As filed with the Securities and Exchange Commission on January 13, 1998
Registration No. 333-11955
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST MEDICAL GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 5063 13-1920670
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
FIRST MEDICAL GROUP INC.
1055 WASHINGTON BLVD.
STAMFORD, CONNECTICUT 06901
(203) 327-0900
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------------------------------------------------
ROBERT A. BRUNO
VICE PRESIDENT AND GENERAL COUNSEL
1055 WASHINGTON BLVD.
STAMFORD, CONNECTICUT 06901
(203) 327-0900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------------------------------------------------
Copy to:
ILAN K. REICH, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
----------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Proposed Maximum Amount of
to be Registered Registered Maximum Aggregate Offering Registration
Offering Price Price Fee**
Per Share***
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Common Stock 375,875 $1.25 $469,843.75 $142.38
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Series A Convertible Preferred 34,852 $0.01 $10,374 $0.16
Stock
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Common Stock issuable upon 8,645,508 N/A* N/A*
conversion of Series A
Convertible Preferred Stock
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Total $142.54
====================================================================================================================================
* In accordance with Rule 457(i)
** $3,713 was previously paid on September 13, 1996 and $891.48 was
previously paid on December 27, 1996. Accordingly, no additional fee is
due at this time.
*** Based on the bid price of First Medical Group Inc. common stock on the
OTC Bulletin Board on December 30, 1997.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
FIRST MEDICAL GROUP INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location in
Prospectus of Information required by Items of Form S-1.
ITEM NUMBER AND HEADING IN FORM S-1
REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
---------------------- ---------------------------------
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus........................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus............. Inside Front; Additional Information;
Outside Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................................... Prospectus Summary; Risk Factors; The
Company;
4. Use of Proceeds..................................................... Use of Proceeds
5. Determination of Offering Price..................................... Outside Front Cover Page; Plan of
Distribution
6. Dilution............................................................ *
7. Selling Security Holders............................................ Selling Stockholders; Plan of
Distribution
8. Plan of Distribution................................................ Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Registered ......................... Outside Front Cover Page; Description
of Securities
10. Interests of Named Experts and Counsel ............................. Experts; Legal Matters
11. Information with Respect to the Registrant.......................... Front Cover Page; Prospectus
Summary; Risk Factors,
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Board Meetings and
Committees of the Board; Executive
Compensation; Compensation of
Directors; Options; Board Report on
Executive Compensation;
Compensation Committee Interlocks
and Insider Participation; Certain
Relationships and Related
Transactions; Description of
Securities; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................................... Compensation of Directors
- -------------------------------
* Omitted because answer is not applicable or negative.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 13, 1998
PROSPECTUS
9,383,833 SHARES OF COMMON STOCK
FIRST MEDICAL GROUP INC.
This Prospectus relates to the reoffer and resale by certain selling
stockholders (the "Selling Stockholders") of 375,875 shares of Common Stock, par
value $.001 per share ("Common Stock"), of First Medical Group Inc. (formerly
The Lehigh Group Inc.) ("the Company") (ii) 8,645,508 shares of Common Stock
issuable upon conversion of shares of the Company's Series A Convertible
Preferred Stock, par value $.001 per share ("Preferred Stock" and collectively
with the Common Stock, the "Stock") and (iii) 9,387,815 shares of Common Stock
issued to certain selling stockholders as payment for early termination of
various employment and consulting agreements and in lieu of payment pursuant to
a stock purchase agreement (such shares of Common Stock offered hereby being
referred to herein collectively as the "Shares"). The Shares are being reoffered
and resold for the account of the Selling Stockholders and the Company will not
receive any of the proceeds from the resale of the Shares.
The Company's Common Stock is traded on the OTC Bulletin Board symbol
("FMDG"). On December 30, 1997, the price for the Common Stock was $1.25.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 4-8 BELOW.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This offering is self-underwritten; neither the Company nor any Selling
Stockholder has employed an underwriter for the sale of the Shares. The Company
will bear all expenses of this Offering, other than discounts, concessions or
commissions on the sale of the Shares.
The Selling Stockholders have advised the Company that the Shares may
be offered by or for the account of the Selling Stockholders from time to time
on the OTC Bulletin Board or on any other exchange upon which shares of Common
Stock are traded, in negotiated transactions, or a combination of such methods
of sale, at fixed prices which may be changed or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of Shares for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). Any broker-dealer acquiring Shares from the
Selling Stockholders may sell such securities in its normal market making
activities, through other brokers on a principal or agency basis, in negotiated
transactions, to its customers or through a combination of such methods. See
"Plan of Distribution."
No person is authorized to give any information or to make any
representation other than those contained in this Prospectus, and if given or
made, such information or representation should not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Prospectus,
or the solicitation of a proxy, in any jurisdiction in which such offer or
solicitation may not lawfully be made. Neither the delivery of this Prospectus
nor any distribution of securities pursuant to this Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this Prospectus.
The date of this Prospectus is ____ __, 1997
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "SEC"). Reports, proxy and information statements and
other information filed by the Company can be inspected and copied at the public
reference facilities at the SEC's office at 450 Fifth Street, N.W., Washington,
D.C. 20549, at the SEC's Regional Office at Seven World Trade Center, New York,
New York 10048 and at the SEC's Regional Office at Citicorp Center, 500 W.
Madison Street, Chicago, Illinois 60621. Copies of such material can be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be accessed
electronically by means of the SEC's home page on the Internet at
http://www.sec.gov. The Common Stock is listed on the NYSE and such material and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
TABLE OF CONTENTS
AVAILABLE INFORMATION.........................................................2
PROSPECTUS SUMMARY............................................................3
RISK FACTORS ...............................................................4
USE OF PROCEEDS...............................................................9
PRICE RANGE OF COMMON STOCK...................................................9
CAPITALIZATION ..............................................................10
DIVIDEND POLICY..............................................................10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................11
SELECTED AND PRO FORMA
FINANCIAL DATA.........................................................16
BUSINESS.....................................................................27
MANAGEMENT...................................................................40
BOARD MEETINGS AND COMMITTEES OF THE BOARD...................................41
EXECUTIVE COMPENSATION.......................................................42
COMPENSATION OF DIRECTORS....................................................44
OPTIONS......................................................................44
BOARD REPORT ON EXECUTIVE COMPENSATION.......................................47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..................48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE
COMPANY................................................................48
SELLING STOCKHOLDERS.........................................................51
DESCRIPTION OF SECURITIES....................................................52
PLAN OF DISTRIBUTION.........................................................53
EXPERTS......................................................................54
LEGAL MATTERS................................................................54
ADDITIONAL INFORMATION.......................................................54
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PROSPECTUS SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Prospectus. This Summary is qualified in its entirety by the
more detailed information and financial statements appearing elsewhere in this
Prospectus.
THE COMPANY
On July 9, 1997, First Medical Corporation ("FMC") merged with a
wholly-owned subsidiary of the Company (the "Merger"). As a result of such
merger, FMC became a wholly-owned subsidiary of the Company. See "Business -
Merger with FMC."
The Company, through its wholly-owned subsidiary, HallMark Electrical
Supplies Corp. ("HallMark"), is engaged in the distribution of electrical
supplies for the construction industry both domestically (primarily in the New
York Metropolitan area) and for export. See "Business - Lehigh."
FMC is an owner-manager and provider of management and consulting
services to physicians, hospitals and other health care delivery organizations
and facilities. FMC's diversified operations are currently conducted through
three divisions: (i) a physician practice management division which provides
physician management services including the operation of clinical facilities and
management services to medical service organizations, (ii) an international
division which currently manages western style medical centers in Eastern Europe
and the Commonwealth of Independent States (formerly Russia) (the "CIS") and
(iii) a recently formed hospital services division which provides a variety of
administrative and clinical services to acute care hospitals and other health
care providers. See "Business - FMC." The combined company is currently
continuing both lines of business at this time.
Unless the context otherwise indicates, the "Company" as used herein
means First Medical Group Inc. and its wholly-owned subsidiaries, FMC and
Hallmark and their subsidiaries, "Lehigh" means the Company before the Merger
and the Company other than its wholly-owned subsidiary FMC and its subsidiaries
after the Merger and "FMC" means First Medical Corporation and its subsidiaries.
The Company's executive offices are located at 1055 Washington Blvd.
Stamford, CT 06901, and its telephone number is (203) 327-0900.
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RISK FACTORS
Prospective purchasers should carefully consider the following
information in addition to the other information contained in this Prospectus in
evaluating an investment in the Common Stock offered hereby.
RISK FACTORS
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POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common
Stock may be highly volatile. In addition, the trading volume of Common Stock
has been limited and the price of Common Stock will be sensitive to the
performance and prospects of the combined companies. See "Price Range of Common
Stock."
NO DIVIDENDS. The Company has paid no cash dividends on its Common
Stock since 1995 and does not anticipate paying cash dividends in the
foreseeable future. The Company's ability to pay dividends is dependent upon,
among other things, future earnings, the operating results and financial
condition of the Company, its capital requirements, general business conditions
and other pertinent factors, and is subject to the discretion of the Board of
Directors. The Board issued 1,037,461 shares of Preferred Stock in connection
with the Merger, each share of which is entitled to dividends, pari passu with
dividends declared and paid with respect to the Common Stock, equal to 250 times
the amount declared and paid with respect to each share of Common Stock. The
Board is authorized to issue, at any time hereafter, up to an additional
3,962,539 shares of preferred stock on such terms and conditions as it may
determine, which may include preferences as to dividends. Accordingly, there is
no assurance that any dividends will ever be paid on Common Stock. See "Dividend
Policy."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK; ISSUANCE
OF THE COMPANY PREFERRED STOCK; ANTI-TAKEOVER EFFECTS. 34,582 shares of
Preferred Stock were issued pursuant to the Merger; each such share is entitled
to 250 votes on any matter submitted to a vote of stockholders, to be voted
together with the Common Stock. The Company's Restated and Amended Certificate
of Incorporation, as amended (the "Certificate of Incorporation") authorizes the
issuance of up to an additional 4,965,418 shares of "blank check" preferred
stock, with such designations, rights, and preferences as may be determined from
time to time by the Board of Directors. See "Description of Securities --
Preferred Stock." Accordingly, the Board of Directors will be empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting, or other rights that could adversely affect the voting power
or other rights of the holders of Common Stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in control of the Company.
The issuance of preferred stock may have the effect of discouraging,
delaying or preventing a change in control, may prevent a third-party from
making a tender offer which might be beneficial to the Company and its
stockholders, even though some stockholders might otherwise desire such a tender
offer. In particular, the issuance may discourage a third-party from seeking to
acquire the Company on account of the substantial dilution to which an acquiror
is potentially exposed. It may also deprive stockholders of opportunities to
sell their shares at a premium over prevailing market prices, since tender
offers frequently involve purchases of stock directly from stockholders at a
premium price. In addition, the issuance may have the effect of insulating
management of the Company from certain efforts to remove it, or affording
management the opportunity to prevent efforts to oust it.
DELISTING BY THE NYSE. Currently, the Common Stock is traded on the OTC
Bulletin Board. An application to list the Common Stock has been submitted to
AMEX and AMEX has indicated in response to the Company's application, that it
has approved the application of First Medical Group Inc. subject to the
effectiveness of the S-1 Registration of the 375,875 shares of Common Stock,
34,582 shares of Series A Preferred Convertible Stock and the 8,645,508
underlying shares of Common Stock with respect to the merger agreement, and the
conversion of all of the Series A Preferred Convertible Stock into Company
Common Stock. There can be no assurance that AMEX will permit the listing of the
Common Stock on AMEX unless the above conditions are met. The New York Stock
Exchange notified the Company that its stock was suspended November 13, 1997 and
application will be made to the SEC to delist the Company's Stock.
SIGNIFICANT HOLDINGS BY ONE STOCKHOLDER FMC and Generale De Sante
International, Plc ("GDS") are parties to a Subscription Agreement, dated June
11, 1996 pursuant to which GDS paid $5,000,000 in order to acquire
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a variety of ownership interests in FMC and its subsidiaries, including (i) 10%
of the outstanding shares of FMC's common stock (the FMC Common Stock"), each
share of which was automatically exchanged pursuant to the Merger for 1,127.675
shares of Common Stock and 103.7461 shares of Preferred Stock, and (ii) shares
of FMC's 9% Series A Convertible Preferred Stock (the "FMC Preferred Stock")
convertible into 10% of the shares of FMC Common Stock, which Shares of FMC
Preferred Stock were converted following the Merger. Consequently, when GDS
converted its shares of FMC Preferred Stock, GDS received shares of Lehigh
Common Stock and Lehigh Preferred Stock. Together with the shares issued for the
FMC Common Stock, these shares would give GDS a total of approximately 23%
ownership interest and voting power of the Company. See "Security Ownership of
Certain Beneficial Owners of the Company."
The existence of such a stockholder may have the effect of
discouraging, delaying or preventing a change in control, may prevent a
third-party from making a tender offer which might be beneficial to the Company
and its stockholders, even though some stockholders might otherwise desire such
a tender offer. In addition, especially since the Certificate of Incorporation
provides for cumulative voting for directors, the existence of such a
stockholder will have the effect of helping to insulate management of the
Company from certain efforts to remove it and to afford management the
opportunity to prevent efforts to oust it.
Management believes the only risk relating to Lehigh's business is from
competition with larger companies with greater financial resources than
Hallmark.
RISK FACTORS RELATING TO FMC
DOMESTIC OPERATIONS
POTENTIAL EFFECTS OF HEALTH CARE REFORMS PROPOSALS. Numerous
legislative proposals have been introduced or proposed in Congress and in some
state legislatures that would effect major changes in the U.S. health care
system nationally or at the state level. Among the proposals under consideration
are cost controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens. It is not clear at this time what proposals will be adopted, if any,
or, if adopted, what effect, if any, such proposals would have on the FMC's
business. Certain proposals, such as cutbacks in the Medicare and Medicaid
programs, containment of health care costs on an interim basis by means that
could include a freeze on prices charged by physicians, hospitals and other
health care providers, and permitting states greater flexibility in the
administration of Medicaid, could adversely affect FMC. There can be no
assurance that currently proposed or future health care legislation or other
changes in the administration or interpretation of governmental health care
programs will not have a material adverse effect on FMC's operating results. See
"Business--Government Regulation of Domestic Regulations." In addition, concern
about the proposed reform measures and their potential effect has contributed to
the volatility of stock prices of companies in health care and related
industries and may similarly affect the price of the Common Stock in the future.
DEPENDENCE ON CAPITATED FEE REVENUE. For the year ended December 31,
1996, approximately 85.0%, of FMC's net revenues were derived from contracts
pursuant to which FMC received a fixed, prepaid monthly fee, or capitated fee,
for each covered life in exchange for assuming the responsibility for providing
medical services. See "--Significant Dependence on One Client" for additional
information. FMC's success under these contracts is dependent upon effective
utilization controls, competitive pricing for purchased services and favorable
agreements with payers. To the extent that the patients or enrollees covered
under a capitated fee contract require more frequent or extensive care than was
anticipated by FMC, the revenue to FMC under the contract may be insufficient to
cover the costs of the care that was provided. All of FMC's capitated fee
contracts contain aggregate expense limitations on each covered life. Given the
increasing pressures from health care payers to restrain costs, changes in
health care practices, inflation, new technologies, major epidemics, natural
disasters and numerous other factors affecting the delivery and cost of health
care, most of which are beyond FMC's control, there can be no assurance that
capitated fee contracts will be profitable for FMC in the future.
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SIGNIFICANT DEPENDENCE ON ONE CLIENT. A substantial portion of the
revenues of FMC's managed care business are derived from prepaid contractual
arrangements with Humana Medical Plan, Inc. and its affiliates (collectively,
"Humana"), pursuant to which Humana pays FMC a capitated fee. 85%, or
approximately $45,070,000, of FMC's managed care business revenue, for the year
ended December 31, 1996 was derived from such prepaid contractual agreements
with Humana. FMC may in the future enter into significant additional capitation
arrangements with Humana. FMC's operating results could be adversely affected by
the loss of any such agreements or business relationships. In addition, a
significant decline in Humana's number of enrollees could have a material
adverse effect on FMC's operating results.
INABILITY OF FMC TO OBTAIN NEW CONTRACTS AND MANAGE COSTS. A
significant portion of FMC's historical and planned growth in revenues has
resulted from, and is expected to continue to result from, the addition of new
contracts in its physician practice management division. Obtaining new
contracts, which may involve a competitive bidding process, requires that FMC
accurately assess the costs it will incur in providing services so that it
undertakes contracts where FMC can expect to realize adequate profit margins or
otherwise meet its objectives. The acquisition of new contracts, as well as the
maintenance of existing contracts, is made more difficult by increasing
pressures from health care payors to restrict or reduce reimbursement rates at a
time when the cost of providing medical services continues to increase. To the
extent that enrollees require more frequent or extensive care than as
anticipated by FMC, the revenue to FMC under a contract may be insufficient to
cover the costs of the care that was provided. Any failure of FMC to manage the
cost of providing health care services or price its services appropriately may
have a material adverse effect on FMC's operations.
HIGHLY COMPETITIVE BUSINESS. The provision of physician management
services for health maintenance organizations ("HMO's") is a highly competitive
business in which FMC competes for contracts with several national and many
regional and local providers of physician management services. Furthermore, FMC
competes with traditional managers of health care services, such as hospitals
and HMO's, some of which directly recruit and manage physicians. While
competition is generally based on cost and quality of care, it is not possible
to predict the extent of competition that present or future activities of FMC
will encounter because of changing competitive conditions, changes in laws and
regulations, government budgeting, technological and economic developments and
other factors. Certain of FMC's competitors have access to substantially greater
financial resources than FMC. See "Business--FMC--Competition."
VIOLATION OF STATE LAWS REGARDING FEE SPLITTING AND THE CORPORATE
PRACTICE OF MEDICINE. The laws of many states prohibit physicians from splitting
fees with nonphysicians and prohibit business corporations from providing or
holding themselves out as providers of medical care. While FMC believes it
complies in all material respects with state fee splitting and corporate
practice of medicine laws, based on consultations with FMC's healthcare/managed
care inside legal counsel, there can be no assurance that, given varying and
uncertain interpretations of such laws, FMC would be found to be in compliance
with all restrictions on fee splitting and the corporate practice of medicine in
all states. FMC has not received a written opinion from its inside legal counsel
about compliance with the state laws regarding fee splitting and the corporate
practice of medicine. FMC itself does not practice medicine and is not licensed
to do so; rather, it employs physicians who are licensed to practice medicine.
In certain states FMC operates through professional corporations, and has
recently formed professional corporations or qualified foreign professional
corporations to do business in several other states where corporate practice of
medicine laws may require FMC to operate through such a structure. FMC does not
employ physicians at the medical facility it manages in Texas. A determination
that FMC is in violation of applicable restrictions on fee splitting and the
corporate practice of medicine, or a determination that employment of physicians
is a violation of state laws that prohibit the corporate practice of medicine,
or a change in the law in any state in which it operates could have a material
adverse effect on FMC.
FMC currently operates in only one state that prohibits the corporate
practice of medicine, which state is Texas. Risks associated with expanding
FMC's business into other states that have this type of prohibition include (i)
the issue of consolidation of revenues and (ii) restrictions that prevent FMC
from exploiting the physician-patient relationship in pursuit of profits. FMC
does not consolidate the revenues from Texas, but operates as a management
services organization under a management contract. If FMC expands its business
into other states which prohibit
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the corporate practice of medicine, it will operate as a management services
organization under a management contract in those states. See
"Business--FMC--Governmental Regulation of Domestic Operations."
CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES EXCEEDING THE LIMITS OF
AVAILABLE INSURANCE COVERAGE. Due to the nature of its business, FMC from time
to time becomes involved as a defendant in medical malpractice lawsuits, some of
which are currently ongoing, and is subject to the attendant risk of substantial
damage awards. The most significant source of potential liability in this regard
is the negligence of health care professionals employed or contracted by FMC. To
the extent such health care professionals are employees of FMC or were regarded
as agents of FMC in the practice of medicine, FMC could be held liable for their
negligence. In addition, FMC could be found in certain instances to have been
negligent in performing its contract management services (or refusing to perform
services) even if no agency relationship with the health care professional
exists. FMC maintains professional liability insurance on a claims made basis in
amounts deemed appropriate by management, based upon historical claims and the
nature and risks of its business. There can be no assurance, however, that a
future claim or claims will not exceed the limits of available insurance
coverage, that any insurer will remain solvent and able to meet its obligations
to provide coverage for any claim or claims or that such coverage will continue
to be available or available with sufficient limits and at a reasonable cost to
adequately and economically insure FMC's operations in the future. See
"Business--FMC--Professional Liability Insurance."
LOSS OF OTHER INSURANCE. FMC attempts to mitigate the risk of
potentially high medical costs incurred in catastrophic cases through stop-loss
provisions, reinsurance and other special reserves which limit FMC's financial
risk. To date, such protection has been provided to FMC through its provider
agreements with Humana. There can be no assurances that the agreements which
provide such insurance to FMC will continue. If assumption of capitated payments
risk through contracts with HMO's could be construed as insurance. FMC believes
there would be no effect from state insurance laws due to the circumstance that
all of FMC's contracts with HMO's provides for stop-loss coverage by the HMO's.
Any determination of material noncompliance with insurance regulations or any
change in the stop-loss coverage by the HMO's could adversely affect the
operations of FMC.
REDUCTION IN GOVERNMENTAL REIMBURSEMENT. FMC assumes the financial
risks related to changes in patient volume, payer mix and rates the governmental
establishes for offering reimbursements for various services. There are
increasing public and private sector pressures to restrain health care costs and
to restrict reimbursement rates for medical services. During the past decade,
federal and state governments have implemented legislation designed to slow the
rise of health care costs and it is anticipated that such legislative
initiatives will continue. Any such legislation could result in reductions in
reimbursement for the care of patients in governmental programs such as
Medicare, Medicaid and workers' compensation. A large percentage of the
capitated fee revenue described above is also derived indirectly from a Medicare
funded program with Humana. Any change in reimbursement policies, practices,
interpretations or regulations, or legislation that limits reimbursement amounts
or practices, could have a material adverse effect on FMC's operating results.
See "Business--FMC--Government Regulation."
While FMC believes it is in material compliance with applicable
Medicare and Medicaid reimbursement regulations, all Medicare and Medicaid
providers and practitioners are subject to claims review and audits. There can
be no assurance that FMC would be found to be in compliance in all respects with
such regulations. A determination that FMC is in violation of such regulations
could result in retroactive adjustments and recoupments and have a material
adverse effect on FMC.
DEPENDENCE ON KEY PERSONNEL. FMC is dependent upon the services of
certain of its executive officers, including Dennis A. Sokol, Valdimir Checklin
and Dr. Ken Burhart for the management of FMC and the implementation of its
strategy. FMC maintains key man life insurance for Dennis A. Sokol. The loss to
FMC of the services of any of these executive officers could adversely affect
FMC's operations.
INTERNATIONAL OPERATIONS
First Medical Group Inc. ("FMG") through its subsidiaries is subject to
numerous factors relating to the business environments of those developing
countries in which FMG conducts business operations. In particular,
-7-
fundamental economic and political changes occurring in Eastern Europe and the
CIS could have a material impact on FMG's international operations and on FMG's
ability to continue the development of its international businesses. There can
be no assurance that such developments in Eastern Europe and the CIS will not
have a material adverse effect on FMG's business operations.
POTENTIAL POLITICAL AND ECONOMIC INSTABILITY IN EASTERN EUROPE AND THE
CIS. Eastern Europe and the CIS are undergoing fundamental political and
economic changes, including the introduction of market economies. Consequently,
such countries have only recently begun the process of developing the necessary
framework and infrastructure to support this transition. Laws and regulations
are sometimes adopted without widespread notification, which can delay full
knowledge of their scope and impact, and the enforcement and administration
thereof are often inconsistent and without precedents. Governments will continue
to exercise influence over their country's economy. Uncertainties will continue
to exist with respect to the future governance of, and economic policies in,
such countries. Such involvement could include, but not be limited to,
expropriation, confiscatory taxation, foreign exchange restrictions or
nationalization, all of which could materially effect FMG's international
operations.
FOREIGN GOVERNMENT REGULATION. FMG's operations in Eastern Europe and
the CIS are subject to diverse laws and regulations primarily relating to
foreign investment (as well as numerous national and local laws and regulations
concerning the provision of medical services). Failure to comply with such laws
or regulations could have a material adverse effect on FMG. At the present time,
FMG is unaware of any restrictions on foreign investment that could materially
affect FMG's business. FMG believes it is in compliance with foreign government
regulations.
YEAR 2000. The Company has conducted a comprehensive review of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure of miscalculations The Company presently believes that, with
modifications to existing software and converting to new software, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company.
Disclosures Relating to Low Prices Stocks; Possible Restrictions
on Resales of Low Priced Stocks and on Broker-Dealer Sales; Possible Adverse
Effect of "Penny Stock" Rules on Liquidity for the Company's Securities. The
Company's securities may be subject to Rule 15g-9 (the "Rule") promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
imposes additional sales practice requirements on broker-dealers that sell
securities governed by the Rule to persons other than established customers and
"accredited investors" (generally, individuals with a net worth in excess of
$1,000,000 or annual individual income exceeding $200,000 or $300,000 jointly
with their spouses). For transactions covered by the Rule, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the Rule may have an adverse effect on the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers in the Offering to sell the Company's securities in the secondary
market and otherwise affect the trading market in the Company's securities.
The Commission has adopted resolutions which generally define a
"penny stock" to be any non-Nasdaq equity security that has a market price (as
therein defined) less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transactions by
broker-dealers involving a penny stock (unless exempt), rules promulgated under
the Exchange Act require delivery, prior to a transaction in a penny stock, of a
risk disclosure document relating to the penny stock market. Disclosure is also
required to be made about compensation payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stocks.
The foregoing penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or if
the Company meets certain minimum net tangible asset or average revenue
criteria. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, they would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stocks, the market liquidity for the
Company's securities could be materially adversely affected.
-8-
USE OF PROCEEDS
There is no conversion price for converting shares of Preferred Stock
and consequently the Company will receive no compensation upon their conversion.
The Company will not receive any of the proceeds from the reoffer and resale of
the Shares by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK
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.
Common Stock
High Low
---- ---
1995:
First quarter........................... $ 3/4 $ 5/8
Second quarter.......................... 5/8 3/8
Third quarter........................... 1/2 5/8
Fourth quarter.......................... 33/64 13/16
-9-
Common Stock
High Low
---- ---
1996:
First quarter........................... $11/16 $7/16
Second quarter.......................... 9/16 3/8
Third quarter........................... 11/16 1/4
Fourth quarter.......................... 15/32 1/8
1997:
First quarter........................... $1/4 $13/32
Second quarter.......................... $14/32 $1/8
Third quarter........................... $15/32 $3/32
On July 8, 1997, the last full trading day prior to the consummation of
the Merger, the closing price of the Common Stock was $0.22 per share, as
reported on the NYSE. On November 6, 1997, the closing price of the Common Stock
was $0.19 as reported on NYSE. The Preferred Stock is not publicly traded. On
November 7, 1997, there were approximately 8,000 and 32 holders of the Common
Stock and Preferred Stock, respectively.
The Company has not paid any cash dividends since prior to January 1,
1995.
CAPITALIZATION
THE COMPANY
The following table sets forth the capitalization of the Company at
July 9, 1997, the effective date of the Merger.
July 9, 1997
----------------------
(Dollars in Thousands)
Long-term debt................................................ $6,968
Stockholder's equity:
Preferred Stock, $.001 par value, 5,000,000 authorized;
1,037,461 outstanding 1
Common Stock, $.001 par value, 100,000,000 shares 23
authorized 22,552,500 outstanding, as adjusted(1)........
Additional paid-in capital............................... 7,934
Retained earnings........................................ (2,027)
-----
Total stockholders' equity............................... 5,931
-----
Total capitalization................................ $12,899
======
(1) Does not include: (i) 18,752,187 shares reserved for issuance under
option agreements, of which options to purchase 18,752,187 shares were
outstanding, and (ii) 259,365,250 shares reserved for issuance upon
conversion of the Preferred Stock.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock since prior
to 1995 and does not intend to pay cash dividends on its Common Stock for the
foreseeable future. The payment of cash dividends will depend upon, among other
things, future earnings, the operating results and financial condition of the
Company, its capital requirements, general business considerations and other
pertinent factors and is subject to the discretion of the Board of Directors. In
addition, the Board is authorized to issue up to 5,000,000 shares of preferred
stock of which 1,037,461 shares of Preferred Stock were issued in connection
with the Merger. Each share of Preferred Stock is entitled to dividends, pari
passu with dividends declared and paid with respect to the Common Stock, equal
to 250 times the amount declared and paid with respect to each share of Common
Stock.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements, including the notes thereto, contained
elsewhere in this Prospectus.
GENERAL
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
shares, voting together with the Lehigh Common Stock. As a result of such
merger, legally FMC became a wholly-owned subsidiary of the Company. See
"Business - Merger with FMC." The financial statements presented reflect First
Medical Corporation's acquisition of Lehigh since the acquisition date of July
9, 1997. Although legally The Lehigh Group acquired First Medical Corporation,
for accounting purposes First Medical Corporation is considered the accounting
acquirer (i.e., the reverse acquisition). Therefore, the operating results of
Lehigh are included in the statement of operation since the acquisition date
(July 9, 1997) and the September 30, 1997 balance sheet reflects the effect of
the acquisition of Lehigh.
RESULTS OF OPERATIONS - FMG
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUE. Total revenue of FMG for the nine months ended September 30,
1997 and 1996 were $52.0 million and $39.5 million, respectively, of which 76%
and 85%, respectively, was derived from prepaid contractual agreements with
Humana pursuant to which Humana pays FMG a capitated fee ("HMO revenue"). During
the nine months ended September 30, 1997, $41.5 million or 80% of FMG's revenue
were derived from the physician practice management division , $6.8 million or
13% was derived from the international medical clinics division, and $3.8
million or 7% was derived from the electrical supply division (as a result of
the merger in July 1997). During the nine months ended September 30, 1996,
revenue derived from the physician practice management division was $34.6
million, or 88% of FMG's revenue and $4.9 million or 12% was derived from the
international medical clinics division. The HMO revenue growth was primarily a
result of new provider agreements, as of September 1996, to manage a center in
New Port Richey, Florida and as of October 1996, to manage additional centers in
Lutz, Florida and South Dale Mabry, Florida. Revenue related to these centers
represent an increase of $11.8 million and the revenue related to the other
centers decreased by $4.9 million, due to a decrease in membership in the South
Florida market.
MEDICAL EXPENSE/COST OF SALES. Medical expenses increased $11.5
million, or 35.6%, to $43.8 million for the nine months ended September 30, 1997
from $32.3 million for the same period in 1996. The entire increase ($11.5
million or 100%) resulted from medical services provided under the New Port
Richey, Lutz and South Dale Mabry agreements. Medical expenses as a percentage
of HMO and fee for service revenue ("medical loss ratios") were 94.3% and 83.2%,
respectively, for the nine months ended September 30, 1997 and 1996. The
increase in medical expenses was due to changes in the program benefits provided
Humana. FMG has recently implemented controls to monitor expenses in the future.
The recently implemented controls to monitor expenses
-11-
relate to a more diligent review of utilization and the hiring of a Vice
President of Finance to monitor expenses. Cost of sales for the electrical
supply business was 67.1%
OPERATING EXPENSES. Operating expenses increased by $1.5 million, or
24%, to $7.5 million, for the nine months ended September 30, 1997 from $6.0
million for the same period in 1996. The increase was primarily due to the
electrical supply division for $1.2 million and remaining increase was due to
the additional three centers. As a percent of revenue, operating expenses were
14.4% as compared to 15.3% for the same period in 1996.
NET INCOME. Net loss for the nine months ended September 30, 1997 was
$2.3 million compared to net income of $.7 million for the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995
Revenue. The total revenues of FMC for the year ended December 31, 1996
and 1995 were $53.0 million and $22.7 million, respectively, of which 85% and
96%, respectively, was derived from prepaid contractual agreements with Humana
pursuant to which Humana pays FMC a capitated fee ("HMO revenue"). HMO Revenue
is derived primarily from the predetermined prepaid contractual arrangements
paid per member per month by Humana to the primary care centers which are owned
and operated by the Company. Under the capitated fee arrangements, FMC assumes
the risk of providing medical services for each managed care member. To the
extent that members require more frequent or extensive care, the revenue to FMC
may be insufficient to cover the cost of the care that was provided. During the
year ended December 31, 1996, $46.4 million or 88% of FMC's revenues were
derived from the physician practice management division and $6.7 million or 12%
was derived from the international medical clinics division. As of December 31,
1996 the FMC Healthcare Services division had not obtained any definitive
management consulting service agreements. Revenue increased by $30.3 million or
133% to $53.0 million for the year ended December 31, 1996, from $22.7 million
for the same period in 1995. The HMO revenue growth was primarily a result of
FMC's acquisition during January 1996 of controlling ownership of Broward
Managed Care, Inc. (the "Broward acquisition"), which has Humana affiliated
provider agreements ("provider agreement") to operate and manage two primary
care centers in Broward County, Florida ("Broward"), and new provider
agreements, as of September 1996, to manage a center in New Port Richey, Florida
("New Port Richey") and as of October 1996, to manage additional centers in
Lutz, Florida and South Dale Mabry, Florida. Revenue related to the Broward, New
Port Richey, Lutz, and South Dale Mabry centers represents $20.3 million or 87%
of the increase in HMO revenue. As discussed in Note 1 of the audited
consolidated financial statements, FMC (through the transaction between MedExec
and AMC) has a management services agreement with three clinics in the CIS.
During the year ended December 31, 1996, revenues generated by this
international division accounted for $6.7 million of the $30.3 million increase
discussed above. FMC intends to finance the growth of the clinics in Eastern
Europe primarily with the capital contribution from GDS. The $30.3 million
increase in FMC's revenue is also net of the decrease resulting from the
termination in August 1995 of the provider agreement to manage the center in
Brandon, Florida. The Brandon center generated $3.5 million in revenue during
the year ended December 31, 1995.
Medical Expenses. Medical expenses increased $25.1 million, or 136%, to
$43.5 million for the year ended December 31, 1996 from $18.4 million for the
same period in 1995. The majority of the increase ($21.6 million or 86%)
resulted from medical services provided under the Broward, New Port Richey, Lutz
and South Dale Mabry provider agreements. Medical expenses related to the AMC
clinics accounted for $5.4 million or 22% of the increase. The increase in
medical expense is net of the decrease related to the termination of the Brandon
provider agreement in 1995. Medical expenses for Brandon were $3.3 million in
1995. Medical expenses as a percentage of HMO and fee for service revenue
("medical loss ratio") were 84% for the years ended December 31, 1996 and 1995.
-12-
Operating Expenses. Operating expenses increased by $3.1 million, or
89%, to $8.7 million, for the year ended December 31, 1996 from $4.6 million for
the same period in 1995. The increase was primarily due to new employees to
staff the primary care centers in Broward, New Port Richey, Lutz, and South Dale
Mabry and $.8 million in expenses incurred by FMC in connection with the
development and opening of two international centers. As a percentage of
revenue, however, operating expenses decreased to 15% from 20% for the same
period in 1995.
Net Income. Net income for the year ended December 31, 1996 was $.3
compared to a net loss of $(.4) for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO
YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased by $1.4 million, or 7%, to $22.7 million in
1995, from $21.3 million in 1994 due to increased revenue from existing provider
agreements offset by the termination during August 1995 of the provider
agreement to manage the center in Brandon, Florida.
Medical Expenses. Medical expenses increased $1.8 million, or 11%, to
$18.4 million in 1995 from $16.6 million in 1994 primarily as a result of an
increase in medical services rendered. The medical loss ratio was 81% for the
year ended December 31, 1995 compared to 78% for the year ended December 31,
1994.
Operating Expenses. Operating expenses increased $1.2 million, or 35%,
to $4.6 million in 1995 from $3.4 million in 1994 due mainly to the additional
$1.1 million of expenses incurred by FMC during 1995. These expenses relate
primarily to additional compensation to former officers of FMC under employment
agreements, development cost incurred relating to the Chicago market, repricing
adjustments from Humana related to previous years and legal and professional
fees incurred in connection with a proposed merger with another company. Humana
from time to time renegotiates certain contracts which results in retroactive
adjustments to the financial statements. In 1995, Humana renegotiated certain
hospital contracts in the Tampa market retroactive to the beginning of 1994. As
a result, hospitals rebilled FMC for previously billed claims in order to
recover additional funds from FMC for 1994 and 1995. The ongoing impact, as with
any price increase is higher medical costs. The repricing is noted because 1995
in effect included two years of price increases instead of one. As per FAS No.
5, FMC records retroactive adjustments when they are probable and estimable. As
a percentage of revenue, operating expenses for the year ended December 31, 1995
increased to 20% from 16% for the year ended December 31, 1994.
Net Income (Loss). Net loss for 1995 was $(.4) million compared to net
income in 1994 of $1.4 million, a decrease of $1.8 million, which is primarily
due to the increase in medical services rendered, the write-off of certain
accounts receivables and additional compensation to shareholders under
employment agreements. The accounts receivable balances which were written-off
because they were uncollectible related to certain management services provided
by FMC totaling $.47 million. The amount was reversed out of revenues where it
was originally recorded during the year rather than written off in operating
expenses as a bad debt. The remaining accounts receivable balances were deemed
to be collectible.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO
YEAR ENDED DECEMBER 31, 1993
Revenue. Revenue increased by $10.2 million, or 92%, to $21.3 million
in 1994, from $11.1 million in 1993 primarily due to two new full-risk Humana
affiliated provider agreements to manage primary care centers in Brandon and
Plant City, Florida.
Medical Expenses. Medical expenses increased $8.2 million, or 98%, to
$16.6 million in 1994 from $8.4 million in 1993 primarily as a result of medical
services provided under the new Brandon and Plant City provider agreements. The
medical loss ratio was 78% for the year ended December 31, 1994 compared to 76%
for the year ended December 31, 1993.
-13-
Operating Expenses. Operating expenses increased $1.7 million, or 100%,
to $3.4 million in 1994 from $1.7 million in 1993 primarily as a result of new
employees to staff the primary care centers in Brandon and Plant City, Florida.
As a percentage of revenue, operating expenses for the year ended December 31,
1994 increased to 16% from 15% for the year ended December 31, 1993.
Other Expenses. Other expenses in 1993 were $.2 million relating
primarily to losses incurred on certain equity investments.
