash Flow (unaudited for the 6 months ended December 31, 1999 and 1998)...................... F-25
Notes to Consolidated Financial Statements (unaudited for the 6 months ended Decmeber 31, 1999 and 1998).............. F-26
Auditor's Report of KPMG, LLP, Chartered Accountants................................................................... F-28
Consolidated Balance Sheets as at June 30, 1999 and 1998............................................................... F-29
Consolidated Statement of Operations and Retained Earnings (Deficit) for the years ended June 30, 1999 and 1998........ F-30
Consolidated Statements of Cash Flow for the years ended June 30, 1999 and 1998........................................ F-31
Notes to Consolidated Financial Statements............................................................................. F-32
</TABLE>
<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, 1999 and 1998 and the consolidated statements of
operations and deficit and cash flows for each of the years ended. These
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, 1999 and 1998 and the results of its operations cash flows 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 18).
/s/ Schwartz Levitsky Feldman, LLP
Chartered Accountants
Toronto, Ontario
March 16, 2000
F-1
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1999 AND 1998
(IN US$)
<TABLE>
<CAPTION>
1999 1998
-------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term investments $ 229,966 $ 1,090,582
Accounts receivable (note 4) 2,453,700 1,806,094
Prepaid expenses and other 281,385 286,906
-------------------------
2,965,051 3,183,582
Capital assets (note 5) 2,329,847 576,974
Other assets (note 6) 4,005,768 1,239,880
Deferred income taxes (note 12) 766,270 454,415
-------------------------
$10,066,936 $ 5,454,851
=========================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 7) $ 1,401,096 $ 136,678
Accounts payable and accrued liabilities 1,917,153 1,490,764
Restructuring reserve (note 3) 356,889 -
Current portion of long-term debt (note 8) 172,145 57,080
-------------------------
3,847,283 1,684,522
Long term debt (note 8) 518,338 66,825
Deferred income taxes (note 12) 470,384 -
-------------------------
4,836,00 1,751,347
-------------------------
Commitments and contingencies (note 15)
Capital Stock (note 9) 8,251,290 5,981,830
Convertible Debenture (note 10) 405,371 405,371
Contributed surplus (note 11) 1,022,100 980,325
Deficit (4,335,566) (3,322,903)
Cumulative translation adjustment (112,264) (341,119)
-------------------------
5,230,93 3,703,504
-------------------------
$10,066,936 $5,454,851
=========================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
(IN US$)
<TABLE>
<CAPTION>
1999 1998
-------------------------
<S> <C> <C>
REVENUE $12,648,428 $10,308,103
PHYSICIAN FEES AND OTHER DIRECT COSTS 8,877,139 7,984,116
-------------------------
3,771,289 2,323,987
-------------------------
EXPENSES
Salaries and benefits 1,838,276 1,214,351
General and administration 493,541 361,813
Occupancy costs and supplies 872,109 319,187
Public company costs 301,591 202,518
Travel and marketing 201,610 148,330
HealthyConnect.com development costs 798,943 84,555
-------------------------
4,506,070 2,330,754
-------------------------
(LOSS) INCOME BEFORE DEPRECIATION, INTEREST AND
FINANCING EXPENSE, GOODWILL AMORTIZATION & TAXES (734,781) (6,767)
Depreciation 194,097 79,417
Interest and financing expense 44,494 12,584
Goodwill amortization 167,235 44,822
-------------------------
405,826 136,823
-------------------------
LOSS BEFORE INCOME TAXES (1,140,607) (143,590)
Income taxes (recovery) (262,138) (37,333)
-------------------------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (878,469) (106,257)
Preferred share dividends (134,194) (117,752)
-------------------------
NET LOSS (1,012,663) (224,009)
Deficit, beginning of the year (3,322,903) (7,130,277)
Restatement of excess of redemption price over
issuance price of preference shares (note 9b) - 4,031,383
-------------------------
DEFICIT, END OF THE YEAR $(4,335,566) $(3,322,903)
=========================
BASIC AND FULLY DILUTED LOSS, PER SHARE (NOTE 13) $ (0.30) $ (0.08)
=========================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,371,322 2,975,853
=========================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT DECEMBER 31, 1999 AND 1998
(IN US$)
<TABLE>
<CAPTION>
1999 1998
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $(878,469) $(106,257)
Adjustments for:
Amortization of capital assets 194,097 79,417
Goodwill amortization 167,235 44,822
Amortization of bridge financing costs - -
Deferred income taxes 180,877 (343,267)
Stock compensation 26,174 -
-------------------------
(310,086 (325,284)
Increase (decrease) in non-cash working capital
components (note 14) 172,783 (643,303)
-------------------------
(137,303) (968,587)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets (1,817,699) (295,772)
Business acquisitions (note 3) (630,453) (610,338)
Other assets (note 14) (76,984) 164,568
-------------------------
(2,525,136) (741,542)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank indebtedness 1,222,815 (846,365)
Issuance of common shares (note 9a) - 3,921,464
Issuance of warrants (note 9c) 41,775 106,111
Repurchase of shares (1,542) (113,025)
Cancellation of surrendered common shares
(note 9a) - (119,313)
Repurchase and cancellation of shares from a
director (note 9a) (96,944)
Issuance of convertible debenture (note 10) - 405,371
Term loans 555,089 -
Obligation under capital lease (12,047) 42,036
Issuance/(repayment) of promissory notes - (634,754)
Due from affiliates - 38,487
Dividends paid on preference shares (100,575) (117,752)
-------------------------
1,705,515 2,585,313
-------------------------
Effect of foreign currency exchange rate changes 96,308 (172,203)
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS (860,616) 702,979
Cash and short-term investments, beginning
of year 1,090,582 387,603
-------------------------
Cash and short-term investments, end of year $229,966 $1,090,582
==========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 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
physician management services to delivering an internet-based healthcare
network with the objective of delivering quality and timely access to
healthcare products and services. The Company has decided to continue to
focus on the development of its internet based technology of
HealthyConnect.com. Therefore, the Company has an on-going requirement to
raise capital to finance the on-going technology developments of
HealthyConnect.com.
The Company's operations are divided into three divisions, Physician and
Nurse Recruitment, Physician Management Services and HealthyConnect.com.
On a contractual basis, the Company provides emergency department physician
and nurse recruitment, staffing and administrative support services to
hospitals. At December 31, 1999, the Company had 14 contracts for physician
staffing and 6 contracts for nurse staffing.
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, 1999, the Company owned
and managed 30 clinics.
HealthyConnect.com is an internet-based health portal that will connect
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 US dollars and are
prepared in accordance with Canadian generally accepted accounting
principles. Differences between Canadian and United States accounting
principles are described in Note 18.
The translation of the Financial Statements from Canadian dollars into United
states dollars is performed for the convenience of the reader. Balance Sheet
accounts are translated using the closing exchange rates in effect at the
Balance Sheet date and income and expense accounts are translated using an
average rate prevailing during each reporting period. No representation is
made that the Canadian dollar amounts could have been, or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included
in the cumulative translation adjustments in the shareholders' equity.
a) Basis of Consolidation
The financial statements consolidate, with minority interest, the accounts of
Med-Emerg International Inc. and its wholly and partially owned subsidiaries
(collectively called the "Company").
Significant intercompany accounts and transactions have been eliminated.
b) Product 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. Direct costs incurred to develop HealthyConnect.com have
been expensed as start-up costs of a technology organization in accordance
with the more conservative accounting treatment under U.S. GAAP.
F-5
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the reported amounts of
revenues and expenses, 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
Leasehold improvements 5-10 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 and future operating results are not achieved.
f) Physician Contracts
In conjunction with the acquisition of YFMC Healthcare Inc. as described in
note 3,the Company has assigned a value for long-term physician contracts
secured under the transaction. These costs are being amortized over sixty
months.
g) 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 for actual shifts worked, in
accordance with the terms of the contracts. In addition, the Company
recognizes revenues in its Physician Management Services division as medical
services are rendered by physicians under contract with the Company, in
accordance with the Provincial Health Insurance Plans. The Company bills and
collects from these plans all fees relating to medical services rendered by
the physicians.
h) 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
tax rates expected to apply to taxable income in the years in which temporary
differences are expected to be realized. The Company records deferred tax
assets for the future tax benefits of non-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.
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.
F-6
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
3. BUSINESS ACQUISITIONS
Effective November 5, 1999, the Company purchased all of the outstanding
securities of YFMC Healthcare Inc. in exchange for similar securities of
Med-Emerg International Inc. on the following basis:
i. In the case of holders of YFMC Common Shares, one Med-Emerg Common
Share was issued for every 6 7/8 shares of YFMC. This resulted in the
issuance of 1,658,566 Med-Emerg Common Shares.
ii. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common
Share was issued for every 10 YFMC First Preferred Shares, resulting
in the issuance of 100,000 Med-Emerg Common Shares.
iii. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series
A Warrant was issued for every 8 warrants of YFMC, resulting in the
issuance of 44,585 Med-Emerg Series A Warrants.
iv. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series
B Warrant was issued for every 8 warrants of YFMC, resulting in the
issuance of 44,585 Med-Emerg Series B Warrants.
v. In the case of holders of YFMC stock options, one Med-Emerg stock
option for every 8 YFMC stock options.
The Company has determined that there will be integration costs associated
with the business combination with YFMC Healthcare Inc. The Company plans to
dispose of duplicate functions and unprofitable operations as part of a
formal plan of integration. A liability of $356,889 has been established as
the estimated cost of the integration plan. The Company expects to complete
the plan by June 30, 2000.
The following pro forma statement of operations summarizes the results of
operations as if the business combination had occurred on January 1, 1999:
<TABLE>
<S> <C>
Revenue $15,248,272
Physician fees and other direct costs 9,511,661
-----------
5,736,611
-----------
Expenses
Salaries and benefits 2,761,128
General and administration 756,671
Occupancy costs and supplies 1,604,892
Public company costs 301,591
Travel and marketing 255,438
HealthyConnect.com development costs 798,943
-----------
6,478,663
-----------
Loss before amortization, interest and financing
expenses, goodwill amortization and taxes (742,052)
Amortization 568,295
Interest and financing expense 64,771
Goodwill amortization 216,042
-----------
849,108
-----------
Loss before income taxes (1,591,160)
Income taxes (recovery) (406,974)
-----------
Net loss $(1,184,186)
-----------
</TABLE>
In addition, during the fiscal year 1999, the Company also acquired ownership
interest in the following companies that operate medical clinics: 45% of
Medical Urgent Care Inc., 51% of Caremedics (Elmvale) Inc. and 51% of York
Lanes Health Centres Ltd. The following is a summary of the assets purchased
and liabilities assumed:
F-7
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
3. BUSINESS ACQUISITIONS (cont'd)
<TABLE>
<CAPTION>
YFMC
Healthcare Other
Inc. Acquisitions Total
----------------------------------------------
<S> <C> <C> <C>
Current assets $ 666,495 $ 23,052 $ 689,547
Capital assets 1,381,885 374,136 1,756,021
Other long-term assets 702,656 - 702,656
Goodwill 1,736,571 170,821 1,907,392
Less liabilities assumed (1,399,221) (361,612) (1,760,833)
Less reverse for restructuring (352,107) - (352,107)
Less minority interest - (28,221) (28,221)
----------------------------------------------
Purchase price 2,736,279 178,176 2,914,455
Less: share consideration (2,232,906) - (2,232,906)
Less: stock options and
warrants (41,775) - (41,775)
----------------------------------------------
Cash consideration $ 461,598 $ 178,176 $ 639,774
==============================================
</TABLE>
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
----------------------------------------
<S> <C> <C>
Trade receivable $ 2,526,370 $ 1,844,939
Allowance for doubtful accounts (72,670) (38,845)
----------------------------------------
$ 2,453,700 $ 1,806,094
========================================
</TABLE>
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -----------
Accumulated
Cost Amortization Net Net
------------------------------------------- -----------
<S> <C> <C> <C> <C>
Furniture and fixtures $ 184,057 $ 82,954 $ 101,103 $ 52,825
Medical equipment 457,245 63,938 393,307 104,690
Computer software 126,739 78,357 48,382 10,695
Computer hardware 451,528 238,382 213,146 184,141
Leasehold improvements 1,794,288 220,379 1,573,909 224,623
------------------------------------------- -----------
$3,013,857 $ 684,010 $2,329,847 $ 576,974
=========================================== ===========
</TABLE>
Amortization for the year amounted to $171,663 ($79,389 for December 31, 1998).
F-8
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
6. OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
----------------------------------------
<S> <C> <C>
Goodwill at cost(net of accumulated
amortization of $172,160; $82,955
at December 31, 1998) $ 2,828,700 $ 792,734
Physician contracts (net of accumulated
amortization of $23,095;$nil at December 669,762 -
31, 1998)
Deferred start-up costs (net of amortization
of $46,323; $7,277 at December 31, 1998) 255,040 284,063
Deferred charges relating to proposed
financing 143,851 68,273
Note receivable 52,085 49,095
Due from affiliates, non-interest bearing, no
specific terms of repayments 7,830 -
Loan to officer, unsecured, non-interest
bearing, repayable over a five-year
period commencing February, 2000 41,571 39,185
Other 6,929 6,530
----------------------------------------
$ 4,005,768 $ 1,239,880
========================================
</TABLE>
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 and any proceeds from the sale of the
Common Shares by the Estate must be applied to repay the note. The company
demanded repayment of the note on April 1, 1999.
7. BANK INDEBTEDNESS
The Company has credit facilities providing a total of $1,801,427 in demand
operating lines of credit. The lines of credit bear interest at rates varying
from prime plus 0.5% to prime plus 1% per annum. As security for one operating
line, the Company has provided a first-ranking general assignment of accounts
receivable, a general security, an assignment of all risk insurance policies and
an assignment of key man life insurance of a director in the amount of $692,857.
As security on another operating line, YFMC Healthcare Inc., a wholly-owned
subsidiary of the Company, has provided a General Security Agreement. As
security on a third facility, YFMC Healthcare (Alberta) Inc., a wholly-owned
subsidiary of YFMC Healthcare Inc., has provided a General Security Agreement,
unlimited guarantee of advances from YFMC Healthcare Inc. and an endorsement of
fire insurance covering all office and equipment of YFMC Healthcare (Alberta)
Inc.
8. LONG -TERM DEBT
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Commercial term loan payable, interest at prime + 2%,
repayable in equal monthly installments of $4,835
principal and interest secured by general security
agreement, due June 2003 203,094 -
Bank loan payable, interest at prime + 2.5%, repayable in
equal monthly installments of $1,519 plus interest
government guaranteed, due September 2003 148,903 -
Bank loan, interest at 9.65%, repayable in equal monthly
installments of $1,684 principal plus interest,
secured by personal guarantee of a Shareholder,
due August 2003 61,400 -
Promissory note payable, non-interest bearing, repayable
in equal monthly installments of $1,925, due June 2002 55,813 -
Non-revolving bank loan, interest at prime + 0.75%,
repayable in equal monthly installments of $1,197
plus interest, secured by General Security
</TABLE>
F-9
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
8. LONG-TERM DEBT (cont'd)
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Agreement, chattel mortgage and assignment of risk and
key man life Insurance 52,906 -
Loans payable, interest rates varying from prime to prime
+ 1.5%, with monthly installments of principal
and interest totaling $2,940, due between April 2000
and August 2002, secured by general security agreements 57,500 -
Obligations under capital lease 70,894 123,905
Due to related parties, non-interest bearing, no specific
terms of repayment 39,973 -
-----------------------------------
690,483 123,905
Less: current portion (172,145) (57,080)
===================================
518,338 66,825
===================================
</TABLE>
The non-revolving bank loan is an available line of credit amounting to $692,857
for use in the acquisition of capital assets. At December 31, 1999, the Company
had drawn $67,034 against the facility. Subsequent to December 31, 1999, the
Company has drawn an additional $58,988 against the facility.
9. 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 shares 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.
ISSUED
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
500,000 Preference shares $ 445,717 $ 445,717
4,912,433 Common shares (3,096,544 in 1998) 7,699,462 5,430,002
1,437,500 Common stock purchase warrants 106,111 106,111
----------------------------------
$ 8,251,290 $ 5,981,830
==================================
</TABLE>
F-10
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
<TABLE>
<CAPTION>
Common Shares
Number Amount
----------------------------------
<S> <C> <C>
Balance, December 31, 1997 1,990,000 $ 1,853,785
Shares surrendered for cancellation (62,500) (128,990)
Shares repurchased for directors and cancelled (37,456) (96,944)
Shares issued in connection with initial
public offering 1,250,000 3,921,464
Shares repurchased and cancelled (43,500) (119,313)
----------------------------------
Balance, December 31, 1998 3,096,544 5,430,002
Shares repurchased and cancelled (1,000) (1,542)
Shares issued in connection with an
acquisition 1,758,556 2,232,906
Shares issued under stock option plan 58,333 38,096
----------------------------------
Balance, December 31, 1999 4,912,433 $ 7,699,462
==================================
</TABLE>
<TABLE>
<CAPTION> Warrants
----------------------------------
Number Amount
----------------------------------
<S> <C> <C>
Balance, December 31, 1997 - $ -
Warrants issued in connection with initial
public offering 1,437,500 106,111
----------------------------------
Balance, December 31, 1999 and 1998 1,437,500 $ 106,111
==================================
</TABLE>
(a) Common Shares
In January 1997, the Company completed a private offering and sale of promissory
notes ("Bridge Notes") with a principal amount of $500,000. The Bridge Note
holders also received 125,000 common shares having an ascribed value of $2.05
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 $500,000 plus interest on the promissory notes. In addition, the
Company repaid $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 an aggregate of 62,500 common
shares. The effect of this event is a reduction in shareholders' equity of
$128,990 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 of $100,400 as the related services were rendered by the director.
Concurrent with the closing of the Initial Public Offering on February 20, 1998,
the Company repurchased 37,456 Common Shares held by a director.
