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SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/X/ Definitive Information Statement
FIRST MEDICAL GROUP, INC.
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FIRST MEDICAL GROUP, INC.
1055 Washington Boulevard, Stamford, CT 06901
(203) 327-0900
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished by First Medical Group, Inc., a
Delaware corporation, to holders of shares of its common stock, par value
$.001. The holders of approximately 52% of our outstanding common stock
intend to consent in writing to the sale to AMCMC Acquisition Corp., a
British Virgin Islands corporation, of substantially all of our assets,
consisting of all of the shares of ten companies owned by us directly or
through one of our wholly-owned subsidiaries, pursuant to an Asset Purchase
Agreement, dated as of January 31, 2000, by and between First Medical Group,
Inc. and AMCMC Acquisition Corp. The consideration to be paid by AMCMC
Acquisition Corp. under the Asset Purchase Agreement is equal to a cash
payment of $700,000 and an assumption of $1,249,617 of First Medical Group's
liabilities (as at December 31, 1999) and the surrender of 5,728,260 shares
of our stock valued as of January 31, 2000 at $.125 per share or an aggregate
of $716,033. AMCMC Acquisition Corp. is controlled indirectly by Mr. Dennis
A. Sokol, our Chairman of the Board and Chief Executive Officer and other
current shareholders of First Medical Group. The shares surrendered in the
proposed sale will be those owned by shareholders having a direct or indirect
interest in AMCMC Acquisition Corp. As part of the proposed sale, Crasvitsa,
Ltd., a British Virgin Islands corporation, will assume liabilities as at
December 31, 1999 in the amount of $934,384 for notes payable and accrued
interest. After the proposed sale in completed, we will be left with cash
assets of approximately $700,000, and liabilities of $451,155.
This Information Statement is first being mailed to stockholders on or about
February 14, 2000, and it is accompanied by a Form 10-K annual report for the
fiscal year ended December 31, 1998 and the 10-Q quarterly report for the
quarter ended September 30, 1999 attached hereto and incorporated herein as
Annex C and Annex D, respectively.
THIS IS AN INFORMATION STATEMENT.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
THE PROPOSED SALE IS CONDITIONED UPON, AMONG OTHER THINGS, THE SECURING OF
ALL NECESSARY APPROVALS AND CONSENTS. THERE CAN BE NO ASSURANCE THAT THE
CONDITIONS TO THE PROPOSED SALE WILL BE SATISFIED OR WAIVED AND THAT THE
PROPOSED SALE WILL BE CONSUMMATED. SEE "THE ASSET PURCHASE
AGREEMENT--CONDITIONS."
Since the proposed sale involves a sale of assets, all the remaining
shareholders will retain their equity interest in First Medical Group, Inc.
following the consummation of the sale, and First Medical Group, Inc. will
have received the proceeds from the proposed sale. See "The Proposed
Sale--Use of Proceeds; Conduct of Business Following the Proposed Sale."
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THE INFORMATION CONTAINED REGARDING AMCMC Acquisition Corp. and Crasvitsa
ltd." HAS BEEN SUPPLIED BY AMCMC Acquisition Corp. and Crasvitsa ltd. WE HAVE
NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT AND, IF GIVEN OR
MADE, YOU MUST NOT RELY UPON SUCH INFORMATION OR REPRESENTATION AS HAVING
BEEN AUTHORIZED BY US OR ANY OTHER PERSON.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance with the
Exchange Act we file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). You may inspect and
copy the reports, proxy statements and other information filed by us with the
Commission at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and as well as the
Commission's Regional Offices. You may also call the Commission at
1-800-SEC-0330 for more information about the public reference room, how to
obtain copies of documents by mail or how to access documents electronically
on the Commission's Web site at (http://www.sec.gov).
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TABLE OF CONTENTS
Page
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INTRODUCTION..................................................................i
AVAILABLE INFORMATION........................................................ii
SUMMARY 1.....................................................................1
The Stockholder Consent....................................................1
The Company................................................................1
The Proposed Sale..........................................................2
The Asset Purchase Agreement...............................................5
THE STOCKHOLDER CONSENT.......................................................7
THE PROPOSED SALE.............................................................7
Background of the Proposed Sale............................................7
Approval by the Board of Directors.........................................8
Approval of the Special Committee..........................................9
Opinion of the Advisor....................................................10
Certain Tax Consequences..................................................11
Use of Proceeds; Conduct of Business Following the Proposed Sale..........11
Interests of Certain Persons in the Proposed Sale.........................11
Accounting Treatment......................................................12
Dissenters' Appraisal Rights..............................................12
THE ASSET PURCHASE AGREEMENT.................................................12
Assets to be Sold and Liabilities to be Assumed...........................12
Purchase Price............................................................14
Representations and Warranties and Certain Covenants......................14
Employment and Employee Benefit Plans.....................................14
Conditions................................................................14
Termination...............................................................16
Indemnification...........................................................17
ASSUMPTION BY CRASVITSA LTD. OF THE LEHIGH NOTES.............................17
PRO FORMA FINANCIAL INFORMATION..............................................18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............22
MARKET PRICE DATA............................................................23
ANNEXES
A. Fairness Opinion and Fairness Memorandum of the Advisor
B. Asset Purchase Agreement
C. Form 10-K Annual Report for fiscal year ended December 31, 1998
D. Form 10-Q Annual Report for fiscal quarter ended September 30, 1999
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in
this Information Statement and the attached Annexes. Unless otherwise
defined, capitalized terms used in this summary have the meanings ascribed
to them elsewhere in this Information Statement. You are urged to read this
Information Statement and the Annexes in their entirety.
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THE STOCKHOLDER STOCKHOLDER VOTES WILL NOT BE SOLICITED. The General
CONSENT Corporation Law of Delaware allows us to sell all,
or substantially all, of our assets as authorized by
a resolution adopted by the holders of the majority
of our outstanding stock entitle to vote thereon.
Dennis A. Sokol, SAJH Partners, Generale de Sante
and Elena Korchagina, who together own approximately
52% of our stock, intend to consent in writing to
the adoption of the Asset Purchase Agreement and
therefore, no vote of any other stockholder is
necessary and stockholder votes are not being
solicited. See "The Stockholder Consent."
THE COMPANY FIRST MEDICAL GROUP, INC. We own and operate medical
clinics in Eastern Europe. Through our subsidiary
management company, American Medical Centers
Management Company, Ltd. ("AMC"), we own and operate
outpatient and ancillary healthcare facilities
modeled after the American healthcare system. AMC's
healthcare facilities are currently structured as
"A," "B," or "C" type facilities. The "C" type
facility is a full service outpatient primary care
center with those services provided as listed below,
dependent upon both market and demand. The "B" type
clinic is similar to a "C" model but with increased
diagnostics, inpatient care facilities and between
ten to fifteen overnight medical beds. The "A" type
facility provides both inpatient and outpatient care
with 50 to 300 medical beds.
Our services include but are not limited to: trauma
and emergency care, general practice, family
practice, full diagnostics, radiology, pharmacy,
dentistry, pathology, psychiatry and most specialty
groups such as cardiology, pediatrics, oncology,
gynecology, orthopedics, and dermatology. We strive
to deliver a comprehensive range of medical services
to meet the specific needs of our clients in each of
our unique markets. We employ American board
certified doctors, nurses, and ancillary personnel.
Nationals are also employed after being fully
credentialed.
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SUMMARY, CONTINUED
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Through our subsidiaries, we currently operate five
"C" locations in Moscow, Russia; St. Petersburg,
Russia; Kiev, Ukraine; Prague in the Czech Republic;
and Warsaw, Poland.
THE PROPOSED SALE BACKGROUND OF THE PROPOSED SALE. Our business is
derived primarily from the operations of our
subsidiaries in Russia and the Ukraine, and lending
institutions are reluctant to invest in these
markets because of economic conditions. Plans to
build two "A" facilities in Moscow and Warsaw and
two additional "B" facilities have been cancelled
because of our inability to obtain the necessary
financing. Likewise, our plans calling for
additional upgrades of current facilities in Eastern
Europe and Middle Asia, and expansion to the Middle
East, Latin America, and the Pacific Basin have been
tabled because management has determined that it is
unlikely that we will be able to obtain the needed
financing.
Our sole remaining construction project is a "B"
facility which is completing construction in Moscow,
Russia which is scheduled to open in the 1st quarter
of 2000. We have been unable to obtain financing for
completion of construction of our Moscow facility,
and we have therefore been required to expend our
own cash and working capital and borrow from
shareholders and related parties. These loans have
been necessary to obtain operating funds before our
cash reserves were depleted.
To date, we remain unable to obtain the necessary
financing to support our remaining construction
project, and we have expended our own capital to the
extent that we no longer have sufficient cash on
hand to sustain and continue our operations. In
addition, anticipated losses for the quarter ending
December 31, 1999, as projected, will eliminate our
net stockholders' equity. Our Chairman of the Board
and Chief Executive Officer, Mr. Dennis Sokol loaned
us $300,000 in late 1999. In addition, Mr.. Sokol
recently exercised, at $.125 per share, warrants for
the purchase of 1,500,000 shares of our common stock
in consideration of (i) his assumption of accounts
payable of First Medical Group aggregating $125,000,
and (ii) payment to First Medical Group of $62,500
in cash. The Board of Directors has therefore found
it to be in the best interest of First Medical Group
to complete the proposed sale as soon as practicable.
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SUMMARY, CONTINUED
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THE PROPOSED SALE, INDEPENDENT SPECIAL COMMITTEE. The Board of
CONTINUED Directors believes that the proposed sale is in the
best interests of First Medical Group, Inc., and has
approved the proposed sale. The Board of Directors'
approval of the proposed sale is based upon a number
of factors described in this Information Statement,
including the recommendation of the Independent
Special Committee and the Advisor. Mr. Dennis A.
Sokol, Chairman of the Board and Chief Executive
Officer, controls a company which owns the majority
of AMCMC Acquisition Corp. Since Mr. Sokol therefore
has a direct interest in the proposed sale, the
Board created an Independent Special Committee to
review and approve any actions to be taken by us
regarding the proposed sale in order to make an
objective determination that the sale is in the best
interest of First Medical Group. See "The Proposed
Sale -- Approval by the Special Committee; Reasons
for the Proposed Sale" and "The Proposed
Sale--Interests of Certain Persons in the Proposed
Sale."
THE ADVISOR. The Special Committee appointed Mercer
Capital Management, Inc. of Memphis, Tennessee as
the Advisor in assessing the fairness of the
consideration, from a financial point of view, to
First Medical Group of the proposed sale of
substantially all of our operating assets to AMCMC,
and to render an opinion as to the fairness from a
financial point of view of the consideration to be
received by us pursuant to the Asset Purchase
Agreement. After reviewing the preliminary fairness
opinion of the Advisor, the Special Committee
approved proceeding with the proposed sale. See "The
Proposed Sale --Approval by the Board of Directors,
-- Approval of the Special Committee; Reasons for
the Proposed Sale, -- Opinion of the Advisor," and
the Fairness Opinion and Fairness Memorandum of the
Advisor at Annex A.
CERTAIN TAX CONSEQUENCES. The proposed sale will be
a taxable transaction to us for United States
Federal income tax purposes. However, because of
net operating loss carry-forwards, we anticipate
that there will be no taxes due as a result of the
proposed sale. See " The Proposed Sale --- Certain
Tax Consequences."
USE OF PROCEEDS; CONDUCT OF BUSINESS FOLLOWING THE
PROPOSED SALE. The proceeds from the proposed sale
will be used to repay outstanding indebtedness of
First Medical Group in the amount of $450,000
representing accrued liabilities and accounts
payable, and the balance of the
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SUMMARY, CONTINUED
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THE PROPOSED SALE, proceeds will be used by us as working capital to
CONTINUED sustain us until a strategic partner or other
investor is identified. Following the proposed sale,
we will have no income-generating assets, but will
have continued operating expenses. After the sale,
we intend to work with qualified financial and
management advisors to identify and secure a
strategic partner or other investor for First
Medical Group in an effort to maximize value for the
shareholders of First Medical Group. See "The
Proposed Sale-- Use of Proceeds; Conduct of Business
Following the Proposed Sale."
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE.
The major stockholders of AMCMC Acquisition Corp.
are The Falcon Group, Inc., a Cayman Islands
company, Generale de Sante, a European company, and
Ms. Elena Korchagina, a private individual. The
Falcon Group, Inc. owns 82% of the stock of AMCMC
Acquisition Corp., and is owned by the family of Mr.
Dennis A. Sokol. Mr. Sokol is presently Chief
Executive Officer and Chairman of the Board of First
Medical Group. Mr. Sokol, together with SAJH
Partners, of which Mr. Sokol is a general partner,
own 32.4% of our common stock. Generale de Sante
owns 15% of AMCMC Acquisition Corp and 18.5% of our
common stock. Ms. Korchagina owns 3% of AMCMC
Acquisition Corp and .9% of our common stock. At
the closing of the proposed sale, Mr. Sokol will
resign all his positions with us and surrender all
of his direct or indirect interest in First Medical
Group, including his outstanding stock and all of
the outstanding stock of SAJH Partners, along with
any options and warrants for the acquisition of our
common stock. Likewise, at the closing of the sale,
Generale de Sante and Ms. Korchagina will surrender
for cancellation their shares of stock. See "The
Proposed Sale -- Interests of Certain Persons in the
Proposed Sale"
As part of the proposed sale, Crasvitsa Ltd., a
British Virgin Islands company controlled by Mr.
Sokol, will assume notes payable by First Medical
Group in the principal amount of $390,000 which,
together with accrued interest thereon, aggregated
$934,384 as of December 31,1999. See "The Proposed
Sale -- interests of Certain Persons in the Proposed
Sale" and "Assumption by Crasvitsa Ltd. of the Lehigh
Notes."
DISSENTERS' APPRAISAL RIGHTS. The General
Corporation Law of Delaware does not provide
dissenters' appraisal
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SUMMARY, CONTINUED
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rights to stockholders in the event of a sale of
assets. See "The Proposed Sale -- Dissenters'
Appraisal Rights."
THE ASSET PURCHASE ASSETS TO BE SOLD AND LIABILITIES TO BE ASSUMED. We
AGREEMENT have agreed to sell to AMCMC Acquisition Corp.
substantially all of our assets and intellectual
property, which constitute all of our business
relating to our international division consisting of
the stock of ten of our directly or indirectly
wholly-owned subsidiaries. Pursuant to the Asset
Purchase Agreement, AMCMC Acquisition Corp. will
assume and thereafter be responsible for paying and
satisfying certain of the Company's liabilities.
Assumed liabilities as at December 31, 1999 will
total $1,249,617 (in addition to the accounts
payable of $125,000 assumed on exercise by Mr. Sokol
of warrants for the purchase of 1 million shares of
our stock), consisting of $149,567 in accounts
payable, $433,550 in liabilities relating to
discontinued operations and $666,500 in notes
payable to certain shareholders and related parties.
See "The Asset Purchase Agreement -- Assets to be
Sold and Liabilities to be Assumed" and the Asset
Purchase Agreement at Annex B.
As part of the proposed sale, Crasvitsa Ltd., a
British Virgin Islands company controlled by Mr.
Sokol, will assume a notes payable by First Medical
Group in the principal amount of $390,000, which
together with accrued interest thereon aggregated
$934,384 as of December 31, 1999. See "Assumption by
Crasvitsa Ltd. of the Lehigh Notes."
PURCHASE PRICE. The Asset Purchase Agreement
provides for consideration to be delivered to us at
the closing of approximately $700,000 in cash (after
reducing the $1,000,000 purchase price by $300,000
to be repaid to Mr. Sokol), the surrender of
5,728,260 shares of stock held by Mr. Sokol, SAJH
Partners, General de Sante and Elena Korchagina
having a value as at January 31, 2000 of $.125 per
share or an aggregate of $716,033 and assumption of
$1,374,617 in liabilities. First Medical Group will
be left with cash in the amount of approximately
$700,000, and liabilities totaling $451,155.
CONDITIONS TO THE PROPOSED SALE. The obligations of
First Medical Group to consummate the proposed sale
are subject to the satisfaction or waiver of certain
conditions customary to a transaction of this
nature, including, among others, the occurrence of
certain events described in "The Asset Purchase
Agreement-Conditions."
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SUMMARY, CONTINUED
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TERMINATION. The Asset Purchase Agreement may be
terminated and abandoned at any time prior to the
Closing Date under certain circumstances upon
written notice by either AMCMC or First Medical
Group, or by mutual written consent of AMCMC and
First Medical Group. See "The Asset Purchase
Agreement--Termination."
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THE STOCKHOLDER CONSENT
Section 271 of the General Corporation Law of Delaware permits a Delaware
corporation to sell all, or substantially all, of its assets as its Board of
Directors deems expedient and in the best interests of the Company, when and
as authorized by a resolution adopted by the holders of a majority of the
outstanding stock of the Company entitled to vote thereon. Dennis A. Sokol,
SAJH Partners, Generale de Sante, and Elena Korchagina together own
approximately 52% of our outstanding common stock. In order to satisfy a
condition to the closing of the Asset Purchase Agreement, these majority
shareholders intend to consent in writing to the adoption of the Asset
Purchase Agreement pursuant to Section 271 of the General Corporation Law of
Delaware. Accordingly, no vote of any other stockholder is necessary and
stockholder votes are not being solicited.
THE PROPOSED SALE
BACKGROUND OF THE PROPOSED SALE
Our inability to borrow money to sustain a construction project in Moscow
that is nearing completion has resulted in severe cash flow difficulties for
First Medical Group, and it is because of these difficulties that the Board
of Directors has determined that it is in our best interest to proceed with
the proposed sale as quickly as possible. Our business is derived primarily
from the operations of our subsidiaries in Russia and the Ukraine. Currently,
lending institutions are reluctant to invest in these markets because of
economic conditions and we have therefore been unable to obtain financing for
expansion or construction.
AMC's healthcare facilities are currently structured as "A," "B," or "C" type
facilities. The "C" type facility is a full service outpatient primary care
center with those services provided as listed below, dependent upon both
market and demand. The "B" type clinic is similar to a "C" model but with
increased diagnostics, inpatient care facilities and between ten to fifteen
overnight medical beds. The "A" type facility provides both inpatient and
outpatient care with 50 to 300 medical beds. We currently operate five "C"
locations in Moscow, Russia; St. Petersburg, Russia; Kiev, Ukraine; Prague in
the Czech Republic; and Warsaw, Poland. Plans to build two "A" facilities in
Moscow and Warsaw and two additional "B" were cancelled because of our
inability to obtain the necessary financing. Likewise, future plans calling
for additional upgrades of current facilities in Eastern Europe and Middle
Asia, and expansion to the Middle East, Latin America, and the "Pacific
Basin" have been tabled because management has determined that it is unlikely
that we will be able to obtain the needed financing. Our sole remaining
construction project is a "B" facility which is completing construction in
Moscow, Russia and which is scheduled to open in the first quarter of 2000.
Because of our inability to obtain financing for the construction of our "B"
facility, we were required to expend virtually all of our cash and own
working capital and borrow money from our shareholders and related parties.
Effective October 1, 1999, we entered into an agreement with certain
shareholders and related parties to borrow $655,000. The agreement provides
that we will repay these borrowings on a monthly basis over a 3 year period
with 9% interest per annum.
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In exchange for providing these funds to us, we issued 1,637,500 of warrants
which may be exercised at $.25 per share of our common stock.
At a special meeting held on November 12, 1999, the Board of Directors
approved an additional borrowing of $300,000 from Mr. Dennis A. Sokol, our
Chairman of the Board and Chief Executive Officer, to be repaid by us in 36
equal monthly installments with level principal and interest at an interest
rate of 9% per annum. The Board found that the loan was necessary because our
construction project commitment was critical, making it necessary to obtain
operating funds before our cash reserves were depleted. This loan is to be
repaid by reducing the purchase price of $1,000,000 to be paid in connection
with the proposed sale by $300,000.
To date, we remain unable to obtain the necessary financing to support our
remaining construction project, and we have expended our own capital to the
extent that we no longer have sufficient cash on hand to sustain and continue
our operations. Projected revenues for the 4th quarter of 1999 are down
approximately $450,000 or 16.7% from last year. As a result, expected losses
for the quarter will eliminate our net stockholder equity, which, as of
September 30, 1999, was $703,000. Recently, Mr. Sokol found it necessary to
provide us with an additional $62,500 in cash in order for us to sustain our
operations and, for such consideration, exercised warrants for the purchase
of 500,000 shares of our common stock. The Board of Directors has therefore
found it to be in the best interest of First Medical Group to complete the
sale as soon as practicable.
APPROVAL BY THE BOARD OF DIRECTORS
The Board of Directors believes that the proposed sale is expedient and in
the best interests of First Medical Group and its stockholders, and has
approved the proposed sale. The Board of Directors' approval of the proposed
sale is based upon a number of factors, including the recommendation of the
Independent Special Committee and the Advisor. Mr. Dennis A. Sokol, our
Chairman of the Board and Chief Executive Officer, controls a company which
owns the majority of AMCMC Acquisition Corp. Since Mr. Sokol therefore has a
direct interest in the proposed sale, the Board created an Independent
Special Committee to review and approve any actions to be taken by us
regarding the proposed sale in order to make an objective determination that
the sale is in the best interest of First Medical Group. See "The Proposed
Sale -- Approval by the Special Committee; Reasons for the Proposed Sale" and
"The Proposed Sale--Interests of Certain Persons in the Proposed Sale."
The Board and the Independent Committee considered the following factors:
1. The fact that our current cash flow situation renders continued operation
of First Medical Group impracticable, and that both the Board and the
Independent Committee recognize the need to act quickly in order to retain
any shareholder value.
2. Current industry, economic and financial market conditions relating to
First Medical Group, as well as its financial condition, assets, liabilities,
businesses and operations, both on a historical and prospective basis as
reflected in the Opinion of the Advisor. See Fairness Opinion and Fairness
Memorandum of the Advisor at Annex A.
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3. The results of our efforts to identify alternatives with respect to the
proposed sale, including but not limited to extensive efforts to secure
financing, liquidation, "going private" and the unavailability of another
prospective purchaser, and taking into consideration the availability of the
prospective buyer, it was the Board of Directors' judgment that a disposition
of our assets on terms more favorable to First Medical Group and its
stockholders than the proposed sale would not be likely.
4. The proposed terms and structure of the proposed sale, including the terms
of the Asset Purchase Agreement, AMCMC Acquisition Corp.'s desire to acquire
the assets and its unwillingness to acquire First Medical Group as a whole.
See "The Asset Purchase Agreement--Indemnification."
5. Our ability to utilize of the net cash proceeds received from the proposed
sale to repay indebtedness and still maintain sufficient working capital to
identify and secure a strategic partner or other investor to operate First
Medical Group and maximize value for our shareholders. See "Use of Proceeds;
Conduct of Business Following the Proposed Sale."
After the proposed sale is completed, we will be left with cash assets of
approximately $700,000 and liabilities as at December 31, 1999 of $451,155,
consisting of $312,541 in accrued liabilities, $108,614 in accounts payable,
and $30,000 in liabilities relating to discontinued operations. A material
disadvantage of the proposed sale is that First Medical Group will be
divested of all of its revenue-producing assets. However, the Board of
Directors has concluded, after due consideration of the proposed sale and
alternatives to it, that there is no practical alternative to the proposed
sale that would yield better value for the shareholders. Although revenue was
generated by the assets, continuing losses were substantial due to our
inability to obtain financing for the construction in Moscow of the "B"
facility, and the resulting cash flow crisis, and management believes that
the proposed sale will serve First Medical Group and its shareholders by
retaining some shareholder value. Following the proposed sale, net
stockholder equity is anticipated to go from a deficit position to
approximately $250,000.
In view of the variety of factors considered in connection with its
evaluation of the proposed sale, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
APPROVAL OF THE SPECIAL COMMITTEE
On November 10, 1999, Mr. Sokol, on behalf of AMCMC Acquisition Corp.,
submitted an offer to the Board of Directors of First Medical Group to
purchase substantially all of our assets. At a special meeting held on
November 12, 1999, the Board created an Independent Special Committee
consisting of non-interested directors Richard A. Berman (chairperson),
Bernard Fishman and Dr. Armin Weinberg and authorized them to consider and
negotiate with our management the terms of the proposed sale. No actions were
or are to be taken by First Medical Group in connection with the proposed
sale unless reviewed and approved by the Special Committee. The Special
Committee then held a separate meeting in which they retained Patton Boggs
LLP as special counsel and appointed Mercer Capital Management, Inc. of
Memphis, Tennessee (the "Advisor") to assess the fairness to First Medical
Group of the proposed sale. On
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January 27, 2000 after reviewing the fairness opinion of the Advisor,
together with the financial condition of First Medical Group, the Special
Committee approved proceeding with the proposed sale.
OPINION OF THE ADVISOR
The Advisor was engaged by us as our independent financial advisor in
assessing the fairness of the price, from a financial point of view, to First
Medical Group of the proposed sale transaction in which we would sell
substantially all of our operating assets to the AMCMC Acquisition Corp., and
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by us pursuant to the Asset Purchase Agreement.
The Advisor has delivered to the Board of Directors its opinion to the effect
that, as of the date of its opinion and subject to the assumptions made,
matters considered and limits of the review undertaken, as set forth in such
opinion, the consideration to be received by First Medical Group pursuant to
the proposed sale is fair from a financial point of view.
In connection with preparing its opinion the Advisor reviewed a number of
documents, including:
1. Internal Financial Statements and related supporting schedules for the
periods ending December 31, 1997 through December 31, 1998, the nine months
ended September 30, 1998 and September 30, 1999 and the eleven months ended
November 30, 1998.
2. Filings with the SEC on forms 10-K and 10-Q for the periods ending December
31, 1997 through 1998, and quarters ended March 31, 1999; June 30, 1999;
and September 30, 1999, including the audited financial statements prepared
and included in those filings;
3. A letter of intent from Dennis Sokol dated November 10, 1999;
4. An Asset Purchase Agreement dated as of January 31, 2000;
5. A draft opinion dated September 30, 1999, from Cummings and Lockwood (legal
counsel) regarding the legal status and collectability of certain
liabilities of FMG which are now in default;
6. A letter dated November 30, 1999, from the U.S. Department of Justice
(David F. Musel, Attorney) offering settlement terms for an EPA Superfund
Site cleanup liability;
7. Pricing and other financial data regarding various public companies used
in the guideline company method;
8. Transaction data regarding physicians groups from THE HEALTH CARE M&A
REPORT and from MERGERSTAT REVIEW; and
9. Other materials provided by management deemed relevant to the proposed
sale.
A copy of the Fairness Opinion and Fairness Memorandum of the Advisor is
attached to this Information Statement as Annex A. The attached opinion and
memorandum set forth the assumptions made, matters considered, qualifications
to the opinion, the scope and limitations of the review undertaken and
procedures followed by the Advisor and should be read in their entirety. See
"The Proposed Sale--Opinion of Advisor."
10
<PAGE>
The Fairness Opinion and Fairness Memorandum of the Advisor were presented to
the Board of Directors of First Medical Group.
Pursuant to the terms of the Advisor's engagement, we agreed to pay the
Advisor a fee for rendering a fairness opinion in connection with the
proposed sale. The Advisor's aggregate fee for rendering the fairness opinion
in connection with the proposed sale will be approximately $25,000.
CERTAIN TAX CONSEQUENCES
The proposed sale will be a taxable transaction to the Company for United
States Federal income tax purposes. However, because of net operating loss
carry-forwards, the Company anticipates that there will be no taxes due as a
result of the proposed sale.
USE OF PROCEEDS; CONDUCT OF BUSINESS FOLLOWING THE PROPOSED SALE
After the proposed sale in completed, we will be left with cash assets of
approximately $700,000 and liabilities as at December 31, 1999 of $451,155.
The proceeds from the proposed sale will be used to pay obligations of First
Medical Group, both currently due and owing, and as they come due in the
future, and to sustain us until we can identify and secure a strategic
partner or other investor. Following the proposed sale, First Medical Group
will have no income-generating assets, but will have continued expenses of
operation. The Board of Directors believes that, with at least some cash and
a net positive stockholder equity, the Company is positioned to identify a
strategic partner. The Special Committee is evaluating several alternatives,
including, without limitation, possible business combinations and the
retention of qualified management to operate First Medical Group while
seeking strategic partners or other investors.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE
The major stockholders of AMCMC Acquisition Corp. are the The Falcon Group,
Inc., a Cayman Islands company, Generale de Sante, a European company, and
Ms. Elena Korchagina, a private individual. The Falcon Group, Inc. owns 82%
of the stock of AMCMC Acquisition Corp., and is owned by the family of Mr.
Dennis A. Sokol. Mr. Sokol is presently Chief Executive Officer and Chairman
of the Board of First Medical Group. Mr. Sokol, together with SAJH Partners,
of which Mr. Sokol is a general partner, own 32.4% of our common stock.
Generale de Sante is a leading private hospital group in Europe which owns
15% of AMCMC Acquisition Corp. and 18.5% of our common stock. Ms. Korchagina
owns 3% of AMCMC Acquisition Corp. and .9% of our common stock. At the
closing of the proposed sale, Mr. Sokol will resign all positions with us and
surrender all of his direct or indirect interest in First Medical Group,
including his outstanding stock and all of the outstanding stock of SAJH
Partners, including any options and warrants. Likewise, at the closing of
the sale, Generale de Sante and Ms. Korchagina will surrender for
cancellation their shares of stock.
Also, at the closing of the sale Mr. George Rountree will tender his
resignation as a director and officer and tender for cancellation any and all
stock, options or warrants that he holds.
11
<PAGE>
In a transaction related to the proposed sale, Crasvitsa Ltd., a British
Virgin Islands company controlled by Mr. Sokol, will assume notes payable by
First Medical Group in the principal amount of $390,000 which, together with
accrued interest thereon, aggregated $934,384 as of December 31, 1999. See
"Assumption by Crasvitsa Ltd. of the Lehigh Notes."
ACCOUNTING TREATMENT
In accordance with GAAP, the results of our business will be included in the
our results through the Closing Date. Any gain or loss on the disposition
will be recognized as of the date the proposed sale is closed.
DISSENTERS' APPRAISAL RIGHTS
Pursuant to the General Corporation Law of Delaware, holders of shares of
Common stock are not entitled to rights of appraisal in connection with a
sale of assets.
THE ASSET PURCHASE AGREEMENT
Although we believe that the following summary describes the material terms
and conditions of the Asset Purchase Agreement, the summary is qualified in
its entirety by reference to the full text of the Asset Purchase Agreement, a
copy of which is attached as Annex B to this Information Statement and is
incorporated herein by reference. Terms which are not otherwise defined in
this summary have the meaning set forth in the Asset Purchase Agreement.
ASSETS TO BE SOLD AND LIABILITIES TO BE ASSUMED
We have agreed to sell to AMCMC Acquisition Corp. substantially all of our
assets and intellectual property, which constitute our business relating to
our international operations. The following assets will be sold or
transferred by us to AMCMC Acquisition Corp. pursuant to the Asset Purchase
Agreement:
(1) All of the issued and outstanding shares of common stock of American
Medical Centers Management Company, Ltd., a British Virgin Islands company,
which shares are, owned by First Medical Group International, Ltd. a
wholly-owned subsidiary of First Medical Group. American Medical Centers
Management Company in turn owns, directly or indirectly, all of the issued
and outstanding shares of the following entities:
(a) American Medical Clinics Moscow, Inc., a Cayman Islands
corporation.
(b) American Medical Clinics, Inc., a Russian joint venture
corporation, all of whose outstanding shares are owned by American Medical
Clinics Moscow, Inc.
(c) American Medical Clinics - St. Petersburg Ltd., a British
Virgin Islands corporation.
12
<PAGE>
(d) American Medical Clinics - St. Petersburg Ltd., a Russian
joint venture corporation, all of whose outstanding shares are owned by said
BVI corporation.
(e) American Medical Clinics - Kiev, a Ukranian joint venture
corporation, all of whose outstanding shares are owned by said BVI
corporation.
(f) American Medical Centers - Warsaw z.o.o. (Poland).
(g) American Medical Centers - Prague s.r.o. (Czechoslovakia).
(h) American Hospital of Moscow Management Company, Ltd., a
British Virgin Islands corporation.
(i) American Multiprofile Clinic, Inc. (Russia).
(2) All of our right, title and interest in and to any intellectual property
relating to American Medical Centers Management Company, Ltd. and its
subsidiaries, including, without limitation, our pending application to the
U.S. Patent and Trademark Office for trademark of "American Medical
Center", "AMC" and related logo design.
(3) Insurance coverage carried as of the Closing Date by us with respect to all
of the acquired assets and the assumed liabilities, as in effect on the
Closing Date.
(4) All of our right, title and interest in and to the furniture and fixtures
listed on Schedule 1 of the Asset Purchase Agreement at Annex B.
Pursuant to the Asset Purchase Agreement, AMCMC Acquisition Corp. will assume
and thereafter be responsible for paying and satisfying certain of First
Medical Group's liabilities. Assumed liabilities will include as at December
31, 1999 $149,567 in accounts payable (in addition to $125,000 of accounts
payable assumed on exercise by Mr. Sokol of warrants), $433,550 in
liabilities relating to discontinued operations and $666,500 in notes payable
to certain shareholders and related parties. The notes payable to certain
shareholders and related parties are as follows:
o $500,000 owed to American Medical Centers, Inc., an entity controlled by
Mr. Sokol;
o $166,500 owed to the Equity Group, an investor relations firm, and other
shareholders;
At closing, and as a result of a separate agreement between Crasvitsa Ltd.
and First Medical Group, Crasvitsa will assume notes payable and accrued
interest of First Medical Group in the amount as at December 31, 1999 of
$934,384. See "Assumption by Crasvitsa Ltd. of the Lehigh Notes."
After the proposed sale in completed, we will be left with cash assets of
approximately $700,000 and liabilities as at December 31, 1999 of $451,155,
consisting of $312,541 in accrued liabilities, $108,614 in accounts payable,
and $30,000 in liabilities relating to discontinued operations.
13
<PAGE>
PURCHASE PRICE
The Asset Purchase Agreement provides for consideration, to be delivered by
AMCMC Acquisition Corp. to First Medical Group at the Closing, consisting of
approximately $700,000 in cash (after reduction of the $1,000,000 purchase
price by repayment of Mr. Sokol's loan), the surrender and cancellation of
5,728,260 shares of stock, together with the cancellation of all outstanding
options and warrants issued to Mr. Sokol and Mr. George Rountree, who will
resign as director and officer of FMG at closing, having a value of $716,033,
and $1,249,617 in liabilities of First Medical Corp. assumed.
The closing will take place on that date and time as First Medical Group and
AMCMC Acquisition Corp. mutually agree that all conditions precedent to the
obligations of the parties under the Asset Purchase Agreement have been met.
See "--Conditions."
REPRESENTATIONS AND WARRANTIES AND CERTAIN COVENANTS
The Asset Purchase Agreement contains various customary representations and
warranties of the parties to the agreement. These include representations and
warranties by us as to our: (a) corporate organization; (b) authority; (c)
noncontravention of law; (d) broker fees; (e) title to tangible assets; (f)
financial statements; (g) events subsequent to balance sheet date; (h) legal
compliance; (i) intellectual property; (j) contracts; (k) litigation; (l)
environmental matters; (m) tax matters; (n) no barter receivables or
obligations; (o) sufficiency of acquired assets; and (p) disclaimer of other
representations and warranties. AMCMC Acquisition Corp.'s representations and
warranties include those as to (a) corporate organization; (b) authority, (c)
absence of violation of law; and (d) brokers and finders.
EMPLOYMENT AND EMPLOYEE BENEFIT PLANS
The majority of the employees affected by the proposed sale will no longer be
employed by us or our subsidiaries effective as of the close of business on
the closing date. First Medical Group is presently not party to any employee
benefit plans.
CONDITIONS
The obligations of First Medical Group to consummate the proposed sale are
subject to the following conditions:
(i) the representations and warranties set of AMCMC Acquisition
Corp. set forth in the Asset Purchase Agreement are true and correct as
of the closing date;
(ii) AMCMC Acquisition Corp. shall have performed and complied with
all of its covenants through the closing;
(iii) there is no injunction, judgment, order, decree, ruling, or
charge in effect preventing consummation of any of the transactions
contemplated by the proposed sale;
14
<PAGE>
(iv) AMCMC Acquisition Corp. shall have delivered a certification
that certain conditions have been complied with;
(v) Both AMCMC Acquisition Corp. and First Medical Group shall
have received any required authorizations, consents, and approvals of
governments and governmental agencies;
(vi) First Medical Group shall have received from AMCMC Acqisition
Corp. and Crasvitsa, Ltd. certain Assignments and Assumptions in the
prescribed form;
(vii) First Medical Group shall have received from Dennis A. Sokol
a resignation as director and officer and the Mutual Release in the
prescribed form;
(viii) AMCMC Acquisition Corp. shall have received all material
third-party consents and approvals necessary for the purchase and transfer
of the assets;
(ix) no statute, rule or regulation or order or injunction of any
court or administrative agency shall be in effect which prohibits First
Medical Group from consummating the transactions contemplated by the Asset
Purchase Agreement;
(x) there shall not be any material action, suit or proceeding
pending or threatened that seeks to prohibit the consummation of the
transactions contemplated by the Asset Purchase Agreement; and
(xi) all actions to be taken by AMCMC Acquisition Corp. in
connection with consummation of the transactions contemplated by the Asset
Purchase Agreement and all certificates, instruments, and other documents
required to effect the transactions are satisfactory in form and substance
to First Medical Group.
The obligation of AMCMC Acquisition Corp. to consummate the proposed sale are
subject to the following conditions:
(i) the representations and warranties of First Medical Group set
forth in the Asset Purchase Agreement are true and correct as of the closing
date;
(ii) First Medical Group and its subsidiaries shall have
performed and complied with all of its covenants in the Asset Purchase
Agreement through the closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by the Asset Purchase Agreement;
(iv) First Medical Group shall have delivered to AMCMC Acquisition
Corp. a certificate to the effect that certain of the conditions specified
in the Asset Purchase Agreement are satisfied;
15
<PAGE>
(v) First Medical Group and AMCMC Acquisition Corp. shall have
received all other necessary authorizations, consents, and approvals of
governments and governmental agencies;
(vi) AMCMC Acquisition Corp. shall have received certain
Assignments and Assumptions in the prescribed form;
(vii) Dennis Sokol shall have received First Medical Group the
Mutual Release in the prescribed form;
(viii) AMCMC Acquisition Corp. shall have received all material
third-party consents and approvals necessary for the purchase and transfer
of the assets;
(ix) no statute, rule or regulation or order or injunction of any
court or administrative agency shall be in effect which prohibits First
Medical Group from consummating the transactions contemplated by the Asset
Purchase Agreement;
(x) there shall not be any material action, suit or proceeding
pending or threatened that seeks to prohibit the consummation of the
transactions contemplated by the Asset Purchase Agreement;
(xi) all actions to be taken by AMCMC Acquisition Corp. in
connection with consummation of the transactions contemplated by the Asset
Purchase Agreement and all certificates, instruments, and other documents
required to effect the transactions contemplated by the Asset Purchase
Agreement will be satisfactory in form and substance to AMCMC Acquisition
Corp; and
(xii) from the time of the execution of the Asset Purchase
Agreement up to the closing, there shall not have occurred a material or
adverse change in First Medical Group or its business or financial
condition.
TERMINATION
AMCMC Acquisition Corp. and First Medical Group may terminate the Asset
Purchase Agreement by mutual written consent at any time prior to the closing.
AMCMC Acquisition Corp. may terminate the Asset Purchase Agreement by giving
written notice to First Medical Group at any time prior to the closing in the
event First Medical Group has given any notice of a development causing a
breach of its representations and warranties and the development has had a
material adverse effect upon the financial condition of First Medical Group
and First Medical Group Subsidiaries, taken as a whole, or the notice from
First Medical Group relates to a breach or breaches not caused or brought
about by First Medical Group and the notice gives AMCMC Acquisition Corp. an
option to terminate even if the development does not have a material adverse
effect upon the financial condition of First Medical Group and First Medical
Group Subsidiaries, taken as a whole.
