UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
United American Healthcare Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
$75,652,197
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
(UNITED AMERICAN HEALTHCARE CORPORATION LOGO)
UNITED AMERICAN
HEALTHCARE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of United American Healthcare Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of United
American Healthcare Corporation will be held on _________, 2008 at :00
[a.m./p.m.], Eastern Time, at the Atheneum Suite Hotel, 1000 Brush Avenue,
Detroit, Michigan.
The purpose of the Special Meeting is to consider and act upon the
following proposal, and to transact such other business as may properly come
before the meeting or an adjournment thereof:
- - approve the Purchase Agreement dated as of March 24, 2008 among us, our
subsidiaries United American of Tennessee, Inc. and UAHC Health Plan of
Tennessee, Inc. ("UAHC Health Plan") and Molina Healthcare, Inc. ("Molina")
and all transactions contemplated therein (together with the Purchase
Agreement and a Shareholder Agreement referred to in it, the
"Transactions").
The Transactions will occur ONLY IF UAHC Health Plan receives at least one
contract pursuant to the proposal that it and Molina have jointly submitted to
apply for contracts with the Department of Finance and Administration of the
State of Tennessee, Bureau of TennCare, to provide managed care services in the
East and West Grand Regions of Tennessee. TennCare's announcement of the award
of the contracts is scheduled for April 22, 2008, with the signing of the
contracts scheduled to occur no later than May 9, 2008.
Additional information relating to these matters is set forth in the proxy
statement enclosed herewith, which should be read carefully and in its entirety.
The Transactions proposal has been carefully reviewed by the Board of Directors
of the Company, who believe the proposal is fair and in the best interests of
the shareholders and who unanimously recommend that you vote FOR the proposal.
Only shareholders of record at the close of business on March 21, 2008 will
be entitled to vote at the Special Meeting.
PLEASE VOTE YOUR SHARES PROMPTLY. YOUR VOTE IS EXTREMELY IMPORTANT,
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. WHETHER YOU PLAN TO ATTEND THE
MEETING OR NOT, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENVELOPE PROVIDED. IF YOU SEND IN YOUR PROXY CARD AND THEN
DECIDE TO ATTEND THE SPECIAL MEETING TO VOTE YOUR SHARES IN PERSON, YOU MAY
STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET FORTH
IN THE PROXY STATEMENT.
We appreciate your continued support.
Sincerely,
/s/ William C. Brooks,
William C. Brooks,
Chairman, President and
Chief Executive Officer
___________, 2008
(UNITED AMERICAN HEALTHCARE CORPORATION LOGO)
UNITED AMERICAN
HEALTHCARE CORPORATION
UNITED AMERICAN HEALTHCARE CORPORATION
300 RIVER PLACE, SUITE 4950
DETROIT, MICHIGAN 48207-5062
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PROXY STATEMENT
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INTRODUCTION
This proxy statement is provided in connection with the solicitation of
proxies by United American Healthcare Corporation (the "COMPANY"), for use at
the Special Meeting of Shareholders of the Company to be held on __________,
2008 at :00 [a.m./p.m.], Eastern Time, at the Atheneum Suite Hotel, 1000 Brush
Avenue, Detroit, Michigan, and any adjournments thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders. This proxy
statement and proxies in the enclosed form are first being sent to the Company's
shareholders on or about __________, 2008.
It is important that your shares be represented at the Special Meeting. The
proxy is solicited on behalf of our Board of Directors. Shares represented by
valid proxies in the enclosed form will be voted if received in time for the
meeting. Whether you plan to attend the meeting or not, please sign, date and
mail the enclosed proxy card as soon as possible in the envelope provided. If
you send in your proxy card and then decide to attend the Special Meeting to
vote your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in this proxy statement.
The proposed sale to Molina Healthcare, Inc. of a 19.9% or 49.9% interest
in the stock of our subsidiary, UAHC Health Plan of Tennessee, Inc., the signing
of the Shareholder Agreement to be entered into with Molina, and the future sale
for cash to Molina, at its option, of our remaining UAHC Health Plan stock have
been agreed to in a Purchase Agreement between the Company and Molina in
connection with the proposal they jointly submitted to apply for one or two
TennCare managed care contracts. The closing of these and other transactions
contemplated in the Purchase Agreement are conditioned upon, among other things,
approval of the proposal stated in the Notice of Special Meeting of Shareholders
accompanying this proxy statement by a majority of the votes cast by the
Company's shareholders entitled to vote at the Special Meeting (represented in
person or by proxy).
If Molina would exercise its purchase option and if, consequently, the sale
of all our UAHC Health Plan stock is completed, the Company will sell
substantially all of its non-cash assets to Molina for the purchase price
determined as set forth in the Shareholder Agreement at some future time. THE
SHAREHOLDERS WILL NOT KNOW, AT THE TIME OF THE SPECIAL MEETING, THE ACTUAL
AMOUNT OF THE PURCHASE PRICE. HOWEVER, THE BOARD OF DIRECTORS OF THE COMPANY HAS
CAREFULLY REVIEWED AND APPROVED THE PROPOSAL AS BEING FAIR AND IN THE BEST
INTERESTS OF THE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL.
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NEITHER THE GRANTING OF MOLINA'S PURCHASE OPTION NOR THE SALES OF UAHC
HEALTH PLAN STOCK TO MOLINA HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, AND THE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTIONS OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUMMARY TERM SHEET
The following is a summary of the most material terms of the signed
Purchase Agreement dated as of March 24, 2008 (attached to this proxy statement
as APPENDIX A) and the transactions contemplated therein, including a summary of
the most material terms of the proposed Shareholder Agreement which is Exhibit D
in such APPENDIX A. We have included page references in parentheses to direct
you to a more complete description of such transactions and agreements elsewhere
in this proxy statement.
- - PARTIES. (See pages 13 and 14) The parties to the Purchase Agreement are
Molina Healthcare, Inc., UAHC Health Plan of Tennessee, Inc., United
American of Tennessee, Inc. and United American Healthcare Corporation. In
addition, if the proposal that UAHC Health Plan of Tennessee, Inc. and
Molina Healthcare, Inc. jointly submitted to TennCare in March 2008 results
in receiving one or two TennCare contracts, and if applicable conditions
are satisfied or waived, then the Shareholder Agreement will be entered
into by UAHC Health Plan of Tennessee, Inc., United American of Tennessee,
Inc. and Molina Healthcare, Inc.
- - DEFINED TERMS FOR BREVITY. For brevity in this proxy statement: (A) "WE" or
"OUR" refer to United American Healthcare Corporation; (B) our wholly-owned
subsidiary, UAHC Health Plan of Tennessee, Inc., is sometimes referred to
as "UAHC HEALTH PLAN"; (C) our wholly-owned subsidiary, United American of
Tennessee, Inc., is sometimes referred to as "UAT"; (D) Molina Healthcare,
Inc. is sometimes referred to as "MOLINA"; and (E) "SPECIAL MEETING" means
the Special Meeting of our shareholders referred to in the very first
paragraph of this proxy statement.
- - THE SALE OF A MINORITY INTEREST IN OUR SUBSIDIARY. (See page 14) You are
being asked to approve the sale of a 19.9% or 49.9% stock interest in our
operating subsidiary, UAHC Health Plan, to Molina, depending on whether the
proposal they jointly submitted to TennCare in March 2008 results in
receiving one or two TennCare contracts, respectively. However, if no
TennCare contract is received pursuant to the joint proposal, there will be
no sale, and hence no Shareholder Agreement, and the Special Meeting will
be canceled.
- - CLOSING OF THE MINORITY INTEREST SALE. (See page 14) The closing of the
sale of the minority stock interest to Molina will occur only if at least
one TennCare contract is received pursuant to the joint proposal. In that
event, the closing is expected to occur, if all applicable conditions have
been satisfied or waived, no sooner than the TennCare contract signing
(expected on or before May 9, 2008) and no later than the TennCare contract
effective date (expected to be November 1, 2008 if only a West Grand Region
contract is received, or January 1, 2009 if an East Grand Region contract
is received).
- - CONSIDERATION FOR THE MINORITY INTEREST SALE. (See page 14) At the closing
(if any), the cash purchase price to be paid by Molina to UAHC Health Plan
will be $4,500,000 for a 19.9% interest, or $18,040,000 for a 49.9%
interest, in the total outstanding stock of UAHC Health Plan, as
applicable.
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- - MOLINA'S OPTION TO BUY-OUT OUR INTEREST IN UAHC HEALTH PLAN. (See pages
14-15) You are being asked to approve our granting Molina Healthcare, Inc.
an option to purchase all our shares of UAHC Health Plan stock for cash,
exercisable at a future time. Accordingly, you are being asked to approve
the sale of substantially all of our non-cash assets to Molina if it
exercises that option.(1) However, if no TennCare contract is received
pursuant to the joint proposal, there will be no such option, and hence no
such potential sale, and the Special Meeting will be canceled.
- - WHEN MOLINA CAN EXERCISE ITS OPTION TO BUY-OUT OUR INTEREST IN UAHC HEALTH
PLAN. (See pages 14-15) Molina could exercise the option any time between
the dates that are 24 and 48 months (if the joint proposal results in one
TennCare contract) or 36 and 60 months (if it results in two TennCare
contracts) from the TennCare contract effective date. Accordingly, if the
joint proposal results in only a West Grand Region contract (with a
November 1, 2008 expected effective date), Molina could exercise the option
between November 1, 2010 and November 1, 2012; and if the joint proposal
results in a West Grand Region contract and an East Grand Region contract
(with a January 1, 2009 expected effective date), Molina could exercise the
option between January 1, 2012 and January 1, 2014.