Net Income. Net income increased $.6 million, or 75%, to $1.4 million
from $.8 million in 1993 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, FMG had cash of $2.8 million compared to $63,014
at December 31, 1996. As of September 30, 1997, FMG had fully utilized its $2.5
million credit facility. The increase in cash was due to FMG receiving
approximately $4,500,000 as a result of the merger. FMC received $4.5 million
dollars from Generale De Sante International, Plc ("GDS") as a result of an
investment GDS made in FMC. To date $2,000,000 has been used to fund development
and operating losses of MedExec, Inc., $500,000 was used to pay professional
fees in connection wit the Merger and the remaining $2,000,000 will be used for
general working capital requirements.
FMG had cash of $63,014 at December 31, 1996 compared to $198,763 at
December 31, 1995.
Net cash used in operating activities was ($.568) million for the year
ended December 31, 1996.
Net cash used in investing activities of ($.448) million was primarily
the result of ($.119) in capital expenditures, organizational costs of ($.478)
million, acquisition of additional ownership in various subsidiaries of ($.151)
million, net of $.3 million for the proceeds from the sale of MedExec's
investment in HCO Networks.
Net cash provided by financing activities of $.880 million was the
result of $1.350 million in proceeds received from loans payable to Humana,
banks, and certain shareholders, respectively, a $.152 million capital
contribution to AMCD, and ($.622) million repayment on notes due to shareholders
and banks.
FMG believes that cash from operations and borrowings under existing
credit facilities will be sufficient to satisfy its contemplated cash
requirements for at least the next twelve months.
To date, FMG's principal uses of cash have been to support its
operating activities . FMG has met its cash requirements in recent years
primarily from its operating activities, advances from Humana and bank
borrowings.
FMG also maintains a secured line of credit with a domestic bank for
$0.4 million bearing interest at prime. The $0.4 million drawn under this line
of credit at September 30, 1997 has been used by FMG in connection with the
satisfaction of development costs relating to FMG's Midwest operations.
Amortization of $5,000 per month will commence as to the first $200,000 in
November, 1997 and as to the remaining $200,000, in May, 1998.
FMG believes that funds generated from operations, availability under
its credit facilities, and lease financing will be sufficient to finance its
current and anticipated operations and planned capital expenditures at least
through 1997. FMG's long term capital requirements beyond 1997 will depend on
many factors, including, but not limited to, the rate at which FMG expands its
business. To the extent that the funds generated from the sources described
above 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 will be available or that, if
available, it will be available on terms favorable to FMG.
As of September 30, 1997, FMG also has a credit facility for $2.5
million bearing interest at 1/2% above prime, of which $500,000 is guaranteed by
certain current and former officers of FMG. The expiration date for the
-14-
$2.5 million facility is July 31, 1998. FMG also borrowed an additional $537,000
to purchase Lehigh stock in connection with the merger. FMC purchased this block
of stock to increase its voting power at the Special Shareholders meeting that
was held July 9, 1997, to vote in favor of the Merger. The expiration date for
the $537,000 facility is October 1998.
FMG, is in default in the payment of interest (approximately $744,000
interest was past due as of September 30, 1997) 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).
-15-
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The summary financial data for the years ended December 31, 1992, 1993,
1994, 1995 and 1996 set forth below has been derived from the audited financial
statements of FMG (1992-1996 is FMC). The summary financial data for the nine
month period ended September 30, 1997 is unaudited.
Nine Month
Year Ended December 31, Ended
------------------------------------------------------------------------- -------------
September
30,
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1997(4)
------- ------- ------- ------- ------- ----
STATEMENT OF OPERATIONS:
Revenues:
Capitated revenue $5,406 $10,563 $20,253 $21,744 $45,070 39,768
Fee-for-service 53 96 200 182 7,075 6,727
Other 398 428 865 746 869 5,514
------- ------- ------- ------- ------- ------
Total revenue 5,857 11,087 21,318 22,672 53,014 52,009
Medical expenses/Cost of Sales 4,480 8,405 16,568 18,444 43,526 46,486
------- ------- ------- ------- ------- ------
Gross profit 1,377 2,682 4,750 4,228 9,488 5,523
Operating expenses:
Salaries and related benefits 561 670 1,651 2,434 3,503 2,540
Other operating expenses 573 991 1,771 2,200 5,194 4,965
------ ------ ------ ------ ------ ------
Total operating expenses 1,134 1,661 3,422 4,634 8,697 7,504
Income (loss) from operations 243 1,021 1,328 (406) 791 (1,981)
Other expenses (income) 4 218 (35) (42) 55 288
Net income (loss) before taxes 247 803 1,364 (364) 736 (2,269)
Pro forma adjustments for income
taxes(2) 99 321 545 ---- 413 0
------- ------ ------ ------- ------ ------
Pro forma net income (loss) from
continuing operations $ 148 $ 482 $ 818 ($ 364) $ 323 $(2,269)
======= ====== ======= ======== ======= ========
Pro forma net income (loss) from
continuing operations per share $14.80 $48.20 $81.80 $(36.40) $ 32.30 $(2,269)
Pro forma fully diluted weighted
average number of FMG shares
currently outstanding (3) 10,000 10,000 10,000 10,000 10,000 258,126
Cash Dividends as Declared 12 17 117 38 ---- ----
BALANCE SHEET DATA:
Working Capital $ 83 $ 279 $272 $(302) $(2,047) $(2,124)
Total Assets 840 2,739 4,128 3,045 12,323 29,337
Current Liabilities 657 1,341 3,157 2,817 10,596 18,564
Stockholder's Equity 183 1,398 972 227 703 (5,879)
Book Value per share - fully diluted $ 18 $ 140 $ 97 $ 23 $70.35 $(.02)
(1) The summary financial data for the years ended December 31, 1992, 1993,
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.
(2) Prior to December 31, 1995, MedExec. Inc., and prior to May, 1994, SPI
Managed Care, Inc. were S corporations and not subject to Federal and
Florida corporate income taxes. The Statement of Operations data
reflects a proforma provision for income taxes as if the Company was
subject to Federal and Florida corporate income taxes for all periods.
This proforma provision for income taxes is computed using a combined
effective Federal and State tax rate of 40%.
-16-
(3) The amount of FMC stock issued and outstanding on June 30, 1997 was
10,000; as result of the Merger all such FMC stock ceased to be
outstanding. On September 30, 1997 FMG Common Stock issued and
outstanding was 751,783 and on a fully converted basis was 9,383,883
shares.
(4) The nine months ended September 30, 1997 reflect FMC's acquisition of
Lehigh as of 7/9/97 and include the operating results and balance sheet
of Lehigh as of 7/9/97.
(5) 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.
-17-
SELECTED AND PRO FORMA
FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The selected financial data for the years ended December 31, 1992,
1993, 1994, 1995 and 1996 set forth below has been derived from the audited
financial statements of FMG (1992-1996 is FMC). The selected financial data for
the nine month period ended September 30, 1997 is unaudited.
Nine Month
Year Ended December 31, Ended
---------------------------------------------------------------- -----------
September
30,
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1997(4)
------- ------- ------- ------- ------- ----
STATEMENT OF OPERATIONS:
Revenues:
Capitated revenue $5,406 $10,563 $20,253 $21,744 $45,070 39,768
Fee-for-service 53 96 200 182 7,075 6,727
Other 398 428 865 746 869 5,514
------- ------- ------- ------- ------- ------
Total revenue 5,857 11,087 21,318 22,672 53,014 52,009
Medical expenses/Cost of Sales 4,480 8,405 16,568 18,444 43,526 46,486
------- ------- ------- ------- ------- ------
Gross profit 1,377 2,682 4,750 4,228 9,488 5,523
Operating expenses:
Salaries and related benefits 561 670 1,651 2,434 3,503 2,540
Other operating expenses 573 991 1,771 2,200 5,194 4,965
------ ------ ------ ------ ------ ------
Total operating expenses 1,134 1,661 3,422 4,634 8,697 7,504
Income (loss) from operations 243 1,021 1,328 (406) 791 (1,981)
Other expenses (income) 4 218 (35) (42) 55 288
Net income (loss) before taxes 247 803 1,364 (364) 736 (2,269)
Pro forma adjustments for income
taxes(2) 99 321 545 ---- 413 0
------- ------ ------ ------- ------ ------
Pro forma net income (loss) from
continuing operations $ 148 $ 482 $ 818 ($ 364) $ 323 $(2,269)
======= ====== ======= ======== ======= ========
Pro forma net income (loss) from
continuing operations per share $14.80 $48.20 $81.80 $(36.40) $ 32.30 $(2,269)
Pro forma fully diluted weighted
average number of FMG shares
currently outstanding (3) 10,000 10,000 10,000 10,000 10,000 258,126
Cash Dividends as Declared 12 17 117 38 ---- ----
BALANCE SHEET DATA:
Working Capital $ 83 $ 279 $272 $(302) $(2,047) $(2,124)
Total Assets 840 2,739 4,128 3,045 12,323 29,337
Current Liabilities 657 1,341 3,157 2,817 10,596 18,564
Stockholder's Equity 183 1,398 972 227 703 (5,879)
Book Value per share - fully diluted $ 18 $ 140 $ 97 $ 23 $70.35 $(.02)
- ------------------
(1) The selected financial data for the years ended December 31, 1992, 1993,
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.
(2) Prior to December 31, 1995, MedExec. Inc., and prior to May, 1994, SPI
Managed Care, Inc. were S corporations and not subject to Federal and
Florida corporate income taxes. The Statement of Operations data
reflects a proforma provision for income taxes as if the Company was
subject to Federal and Florida corporate income taxes for all periods.
This proforma provision for income taxes is computed using a combined
effective Federal and State tax rate of 40%.
(3) The amount of FMC stock issued and outstanding on June 30, 1997 was
10,000; as result of the Merger all such FMC stock ceased to be
outstanding. On September 30, 1997 FMG Common Stock issued and
outstanding was 751,783 and on a fully converted basis was 9,383,883
shares.
(4) The nine months ended September 30, 1997 reflect FMC's acquisition of
Lehigh as of 7/9/97 and include the operating results and balance sheet
of Lehigh as of 7/9/97.
-18-
(5) 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.
-19-
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Set forth below are summary historical financial data and pro forma
financial data for the years ended 1992, 1993, 1994, 1995 and 1996, and the six
months ended June 30, 1997. The summary financial data for the years ended 1992,
1993, 1994, 1995 and 1996 set forth below has been derived from the audited
financial statements of the Company. The summary financial data for the six
month period ended June 30, 1997 is unaudited. The pro forma financial data has
been presented to include FMC as if the Merger had occurred at the beginning of
such period.
THE LEHIGH GROUP INC. AND SUBSIDIARIES (A)
STATEMENT OF OPERATIONS DATA
Six
month
Years Ended December 31, ended
------------------------------------------------------------------------ -----------
June 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- -----
Revenues earned $ 10,729 $ 12,890 $ 12,247 $ 12,105 $ 10,446 $ 5,765
Loss from continuing operations $ (2,048) $ (250) $ (410) $ (558) $ (920) $ (215)
Loss per common share from
continuing operations $ (0.19) $ (0.03) $ (0.04) $ (0.05) $ (0.09) $ (.02)
Cash dividends declared per ---- ---- ---- ---- ---- ----
common share
BALANCE SHEET DATA
Quarter
Years Ended December 31, Ended
------------------------------------------------------------------------- ---------
June 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Working capital $(28,700) $ 2,800 $ 3,233 $ 2,437 $ 2,560 $ 3,346
Total assets $ 13,753 $ 7,050 $ 7,441 $ 6,622 $ 5,625 $ 7,177
Long-term debt $ 12,787 $ 2,524 $ 2,361 $ 2,080 $ 2,725 $ 3,429
Total debt (B) $ 45,882 $ 3,615 $ 3,240 $ 2,950 $ 3,115 $ 3,819
Shareholders' equity (deficit) $(45,041) $(5,099) $ 510 $ 202 $ (86) $ (2)
Book Value per share $ (6.15) $ (6.92) $ 0.05 $ .02 $ (.01) $ (.00)
(A) Historical data does not include FMC and FMC's subsidiaries.
(B) Includes long term debt, current maturities of long term debt and Note
payable - bank.
LEHIGH FMC
EQUIVALENT
PROFORMA PER PROFORMA PER
HISTORICAL SHARE DATA(1) HISTORICAL SHARE DATA (2)
BOOK VALUE PER SHARE:
December 31, 1996 $ (0.01) $ (0.004) $ 70.35 $ 0.003
December 31, 1995 $ (0.02) $ 0.009 $ 23.00 $ 0.001
CASH DIVIDENDS PER COMMON
SHARE:
Year Ended December 31, 1996 $ ---- $ ---- $ ---- $ ----
Year Ended December 31, 1995 $ ---- $ ---- $ 3.80 $ 0.000
Year Ended December 31, 1994 $ ---- $ ---- $ 11.70 $ 0.001
INCOME (LOSS) PER COMMON
SHARE FROM CONTINUING
OPERATIONS:
Year Ended December 31, 1996 $ (0.09) $ (0.041) $ 32.30 $ 0.001
Year Ended December 31, 1995 $ (0.05) $ (0.025) $ (36.40) $ (0.002)
Year Ended December 31, 1994 $ (0.04) $ (0.018) $ 81.80 $ 0.003
(1) Proforma data based upon issuance of additional 375,875 shares.
(2) Proforma equivalent data based upon 7,900,000 weighted average number of
shares outstanding.
-20-
SELECTED AND PRO FORMA
FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Set forth below are selected historical financial data and pro forma
financial data for the years ended 1992, 1993, 1994, 1995 and 1996, and the six
months ended March 31 and June 30, 1997. The selected financial data for the
years ended 1992, 1993, 1994, 1995 and 1996 set forth below has been derived
from the audited financial statements of the Company. The selected financial
data for the six month period ended June 30, 1997 is unaudited. The pro forma
financial data has been presented to include FMC as if the Merger had occurred
at the beginning of such period.
THE LEHIGH GROUP INC. AND SUBSIDIARIES (A)
STATEMENT OF OPERATIONS DATA
Six
Month
Years Ended December 31, Ended
--------------------------------------------------------------------------- -----------
June 30
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- --------
Revenues earned $ 10,729 $ 12,890 $ 12,247 $ 12,105 $ 10,446 $ 5,765
Loss from continuing operations $ (2,048) $ (250) $ (410) $ (558) $ (920) $ (215)
Loss per common share from
continuing operations $ (0.19) $ (0.03) $ (0.04) $ (0.05) $ (0.09) $ (.02)
Cash dividends declared per ---- ---- ---- ---- ---- ----
common share
BALANCE SHEET DATA
Yded December 31, Quarter
------------------------------------------------------------------------ Ended
June 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- --------
Working capital $(28,700) $ 2,800 $ 3,233 $ 2,437 $ 2,560 $ 3,346
Total assets $ 13,753 $ 7,050 $ 7,441 $ 6,622 $ 5,625 $ 7,177
Long-term debt $ 12,787 $ 2,524 $ 2,361 $ 2,080 $ 2,725 $ 3,429
Total debt (B) $ 45,882 $ 3,615 $ 3,240 $ 2,950 $ 3,115 $ 3,819
Shareholders' equity (deficit) $(45,041) $(5,099) $ 510 $ 202 $ (86) $ (2)
Book Value per share $ (6.15) $ (6.92) $ 0.05 $ .02 $ (.01) $ (.00)
- -------------------------------------
(A) Historical data does not include FMC and FMC's subsidiaries.
(B) Includes long term debt, current maturities of long term debt and Note
payable - bank.
LEHIGH FMC
EQUIVALENT
PROFORMA PER PROFORMA PER
HISTORICAL SHARE DATA(1) HISTORICAL SHARE DATA (2)
BOOK VALUE PER SHARE:
December 31, 1996 $ (0.01) $ (0.004) $ 70.35 $ 0.003
December 31, 1995 $ (0.02) $ 0.009 $ 23.00 $ 0.001
CASH DIVIDENDS PER COMMON
SHARE:
Year Ended December 31, 1996 $ --- $ ---- $ ---- $ ----
Year Ended December 31, 1995 $ --- $ ---- $ 3.80 $ 0.000
Year Ended December 31, 1994 $ --- $ ---- $ 11.70 $ 0.001
INCOME (LOSS) PER COMMON
SHARE FROM CONTINUING
OPERATIONS:
Year Ended December 31, 1996 $ (0.09) $ (0.041) $ 32.30 $ 0.001
Year Ended December 31, 1995 $ (0.05) $ (0.025) $ (36.40) $ (0.002)
Year Ended December 31, 1994 $ (0.04) $ (0.018) $ 81.80 $ 0.003
(1) Proforma data based upon issuance of additional 375,875 shares.
(2) Proforma equivalent data based upon 7,900,000 weighted average number of
shares outstanding.
-21-
RESULTS OF OPERATIONS - LEHIGH
GENERAL
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 shares, voting together with the
Lehigh Common Stock.
FIRST HALF OF 1997 IN COMPARISON
WITH FIRST HALF OF 1996
Revenues earned for the first half of 1997 were approximately $5.8
million a decrease of approximately $200,000 or 3.72% compared to the first half
of 1996. This decrease in revenues was due largely to the closing of the Miami
export operation.
Gross profit as a percentage of sales increased from 29.9% in the first
half of 1996 to 34.5% in the first half of 1997. This increase is primarily due
to the closing of the Miami export operation, whose profit margins were much
lower than Hallmark's New York operation.
Selling general and administrative expenses for the first half of 1997
were approximately $1,966,000 as compared to approximately $1,969,000 in the
first half of 1996, a decrease of $3,000 or .15% in the first half of 1997 as
compared to the first half of 1996. This decrease was due in part to the closing
of the Miami export operation and the reduction of legal fees.
The factors discussed above resulted in an operating income of $23,000
for the first half of 1997, as compared to an operating loss of $182,000 for the
first half of 1996. There was no provision for income taxes in both 1997 and
1996 due to the Company's operating losses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995
Revenues earned for 1996 were $10.4 million, a decrease of $1.7 million
or 14% compared with 1995. Most of the decrease in sales occurred in the
HallMark export operation due in part to the departure of certain clients of
HallMark that resulted when certain clients of HallMark decided to purchase
supplies directly from the manufacturers instead of through HallMark and also
the departure of a member of HallMark's sales force in the export sector and the
departure of certain clients that have been obtained by such person. In June,
1996, the person in charge of HallMark's export operation in Miami and another
employee were terminated. On October 31, 1996, HallMark sold its export
operation in Miami. Management does not believe the closure of the Miami export
operation will have a material adverse effect on Lehigh. HallMark may continue
its export operation from its home office in New York.
Gross profit as a percentage of revenues increased from 29% in 1995 to
32% in 1996. The increase was attributable to higher profit margins in the
domestic operations. Selling, general and administrative expenses for 1996
decreased by approximately $121,000, or 3%, compared with 1995. The decrease was
primarily a result of the closing of HallMark's export operation in Miami.
The net result of the factors discussed above resulted in an operating
loss of $562,000 in 1996 compared to $517,000 in 1995.
-22-
Interest expense increased by $38,000 to $471,000 in 1996 from $433,000
in 1995. The increase in interest expense was due primarily to an increase in
outstanding borrowings during 1996.
There was no federal income tax for 1996, due to Lehigh's operating
loss.
On December 31, 1991, Lehigh sold its right, title and interest in the
stock of various subsidiaries which made its discontinued interior construction
and energy recovery business segments subject to existing security interests.
