SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999 Commission File Number 1-155
FIRST MEDICAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1920670
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1055 Washington Boulevard, Stamford, CT 06901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 327-0900
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 13, 1999
- ----------------------- ------------------------------
Common Stock, par value 9,567,292
$.001 per share
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Six Months Ended June 30, 1999 and 1998....................3
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998........................4
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) -
Six Months Ended June 30, 1999 and 1998....................5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998....................6
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........8-12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................12-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................13
Item 3. Defaults upon Senior Securities........................13-14
Item 6. Exhibits and Reports on Form 8-K.......................12-13
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 2,871 $ 2,701 $ 5,697 $ 5,465
Cost of revenue 2,179 2,509 4,406 4,646
------ ------ ------ ------
Income from clinic operations 692 192 1,291 819
Operating expenses:
Salaries and benefits 235 74 401 406
General and administrative 324 284 421 517
Depreciation and amortization 97 33 191 65
------ ------ ------ ------
Total operating expenses 656 391 1,013 988
Income (loss) from operations 36 (199) 278 (169)
Interest income (expense), net 18 (28) 20 (97)
------ ------ ------ ------
Income (loss) before income tax provision 54 (227) 298 (266)
Income tax provision (credit) (43) 165 139 327
------ ------ ------ ------
Income (loss) from continuing operations
before discontinued operations 97 (392) 159 (593)
Discontinued operations:
Income (loss) from operations of
discontinued physician management
and electrical supply division 225 (980) 450 (1,982)
Income on disposal of physician management
and electrical supply division -- 4,260 -- 3,669
------ ------ ------ ------
Income from discontinued operations 225 3,280 450 1,687
Cumulative effect of change in
accounting principle -- -- -- 970
------ ------ ------ ------
Net income $ 322 $ 2,888 $ 609 $ 124
Income per share - basic and diluted:
Income (loss) from continuing operations $ .01 $ (.04) $ .02 $ (.06)
Income from discontinued operations .02 .35 .04 .18
Cumulative effect of change in
accounting principle -- -- -- (.10)
------ ------ ------ ------
Income per share $ .03 $ .31 $ .06 $ .02
Weighted average number of common
shares outstanding-basic and diluted 9,567,292 9,448,292 9,567,292 9,422,651
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 520 $ 909
Accounts receivable, net of allowance
for doubtful accounts of $80,000
and $54,000 at June 30, 1999
and December 31, 1998, respectively 453 471
Inventories 103 117
Prepaid expenses and other current assets 540 164
-------- --------
Total current assets 1,616 1,661
Property and equipment, net 660 603
Deferred tax asset 658 577
Intangible assets, net 2,244 2,079
Other assets 77 72
-------- --------
TOTAL $ 5,255 $ 4,992
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 781 $ 852
Accrued expenses 1,340 1,085
Deferred revenue 521 689
Notes payable and accrued interest payable 1,359 1,359
Net liabilities of discontinued operations 620 981
-------- --------
Total current liabilities 4,620 4,966
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.001; authorized
shares 100,000,000; shares issued and
outstanding 9,567,292 at June 30, 1999
and December 31, 1998 10 10
Additional paid-in-capital 8,253 8,253
Accumulated deficit (7,628) (8,237)
-------- --------
Total shareholders' equity 635 26
-------- --------
TOTAL $ 5,255 $ 4,992
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Number of Common Additional Accumulated Shareholders'
Shares Stock Paid-in Capital (Deficit) Equity (Deficit)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 9,397,292 $ 9 $ 8,084 $ (9,147) $ (1,054)
Issuance of common stock 170,000 1 169 -- 170
Net income -- -- -- 124 124
--------- ---- ------- -------- --------
Balance, June 30, 1998 9,567,292 $ 10 $ 8,253 $ (9,023) $ (760)
========= ==== ======= ======== ========
Balance, December 31, 1998 9,567,292 $ 10 $ 8,253 $ (8,237) $ 26
Net income -- -- -- 609
--------- ---- ------- --------
Balance, June 30, 1999 9,567,292 $ 10 $ 8,253 $ (7,628) $ 635
========= ==== ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 609 $ 124
Adjustments to reconcile net income to
net cash used in continuing operating
activities:
Depreciation and amortization 191 65
Cumulative effect of change in accounting
principle -- 970
Noncash compensation -- 170
Increase in deferred tax asset ( 81) --
Increase in intangibles and other assets (263) (56)
(Decrease) increase in net liabilities
of discontinued operations (361) 1,179
Other changes, net (330) 853
------- -------
Net cash provide by (used in) continuing operating
activities (235) 3,305
Capital expenditures (154) ( 9)
Repayment of loan payables and others -- (2,735)
------- -------
(Decrease) increase in cash and cash equivalents (389) 561
Cash and cash equivalents, beginning of year 909 1,421
------- -------
Cash and cash equivalents, end of the period $ 520 $ 1,982
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The financial information for the three months and six months ended June 30,
1999 and 1998 is unaudited. However, the information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for the fair statement of results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in First Medical Group, Inc.'s (the "Company") December 31, 1998
Report on Form-10-K.