- - ALSO WHEN MOLINA CAN EXERCISE ITS OPTION TO BUY-OUT OUR INTEREST IN UAHC
HEALTH PLAN. (See page 15) In addition, Molina could exercise the option to
buy-out our interest in UAHC Health Plan prior to the expiration dates
described in the preceding paragraph any time that (i) UAHC Health Plan
requires a capital infusion of more than $5,000,000 upon a capital call by
its Board of Directors as set forth in the Shareholder Agreement, or
requires additional capital as mandated by TennCare and/or the Tennessee
Department of Commerce and Insurance, and (ii) UAT declines to contribute
its proportionate share, and (iii) Molina elects to and does contribute
100% of the required capital.
- - CONSIDERATION FOR OUR ENTIRE INTEREST IN UAHC HEALTH PLAN. (See page 15) If
Molina exercises its option to purchase all of our UAHC Health Plan stock
(which is owned by our subsidiary, UAT), the cash purchase price to be paid
by Molina to UAT will equal the percentage share of all outstanding UAHC
Health Plan stock then owned by UAT multiplied by the Fair Market Value of
UAHC Health Plan determined as of the purchase closing date. For this
purpose, the Fair Market Value of UAHC Health Plan will equal the sum of
(1) its Medicaid membership multiplied by $345 per Medicaid member, plus
(2) its Medicare Advantage and/or Medicare Advantage Special Needs Plan
membership multiplied by $2,500 per Medicare member, plus (3) the market
value of its Medicare Advantage Prescription Drug Program plan business
operations, if any, plus (4) the sum of capital then held by UAHC Health
Plan in excess of its statutory minimum net worth requirement. Because
these variable components of the purchase price must be determined at an
indefinite date
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(1) We note that upon Molina's purchase of a minority interest in UAHC Health
Plan stock, the remaining majority interest in UAHC Health Plan stock that
UAT will continue to own will constitute substantially all of our non-cash
assets (i.e., assets other than cash, cash equivalents and marketable
securities), and may continue to constitute substantially all of our
non-cash assets when Molina later exercises its buy-out purchase option. It
is possible, however, that if and when Molina exercises the option, the
Company by that time might have acquired other non-cash assets to such an
extent that the sale of all of UAT's UAHC Health Plan stock to Molina would
not then be a sale of substantially all of our non-cash assets. Since that
is wholly speculative and may not occur, we ask shareholders to consider
and vote on the Transactions proposal at the Special Meeting (in person or
by proxy) on the assumption that if Molina exercises the option, the sale
of all of UAT's UAHC Health Plan stock to Molina would be a sale of
substantially all of our non-cash assets at that time.
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likely to be more than 2 1/2 years from now, we cannot know or accurately
predict what the actual cash purchase price will be.
- - OUR OPTION TO BUY ALL OF MOLINA'S INTEREST IN UAHC HEALTH PLAN. (See page
15) In the Shareholder Agreement, Molina will grant to our subsidiary, UAT,
the option to purchase all UAHC Health Plan stock owned by Molina for a
purchase price equal to the percentage share of the total outstanding UAHC
Health Plan stock then owned by Molina multiplied by the Fair Market Value
of UAHC Health Plan (as defined in the preceding paragraph) determined as
of the purchase closing date. UAT could exercise the option any time
between the dates that are 60 and 72 months from the effective date of the
TennCare contract received pursuant to the joint proposal. Accordingly, UAT
could exercise the option any time between November 1, 2013 and November 1,
2014 if the contract effective date for this purpose is November 1, 2008,
or between January 1, 2014 and January 1, 2015 if the contract effective
date for this purpose is January 1, 2009.
- - MOLINA'S OPTION TO REQUIRE US TO BUY ALL OF ITS INTEREST IN UAHC HEALTH
PLAN. (See pages 15-16) In the Shareholder Agreement, our subsidiary, UAT,
will grant to Molina the option (called the "PUT") to require UAT to
purchase all UAHC Health Plan stock owned by Molina for a price equal to
the percentage share of the total outstanding UAHC Health Plan stock then
owned by Molina multiplied by the Total Value of UAHC Health Plan. Molina
could exercise the Put any time between the dates that are 60 and 72 months
from the effective date of the new TennCare contract. Accordingly, Molina
could exercise the Put any time between November 1, 2013 and November 1,
2014 if the contract effective date for this purpose is November 1, 2008,
or between January 1, 2014 and January 1, 2015 if the contract effective
date for this purpose is January 1, 2009. For this purpose, the Total Value
of UAHC Health Plan would be (i) the valuation proposed in writing by
Molina with its notice of exercising the Put, if agreed to by UAT, or (ii)
the alternative valuation proposed by UAT to Molina, or (iii) if Molina and
UAT could not agree upon the Total Value of UAHC Health Plan within 30 days
after Molina's notice of exercising the Put, the valuation determined by
arbitration procedures set forth in the Purchase Agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act that are subject to the safe
harbor provisions created by that Act. Forward-looking statements can be
identified by the use of terms such as "expect," "could," "may," "believe,"
"anticipate," "will" and other future tense and forward-looking terminology.
Such forward-looking statements are based on management's current expectations
and involve known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At our Special Meeting, shareholders will act upon the proposal stated in
the Notice of Special Meeting of Shareholders accompanying this proxy statement,
to approve the Purchase Agreement dated as of March 24, 2008 among us, our
subsidiaries United American of Tennessee, Inc. and UAHC Health Plan of
Tennessee, Inc., and Molina Healthcare, Inc. and all transactions contemplated
therein (together with the Purchase Agreement and a Shareholder Agreement
referred to in it, the "TRANSACTIONS").
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WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendation
of the Board of Directors of the Company (the "BOARD" or "BOARD OF DIRECTORS").
The Board's recommendation is set forth with the description of the Transactions
proposal in this proxy statement. In summary, the Board recommends a vote FOR
the approval of the Transactions proposal as being in the best interests of the
Company and our shareholders.
Management is not aware of any matters, other than as specified above, that
will be presented for action at the Special Meeting, but if any other matters do
properly come before the meeting, the proxy holders will vote as recommended by
the Board of Directors or, if no recommendation is given, at their discretion.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only shareholders of record at the close of business on March 21, 2008, the
record date for the meeting, are entitled to receive notice of and to
participate in the Special Meeting. If you were a shareholder of record on that
date, you will be entitled to vote all of the shares that you held on that date
at the meeting, or any postponements or adjournments of the meeting. As of the
record date, there were 8,734,214 shares of our Common Stock outstanding.
WHAT ARE THE VOTING RIGHTS OF HOLDERS OF THE COMPANY'S COMMON STOCK?
Under the Company's Articles of Incorporation, each holder of outstanding
Common Stock is entitled to cast one vote for each share of Common Stock held by
such holder.
WHO CAN ATTEND THE MEETING?
All shareholders as of the record date, or their duly appointed proxies,
may attend the meeting. If you attend, please note that cameras, recording
devices and other electronic devices will not be permitted at the meeting.
Please also note that if you hold your shares in "street name" (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date in order to gain
entrance.
WHAT CONSTITUTES A QUORUM?
With respect to all of the matters to be voted on at the meeting, the
presence at the meeting, in person or by proxy, of the holders of a majority of
the shares of Common Stock outstanding on the record date will constitute a
quorum at the meeting, permitting the shareholders to take action on those
matters.
Proxies received but marked as abstentions and broker non-votes will be
included in the calculation of the number of votes considered to be present at
the meeting for purposes of determining a quorum.
HOW DO I VOTE?
If you complete and properly sign and date the accompanying proxy card and
return it to the Company, it will be voted as you direct. If you are a
registered shareholder and attend the meeting, you
5
may deliver your completed proxy card in person. "Street name" shareholders who
wish to vote at the meeting will need to obtain a proxy form from the
institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly exercised proxy bearing a later
date. In addition, the powers of the proxy holders will be suspended as to your
earlier submitted proxy if you attend the meeting in person and vote, although
attendance at the meeting will not by itself revoke a previously granted proxy.
WHAT VOTE IS REQUIRED TO APPROVE THE TRANSACTIONS PROPOSAL?
A majority of the votes cast by the shareholders of Common Stock entitled
to vote at the meeting (represented in person or by proxy) will be required to
approve the Transactions proposal. A properly executed proxy marked "ABSTAIN"
with respect to the Transactions proposal will not be voted, although it will be
counted for purposes of determining whether there is a quorum. Accordingly, an
abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or other nominee will not be permitted to exercise voting discretion
with respect to the Transactions proposal and may not be permitted to exercise
voting discretion with respect to any other matter that may properly come before
the meeting. Thus, if you do not give your broker or other nominee specific
instructions, your shares may not be voted on that proposal or those matters and
will not be counted in determining the number of shares necessary for approval.
Shares represented by such "broker non-votes" will, however, be counted in
determining whether there is a quorum.
WHAT WILL THE INSPECTOR OF ELECTION DO AT THE SPECIAL MEETING?
The shareholder votes cast for all items considered at the meeting will be
calculated by an officer of Computershare Investor Services, L.L.C., our
Registrar and Transfer Agent, as the Board-designated Inspector of Election. The
Inspector of Election will determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, hear and
determine challenges and questions arising in connection with the right to vote,
count and tabulate votes, determine the result, and do such acts as are proper
to conduct the election. Abstentions will not be counted either for or against
any action for which cast.
WILL THE SHAREHOLDERS HAVE APPRAISAL RIGHTS OR SIMILAR RIGHTS OF DISSENTERS?
Under the Michigan Business Corporation Act, the shareholders of the
Company are not entitled to any appraisal rights or dissenters' rights in
connection with the Transactions or any other matter to be acted upon at the
Special Meeting.
WHAT IS BENEFICIAL OWNERSHIP?