The excess of liabilities over assets of subsidiaries sold amounted to
approximately $9.6 million. Since 1991, Lehigh has reduced this deferred credit
(the reduction is shown as income from discontinued operations) due to the
successful resolution of the majority of the liabilities for amounts
significantly less than was originally recorded. The deferred credits were
reduced as follows: 1996 - $250,000, 1995 - $250,000, 1994 - $5,000,000, 1993 -
$1,760,000, 1992 - $2,376,000.
During 1996, Lehigh retired $110,000 of the 14-78% debentures plus
accrued and unpaid interest of $181,000 for approximately $9,000. The gain on
extinguishment of debt of approximately $282,000 is included in extraordinary
item of $382,000.
YEAR ENDED DECEMBER 31, 1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues earned for 1995 were $12.1 million, a decrease of $.1 million
or 1% compared with 1994. A slight increase in Lehigh's domestic sales was more
than offset by a decrease in export sales. As to the export business, Lehigh has
been unable to fully replace those sales lost due to the departure of one of its
key sales people approximately three years ago. Gross profit as a percentage of
revenues decreased from 30% in 1994 to 29% in 1995. The slight decrease was
again attributable to weakened margins in export. Selling, general and
administrative expenses for 1995 decreased by approximately $200,000, or 5%,
compared with 1994. The reduction was primarily a result of decreased sales and
certain cost cutting initiatives instituted by Lehigh during 1995.
The net result of the factors discussed above resulted in no change in
operating loss in 1995 compared to 1994.
Interest expense increased by $35,000 to $433,000 in 1995 from $398,000
in 1994. A decrease in interest expense due to the continued reductions of long
term debt was more than offset by an increase in interest rates.
There was no federal income tax for 1995, due to Lehigh's operating
loss.
YEAR ENDED DECEMBER 31, 1994
COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues earned for 1994 were $12.2 million, a decrease of $.6 million
or 5.0% compared with 1993. The decrease in revenues was due largely to a
departure of a member of the sales force in HallMark's export operations and the
departure of certain clients of HallMark that had been obtained by such person.
Gross profit as a percentage of revenues increased from 29.0% in 1993 to 30.0%
in 1994 due to increased profit margins in HallMark's domestic operation.
Selling, general and administrative expenses for 1994 represented a decrease of
approximately $34,000, or 8%, compared with 1993.
The factors discussed above resulted in an increase of $104,000 in the
operating loss, from $413,000 in 1993 to an operating loss of $517,000 in 1994.
Interest expense decreased by $26,000 to $398,000 in 1994 from $424,000
in 1993. This decrease was primarily a result of the continued reduction of
long-term debt.
There was no federal income tax expense for 1994, due to Lehigh's
operating loss.
-23-
LIQUIDITY AND CAPITAL RESOURCES - LEHIGH
At June 30, 1997 Lehigh had working capital of $3.3 million (including
cash of $463,000) compared to working capital of $2.6 million (including cash of
$471,000) at December 31, 1996, and working capital of $2.4 million at December
31, 1995. Lehigh's principal capital requirements have been to fund working
capital needs, capital expenditures and the payment of long term debt. Lehigh
has recently relied primarily on internally generated funds, private placement
proceeds and loans to finance its operation.
Net cash used in operating activities was $224,000, $267,000, and
$160,000 in 1996, 1995 and 1994, respectively. The change from 1994 and 1995 was
primarily due to the net loss after the addback of the deferred credit income
only being partially offset by a decrease in receivables and an increase in
accrued expenses. The change from 1995 to 1996 was primarily due to the net loss
after the addback of the deferred credit income and the gain on extinguishment
of debt being partially offset by a decrease in accounts receivable and
inventory and an increase in accrued expenses.
Net cash used in investing activities was $18,000, $21,000, and $39,000
in 1996, 1995 and 1994, respectively. Due to the amount of cash used in
operating activities, Lehigh has expended very little with respect to property
and equipment.
Net cash provided by (used in) financing activities was $336,000,
$(290,000), and $656,000 in 1996, 1995 and 1994, respectively. The change from
1994 to 1995 was primarily due to the fact that in 1995 Lehigh did not receive
any outside funds whereas in 1994 it did. Lehigh was unable to borrow from its
bank under a previous credit agreement. The change from 1995 to 1996 was
primarily due to the loan from First Medical Corporation and a decrease in the
amount of capital lease payments and decrease in loan payments to Banca
Nazionale del Lavoro, SPA.
On August 22, 1994, pursuant to a private placement, Lehigh sold
2,575,000 shares of Common Stock at an aggregate purchase price of $1,030,000
($.40 per share). On November 18, 1994, Lehigh sold an additional 106,250 shares
of Common Stock at an aggregate price of $42,500 ($.40 per share) pursuant to
such private placement.
On June 11, 1996, Lehigh and DHB executed a letter of intent providing
for the merger of DHB with a subsidiary of Lehigh (which resulted in the
execution of a definitive merger agreement on July 8, 1996). Concurrent with the
execution of the letter of intent, DHB made a loan to Lehigh in the amount of
$300,000 pursuant to the terms of a Debenture. The Debenture includes interest
at the rate of two percent per annum over the prime lending rate of Chase
Manhattan Bank, N.A., payable monthly, commencing on the 1st day of each
subsequent month next ensuing through and including June 1, 1998 when the entire
principal balance plus all accrued interest is due and payable. The proceeds of
the loan from DHB were used to satisfy the loan which Lehigh previously obtained
from Macrocom Investors, LLC on March 28, 1996.
On October 29, 1996 in connection with the execution of a definitive
merger agreement between Lehigh and FMC, Lehigh issued a convertible debenture
in the amount of $300,000 plus interest at two percent per annum over the prime
lending rate of Chase Manhattan Bank, N.A. payable on the 1st day of each
subsequent month next ensuing through and including 24 months thereafter. On the
24th month, the outstanding principal balance and all accrued interest shall
become due and payable.
The proceeds of the loan from FMC were used to satisfy the loan Lehigh
previously obtained from DHB on June 11, 1996. On February 7, 1997, First
Medical Corporation elected to convert the debenture into 937,500 shares of
Lehigh's common stock.
Lehigh continues to be in default in the payment of interest
(approximately $628,000 interest was past due as of December 31, 1996) 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 Lehigh in connection with its financial restructuring consummated in 1991.
Lehigh 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 Subordinated Debentures
which were retired during 1996).
-24-
Lehigh does not presently have sufficient funds to repay its outstanding
indebtedness under the 13-1/2% Notes and 14-7/8% Debentures. Lehigh has written
to the trustee who holds the Notes and Debentures in street name in an effort to
ascertain who the owners of these instruments are.
During 1996, Lehigh retired $110,000 of the 14-78% debentures plus
accrued and unpaid interest of $181,000 for approximately $9,000. The gain on
extinguishment of debt of approximately $282,000 is included in extraordinary
item of $382,000.
On November 6, 1996, HallMark paid off its loan with Banca Nazionale
del Lavoro, SPA and entered into a three year revolving loan with The CIT
Group/Credit Finance, Inc., with maximum borrowings of $5,000,000 subject to a
borrowing base formula.
FMC has agreed to lend Lehigh up to an additional $150,000 in order for
Lehigh to meet its current working capital requirements.
The State of Maine and Bureau of Labor Standards commenced an action in
Maine Superior Court on or about November 29, 1990 against Lehigh and Dori Shoe
Company (an indirect former subsidiary) to recover severance pay under Maine's
plant closing law. The case was tried without a jury in December 1994. Under
that law, an "employer" who shuts down a large factory is liable to the
employees for severance pay at the rate of one week's pay for each year of
employment. Although the law did not apply to Lehigh when the Dori Shoe plant
was closed it was amended so as to arguably apply to Lehigh retroactively. In a
prior case brought against Lehigh (then known as Lehigh Valley Industries) and
its former subsidiary under the Maine severance pay statute prior to its
amendment, Lehigh was successful against the State of Maine (see Curtis v. Loree
Footwear and Lehigh Valley Industries, 516 A. 2d 558 (Me. 1986).
The Superior Court by decision docketed April 10, 1995 entered
judgement in favor of the former employees of Dori Shoe Company against Dori
Shoe and Lehigh in the amount of $260,969.11 plus prejudgment interest and
reasonable attorneys' fees and costs to the Plaintiff upon their application
pursuant to Maine Rules of Civil Procedure 54(b) (3) (d). The Company filed a
timely appeal appealing that decision and the matter was argued before the Maine
Supreme Judicial Court on December 7, 1995. Prejudgment interest will accrue at
an annual rate of approximately $20,800 from November 29, 1990.
On February 18, 1997, the Supreme Judicial Court of Maine affirmed the
Superior Court's decision. In July 1997, the Company agreed to pay the State of
Maine $215,000 to satisfy the judgment. On or about September 30, 1997 the
Company made its payment.
The Company is involved in other minor litigation, none of which is
considered by management to be material to its business or, if adversely
determined, would have a material adverse effect on the Company's financial
condition.
-25-
GENERAL
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
shares, voting together with the Lehigh Common Stock.
-26-
BUSINESS
MERGER WITH FMC
On July 9, 1997 at a Special Meeting (the "July Meeting") of
stockholders of the Company, the stockholders of the Company approved the Merger
pursuant to the terms of the Agreement and Plan of Merger dated as of October
29, 1996, as amended (the "Merger Agreement") among the Company, First Medical
Corporation ("FMC") and Lehigh Management Corp., a wholly-owned subsidiary of
the Company ("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 the Company's Common Stock, par value
$.001 per share ("Common Stock"), and (ii) 103.7461 shares of the Company's
Series A Convertible Preferred Stock, par value $.001 per share (the "Preferred
Stock"), each of which, as a result of the Reverse Split, is convertible into
250 shares of Common Stock and has a like number of votes per share, voting
together with the Common Stock. Prior to the Merger, FMC held approximately
25.4% of the outstanding shares of Common Stock which were acquired through two
series of transactions.
There were outstanding 10,000 shares of FMC Common Stock immediately
prior to the Merger. These shares were exchanged for a total of (i) 11,276,750
shares of Common Stock which, as a result of the Reverse Split, is now 375,875
shares of Common Stock, and (ii) 1,037,461 shares of Preferred Stock. As a
result of the Merger, holders of Common Stock immediately prior the Merger and
former FMC stockholders each owned 50% of the issued and outstanding shares of
Common Stock immediately following the Merger. In the event that all of the
shares of Preferred Stock issued to the former FMC stockholders are converted
into Common Stock, holders of Common Stock immediately prior to the Merger and
former FMC stockholders would own approximately 4% and 96%, respectively, of the
outstanding Common Stock.
In addition, under the terms of the Merger Agreement, concurrently with
the implementation of the Reverse Split, the Company will be renamed "First
Medical Group, Inc.," and following the Merger, Dennis Sokol, the Chairman of
the Board and Chief Executive Officer of FMC, became the Chairman and Chief
Executive Officer of the Company, Salvatore Zizza, the Chairman of the Board,
President and Chief Executive Officer of the Company, became Executive Vice
President and Treasurer and Mr. Bruno continued as Vice President and Secretary.
Mr. Bruno, Richard Bready, Charles Gargano, Anthony Amhurst and Salvatore
Salibello, five of the six members of the Board of Directors were not nominated
for re-election, and at the Special Meeting Mr. Sokol, Melvin Levinson, Elliot
Cole and Paul Murphy, four members of FMC's board of directors, were elected to
replace them. On August 11, 1997, Richard Berman was elected to the Board of
Directors.
LEHIGH
GENERAL
Lehigh (formerly The LVI Group Inc.) through its wholly owned
subsidiary, HallMark Electrical Supplies Corp., is engaged in the distribution
of electrical supplies for the construction industry both domestically
(primarily in the New York Metropolitan area) and for export.
Prior to 1994, Lehigh, through its wholly owned subsidiaries, had been
engaged in the following other businesses: (i) through certain of its operating
subsidiaries ("NICO Construction"), interior construction; (ii) through its
wholly owned subsidiary, LVI Environmental Services Group Inc. ("LVI
Environmental"), and subsidiaries thereof, asbestos abatement; (iii) through
Riverside Mfg., Inc. ("Riverside"), the design, production and sale of
electrical products; (iv) through Mobile Pulley and Machine Works, Inc. ("Mobile
Pulley"), the manufacture and sale of dredging equipment and precision machined
castings; and (v) through LVI Energy Recovery Corporation ("LVI Energy"), energy
recovery and power generation and landfill closure services. All of such other
businesses were transferred or sold prior to 1994.
Riverside and Mobile Pulley were transferred to a liquidating trust in
connection with Lehigh's financial restructuring of its outstanding debt and
preferred stock on March 15, 1991 (the "1991 Restructuring"). During the
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third quarter of 1991, Lehigh discontinued its interior construction business
operated through its NICO Construction subsidiaries due to the general economic
slowdown, particularly as it related to the real estate market. In the third
quarter of 1990, Lehigh discontinued its LVI Energy business which was prompted
by technical problems at the LVI Energy power plant facility. Both the NICO
Construction and LVI Energy subsidiaries were sold on December 31, 1991.
The following is a detailed supplemental description of the 1993
restructuring as it appeared in note number 1 to Lehigh's Annual Report on Form
10-K for the year ended December 31, 1993:
FINANCIAL CONDITION AND RESTRUCTURING - Lehigh incurred substantial
losses from operations in 1988, 1989 and 1990 attributable in significant part
to the performance of its NICO Construction and LVI Environmental businesses.
The interior construction segment experienced significant revenue decreases in
each of these years and incurred losses in both 1989 and 1990. The asbestos
abatement segment incurred substantial losses in 1988 and 1989 and experienced a
revenue decrease in 1990. Lehigh also incurred a substantial loss attributable
to its LVI Energy business in 1990. For the three year period ended December 31,
1990, Lehigh incurred a cumulative net loss of $76.7 million. As a consequence,
Lehigh had a consolidated shareholders' deficit at December 31, 1990 of $30.8
million.
At December 31, 1990, Lehigh had outstanding long-term debt (including
the current portion thereof), on a consolidated basis, of approximately $97.8
million (excluding revolving credit facilities of certain subsidiaries and trade
notes payable to subcontractors). This long-term debt had an annual debt service
requirement of $12.2 million, all but $2.5 million of which was payable in cash.
Lehigh had also not paid the eight quarterly dividends on its outstanding
preferred stock due from March 15, 1989 through December 15, 1990, aggregating
$2.5 million ($4.12 per share).
For the foregoing reasons, Lehigh consummated the 1991 Restructuring on
March 15, 1991. The consummation of the 1991 Restructuring followed extensive
negotiations and discussion among Lehigh, and representatives of various of its
creditors and preferred stockholders which began in August 1990.
Pursuant to the 1991 Restructuring, among other things,
(a) The holders of $33.84 million principal amount of Lehigh's 13-1/2%
Senior Subordinated Notes due May 15, 1998 ("13-1/2 Notes") exchanged such
securities, together with accrued but unpaid interest thereon, for $8,642,736
principal amount of new 8% Class B Senior Secured Redeemable Notes due March 15,
1999 issued by NICO Construction ("Class B Notes") and 212,650,560 shares of
Common Stock;
(b) The holders of $8.76 million principal amount of Lehigh's 14-7/8%
Subordinated Debentures due October 15, 1995 ("14-7/8% Debentures") exchanged
such securities, together with the accrued but unpaid interest thereon, for
$2,156,624 principal amount of Class B Notes and 53,646,240 shares of Common
Stock,
(c) each of the 444,068 shares of Lehigh's $2.0625 Cumulative
Convertible Exchangeable Preferred Stock, no par value (the "Cumulative
Preferred Stock"), outstanding on March 15, 1991, together with the accumulated
but unpaid dividends thereon, was converted into 34 shares of Common Stock (an
aggregate of 15,098,312 common shares),
(d) NICO Construction transferred to the Trust all of the stock of
Mobile Pulley and Riverside together with approximately $4 million face amount
of certain debt securities,
(e) a group of related insurance companies, consisting of Executive
Life Insurance Company, Executive Life Insurance Company of New York and First
Stratford Life Insurance Company (collectively, "First Executive"), exchanged
$53.596 million principal amount of NICO Construction's senior secured notes for
(i) $8 million principal amount of new 9.5% Class A Senior Secured Redeemable
Notes due March 15, 1997 issued by NICO Construction ("Class A Notes"), (ii) $6
million principal amount of Class B Notes, (iii) 78,746,690 shares of Common
Stock, and (iv) beneficial ownership of the Trust, and
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(f) prior to the consummation of the 1991 Restructuring, certain
amendments to the indentures, pursuant to which the 13-1/2% Notes and the
14-7/8% Debentures were issued, were adopted to eliminate substantially all of
the restrictive covenants set forth therein.
In sum, pursuant to the 1991 Restructuring, a total of 360,141,802
shares of Common Stock, $16,799,360 principal amount of Class B Notes and $8
million principal amount of Class A Notes were issued. The total shares of
Common Stock issued pursuant to the 1991 Restructuring was reduced to 10,289,765
in December, 1991, as a result of a 35 for 1 reverse split approved by Lehigh's
stockholders. Upon consummation of the 1991 Restructuring, the former holders of
the 13-1/2% Notes, 14-7/8% Debentures and First Executive owned approximately
90% of the outstanding shares of Common Stock (exclusive of any Common Stock
owned by them prior thereto), the former holders of Cumulative Preferred Stock
owned approximately 4% of the outstanding shares of Common Stock (exclusive of
any Common Stock owned by them prior thereto) and the holders of Common Stock
immediately prior to the 1991 Restructuring owned approximately 6% of the
outstanding shares of Common Stock.
As intended, the 1991 Restructuring substantially reduced Lehigh's debt
service obligations. However, adverse market conditions in the interior
construction industry continued to negatively impact the sales volume of NICO
Construction. Significant overhead reductions were made to reduce costs to a
level commensurate with reduced sales volume. Notwithstanding these efforts, the
effect of the general economic slowdown, particularly as it related to the real
estate market, prompted management to discontinue Lehigh's interior construction
business during the third quarter of 1991.
In September, 1991, Lehigh sold its registered service mark "NICO" for
use in the interior construction management and consulting business in the
United States. In December, 1991, Lehigh sold all ownership in its NICO
Construction and LVI Energy businesses.
Lehigh was in default of certain covenants to the holders of Class A
Notes and Class B Notes (the "Notes") at December 31, 1992 and 1991 and, as a
consequence, the Notes were classified as current in the 1992 and 1991 Financial
Statements.
Lehigh consummated a restructuring on May 5, 1993 (the "1993
Restructuring"). Pursuant to the 1993 Restructuring, Lehigh, through NICO Inc.,
a wholly owned subsidiary ("NICO"), sold LVI Environmental to LVI Holding
Corporation ("LVI Holding"), a newly formed company organized by the management
of LVI Environmental, which had a minority interest in LVI Holding. The owners
of LVI Holding were certain holders of the Class A Notes and the Class B Notes
and members of the management of LVI Environmental. As a result of the 1993
Restructuring, 100% of the Class A Notes and over 97% of the Class B Notes
(together, the "Notes") were surrendered to Lehigh, together with 3,000,000
shares of its Common Stock (27% of all Common Stock then outstanding), and, in
exchange therefor, participating holders of the Notes acquired, through LVI
Holding, all of the stock of LVI Environmental. Lehigh's consolidated
indebtedness was thereby reduced from approximately $45.9 million to
approximately $3.6 million (excluding approximately $431,217 of indebtedness
under Class B Notes that LVI Holding agreed to pay in connection with the 1993
Restructuring, but for which Lehigh remains liable). LVI Holding paid $1.5
million to Lehigh during 1993 and 1994 in connection with the 1993 Restructuring
to fund operating expenses and working capital requirements.