16
<PAGE>
AMCMC Acquisition Corp. may terminate the Asset Purchase Agreement by giving
written notice to First Medical Group at any time prior to the closing in the
event First Medical Group has breached any material representation, warranty,
or covenant contained in the Asset Purchase Agreement in any material
respect, AMCMC Acquisition Corp. has notified First Medical Group of the
breach, and the breach has continued without cure for a period of 30 days
after the notice.
First Medical Group may terminate the Asset Purchase Agreement by giving
written notice to AMCMC Acquisition Corp. at any time prior to the closing in
the event AMCMC Acquisition Corp. has breached any material representation,
warranty, or covenant contained in the Asset Purchase Agreement in any
material respect, First Medical Group has notified AMCMC Acquisition Corp. of
the breach, and the breach has continued without cure for a period of 30 days
after the notice.
INDEMNIFICATION
Pursuant to the Asset Purchase Agreement, First Medical Group has agreed to
indemnify AMCMC Acquisition Corp. in the event that First Medical Group
breaches any of its representations, warranties, and covenants contained in
the Asset Purchase Agreement and AMCMC Acquisition Corp. makes a written
claim for indemnification against First Medical Group, or for adverse
consequences to AMCMC Acquisition Corp. arising as a result of any liability
of First Medical Group which is not assumed by AMCMC Acquisition Corp.
Likewise, AMCMC Acquisition Corp. has agreed to indemnify First Medical Group
in the event AMCMC Acquisition Corp. breaches any of its representations,
warranties, and covenants contained in the Asset Purchase Agreement, and
First Medical Group makes a written claim for indemnification, or for adverse
consequences to First Medical Group arising as a result of any liability of
First Medical Group arising after the closing date which is an assumed
liability or which relates in any way to the assets acquired by AMCMC
Acquisition Corp.
ASSUMPTION BY CRASVITSA LTD. OF THE LEHIGH NOTES
At closing, and as a result of a separate agreement between Crasvitsa Ltd.
and First Medical Group, Crasvitsa Ltd. will assume notes payable by FMG
having an outstanding principal value and accrued interest in the amount as
at December 31, 1999 of $934,384. Crasvitsa Ltd. is a British Virgin Islands
corporation controlled by Mr. Sokol. (See "The Proposed Sale -- Interests of
Certain Persons in the Proposed Sale.") These notes reflect indebtedness
issued in 1991 by us prior to our reorganization in 1997 as The Lehigh
Group, Inc.
We are in default in the payment of interest (approximately $544,384 interest
was past due as of December 31, 1999) and principal of $390,000 on 13 1/25
Senior Subordinated Notes due May 15, 1998 and 14 7/8% Subordinated
Debentures due October 15, 1995. We have 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).
17
<PAGE>
During 1999, we reviewed the legal status of the matter to determine our
obligation to repay the Lehigh Notes and their accrued interest, given that
we have been unable to locate the holders of these notes and debentures. In
our Form 10-Q quarterly report for the period ending September 30, 1999, we
recorded as a write-off past due accrued interest of $254,000, net of taxes
of $170,000, on the 13 1/2% Senior Subordinated Notes and 14 7/8%
Subordinated Debentures as extraordinary income. The write-off of past due
accrued interest reflects our view that this obligation is no longer a
liability of First Medical Group since the statute of limitations time period
has expired in which a claim based upon such notes and debentures could have
been presented.
PRO FORMA FINANCIAL INFORMATION
The following tables set forth pro forma consolidated financial
information of First Medical Group for the nine months ended September 30,
1999. The unaudited pro forma consolidated balance sheet gives pro forma
effect to the proposed sale as if such transactions had been consummated on
September 30, 1999. The unaudited pro forma consolidated financial
information has been prepared on the basis that First Medical Group would
have received cash consideration of approximately $700,000 from the proposed
sale. See "The Asset Purchase Agreement--Purchase Price."
The unaudited pro forma adjustments are based upon available information
and certain assumptions that we believe are reasonable. The pro forma
consolidated financial information does not necessarily reflect the financial
position or results of operations of First Medical Group that actually would
have resulted had the transactions described above been consummated as of the
date or for the period indicated, or to project First Medical Group's
financial position or results of operations at any future date or for any
future period. The pro forma consolidated financial information should be
read in conjunction with First Medical Group's Financial Statements for the
years ended December 31, 1998, and for the nine months and three months ended
September 30, 1999 and the Notes thereto incorporated by reference in this
Information Statement.
18
<PAGE>
FIRST MEDICAL GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
HISTORICAL ADJUSTMENTS TO PRO FORMA
SEPTEMBER 30, 1999 RECORD SALE AS ADJUSTED
------------------ -------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $610 $ (258) (1) $ 1,352
1,000 (1)
Accounts receivable 533 (533) (1) --
Inventories 105 (105) (1) --
Prepaid expenses and other current assets 493 (493) (1) --
-------- --------- ---------
Total current assets 1,741 (389) 1,352
-------- --------- ---------
Property and equipment 1,293 (1,293) (1) --
Deferred tax asset 549 (549) (3) --
Intangible assets 2,225 (2,225) (1) --
Other assets 77 (77) (1) --
-------- --------- ---------
TOTAL $5,885 $(4,533) $ 1,352
-------- --------- ---------
-------- --------- ---------
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 970 $ (921) (1) $ 49
Accrued expenses 1,328 (1,083) (1) 245
Deferred revenue 843 (843) (1) --
Notes payable and accrued interest 1,117 (1117) (1) --
Net liabilities of discontinued operations 506 (476) (1) 30
-------- --------- ---------
Total current liabilities 4,764 (4,440) 324
Notes payable (long-term portion) 418 (418) (1) --
Stockholders' equity:
Common stock 10 (4) (1) 6
Additional paid in capital 8,253 (527) (1) 7,726
Accumulated deficit (7,560) 856 (1) (6,704)
-------- --------- ---------
Total shareholders' equity 703 325 1,028
TOTAL $5,885 $(4,533) $ 1,352
-------- --------- ---------
-------- --------- ---------
</TABLE>
19
<PAGE>
FIRST MEDICAL GROUP, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED HISTORICAL
NINE MONTHS ENDED ADJUSTMENTS TO PRO FORMA
SEPTEMBER 30, 1999 RECORD SALE AS ADJUSTED
------------------- -------------- -----------
<S> <C> <C> <C>
Revenue $8,169 $(8,169) $ --
Cost of revenue 6,463 (6,463) --
------- ------- ------
Income from clinic operations 1,706 (1,706) --
Operating expenses:
Salaries and benefits 674 (584) 90 (2)
General and administration 673 (560) 113 (2)
Depreciation and amortization 291 (291) --
------- ------- ------
Total operating expenses 1,638 (1,435) 203
Income (loss) from operations 68 (271) (203)
Interest income 45 (45) --
------- ------- ------
Income before income tax provision 113 (316) (203)
Income tax (credit) (40) 40 --
------- ------- ------
Income (loss) from continuing operations $153 $(356) $(203)
Earnings (loss) per share-basic and diluted $0.02 $(0.06) $(0.04)
</TABLE>
20
<PAGE>
FIRST MEDICAL GROUP, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED ADJUSTMENTS TO PRO FORMA
DECEMBER 31, 1999 RECORD SALE AS ADJUSTED
----------------- -------------- -----------
<S> <C> <C> <C>
Revenue $10,947 $ (10,947) $ --
Cost of revenue 9,260 (9,260) --
------- ------- ------
Income from clinic operations 1,687 (1,687) --
Operating expenses:
Salaries and benefits 905 (785) 120 (2)
General and administration 1,019 (869) 150 (2)
Depreciation and amortization 227 (227) --
------- ------- ------
Total operating expenses 2,151 (1,881) 270
Income (loss) from operations (464) 194 (270)
Interest income (167) 167 --
------- ------- ------
Income before income tax (credit) (631) 361 (270)
Income tax (credit) (473) 473 --
------- ------- ------
Loss from continuing operations $ (158) $(112) $(270)
Loss per share-basic and diluted $(0.01) $(0.04) $(0.05)
</TABLE>
First Medical Group, Inc.
Notes to Pro Forma Balance Sheet
As of September 30, 1999 and Notes to the Pro Forma
Consolidated Income Statement for the Nine Months
Ended September 30, 1999 and the Year Ended December 31, 1998
(1) Adjustment to reflect the sale of substantially all of the assets of
the Company, assumption of certain liabilities of the Company and the
surrendering of approximately 5.8 million shares of the Company for
$4.1 million. The bid price of the Company's stock on September 30,
1999 was $.125 per share.
(2) Reflects estimated administrative expenses that will continue in the
Company.
(3) To write off deferred tax asset because of the uncertainty of the
utilization of the tax benefit due to the sale of all of the Company's
income generating operations.
21
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth to date the total number of shares of common
stock beneficially owned, and the percent so owned, by each of our directors
and by each person known to us to be the beneficial owner of more than 5% of
the outstanding common stock. The number of shares owned are those
"beneficially owned," as determined under the rules of the Commission, and
such information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any shares
as to which a person has sole or shared voting power or investment power and
any shares of common stock which the person has the right to acquire within
60 days through the exercise of any option, warrant or right, through
conversion of any security, or pursuant to the automatic termination of power
of attorney or revocation of trust, discretionary account or similar
arrangement.
<TABLE>
<CAPTION>
NAME OF ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
------------------- ------------------------ --------
<S> <C> <C>
Generale De Sante 2,047,860 18.55%
International PLC
4 Cornwall Terrace
London, NW 1 4QP
England
SAJH Partners 1,595,021(2) 14.45%
1055 Washington Bvld.
Stamford, CT 06901
Dennis A. Sokol 4,636,144(3) 33.66%
1055 Washington Blvd.
Stamford, CT 06901
</TABLE>
- ------------------------
(1) Except as otherwise indicated, each of the persons listed above has
sole voting and investment power with respect to all shares shown
in the table as beneficially owned by such person.
(2) Dennis Sokol is the Managing Partner of SAJH Partners and has a 1%
partnership interest in the partnership and consequently could be
deemed under Rule 13D-3 of the Exchange Act to have beneficial
ownership of such shares. Mr. Sokol disclaims ownership of all such
shares other than as a result of his 1% partnership interest.
(3) Assumes exercise of 1,500,000 warrants to purchase shares of common
stock of First Medical Group., and an additional 2,650,000 warrants
which are presently exercisable.
22
<PAGE>
The following table indicates the number of shares of common stock
beneficially owned to date by (i) each director of First Medical Group, and
(ii) all directors and executive officers of First Medical Group as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- ------------------------ ------------------------ ----------------
<S> <C> <C>
Dennis A. Sokol (1) 4,636,144 33.66%
Richard Berman (2) 50,000 *
George Rountree (3) 6,250 *
All executive officers
and directors as a group (4)
(6 persons) 4,717,394 34.25%
</TABLE>
- -------------------------
* Less than 1%
Except as otherwise indicated, each person listed above has sole voting and
investment power with respect to all shares shown in the table.
(1) See notes 2 and 3 of the table under the caption "Security Ownership of
Certain Beneficial Owners" above.
(2) Represents 50,000 options to purchase shares of our common stock which are
immediately exercisable.
(3) Represents 6,250 options to purchase shares of our common stock which are
immediately exercisable.
(4) Includes 25,000 options to purchase shares of our common stock which
are immediately exercisable and held by Elias Nemnom.
MARKET PRICE DATA
The following table sets forth high and low trade prices of the shares of our
common stock for each quarterly fiscal period of 1999 and 1998, based on
information received from IDD Information Services, Tradeline-Registered-. As
of February 11, 2000, the number of known beneficial owners of our common
stock was 8,837.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
- ----
First Quarter 13/16 1/8
Second Quarter 5/8 1/8
Third Quarter 13/16 1/8
Fourth Quarter 13/16 5/64
1998
- ----
First Quarter 3 23/64
Second Quarter 1 19/64 21/64
Third Quarter 1 1/32 5/32
Fourth Quarter 13/16 1/8
On 2/11/2000 1 1/2 1/8
</TABLE>
23
<PAGE>
ANNEX A FAIRNESS OPINION AND FAIRNESS MEMORANDUM
[LETTERHEAD]
February 11, 2000
The Independent Committee of the
Board of Directors First Medical Group, Inc.
c/o Mr. Richard Berman
Manhattanville College
2900 Purchase Street
Purchase, New York 10577
SUBJECT: Fairness opinion on behalf of the Independent Committee of the
Board of Directors of First Medical Group, Inc. ("FMG" or the
"Company") regarding the purchase of FMG's wholly owned
subsidiary, American Medical Centers Management Company, Ltd.,
a British Virgin Islands corporation, and sole operating
subsidiary of FMG.
Dear Mr. Vogel and members of the Independent Committee
of the Board of Directors of First Medical Group, Inc.:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Independent Committee of the Board of Directors of First Medical Group, Inc.
to assess the fairness from a financial point of view of FMG and its
shareholders of a transaction involving the sale FMG's sole operating
subsidiary, American Medical Centers Management Company, Ltd. ("AMC"),
constituting substantially all of FMG's operating assets, to a group of
investors including FMG's current Chief Executive Officer and Chairman of the
Board of the Directors. Mercer Capital has no prior relationship with the
Company or any of its shareholders.
Mercer Capital is routinely engaged in the valuation of businesses and in
other various related advisory capacities to business owners in connection
with mergers and acquisitions, estate and gift tax compliance, employee stock
ownership plans, and a variety of corporate planning and restructuring
activities.
Specifically in conjunction with the transaction, we have prepared valuation
calculations designed to estimate the highest reasonable value attributable
to AMC. The analysis attempts to model AMC as if it were a stand-alone
operating business, perpetuating its own existence and administering its own
costs and overhead, etc. The analysis develops several possible indicators of
value attributable to AMC, which are then used to determine if the
consideration offered for its purchase is adequate from a financial point
view. These indicators of value were developed by virtue of capitalizing
AMC's estimated cash flow and earnings measures using both broad market
information and data taken from a group of publicly traded companies.
Using the highest of the valuation indications we then examine the change in
FMG's consolidated net asset value versus that implied by the purchase
consideration for AMC. Additional analysis is then performed to examine the
anti-dilutive effects of the purchasing investors' surrender of their
shareholdings in FMG. The entirety of analyses contained in the accompanying
Fairness Memorandum is herein incorporated by reference.
OVERVIEW OF THE TRANSACTION
We understand that Mr. Dennis Sokol, the current Chairman of FMG's Board of
Directors and Chief Executive Officer, with other investors, through a
company to be formed, proposes to purchase 100% of the stock of American
Medical Centers Management Company, Ltd., the only operating subsidiary of
FMG, constituting substantially all of FMG's operating assets. Our opinion of
fairness, and the analysis of the transaction contained in the accompanying
fairness memorandum, is based on the Asset Purchase Agreement dated as of
January 31, 2000.
<PAGE>
Our understanding of key terms in the transaction are as follows:
1. The purchaser will pay cash consideration of $1 million in cash, less the
balance of a note payable by FMG to the purchaser for $300,000.
2. The purchaser will assume certain non-AMC liabilities of FMG relating to
discontinued operations, loans payable to shareholders, attorney fees
payable, insurance payable, and certain other liabilities of FMG. According
to management, these liabilities are expected to total approximately $1.4
million as of the projected closing date of the transaction, exclusive of
$934,000 in notes payable and accrued interest to be assumed that are
expected to be written off with no payments made. Approximately $500,000 of
the liabilities represents debt owed to Mr. Sokol or to an entity
controlled by Mr. Sokol.
3. The purchaser will surrender all shares owned personally, as well as shares
owned indirectly, in FMG. In addition, the purchaser will present for
cancellation all warrants and options currently available under existing
agreements. This group will surrender approximating 52% of outstanding
shares of FMG stock.
The total economic consideration offered in the transaction is approximately
$2.1 million.
OVERVIEW OF CIRCUMSTANCES COMPELLING THE TRANSACTION
In the current environment, all the operations of FMG are overseas, primarily in
Russia, Ukraine, Poland and the Czech Republic, through offshore subsidiaries.
Under its current structure the Company is, according to management, unable to
obtain financing for continuing operations as well as to fund expansion plans.
MATERIALS EXAMINED AND DUE DILIGENCE PERFORMED
In conjunction with the preparation of this opinion of fairness and fairness
memorandum, Mr. Timothy R. Lee, ASA, Vice President at Mercer Capital, and
Mr. Martin D. Watt, CPA, Senior Financial Analyst at Mercer Capital, visited
with management in Stamford, Connecticut. This visit, together with numerous
conversations with management, legal counsel, and members of the Independent
Committee of the Board of Directors, provided important perspective to our
understanding of the information reviewed and analyzed in the preparation of
this opinion of fairness.
We also obtained and reviewed information from the following sources to prepare
this opinion and the related fairness memorandum:
1. Internal Financial Statements and related supporting schedules for the
periods ending December 31, 1997 through December 31, 1998, the nine months
ended September 30, 1998 and September 30, 1999, and the eleven months
ended November 30, 1998 and November 30, 1999;
2. Filings with the United States Securities and Exchange Commission on forms
10-K and 10-Q for the periods ending December 31, 1997 through 1998, and
quarters ended March 31, 1999; June 30, 1999; and September 30, 1999,
including the audited financial statements prepared and included in those
filings;
3. A letter of intent from Dennis Sokol dated as of November 10, 1999;
4. An Asset Purchase Agreement dated as of January 31, 2000;
5. A draft opinion dated as of September 30, 1999, from Cummings and Lockwood
(legal counsel) regarding the legal status and collectability of certain
liabilities of FMG which are now in default;
6. A letter dated as of November 30, 1999, from the U.S. Department of Justice
(David F. Musel, Attorney) offering settlement terms for an EPA Superfund
Site cleanup liability;
7. Pricing and other financial data regarding various public companies used in
the guideline company method;
8. Transaction data regarding physicians groups from THE HEALTH CARE M&A
REPORT and from MERGERSTAT REVIEW; and,
9. Other materials provided by management deemed relevant to the current
transaction.
<PAGE>
In all cases we have relied upon the referenced information without
independent verification. This opinion is, therefore, dependent upon the
information provided. A material change in critical information relied upon
in this opinion and the underlying analysis performed would necessitate a
reassessment to determine the effect, if any, upon our opinion.
OPINION OF FAIRNESS
Based upon our understanding and analysis of the transaction and upon
consideration of the current financial position of FMG, it is our opinion that
the transaction is fair from a financial point of view of FMG and its
shareholders. This opinion does not represent, endorse, or promote any specific
course of action with regard to the transaction. We understand that this opinion
and our accompanying Fariness Memorandum may be filed with the Securities and
Exchange Commission, and we hereby consent to said filing.
Respectfully,
MERCER CAPITAL MANAGEMENT, INC.
/S/ MARTIN D. WATT
------------------
Martin D. Watt, CPA
Senior Financial Analyst
/S/ TIMOTHY R. LEE
------------------
Timothy R. Lee, ASA
Vice President
/S/ KENNETH W. PATTON
---------------------
Kenneth W. Patton, ASA
President
<PAGE>
FAIRNESS MEMORANDUM
TO: The Independent Committee of the Board of Directors
First Medical Group, Inc.
FROM: Mercer Capital Management, Inc.:
MARTIN D. WATT, CPA
Senior Financial Analyst
TIMOTHY R. LEE, ASA
Vice President
KENNETH W. PATTON, ASA
President
DATE: February 11, 2000
SUBJECT: Fairness opinion on behalf of the Independent Committee of the Board of
Directors of First Medical Group, Inc. ("FMG" or the "Company") regarding the
purchase of FMG's wholly owned subsidiary, American Medical Centers Management
Company, Ltd., a British Virgin Islands corporation, and sole operating
subsidiary of FMG.
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Independent Committee of the Board of Directors of First Medical Group, Inc. to
assess the fairness from a financial point of view of FMG and its shareholders
of a transaction involving the sale FMG's sole operating subsidiary, American
Medical Centers Management Company, Ltd. ("AMC"), constituting substantially all
of FMG's operating assets, to a group of investors including FMG's current Chief
Executive Officer and Chairman of the Board of the Directors. Mercer Capital has
no prior relationship with the Company or any of its shareholders.
This fairness memorandum has been prepared in order to provide the Independent
Committee of the Board of Directors of First Medical Group, Inc., with
additional background on the factual and analytical basis of Mercer Capital's
fairness opinion dated February 11, 2000.
OVERVIEW OF THE TRANSACTION
We understand that Mr. Dennis Sokol, the current Chairman of FMG's Board of
Directors and Chief Executive Officer, with other investors who are shareholders
of FMG, through a newly formed company, intends to purchase 100% of the stock of
American Medical Centers Management Company, Ltd., the only operating subsidiary
of FMG. Our opinion of fairness, and the analysis of the transaction contained
in this memorandum, is based on the Asset Purchase Agreement dated as of January
31, 2000.
Our understanding of key terms in the transaction is as follows:
1. The purchaser will pay consideration of $1 million in cash, less the balance
of a note payable by FMG to the purchaser for $300,000.
2. The purchaser will assume certain non-AMC liabilities of FMG relating to
discontinued operations, loans payable to shareholders, attorney fees
payable, insurance payable, and certain other liabilities of FMG.
According to management, these liabilities are expected to total
approximately $1.4 million as of the projected closing date of the
transaction, exclusive of $934,000 in notes payable and accrued
interest to be assumed which are over time expected to be written off
with no payments made. Approximately $500 thousand of the liabilities
represents debt owed to Mr. Sokol.
3. The purchaser will surrender all shares owned personally, as well as
shares owned indirectly, in FMG. In addition, the purchaser will
present for cancellation all warrants and options currently available
under existing agreements. The purchasing group will surrender
approximating 52% of outstanding shares of FMG stock.
The total economic consideration offered in the transaction is approximately
$2.1 million.
<PAGE>
OVERVIEW OF CIRCUMSTANCES COMPELLING THE TRANSACTION
FMG is a publicly traded concern, having a long history in the public markets.
Relevant history to the current organization begins approximately two years ago
when the stock was delisted from the NYSE and began trading over the counter as
a bulletin board stock. At that point, FMG began divesting unprofitable lines of
business, including a significant managed care organization and physician
management networks in Indiana, Florida, and Texas. In addition, FMG divested of
an electrical supply and contracting subsidiary.
In the current environment, all the operations of FMG are overseas, primarily in
Czech Republic, Poland, Russia, and Ukraine, through offshore subsidiaries. The
Company is, according to management, unable to obtain financing for continuing
operations as well as to fund expansion plans. This difficulty in obtaining
financing is the result of several contingencies resulting from the activities
of a predecessor company. A predecessor company is charged in civil litigation
with participating in environmental damage during the 1950s, and the suit asks
for $25 million in damages. In addition, a predecessor company defaulted on
certain subordinated notes. A subsequent restructuring settled the outstanding
liabilities for most of the noteholders, however some of the noteholders could
not be located. The remaining principal balance, with accrued interest to the
maturity date of the bonds, is approximately $934,000. The Company has obtained
a legal opinion that the defaulted notes may be extinguished upon expiration of
the statute of limitations, which is six years from maturity. Default on the
notes occurred in 1990, prior to the current operational and ownership
structure. The original maturity dates were October of 1995 and November of
1998, and barring unforeseen collection efforts initiated in the intervening
period, the extinguishment of this debt is expected to occur over the next five
years, until approximately first quarter 2005. This debt will be assumed by an
affiliate of the purchaser in the transaction, and may provide intangible
benefits to FMG by making the Company more attractive to potential investors
and/or acquirers.
Management has indicated that financing for clinic operations could be available
if the Company were private and did not have the contingency issues mentioned
above. According to management, realization of these liabilities is considered
speculative at this time; however, the possibility of the realization of these
liabilities has prevented the securing of third party financing of the ongoing
operations of the Company. Interim financing has been provided by certain
shareholders, including principally Dennis Sokol, the Company's Chairman and
CEO. Mr. Sokol, with other investors, through a newly formed company, intends to
purchase of all primary operations of FMG, leaving the remaining public company
shell to pursue alternative operations.
CURRENT FINANCIAL OVERVIEW OF FMG
Exhibits 1-8 present historical financial statements and related analyses for
the fiscal years ended December 31, 1997 and 1998, and the twelve-month period
ended November 30, 1999. This information has been obtained from SEC filings and
detail provided by management from internal schedules. The company's financial
statements during this period have been audited by BDO Seidman (New York, New
York) for the year ended December 31, 1997, and by Arthur Andersen LLP (New
York, New York) for the year ended December 31, 1998. Financial information for
the eleven months (and, as a result, the twelve months) ended November 30, 1999
was prepared by management has not been audited.
Exhibit 1 Consolidated Balance Sheet
Exhibit 1a Notes to Consolidated Balance Sheet
Exhibit 2 Percentage Consolidated Balance Sheet
Exhibit 3 Consolidated Income Statement
Exhibit 3a Notes to Consolidated Income Statement
Exhibit 3b Trailing 12 Months Consolidated Income Statement
Exhibit 4 Percentage Consolidated Income Statement
Exhibit 5 Reconciliation of Shareholders' Equity
Exhibit 6 Financial Ratios
Exhibit 7 Clinic Operations Statement
Exhibit 8 Notes to Clinic Operations Statements
Exhibit 9 Consolidating Balance Sheet
<PAGE>
FINANCIAL POSITION AND LEVERAGE
The Company operates with low asset intensity, with its operating sites being
leased from local entities within the country of operations. As of November 30,
1999, assets totaled approximately $5.8 million. Other than net fixed assets of
approximately $1.7 million, the largest asset was goodwill, resulting from the
acquisition of the Moscow operations. Outside of the defaulted notes and accrued
interest, the Company's debt was primarily related to shareholder loans.
As a result of ongoing losses, reported shareholders' equity was $353,000 as of
November 30, 1999. The Company's has a significant deficit balance of working
capital. Management reports that a lack of financing has forced plans for
expansion of clinic operations to be placed on hold.
INCOME STATEMENT SUMMARY
The Company reported approximately $10.5 million in consolidated revenue during
the trailing twelve-month period ended November 30, 1999. Virtually all revenue
relates to the clinic operations of AMC. Medical service expenses totaled
approximately $8.5 million resulting in a gross profit of approximately $2.0
million. Operating expenses, inclusive of FMG's significant administrative
expenses related to compliance and public filing disclosures, was $2.6 million
resulting in an operating loss of $579,000 for the trailing twelve month period.
Net interest expenses were $102,000 resulting in a pre-tax loss of $681,000.
The Company's consolidated financial statements reflect a summary line for gains
and losses related to discontinued operations. These items are recorded as
extraordinary items for each period analyzed and resulted from the operations
and disposition of FMG's now discontinued operations (managed care, physician
management, and electric supply). Due to their non-recurring nature, the gains
and losses related to these operations are not salient to the current analyses.
VALUATION ANALYSIS
HYPOTHETICAL NATURE OF THE VALUATION ANALYSIS
The Principles of Appraisal Practice and Code of Ethics of the American Society
of Appraisers defines a hypothetical appraisal as an "appraisal based on assumed
conditions which are contrary to fact or which are improbable of realization or
consummation." In these calculations we have assumed that the financial
statements of FMG, absent certain expenses related to being a public entity and
with certain other operating costs and expenses adjusted, will closely represent
the operating structure of AMC on a stand-alone basis. The goal of these
adjustments is to develop a proxy measure of cash flow and earnings for AMC as
if it were a stand-alone, privately held business which is free from the
financing encumbrances reportedly experienced by FMG. Ultimately, the estimates
of cash flow and earnings will be capitalized to develop various indications of
value attributable to AMC as if it were a stand-alone business. We note that
none of the indications of value developed in the valuation calculations
represents an opinion of the fair market value of AMC or FMG.
STANDARD OF VALUE
The valuation calculations performed in this engagement do not constitute an
appraisal of FMG or AMC. We have modeled AMC's hypothetical earnings and cash
flows in order to develop indications of value for AMC in order to test the
fairness of the contemplated transaction. The assumed model for AMC does
represent our view of the hypothetical investor as defined under the standard of
fair market value. Certain of the assumptions and adjustments used to model AMC
on a stand-alone basis result in earnings and cash flows that may be
representative of the standard of investment value (i.e., adjustments and
assumptions that may be limited in their realization to specific and/or
synergistic investors). For perspective, we provide the following definitions of
fair market value and investment value.
FAIR MARKET VALUE is defined as follows:
<PAGE>
THE AMOUNT AT WHICH PROPERTY WOULD CHANGE HANDS BETWEEN A WILLING SELLER
AND A WILLING BUYER WHEN NEITHER IS UNDER COMPULSION AND WHEN BOTH HAVE
REASONABLE KNOWLEDGE OF THE RELEVANT FACTS. 1
The willing seller and the willing buyer are hypothetical parties. Each is
assumed to be well informed about the property, and the broader market context
in which it might be transacted. Each is also assumed to have the financial
capacity to engage in a transaction involving the subject property.
Fair market value is similarly defined in various sections of the Internal
Revenue Code, related regulations, and interpretations (e.g., Revenue Ruling
59-60). "Fair market value" is the logical framework through which an effort is
made to determine the price at which the Company's common shares would trade
under the presumption that a market exists. Fair market value is considered to
represent a value at which a willing buyer and a willing seller, both being
informed of the relevant facts about the business, could reasonably conduct a
transaction, neither party acting under a compulsion to do so.
INVESTMENT VALUE is defined as follows:
THE VALUE TO A PARTICULAR INVESTOR BASED ON INDIVIDUAL INVESTMENT
REQUIREMENTS, AS DISTINGUISHED FROM MARKET VALUE, WHICH IS IMPERSONAL
AND DETACHED. 2
Investment value is generally defined as value to a specific investor based on
the investor's specific required rate of return or some other unique investment
criteria. Investment value may include valuation considerations and/or
assumptions that are not consistent with fair market value.
PREMISE OF VALUE
Although valuation is a range concept, current valuation theory suggests that
there are three basic "levels" of value applicable to a business or business
interest:
<TABLE>
<S> <C>
CONTROLLING INTEREST the value of the enterprise as a whole
MARKETABLE MINORITY INTEREST the value of a minority interest, lacking
control, but enjoying the benefit of
liquidity as if it were freely
tradable in an active market
NONMARKETABLE MINORITY INTEREST the value of a minority interest,
lacking both control and market liquidity
</TABLE>
Given that the transaction involves the change of control of AMC, the valuation
indications developed for AMC were developed at the controlling interest level
of value.
REVIEW OF ECONOMIC AND POLITICAL OPERATING ENVIRONMENTS
Two major factors contribute to the risk inherent to AMC: 1) the political
risk of operating in former communist block markets; and 2) the overall
risk of investments in physician management entities. These risks, in
addition to the specific fundamental and financial risks of the operation,
have a significant affect on the estimated value of AMC.
POLITICAL RISKS AND OPERATING ENVIRONMENT
- --------------------------
1 American Society of Appraisers, ASA BUSINESS VALUATION STANDARDS (Revision
published September, 1997), "Definitions," p. 20.
2 Pratt, Shannon P., VALUING A BUSINESS, THIRD EDITION (Chicago, IL, Irwin
Professional Publishing, 1996), p. 25.
<PAGE>
As mentioned previously, AMC operates in several Eastern European countries,
namely Czech Republic, Poland, Russia, and Ukraine. All of these countries are
in various stages of conversion to market-based economies. In addition, the
countries are converting from one-party to multi-party forms of government.
Below are excerpts from analyses of the various countries from the 1999 WORLD
FACTBOOK produced by the United States Central Intelligence Agency:
CZECH REPUBLIC
Once part of the Holy Roman Empire and, later, the Austro-Hungarian monarchy,
Czechoslovakia became an independent nation at the end of World War I.
Independence ended with the German takeover in 1939. After World War II,
Czechoslovakia fell within the Soviet sphere of influence, and in 1968 an
invasion by Warsaw Pact troops snuffed out anti-communist demonstrations and
riots. With the collapse of Soviet authority in 1991, Czechoslovakia regained
its freedom. On 1 January 1993, the country peacefully split into its two ethnic
components, the Czech Republic and Slovakia. The Czech Republic, largely by
aspiring to become a NATO and EU member, has moved toward integration in world
markets, a development that poses both opportunities and risks. But Prague has
had a difficult time convincing the public that membership in NATO is crucial to
Czech security. At the same time, support for eventual EU membership is waning.
Coupled with the country's worsening economic situation, Prague's political
scene, troubled for the past three years, will remain so for the foreseeable
future. Political and financial crises in 1997 shattered the Czech Republic's
image as one of the most stable and prosperous of post-Communist states. Delays
in enterprise restructuring and failure to develop a well-functioning capital
market played major roles in Czech economic troubles, which culminated in a
currency crisis in May. The currency was forced out of its fluctuation band as
investors worried that the current account deficit, which reached nearly 8% of
GDP in 1996, would become unsustainable. After expending $3 billion in vain to
support the currency, the central bank let it float. The growing current account
imbalance reflected a surge in domestic demand and poor export performance, as
wage increases outpaced productivity. The government was forced to introduce two
austerity packages later in the spring which cut government spending by 2.5% of
GDP. A tough 1998 budget continued the painful medicine. These problems were
compounded in the summer of 1997 by unprecedented flooding which inundated much
of the eastern part of the country. Czech difficulties contrast with earlier
achievements of strong GDP growth, a balanced budget, and inflation and
unemployment that were among the lowest in the region. The Czech economy's
transition problems continue to be too much direct and indirect government
influence on the privatized economy, the sometimes ineffective management of
privatized firms, and a shortage of experienced financial analysts for the
banking system. The country slipped into a mild recession in 1998, but hopes to
rebound with 1% growth in 1999.
Poland
Poland today stands out as one of the most successful and open transition
economies. The privatization of small and medium state-owned companies and a
liberal law on establishing new firms marked the rapid development of a private
sector now responsible for 70% of economic activity. In contrast to the vibrant
expansion of private non-farm activity, the large agriculture component remains
handicapped by structural problems, surplus labor, inefficient small farms, and
lack of investment. The government's determination to enter the EU as soon as
possible affects all aspects of its economic policies. Improving Poland's
worsening current account deficit also is a priority. To date, the government
has resisted pressure for protectionist solutions and continues to support
regional free trade initiatives. The government export strategy emphasizes a
more aggressive export assistance program. Warsaw continues to hold the budget
deficit to less than 2% of GDP. Further progress on public finance depends
mainly on comprehensive reform of the social welfare system and privatization of
Poland's remaining state sector. Restructuring and privatization of "sensitive
sectors" (e.g., coal, steel, and telecommunications) has begun. Long-awaited
privatizations in aviation and energy are scheduled for 1999.
<PAGE>
Russia
Russia, a vast Eurasian expanse of field, forest, desert, and tundra, has
endured many "times of trouble"--the Mongol rule of the 13th to 15th century;
czarist reigns of terror; massive invasions by Swedes, French, and Germans; and
the deadly communist period (1917-91) in which Russia dominated an immense
Soviet Union. General Secretary Mikhail Gorbachev, in charge during 1985-91,
introduced glasnost (openness) and perestroika (restructuring) in an attempt to
modernize communism, but also inadvertently released forces that shattered the
USSR into 15 independent republics in December 1991. Russia has struggled in its
efforts to build a democratic political system and market economy to replace the
strict social, political, and economic controls of the communist period. These
reform efforts have resulted in contradictory and confusing economic and
political regulations and practices. Industry, agriculture, the military, the
central government, and the ruble have suffered, but Russia has successfully
held one presidential, two legislative, and numerous regional elections since
1991. The severe illnesses of President Boris Yeltsin have contributed to a lack
of policy focus at the center.
Seven years after the collapse of the USSR, Russia is still struggling to
establish a modern market economy and achieve strong economic growth. Russian
GDP has contracted an estimated 43% since 1991, including a 5% drop in 1998,
despite the country's wealth of natural resources, its well-educated population,
and its diverse--although increasingly dilapidated--industrial base. By the end
of 1997, Russia had achieved some progress. Inflation had been brought under
control, the ruble was stabilized, and an ambitious privatization program had
transferred thousands of enterprises to private ownership. Some important
market-oriented laws were also passed, including a commercial code governing
business relations and an arbitration court for resolving economic disputes. But
in 1998, the Asian financial crisis swept through the country, contributing to a
sharp decline in Russia's earnings from oil exports and resulting in an exodus
of foreign investors. Matters came to a head in August 1998 when the government
allowed the ruble to fall precipitously and stopped payment on $40 billion in
ruble bonds. Ongoing problems include an undeveloped legal and financial system,
poor progress on restructuring the military-industrial complex, and persistently
large budget deficits, largely reflecting the inability of successive
governments to collect sufficient taxes. Russia's transition to a market economy
has also been slowed by the growing prevalence of payment arrears and barter and
by widespread corruption. The severity of Russia's economic problems is
dramatized by the large annual decline in population, estimated by some
observers at 800,000 people, caused by environmental hazards, the decline in
health care, and the unwillingness of people to have children.
Ukraine
After Russia, the Ukrainian republic was far and away the most important
economic component of the former Soviet Union, producing about four times the
output of the next-ranking republic. Its fertile black soil generated more than
one fourth of Soviet agricultural output, and its farms provided substantial
quantities of meat, milk, grain, and vegetables to other republics. Likewise,
its diversified heavy industry supplied equipment and raw materials to
industrial and mining sites in other regions of the former USSR. Ukraine depends
on imports of energy, especially natural gas. Shortly after the implosion of the
USSR in December 1991, the Ukrainian Government liberalized most prices and
erected a legal framework for privatization, but widespread resistance to reform
within the government and the legislature soon stalled reform efforts and led to
some backtracking. Output in 1992-98 fell to less than half the 1991 level.
Loose monetary policies pushed inflation to hyperinflationary levels in late
1993. Since his election in July 1994, President Kuchma has pushed economic
reforms, maintained financial discipline, and tried to remove almost all
remaining controls over prices and foreign trade. The onset of the financial
crisis in Russia dashed Ukraine's hopes for its first year of economic growth in
1998 due to a sharp fall in export revenue and reduced domestic demand. Although
administrative currency controls will be lifted in early 1999, they are likely
to be reimposed when the hryvnia next comes under pressure. The currency is only
likely to collapse further if Ukraine abandons tight monetary policies or
threatens default. Despite increasing pressure from the IMF to accelerate
reform, significant economic restructuring remains unlikely in 1999.
PUBLIC MARKET AND BRIEF INDUSTRY OVERVIEW
<PAGE>
The healthcare industry has seen a dramatic shift in the popularity of privately
capitalized companies, particularly physician management companies. While AMC is
arguably more than just a physician management operation, public market data
pertaining to companies in the same or similar industries as AMC is limited to
physician management companies and clinic operators. These companies are
detailed (with operating statistics) in Exhibit G, and certain transactions
regarding the sale of physician practices are detailed in Exhibit H. The public
group of companies indicate trading prices near 52-week lows in each instance,
with lows approximating 1/3 of the 52-week high trade price. Earnings across the
board are lower, with the vast majority of companies in similar lines of
business posting losses in both earnings and primary cash flow measures. The
exit of MedPartners from the physician practice management business, as well as
a significant divestiture of hospital-owned physician practices, has likely
contributed to the overall decline in value of physician groups in the domestic
market. Mercer Capital reviewed transaction data compiled by Irving Levin and
Associates and MERGERSTAT REVIEW to examine physician group change of control
pricing. A notable trend in the latest two quarters is the repurchase of several
physician practices by prior sellers who sold some years back during an
expansionary period, and a general fragmentation of the market since the
collapse of the large public physician management companies.
Based on the consideration of the above, there would appear to be few if any
active buyers for physician clinics in the U.S. domestic market. This apparent
weak demand would likely be further diminished for a company like AMC given that
its operations are based entirely in a risky Eastern Europe market. Accordingly,
we have not modeled any indication of value for AMC on the basis of the limited
data pertaining to transactions in the U.S. domestic market.
OVERVIEW OF VALUATION CALCULATIONS
The American Society of Appraisers recognizes three general approaches to
valuation.3 Within each approach the appraiser may apply various specific
appraisal methods.