The results of operations for the three month and six month period ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
2. EARNINGS PER SHARE
Earnings (loss) per common share is calculated by dividing net income (loss) by
weighted average number of common shares for the period. Dilutive earnings per
share reflect, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options and other stock
equivalents. For the periods presented, there were no common stock equivalents
included in the calculation, since they would be anti-dilutive.
3. SUPPLEMENTARY SCHEDULE
1999 1998
(in thousands)
--------------
Cash paid during the six months
ended June 30, for:
Interest $ -- $ 52
Income taxes 100 327
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
GENERAL
Statements made in this filing about management's intentions, hopes,
beliefs, expectations or predictions of the future are forward-looking
statements. It is important to note that actual results could differ materially
from those projected in such forward-looking statements. Factors that could
cause future results to vary materially from current expectations include, but
are not limited to competition in the health care industry, legislation and
regulatory changes, changes in the economy and stability in the international
markets in which the Company operates.
Financial Condition
CASH AND CASH EQUIVALENTS. At June 30, 1999, the Company had cash of $ 520,000
as compared to $ 909,000 at December 31, 1998. The decrease in cash and cash
equivalents relates primarily to $320,000 of payments made by the Company
relating to prepaid rent on the new Moscow clinic facility . The new facility is
scheduled to open in the fourth quarter of 1999.
PREPAID EXPENSES AND OTHER CURRENT ASSETS. Prepaid expenses and other current
assets at June 30, 1999 was $525,000 as compared to $164,000 at December 31,
1998. The increase in prepaid expenses and other current assets of $361,000
relates mainly to prepaid rent deposits of $320,000 made by the Company in
connection with the construction of the new Moscow facility.
INTANGIBLE ASSETS. Intangible assets at June 30, 1999 was $2.2 million as
compared to $2.1 million at December 31, 1998. The increase relates primarily to
a non-compete agreement entered into with a former employee of the Company
amounting to approximately $258,000. This amount is being amortized over a
period of five (5) years.
NET LIABILITIES OF DISCONTINUED OPERATIONS. Net liabilities of discontinued
operations at June 30, 1999 was $620,000 as compared to $981,000 at December 31,
1998. The decrease in net liabilities is due to the settlement of certain claims
relating to discontinued operations which occurred during the first six months
of 1999.
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<PAGE>
Results of Operations
Second Quarter of 1999 in Comparison
with Second Quarter of 1998
REVENUE. Total revenue of the Company for the three months ended June 30,
1999 and 1998 was $2.9 million and $2.7 million, respectively, an increase of
6%. Patient and dental visits for the three months ended June 30, 1999 were
4,932 and 1,112 respectively, as compared to 5,614 and 1,154 for the three
months ended June 30, 1998. This represents a decrease of 682 patient visits or
12.2% and 32 dental visits or 2.8%, for the second quarter of 1999 as compared
to the second quarter of 1998. This decrease is primarily attributable to the
Company's outdated facility in Moscow, Russia. As a result, the Company is in
the process of constructing a new inpatient/outpatient facility in Moscow. These
decreases were offset by an increase of approximately 3% in average patient per
diem charged for medical and dental services in 1999. Included in revenues for
the three months ended June 30, 1999 was $254,000 relating to reimbursement of
legal fees and other expenses paid on behalf of the Hospital Corporation
International, Ltd. and American Medical Centers, Inc. litigation.
COST OF REVENUES. Cost of revenues for the three months ended June 30, 1999
and 1998 was $2.2 million and $ 2.5 million, a decrease of $330,000 or 13%,
respectively. Cost of revenues as a percentage of revenue, was 76% and 93% for
the three months ended June 30, 1998 and 1997, respectively. The decrease
relates to a reduction of staffing levels as a result of the decrease in visits.
OPERATING EXPENSES. Operating expenses for the Company were $656,000 during
the three months ended June 30, 1999 as compared to $ 391,000 in 1998, an
increase of $265,000 or 68%. Operating expenses as a percentage of revenue was
23% in 1999 as compared to 14% in 1997. Included in operating expenses for the
three months ended June 30, 1999 was approximately $43,000 of additional salary
expense incurred in connection with the construction of the new facility and
$26,000 of additional amortization expense relating to the amortization of the
non-compete agreement.
INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued operations
for the three months ended June 30, 1999 was $225,000 as compared to income of
$3.3 million for the three months ended June 30, 1998. Included in income from
discontinued operations for the three months ended June 30, 1998 was a gain of
$4.3 million resulting from the sale of the Florida physician practice
management operations.
NET INCOME. Net income for the three months ended June 30, 1999 was
$322,000 as compared to $ 2.9 million in the second quarter of 1998 due
primarily to the gain on sale of the Florida managed care operations of $4.3
million offset by the losses of $ 1.0 million incurred in connection with
discontinued operations during the second quarter of 1998.