Beginning in 1994, Lehigh investigated the feasibility of acquiring or
investing in one or more other businesses that management of Lehigh believed
might have a potential for growth and profit. On July 9, 1997, Lehigh acquired
FMC pursuant to the Merger.
ELECTRICAL SUPPLIES
HallMark was acquired by Lehigh in December 1988. HallMark's sales
include electrical conduit, armored cable, switches, outlets, fittings, panels
and wire which are purchased by HallMark from electrical equipment manufacturers
in the United States. Approximately 90% of HallMark's sales are domestic and 10%
are export. All of Lehigh's revenues are attributed to HallMark.
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Domestic sales are made by HallMark employees. Nine customers accounted
for approximately 61%, 72% and 44% (including one customer which accounted for
approximately 25%, 18% and 12%) of HallMark's total domestic sales in 1996, 1995
and 1994, respectively. The loss of any of these customers could have a material
adverse effect on its business. Export sales are made by sales agents retained
by HallMark. Distribution is made in approximately 2 countries. From November 1,
1992 until October 31, 1996, HallMark's export business was conducted primarily
from Miami, Florida. HallMark now conducts its export operation from New York
City.
HallMark customers whose sales exceed 10% of Lehigh's consolidated
revenues (prior to the Merger) are: Adco Electric, Arc Electric or and Forest
Electric. These customers account for an aggregate of approximately 38% of
Lehigh's consolidated revenues (prior to the Merger).
Management believes that many companies (certain of which are
substantially larger and have greater financial resources than HallMark) are in
competition with HallMark. Management believes that the primary factors for
effective competition between HallMark with its competitors are price, in-stock
merchandise and a reliable delivery service. As a result, orders for merchandise
are received daily and shipped daily; hence, backlog is insignificant.
Management believes that HallMark is generally in compliance with
applicable governmental regulations and that these regulations have not had and
will not have a material adverse effect on its business or financial condition.
EMPLOYEES
As of June 30, 1997, Lehigh had 2 employees and HallMark had 35.
Approximately 85% of such employees are compensated on an hourly basis.
Lehigh and HallMark comply with prevailing local contracts in the
respective geographic locations of particular jobs with respect to wages, fringe
benefits and working conditions. Most employees of HallMark are unionized. The
current collective bargaining agreement for HallMark, which is with the
International Brotherhood of Electrical Workers, Local Union #3, expires on
April 30, 1999.
LEGAL PROCEEDINGS
The State of Maine and Bureau of Labor Standards commenced an action in
Maine Superior Court on or about November 29, 1990 against Lehigh and Dori Shoe
Company (an indirect former subsidiary) to recover severance pay under Maine's
plant closing law. The case was tried without a jury in December 1994. Under
that law, an "employer" who shuts down a large factory is liable to the
employees for severance pay at the rate of one week's pay for each year of
employment. Although the law did not apply to Lehigh when the Dori Shoe plant
was closed it was amended so as to arguably apply to Lehigh retroactively. In a
prior case brought against Lehigh (then known as Lehigh Valley Industries) and
its former subsidiary under the Maine severance pay statute prior to its
amendment, Lehigh was successful against the State of Maine. See Curtis v. Loree
Footwear and Lehigh Valley Industries, 516 A. 2d 558 (Me. 1986).
The Superior Court, by decision docketed April 10, 1995, entered
judgement in favor of the former employees of Dori Shoe Company against Dori
Shoe and Lehigh in the amount of $260,969.11 plus prejudgment interest and
reasonable attorneys' fees and costs to the Plaintiff upon their application
pursuant to Maine Rules of Civil Procedure 54(b)(3)(d). Lehigh filed an appeal
appealing that decision and the matter was argued before the Maine Supreme
Judicial Court on December 7, 1995. On February 18, 1997, the Supreme Judicial
Court of Maine affirmed the Superior Court's decision. In July 1997, the Company
agreed to pay the State of Maine $215,000 to satisfy the judgment. On or about
September 30, 1997, the Company made its payment.
Lehigh is involved in other minor litigation, none of which is
considered by management to be material to its business or, if adversely
determined, would have a material adverse effect on Lehigh's financial
condition.
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PROPERTIES
Lehigh, as of October 1, 1997 is currently occupying 2,400 square feet
at 1055 Washington Boulevard, Stamford, CT 06901 pursuant to a 3 year lease that
FMC has with its landlord at annual rental of $65,000.00 (which progressively
escalates to $75,000.00 in 1999). HallMark leases 28,250 square feet of office
and warehouse facilities in Brooklyn, New York, pursuant to a lease expiring on
June 30, 2004, at an annual rental of approximately $78,000 (which progressively
escalates to $106,000 in 2003). In December 1994, HallMark leased 4,500 square
feet of additional warehouse facilities in Brooklyn, New York, pursuant to a
lease expiring on June 30, 2004, at an annual rental of $18,000 (which
progressively escalates to $21,600).
Lehigh believes that all of its facilities are adequate for the
business in which it is engaged.
FMG
FMG is an international provider of management, consulting and
financial services to physicians, hospitals and other health care delivery
organizations and facilities. FMG's diversified operations are currently
conducted through three divisions: (i) a physician practice management division
which provides physician management services including the operation of clinical
facilities and management services to Medical Service Organizations, (ii) an
international division which currently manages western style medical centers in
Eastern Europe and the CIS and (iii) a recently formed hospital services
division which provides a variety of administrative and clinical services to
acute care hospitals and other health care providers.
INDUSTRY BACKGROUND
The role of the primary care physician is changing dramatically.
Historically, the health care services industry was based on a model in which
physician specialists played a predominant role. This model contributed to
over-utilization of specialized health care services and, in turn, increases in
health care costs at rates significantly higher than inflation. In response,
third-party payers have been implementing measures to contain costs and improve
the availability of medical services. These measures, which include managing the
utilization of specialized health care services and alternative methods of
reimbursement, have caused the health care industry to evolve toward models that
contain health care costs more efficiently. In these models, the primary care
physician and physician management organization are playing increasingly
important roles.
FMG believes that two important trends contributing to the evolution of
the health care services industry define its business opportunities. First,
physicians are increasingly abandoning traditional private practices in favor of
affiliations with larger organizations such as FMG that can provide enhanced
management capabilities, information systems and capital resources. This
transformation of physician practice is based on an increasingly competitive
health care environment characterized by intense cost containment pressure,
increased business complexity and uncertainty regarding the impact of health
care reform on physicians.
The second trend is that many payers and their intermediaries,
including HMO's, are increasingly looking to outside providers of physician
services to manage their professional medical requirements and to share the risk
of providing services through capitation arrangements. As these payers seek to
limit their health care costs by reducing the fee-for-service component paid to
their medical service providers, there is additional pressure on smaller
providers to consolidate and realize the efficiencies that can be achieved by
operating in larger practice groups.
DOMESTIC OPERATIONS.
Cost containment, industry consolidation and changes in reimbursement
methods are causing difficulties for health care providers, particularly
not-for-profit hospitals. As a result of intense competition from large
for-profit hospitals, not-for-profit hospitals must develop effective plans for
attracting and retaining patient flow. Such plans may include, among other
things, (i) reducing or changing the services provided in order to better
utilize current facilities, equipment and space, (ii) entering into new
contracts with physician groups, HMO's, and other third party
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payors, and (iii) various cost-cutting measures. Ultimately, a facility's
ability to adapt to changing environments requires access to capital and
management expertise, services which FMG is willing and able to provide.
INTERNATIONAL OPERATIONS.
The American health care delivery system and its related services
remain a valuable export. The internationally recognized level of training,
technology and services associated with the American health care systems and
their professionals continues to enjoy increasing demand among both expatriates
and wealthy nationals in FMC's expanding foreign markets. FMC's value is
reflected in the premium prices which its clients are willing to pay for access
to comprehensive American health care and related services.
STRATEGY OF FMG
FMG's strategy with respect to its physician practice management
division is to develop its business by addressing significant changes in the
role and practice patterns of the primary care physician in the health care
services industry. Elements of this strategy include:
Development of Additional Primary Care Centers and Physician Resources.
A major priority for FMG is the development of additional primary care centers
and physician resources. In furtherance of this goal, FMG will continue to
identify and evaluate potential acquisitions and relationships which complement
its existing business operations and increase its market share and develop a
competitive position in all areas of its business. In addition, FMG believes
that its experienced management team and operational systems will afford FMG the
opportunity to be successful in recruiting and managing physicians, in
integrating new physician practices and in managing the utilization of health
care services.
Expanding Presence in Capitated Medical Services. FMG believes that
managed care will continue to be a rapidly growing segment of the health care
services industry that offers one of the best long-term solutions to controlling
health care costs. FMG plans to develop its physician practice management
services division by expanding the services provided to existing clients and
obtaining new HMO contracts. FMG plans to build on this experience to develop
and enlarge integrated networks of health care providers that will contract with
intermediaries and payers on a capitated basis.
Developing and Expanding Management Consulting and Financial Services.
A priority for FMG is the development of its management consulting and financial
services division by continuing to provide creative solutions to complex
financial and management related health care delivery issues. FMG believes that
there are numerous organizations, including payor-owned physician practices,
hospital owned physician practices and not-for-profit providers, which are
experiencing financial or operational distress which could benefit from FMG's
expertise. FMG believes that its strong management team, which has over 75 years
in managing health care delivery systems, situates and enables FMG to assist
troubled health care providers, including not-for-profit and proprietary acute
care hospitals, long-term care facilities and specialty care facilities, with
direct management services, including "turn key" and departmental or program
management, transitional or turn-around management, strategic planning and
marketing, financial and general business consulting services.
FMG plans to offer health care providers a full array of advanced
management services including, but not limited to: utilization management;
information systems; human resources management; financial control systems;
outcomes measurement and monitoring; customer service programs; training and
education; financial services; strategic planning; network development; and risk
contracting. These services will be offered as a comprehensive package or
individually, but through one point of contact, creating a "one-stop shop" for
management services.
Integration of Domestic Operations. In addition to sharing management
services expertise and resources, FMG anticipates that its physician practice
management and management consulting and financial services divisions will
eventually be consolidated into one division. It is expected that the cross-
selling opportunities will create a relationship between the two divisions
warranting a consolidation. A primary objective of FMG is to provide
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management services on a long-term contractual basis for an entire integrated
delivery system in a number of local markets.
FMG's management believes that nationwide concerns over escalating
health care costs and the possibility of legislated reforms are increasing the
emphasis on managed care, integrated networks of health care providers and
prepaid, capitated arrangements. Increased managed care penetration is
generating more recognition of the benefits of organized physician groups
serving large patient populations as well as reducing the reimbursement rates
for services rendered. In anticipation of such changes in the health care
environment, FMG continues to review and revise its business mix.
Continued Development of the International Division. FMG will continue
the development and expansion of its international division. FMG believes that
through its continuing development efforts, FMG will be positioned to become a
premier owner, operator and manager of international primary care clinics, acute
care hospitals and other health care delivery organizations. FMG expects that it
will benefit from exporting the expertise and capabilities developed by its
domestic operations to its international operations. FMG has entered into an
agreement to open a western-style medical facility in Abu Dhabi, United Arab
Emirates in March 1997 status, and anticipates opening additional facilities
throughout Europe, the Middle East, Latin American and the Pacific Rim as part
of its expansion program.
FMG strives to deliver a comprehensive range of diverse medical
services to meet the specific needs of its clients in each of FMG's unique
markets. In response to demands for western style hospitals in the CIS, FMG
commenced development of the American Hospital of Moscow pursuant to which FMG
will establish the first western-style hospital in the CIS.
An integral part of FMG's strategy is to provide an environment for
medical education and training of local medical professionals and health care
administrators. In this regard, FMG will continue to be active in sponsoring
exchange programs with western facilities and teaching institutions such as the
Baylor College of Medicine in Houston, Texas. FMG has also organized an in-house
mentor program to expose local medical professionals and aspiring physicians to
the western health care system.
DIVISIONS OF FMG
Physician Practice Management Division
FMC's physician practice management operations are currently conducted
through MedExec. MedExec functions in two capacities as a management services
organization: (i) owning and operating nine primary care centers (located in
Florida and Indiana) which have full risk contracts for primary care and part B
services and partial risk (50%) contracts for part A services, and (ii) managing
sixteen multi-specialty groups (located in Florida and Texas) with
fee-for-service and full risk contracts for primary care and part B services and
partial risk (50%) contracts for part A services. Full risk contracts are
contracts with managed care companies where FMC assumes essentially all
responsibility for a managed care members' medical costs and partial risk
contracts are contracts where FMC assumes partial responsibility for a managed
care members' medical costs. Revenue from the primary care centers is derived
primarily from the predetermined amounts paid per member ("capitation") by
Humana. In addition to the payments from Humana, the primary care centers
received copayments from commercial members for each office visit, depending
upon the specific plan and options selected by individual members and receive
payments from non-HMO members on a fee-for-service basis. Revenue from the
multi-specialty practices managed by FMC are determined based on per member per
month fees and/or a percentage of the net profits for Part A and Part B service
funds for such centers.
Revenue from the multi-specialty practices are obtained by FMC through
management agreements. In Texas, pursuant to a five-year management agreement,
FMC is entitled to receive (i) direct expenses incurred by FMC in furnishing all
items and services to the multi-specialty group, (ii) indirect space costs, and
an (iii) administrative fee of $30,000.00 per month. In Florida, FMC is entitled
to receive (i) from Humana Medicare members, an amount equal to $4.50 per member
per month plus a percentage of Part A profits, Part B profits and
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Medicare Membership Conversion fees ranging from 9% down to 4% based upon
Medicare membership, and (ii) for Humana commercial HMO members, an amount equal
to $1.50 per member per month plus 5% of Part A profits and Part B profits. The
members of the practices are patients of the physicians who are enrolled as
Humana members.
FMC is not licensed to practice medicine. FMC employs or manages
licensed physicians to work at the primary care centers in Florida and Indiana
which centers provide the delivery of medicine. In Texas, FMC provides
utilization, billing, human resources, management information systems, senior
executive management, financial consulting and risk evaluation as a management
services organization. In order to better serve its existing markets and
potential markets, FMC is in the process of establishing five geographic
operating regions, to wit, the East Coast of Florida, the West Coast of Florida,
the Midwest, the Southwest and the Northeast.
In connection with the operation of such primary care centers in
Florida and Indiana, FMC employs all of the personnel, including physicians who
agree to provide the necessary clinical skills, required in such centers. FMC
compensates its physician employees bi-weekly pursuant to the terms of written
employment agreements. The written employment agreements are for a term of 2-3
years, provide for termination "with cause", provide for a base salary and a
bonus, which bonus is determined by a formula comprised of quality management,
utilization management, medical records documentation, patient
satisfaction/patient education and time and motion management, contain a
non-competition provision and contain provisions outlining the duties of the
physician and FMC.
FMC currently employs physicians in Florida and Indiana, which states
do not have regulations on the corporate practice of medicine. In Texas, there
are regulations on the corporate practice of medicine, and FMC does not employ
any physicians and has no ownership interest in or control of the entity in
which physicians are employed. In all states other than Texas, FMC retains an
ownership interest or control in the various clinics it operates. FMC operates
an office in Illinois for administrative services only and has employed
physicians in Indiana. FMC maintains a proprietary data base for physicians who
might be available to be employed at FMC's owned and operated clinics in
particular specialties and locations, and expects to create an in-house
recruiting department.
FMC generates fees at its primary care centers on a fee-for-service
basis and/or capitated basis. Under fee-for-service arrangements, FMC bills and
collects the charges for medical services rendered by contracted or employed
health care professionals and also assumes the financial risks related to
patient volume, payor risk, reimbursement and collection rates. Under capitated
arrangements, FMC assumes the risk and receives revenues at a fixed rate from
HMO's at contractually agreed-upon per member per month rates for all the
primary care needs of a patient. Under its HMO contracts, FMC receives a fixed,
prepaid monthly fee for each covered life in exchange for assuming
responsibility for the provision of medical services, subject to certain
limitations. To the extent that enrollees require more frequent or extensive
care than was anticipated by FMC, the revenue to FMC under a contract may be
insufficient to cover the costs of the care that was provided. A substantial
portion of the patients seeking clinical services from the company's primary
care centers are members of HMO's with which FMC maintains contractual
relationships.
Additionally, FMC has entered into contracts with HMO's to manage the
delivery of comprehensive medical services to enrollees at FMC's clinics located
in Florida, Texas and Indiana. A substantial portion of the revenues of FMC's
managed care business are derived from prepaid contractual arrangements with
Humana, pursuant to which Humana pays FMC a capitated fee. FMC employs primary
care physicians to work at FMC clinics in Florida and Indiana. FMC also provides
for other services with hospitals and medical specialists at negotiated prices
for both capitated and non-capitated (i.e. fee-for service) services. Due to
FMC's risk for the cost of providing health care services, it carefully manages
utilization of primary care, hospital and medical specialist services.
In addition, FMC contracts with primary care medical practices pursuant
to which FMC provides a variety of management services. In particular, FMC
provides management services which improve physician practices' operating
efficiencies through standardization of operating processes, including the
installation of information technology and billing systems, and assists such
practices in contracting on a network basis to insurers, HMO's and other payers.
In consideration for such management services, FMC receives an annual management
fee and participates in profits.
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FMC believes that it will have significant opportunities to expand its
managed care business primarily because physician practice management
organizations are better qualified than most third-party payers to recruit,
manage and retain physicians, deliver services on a cost-effective basis and
control medical malpractice costs. FMC believes that physician practice
management organizations are better qualified to perform these functions because
of their ability to provide and guarantee quality control by providing quality
health care while simultaneously providing favorable utilization through the use
of a medical director who manages the physicians in the center. In contrast, an
HMO is generally concerned with utilization and risks which are handled from a
centralized headquarter; while a management service organization is concerned
with providing consistent quality at the site at which healthcare services are
delivered.
Neither FMC, its subsidiary, MedExec, nor its affiliates are licensed
to operate as HMO's.
CEDA CONTRACT
FMC has been awarded an exclusive contract to provide health care
services to organizations operating under the Community Economic Development Act
(CEDA) in Cook County, Illinois and certain areas in northeastern Illinois. CEDA
is an organization designed to provide communities with access to various
government assistance programs by creating places where individuals can receive
assistance directly and conveniently. The CEDA contract, held by Midwest
Management Care, a wholly-owned subsidiary of FMC, is to provide overall
management of primary care centers. Humana, the HMO, provides the insurance
function. The contract designates FMC's clinics as the exclusive referral sites
for recipients of CEDA assistance, although it does not guarantee that all of
the estimated 60,000 recipients will use FMC's clinics for their health care
needs.
As a result of being awarded such agreement, FMC plans to develop eight
to ten clinics on or near CEDA sites. FMC anticipates that certain of such
clinics will be operational by the end of 1997. The CEDA contract requires that
reimbursements must flow through a fully licensed and accredited HMO. FMC will
be reimbursed based on what the HMO has determined the monthly amount necessary
to provide all covered services to Assigned Members. The HMO had established
capitation funding at a specific amount per member per month. The Medicare Part
B capitation rate for the richest benefit plan will be paid at an aggregate of
$140 per member per month. The Medicare Part A richest benefit plan will be paid
at an aggregate of $220 per member per month. Accordingly, FMC has recently
selected Humana Healthcare Plans, a fully accredited HMO to participate with and
is currently finalizing the terms of a partnership agreement.