<TABLE>
<S> <C>
- - Asset-Based Approach A GENERAL WAY OF DETERMINING A VALUE
INDICATION OF A BUSINESS'S ASSETS AND/OR
EQUITY INTEREST USING ONE OR MORE
METHODS BASED DIRECTLY ON THE VALUE OF
THE ASSETS OF THE BUSINESS LESS
LIABILITIES.
Asset-based valuation methods include
those methods that seek to write up (or
down) or otherwise adjust the various
tangible and/or intangible assets of an
enterprise.
- - Market Approach A GENERAL WAY OF DETERMINING A VALUE
INDICATION OF A BUSINESS, BUSINESS
OWNERSHIP INTEREST OR SECURITY USING ONE
OR MORE METHODS THAT COMPARE THE SUBJECT
TO SIMILAR BUSINESSES, BUSINESS
OWNERSHIP INTERESTS OR SECURITIES THAT
HAVE BEEN SOLD.
Market methods include a variety of
methods that compare the subject with
transactions involving similar
investments, including publicly traded
guideline companies and sales involving
controlling interests in public or
private guideline companies.
Consideration of prior transactions in
interests of a valuation subject is also
a method under the market approach.
</TABLE>
- ---------------------------
3 American Society of Appraisers, ASA BUSINESS VALUATION STANDARDS (Revision
published September, 1997), "Definitions," p. 19.
<PAGE>
<TABLE>
<S> <C>
- - Income Approach A GENERAL WAY OF DETERMINING A VALUE
INDICATION OF A BUSINESS, BUSINESS
OWNERSHIP INTEREST OR SECURITY USING ONE
OR MORE METHODS WHEREIN VALUE IS
DETERMINED BY CONVERTING ANTICIPATED
BENEFITS.
Valuation methods under the income
approach include those methods that
provide for the direct capitalization of
earnings estimates, as well as valuation
methods calling for the forecasting of
future benefits (earnings or cash flows)
and then discounting those benefits to
the present at an appropriate discount
rate.
</TABLE>
The calculations overviewed in this document utilize variations of the asset,
market, and income approaches. The accompanying worksheets contain numerous
explanatory notes and observations and are an important element in the
collective analysis.
DISCUSSION OF RELATIVE VALUE INDICATIONS
The purpose of the following calculations is to develop indications of estimated
value for AMC in order to assess the fairness of the consideration offered for
the purchase of AMC. This is accomplished in the context of analyzing the
consolidated value of FMG before and after the transaction. Mercer Capital has
examined the transaction from several aspects in order to obtain indications of
value to be used in the comparison to the consideration offered. These
calculations are presented in the accompanying worksheets denoted as Exhibits
V-1 through V-8.
TRANSACTIONS IN FMG STOCK
FMG is a publicly traded company and as such has some history of market pricing
of the stock. The stock is thinly traded, averaging volume of only 300 shares
per day for the prior 12 months, out of approximately 650,000 shares owned in
the public market. The reported closing price for FMG stock during recent months
has consistently been in the neighborhood of $0.125 per share. Transactions in
FMG stock do not provide a reasonable indication of value for AMC.
NET ASSET VALUE
The primary question to be answered from a fairness perspective is the financial
position of the shareholders before and after the transaction. We believe that
Net Asset Value is a reasonable way to examine the financial position of
shareholders before and after the transaction. We have started by eliminating
goodwill from the consolidated balance sheet to arrive at a tangible,
pre-transaction, book value for FMG. This total was then adjusted to reflect two
possible courses of action:
1. Maintain AMC as a subsidiary and reflect the highest reasonable
estimate of market value for AMC; or,
2. Accept the consideration of the transaction in lieu of retaining the
operating subsidiary.
In both instances, the Tangible Book Value of AMC (as described by Management)
is eliminated from the Tangible Book Value of FMG. The comparison is in the
indication of value for AMC versus the consideration offered by the purchaser.
If the post-transaction shareholder position is financially better than the
position of a shareholder by retaining AMC as an operating subsidiary, then the
anti-dilutive effects of the purchaser's share surrender only provide additional
benefit to FMG's remaining shareholders.
INDICATION OF AMC MARKET VALUE
<PAGE>
In our determination of the pre-transaction Net Asset Value of FMG (retaining
AMC as a subsidiary) we used various methods to capture the market value of AMC,
all of which involve capitalization of future cash flows and/or earnings. The
first step we took was to adjust the income stream of FMG to:
1. Remove non-recurring items; and,
2. Remove the estimated cost of being a public company; and,
3. Adjust expenses to "normal" (or alternative) levels.
These adjustments are detailed on Exhibit V-2. The result of these
adjustments is a pre-tax income of $4,000 for the past twelve months ended
November 30, 1999, on $10.5 million in total revenue.
In order to estimate on-going pre-tax earning power, we averaged the results of
the twelve months ended November 30, 1999, with the prior two years of adjusted
earnings. This results in an estimate of ongoing earning power of $160,000.
Given the financial performance of AMC has deteriorated over time, this estimate
may appear optimistic, but it is utilized in order to derive the highest
reasonable indication(s) of value.
- - We used the beta (a value of volatility) from the guideline group, which
is detailed on Exhibit G. This beta lowers overall risk, and tends to
inflate value.
- - We estimated a specific company risk premium at 10%. The required return
for a hypothetical investor totals 23%, a rate we consider modest given the
company's history, operating environment, and prospects for growth.
- - We estimated growth at 3-5% annually, largely based on price growth. We
believe this estimate to be somewhat aggressive, particularly given the
currency risk inherent in the company, combined with declining expatriot
populations in Russia and Ukraine.
- - To the resulting minority interest capitalization factor of 5.35x
(based on a required return capitalization rate of 19%) we added a
modest 15% control premium.
- - To the final Controlling Interest ACAPM Capitalization Factor of 6.15x, we
adjusted the rate to reflect a corresponding pre-tax equivalent ACAPM
factor (3.7x).
The resulting capitalization of $160,000 in ongoing, pre-tax earning power
times the factor of 3.7x, yields an ACAPM indication of value for the
equity of AMC of $592,000.
GUIDELINE COMPANY METHOD
Our guideline group of companies consist of public companies identified by
Mercer Capital as operating in the same or similar business as AMC. Primarily
these companies are managers of various types of physician groups and other
health care clinics. The companies with negative earnings were eliminated, as
were companies with substantial size premiums to AMC (over $400 million in
revenue, versus AMC's $10 million in revenue). One company was eliminated from
the comparison group because of measures of value that significantly exceeded
the norm for the group.
The resulting median measures were used to capitalize pre-tax and pre-debt
measures of earnings. These calculations are detailed on Exhibits V-6 and
V-7. We have assumed that AMC continues with no debt, again, to arrive at the
highest reasonable indications of value. Based on our observations on V-5
about the implied growth and risk profiles of the guideline group, we applied
a fundamental adjustment to the result of the capitalization calculation on
the order of 50%.
CAPITALIZED EARNINGS
The Guideline Company method to capitalize earnings is similar to the ACAPM
method, and with a 50% fundamental adjustment applied to the guideline group
price/earnings ratio (also called the Base Guideline Company Capitalization
Factor), results in a similar indication as the ACAPM analysis. The fundamental
adjustment recognizes the differences in the risk and expected growth profiles
between the subject entity and the guideline companies.
<PAGE>
CAPITALIZATION OF EBITDA / EBIT
We also calculated AMC's measures of earnings against the ratios for the
guideline groups. The EBITDA value resulted in the highest indication of value,
at $1.3 million.
SUMMARY OF CONSIDERATION VERSUS INDICATION OF VALUE
In order to determine fairness, Mercer Capital selected the highest indication
of value ($1.3 million) to use as the market value of AMC. The resulting
calculation, detailed on Exhibit V-1, shows the write-up from book value to
estimated market value. As a result, the Net Asset Value of FMG, retaining AMC
as a subsidiary, is $322,000 (rounded).
By comparison, we eliminated the tangible book value of AMC and increased the
Net Asset Value of FMG for the transaction consideration. The resulting Net
Asset Value is $1,133,000 (rounded). As such, the shareholder is financially
better off after the transaction. This determination is prior to the
anti-dilutive effects of the purchaser's surrender of stock, options, and
warrants as a part of the transaction. The anti-dilutive effects of the
surrender only increase the shareholder's position further from a financial
perspective.
<PAGE>
EXHIBIT V-1
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
TRANSACTIONS METHOD (FMG CONSOLIDATED) Source/Comments
======================================= ----------------------------------------
<S> <C> <C>
Transaction Price Per Share $0.1250 Per recent trading activity
x Total Shares Outstanding 11,067,292 Exhibit 5
-----------
= Implied Value $1,383,412
===========
VALUATION INDICATION: TRANSACTIONS VALUE $1,383,000 Rounded to: $1,000
===========
</TABLE>
- Due to the thin trading history in the stock, this indication of value
is not considered definitive of intrinsic value.
- Consolidated Transaction Value of FMG is not meaningful to the
analysis of the contemplated transaction involving the sale of FMG's
AMC subsidiary.
<PAGE>
EXHIBIT V-2
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF NOVEMBER 30, 1999
<TABLE>
SUMMARY VALUATION OF FMG BASED ON PRE- AND POST-TRANSACTION NET ASSET VALUE ANALYSIS
===================================================================================================================================
<S> <C> <C> <C> <C>
SHARES BOOK VALUE
OUTSTANDING PER SHARE
-------------------------
Reported Book Value @ 11/30/99 $353,372 EXHIBIT 1; FMG CONSOLIDATED 11,067,292 $0.0319
========================
Adjustments:
Write-Off of Notes Payable and Accrued Interest(1) 1,316,742 EXHIBIT 1, AS OF NOVEMBER 30, 1999
Write-Off of Intangible Assets (2,193,837) GOODWILL AND NON-COMPETE AGREEMENTS
---------
PRE-TRANSACTION TANGIBLE BOOK VALUE (523,723) COMMON TO I & II BELOW 11,067,292 ($0.0473)
I. ADJUSTMENTS TO CAPTURE ESTIMATED VALUE OF AMC: ========================
1) Eliminate Cash (162,797) NO MEANINGFUL VALUE
2) Eliminate Trade Receivables (415,331)
3) Eliminate Inventory (105,796)
4) Eliminate Prepaid Expenses (455,710)
5) Eliminate Net Fixed Assets (1,665,442) PER NOV. 30, 1999 AMC BALANCE SHEET PROVIDED BY MANAGEMENT
6) Eliminate Other Assets (77,026)
7) Eliminate Accounts Payable 754,483
8) Eliminate Accrued Expenses 884,930
I. PRE-TRANSACTION
9) Eliminate Corporate Deposits 824,932 ------------------------
10) Add Estimated Indication of SHARES BOOK VALUE
Value of AMC (Highest Estimate) 1,263,000 PER EXHIBITS V-3 TO V-8 OUTSTANDING PER SHARE
--------- -------------------------
PRE-TRANSACTION NET ASSET VALUE INDICATION $321,520 ==========> 11,067,292 $0.0291
========= ========================
II. ADJUSTMENTS TO CAPTURE PROPOSED
TRANSACTION CONSIDERATION:
1) Eliminate Cash (162,797)
2) Eliminate Trade Receivables (415,331)
3) Eliminate Inventory (105,796)
4) Eliminate Prepaid Expenses (455,710)
5) Eliminate Net Fixed Assets (1,665,442) PER NOV. 30, 1999 AMC BALANCE SHEET PROVIDED BY MANAGEMENT
6) Eliminate Other Assets (77,026)
7) Eliminate Accounts Payable 754,483
8) Eliminate Accrued Expenses 884,930
9) Eliminate Corporate Deposits 824,932 II. POST-TRANSACTION
10) Liabilities of FMG Assumed by Buyer(2) 1,374,617 PER ASSET PURCHASE AGREEMENT (BEFORE ANTI-DILUTION)
11) Cash Paid by Buyer 1,000,000 PER ASSET PURCHASE AGREEMENT -------------------------
12) Note Payable to Buyer Eliminated in SHARES BOOK VALUE
Cash Settlement (300,000)PER ASSET PURCHASE AGREEMENT OUTSTANDING PER SHARE
--------- -------------------------
POST-TRANSACTION NET ASSET VALUE INDICATION $1,133,137 ==========> 11,067,292 $0.1024
========== ========================
-------------------------------------------------------------------------------
BASED ON THE POST-TRANSACTION NET ASSET VALUE OF FMG BEING HIGHER THAN THE POST-TRANSACTION
PRE-TRANSACTION NET ASSET VALUE OF FMG, THE CONSIDERATION OFFERED FOR FMG'S (AFTER ANTI-DILUTION)
AMC SUBSIDIARY APPEARS FAIR FROM A FINANCIAL POINT OF VIEW TO THE SHAREHOLDERS. -------------------------
-------------------------------------------------------------------------------- 5,312,532 $0.2133
=========================
</TABLE>
Note: Outstanding stock is reduced, pro-forma by the surrender of stock owned by
Sokol, SAJH Partners, and Cenvet, Inc., as follows:
<TABLE>
<S> <C> <C>
Outstanding(3) 11,067,292
Sokol Affiliated Group(3) 5,754,760 "SOKOL AFFILIATED GROUP" ARE THE SHARES TO BE
---------- SURRENDERED AS PART OF THE TRANSACTION.
Pro-forma Outstanding(3) 5,312,532
==========
</TABLE>
Memo: Implied AMC tangible book value implied by above adjustments (net of
management indicated eliminations) = $417,757
(1) The Notes are currently in default and according to legal counsel, are not
expected to be paid. We have eliminated the amount on the balance sheet as
of November 30, 1999, for these calculations. As of the transaction date,
the balance of these notes with accrued interest was $934,000 as discussed
in the text of the fairness opinion and fairness memorandum.
(2) Because we have eliminated the notes prior to any analysis of the
consideration offered, we have also excluded the notes from our calculation
of the purchase consideration. Liabilities assumed are gross dollar totals
per the Asset Purchase Agreement.
(3) Per legal counsel; Sokol Group to surrender 52% at closing.
<PAGE>
EXHIBIT V-3
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
<TABLE>
DERIVATION OF ADJUSTED INCOME STATEMENTS (PROXY FOR AMC*)
===================================================================================================================================
<S> <C> <C> <C> <C>
FY Ended December 31
Last 12 mos. --------------------------
Income Statements 11/30/99 1998 1997
- --------------------------------- -----------------------------------------
Reported Net Sales $10,540,702 $10,947,463 $9,019,156
(1) Eliminate Legal Reimbursement (232,000) 0 0 PER 9/30/99 10-Q, LEGAL SETTLEMENTS (NON-RECURRING)
-----------------------------------------
ADJUSTED NET SALES $10,308,702 $10,947,463 $9,019,156
Reported Cost of Goods Sold 8,490,408 9,260,360 7,134,408
No Adjustment Required 0 0 0
-----------------------------------------
ADJUSTED COST OF GOODS SOLD 8,490,408 9,260,360 7,134,408
-----------------------------------------
ADJUSTED GROSS PROFIT $1,818,294 $1,687,103 $1,884,748
Reported Operating Expense 2,629,217 2,151,274 1,956,140
(2) New Facility
Construction Salary (75,000) 0 0 PER 9/30/99 10-Q, SALARY FOR PROJECT PUT ON HOLD
(3) Eliminate Dominion
Healthnet Settlement (165,000) 0 0 PER 9/30/99 10-Q, LEGAL SETTLEMENTS (NON-RECURRING)
(4) Eliminate Employee
Compensation Settlement (30,000) 0 0 PER 9/30/99 10-Q, LEGAL SETTLEMENTS (NON-RECURRING)
(5) Normalize Management
Compensation (200,000) (200,000) (200,000) TO NORMALIZE MANAGEMENT COMPENSATION
(6) Amortization on
Start-up Costs (39,000) 0 0 PER 9/30/99 10-Q, NON-RECURRING AMORTIZATION
(7) Eliminate Stamford Office
Rent and Utilities (56,100) (56,100) (56,100) PER 12/31/98 10-K, PLUS 10% FOR UTILITIES EXPENSE
(8) Eliminate Estimated
Public Company Costs (250,000) (250,000) (250,000) MGMT. EST. OF AUDIT AND LEGAL FEES RELATED TO PUBLIC
----------------------------------------- FILINGS
ADJUSTED OPERATING EXPENSE 1,814,117 1,645,174 1,450,040
-----------------------------------------
ADJUSTED OPERATING INCOME $4,177 $41,929 $434,708
Reported Other Income / -Expense (101,829) (167,170) (196,887)
(9) Eliminate Reported
Other Income / -Expense 101,829 167,170 196,887 PRO FORMA CAPITAL STRUCTURE ASSUMED DEBT-FREE
-----------------------------------------
ADJUSTED OTHER INCOME / -EXPENSE 0 0 0
-----------------------------------------
ADJUSTED PRE-TAX INCOME / (LOSS) $4,177 $41,929 $434,708
=========================================
PROXY FOR STAND-ALONE AMC EARNINGS*
Memo: Operating Cash Flow Summary
- ----------------------------------
Adjusted Pre-Tax Income / (Loss) $4,177 $41,929 $434,708
- - Interest Income 0 0 0
+ Interest Expense 0 0 0 PRO FORMA CAPITAL STRUCTURE ASSUMED DEBT-FREE
-----------------------------------------
ADJUSTED EARNINGS BEFORE
INT. & TAXES (EBIT) 4,177 41,929 434,708
+ Depreciation & Adjusted
Amortization (1) 381,001 226,992 215,338 EXCLUDING AMORTIZATION ADJUSTMENT IN (6) ABOVE.
-----------------------------------------
ADJ EARNINGS BEF INT,
TAXES & DEPRC (EBITDA) $385,178 $268,921 $650,046 MANAGEMENT INDICATES THAT AMC SHOULD BE ALLOCATED
- - Capital Expenditures 0 0 0 APPROXIMATELY $300M IN DEPR. AND AMORT. WE HAVE
========================================= ADDED ALL DEPR. AND AMORT., MAXIMIZING EBITDA AND
OPERATING CASH FLOW (EBITDA-CAPEX) $385,178 $268,921 $650,046 RESULTING IN A POTENTIALLY INFLATED MEASURE OF
========================================= EBITDA. THIS ASSUMPTION PROVIDES CONSERVATISM FOR
PURPOSES OF TESTING FAIRNESS.
</TABLE>
NOTES REGARDING REFERENCED ADJUSTMENTS
- ---------------------------------------
*IN ADDITION TO NORMALIZING THE INCOME STATEMENT AND/OR ELIMINATING
NON-RECURRING ITEMS, THE GOAL OF SEVERAL OF THE ABOVE ADJUSTMENTS IS TO MODEL
THE "STAND-ALONE" EARNINGS AND CASH FLOW OF AMC. CONSEQUENTLY, THE SUBSEQUENT
EARNINGS CAPITALIZATION WILL REFLECT AN ESTIMATED VALUE ATTRIBUTABLE TO CLINIC
OPERATIONS AS IF THESE OPERATIONS WERE ON A STAND-ALONE BASIS.
(1) DEPRECIATION AT THIS LEVEL IS NOT SUSTAINABLE WITHOUT SIGNIFICANT ONGOING
CAPITAL EXPENDITURES.
<PAGE>
EXHIBIT V-4
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
FY Ended December 31
Last 12 mos. ---------------------------------------
Reported Margin Analysis (FMG) 11/30/99 1998 1997
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C>
Reported Net Sales 100.0% 100.0% 100.0%
Reported Cost of Goods Sold 80.5% 84.6% 79.1%
---------------------------------------------------------------------------
Reported Gross Profits 19.5% 15.4% 20.9%
Reported Operating Expense 24.9% 19.7% 21.7%
---------------------------------------------------------------------------
Reported Operating Income -5.5% -4.2% -0.8%
Reported Other Income/(Expense) -1.0% -1.5% -2.2%
---------------------------------------------------------------------------
REPORTED PRE-TAX INCOME/(LOSS) -6.5% -5.8% -3.0%
===========================================================================
Memo: Reported EBIT -5.5% -4.2% -0.8%
Reported EBITDA -1.5% -2.2% 1.6%
===========================================================================
Adjusted Margin Analysis (AMC)
- -------------------------------------
Adjusted Net Sales 100.0% 100.0% 100.0%
Adjusted Cost of Goods Sold 82.4% 84.6% 79.1%
---------------------------------------------------------------------------
Adjusted Gross Profits 17.6% 15.4% 20.9%
Adjusted Operating Expense 17.6% 15.0% 16.1%
---------------------------------------------------------------------------
Adjusted Operating Income 0.0% 0.4% 4.8%
Adjusted Other Income/(Expense) 0.0% 0.0% 0.0%
---------------------------------------------------------------------------
ADJUSTED PRE-TAX INCOME/(LOSS) 0.0% 0.4% 4.8%
===========================================================================
Memo: Adjusted EBIT 0.0% 0.4% 4.8%
Adjusted EBITDA 3.7% 2.5% 7.2%
===========================================================================
</TABLE>
DEVELOPMENT OF ONGOING EARNING POWER (PROXY FOR AMC)
====================================================
<TABLE>
<CAPTION>
FY Ended December 31
Last 12 mos. -------------------------------------------
Adjusted Income Statements 11/30/99 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $10,308,702 $10,947,463 $9,019,156
Cost of Goods Sold 8,490,408 9,260,360 7,134,408
---------------------------------------------------------------------------
Gross Profit 1,818,294 1,687,103 1,884,748
Operating Expenses 1,814,117 1,645,174 1,450,040
---------------------------------------------------------------------------
Operating Income 4,177 41,929 434,708
Net Other Income / (Expense) 0 0 0
---------------------------------------------------------------------------
ADJUSTED PRE-TAX INCOME $4,177 $41,929 $434,708
---------------------------------------------------------------------------
- - Interest Income 0 0 0
+ Interest Expense 0 0 0
---------------------------------------------------------------------------
ADJUSTED EARNINGS BEFORE INT. & TAXES (EBIT) 4,177 41,929 434,708
+ Depreciation & Adjusted Amortization 381,001 226,992 215,338
---------------------------------------------------------------------------
ADJ EARNINGS BEF INT, TAXES & DEPRC (EBITDA) $385,178 $268,921 $650,046
===========================================================================
Earning Power From Adjusted Pre-Tax Income
Weight on Adjusted Pre-Tax Income 1 1 1
Ongoing Pre-Tax Income $160,000 DOLLAR-BASED ESTIMATE
ONGOING PRE-TAX EARNING POWER $160,000 ONGOING PRE-TAX MARGIN = 1.55%
=================
(BASED ON PRE-TAX INCOME)
NOTE: SOME FOREIGN TAX EXPENSES ARE IMBEDDED IN OPERATING
EXPENSES. DUE TO THE VOLATILITY OF FOREIGN TAXATION,
ESTIMATES OF ONGOING FOREIGN TAX LIABILITIES WOULD BE
SPECULATIVE AT BEST. MCM WILL CREATE A TAX-EQUIVALENT
MULTIPLE TO USE IN CAPITALIZING EARNING POWER.
ONGOING EBITDA $435,000 SAME WEIGHTS AS ONGOING PRE-TAX
==================
</TABLE>
<PAGE>
EXHIBIT V-5
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
DIRECT CAPITALIZATION OF EARNINGS METHOD (using ACAPM)
=======================================================
<TABLE>
<CAPTION>
DERIVATION OF CAPITALIZATION FACTOR SOURCE/COMMENTS
- ------------------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C>
Long-Term Government Bond Yield-
to-Maturity 6.72% YIELD-TO-MATURITY ON 20 YEAR TREASURIES, JANUARY 31, 2000
Ibbotson Common Stock Premium 6.20% PER MERCER STUDIES OF THE IBBOTSON LARGE CAPITALIZATION STOCK PREMIUM
x Guideline Beta 0.43 PER GUIDELINE GROUP (NOT ADJUSTED FOR LEVERAGE)
-------
= Beta Adjusted Common Stock Premium 2.67%
+ Small Capitalization Stock Premium 3.30% PER MERCER STUDIES OF THE IBBOTSON SMALL CAPITALIZATION STOCK PREMIUM
-------
= Total Equity Premium 5.97%
+ Company Risk Premium 10.00% MCM ESTIMATE, HALF SOVEREIGN RISK AND HALF BUSINESS RISK
-------
= Discount Rate (Required Rate
of Return) 22.69%
- - Sustainable Growth Rate
in Earning Power -4.00% MCM ESTIMATE OF PRICE GROWTH (3%-5%)
-------
= Minority Interest Capitalization
Rate (CR) 18.69%
Minority Interest Capitalization
Factor (1/CR, or P/E Ratio) 5.35
+ Control Premium 15% 0.80 MITIGATED BY CONTROL ADJUSTMENTS TO EARNINGS (10%-20%)
-------
= Controlling Interest ACAPM
Capitalization Factor 6.15 AFTER-TAX BASIS
Tax-equivalency effect of ACAPM 60% TO REFLECT MCM ESTIMATE OF DOMESTIC TAXES AT 40%
-------
Pre-Tax ACAPM Capitalization Factor 3.69 PRE-TAX BASIS
=======
PRE-TAX ACAPM CAPITALIZATION FACTOR 3.70 Rounded to: 0.05
=======
DERIVATION OF VALUE
- ---------------------------
Ongoing Pre-Tax Earning Power $160,000 EXHIBIT V-5
x ACAPM Capitalization Factor 3.70 Per Above
----------
= Capitalized Earnings Value $592,000
+/- Adjustments for Non-Operating /
Off Balance Sheet Items
None Identified 0
----------
= Adjusted Capitalized Earnings Value $592,000
==========
VALUATION INDICATION:
DIRECT CAPITALIZATION OF EARNINGS VALUE (using ACAPM) $592,000 Rounded to: $1,000
==========
INDICATED VALUE IS NOT INTENDED TO BE DEFINITIVE OF FAIR MARKET VALUE
</TABLE>
SENSITIVITY TO ACAPM INDICATION OF VALUE RELATED TO AMC OPERATIONS
==================================================================
<TABLE>
<CAPTION>
RANGE OF ONGOING EARNING POWER
-----------------------------------------------------------------------------------------------------
50,000 100,000 150,000 160,000 200,000 250,000 300,000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.50 125,000 250,000 375,000 400,000 500,000 625,000 750,000
RANGE OF 3.00 150,000 300,000 450,000 480,000 600,000 750,000 900,000
ACAPM MULTIPLE 3.50 175,000 350,000 525,000 560,000 700,000 875,000 1,050,000
3.70 185,000 370,000 555,000 592,000 740,000 925,000 1,110,000
4.00 200,000 400,000 600,000 640,000 800,000 1,000,000 1,200,000
4.50 225,000 450,000 675,000 720,000 900,000 1,125,000 1,350,000
5.00 250,000 500,000 750,000 800,000 1,000,000 1,250,000 1,500,000
</TABLE>
<PAGE>
EXHIBIT V-6
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
GUIDELINE COMPANY METHOD - EARNINGS CAPITALIZATION (AMC)
========================================================
<TABLE>
<CAPTION>
DERIVATION OF CAPITALIZATION FACTOR SOURCE/COMMENTS
- --------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
Base Guideline Company Capitalization Factor 11.07 SEE EXHIBIT G
- - Fundamental Adjustment 50% (5.54) SEE ANALYSIS BELOW
------------
= Adjusted Guideline Company Capitalization Factor 5.54
+ Control Premium 15% 0.83 PER ACAPM
------------
= Controlling Interest Capitalization Factor 6.37
Tax-equivalency 60% TO REFLECT MCM ESTIMATE OF TAXES AT 40%
------------ Rounded to:
Pre-Tax Earnings Capitalization Factor 3.82
============
PRE-TAX EARNINGS CAPITALIZATION FACTOR 3.80 Rounded to: 0.05
============
DERIVATION OF VALUE
- ---------------------------------------------
Ongoing Pre-Tax Earning Power $160,000 SEE EXHIBIT V-5
x Guideline Company Capitalization Factor 3.80 DERIVED ABOVE
------------
= Capitalized Earnings Value $608,000
+/- Adjustments for Non-Operating / Off Balance Sheet Items
None Required
Total Non-Operating / Off Balance Sheet Items 0
------------
= Adjusted Capitalized Earnings Value $608,000
============
VALUATION INDICATION (AMC):
GUIDELINE COMPANY METHOD - EARNINGS CAPITALIZATION $608,000 Rounded to: $1,000
============
INDICATED VALUE IS NOT INTENDED TO BE DEFINITIVE OF FAIR MARKET VALUE
</TABLE>
<TABLE>
<CAPTION>
DERIVATION OF FUNDAMENTAL ADJUSTMENT USING THE ACAPM SOURCE/COMMENTS
- --------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
PUBLIC (GUIDELINE) COMPANY GROWTH RATE ANALYSIS
Long-Term Government Bond Yield-to-Maturity 6.72% PER ACAPM
Ibbotson Common Stock Premium 6.20% PER ACAPM
x Guideline Beta 0.43 PER ACAPM
------
= Beta Adjusted Common Stock Premium 2.67%
+ Small Cap Stock Premium 3.30% PER ACAPM
------
= Total Equity Premium 5.97%
-------
Industry Discount Rate (required rate of return 12.69%
- - Industry Cap Rate (1/P/E) -9.03%
--------
= IMPLIED GROWTH RATE FOR PUBLIC COMPANIES 3.66%
=========
</TABLE>
<TABLE>
<CAPTION>
Set Growth &
SET GROWTH = SET SPECIFIC RISK = SPECIFIC RISK =
SUBJECT COMPANY ANALYSIS TO PUBLIC GROUP TO PUBLIC GROUP TO SUBJECT CO.
- -------------------------------------------- ---------------- -------------------- ---------------
<S> <C> <C> <C>
Long-Term Government Bond Yield-to-Maturity 6.72% 6.72% 6.72%
Total Equity Premium (see above) 5.97% 5.97% 5.97%
Company Risk Premium 10.00% 0.00% 10.00%
-------------- ------------------- --------------
Discount Rate (required rate of return) 22.69% 12.69% 22.69%
Growth Rate Estimate -3.66% -4.00% -4.00%
--------------- ------------------- --------------
Implied Capitalization Rate (CR) 19.03% 8.69% 18.69%
Implied Capitalization Factor (CF) 5.25 11.51 5.35
Implied Adjustment from Public Company P/E 53% -4% 52%
- ----------------------------------------------------------------------
FUNDAMENTAL ADJUSTMENT USED 50%
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT V-7
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
GUIDELINE COMPANY METHOD
================================================
DERIVATION OF CAPITALIZATION FACTOR
- ----------------------------------
<TABLE>
<CAPTION>
MARKET VALUE OF TOTAL CAPITAL TO:
----------------------------
EBITDA EBIT
----------------------------
<S> <C> <C>
Base Guideline Company Capitalization Factor (median) 5.06 7.80
Rounded to:
GUIDELINE COMPANY CAPITALIZATION FACTOR 0.05 5.05 7.80
============================
</TABLE>
DERIVATION OF VALUE
- ----------------------------------
<TABLE>
<CAPTION>
MARKET VALUE OF TOTAL CAPITAL TO:
----------------------------
EBITDA EBIT
----------------------------
<S> <C> <C>
Ongoing Earning or Performance Measure (per Ex. V-4) $435,000 $160,000
x Guideline Company Capitalization Factor 5.05 7.80
----------------------------
= Capitalized Value: Total Capital $2,196,750 $1,248,000
- - Interest Bearing Debt 0 0
----------------------------
= Capitalized Value: Total Common Equity $2,196,750 $1,248,000
+ Control Premium (Per ACAPM) 15% 329,513 187,200
----------------------------
= Controlling Interest Value: Total Common Equity $2,526,263 $1,435,200
- Fundamental Adjustment 50% (1,263,131) (717,600)
============================
= Adjusted Capitalized Value: Total Common Equity $1,263,131 $717,600
============================
INDICATED VALUES (AMC): Rounded to:
GUIDELINE COMPANY METHOD $1,000 $1,263,000 $718,000
============================
INDICATED VALUES ARE NOT INTENDED TO BE DEFINITIVE OF FAIR MARKET VALUE
</TABLE>
SENSITIVITY OF EBITDA CAPITALIZATION TO CONTROL PREMIUMS AND FUNDAMENTAL
ADJUSTMENT
===============================================================================
<TABLE>
<CAPTION>
Range of Control Premium
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
0% 5% 10% 15% 20% 25%
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30% $1,538,000 $1,615,000 $1,691,000 $1,768,000 $1,845,000 $1,922,000
35% $1,428,000 $1,499,000 $1,571,000 $1,642,000 $1,713,000 $1,785,000
Range of 40% $1,318,000 $1,384,000 $1,450,000 $1,516,000 $1,582,000 $1,648,000
Fundamental 45% $1,208,000 $1,269,000 $1,329,000 $1,389,000 $1,450,000 $1,510,000
Adjustment 50% $1,098,000 $1,153,000 $1,208,000 $1,263,000 $1,318,000 $1,373,000
55% $989,000 $1,038,000 $1,087,000 $1,137,000 $1,186,000 $1,236,000
60% $879,000 $923,000 $967,000 $1,011,000 $1,054,000 $1,098,000
65% $769,000 $807,000 $846,000 $884,000 $923,000 $961,000
70% $659,000 $692,000 $725,000 $758,000 $791,000 $824,000
</TABLE>
SENSITIVITY OF EBIT CAPITALIZATION TO CONTROL PREMIUMS AND FUNDAMENTAL
ADJUSTMENT
===============================================================================
<TABLE>
<CAPTION>
Range of Control Premium
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
0% 5% 10% 15% 20% 25%
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30% $874,000 $917,000 $961,000 $1,005,000 $1,048,000 $1,092,000
35% $811,000 $852,000 $892,000 $933,000 $973,000 $1,014,000
Range of 40% $749,000 $786,000 $824,000 $861,000 $899,000 $936,000
Fundamental 45% $686,000 $721,000 $755,000 $789,000 $824,000 $858,000
Adjustment 50% $624,000 $655,000 $686,000 $718,000 $749,000 $780,000
55% $562,000 $590,000 $618,000 $646,000 $674,000 $702,000
60% $499,000 $524,000 $549,000 $574,000 $599,000 $624,000
65% $437,000 $459,000 $480,000 $502,000 $524,000 $546,000
70% $374,000 $393,000 $412,000 $431,000 $449,000 $468,000
</TABLE>
<PAGE>
EXHIBIT V-8
FIRST MEDICAL GROUP, INC.
VALUATION ANALYSIS AS OF JANUARY 31, 2000
CORRELATED INDICATION OF VALUE (AMC - STAND-ALONE BASIS)
=============================================================================
<TABLE>
<CAPTION>
Valuation
Valuation Indications by Method* Indications Weight Product
- ---------------------------------- ------------------------------------------
<S> <C> <C> <C>
Reported Tangible Book Value $417,757 0.0% $0
Direct Earnings Capitalization Method (using ACAPM) $592,000 0.0% $0
Guideline Company Method: Capitalized Earnings $608,000 0.0% $0
Guideline Company Method: Capitalized EBITDA $1,263,000 100.0% $1,263,000
Guideline Company Method: Capitalized EBIT $718,000 0.0% $0
============================
CORRELATED INDICATION OF VALUE 100.0% $1,263,000
============================
INDICATED VALUES ARE NOT INTENDED TO BE DEFINITIVE OF FAIR MARKET VALUE
</TABLE>
* FOR PURPOSES OF CONSIDERING THE MOST STRINGENT STANDARD FOR TESTING FAIRNESS
WE HAVE APPLIED A 100% WEIGHT TO THE HIGHEST INDICATION OF VALUE DEVELOPED
ABOVE. THIS ESTIMATED VALUE IS CONSIDERED IN THE SUMMARY ANALYSIS IN EXHIBIT
V-2.
RELATIVE VALUE ANALYSIS (AMC - STAND-ALONE BASIS)
===============================================================
<TABLE>
<CAPTION>
Controlling
Interest Basis
----------------
<S> <C>
Indicated Value - Common Equity of AMC $1,263,000
Total Interest Bearing Debt 0
Market Value of Total Capital 1,263,000
Net Asset Value (AMC Tangible Book Value) 417,757
Reported Sales (Most Recent Period) 10,540,702
Ongoing Sales 10,308,702
Adjusted EBITDA (Most Recent Period) 385,178
Adjusted EBIT (Most Recent Period) 4,177
Ongoing Pre-Tax 160,000
Reported Depreciation (Most Recent Period) 381,001
Price/Net Asset Value 302.3%
Price/Reported Sales 12.0%
Price/Ongoing Sales 12.3%
Price/Ongoing Pre-Tax Income 7.89
Total Capital/Reported Sales 12.0%
Total Capital/Ongoing Sales 12.3%
Total Capital/Adjusted EBITDA 3.28
Total Capital/Adjusted EBIT 302.37
</TABLE>
Market Value of Total Capital is defined as Market Capitalization or Estimated
Value of Equity Capital plus Total Interest-Bearing Debt and Preferred Stock at
Book Value.
Subject company ratios reflect total value of common equity, total financial
condition, and performance measures. Any items which may be dilutive at the per
share level are not reflected.
<PAGE>
EXHIBIT G
FIRST MEDICAL GROUP, INC.