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<PAGE>
Results of Operations
First Half of 1999 in Comparision
with First Half of 1998
REVENUE. Total revenue of the Company for the six months ended June 30,
1999 and 1998 was $5.7 million and $5.5 million, respectively, an increase of
4%. Patient and dental visits for the six months ended June 30, 1999 were 9,993
and 2,132 respectively, as compared to 11,017 and 2,244 for the six months ended
June 30, 1998. This represents a decrease of 1,024 patient visits or 9.3% and
112 dental visits or 5%, for the first half of 1999 as compared to the first
half of 1998. This decrease is primarily attributable to the Company's outdated
facility in Moscow, Russia. As a result, the Company is in the process of
constructing a new inpatient/outpatient facility in Moscow. These decreases were
offset by an increase of approximately 3% in average patient per diem charged
for medical and dental services in 1999. Included in revenues for the six months
ended June 30, 1999 was $254,000 relating to reimbursement of legal fees and
other expenses paid on behalf of the Hospital Corporation International, Ltd.
and American Medical Centers, Inc. litigation.
COST OF REVENUES. Cost of revenues for the six months ended June 30, 1999
and 1998 was $4.4 million and $4.6 million, a decrease of $240,000 or 5%,
respectively. Cost of revenues as a percentage of revenue, was 77% and 85% for
the six months ended June 30, 1999 and 1998, respectively.
OPERATING EXPENSES. Operating expenses for the Company were $1,013,000
during the six months ended June 30, 1999 as compared to $ 988,000 in 1998, an
increase of $25,000 or 3%. Operating expenses as a percentage of revenue was 18%
in 1999 and 1998.
INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued operations
for the six months ended June 30, 1999 was $450,000 as compared to a $1.7
million for the six months ended June 30, 1998. The income form discontinued
operations for the six months ended June 30, 1999 relates primarily to the
settlement of certain claims relating to discontinued operations. Included in
income from discontinued operations for the six months ended June 30, 1998 was a
net gain of $3.7 million resulting from the sale of the Florida physician
practice management and electrical supply business.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. The cumulative
effect of a change in accounting principle of $ 970,000 reflected in the
consolidated statement of operations during the six months ended June 30, 1998
relates to the write-off of start-up costs of certain operations pursuant to
Statement of Position 98-5.
NET INCOME. Net income for the six months ended June 30, 1999 was $ 609,000
as compared to $124,000 for the six months ended June 30, 1998 due primarily to
the factors noted above.
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<PAGE>
Liquidity and Capital Resources
The working capital of the Company as of June 30, 1999 is at a deficit of
$3.0 million as compared to $3.3 million as of December 31, 1998. The decrease
in the deficit of $301,000 relates primarily to the obligation incurred by the
Company in the amount of $258,000 relating to the non-compete offset by the
reduction of net liabilities of discontinued operations resulting from the
settlement of cetain claims. Included in the working capital deficit as of June
30, 1999 are the notes payable and accrued interest of approximately $1.3
million of which the Company is unable to locate the note holders. The Company
intends to reduce such deficit by raising additional funds from current
stockholders and other related parties.
The Company is in default on the payment of interest (approximately
$969,000 interest was past due as of June 30, 1999) on the $390,000 aggregate
principal amount of its 13 1/2 % Senior Subordinated Notes due May 15, 1998 ("13
1/2 % Notes") and 14 7/8% Subordinated Debentures due October 15, 1995, ("14
7/8% Debentures") that remain outstanding and were not surrendered to the
Company in connection with its financial restructuring consummated in 1991. The
Company has been unable to locate the holders of the 13 1/2% Notes and 14 7/8%
Debentures (with the exception of certain of the 14 7/8% Debentures, which were
retired during 1996). The Company believes that any claim for payment of
interest on these securities is precluded by the applicable statute of
limitations. The Company is currently reviewing the legal status of the matter
to determine its obligations, if any, given that the note holders cannot be
located.
Subsequent to June 30, 1999, the Company intends to enter into agreements
to raise $1 million to $1.5 million from current stockholders and other related
parties, of which $500,000 was advanced to the Company August 12, 1999. The
funds raised will be used to complete the American Hospital of Moscow Annex, the
Company's new medical facility in Moscow, Russia. In addition, the Company
intends to engage an investment bank to assist it in raising an additional $10
million to facilitate the Company's business plan.
Year 2000
The Company is aware of the issues related with the computer systems that
could be affected by the "Year 2000." The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. This could cause those systems to process and record
information incorrectly or possibly fail to function in the year 2000.
The Company primarily uses general business applications on a PC-based
system that are licensed by the same vendor. These applications are Year 2000
compliant. Should such systems not be fully functional, the Company believes
that reasonable manual alternatives are available to produce such data. The
Company believes that such cost to perform these tasks are not considered to be
material. The Company is in the process of testing a new billing and scheduling
system for its clinic operations. The Company expects to install this new
program during the fourth quarter of 1999. Such system is Year 2000 compliant.