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more
than one person (such as where persons share voting power or investment power).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of
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which the information is provided. In computing the percentage of ownership of
any person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
such acquisition rights. As a result, the percentage of outstanding shares of
any person as shown on the following table does not necessarily reflect the
person's actual voting power at any particular time. The following information
is based on information contained in the most recent Schedule 13D or 13G and
Form 4 filings available to the Company.
HOW MUCH STOCK DO THE COMPANY'S 5% SHAREHOLDERS OWN?
The following table contains information with respect to the beneficial
ownership of our common shares as of March 21, 2008 by each person known by us
to beneficially own more than 5% of our common shares, our only outstanding
class of voting shares:
AMOUNT AND NATURE OF PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNED (1)
- ------------------------------------ -------------------- --------------------
Lloyd I. Miller, III 1,009,051(2) 11.6%
4550 Gordon Drive
Naples, FL 34102
Robert W. Morey and Maura Morey 662,196(3) 7.6%
1660 Tiburon Boulevard, Suite E
Tiburon, CA 94920
Bruce Galloway, Gary L. Herman, Strategic Turnaround 625,428(4) 7.2%
Equity Partners, L.P. (Cayman)
and Galloway Capital Management LLC
720 Fifth Avenue, 10th Floor
New York, NY 10019
Richard M. Brown, D.O. 470,949(5) 5.4%
1200 Ardmoor Drive
Bloomfield Hills, Michigan 48301
- ----------
(1) Based on 8,734,214 common shares outstanding as of March 21, 2008.
(2) The information with respect to Lloyd I. Miller, III, is based solely on
his Schedule 13G/A report (Amendment No. 1) filed January 3, 2008, his Form
4 report filed March 10, 2008, and a Schedule 13G/A report (Amendment No.
1) filed March 10, 2008 by The PNC Financial Services Group, Inc., PNC
Bancorp, Inc. and PNC Bank, National Association. Mr. Miller beneficially
owns an aggregate of 1,009,051 common shares, consisting of (i) 47,435
shares held by Mr. Miller for which he has sole voting and dispositive
power, (ii) 920,793 shares held in trust accounts as to which he and PNC
Bank, National Association, in its capacity as Trustee, share voting and
dispositive power, and 40,823 shares held by Milfam II L.P. as to which he
has sole voting and dispositive power. Mr. Miller disclaims beneficial
ownership of the shares described in clauses (ii) and (iii) above except to
the extent of his pecuniary interest therein.
(3) The information with respect to Robert W. Morey and Maura Morey is based
solely on a Schedule 13G/A report (Amendment No. 2) filed February 1, 2006.
They beneficially own an aggregate of 662,196 common shares, consisting of
(i) 227,241 shares held by Mr. Morey, (ii) 2,800 shares held by Mr. Morey
as custodian for his grandchild, Amberley Morey, and 900 shares held by Mr.
Morey as custodian for his grandchild, Elizabeth Gracey Morey, (iii) 12,000
shares held by Mr. Morey and Maura Morey as joint tenants and as to which
they share voting and dispositive power, and (iv) 419,255 shares held in
the RW Morey Defined Pension Trust for which Mr. Morey and Maura Morey
serve as co-trustees and as to which they share voting and dispositive
power.
(4) The information with respect to Bruce Galloway, Gary L. Herman, Strategic
Turnaround Equity Partners, L.P. (Cayman) and Galloway Capital Management
LLC is based solely on a Schedule 13D/A
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(Amendment No. 2) report filed October 29, 2007. Strategic Turnaround
Equity Partners, L.P. (Cayman) is deemed to be the direct beneficial owner
of 451,684 common shares. Galloway Capital Management LLC, as the general
partner of Strategic Turnaround Equity Partners, L.P. (Cayman), is deemed
to be the indirect beneficial owner of 540,888 common shares. Bruce
Galloway and Gary L. Herman, as Managing Members of Galloway Capital
Management LLC, are deemed to be the indirect beneficial owners of 540,888
common shares. Each of Galloway Capital Management LLC, Bruce Galloway and
Gary L. Herman disclaims beneficial ownership of the common shares
beneficially owned by Strategic Turnaround Equity Partners, L.P. (Cayman)
(except for (i) the indirect interest of Galloway Capital Management LLC by
virtue of being the general partner of Strategic Turnaround Equity
Partners, L.P. (Cayman), (ii) the indirect interests of Bruce Galloway and
Gary L. Herman by virtue of being members of Galloway Capital Management
LLC, and (iii) the indirect interests of Bruce Galloway and Gary L. Herman
by virtue of being limited partners of Strategic Turnaround Equity
Partners, L.P. (Cayman). Galloway Capital Management LLC, Bruce Galloway
and Gary L. Herman have shared voting and dispositive power for these
common shares. Bruce Galloway also is the direct beneficial owner of 83,190
common shares, including 23,004 shares held by him, 25 shares owned by his
son for which Bruce Galloway has sole voting and dispositive power, 10,080
shares held by RexonGalloway Capital Growth, LLC, an investment company in
which Bruce Galloway is a member and for which he has full investment and
voting discretion, and 50,051 shares held by Jacombs Investments, Inc. for
which Bruce Galloway has full investment and voting discretion. Gary L.
Herman also is the direct beneficial owner of 1,350 common shares,
including 300 shares directly beneficially owned by him and 1,050 shares
held by FBR, Inc. for which he has sole voting and dispositive power.
(5) Including 25,000, 15,000, 15,000, 2,500, 2,834 and 8,750 shares which Dr.
Brown has the right to acquire pursuant to stock options that are
exercisable currently or become exercisable within 60 days after March 21,
2008 for a price of $5.08, $2.09, $4.27, $3.86, $4.73 and $1.90,
respectively.
HOW MUCH STOCK DO THE COMPANY'S NAMED EXECUTIVE OFFICERS AND DIRECTORS OWN?
The following table contains information with respect to the beneficial
ownership of our common shares as of March 21, 2008 by members of our management
team, which includes the current executive officers, our directors, and our
directors and executive officers as a group.
AGGREGATE NUMBER OF COMMON
SHARES BENEFICIALLY OWNED
---------------------------
NAME OF BENEFICIAL OWNER NUMBER (2) PERCENTAGE (1)
- ------------------------ ---------- --------------
EXECUTIVE OFFICERS
William C. Brooks 210,536 2.4%
Stephen D. Harris 126,099 1.4%
Stephanie Dowell 17,000 *
DIRECTORS (3)
Richard M. Brown, D.O. 470,949 5.4%
Darrel W. Francis 56,469 *
Tom A. Goss 98,441 *
Ronald E. Hall, Sr. 87,091 *
Emmett S. Moten, Jr. 97,162 *
Eddie R. Munson 34,497 *
All Directors and Executive Officers as a group (9 persons) 1,198,244 13.7%
- ----------
* Represents less than 1% of the Company's outstanding common shares.
(1) Based on 8,734,214 common shares outstanding as of March 21, 2008. For
purposes of the table above, and in accordance with the rules of the SEC,
we deem common shares that are subject to options that are
8
currently exercisable or exercisable within 60 days of March 21, 2008 to be
outstanding and beneficially owned by the person holding the options for
the purpose of computing that person's percentage ownership, but we do not
treat them as outstanding in computing any other person's percentage
ownership.
(2) Includes the following number of common shares which the individual has the
right to acquire pursuant to stock options that are exercisable currently
or become exercisable within 60 days after March 21, 2008: Mr. Brooks,
149,084; Mr. Harris, 106,584; Ms. Dowell, 17,000; Dr. Brown and Mr. Hall,
69,084; Mr. Francis, 32,834; Mr. Goss, 47,834; Mr. Moten, 72,834; and Mr.
Munson, 25,000.
(3) Does not include William C. Brooks and Stephen D. Harris, who are also
executive officers and listed with the other executive officers in the
table above.
BUSINESS CONDUCTED BY THE COMPANY AND BY MOLINA
United American Healthcare Corporation (Nasdaq: UAHC) is a healthcare
management company headquartered in Detroit, Michigan. UAHC owns and manages
UAHC Health Plan, which is based in western Tennessee and includes the Memphis
market. UAHC Health Plan provides access to more than 900 primary and specialty
care physicians and more than 19 hospitals to the approximately 103,000 members
of UAHC Health Plan. UAHC Health Plan currently provides managed care services
on a modified-risk basis under an existing TennCare contract in the West Grand
Region of Tennessee, which is expected to end when the anticipated new TennCare
contracts for that Region, on a capitated, full-risk basis, become effective. In
addition, UAHC Health Plan is a Medicare Advantage qualified organization under
a contract with the Centers for Medicare & Medicaid Services, operating a
Medicare Advantage Special Needs Plan in Shelby County, Tennessee, and a
Voluntary Medicare Prescription Drug Plan. The Company's web site is
www.uahc.com; however, that information is not a part of this proxy statement.
Molina Healthcare, Inc. (NYSE: MOH) is a multi-state managed care
organization that arranges for the delivery of health care services to persons
eligible for Medicaid, Medicare, and other government-sponsored programs for
low-income families and individuals. Molina's nine licensed health plan
subsidiaries in California, Michigan, Missouri (under the Mercy CarePlus name),
Nevada, New Mexico, Ohio, Texas, Utah and Washington currently serve
approximately 1.1 million members. Molina's web site is
www.molinahealthcare.com; however, that information is not a part of this proxy
statement.
The mailing address and telephone number of our and Molina's principal
executive offices are shown below:
United American Healthcare Corporation Molina Healthcare, Inc.