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
$3,921,464.
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 44,500 common shares for an aggregate cost
of $73,875. Share capital was reduced by $120,855 based on the assigned value
per share and contributed surplus was increased by $46,292.
F-11
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
On November 5, 1999 the Company completed the acquisition of YFMC Healthcare
Inc. ("YFMC"), as more fully described in Note 3 and issued 1,758,566 common
shares.
On December 31, 1999, a director exercised stock options, resulting in the
issuance of 58,333 Common Shares.
(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 $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 $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.
The December 31, 1999 quarterly dividend in the amount of $33,618 has not been
paid but has been accrued in the accounts.
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 $4,500,000, 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 $4,031,383 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 stated capital of the
preferred shares by $4,031,383 and reduced the deficit by the same amount.
(c) Warrants and Stock Option Plans
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 $0.75
per share. The difference of $934,033 between the fair market value of $2.05 per
share and the exercise price of $0.75 per share has been charged to earnings and
contributed surplus in 1996. On November 1, 1999 the Company entered into a
Consulting Agreement with the director to provide consulting services.
Compensation under the Consulting Agreement provides for the payment of the
consulting fee to the director by the exercise of his options on an equal basis
every quarter over the next three years with the original exercise price of
$0.75 per share charged to earnings as consulting services rendered. On December
31, 1999, 58,333 options were exercised.
In connection with the Initial Public Offering, the Company issued 1,437,500
Class A Redeemable Common Stock Purchase Warrants for gross proceeds of $0.10
per warrant. Each warrant entitles the holder to purchase one share of common
stock at a price of $4.50 for a four year period commencing one year from the
date of completion of the offering. In addition, the Underwriters were 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 $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.
On September 27, 1999, the Company granted to each of two officers options to
acquire 400,000 common shares at a price of $1.50 per share, of which 200,000
options to purchase common shares do not vest until certain performance criteria
are met.
F-12
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
In connection with the November 1999 acquisition of YFMC Healthcare Inc., the
Company issued 44,585 Series A Warrants entitling the holders to purchase one
share of Med-Emerg common stock at $2.70, 44,585 Series B Warrants entitling the
holders to purchase one share of Med-Emerg common stock at $3.40, and for every
8 YFMC stock options, 1 option of Med-Emerg was issued at an exercise price of
$1.75 for a total of 64,785 options issued.
Pursuant to the Stock Option Plan approved by the Shareholders, options to
acquire an aggregate of 1,000,000 shares of common stock may be granted. The
Stock Option Plan is to provide for grants to employees, consultants and
directors of the Company to enable them to purchase shares. As at December 31,
1999, 364,100 options were still available to be granted under the Stock Option
Plan.
The following table summarizes the stock options granted by the Company:
<TABLE>
<CAPTION>
Option price Number of Shares
-----------------------------
Expiry date per share 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
April 2002 $ 2.50 176,500 207,100
April 2002 $ 4.25 19,400 19,400
April 2002 $ 0.75 641,667 700,000
Between September 2000
And September 2003 $ 1.75 64,785 -
Between $1.25
January 2004 and $1.87 340,000 -
July 2004 $ 1.50 800,000 -
August 2004 $ 1.85 100,000 -
---------------------------------
2,142,352 926,500
=================================
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Outstanding, beginning of year 926,500 926,500
Granted 1,304,785 -
Exercised (58,333) -
Cancelled (30,600) -
---------------------------------
Outstanding, end of year 2,142,352 926,500
=================================
</TABLE>
10. 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
$405,371. 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
amount of $3,365. It is management's expectation that the trading threshold will
be met within the two-year period.
F-13
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
11. CONTRIBUTED SURPLUS
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Stock compensation - difference between fair
market value and exercise price (note 9c) $ 934,033 $ 934,033
Share repurchase - difference between cost per
share and assigned value (note 9a) 46,292 46,292
Fair value of warrants and stock options issued
in connection with the acquisition of YFMC
Healthcare Inc. 41,775 -
---------------------------------------
$ 1,022,100 $ 980,325
=======================================
</TABLE>
12. DEFERRED 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 was 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>
1999 1998
-------------------------------------
<S> <C> <C>
Accounting amortization in excess of tax
amortization $ (138,406) $ 9,998
Losses available to offset future income taxes 1,256,821 533,920
Share issue costs 460,006 584,086
Valuation allowance (812,151) (673,589)
-------------------------------------
$ 766,270 $ 454,415
=====================================
</TABLE>
At December 31, 1999, the Company has non-capital losses available for
carry-forward of $1,834,684. These losses expire between 2003 and 2005. In
addition, the Company has capital loss carry-forwards of approximately $254,971,
which may be applied against future taxable capital gains. No accounting
recognition has been given to the capital loss carry-forwards.
In connection with the acquisition of YFMC Healthcare Inc., the Company
determined that the fair market value of the capital assets was greater than the
tax value. The Company has recognized a liability for the temporary difference
in the amount of $470,384.
F-14
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
13. EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Net loss before preferred share
Dividend and goodwill,
per share $ (0.21) $ (0.02) $ (0.15)
Goodwill, per share (0.05) (0.02) (0.03)
------------------------------------------------------
Net loss before preferred share
dividend, per share (0.26) (0.04) (0.18)
Preferred share dividends, per
share (0.04) (0.04) -
------------------------------------------------------
Basic and fully diluted loss, per
share $ (0.30) $ (0.08) $ (0.18)
======================================================
</TABLE>
14. NOTES TO THE STATEMENT OF CASH FLOWS
(i) Changes in Working Capital Components
<TABLE>
<CAPTION> 1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ (522,234) $ (405,110) $ (40,986)
Prepaid expenses and
Other 22,337 (55,310) (409,434)
Accounts payable and accrued
Liabilities 325,999 (182,883) 409,865
Reserve for restructuring 346,681 - -
-----------------------------------------------------
$ 172,783 $(643,303) $ (40,555)
=====================================================
</TABLE>
(ii) Changes in Other Assets
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Increase in deferred financing
Charges $ (69,377) $ 310,139 $ (296,459)
Acquisition of goodwill - (145,571) (115,974)
Loan to Preventative Health
Innovations Inc. - - 35,317
Increase in due from
affiliates (7,607) - -
Increase in investment in
Interhealth - - (1,806)
-----------------------------------------------------
$ (76,984) $ 164,568 $ (378,922)
=====================================================
</TABLE>
(iii) Interest and Income Taxes Paid
Operating activities reflect interest paid of $44,332 during the year ended
December 31, 1999 (December 31, 1998 - $46,691; December 31, 1997 - $87,865) and
income taxes paid of $nil during the year ended December 31, 1999 (December 31,
1998 - $nil; December 31, 1997 - $nil).
F-15
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
15. COMMITMENTS
The Company is committed to payments under operating leases of its premises and
equipment totaling $2,623,166. Annual payments under operating leases are as
follows:
2000 $ 764,226
2001 676,336
2002 542,419
2003 325,483
2004 154,244
Thereafter 160,458
-----------
$ 2,623,166
===========
Obligations under capital lease of total $64,883. Annual payments under capital
leases are as follows:
2000 $ 44,635
2001 14,458
2002 5,037
2003 753
-----------
$ 64,883
===========
Rent and leasing expenses charged to operations for the year ended December 31,
1999 was $593,691 (December 31, 1998 - $192,773).
16. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying value of accounts receivable, short-term investments, bank
indebtedness, and accounts payable approximates the fair value because of the
short-term maturities on these items.
The carrying amount of the long-term assets approximates the fair value of these
assets.
The fair value of the company's long-term debt is estimated on the quoted market
prices for the same or similar debt instruments. The fair value of the long-term
debt approximates the carrying value.
17. SUBSEQUENT EVENTS
On February 7, 2000, the Company secured $377,358 in supplier financing for the
purchase of hardware, software and network support for the launch of
HealthyConnect.com's e-health portal.
On February 10, 2000, the Company issued 320,000 shares to TekInsight.com Inc.,
a software engineering development company for the development and launch of
HealthyConnect.com's e-health portal.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement to purchase all of the issued and outstanding shares of
Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common
share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
$3.00 per share for every 12.85 shares of LRC. The Company will issue
approximately 1,167,000 common shares and approximately 389,000 warrants to
purchase common shares in connection with the acquisition. The closing of the
transaction is subject to regulatory and shareholder approvals.
On February 25, 2000, 75,000 stock options were granted to directors under the
Stock Option Plan for their directorship services. The options have an exercise
price of $2.62 per share and expire in February 2005.
F-16
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
17. SUBSEQUENT EVENTS (cont'd)
On February 25, 2000, the Board of Directors approved the issuance of 150,000
options to be granted to employees and physicians at management's discretion.
On February 25, 2000, the Board of Directors authorized the issuance of shares
of HealthyConnect.com, Inc. as follows: 12,000,000 shares to Med-Emerg
International Inc., 2,400,000 shares to officers and directors and 350,000 stock
options to directors. HealthyConnect.com, Inc., a Delaware corporation, is a
subsidiary of Med-Emerg International Inc.
On March 1, 2000, the Company issued a Private Placement Memorandum for equity
financing. The Company currently is in the process of raising gross proceeds of
$1,700,000 for the issuance of 935,000 common shares. To date, $400,000 has been
raised. After deducting commissions and financing costs including the deferred
financing costs as listed in Note 6, the Company will receive net proceeds of
approximately $1,508,000.
18. 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:
F-17
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
Consolidated statements of operations
If United States GAAP were employed, net loss for the period would be adjusted
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Net loss based on Canadian GAAP $ (878,470) $ (106,258) $ (340,987)
Start-up costs amortized/(deferred) 35,720 (176,749) (106,017)
Goodwill amortization (8,925) - -
---------------------------------------------
Net loss based on United States GAAP $ (851,675) $ (283,007) $ (447,004)
---------------------------------------------
Primary loss per share $ (0.25) $ (0.10) $ (0.23)
=============================================
</TABLE>
If United States GAAP were employed, deficit, other assets, deferred start-up
costs, and total liabilities would be adjusted as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
Deficit based on Canadian GAAP $(4,335,566) $(3,322,903)
Start-up costs deferred (255,040) (274,683)
Goodwill amortization (8,925) -
======================================
$(4,599,531) $(3,597,586)
======================================
Other assets based on Canadian GAAP $ 4,005,768 $ 1,239,880
Start-up costs deferred (255,040) (274,683)
Goodwill on purchase of YFMC Healthcare Inc. 1,087,872 -
======================================
$ 4,838,600 $ 965,197
======================================
Total liabilities based on Canadian GAAP $ 4,836,005 $ 1,751,347
Convertible debenture 405,371 405,371
======================================
$ 5,241,376 $ 2,156,718
======================================
</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 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.
F-18
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(c) 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.
(d) 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.
(e) 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 9 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 $2.05 per share equal to $256,250 of which
$196,943 has been charged to earnings in the year ended December 31, 1997
and $50,470 has been charged to earnings in the year ended December 31,
1998.
* the issuance of 50,000 shares to a director for services rendered resulted
in a charge to income at $2.05 per share equal to $100,400 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 9) has resulted in a charge to income equal to
$934,033 in 1996 based on $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.
(f) Goodwill
Under U.S. GAAP, the purchase price of an acquisition involving the issuance of
shares is determined based on the share price for the period surrounding the
announcement date of the acquisition. The share price used for the YFMC
Healthcare Inc. acquisition under U.S. GAAP was $1.859. Under Canadian GAAP, the
purchase price is determined based on the share price on the date the
transaction is consummated. The share price used for the YFMC Healthcare Inc.
acquisition under Canadian GAAP was $1.25.
F-19
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(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 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 $0.364 for each of the 1,000,000 share warrants issued, share capital would
be lower by $36,406 and, given that the stock purchase warrants were cancelled
during the year, the carrying amount of contributed surplus would be increased
by $36,406.
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Capital stock (as previously shown) $ 8,251,290 $ 5,981,830
Capital stock issued on purchase of YFMC Healthcare Inc. 1,087,872 -
Ascribed fair value of share purchase warrants issued (36,406) (36,406)
-----------------------------------
Capital stock - U.S. GAAP 9,302,756 5,945,424
Share purchase loan to officer (44,978) (44,978)
-----------------------------------
-----------------------------------
Net capital stock - U.S. GAAP $ 9,257,778 $ 5,900,446
===================================
Convertible debenture (as previously shown) $ 405,371 $ 405,371
Convertible debenture included in long-term debt (405,371) (405,371)
-----------------------------------
Convertible debenture - U.S. GAAP $ - $ -
-----------------------------------
Contributed surplus (as previously shown) $ 1,022,100 $ 980,325
Share purchase warrants 36,406 36,406
-----------------------------------
Contributed surplus - U.S. GAAP $ 1,058,506 $ 1,016,731
-----------------------------------
Deficit - U.S. GAAP $(4,599,531) $(3,597,589)
-----------------------------------
Shareholders equity (deficit) - U.S. GAAP $ 5,716,753 $ 3,319,588
===================================
</TABLE>
(h) 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.
F-20
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Net income (loss) (US GAAP) $ (851,675) $ (283,007) $(447,004)
Foreign currency translation
adjustment (4,565) (181,810) 8,170
-----------------------------------------------------
Comprehensive income (loss) $ (856,240) $ (464,817) $(438,834)
=====================================================
</TABLE>
19. SEGMENTED INFORMATION
The Company operates under three divisions: Physician and Nurse Recruitment,
Physician Management Services and HealthyConnect.com. All of the Company's
operations are in Canada.
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 HealthyConnect.com division, created 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>
1999
---------------------------------------------------------------------
Physician Physician
& Nurse Management HealthyConnect
Recruiting Services .com Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $7,831,708 $4,816,720 $ - $12,648,428
Gross margin 1,303,184 2,468,105 - 3,771,289
Operating income before Corporate Overhead
and Public Company-related costs 818,215 468,805 (798,943) 488,076
Corporate Overhead (570,434) (350,833) - (921,267)
Operating loss before Public Company-related costs 247,781 117,972 (798,943) (433,190)
Public-Company-related costs (301,592)
Operating loss (734,782)
Assets employed at year end 3,348,895 6,718,041 - 10,066,935
Depreciation and amortization 108,984 252,349 - 361,333
Capital expenditures 97,650 1,720,048 - 1,817,699
</TABLE>
F-21
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
19. SEGMENTED INFORMATION (cont'd)
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
Physician Physician
& Nurse Management HealthyConnect
Recruiting Services .com Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $7,806,149 $2,498,989 $ - $10,305,046
Gross margin 1,303,807 1,019,491 - 2,323,298
Operating income before Corporate Overhead
and Public Company-related costs 814,022 341,159 (84,530) 1,070,650
Corporate Overhead (662,787) (212,171) - (874,958)
Operating loss before Public Company-related costs 151,234 128,988 (84,530) 195,692
Public-Company-related costs (202,458)
Operating loss (6,766)
Assets employed at year end 3,864,407 1,492,126 98,463 5,454,997
Depreciation and amortization 42,591 81,611 - 124,202
Capital expenditures 154,761 140,923 - 295,684
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services Consolidated
----------------------------------------------
<S> <C> <C> <C>
Revenue $6,567,318 $1,791,619 $ 8,358,937
Gross margin 1,275,607 763,397 2,039,004
Operating income before Corporate Overhead
and Public Company-related costs 813,776 347,186 1,160,962
Corporate Overhead (799,019) (217,979) (1,016,998)
Operating income before Stock Compensation 14,758 129,207 143,965
Stock Compensation (100,400)
Operating loss 43,565
Assets employed at year end 2,409,916 1,226,502 3,636,418
Depreciation and amortization 46,979 45,569 92,548
Capital expenditures 66,460 215,146 281,606
</TABLE>
20. 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. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
21. COMPARATIVE FIGURES
Certain figures in the 1998 financial statements have been reclassified to
conform with the basis of presentation in 1999.