ANALYSIS OF PUBLIC (GUIDELINE) COMPANIES
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
MARKET PRICING ANALYSIS
----------------------------------------------------------------------------------
Summary Financial Data
-----------------------------------------------------------------------------------
Interest
Bearing Pre-Tax
Sales Equity Debt/ Profit ROE
Ticker Exchange ($Mil) ($Mil) Equity Margin (common)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A AMSGA NASDAQ 95.71 70.63 32.6% 30.3% 9.2%
COAST DENTAL SERVICES INC CDEN NASDAQ 43.35 60.51 3.7% 7.5% 2.8%
INTEGRAMED AMERICA INMD NASDAQ 43.92 28.38 20.4% 5.0% 6.6%
MONARCH DENTAL CORP MDDS NASDAQ 197.50 64.41 137.3% -1.0% -2.4%
ORTHODONTIC CENTERS OF AMER OCA NYSE 211.60 265.52 18.1% 32.7% 16.0%
PROMEDCO MANAGEMENT CO PMCO NASDAQ 302.23 179.09 87.3% 8.2% 8.3%
RADIOLOGIX INC RDLX NASDAQ 166.47 19.36 959.5% 15.9% 80.9%
U S PHYSICAL THERAPY INC USPH NASDAQ 47.56 10.01 81.3% 12.1% 21.0%
VISIONAMERICA INC VSNA NASDAQ 59.87 29.34 128.4% 0.0% -8.3%
-----------------------------
AVERAGE 129.80 80.80
-----------------------------
MEDIAN 95.71 60.51
=============================
FIRST MEDICAL GROUP, INC. 10.54 0.35 372.6% -6.5% -15.4%
Also Considered
- ------------------------------------
No Earnings
AMERICAN HEALTHCHOICE INC 3AHIC NASDAQ 5.35 2.26 207.1% -52.8% -125.2%
CONTINUCARE CORP CNU ASE 163.77 (35.34) -139.9% -31.4% 134.8%
EQUIMED INC 3EQMD OTH 79.76 23.61 123.1% 5.8% -17.5%
FOUNDATION HEALTH SYS -CL A FHS NYSE 8,720.89 855.57 127.0% 0.1% 0.1%
INNOVATIVE CLINICAL SOLUTNS 3ICSL NASDAQ 216.66 4.20 2868.1% -42.5% -4212.5%
INTEGRATED MEDICAL RESOURCES 3IMRIQ OTH 18.32 6.21 75.8% -41.9% -123.5%
MED-EMERG INTERNATIONAL INC MDER NASDAQ 11.89 3.49 12.2% @NM -9.2%
MEDTRONIC INC MDT NYSE 4,423.30 3,865.40 5.3% 22.8% 16.3%
METROPOLITAN HLTH NTWRKS INC 3MDPA NASDAQ 18.64 1.06 638.2% -33.7% -589.7%
OAK TREE MEDICAL SYSTEMS INC 3MOAK NASDAQ @SF 1.89 0.0% @NM @NM
OCCUPATIONAL HLTH &REHAB INC 3OHRI NASDAQ 29.63 0.56 604.3% -0.4% -111.9%
PHYCOR INC PHYC NASDAQ 1,591.09 360.96 163.4% -28.4% -138.6%
PRINCETON DENTAL MGMT CORP 3PDMC NASDAQ 12.41 (1.00) -411.3% -12.6% 156.6%
SEAL HOLDINGS CORP 3SEAH NASDAQ 6.42 (0.05) 0.0% -188.3% 25220.8%
SIGHT RESOURCE CORP VISN NASDAQ 64.10 20.31 48.1% -1.1% -3.7%
SONUS CORP SSN ASE 36.20 2.54 254.2% -11.0% -157.4%
SUNSTAR HEALTHCARE INC SUNS NASDAQ 80.06 6.54 3.2% 1.1% 14.7%
UCI MEDICAL AFFILIATES INC 3UCIA NASDAQ 40.47 6.37 160.8% 2.2% 14.3%
Over $400MM in Revenue
SIERRA HEALTH SERVICES SIE NYSE 1,257.63 302.06 94.5% 2.2% 6.3%
US ONCOLOGY INC USON NASDAQ 918.54 687.93 51.1% 7.0% 5.6%
Outlier Multiples
LCA VISION INC LCAV NASDAQ 53.44 67.28 1.7% 11.1% 8.8%
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICING ANALYSIS
--------------------------------------------------------------------------------------------------
MARKEY PRICING ANALYSIS
--------------------------------------------------------------------------------------------------
Equity
Mkt Cap/ Debt/
Market Market
Value Value
High Low Equity Interest Market of of
Shares Price for Price for Market Preferred Bearing Value of Total Total
Out Price for the Last the Last Cap Stock Debt Total Cap Cap Cap
(Mil) 1/31/00 12 Mos. 12 Mos. ($Mil) ($Mil) $(Mil) $(Mil) % %
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 14.55 $ 6.69 $ 9.50 $ 5.13 97.29 0.00 23.00 120.29 80.9% 19.1%
COAST DENTAL SERVICES INC 6.40 $ 2.50 $ 9.13 $ 2.00 16.00 0.00 2.24 18.24 87.7% 12.3%
INTEGRAMED AMERICA 4.86 $ 3.88 $ 5.50 $ 2.31 18.82 0.17 5.78 24.77 76.0% 23.3%
MONARCH DENTAL CORP 12.71 $ 2.50 $ 5.00 $ 1.41 31.77 0.00 88.44 120.21 26.4% 73.6%
ORTHODONTIC CENTERS OF AMER 48.07 $15.31 $20.13 $10.81 736.06 0.00 47.95 784.02 93.9% 6.1%
PROMEDCO MANAGEMENT CO 21.73 $ 2.81 $ 6.00 $ 2.00 61.11 0.00 156.30 217.41 28.1% 71.9%
RADIOLOGIX INC 19.31 $ 3.88 $ 9.00 $ 3.13 74.83 0.00 185.77 260.60 28.7% 71.3%
U S PHYSICAL THERAPY INC 3.28 $ 9.00 $ 9.97 $ 7.25 29.48 0.00 8.13 37.62 78.4% 21.6%
VISIONAMERICA INC 9.19 $ 3.25 $ 9.00 $ 2.41 29.86 0.00 37.66 67.53 44.2% 55.8%
------ -------- ---------------------
AVERAGE 15.57 121.69 183.41 60.5% 39.4%
------ --------- -----------------------
MEDIAN 12.71 31.77 120.21 76.0% 23.3%
====== ========= ======================
FIRST MEDICAL GROUP, INC 11.07
Also Considered
- -------------------------------
No Earnings
AMERICAN HEALTHCHOICE INC 23.80 $ 0.44 $ 0.72 $ 0.01 10.47 0.00 4.67 15.15 69.1% 30.9%
CONTINUCARE CORP 14.54 $ 0.88 $ 1.63 $ 0.19 12.72 0.00 49.43 62.16 20.5% 79.5%
EQUIMED INC 4.45 $ 0.01 $ 0.02 $ 0.01 0.04 0.00 29.07 29.11 0.2% 99.8%
FOUNDATION HEALTH SYS -CL A 122.25 $10.25 $20.06 $ 6.25 1,253.11 0.00 1,086.88 2,339.99 53.6% 46.4%
INNOVATIVE CLINICAL SOLUTNS 32.00 $ 0.38 $ 2.75 $ 0.09 12.16 0.00 120.43 132.59 9.2% 90.8%
INTEGRATED MEDICAL RESOURCES 6.72 $ 0.01 $ 0.05 $ 0.00 0.07 0.00 4.71 4.78 1.4% 98.6%
MED-EMERG INTERNATIONAL INC 3.10 $ 1.63 $ 2.69 $ 1.06 5.03 0.00 0.42 5.46 92.2% 7.8%
MEDTRONIC INC 1,172.00 $45.75 $47.50 $29.94 53,619.00 0.00 204.30 53,823.30 99.6% 0.4%
METROPOLITAN HLTH NTWRKS INC 7.23 $ 0.42 $ 2.00 $ 0.17 3.04 1.35 6.79 11.18 27.2% 60.8%
OAK TREE MEDICAL SYSTEMS INC 6.07 $ 2.50 $ 5.88 $ 1.44 15.19 0.00 0.00 15.19 100.0% 0.0%
OCCUPATIONAL HLTH &REHAB INC 1.48 $ 3.00 $ 6.00 $ 1.75 4.44 8.47 3.40 16.30 27.2% 20.8%
PHYCOR INC 73.49 $ 1.88 $ 7.88 $ 1.03 137.80 0.00 589.73 727.53 18.9% 81.1%
PRINCETON DENTAL MGMT CORP 3.19 $ 0.09 $ 0.31 $ 0.03 0.30 0.00 4.10 4.41 6.8% 93.1%
SEAL HOLDINGS CORP 31.64 $ 2.00 $ 5.75 $ 1.44 63.28 2.17 0.00 65.45 96.7% 0.0%
SIGHT RESOURCE CORP 9.19 $ 1.88 $ 4.94 $ 1.69 17.24 6.53 9.77 33.54 51.4% 29.1%
SONUS CORP 6.11 $ 3.63 $ 5.75 $ 2.75 22.14 25.60 6.45 54.19 40.9% 11.9%
SUNSTAR HEALTHCARE INC 2.92 $ 4.69 $13.00 $ 1.00 13.68 0.00 0.21 13.90 98.5% 1.5%
UCI MEDICAL AFFILIATES INC 9.65 $ 0.66 $ 0.94 $ 0.35 6.33 0.00 10.25 16.58 38.2% 61.8%
Over $400MM in Revenue
SIERRA HEALTH SERVICES 26.88 $ 7.19 $18.88 $ 4.63 193.18 0.00 285.41 478.60 40.4% 59.6%
US ONCOLOGY INC 100.52 $ 5.19 $14.25 $ 3.81 521.48 0.00 351.66 873.14 59.7% 40.3%
Outlier Multiples
LCA VISION INC 51.48 $ 4.00 $14.48 $ 1.53 205.91 0.00 1.13 207.05 99.5% 0.5%
</TABLE>
- ---------------------------------------------------------
SYMBOLS
- ---------------------------------------------------------
@NA = Not Available
@NC = Not Calculable
@CF = Combined Figure
@AF = Annual Figure
@SF = Semi-Annual Figure
- ---------------------------------------------------------
<PAGE>
EXHIBIT G
FIRST MEDICAL GROUP, INC.
ANALYSIS OF PUBLIC (GUIDELINE) COMPANIES
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Market Multiples
----------------------------------------------------------------------------------------------
Price/ Price/ Market Value of
Price/ Cur Yr Next Yr Total Capital to
---------------------------------------------------
LTM Est. Est Equity +
EPS EPS EPS Revenues EBITDA EBIT Debt
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 14.54 14.54 11.73 1.26 3.27 4.03 1.28
COAST DENTAL SERVICES INC 7.58 10.00 41.67 0.42 3.30 7.62 0.29
INTEGRAMED AMERICA 11.07 8.24 @NM 0.56 4.97 9.72 0.73
MONARCH DENTAL CORP @NM 7.35 5.00 0.61 5.14 9.34 0.79
ORTHODONTIC CENTERS OF AMER 16.83 15.95 12.35 3.71 9.54 11.08 2.50
PROMEDCO MANAGEMENT CO 3.85 4.02 3.43 0.72 5.31 7.28 0.65
RADIOLOGIX INC 4.78 4.84 3.84 1.57 5.27 7.98 1.27
U S PHYSICAL THERAPY INC 14.75 13.43 10.47 0.79 4.85 6.60 2.07
VISIONAMERICA INC @NM 9.29 5.42 1.13 @NM @NM 1.01
----------------------------------------------------------------------------------------------
AVERAGE 10.49 9.74 11.74 1.20 5.21 7.96 1.18
----------------------------------------------------------------------------------------------
MEDIAN 11.07 9.29 7.94 0.79 5.06 7.80 1.01
==============================================================================================
AMERICAN HEALTHCHOICE INC @NM @NM @NM 2.83 @NM @NM 2.19
CONTINUCARE CORP @NM @NM @NM 0.38 @NM @NM 4.41
EQUIMED INC @NM @NM @NM 0.37 1.49 2.07 0.55
FOUNDATION HEALTH SYS -CL A 170.83 9.40 7.77 0.27 6.21 9.02 1.20
INNOVATIVE CLINICAL SOLUTNS @NM @NM @NM 0.61 @NM @NM 1.06
INTEGRATED MEDICAL RESOURCES @NM @NM @NM 0.26 @NM @NM 0.44
MED-EMERG INTERNATIONAL INC @NM @NM @NM 0.46 @NM @NM 1.39
MEDTRONIC INC 85.51 49.73 41.97 12.17 @NM 37.95 13.23
METROPOLITAN HLTH NTWRKS INC @NM @NM @NM 0.60 @NM @NM 1.42
OAK TREE MEDICAL SYSTEMS INC @NM @NM @NM @NM @NM @NM 8.04
OCCUPATIONAL HLTH &REHAB INC @NM @NM @NM 0.55 16.60 679.17 4.12
PHYCOR INC @NM 4.57 7.50 0.46 3.49 6.55 0.77
PRINCETON DENTAL MGMT CORP @NM @NM @NM 0.36 15.85 @NM 1.42
SEAL HOLDINGS CORP @NM @NM @NM 10.19 @NM @NM #######
SIGHT RESOURCE CORP @NM @NM @NM 0.52 10.37 @NM 1.12
SONUS CORP @NM @NM @NM 1.50 @NM @NM 6.03
SUNSTAR HEALTHCARE INC @NM @NM @NM 0.17 @NM 16.80 2.06
UCI MEDICAL AFFILIATES INC 5.96 @NM @NM 0.41 3.77 6.77 1.00
SIERRA HEALTH SERVICES 10.27 5.62 5.53 0.38 5.35 7.66 0.81
US ONCOLOGY INC 10.81 8.11 7.52 0.95 5.35 7.89 0.84
LCA VISION INC 30.77 26.67 12.12 3.87 28.72 48.23 3.03
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Market Multiples
---------------------------------------------------------------------------------------------
Market Value of
Total Capital to
----------------
Price/ Interest
Net Inc Bearing
Debt-Free Bef Ext + Price/ Dividend Unlevered Operating Debt/
Net Inc. Deprec Book Yield Beta Beta Margin Equity
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 6.71 7.21 1.38 0.0% 0.57 0.28 31.2% 32.6%
COAST DENTAL SERVICES INC @NM 2.92 0.26 0.0% 1.13 0.60 5.5% 3.7%
INTEGRAMED AMERICA 15.39 4.38 0.66 0.0% 0.12 0.05 5.8% 20.4%
MONARCH DENTAL CORP 37.97 3.55 0.49 0.0% 0.01 0.00 6.5% 137.3%
ORTHODONTIC CENTERS OF AMER 18.36 13.50 2.77 0.0% 0.60 0.34 33.4% 18.1%
PROMEDCO MANAGEMENT CO @NM 2.30 0.34 0.0% 1.04 0.18 9.9% 87.3%
RADIOLOGIX INC 11.70 2.31 3.87 0.0% 0.43 0.07 19.6% 959.5%
U S PHYSICAL THERAPY INC 9.66 7.08 2.95 0.0% 0.33 0.15 12.0% 81.3%
VISIONAMERICA INC 37.92 @NM 1.02 0.0% 0.43 0.11 @NM 128.4%
---------------------------------------------------------------------------------------------------
AVERAGE 19.67 5.40 1.53 0.0% 0.52 0.20 15.5% 163.2%
---------------------------------------------------------------------------------------------------
MEDIAN 15.39 3.96 1.02 0.0% 0.43 0.15 10.9% 81.3%
===================================================================================================
AMERICAN HEALTHCHOICE INC (11.13) (3.99) 4.64 0.0% (18.69) (7.75) -39.5% 207.1%
CONTINUCARE CORP (2.25) (0.27) (0.36) 0.0% (0.24) (0.03) -12.2% -139.9%
EQUIMED INC 7.09 0.03 0.00 0.0% @NA @NM 17.6% 123.1%
FOUNDATION HEALTH SYS -CL A 38.96 10.09 1.46 0.0% 1.28 0.41 3.0% 127.0%
INNOVATIVE CLINICAL SOLUTNS (2.68) (0.18) 2.90 0.0% 0.48 0.03 -23.9% 2868.1%
INTEGRATED MEDICAL RESOURCES (1.10) (0.01) 0.01 0.0% 2.03 0.02 -40.3% 75.8%
MED-EMERG INTERNATIONAL INC @NM @NM 1.44 0.0% @NA @NM -3.6% 12.2%
MEDTRONIC INC 86.87 @NM 13.87 0.3% 0.87 0.52 32.1% 5.3%
METROPOLITAN HLTH NTWRKS INC (3.38) (0.69) 1.26 0.0% (1.51) (0.28) -20.1% 638.2%
OAK TREE MEDICAL SYSTEMS INC @NM @NM 8.04 0.0% 0.68 0.41 @NM 0.0%
OCCUPATIONAL HLTH &REHAB INC 280.07 13.49 0.49 0.0% (0.18) (0.06) 0.1% 604.3%
PHYCOR INC (2.94) (0.34) 0.38 0.0% 1.64 0.19 7.0% 163.4%
PRINCETON DENTAL MGMT CORP (11.91) (0.38) (0.30) 0.0% (1.39) (0.06) -4.0% -411.3%
SEAL HOLDINGS CORP (9.48) (5.68) 29.82 0.0% (1.00) (0.60) -228.1% 0.0%
SIGHT RESOURCE CORP (321.30) 6.69 0.64 0.0% 1.32 0.50 -0.2% 48.1%
SONUS CORP (24.72) (16.75) 0.79 0.0% @NA @NM -10.6% @NA
SUNSTAR HEALTHCARE INC @NM @NM 2.09 0.0% 1.01 0.60 1.0% 3.2%
UCI MEDICAL AFFILIATES INC 11.60 2.21 0.99 0.0% (0.81) (0.19) 6.0% 160.8%
SIERRA HEALTH SERVICES @NM 4.21 0.64 0.0% 0.65 0.16 5.0% 94.5%
US ONCOLOGY INC 17.46 5.73 0.76 0.0% 1.90 0.68 12.0% 51.1%
LCA VISION INC 55.96 23.35 3.06 0.0% 0.61 0.36 8.0% 1.7%
</TABLE>
<PAGE>
EXHIBIT G
FIRST MEDICAL GROUP, INC.
ANALYSIS OF PUBLIC (GUIDELINE) COMPANIES
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Historical Growth
--------------------------- ---------------------------------------------------
LTM
5 Year 5 Year 5 Year Earnings
Sales Net Inc. EPS EPS EPS EPS EPS EPS Per
State Growth Growth Growth 1994 1995 1996 1997 1998 Share
--------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A TN 51.7% -28.3% @NC @NA @NA $0.16 ($0.02) $0.06 $0.46
COAST DENTAL SERVICES INC FL 120.9% 150.1% 99.9% @NA $0.06 $0.40 $0.56 $0.54 $0.33
INTEGRAMED AMERICA NY 21.4% @NC @NC ($0.44) ($0.36) ($2.60) $0.08 ($0.07) $0.35
MONARCH DENTAL CORP TX 137.9% @NC @NC @NA @NA $0.10 $0.26 ($0.04) ($0.14)
ORTHODONTIC CENTERS OF AMER FL 62.6% 92.4% 66.8% $0.08 $0.23 $0.33 $0.50 $0.70 $0.91
PROMEDCO MANAGEMENT CO TX 239.4% @NC @NC @NA @NA ($0.07) $0.38 $0.61 $0.73
RADIOLOGIX INC TX @NC @NC @NC @NA @NA @NA ($1.13) $0.70 $0.81
U S PHYSICAL THERAPY INC TX 26.1% @NC @NC ($0.80) $0.20 $0.45 $0.65 $0.43 $0.61
VISIONAMERICA INC TN 41.2% 98.5% @NC $0.02 $0.10 ($0.03) $0.50 $0.26 ($0.06)
---------------------------
AVERAGE 87.6% 78.2% 83.4%
---------------------------
MEDIAN 57.1% 95.4% 83.4%
===========================
FIRST MEDICAL GROUP, INC. @NA @NA @NA @NA @NA @NA ($0.02) ($0.02) $0.02
AMERICAN HEALTHCHOICE INC TX 9.6% @NC @NC @NA $0.12 ($0.45) ($0.78) ($0.33) ($0.16)
CONTINUCARE CORP FL 202.3% @NC @NC ($0.25) @NA $0.16 ($1.20) ($3.50) ($3.53)
EQUIMED INC PA 101.4% @NC @NC $0.00 ($0.84) $1.44 $0.96 ($6.78) ($1.05)
FOUNDATION HEALTH SYS -CL A CA 44.4% @NC @NC $1.77 $1.83 $1.52 ($0.55) ($1.35) $0.06
INNOVATIVE CLINICAL SOLUTNS RI 62.4% @NC @NC @NA ($0.98) $0.54 $0.35 ($1.02) ($2.35)
INTEGRATED MEDICAL RESOURCES KS 70.6% @NC @NC @NA @NA @NA ($0.38) ($1.82) ($1.29)
MED-EMERG INTERNATIONAL INC CANADA 12.2% @NC @NC @NA @NA ($0.86) @NA ($0.07) ($0.15)
MEDTRONIC INC MN 21.1% 10.2% 4.6% $0.32 $0.47 $0.56 $0.48 $0.40 $0.54
METROPOLITAN HLTH NTWRKS INC FL @NC @NC @NC @NA @NA @NA ($0.38) ($0.92) ($1.00)
OAK TREE MEDICAL SYSTEMS INC NY -27.7% @NC @NC $0.11 $0.39 ($1.02) ($1.49) ($0.65) ($0.62)
OCCUPATIONAL HLTH &REHAB INC MA @NC @NC @NC ###### ($9.67) ($1.37) ($0.56) ($0.35) ($0.43)
PHYCOR INC TN 58.3% @NC @NC $0.32 $0.41 $0.60 $0.05 ($1.55) ($6.60)
PRINCETON DENTAL MGMT CORP IL -4.6% @NC @NC ($1.55) ($0.95) ($3.25) $0.00 ($0.72) ($0.54)
SEAL HOLDINGS CORP FL @NC @NC @NC $0.46 ($0.12) $0.00 ($1.41) $0.70 @NA
SIGHT RESOURCE CORP MA 176.8% @NC @NC ($0.94) ($0.89) ($0.78) ($0.46) ($0.11) ($0.09)
SONUS CORP OR 58.4% @NC @NC @NA @NA ($0.08) ($0.89) ($0.80) ($0.66)
SUNSTAR HEALTHCARE INC FL 16.9% @NC @NC @NA $0.05 ($0.15) ($0.68) ($2.18) @NA
UCI MEDICAL AFFILIATES INC SC 26.6% @NC @NC $0.28 ($0.43) $0.11 ($0.02) ($1.61) $0.11
SIERRA HEALTH SERVICES NV 34.2% 13.7% 3.0% $1.11 @NA $1.15 $0.89 $1.43 $0.70
US ONCOLOGY INC TX 109.4% 102.6% 81.4% $0.04 $0.29 $0.37 $0.48 $0.61 $0.48
LCA VISION INC OH 36.2% @NC @NC @NA $0.04 ($0.21) ($0.30) ($0.36) $0.13
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICING ANALYSIS
-------------------------------------------------------------------------------------------------------
Per Share Data
-------------------------------------------------------------------------------------------------------
Implied Growth
------------------------
Mean EPS Mean EPS Est. EPS
Current Next LTM EPS Current Yr. Estimate Number LTM Book Dividends
Year Year to Est. EPS to Est. EPS Next 5 Yr. of as of Value Per Dividend
Est. (1) Est. (2) Current Yr. Next Yr. Growth Estimates Date Per Share Share Payout
------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A $0.46 $0.57 0.0% 23.9% 35.0% 5 Sep99 $4.86 $0.00 0.0%
COAST DENTAL SERVICES INC $0.25 $0.06 -24.2% -76.0% 35.0% 4 Sep99 $9.46 $0.00 0.0%
INTEGRAMED AMERICA $0.47 @NA 34.3% @NM 30.0% 1 Sep99 $5.88 $0.00 0.0%
MONARCH DENTAL CORP $0.34 $0.50 @NM 47.1% 30.0% 4 Sep99 $5.07 $0.00 0.0%
ORTHODONTIC CENTERS OF AMER $0.96 $1.24 5.5% 29.2% 27.5% 11 Sep99 $5.52 $0.00 0.0%
PROMEDCO MANAGEMENT CO $0.70 $0.82 -4.1% 17.1% 18.8% 7 Sep99 $8.24 $0.00 0.0%
RADIOLOGIX INC $0.80 $1.01 -1.2% 26.2% 18.5% 3 Sep99 $1.00 $0.00 0.0%
U S PHYSICAL THERAPY INC $0.67 $0.86 9.8% 28.4% 25.0% 2 Sep99 $3.05 $0.00 0.0%
VISIONAMERICA INC $0.35 $0.60 @NM 71.4% 30.0% 1 Sep99 $3.19 $0.00 0.0%
---------------------------------- -------------------
AVERAGE 2.9% 20.9% 27.8% $0.00 0.0%
---------------------------------- -------------------
MEDIAN 0.0% 27.3% 30.0% $0.00 0.0%
================================== ===================
FIRST MEDICAL GROUP, INC. Sep99 $0.03 $0.00 0.0%
AMERICAN HEALTHCHOICE INC @NA @NA @NM @NM @NA @NA Jun99 $0.09 $0.00 0.0%
CONTINUCARE CORP @NA @NA @NM @NM @NA @NA Sep99 ($2.43) $0.00 0.0%
EQUIMED INC @NA @NA @NM @NM @NA @NA Sep97 $5.30 $0.00 0.0%
FOUNDATION HEALTH SYS -CL A $1.09 $1.32 1716.7% 21.1% 15.0% 17 Sep99 $7.00 $0.00 0.0%
INNOVATIVE CLINICAL SOLUTNS @NA @NA @NM @NM @NA @NA Oct99 $0.13 $0.00 0.0%
INTEGRATED MEDICAL RESOURCES @NA @NA @NM @NM @NA @NA Sep97 $0.92 $0.00 0.0%
MED-EMERG INTERNATIONAL INC @NA @NA @NM @NM @NA @NA Sep99 $1.13 $0.00 0.0%
MEDTRONIC INC $0.92 $1.09 72.0% 18.5% 19.0% 40 Oct99 $3.30 $0.13 24.3%
METROPOLITAN HLTH NTWRKS INC @NA @NA @NM @NM @NA @NA Mar99 $0.33 $0.00 0.0%
OAK TREE MEDICAL SYSTEMS INC @NA @NA @NM @NM @NA @NA Nov99 $0.31 $0.00 0.0%
OCCUPATIONAL HLTH &REHAB INC @NA @NA @NM @NM @NA @NA Sep99 $6.10 $0.00 0.0%
PHYCOR INC $0.41 $0.25 @NM -39.0% 15.0% 11 Sep99 $4.91 $0.00 0.0%
PRINCETON DENTAL MGMT CORP @NA @NA @NM @NM @NA @NA Sep99 ($0.31) $0.00 0.0%
SEAL HOLDINGS CORP @NA @NA @NM @NM @NA @NA Sep99 $0.07 $0.00 @nm
SIGHT RESOURCE CORP @NA @NA @NM @NM @NA @NA Sep99 $2.92 $0.00 0.0%
SONUS CORP @NA @NA @NM @NM @NA @NA Oct99 $4.61 $0.00 0.0%
SUNSTAR HEALTHCARE INC @NA @NA @NM @NM @NA @NA Sep99 $2.24 $0.00 @nm
UCI MEDICAL AFFILIATES INC @NA @NA @NM @NM @NA @NA Sep99 $0.66 $0.00 0.0%
SIERRA HEALTH SERVICES $1.28 $1.30 82.9% 1.6% 15.0% 11 Sep99 $11.24 $0.00 0.0%
US ONCOLOGY INC $0.64 $0.69 33.3% 7.8% 20.0% 11 Sep99 $6.84 $0.00 0.0%
LCA VISION INC $0.15 $0.33 15.4% 120.0% 30.0% 5 Sep99 $1.31 $0.00 0.0%
</TABLE>
<PAGE>
EXHIBIT G
FIRST MEDICAL GROUP, INC.
ANALYSIS OF PUBLIC (GUIDELINE) COMPANIES
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
Balance Sheet Items
----------------------------------------------------------------------------------------
Most Cash & Net Long- Interest
Recent Qtr. Market Current Fixed Total Current Term Bearing
Fiscal Financial Securities Assets Assets Assets Liabilities Debt Debt
Year Date $(Mil) $(Mil) $(Mil) $(Mil) $(Mil) $(Mil) $(Mil)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A Dec98 Sep99 4.84 23.22 25.10 116.41 7.96 21.22 23.00
COAST DENTAL SERVICES INC Dec98 Sep99 12.91 26.21 20.13 67.81 5.93 1.37 2.24
INTEGRAMED AMERICA Dec98 Sep99 3.88 16.52 6.39 42.83 9.77 4.51 5.78
MONARCH DENTAL CORP Dec98 Sep99 7.10 26.00 19.15 183.40 26.38 84.33 88.44
ORTHODONTIC CENTERS OF AMER Dec98 Sep99 5.38 111.94 59.96 348.29 23.09 42.91 47.95
PROMEDCO MANAGEMENT CO Dec98 Sep99 11.10 114.21 23.07 404.28 57.69 143.32 156.30
RADIOLOGIX INC Dec98 Sep99 7.35 73.32 65.42 237.55 30.92 182.89 185.77
U S PHYSICAL THERAPY INC Dec98 Sep99 3.62 14.44 6.45 23.24 3.06 8.10 8.13
VISIONAMERICA INC Dec98 Sep99 2.31 18.93 15.09 75.61 15.92 30.30 37.66
----------------------------------------------------------------------------------------
AVERAGE 6.50 47.20 26.75 166.60 20.08 57.66 61.70
----------------------------------------------------------------------------------------
MEDIAN 5.38 26.00 20.13 116.41 15.92 30.30 37.66
========================================================================================
FIRST MEDICAL GROUP, INC. Dec98 Sep99 0.21 1.22 1.72 5.77 4.94 0.00 1.32
AMERICAN HEALTHCHOICE INC Sep98 Jun99 0.01 6.99 0.86 8.07 2.13 3.68 4.67
CONTINUCARE CORP Jun99 Sep99 2.26 2.89 0.98 27.80 61.49 1.66 49.43
EQUIMED INC Dec96 Sep97 2.89 46.47 23.52 98.65 49.41 18.55 29.07
FOUNDATION HEALTH SYS -CL A Dec98 Sep99 1,201.48 2,138.11 289.51 3,508.17 1,512.41 1,084.35 1,086.88
INNOVATIVE CLINICAL SOLUTNS Jan99 Oct99 38.02 99.30 11.35 158.93 47.62 104.38 120.43
INTEGRATED MEDICAL RESOURCES Dec96 Sep97 0.76 7.67 4.84 13.07 5.52 1.16 4.71
MED-EMERG INTERNATIONAL INC Dec98 Sep99 0.02 2.71 0.93 5.76 1.94 0.22 0.42
MEDTRONIC INC Apr99 Oct99 217.00 2,523.70 824.40 5,177.00 1,103.60 18.10 204.30
METROPOLITAN HLTH NTWRKS INC Jun98 Mar99 0.09 5.38 4.22 14.40 6.57 5.42 6.79
OAK TREE MEDICAL SYSTEMS INC May99 Nov99 0.04 0.13 0.01 2.75 0.86 0.00 0.00
OCCUPATIONAL HLTH &REHAB INC Dec98 Sep99 0.99 8.76 2.55 17.09 6.06 1.01 3.40
PHYCOR INC Dec98 Sep99 85.96 557.61 159.98 1,296.55 567.03 313.54 589.73
PRINCETON DENTAL MGMT CORP Dec98 Sep99 0.48 1.39 0.40 6.84 5.62 1.34 4.10
SEAL HOLDINGS CORP Dec98 Sep99 0.17 0.23 0.17 2.88 0.75 0.00 0.00
SIGHT RESOURCE CORP Dec98 Sep99 0.77 12.14 5.80 42.60 8.55 7.16 9.77
SONUS CORP Jul99 Oct99 8.96 14.65 7.49 41.89 11.12 2.63 6.45
SUNSTAR HEALTHCARE INC Jul98 Sep99 17.65 23.88 0.53 25.10 18.44 0.13 0.21
UCI MEDICAL AFFILIATES INC Sep98 Sep99 0.07 9.81 4.80 23.35 12.09 4.89 10.25
SIERRA HEALTH SERVICES Dec98 Sep99 111.73 332.66 252.75 1,088.55 353.17 280.72 285.41
US ONCOLOGY INC Dec98 Sep99 2.07 394.24 253.27 1,199.14 154.43 331.41 351.66
LCA VISION INC Dec98 Sep99 50.53 54.54 9.12 73.46 5.69 0.48 1.13
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET ITEMS
-----------------------------------------------------------------------
Liquidity Measures Leverage Ratios
----------------------- -------------------------------------------
Preferred Sales/ Account
Equity Stock Working Current Recv. Inventory
$(Mil) ($M) Capital Ratio Days Turnover
----------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 70.63 0.00 6.27 2.92 52.21 40.57
COAST DENTAL SERVICES INC 60.51 0.00 2.14 4.42 60.79 11.38
INTEGRAMED AMERICA 28.38 0.17 6.51 1.69 98.97 @NC
MONARCH DENTAL CORP 64.41 0.00 (518.37) 0.99 30.35 @NC
ORTHODONTIC CENTERS OF AMER 265.52 0.00 2.38 4.85 141.83 15.26
PROMEDCO MANAGEMENT CO 179.09 0.00 5.35 1.98 89.53 @NC
RADIOLOGIX INC 19.36 0.00 3.93 2.37 106.10 @NC
U S PHYSICAL THERAPY INC 10.01 0.00 4.18 4.73 73.50 @NC
VISIONAMERICA INC 29.34 0.00 19.90 1.19 97.40 @SF
----------------------- -------------------------------------------
AVERAGE 80.80 0.02 (51.97) 2.79 83.41 22.40
----------------------- -------------------------------------------
MEDIAN 60.51 0.00 4.18 2.37 89.53 15.26
======================= ===========================================
FIRST MEDICAL GROUP, INC. 0.35 0.00 (2.83) 0.25 17.68 72.69
AMERICAN HEALTHCHOICE INC 2.26 0.00 1.10 3.28 522.30 @NC
CONTINUCARE CORP (35.34) 0.00 (2.79) 0.05 8.29 @NC
EQUIMED INC 23.61 0.00 (27.13) 0.94 118.89 @NC
FOUNDATION HEALTH SYS -CL A 855.57 0.00 13.94 1.41 27.73 @NC
INNOVATIVE CLINICAL SOLUTNS 4.20 0.00 4.19 2.09 70.14 @NC
INTEGRATED MEDICAL RESOURCES 6.21 0.00 8.54 1.39 82.42 72.92
MED-EMERG INTERNATIONAL INC 3.49 0.00 15.40 1.40 62.28 @NA
MEDTRONIC INC 3,865.40 0.00 3.11 2.29 85.38 1.93
METROPOLITAN HLTH NTWRKS INC 1.06 1.35 (15.65) 0.82 100.23 @NC
OAK TREE MEDICAL SYSTEMS INC 1.89 0.00 @NM 0.15 @NA @SF
OCCUPATIONAL HLTH &REHAB INC 0.56 8.47 10.96 1.45 80.29 @NC
PHYCOR INC 360.96 0.00 (168.80) 0.98 78.02 78.12
PRINCETON DENTAL MGMT CORP (1.00) 0.00 (2.93) 0.25 27.23 119.82
SEAL HOLDINGS CORP (0.05) 2.17 (12.40) 0.31 23.42 431.34
SIGHT RESOURCE CORP 20.31 6.53 17.86 1.42 19.92 3.12
SONUS CORP 2.54 25.60 10.23 1.32 46.90 57.76
SUNSTAR HEALTHCARE INC 6.54 0.00 14.71 1.30 10.98 @NC
UCI MEDICAL AFFILIATES INC 6.37 0.00 (17.68) 0.81 78.33 69.85
SIERRA HEALTH SERVICES 302.06 0.00 (61.32) 0.94 45.13 @NC
US ONCOLOGY INC 687.93 0.00 3.83 2.55 92.56 @NC
LCA VISION INC 67.28 0.00 1.09 9.58 11.12 @NC
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
Leverage Ratios
------------------------------------------
Interest
Bearing Times
LTD/ Debt/ Equity/ Interest
Equity Equity Assets Earned
---------------------------------------
<S> <C> <C> <C> <C>
AMSURG CORP -CL A 30.0% 32.6% 60.7% 34.27
COAST DENTAL SERVICES INC 2.3% 3.7% 89.2% @NM
INTEGRAMED AMERICA 15.9% 20.4% 66.3% 5.02
MONARCH DENTAL CORP 130.9% 137.3% 35.1% 1.75
ORTHODONTIC CENTERS OF AMER 16.2% 18.1% 76.2% 36.09
PROMEDCO MANAGEMENT CO 80.0% 87.3% 44.3% @NM
RADIOLOGIX INC 944.7% 959.5% 8.1% 3.05
U S PHYSICAL THERAPY INC 80.9% 81.3% 43.1% 7.87
VISIONAMERICA INC 103.3% 128.4% 38.8% @NM
---------------------------------------
AVERAGE 156.0% 163.2% 51.3% 14.68
---------------------------------------
MEDIAN 80.0% 81.3% 44.3% 6.44
=======================================
FIRST MEDICAL GROUP, INC. 0.0% 372.6% 6.1% (3.96)
AMERICAN HEALTHCHOICE INC 163.0% 207.1% 28.0% (3.78)
CONTINUCARE CORP -4.7% -139.9% -127.1% (3.79)
EQUIMED INC 78.6% 123.1% 23.9% 6.41
FOUNDATION HEALTH SYS -CL A 126.7% 127.0% 24.4% 2.95
INNOVATIVE CLINICAL SOLUTNS 2485.7% 2868.1% 2.6% (5.35)
INTEGRATED MEDICAL RESOURCES 18.7% 75.8% 47.5% (17.03)
MED-EMERG INTERNATIONAL INC 6.4% 12.2% 60.7% @NM
MEDTRONIC INC 0.5% 5.3% 74.7% 57.65
METROPOLITAN HLTH NTWRKS INC 509.2% 638.2% 7.4% (4.93)
OAK TREE MEDICAL SYSTEMS INC 0.0% 0.0% 68.8% @NM
OCCUPATIONAL HLTH &REHAB INC 180.1% 604.3% 3.3% 0.11
PHYCOR INC 86.9% 163.4% 27.8% 2.78
PRINCETON DENTAL MGMT CORP -133.8% -411.3% -14.6% (0.53)
SEAL HOLDINGS CORP 0.0% 0.0% -1.7% (25.34)
SIGHT RESOURCE CORP 35.2% 48.1% 47.7% (0.19)
SONUS CORP 103.8% 254.2% 6.1% (11.27)
SUNSTAR HEALTHCARE INC 1.9% 3.2% 26.0% @NM
UCI MEDICAL AFFILIATES INC 76.7% 160.8% 27.3% 1.66
SIERRA HEALTH SERVICES 92.9% 94.5% 27.7% @NM
US ONCOLOGY INC 48.2% 51.1% 57.4% 5.83
LCA VISION INC 0.7% 1.7% 91.6% 18.42
</TABLE>
<PAGE>
EXHIBIT G
FIRST MEDICAL GROUP, INC.