300 River Place, Suite 4950 200 Oceangate, Suite 100
Detroit, Michigan 48207-5062 Long Beach, California 90802
(313) 393-4571 (562) 435-3666
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, proxy statements or
other information with the SEC at its Public Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the SEC's public reference
room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file
information electronically with the SEC and these filings are available from the
SEC's Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically. Our shares of common stock are listed on The Nasdaq Capital
Market under the symbol "UAHC." You may read and copy our SEC filings and other
information at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006. Information about us,
9
including our SEC filings, is also available on our web site at
http://www.uahc.com; however, that information is not a part of this proxy
statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED, OR INCORPORATED BY REFERENCE, IN
THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. ALL
INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO MOLINA UNDER THE ABOVE
CAPTION "BUSINESS CONDUCTED BY THE COMPANY AND BY MOLINA" HAS BEEN SUPPLIED BY
MOLINA. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY, UAHC HEALTH PLAN, UAT OR MOLINA SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
BACKGROUND OF THE TRANSACTIONS
In early 2007, the Company became aware that the State of Tennessee's
TennCare Bureau could issue a request for proposals for TennCare's East and West
Grand Regions (the "RFP") as early as later that year.
The Company's wholly-owned subsidiary, UAHC Health Plan, is an incumbent
contractor in the TennCare West Grand Region, with over 14 years' experience in
the TennCare system. The Company's management believes that the Company has a
well staffed operation in Memphis, Tennessee with an extensive provider network
consisting of more than 900 primary and specialty care physicians and more than
19 hospitals in Tennessee. However, the Company's management determined that, to
maximize its chances for success in the RFP process and to better serve the
members of UAHC Health Plan in the future, the Company should explore potential
strategic alliances or joint ventures with one or more national healthcare
management companies.
During the summer and fall of 2007, a team of the Company's senior
executives (reporting to the Company's Chairman and Chief Executive Officer,
William C. Brooks) identified several companies which in their judgment could
serve as suitable strategic partners for the Company. The Company's executives
and representatives had discussions with each of these candidates. The Company
was able to structure an acceptable arrangement with only one of them, Molina
Healthcare, Inc.
On September 10, 2007, an initial meeting was held in Detroit, Michigan,
between representatives of the Company and Molina, including Mr. Brooks and
Stephen D. Harris, the Company's Executive Vice President and Chief Financial
Officer, for the Company, and Marvin Cobern, Molina's Vice President for
Strategic Planning and Development. Following that meeting, a conference call
was held on September 17, 2007, to further discuss a potential strategic
alliance or joint venture between the companies. The participants in the
conference call included Messrs. Brooks and Harris for the Company and several
senior executives of Molina, including John C. Molina, Molina's Chief Financial
Officer. Following additional discussions between representatives of the two
companies, Molina and the Company entered into a Mutual Confidentiality and
Non-Disclosure Agreement dated as of October 1, 2007.
From October 4, 2007 through November 20, 2007, senior executives of the
Company held negotiations with Molina representatives regarding a joint venture
between the two companies. On behalf of the Company, these negotiations were led
by Messrs. Brooks and Harris. They were assisted by the
10
Company's financial advisor, The Chesapeake Group of New York City, and the
Company's principal law firm, Honigman Miller Schwartz and Cohn LLP.
On November 2, 2007, at its regular quarterly meeting, the Board of
Directors of the Company reviewed the status of the potential joint venture
between the Company and Molina. At the meeting, presentations were made by
senior executives of the Company and the Company's financial advisor and legal
counsel. Following these presentations, the Board unanimously voted to authorize
the Company to continue negotiating with Molina and to enter into a non-binding
preliminary agreement with Molina to establish a joint venture with respect to
health maintenance organization operations in Tennessee.
Discussions continued between representatives of the Company and Molina and
led, on November 20, 2007, to a preliminary agreement between them to establish
a joint venture. The agreement, titled "Memorandum of Interest and Exclusive
Negotiating Agreement," provided, among other things, that the parties would
"exclusively negotiate with each other" regarding submitting a joint response to
the anticipated RFP, and would continue to "expend the time, energy and
resources necessary to negotiate the acquisition [by Molina] of an equity
interest in [UAHC Health Plan]". Attached to the preliminary agreement was a
"preliminary term sheet," which proposed that (1) Molina acquire an equity
interest in UAHC Health Plan for a cash payment at the closing, and (2) Molina
acquire an option exercisable at a later date to purchase full ownership of UAHC
Health Plan at a formula price, with additional consideration for UAHC Health
Plan's Medicare Advantage business and any excess statutory net worth of UAHC
Health Plan at the time of such purchase.
On November 28, 2007, the Company's Board of Directors held a special
meeting to discuss the potential Molina joint venture. At the meeting, the Board
reviewed the terms of the November 20th preliminary agreement, including the
"preliminary term sheet" and unanimously ratified the Company's execution of the
preliminary agreement (including the preliminary term sheet). However, the Board
also directed the Company's management to make further presentations to the
Company's Board before entering into any definitive agreements relating to the
proposed Molina joint venture. The Board also directed its Finance and Audit
Committee to conduct further evaluation and inquiry regarding whether the
potential transaction with Molina was in the best interests of the Company and
its shareholders. The Finance and Audit Committee was asked to focus
particularly on whether the pricing was fair for both (a) the initial sale to
Molina of a minority equity interest in UAHC Health Plan and (b) a subsequent
sale to Molina of the Company's entire equity interest in UAHC Health Plan, in
the event Molina exercised its purchase option described in the November 20th
preliminary agreement. The Finance and Audit Committee was asked to make a
recommendation to the full Board regarding the proposed Molina joint venture
before the Board would vote on whether to authorize the Company to enter into
any definitive agreements for the proposed transaction.
From November 28, 2007 through December 22, 2007, the Finance and Audit
Committee of the Company's Board reviewed substantial information regarding
Molina, the Company's Tennessee operations, TennCare, and the terms of the
proposed Molina joint venture, including the proposed initial sale to Molina of
a minority equity interest in UAHC Health Plan and the terms of the buy-out
option proposed to be granted to Molina. In connection with its review, the
Committee held discussions with the Company's senior executives and, in
executive sessions, held discussions with the Company's financial advisor and
legal counsel regarding the proposed Molina joint venture.
Based on its review, the Finance and Audit Committee of the Company's Board
concluded that Molina represented a strong potential partner for the Company,
and that the proposed affiliation with Molina offered substantial advantages to
the Company in connection with both UAHC Health Plan's response to the
anticipated RFP and UAHC Health Plan's potential future operations in regard to
TennCare. Among other things, the Committee noted that the proposed affiliation
with Molina would
11
bring significant additional capability to the Company's Tennessee operations,
in the form of Molina's substantial knowledge and experience in behavioral
health and disease management.
The Finance and Audit Committee of the Company's Board also considered the
pricing of the proposed sale to Molina of a minority equity interest in UAHC
Health Plan and the purchase price to be paid by Molina in the event it
exercised the buy-out option proposed to be granted to it to purchase full
ownership of UAHC Health Plan. In its consideration of the pricing issues, the
Finance and Audit Committee took into account the current public trading price
of the Company's shares and the terms of comparable transactions involving sales
of health maintenance organizations. The Finance and Audit Committee also took
into account that, under the proposed structure for the joint venture with
Molina, following the initial closing Molina and its organization would be
required to make a significant contribution to UAHC Health Plan in terms of
operations and capital. In the Finance and Audit Committee's judgment, by making
such contributions Molina will therefore have substantially contributed to any
increased future value of UAHC Health Plan at the time of any exercise of the
Molina purchase option.
On December 22, 2007, the Company's Board of Directors held a special
meeting to discuss the proposed Molina joint venture. The Company's senior
executives and legal counsel were also in attendance. At the meeting, the
Chairman of the Finance and Audit Committee, Darrel W. Francis, described the
Committee's review of the proposed transaction and reported the Committee's
findings. Mr. Francis said that based on the Finance and Audit Committee's
review, the Committee determined that the joint venture with Molina was in the
best interests of the Company and its shareholders, and the Committee
unanimously recommended that the Board of Directors grant the Company's
management authority to complete negotiations with Molina and to enter into
definitive agreements consistent with the presentations that had been made to
the Board of Directors.
After further discussion, the Board of Directors unanimously voted to
authorize the Company's management to negotiate definitive agreements with
Molina for a joint RFP submission by Molina and UAHC Health Plan, for Molina's
investment in a minority stock interest in UAHC Health Plan and for the grant to
Molina of a purchase option for all of the Company's stock interest in UAHC
Health Plan, all on the terms presented to the Board. The Board also directed
the Company's management to present the terms of such definitive agreements to
the full Board of Directors prior to execution.
On January 7, 2008, the State of Tennessee's TennCare Bureau issued its
RFP. Representatives of UAHC Health Plan attended TennCare's Pre-Proposal
Conference on January 16, 2008. On January 23, 2008, UAHC Health Plan and Molina
filed with TennCare a joint Notice of Interest to Propose with respect to the
RFP. On March 11, 2008, UAHC Health Plan and Molina jointly filed a response to
the RFP. The response included their joint proposal to provide contracted
managed care services in both the TennCare West and East Grand Regions.
On March 13, 2008, at its regular quarterly meeting, the Board of Directors
of the Company reviewed the status of the Molina joint venture. Messrs. Brooks
and Harris and the Company's counsel, Alex L. Parrish, made presentations
regarding the RFP response process and the status of negotiations regarding the
definitive Molina joint venture agreements. Following these presentations and
further discussions among the Directors, the Board of Directors unanimously
authorized the Company's officers to complete negotiations with Molina regarding
the definitive joint venture agreements, including a Purchase Agreement and form
of Shareholder Agreement, and to enter into the same on behalf of the Company.