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<PAGE>
The Company is in the process of identifying those vendors that it relies
on to supply diagnostic test results relating to patient testing and to a small
group of third-party payors. The Company is in the process of sending inquires
to these vendors and third-party payors to ascertain compliance. If such vendors
do not reply or cannot provide Year 2000 compliant services, the Company may
need to locate alternative sources for goods and services.
The Company believes that the most reasonably likely worse case scenario
with respect to the Year 2000 issues is the possibility that medical equipment
and systems used to diagnosis patients will result in the Company experiencing
difficulty in providing proper treatment to patients. In addition, the Company
also deals with numerous client customers and insurance companies and such Year
2000 issues may result in delays in payment to the Company for services rendered
which could adversely affect the Company's results of operations and liquidity.
The Company believes that it is taking reasonable and adequate measures to
address Year 2000 issues. However, there can be no assurance that the Company's
information systems, medical equipment and other systems will be Year 2000
compliant by December 31, 1999, or that suppliers and third-party insurance
payors are, or will be Year 2000 compliant, or that the cost required to address
the Year 2000 issue will not have a material adverse effect on the Company's
business, financial condition or results of operations.The Company's clinic
operations are located in Eastern European countries. To the extent that the
Year 2000 problems affect the Company's ability to provide adequate patient
care, the Company may cease providing such services to patients. In addition,
failures of the banking system, basic utility providers, telecommunication
providers and other services as a result of Year 2000 problems, could have a
material adverse effect on the ability of the Company to conduct its business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the quantitative and qualitative
disclosures about market risk since December 31, 1998.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1. On September 16, 1998, The Lehigh Group, Inc., now known as First Medical
Group, Inc. was sued along with other defendants in the United States
District Court of Northern Ohio Western Division pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act. The
plaintiffs have alleged that the Company is the successor-in-interest to
the Hilfinger Corporation (a defunct subsidiary of the Company) and claim
that the Hilfinger Corporation arranged for the disposal or treatment of
waste chemicals at one or more sites. The Company disputes that it is
such successor-in-interest. The plaintiffs are seeking damages, jointly
and severally, against the defendants in excess of $25 million. The
occurrence was alleged to have taken place during the period of 1950
through 1972. The Company has put several insurance carriers on notice of
this matter, however no determination has been made regarding whether
there is insurance coverage. The Company has retained counsel in Ohio to
defend this claim.
On or about January 7, 1999, the United States Environmental Protection
Agency ("USEPA") forwarded a demand to the Company and the other
defendants for payment of USEPA'S response costs at the various landfills
in an aggregate amount of approximately $792,000. A tolling agreement was
entered between USEPA and the Company, and other parties to toll the
statute of limitations until August 1, 1999 to allow the parties to
negotiate a settlement. The demand asserts that the liability of the
Company is joint and several. To date, to the knowledge of the Company's
counsel handling this matter, no court action has been instituted by
USEPA against the Company with respect to this matter. The Company
believes that it has no liability with respect to this matter. However,
if this matter is adversely determined, it could have a material adverse
effect on the Company's financial condition.
2. On or about June 26, 1998, the Company was sued in the United States
District Court for the Southern District of Florida by plaintiffs who
seek damages in connection with the sale of stock in Dominion Healthnet,
Inc. The plaintiffs claim they are entitled to this amount based upon a
buy-out agreement the plaintiffs entered into with First Medical
Corporation (a subsidiary of the Company) when the plaintiffs sold their
interest in Dominion Healthnet, Inc., to First Medical Corporation.
Subsequent to June 30, 1999, the Company has reached an agreement with
the plaintiffs to settle this claim for $165,000.
3. In 1998 a claim was asserted against the Company by former consultants to
the Company alleging the Company's obligation to pay approximately
$50,000 and provide further consulting contracts to the complaintants.
The Company does not believe that the final resolution of this claim will
have any material adverse effect on the Company's financial condition.
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<PAGE>
4. In 1998, a number of former employees of the Company and its affiliates
presented claims against the Company in State Court, Miami, Florida,
claiming in excess of $300,000 for vacation and sick pay, together with
benefits and attorneys' fees. The Company has settled with the majority
of the plaintiffs for approximately $30,000.
Item 3. Defaults Upon Senior Securities
The Company continues to be in default in the payment of interest (approximately
$969,000 interest is past due as of June 30, 1999) on the $390,000 principal
amount of 131/2% Notes and 14 7/8% Debentures.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1999.
EXHIBITS
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3.1 Restated Certificate of Incorporation and Amendments thereto
(incorporated by reference to the Registrant's Annual Report on Form 10-K
filed on April 16, 1998).
3.2 Certificate of Amendment to Restated Certificate of Incorporation dated
November 12, 1997 (incorporated by reference to the Registrant's Proxy
Statement dated October 29, 1997).