ANALYSIS OF PUBLIC (GUIDELINE) COMPANIES
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
INCOME SUMMARY
--------------------------------------------------------------------------------------
Trailing Twelve Months Reported Income Statement
--------------------------------------------------------------------------------------
Cost Deprec/ Operating
of Goods Gross Amort Income Interest
Sales Sold Profit EBITDA Expense Deprec/ Deprec/ (EBIT) Expense
$(Mil) $(Mil) $(Mil) $(Mil) $(Mil) Sales Op Inc. $(Mil) $(Mil)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 95.71 58.97 36.73 36.73 6.88 7.2% 23.1% 29.85 0.87
COAST DENTAL SERVICES INC 43.35 32.09 11.26 5.53 3.13 7.2% 131.0% 2.39 @CF
INTEGRAMED AMERICA 43.92 32.97 10.95 4.99 2.44 5.6% 95.6% 2.55 0.51
MONARCH DENTAL CORP 197.50 174.12 23.38 23.37 10.50 5.3% 81.6% 12.87 7.35
ORTHODONTIC CENTERS OF AMER 211.60 107.47 104.13 82.21 11.46 5.4% 16.2% 70.74 1.96
PROMEDCO MANAGEMENT CO 302.23 252.62 49.61 40.95 11.10 3.7% 37.2% 29.85 @CF
RADIOLOGIX INC 166.47 106.28 60.19 49.42 16.77 10.1% 51.4% 32.65 10.69
U S PHYSICAL THERAPY INC 47.56 33.58 13.98 7.76 2.07 4.3% 36.3% 5.70 0.72
VISIONAMERICA INC 59.87 @SF @NM @NM @SF @NM @NM @SF 2.96
--------------------------------------------------------------------------------------
AVERAGE 129.80 99.76 38.78 31.37 8.05 6.1% 59.0% 23.32 3.58
--------------------------------------------------------------------------------------
MEDIAN 95.71 82.63 30.05 30.05 8.69 5.5% 44.3% 21.36 1.96
======================================================================================
FIRST MEDICAL GROUP, INC. 10.54 8.49 2.05 (0.16) 0.42 4.0% -72.5% (0.58) 0.14
AMERICAN HEALTHCHOICE INC 5.35 7.25 (1.91) (1.91) 0.20 3.8% -9.7% (2.11) 0.56
CONTINUCARE CORP 163.77 178.77 (15.00) (14.99) 4.99 3.0% -25.0% (19.98) 5.28
EQUIMED INC 79.76 50.55 29.21 19.50 5.46 6.8% 38.9% 14.04 2.19
FOUNDATION HEALTH SYS -CL A 8,720.89 7,120.78 1,600.11 376.84 117.53 1.3% 45.3% 259.31 87.81
INNOVATIVE CLINICAL SOLUTNS 216.66 255.48 (38.82) (38.82) 12.91 6.0% -25.0% (51.73) 9.68
INTEGRATED MEDICAL RESOURCES 18.32 11.89 6.43 (5.13) 2.24 12.3% -30.4% (7.37) 0.43
MED-EMERG INTERNATIONAL INC 11.89 @NA @NM @NM @NA @NM @NM (0.43) @NA
MEDTRONIC INC 4,423.30 1,143.00 3,280.30 @NM @CF @NM @NM 1,418.30 24.60
METROPOLITAN HLTH NTWRKS INC 18.64 20.49 (1.85) (1.85) 1.89 10.1% -50.6% (3.74) 0.76
OAK TREE MEDICAL SYSTEMS INC @SF @SF @NM @NM @CF @NM @NM @SF @SF
OCCUPATIONAL HLTH &REHAB INC 29.63 25.03 4.59 0.98 0.96 3.2% 3991.7% 0.02 0.21
PHYCOR INC 1,591.09 1,353.01 238.08 208.40 97.30 6.1% 87.6% 111.11 40.01
PRINCETON DENTAL MGMT CORP 12.41 12.13 0.28 0.28 0.78 6.3% -155.4% (0.50) 0.95
SEAL HOLDINGS CORP 6.42 19.73 (13.31) (13.68) 0.97 15.2% -6.6% (14.65) 0.58
SIGHT RESOURCE CORP 64.10 17.67 46.43 3.23 3.33 5.2% -3435.0% (0.10) 0.51
SONUS CORP 36.20 35.33 0.87 (1.17) 2.67 7.4% -69.6% (3.84) 0.34
SUNSTAR HEALTHCARE INC 80.06 54.12 25.93 @NM @CF @NM @NM 0.83 @CF
UCI MEDICAL AFFILIATES INC 40.47 35.97 4.49 4.40 1.95 4.8% 79.9% 2.45 1.47
SIERRA HEALTH SERVICES 1,257.63 1,034.02 223.61 89.44 26.93 2.1% 43.1% 62.50 @CF
US ONCOLOGY INC 918.54 721.01 197.53 163.27 52.66 5.7% 47.6% 110.60 18.98
LCA VISION INC 53.44 34.08 19.36 7.21 2.92 5.5% 67.9% 4.29 0.23
</TABLE>
<TABLE>
<CAPTION>
INCOME SUMMARY
-----------------------------------------------------------------------------------------------------
----------------------
Tax Rate 40%
----------------------
Trailing Twelve Months Margin Analysis
----------------------------------------- ---------------------------------------------------------
Net
Pre-Tax Income Net Debt-Free Gross Oper Pre-Tax Net
Income Bef Ext Income Net Income Profit EBITDA Profit Profit Margin ROE
$(Mil) $(Mil) $(Mil) $(Mil) Margin Margin Margin Margin Bef Ext (common)
----------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMSURG CORP -CL A 29.01 6.61 6.49 17.93 38.4% 38.4% 31.2% 30.3% 6.9% 9.2%
COAST DENTAL SERVICES INC 3.24 2.35 1.72 @NM 26.0% 12.7% 5.5% 7.5% 5.4% 2.8%
INTEGRAMED AMERICA 2.17 1.86 1.86 1.61 24.9% 11.4% 5.8% 5.0% 4.2% 6.6%
MONARCH DENTAL CORP (2.07) (1.56) (1.56) 3.17 11.8% 11.8% 6.5% -1.0% -0.8% -2.4%
ORTHODONTIC CENTERS OF AMER 69.20 43.08 42.40 42.70 49.2% 38.9% 33.4% 32.7% 20.4% 16.0%
PROMEDCO MANAGEMENT CO 24.92 15.45 14.84 @NM 16.4% 13.5% 9.9% 8.2% 5.1% 8.3%
RADIOLOGIX INC 26.43 15.67 15.67 22.28 36.2% 29.7% 19.6% 15.9% 9.4% 80.9%
U S PHYSICAL THERAPY INC 5.77 2.10 2.10 3.89 29.4% 16.3% 12.0% 12.1% 4.4% 21.0%
VISIONAMERICA INC 0.01 (0.43) (2.42) 1.78 @NM @NM @NM 0.0% -0.7% -8.3%
----------------------------------------- ---------------------------------------------------------
AVERAGE 17.63 9.46 9.01 13.34 29.0% 21.6% 15.5% 12.3% 6.0% 14.9%
----------------------------------------- ---------------------------------------------------------
MEDIAN 5.77 2.35 2.10 3.89 27.7% 14.9% 10.9% 8.2% 5.1% 8.3%
========================================= =========================================================
FIRST MEDICAL GROUP, INC. (0.68) 0.21 (0.05) (0.33) 19.5% -1.5% -5.5% -6.5% 2.0% -15.4%
AMERICAN HEALTHCHOICE INC (2.83) (2.83) (2.83) (1.36) -35.7% -35.7% -39.5% -52.8% -52.8% -125.2%
CONTINUCARE CORP (51.40) (51.40) (47.63) (27.68) -9.2% -9.2% -12.2% -31.4% -31.4% 134.8%
EQUIMED INC 4.65 (4.14) (4.14) 4.10 36.6% 24.4% 17.6% 5.8% -5.2% -17.5%
FOUNDATION HEALTH SYS -CL A 12.30 6.66 1.25 60.06 18.3% 4.3% 3.0% 0.1% 0.1% 0.1%
INNOVATIVE CLINICAL SOLUTNS (92.02) (82.02) (176.88) (49.41) -17.9% -17.9% -23.9% -42.5% -37.9% -4212.5%
INTEGRATED MEDICAL RESOURCES (7.67) (7.67) (7.67) (4.34) 35.1% -28.0% -40.3% -41.9% -41.9% -123.5%
MED-EMERG INTERNATIONAL INC @NA (0.32) (0.32) @NM @NM @NM -3.6% @NM -2.7% -9.2%
MEDTRONIC INC 1,008.10 629.40 629.40 619.62 74.2% @NM 32.1% 22.8% 14.2% 16.3%
METROPOLITAN HLTH NTWRKS INC (6.27) (6.27) (6.27) (3.31) -9.9% -9.9% -20.1% -33.7% -33.7% -589.7%
OAK TREE MEDICAL SYSTEMS INC @SF @SF @SF @NM @NM @NM @NM @NM @NM @NM
OCCUPATIONAL HLTH &REHAB INC (0.12) (0.63) (0.63) 0.06 15.5% 3.3% 0.1% -0.4% -2.1% -111.9%
PHYCOR INC (452.57) (501.42) (500.40) (247.53) 15.0% 13.1% 7.0% -28.4% -31.5% -138.6%
PRINCETON DENTAL MGMT CORP (1.56) (1.56) (1.56) (0.37) 2.2% 2.2% -4.0% -12.6% -12.6% 156.6%
SEAL HOLDINGS CORP (12.09) (12.11) (12.11) (6.91) -207.3% -213.0% -228.1% -188.3% -188.5% 25220.8%
SIGHT RESOURCE CORP (0.68) (0.75) (0.75) (0.10) 72.4% 5.0% -0.2% -1.1% -1.2% -3.7%
SONUS CORP (4.00) (4.00) (4.00) (2.19) 2.4% -3.2% -10.6% -11.0% -11.0% -157.4%
SUNSTAR HEALTHCARE INC 0.90 0.90 0.96 @NM 32.4% @NM 1.0% 1.1% 1.1% 14.7%
UCI MEDICAL AFFILIATES INC 0.91 0.91 0.91 1.43 11.1% 10.9% 6.0% 2.2% 2.2% 14.3%
SIERRA HEALTH SERVICES 28.13 18.99 18.99 @NM 17.8% 7.1% 5.0% 2.2% 1.5% 6.3%
US ONCOLOGY INC 64.39 38.30 38.30 50.02 21.5% 17.8% 12.0% 7.0% 4.2% 5.6%
LCA VISION INC 5.93 5.90 5.90 3.70 36.2% 13.5% 8.0% 11.1% 11.0% 8.8%
</TABLE>
<PAGE>
EXHIBIT H
FIRST MEDICAL GROUP, INC.
Review of The Health Care M&A Report and 1999 Mergerstat Transaction Roster
PHYSICIAN GROUP TRANSACTIONS
<TABLE>
<CAPTION>
No. of
Date Target Listing Revenue Net Income Phys.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6/14/99 Cardinal Healthcare, PA (MedPartners) 32,000,000 75
5/27/99 FPA Medical Mgmt (Charlotte and Atlanta Practices)
4/21/99 Edgar G. McKee, PA 1
6/4/99 Four BMJ Med Mgmt practices 45
5/28/99 FPA Clinic Operations FPAMQ
5/13/99 Hialeah and South Florida Pathology 3,500,000
6/10/99 Ambulatory Clinics 120
6/23/99 Orange Coast Managed Care Svcs FPAMQ 93,500,000 3,460,000 628
6/14/99 Park Place Theraputic Center (Specialty Care Network) SCNI 16,450,000 14
5/17/99 Physician Mgmt Services (Adv Health Corp) AHTC
6/14/99 Physicians' Specialty Corp ENTS 86,000,000 6,800,000 92
4/5/99 Plaza Pathology, PA 1,500,000 2
6/30/99 SCNI Practices SCNI 28,608,000 61
6/1/99 Sterling Healthcare Group FPAMQ 1,000
4/15/99 Summit Medical Group MDM 47,000,000 75
1/11/99 Axminster Medical Group FPAMQ 15,200,000 21
1/27/99 Emporia Radiology PA 1,200,000 3
1/11/99 Harper Pathology Group 1,800,000 3
3/11/99 Kelsey-Seybold Medical Group PA (MedPartners) MDM 290
1/28/99 Neonatal Services, Inc. 3
3/5/99 Perinatal-Neonatal Associates PS 18
1/28/99 Practice Assets (FPA Med Management) FPAMQ 30
3/25/99 Sheridan Healthcare, Inc. SHCR 129,900,000 6,400,000 363
2/25/99 Southwest Washington Perinatal Services 4
2/6/99 Steven P. Braff, MD, PC
1/27/99 Team Health, Inc. (MedPartners) MDM 700,000,000 2,300
3/19/99 The Cardiovascular Specialists, PC (MedPartners) MDM 10
1/11/99 Vista Medical Foundation 20
10/12/98 Cleveland Ear, Nose & Throat Center, Inc. (MedPartners) MDM 10
10/2/98 Consultant Pathology Associates, Inc. 15
11/16/98 Dunlap Talbert Medical Practice (MedPartners) MDM 6
11/10/98 Mountain Office Management Systems, Inc. 6
11/4/98 Pathology Consultants of Cleveland, Inc. 2,670,000 4
11/20/98 Peachtree Medical Center (American HealthChoice) AHIC 3
12/14/98 Physician Reliance Network, Inc. PHYN 395,000,000 20,000,000 356
11/6/98 Primary Medical Centers of America, Inc. (Seal Holding) SEAH
11/4/98 Susan R. Baker, PhD, MD, PA 1,130,000 2
10/2/98 Texoma Pathology Associates, PA 2
10/19/98 Two MedPartners Clinics MDM 19
9/15/98 Antelope Valley Medical Group 6,993,000 (4,275,400) 150
8/14/98 Boca Raton Orthopedic Group 6
8/18/98 CareMed Medical Management, Inc. 30
8/14/98 Community Orthopedics & Pain Management
8/14/98 Douglas A. Bobb, DO 1
8/27/98 Dynamic Health Care Management 6,200,000 2,060,000
7/8/98 First Medical Group Indiana Operations FMDG
7/16/98 First Medical Group Texas Operations FMDG
8/14/98 Seaview Orthopaedic & Medical Associates 6
7/7/98 Severance and Associates, PA 25
8/14/98 Steven P. Hirsch DPM, PA 1
9/21/98 Three Eye Care Practices 5,500,000
9/11/98 Twelve Orthopedic Physicians 12
8/24/98 David S. Klein MD PC 325,581
5/27/98 Physicians' Domain Inc 1,279,570
7/6/98 Valley Pain Centers of Virginia 1,100,000
</TABLE>
<TABLE>
<CAPTION>
Date Target Acquirer Listing
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6/14/99 Cardinal Healthcare, PA (MedPartners) Cardinal Consortium
5/27/99 FPA Medical Mgmt (Charlotte and Atlanta Practices) Stoneybrook Capital
4/21/99 Edgar G. McKee, PA AmeriPath PATH
6/4/99 Four BMJ Med Mgmt practices Physician buy-back
5/28/99 FPA Clinic Operations Humana Hum
5/13/99 Hialeah and South Florida Pathology AmeriPath PATH
6/10/99 Ambulatory Clinics Talbert Medical Group
6/23/99 Orange Coast Managed Care Svcs OCMCS Physicians
6/14/99 Park Place Theraputic Center (Specialty Care Network) Ortho-Associates, PA
5/17/99 Physician Mgmt Services (Adv Health Corp) PractiCare, Inc.
6/14/99 Physicians' Specialty Corp TA Associates
4/5/99 Plaza Pathology, PA AmeriPath PATH
6/30/99 SCNI Practices Orthopedic Practices
6/1/99 Sterling Healthcare Group Coastal Physician Group ERDR
4/15/99 Summit Medical Group Summit Medical Group, PA
1/11/99 Axminster Medical Group Axminster Physicians
1/27/99 Emporia Radiology PA American Physician Partners APPM
1/11/99 Harper Pathology Group AmeriPath PATH
3/11/99 Kelsey-Seybold Medical Group PA (MedPartners) St. Lukes-Methodist JV
1/28/99 Neonatal Services, Inc. Pediatrix Medical Group, Inc. PDX
3/5/99 Perinatal-Neonatal Associates PS Pediatrix Medical Group, Inc. PDX
1/28/99 Practice Assets (FPA Med Management) Patient First Physicians Group
3/25/99 Sheridan Healthcare, Inc. Vestar Capital Partners
2/25/99 Southwest Washington Perinatal Services Pediatrix Medical Group, Inc. PDX
2/6/99 Steven P. Braff, MD, PC American Physician Partners APPM
1/27/99 Team Health, Inc. (MedPartners) Management buy-out
3/19/99 The Cardiovascular Specialists, PC (MedPartners) InteCardia, Inc.
1/11/99 Vista Medical Foundation Community Medical Group of Corona
10/12/98 Cleveland Ear, Nose & Throat Center, Inc. (MedPartners) Physicians Specialty Corp. ENTS
10/2/98 Consultant Pathology Associates, Inc. AmeriPath PATH
11/16/98 Dunlap Talbert Medical Practice (MedPartners) John C. Lincoln Healthcare Network
11/10/98 Mountain Office Management Systems, Inc. RIGL Corp RIGN
11/4/98 Pathology Consultants of Cleveland, Inc. AmeriPath PATH
11/20/98 Peachtree Medical Center (American HealthChoice) Not Disclosed (Private)
12/14/98 Physician Reliance Network, Inc. American Oncology Resources, Inc. AORI
11/6/98 Primary Medical Centers of America, Inc. (Seal Holding) Camber Companies, LLC (KKR)
11/4/98 Susan R. Baker, PhD, MD, PA AmeriPath PATH
10/2/98 Texoma Pathology Associates, PA AmeriPath PATH
10/19/98 Two MedPartners Clinics Evanston Northwestern Healthcare
9/15/98 Antelope Valley Medical Group Prospect Medical Holdings
8/14/98 Boca Raton Orthopedic Group BMJ Medical Management, Inc. BONS
8/18/98 CareMed Medical Management, Inc. Continucare, Inc. CNU
8/14/98 Community Orthopedics & Pain Management BMJ Medical Management, Inc. BONS
8/14/98 Douglas A. Bobb, DO BMJ Medical Management, Inc. BONS
8/27/98 Dynamic Health Care Management Fonar Corporation FONR
7/8/98 First Medical Group Indiana Operations MCO, LLC
7/16/98 First Medical Group Texas Operations Durham Physician Group, PA
8/14/98 Seaview Orthopaedic & Medical Associates BMJ Medical Management, Inc. BONS
7/7/98 Severance and Associates, PA AmeriPath PATH
8/14/98 Steven P. Hirsch DPM, PA BMJ Medical Management, Inc. BONS
9/21/98 Three Eye Care Practices Vision Twenty-One, Inc. EYES
9/11/98 Twelve Orthopedic Physicians Integrated Orthopaedics, Inc. IOI
8/24/98 David S. Klein MD PC Medical Industries of America, Inc.
5/27/98 Physicians' Domain Inc Physicians Specialty Corp.
7/6/98 Valley Pain Centers of Virginia Medical Industries of America, Inc.
</TABLE>
<TABLE>
<CAPTION>
Deal
Date Target Price Terms
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
6/14/99 Cardinal Healthcare, PA (MedPartners) 16,000,000
5/27/99 FPA Medical Mgmt (Charlotte and Atlanta Practices) 6,400,000
4/21/99 Edgar G. McKee, PA 700,000
6/4/99 Four BMJ Med Mgmt practices 16,915,000
5/28/99 FPA Clinic Operations 13,500,000
5/13/99 Hialeah and South Florida Pathology 6,300,000
6/10/99 Ambulatory Clinics 3,700,000
6/23/99 Orange Coast Managed Care Svcs 8,500,000
6/14/99 Park Place Theraputic Center (Specialty Care Network) 8,700,000
5/17/99 Physician Mgmt Services (Adv Health Corp) 3,139,000 Cash
6/14/99 Physicians' Specialty Corp 107,617,000
4/5/99 Plaza Pathology, PA 2,400,000
6/30/99 SCNI Practices 24,815,000
6/1/99 Sterling Healthcare Group 89,300,000
4/15/99 Summit Medical Group 20,000,000
1/11/99 Axminster Medical Group 1,350,000
1/27/99 Emporia Radiology PA 1,190,000
1/11/99 Harper Pathology Group 2,000,000
3/11/99 Kelsey-Seybold Medical Group PA (MedPartners) 150,000,000
1/28/99 Neonatal Services, Inc. 1,950,000
3/5/99 Perinatal-Neonatal Associates PS 11,700,000
1/28/99 Practice Assets (FPA Med Management) 3,700,000
3/25/99 Sheridan Healthcare, Inc. 155,000,000
2/25/99 Southwest Washington Perinatal Services 2,600,000
2/6/99 Steven P. Braff, MD, PC 2,400,000
1/27/99 Team Health, Inc. (MedPartners) 318,900,000
3/19/99 The Cardiovascular Specialists, PC (MedPartners) 17,000,000
1/11/99 Vista Medical Foundation 1,500,000
10/12/98 Cleveland Ear, Nose & Throat Center, Inc. (MedPartners) 7,692,300 cash, stock, notes
10/2/98 Consultant Pathology Associates, Inc. 11,413,000 cash and stock
11/16/98 Dunlap Talbert Medical Practice (MedPartners) 3,100,000
11/10/98 Mountain Office Management Systems, Inc. 600,000 stock
11/4/98 Pathology Consultants of Cleveland, Inc. 3,043,000 cash and stock
11/20/98 Peachtree Medical Center (American HealthChoice) 1,075,000
12/14/98 Physician Reliance Network, Inc. 712,800,000 stock
11/6/98 Primary Medical Centers of America, Inc. (Seal Holding) 1,920,000 LLC units
11/4/98 Susan R. Baker, PhD, MD, PA 1,520,000 cash and stock
10/2/98 Texoma Pathology Associates, PA 1,520,000 cash and stock
10/19/98 Two MedPartners Clinics 10,000,000
9/15/98 Antelope Valley Medical Group 2,000,000 half cash/notes, half stock
8/14/98 Boca Raton Orthopedic Group 6,944,000
8/18/98 CareMed Medical Management, Inc. 6,725,000
8/14/98 Community Orthopedics & Pain Management 1,215,000
8/14/98 Douglas A. Bobb, DO 1,159,000 stock
8/27/98 Dynamic Health Care Management 11,576,230
7/8/98 First Medical Group Indiana Operations 727,378
7/16/98 First Medical Group Texas Operations 90,000
8/14/98 Seaview Orthopaedic & Medical Associates 5,348,000
7/7/98 Severance and Associates, PA 18,563,200 1/3 stock
8/14/98 Steven P. Hirsch DPM, PA 290,000
9/21/98 Three Eye Care Practices 4,210,000 half cash, half stock
9/11/98 Twelve Orthopedic Physicians 7,200,000
8/24/98 David S. Klein MD PC 2,800,000 all stock
5/27/98 Physicians' Domain Inc 11,900,000
7/6/98 Valley Pain Centers of Virginia 3,300,000 all stock
AVERAGE
MEDIAN
</TABLE>
<TABLE>
<CAPTION>
Price
---------------------------------------
Date Target Revenue Net Income Physician
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6/14/99 Cardinal Healthcare, PA (MedPartners) 0.50 na 213,333
5/27/99 FPA Medical Mgmt (Charlotte and Atlanta Practices) na na na
4/21/99 Edgar G. McKee, PA na na 700,000
6/4/99 Four BMJ Med Mgmt practices na na 375,889
5/28/99 FPA Clinic Operations na na na
5/13/99 Hialeah and South Florida Pathology 1.80 na na
6/10/99 Ambulatory Clinics na na 30,833
6/23/99 Orange Coast Managed Care Svcs 0.09 2.46 13,535
6/14/99 Park Place Theraputic Center (Specialty Care Network) 0.53 na 621,429
5/17/99 Physician Mgmt Services (Adv Health Corp) na na na
6/14/99 Physicians' Specialty Corp 1.25 15.83 1,169,750
4/5/99 Plaza Pathology, PA 1.60 na 1,200,000
6/30/99 SCNI Practices 0.87 na 406,803
6/1/99 Sterling Healthcare Group na na 89,300
4/15/99 Summit Medical Group 0.43 na 266,667
1/11/99 Axminster Medical Group 0.09 na 64,286
1/27/99 Emporia Radiology PA 0.99 na 396,667
1/11/99 Harper Pathology Group 1.11 na 666,667
3/11/99 Kelsey-Seybold Medical Group PA (MedPartners) na na 517,241
1/28/99 Neonatal Services, Inc. na na 650,000
3/5/99 Perinatal-Neonatal Associates PS na na 650,000
1/28/99 Practice Assets (FPA Med Management) na na 123,333
3/25/99 Sheridan Healthcare, Inc. 1.19 24.22 426,997
2/25/99 Southwest Washington Perinatal Services na na 650,000
2/6/99 Steven P. Braff, MD, PC na na na
1/27/99 Team Health, Inc. (MedPartners) 0.46 na 138,652
3/19/99 The Cardiovascular Specialists, PC (MedPartners) na na 1,700,000
1/11/99 Vista Medical Foundation na na 75,000
10/12/98 Cleveland Ear, Nose & Throat Center, Inc. (MedPartners) na na 769,230
10/2/98 Consultant Pathology Associates, Inc. na na 760,867
11/16/98 Dunlap Talbert Medical Practice (MedPartners) na na 516,667
11/10/98 Mountain Office Management Systems, Inc. na na 100,000
11/4/98 Pathology Consultants of Cleveland, Inc. 1.14 na 760,750
11/20/98 Peachtree Medical Center (American HealthChoice) na na 358,333
12/14/98 Physician Reliance Network, Inc. 1.80 35.64 2,002,247
11/6/98 Primary Medical Centers of America, Inc. (Seal Holding) na na na
11/4/98 Susan R. Baker, PhD, MD, PA 1.35 na 760,000
10/2/98 Texoma Pathology Associates, PA na na 760,000
10/19/98 Two MedPartners Clinics na na 526,316
9/15/98 Antelope Valley Medical Group 0.29 na 13,333
8/14/98 Boca Raton Orthopedic Group na na 1,157,333
8/18/98 CareMed Medical Management, Inc. na na 224,167
8/14/98 Community Orthopedics & Pain Management na na na
8/14/98 Douglas A. Bobb, DO na na 1,159,000
8/27/98 Dynamic Health Care Management 1.87 5.62 na
7/8/98 First Medical Group Indiana Operations na na na
7/16/98 First Medical Group Texas Operations na na na
8/14/98 Seaview Orthopaedic & Medical Associates na na 891,333
7/7/98 Severance and Associates, PA na na 742,528
8/14/98 Steven P. Hirsch DPM, PA na na 290,000
9/21/98 Three Eye Care Practices 0.77 na na
9/11/98 Twelve Orthopedic Physicians na na 600,000
8/24/98 David S. Klein MD PC na 8.60 na
5/27/98 Physicians' Domain Inc na 9.30 na
7/6/98 Valley Pain Centers of Virginia na 3.00 na
0.95 13.08 574,109
0.99 8.95 526,316
</TABLE>
<TABLE>
<CAPTION>
Date Target Notes
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
6/14/99 Cardinal Healthcare, PA (MedPartners) Physician repurchase
5/27/99 FPA Medical Mgmt (Charlotte and Atlanta Practices)
4/21/99 Edgar G. McKee, PA
6/4/99 Four BMJ Med Mgmt practices Physician repurchase
5/28/99 FPA Clinic Operations
5/13/99 Hialeah and South Florida Pathology
6/10/99 Ambulatory Clinics Physician repurchase
6/23/99 Orange Coast Managed Care Svcs Physician repurchase in bankruptcy
6/14/99 Park Place Theraputic Center (Specialty Care Network) Physician repurchase
5/17/99 Physician Mgmt Services (Adv Health Corp)
6/14/99 Physicians' Specialty Corp
4/5/99 Plaza Pathology, PA
6/30/99 SCNI Practices Physician repurchase
6/1/99 Sterling Healthcare Group
4/15/99 Summit Medical Group Physician repurchase
1/11/99 Axminster Medical Group Physician repurchase
1/27/99 Emporia Radiology PA
1/11/99 Harper Pathology Group
3/11/99 Kelsey-Seybold Medical Group PA (MedPartners)
1/28/99 Neonatal Services, Inc.
3/5/99 Perinatal-Neonatal Associates PS
1/28/99 Practice Assets (FPA Med Management)
3/25/99 Sheridan Healthcare, Inc.
2/25/99 Southwest Washington Perinatal Services
2/6/99 Steven P. Braff, MD, PC
1/27/99 Team Health, Inc. (MedPartners) MDM keeps 7.3% interest
3/19/99 The Cardiovascular Specialists, PC (MedPartners)
1/11/99 Vista Medical Foundation Sold in Bankruptcy
0/12/98 Cleveland Ear, Nose & Throat Center, Inc. (MedPartners)
10/2/98 Consultant Pathology Associates, Inc.
1/16/98 Dunlap Talbert Medical Practice (MedPartners)
1/10/98 Mountain Office Management Systems, Inc.
11/4/98 Pathology Consultants of Cleveland, Inc.
1/20/98 Peachtree Medical Center (American HealthChoice) in bankruptcy
2/14/98 Physician Reliance Network, Inc.
11/6/98 Primary Medical Centers of America, Inc. (Seal Holding)
11/4/98 Susan R. Baker, PhD, MD, PA
10/2/98 Texoma Pathology Associates, PA
0/19/98 Two MedPartners Clinics
9/15/98 Antelope Valley Medical Group
8/14/98 Boca Raton Orthopedic Group
8/18/98 CareMed Medical Management, Inc.
8/14/98 Community Orthopedics & Pain Management
8/14/98 Douglas A. Bobb, DO
8/27/98 Dynamic Health Care Management
7/8/98 First Medical Group Indiana Operations
7/16/98 First Medical Group Texas Operations
8/14/98 Seaview Orthopaedic & Medical Associates
7/7/98 Severance and Associates, PA
8/14/98 Steven P. Hirsch DPM, PA
9/21/98 Three Eye Care Practices
9/11/98 Twelve Orthopedic Physicians
8/24/98 David S. Klein MD PC
5/27/98 Physicians' Domain Inc
7/6/98 Valley Pain Centers of Virginia
</TABLE>
<PAGE>
ANNEX B
ASSET PURCHASE AGREEMENT
BETWEEN
FIRST MEDICAL GROUP, INC.
as Seller
AND
AMCMC Acquisition Corp.
as Buyer
as of
January 31, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Definitions.............................................................................................1
2. Basic Transaction.......................................................................................3
(a) Purchase and Sale of Assets....................................................................3
(b) Assumption of Liabilities......................................................................4
(c) Purchase Price.................................................................................4
(d) Purchase Price Adjustment......................................................................4
(e) Surrender of Stock.............................................................................4
(f) The Closing....................................................................................4
(g) Deliveries at the Closing......................................................................4
3. Representations and Warranties of Seller................................................................4
(a) Organization of Seller.........................................................................5
(b) Authorization of Transaction...................................................................5
(c) Noncontravention...............................................................................5
(e) Title to Tangible Assets.......................................................................5
(f) Financial Statements...........................................................................5
(g) Material Adverse Changes.......................................................................5
(h) Legal Compliance...............................................................................6
(i) Intellectual Property..........................................................................6
(j) Contracts......................................................................................6
(k) Litigation.....................................................................................6
(m) Environmental, Health, and Safety Matters......................................................6
(n) Tax Matters....................................................................................7
(o) No Barter Receivables or Obligations...........................................................7
(p) Sufficiency of Acquired Assets.................................................................7
(q) Disclaimer of other Representations and Warranties.............................................7
4. Representations and Warranties of Buyer.................................................................7
(a) Organization of Buyer..........................................................................7
(b) Authorization of Transaction...................................................................7
(c) Noncontravention...............................................................................7
(d) Brokers' Fees..................................................................................8
5. Pre-Closing Covenants...................................................................................8
(a) General........................................................................................8
(b) Notices and Consents...........................................................................8
(d) Conduct of the Business........................................................................8
(e) Notice of Developments.........................................................................8
(f) Full Access....................................................................................9
6. Conditions to Obligation to Close.......................................................................9
(a) Conditions to Obligation of Buyer..............................................................9
(b) Conditions to Obligation of Seller.............................................................9
7. Termination...................................................................................10
(a) Termination of Agreement......................................................................10
(b) Effect of Termination.........................................................................11
8. Post-Closing Covenants.................................................................................11
(a) General.......................................................................................11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(b) Litigation Support............................................................................11
(c) Transition....................................................................................11
(d) Covenant Not to Compete.......................................................................11
9. Remedies for Breaches of this Agreement................................................................11
(a) Survival of Representations and Warranties....................................................11
(b) Indemnification Provisions for Benefit of Buyers..............................................12
(c) Indemnification Provisions for Benefit of NSDA................................................12
(d) Matters Involving Third Parties...............................................................12
(e) Determination of Adverse Consequences.........................................................12
(f) Exclusive Remedy..............................................................................13
10. Miscellaneous..........................................................................................13
(a) Press Releases and Public Announcements.......................................................13
(c) No Third-Party Beneficiaries..................................................................13
(d) Entire Agreement..............................................................................13
(e) Succession and Assignment.....................................................................13
(f) Counterparts..................................................................................13
(g) Headings......................................................................................13
(h) Notices.......................................................................................13
(i) Governing Law.................................................................................14
(j) Amendments and Waivers........................................................................14
(k) Severability..................................................................................14
(l) Expenses......................................................................................14
(m) Construction..................................................................................14
(n) Incorporation of Exhibits, Annexes and Schedules..............................................14
(o) Bulk Transfer Laws............................................................................14
</TABLE>
Disclosure Schedule
<TABLE>
<S> <C>
Annex 2.1(a) List of Assets of First Medical Group, Inc. to be Acquired by Buyer
Annex 2.3(a) List of Liabilities of First Medical Group, Inc. to be Assumed by Buyer
Exhibit A-1 Form of Assignment and Assumption -
Acquired Assets and Assumed Liabilities
Exhibit A-2 Form of Assignment and Assumption -
Lehigh Notes
Exhibit A-3 Form of Assignment and Assumption -
American Multiprofile Clinic Note
Exhibit B Historical Financial Statements
Exhibit C Form of Mutual Release
</TABLE>
<PAGE>
15
ASSET PURCHASE AGREEMENT
Agreement entered into as of January 31, 2000, by and among AMCMC
Acquisition Corp., a British Virgin Islands corporation having an address at
1055 Washington Boulevard, Stamford, Connecticut 06901 ("BUYER"), and First
Medical Group, Inc., a Delaware corporation having an address at 1055 Washington
Boulevard, Stamford, Connecticut 06901 ("SELLER"). Buyer and Seller are referred
to collectively herein as the "PARTIES."
Pursuant to this Agreement, Buyer will purchase the Acquired Assets (as
defined herein) (and assume the Assumed Liabilities (as defined herein)) of
Seller in return for cash, and Seller will sell, transfer and convey to Buyer
the Acquired Assets (as defined herein), all upon the terms, provisions and
conditions set forth below.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACQUIRED ASSETS" means the assets listed on Annex 2.1(a).
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"ASSET PURCHASE AGREEMENT" has the meaning set forth in the preface
above.
"ASSUMED LIABILITIES" means the liabilities and obligations listed
on Annex 2.3(a).
"BUSINESS" means the ongoing business of owning and operating
outpatient and ancillary healthcare facilities in Eastern Europe.
"BUYER" has the meaning set forth in the preface above.
"CASH" means cash and cash equivalents (including marketable
securities and short term investments) calculated in accordance with GAAP
applied on a basis consistent with the preparation of the Financial
Statements.
"CLOSING DATE" has the meaning set forth in Section2(f) below.
"CLOSING" has the meaning set forth in Section2(f) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of Seller that is not generally available to the public,
including but not limited to all data, reports, interpretations, forecasts,
audit reports and other records to the extent they contain information
concerning Seller. The term "Confidential Information" also shall include all
notes, analyses, compilations, studies, interpretations or other documents
prepared by Buyer or their officers, directors, employees and/or agents
(collectively, "Representatives"), which contain, reflect or are based upon in
whole or in part, the information furnished to Buyer or its Representatives by
Seller.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section3 below.
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, and ordinances
concerning public health and safety, worker health and safety, and pollution or
protection of
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the environment, including without limitation all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, as such requirements are enacted and in effect on or
prior to the Closing Date.
"FINANCIAL STATEMENTS" has the meaning set forth in Section3(f) below.
"FMG" means First Medical Group, Inc.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"INCOME TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"INCOME TAX" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"INDEMNIFIED PARTY" has the meaning set forth in Section9(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in Section9(d) below.
"INTELLECTUAL PROPERTY" means all trade names, common law and other
trademarks, service marks, trade dress, certification marks, collective marks
and applications and licenses therefor, trademark registrations and
applications, service mark registrations and applications, copyrights and
copyright registrations and applications owned by Seller or Seller Subsidiaries
and used in the Business, and all rights, common law and other, registrations
and applications for the marks and trade names, owned by Seller or Seller
Subsidiaries and used in the Business.
"KNOWLEDGE" means actual knowledge without independent investigation.
"LEHIGH NOTES" means all of Seller's right, title and interest in and
to Seller's subordinated debentures acquired by reason of Seller's restructuring
in 1991, and payable on May 15, 1998 (in the principal amount of $100,000,
together with all accrued interest) and October 15, 1995 (in the principal
amount of $290,000, together with all accrued interest), respectively.
"LOAN" means the loan in the principal amount of approximately
$300,000 (together with interest thereon) made by Dennis A. Sokol to Seller
through the Closing Date.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
Section3(f) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in
Section3(f) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
of the relevant Person consistent with its past custom and practice
(including with respect to quantity and frequency).
"OTHER AGREEMENTS" means Form of Assignment and Assumption attached
hereto as Exhibit A and Form of Trademark Assignment attached hereto as
Exhibit B.
"PARTIES" AND "PARTY" have the meaning set forth in the preface above.
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
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"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in
Section2(d) below.
"PURCHASE PRICE" has the meaning set forth in Section2(c) below.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"SELLER SUBSIDIARIES" means all of the entities set forth on Annex
2.1(a) hereto.
"THIRD PARTY CLAIM" has the meaning set forth in Section4(d) below.
2. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller, and Seller
agrees to sell, transfer, convey, and deliver to Buyer, or cause its
subsidiaries to sell, transfer, convey and deliver to Buyer, as the case may be,
all of the Acquired Assets at the Closing for the consideration specified below
in this Section 2.
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(b) ASSUMPTION OF LIABILITIES.
(1) On and subject to the terms and conditions of this
Agreement, Buyer agrees to assume and become responsible for all of the
Assumed Liabilities at the Closing. Buyer will not assume or have any
responsibility, however, with respect to any such liabilities prior to
Closing or any other obligation or liability of Seller not included within
the definition of Assumed Liabilities.
(2) Contemporaneously, as a separate transaction, Seller has
agreed to assign and transfer at the Closing all of its right, title and
interest in and to the Lehigh Notes pursuant to an Assignment and Assumption
in the form of Exhibit A-2 hereto, and all liability attaching to said Lehigh
Notes shall be assumed by the assignee thereof.
(3) Contemporaneously, as a separate transaction, Seller will
assign to AMCMC at the Closing all of Seller's right, title and interest in
and to that certain promissory note, dated January 25, 1999, issued by
American Multiprofile Clinic, Inc. to Seller in the principal amount of $1.5
million, pursuant to an Assignment and Assumption in the form of Exhibit A-3
hereto.
(c) PURCHASE PRICE. Buyers agree to pay to Seller at the Closing
an aggregate of $1 million (the "PURCHASE PRICE"), subject to the Purchase Price
Adjustment, by delivery of cash by wire transfer or delivery of other
immediately available funds.
(d) PURCHASE PRICE ADJUSTMENT. The Purchase Price will be
reduced by the principal and accrued interest outstanding at the time of
Closing on the Loan(s) (the "Purchase Price Adjustment").
(e) SURRENDER OF STOCK. At the Closing, (i) SAJH Partners, Dennis
A. Sokol, Cenvet, Inc. (General de Sante) and Elena Korchagina will surrender
for cancellation an aggregate of 5,728,260 shares of the common stock of FMG,
being all shares of stock of FMG owned by them collectively in Seller, and
(ii) Dennis A. Sokol will surrender for cancellation all of the issued and
outstanding options and warrants for the purchase of shares of common stock
of FMG owned by him.
(f) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Patton Boggs
LLP in Washington D.C., commencing at 10:00 a.m. local time on the third
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
(the "CLOSING DATE").
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) Seller will
deliver to Buyer the various certificates, instruments, and documents referred
to in Section 6(a) below; (ii) Buyer will deliver to Seller the various
certificates, instruments, and documents referred to in Section 6(b) below;
(iii) Seller will execute, acknowledge (if appropriate), and deliver to Buyer
(A) assignments (including real property, trademark and intellectual property
transfer documents) and assumptions in the forms attached hereto as Exhibit A
and (B) such other instruments of sale, transfer, conveyance, and assignment
as Buyer and their counsel reasonably may request; (iv) Buyer will execute,
acknowledge (if appropriate), and deliver to Seller (A) an assignment and
assumption in the form attached hereto as Exhibit A and (B) such other
instruments of assumption as Seller and their counsel may reasonably request;
and (v) Buyer will deliver to Seller the consideration specified in Section
2(c) above, subject to the provisions of Section 2(d) above, and the
certificates or other documentation representing the shares of common stock
and options and warrants for the purchase of such common stock specified in
Section 2(e) above.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyers that the statements contained in this Section 3 with
respect to it are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "DISCLOSURE
SCHEDULE"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 3.
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(a) ORGANIZATION OF SELLER. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware. Seller Subsidiaries are all entities duly organized, validly
existing, and in good standing under the law of their respective
jurisdictions of organization. Seller and Seller Subsidiaries have the
corporate or other power to own and to sell the Acquired Assets owned by them
and to conduct the Business. Seller and Seller Subsidiaries are all qualified
to do business and are in good standing in each jurisdiction where such
qualification is required to conduct the Business associated with the
Acquired Assets, except where the failure to so qualify would not have a
material adverse effect on the Business or the Acquired Assets.
(b) AUTHORIZATION OF TRANSACTION. Seller has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and the Other Agreements and to perform its
obligations hereunder. Without limiting the generality of the foregoing, the
board of directors and shareholders of Seller has duly authorized the
execution, delivery, and performance of this Agreement by Seller. This
Agreement and the Other Agreements constitute the valid and legally binding
obligation of Seller, enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Seller or Seller
Subsidiaries are subject or any provision of the Articles of Incorporation or
bylaws or other constituent documents of Seller or Seller Subsidiaries or
(ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Seller or
Seller Subsidiaries are a party or by which they are bound or to which their
assets are subject (or result in the imposition of any Security Interest upon
any of their assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
financial condition of Seller and Seller Subsidiaries, taken as a whole, or
on the ability of the Parties to consummate the transactions contemplated by
this Agreement. Neither Seller nor Seller Subsidiaries are required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement (including the
assignments and assumptions referred to in Section 2 above), except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the financial condition
of Seller and Seller Subsidiaries, taken as a whole, or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. Seller has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which Buyer could become
liable or obligated.