Hospital Services Division
FMC, through FMC Healthcare Services, Inc. ("FMC Healthcare Services")
will provide management, consulting and financial services to troubled
not-for-profit hospitals and other health care providers. FMC Healthcare
Services, which was incorporated in June 1996, will offer creative solutions to
complex health care delivery issues. To date, FMC is in the process of
negotiating healthcare facility contracts but has not yet entered into any
definitive agreements. FMC Healthcare Services' primary target groups include:
(i) individual hospitals (not-for-profit, municipal and proprietary), (ii)
long-term care facilities, (iii) provider networks and systems, and (iv)
alternate delivery systems (i.e., free standing diagnostic and treatment and
ambulatory surgery centers). The primary target groups have been identified in
order to match FMC's management teams and senior managers with businesses in
which they have experience (e.g. troubled hospitals that need crisis management;
physician groups that need the management experience of a management service
organization; extended care facilities and alternative care providers that
desire to be affiliated with a network).
The scope of services to be provided are determined following an
individualized assessment of the target facility and include, but are not
necessarily limited to, (i) full service and direct management of health care
organizations including (a) "turn-key" management of a facility, (b)
supplemental support to existing management and (c) management of specific
departments, programs or systems; (ii) transitional management or turnaround
services including (a) assisting in the development of a comprehensive
turnaround plan and (b) supporting a restructured management team in reaching
financial and operational objectives through the implementation of turnaround
plan; and (iii) general business and consulting services including the
furnishing of (a) financial services,
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(b) feasibility studies, (c) capital development and (d) necessary capital and
other resources or arranging for the provision of such resources to enable the
facility to restructure existing debt.
The management consulting services to be provided by FMC Healthcare
Services will range from four to 24 months and will involve a minimum of three
health care professionals. Ideally, senior level professionals retained by FMC
Healthcare Services will oversee general operations, medical staff and nursing
at the subject medical facility. These individuals will be situated on site at
the respective facility. Other personnel employed by FMC Healthcare Services
will be furnished as needed or as requested. FMC Healthcare Services will be
paid on a fee for services basis.
International Medical Clinics Division
FMG's international division currently specializes in developing and
managing health care facilities in Eastern Europe, the CIS and other developing
countries. Currently, FMG contracts to provide services in Moscow, St.
Petersburg and Kiev of the CIS; Warsaw, Poland; and Prague, Czech Republic. FMG
has recently entered into an agreement with Bin Barook Trading Company to open
and operate a western- style medical clinic in Abu-Dhabi, United Arab Emirates,
which is expected to commence operations in March 1997. FMG has also entered
into a letter of intent with American International Medical System Inc., which
in turn has an agreement with the Peoples Hospital of Beijing to open the
American Medical Center of Beijing.
Revenues of FMG's international division 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 corporate clients.
Based upon its experience, FMG's management believes that a significant and
increasing portion of the international division's revenues will be derived from
local customers who seek medical services on a fee-for-service basis. Local
customers currently account for approximately 25% of the international
division's revenue.
Generally, corporations are required to pay an annual membership fee as
well as placing an advance deposit with FMG for future services rendered based
on the selected membership plan and size of the respective organizations.
Membership plans offer a wide range of benefits including 24-hour emergency
access, monthly medical newsletters and specials, fee discounts and cross
membership with other clinics. FMG also offers an insurance processing service
for corporate members. FMG's corporate membership currently includes
approximately five hundred international corporations.
In order to meet the changing needs of FMG's corporate clients and to
provide expanded access to western health care to potential clients, FMG has
recently developed and implemented a variety of comprehensive managed care
plans. These plans range from individual and family plans to corporate plans
covering up to 2,000 employees in various and sometimes remote locations.
Based upon its experience, FMG's management believes that a significant
and increasing portion of the international division's revenues will be derived
from local customers who seek medical services on a fee-for-service basis.
COMPETITION
The provision of physician management services is a highly competitive
business in which FMC competes for contracts with several national and many
regional and local providers of physician management services. Furthermore, FMC
competes with traditional managers of health care services, such as hospitals,
which directly recruit and manage physicians. Certain of FMC's competitors have
access to substantially greater financial resources than FMC.
Although there exist a number of companies which offer one or more of
the services which are offered by FMC Healthcare Services, FMC believes that
Hospital Services Group is unique in that it offers a variety of management,
consulting and financial services "under one roof." Certain companies which
compete with FMC have access to substantially greater resources than FMC
Healthcare Services.
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Internationally, FMG has relatively little competition on a
multinational scale, but faces strong competition in local markets from small
entrenched and start-up health care providers.
While the bases for competition vary somewhat between business lines,
competition is generally based on cost and quality of care. More particularly,
in the area of managed care, FMC believes the market for developing and
providing management of primary care networks in the United States which
contract with HMO's and employers will increasingly be based on patient access,
quality of care, outcomes management and cost.
MARKETING
FMC's physician practice management division has developed two
marketing methods. The primary method is to conduct joint marketing efforts with
HMO's. These efforts focus on customer service, quality and access programs and
are designed to attract new members to the HMO, retain current members and
enroll members at the company's medical centers. The second method focuses on
development of local market awareness and creating a positive image of FMC among
the physician community in order to create opportunities for additional
physician management contracts.
The management, consulting and financial services division currently
relies on the ability of the management team to leverage their reputations,
experience and network of contacts to develop new clients or arrange for new
contracts with existing clients.
International marketing is done at a local level through traditional
media advertising and promotional activities. The image and status of the
clinics themselves and the medical personnel are carefully cultivated through an
intensive public relations campaign. The network of international clinics is
also collectively marketed to multinational corporations through representatives
who maintain relationships and develop new contracts with the benefits managers.
GOVERNMENT REGULATION OF DOMESTIC OPERATIONS
FMC's domestic operations and relationships are subject to a variety of
governmental and regulatory requirements. A substantial portion of the company's
revenue is derived from payments made by government-sponsored health care
programs (primarily Medicare). These programs are subject to substantial
regulation by the federal and state governments which are continually revising
and reviewing the programs and their regulations. Any determination of material
noncompliance with such regulatory requirements or any change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of FMC.
In addition to current regulation, the public and state and federal
governments have recently focused significant attention on reforming the health
care system in the United States. A broad range of health care reform measures
have been introduced in Congress and in certain state legislatures. Among the
proposals under consideration are cost controls on hospitals, insurance market
reforms to increase the availability of group health insurance to small
businesses, requirements that all businesses offer health insurance coverage to
their employees and the creation of a single government health insurance plan
that would cover all citizens. It is not clear at this time what proposals will
be adopted, if any, or, if adopted, what effect, if any, such proposals would
have on FMC's business. Certain proposals, such as cutbacks in Medicare programs
and containment of health care costs that could include a freeze on prices
charged by physicians and other health care providers could adversely affect the
company. There can be no assurance that currently proposed or future health care
legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
FMC's operating results.
Continuing budgetary constraints at both the federal and state level
and the rapidly escalating costs of health care and reimbursement programs have
led, and may continue to lead, to relatively significant reductions in
government and other third-party reimbursements for certain medical charges. The
company's health care professionals are subject to periodic audits by government
reimbursement programs to determine the adequacy of coding procedures and the
reasonableness of charges.
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All Medicare and Medicaid providers and practitioners are subject to
claims review, audits and retroactive adjustments, recoupments, civil monetary
penalties, criminal fines and penalties, and/or suspension or exclusion from
payment programs for improper billing practices. Federal regulations also
provide for withholding payments to recoup amounts due to the programs. Periodic
audits of health care professionals by government reimbursement programs have
not had any impact on FMC.
Federal law prohibits the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare or state health
care program (e.g., Medicaid) patients or patient care opportunities, or in
return for the purchase, lease, order or recommendation of items or services
that are covered by Medicare or state health care programs. Violations of this
law are felonies and may subject violators to penalties and exclusion from
Medicare and all state health care programs. In addition, the Department of
Health and Human Services may exclude individuals and entities from
participation in Medicare and all state health care programs based on a finding
in administrative proceedings that the individual or entity has violated the
antikickback statute. FMC has not violated the antikickback statute; if either
FMC or its employees violated the statute they could be subject to sanctions.
Only one physician holds FMC common stock and this physician does not refer any
patients to FMC, is the medical director of FMC, oversees the medical aspect of
the physician practice management division, and has no bonus arrangement with
FMC; therefore management believes the Federal anti-Kickback statute is not
applicable.
Every state imposes licensing requirements on individual physicians and
on health care facilities. In addition, federal and state laws regulate HMO's
and other managed care organizations with which FMC may have contracts. Many
states require regulatory approval before acquiring or establishing certain
types of health care equipment, facilities or programs. Since FMC is not an
insurer, there is no insurance regulation of FMC's operations. Texas prohibits
the corporate practice of medicine. The business structure that FMC has adopted
in Texas in order to comply with the prohibitions on the corporate practice of
multi-specialty medicine is a full service management agreement wherein FMC
manages an independent group of physicians by providing utilization, billing,
human resources, management information systems, senior executive management,
financial consulting and risk evaluation for a negotiated fee.
The laws of many states prohibit physicians from splitting fees with
nonphysicians and prohibit business corporations from providing or holding
themselves out as providers of medical care. While FMC believes it complies in
all material respects with state fee splitting and corporate practice of
medicine laws, there can be no assurance that, given varying and uncertain
interpretations of such laws, FMC would be found to be in compliance with all
restrictions on fee splitting and the corporate practice of medicine in all
states. FMC currently operates in Texas through professional corporations, and
has recently formed professional corporations or qualified professional
corporations to do business in several other states where corporate practice of
medicine laws may require the company to operate through such a structure. A
determination that FMC is in violation of applicable restrictions on fee
splitting and the corporate practice of medicine in any state in which it has
significant operations could have a material adverse effect on the company.
FMC currently operates in only one state that prohibits the corporate
practice of medicine, which state is Texas. Risks associated with expanding
FMC's business into other states that have this type of prohibition include (i)
the issue of consolidation of revenues and (ii) preventing FMC from exploiting
the physician-patient relationship in pursuit of profits. FMC does not
consolidate the revenues from Texas, but operates as a management services
organization under a management contract. If FMC expands its business into other
states which prohibit the corporate practice of medicine, it will operate as a
management services organization under a management contract.
FMC attempts to mitigate the risk of potentially high medical costs
incurred in catastrophic cases through stop-loss provisions, reinsurance and
other special reserves which limit FMC's financial risk. To date, such
protection has been provided to FMC through its provider agreements with Humana.
There can be no assurances that the agreements which provide such insurance to
FMC will continue. If assumption of capitated payments risk through contracts
with HMO's could be construed as insurance, FMC believes there would be no
effect from state insurance laws due to the circumstance that all of FMC's
contracts with HMO's provides for stop-loss coverage by the HMO's. Any
determination of material noncompliance with insurance regulations or any change
in the stop-loss coverage by the HMO's could adversely affect the operations of
FMC.
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PROFESSIONAL LIABILITY INSURANCE
Over the last twenty years, the health care industry has become subject
to an increasing number of lawsuits alleging medical malpractice and related
legal theories, including the withholding of approval for necessary medical
services. Often, such lawsuits seek large damage awards, forcing health care
professionals to incur substantial defense costs. Due to the nature of its
business, FMC, from time to time, becomes involved as a defendant in medical
malpractice lawsuits, some of which are currently ongoing, and is subject to the
attendant risk of substantial damage awards. The most significant source of
potential liability in this regard is the negligence of health care
professionals employed or contracted by the company.
One part of FMC's management services involves the provision of
professional liability insurance ("PLI") coverage for its physicians. FMC
currently provides this coverage through an umbrella PLI policy with Zurich
American Insurance Group maintained for substantially all of the company's
employees and independent contractors. This PLI policy generally provides
coverage in the amount of $1,000,000 per physician and per claim, subject to an
aggregate per physician limit of $3,000,000 per year. In its insurance policy,
FMC also maintains the right to purchase extended coverage beyond the expiration
of the policy period for an agreed upon premium to cover the costs of claims
asserted after the expiration of the effective policy. In addition, the company
books reserves against those claims in which the amount of coverage provided
could possibly be insufficient in the event of a relatively large award. FMC
maintains professional liability insurance on a claims made basis in amounts
deemed appropriate by management, based upon historical claims and the nature
and risks of its business. However, there can be no assurance that a future
claim or claims will not exceed the limits of available insurance coverage, that
any insurer will remain solvent and able to meet its obligations to provide
coverage for any claim or claims or that coverage will continue to be available
or available with sufficient limits to adequately insure FMC's operations in the
future.
LEGAL PROCEEDINGS
FMC is involved in various legal proceedings incidental to its
business, substantially all of which involve claims related to the alleged
malpractice of employed and contracted medical professionals and to the failure
to render care resulting in a violation or infringement of civil rights and, no
individual item of litigation or group of similar items of litigation, taking
into account the insurance coverage available to FMC, is not likely to have a
material adverse effect on FMC's financial condition.
Additionally, on November 20, 1996, a discharged employee and
shareholder of FMC filed a Demand For Arbitration alleging breach of contract,
defamation and interference with business relationships. No specific monetary
amount of damages was claimed. The employee was terminated by FMC for cause
after having refused to sign a confidentiality agreement, disclosed financial
information to outsiders, violating confidentiality standards. Thereafter, on
November 26, 1996, this same employee filed an action in Dade County, Florida
alleging what is essentially a breach of fiduciary duties by FMC's Board of
Directors arising out of payments made to former partners as part of the
purchase price, which the employee believed was improper. This litigation was
settled for an amount that would be unlikely to have a material adverse effect
on FMC's financial condition.
EMPLOYEES
As of December 23, 1997, FMC had approximately 755 employees.
Approximately 20% of such employees are compensated on an hourly basis.
FMC complies with prevailing local contracts in the respective
geographic locations of particular jobs with respect to wages, fringe benefits
and working conditions.
-39-
PROPERTIES
FMG's principal executive office is located at 1055 Washington
Boulevard, Stamford, Connecticut 06901, and its telephone number is (203)
327-0900.
FMC leases approximately 2,400 square feet in Stamford, Connecticut.
FMC leases approximately 5,000 square feet in Miami, Florida to provide
administrative support pursuant to a lease expiring on December 31, 1998 at an
annual rental of $147,000. FMC leases approximately 1,400 square feet in Tampa,
Florida for use by SPI Hillsborough pursuant to a lease expiring on November 30,
2001 at an annual rental of $26,736. FMC leases approximately 4,100 square feet
in Maywood, Illinois pursuant to a lease expiring on November 30, 2001 at an
annual rental of $48,000.
In addition, FMG through its subsidiaries leases two facilities in
Moscow, and one each in St. Petersberg, Kiev, Warsaw and Prague, which
facilities are used as medical clinics, at monthly rents of $16,780, $4,933,
$10,326, $6,000, $3,110 and $6,700, respectively.
FMC believes that all of its facilities are adequate for the business
in which it is engaged.
MANAGEMENT
The table set forth below sets forth information with respect to the
directors and executive officers of the Company. Information as to age,
occupation and other directorships has been furnished to the Company by the
individual named. Salvatore J. Zizza, Dennis A. Sokol, Melvin Levinson, Elliot
Cole and Richard Berman 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).
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE CURRENT POSITION
---- --- ----------------
Dennis A. Sokol 52 Chairman of the Board, Chief Executive
Officer and Director of the Company and
Chairman of the Board and Chief Executive
Officer of FMC
Salvatore J. Zizza 52 Chief Financial Officer, Executive Vice
President, Treasurer and Director of the
Company
Robert A. Bruno 41 Vice President, General Counsel and
Secretary of the Company
Melvin E. Levinson, M.D. 68 Director of the Company
Elliot H. Cole 65 Vice Chairman of the Board and Director of
the Company
Richard Berman 53 Director of the Company
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 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. Mr.
Sokol was the founder, and from 1984 to 1988 served as Chief Executive Officer
of Medserv Corporation, a multifaceted medical service company. Mr. Sokol was
the founder, and from
-40-
1989 to 1992 served as the Chief Executive Officer, of the American-Soviet
Medical Consortium whose members included Pfizer, Inc., Colgate-Palmolive
Company, Hewlett-Packard Company, MedServ, Amoco Corporation and Federal Express
Corp. In all, Mr. Sokol has over 30 years experience in the medical services
industry.
Mr. Zizza has been a director of the Company since 1985 (except that he
did not serve as a director during the period from March 15, 1991 through April
16, 1991) and Executive Vice President and Treasurer since 1997. He was Chairman
of the Board of the Company from April 16, 1991 until the Merger, and was Chief
Executive Officer of the Company from April 16, 1991 through August 22, 1991 and
President of NICO Inc. ("NICO") from 1983 through August 22, 1991. He also
served as President of the Company from October 1985 until April 16, 1991. He is
also a director of the Gabelli Equity Trust, Inc.; The Gabelli Asset Fund; The
Gabelli Growth Fund; The Gabelli Convertible Securities Funds, Inc., The Gabelli
Global MultiMedia Trust Inc. and Initial Acquisition Corp. (a NASDAQ - listed
company). In 1995, Mr. Zizza became Chairman of the Board of The Bethlehem
Corporation (an AMEX company).
Mr. Bruno has served as Vice President and General Counsel of the
Company since May 5, 1993 and as Secretary since August 22, 1994. He served on
the Board from March 31, 1994 until July 9, 1997. He also has served as General
Counsel to NICO and its subsidiaries since June 1983 (except he did not serve as
General Counsel to NICO during the period of January 1, 1992 through May 31,
1993).
Dr. Levinson has been a director of the Company since July 1997 and has
served as a Co-Vice Chairman of FMC's Board of Directors since its formation in
January 1, 1996. Dr. Levinson was a co-founder of MedExec, Inc., a wholly-owned
subsidiary of FMC ("MedExec"), for which he served as Chairman of the Board and
a director from March 1991 to January 1996. Dr. Levinson was also a co-founder
and former director of HealthInfusion, Inc., a publicly traded company engaged
in the delivery of intravenous home therapy. Dr. Levinson is a founder and since
January 1996 has served as the Chairman of the Board of Scion International,
Inc., a manufacturer of medical devises. Dr. Levinson is currently an Associate
Professor at the University of Miami School of Medicine.
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 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 and subsequently as President and Chief Executive Officer. He also
is a director of HCIA, Inc., Health Insurance Plan of Greater New York, 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.
No family relationship exists between any of the directors and
executive officers of the Company.
All directors will serve until the annual meeting of stockholders of
the Company to be held in 1998 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.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
During 1996 the Board of Directors held three meetings which were
attended by all of the directors, except two former directors who each missed
one meeting.
The Board of Directors has a standing Audit Committee, Executive
Committee and Compensation Committee. The Audit Committee did not meet during
1996. The current members of the Audit Committee are Messrs. Zizza and Berman.
The functions of the Audit Committee include recommending to the Board of
Directors the appointment of the independent public accountants for the Company;
reviewing the scope of the audit performed by the independent public accountants
and their compensation therefor; reviewing recommendations to management
-41-
made by the independent public accountants and management's responses thereto;
reviewing internal audit procedures and controls on various aspects of corporate
operations and consulting with the independent public accountants on matters
relating to the financial affairs of the Company. The Executive Committee of the
Board of Directors held no meetings in 1996. The current members of the
Executive Committee are Messrs. Sokol, Zizza and Cole. The Executive Committee
is authorized (except when the Board of Directors is in session) to exercise all
of the powers of the Board of Directors (except as otherwise provided by law).