On March 20, 2008, the Board of Directors held another special meeting to
discuss the terms of the Molina transaction. At the meeting, with all Directors
present, Mr. Brooks and legal counsel reported
12
on the parties' most recent negotiations. Following discussion, the Board of
Directors unanimously voted: (A) to request the Chairman of the Board of
Directors of the Company to call a special meeting of the shareholders of the
Company, to consider and act upon a Company proposal to approve the Purchase
Agreement with Molina and all transactions contemplated therein, including
without limitation the sale to Molina of a minority equity interest in UAHC
Health Plan and the grant to Molina of an option, exercisable at a future date,
to purchase for cash all of the Company's shares of UAHC Health Plan stock; and
(B) to declare the Board's belief that such proposal is fair and in the best
interests of the shareholders and to recommend that the Company's shareholders
should vote for the proposal.
On March 24, 2008, the Company and Molina entered into a definitive
Purchase Agreement, and the Company publicly announced the joint venture with
Molina. Prior to executing the Purchase Agreement, the Company's Board of
Directors was briefed by the Company's senior executives and legal counsel that
morning by telephone on the last negotiation activity preceding completion of
the documents, and the Board of Directors then gave its final approval to the
Company's execution and delivery of the definitive agreement with Molina.
NO OPINION OF FINANCIAL ADVISOR
The Company has not received any report, opinion (other than an opinion of
counsel) or appraisal from an outside party that is materially related to the
Transactions, including, but not limited to, any report, opinion or appraisal
relating to the consideration or the fairness of the consideration to be
received by UAT if Molina's Purchase Option is exercised or the fairness of the
Transactions to the Company or its shareholders.
The Chesapeake Group, of New York, New York, served as the Company's
financial advisor for the Transactions, providing general consulting services to
the Company that included deal structuring, negotiation, financial analysis and
working with the Company's attorneys in regard to drafting legal documents. Such
services did not include providing to the Company any report, opinion or
appraisal materially relating to the Transactions.
PROPOSAL: THE TRANSACTIONS
The Transactions are summarized below. This summary does not purport to be
complete and is qualified in its entirety by reference to the Purchase
Agreement, attached hereto as APPENDIX A (including without limitation the form
of Shareholder Agreement which is Exhibit D in APPENDIX A), which is
incorporated by reference herein. Shareholders are urged to read APPENDIX A to
this proxy statement in its entirety.
INTRODUCTION
On January 7, 2008, the Department of Finance and Administration of the
State of Tennessee, Bureau of TennCare ("TENNCARE"), issued a Request for
Proposals (as since amended, "RFP") for managed care services to be provided in
the East Grand Region and the West Grand Region of Tennessee. The RFP indicates
TennCare's intent to award two contracts in the East Grand Region and two
contracts in the West Grand Region. TennCare's award of the contracts is
scheduled for April 22, 2008, with the signing of the contracts scheduled to
occur no later than May 9, 2008. The performance of the contracts is expected to
start in the West Grand Region on November 1, 2008 and in the East Grand Region
on January 1, 2009. It is expected that each contract will require the
successful bidder to provide comprehensive medical services on a capitated,
full-risk basis to Medicaid beneficiaries assigned to it by TennCare in the
applicable Region.
In response to the RFP, on March 11, 2008, our subsidiary, UAHC Health Plan
of Tennessee, Inc. ("UAHC HEALTH PLAN"), and Molina Healthcare, Inc., a Delaware
corporation ("MOLINA"), jointly submitted a proposal to apply for contracts with
TennCare for both the East and West Grand Regions. The RFP proposal potentially
could result in UAHC Health Plan and Molina jointly receiving two TennCare
contracts (one for each Region), or one TennCare contract for one Region, or no
TennCare contract for either Region. UAHC Health Plan currently provides managed
care services on a modified-
13
risk basis under an existing TennCare contract in the West Grand Region only,
which is expected to end when the anticipated new TennCare contracts for that
Region become effective.
In connection with the joint proposal, on March 24, 2008 we and our
subsidiaries, United American of Tennessee, Inc. and UAHC Health Plan, entered
into a Purchase Agreement with Molina dated as of March 24, 2008 (the "PURCHASE
AGREEMENT"). A copy of the Purchase Agreement is attached as APPENDIX A to this
proxy statement and incorporated herein by reference. We and our affiliates have
no relationship with Molina other than in respect of the Purchase Agreement, any
agreements contemplated by the Purchase Agreement and the joint proposal.
DESCRIPTION OF THE PURCHASE AGREEMENT
Currently, our wholly-owned subsidiary, United American of Tennessee, Inc
("UAT"), owns 100% of the issued and outstanding stock of UAHC Health Plan.
Under the Purchase Agreement, if (AND ONLY IF) UAHC Health Plan enters into at
least one of the new TennCare contracts, Molina will become a part owner of UAHC
Health Plan by purchasing newly issued UAHC Health Plan stock from UAHC Health
Plan, either: (A) shares representing 19.9% of the total issued and outstanding
UAHC Health Plan stock, for a purchase price of $4,500,000, in the event UAHC
Health Plan executes one new TennCare contract; or (B) shares representing 49.9%
of the total issued and outstanding UAHC Health Plan stock, for a purchase price
of $18,040,000, in the event UAHC Health Plan executes two new TennCare
contracts. Our subsidiary UAT would continue to own all of the remaining
outstanding UAHC Health Plan stock. The Purchase Agreement requires the stock
purchase closing (the "CLOSING") to occur on a date mutually agreed upon by the
parties that is no earlier than the signing of the full-risk contract(s)
(currently expected to occur by May 9, 2008) and no later than the effective
date(s) of the contract(s) (currently expected to be November 1, 2008 for the
West Grand Region and January 1, 2009 for the East Grand Region ), or on such
other date as the parties may mutually agree in writing.
The Purchase Agreement requires the delivery at the Closing of a
Shareholder Agreement among UAHC Health Plan and its shareholders, UAT and
Molina (the "SHAREHOLDER AGREEMENT"). The form of the Shareholder Agreement is
an exhibit to the Purchase Agreement. The Purchase Agreement also requires us to
seek approval from our shareholders of the Purchase Agreement and all
transactions contemplated in it (including without limitation Molina's Purchase
Option, as described below), and makes our obtaining that approval a condition
precedent to the Closing.
Thus, the reason for the Special Meeting of Shareholders to which this
proxy statement pertains is to obtain our shareholders' approval of the Purchase
Agreement and all transactions contemplated in it (together with the Purchase
Agreement and the Shareholder Agreement referred to in it, called the
"TRANSACTIONS" in this proxy statement). The Transactions proposal to be
considered and acted on at the Special Meeting has been carefully reviewed by
the Board of Directors of the Company, who believe the proposal is fair and in
the best interests of the shareholders and who unanimously recommend that you
vote FOR the proposal.
The Transactions will occur ONLY IF UAHC Health Plan receives at least one
contract pursuant to the RFP proposal that it and Molina jointly submitted in
March 2008 to apply for contracts with the Department of Finance and
Administration of the State of Tennessee, Bureau of TennCare, to provide managed
care services in the East and West Grand Regions of Tennessee. TennCare's
announcement of the award of the contracts is scheduled for April 22, 2008, with
the signing of the contracts scheduled to occur no later than May 9, 2008.
The Purchase Agreement may be terminated any time prior to the Closing by
mutual written consent of the parties and in certain other events.
14
DESCRIPTION OF THE SHAREHOLDER AGREEMENT
The Shareholder Agreement will be entered into at the Closing when Molina
becomes a minority shareholder of UAHC Health Plan. In the Shareholder
Agreement, if and when executed, our subsidiary UAT would grant Molina the
exclusive option to purchase all UAHC Health Plan stock owned by UAT, for a
purchase price described below ("MOLINA'S PURCHASE OPTION"). Molina could
exercise the option any time between the dates that are 24 and 48 months (in the
event UAHC Health Plan executes one new TennCare contract) or 36 and 60 months
(in the event UAHC Health Plan executes two new TennCare contracts) from the
effective date of the new TennCare contract(s). Accordingly, if the joint
proposal results in only a West Grand Region contract (with a November 1, 2008
expected effective date), Molina could exercise the option between November 1,
2010 and November 1, 2012; and if the joint proposal results in a West Grand
Region contract and an East Grand Region contract (with an January 1, 2009
expected effective date), Molina could exercise the option between January 1,
2012 and January 1, 2014.
In addition, Molina could exercise Molina's Purchase Option prior to the
expiration dates described in the preceding paragraph any time that (i) UAHC
Health Plan requires a capital infusion of more than $5,000,000 upon a capital
call by its Board of Directors as set forth in the Shareholder Agreement, or
UAHC Health Plan requires additional capital as mandated by TennCare and/or the
Tennessee Department of Commerce and Insurance, and (ii) UAT declines to
contribute its proportionate share, and (iii) Molina elects to and actually does
contribute 100% of the required capital.
Under the Shareholder Agreement, Molina's exercise of its option to
purchase all UAHC Health Plan stock owned by UAT would require it to pay UAT a
purchase price equal to the percentage share of UAHC Health Plan then owned by
UAT multiplied by the Fair Market Value of UAHC Health Plan determined as of the
closing date of the purchase. As used in the Shareholder Agreement, the "Fair
Market Value of UAHC Health Plan" is equal to the sum of (1) UAHC Health Plan's
Medicaid membership multiplied by $345 per Medicaid member, plus (2) UAHC Health
Plan's Medicare Advantage and/or Medicare Advantage Special Needs Plan
membership multiplied by $2,500 per Medicare member, plus (3) the market value
of any Medicare Advantage Prescription Drug Program plan business operations of
UAHC Health Plan, plus (4) the sum of capital then held by UAHC Health Plan in
excess of its statutory minimum net worth requirement.