3.3 Form of Certificate of Designation of the Series A Convertible Preferred
Stock (incorporated by reference to Appendix B of the Registrant's Proxy
Statement contained in Pre-Effective Amendment No. 5 to the Registrant
Registration Statement on Form S-1 (previously Form S-4) dated June 26,
1997).
3.4 Amended and Restated By-Laws of the Registrant, as amended to date
(incorporated by reference to Exhibit 3 (ii) to the Registrant's Current
Report on Form 8-K dated July 17, 1996).
4.1 Form of Indenture, dated as of October 15, 1985, among Registrant, NICO,
Inc. and J. Henry Schroder Bank & Trust the Registrant, as Trustee,
including therein the form of the subordinated debentures to which such
Indenture relates (incorporated by reference to Exhibit 4 (a) to the
Registrant's Current Report on Form 8-K dated November 7, 1985).
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<PAGE>
4.2 Amendment to Indenture dated as of March 14, 1991 (incorporated by
reference to Exhibit (b) (2) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990).
4.3 Indenture dated as of March 15, 1991 (the "Class B Note Indenture") among
the Registrant, NICO, the guarantors signatory thereto, and Continental
Stock Transfer and Trust the Registrant, as Trustee, to which the 8%
Class B Senior Secured Redeemable Notes due March 15, 1999 of NICO were
issued together with the form of such Notes (incorporated by reference to
Exhibit 4 (i) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
4.4 First Supplemental Indenture dated as of May 5, 1993 between NICO and
Continental Stock Transfer & Trust the Registrant, as trustee under the
Class B Note Indenture (incorporated by reference to Exhibit 4 (h) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993).
4.5 Form of indenture between the Registrant, NICO and Shawmut Bank, N.A., as
Trustee, including therein the form of Senior Subordinated Note due April
15, 1998 (incorporated by reference to Exhibit 4 (b) to Amendment No. 2
to the Registrant's Registration Statement on Form S-2 dated May 13,
1988).
10.0 Employment Agreement, dated as of April 1, 1999, by and between American
Medical Centers Management Company, Ltd. and George D. Rountree.
11.0 Statement re: computation of per share earnings (incorporated herein by
reference to the notes to consolidated financial statements).
27.0 Financial Data Schedule
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST MEDICAL GROUP, INC.
By: /s/ Elias M. Nemnom
------------------------------
Elias M. Nemnom
Senior Vice President and
Chief Financial Officer
Dated: August 13, 1999
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<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of April 1,
1999, is made and entered into by and between AMERICAN MEDICAL CENTERS
MANAGEMENT COMPANY, LTD. ("AMCMC"), an international business company organized
under the laws of the British Virgin Islands (AMCMC shall also be referred to
from time to time herein as the "Employer"), and George D. Rountree, an
individual residing at Siraci Sok, Istanbul Turkey (the "Executive").
WHEREAS, the Employer desires to employ the Executive, and the
Executive desires to accept such employment, in the capacity and on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties agree as follows:
1. EMPLOYMENT. The Employer shall employ the Executive, and the
Executive hereby accepts such employment as the Chief Executive Officer of
AMCMC. In addition, the Employer shall serve, effective April 1, 1999, as the
President and Chief Operating Officer of AMCMC's parent, First Medical Group,
Inc., a Delaware corporation ("FMG"). Except as otherwise provided in Section 7,
the Executive is employed with the Employer and FMG "at will," which means that,
subject to said Section 7, the Employer or FMG is free to terminate the
Executive's employment with cause and the Executive is free to resign from the
Employer or FMG at any time, in each case with written notice as provided in
Section 7 hereof.
2. TERM OF EMPLOYMENT AND RENEWALS. The Executive's employment
hereunder shall become effective as of April 15, 1999 (the "Effective Date"),
and shall continue until the three (3) year anniversary of the Effective Date
(the "Term"), subject to the provisions for earlier termination provided in
Section 7 herein. Notwithstanding the foregoing, effective on the third
anniversary of the Effective Date (and each anniversary of such date
thereafter), the term of this Agreement as then in effect shall be automatically
extended for an additional one (1) year unless, at least three (3) months prior
to such date, the Employer or the Executive shall give written notice to the
other party that it or he, as the case may be, in its or his sole discretion,
does not wish to so extend the term of this Agreement.
3. DUTIES OF THE EXECUTIVE. During the Term, the Executive shall have
all duties and responsibilities customarily associated with the positions of
Chief Executive Officer of AMCMC and President and Chief Operating Officer of
FMG, subject to the
<PAGE>
other sections of this Agreement. The Executive will work in an executive
capacity and will report to the Board of Directors of AMCMC and FMG,
respectively, (collectively the "Boards") and/or to any other individual member
or members of the Boards designated from time to time by such Boards. The
Executive will assist the Boards in charting the strategic goals of AMCMC and
FMG. The Executive shall be vested with such powers as the Boards may assign to
him from time to time. The Executive agrees that he shall at all times, during
business hours, faithfully, industriously, and to the best of his ability,
experience and talents, perform all duties as may be lawfully, reasonably and
ethically assigned to him from time to time by the Boards under this Agreement,
including by illustration and not limitation, being Chief Executive Officer of
all FMG operations in Europe and Middle Asia and being Chief Operating Officer
of FMG.