The Compensation Committee did not meet in 1996. The current members of the
Compensation Committee are Mr. Cole and Dr. Levinson. The Compensation Committee
is responsible for developing the Company's executive compensation policies,
determining the compensation paid to the Company's Chief Executive Officer and
its other executive officers and administering the Stock Option Plan and the
Incentive Compensation Plan. See "Board Report on Executive Compensation."
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 executive
officers of the Company whose total annual salary and bonus exceeded $100,000
for services rendered in all capacities to the Company during each of the years
ended December 31, 1996, December 31, 1995 and December 31, 1994:
SUMMARY COMPENSATION TABLE+
Long Term
Compensation
Annual Compensation Awards
--------------------------------- -------------------
Securities
Underlying
Options
Other Annual (number of All Other
Name and Principal Position Year Salary Bonus Compensation(1) Shares) Compensation (2)
- ---------------------------------- ------- ----------- ------ ---------------- ----------------- --------------------
Salvatore J. Zizza (3) 1996 $200,000 0 0 0 $1,272
Chairman of the Board 1995 $200,000 0 0 0 $1,272
1994 $200,000 0 0 10,250,000(3) $ 800
Robert A. Bruno (4) 1996 $150,000 0 0 0 $1,272
Vice President and General 1995 $150,000 0 0 250,000(4) $1,272
Counsel 1994 $100,000 0 0 0 $ 822
Joseph Delowery (5) 1996 $110,784 $1,500 0 0 $1,272
President of HallMark 1995 $110,784 13,469 0 0 $1,272
1994 0 0 0 0 $1,272
- ----------------------
+ Does not include the Chief Executive Officer or other executive
officers of FMC since the Merger was consummated after the end of Fiscal 1996.
For information regarding their compensation, see "Certain Relationships and
Related Transactions" * Less than $100,000.
(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.
(3) Until the Merger, Mr. Zizza was Chairman of the Board, President and
Chief Executive Officer of the Company and at present he is the
Executive Vice President and Treasurer. On August 22, 1994, the Company
and Mr. Zizza entered into an employment agreement. Mr. Zizza and the
Company amended the terms of Mr. Zizza's employment agreement effective
as of the time of Merger. In general, as amended, the employment
agreement provides for his employment through December 31, 2000 at an
annual salary
-42-
of $200,000 (subject to increase, in the discretion of the Board of
Directors, if the Company acquires one or more new businesses, to a
level commensurate with the compensation paid to the top executives of
comparable businesses). In addition, Mr. Zizza may be entitled to a
bonus, at the discretion of the Company.
Pursuant to the employment agreement, the Company also granted to Mr.
Zizza options to purchase 10,250,000 shares of Common Stock: 4,250,000
exercisable at $.50 per share, 3,000,000 exercisable at $.75 per share,
and 3,000,000 exercisable at $1.00 per share. Subsequently Mr. Zizza
purchased warrants to purchase a total of 7,750,000 shares of Common
Stock: 1,750,000 exercisable at $.50 per share, 3,000,000 at $.75 per
share, and 3,000,000 at $1.00 per share. Both the options and the
warrants have an expiration date of August 22, 1999, subject to earlier
termination under certain circumstances in the event of Mr. Zizza's
death or the termination of his employment. The amendment to Mr.
Zizza's employment agreement also provides that Mr. Zizza's options and
warrants to purchase an aggregate of 6,000,000 shares of Common Stock
at an exercise price of $.75 per share and options and warrants to
purchase an aggregate of 6,000,000 shares of Common Stock at an
exercise price of $1.00 per share were converted into options to
purchase 3% of the total issued and outstanding stock of the Company,
on a fully diluted basis (after giving effect to the issuance and
conversion of Preferred Stock) at a blended exercise price of $.875 per
share. See "Security Ownership of Certain Beneficial Owners of the
Company." No compensation expense is expected to be recognized in
connection with the options because the exercise price is significantly
in excess of the market price of the Common Stock. Simultaneously with
the effectiveness of the amendment, Mr. Zizza's options and warrants to
purchase 6,000,000 shares of Common Stock at an exercise price of $.50
per share were cancelled.
(4) On January 1, 1995, the Company and Mr. Bruno entered into an
employment agreement. providing for his employment through December 31,
1999 as Vice President and General Counsel for the Company at an annual
salary of $150,000. Pursuant to such agreement, Mr. Bruno has deferred
one-third of his annual salary until such time as the Company's annual
revenues exceed $25 million. In April 1995, the Company granted Mr.
Bruno an option to purchase 250,000 shares of Common Stock at an
exercise price of $.50 per share on or before December 31, 1999.
Mr. Bruno and the Company amended the terms of Mr. Bruno's employment
agreement effective as of the Effective Time of the Merger. In general,
the amendment provides that (i) Mr. Bruno's salary be reduced from
$150,000 to $120,000 per year, (ii) no part of Mr. Bruno's salary be
deferred and (iii) the term of the employment agreement was extended
through December 31, 2000.
(5) During 1996, Mr. Delowery could be deemed to be an executive officer of
the Company by virtue of his position with HallMark Electrical Supplies
Corp. ("HallMark"). HallMark was the Company's principal operating
subsidiary prior to the Merger.
-43-
COMPENSATION OF DIRECTORS
Prior to the Merger, the Company's directors received no compensation
for serving on the Board of Directors other than the reimbursement of reasonable
expenses incurred in attending meetings. Since the consummation of the Merger,
executive directors have continued to receive no compensation; however, each
non- executive director now is entitled to receive annually shares of Common
Stock with a fair market value of $10,000 (pro-rated in 1997 to reflect the
portion of the year following the Merger); as of November 7, 1997, the non-
executive directors had not received any shares for 1997. In April 1996, the
Company granted options to purchase 15,000 shares of Common Stock at an exercise
price of $.50 per share to a former non-executive officer director and options
to purchase 10,000 shares of Common Stock at an exercise price of $.50 per share
to three former non- executive officer directors, two of whom were members of
the Compensation Committee.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation and By-laws of the Company contain
provisions permitted by the Delaware General Corporation Law (under which the
Company is organized), that, in essence, provide that directors and officers
shall be indemnified for all losses that may be incurred by them in connection
with any claim or legal action in which they may become involved by reason of
their service as a director or officer of the Company if they meet certain
specified conditions. In addition, the Certificate of Incorporation of the
Company contains provisions that limit the monetary liability of directors of
the Company for certain breaches of their fiduciary duty of care and provide for
the advancement by the Company to directors and officers of expenses incurred by
them in defending suits arising out of their service as such.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
OPTIONS
No options were granted during 1996 to the executive officers of the
Company named in the Summary Compensation Table or to other employees of the
Company. However, four former non-executive officer directors were granted stock
options in 1996. See "Compensation of Directors." In July 1997, the Board of
Directors established, subject to stockholder approval, the Lehigh Group, Inc.
Stock Option Plan (the "Stock Option Plan") and the Incentive Compensation Plan
(the "Incentive Compensation Plan"). In connection with the Reverse Split, the
Company is seeking shareholder approval of the Stock Option Plan and the
Incentive Compensation Plan which are described below.
No options were exercised by the executive officers of the Company
named in the Summary Compensation Table during the fiscal year ended December
31, 1996. The following table sets forth the number and dollar value of options
held by such persons on December 31, 1996, none of which were "in the money" at
December 31, 1996.
AGGREGATED OPTION EXERCISES IN
1996 AND YEAR-END OPTIONS
Number of Unexercised Options and Warrants at
Year-End
-----------------------------------------------
NAME Exercisable Unexercisable
---- ----------------- ------------------------
Salvatore Zizza 6,000,000(1) 12,000,000(1)
Robert Bruno 250,000(2)
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(1) See note 3 of the Summary Compensation Table.
(2) See note 4 of the Summary Compensation 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 (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 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.
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 Stock representing 20 percent or more
of the aggregate votes of the Stock voting together as a single class, provided,
however, that each share of Preferred Stock will have the number of votes
provided for such share pursuant to its Certificate of Designation is acquired
pursuant to a tender offer or exchange offer. 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
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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 optionee 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 November 7, 1997, 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 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 fifty percent (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 has 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 the 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
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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.
No bonuses or stock have been awarded under the Incentive Compensation
Plan.
BOARD REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for developing the Company's
executive compensation policies, determining the compensation paid to the
Company's Chief Executive Officer and its other executive officers and
administering the Stock Option Plan and the Incentive Compensation Plan. The
Compensation Committee did not meet in 1996 since all executives are paid
pursuant to previously executed employment agreements and the report is the
report of the entire Board of Directors.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until the meeting on July 9, 1997 at which the current Board of
Directors was elected, Anthony Amhurst and Charles Gargano were members of the
Compensation Committee and were directors. Currently, Mr. Cole and Dr. Levinson
are members of the Compensation Committee and are directors. There are no
compensation committee interlock relationships to be disclosed pursuant to Item
402 of Regulation S-K.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FMC and Generale De Sante International, Plc ("GDS") are parties to a
Subscription Agreement, dated June 11, 1996 pursuant to which GDS paid
$5,000,000 in order to acquire a variety of ownership interests in FMC and its
subsidiaries, including (i) 10% of the outstanding shares of FMC's common stock
(the FMC Common Stock"), each share of which was automatically exchanged
pursuant to the Merger for 1,127.675 shares of Common Stock and 103.7461 shares
of Preferred Stock, and (ii) shares of FMC's 9% Series A Convertible Preferred
Stock (the "FMC Preferred Stock") convertible into 10% of the shares of FMC
Common Stock, which Shares of FMC Preferred Stock were converted following the
Merger. Consequently, when GDS converts its shares of FMC Preferred Stock, GDS
received shares of Lehigh Common Stock and Lehigh Preferred Stock. Together with
the shares issued for the FMC Common Stock, these shares would give GDS a total
of approximately 23% ownership interest and voting power of the Company. See
"Security Ownership of Certain Beneficial Owners of the Company."
For information regarding the employment arrangements and options of
Messrs. Zizza and Bruno, see notes 3 and 4 to the Summary Compensation Table and
note 3 to the table regarding Security Ownership of Certain Beneficial Owners of
the Company.
On January 1, 1996, FMC and Dr. Levinson, who is a director of the
Company, entered into an agreement for the period commencing January 1, 1996 and
terminating December 31, 1998 and providing for a payment of $100,000 (subject
to increase in accordance with the consumer price index) annually during the
period. Mr. Levinson's contract was not terminated as a result of the Merger. He
is employed as Vice Chairman of FMC and performs services that are customary to
that office.
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. At the discretion of the
Compensation Committee of the Board of FMC, Mr. Sokol may be awarded an annual
bonus.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE COMPANY
The following table indicates the number of shares of Common Stock and
Preferred Stock beneficially owned as of November 7, 1997 by (i) each person
(including any "group," as that term is used in Section 13(d)(3) of the Exchange
Act) known to the Company to be the beneficial owner of more than 5% of the
Common Stock or the Preferred Stock, (ii) each director and nominee for director
of the Company, (iii) each of the executive officers named in the Summary
Compensation Table set forth above and (iv) all directors and executive officers
of the Company as a group. Unless otherwise indicated, the address of each
person listed below is the Company's principal executive offices.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE COMPANY
Common Stock(1) Preferred Stock
-----------------------------------------------------------------------------------------------------
Amount and Nature of Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(2) Percent of Class Beneficial Ownership(2) Percent of Class
- ----------------------------- ---------------------------- ------------------ --------------------------- --------------------
Generale De Sante 2,559,822 11.35% 235,504 22.70%
International PLC
4 Cornwall Terrace
London NW1 4QP
ENGLAND
SAJH Partners 2,121,157(3) 9.41% 195,146(3) 18.81%
Salvatore J. Zizza 8,735,630(4) 28.15% -- --
Robert A. Bruno 312,760(5) 1.38% -- --
Dennis A. Sokol 603,306(6) 2.68% 55,504(6) 5 .35%
Melvin E. Levinson 558,199 2.48% 51,354 4.95%
Elliot H. Cole 401,452 1.78% 36,934 3.56%
Richard Berman
All executive officers __ -- -- --
and directors as a group
(7 persons) 15,292,326(7) 57.23% 574,442(6) 55.37%
* Less than 1%.
(1) Does not include shares of Common Stock which are obtainable upon the
conversion of shares of Preferred Stock since the shares are not
convertible until such time as the Company's authorized and unissued
shares of Common Stock exceeds the aggregate number of shares of Common
Stock into which all of the authorized shares of Preferred Stock is
convertible, which will require either an amendment to the Company's
Certificate of Incorporation to increase the number of authorized
shares of Common Stock or a reverse stock split such as the Reverse
Split.
(2) 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.
(3) 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.
(4) Includes options to purchase 8,480,128 shares of Common Stock for $.875
per share, which options were received on July 9, 1997, when (i) Mr.
Zizza's options and warrants to purchase 12,000,000 shares of Common
Stock, half exercisable at $.75 per share and half exercisable at $1.00
per share, were converted into options to purchase three percent of the
total issued and outstanding stock of the Company on a fully diluted
basis immediately after the merger (after giving effect to the issuance
of Common Stock and the issuance and conversion of Preferred Stock
pursuant to the Merger Agreement) and (ii) Mr. Zizza's options and
warrants to purchase 6,000,000 shares of Common Stock at an exercise
price of $.50 per share were cancelled. See note 3 of the Summary
Compensation Table.
(5) Includes options to purchase 250,000 shares of Common Stock at $.50 per
share. See note 4 of the Summary Compensation Table.
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(6) Excludes shares as indicated in note (3) above.
(7) Includes shares as indicated in notes (4) and (5) above. Excludes
shares as indicated in note (3) above.
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SELLING STOCKHOLDERS
The following table sets forth (i) the number of Shares to be offered
for resale by each Selling Stockholder and (ii) the number and percentage of
Shares to be held by each Selling Stockholder after completion of the offering.
Number of Common
Number of Number of Shares Shares/Percentage of Class to
Shares Beneficially Owned to be Sold in the be Owned After Completion
Name and Address(1)(2) Prior to the Offering(3) Offering Resale of the Offering
- ----------------------------------------- ------------------------------- ------------------- -------------------------------
Number Percent
------ -------
Generale de Sante 2,047,860 2,047,860 0 *
Dennis Sokol 482,644 482,644 0 *
Elliot Cole 321,165 321,165 0 *
Shannon Slusher 321,165 321,165 0 *
Myles Druckman 220,084 220,084 0 *
Elena Korchagina 99,235 97,235 0 *
Vladimir Checklin 160,583 160,583 0 *
James C. Gale/Judith S. Haselton 57,109 57,109 0 *
James C. Gale Trustee F/B/O Ariana J. Gale 27,816 27,816 0 *
Jack Weinstein 12,517 12,517 0 *
Robert Weinstein 4,868 4,868 0 *
Doug Kleinberg 3,477 3,477 0 *
Lionel G.H. Hest 35,465 35,465 0 *
Robert Sablowsky 18,776 18,776 0 *
Charles Greenberg 31,247 31,247 0 *
Global Asset Allocation Consultant Inc. 139,080 139,080 0 *
Gruntal & Co. 33,382 33,382 0 *
Mark Kugler 446,557 446,557 0 *
Melvin Levinson, M.D. 471,556 471,556 0 *
Stuart Kaufman 471,556 471,556 0 *
Jeff Fine 471,556 471,556 0 *
Michael Cavanaugh 407,765 407,765 0 *
Asif Jamal 162,883 162,883 0 *
Stephanie Schmidt 162,883 162,883 0 *
SAJH 1,595,021 1,595,021 0 *
Lindsay D. Kugler 221,980 221,980 0 *
Gregg Fine 110,965 110,965 0 *
Kevin Fine 110,965 110,965 0 *
Jamie Kaufman 110,965 110,965 0 *
Debbie Susskind 110,965 110,965 0 *
Mike Levinson 110,965 110,965 0 *
Jill Kaufman 110,965 110,965 0 *
Charles Pendola(4) 54,167 54,167 0 *
Joel Feiss, M.D.(5) 223,333 223,333 0 *
Michael Gironta 8,345 8,345 0 *
- ------------
* Less than 1%
(1) The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the footnotes to this table. The calculation of Common
Shares beneficially owned was determined in accordance with Rule 13d-3
of the Exchange Act.
(2) Unless otherwise stated, the address for each Selling Stockholder is
c/o First Medical Corporation, 1055 Washington Boulevard, Stamford,
Connecticut 06901.
(3) Assumes all the shares of Preferred Stock owned by each Selling
Stockholder have been converted into shares of Common Stock.
(4) The address for the selling Stockholder is 18 Guild Ct., Plainview, New
York 11803
(5) The address for the Selling Stockholder is c/o West Broward
Gastroenterology, 201 Northwest 82nd Avenue, Suite 202, Plantation,
Florida 33324
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DESCRIPTION OF SECURITIES
The following is a summary of certain provisions of the Company's
Certificate of Incorporation, the Certificate of Designation and rights accorded
to holders of Common Stock and Preferred Stock generally and as a matter of law,
and does not purport to be complete. It is qualified in its entirety by
reference to the Certificate of Incorporation, the Certificate of Designation,
the Company's By-Laws, and the Delaware General Corporation Law.
COMMON STOCK
GENERAL. As of November 7, 1997, there were 22,553,500 shares of Common
Stock outstanding. Under the Company's Delaware charter and applicable law, the
Board of Directors has broad authority and discretion to issue convertible
preferred stock, options and warrants, which, if issued in the future, may
impact the rights of the holders of the Common Stock. The Company has
100,000,000 shares of common stock authorized and 5,000,000 preferred shares
authorized.
DIVIDENDS. Holders of Common Stock may receive dividends if, as and
when dividends are declared on Common Stock by the Company's Board of Directors.
If the Board of Directors hereafter authorizes the issuance of preferred shares,
and such preferred shares carry any dividend preferences, holders of Common
Stock may have no right to receive dividends unless and until dividends have
been declared and paid. At the present time, there is no preferred stock
outstanding except for the Preferred Stock. The ability of the Company to
lawfully declare and pay dividends on Common Stock is also limited by certain
provisions of applicable state corporation law. It is not expected that
dividends will be declared on the Common Stock in the foreseeable future.
DISTRIBUTIONS IN LIQUIDATION. If the Company is liquidated, dissolved
and wound up for any reason, distribution of the Company's assets upon
liquidation would be made first to the holders of preferred shares, if any, and
then to the holders of Common Stock. If the Company's net assets upon
liquidation were insufficient to permit full payment to the holders of shares of
preferred stock, if any, then all of the assets of the Company would be
distributed pro rata to the holders of shares of preferred stock and no
distribution will be made to the holders of Common Stock. There are no shares of
preferred stock issued or outstanding at this time except for the Preferred
Stock. A consolidation or merger of the Company with or into any other company,
or the sale of all or substantially all of the Company's assets, is not deemed a
liquidation, distribution or winding up for this purpose.