F-22
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Balance Sheets (Unaudited)
(Stated in US Dollars) (Note 1)
<TABLE>
<CAPTION>
December 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 127,789 $ 240,699
Accounts receivable 502,178 553,420
Inventories 95,052 74,766
Prepaid expenses and deposits 76,197 75,909
- -------------------------------------------------------------------------------------------------------------------
673,427 944,794
Capital assets 1,651,440 1,876,438
Deferred development costs 160,608 202,431
Goodwill 653,581 706,156
- -------------------------------------------------------------------------------------------------------------------
$ 3,266,845 $ 3,729,819
===================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank Indebtedness $ 228,654 $ -
Accounts payable and accrued liabilities 299,411 203,712
Deferred revenue 444,552 242,259
Current portion of obligations under capital lease 172,471 184,015
Current Portion of Long Term Debt 20,786 -
- -------------------------------------------------------------------------------------------------------------------
1,038,085 629,986
Related party loan 60,908 55,429
Obligations under capital lease 182,158 309,074
Long Term Debt 77,369 -
Minority Interest - 66,908
Shareholders' equity:
Share capital 3,256,919 3,258,530
Deficit (1,476,383) (590,108)
- -------------------------------------------------------------------------------------------------------------------
1,780,536 2,668,422
- -------------------------------------------------------------------------------------------------------------------
$ 3,266,845 $ 3,729,819
===================================================================================================================
</TABLE>
F-23
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Statements of Operations and Deficit (Unaudited)
(Stated in US Dollars) (Note 1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three months ended Six Months Ended
- -------------------------------------------------------------------------------------------------------------------
Dec. 31, '99 Dec. 31, '98 Dec. 31, '99 Dec. 31, `98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $1,031,264 $ 856,311 $2,124,423 $ 1,577,304
Amounts retained
by affiliated physicians (283,845) (175,242) (537,826) (298,050)
- -------------------------------------------------------------------------------------------------------------------
Net revenues 747,419 681,069 1,586,597 1,279,254
Other revenue 6,994 10,048 15,781 15,548
Interest income 534 2,834 1,199 10,752
- -------------------------------------------------------------------------------------------------------------------
754,947 693,951 1,603,577 1,305,554
Costs and expenses:
Clinic operating expenses 633,175 517,506 1,318,345 973,432
General and administrative 136,791 93,464 250,576 193,344
Cost of product sales 80,655 25,626 162,308 48,708
Interest on long-term debt 14,178 7,984 24,330 13,046
Depreciation and amortization 134,567 151,859 270,479 238,893
- -------------------------------------------------------------------------------------------------------------------
999,366 796,439 2,026,038 1,467,423
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes
and non-controlling interest (244,419) (102,488) (422,461) (161,869)
Income taxes - - - -
- -------------------------------------------------------------------------------------------------------------------
Loss before
non-controlling interest (244,419) (102,488) (422,461) (161,869)
Non-controlling interest 20,242 14,871 38,067 27,371
- -------------------------------------------------------------------------------------------------------------------
Net loss (224,177) (87,617) (384,394) (134,498)
Deficit beginning of year (1,252,206) (502,489) (1,091,988) (455,610)
- -------------------------------------------------------------------------------------------------------------------
Deficit, end of year $(1,476,383) $ (590,106) $ (1,476,382) $(590,109)
===================================================================================================================
Loss per share $ (0.01) $ (0.01) $ (0.03) $ (0.01)
===================================================================================================================
</TABLE>
F-24
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Statements of Cash Flow (Unaudited)
(Stated in US Dollars) (Note 1)
<TABLE>
<CAPTION>
December 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $ (384,394) $ (134,498)
Items not involving cash:
Depreciation and amortization 270,479 238,893
Non-controlling interest (38,067) (27,371)
- -------------------------------------------------------------------------------------------------------------------
(151,982) 77,024
Changes in non-cash working capital 41,728 (111,624)
- -------------------------------------------------------------------------------------------------------------------
(110,254) (34,600)
Investments:
Purchase of capital assets (33,043) (177,477)
Incurrence of deferred development costs - (98,225)
Acquisition of Business - (569,538)
- -------------------------------------------------------------------------------------------------------------------
(33,043) (845,240)
Financing:
Proceeds from issuance of share capital (return to treasury) (520) -
Share issue costs - (416)
Principal repayments on obligations under capital lease (111,183) (59,059)
Proceeds from bank indebtedness (228,654) -
Proceeds from long term debt 103,928 -
Proceeds from related party loan 1,756 55,429
Principal repayment under term bank loan (5,774) (21,721)
Minority interest capital contribution 15,422 108,086
- -------------------------------------------------------------------------------------------------------------------
232,283 82,319
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments 88,986 (797,521)
Cash and short-term investments, beginning of year 38,803 1,038,220
===================================================================================================================
Cash and short-term investments, end of year $ 127,789 $ 240,699
===================================================================================================================
</TABLE>
See accompanying note to consolidated financial statements.
F-25
<PAGE>
LASER REJUVENATION CLINICS LTD.
Note to the Consolidated Financial Statements (Unaudited)
(Stated in US Dollars)
Six-months Ended December 31, 1999 and 1998
NOTE 1 BASIS OF PRESENTATION:
These consolidated financial statements have historically been expressed in
Canadian dollars, which is the functional currency of the Corporation. For
purposes of the presentation of the financial statements of the Corporation in
the Securities Exchange Commission Form F-4, being filed by Med-Emerg
International Inc., these consolidated financial statements have been translated
into U.S. dollars using the foreign exchange rate as at December 31, 1999 of
1.4433 (the translation of convenience method).
NOTE 2 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 six months period ended
December 31, would be adjusted as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------------------------
<S> <C> <C>
Net loss based on Canadian GAAP $ (384,394) $ (134,498)
Net deferred development costs amortized/(deferred)
23,820 (81,294)
---------------------------------
Net loss based on United States GAAP $ (360,574) $ (215,792)
---------------------------------
Primary loss per share $ (0.02) $ (0.01)
=================================
</TABLE>
If United States GAAP were employed, deficit and deferred development costs
would be adjusted as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
Deficit based on Canadian GAAP $ (1,476,383) $ (590,108)
Start-up costs deferred (160,608) (202,431)
======================================
$ (1,636,991) $ (792,539)
======================================
Deferred development costs $ 160,608 202,431
Reduction of deferred development costs (160,608) (202,431)
======================================
$ - $ -
======================================
</TABLE>
F-26
<PAGE>
(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 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 components of the future tax benefit classified by source of temporary
differences that gave rise to the benefit are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Losses available to offset future income taxes $ 585,000 $ 380,000
Valuation allowance (585,000) (380,000)
-------------------------------------
$ - $ -
=====================================
</TABLE>
(b) Deferred Development Costs
Under Canadian GAAP, development costs, which meet certain criteria, are
deferred and amortized. Under United States GAAP, development costs are expensed
as incurred.
(c) 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.
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. The
company has adopted the disclosure requirements of SFAS 123.
(d) 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 company has no adjustments to net loss in the determination of
comprehensive income.
F-27
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Laser Rejuvenation Clinics
Ltd. as at June 30, 1999 and 1998 and the consolidated statements of operations
and retained earnings (deficit) and cash flow 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 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 June 30, 1999 and
1998 and the results of its operations and its cash flows for the years then
ended in accordance with generally accepted accounting principles.
/s/ KPMG, LLP
Chartered Accountants
Calgary, Canada
August 13, 1999
F-28
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Balance Sheets
(Stated in US Dollars) (Note 1(a))
June 30, 1999 and 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 38,803 $ 1,038,221
Accounts receivable 674,328 419,254
Inventories 78,576 29,544
Prepaid expenses and deposits 66,963 62,350
- -------------------------------------------------------------------------------------------------------------------
858,670 1,549,369
Capital assets (note 3) 1,799,647 1,484,916
Deferred development costs (net of accumulated
amortization of $53,768; 1998 - $13,547) 184,428 121,137
Goodwill (net of accumulated amortization of $60,601) 691,170 -
- -------------------------------------------------------------------------------------------------------------------
$ 3,533,915 $ 3,155,422
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 253,275 $ 87,885
Deferred revenue 610,311 239,140
Current portion of obligations under capital lease (note 4) 172,289 45,340
Term bank loan (note 5) - 21,721
- -------------------------------------------------------------------------------------------------------------------
1,035,875 394,086
Related party loan (note 12) 59,153 -
Obligations under capital lease (note 4) 265,701 140,137
Non-controlling interest 7,735 -
Shareholders' equity:
Share capital (note 6) 3,257,439 3,076,809
Deficit (1,091,988) (455,610)
- -------------------------------------------------------------------------------------------------------------------
2,165,451 2,621,199
Commitments (note 7)
- -------------------------------------------------------------------------------------------------------------------
$ 3,533,915 $ 3,155,422
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Stated in US Dollars) (Note 1(a))
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross revenues $ 3,164,292 $ 1,395,243
Amounts retained by affiliated physicians (728,031) (204,339)
- -------------------------------------------------------------------------------------------------------------------
Net revenues (note 9) 2,436,261 1,190,904
Other revenue 24,222 11,772
Interest income 13,974 19,515
- -------------------------------------------------------------------------------------------------------------------
2,474,457 1,222,191
Costs and expenses:
Clinic operating expenses 2,067,057 1,066,153
General and administrative 445,226 338,301
Cost of product sales 168,874 38,000
Interest on long-term debt 35,136 4,306
Depreciation and amortization 481,084 251,464
- -------------------------------------------------------------------------------------------------------------------
3,197,377 1,698,224
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes and non-controlling interest (722,920) (476,033)
Income taxes (note 8) - -
- -------------------------------------------------------------------------------------------------------------------
Loss before non-controlling interest (722,920) (476,033)
Non-controlling interest 86,543 13,807
- -------------------------------------------------------------------------------------------------------------------
Net loss (636,377) (462,226)
Retained earnings (deficit), beginning of year (455,611) 6,616
- -------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (1,091,988) $ (455,610)
- -------------------------------------------------------------------------------------------------------------------
Loss per share $ (0.05) $ (0.05)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
LASER REJUVENATION CLINICS LTD.
Consolidated Statements of Cash Flow
(Stated in US Dollars) (Note 1(a))
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $ (636,377) $ (462,226)
Items not involving cash:
Depreciation and amortization 481,084 251,464
Non-controlling interest (86,543) (13,807)
Gain on sale of asset (6,262) -
Share capital issued in exchange for services - 29,100
- -------------------------------------------------------------------------------------------------------------------
(248,098) (195,469)
Changes in non-cash working capital 176,410 (82,597)
- -------------------------------------------------------------------------------------------------------------------
(71,688) (278,066)
Investments:
Purchase of capital assets (295,823) (816,353)
Incurrence of deferred development costs (103,513) (80,755)
Acquisition of business (note 2) (569,538) -
Proceeds on disposal of asset 37,761 -
- -------------------------------------------------------------------------------------------------------------------
(931,113) (897,108)
Financing:
Proceeds from issuance of share capital (return to treasury) (277) 1,993,175
Share issue costs (1,223) (280,009)
Principal repayments on obligations under capital lease (140,633) (13,094)
Proceeds from bank loan - 22,864
Proceeds from related party loan 59,153 -
Principal repayment under term bank loan (21,721) (1,143)
Minority interest capital contribution 108,086 -
- -------------------------------------------------------------------------------------------------------------------
3,385 1,721,793
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (999,416) 546,619
Cash and short-term investments, beginning of year 1,038,219 491,602
- -------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $ 38,803 $ 1,038,221
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
LASER REJUVENATION CLINICS LTD.
Notes to Consolidated Financial Statements
(Stated in US Dollars) (Note 1(a))
Years ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
INCORPORATION AND OPERATIONS:
Laser Rejuvenation Clinics Ltd. (the "Company") is a publicly traded
company which operates full-service cosmetic clinics throughout Canada with
an emphasis on providing a wide range of laser cosmetic surgery and other
aesthetic services to the public.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company's majority-owned subsidiaries. The ownership interests of other
parties in less than wholly-owned subsidiaries are presented as
non-controlling interests. Inter-company transactions and balances have
been eliminated.
These consolidated financial statements have historically been
expressed in Canadian dollars, which is the functional currency of the
Corporation. For purposes of the presentation of the financial
statements of the Corporation in the Securities Exchange Commission
Form F-4, being filed by Med-Emerg International Inc., these
consolidated financial statements have been translated into U.S.
dollars using the foreign exchange rate as at December 31, 1999 of
1.4433 (the translation of convenience method).
(b) Revenue recognition:
The full amount of each treatment sale contract is initially recorded
as deferred revenue and is recognized at the time treatment is
provided.
(c) Inventories:
Inventories are stated at the lower of cost and net realizable value
with costs being determined using the first-in, first-out method.
(d) Capital assets and assets under capital lease:
Capital assets are recorded at cost. Equipment under capital lease is
initially recorded at the present value of minimum lease payments at
the inception of the lease. Depreciation is calculated on the following
basis:
F-32
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CON'T):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Asset Method Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Laser and surgical equipment declining balance 25%
Leasehold improvements straight-line over term of the lease
plus one renewal period
Furniture and office equipment straight-line 10 years
Information technology conversion costs straight-line 5 years
Computer hardware straight-line 4 years
Computer software straight-line 2 years
Intangibles straight-line 2 - 10 years
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Intangibles represent both the cost of obtaining customer lists from
specific physicians for the exclusive right to service the customer
base and the cost of developing and registering the Company's
trademark.
(e) Goodwill:
Goodwill represents the excess of purchase price over the fair value of
the net assets acquired, and is being amortized on a straight-line
basis over ten years. On an ongoing basis, management reviews the
valuation and amortization of goodwill, taking into consideration any
events and circumstances which might have impaired the fair value.
Goodwill is written down to fair value when declines in value are
considered to be other than temporary based on expected cash flows.
(f) Deferred development costs:
Deferred development costs include costs associated with the
development of new clinics which will provide laser cosmetic products
and services in Canada. If potential clinics are abandoned or deemed
not to be commercially viable, the total of the deferred costs for
these clinics will be expensed at that time. The pre-operating period
begins when expenditures are first incurred and ends with commencement
of operations of the related clinic. Amortization of costs will be
provided over the anticipated period of economic benefit which is
estimated to be five years from the commencement of operations in the
respective location.
(g) Deferred income taxes:
The Company follows the deferral method of tax allocation accounting
under which the provision for corporate income taxes is based on the
earnings reported in the accounts and takes into account the tax
effects of timing differences between financial statement income and
taxable income.
F-33
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CON'T):
(h) Measurement uncertainty:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the
period in which they become known.
(i) Earnings per share:
The computation of earnings per share is based on the weighted average
number of common shares issued and outstanding during the period.
Fully diluted earnings per share reflect earnings that would have been
reported had all special warrants, stock options and share purchase
warrants been exercised at the beginning of the period. For losses,
there is no dilutive effect.
2. ACQUISITION:
On August 31, 1998 the Company acquired all the issued and outstanding
shares of The Vein and Laser Centres Inc. ("VLC"). The acquisition has been
accounted for by the purchase method and the results of operations have
been included from the effective date of acquisition being August 31, 1998.
Details of the fair value of net assets acquired and aggregate
consideration given are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Working capital $ (37,626)
Capital assets 308,739
Goodwill 751,771
Obligation under capital lease (271,217)
- -------------------------------------------------------------------------------------------------------------------
$ 751,667
- -------------------------------------------------------------------------------------------------------------------
Consideration given:
Cash $ 554,285
Acquisition costs 15,253
- -------------------------------------------------------------------------------------------------------------------
569,538
Common shares 182,129
- -------------------------------------------------------------------------------------------------------------------
$ 751,667
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
3. CAPITAL ASSETS:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Accumulated
1999 Cost Depreciation Net Book Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Laser and surgical equipment $ 1,560,240 $ 417,300 $ 1,142,940
Leasehold improvements 508,106 116,649 391,457
Furniture and office equipment 137,314 18,090 119,224
Information technology conversion costs 91,000 7,434 83,566
Computer hardware 60,113 22,947 37,166
Computer software 27,851 12,968 14,883
Intangibles 21,348 10,937 10,411
- -------------------------------------------------------------------------------------------------------------------
$ 2,405,972 $ 606,325 $ 1,799,647
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------------------------
Laser and surgical equipment $ 1,065,790 $ 149,480 $ 916,310
Leasehold improvements 453,499 55,128 398,371
Furniture and office equipment 98,015 8,221 89,794
Computer hardware 50,337 10,413 39,924
Computer software 22,125 1,972 20,153
Intangibles 21,216 852 20,364
- -------------------------------------------------------------------------------------------------------------------
$ 1,710,982 $ 226,066 $ 1,484,916
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Capital assets under capital leases, net of depreciation at June 30, 1999
amounted to $552,085 (1998 - $285,787).
During the year, capital assets were acquired for an aggregate of $417,752
(1998 - $986,348), of which $121,929 (1998 - $169,995) were acquired by
means of capital lease. Cash payments of $295,823 (1998 - $816,353) were
made to purchase capital assets.
F-35
<PAGE>
4. OBLIGATIONS UNDER CAPITAL LEASE:
Minimum capital lease payments are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 205,489
2001 161,510
2002 77,302
2003 42,132
2004 6,010
- -------------------------------------------------------------------------------------------------------------------
Total minimum lease payment 492,443
Less: amount representing interest at a weighted average of 8.10% per annum 54,453
- -------------------------------------------------------------------------------------------------------------------
Balance of obligations 437,990
Less: current portion of obligations 172,289
- -------------------------------------------------------------------------------------------------------------------
$ 265,701
</TABLE>
Interest of $31,412 (1998 - $3,921) relating to capital lease obligations
has been included in interest on long-term debt.
5. TERM BANK LOAN:
Subsequent to year end, the Company has entered into a financing agreement
with a Canadian commercial bank that permits the Company to borrow up to
Cnd$200,000 in term financing at the bank prime rate of interest plus
1.25%. The financing agreement also provides for a line of credit of up to
Cnd$400,000 at prime plus 1.25%. Borrowings under the financing agreement
are secured by a general security agreement and a general assignment of
book debts.
6. SHARE CAPITAL:
(a) Authorized:
Unlimited number of Class A and B common voting shares
Unlimited number of Class C non-voting shares
Unlimited number of preferred shares, issuable in series
F-36
<PAGE>
6. SHARE CAPITAL (CON'T):
(b)Issued:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Number of
Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A COMMON SHARES:
Balance, June 30, 1997 7,425,000 $ 448,557
Exchanged for special warrants (225,000) (62,357)
Issued on Initial Public Offering 2,000,000 831,428
Issued on exercise of special warrants 3,600,500 997,852
Issued for services 60,000 29,100
Issued on exercise of share purchase warrants 10,000 6,929
Share issue costs - (170,401)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 12,870,500 2,081,108
Issued on exercise of special warrants,
net of issue costs 1,449,348 995,702
Issued on acquisition, net of issue costs 686,274 180,906
Return to treasury (1,000) (277)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 15,005,122 $ 3,257,439
- -------------------------------------------------------------------------------------------------------------------
SPECIAL WARRANTS:
Balance, June 30, 1997 3,375,500 $ 885,986
Exchanged from Class A common shares 225,000 62,357
Exercise of special warrants (3,600,500) (997,852)
Issued on private placement 1,449,348 1,154,819
Share issue costs - (109,609)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 1,449,348 995,701
Exercise of special warrants (1,449,398) 995,701
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 - $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Special warrants:
Each warrant entitled the holder to acquire one Class A common share
without further payment. The special warrants were exercised on April
30, 1999.
(d)Stock Options:
Options to purchase common shares of the Company under an Incentive
Stock Option Plan may be granted by the Board of Directors to employees
and consultants of the Company. The Company has granted options to
purchase 1,227,500 Class A common shares and all remain outstanding at
prices ranging from Cnd$0.58 to Cnd$1.38 per share. The options expire
at varying dates from December 2002 to March 2004.