Furthermore, the Executive agrees that he shall at all time observe all
rules and policies as the Employer or FMG may from time to time reasonably
establish. The Executive shall devote substantially all of his business time and
attention to the business affairs of AMCMC and FMG and shall use his reasonable
best efforts to perform such duties and responsibilities faithfully and
efficiently. The Executive shall travel as the Employer or FMG reasonably may
require; provided, however, that, in general, the Executive will perform his
services hereunder in the Employer's offices in Istanbul, Turkey.
4. COMPENSATION. The Employer shall compensate the Executive as
follows:
(A) COMPENSATION. For the duration of this Agreement, the Employer
shall pay to the Executive a base salary ("Base Compensation") of $175,000 per
year. In 1999, Base Compensation shall be payable (I) during the period April
15,1999 through June 30, 1999, at the rate of $4,000 per month (prorated for any
portion of a calendar month) and (ii) for the period July 1, 1999 through
December 31, 1999, at the rate of $14,583.33 per calendar month. Thereafter, the
Base Compensation shall be payable in equal amounts each month on an annualized
basis in accordance with the Employer's customary practices for its employees.
(B) START-UP BONUS. The Executive shall be entitled to a start-up bonus
not to exceed $100,000. The first $10,000 shall be payable to the Executive on
April 15, 1999. Payment of the remaining $90,000 to the Executive shall be
contingent on the Executive's continued employment with the Employer and there
existing no event of Cause (as defined in Section 7 below) for the removal of
the Executive. Subject to the foregoing, the remaining $90,000 shall be payable
as follows: $40,000 payable on July 1, 1999 and $25,000 payable on October 1,
1999 and $25,000 payable on January 1, 2000.
2
<PAGE>
(C) STOCK OPTIONS. Promptly after the Effective Date, the Executive
will be granted 25,000 options for the purchase of FMG Common Stock with the
opportunity to earn (and/or purchase) more as the company expands and increases
it financial position. These stock options shall be granted to the Executive in
lieu of paying matching funds for a retirement/pension plan of the Employer or
FMG.
5. EXECUTIVE BENEFITS. The Executive shall receive the following
benefits:
(A) IN GENERAL. During the Term, the Executive shall be eligible to
receive such perquisites and to participate in such employee benefit plans that
the Employer or FMG may provide to the Executive, including but not limited to,
the Employer's life, short-term and long-term disability, health and dental
insurance plans; subject in each case to the generally applicable terms and
conditions of the plan or program in question and to the determinations of any
person or committee administering such plan or program.
(B) BUSINESS EXPENSES. The Executive is authorized to incur reasonable
expenses in order to promote the business of the Employer or FMG, including,
without limitation, for travel, lodging and entertainment. The Executive shall
maintain adequate records of such expenses (to the extent in excess of $75.00).
The Employer or FMG shall reimburse the Executive, upon presentation by the
Executive of an itemized account of such expenditures, to the extent consistent
with the Employer's or FMG's policies. The Executive will repay to the Employer
or FMG the amount of any expenses, if any, for which he has been reimbursed,
which are personal in nature and not for business purposes.
(C) PAID HOLIDAYS AND VACATION. The Executive shall be entitled to take
paid holidays as specified by the Employer from time to time for all of the
Employer's employees and twenty (20) working days of vacation time during which
time the Executive's Base Compensation shall be paid to him. The Executive shall
determine his vacation periods consistent with the Employer's needs.
(D) AUTOMOBILE. To facilitate the performance of the Executive's
responsibilities hereunder, the Employer shall, during the term of the
Executive's employment, pay to employee $200.00 a month to be applied by the
Executive toward the cost of operating, maintaining and garaging his automobile
and other such related costs.
3
<PAGE>
(E) HOUSING. At an agreed time during the Term, the Executive shall be
entitled to a housing allowance as may be mutually agreed to be applied to the
cost of maintaining a domicile for the Executive.
6. EXECUTIVE'S COVENANTS.
(A) NON-COMPETE. During the term of the Executive's employment, and for
a period of one (1) year thereafter, the Executive shall not, either directly or
indirectly, for his own account or as agent, servant or employee, or as a
controlling shareholder, general partner, or director of any corporation,
compete with the business of the Employer or FMG in the acquisition,
organization, management and/or provision of medical or dental health care
services ("Competitive Activity"). This covenant does not have a geographic
restriction because the Executive, the Employer and FMG agree that due to the
nature of the Employer's and FMG's business throughout Europe, the United States
and Middle Asia, the location of any person engaging in a Competing Activity is
irrelevant to the Executive's ability to injure the Employer or FMG through his
association with such entity.