VOTING RIGHTS. The holders of record of Common Stock and Preferred
Stock (collectively, the "Stock"), the Company's only classes or series of
voting stock currently outstanding, are entitled, as a result of the Reverse
Split, to one vote and 8-1/3 votes respectively for each share held, except that
the Certificate of Incorporation provides for cumulative voting in all elections
of directors. Abstentions and broker non-votes with respect to any proposal will
be counted only for purposes of determining whether a quorum is present for the
purpose of voting on that proposal and will not be voted for or against that
proposal. Such outstanding shares of the Stock present in person or by Proxy
representing one third of the votes to which all of the outstanding shares of
Stock are entitled to vote (provided, however, that each share of Preferred
Stock will have 8-1/3 votes) is required for a quorum.
PREFERRED STOCK
GENERAL. The Certificate of Incorporation authorizes the issuance of
5,000,000 shares of preferred stock, $.001 par value of which the Company has
issued 1,037,461 shares of Preferred Stock. The terms of the Preferred Stock are
included in the Certificate of Designation. The Preferred Stock possesses all
those rights and privileges as are afforded to capital stock by applicable law
in the absence of any express grant of rights or privileges in the Certificate
of Designation. The Preferred Stock does not have any preemptive rights. The
Preferred Stock is not listed on any national securities exchange. Set forth
below is a description of the rights and preferences of the Preferred Stock.
DIVIDEND RIGHTS. Each share of Preferred Stock is entitled to
dividends, pari passu with dividends declared and paid with respect to the
Common Stock, equal to, as a result of the Reverse Split, 81/3 times the amount
declared and paid with respect to each share of Common Stock.
VOTING RIGHTS. Each share of Preferred Stock is entitled, as a result
of the Reverse Split, to 81/3 votes, on any matter submitted to a vote of
stockholders, to be voted together with the Common Stock. The Preferred Stock
has no right to vote separately, as a class, except as provided by law.
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CONVERSION RIGHTS. Each share of Preferred Stock is convertible, as a
result of the Reverse Split, at any time into 81/3 shares, of Common Stock,
subject to adjustment in certain circumstances. In order to exercise the
conversion privilege, the holder of a share of Preferred Stock shall surrender
the certificate representing such share at the office of the transfer agent for
the Common Stock and shall give written notice to the Company at said office
that such holder elects to convert the same, specifying the name or names and
denominations in which such holder wishes the certificate or certificates for
the Common Stock to be issued.
The number of shares of Common Stock issuable upon the conversion of
shares of Preferred Stock is subject to adjustment under certain circumstances,
including (a) the distribution of additional shares of Common Stock to all
holders of Common Stock; (b) the subdivision of shares of Common Stock; (c) a
combination of shares of Common Stock into a smaller number of shares of Common
Stock; (d) the issuance of any securities in a reclassification of the Common
Stock; and (e) the distribution to all holders of Common Stock of any shares of
the Company's capital stock (other than Common Stock) or evidence of its
indebtedness, assets (other than certain cash dividends or dividends payable in
Common Stock) or certain rights, options or warrants (and the subsequent
redemption or exchange thereof).
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Company, no distribution will be permitted to
be made to holders of Common Stock unless, prior thereto, the holders of the
Preferred Stock shall have received $.01 per share, plus an amount equal to
unpaid dividends thereon, if any, including accrued dividends, whether or not
declared, to the date of such payment. With regard to rights to receive
dividends and distributions upon dissolution, the Preferred Stock shall rank
prior to the Common Stock and junior to any other preferred stock issued by the
Company, unless the terms of such other preferred stock provide otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent, warrant agent and registrar for the Common Stock is
American Stock Transfer & Trust Company, New York, New York.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither the Company nor the Selling
Stockholders have employed an underwriter for the sale of Shares by the Selling
Stockholders. The Company will bear all expenses in connection with the
preparation of this Prospectus. The Selling Stockholders will bear all expenses
associated with the sale of the Shares.
The Shares may be offered for the account of the Selling Stockholders
from time to time on any stock exchange upon which shares of Common Stock are
traded, at fixed prices that may be changed or at negotiated prices. The Selling
Stockholders may effect such transactions by selling shares to or through
broker-dealers, and all such broker-dealers may receive compensation in the form
of discounts, concessions, or commissions from the Selling Stockholders and/or
the purchasers of Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
Any broker-dealer acquiring Shares from the Selling Stockholders may
sell the shares either directly, in its normal market-making activities, through
or to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on the NYSE or at prices related to such
prevailing market prices or at negotiated prices to its customers or a
combination of such methods. The Selling Stockholders and any broker- dealers
that act in connection with the sale of the Shares hereunder might be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act; any
commissions received by them and any profit on the resale of shares as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act. Any such commissions, as well as other expenses incurred by the
Selling Stockholders and applicable transfer taxes, are payable by the Selling
Stockholders.
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EXPERTS
The financial statements and schedule of the Company included in this
Prospectus and the Registration Statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
The audited combined financial statements of MedExec Inc. &
Subsidiaries; SPI Managed Care Inc.; & SPI Managed Care of Hillsborough County,
Inc., as of December 31, 1995 and 1994, and for each of the years in the three
year period ended December 31, 1995, which are included in this Prospectus, have
been so included in reliance on the reports in the three year period ended
December 31, 1995 of KPMG Peat Marwick LLP, as independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in auditing and accounting.
The audited consolidated financial statements of First Medical
Corporation, as of December 31, 1996, and for the year then ended, which is
included in this Prospectus, has been so included in reliance on the report in
the year ended December 31, 1996 of KPMG Peat Marwick LLP, as independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be
passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York,
New York.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act covering the securities described herein.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Statements contained herein or
incorporated herein by reference concerning the provisions of documents are
summaries of such documents, and each statement is qualified in its entirety by
reference to the applicable document if filed with the SEC or attached as an
appendix hereto. For further information, reference is hereby made to the
Registration Statement and the exhibits filed therewith. The Registration
Statement and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents. Requests for such copies should be
directed to Robert A. Bruno, The Lehigh Group, Inc., 1055 Washington Boulevard,
Stamford, CT 06901, (telephone (203) 327-0900).
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid
by the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee, all
amounts shown are estimates.
Registration fee............................................ $_______*
Printing expenses (other than stock certificates)........... 1,000
Printing and engraving of stock certificates................ 10,000
Legal fees and expenses (other than Blue sky)............... 25,000
Accounting fees and expenses................................ 52,000
Transfer Agent and Registrar fees and expenses.............. 5,000
Miscellaneous expenses...................................... ------
Total.......................... 95,000
======
- -------------
* Paid in full
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation and By-laws of the Company
contain provisions permitted by the Delaware General Corporation Law (under
which the Company is organized), that, in essence, provide that directors and
officers shall be indemnified for all losses that may be incurred by them in
connection with any claim or legal action in which they may become involved by
reason of their service as a director or officer of the Company if they meet
certain specified conditions. In addition, the Restated Certificate of
Incorporation of the Company contains provisions that limit the monetary
liability of directors of the Company for certain breaches of their fiduciary
duty of care and provide for the advancement by the Company to directors and
officers of expenses incurred by them in defending suits arising out of their
service as such.
The Registrant's authority to indemnify its directors and officers is
governed by the provisions of Section 145 of the Delaware General Corporation
Law, as follows:
(a) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the
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corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made (1) by the board of directors by
a majority vote of directors who are not parties to such action, suit or
proceeding even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition or such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to the "corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans, references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan, and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
II-2
employee or agent with respect to any employee benefit plan, its participants or
beneficiaries, and a person who acted in good faith and in a manner reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On August 22, 1994, pursuant to a private placement, the Company sold
2,575,000 shares of Common Stock at an aggregate purchase price of $1,030,000
($.40 per share). On November 18, 1994, the Company sold an additional 106,250
shares of Common Stock at an aggregate price of $42,500 ($.40 per share)
pursuant to such private placement. The sales were made under Section 4(2) of
the Securities Act, which exempt securities from registration when adding
private placement.
On October 29, 1996, in connection with the execution of the Merger
Agreement, the Company issued a convertible debenture in the amount of $300,000
to First Medical Corporation. On February 7, 1997, First Medical Corporation
elected to convert its debenture in 937,500 shares of the Company's common
stock. FMC purchased a block of stock to increase the vote in favor of the
Merger.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following Exhibits are filed as part of this registration statement
(references are to Regulation S-K Exhibit Numbers):
2(a) Amended and Restated Agreement and Plan of Merger, dated as of October
29, 1996, between the Registrant, the Lehigh Management Corp. ("Merger
Sub") and First Medical Corporation ("FMC"), (incorporated by reference
to Appendix A to the Registrant's Proxy Statement for a Special Meeting
of Shareholders to be held July 9, 1997).
2(b) First Amendment to the Merger Agreement, dated July 9, 1997 between the
Registrant, Merger Sub and FMC.
3(a) Restated Certificate of Incorporation, By-Laws and Amendments to
By-Laws (incorporated by reference to Exhibits A and B to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1970. Exhibits 3 and 1, respectively, to the Registrant's Current
Reports on Form 8-K dated September 8, 1972 and May 9, 1973, and
Exhibit to the Registrant's Current Report on Form 8-K dated October
10, 1973, and Exhibit 3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1980).
3(b) Certificate of Amendment to Restated Certificate of Incorporation dated
September 30, 1983 (incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
29, 1985).
3(c) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on October 31, 1985 (incorporated by reference to Exhibit 4(c)
to the Registrant's Current Report on Form 8-K dated November 7, 1985).
3(d) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on January 2, 1986 (incorporated by reference to Exhibit 3(d)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1985).
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3(e) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on June 4, 1986 (incorporated by reference to Exhibit 4(a) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1986).
3(f) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on March 15, 1991 (incorporated by reference to Exhibit 3(g)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
3(g) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on December 27, 1991 (incorporated by reference to Exhibit 3(h) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
3(h) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on January 27, 1995 (incorporated by reference to Exhibit 3(i) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
3(i) Form of Certificate of Description of the Series A Convertible
Preferred Stock.
3(j) 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(a) 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).
4(b) Amendment to Indenture dated as of March 14, 1991 referenced to in Item
4(b)(1) (incorporated by reference to Exhibit 4(b)(2) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
4(c) 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,
pursuant 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(d) 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(e) Form of indenture between the Registrant, NICO and Shawmut Bank, N.A.,
as Trustee, included 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).
5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP regarding the
legality of the securities being registered and the tax consequences of
the transaction (incorporated by reference to Exhibit 5.1 to Amendment
No. 4 to Registrant's Registration Statement on Form S-4).
10(a) Guaranty of LVI Environmental dated as of May 5, 1993 (incorporated by
reference to Exhibit 10(f) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10(b) Indemnification Agreement dated as of May 5, 1993 among LVI
Environmental, the Registrant and certain directors and officers of the
Registrant (incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993).
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10(c) Assumption Agreement dated as of May 5, 1993 among the Registrant, NICO
and LVI Holding for the benefit of holders of certain securities of
Hold-Out Notes (as defined therein) (incorporated by reference to
Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
10(d) Exchange Offer and Registration Rights Agreement dated as of March 15,
1991 made by the Registrant in favor of those persons participating in
the Registrant's exchange offers (incorporated by reference to Exhibit
10(j) to the Registrant's Annual Report on Form 10-K/A Amendment #2 for
the year ended December 31, 1993).
10(e) Employment Agreement between the Registrant and Salvatore J. Zizza
dated August 22, 1994 (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission in September 1994).
10(f) Options of Mr. Zizza to purchase an aggregate of 10,250,000 shares of
Common Stock of the Registrant (incorporated by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(g) Registration Rights Agreement dated as of August 22, 1994 between Mr.
Zizza and the Registrant (incorporated by reference to Exhibit 10.3 to
the Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission in September 1994).
10(h) Consulting Agreement dated as of August 22, 1994 between Dominic
Bassani and the Registrant (incorporated by reference to Exhibit 10.4
to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(i) Warrants of Mr. Bassani to purchase an aggregate of 7,750,000 shares of
Common Stock of the Registrant (incorporated by reference to Exhibit
10.5 to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(j) Registration Rights Agreement dated as of August 22, 1994 between Mr.
Bassani and the Registrant (incorporated by reference to Exhibit 10.6
to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(k) Form of Registration Rights Agreement dated as of August 22, 1994 among
the Registrant and the investors in the Private Placement (incorporated
by reference to Exhibit 10.7 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission in September
1994).
10(l) Warrant of Goldis Financial Group, Inc. to purchase an aggregate of
386,250 shares of Common Stock of the Registrant (incorporated by
reference to Exhibit 10.8 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission in September
1994).
10(m) Employment Agreement between the Registrant and Robert A. Bruno dated
January 1, 1995 (incorporated by reference to Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10(n) Subordinated debenture dated March 28, 1996 between the Registrant and
Macrocom Investors, LLC (incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10(o) Option Letter Agreement, dated October 29, 1996, between Salvatore J.
Zizza and First Medical Corporation (incorporated by reference to
Exhibit 99.7 to the Registrant's Current Report of Form 8-K filed with
the Securities and Exchange Commission in November 1996).
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10(p) $100,000 Promissory Note, dated as of October 29, 1996, from First
Medical Corporation to Salvatore J. Zizza (incorporated by reference to
Exhibit 99.8 to the Registrant's Current Report of Form 8-K filed with
the Securities and Exchange Commission in November 1996).*
*11 Computation of earnings per share
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995).
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in Exhibit
5.1).
- ------------------
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and State of
New York on the 12th day of January, 1998.
THE LEHIGH GROUP INC.
By: /s/ Robert A. Bruno
-------------------------
Vice President
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POWERS OF ATTORNEY AND SIGNATORIES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated. Each of the undersigned officers and
directors of The Lehigh Group Inc. hereby constitutes and appoints Dennis A.
Sokol, Salvatore J. Zizza and Robert A. Bruno and each of them singly, as true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him in his name in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and to
prepare any and all exhibits thereto, and other documents in connection
therewith, and to make any applicable state securities law or blue sky filings,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite or necessary to be done to
enable The Lehigh Group Inc. to comply with the provisions of the Securities Act
of 1933, as amended, and all requirements of the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys- in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
SIGNATURE TITLE DATE
- ------------------ Chairman of the Board, Director
Dennis A. Sokol and Chief Executive Officer
- ------------------ Executive Vice President, Treasurer,
Salvatore J. Zizza Director and Chief Financial Officer
- ------------------ Vice President and Secretary
A. Bruno
- ------------------- Director
Melvin E. Levinson
- ------------------- Vice Chairman of the Board and
Elliot H. Cole Director
- ------------------- Director
Richard Berman
II-8
EXHIBIT INDEX
EXHIBIT
2.1 Agreement and Plan of Merger, dated as of October 28, 1996, between the
Registrant, the Registrant Acquisition Corp. and First Medical
Corporation, as amended (incorporated by reference to Exhibit 2.1 to
the Registrants Proxy Statement for a Special Meeting of Stockholders
to be held July 9, 1997).
3(a) Restated Certificate of Incorporation, By-Laws and Amendments to
By-Laws (incorporated by reference to Exhibits A and B to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1970. Exhibits 3 and 1, respectively, to the Registrant's Current
Reports on Form 8-K dated September 8, 1972 and May 9, 1973, and
Exhibit to the Registrant's Current Report on Form 8-K dated October
10, 1973, and Exhibit 3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1980).
3(b) Certificate of Amendment to Restated Certificate of Incorporation dated
September 30, 1983 (incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
29, 1985).
3(c) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on October 31, 1985 (incorporated by reference to Exhibit 4(c)
to the Registrant's Current Report on Form 8-K dated November 7, 1985).
3(d) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on January 2, 1986 (incorporated by reference to Exhibit 3(d)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1985).
3(e) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on June 4, 1986 (incorporated by reference to Exhibit 4(a) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1986).
3(f) Certificate of Amendment to Restated Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
Delaware on March 15, 1991 (incorporated by reference to Exhibit 3(g)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
3(g) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on December 27, 1991 (incorporated by reference to Exhibit 3(h) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
3(h) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on January 27, 1995 (incorporated by reference to Exhibit 3(i) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
3(i) Form of Certificate of Designation of the Series A Convertible
Preferred Stock.
3(j) 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(a) 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).
4(b) Amendment to Indenture dated as of March 14, 1991 referenced to in Item
4(b)(1) (incorporated by reference to Exhibit 4(b)(2) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
4(c) 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,
pursuant
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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(d) 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(e) Form of indenture between the Registrant, NICO and Shawmut Bank, N.A.,
as Trustee, included 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).
5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP regarding the
legality of the securities being registered and the tax consequences of
the transaction (incorporated by reference to Exhibit 5.1 to Amendment
No. 4 to Registrant's Registration Statement on Form S-4).
10(a) Guaranty of LVI Environmental dated as of May 5, 1993 (incorporated by
reference to Exhibit 10(f) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10(b) Indemnification Agreement dated as of May 5, 1993 among LVI
Environmental, the Registrant and certain directors and officers of the
Registrant (incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993).
10(c) Assumption Agreement dated as of May 5, 1993 among the Registrant, NICO
and LVI Holding for the benefit of holders of certain securities of
Hold-Out Notes (as defined therein) (incorporated by reference to
Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
10(d) Exchange Offer and Registration Rights Agreement dated as of March 15,
1991 made by the Registrant in favor of those persons participating in
the Registrant's exchange offers (incorporated by reference to Exhibit
10(j) to the Registrant's Annual Report on Form 10- K/A Amendment #2
for the year ended December 31, 1993).
10(e) Employment Agreement between the Registrant and Salvatore J. Zizza
dated August 22, 1994 (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission in September 1994).
10(f) Options of Mr. Zizza to purchase an aggregate of 10,250,000 shares of
Common Stock of the Registrant (incorporated by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(g) Registration Rights Agreement dated as of August 22, 1994 between Mr.
Zizza and the Registrant (incorporated by reference to Exhibit 10.3 to
the Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission in September 1994).
10(h) Consulting Agreement dated as of August 22, 1994 between Dominic
Bassani and the Registrant (incorporated by reference to Exhibit 10.4
to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(i) Warrants of Mr. Bassani to purchase an aggregate of 7,750,000 shares of
Common Stock of the Registrant (incorporated by reference to Exhibit
10.5 to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(j) Registration Rights Agreement dated as of August 22, 1994 between Mr.
Bassani and the Registrant (incorporated by reference to Exhibit 10.6
to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
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10(k) Form of Registration Rights Agreement dated as of August 22, 1994 among
the Registrant and the investors in the Private Placement (incorporated
by reference to Exhibit 10.7 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission in September
1994).
10(l) Warrant of Goldis Financial Group, Inc. to purchase an aggregate of
386,250 shares of Common Stock of the Registrant (incorporated by
reference to Exhibit 10.8 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission in September
1994).
10(m) Employment Agreement between the Registrant and Robert A. Bruno dated
January 1, 1995 (incorporated by reference to Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10(n) Subordinated debenture dated March 28, 1996 between the Registrant and
Macrocom Investors, LLC (incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).
10(o) Option Letter Agreement, dated October 29, 1996, between Salvatore J.
Zizza and First Medical Corporation (incorporated by reference to
Exhibit 99.7 to the Registrant's Current Report of Form 8-K filed with
the Securities and Exchange Commission in November 1996).
10(p) $100,000 Promissory Note, dated as of October 28, 1996, from First
Medical Corporation to Salvatore J. Zizza (incorporated by reference to
Exhibit 99.8 to the Registrant's Current Report of Form 8-K filed with
the Securities and Exchange Commission in November 1996).
*11 Computation of earnings per share.
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995).
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in Exhibit
5.1).
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* Filed herewith.
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