F-37
<PAGE>
7. COMMITMENTS:
The Company is committed to make payments over the next four years as
follows:
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
2000 $ 288,908
2001 276,193
2002 253,219
2003 101,786
- -----------------------------------------------------------------------------------------
$ 920,106
- -----------------------------------------------------------------------------------------
</TABLE>
In addition to minimum annual rentals, contingent rentals may be payable
under certain premise leases on the basis of sales in excess of stipulated
amounts.
Subsequent to year end, the Company has entered into a laser servicing
agreement for annual compensation of Cnd$95,490 for the next three years.
8. INCOME TAXES:
The income tax expense differs from the amount which would be obtained by
applying the expected Canadian tax rates as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income tax rate 44.6% 44.6%
Computed "expected" income tax recovery $ (254,526) $ (146,916)
Non-deductible items 7,741 2,777
Unrecognized benefit of unutilized losses 246,785 144,139
- -------------------------------------------------------------------------------------------------------------------
$ - $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As at June 30, 1999, the Company has reported losses for Canadian income
tax purposes of approximately Cnd$1,660,000 for which no future tax benefit
has been recognized in the accounts. These losses can be applied against
future taxable income up to the year 2006.
9. NET REVENUES:
Net revenues are determined by gross facility fees and product sales,
exclusive of fees remitted to affiliated physicians and adjusted for
deferred revenue for services yet to be performed.
F-38
<PAGE>
10. FINANCIAL INSTRUMENTS:
The carrying amounts of cash and short-term investments, accounts
receivable, term bank loan and accounts payable and accrued liabilities in
the consolidated balance sheets, approximate the fair value due to the
short maturity of these instruments. The fair value of obligations under
capital lease and the related party loan approximate their carrying value.
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 and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an 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 entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. RELATED PARTY TRANSACTIONS:
The balance of $59,153 included in related party loans is due to a minority
shareholder of a subsidiary. The loan is non-demand in nature, bears
interest at the prime rate, and is secured by a charge on all assets of the
subsidiary. The repayment terms are discretionary based on availability of
funds from operations.
The Company paid medical director fees for services rendered under various
consulting service agreements with affiliate physicians aggregating $20,786
in 1999 (1998 - $nil).
The Company paid rent of $24,444 (1998 - $nil) to a minority shareholder of
a subsidiary.
These transactions are considered to be in the normal course of operations
and have been measured at the exchange amount of consideration established
and agreed to by the related parties.
13. COMPARATIVE FIGURES:
Certain comparative figures have been restated to conform to the current
year presentation.
F-39
<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 corporation; 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 Med-Emerg, a former
director or officer of Med-Emerg or a person who acts or acted at Med-Emerg's
request as a director or officer of a body corporate of which Med-Emerg 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 Med-Emerg or body corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of Med-Emerg; 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.
Med-Emerg 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.
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1* Business Combination Agreement dated February 16, 2000
2.2* Lock-up Agreement
2.3 Deleted
2.4* Escrow Agreement for Common Shares
2.5* Deleted
3.1** Certificate of Incorporation and Amendments thereto of the Company
3.2** By-laws of the Company
4.2** Form of Warrant Agreement
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 (as amended)
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, LLP, Chartered Accountants
23.5* Consent of KPMG, 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.
*** Incorporated by reference herein from the Company's Form 10-K filed
with the U.S. Securities and Exchange Commission on March 30, 2000.
(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
<PAGE>
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 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.
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 May 1, 2000.
MED-EMERG INTERNATIONAL INC.
By:
/s/ Carl Pahapill
Carl Pahapill, C.A.
PRESIDENT AND CHIEF OPERATING OFFICER
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.
/s/ William Thomson
-------------------------------------
William Thomson, C.A.
Chairman
Date: May 1, 2000
/s/ Ramesh Zacharias
-------------------------------------
Dr. Ramesh Zacharias
Chief Executive Officer and Director
Date: May 1, 2000
/s/ Carl Pahapill
-------------------------------------
Carl W. Pahapill, C.A.
Chief Operating Officer, President and
Director
Date: May 1, 2000
/s/ Kathryn Gamble
-------------------------------------
Kathryn Gamble
Vice President of Finance, Chief Financial
Officer and Secretary
Date: May 1, 2000
/s/ Martin Scullion
-------------------------------------
Martin Scullion
Director
Date: May 1, 2000
<PAGE>
Exhibit 2.1
BUSINESS COMBINATION AGREEMENT
THIS BUSINESS COMBINATION AGREEMENT dated as of the 16th day of February, 2000.
BETWEEN:
MED-EMERG INTERNATIONAL INC., a corporation incorporated under
the laws of Ontario (hereinafter referred to as "MEII")
- and -
LASER REJUVENATION CLINICS LTD., a corporation incorporated
under the laws of Alberta (hereinafter referred to as "LRC")
- and -
HOWARD COREN, an individual of the City of Calgary, Province
of Alberta (hereinafter referred to as "Coren")
- and -
TOM WOO, an individual of the City of Calgary, Province of
Alberta (hereinafter referred to as "Woo") (Coren and Woo 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 LRC in accordance with the provisions hereof;
AND WHEREAS the Principal Shareholders have agreed to tender all of their
securities of LRC to MEII's offer in accordance with the provisions hereof and
the Lock-Up Agreement;
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 1
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:
(a) "ABCA" means the BUSINESS CORPORATIONS ACT (Alberta), chapter
B-15, as amended;
(b) "AGREEMENT" means this Business Combination Agreement, including
the schedules, annexes and exhibits hereto, as the same may be
supplemented or
<PAGE>
amended from time to time and the expressions "Article",
"Section", "subsection", "Exhibit" and "Schedule" followed by
a number or letter means and refers to the specified Article,
Section, subsection, Exhibit or Schedule of this Agreement;
(c) "ASC" means the Alberta Securities Commission;
(d) "ASE" means The Alberta Stock Exchange;
(e) "BEST OF LRC'S KNOWLEDGE" means the knowledge of the LRC
officers listed in Schedule 1.1(e), after due inquiry and
investigation;
(f) "BEST OF MEII'S KNOWLEDGE" means the knowledge of the MEII
officers listed in Schedule 1.1(f), after due inquiry and
investigation;
(g) "BEST OF THE PRINCIPAL SHAREHOLDERS' KNOWLEDGE" means the
knowledge of Coren and Woo, each after due inquiry and
investigation;
(h) "BSE" means the Boston Stock Exchange;
(i) "BUSINESS DAY" means a day that is not a Saturday, Sunday or
statutory holiday in the Province of Ontario or the Province of
Alberta;
(j) "CDNX" means the Canadian Venture Exchange;
(k) "CHARTER DOCUMENTS" means the articles and by-laws of a
corporation;
(l) "ITA" means the INCOME TAX ACT (Canada), as amended;
(m) "INTERIM LRC FINANCIAL STATEMENTS" means the interim unaudited
financial statements of LRC, together with the notes thereto,
for the three months ended September 30, 1999;
(n) "INTERIM MEII FINANCIAL STATEMENTS" means the interim unaudited
financial statements of MEII, together with the notes thereto,
for the nine months ended September 30, 1999;
(o) "LRC ANNUAL REPORT" means the annual report of LRC for the
financial year ended June 30, 1999;
(p) "LRC ASSETS" means the assets, property and undertaking of LRC
and the LRC Subsidiaries;
(q) "LRC DISCLOSURE SCHEDULE" means the schedule attached hereto and
identified as Schedule 1.1(q);
<PAGE>
(r) "LRC COVENANT SCHEDULE" means the schedule attached hereto and
identified as Schedule 1.1(r);
(s) "LRC FINANCIAL STATEMENTS" mean the audited consolidated
financial statements of LRC, together with the notes thereto,
for the financial years ended June 30, 1998 and June 30, 1999;
(t) "LRC OPTIONS" means outstanding options to purchase an aggregate
of 1,145,200 LRC Shares at prices ranging from $0.15 to $1.38
per share;
(u) "LRC PRESS RELEASES" means press releases of LRC issued since
December 31, 1998;
(v) "LRC SECURITIES" means LRC Shares and LRC Options;
(w) "LRC SHARES" means the common shares of LRC, as the same are
constituted on the date hereof;
(x) "LRC SUBSIDIARIES" means the companies listed in Schedule
1.1(x);
(y) "LOCK-UP AGREEMENT" has the meaning ascribed thereto in Section
2.2;
(z) "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 expected to
materially and adversely affect such Person;
(aa) "MATERIAL FACT", "MATERIAL CHANGE" and "MISREPRESENTATION" are
used as defined under the SECURITIES ACT (Ontario);
(bb) "MEII ANNUAL REPORT" means the annual report of MEII for the
financial year ended December 31, 1998;
(cc) "MEII ASSETS" means the assets, property and undertakings of
MEII and the MEII Subsidiaries;
(dd) "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;
(ee) "MEII PRESS RELEASES" means press releases of MEII issued since
December 31, 1998;
(ff) "MEII SECURITIES" means the MEII Shares and the Series C
Warrants;
<PAGE>
(gg) "MEII SHARES" means the common shares of MEII, as the same are
constituted on the date hereof;
(hh) "MEII SUBSIDIARIES" means the companies listed in Schedule
1.1(hh);
(ii) "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System Inc.;
(jj) "NON-ARM'S LENGTH TRANSACTIONS" means transactions between
Persons that are not dealing with each other at "arm's length",
within the meaning of such term in the ITA;
(kk) "OBCA" means the BUSINESS CORPORATIONS ACT (Ontario), R.S.O.
1990, c.B.16, as amended;
(ll) "OFFER" has the meaning ascribed thereto in Section 2.1;
(mm) "OSC" means the Ontario Securities Commission;
(nn) "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
"PERSONS" means more than one Person;
(oo) "SEC" means the United States Securities and Exchange
Commission;
(pp) "SECOND TRANCHE" has the meaning ascribed thereto in the Escrow
Agreement between MEII, the Principal Shareholders, Rena
Nathanail and Olympia Trust Company dated February 16, 2000;
(qq) "SERIES C WARRANTS" means non-assignable, redeemable Series C
warrants of MEII, such that one Series C warrant entitles the
holder thereof to acquire one MEII Share at an exercise price of
US $3.00 per share for a period of three years from the date of
issue of such warrants, and attached hereto as Schedule (qq) is
the form of the certificate relating to such warrants;
(rr) "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;
(ss) "TAKE-OVER BID CIRCULAR" has the meaning ascribed thereto in
Section 2.3;
<PAGE>
(tt) "Y2K COMPLIANCE" means that:
(i) the functions, calculations, and other computing processes of
the software used by LRC in its business (the "Software")
(collectively, the "Processes") performs in an accurate manner
regardless of the date in time on which the Processes are
actually performed and regardless of the date input to such
Software, whether before, on, or after January 1, 2000, and
whether or not the dates are affected by leap years;
(ii) the Software accepts, stores, sorts, extracts, sequences and
otherwise manipulates date inputs and date values, and returns
and displays date values, in an accurate manner regardless of
the dates used, whether before, on, or after January 1, 2000;
(iii) the Software will function without interruptions caused by the
date in time on which the Processes are actually performed or
by the date input to the Software, whether before, on, or after
January 1, 2000;
(iv) the Software accepts and responds to two (2) digit year and
four (4) digit year date input in a manner that resolves any
ambiguities as to the century in a defined, predetermined, and
accurate manner;
(v) the Software displays, prints, and provides electronic output
of date information in ways that are unambiguous as to the
determination of the century; and
(vi) the Software has been tested by LRC to determine whether it is
Y2K compliant or it has been represented to LRC that the
Software is Y2K compliant; and
(uu) "YFMC CIRCULAR" means the take-over bid circular dated November
4, 1999 and the related information circular (prepared in
connection with a meeting of the shareholders of MEII) dated
October 8, 1999 relating to MEII's offer to acquire all of the
outstanding securities of YFMC Healthcare Inc.
SECTION 1.2 CURRENCY. All amounts of money that 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,
<PAGE>
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.
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 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 C Warrant Certificate
Exhibit C - Form of Escrow Agreement
ARTICLE 2
BUSINESS COMBINATION
SECTION 2.1 OFFER.
(a) Subject to the terms and conditions provided for herein, MEII agrees to
make a take-over bid offer (the "Offer") to purchase all of the issued
and outstanding LRC Shares in exchange for MEII Securities on the basis
of: (i) 7.782% of a MEII Share for each LRC Share held and 2.594% of a
Series C Warrant for each LRC Share held if, before the Offer is made
and the Circular is mailed, the 20-day weighted average closing price
of the MEII Shares on NASDAQ does not fall below U.S. $2.00; or (ii)
10% of a MEII Share for each LRC Share held and 3.33% of a Series C
Warrant for each LRC Share held if, before the Offer is made and the
Circular is mailed, the 20-day weighted average closing price of the
MEII Shares on NASDAQ falls below U.S. $2.00. The initial term of the
Offer will be open for a period of 30 days from the date of the Offer.
(b) In connection with, but not as part of the Offer, with respect to the
outstanding LRC Options, LRC and MEII agree, subject to the terms of
the LRC stock option plan and the LRC Options, upon completion of the
Offer, to exchange the LRC Options for options to acquire MEII Shares
(the "MEII Options") on the basis that: (i) for every 12.85 LRC
Options, there shall be exchanged the right to acquire one MEII Share
at U.S. $2.00 per Share if, before the Offer is made and
<PAGE>
the Circular is mailed, the 20-day weighted average closing price of
the MEII Shares on NASDAQ does not fall below U.S. $2.00; or (ii)
for every 10 LRC Options, there shall be exchanged the right to
acquire one MEII Shares at U.S. $2.00 per Share if, before the Offer
is made and the Circular is mailed, the 20-day weighted average
closing price of the MEII Shares on NASDAQ falls below U.S. $2.00.
The MEII Options shall vest and terminate in accordance with the
terms of the LRC Options for which they were exchanged except that,
in respect of LRC Options granted to directors of LRC, the MEII
Options shall not terminate by reason only of the termination of
directorship or employment, in respect of LRC Options granted to
officers of LRC, the MEII Options shall terminate one year after the
termination of employment, and in respect of all other LRC Options
granted, the MEII Options shall terminate three months after the
termination of employment. Set out in Schedule 2.1(b) is a
description of the various LRC Options granted by LRC and the
corresponding number of MEII Options for which they shall be
exchanged in connection with the Offer.
(c) MEII and LRC agree to use reasonable commercial efforts to accomplish
the foregoing, including obtaining all necessary SEC, NASDAQ and other
regulatory approvals, shareholder approvals and consents of any Person,
in a form acceptable to MEII and LRC, acting reasonably.
(d) The Offer will be made as promptly as practicable after the date
hereof, but in any event not later than June 16, 2000.
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 agreeing to
deposit their LRC Shares pursuant thereto and upon the mailing by MEII
to its shareholders of an information circular relating to the business
combination contemplated herein, MEII shall as soon as practicable
thereafter, but in any event no later than June 16, 2000 mail and file
with the ASC, OSC and any other applicable securities commission a
take-over bid circular (the "TAKE-OVER BID CIRCULAR") in order to
effect the Offer.
(b) LRC 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 LRC's securityholders of all
classes, including names, addresses and number of securities held and
advising LRC's registrar and transfer agent to assist MEII in
completing
<PAGE>
the Offer and the transactions contemplated thereby and permitting
LRC's registrar and transfer agent to act as depositary under the
Offer.
SECTION 2.4 DIRECTORS' CIRCULAR. LRC agrees to take all reasonable steps to
assist its board of directors to:
(a) support the Offer and recommend acceptance of the Offer by the
securityholders of LRC; and
(b) prepare, file and mail along with the Take-Over Bid Circular, 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 LRC Shares that it did not acquire pursuant to the
terms of the Offer under the compulsory acquisition provisions of
applicable corporate legislation or otherwise.
SECTION 2.6 INVESTIGATIONS. Until completion of the Offer, MEII and its
solicitors, accountants, appraisers and other advisers shall, during normal
business hours, have reasonable access to the premises, books, leases and
all other records of LRC for the purposes of investigating its affairs. In
addition, LRC shall make available to MEII such documents and data as MEII
may request, acting reasonably, relating to LRC.
SECTION 2.7 RETURN OF DOCUMENTS. If the business combination contemplated hereby
is not completed, LRC shall return to MEII all books, accounts, records and
other data of MEII (including any copies thereof) that are in LRC's
possession, and MEII shall return to LRC all books, accounts, records and
other data of LRC (including any copies thereof) that are in MEII's
possession.
SECTION 2.8 EFFECTIVE DATE. The business combination contemplated hereby shall
become effective upon MEII taking up any of the LRC Shares under the Offer.