(B) TRADE SECRETS. The Executive recognizes that the Employer and/or
FMG have acquired and developed and will continue to acquire and develop
confidential information and trade secrets which are and will continue to be of
great and unique value to the Employer and/or FMG and which are now or will be
used in the Employer's and/or FMG's business including, without limitation,
information and data regarding the Employer's and/or FMG's pricing, products,
vendors, customers, patients and employees, marketing strategies, and financial
information (hereinafter singly or collectively referred to as "Trade Secrets").
The Trade Secrets heretofore and hereafter learned or received by the Executive
shall be kept and maintained by him as confidential and in complete secrecy, and
for the sole use and benefit of the Employer and/or FMG, as the case may be, and
the Executive shall not disclose to any third party any of such Trade Secrets at
any time during or after his employment hereunder; provided, however, that any
such Trade Secrets may be disclosed by the Executive (a) if they cease to
qualify as trade secrets under applicable law or have become known by the
public, or (b) as required by law. The Executive will use all reasonable
measures to prevent the unauthorized use or disclosure of Trade Secrets by
others. These measures include strict compliance with all procedures developed
by the Employer and/or FMG to protect such information.
(C) OUTSIDE ACTIVITIES. The Executive shall use his best efforts to
apprise and review with the Boards, within a reasonable time prior to
dissemination, the text of any speech, professional paper, article or similar
formal communication created by the Executive which relates to the Employer's
and/or FMG's present or future
4
<PAGE>
business, development or marketing endeavors. The Executive shall use his best
efforts not to make public statements regarding issues of corporate policy or
public policy inconsistent with positions of the Employer and/or FMG. The Boards
will determine whether any Trade Secrets are contained in the communication, and
will notify the Executive if the dissemination of the communication is
prohibited under the terms of this Agreement.
(D) OWNERSHIP OF TRADE SECRETS; RETURN OF MATERIALS. Trade Secrets,
including those which are produced by the Employer and/or FMG, all materials
embodying Trade Secrets, and all copies thereof, will remain the property of the
Employer and/or FMG, as the case may be. At the termination of the Executive's
employment with the Employer and/or FMG, or at the written request of the
Employer and/or FMG, at any time, the Executive will immediately deliver to the
Employer and/or FMG, as the case may be, all materials, and copies thereof,
which are in the Executive's possession or control and which contain or are
related in any way to any Trade Secrets.
(E) NON-SOLICITATION. During the term of the Executive's employment,
and for period of one (1) year thereafter, the Executive will not, directly or
indirectly, solicit or contact any employee of the Employer and/or FMG who
remains employed by the Employer and/or FMG, as the case may be, at the time of
the Executive's termination of employment with the Employer (or any employee of
the Employer at an equivalent level of seniority who is employed at the time of
the Executive's termination of employment with the Employer) with a view to
inducing or encouraging such employee to leave the employ of the Employer or FMG
for the purpose of being hired by the Executive, an employer affiliated with the
Executive or any person engaged in a Competitive Activity.
(F) PRE-EXISTING OBLIGATIONS. The Executive hereby represents that the
Executive is not bound by any prior agreements or obligations that would
restrict in any way the Executive's entitlement to enter into this Agreement
with the Employer and/or FMG. The Executive represents that the Executive has
disclosed to the Employer and FMG the existence and contents of all covenants
not to compete that the Executive has entered into with any other entity. The
Executive's continuing active role as Advisor to the American Hospital of
Istanbul and as a member of the American Hospital Executive Committee of the
Vehbi Koc Foundation has been fully disclosed to the Employer and to FMG and it
is agreed by Employer and FMG that these activities are complementary and not
competing with the functions and activities of FMG and the Employer.
(G) ASSIGNMENT OF PROPRIETARY RIGHTS. The Executive agrees that any and
all proprietary rights and intellectual property, including without limitation,
trade
5
<PAGE>
names, trademarks, service marks and brand names, conceived, discovered or
created by him during the Term, directly or indirectly related to any business
or activity in which the Executive is engaged at the time of such conception,
discovery or creation, shall belong to the Employer and/or FMG, as the case may
be. The Executive shall, upon request while employed or after termination of his
employment, without cost to himself execute any and all copyright and trademark
applications and/or assignments transferring any rights the Executive may have
in such intellectual property to the Employer and/or FMG, as the case may be. At
the Employer's expense, the Executive shall do all other things requested by the
Employer to perfect the Employer's and/or FMG's right in all such proprietary
rights and/or intellectual property.
7. TERMINATION OF EMPLOYMENT. Termination of the Executive's employment
may occur under any of the following circumstances:
(A) Expiration of Term. The Executive's employment will terminate if
the Term provided for under Section 2 expires upon the election of either party
not to renew the term.