(e) TITLE TO TANGIBLE ASSETS. Seller has good, valid and
marketable title to the tangible Acquired Assets which are owned by it, free
and clear of all liens, claims, encumbrances, Security Interests, options,
charges and restrictions of any kind. Upon delivery to Buyer at the Closing,
good, valid and marketable title to the tangible Acquired Assets which are
owned by Seller will pass to Buyer, free and clear of all liens, claims,
encumbrances, Security Interests, options, charges and restrictions of any
kind.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the
following financial statements (collectively the "FINANCIAL STATEMENTS"): (i)
audited consolidated balance sheets for Seller, each as of December 31, 1997
and December 31, 1998; (ii) audited consolidated statements of income, and
cash flow, each for the fiscal years ended December 31, 1996, December 31,
1997, and December 31, 1998, for Seller; and (iii) unaudited consolidated
balance sheets and statements of income, and cash flow for Seller (the "MOST
RECENT FINANCIAL STATEMENTS" as of and for the nine months ended September
30, 1999 (the "MOST RECENT FISCAL MONTH END"). The Financial Statements for
Seller (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby and
present fairly the financial condition of Seller as of such dates and the
results of operations of Seller for such periods; PROVIDED, HOWEVER, that the
Most Recent Financial Statements are subject to normal year-end adjustments
and lack footnotes and other presentation items.
(g) MATERIAL ADVERSE CHANGES. Since September 30, 1999, there has
not been any material adverse change in the Business, the Acquired Assets,
financial condition, results of operations or prospects of Seller or Seller
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Subsidiaries. Without limiting the generality of the foregoing, since that
date neither Seller nor Seller Subsidiaries have not engaged in any practice,
taken any action, or entered into any transaction relating to the Business
that is outside of its Ordinary Course of Business.
(h) LEGAL COMPLIANCE. Seller and Seller Subsidiaries have
complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), except where the failure to comply would not have a
material adverse effect upon the financial condition of Seller and Seller
Subsidiaries, taken as a whole.
(i) INTELLECTUAL PROPERTY. Section 3(i) of the Disclosure
Schedule accurately and completely identifies all registrations and pending
applications for the Intellectual Property that are owned by Seller and
Seller Subsidiaries and identifies each license, agreement, or other
permission which Seller and Seller Subsidiaries have granted to any third
party with respect to the Intellectual Property. Seller is not aware of any
violation or infringement of intellectual property rights relating to the
Intellectual Property.
(j) CONTRACTS. Section3(j) of the Disclosure Schedule is a
complete and accurate list of all material written contracts and other
written agreements relating to the Business to which Seller or a Seller
Subsidiary is a party. Except as set forth on Section3(j) of the Disclosure
Schedule, to the knowledge of Seller, (i) each of the contracts or other
agreements is valid, binding, legal and enforceable in accordance with its
terms; (ii) the parties thereto are in compliance with the provisions
thereof; (iii) no party is in default in the performance, observance or
fulfillment of any material, obligation, covenant or condition contained
therein; and (iv) no event not contemplated by this Agreement has occurred
which with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder. Seller has delivered to Buyer a correct and
complete copy of each contract or other agreement listed in Section3(j) of
the Disclosure Schedule (as amended to date).
(k) LITIGATION. Section3(l) of the Disclosure Schedule sets forth
each instance in which Seller or any of Seller Subsidiaries (i) is subject to
any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction. Except as indicated on
Section3(l) of the Disclosure Schedule, no litigation is pending or, to
Seller's knowledge, threatened against Seller that questions the validity of
this Agreement, or any action taken, or to be taken, by Seller in connection
with this Agreement or that relates to the Acquired Assets, except where such
litigation would not have a material adverse effect on the Business or the
Acquired Assets. There is no material judgment, order, injunction, decree or
award outstanding (whether rendered by a court, administrative agency or by
arbitration) against Seller or Seller Subsidiaries or by which Seller or
Seller Subsidiaries are bound which relates to any of the Acquired Assets.
Seller and Seller Subsidiaries are not in violation of any applicable
federal, state or local law, rule, regulation or ordinance, or any judgment,
writ, decree, injunction, order or any other requirement of any court,
administrative agency, bureau, board, commission, office, authority,
department or other governmental body or agency relating to the conduct of
the Business or the ownership or use of the Acquired Assets, which violation
would have a material adverse effect on the Business or the Acquired Assets,
and no notice has been received by Seller or Seller Subsidiaries alleging any
such violation.
(l) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Other than as set
forth on Section 3(l) of the Disclosure Schedule:
(i) Seller and Seller Subsidiaries are in compliance with
Environmental, Health, and Safety Requirements, except for such
noncompliance as would not have a material adverse effect on the
financial condition of Seller and Seller Subsidiaries, taken as a
whole.
(ii) Neither Seller nor any Seller Subsidiary has received any
written notice, report or other information regarding any actual or
alleged material violation of Environmental, Health, and Safety
Requirements, or any material liabilities or potential material
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective
obligations, relating to its facilities arising under Environmental,
Health, and Safety Requirements, the subject of which would have a
material adverse effect on the financial condition of Seller and Seller
Subsidiaries, taken as a whole.
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(iii) This Section 3(l) contains the sole and exclusive
representations and warranties of Seller with respect to any
environmental, health, or safety matters, including without limitation
any arising under any Environmental, Health, and Safety Requirements.
(m) TAX MATTERS. All tax returns and reports of Seller required to be
filed on or before the date hereof have been duly and timely filed on or before
such date or appropriate extensions to file such returns and reports have been
granted, and all taxes, assessments, fees and other governmental charges upon
Seller and upon the Acquired Assets which are due and payable, other than those
presently payable without penalty or interest, have been paid, except in either
case where the failure to do so would not have a material adverse effect on the
Business or the Acquired Assets. As of the date hereof, there are no tax liens
on any of the Acquired Assets, and, to the best of Seller's knowledge, there is
no basis for the assertion of any such tax liens, other than for taxes currently
due and payable.
(n) NO BARTER RECEIVABLES OR OBLIGATIONS. Except for such
arrangements as are set forth in Section3(j) or Section3(n) of the Disclosure
Schedule, Seller is not liable for any outstanding barter obligations with
respect to the Business.
(o) SUFFICIENCY OF ACQUIRED ASSETS. With the exception of personnel,
the Acquired Assets comprise all of the assets, properties and rights
necessary for the continued operation of the Business, consistent with past
practices.
(p) DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in this Section 3, Seller makes no representation or
warranty, express or implied, at law or in equity, in respect of any of its
assets (including, without limitation, the Acquired Assets), liabilities or
operations, and any such other representations or warranties are hereby
expressly disclaimed. Without limiting the generality of the foregoing,
Seller makes no representation or warranty regarding any assets other than
the Acquired Assets or any liabilities other than the Assumed Liabilities,
and none shall be implied at law or in equity.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller that the statements contained in this Section4 with
respect to it are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Section4), except as set forth in the Disclosure Schedule.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section4.
(a) ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and the Other Agreements and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the board of directors and
shareholders of Buyer has duly authorized the execution, delivery and
performance of this Agreement by Buyer. This Agreement and the Other Agreements
constitute the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject. With the exception of any forms, notices or other materials that Buyer
has filed with the Federal Trade Commission or the Antitrust Division of the
United States Department of Justice pursuant to the Hart-Scott-Rodino Act, Buyer
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section2
above). The waiting period under the Hart-Scott-Rodino Act with respect to the
transactions contemplated by this Agreement has expired.
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(d) BROKERS' FEES. Buyer has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Seller could become liable or
obligated.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section6 below).
(b) NOTICES AND CONSENTS. Subject to Section5(c) below, each of the
Parties will give any notices to, make any filings with, and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section3(c) and Section4(c) above.
(c) CONDUCT OF THE BUSINESS. Seller covenants and agrees that:
(i) The Business will be conducted by Seller in the ordinary
course and in the same manner as heretofore conducted;
(ii) Seller will maintain insurance on the Acquired Assets and
the Business as heretofore in effect;
(iii) Without Buyer's prior written approval, no material
contract or commitment related to the Business or the Acquired Assets
will be entered into by or on behalf of Seller or Seller Subsidiaries
outside of the Ordinary Course of Business;
(iv) Seller will use commercially reasonable efforts to
preserve intact the Acquired Assets and the existing relationships and
goodwill of the Business with its advertisers, vendors, suppliers,
customers, and other third parties involved in the Business;
(v) Seller will not create or permit to become effective any
material encumbrance on any of the Acquired Assets; and
(vi) Seller will promptly advise Buyer of the commencement or
threat against either of Seller or any Seller Subsidiary of any
material litigation relating to or affecting the Acquired Assets or
the transactions contemplated by this Agreement.
(d) NOTICE OF DEVELOPMENTS.
(i) Seller shall notify Buyer of any development causing a
breach of any of their representations and warranties in Section 3
above. If Buyer has the right to terminate this Agreement pursuant to
Section7(a)(ii) below by reason of the development and does not
exercise that right within the period of 10 business days referred to
in Section7(a)(ii) below, the written notice pursuant to this
Section5(e)(i) will be deemed to have amended the Disclosure Schedule,
to havequalified the representations and warranties contained in
Section3 above, and to have cured any misrepresentation or breach of
warranty that otherwise might have existed hereunder by reason of the
development.
(ii) Each Party will give prompt written notice to the other
Party of any material adverse development causing a breach of any of
its own representations and warranties in Section3 and Section4 above.
No disclosure by any Party pursuant to this Section5(e)(ii), however,
shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation or breach of warranty.
<PAGE>
(f) FULL ACCESS. Subject to applicable law, Seller will give Buyer and
their counsel, financial advisors, auditors and other authorized representatives
reasonable access during business hours to the offices, properties, books and
records of Seller related to the Business and will instruct the employees,
counsel and financial advisors of Seller to cooperate with Buyer in their
investigation of Seller; provided, however, that any investigation pursuant to
this Section 5(f) shall be conducted on commercially reasonable prior notice and
in such manner as not to interfere unreasonably with the business of Seller.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth inSection3
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Seller and Seller Subsidiaries shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) Seller shall have delivered to Buyer a certificate to the
effect that each of the conditions specified above in
Section6(a)(i)-(iii) is satisfied in all material respects;
(v) Seller and Buyer shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section3(c) and Section4(c) above;
(vi) Buyer shall have received from Seller the Assignment and
Assumption in the form of Exhibit A-1 hereto duly executed by Seller;
(vii) Buyer shall have received evidence of the execution and
delivery of the Assignment and Assumption in the form of Exhibit A-3
hereto;
(viii) Buyer shall have received from Seller the Mutual Release
in the form of Exhibit C hereto;
(ix) all actions to be taken by Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory
in form and substance to Buyer;
(x) no statute, rule, regulation, order or injunction of any
court or administrative agency shall be in effect which prohibits
Buyer from consummating the transactions contemplated hereby;
(xi) there shall not be any material action, suit or proceeding
pending or threatened that seeks to prohibit the consummation of the
transactions contemplated thereby; and
(xii) from and after the date hereof to the Closing, there shall
not have occurred any material adverse change with respect to the
business, the assets, condition (financial or otherwise) or results of
operations of the Business. At the Closing, Seller shall deliver to
Buyer a certificate, dated as of the Closing Date, certifying as to the
foregoing matter.
Buyer may waive any condition specified in this Section6(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
9
<PAGE>
(xii) the representations and warranties set forth inSection4
above shall be true and correct in all material respects at and as of
the Closing Date;
(xiii) Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(xiv) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(xv) Buyer shall have delivered to Seller a certificate to
the effect that each of the conditions specified above in
Section 6(b)(i)-(iii) is satisfied in all respects;
(xvi) Seller and Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section3(c) and Section4(c) above;
(xvii) Seller shall have received (A) from Buyer the Assignment
and Assumption in the form of Exhibit A-1 hereto duly executed by Buyer
and (B) a fully executed Assignment and Assumption in the form of
Exhibit A-2 hereto;
(xviii) Seller shall have received from Dennis A. Sokol a
resignation as director and officer of Seller and the Mutual Release
in the form of Exhibit C hereto;
(xix) Buyer shall have received all material third-party
consents and approvals necessary for the purchase and transfer of
the Acquired Assets from Seller to Buyer;
(xx) no statute, rule or regulation or order or injunction of
any court or administrative agency shall be in effect which prohibits
Seller from consummating the transactions contemplated hereby;
(xxi) there shall not be any material action, suit or
proceeding pending or threatened that seeks to prohibit the
consummation of the transactions contemplated thereby; and
(xxii) all actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect
the transactions contemplated hereby will be satisfactory in form
and substance to Seller.
Seller may waive any condition specified in this Section6(b) if it executes a
writing so stating at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) Buyer and Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing in the event (A)
Seller has within the then previous 10 business days given Buyer any
notice pursuant to Section5(e)(i) above and either (B) the development
that is the subject of the notice has had a material adverse effect
upon the financial condition of Seller and Seller Subsidiaries, taken
as a whole or (C) the notice from Seller relates to a breach or
breaches not caused or brought about by Seller and the notice gives
Buyer an option to terminate even if the development does not have a
material adverse effect upon the financial condition of Seller and
Seller Subsidiaries, taken as a whole.
(iii) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing (A) in the event
Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, Buyer
has notified Seller of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or
(B) if the Closing shall not have occurred on or before
[June 30, 2000], by reason of the failure of any condition precedent
under Section6(a) hereof (unless the failure
10
<PAGE>
results primarily from Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(iv) Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event
Buyer have breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, Seller
has notified Buyer of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or
(B) if the Closing shall not have occurred on or before
[ June 30, 2000], by reason of the failure of any condition
precedent under Section6(b) hereof (unless the failure results
primarily from Seller themselves breaching any representation,
warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party (except for any liability of any Party then in breach); PROVIDED,
HOWEVER, that if this Agreement is terminated for any reason whatsoever,
Buyer will treat and hold as such any Confidential Information they have
received from Seller, will not use any of the Confidential Information except
in connection with this Agreement and will return to Seller all tangible
embodiments (and all copies) of the Confidential Information which are in
their possession.
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further action
is necessary to carry out the purposes of the Asset Purchase Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section9 below).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Seller, each of the other Parties will cooperate
with the contesting or defending Party and its counsel in the contest or
defense, make available its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section9 below).
(c) TRANSITION. Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Seller from maintaining the same
business relationships with Buyer and their subsidiaries after the Closing as it
maintained with Seller prior to the Closing.
(d) COVENANT NOT TO COMPETE. For a period of [one (1) year] following
the date of execution of this Agreement, Seller will not engage directly or
indirectly in any activity that Buyer conducts as of the Closing Date in any
geographic area in which Buyer conducts that business as of the Closing Date. If
the final judgment of a court of competent jurisdiction declares that any term
or provision of this Section8(d) is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
9. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of Seller contained in
Section 3 shall survive the Closing and continue in full force and effect for a
period of eighteen (18) months thereafter. All of the other representations and
warranties of Buyer
11
<PAGE>
and Seller contained in this Agreement shall survive the Closing and continue
in full force and effect forever thereafter (subject to any applicable statutes
of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(i) In the event that Seller breaches any of its
representations, warranties, and covenants contained in this Agreement,
and, if there is an applicable survival period pursuant to Section9(a)
above, provided that Buyer makes a written claim for indemnification
against Seller within such survival period, then Seller agrees to
indemnify Buyer from and against any Adverse Consequences Buyer shall
suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences Buyer shall suffer after the end of
any applicable survival period) caused by the breach.
(ii) Seller agrees to indemnify Buyer from and against any
Adverse Consequences Buyer shall suffer caused by any liability of
Seller which is not an Assumed Liability (including any liability of
Seller that becomes a liability of Buyer under any bulk transfer law of
any jurisdiction, under any common law doctrine of de facto merger or
successor liability, or otherwise by operation of law).
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER.
(i) In the event Buyer breaches any of its representations,
warranties, and covenants contained in this Agreement, and, if there is
an applicable survival period pursuant to Section9(a) above, provided
that Seller makes a written claim for indemnification against Buyer
within such survival period, then Buyer agrees to indemnify Seller from
and against the entirety of any Adverse Consequences Seller shall
suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences Seller shall suffer after the end of
any applicable survival period) caused by the breach.
(ii) Buyer agrees to indemnify Seller from and against any
Adverse Consequences Seller shall suffer caused by any liability of
Seller arising after the Closing Date which is an Assumed Liability or
which relates in any way to the Acquired Assets.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM")
which may give rise to a claim for indemnification against any other
Party (the "INDEMNIFYING PARTY") under this Section9, then the
Indemnified Party shall promptly (and in any event within five business
days after receiving notice of the Third Party Claim) notify each
Indemnifying Party thereof in writing.
(ii) Any Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party;
PROVIDED, HOWEVER, that the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages and does not
impose an injunction or other equitable relief upon the Indemnified
Party.
(iii) Unless and until an Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section3(d)(ii) above,
however, the Indemnified Party may defend against the Third Party Claim
in any manner it reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of each of the
Indemnifying Parties (not to be withheld unreasonably).
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax consequences in determining Adverse Consequences
for purposes of this Section9. All indemnification payments under this Section9
shall be deemed adjustments to the Purchase Price.
12
<PAGE>
(f) EXCLUSIVE REMEDY. Buyer and Seller acknowledge and agree that the
foregoing indemnification provisions in this Section9 shall be the exclusive
remedy of Buyer and Seller with respect to Seller and the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, Buyer acknowledges and agrees that they shall not have any remedy
after eighteen (18) months following the Closing for any breach of the
representations and warranties in Section3(f)-(o) of this Agreement.
10. INDEMNIFICATION. Buyer agrees that it will, after the date hereof,
and to the fullest extent permitted by applicable law and the corporate
documents of Seller, provide to the directors and officers of Seller
indemnification equivalent to that provided by or available under the
Certificate of Incorporation and Bylaws of Seller or permissible to the fullest
extent permitted under Delaware Corporate law with respect to acts or omissions
occurring prior to the Closing, including without limitation the authorization
of this Agreement and the transaction contemplated hereby, for a period of six
years from the Closing Date, or in the case of claims made prior to the end of
such six year period, until such claims are finally resolved. To the extent
permitted by applicable law, Buyer shall advance expenses as incurred for legal
counsel and otherwise in connection with the foregoing indemnification.
11. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure). At such time as Seller and Buyer have executed
this Agreement, the Parties will make a joint public announcement concerning the
transactions contemplated herein in a form and content to be agreed upon by
Seller and Buyer. Thereafter, no Party will make any announcement concerning
such transactions without the prior written approval of the other Party, which
approval will not be unreasonably withheld or delayed nor required in the case
of any legally compelled disclosure.
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO SELLER: First Medical Group, Inc.
------------
1055 Washington Boulevard
Stamford, CT 06901
Attention: Lou Nemnom, Vice President
13
<PAGE>
COPY TO: Patton Boggs LLP
2550 M Street, N.W.
Washington, DC 20037
Attention: John H. Vogel, Esq.
IF TO BUYER: AMCMC Acquisition Corp.
1055 Washington Boulevard
Stamford, CT 06901
Attention: Dennis A. Sokol
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. Seller may consent to any such amendment at any time prior to the
Closing with the prior authorization of their respective board of directors. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Subject to Section5(c), each of Buyer and Seller will
bear its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
The word "including" shall mean including without limitation.
(m) INCORPORATION OF EXHIBITS, ANNEXES AND SCHEDULES. The Exhibits,
Annexes and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) BULK TRANSFER LAWS. Buyer acknowledges that Seller will not comply
with the provisions of any bulk transfer laws of any jurisdiction in connection
with the transactions contemplated by this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
AMCMC ACQUISITION CORP.
/S/GEORGE ROUNTREE
- -------------------------------------------
By: George Rountree
Title: President
FIRST MEDICAL GROUP, INC.
/S/ ELIAS M. NEMNOM
- -------------------------------------------
By: Elias M. Nemnom
Title: Vice President
15
<PAGE>
DISCLOSURE SCHEDULE
SECTION 3(i)-INTELLECTUAL PROPERTY.
On October 29, 1999, the Company filed with the U.S. Patent Trademark office a
trademark application for the use of the name American Medical Centers.
SECTION 3(j)-CONTRACTS.
1. Note Agreement with American Multiprofile Clinic Inc. dated January 25,
1999.
2. Severance and Release and Consulting Agreement with Vladimir Checklin and
First Medical Group, Inc. and American Medical Centers Management Company,
Ltd. dated January 1, 1999.
3. Employment Agreement between George D. Rountree and American Medical
Centers Management Company, Ltd. and First Medical Group, Inc. dated April
15, 1999.
SECTION 3(k)-LITIGATION.
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 is currently discussing a proposed settlement
with the plaintiffs. Accordingly, if this matter is adversely
determined, it could have a material adverse effect on the Company's
financial condition.
2. 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 claimants. The
<PAGE>
Company and the claimants have reached an agreement in principal
pursuant to which this claim will be withdrawn in exchange for the
issuance to the claimants of 300,000 shares of the Company's common
stock.
3. 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.
4. In December 1999, the Company was sued for a malpractice claim by a
patient of American Medical Clinic Moscow Inc. The Company views that
this claim is without merit and through its insurance company has
retained counsel to defend this claim.
5. In January 2000, a claim was made against American Medical Centers
Management Co. Ltd. by a former employee who seeks approximately
$60,000 fees for breach of an employment contract.
6. In January 2000, a claim was made against First Medical Group, Inc. and
American Medical Centers Management Co., Ltd. by a former employee who
seeks $169,000 for breach of a severence and release and consulting
agreement.
SECTION 3(l)-ENVIRONMENTAL, HEALTH AND SAFETY MATTERS.
None. (Refer to Section 3(k) 1. above).
SECTION 3(n)-BARTER RECEIVABLES OR OBLIGATIONS.
None.
<PAGE>
Annex 2.1(a)
LIST OF ACQUIRED ASSETS
1. All of the issued and outstanding shares of common stock of American
Medical Centers Management Company, Ltd., a British Virgin Islands company
("AMCMC"), which shares are, owned by First Medical Group International,
Ltd. a wholly-owned subsidiary of Seller. AMCMC in turn owns all of the
issued and outstanding shares of the following entities:
(a) American Medical Clinics Moscow, Inc. (Cayman).
- American Medical Clinics, Inc., a Russian joint venture
corporation, all of whose outstanding shares are owned by
said Cayman corporation.
(b) American Medical Clinics - St. Petersburg Ltd. (BVI).
- American Medical Clinics - St. Petersburg Ltd., a Russian
joint venture corporation, all of whose outstanding shares
are owned by said BVI corporation.
- American Medical Clinics - Kiev, a Ukranian joint venture
corporation, all of whose outstanding shares are owned by
said BVI corporation.
(c) American Medical Centers - Warsaw z.o.o. (Poland).
(d) American Medical Centers - Prague s.r.o. (Czechoslovakia).
(e) American Hospital of Moscow Management Company, Ltd. (BVI).
(f) American Multi-Profile Clinic, Inc. (Russia).
2. All of Seller's right, title and interest in and to any intellectual
property relating to AMCMC and the Seller Subsidiaries, including, without
limitation, Seller's pending applications for trademark of "American
Medical Center", "AMC" and related logo design.
3. Insurance coverage carried as of the Closing Date by Seller with respect to
all of the Acquired Assets and the Assumed Liabilities, as in effect on the
Closing Date.
4. All of Seller's right, title and interest in and to the furniture and
fixtures listed on Schedule 1 hereto.
<PAGE>
Annex 2.3(a)
ASSUMED LIABILITIES
1. All liabilities of AMCMC reflected on the books of AMCMC as at the Closing.
2. All liabilities of Seller which are identified both in the first and third
columns of the attached Schedule 1; provided, however, that the values of said
liabilities to be assumed by Buyer will be as of the Closing Date.
3. All liability resulting or arising from the claims and/or litigation
described in items 3-6 on the "Disclosure Schedule" to this Agreement.
<PAGE>
FMG/AMCMC TRANSACTION
SCHEDULE OF LIABILITIES (EST)
12/31/99
(ASSUMES 1.0 MILLION SHARE WARRANT CONVERSION
IN EXCHANGE FOR ASSUMPTION OF $125,000 OF LIABILITIES)
<TABLE>
Liabilities retained Liabilities assumed
by FMG in transaction Total
------ -------------- -----
<S> <C> <C> <C>
FMG ACCRUED LIABILITIES
Audit accrual-1999 $ 103,000 $ -- $ 103,000
Lehigh tax 20,541 20,541
US Income tax (1998) 59,000 59,000
Bruno settlement 55,000 55,000
Environmental suit-reserve estimate 75,000 -- 75,000
----------- ----------- -----------
312,541 -- 312,541
LEHIGH NOTES PAYABLE
Lehigh notes 390,000 390,000
Lehigh notes-accrued interest -- 544,384 544,384
----------- ----------- -----------
-- 934,384 934,384
FMG ACCOUNTS PAYABLE (12/31/99)
Arthur Andersen 48,000 48,000
American Stock 2,038 2,038
Broad & Cassel (Shapo firm) 12,555 12,555
Cummings & Lockwood 16,877 16,877
McGrane & Nosich 8,888 8,888
NYC Dept of Tax (Lehigh) 4,267 4,267
Shapo 22,186 22,186
Sheldon Ribotsky (1998 tax return) 8,000 8,000
Vorys 32,725 32,725
Zurick 33,333 33,333
Patton Boggs 35,789 35,000 70,789
AIG 14,754 14,754
Equity Group 7,151 7,151
Fishman Hermann 12,221 12,221
SNET 25,282 25,282
Other accounts payable -- 61,615 61,615
----------- ----------- -----------
106,114 274,567 380,681
LIABILITIES RELATING TO DISCONTINUED OPS
Continucare 200,000 200,000
Employee liability 200,000 200,000
Pasternack 113,550 113,550
Sain & Carroll (Settlement of FMG stock-non cash) 30,000 30,000
Gibbs 10,000 10,000
Durham note receivable -- (90,000) (90,000)
----------- ----------- -----------
30,000 433,550 463,550
SHAREHOLDERS NOTES PAYABLE --
Notes Payable-AMC, Inc./Sokol 500,000 500,000
Notes Payable-Equity Group 100,000 100,000
Notes Payable-Zizza 30,000 30,000
Notes Payable-Gale 25,000 25,000
Notes Payable-Sokol 300,000 -- 300,000
Notes Payable-accrued interest (Sokol/AMC, Inc.) 2,500 11,500 14,000
----------- ----------- -----------
302,500 666,500 969,000
----------- ----------- -----------
TOTAL $ 751,155 $ 2,309,001 $ 3,060,156
</TABLE>
<PAGE>
ANNEX C
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal year ended December 31, 1998 Commission File Number 001-00155
</TABLE>
First Medical Group, Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-1920670
- -------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1055 WASHINGTON BOULEVARD, STAMFORD, CT 06901
- --------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (203) 327-0900
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common stock $.001 par value OTC Bulletin Board
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
(Title of Class)
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 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 by check mark if disclosure of delinquent filers pursuant to item
405 of regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES X NO
-- ---
Approximate aggregate market value of the voting stock held by
"nonaffiliates" of the Registrant on March 20, 1999: $xxxx.
Number of shares of Common stock outstanding of the Registrant as of March
20, 1999: 9,567,292.
- -------------
* Registrant's sole class of voting stock is its Common stock $.001 par
value, which is listed on the OTC Bulletin Board. The determination of market
value of such Common stock has been based solely on the closing price per
share of such stock on the OTC Bulletin Board on the date indicated. In
making this computation, all shares known to be owned by directors and
executive officers of the Registrant and all shares known to be owned by
person holding in excess of 5% of the Registrant's Common stock have been
<PAGE>
deemed held by "affiliates" of the Registrant. Nothing herein shall affect
the right of the Registrant to deny that any such directors, executive
officers or more than 5% stockholder is an "affiliate."
<PAGE>
PART I
------
ITEM 1. BUSINESS
GENERAL
First Medical Group, Inc. ("FMG or the Company") owns and operates medical
clinics in Eastern Europe. The Company previously conducted its operations in
three divisions: (a) a physician practice management division which provides
physician management services including the operation of clinic facilities and
management services to medical groups, (b) an international division which
manages medical centers in Eastern Europe and (c) an electrical supply
distribution business for the construction industry. The Company was formed as a
result of a merger between The Lehigh Group, Inc. ("Lehigh") and First Medical
Corporation in July 1997. Subsequent to the merger, Lehigh changed its name to
First Medical Group, Inc. FMG is incorporated in the State of Delaware.
The Company incurred substantial losses from operations relating to its
physician practice management business ("managed care operations") in 1997 and
through the first quarter of 1998. As a result, the Company adopted a formal
plan to discontinue and dispose of its managed care operations. The decision to
dispose of these operations was based upon the view of management that such
operations would require substantial additional capital to sustain operating
losses that would be continued to be incurred by the Company. The Florida
managed care operation was sold in April 1998 and the Indiana and Texas managed
care operations were sold in July 1998.
The Company also adopted a formal plan to divest its electrical supply business
("Hallmark"). The decision to dispose of Hallmark was based upon an assessment
by management that the business did not meet the Company's operating strategy
for development and expansion of its international healthcare operations.
For financial reporting purposes, the Company has reflected the managed care and
electrical supply business as discontinued operations.
The Company believes that it is well-positioned to develop and expand its
international business in existing as well as new markets.
The Company, through its management company, American Medical Centers Management
Company, Ltd. ("AMC"), owns and operates outpatient and ancillary healthcare
facilities modeled after the American healthcare system. AMC's healthcare
facilities are currently structured as "A," "B," or "C" type facilities. The "C"
type facility is a full service outpatient primary care center with those
services provided as listed below, dependent upon both market and demand. The
"B" type clinic is similar to a "C" model but with increased diagnostics,
inpatient care facilities and between ten to fifteen overnight medical beds. The
"A" type facility provides both inpatient and outpatient care with 50 to 300
medical beds. The company currently operates five "C" locations in Moscow,
Russia; St. Petersburg, Russia; Kiev, Ukraine; Prague in the Czech Republic; and
Warsaw, Poland. In addition three "B" facilities are under construction in those
markets which are expected to be completed in the third quarter of 1999, and the
company is in the process of opening one additional "C" facility in Middle Asia
which is scheduled to open in the fourth quarter of 1999. Further, two "A"
facilities are under construction in Moscow and Warsaw and are expected to be
completed in the year 2001. Future plans call for additional upgrades of current
facilities in Eastern Europe and Middle Asia, and expansion to the Middle East,
Latin America, and The Pacific Basin. AMC clinics also supply Western-trained
emergency physicians in remote sites in St. Petersburg and Warsaw.
The Company's services include but are not limited to: trauma and emergency
care, general practice, family practice, full diagnostics, radiology, pharmacy,
dentistry, pathology, psychiatry and most specialty groups such as cardiology,
pediatrics, oncology, gynecology, orthopedics, and dermatology. The Company
strives to deliver a comprehensive range of medical services to meet the
specific needs of its clients in each of its unique markets. The Company employs
American board certified doctors, nurses, and ancillary personnel. Nationals are
also employed after being fully credentialed.
23
<PAGE>
CUSTOMERS
Eighty percent of the company's client base is represented by two specific
groups, expatriates and local employees of multinational corporations (to
include management) and nationals (referred to as those persons or groups of
local citizens that desire, appreciate and demand the American health care
delivery system both in outpatient and inpatient care). Tourists, students,
diplomats, and non-resident members that frequently travel to those markets
represent the remainder of this client base. The patient mix changes based on
season and market.
Revenues of the company are primarily derived from fee-for-service charges and
annual non-refundable membership fees charged to corporations, families, and
individuals. A variety of diverse membership plans are available and can be
tailored to meet the unique needs of the corporate clients. Local nationals now
account for fifteen to twenty-five percent of revenue, depending upon the
healthcare facility's location.
Corporations are required to pay an annual membership fee, as well as advance
deposits when requesting third party billing (insurance). Membership plans offer
a wide range of benefits including 24-hour emergency access, monthly medical
newsletters, special discounts on services, and reciprocal membership at all AMC
locations. The Company also offers the patient benefit of insurance processing
for members only. AMC corporate memberships include over five hundred
international companies.
In 1998, in order to meet the changing needs of corporate clients and to provide
to potential clients expanded access to American-style healthcare, AMC developed
and implemented a variety of comprehensive managed care plans. These plans range
from individual and family plans to corporate plans covering up to 2000 persons.
QUALITY ASSURANCE
The company believes that its affiliations with partner hospitals is a valuable
asset. Since 1992, the company has been affiliated with Baylor College of
Medicine in Houston, Texas ("Baylor"), to provide quality assurance,
tele-medicine, consultation, and credentialing. Baylor also conducts the
majority of the recruiting function for AMC medical personnel worldwide. In
1999, AMC, in conjunction with Baylor, has made application for acceptance by
the International Joint commission, part of the American Hospital Joint
accreditation commission and anticipates this process will take place over the
coming year.
NEW DEVELOPMENTS
In 1998 AMC, in conjunction with Baylor College of Medicine and City of Moscow
(Moscow Citi), signed an agreement for the development of New American Hospital
of Moscow and the Baylor Medical School Annex. The Annex is scheduled to be
completed and opened by August 1, 1999.
Also in 1998, the company signed a long-term lease with an option to buy
the new American Medical Center "B" facility in Warsaw due to be completed
by the third quarter of 1999.
On January 1, 1999 George Rountree, President and Chief Executive Officer of the
American Hospital of Istanbul (Koc Foundation), the American Medical Center of
Istanbul and the American Italian Hospital of Istanbul, joined the board of FMG.
On April 15, 1999, Mr. Rountree will become Chief Executive Officer of AMC and
President and Chief Operating Officer of the Company, in addition to his current
responsibilities.
MAJOR STRATEGY
The major strategy of AMC is to continue with its plan in developing new centers
throughout Eastern Europe, Mid-Asia, Middle East, Latin America, and the Pacific
Basin. The company believes that in order to support its plan it will be
necessary to seek additional capital.
COMPETITION
The company has relatively little competition in its current market area.
24
<PAGE>
DISCONTINUED OPERATIONS.
In 1998 the company adopted a plan to discontinue and dispose of all of its
non-core businesses and allow all assets to be deployed into the successful AMC
operations. Consistent with that plan, the company sold the following
businesses:
1. On April 1, 1998 the Company sold its Florida managed care businesses
for a sale price of $6.75 million. Proceeds of the sale were used for
the continued development of AMC, as well as to retire existing bank
debt.
2. On April 17,1998 the Company sold its electrical supply business for
consideration of $1.9 million.
3. On July 8, 1998 the Company sold its Indiana Managed care operations for
consideration of cash and reduction of debt in the amount of $527,000.
4. On July 16, 1998 the Company sold its Texas managed care business for
consideration of $90,000, in the form of a note payable bearing
interest at 8% starting July 1999.
With these transactions, the Company has prepared, reorganized, and positioned
itself to support the development and growth of AMC's worldwide operations.
SUBSIDIARIES
The Company maintains the following subsidiaries:
First Medical Corporation, a Delaware corporation
First Medical Group International, Ltd. , a British Virgin Island
corporation
American Medical Centers Management Company, Ltd., a British Virgin
Island corporation
American Medical Clinics Moscow, Inc., a Cayman Island corporation
American Medical Center-St. Petersburg Ltd. , a British Virgin
Island corporation
American Medical Centers Sp. z.o.o., a Poland corporation
American Medical Centers s.r.o., a Czech Republic corporation
EMPLOYEES
As of March 1, 1999, the Company had approximately 222 full-time
employees.
The Company complies with local contract requirements in the respective
geographic locations of particular jobs with respect to wages, fringe benefits
and working conditions.
Item 2. Properties
FMG's principal executive office is located at 1055 Washington
Boulevard, Stamford, Connecticut 06901, and its telephone number is
(203) 327-0900.
FMG leases approximately 2,400 square feet in Stamford, Connecticut.
Such lease is on a month-to-month term, at an annual rent of $51,000.
FMG, through its various subsidiaries, currently leases one location in
Poland with monthly rent of $2,400, two locations in Russia with monthly rents
of $11,000 and $30,000, respectively, one location in the Czech Republic with a
monthly rent of $4,500 and one location in the Ukraine with a monthly rent of
$5,000.
25
<PAGE>
The Company believes that all of its facilities are adequate for the
business in which it is engaged.
ITEM 3. LEGAL PROCEEDINGS
FMG is involved in various legal proceedings incidental to its
business, and in the opinion of the Company, no individual item of litigation or
group of similar items of litigation, taking into account the insurance coverage
available to FMG, is likely to have a material adverse effect on FMG's financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Common stock is currently listed on the over-the-counter bulletin
board ("OTCBB"). On March 31, 1999, there were approximately 70 holders of
record of the Common stock (excluding shares held in "nominee" or "street"
name).
The following table reflects the range of the reported high and low
closing prices of Common stock on the NYSE for the calendar quarters indicated.
The information in the table and in the following paragraph has been adjusted to
reflect retroactively all applicable stock splits and stock dividends but not
the Reverse Split, except for the fourth quarter for the period commencing
November 13, 1997 through December 31, 1997.
The prices below reflect trading of the Common stock on the NYSE
through November 12, 1997. Subsequent to the delisting of the Common stock from
the NYSE, the prices below for the period from November 13, 1997 through the
date hereof reflect trading of the Common stock on the OTCBB.
1997:
First Quarter $ 1/4 $ 13/32
Second Quarter 14/32 1/8
Third Quarter 15/32 3/32
Fourth Quarter from October 1,
1997 through November 12, 1997 1/4 1/8
Fourth Quarter from November 13,
1997 through December 31, 1997 4-1/4 1-1/4
1998:
First Quarter $ 3 $ 23/64
Second Quarter 1 19/64 21/64
Third Quarter 1 1/32 9/64
Fourth Quarter 1 3/16 1/8
1999:
First Quarter $ 13/16 $ 1/8
The Company did not pay any dividends in 1997 or 1998.
26
<PAGE>
Item 6. Selected Financial Data
FIRST MEDICAL GROUP, INC. & SUBSIDIARIES
Selected Financial Information
(in Thousands, Except For Per Share Data)
STATEMENT OF OPERATING DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1994(1)(2) 1995(1)(2) 1996(1)(2) 1997(1) 1998(1)
---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue - - $ 6,660 $ 9,019 $ 10,947
Cost of revenues - 5,370 7,134 9,260
-------- -------- ----------- --------- ----------
Gross profit - - 1,290 1,885 1,687
Operating expenses:
Salaries and related benefits - - 391 700 905
Other operating expenses - - 1,532 1,256 1,247
Impairment loss from
intangibles - - - 1,024 -
-------- -------- ------------ -------- ----------
Total operating expenses - - 1,923 2,980 2,152
-------- -------- ------------ -------- ----------
Loss from operations - - (633) (1,095) (465)
Other expenses (income) - - 55 198 167
-------- -------- ------------ -------- ----------
Loss before income taxes and
cumulative effect of accounting
change - - (688) (1,293) (632)
Income tax provision (benefit) (3) - - - (63) (473)
-------- -------- ------------ -------- ----------
Net (loss) before discontinued
operations and cumulative effect
of accounting change - - (688) (1,230) (159)
Income (loss) from
discontinued operations net of
income tax provision of $518,000 $818 $(364) 1,011 (8,240) 2,008
Cumulative effect of change in
accounting principle net of income
tax benefit of $29,099 - - - - (940)
-------- -------- ------------ -------- ----------
Net income (loss) $818 $(364) $ 323 $ (9,470) $ 909
======== ======== ============ ======== ==========
Net income (loss) per
share before income
(loss) from discontinued
operations and cumulative
effect of accounting principle - - $ (.07) $(.13) $ (.01)
Cumulative effect per share of
change in accounting principle (.10)
Income (loss) per
share from discontinued
operations $.09 $(.04) .11 (.90) .21
-------- -------- ------------ -------- ----------
Net income (loss) $.09 $(.04) $ .04 $(1.03) $ .10
======== ======== ============ ======== ==========
Pro forma fully diluted weighted
average number of FMG shares
currently outstanding (3) 9,021 9,021 9,021 9,202 9,496
Cash dividends as declared $ 117 $ 38 $ - $ - $ -
BALANCE SHEET DATA
Working capital $ 972 $ 227 $ (899) $ (3,487) $ (3,305)
Total assets 972 227 2,335 5,143 4,992
Current liabilities - - 1,257 6,196 4,966
Stockholders' equity 972 227 703 (1,054) 26
Book value per share-fully diluted $ .11 $ .03 $ .08 $ (.11) $ -
</TABLE>
27
<PAGE>
- -------------------
(1) The financial statements of the Company for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998 have been
reclassified to reflect the managed care and electrical supply
business as discontinued operations for financial reporting purposes.