MEII shall not be obligated to take up any of the LRC Shares until a
minimum of 66 2/3% of the LRC Shares have been validly deposited and not
withdrawn under the Offer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF MEII. MEII hereby represents and
warrants to and in favour of LRC 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
<PAGE>
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 capital of
MEII consists of 4,912,433 MEII Shares and 500,000 preferred
shares, all of which are outstanding as fully paid and
non-assessable;
(c) except as disclosed in the YFMC Circular and except in respect
of 320,000 MEII Shares to be issued to Tadeo E-Commerce Corp.,
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 Interim MEII
Financial Statements;
(d) MEII is a reporting issuer "not in default" under the securities
laws of Ontario, Alberta and Quebec and, to the Best of MEII's
Knowledge, MEII is in compliance with the UNITED STATES
SECURITIES AND EXCHANGE ACT OF 1933, the rules and regulations
of the SEC and of NASDAQ, and no Material Adverse Change
relating to MEII has occurred within the past 24 months which
has not been disclosed in the MEII Press Releases or the YFMC
Circular;
(e) all press releases, material change reports and other documents
required to be filed with NASDAQ and the ASC 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;
(f) no order ceasing or suspending trading in securities of MEII or
prohibiting the sale of securities by MEII has been issued and,
to the Best of MEII's knowledge, no proceedings for this purpose
have been instituted or are pending, contemplated or threatened;
(g) 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;
(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
<PAGE>
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;
(i) the MEII Shares and Series C Warrants 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;
except as disclosed in the YFMC Circular or the Interim MEII
Financial Statements, since December 31, 1998, there has been
no Material Adverse Change with respect to MEII from that shown
in the MEII Financial Statements;
MEII is the beneficial owner of the shares of the MEII
Subsidiaries 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;
(j) except as disclosed in the YFMC Circular, none of MEII or any of
the MEII Subsidiaries has any liability or obligation, whether
accrued, absolute, contingent or otherwise, not reflected in the
MEII Financial Statements or the Interim MEII Financial
Statements, 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;
(k) each of the MEII Subsidiaries 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 is duly incorporated and is
a valid and subsisting corporation under the laws of the
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 licensed 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 qualifications necessary;
(l) except as disclosed in the MEII Financial Statements, the
Interim MEII Financial Statements or the YFMC Circular, there
are no actions, suits, proceedings, investigations or
outstanding claims or demands, whether or not purportedly on
behalf of MEII or any of the MEII Subsidiaries, instituted,
pending, or, to the Best of MEII's Knowledge, threatened against
or affecting MEII or any of the MEII 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 Best of MEII's
Knowledge, threatened against MEII or any of the MEII
Subsidiaries, and to the Best of MEII's Knowledge, 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;
<PAGE>
(m) 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 the MEII
Subsidiaries has disposed of, or agreed to dispose of, any of
its material properties or assets or incurred or agreed to
incur, any material indebtedness, except in the ordinary course
of business or among the MEII Subsidiaries, except as disclosed
in the MEII Financial Statements, the Interim MEII Financial
Statements or the YFMC Circular;
(n) the business of MEII and the MEII Subsidiaries is being
conducted in compliance with all applicable laws, regulations
and ordinances of all authorities having jurisdiction;
(o) each contract or agreement between MEII or any of the MEII
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 the MEII Subsidiaries
on a consolidated basis, is in full force and effect and, to the
Best of MEII's Knowledge, 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;
(p) 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 the MEII
Subsidiaries;
(ii) conflict with any of the terms, conditions or provisions of the
Charter Documents of MEII or any of the MEII 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 the MEII 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
MEII or any of the MEII Subsidiaries or in the creation of any
lien, charge, security interest or encumbrance in a material
amount upon any material assets of MEII or any of the MEII
Subsidiaries under any such material agreement, covenant,
undertaking,
<PAGE>
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;
(q) 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 Offer;
(r) other than as disclosed in writing to LRC or as disclosed in the
MEII Financial Statements or the YFMC Circular, MEII has no
agreement 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;
(s) the respective minute books of MEII and the MEII Subsidiaries
are complete and accurate in all material respects and contain
the minutes of all meetings and all resolutions of the directors
and shareholders thereof;
(t) except as disclosed in the MEII Financial Statements, the
Interim MEII Statements or the YFMC Circular, since December 31,
1998, MEII has:
(i) not amended its articles, by-laws or other constating documents;
(ii) conducted its business and that of each of the MEII 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;
(u) each of MEII and the MEII 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 MEII or any of the MEII
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
<PAGE>
liability of MEII and each of the MEII Subsidiaries is as
indicated by the above returns and filings, and MEII and each
of the MEII 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 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 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 MEII
Financial Statements or the YFMC 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;
(v) all filings made by MEII or any of the MEII 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 the MEII
Subsidiaries or previously accrued on the accounts thereof to be
recovered or disallowed;
(w) neither MEII nor any of the MEII Subsidiaries is a party to any
written contracts of employment, management services contracts
or collective bargaining agreements,
<PAGE>
other than as disclosed in the YFMC Circular or entered into
in the ordinary course of business;
(x) MEII is a reporting issuer in the Provinces of Alberta, Ontario
and Quebec and has not been notified and, to the Best of MEII's
Knowledge, is not aware of any material default of any
requirement of securities or corporate laws, regulations,
orders, notices and policies;
(y) all ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of
the material MEII assets or the receipt of proceeds therefrom
payable in respect of or in relation to any material MEII assets
have been properly and fully paid and discharged or have been
properly accrued on the books of MEII and each of the MEII
Subsidiaries;
(z) all material documents and agreements of whatsoever nature and
kind affecting title to the material MEII assets which are in
the possession of MEII or of which MEII is otherwise aware have
been made available for review by LRC;
(aa) to the Best of MEII's Knowledge, MEII has done no act or thing,
nor has MEII suffered or permitted any act or omission, whereby
its title to any material MEII assets may be cancelled or
terminated, except as disclosed in the YFMC Circular;
(bb) to the Best of MEII's Knowledge, MEII has been and is in
compliance in all material respects with all Environmental Laws
and MEII 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 Best of MEII's Knowledge:
(i) there have been no material unrectified spills, material
releases, material deposits or material discharges of hazardous
or toxic substances, contaminants or wastes on any of the real
property owned or leased by MEII or any of the MEII 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 material releases, material deposits or
material 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 MEII or the MEII Subsidiaries;
(iii) no orders, directions or notices have been issued and remain
outstanding pursuant to any Environmental Laws relating to the
material business or material assets of MEII or any of the MEII
Subsidiaries; and
<PAGE>
(iv) each of MEII and the MEII 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 the
MEII 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;
(cc) 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 Best of MEII's Knowledge,
the properties and assets comprising the MEII Assets have been
used and operated in accordance with all material agreements
that relate to them;
(dd) there is no fact which MEII has not disclosed to LRC 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 MEII or materially impede the completion of
the Offer or the other transactions contemplated in this
Agreement;
(ee) each of MEII and/or the MEII 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 MEII nor the MEII 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; and
(ff) to the Best of MEII's Knowledge, there are no material Y2K
issues relating to the business and operations of MEII and the
MEII Subsidiaries, other than those disclosed in the MEII
Financial Statements, the Interim MEII Financial Statements or
the YFMC Circular.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF LRC. LRC hereby represents and
warrants to and in favour of MEII that:
(a) LRC has been duly incorporated and is a valid and subsisting
corporation under the provisions of the ABCA, 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
<PAGE>
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 LRC consists of 15,003,122 LRC Shares, all of which are
issued and outstanding as fully paid and non-assessable shares;
(c) except as disclosed in the LRC Disclosure Schedule, none of LRC
or any of the LRC 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 LRC or the LRC Subsidiaries, as the case may be, to
issue any additional shares or other securities, except for the
LRC Options;
(d) except as disclosed in the LRC Disclosure Schedule, LRC is a
reporting issuer "not in default" under the securities laws of
Alberta and British Columbia and, to the Best of LRC's
Knowledge, is in compliance with the by-laws, rules and
regulations of the ASE and/or the CDNX and no Material Adverse
Change relating to LRC has occurred within the past 24 months
which has not been disclosed in the LRC Financial Statements or
the LRC Press Releases;
(e) except as disclosed in the LRC Disclosure Schedule, all press
releases, material change reports and other documents required
to be filed with the ASC, the ASE and CDNX within the past 24
months have been filed by or on behalf of LRC 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;
(f) no order ceasing or suspending trading in securities of LRC or
prohibiting the sale of securities by LRC has been issued and,
to the Best of LRC's Knowledge, no proceedings for this purpose
have been instituted, or are pending, contemplated or
threatened.
(g) 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 LRC and have been duly authorized by all
necessary corporate action and this Agreement constitutes a
valid and binding obligation of LRC, enforceable in accordance
with its terms, subject to the customary qualifications for a
commercial transaction of this nature;
except as disclosed in the LRC Disclosure Schedule and except as
otherwise stated in the notes to the LRC Financial Statements,
the LRC Financial Statements present fairly all of the assets
and liabilities of LRC on a consolidated basis and the financial
condition and results of operations of LRC as at the dates
thereof and for the financial periods then ended and have
<PAGE>
been prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis with that
of prior periods;
except as disclosed in the LRC Disclosure Schedule, the Interim
LRC Financial Statements, the LRC Annual Report or the LRC Press
Releases, since December 31, 1998, there has been no Material
Adverse Change with respect to LRC from that shown in the LRC
Financial Statements;
except as disclosed in the LRC Disclosure Schedule and except
for security granted by LRC and certain of the LRC Subsidiaries
to the Bank of Montreal, Newcourt Financial Ltd., AT&T Capital
Corporation and B.A.C.C. Capital Corporation or security granted
in the ordinary course of business each of LRC and the LRC
Subsidiaries was the beneficial owner of the properties and
assets described as being owned by it in the LRC Financial
Statements as at the dates thereof with good and marketable
title thereto free and clear of material encumbrances and, in
particular, LRC was at the dates thereof, the beneficial owner
of the shares of the LRC Subsidiaries as listed in Schedule
1.1(x) 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, right, option
or privilege, any of such securities or any interest therein;
(h) except as disclosed in the LRC Disclosure Schedule and 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, none of
LRC or any of the LRC Subsidiaries has any liability or
obligation, whether accrued, absolute, contingent or otherwise,
not reflected in the LRC Financial Statements or the Interim LRC
Financial Statements;
(i) each of the LRC Subsidiaries that carries on a material portion
of the business of LRC or which owns a material portion of the
LRC Assets on a consolidated basis 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;
(j) except as disclosed in the LRC Disclosure Schedule or the LRC
Financial Statements, there are no actions, suits, proceedings,
investigations or outstanding claims or demands, whether or not
purportedly on behalf of LRC or any of the LRC Subsidiaries,
instituted, pending, or, to the Best of LRC's Knowledge,
threatened against or affecting LRC or any of the LRC
Subsidiaries at law or in equity or before or by any
governmental department, commission, board, bureau, agency or
<PAGE>
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 Best of LRC's Knowledge, threatened against
LRC or any of the LRC Subsidiaries, and to the Best of LRC's
Knowledge, 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;
(k) except as disclosed in the LRC Disclosure Schedule, since
December 31, 1998, LRC has not declared or paid any dividends or
made any distribution of its properties or assets to its
shareholders and none of LRC or any of the LRC 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 the LRC Subsidiaries;
(l) the business of LRC and the LRC Subsidiaries is being conducted
in material compliance with all applicable laws, regulations and
ordinances of all authorities having jurisdiction;
(m) except as disclosed in the LRC Disclosure Schedule, each
contract or agreement between LRC or any of the LRC 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 LRC or the LRC Subsidiaries on a consolidated basis,
is in full force and effect and, to the Best of LRC's Knowledge,
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;
(n) with the exception of obtaining the consent of the ASE/CDNX and
the ASC for the release from escrow of the LRC Shares of the
Principal Shareholders, 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 LRC or any of the LRC
Subsidiaries;
(ii) conflict with any of the terms, conditions or provisions of the
Charter Documents of LRC or any of the LRC Subsidiaries;
<PAGE>
(iii) except as disclosed in this LRC Disclosure Schedule, 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 LRC or any of the LRC 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
LRC or any of the LRC Subsidiaries or in the creation of any
lien, charge, security interest or encumbrance in a material
amount upon any material assets of LRC or any of the LRC
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;
(o) LRC 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;
(p) other than as disclosed in writing to MEII or as disclosed in
the LRC Disclosure Schedule, LRC has no 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;
(q) except as disclosed in the LRC Disclosure Schedule, the
respective minute books of LRC and the LRC 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;
(r) except as disclosed in the LRC Disclosure Schedule, since
December 31, 1998, LRC has:
(i) not amended its articles, by-laws or other constating documents;
(ii) conducted its business and that of each of the LRC 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
<PAGE>
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;
(s) each of LRC and the LRC 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 LRC or any of the LRC
Subsidiaries for all prior periods in respect of which such
filings have heretofore been required, and such filings are
substantially true, complete and correct, in all material
respects the tax liability of LRC and each of the LRC
Subsidiaries is as indicated by the above returns and filings,
and LRC and each of the LRC 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 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 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 LRC
Financial Statements;
(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
<PAGE>
(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;
(t) all filings made by LRC or any of the LRC 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 LRC or its Subsidiaries or
previously accrued on the accounts thereof to be recovered or
disallowed;
(u) neither LRC nor any of the LRC Subsidiaries is a party to any
written contracts of employment, management services contracts
or collective bargaining agreements, other than as entered into
in the ordinary course of business or as disclosed in the LRC
Disclosure Schedule;
(v) LRC is a reporting issuer in the Provinces of Alberta and
British Columbia and has not been notified and, to the Best of
LRC's Knowledge, is not aware of any material default of any
requirement of securities or corporate laws, regulations,
orders, notices and policies;
(w) LRC has not received any notices of material violation or
alleged material violation of the provisions of any agreement in
respect of the LRC Assets and, to the Best of LRC's Knowledge,
the material properties and material assets comprising the LRC
Assets have been used and operated in all material respects 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 material LRC Assets or the receipt of proceeds therefrom
payable in respect of or in relation to any material LRC Assets
have been properly and fully paid and discharged or have been
properly accrued on the books of LRC and each of its
Subsidiaries;
(y) all material documents and agreements of whatsoever nature and
kind affecting title to the material LRC Assets which are in the
possession of LRC or of which LRC is otherwise aware have been
made available for review by MEII;
(z) except as disclosed in the LRC Disclosure Schedule or the LRC
Annual Report, to the Best of LRC's Knowledge, LRC has done no
act or thing, nor has LRC suffered or permitted any act or
omission, whereby its title to any material LRC Assets may be
cancelled or terminated;
(aa) to the Best of LRC's Knowledge, LRC has been and is in
compliance in all material respects with all Environmental Laws
and LRC has received no written
<PAGE>
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 Best of
LRC's Knowledge:
(i) there have been no material unrectified spills, material
releases, material deposits or material discharges of hazardous
or toxic substances, contaminants or wastes on any of the real
property owned or leased by LRC or any of the LRC 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 material releases, material deposits or
material 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 LRC or the LRC Subsidiaries;
(iii) no orders, directions or notices have been issued and remain
outstanding pursuant to any Environmental Laws relating to the
material business or material assets of LRC or any of the LRC
Subsidiaries; and
(iv) each of LRC and the LRC 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 neither LRC nor the
LRC 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;
(bb) except as disclosed in the LRC Disclosure Schedule, there is no
fact which LRC has not disclosed to MEII in writing with
reasonable specificity and detail of which any of its officers
or members of senior management is aware and which has or would
reasonably be expected to have a material adverse effect on LRC
or materially impede the completion of the Offer or the other
transactions contemplated in this Agreement;
(cc) each of LRC and the LRC Subsidiaries has all material
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 LRC 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
<PAGE>
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;
(dd) except as disclosed in the LRC Disclosure Schedule, to the Best
of LRC's Knowledge, there are no material Y2K Compliance issues
relating to the business and operations of LRC and the LRC
Subsidiaries;
(ee) to the best of LRC's knowledge, without inquiry or
investigation, all of the registered and beneficial owners of
LRC securities are residents of the Provinces of British
Columbia, Alberta, Manitoba and Ontario and the United States of
America.
SECTION 3.3 REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS. Each of the Principal Shareholders hereby jointly
and severally represents and warrants to and in favour of MEII
that, to the Best of the Principal Shareholders' Knowledge:
(a) as of the date hereof, the issued and outstanding share capital
of LRC consists of 15,003,122 LRC Shares, all of which are
issued and outstanding as fully paid and non-assessable shares;
(b) except as disclosed in the LRC Disclosure Schedule, LRC is a
reporting issuer "not in default" under the securities laws of
Alberta is in material compliance with the by-laws, rules and
regulations of the ASE and/or the CDNX and no material change
relating to LRC has occurred within the past 24 months which has
not been publicly disclosed;
except as disclosed in the LRC Disclosure Schedule, none of LRC
or any of the LRC 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 LRC or the LRC Subsidiaries as the case may be, to
issue any additional shares or other securities, except for the
LRC Options;
except as disclosed in the LRC Disclosure Schedule and except as
otherwise stated in the notes to the LRC Financial Statements,
the LRC Financial Statements present fairly all of the assets
and liabilities of LRC and the financial condition and results
of operations of LRC 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 disclosed in the LRC Disclosure Schedule, the Interim
LRC Financial Statements, the LRC Annual Report or the LRC Press
Releases, since December 31, 1998, there has been no Material
Adverse Change with respect to LRC on a consolidated basis from
that shown in the LRC Financial Statements;
except as disclosed in the LRC Disclosure Schedule and except
for security granted by LRC and certain of the LRC Subsidiaries
to the Bank of Montreal, Newcourt Financial Ltd., AT&T
<PAGE>
Capital Corporation and B.A.C.C. Capital Corporation or
security granted in the ordinary course of business or as
disclosed in the Interim LRC Financial Statements, each of
LRC and the LRC Subsidiaries was the beneficial owner of the
properties and assets described as being owned by it in the
LRC Financial Statements and Interim LRC Financial Statements
as at the dates thereof with good and marketable title
thereto free and clear of material encumbrances, and, in
particular, LRC is the beneficial owner of the shares of the
LRC Subsidiaries as listed in Schedule 1.1(x) 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, right,
option or privilege, any of such securities or any interest
therein;
(c) except as disclosed in the LRC Disclosure Schedule and except
for 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, none of
LRC or any of the LRC Subsidiaries has any liability or
obligation, whether accrued, absolute, contingent or otherwise,
not reflected in the LRC Financial Statements or the Interim LRC
Financial Statements;
(d) except as disclosed in the LRC Disclosure Schedule or the LRC
Financial Statements, there are no actions, suits, proceedings,
investigations or outstanding claims or demands, whether or not
purportedly on behalf of LRC or any of the LRC Subsidiaries,
instituted, pending, or threatened against or affecting LRC or
any of the LRC 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 threatened against LRC or any of the LRC
Subsidiaries and 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; and
(e) the business of LRC and the LRC Subsidiaries is being conducted
in all material respects in compliance with all applicable laws,
regulations and ordinances of all authorities having
jurisdiction.