(B) The Employer's or FMG's Termination of Employment. The Employer or
FMG has the right to terminate the Executive's employment at any time, with
Cause. In the case of termination of the Executive with Cause, the Employer or
FMG, as the case may be, shall provide the Executive with sixty (60) days prior
written notice. For all purposes under this Agreement, "Cause" shall mean:
(i) a material and willful breach by the Executive of his
obligations under this Agreement, and, if such breach is capable of
being cured, the failure of the Executive to cure such breach within
ten (10) days of notice thereof from the Employer or FMG to the
Executive;
(ii) a willful misconduct by the Executive with respect to the
business or affairs of the Employer or FMG which has a material adverse
effect on the Employer, FMG or their respective businesses;
(iii) the conviction of the Executive of, or a plea of
"guilty" or "no contest" to, a felony or other crime involving moral
turpitude; or
(iv) a material breach of any duty owed to the Employer or
FMG, including the duty of loyalty and the provisions contained in
Section 6 hereof.
6
<PAGE>
No act, or failure to act, by the Executive or the Employer shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was lawful and in the Employer's best
interest.
(C) THE EXECUTIVE'S TERMINATION OF EMPLOYMENT. The Executive has the
right to terminate the Executive's employment with the Employer at any time,
with or without cause. The Executive agrees to provide sixty (60) days' prior
written notice of termination to the Employer. The Employer may in its sole
discretion select any date prior to the end of such sixty (60) day notice period
as the date the Executive's employment will terminate.
(D) DEATH OR DISABILITY. The Executive's employment shall be deemed to
have been terminated by the Executive upon the Executive's death or inability to
perform the Executive's duties under this Agreement for more than fifteen (15)
weeks, whether or not consecutive, in any twelve-month period. Termination will
be effective upon the occurrence of such event.
(E) ACCRUED COMPENSATION. Upon the effective date of the Executive's
voluntary termination of employment or the termination by the Employer for cause
of Executive's employment with the Employer (the "Termination Date"), the
Executive will not be eligible for further compensation, benefits or perquisites
under Sections 4 and 5 of this Agreement, other than those that have already
accrued, such accrued compensation to be delivered to the Executive within ten
(10) business days of the Termination Date. Upon the effective date of
termination of the Executive's employment for any other reason (the "Termination
Date"), the Executive shall be eligible to receive severance pay in an amount
not less than an amount equivalent to one (1) month's salary for every one (1)
year of service, such lump sum to be paid to the Executive within ten (10) days
of Termination Date.
8. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its principles of conflicts of law or choice of law.
9. NO ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, representatives,
successors and assigns. The Employer shall use its best efforts to assign this
Agreement to, and to cause its assumption by, any successor to all or
substantially all of the assets of the Employer. The Executive may not assign
this Agreement, either voluntarily or involuntarily.
7
<PAGE>
10. CHANGES AND MODIFICATIONS. This Agreement cannot be changed or
modified except in writing duly signed by the Executive and the Employer.
11. NOTICES. Any and all notices and other communications provided for
herein shall be given in writing and either mailed by certified mail, postage
prepaid, return receipt requested, or by overnight delivery service, and shall
be addressed:
(i) in the case of the Executive, to him at his above-stated
address.
(ii) in the case of the Employer, to Stamford, Connecticut,
Attention: Dennis A. Sokol, with a copy thereof to Patton Boggs LLP,
2550 M Street, N.W., Washington, DC 20037, Attn: John H. Vogel, Esq.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and accord between the parties relating to the subject hereof.
13. SEVERABILITY. If any provision of this Agreement or any portion of
such provision, or the application thereof to any of the parties hereto, shall
to any extent be held invalid or unenforceable, the remainder of this Agreement
or the remainder of such provision and the application thereof to such party,
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
14. WAIVER. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which is deemed to be an original, and all of which,
together, will constitute one and the same instrument.
16. CAPTIONS. The captions of the Sections of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed and the Executive has signed and dated this Agreement.
AMERICAN MEDICAL CENTERS
MANAGEMENT COMPANY, LTD.
Date: By: /s/ Dennis A. Sokol
--------------- ----------------------------
Name: Dennis A. Sokol
Title: Chairman
Date: /s/ George D. Rountree
--------------- ----------------------------
George D. Rountree
ACKNOWLEDGED and Accepted with respect solely to the provisions of
sections 1, 2, 3, 4(C), 5, 6, 7 and 8 of the foregoing Agreement.
FIRST MEDICAL GROUP, INC.
By: /s/ Dennis A. Sokol
----------------------------
Name: Dennis A. Sokol
Title: Chairman
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-Q FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000058526
<NAME> First Medical Group, Inc.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 520
<SECURITIES> 0
<RECEIVABLES> 533
<ALLOWANCES> 80
<INVENTORY> 103
<CURRENT-ASSETS> 1,616
<PP&E> 1,571
<DEPRECIATION> 911
<TOTAL-ASSETS> 5,255
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0
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<COMMON> 10
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<TOTAL-LIABILITY-AND-EQUITY> 5,255
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</TABLE>