The Shareholder Agreement provides that if the Company shareholders'
approval of the Transactions proposal (as stated in the Notice of Special
Meeting of Shareholders accompanying this proxy statement) is not obtained for
any reason and if that closing condition is waived by Molina, Molina's Purchase
Option shall be amended so that Molina will have an option to only acquire the
maximum number of UAT's shares of UAHC Health Plan stock that will permit UAT to
retain a significant continuing business activity as set forth under state and
federal statutes and regulations, and in that event the Transactions (including
the grant of Molina's Purchase Option) will not require shareholder approval.
Also in the Shareholder Agreement, Molina would grant UAT the exclusive
option to purchase all UAHC Health Plan stock owned by Molina, for a purchase
price equal to the percentage share of UAHC Health Plan then owned by Molina
multiplied by the above-defined Fair Market Value of UAHC Health Plan determined
as of the closing date of the purchase. UAT could exercise the option any time
between the dates that are 60 and 72 months from the effective date of the new
TennCare contract. Accordingly, UAT could exercise the option any time between
November 1, 2013 and November 1, 2014 if the contract effective date for this
purpose is November 1, 2008, or between January 1, 2014 and January 1, 2015 if
the contract effective date for this purpose is January 1, 2009.
15
Also in the Shareholder Agreement, UAT would grant Molina the exclusive
option (called the "PUT") to require UAT to purchase all UAHC Health Plan stock
owned by Molina for a price equal to the percentage share of UAHC Health Plan
then owned by Molina multiplied by the Total Value of UAHC Health Plan. Molina
could exercise the Put any time between the dates that are 60 and 72 months from
the effective date of the new TennCare contract. Accordingly, Molina could
exercise the Put any time between November 1, 2013 and November 1, 2014 if the
contract effective date for this purpose is November 1, 2008, or between January
1, 2014 and January 1, 2015 if the contract effective date for this purpose is
January 1, 2009. As used in the Shareholder Agreement, the "Total Value of UAHC
Health Plan" would be (i) the valuation proposed in writing by Molina with its
notice of exercising the Put, if agreed to by UAT, or (ii) the alternative
valuation proposed by UAT to Molina, or (iii) if Molina and UAT could not agree
upon the Total Value of UAHC Health Plan within 30 days after Molina's notice of
exercising the Put, the valuation determined by arbitration procedures set forth
in the Purchase Agreement.
The Shareholder Agreement would require a 12-member Board of Directors of
UAHC Health Plan, with Molina and UAT electing directors in proportion to their
respective ownership interests. If two full-risk TennCare contracts are awarded
to UAHC Health Plan, then certain matters specified in the Shareholder Agreement
would require the unanimous approval of the Board of Directors.
REGULATORY MATTERS
Certain federal and state regulatory requirements must be complied with
before the Transactions are consummated. The Company, UAHC Health Plan and UAT
are not aware of any material governmental consents or approvals that are
required prior to the parties' consummation of the Transactions other than those
described below. It is currently contemplated that if such additional
governmental consents or approvals are required, they will be sought. There can
be no assurance, however, that any such additional consents or approvals will be
obtained.
HART-SCOTT-RODINO ACT
The sale to Molina of a minority interest in UAHC Health Plan is not
subject to the requirements of the federal Hart-Scott-Rodino Act ("H-S-R ACT")
and the rules and regulations thereunder, which provide that certain acquisition
transactions may not be consummated until certain information has been furnished
to the Antitrust Division of the U.S. Department of Justice and the Federal
Trade Commission and until certain waiting periods have been terminated or have
expired.
However, a future sale of the remaining stock of UAHC Health Plan, pursuant
to Molina's Purchase Option, may or may not be subject to such H-S-R Act
requirements. This will depend upon whether, at the time of the exercise of
Molina's Purchase Option, (A) the size of the transaction in terms of purchase
price meets the applicable threshold established by the H-S-R Act and the rules
and regulations thereunder (currently $63,100,000) or (b) the size of the
parties to the transaction meets the thresholds established by the H-S-R Act and
the rules and regulations thereunder (currently the acquired party must have
more than $12,600,000 in total assets and the acquiring party must have more
than $126,200,000 in sales or total assets in order for the H-S-R Act's
requirements to apply). These thresholds are subject to change from time to time
by administrative action of the federal government.
It is contemplated that if H-S-R Act filings are required, upon exercise of
Molina's Purchase Option, such filings will be made and the applicable waiting
periods will be complied with by the parties prior to the consummation of any
such sale pursuant to such option.
16
STATE OF TENNESSEE
Certain informational filings with, and approval by, the Commissioner of
the State of Tennessee's Department of Commerce and Insurance may be required in
connection with the acquisition of shares of stock of a Tennessee health
maintenance organization. We expect that any such requirement with respect to
UAHC Health Plan stock in connection with the Transactions will be timely
observed and satisfied if and when required.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Company and its consolidated subsidiaries, UAT and UAHC Health Plan,
entered into a Purchase Agreement with Molina dated as of March 24, 2008. Under
the Purchase Agreement, if (and only if) UAHC Health Plan enters into at least
one new TennCare contract pursuant to TennCare's RFP, Molina will become a part
owner of UAHC Health Plan by purchasing newly issued UAHC Health Plan stock from
UAHC Health Plan - either (1) shares representing 19.9% of the total issued and
outstanding UAHC Health Plan stock for a cash purchase price of $4,500,000 in
the event that UAHC Health Plan executes one new TennCare contract; or (2)
shares representing 49.9% of the total issued and outstanding UAHC Health Plan
stock for a cash purchase price of $18,040,000 in the event that UAHC Health
Plan executes two new TennCare contracts. The closing of that purchase of stock
by Molina is dependent upon an award of either one or two new TennCare contracts
to UAHC Health Plan. (See "PROPOSAL: THE TRANSACTIONS - Introduction" above.)
Under the Shareholder Agreement to be executed pursuant to the Purchase
Agreement, Molina will be granted an option to purchase all of the remaining
outstanding shares of UAHC Health Plan from UAT during a future period
determined as described under "SUMMARY TERM SHEET - When Molina Can Exercise Its
Option to Buy-Out Our Interest in UAHC Health Plan" above. Exactly when that
period will begin and end depends on facts that cannot yet be known.
Consequently, for the purpose of presenting pro forma financial information in
this proxy statement, we have assumed Molina will exercise its buy-out option on
November 1, 2010(2) (our assumed "OPTION EXERCISE DATE"). It is important that
you realize that this assumption is necessarily made in order to provide an
illustrative pro forma example, and that the actual Option Exercise Date could
be any of a large number of other potential dates.
In the event of the exercise of Molina's Purchase Option pursuant to the
Shareholder Agreement, Molina will purchase substantially all of the Company's
assets, except for cash, cash equivalents and marketable securities.(3) The
purchase price payable to UAT by Molina will be an amount in cash equal to the
percentage interest that UAT then owns of the outstanding UAHC Health Plan stock
multiplied by the Fair Market Value of UAHC Health Plan determined as of the
purchase closing date. For this purpose, the Fair Market Value of UAHC Health
Plan will equal the sum of (1) its Medicaid membership multiplied by $345 per
Medicaid member, plus (2) its Medicare Advantage and/or Medicare Advantage
- ----------
(2) Under the Purchase Agreement, November 1, 2010 is the earliest date for
Molina's exercise of its buy-out option under any possible fact situation
(other than certain potential instances of Molina's contributing required
capital to UAHC Health Plan if UAT would decline to contribute its own
proportionate share; see "Also When Molina Can Exercise Its Option to
Buy-Out Our Interest in UAHC Health Plan" in the Summary Term Sheet on p.
3). It is the earliest date that would be possible for that exercise if
UAHC Health Plan received (A) only one new TennCare contract pursuant to
the RFP, (B) for the West Grand Region, and (C) effective November 1, 2008.
Each of those facts potentially could be different, and even on those
facts, Molina could exercise the option as late as November 1, 2010. At the
opposite extreme, Molina potentially could exercise the option as late as
January 1, 2014. See "SUMMARY TERM SHEET - When Molina Can Exercise Its
Option to Buy-Out Our Interests in UAHC Health Plan" above.
(3) See footnote 1 on page 3 of this proxy statement.
17
Special Needs Plan membership multiplied by $2,500 per
Medicare member, plus (3) the market value of its Medicare Advantage
Prescription Drug Program plan business operations, if any, plus (4) the sum of
capital then held by UAHC Health Plan in excess of the statutory minimum capital
required. None of these four amounts is currently determinable.
Set forth below are two Unaudited Pro Forma Condensed Consolidated Balance
Sheets of the Company as of December 31, 2007, which have been prepared for
illustrative purposes as if Molina's purchase of all of UAT's UAHC Health Plan
stock pursuant to Molina's buy-out option was consummated as of that date. The
consummation of Molina's stock purchase pursuant to its exercised buy-out option
is sometimes called the "BUY-OUT CLOSING" below. Also set forth below are two
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six
months ended December 31, 2007 and the fiscal year ended June 30, 2007, which
have been prepared for illustrative purposes as if the Buy-Out Closing occurred
as of July 1, 2006. The reason for two such balance sheets and two such
statements of operations is to give the effect of the Buy-Out Closing based on
the alternative assumptions that UAHC Health Plan enters into either one or two
new TennCare contracts pursuant to the TennCare RFP.
The accompanying unaudited pro forma condensed consolidated financial
statements are presented for informational purposes only and are subject to a
number of estimates, assumptions and other uncertainties; and they neither
purport to represent what the Company's consolidated results of operations or
financial position actually would have been if the Buy-Out Closing occurred on
the dates specified, nor purport to project the Company's consolidated results
of operations or financial position for any future period or at any future date.