SECTION 3.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF LRC AND MEII. The
representations and warranties contained herein and given by LRC to MEII
and by MEII to and LRC shall, in each case, survive completion of the
transaction contemplated by the Offer for a period of 15 months after the
date of this Agreement.
SECTION 3.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS AND MEII. The representations and warranties contained herein
and
<PAGE>
given by the Principal Shareholders to MEII and by MEII to the
Principal Shareholders shall, in each case, survive completion of the
transaction contemplated by the Offer for a period of 15 months after the
date of this Agreement. Notwithstanding anything to the contrary, the
liability of each of the Principal Shareholders to MEII for breaches of any
representation or warranty contained herein and given by them to MEII shall
be limited to the value of the Second Tranche of MEII Shares held in escrow
pursuant to the Escrow Agreement. No notice of a claim shall be given to
the Principal Shareholders after the release from Escrow of the Second
Tranche and no claim shall be otherwise initiated after such date.
SECTION 3.6 INDEMNITY. Subject to Section 3.7, the Principal Shareholders shall
indemnify and hold MEII harmless in respect of any claim, demand, action,
cause of action, damage, loss, cost, liability or expense (a "Claim") which
may be made or brought against MEII or which it may suffer or incur
directly or indirectly as a result of, in respect of or arising out of any
incorrectness in or breach of any representation or warranty of the
Principal Shareholders contained in Section 3.3.
SECTION 3.7 LIMITATIONS. The Principal Shareholders shall not have any liability
for indemnification pursuant to Section 3.6, or relating to any breach of
any of the representations and warranties contained in Section 3.3, in
excess of the value of the Second Tranche of MEII Shares held in escrow
pursuant to the Escrow Agreement. No notice of a Claim shall be given to
the Principal Shareholders after the release from escrow of the Second
Tranche and no claim shall be otherwise initiated after such date.
ARTICLE 4
COVENANTS
SECTION 4.1 COVENANTS OF MEII. Until the Offer is completed or this Agreement is
terminated, MEII hereby covenants and agrees with LRC and the Principal
Shareholders as follows:
MEII will make available and cause to be made available to LRC and its
agents and advisors, as soon as possible, all documents and agreements as
may be necessary to enable LRC to effect a thorough examination of MEII and
its Subsidiaries, its business, properties and financial status, and shall
co-operate with LRC in securing access for LRC to any such documentation
not in possession or under the control of MEII;
<PAGE>
MEII will not subdivide, consolidate, redeem, purchase, offer to purchase
or otherwise acquire or reclassify any of its outstanding shares of any
class, 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 of any class; provided, however, the
parties hereto recognize that MEII may make a distribution to its
shareholders of the shares it holds in HealthyConnect.com Inc. with the
understanding that if such occurs before the completion of the Offer, the
Offer will be amended so as to ensure that LRC shareholders will be treated
the same as if they had been MEII shareholders at the date of such
distribution.
MEII will not alter or amend its Charter Documents as the same exist at the
date of this Agreement;
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 Marketing listing of the MEII Shares;
MEII will use its reasonable best efforts to maintain its status as a
reporting issuer not in default under the securities laws of Alberta,
Ontario and Quebec and will use its reasonable best efforts to remain in
compliance with the by-laws, rules and regulations of NASDAQ and the TSE
such that no order ceasing or spending trading in securities of MEII or
prohibiting the sale of securities of MEII will be instituted, contemplated
or threatened;
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;
subject to Section 2.1 and Section 6.1 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 LRC's shareholders in
accordance with applicable law;
MEII 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 MEII is a party or by which it is bound;
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 it determines are necessary or desirable, acting
reasonably, for the implementation of the Offer, including those referred
to in Section 5.1 hereof;
MEII will use its reasonable best efforts to cause each of the conditions
precedent set forth in Article 5 hereof to be complied with on or before
the
<PAGE>
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; and
(a) 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 LRC, directly or indirectly, during
the period commencing on the date hereof and ending on the date
of termination of this Agreement.
SECTION 4.2 COVENANTS OF LRC AND THE PRINCIPAL SHAREHOLDERS. Until the
transaction contemplated by the Offer is completed or this Agreement is
terminated, LRC hereby covenants and agrees with MEII, and the Principal
Shareholders covenant and agree with MEII to use their reasonable best
efforts to cause LRC, to do the following:
LRC and the Principal Shareholders shall in a timely and expeditious manner
apply to the ASC (and any other applicable regulatory authority) to have
the LRC Shares currently under escrow released from escrow so that such
shares may be tendered under the Offer;
except as set out in the LRC Covenant Schedule and except as contemplated
in this Agreement, the Interim LRC Financial Statements, the LRC Annual
Report or as otherwise agreed in writing by MEII, acting reasonably, LRC
and the LRC 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;
LRC will make available and cause to be made available to MEII and its
agents and advisors, as soon as possible, all documents and agreements
(including without limitation, minute books) as may be necessary to enable
MEII to effect a thorough investigation of LRC, its business, properties
and financial status and to enable MEII to provide all disclosure necessary
or advisable to the holders of LRC Shares or MEII Shares in connection with
the Offer, except where LRC is contractually precluded from making such
document or agreement available, and shall co-operate with MEII in securing
access for MEII to any such documentation not in the possession or under
the control of LRC;
except as set out in the LRC Covenant Schedule, LRC will not, and will not
permit any of the LRC 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 and 3.3 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, except as contemplated in this Agreement, the Interim
LRC Financial Statements or the LRC Annual Report, and without limiting the
generality of the foregoing, LRC will not:
<PAGE>
(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 LRC Shares, or
other securities convertible into or exchangeable for shares or
enter into any commitment or agreement therefor;
(iii) increase or decrease its paid-up capital; or
(iv) enter into any Non-Arm's Length Transactions except transactions
with or among the LRC Subsidiaries in the ordinary course;
(b) LRC will not alter or amend its Charter Documents as the same
exist at the date of this Agreement;
(c) LRC will not 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;
(d) LRC will use its reasonable best efforts to maintain its status
as a reporting issuer "not in default" under the securities laws
of Alberta and will use its reasonable best efforts to remain in
compliance with the by-laws, rules and regulations of the ASE
and CDNX such that no order ceasing or suspending trading in
securities of LRC or prohibiting the sale of securities by LRC
will be instituted, contemplated or threatened;
(e) LRC 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 the Series C Warrants
issued pursuant to the Offer;
(f) except as set out in the LRC Covenant Schedule, LRC 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 LRC or the Offer, other than in the
ordinary course of business;
(g) LRC 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, LRC 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;
<PAGE>
(h) LRC will use its reasonable best efforts to cause each of the
conditions precedent set forth in Article 5 hereof to be
complied with on or before the date of closing of the Offer and
will not take or fail to take any reasonable action reasonably
within its control which would result in a condition precedent
to the Offer not being satisfied;
(i) LRC agrees that it shall not solicit any offers to purchase any
of the LRC Shares or any of its material assets and will not
initiate or encourage directly or indirectly, any discussions or
negotiations with 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;
(j) LRC and any other party acting jointly or in concert with LRC
shall not 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;
(k) LRC 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;
(l) LRC will not take any action of any kind which may reduce the
likelihood of success of or delay the take up and payment of LRC
Shares deposited under the Offer or the completion of the Offer,
including but not limited to any action to solicit, initiate,
assist or encourage inquiries, submissions, proposals or offers
from any other Person, entity or group relating to:
(i) the direct or indirect acquisition or disposition of all or any
shares or securities of LRC; or
(ii) any amalgamation, merger, sale (other than a sale in the
ordinary course of business consistent with past practice) of
any material part of the LRC 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 LRC or any of its material assets;
(m) LRC 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 LRC is a party or by which it
is bound;
(n) LRC 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 it determines are
necessary or desirable for the implementation of the Offer;
<PAGE>
(o) LRC will use its reasonable best efforts to obtain the execution
of the Lock-Up Agreement by the Principal Shareholders and the
deposit of LRC Shares pursuant to the terms thereof;
(p) LRC 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
(q) other than the right to convert LRC Options into MEII Options
and except as set out in the LRC Disclosure Schedule, neither
LRC nor any of the LRC 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.
ARTICLE 5
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 LRC, terminate this Agreement) if:
prior to the making of the Offer:
(i) any act, action, suit or proceeding shall have been taken before
or by any domestic or foreign arbitrator, court or 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) any law, regulation, rule or policy shall have been proposed,
enacted, promulgated or applied, in the case of (i) above:
(1) to cease trade, enjoin, prohibit or impose material limitations
or conditions on the purchase by or the sale to MEII of the LRC
Shares or the rights of MEII to own or exercise full rights or
ownership of the LRC Shares; or
(2) which as resulted in, or if the Offer was consummated would
result in, a Material Adverse Change;
provided that if in the judgment of MEII, acting reasonably,
there is a reasonable risk that circumstances referred to above
would result in the occurrence of any of the consequences
referred to above and further
<PAGE>
provided, however, MEII shall not be required to make the
Offer as a result of any action, suit or proceeding taken by
a private Person only if such act, action, suit or proceeding
shall be resolved in favour of 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
the Offer, or if, in the opinion of MEII acting reasonably,
there is a reasonable risk that such act, action, suit or
proceeding will be so resolved in favour of such private
Person;
at the time MEII proposes to make the Offer, there exists any
prohibition at law against MEII making the Offer or taking up
and paying for the LRC Shares under the Offer;
LRC shall not have taken all steps requested by MEII, acting
reasonably (other than steps which would have a material adverse
effect on LRC'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 LRC Shares;
any representation or warranty of LRC or the Principal
Shareholders in this Agreement is not, as of the date made, true
and correct, the result of which is a Material Adverse Change to
LRC or its business and operations;
LRC shall not have performed or complied in all material
respects with any of its covenants or agreements herein and such
non-performance or non-compliance gives rise to a Material
Adverse Change;
LRC or the Principal Shareholders shall not have applied to the
ASC (and any other applicable regulatory authority) for the
release from escrow of the LRC Shares currently being held in
escrow;
NASDAQ shall not have conditionally approved the listing thereon
of the MEII Shares to be issued in connection with the Offer,
subject to compliance with the usual requirements of NASDAQ;
all other consents, orders, regulations and approvals, including
regulatory and judicial approvals and orders and all other
consents, orders and approvals required or necessary for the
making of the Offer provided for in the Offer shall not have
been obtained or received from the persons, authorities or
bodies having jurisdiction in the circumstances; or
<PAGE>
there shall have been no Material Adverse Change since the date
hereof with respect to MEII or the MEII Subsidiaries on a
consolidated basis or LRC or the LRC 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.
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 LRC CONDITIONS PRECEDENT. LRC's obligations hereunder to complete
the transactions contemplated by this Agreement shall be subject to the
satisfaction of the following conditions by June 16, 2000:
(a) the Offer shall have been made in accordance with this Agreement;
NASDAQ shall have conditionally approved the listing thereon of the
MEII Shares to be issued in connection with the Offer including those
issuable upon the exercise of the Series C Warrants, subject to
compliance with the usual requirements of NASDAQ;
all other consents, orders, regulations and approvals, including
regulatory and judicial approvals and orders and all other consents,
orders and approvals required or necessary for the making of the Offer
provided for in the Offer shall have been obtained or received from the
persons, authorities or bodies having jurisdiction in the
circumstances;
thereshall be no (i) action, suit or proceeding taken or commenced
before or by any domestic or foreign arbitrator, court or 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) any law, regulation,
rule or policy proposed, enacted, promulgated or applied:
(1) to cease trade, enjoin, prohibit or impose material limitations or
conditions on the purchase by or the sale to MEII of the LRC Shares or
the rights of MEII to own or exercise full rights or ownership of the
LRC Shares; or
(2) which has resulted in, or if the Offer was consummated would result in,
a Material Adverse Change;
there shall have been no Material Adverse Change since the date hereof
with respect to MEII or the MEII Subsidiaries on a consolidated basis
or LRC or the LRC 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; and
any representation or warranty of MEII in this Agreement is, as of the
date made, true and correct.
<PAGE>
SECTION 5.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligation of each of
the LRC and MEII to complete the transactions contemplated by this
Agreement is further subject to the condition, which may be waived by each
of LRC or MEII without prejudice to its right to rely on any other
condition in their respective favour 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 LRC and MEII shall receive a certificate,
dated the commencement of the Offer, of a senior officer of LRC or MEII, as
the case may be, to such effect.
ARTICLE 6
TERMINATION
SECTION 6.1 RIGHTS OF TERMINATION. (1) If any of the conditions contained in
Sections 5.1 shall not be fulfilled or performed on or before June 16,
2000, MEII may terminate this Agreement by notice to LRC, or if any of the
conditions contained in Sections 5.2 shall not be fulfilled or performed on
or before June 16, 2000, either of LRC or MEII, as applicable, may
terminate this Agreement by notice to the other party hereto, and in such
event LRC and MEII shall be released from all obligations under this
Agreement (with the exception of the obligations contained in Section
7.10), 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
were 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) TERMINATION BY CONSENT. This Agreement may be terminated, at any
time with the mutual consent of all of the parties hereto.
(3) OUTSIDE DATE. This Agreement shall terminate if the Offer has not
been made and the Take-Over Bid Circular has not been mailed by June 16, 2000.
SECTION 6.2 NOTICE OF UNFULFILLED CONDITIONS. If any party shall determine at
any time prior to the completion of 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 the other party to be
<PAGE>
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 its own expense, as may be necessary for the purpose of
fulfilling or performing such condition precedent within a reasonable
period of time, but in any event no later than June 16, 2000.
SECTION 6.3 BREAK-UP FEE. Notwithstanding anything to the contrary contained
herein, the board of directors of LRC may withdraw, modify or change any
recommendation regarding the Offer if, in the opinion of the board of
directors of LRC, 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 LRC.
Notwithstanding any termination of this Agreement, if the board of
directors of LRC withdraws, modifies or changes its recommendation
regarding the Offer, other than by mutual agreement of the parties, or as a
result of any condition precedent in Section 5.2 not being fulfilled or as
a result of a Material Adverse Change in respect of MEII and the MEII
Subsidiaries on a consolidated basis, LRC shall forthwith pay MEII a
break-up fee of $500,000.
ARTICLE 7
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:
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
with a copy to:
Blake, Cassels & Graydon LLP
Suite 2800
199 Bay Street
Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: John Tuzyk
Telecopy number: (416) 863-2653
<PAGE>
in the case of LRC:
Laser Rejuvenation Clinics Ltd.
4616 Valiant Drive NW
Suite 102
Calgary, Alberta
T3A 0X9
Attention: President
Telecopy number: (403) 202-4069
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
in the case of Coren:
Howard Coren
Suite E101
Eau Claire Avenue S.W.
Calgary, Alberta
T2P 3R8
Telecopy number: (403) 202-4069
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
<PAGE>
in the case of Woo:
Dr. Tom Woo
Suite 401
2675 - 36th Street N.E.
Calgary, Alberta
T1Y 6H0
Telecopy number: (403) 202-4069
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
Any such communication so given or made shall be deemed to have been given or
made and to have been received on the day of delivery if delivered, or on the
day of faxing or sending by other means of recorded electronic communication,
provided that such day in either event is a Business Day and the communication
is so delivered, faxed or sent before 4:30 p.m. (local time at place of receipt)
on such day, with a confirmation of receipt printed from the sender's machine.
Otherwise, such communication shall be deemed to have been given and made and to
have been received on the next following Business Day. Any such communication
sent by mail shall be deemed to have been given and made and to have been
received on the fifth Business Day following the mailing thereof; provided,
however, that no such communication shall be mailed during any actual or
apprehended disruption of postal services. Any such communication given or made
in any other manner shall be deemed to have been given or made or to have been
received only upon actual receipt.
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, which consent shall not be unreasonably withheld.
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.
<PAGE>
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.
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. Counterparts
may executed either in original or faxed form and the parties adopt any
signatures received by a receiving 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.
SECTION 7.7 ENTIRE AGREEMENT. This Agreement, the Lock-Up Agreement,
Non-Competition Agreement and Escrow Agreement 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 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
parties, 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
that the confidentiality provisions of this Agreement shall apply to its
employees and advisors and to advise such employees and advisors of the
confidential nature of such information. If the transaction contemplated
herein 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,
<PAGE>
projections and other internally-created documents to the extent they
contain such confidential information.
SECTION 7.11 PRESS RELEASES. MEII and LRC agree that, other than as may be
required by applicable law or the requirements of the ASE, CDNX 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>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first written above.
<TABLE>
<S> <C>
MED-EMERG INTERNATIONAL INC.
Per:
----------------------------------------------------
Authorized Signing Officer
Per:
----------------------------------------------------
Authorized Signing Officer
LASER REJUVENATION CLINICS LTD.
Per:
----------------------------------------------------
Authorized Signing Officer
Per:
----------------------------------------------------
Authorized Signing Officer
)
)
- ---------------------------------------------------- ----------------------------------------------------
Witness ) Howard Coren
)
)
)
- ---------------------------------------------------- ----------------------------------------------------
Witness ) Tom Woo
</TABLE>
<PAGE>
Exhibit 2.2
LOCK-UP AGREEMENT
THIS AGREEMENT made as of the 16th day of February 2000.