(2) The selected financial data for the years ended December 31,1994 and
1995 has been derived from the audited combined financial statements of
MedExec, Inc. and subsidiaries; SPI Managed Care, Inc., and SPI Managed
Care of Hillsborough County, Inc. (collectively, "MedExec"). The data
for 1996 has been derived from the 1996 consolidated financial
statements of FMC.
(3) The amount of FMC stock issued and outstanding has been adjusted to
reflect the exchange of 10,000 shares for 11,276,750 shares of the
Lehigh Group, plus the conversion of the Preferred Stock
and the 1-for-30 reverse stock split.
On July 9, 1997 at a Special Meeting (the "Special Meeting") of
stockholders of the Lehigh Group, Inc. ("Lehigh"), the stockholders of
Lehigh approved the merger (the "Merger") pursuant to the terms of the
Agreement and Plan of Merger dated as of October 29,1996 (the "Merger
Agreement") among Lehigh, First Medical Corporation ("FMC") and Lehigh
Management Corp., a wholly-owned subsidiary of Lehigh ("Merger Sub").
On the same day, Merger Sub was merged with and into FMC and each
outstanding share of common stock of FMC (the "FMC Common stock"), was
exchanged for (i) 1,127.675 shares of Lehigh's Common stock, par value
$.001 per share ("Lehigh Common stock"), and (ii) 103.7461 shares of
Lehigh's Series A Convertible Preferred Stock, par value $.001 per
share (the "Lehigh Preferred Stock"), each of which is convertible into
250 shares of Lehigh Common stock and has a like number of votes per
share, voting together with the Lehigh Common stock.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In addition to historical information, this Management's Discussion and Analysis
of Financial Condition and Results of Operations may include certain forward
looking statements based on current management expectations. The Company's
actual results could differ materially from those management expectations.
Further description of the risks and uncertainties to the business are included
in detail in Item 1 of this Form 10-K.
The following discussion should be read in conjunction with the consolidated
financial statements, including the notes thereto, contained elsewhere in this
10-K.
The Company incurred substantial losses from operations relating to its
physician practice management business ("managed care operations") in 1997 and
through the first quarter of 1998. As a result, the Company adopted a formal
plan to discontinue and dispose of its managed care operations. The decision to
dispose of these operations was based upon the view of management that such
operations would require substantial additional capital to sustain operating
losses that would be continued to be incurred by the Company. The Florida
managed care operation was sold in April 1998 and the Indiana and Texas managed
care operations were sold in July 1998.
The Company also adopted a formal plan to divest its electrical supply business
("Hallmark"). The decision to dispose of Hallmark was based upon an assessment
by management that the business did not meet the Company's operating strategy
for development and expansion of its international healthcare operations.
28
<PAGE>
RESULTS OF OPERATIONS - FMG
YEAR ENDED DECEMBER 31, 1998
COMPARED WITH YEAR ENDED
DECEMBER 31, 1997
REVENUE. Revenue for the years ended December 31, 1998 and 1997 were
$10.9 million and $ 9.0 million, an increase of $1.9 million or 21% due to the
opening of two new clinics in Eastern Europe in late 1996 as well as increased
patient visits. Total patient and dental visits in 1998 were 21,605 and 4,333,
respectively, as compared to 18,805 and 3,246 in 1997, an increase of 14.9% and
33.5%, respectively.
COST OF REVENUE. Cost of revenue for the years ended December 31, 1998
and 1997 were $9.3 million and $7.1 million, respectively. Cost of revenue as a
percent of revenues were 85% and 79% for the year ended December 31, 1998 and
1997, respectively. The increase was related to increased staffing levels as a
result of the increase in visits.
OPERATING EXPENSES. Operating expenses for the years ended December 31,
1998 and 1997 were $2.2 million as compared to $3.0 million. Included in
operating expenses in 1998 and 1997 was a write-off of $1.0 million relating to
the Lehigh merger. As a percent of revenues, operating expenses, excluding this
write-off of intangibles in 1997 were 20% and 22% in 1998 and 1997,
respectively.
The cumulative effect of a change in accounting principle of $940,454
relates to the write-off of start-up costs of the Warsaw operation pursuant to
the Accounting Standards Executive Board Statement of Position 98-5.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. Income from discontinued
operations for the year ended December 31, 1998 was $2.0 million as compared to
a loss of $8.4 million for the year ended December 31, 1997. In 1998, the
Company recorded a gain on the sale of discontinued operations of $4.1 million.
INCOME TAX BENEFIT. Income tax benefit for the year ended December 31,
1998 was $89,000 as compared to a tax benefit of $473,000 for the year ended
December 31, 1997. During 1998, the Company recorded a deferred tax asset of
$577,000 due to the likelihood that the deferred asset would be realized in the
near future.
NET INCOME (LOSS). Net income for the year ended December 31, 1998
was $909,000 as compared to a loss of $(9.5) million for the year ended
December 31, 1997. The increase in net income relates to those factors noted
above.
YEAR ENDED DECEMBER 31, 1997
COMPARED WITH YEAR ENDED
DECEMBER 31, 1996
REVENUE. Total revenue of FMG for the twelve months ended December 31,
1997 and 1996 were $9.0 million and $6.7 million, respectively, an increase of
$1.3 million, or 19%. The increase is attributable to the opening of two new
clinics in Eastern Europe in late 1996 as well as increased patient visits.
COST OF REVENUE. Cost of revenue for the years ended December 31, 1997
and 1996 were $7.1 million and $5.4 million, respectively. Cost of revenue as a
percent of revenues for the years ended December 31, 1997 and 1996 were 79% and
81%, respectively. The increase relates to the increase in staff as well as the
increase in the number of clinics.
OPERATING EXPENSES. Operating expenses for the years ended December 31,
1997 and 1996 were $3.0 million and $1.9 million, respectively. Included in
operating expenses for the year ended December 31, 1997 was a write-off of
intangibles of $1.0 million. Included in operating expenses for the year ended
December 31, 1996 were preopening and development costs of $829,000 relating to
the two new clinics.
29
<PAGE>
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. Loss from
discontinued operations for the year ended December 31, 1997 was $(8.2)
million as compared to income of $1.1 million for the year ended December 31,
1996.
INCOME TAX. Income tax benefit for the year ended December 31, 1997
was $63,000.
NET (LOSS) INCOME. Net loss for the twelve months ended
December 31, 1997 was $(9.5) million compared to net income of $.3 million
for the same period in 1996. The decrease in net income relates to those
factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1998 was $909,000 as
compared to $1,421,000 at December 31, 1997. During 1998, the Company
divested its managed care and electrical supply operations. These
divestitures resulted in a gain recorded on the sales of discontinued
operations of $4.7 million. The proceeds from these sales were used to repay
the existing bank loans ($3.6 million), repay Humana on certain outstanding
obligations ($1.35 million), fund operating losses on discontinued operations
and settlement of certain obligations with former employees and shareholders
of the Company ($2.1 million).
Cash and cash equivalents at December 31, 1997 was $1,421,000 as
compared to $124,000 at December 31, 1996.
Net cash provided by operating activities was $92,000 for the year
ended December 31, 1998. Net cash used in investing activities was $6.6 million
which related mainly to capital expenditures. Net cash provided by financing
activities was $(2.9) million which related primarily to the repayment of the
Company bank debt. Cash used in discontinued operations for the year ended
December 31, 1998 was $(4.4) million.
As of December 31, 1998, the Company had no outstanding lines of
credit.
The Company believes that cash flow from existing operations will be
sufficient to satisfy its contemplated cash requirements through the first
quarter of the Year 2000. The Company's long term capital requirements beyond
1998 will depend on many factors , including but not limited to, the rate at
which the Company expands its business. To the extent that the funds generated
from operations are insufficient to fund FMG's activities in the short or long
term, FMG would need to raise additional funds through public or private
financing. No assurance can be given that additional financing would be
available or that , if available, it will be available on terms favorable to
FMG.
The Company is in default in the payment of interest (approximately
$968,400 interest was past due as of December 31, 1998) on the $390,000
aggregate principal amount of its 13 1/25 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 working capital of the company is a deficit of $3.3 million.
Included in this deficit are notes payable and accrued interest of approximately
$1.4 million which the company believes will ultimately not be paid. The company
is currently reviewing the legal status of the matter to determine its
obligation given that the note holders cannot be located.
YEAR 2000
- ---------
The Company is aware of the issues related with 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.
30
<PAGE>
The Company primarily uses general business applications that are
licensed by the same vendor. It is expected that these applications will be year
2000 compliant. Should such systems not be 2000 year compliant, 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 identifying those vendors that it
relies on to supply diagnostic tests results relating to patient testing and to
a small group of third-party payors. The Company intends to send inquires to
these vendors and third party payors to ascertain compliance.
Based upon the information currently available, the Company believes
that its risk associated with problems arising from year 2000 issues is not
significant. However, because of the many uncertainties associated with year
2000 issues, and because the Company's assessment is necessarily based upon
information from third-party payors and suppliers, there can be no assurance
that the Company's assessment is correct or as to the materiality or effect of
any failure of such assessment to be correct. The Company will continue with its
review process as described above and make modifications as deemed necessary
under the circumstances.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the Accounting Standards Executive Board issued the
Statement of Position 98-5 ("the SOP"), Reporting on the Costs of Start-Up
Activities. The SOP requires that costs of start-up activities and organization
costs to be expensed as incurred. Prior to 1998, the Company incurred $940,454,
net of income tax benefit of $29,099 as cost related to its start-up operations.
The Company has reflected this amount in the consolidated statement of income
for the year ended December 31, 1998 as a cumulative effect of a change in
accounting principle as required by the SOP.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
The Company's consolidated financial statements were required to include
comprehensive income disclosures beginning with the first quarter of fiscal year
1998. Restatement of prior period information are to be made for comparative
purposes. Effective January 1, 1998, the Company adopted this pronouncement. The
Company believes that the adoption of this pronouncement did not have a material
effect on the Company's results of operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. The Company has
adopted SFAS No. 131 in fiscal year 1998. The Company believes that the adoption
of SFAS No. 131 will not have a material effect on the Company's results of
operations or financial condition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The Company
currently does not use derivatives and therefore believes that this new
pronouncement will not have a material effect on its results of operations or
financial condition.
31
<PAGE>
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations
over the past three years.
IMPACT OF EUROPEAN ECONOMY
Over recent years, Russia has undergone substantial political, economic
and social change. As an emerging market, Russia does not possess a
well-developed business infrastructure which generally exists in a more mature
free market economy. As a result, operations carried out in Russia involve
significant risks, which are not typically associated with those in developed
markets. Instability in market reform could subject the Group or its investments
to unpredictable changes in the basic business infrastructure under which they
currently carry out their operations. Uncertainties regarding the political,
economic, legal, tax or regulatory environment, including the potential for
adverse changes in any of these factors, could significantly affect the Group's
ability to operate commercially. It is not possible to estimate what changes may
occur or the resulting effect of any such changes on the Company's financial
condition or future results of operations.
It is not clear what action the Russian government will take as a
result of the current economic situation. Further, it is not possible to
determine the future effect a continuation of the economic crisis may have on
the Group's liquidity and earnings, including the effect on transactions with
the Company's suppliers. While the ultimate outcome of this matter cannot
presently be determined, management believes that this situation will not have a
material adverse impact on the financial condition of the Company. As a result,
the financial statements do not include any adjustments that may result from
these uncertainties. Related effects, if any, will be reported in the financial
statements as they become known and estimable.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Incorporated by reference to Note 2(k) of the financial statements
attached hereto.
Item 8. Financial Statements and Supplementary Data
See pages F-1 through F-16 and page S-1 of this Form 10-K, which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information regarding the dismissal of BDO Seidman, LLP ("BDO") as its
certifying accountant in December 1998 and engagement of Arthur Anderson, LLP as
its new certifying accountants is incorporated by reference to FMG's Form 8-K
filed with the Securities and Exchange Commission on December 9, 1998.
PART III
Item 10. Directors and Executive Officers of the Registrant
The table set forth below sets forth information with respect to the
directors and executive officers of the Company. Dennis A. Sokol, Elliot H.
Cole, Richard Berman and George Rountree are currently directors of the Company
and will serve as directors until the next annual meeting of stockholders of the
Company (or until their respective successors are duly elected and qualified or
until their earlier death, resignation or removal).
32
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
<S> <C> <C>
Dennis A. Sokol 53 Chairman of the Board, Chief Executive
Officer and Director of the Company and
Chairman of the Board and Chief Executive
Officer of FMC
Elias M. Nemnom 48 Senior Vice President and Chief Financial
Officer of the Company
Elliot H. Cole 65 Vice Chairman of the Board and Director
of the Company
Richard Berman 53 Director of the Company
George Rountree 62 Director of the Company
</TABLE>
Mr. Sokol has been a Director and Chairman of the Board and Chief
Executive Officer of the Company since the Merger, which was consummated on
July 9, 1997. Mr. Sokol has served as the Chairman of the Board and Chief
Executive Officer of FMC since its formation in January 1996. Prior to the
formation of FMC, Mr. Sokol was Chairman of AMC, Inc. Prior to January 1995,
Mr. Sokol served as the Chairman of the Board and Chief Executive Officer of
Hospital Corporation International, Plc., the former international division
of Hospital Corporation of America, Inc., which entity owned and operated
hospitals and primary care facilities in the United Kingdom, Central and
Eastern Europe, the Middle East and Pacific Rim, and American Medical
Clinics, Ltd. In all, Mr. Sokol has over thirty years experience in the
medical services industry.
Mr. Nemnom has been the Chief Financial Officer of the Company since
December 1998. He had previously been the Chief Financial Officer of FMC from
May 1996 until the merger in July 1997. Prior to joining FMC, from March 1995 to
April 1996, Mr. Nemnom served as the Chief Financial Officer of MedE America
Corporation, an electronic data interchange company. From December 1985 to
January 1995, Mr. Nemnom served as the Chief Financial Officer of Medserv
Corporation. Before joining Medserv, Mr. Nemnom was a Senior Manager at Deloitte
& Touche for over ten years specializing in the healthcare industry. Mr. Nemnom
is a Certified Public Accountant and a member of the American Institute of
Certified Public Accountants, the New York State Society of Certified Public
Accountants and the Healthcare Financial Management Association.
Mr. Cole has been a Director of the Company since July 1997 and has
served as the Co-Vice Chairman of FMC's Board of Directors since its
formation in January 1996. Mr. Cole is a senior partner in the law firm of
Patton Boggs LLP, Washington, D.C., a firm of approximately 250 lawyers.
Mr. Cole has practiced corporation law and has been engaged in Federal
matters for more than thirty-five years. Mr. Cole has served as a trustee
of Boston University since 1977 as well as being a member of numerous
corporate and not-for-profit boards.
Mr. Berman has been a Director of the Company since August 1997.
Since 1995, Mr. Berman has been the President of Manhattanville College. From
1991 to 1994 he was employed by Howe-Lewis International, initially as
President of North America division and subsequently as President and Chief
Executive Officer. He also is a director of HCIA, Inc., Health Insurance Plan
of Greater New York and the Independent College Fund and a member of the
Special Advisory Panel on Empire Blue Cross/Blue Shield and the New York
State Council on Health Care. He has served on the Board of Directors for
Lillian Vernon since 1997.
Mr. Rountree has been a Director of the Company since December 1998.
Mr. Rountree has been Chief Executive Officer of American Hospital of
Istanbul since 1991 and prior to that he was Chief Operating Officer. From
1987 to 1990, Mr. Rountree was Project Manager of the International
Hospital in Istanbul, Turkey and President of Multi-Care Health Corporation
and Quadrus International from 1979 to 1990. Prior to 1979 Mr. Rountree
was an Administrator at the Methodist Hospital in Houston, Texas. Mr.
Rountree is a fellow of the American College of Healthcare Executives.
All directors will serve until the annual meeting of stockholders of
the Company and until their respective successors are duly elected and qualified
or until their earlier death, resignation or removal. Officers are elected
annually by the Board of Directors and serve at the discretion thereof.
33
<PAGE>
Item 11. Executive Compensation
The following table sets forth a summary of compensation awarded to,
earned by or paid to the Chief Executive Officer and the other most highly
compensated executive officers of the Company whose total annual salary and
bonus exceeded $100,000 ("Named Executive Officers") for services rendered in
all capacities to the Company during each of the years ended December 31, 1998,
1997 and 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------------------- Compensation Awards
Securities Underlying
Other Annual Options (Number of All Other
Name and Principal Position Year Salary Bonus Compensation (1) Shares) Compensation
- --------------------------- ---- ------ ----- ---------------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Sokol (3) 1998 $300,000 0 0 500,000 $47,781(2)
1997 $296,800 0 0 0 $57,980(2)
1996 $267,200 0 0 0 $29,790(2)
Robert Bruno (4) 1998 $120,000 0 0 0 $ 8,400(5)
1997 $120,000 0 0 0 $ 7,200(5)
1996 $120,000 0 0 0 $ 7,200(5)
</TABLE>
- ------------------------------
(1) As to each individual named, the aggregate amount of personal benefits
not included in the Summary Compensation Table does not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported
for the named executive officer.
(2) Represents premiums paid by the Company with respect to term life
insurance for the benefit of the Named Executive Officer or the
Company, health insurance benefits and auto allowance.
(3) During 1998, 1997 and 1996, Mr. Sokol was employed by FMC as a result
of the reorganization among MedExec Inc., American Medical Clinics,
Inc. and FMC.
(4) Mr. Bruno became employed with the Company in 1983. As of October 1,
1998, Mr. Bruno was no longer employed by the Company.
(5) Represents auto allowance paid by Company to the Named Executive
Officer.
COMPENSATION OF DIRECTORS
Executive directors receive no compensation; however, each
non-executive director is entitled to receive annually shares of Common stock
with a fair market value of $10,000. During 1998, the non-executive directors
each received 10,000 shares of the Company's Common stock.
OPTIONS
In 1998 525,000 options were granted to the executive officers of the
Company named in the Summary Compensation Table or to other employees of the
Company. Additionally, non-executive officer directors were granted on aggregate
425,000 stock options in 1998. In July 1997, the Board of Directors established
a Stock Option Plan (the "Stock Option Plan") and the Incentive Compensation
Plan (the "Incentive Compensation Plan").
<TABLE>
<CAPTION>
Potential Realizable
Value
At Assumed Annualized
Rates of Stock Price
Appreciation for
Individual Grants Option Term(1)
-------------------------------------------------------------------- ----------------------
% of Total
Options
Number of Granted to Exercisable
Date of Options Employees in Price Per Expiration
Name Grant(2) Granted Fiscal Year Share Date 5% 10%
---- -------- ------- ----------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis J. Sokol 12/17/98 500,000 95% $0.120 12/31/02
</TABLE>
34
<PAGE>
(1) "Potential Realized Value" is disclosed in response to the SEC's rules which
require such disclosure for illustration purposes and is based on the
difference between the potential market value of shares issuable upon
exercise of such options and the exercise price of such options. The values
disclosed are not intended to be, and should not be interpreted by
stockholders as, representations or projections of future value of the
Common stock or of the stock price.
No options were exercised by the executive officers of the Company
named in the Summary Compensation Table during the fiscal year ended December
31, 1998. The following table sets forth the number and dollar value of
options held by such persons on December 31, 1998, none of which were "in the
money" at December 31, 1998.
AGGREGATED OPTION EXERCISES IN
1998 AND YEAR-END OPTIONS
Number of Unexercised Options and Warrants at
Year-End
- ---------------------------------------------
<TABLE>
<CAPTION>
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
Dennis Sokol 500,000 --
Robert Bruno 8,333 --
</TABLE>
THE STOCK OPTION PLAN
The purpose of the Stock Option Plan is to advance the Company's
interests by providing additional incentive to attract and retain in the employ
of the Company and its subsidiaries, qualified and competent persons to provide
management services, to encourage the sense of proprietorship and to stimulate
the active interest of such persons in the development and financial success of
the Company and its subsidiaries. The Stock Option Plan provides for the grant
of incentive stock options and nonqualified stock options within the meaning of
Section 422 of the Internal revenue Code of 1986, as amended (the "Code"), as
well as stock appreciation rights ("Rights") with respect to stock options and
restricted stock ("Restricted Stock") awards.
The Stock Option Plan, which is administered by the Compensation
Committee of the Board of Directors of the Company (but can also be administered
directly by the Board of Directors), currently authorizes the issuance of a
maximum of 500,000 shares of Common stock (on a post Reverse Split basis), which
may be newly issued shares or previously issued shares held by any subsidiary of
the Company. If any award under the Stock Option Plan terminates, expires
unexercised or is cancelled, the shares of Common stock that would otherwise
have been issuable pursuant thereto will be available for issuance pursuant to
the grant of new awards.
The purchase price of each share of Common stock purchasable under an
incentive option granted under the Stock Option Plan is to be determined by the
Compensation Committee at the time of grant, but is to not be less than 100% of
the fair market value of a share of Common stock on the date the option is
granted; PROVIDED, HOWEVER, that with respect to an optionee who, at the time
such incentive option is granted, owns more than 10% of the total combined
voting power of all classes of stock of the Company or of any of its
subsidiaries, the purchase price per share is to be at least 110% of the fair
market value per share on the date of grant. The term of each option is to be
fixed by the Compensation Committee, but no option is to be exercisable more
than five years after the date such option is granted.
The aggregate fair market value, determined as of the date the
incentive option is granted, of shares of Common stock for which incentive
options are exercisable for the first time to any optionee during any calendar
year under the Stock Option Plan (and/or any other stock options plans of the
Company or any of its subsidiaries) shall not exceed $100,000. The aggregate
number of shares of Common stock subject to options granted under the Stock
Option Plan granted during any calendar year to any one director is not to
exceed that number of shares as equals ten percent of the outstanding shares of
the Company for which options may be granted under the Stock Option Plan.
35
<PAGE>
The Compensation Committee shall have the authority to grant Rights
with respect to all or some of the shares of Common stock covered by any option,
which Rights may be granted together with or subsequent to the grant of the
option. Rights entitle the holder to cash equal to the difference between an
Offer Price Per Share (as defined in the Stock Option Plan) and the exercise
price of the related option if shares of Common stock representing 20 percent or
more of the aggregate votes of the Common stock voting together as a single
class. If a Right is exercised, the related Option is terminated, and if an
option terminates or is exercised, the corresponding Right terminates.
In addition, the Compensation Committee shall have the authority to
award Restricted Stock which entitles the recipient to acquire, at no cost or
for a purchase price determined by the Compensation Committee, shares of Common
stock subject to such restrictions and conditions as the Compensation Committee
may determine at the time of grant. Conditions may be based on continuing
employment and/or achievement of pre-established performance goals and
objectives. A recipient of Restricted Stock shall have the rights of a
stockholder with respect to the voting of the Restricted Stock, subject to such
other conditions contained in the written instrument evidencing the Restricted
Stock. However, generally Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of, and, generally,
upon the termination of the recipient's employment with the Company, the Company
shall have the right, at the discretion of the Compensation Committee, to
repurchase such Restricted Stock at its purchase price. Nonetheless, once the
pre-established performance goals, objectives and other conditions have been
attained, such shares of Restricted Stock shall no longer be Restricted Stock
and shall be deemed "vested" and will be freely transferable.
The Board of Directors may amend, suspend or terminate the Stock Option
Plan, except that no amendment may be adopted that would impair the rights of
any optionee without his consent. Further, no amendment may be adopted which,
without the approval of the stockholders of the Company, would (i) materially
increase the number of shares issuable under the Stock Option Plan, except as
provided in itself, (ii) materially increase the benefits accruing to optionees
under the Stock Option Plan, (iii) materially modify the eligibility
requirements for participation in the Stock Option Plan, (iv) decrease the
exercise price of an incentive option to less than 100% of the fair market value
per share of Common stock on the date of grant or the exercise price of a
nonqualified option to less than 80% of the fair market value per share of
Common stock on the date of grant, or (v) extend the term of any option beyond
that provided for in the Stock Option Plan.
The Compensation Committee may amend the terms of any option previously
granted, prospectively or retroactively, but no such amendment may impair the
rights of any option without his consent. The Compensation Committee may also
substitute new options for previously granted options, including options granted
under other plans applicable to the participant and previously granted options
having higher option prices, upon such terms as it may deem appropriate.
The number of shares of Common stock available under the Stock Option
Plan and the terms of any option or other award granted thereunder are subject
to adjustment in the event of a merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the shares of Common stock, if the Compensation Committee determines
that such event equitably requires such an adjustment.
As of March 1, 1999, there were no options outstanding under the Stock
Option Plan and no Restricted Stock had been awarded.
INCENTIVE COMPENSATION PLAN
The purpose of the Incentive Compensation Plan is to advance the
Company's interests by providing additional incentives to those key employees of
the Company who contribute the most to the growth and profitability of the
Company and to encourage such key employees to continue as employees by making
their compensation competitive with compensation opportunities in competing
businesses and industries.
The Incentive Compensation Plan, which is administered by the
Compensation Committee of the Board of Directors (but can also be administered
directly by the Board of Directors), authorizes the Compensation Committee to
determine by March 15 of each year which key employees will be eligible in such
year for incentive compensation pursuant to the Incentive Compensation Plan (the
"Participants") and to establish targets for such
36
<PAGE>
fiscal year for the Company's earnings per share. If the targets are achieved
then each Participant will receive (i) a cash bonus equal to 10% of his base
salary for such year, (ii) an amount of Common stock (the "Stock Bonus")
determined by dividing 30% of his base salary by (50%) of the average of the
high and low closing prices for the Common stock during such year (or, if
lower, 50% of the closing sales price on the last trading day of such year),
and (iii) a cash payment sufficient to satisfy such participant's income tax
liability with respect to his Stock Bonus. There is no maximum number of
shares of Common stock, which may be awarded under the Incentive Compensation
Plan.
The Compensation Committee may amend the Incentive Compensation Plan,
except that no amendment may be adopted that would impair the rights of any
Participant with respect to the year in which such amendment had been adopted.
The Plan shall terminate on December 31, 2002 except for the
delivery of shares of Common stock and/or cash due to Participants with
respect to such year.
If, prior to the end of any Fiscal Year, a Participant's employment
terminates on account of (i) death, (ii) retirement, (iii) total and permanent
disability, or (iv) the Company's termination of the Participant without cause,
the Participant will nonetheless remain eligible to receive amounts under the
Incentive Compensation Plan for such year if the Participant shall have been an
active, full-time employee for a period of at least two years preceding such
termination. In all other cases, the Participant will be ineligible.
As of December 31, 1998, no bonuses or stock have been awarded under
the Incentive Compensation Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information on March 12, 1999 (except as
otherwise noted below) with respect to each person (including any "group", as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) known to the Company to be the beneficial owner of more than 5% of the
Common stock of the Company.
<TABLE>
<CAPTION>
Name of Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of CLASS
------------------- ------------------------ --------
<S> <C> <C>
General De Sante 2,047,860 21.40%
International PLC
4 Cornwall Terrace
London, NW 1 4QP
England
SAJH Partners 1,595,021(2) 16.67%
1055 Washington Bvld.
Stamford, CT 06901
Dennis A. Sokol 982,644 (3) 10.27%
1055 Washington Blvd.
Stamford, CT 06901
</TABLE>
- ------------------------
(4) Except as otherwise indicated, each of the person listed above has
sole voting and investment power with respect to all shares shown in
the table as
beneficially owned by such person.
(5) Dennis Sokol is the Managing Partner of SAJH Partners and has a 1%
partnership interest in the partnership and consequently could be
deemed under Rule 13D-3 of the Exchange Act to have beneficial
ownership of such shares. Mr. Sokol disclaims ownership of all such
shares other than as a result of his 1% partnership interest.
(6) Includes 500,000 options to purchase shares of Common stock of the
Company which are immediately exercisable.
37
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of Common stock beneficially
owned on March 12, 1999 by (i) each director of the Company, (ii) each of the
executive officers named in the Summary Compensation Table set forth above and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class
- ------------------------ ------------------------ ----------------
<S> <C> <C>
Dennis A. Sokol (2) 982,644 10.27%
Elliot H. Cole (3) 531,165 5.55%
Richard Berman (4) 60,000 *
Robert A. Bruno (5) 10,423 *
All executive officers
and directors as a group (6)
(6 persons) 1,615,482 16.89%
</TABLE>
- -------------------------
* Less than 1%
(5) Except as otherwise indicated, each person listed above has sole voting
and investment power with respect to all shares shown in the table.
(6) See notes 2 and 3 of the table under the caption "Security Ownership of
Certain Beneficial Owners" above.
(7) Includes 200,000 options to purchase shares of Common stock of the
Company which are immediately exercisable.
(8) Includes 50,000 options to purchase shares of Common stock of the Company
which are immediately exercisable.
(9) As of October 1, 1998, Mr. Bruno was no longer employed by the Company.
(10) Includes 25,000 and 6,250 options to purchase shares of Common stock
of the Company which are immediately exercisable and held by Messrs.
Nemnom and Rountree, respectively.
Item 13. Certain Relationships and Related Transactions
FMC and Dennis A. Sokol, the Chairman of the Board, Chief Executive
Officer and Director of the Company and Chairman of the Board and Chief
Executive Officer of FMC, have an oral agreement whereby FMC has agreed to pay
Mr. Sokol an annual salary of $300,000 per year for his services as FMC's
Chairman of the Board and Chief Executive Officer. In addition, at the
discretion of the Compensation Committee of the Board of FMC, Mr. Sokol may be
awarded an annual bonus. Mr. Sokol is also a shareholder of American Medical
Clinics, which is a plaintiff in the following lawsuit:
HOSPITAL CORPORATION INTERNATIONAL, LTD. AND AMERICAN MEDICAL CENTERS,
INC. VS. PEPSICO INC., Case Number 94CVS 888 Superior Court, Craven County,
North Carolina
On January 1, 1996, American Medical Clinics, Inc. ("AMC, Inc.")
shareholders and MedExec shareholders entered into a Reorganization Agreement to
form First Medical Corporation ("FMC"). As part of the Agreement, the AMC, Inc.
shareholders did not assign its interest to include any recovery from the
Litigation other than as stated below.
In this lawsuit instituted by Hospital Corporation International, Ltd.
and American Medical Centers Inc. against Pepsico Inc., and certain other
parties about which AMC, Inc. has fully informed the FMC (the "Litigation"), FMC
agreed to pay the ongoing legal fees and other expenses connected with the
Litigation. If the Litigation is settled or otherwise brought to a successful
conclusion, the proceeds of such settlement or other successful conclusion of
the Litigation (the "Proceeds") will be shared as follows: (a) AMC, Inc. and FMC
will first be reimbursed in full for their respective legal fees and expenses
incurred in connection with the Litigation (the "Fees") or a pro rata share of
the Fees incurred by each of them if the Proceeds are insufficient to reimburse
AMC, Inc. and FMC for the Fees in full; and (b) the balance of the Proceeds will
be shared on a proportionate basis between FMC and the former shareholders of
AMC, Inc. The portion to be paid to FMC shall be a fraction, the numerator of
which will be the amount of the Fees paid by FMC and the denominator of which
will be the net Proceeds remaining after the reimbursement of the fees pursuant
to subparagraph (a) above. The former shareholders of AMC, Inc. will receive the
balance of the Proceeds.
38
<PAGE>
The Company and Elliot H. Cole, the Vice Chairman of the Board and
Director of the Company, have an oral agreement whereby the Company has agreed
to pay Mr. Cole a consulting fee of $60,000 per year for his services as the
Company's Vice Chairman of the Board. Mr. Cole is a member of the law firm
Patton Boggs, LLP which renders legal services to the Company and is
representing the Plaintiff in the aforementioned Litigation discussed in this
Item 13.
On April 17, 1998, the Company sold Hallmark which was a wholly-owned
subsidiary of the Company to a certain member of management of the Company and
certain members of management of Hallmark for a total sales price of $1.9
million. The purchase price of $1.9 million represented a cash payment of
$750,000 and the assumption of $1.15 million of liabilities and a covenant not
to compete by the member of management of the Company.
Pursuant to a reorganization agreement, effective July 1, 1998, the
American Medical Clinics Management Company, Ltd., a wholly-owned subsidiary of
First Medical Group International, Ltd., which in turn is a wholly-owned
subsidiary of the Company, acquired the stock of American Medical Clinics
Moscow, Inc. and American Medical Clinics-St. Petersburg Ltd. ("AMC-CIS"). The
shareholders of AMC-CIS are shareholders of the Company. The total consideration
was approximately $1.3 million and represents accounts payable to AMCMC by
AMC-CIS. Prior to the reorganization agreement, AMCMC had a management service
agreement whereby AMC-CIS would provide medical services to AMCMC customers.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
a. (1) FINANCIAL STATEMENTS PAGE
<S> <C>
The following financial statements are Included in Part II,
Item 8 of this Annual Report on Form 10-K:
The First Medical Group, Inc. ("FMG")
Report of Independent Public
Accountants as of December 31, 1998, 1997 and 1996 F-1
Consolidated Balance Sheet, December
31, 1998 and 1997 F-2
Consolidated Statement of Operations,
Years Ended December 31, 1998, 1997 and 1996 F-3
Consolidated Statement of Changes in
Shareholders' Equity (Deficit), Years
Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statement of Cash Flows,
Years Ended December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial
Statements for Years Ended December 31, 1998, 1997 and 1996 F-6 - F-16
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
a. (2) SCHEDULE
The following schedule for the Years Ended December 31, 1998
and 1997 are submitted herewith:
Schedule II - Valuation and Qualifying
Accounts S-1
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
a. (3) EXHIBITS
The Exhibits to this Annual Report on Form 10-K are listed in
the Exhibit Index annexed hereto and incorporated by
reference.
(b) REPORTS ON FORM 8-K
There was no Form 8-K filed during the last quarter covered by
this report.
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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/ DENNIS A. SOKOL
-----------------------
Dennis A. Sokol
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ DENNIS A. SOKOL Chairman of the Board of Directors, April 23, 1999
- ------------------- President and Chief Executive Officer
Dennis A. Sokol
/S/ ELIAS M. NEMNOM Senior Vice President and April 23, 1999
- ------------------- Chief Financial Officer
Elias M. Nemnom
/S/ ELLIOT H. COLE Director and Vice Chairman April 23, 1999
- ------------------ of the Board
Elliot H. Cole
/S/ RICHARD BERMAN Director April 23, 1999
- ------------------
Richard Berman
/S/ GEORGE ROUNTREE Director April 23, 1999
- -------------------
George Rountree
</TABLE>
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Medical Group, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of First Medical Group, Inc. (formerly
known as First Medical Corporation) for the year ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of First Medical Group, Inc. (formerly known as First Medical Corporation) for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Miami, Florida
March 25, 1997, except as to
Note 2(i) which is as of
November 12, 1997
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Medical Group, Inc.
Stamford, Connecticut
We have audited the accompanying consolidated balance sheet of First Medical
Group, Inc. as of December 31, 1997, and the related consolidated statements of
operations, shareholder's deficit and cash flows for the year then ended. We
have also audited the schedule listed in the accompanying index for the same
period. These financial statements have been restated to reflect the
discontinued operations described in Note 3. These financial statements and
schedule are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and schedule.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and schedule. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Medical Group,
Inc., at December 31, 1997, and the consolidated results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles. Also in our opinion, the schedule presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 1997.
New York, New York
/s/ BDO Seidman, LLP
March 27, 1998, except for Note 3
which is as of July 16, 1998
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of First Medical Group, Inc.:
We have audited the accompanying consolidated balance sheet of First Medical
Group, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, shareholders' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Medical Group, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
As explained in Note 2 to the consolidated financial statements, effective
January 1, 1998, the Company changed its method of accounting for organization
cost in accordance with Statement of Position 98-5, REPORTING ON THE COSTS OF
START-UP ACTIVITIES.
/s/ ARTHUR ANDERSEN LLP
New York, New York
April 9, 1999
F-1
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 909,064 $1,421,250
Accounts receivable, net of allowance for doubtful accounts of
$53,696 and $877 at December 31, 1998 and 1997, respectively 470,458 98,332
Inventories 116,984 -
Due from related parties - 1,139,760
Prepaid expenses and other current assets 163,996 50,406
------------ ------------
Total current assets 1,660,502 2,709,748
Property and equipment, net 603,433 170,281
Deferred tax asset 577,000 -
Intangible assets, net 2,079,369 2,014,170
Other assets 71,487 248,385
------------ ------------
$ 4,991,791 $ 5,142,584
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 852,237 $ 278,497
Accrued expenses 1,085,402 383,172
Deferred revenue 689,404 731,372
Notes payable to banks and others 1,358,444 3,998,733
Net liabilities of discontinued operations 980,750 804,531
------------ ------------
Total current liabilities 4,966,237 6,196,305
Commitments and contingencies
Shareholders' equity (deficit):
Capital stock, par value $.001; authorized shares 100,000,000; shares issued
9,567,292 and 9,397,292 at December 31, 1998
and 1997, respectively 9,567 9,397
Additional paid-in capital 8,253,318 8,083,488
Accumulated deficit (8,237,331) (9,146,606)
------------ ------------
Total shareholders' equity (deficit) 25,554 (1,053,721)
------------ ------------
$ 4,991,791 $5,142,584
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 10,947,463 $ 9,019,156 $ 6,660,210
Cost of revenues 9,260,360 7,134,408 5,370,624
------------- ------------- -------------
Gross profit 1,687,103 1,884,748 1,289,586
Operating expenses:
Salaries and related benefits 904,685 700,220 390,403
General and administrative 1,019,597 1,040,582 1,397,970
Impairment loss on intangibles - 1,024,337 -
Depreciation and amortization 226,992 215,338 133,877
------------- ------------- -------------
Loss from operations (464,171) (1,095,729) (632,664)
Interest expense, net (167,170) (196,887) (55,523)
------------- ------------- -------------
Loss before (benefit) for income taxes (631,341) (1,292,616) (688,187)
Income tax benefit (473,000) (62,736) -
-------------- ------------- -------------
Loss from continuing operations before discontinued
operations and cumulative effect of change in
accounting principle (158,341) (1,229,880) (688,187)
Discontinued operations:
Income (loss) from operations of discontinued managed care
and electrical supply division (2,129,943) (8,240,438) 1,011,899
Gain on disposal of managed care and electrical
supply division 4,138,013 - -
-------------- ------------- -------------
Income (loss) from discontinued operations, net of
taxes of $518,000 in 1998 2,008,070 (8,240,438) 1,011,899
Cumulative effect of change in accounting principle,
net of tax benefit of $29,099 (940,454) - -
-------------- ------------- -------------
Net income (loss) $ 909,275 $ (9,470,318) $ 323,712
-------------- ------------- -------------
-------------- ------------- -------------
Income (loss) per share - basic and diluted
Loss from continuing operations $ (.01) $ (.13) $ (.07)
Cumulative effect of change in accounting principle (.10) - -
Net income (loss) from discontinued operations .21 (.90) .11
------------- ------------- -------------
Net income (loss) $ .10 $ (1.03) $ .04
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding -
basic and diluted 9,495,566 9,202,117 9,021,400
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF changes IN shareholders' equity (deficit)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION> Retained
Earnings
Number Additional Accumulated Total Shareholder
OF SHARES Common stock PAID-IN CAPITAL (DEFICIT) EQUITY (DEFICIT)
--------------- ------------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,500 $ 1,500 $ 1,200 $ 224,595 $ 227,295
FMC corporate transaction 8,500 (1,400) 225,995 (224,595) --
Capital contribution to AMCD -- -- 152,490 -- 152,490
Net income -- -- -- 323,712 323,712
--------------- ------------ ---------------- ------------- -----------------
Balance, December 31, 1996 10,000 100 379,685 323,712 703,497
Merger with Lehigh (recapitalization) 9,387,292 9,297 2,538,803 -- 2,548,100
Capital contribution from GDS -- -- 5,000,000 -- 5,000,000
Capital contribution to AMCD -- -- 165,000 -- 165,000
Net loss -- -- -- (9,470,318) (9,470,318)
--------------- ------------ ---------------- ------------- -----------------
Balance, December 31, 1997 9,397,292 9,397 8,083,488 (9,146,606) (1,053,721)
Issuance of common stock 170,000 170 169,830 -- 170,000
Net income -- -- -- 909,275 909,275
--------------- ------------ ---------------- ------------- -----------------
Balance, December 31, 1998 $ 9,567,292 $ 9,567 $ 8,253,318 $ (8,237,331) $ 25,554
--------------- ------------ ---------------- ------------- -----------------
--------------- ------------ ---------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 909,275 $(9,470,318) $ 323,712
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
(Income) loss from discontinued operations (2,003,070) 8,240,438 (1,011,899)
Depreciation and amortization 226,992 215,338 133,877
Deferred taxes (577,000) -- --
Minority interest -- -- (338,077)
Impairment loss from intangibles -- 1,024,337 --
Non-cash compensation expenses 170,000 -- --
Cumulative effect of change in accounting principle 940,454 -- --
(Increase) decrease in assets, net of acquisitions:
Accounts receivable 44,695 (92,522) (5,810)
Due from related parties, net (125,702) (977,431) (162,329)
Inventories 5,677 -- --
Prepaid expenses and other current assets 21,777 98,274 (65,222)
Intangibles and other assets (15,589) (451,308) (1,320,275)
Increase (decrease) in liabilities, net of acquisitions:
Accounts payable and other accrued expenses 661,859 1,255,616 186,974
Deferred revenues (162,417) (75,104) 806,476
Net cash provided by (used in) continuing operating
activities 91,951 (232,680) (1,452,573)
------------- -------------- -----------
Cash flows from investing activities:
Capital expenditures (134,872) (170,764) (37,887)
Organizational costs -- (386,975) (414,841)
Cash acquired 174,255 731,667 --
Net proceeds from sale of discontinued operations 6,590,000 -- --
------------- -------------- -----------
Net cash provided by (used in) investing activities
of continuing operations 6,629,383 173,928 (452,728)
------------- -------------- -----------
Cash flow from financing activities:
Proceeds from loans payable to banks -- 13,882,098 800,000
Repayments of loans payable to banks (2,827,812) (10,025,277) (250,000)
Proceeds from payable to stockholders -- 136,597 374,596
Capital contribution from GDS -- 4,511,512
Contribution to capital of AMCD -- 2,490
------------- -------------- -----------
Net cash (used in) provided by financing activities
of continuing operations (2,827,812) 8,504,930 1,077,086
------------- -------------- -----------
Cash provided by (used in) discontinued operations (4,405,708) (7,149,242) 952,529
------------- -------------- -----------
(Decrease) Increase in cash and cash equivalents (512,186) 1,296,936 124,314
Cash and cash equivalents, beginning of the year 1,421,250 124,314 --
------------- -------------- -----------
Cash and cash equivalents, end of the year $ 909,064 $ 1,421,250 $ 124,314
------------- -------------- -----------
------------- -------------- -----------
Supplemental disclosure of cash flow information
Cash paid for interest $ 27,263 $ 115,166 $ 48,748
Cash paid for income taxes 325,384 69,914 33,291
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 and 1996
1. ORGANIZATION AND OPERATION
First Medical Group, Inc. ("FMG" or the "Company") owns and operates
medical clinic centers in Eastern Europe. The medical centers provide
healthcare services to expatriates and other local nationals. The medical
clinic centers are located in Moscow and St. Petersburg, Russia; Kiev,
Ukraine; Prague, Czech Republic and Warsaw, Poland.