All pro forma adjustments are necessarily based on preliminary estimates and
assumptions and are subject to revision upon Molina's actual exercise of its
buy-out option and the actual Buy-Out Closing. The pro forma financial
information and the accompanying Notes to the Unaudited Pro Forma Financial
Information contained in this proxy statement should be read in conjunction with
the financial statements and notes thereto and the Management's Discussion and
Analysis of Financial Condition and Results of Operation included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2007 and
in the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2007. See "FINANCIAL INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" at the end of this proxy statement.
The objective of the unaudited pro forma financial information in this
proxy statement is to show what the significant effects on the Company's
historical consolidated financial statements might have been if Molina's
exercise of its buy-out option and the Buy-Out Closing occurred for balance
sheet purposes on December 31, 2007. The pro forma balance sheets are not
necessarily indicative of the effects on the Company's financial position that
would have been attained if such option exercise and the Buy-Out Closing had
occurred then. The pro forma adjustments are based on information currently
available and on certain assumptions, as described in the Notes to the Unaudited
Pro Forma Financial Information below, that management of the Company believes
are necessary and reasonable for a fair presentation of the pro forma financial
information.
The following two Unaudited Pro Forma Condensed Consolidated Balance Sheets
as of December 31, 2007, and the following two Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the six months then ended and for
the fiscal year ended June 30, 2007, give the effect of the Buy-Out Closing
based on the alternative assumptions that UAHC Health Plan enters into either
one or two new TennCare contracts pursuant to the TennCare RFP.
18
19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET,
ASSUMING A SINGLE TENNCARE CONTRACT
(in thousands)
AS OF DECEMBER 31, 2007
-------------------------------------
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $10,174 $51,349 $61,523
Marketable securities 6,666 (3,860) 2,806
Accounts receivable - State of TN, net 1,705 (1,705) --
Interest receivable 532 (532) --
Other receivables 235 (235) --
Prepaid expenses and other 323 (192) 131
Deferred income taxes 1,878 (1,878) --
------- ------- -------
Total current assets 21,513 42,947 64,460
Property and equipment, net 451 (438) 13
Goodwill 3,452 (3,452) --
Marketable securities 7,573 (7,573) --
Restricted assets 421 -- 421
Other assets 586 -- 586
------- ------- -------
Total assets $33,996 $31,484 $65,480
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Medical claims payable $ 2,769 $(2,657) $ 112
Accounts payable and accrued expenses 885 (328) 557
Federal income tax payable 7,218 7,218
Accrued compensation and related benefits 626 (385) 241
Accrued rent 112 (112) --
Other current liabilities 1,015 (1,015) --
------- ------- -------
Total current liabilities 5,407 2,721 8,128
------- ------- -------
Total liabilities 5,407 2,721 8,128
Shareholders' equity
Preferred stock, 5,000,000 shares authorized;
none issued -- -- --
Common stock, no par, 15,000,000 shares
authorized; 8,690,666 issued and outstanding
at December 31, 2007 18,450 -- 18,450
Additional paid-in-capital - stock options 1,010 -- 1,010
Warrants 444 -- 444
Retained earnings 8,632 28,816 37,448
Accumulated other comprehensive income, net
of income taxes 53 (53) --
------- ------- -------
Total shareholders' equity 28,589 28,763 57,352
------- ------- -------
Total liabilities and shareholders'equity $33,996 $31,484 $65,480
======= ======= =======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
20
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS,
ASSUMING A SINGLE TENNCARE CONTRACT
(in thousands)
YEAR ENDED JUNE 30, 2007
AS PRO FORMA
REPORTED ADJUSTMENTS PRO FORMA
-------- ----------- ---------
REVENUES
Fixed administrative fees $15,543 (15,543) $ --
Variable administrative fees 502 (502) --
Medical premium revenues 921 (921) --
Interest and other income 1,099 2,761 3,860
------- -------- -------
Total revenues 18,065 (14,205) 3,860
EXPENSES
Medical services 891 (891) --
Marketing, general and administrative 16,580 (13,265) 3,315
Depreciation and amortization 122 (119) 3
Provision for claims audit and other commitment 1,526 (1,526) --
------- -------- -------
Total expenses 19,119 (15,801) 3,318
------- -------- -------
Earnings from operations before income taxes (1,054) 1,596 542
Income tax expense 63 127 190
------- -------- -------
Earnings (loss) from continuing operations (1,117) 1,469 352
Discontinued operations
Variable administrative fee revenue -- 502 502
Gain from sale of subsidiary (net of $6,646 in income
tax expense) -- 22,141 22,141
------- -------- -------
NET EARNINGS $(1,117) 24,112 $22,995
======= ======== =======
NET EARNINGS PER COMMON SHARE - BASIC
Earnings (loss) from continuing operations (0.14) 0.18 0.04
Discontinued operations -- 2.80 2.80
------- -------- -------
Net earnings per common share $ (0.14) $ 2.98 $ 2.84
======= ======== =======
Weighted average shares outstanding 8,103 8,103
======= =======
NET EARNINGS PER COMMON SHARE - DILUTED
Earnings (loss) from continuing operations (0.14) 0.18 0.04
Discontinued operations -- 2.69 2.69
------- -------- -------
Net earnings per common share $ (0.14) $ 2.87 $ 2.73
======= ======== =======
Weighted average shares outstanding 8,103 8,424
======= =======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
21
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS,
ASSUMING SINGLE TENNCARE CONTRACT
(in thousands)
SIX MONTHS ENDED DECEMBER 31, 2007
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUES
Fixed administrative fees $ 7,383 (7,383) $ --
Variable administrative fees 280 (280) --
Medical premium revenues 4,789 (4,789) --
Interest and other income 784 1,146 1,930
------- ------- ------
Total revenues 13,236 (11,306) 1,930
EXPENSES
Medical services 4,415 (4,415) --
Marketing, general and administrative 8,280 (6,811) 1,470
Depreciation and amortization 91 (89) 2
------- ------- ------
Total expenses 12,786 (11,314) 1,472
------- ------- ------
Earnings from operations before income taxes 450 8 458
Income tax expense 121 40 161
------- ------- ------
NET EARNINGS $ 329 (32) $ 297
======= ======= ======
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings per common share $ 0.04 (0.01) $ 0.03
======= ======= ======
Weighted average shares outstanding 8,636 8,636
======= ======= ======
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings per common share $ 0.04 (0.01) $ 0.03
======= ======= ======
Weighted average shares outstanding 8,797 8,797
======= ======= ======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET,
ASSUMING TWO TENNCARE CONTRACTS
(in thousands)
AS OF DECEMBER 31, 2007
-------------------------------------
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $10,174 67,755 $77,929
Marketable securities 6,666 (3,860) 2,806
Accounts receivable - State of TN, net 1,705 (1,705) --
Interest receivable 532 (532) --
Other receivables 235 (235) --
Prepaid expenses and other 323 (192) 131
Deferred income taxes 1,878 (1,878) --
------- ------- -------
Total current assets
21,513 59,353 80,866
Property and equipment, net 451 (438) 13
Goodwill 3,452 (3,452) --
Marketable securities 7,573 (7,573) --
Restricted assets 421 -- 421
Other assets 586 -- 586
------- ------- -------
Total assets $33,996 47,890 $81,886
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Medical claims payable 2,769 (2,657) 112
Accounts payable and accrued expenses 885 (328) 557
Federal income tax payable 13,305 13,305
Accrued compensation and related benefits 626 (385) 241
Accrued rent 112 (112) --
Other current liabilities 1,015 (1,015) --
------- ------- -------
Total current liabilities 5,407 8,808 14,215
------- ------- -------
Total liabilities 5,407 8,808 14,215
Shareholders' equity
Preferred stock, 5,000,000 shares authorized;
none issued
Common stock, no par, 15,000,000 shares
authorized; 8,690,666 issued and outstanding
at December 31, 2007 18,450 -- 18,450
Paid-in-capital - stock options 1,010 -- 1,010
Warrants 444 -- 444
Retained earnings 8,632 39,135 47,767
Accumulated other comprehensive income, net of
income taxes 53 (53) --
------- ------- -------
Total shareholders' equity 28,589 39,082 67,671
------- ------- -------
Total liabilities and shareholders'equity $33,996 47,890 $81,886
======= ======= =======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
23
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS,
ASSUMING TWO TENNCARE CONTRACTS
(in thousands)
YEAR ENDED JUNE 30, 2007
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUES
Fixed administrative fees $15,543 (15,543) $ --
Variable administrative fees 502 (502) --
Medical premium revenues 921 (921) --
Interest and other income 1,099 3,745 4,844
------- ------- -------
Total revenues 18,065 (13,221) 4,844
EXPENSES
Medical services 891 (891) --
Marketing, general and administrative 16,580 (12,613) 3,967
Depreciation and amortization 122 (119) 3
Provision for claims audit and other commitment 1,526 (1,526) --
------- ------- -------
Total expenses 19,119 (15,149) 3,970
------- ------- -------
Earnings from operations before income taxes (1,054) 1,928 874
Income tax expense 63 243 306
------- ------- -------
Earnings (loss) from continuing operations (1,117) 1,685 568
Discontinued operations
Variable administrative fee revenue -- 502 502
Gain from sale of subsidiary (net of $6,646
in income tax expense) -- 33,229 33,229
------- ------- -------
NET EARNINGS $(1,117) 35,416 $34,299
======= ======= =======
NET EARNINGS PER COMMON SHARE - BASIC
Earnings (loss) from continuing operations (0.14) 0.21 0.07
Discontinued operations -- 4.16 4.16
------- ------- -------
Net earnings per common share $ (0.14) $ 4.37 $ 4.23
======= ======= =======
Weighted average shares outstanding 8,103 8,103
======= =======
NET EARNINGS PER COMMON SHARE - DILUTED
Earnings (loss) from continuing operations (0.14) 0.21 0.07
Discontinued operations -- 4.00 4.00
------- ------- -------
Net earnings per common share $ (0.14) $ 4.21 $ 4.07
======= ======= =======
Weighted average shares outstanding 8,103 8,424
======= =======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
24
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS,
ASSUMING TWO TENNCARE CONTRACTS
(in thousands)
SIX MONTHS ENDED DECEMBER 31, 2007
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUES
Fixed administrative fees $ 7,383 (7,383) $ --
Variable administrative fees 280 (280) --
Medical premium revenues 4,789 (4,789) --
Interest and other income 784 1,638 2,422
------- ------- ------
Total revenues 13,236 (10,814) 2,422
EXPENSES
Medical services 4,415 (4,415) --
Marketing, general and administrative 8,280 (6,811) 1,470
Depreciation and amortization 91 (89) 2
------- ------- ------
Total expenses 12,786 (11,314) 1,472
------- ------- ------
Earnings from operations before income taxes 450 500 950
Income tax expense 121 212 333
------- ------- ------
NET EARNINGS $ 329 289 $ 618
======= ======= ======
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings per common share $ 0.04 0.03 $ 0.07
======= ======= ======
Weighted average shares outstanding 8,636 8,636
======= ======= ======
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings per common share $ 0.04 0.02 $ 0.07
======= ======= ======
Weighted average shares outstanding 8,797 8,797
======= ======= ======
See accompanying Notes to the Unaudited Pro Forma Financial Information.