BETWEEN:
MED-EMERG INTERNATIONAL INC., a corporation incorporated under the laws
of the Province of Ontario (hereinafter referred to as "MEII")
- and -
HOWARD COREN, RENA NATHANAIL AND TOM WOO
(collectively, the "SHAREHOLDERS" and individually, a
"SHAREHOLDER")
- and -
LASER REJUVENATION CLINICS LTD., a corporation incorporated under
the laws of the Province of Alberta (hereinafter referred to
as "LRC")
- and -
OLYMPIA TRUST COMPANY, a trust company incorporated pursuant to the
laws of the Province of Alberta (hereinafter referred to as
the "ESCROW AGENT")
WHEREAS MEII, LRC and the Shareholders Coren and Woo entered
into the Business Combination Agreement pursuant to which MEII has agreed, among
other things, to make an offer to purchase all of the LRC Common Shares;
AND WHEREAS the Shareholders are at the present time the
holders of the number of LRC Common Shares as set out in Schedule "A" hereto;
<PAGE>
AND WHEREAS the Shareholders have mutually agreed with each
other and with MEII and LRC to deposit all of their LRC Common Shares in escrow
with the Escrow Agent pursuant to the terms hereof, such that such LRC Common
Shares will be deposited under the Offer;
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;
"BUSINESS COMBINATION AGREEMENT" means the agreement made as
of February 16, 2000 between MEII, LRC, Coren and Woo relating
to, among other things, the Offer;
"BUSINESS DAY" means a day that is not a Saturday, Sunday or
statutory holiday in the Province of Ontario or the Province
of Alberta;
"DEPOSITED SECURITIES" means, prior to completion of the
Offer, the LRC Common Shares deposited by the Shareholders
pursuant to Section 3.1;
"ESCROW AGREEMENT" means the agreement made as of February 16,
2000 between MEII, Coren, Woo, Nathanail and the Escrow Agent
relating to the escrow and release terms of the MEII common
shares received in exchange for the Deposited Securities;
"LRC COMMON SHARES" means common shares of LRC, as constituted
on the date hereof;
"MEII COMMON SHARES" means common shares of MEII, as
constituted on the date hereof;
<PAGE>
"MEII SERIES C WARRANTS" means non-assignable, redeemable
Series C Warrants of MEII, such that one whole Series C
Warrants entitles the holder thereof to acquire one MEII
Common Share at an exercise price of US $3.00 per share for a
period of three (3) years from the date of issue of such
warrants;
"MEII SECURITIES" means MEII Common Shares and MEII Series C
Warrants in the proportions set out in the Business
Combination Agreement; and
"OFFER" means the offer to be made by MEII to purchase, among
other things, all of the LRC Common Shares in exchange for
MEII Securities, as contemplated by 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, the Business Combination Agreement, the
Non-Competition Agreement between MEII, LRC and Coren and the Escrow Agreement
constitute the entire agreement between the parties pertaining to the subject
matter of this Agreement.
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 the Shareholders, MEII
and LRC hereunder shall terminate on the earlier of: (a) June 16, 2000 if the
Offer has not been made; or (b) the termination of the Business Combination
Agreement. In such event, MEII, LRC and the Shareholders shall jointly provide a
notice to the Escrow Agent of the termination and the Deposited Securities shall
be returned by the Escrow Agent to the Shareholders forthwith.
<PAGE>
ARTICLE 2
RELEASE FROM REGULATORY ESCROW
2.1 APPLICATION. The Shareholders will, forthwith after the execution of this
Agreement, make an application to the Alberta Securities Commission, the Alberta
Stock Exchange and the Canadian Venture Exchange, whichever is applicable, for
the release of all of the LRC Common Shares subject to the escrow arrangements
with such commissions and exchanges.
2.2 PURSUE DILIGENTLY. The Shareholders agree to cause such application to be
pursued diligently and expeditiously.
2.3 KEEP INFORMED. The Shareholders agree to keep MEII and its counsel fully
informed as to the status of the application for the release of the LRC Common
Shares from such escrow and to fully consult with MEII's counsel with respect
thereto.
ARTICLE 3
ESCROW
3.1 DEPOSITED SECURITIES. The Shareholders hereby agree, subject in the case of
the LRC Common Shares subject to the escrow agreement attached at Schedule "B"
receipt of regulatory approval of the release from escrow as contemplated in
Article 2, to place and deposit with the Escrow Agent the LRC Common Shares held
by the Shareholders as set forth in Schedule "A" to this Agreement and the
Shareholders hereby undertake and agree forthwith to deliver certificates
(including any replacement securities or certificates to which this Agreement
applies by virtue of Section 1.2 if and when such are issued or allotted)
representing such shares together with the required duly completed and executed
powers of attorney permitting the transfer of such shares in blank (with
signatures guaranteed by a Canadian chartered bank, Canadian trust company or a
member of a recognized Medallion guarantee program) to the Escrow Agent to
tender under the Offer, such documentation to be in a form acceptable to LRC's
transfer agent and/or depository under the Offer.
3.2 RENA NATHANAIL. Subject to regulatory approval, the Escrow Agent shall
deliver the LRC Common Shares of Shareholder Coren to LRC's transfer agent to
effect the transfer of fifty (50%) percent of the LRC Common Shares as set forth
opposite Shareholder Coren in Schedule "A" to Shareholder Nathanail pursuant to
a divorce agreement. Shareholder Nathanail agrees to bound by all of the terms
and obligations of this Agreement. Shareholder Coren hereby agrees to
<PAGE>
complete and execute a separate power of attorney permitting the transfer to
Shareholder Nathanail.
ARTICLE 4
THE OFFER
4.1 AGREEMENT TO DEPOSIT UNDER THE OFFER. Each of the Shareholders hereby
irrevocably and unconditionally agrees to deposit all of the LRC Common Shares
owned by such Shareholder under the Offer. Each of the Shareholders hereby
irrevocably authorizes and directs the Escrow Agent to deposit all of the LRC
Common Shares deposited hereunder under the Offer and to execute and deliver for
and on behalf of such Shareholder all instruments and documents as may be
required to be executed or delivered by such Shareholder in connection with the
Offer. The Shareholders agree to provide and execute any and all documentation
as reasonably required by the Escrow Agent to allow it to perform its duties
hereunder. The Shareholders further agree not to withdraw their LRC Common
Shares deposited under the Offer except in accordance with Section 1.8 or upon
termination of the Offer.
ARTICLE 5
ESCROW TERMS AND RELEASES FROM ESCROW
5.1 TRANSFER OF DEPOSITED SECURITIES. Any Deposited Securities deposited under
this Agreement shall be transferred to MEII in accordance with the terms of the
Offer.
5.2 ESCROW AGENT. The 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
Shareholders on behalf of the
<PAGE>
Shareholders. The Shareholders hereby irrevocably appoint the Escrow Agent as
their attorney for the purpose of transferring their Deposited Securities in
accordance with the terms of this Agreement and hereby undertake to deliver
to the Escrow Agent any and all documentation, as reasonably required by the
transfer agent, to effect such a transfer.
5.4 RESTRICTIONS ON TRANSFER. The Shareholders hereby agree that the Deposited
Securities 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 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 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 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 and the Escrow Agent considers necessary or
desirable. Subject to regulatory approval, Shareholder Coren shall be permitted
to transfer fifty (50%) of his Deposited Securities to Shareholder Nathanail,
subject to the terms of this Agreement.
5.5 RIGHTS OF SHAREHOLDERS. If during the period in which any of the said
Deposited Shares are retained in escrow pursuant hereto, any 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 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.
3.2.1.1(a) Shareholder Coren represents and warrants to MEII that he is
the registered and beneficial owner of the LRC Common Shares set forth
opposite his name in Schedule "A" annexed hereto and he owns such
shares, save and except the obligation to transfer 50% of his LRC
Common Shares to Shareholder Nathanail pursuant to a divorce agreement
and the escrow contemplated by Article 2, 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) Shareholder Woo represents and warrants to MEII that he is the
registered and beneficial owner of the LRC Common Shares set forth
opposite his name in Schedule "A" annexed hereto and he owns such
shares, save and except the escrow contemplated
<PAGE>
by Article 2, 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.
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:
in the case of MEII, to the following:
Med-Emerg International Inc.
2550 Argentia Road,
Suite 205
Mississauga, Ontario
L5N 5R1
Attention: The President
Facsimile: (905) 858-1399
with a copy to:
Blake, Cassels & Graydon LLP
Suite 2800, 199 Bay Street
Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: John Tuzyk
Telecopy number: (416) 863-2653
in the case of Howard Coren, to:
Suite E101
Eau Claire Avenue S.W.
Calgary, Alberta
T2P 3R8
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
<PAGE>
Telecopy number: (403) 260-3501
in the case of Tom Woo, to:
Suite 401
2675 - 36th Street N.E.
Calgary, Alberta
T1Y 6H6
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
in the case of Rena Nathanail, to:
147 Signal Ridge Link S.W.
Calgary, Alberta
T3H 2J8
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
in the case of LRC, to:
Laser Rejuvenation Clinics Ltd.
102 - 4616 Valiant Drive NW
Calgary, Alberta
T3A 0X9
Attention: The President
FAX No.: (403) 202-4069
<PAGE>
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue SW
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Telecopy number: (403) 260-3501
In the case of the Escrow Agent, to:
Olympia Trust Company
Corporate & Shareholder Services
2600, 700 - 9th Avenue S.W.
Calgary, Alberta
T2P 3V4
Attention: Manager, Client Services
FAX No.: (403) 265-1455
Any such communication so given or made shall be deemed to have been given or
made and to have been received on the day of delivery if delivered, or on the
day of faxing or sending by other means of recorded electronic communication,
provided that such day in either event is a Business Day and the communication
is so delivered, faxed or sent before 4:30 p.m. (local time at place of receipt)
on such day, with a confirmation of receipt printed from the sender's machine.
Otherwise, such communication shall be deemed to have been given and made and to
have been received on the next following Business Day. Any such communication
sent by mail shall be deemed to have been given and made and to have been
received on the fifth Business Day following the mailing thereof; provided,
however, that no such communication shall be mailed during any actual or
apprehended disruption of postal services. Any such communication given or made
in any other manner shall be deemed to have been given or made or to have been
received only upon actual receipt.
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>
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 permitted assigns. No party
can assign this Agreement without the written consent from each of the
other parties, other than MEII to an affiliate provided that the
affiliate is the party making the Offer.
7.6 ESCROW AGENT.
a) The Escrow Agent may, at the joint and several expense of MEII and LRC,
employ or retain such counsel or other experts or advisers as it
reasonably requires for the purpose of discharging its duties hereunder
and may pay reasonable remuneration for all services so performed by
any of them, without taxation of costs of any counsel, and will not be
responsible for any misconduct or negligence on the part of any of them
who has been selected with due care by the Escrow Agent or for any
actions taken by the Escrow Agent in reliance on the advice provided.
b) If at any time, a dispute shall exist, or the Escrow Agent concludes in
its sole discretion that there is a bona fide question, confusion or
dispute, in respect to the Escrow Agent's duties under this Agreement
or the holding or delivery of the Deposited Securities, the Escrow
Agent may, in its sole discretion, deliver the Deposited Securities
then remaining to the Clerk of the Superior Court of Ontario and
interplead each of the parties to this Agreement. Upon so delivering
the Deposited Securities then remaining, and interpleading the parties,
the Escrow Agent shall be released from all obligations under this
Agreement.
c) MEII and LRC agree to pay the Escrow Agent's proper charges for the
services as Escrow Agent under this Agreement.
d) The Escrow Agent and its directors, officers, agents and employees will
at all times be indemnified and saved harmless by MEII, LRC and the
Shareholders from and against all claims, demands, losses, actions,
causes of actions, costs, charges, expenses, damages and liabilities
whatsoever arising in connection with this Agreement, including,
without limitation, those arising out of or related to actions taken or
omitted to be taken by the Escrow Agent contemplated hereby, legal fees
and disbursements on a solicitor and client basis, and costs and
<PAGE>
expenses incurred in connection with the enforcement of this indemnity,
which the Escrow Agent may suffer or incur, whether at law or in
equity, in any way caused by or arising, directly or indirectly, in
respect of any act, deed, matter or thing whatsoever made, done,
acquiesced in or omitted in or about or in relation to the execution of
its duties as Escrow Agent and including any deed, matter or thing in
relation to the execution of its duties as Escrow Agent and including
any deed, matter or thing in relation to the registration, perfection,
release or discharge of security. The foregoing provisions of this
Section do not apply to the extent that in any circumstances there has
been a failure by the Escrow Agent or its employees or agents to act
honestly and in good faith or where the Escrow Agent or its employees
or agents have acted with gross negligence or in wilful disregard to
the Escrow Agent's obligations hereunder.
e) The Escrow Agent shall not be liable for or by reason of any statement
of fact or recitals in this Agreement or be required to verify the
same, but all statements or recitals are and shall be deemed to be made
by the parties hereto.
f) The Escrow Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of MEII, LRC or Shareholders of any of the covenants
herein contained.
IN WITNESS WHEREOF the parties hereto have executed these
presents as of the day and year first above-written.
<TABLE>
<S> <C>
MED-EMERG INTERNATIONAL INC.
By: -------------------------------------------------
Name: -------------------------------------------------
Title:-------------------------------------------------
By: -------------------------------------------------
Name: -------------------------------------------------
<PAGE>
Title:-------------------------------------------------
LASER REJUVENATION CLINICS LTD.
By: -------------------------------------------------
Name: -------------------------------------------------
Title:-------------------------------------------------
- ---------------------------------------------------- -------------------------------------------------
Witness ) Howard Coren
)
)
)
- ---------------------------------------------------- -------------------------------------------------
Witness ) Tom Woo
)
)
- ---------------------------------------------------- -------------------------------------------------
Witness ) Rena Nathanail
) OLYMPIA TRUST COMPANY
)
)
)
) By: -------------------------------------------------
)
) Name: -------------------------------------------------
)
) Title:-------------------------------------------------
)
)
) By: -------------------------------------------------
)
) Name: -------------------------------------------------
)
) Title:-------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE "A"
SHAREHOLDERS
<TABLE>
<CAPTION>
- ----------------------------------------------- ----------------------------- --------------------- ------------------------
NAME OF SHAREHOLDER ADDRESS CLASS OF SHARES NUMBER OF SHARES
- ----------------------------------------------- ----------------------------- --------------------- ------------------------
<S> <C> <C> <C>
Howard Coren Suite E101, Eau Claire Common 1,967,667
Avenue S.W., Calgary,
Alberta,
T2P 3R8
- ----------------------------------------------- ----------------------------- --------------------- ------------------------
Tom Woo Suite 401, Common 3,959,333
2675 - 36th Street NE,
Calgary, Alberta
T1Y 6H6
- ----------------------------------------------- ----------------------------- --------------------- ------------------------
</TABLE>
<PAGE>
Exhibit 2.4
ESCROW AGREEMENT
THIS AGREEMENT made this 16th day of February, 2000.
AMONG:
MED-EMERG INTERNATIONAL INC., a corporation incorporated pursuant to
the laws of the Province of Ontario
(hereinafter called the "ISSUER")
- and -
OLYMPIA TRUST COMPANY, a trust company incorporated pursuant
to the laws of the Province of Alberta
(hereinafter called the "ESCROW AGENT")
- and -
THOSE PERSONS LISTED IN SCHEDULE "A" HERETO
(hereinafter called the "SECURITYHOLDERS")
WHEREAS the Securityholders wish to deposit in escrow certain
common shares of the Issuer (the "ESCROWED SHARES") received by them in
connection with the acquisition of Laser Rejuvenation Clinics Ltd. ("LRC") by
the Issuer (the "ACQUISITION") pursuant to a Business Combination Agreement
dated February 16, 2000 (the "BUSINESS COMBINATION AGREEMENT") and for that
purpose have agreed to deliver to the Escrow Agent the security certificates
representing the common shares of LRC described in Schedule "A" hereto (the "LRC
SHARES");
AND WHEREAS the Securityholders have directed the Escrow Agent
to deposit the LRC Shares to the Offer (as defined in the Business Combination
Agreement) under the terms of the Lock-Up Agreement dated February 16, 2000
amongst the Issuer, the Escrow Agent and the Securityholders, a copy of which is
attached hereto as Schedule "B";
AND WHEREAS the Parties have agreed that two thirds of the
Issuer's common shares and none of the Issuer's warrants issuable upon
completion of the Offer in exchange for the LRC Shares deposited by the
Securityholders shall comprise the Escrowed Shares hereunder and shall be
divided amongst the Securityholders as per Schedule "A" hereto;
AND WHEREAS the Escrow Agent shall immediately release to the
Securityholders one third of the Issuer's shares and all of the Issuer's
warrants issuable upon completion of the Offer in exchange for the LRC Shares
deposited under the Offer by the Escrow Agent on behalf of the Securityholders;
<PAGE>
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 with the other and with the
Securityholders jointly and severally, as follows:
I. THE PARTIES ACKNOWLEDGE THAT, EXCEPT AS PROVIDED HEREIN, ALL OF THE
MEII SECURITIES (AS DEFINED IN THE BUSINESS COMBINATION AGREEMENT)
RECEIVED BY THE SECURITYHOLDERS IN ACCORDANCE WITH THE OFFER SHALL BE
RELEASED TO THE SECURITYHOLDERS IN ACCORDANCE WITH THE OFFER AND THIS
AGREEMENT. EACH OF THE SECURITYHOLDERS AGREES TO PLACE AND DEPOSIT IN
ESCROW WITH THE ESCROW AGENT THOSE OF THE SECURITYHOLDERS' SECURITIES
OF THE ISSUER RECEIVED IN ACCORDANCE WITH THE OFFER AS DESCRIBED IN
SCHEDULE "A". 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.
II. 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 AGREEMENT THAT SUCH LETTER OR RECEIPT SHALL NOT
BE ASSIGNABLE.
III. EXCEPT AS PROVIDED IN SECTIONS 4, 5, 6 AND 20 THE ESCROWED SHARES 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 SHARES HAVE BEEN EITHER RELEASED PURSUANT
TO SECTIONS 4, 5, 6 AND 20 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.