The consolidated financial statements include the accounts of FMG and its
wholly owned subsidiaries: First Medical Corporation ("FMC"); First
Medical Group International, Ltd.; American Medical Clinics Management
Company, Inc. ("AMCMC"); American Medical Clinics Management Company, Ltd.
("AMCMC BVI"), American Medical Clinics Development Corporation, Limited
("AMCD") and MedExec Inc. and subsidiaries ("MedExec"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Over recent years, Russia has undergone substantial political, economic and
social change. As an emerging market, Russia does not possess a well-developed
business infrastructure which generally exists in a more mature free market
economy. As a result, operations carried out in Russia involve significant
risks, which are not typically associated with those in developed markets.
Instability in market reform could subject the Company or its investments to
unpredictable changes in the basic business infrastructure under which they
currently carry out their operations. Uncertainties regarding the political,
economic, legal, tax or regulatory environment, including the potential for
adverse changes in any of these factors, could significantly affect the
Company's ability to operate commercially. It is not possible to estimate what
changes may occur or the resulting effect of any such changes on the Company's
financial condition or future results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(a) Use of Estimates
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 the 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 those estimates.
(b) Discontinued Operations
The consolidated financial statements of the Company reflect the
results of operations of the Company's physician practice management
and electrical supply divisions as discontinued operations for
financial reporting purposes.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits. For purposes of
the consolidated financial statement, the Company considers all highly
liquid debt instruments with original maturities of three months or
less to be cash equivalents.
(d) Accounts Receivable
Accounts receivable consist of amounts due the Company from insurance
companies and individuals for services rendered. Accounts receivable
are carried at net realizable value.
F-6
<PAGE>
(e) Inventories
Inventories consist of medical and pharmacy supplies held for resale.
Inventories are stated at the lower of cost or market using the
first-in, first out basis to determine cost.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated using the straight-line method over the
estimated useful lives ranging between 5 and 10 years. Amortization of
leasehold improvements is provided over the term of each respective
lease or the life of the asset, whichever is shorter.
(g) Intangible Assets
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized over the expected periods to be
benefited, ranging between 15 and 25 years. In accordance with
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," the Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
amount of impairment, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill
will be impacted if estimated future operating cash flows are not
achieved.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method as
required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets are measured using enacted rates to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Earning Per Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standard No. 128, "Earnings Per
Share." Accordingly, basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted 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. On July 9, 1997 the Company
merged with the Lehigh Group, Inc. As a result of this merger and the
conversion of Preferred Stock and the 1-for-30 reverse stock split on
November 12, 1997, the Company had shares outstanding of 9,021,400
resulting in a net earnings per share of $.04 in 1996.
(j) Revenue Recognition
Fee-for-service revenue is reported at the estimated net realizable
amount from patients and third-party payors as services are rendered.
Fee-for-service revenues are derived from medical services rendered to
patients and annual membership fees charged to individuals, families
and corporate members. Membership fees are non-refundable and are
recognized as revenue over a year period. Corporate members are also
required to make an advance deposit based upon plan type, number of
employees and dependents. The advance deposits are initially recorded
as deferred income and then as revenue when services are provided.
F-7
<PAGE>
As the advance deposits are utilized, additional advance deposits are
required to be made by corporate members.
(k) Fair Value of Financial Instruments
The carrying amount of financial instruments including cash and cash
equivalents, account receivables, prepaid expenses and other current
assets, accounts payable and accrued expenses, corporate deposits and
notes payable approximate fair market value as of December 31, 1998
because of the short term maturities of these instruments.
(l) Foreign Currency
The financial statements of the Company's foreign subsidiaries are
translated from their functional currency into the US dollar functional
currency for consolidation and reporting purposes. Year-end rates of
exchange are used to translate assets and liabilities and revenue and
expense are translated at average monthly exchange rates prevailing
during the year. The effect of translation adjustments does not have a
material effect on the financial statements.
(m) Change in Accounting Principle
Prior to 1998, the Company capitalized certain costs relating to
start-up operations. Pursuant to Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities (the "SOP"), the Company recorded
$940,454, net of tax benefit of $29,099 as the cumulative effect of the
change in accounting principle relating to the write-off of such
start-up costs. This amount is reflected in the consolidated statement
of operations for the year ended December 31, 1998.
(n) Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
financial statements. The Company's consolidated financial statements
are required to include comprehensive income disclosures beginning with
the first quarter of fiscal year 1998. Restatement of prior period
information are to be made for comparative purposes. The adoption of
this pronouncement did not have a material effect on the Company's
results of operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about operating segments. SFAS No. 131,
which is based on the management approach to segment reporting,
establishes requirements to report selected segment information
quarterly and to report entity-wide disclosures about products and
services, major customers, and the material countries in which the
entity holds assets and reports revenue. Effective January 1, 1998 the
Company adopted SFAS No. 131. The adoption of SFAS No. 131 did not have
a material effect on the Company's results of operations or financial
condition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The
Company currently does not use derivatives and therefore believes that
this new pronouncement will not have a material effect on its results
of operations or financial condition.
3. DISCONTINUED OPERATIONS
In April 1998, the Company's Board of Directors adopted a formal plan
to discontinue its physician practice management division (the "PPM
Division") and Hallmark Electrical Supplies Corp. (the "Electrical
Supply Division"). Accordingly, this business has been accounted for as
discontinued
F-8
<PAGE>
operations and the accompanying consolidated financial statements
presented herein have been restated to report separately the net
assets, net liabilities, operating results and net cash flows of
these discontinued operations. The operations of the Electrical Supply
Division ceased in April 1998; the operations of the PPM Division
ceased in July 1998. The Company sold the net assets of both the PPM
Division and Electrical Supply Division for aggregate gross proceeds of
$9.5 million, which resulted in a net gain on the sales of
approximately $4.1 million. The results of operations of the PPM
Division and Electrical Supply Division are included in the
consolidated statements of income under "Discontinued Operations."
The income tax provision of $518,000 is net of an income tax benefit
of approximately $1,186,000 recognized as a result of a decrease in
the prior year valuation allowance.
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue $19,632 $70,456 $46,354
------- ------- -------
------- ------- -------
Net (loss) income $2,008 ($8,240) $1,012
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- -------
<S> <C> <C>
Current assets -- $18,385
Other assets 90 4,016
-------- -------
Total assets -- 22,402
-------- -------
Total Noncurrent Liabilities (1,071) (23,207)
-------- -------
Net liabilities of discontinued operations $(981) $(805)
-------- -------
-------- -------
</TABLE>
4. ACQUISITION
Effective July 1, 1998, AMCMC BVI acquired the stock of American
Medical Clinics Moscow, Inc. and American Medical Center-St. Petersburg
Ltd. ("AMC-CIS"). The transaction was accounted for under the purchase
method of accounting. The total purchase consideration was
approximately $1.3 million and represented money owed to AMCMC by
AMC-CIS. The excess of the purchase consideration over the fair value
of net assets of AMC-CIS amounted to $848,108 and is being amortized on
a straight-line basis over 25 years. Prior to the acquisition, AMCMC
had a management service agreement with AMC-CIS whereby AMC-CIS would
provide medical services to AMCMC customers. As a result of the
management agreement arrangement, in accordance with EITF 97-2,
APPLICATION OF APB OPINION NO. 16, BUSINESS COMBINATIONS, AND FASB
STATEMENT NO. 94, CONSOLIDATION OF ALL MAJORITY-OWNED SUBSIDIARIES, TO
PHYSICIANS' PRACTICE ENTITIES AND CERTAIN OTHER ENTITIES WITH
CONTRACTUAL MANAGEMENT ARRANGEMENTS ("EITF 97-2"), the Company has
historically consolidated the results of operations of AMC-CIS.
Consequently, the Company's December 31, 1998 statement of operations
reflect AMC-CIS' results of operations for the twelve-months ended
December 31, 1998.
F-9
<PAGE>
5. PROPERTY AND EQUIPMENT, NET
Property and equipment at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Medical, computer and office equipment $ 940,150 $176,016
Leasehold improvements 476,016 22,572
---------- ---------
1,416,166 198,588
Less: Accumulated depreciation and amortization (812,733) (28,307)
---------- ---------
Property and equipment, net $ 603,433 $170,281
---------- ---------
---------- ---------
</TABLE>
Depreciation and amortization expense was $110,012, $26,931 and $11,439
for 1998, 1997, and 1996, respectively.
6. INTANGIBLE ASSETS, NET
Intangible assets net December 31, 1998 and 1997 consist of :
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill $1,868,383 $1,020,275
Organization costs - 830,658
Other 480,005 480,005
---------- ----------
2,348,388 2,330,938
Less: Accumulated amortization (269,019) (316,768)
---------- ----------
Intangible assets, net $2,079,369 $2,014,170
---------- ----------
---------- ----------
</TABLE>
Amortization expense was $116,980, $188,406 and $122,438 for 1998, 1997
and 1996, respectively.
The Company continually reevaluates the propriety of the carrying
amount of goodwill as well as the amortization period to determine
whether current events and circumstances warrant adjustments to the
carrying value and estimates of useful lives. As of December 31, 1998,
the Company believed that no significant impairment of goodwill have
occurred and that no reduction of the amortization periods is
warranted.
As discussed in Note 2, in accordance with Statement of Position 98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"), the Company
wrote-off, net of tax benefit of $29,099, of organization costs of
$940,454. In accordance with SOP 98-5 the write-off has been accounted
for as a cumulative change in accounting principle in the accompanying
December 31, 1998 statement of operations.
The Company recorded a $3.9 million impairment loss in 1997
resulting from the Company's merger with The Lehigh Group, Inc.
in 1997, of which $2.9 million is included in discontinued operations.
F-10
<PAGE>
7. NOTES PAYABLE TO BANKS AND OTHERS
Notes payable to banks and others at December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------------
<S> <C> <C>
Subordinated Debentures - 14-7/8% interest rate $ 290,000 $ 290,000
Senior Subordinated Notes - 13-1/2% interest rate 100,000 100,000
Accrued Interest 968,444 780,921
Secured term loan for $537,812 bore interest at 1/2% above
Prime (9.0% at December 31, 1997): The loan was
secured by all shares of FMG common stock issued to FMC.
Principal payments were made monthly with the balance due on
October 1998. The $537,812 drawn under this loan was
used to purchase Lehigh's stock in connection with the merger. - 537,812
Line of credit for $2,500,000 bore interest at 1/2% above
prime (9.0% at December 31,1997). The line was secured by all
of the assets of FMC and $500,000 is guaranteed by certain
current and former officers of FMC. The amounts drawn under
this line of credit were used
primarily for working capital requirements. - 2,290,000
----------- ---------------
$1,358,444 $ 3,998,733
----------- ---------------
----------- ---------------
</TABLE>
The Company is in default in the payment of interest (approximately
$968,000 and $781,000 interest was past due as of December 31, 1998 and
1997, respectively) on the $390,000 aggregate principal amount of its
13-1/2% Senior Subordinated Debentures 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).
8. RELATED PARTIES
As of December 31, 1998, the Company had obligations to former officers
and employees of the Company that amounted to approximately $290,000.
This obligation is included in accrued expenses.
The Company paid salaries or consulting fees to stockholders of
approximately $610,000, $1,650,000 and $1,520,000 which is
included in the consolidated statement of operations for the years
ended December 31, 1998, 1997 and 1996.
At December 31, 1997, the Company had amounts outstanding from the AMC
clinics which is owned by certain current and former shareholders of
FMC, under its management agreement with AMCMC, which totaled
$1,139,760.
The Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, while serving as Chairman of the Board of
Directors of American Medical Centers Inc. ("AMC") prior to AMC's
merger with MedExec and the formation of First Medical Corporation
("FMC") instituted a lawsuit, together with Hospital Corporation
International, Ltd., against Pepsico Inc. and certain other parties
(the "Litigation"). Presently, the Company, through its wholly-owned
subsidiary FMC has agreed to pay the ongoing legal fees and other
expenses connected to the Litigation. Expenses totaling approximately
$191,000 have been incurred through December 31, 1998 and have been
recorded as general and administrative expenses in the accompanying
December 31, 1998 Statement of Operations. The Company's management
estimates that additional legal fees and other related expenses
approximating
F-11
<PAGE>
$75,000 will be incurred in future periods in connection with the
Litigation. The Company's Board of the Directors will determine the
extent to which these future expenses will be borne by the Company.
9. INCOME TAXES
The components of income/(loss) from continuing operations before
income tax for the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Domestic $ (821,000)
Foreign 189,659
-------------
Total income/(loss) before income tax $ (631,341)
benefits, cumulative effect of changes in -------------
accounting principle, income from -------------
discontinued operations
</TABLE>
The income tax effects of temporary differences that give rise to
significant portions of deferred tax assets are presented as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Deferred Tax Assets:
Alternative minimum tax credit $ 59,000 $ --
Net operating loss carryforward 519,000 4,511,000
Deferred Tax Liabilities -- --
Deferred tax asset/(liability) 578,000 4,511,000
Less: Valuation allowance -- 4,511,000
----------- ------------
Net deferred tax asset/(liability) $ 578,000 $ --
----------- ------------
----------- ------------
</TABLE>
Taxable income for the year ended December 31, 1998 was substantially
offset by the utilization of net operating loss carryforwards ("NOLs")
from the year ended December 31, 1997. At December 31, 1998, The
Company has NOLs of approximately $1,297,000 to offset future taxable
income, which expire in 2112.
Due to the Company's significant loss in 1997, no federal taxes have
been provided in the accompanying consolidated statement of operations.
The significant components of the income tax provision/(benefit)
attributable to continuing operations for the years ended
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Current tax provision - domestic operations $ (376,000) $ --
Deferred tax provision - domestic operations (519,000) --
Current tax provision - foreign operations 422,000 267,291
Write off of prior year deferred tax liability -- (112,500)
Write off of prior year income taxes payable -- (217,527)
----------- ----------
Net income tax benefit $ (473,000) $ (62,736)
----------- ----------
----------- ----------
</TABLE>
The Company has not provided any U.S. deferred income taxes on foreign
earnings due to its intent to permanently reinvest those earnings.
F-12
<PAGE>
The components of deferred income tax (benefit) are:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
NOL Carryforward $ (519,000)
-----------
Deferred Tax Benefit $ (519,000)
-----------
-----------
</TABLE>
The difference between the actual income tax provision/(benefit) and
the income tax provision computed by applying the statutory federal
income tax rate to income from operations for the year ended December
31, 1998, is attributable to the following:
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Income tax provision/(benefit) at 34% $ (215,000)
Reduction in valuation allowance (519,000)
State taxes net of federal 74,000
Foreign income taxes in excess of US Rate 127,000
Foreign income taxes of US entities 138,000
Other (78,000)
-------------
Income tax (benefit) provision $ (473,000)
-------------
-------------
</TABLE>
The domestic and foreign components of the income tax
provision/(benefit) are as follows:
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Domestic $ (895,000)
Foreign 422,000
-------------
Total $ (473,000)
-------------
-------------
</TABLE>
10. LEASES
The Company has several noncancelable operating leases primarily for
office space that expire throughout 2010. Future minimum lease payments
required under noncancelable operating leases at December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
DECEMBER 31,
------------
<S> <C>
1999 $ 1,126
2000 2,094
2001 2,097
2002 1,791
2003 1,637
Thereafter 6,377
---------
Total minimum lease payments $15,122
---------
---------
</TABLE>
Rental expense during 1998, 1997 and 1996 amounted to approximately
$503,000, $663,000 and $259,000, respectively.
F-13
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
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 containing
hazardous substances or arranged with a transporter for the transport
for the disposal or treatment of such waste chemicals at one or more
sites. 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 plaintiffs have offered a settlement package of
approximately $120,000. 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 this demand. 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.
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 ranging between $150,000 and $200,000 in connection with
the sale of stock in Dominion Healthnet, Inc. to the Company.
Former employees of various subsidiaries of the Company have made
claims against the Company related to monies allegedly due the former
employees for accrued vacation and unpaid sick leave. The total amount
claimed, inclusive of an asserted right to attorneys' fees,
approximates $400,000.
In December 1998 a claim was filed against the Company by a former
employee who seeks approximately $50,000 plus attorneys' fees for
breach of an employment contract.
The Company will continue to vigorously defend itself against each of
the lawsuits discussed above. In the opinion of management, the final
resolution of such matters will not have a material adverse effect on
the financial position and results of operations of the Company.
Malpractice and Professional Liability Insurance
The Company maintains professional liability insurance on a claims-made
basis through December, 1999 including retroactive coverage for acts
occurring since inception of its operations. Incidents and claims
reported during the policy period are anticipated to be covered by the
malpractice carrier. The Company intends to keep such insurance in
force throughout the foreseeable future. At December 31, 1998, there
are no asserted claims made against the Company that were not covered
by the policy.
12. SEGMENT INFORMATION
The Company operates its medical clinics in Eastern Europe and derives
all of its revenues from that region. None of the Company's revenues
are concentrated in any customer that exceed 10% of its revenues.
F-14
<PAGE>
13. STOCK OPTION AND INCENTIVE COMPENSATION PLANS
In July 1997 the Board of Directors established a Stock Option Plan
(the "Option Plan") and the Incentive Compensation Plan (the
"Incentive Plan").
The Option Plan provides for the grant of incentive stock options and
nonqualified stock options, as well as stock appreciation rights (the
"Rights") and restricted stock awards. The Option Plan is authorized
the issuance of up to 500,000 shares of Common stock. No option is to
be exercisable more than five years after the date of grant. The
exercise price of an incentive stock option must be at least 100% of
the fair market value of the Company's share at the date of grant,
provided, however that with respect to an optionee who owns more than
10% of the total combined voting power of all classes of stock of the
Company or of any of its subsidiaries, the exercise price must be at
least 110% of the fair market value of the Company's share at the date
of grant. The exercise price of a nonqualified stock option shall be
determined by the Compensation Committee.
The Compensation Committee shall have the authority to grant Rights
with respect to all or some shares of Common stock covered by any
option, which entitle the holder to cash equal to the difference
between the offer price (as will be determined by the Compensation
Committee) and the exercise price of the related option. In addition,
the Compensation Committee shall have the authority to award restricted
stock, which entitles the recipient to acquire for a purchase price to
be determined by the Compensation Committee, some shares of Common
stock subject to restrictions and conditions as the Compensation
Committee may determine.
The Incentive Plan provides for incentive compensation to participants
in the form of cash, stock or cash and stock bonus, based on targets
established by the Compensation Committee. There is no maximum number
of shares of Common stock, which may be awarded under the Incentive
Plan.
Incentive Plan shall terminate on December 31, 2002.
At December 31, 1998 no options, stock bonus or other rights were
granted under these plans.
In December 1998, the Company's Board of Directors approved to grant of
stock options to purchase up to 950,000 shares of common stock to
certain officers and directors at an exercise price of $0.125, which
was equal to the fair market value on the date of grant. These options
may not be exercised after four years from the date of grant. 725,000
options were vested at the date of the grant. 225,000 options are
exercisable ratably over a four-year period.
The Company accounts for awards granted to employees and directors
under APB No. 25, under which no compensation cost has been recognized
for stock options granted. Had compensation cost for these stock
options been determined consistent with SFAS No. 123, the Company's net
income and net income per share would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Net income:
As reported.............................................. $ 909,275
Pro forma................................................ 873,462
Basic and diluted income per share:
As reported.............................................. $ 0.10
Pro forma................................................ 0.09
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts as additional awards in future years
are anticipated.
F-15
<PAGE>
Option activity for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding, December 31, 1997 -- --
Granted....................................... 950,000 $ 0.125
Canceled...................................... -- --
Exercised..................................... -- --
------- ---------
Options outstanding, December 31, 1998 950,000 $ 0.125
------- ---------
------- ---------
</TABLE>
The weighed average fair value of options granted is $0.05 for the year
ended December 31, 1998. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants
in 1998: risk-free interest rate of 4.6%; expected life of 2.5 years;
expected volatility of 54% and expected dividend yield of 0%.
The following table summarizes information with respect to stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
- -------------- ------------------ ------------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
$0.125 950,000 2.5 $0.125 725,000 $0.125
</TABLE>
F-16
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DECEMBER 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO OTHER
BEGINNING OF ACQUISITION OF COSTS AND CHARGES AND BALANCE AT
DECEMBER 31, DESCRIPTION YEAR AMC-CIS EXPENSES (DED'S) END OF YEAR
- -------------------- -------------------- --------------- ---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1998 Allowance for
doubtful accounts $ 1 (30) 151 (68) 54
1997 Allowance for
doubtful accounts $ 1 - 3 (3) 1
</TABLE>
S-1
<PAGE>
ANNEX D
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 September 30, 1999.....Commission File Number 1-155
FIRST MEDICAL GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1920670
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1055 Washington Boulevard, Stamford, CT 06901
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 327-0900
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 November 12, 1999
- -------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE 9,567,292
$.001 PER SHARE
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Nine Months Ended September 30, 1999 and 1998.............................1
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998..................................2
Consolidated Statements of Changes in Shareholders'
Equity Nine Months Ended September 30, 1999 and
1998......................................................................3
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998.............................4
Notes to Consolidated Financial Statements..............................5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................7-12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk..............................................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................13-14
Item 2. Changes in Securities and Use of Proceeds.................................14
Item 3. Defaults upon Senior Securities...........................................14
Item 6. Exhibits and Reports on Form 8-K.......................................14-15
</TABLE>
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue $ 2,472 $ 2,788 $ 8,169 $ 8,253
Cost of revenue 2,057 2,384 6,463 7,030
----------- ----------- ---------- ------------
Income from clinic operations 415 404 1,706 1,223
Operating expenses:
Salaries and benefits 273 144 674 550
General and administrative 252 242 673 759
Depreciation and amortization 100 128 291 193
----------- ----------- ---------- ------------
Total operating expenses 625 514 1,638 1,502
Income (loss) from operations (210) (110) 68 (279)
Interest income (expense), net 25 (31) 45 (128)
----------- ----------- ---------- ------------
Income (loss) before income tax provision (185) (141) 113 (407)
Income tax provision (credit) (179) 60 (40) 387
----------- ----------- ---------- ------------
Income (loss) from continuing operations
before discontinued operations (6) (201) 153 (794)
Discontinued operations:
Income (loss) from operations of
discontinued managed care
and electrical supply division (180) (1) 270 (1,983)
Gain on disposal of managed care
and electrical supply division -- 977 -- 4,646
----------- ----------- ---------- ------------
Income from discontinued operations (180) 976 270 2,663
Extraordinary income on write-off of
accrued interest, net of taxes
of $170,000 254 -- 254 --
Cumulative effect of change in
accounting principle -- -- -- (970)
----------- ----------- ---------- ------------
Net income $ 68 $ 775 $ 677 $ 899
Income per share - basic and diluted:
Income (loss) from continuing operations $ -- $ (.02) $ .02 $ (.08)
Income from discontinued operations (.02) .10 .02 .28
Extraordinary income on write-off
of accrued interest .03 -- .03
Cumulative effect of change in
accounting principle -- -- -- (.10)
----------- ----------- ---------- ------------
Income per share $ .01 $ .08 $ .07 $ .10
Weighted average number of common
shares outstanding-basic and diluted 9,567,292 9,567,292 9,567,292 9,454,581
</TABLE>
See accompanying notes to consolidated financial statements.
1.
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 610 $ 909
Accounts receivable, net of allowance
for doubtful accounts of $91,000
and $54,000 at September 30, 1999
and December 31, 1998, respectively 533 471
Inventories 105 117
Prepaid expenses and other current assets 493 164
----------- --------------
Total current assets 1,741 1,661
Property and equipment, net 1,293 603
Deferred tax asset 549 577
Intangible assets, net 2,225 2,079
Other assets 77 72
----------- --------------
TOTAL $ 5,885 $ 4,992
LIABILITIES AND SHAREHOLDERS' EQUIT
Current liabilities:
Accounts payable $ 970 $ 852
Accrued expenses 1,328 1,085
Deferred revenue 843 689
Notes payable and accrued interest payable 1,117 1,359
Net liabilities of discontinued operations 506 981
----------- --------------
Total current liabilities 4,764 4,966
Notes payable to shareholders and
related parties 418 --
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.001; authorized
shares100,000,000; shares issued 9,567,292
at September 30, 1999 and December 31, 1998 10 10
Additional paid-in-capital 8,253 8,253
Accumulated deficit (7,560) (8,237)
----------- --------------
Total shareholders' equity 703 26
----------- --------------
TOTAL $ 5,885 $ 4,992
</TABLE>
See accompanying notes to consolidated financial statements.
2.
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES OF
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 -- -- -- 899 899
----------- ----------- ----------------- -------------- -----------------
Balance, September 30, 1998 9,567,292 $ 10 $ 8,253 $ (8,248) $ 15
----------- ----------- ----------------- -------------- -----------------
----------- ----------- ----------------- -------------- -----------------
Balance, December 31, 1998 9,567,292 $ 10 $ 8,253 $ (8,237) $ 26
Net income -- -- -- 677 677
----------- ----------- ----------------- -------------- -----------------
Balance, September 30, 1999 9,567,292 $ 10 $ 8,253 $ (7,560) $ 703
----------- ----------- ----------------- -------------- -----------------
----------- ----------- ----------------- -------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 677 $ 899
Adjustments to reconcile net income to net
cash used in continuing operating
activities:
Depreciation and amortization 291 193
Extraordinary income from write-off
of accrued interest (254)
Cumulative effect of change in accounting
principle -- 970
Noncash compensation -- 170
Decrease in due from affiliates -- 1,140
Decrease in deferred tax asset 28 --
Increase in intangibles and other assets (263) (993)
(Decrease) increase in net liabilities
of discontinued operations (475) 550
Other changes, net (35) (49)
----------- ---------
Net cash (used in) provided by continuing operating
activities (31) 2,880
Capital expenditures (868) (523)
Financing activities:
Proceeds from loans from shareholders and related
parties 600 --
Repayment of loan payables and others -- (2,689)
----------- ---------
(Decrease) in cash and cash equivalents (299) (332)
Cash and cash equivalents, beginning of year 909 1,421
----------- ---------
Cash and cash equivalents, end of the period $ 610 $1,089
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The financial information for the three months and nine months ended September
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-10K.
The results of operations for the three month and nine month period ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
NOTES PAYABLE TO SHAREHOLDERS AND RELATED PARTIES
Effective October 1, 1999, the Company entered into an agreement with certain
shareholders and related parties to borrow $655,000. The agreement provides that
the Company will repay these borrowings on a monthly basis over a 3 year period
with 9% interest per annum. In exchange for providing these funds to the
Company, the Company issued 1,637,500 of warrants that may be exercised at $.25
per share for one share of common stock of the Company.
5.
<PAGE>
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income 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.
SUPPLEMENTARY SCHEDULE
<TABLE>
<CAPTION>
1999 1998
(In thousands)
----------------------------
<S> <C> <C>
Cash paid during the nine months
ended September 30, for:
Interest $ -- $ 37
Income taxes 134 387
</TABLE>
6.
<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 September 30, 1999, the Company had cash of
$610,000 as compared to $909,000 at December 31, 1998. The decrease in cash and
cash equivalents relates primarily to $323,000 of payments made by the Company
relating to prepaid rent and $613,000 of leasehold improvements for the new
Moscow clinic facility offset by $600,000 of proceeds received from certain
shareholders and related parties. 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 September 30, 1999 was $ 493,000 million as compared to $164,000 at
December 31, 1998. The increase in prepaid expenses and other current assets of
$329,000 relates mainly to prepaid rent deposits of $323,000 made by the Company
in connection with the construction of the new Moscow facility.
INTANGIBLE ASSETS. Intangible assets at September 30, 1999 was $2,225,000 as
compared to $2,079,000 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.
NOTES PAYABLE AND ACCRUED INTEREST PAYABLE. Notes payable and accrued interest
payable at September 30, 1999 was $1,117,000 as compared to $1,359,000 at
December 31, 1998, a decrease of $242,000. The decrease is attributable to the
write-off of accrued interest of $254,000 (net of taxes of $170,000) relating to
the 13 1/2% Notes and 14 7/8% Debentures due to the expiration of the statute of
limitation on the past due amounts outstanding. This amount is offset by
approximately $182,000 of current maturities on the notes payable to
shareholders and related parties.
NET LIABILITIES OF DISCONTINUED OPERATIONS. Net liabilities of discontinued
operations at September 30, 1999 was $506,000 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 nine months of 1999.
7.
<PAGE>
NOTES PAYABLE TO SHAREHOLDERS AND RELATED PARTIES. Notes payable to
shareholders and related parties as September 30, 1999 was $600,000 of which
$182,000 is classified in the balance sheet as a current liability. Effective
October 1, 1999, the Company entered into an agreement with certain
shareholders and related parties to loan $655,000 to the Company. The Company
is required to repay this amount over a 36 month period with 9% interest per
annum. In exchange for these loans, the Company issued 1,637,500 of warrants
that may be exercised at $.25 per share for one share of common stock of the
Company.
RESULTS OF OPERATIONS
THIRD QUARTER OF 1999 IN COMPARISION
WITH THIRD QUARTER OF 1998
REVENUE. Total revenue of the Company for the three months ended
September 30, 1999 and 1998 was $2.5 million and $2.8 million, respectively, a
decrease of 11.3%. Patient and dental visits for the three months ended
September 30, 1999 were 4,613 and 1,033 respectively, as compared to 5,170 and
1,018 for the three months ended September 30, 1998. This represents a
decrease of 557 patient visits or 10.8% and an increase of 15 dental visits or
1.5% for the third quarter of 1999 as compared to the third 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 and outpatient facility in Moscow.
COST OF REVENUES. Cost of revenues for the three months ended September
30, 1999 and 1998 was $2.1 million and $ 2.4 million, respectively. Cost of
revenues as a percentage of revenue, was 83.2% and 85.5% for the three months
ended September 30, 1999 and 1998, respectively. The decrease relates to a
reduction of staffing levels as a result of the decrease in the number of
visits.
OPERATING EXPENSES. Operating expenses for the Company were $625,000
during the three months ended September 30, 1999 as compared to $ 514,000 in
1998. Operating expenses as a percentage of revenue was 25.3% in 1999 as
compared to 18.4% in 1998. Included in operating expenses for the three months
ended September 30, 1999 was approximately $33,000 of additional salary
expense incurred in connection with the construction of the new facility and
$13,000 of additional amortization expense relating to the amortization of the
non-compete agreement.
(LOSS) INCOME FROM DISCONTINUED OPERATIONS. Loss from discontinued
operations for the three months ended September 30, 1999 was $180,000 as
compared to income of $ 976,000 for the three months ended September 30, 1998.
Included in income from discontinued operations for the three months ended
September 30, 1998 was a gain of $ 977,000 resulting from the sale of the
Indiana and Texas managed care operations.
8.
<PAGE>
EXTRAORDINARY INCOME ON WRITE-OFF OF ACCRUED INTEREST. The Company has
reflected the write-off of past due accrued interest of $254,000, net of taxes
of $170,000, on the 13 1/2% Senior Subordinated Notes and 14 7/8% Subordinated
Debentures as extraordinary income in the consolidated statement of operations
for the three months ended September 30, 1999. The past due interest relates
to notes and debentures that remained 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 these notes and
debentures. The write-off of the past due accrued interest reflects the
Company's view that this obligation is no longer a liability of the Company
since the statute of limitations has expired in which a claim based upon such
notes and debentures could have been presented.
NET INCOME. Net income for the three months ended September 30,
1999 was $68,000 as compared to $775,000 in the third quarter of 1998 due to
the factors noted above.
RESULTS OF OPERATIONS
FIRST NINE MONTHS OF 1999 IN COMPARISION
WITH FIRST NINE MONTHS OF 1998
REVENUE. Total revenue of the Company for the nine months ended
September 30, 1999 and 1998 was $8.2 million and $8.3 million, respectively, a
decrease of 1%. Patient and dental visits for the nine months ended September
30, 1999 were 14,606 and 3,165 respectively, as compared to 16,187 and 3,262
for the nine months ended September 30, 1998. This represents a decrease of
1,581 patient visits or 9.8% and 97 dental visits or 3.0%, for the first nine
months of 1999 as compared to the first nine months 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 and
outpatient facility in Moscow. Included in revenues for the nine months ended
September 30, 1999 was $232,000 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 nine months ended September
30, 1999 and 1998 was $6.5 million and $7.0 million, respectively. Cost of
revenues as a percentage of revenue, was 79.1% and 85.2% for the nine months
ended September 30, 1999 and 1998, respectively. The decrease relates to a
reduction of staffing levels as a result of the decrease in the number of
visits.
OPERATING EXPENSES. Operating expenses for the Company were $1,638,000
during the nine months ended September 30, 1999 as compared to $ 1,502,000 in
1998. Operating expenses as a percentage of revenue was 20.1% and 18.2%,
respectively, in 1999 and 1998. Included in operating expenses in 1999 is
approximately $75,000 of additional salary expense incurred in connection with
the construction of the new facility and $39,000 of additional amortization
expense relating to the amortization of the non-compete agreement.
9.
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INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued
operations for the nine months ended September 30, 1999 was $270,000 as
compared to $2.7 million for the nine months ended September 30, 1998. The
income from discontinued operations for the nine months ended September 30,
1999 relates primarily to the settlement of certain claims relating to
discontinued operations. Included in income from discontinued operations for
the nine months ended September 30, 1998 was a net gain of $2.7 million
resulting from the sale of the Company's managed care and electrical supply
business.
EXTRAORDINARY INCOME ON WRITE-OFF OF ACCRUED INTEREST. The Company has
reflected the write-off of past due accrued interest of $254,000, net of taxes
of $170,000, on the 13 1/2% Senior Subordinated Notes and 14 7/8% Subordinated
Debentures as extraordinary income in the consolidated statement of operations
for the three months ended September 30, 1999. The past due interest relates
to notes and debentures that remained 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 these notes and
debentures. The write-off of the past due accrued interest reflects the
Company's view that this obligation is no longer a liability of the Company
since the statute of limitations has expired in which a claim based upon such
notes and debentures could have been presented.
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 nine months ended September
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 nine months ended September 30,
1999 was $ 677,000 as compared to $899,000 for the nine months ended
September 30, 1998 due primarily to the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company as of September 30, 1999 is at a
deficit of $3.0 million as compared to $3.3 million as of December 31, 1998.
Cash and cash equivalents at September 30, 1999 was $610,000 as compared to
$909,000 at December 31, 1998, a decrease of $299,000. The decrease in cash
results from capital expenditures of $868,000 primarily for the new Moscow
facility and $31,000 of cash flow used in operations, offset by $600,000 of
borrowings from shareholders and related parties. Included in the working
capital deficit as of September 30, 1999 are the notes payable and accrued
interest of approximately $ 934,000 of which the Company is unable to locate
the note holders.
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The Company is in default on the payment of interest (approximately
$544,000 interest was past due as of September 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 has determined that
$254,000, net of taxes of $170,000 of the past due accrued interest is no
longer an obligation of the Company since the statute of limitations has
expired in which a claim based upon such notes and debentures could have been
presented. Accordingly, the Company has written off this amount and has
reflected it as extraordinary income in the consolidated statement of
operations in the three months and nine months ended September 30, 1999.
As of September 30, 1999, the Company does not have any existing lines
of credit. In order to complete the new Moscow facility, the Company intends to
obtain additional financing from certain of its shareholders.
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. It is expected that these
applications will be Year 2000 compliant. Should such systems not be Year 2000
compliant, 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 installing a new billing and scheduling system for its clinic operations.
Such system is Year 2000 compliant.
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 has sent inquires to these
vendors and third-party payors to ascertain compliance and has obtain
assurances from certain of these vendors that they are Year 2000 compliant.
However, certain vendors did not reply or cannot provide Year 2000 compliant
services and as a result 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.
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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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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. Accordingly, 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. In September 1999, the Company reached an agreement with
the plaintiffs to settle this claim for $165,000.
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 claimants. Subsequent to
September 30, 1999, the Company and the claimants have reached an agreement
in principal pursuant to which this claim will be withdrawn in exchange for
the issuance to the claimants of 300,000 shares of the Company's common
stock.
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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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective October 1, 1999, the Company entered into an agreement with certain
shareholders and related parties to borrow $655,000. The agreement provides that
the Company will repay these borrowings on a monthly basis over a 3 year period
with 9% interest per annum. In exchange for providing these funds to the
Company, the Company issued 1,637,500 of warrants that may be exercised at $.25
per share for one share of common stock of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company continues to be in default in the payment of interest
(approximately $544,000 interest is past due as of September 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 September 30, 1999.
EXHIBITS
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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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 (incorporated herein by reference to Exhibit 10.0 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999).
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
15.
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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: NOVEMBER 15, 1999
16.