IV. UPON WRITTEN NOTIFICATION BY THE ISSUER AND SECURITYHOLDERS TO THE
ESCROW AGENT OF THE DATE THE LRC SHARES ARE ACQUIRED BY THE ISSUER, THE
ESCROWED SHARES DEPOSITED WITH THE ESCROW AGENT PURSUANT TO THIS
AGREEMENT SHALL BE AUTOMATICALLY RELEASED AS TO ONE-HALF (1/2) OF THE
ESCROWED SHARES (THE "FIRST TRANCHE") AT THE END OF SIX MONTHS FROM THE
<PAGE>
DATE THE LRC SHARES ARE ACQUIRED BY THE ISSUER AND, SUBJECT TO SECTION
7, THE REMAINING ONE-HALF (1/2) OF THE ESCROWED SHARES (THE "SECOND
TRANCHE") AT THE END OF EIGHTEEN MONTHS FROM THE SAME DATE (THE "ESCROW
PERIOD").
V. 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 SECURITYHOLDERS IN
RESPECT OF THE ESCROWED SHARES, THE SECURITYHOLDERS SHALL FORTHWITH
DELIVER TO THE ESCROW AGENT ANY CERTIFICATES REPRESENTING SUCH SHARE
DIVIDEND OR SECURITIES AND SUCH CERTIFICATES WILL BE HELD BY THE ESCROW
AGENT ON AND SUBJECT TO THE TERMS OF THIS AGREEMENT.
VI. 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, THE ISSUER AND THE ESCROW AGENT 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 SUCH
HYPOTHECATION, PLEDGE OR CHARGE.
VII. (A) AT ANY TIME OR TIMES PRIOR TO THE TERMINATION OF THE ESCROW
PERIOD, THE ISSUER MAY MAKE CLAIMS AGAINST THE SECOND TRANCHE
FOR INDEMNIFICATION PURSUANT TO AND IN ACCORDANCE WITH ARTICLE
3 OF THE BUSINESS COMBINATION AGREEMENT. THE ISSUER SHALL
PROMPTLY NOTIFY THE SECURITYHOLDERS AND THE ESCROW AGENT IN
WRITING UPON DETERMINATION TO MAKE A CLAIM, AND IN ANY EVENT
PRIOR TO THE EXPIRATION OF THIS AGREEMENT, OF EACH SUCH CLAIM,
INCLUDING A SUMMARY OF THE AMOUNT OF AND BASIS FOR SUCH CLAIM.
IF THE SECURITYHOLDERS OR ANY OF THEM SHALL DISPUTE SUCH CLAIM,
SUCH SECURITYHOLDER(S) SHALL GIVE WRITTEN NOTICE THEREOF TO THE
ISSUER AND TO THE ESCROW AGENT WITHIN SIXTY (60) DAYS AFTER
RECEIPT OF NOTICE OF THE ISSUER'S CLAIM, IN WHICH CASE THE
ESCROW AGENT SHALL CONTINUE TO HOLD THE SECOND TRANCHE OF SUCH
SECURITYHOLDER'S ESCROWED SHARES IN ACCORDANCE WITH THE TERMS
OF THIS AGREEMENT. IF ANY OF THE SECURITYHOLDERS HAVE NOT
DISPUTED THE CLAIM AS PROVIDED ABOVE, THEN SUCH CLAIM SHALL BE
DEEMED TO HAVE BEEN ACKNOWLEDGED BY SUCH SECURITYHOLDER(S) TO
BE PAYABLE OUT OF SUCH SECURITYHOLDER(S)' PERCENTAGE OF THE
SECOND TRANCHE AND THE ESCROW AGENT SHALL USE ITS BEST EFFORTS
TO PAY SUCH SECURITYHOLDER(S)' RESPECTIVE PERCENTAGE OF SUCH
<PAGE>
CLAIM (AND SUCH SECURITYHOLDER(S) SHALL EXECUTE POWERS OF
ATTORNEY IN BLANK AND DELIVER SUCH TO THE ESCROW AGENT FOR THIS
PURPOSE) TO THE ISSUER AS SOON THEREAFTER AS POSSIBLE FOLLOWING
THE DETERMINATION OF THE CURRENT MARKET PRICE OF THE SECOND
TRANCHE PURSUANT TO SECTION 7(B) BELOW. FOR THIS PURPOSE, THE
SECURITYHOLDERS' RESPECTIVE PERCENTAGES ARE AS SET FORTH IN
SCHEDULE "A". IF THE AMOUNT OF THE CLAIM EXCEEDS THE VALUE OF
THE SECOND TRANCHE, THE ESCROW AGENT AND THE SECURITYHOLDERS
SHALL HAVE NO LIABILITY OR RESPONSIBILITY FOR ANY DEFICIENCY.
(b) The Escrow Agent shall follow the procedure below in making any
payment in satisfaction of a claim against the Second Tranche:
(i) The Escrow Agent shall make payment from the Second
Tranche in such number of Escrowed Shares of each
Securityholder (computed to the nearest whole share)
having a value equal to the Securityholder's share of the
value of the claim, based on such Securityholder's
percentage as set forth in Schedule "A". Any payment of
Escrowed Shares by the Escrow Agent to the Issuer, as the
case may be, shall be treated as a sale by the
Securityholder of such Escrowed Shares to the Issuer for
cancellation for the value described herein. The value of
an Escrowed Share for purposes of this Section shall be
the Current Market Price of the Issuer's Shares (as
hereinafter defined). The Issuer shall, as specified in
(ii) below, notify the Securityholders and Escrow Agent in
writing of the Current Market Price and the number of
Escrowed Shares from the Second Tranche claimed in respect
of each Securityholder.
(ii) For the purpose of this Agreement, the Current Market
Price for any date means the average of the closing price
of the Issuer's common shares during a period of twenty
(20) consecutive trading days ending five (5) trading days
before such date on a national securities exchange or the
Nasdaq National Market (in either case, a "National
Exchange"); provided, however, that if in the opinion of a
board of directors of the Issuer, the public distribution
or trading activity of the Issuer's common shares during
such period does not create a market which reflects the
fair market value of the Issuer's common shares, or the
Shares are not then listed for trading or quoted on a
National Exchange then the Current Market Price of the
Issuer's common shares shall be determined by the Issuer's
auditors, and provided further that any such determination
by the auditors shall be conclusive and binding.
The Escrowed Shares delivered to the Issuer in satisfaction
of a claim shall be allocated among the applicable
Securityholders so as to reduce each such Securityholder's
interest in the remaining Escrowed Shares in proportion to
their respective ownership percentages as set forth on
Exhibit A hereto. In the event that the Escrow Agent must
make payment with a number of Escrowed Shares less than or
different from the number of Shares represented by a
certificate in the escrow, the Escrow Agent shall
surrender such certificate to the Issuer or the transfer
agent and the Issuer shall deliver to the Escrow Agent
certificates of the Issuer's common shares identical in
form but for the number of Escrowed Shares as necessary to
allow for proper payment of the claim so long as the
number of Escrowed Shares of the new certificates plus the
amount of Escrowed Shares used to satisfy such claim shall
be equivalent to the total number of Escrowed Shares
covered by the surrendered certificate.
(c) (i) If the Securityholders or any of them shall dispute a claim
of the Issuer as provided above, the Escrow Agent shall set
aside a portion of such Securityholders' Escrowed Shares
sufficient to pay the Securityholder's percentage of said
claim in full as reasonably determined by the Escrow Agent
based on the valuation procedures in Subsection 7(b) above
(the "Set Aside Amount"). The Escrow Agent shall notify
the other parties hereto in writing of the Set Aside
Amount. The appropriate number of Escrowed Shares in the
Set Aside Amount shall be determined by the procedure
described in Section 7(b)(i) above.
(ii) If the disputed indemnification claim has not been resolved
or settled within fifteen (15) days after the Escrow
Agent's receipt of the Securityholder's notice of dispute
of the same, said indemnification claim shall be settled
by binding arbitration in accordance with the ARBITRATIONS
ACT (Ontario). In no event shall the Escrow Agent be
<PAGE>
responsible for any fee or expense of any party to any
arbitration proceeding. The determination of the
arbitrator as to the amount, if any, of the
indemnification claim which is properly allowable shall be
conclusive and binding upon the parties hereto and
judgment may be entered thereon in any court having
jurisdiction thereof, including, without limitation, any
court in the Province of Ontario. The arbitrator shall
have the authority in its discretion to award to the
prevailing party reasonable costs and expenses, including
attorney's fees and the cost of arbitration. The Escrow
Agent shall use its best efforts to make payment of such
claim, as and to the extent allowed, to the Issuer or out
of the Set Aside Amount as soon thereafter as possible.
(iii) Notwithstanding Section 7(c)(ii), if a disputed
indemnification claim has not been resolved or compromised
as of the date of termination of the Escrow Period, and
such claim does not involve a third-party claim or suit,
the Issuer and the applicable Securityholders shall
continue to negotiate in good faith a settlement of such
claims for a period of ten (10) days after the date of
termination of the Escrow Period. If, after the expiration
of such ten-day period, such indemnification claim still
has not been resolved or compromised, such claim shall be
settled in accordance with the arbitration provisions set
forth in Section 7(c)(ii).
(iv) It is understood and agreed that should any dispute arise
under this Section 7, the Escrow Agent, upon receipt of
written notice of such dispute or claim by any of the
Securityholders, is authorised and directed to retain in
its possession without liability to anyone, the Set Aside
Amount relating to such dispute until such dispute shall
have been settled pursuant to Section 7. The Escrow Agent
may, but shall be under no duty whatsoever to, institute
or defend any legal proceedings which relate to the
Escrowed Shares.
VIII. ALL VOTING RIGHTS ATTACHED TO THE ESCROWED SHARES 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.
IX. 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.
X. 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 Escrow Agent of this
escrow.
XI. (a) The Escrow Agent may, at the expense of the Issuer, employ or
retain such counsel or other experts or advisors as it
reasonably requires for the purpose of discharging its duties
hereunder and may pay reasonable remuneration for all services
so performed by any of them, without taxation of costs of any
counsel, and will not be responsible for any misconduct or
negligence on the part of any of them who has been selected with
due care by the Escrow Agent or for any actions taken by the
Escrow Agent in reliance on the advice provided.
(b) The Escrow Agent and its directors, officers, agents and employees
will at all times be jointly and severally indemnified and saved
harmless by the Issuer and the Securityholders from and against
all claims, demands, losses, actions, costs, charges, expenses,
damages and liabilities whatsoever arising in connection with
this Agreement, including, without limitation, those arising
<PAGE>
out of or related to actions taken or omitted to be taken by
the Escrow Agent contemplated hereby, legal fees and
disbursements on a solicitor and client basis, and costs and
expenses incurred in connection with the enforcement of this
indemnity, which the Escrow Agent may suffer or incur, whether
at law or in equity, in any way caused by or arising, directly
or indirectly, in respect of any act, deed, matter or thing
whatsoever made, done, acquiesced in or omitted in or about or
in relation to the execution of its duties as Escrow Agent and
including any deed, matter or thing in relations to the
registration, perfection, release or discharge of security. The
foregoing provisions of this Section do not apply to the extent
that in any circumstances there has been a failure by the
Escrow Agent or its employees or agents to act honestly and in
good faith or where the Escrow Agent or its employees or agents
have acted with negligence or in wilful disregard to the Escrow
Agent's obligations hereunder. The Escrow Agent shall not incur
any liability or responsibility whatsoever or be in any way
responsible for the consequence or any breach on the part of
the Issuer or Securityholders of any of the covenants herein
contained.
<PAGE>
XII. 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.
XIII. IF AT ANY TIME, A DISPUTE, OTHER THAN THAT CONTEMPLATED IN SECTION 7(C)
SHALL EXIST, OR THE ESCROW AGENT CONCLUDES IN ITS SOLE DISCRETION THAT
THERE IS A BONA FIDE QUESTION, CONFUSION OR DISPUTE, IN RESPECT TO THE
ESCROW AGENT'S DUTIES UNDER THIS AGREEMENT OR THE HOLDING OR DELIVERY
OF THE ESCROWED SHARES, THE ESCROW AGENT MAY, IN ITS SOLE DISCRETION,
DELIVER THE ESCROWED SHARES THEN REMAINING TO THE CLERK OF THE SUPERIOR
COURT OF JUSTICE OF ONTARIO AND INTERPLEAD EACH OF THE PARTIES TO THIS
AGREEMENT. UPON SO DELIVERING THE ESCROWED SHARES THEN REMAINING, AND
INTERPLEADING THE PARTIES, THE ESCROW AGENT SHALL BE RELEASED FROM ALL
OBLIGATIONS UNDER THE AGREEMENT.
XIV. THIS AGREEMENT MAY BE AMENDED ONLY UPON AGREEMENT BY THE ISSUER, THE
ESCROW AGENT AND THE SECURITYHOLDERS.
XV. THIS AGREEMENT MAY BE EXECUTED IN SEVERAL COUNTERPARTS IN THE SAME FORM
AND THE COUNTERPARTS 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.
XVI. THIS AGREEMENT TOGETHER WITH THE LOCK-UP AGREEMENT AND THE BUSINESS
COMBINATION AGREEMENT CONSTITUTE 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.
XVII. THIS AGREEMENT SHALL BE INTERPRETED IN ACCORDANCE WITH AND GOVERNED IN
ALL RESPECTS BY THE LAWS OF THE PROVINCE OF ONTARIO.
XVIII. ANY PROVISION OR 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.
<PAGE>
XIX. IN THIS AGREEMENT, THE TERM "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.
XX. IT IS ACKNOWLEDGED THAT FIFTY (50%) PERCENT OF THE LRC SHARES OR 50% OF
THE ESCROWED SHARES, DEPENDING ON TIMING, HELD BY SECURITYHOLDER COREN
TO BE ACQUIRED BY THE ISSUER PURSUANT TO THE OFFER WILL BE TRANSFERRED
TO SECURITYHOLDER RENA NATHANAIL PURSUANT TO A DIVORCE AGREEMENT, AT
WHICH TIME NATHANAIL SHALL BECOME A SECURITYHOLDER HEREUNDER. NATHANAIL
AGREES TO BE BOUND BY ALL OF THE TERMS AND OBLIGATIONS OF THIS
AGREEMENT.
XXI. 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:
in the case of MEII, to the following:
Med-Emerg International Inc.
2550 Argentia Road,
Suite 205
Mississauga, Ontario
L5N 5R1
Attention: The President
Facsimile: (905) 858-1399
in the case of LRC, to:
Laser Rejuvenation Clinics Ltd.
102 - 4616 Valiant Drive N.W.
Calgary, Alberta
T3A 0X9
Attention: The President
FAX No.: (403) 202-4069
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Fax No. (403) 260-3501
<PAGE>
in the case of Howard Coren, to:
Suite E101
Eau Claire Avenue S.W.
Calgary, Alberta
T2P 3R8
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Fax No. (403) 260-3501
in the case of Tom Woo, to:
Suite 401
2675 - 36th Street N.E.
Calgary, Alberta
T1Y 6H6
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Fax No. (403) 260-3501
in the case of Rena Nathanail, to:
147 Signal Ridge Link S.W.
Calgary, Alberta
T3H 2J8
with a copy to:
McCarthy Tetrault
Suite 3300, 421-7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Andrew Grasby
Fax No. (403) 260-3501
<PAGE>
in the case of the Escrow Agent, to:
Olympia Trust Company
2600, 700 - 9 Avenue S.W.
Calgary, Alberta
T2P 3V4
Attention: Manager, Client Services
Fax No. (403) 265-1455
Any such communication so given or made shall be deemed to have been given or
made and to have been received on the day of delivery if delivered, or on the
day of faxing or sending by other means of recorded electronic communication,
provided that such day in either event is a Business Day and the communication
is so delivered, faxed or sent before 4:30 p.m. (local time at place of receipt)
on such day, with a confirmation of receipt printed from the sender's machine.
Otherwise, such communication shall be deemed to have been given and made and to
have been received on the next following Business Day. Any such communication
sent by mail shall be deemed to have been given and made and to have been
received on the fifth Business Day following the mailing thereof, provided,
however, that no such communication shall be mailed during any actual or
apprehended disruption of postal services. Any such communication given or made
in any other manner shall be deemed to have been given or made or to have been
received only upon actual receipt.
XXII. 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 first above
written.
MED-EMERG INTERNATIONAL INC.
By: ------------------------
Name:
Title:
OLYMPIA TRUST COMPANY
By: ------------------------
Name:
Title:
By: ------------------------
Name:
Title:
- ---------------------------------- ------------------------------------
WITNESS HOWARD COREN
- ---------------------------------- ------------------------------------
WITNESS TOM WOO
- ---------------------------------- ------------------------------------
WITNESS RENA NATHANAIL
<PAGE>
Exhibit 5.1
May 1, 2000
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
1,645,844 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/ Gersten Savage & Kaplowitz, LLP
Gersten, Savage & Kaplowitz, LLP
<PAGE>
Exhibit 23.4
ACCOUNTANTS' CONSENT
To the Board of Directors of Med-Emerg International Inc.
We consent to the use of our audit report dated March 16, 2000 on the
consolidated balance sheets of Med-Emerg International Inc. as at December 31,
1999 and 1998 and the consolidated statements of operations and deficit and cash
flows for the years ended included herein and to the reference to our firm under
the heading "Experts" in the Form F-4.
/s/ Schwartz Levitsky Feldman, LLP
SCHWARTZ LEVITSKY FELDMAN, LLP
Toronto, Ontario, Canada
May 1, 2000
<PAGE>
Exhibit 23.5
ACCOUNTANTS' CONSENT
To the Board of Directors of Laser Rejuvenation Clinics Ltd.
We consent to the use of our audit report dated August 13, 1999 on the
consolidated balance sheets as at June 30, 1999 and 1998 and the consolidated
statements of operations and retained earnings (deficit) and cash flows for the
years ended included herein and to the reference to our firm under the heading
"Experts" in the Form F-4
/s/ KPMG, LLP
Chartered Accountants
Calgary, Canada
May 1, 2000