25
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1 - PRO FORMA BALANCE SHEETS
Reflected in the Pro Forma Balance Sheets is the following:
Cash and cash equivalents - Includes the cash from the exercise of the Molina
option to purchase all of UAT's shares of UAHC Health Plan stock. The purchase
price payable to UAT by Molina will be an amount in cash equal to the percentage
interest that UAT then owns of the outstanding UAHC Health Plan stock multiplied
by the Fair Market Value of UAHC Health Plan determined as of the purchase
closing date. For this purpose, the Fair Market Value of UAHC Health Plan will
equal the sum of (1) its Medicaid membership (assumed to be approximately
181,000 members if there is one TennCare contract and 388,000 members if there
are two TennCare contracts) multiplied by $345 per Medicaid member, plus (2) its
Medicare Advantage and/or Medicare Advantage Special Needs Plan membership
(assumed to be 815 members) multiplied by $2,500 per Medicare member, plus (3)
the market value of its Medicare Advantage Prescription Drug Program plan
business operations, if any (assumed to be zero since there currently are none),
plus (4) the sum of capital then held by UAHC Health Plan in excess of its
statutory minimum net worth requirement. Since it is not possible to reasonably
determine the amount of capital in excess of the minimum net worth requirement
at the assumed Option Exercise Date (November 1, 2010), which will be impacted
by the net earnings or net loss performance of UAHC Health Plan from the assumed
effective date of a new TennCare contract (November 1, 2008) through the assumed
Option Exercise Date (November 1, 2010), we assume the excess capital at the at
the Buy-Out Closing date is equal to the excess capital at the assumed contract
effective date (November 1, 2008). Thus, the estimated cash purchase price is
$58.6 million in the event of one new TennCare contract or $75.7 million in the
event of two new TennCare contracts.
Deferred income taxes - The deferred tax assets as reported at December 31, 2007
are utilized to offset the gain on the sale of the UAHC Health Plan subsidiary
in the pro forma financial statements.
Property and equipment, net - Molina would purchase substantially all of the
physical assets of UAT that relate to UAHC Health Plan. The purchase price
payable to UAT by Molina as described two paragraphs above will be for the
purchase of those assets as well as for the purchase of all of UAT's shares of
UAHC Health Plan stock.
Federal income tax payable - An adjustment is recorded for the estimated tax
liability of $7.2 million in the event of one new TennCare contract, or $13.3
million in the event of two new TennCare contracts, associated with the gain on
the sale of the UAHC Health Plan subsidiary.
NOTE 2 - PRO FORMA STATEMENT OF OPERATIONS
For the purposes of this pro forma analysis, we assume that the exercise by
Molina of its option to purchase all of UAT's shares of UAHC Health Plan stock
will involve the sale of substantially all of the Company's non-cash assets to
Molina; that following the closing of such transaction the Company will
effectively be a corporation with only cash, cash equivalents and marketable
securities and no intangible assets or ongoing business operations; and that the
Company will incur only costs and expenses associated with remaining a publicly
held company and efforts to complete an acquisition or enter into a strategic
transaction or alliance with a potential business partner. These costs and
estimates are difficult to estimate at this time as they are dependent on many
factors, including the availability of potential
26
acquisition targets or potential strategic business partners and the time and
effort required to negotiate and complete such transactions.
The unaudited pro forma narrative income statement for the fiscal year ended
June 30, 2007 and six months ended December 31, 2007, assuming that the Buy-Out
Closing date was July 1, 2006, would reflect all of the revenue and expenses
associated with the Company's only business operation being eliminated. The only
remaining costs on a pro forma basis relate to maintaining an ongoing publicly
held company, and costs expended to identify potential acquisition targets or
business partner candidates. Total pro forma expenses include salaries of
existing management and professional consulting and financial advisor expense of
$0.3 million expected to assist in the completion of a transaction with an
acquisition target or a strategic business partner. The costs associated with
identifying potential acquisition targets or business partner candidates will
continue until such time as an agreement with such a partner is completed or the
Company decides to abandon such efforts. For the pro forma year ended June 30,
2007, these costs will be offset by net interest and other income of
approximately $3.9 million if there is one TennCare contract or $4.8 million if
there are two TennCare contracts, after giving effect to interest income from
the investment of the consideration received from the Buy-Out Closing, resulting
in net earnings on a pro forma basis of approximately $23.2 million or $2.62 per
basic share if there is one TennCare contract, or $34.1 million or $3.91 per
basic share if there are two TennCare contracts, based on 8,734,214 basic and
9,694,360 fully diluted shares outstanding, respectively.
For the purposes this pro forma analysis, we assume that the Company will also
incur legal expenses for ongoing litigation for which the ultimate liability
cannot be quantified or estimated with any reasonable certainty.
The Company will incur approximately $0.1 million for legal services provided by
the Company's outside counsel and $0.4 million if there is one TennCare
contract, or $1.0 million if there are two TennCare contracts, for ongoing
consulting services provided to the Company in connection with the completion of
the transactions contemplated by the Purchase Agreement.
ACCOUNTING TREATMENT
In the event of the exercise of Molina's Purchase Option pursuant to the
Shareholder Agreement, Molina will purchase 100% of UAT's remaining interest in
UAHC Health Plan and substantially all of UAT's assets, except for cash, cash
equivalents and marketable securities.(4) UAT would record the disposition of
these assets and its remaining interest in UAHC Health Plan and a corresponding
gain or loss representing the difference between the proceeds received by UAT
and UAT's carrying value of the assets given up, net of applicable state and
federal income taxes. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION" above for
additional information.
FEDERAL INCOME TAX CONSEQUENCES
In the event of the exercise of Molina's Purchase Option pursuant to the
Shareholder Agreement, any gain realized from the sale of UAT's interest in UAHC
Health Plan and other assets sold will be taxable at the applicable state and
federal tax rates. The amount of the gain or loss recognized by the Company with
respect to the sale of UAT's remaining interest in UAHC Health Plan and other
assets sold will be measured by the difference between the proceeds received and
the tax basis in the assets and interest sold. UAT files a consolidated tax
return with its parent, the Company, as a consolidated group.
- ----------
(4) See footnote 1 on page 3 of this proxy statement.
27
The proposed sale of substantially all of the non-cash assets of the
Company by itself will not produce any separate and independent federal income
tax consequences to the Company's shareholders.
EXPENSES OF SOLICITATION
The cost of this solicitation of proxies will be borne by the Company and
may include requests by mail and personal contact by its Directors, officers and
employees. In addition, the Company has retained Georgeson Shareholder to aid in
the solicitation of proxies from brokers, banks, other nominees and
institutional holders at a fee not to exceed $8,500 plus out-of-pocket expenses.
The Company will reimburse brokers or other nominees and institutional holders
for their expenses in forwarding proxy materials to principals. Any person
giving a proxy has the power to revoke it at any time before it is voted.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at our 2008
Annual Meeting of Shareholders must be received by our Secretary at our offices,
United American Healthcare Corporation, 300 River Place, Suite 4950, Detroit,
Michigan 48207-5062, no later than May 26, 2008 to be considered for inclusion
in the proxy statement and form of proxy relating to that meeting. Such
proposals should be sent by certified mail, return receipt requested.
We must receive notice of any proposals of shareholders that are intended
to be presented at our 2008 Annual Meeting of Shareholders, but that are not
intended to be considered for inclusion in our proxy statement and proxy related
to that meeting, no later than August 6, 2008 to be considered timely. Such
proposals should be sent by certified mail, return receipt requested and
addressed to United American Healthcare Corporation, 300 River Place, Suite
4950, Detroit, Michigan 48207-5062, Attention: Investor Relations Department. If
we do not have notice of the matter by that date, our form of proxy in
connection with that meeting may confer discretionary authority to vote on that
matter, and the persons named in our form of proxy will vote the shares
represented by such proxies in accordance with their best judgment.
OTHER BUSINESS
Neither we nor the members of our Board of Directors intend to bring before
the Special Meeting any matters other than those set forth in the Notice of the
Special Meeting of Shareholders, and none of us has any present knowledge that
other matters will be presented for action at the Special Meeting by others.
However, if other matters are properly presented to the meeting, the persons
named in the enclosed proxy intend to vote the shares represented by the proxy
in accordance with their best judgment.
FINANCIAL INFORMATION
The Company will furnish without charge to each person whose proxy is being
solicited, upon written or oral request of any such person and by first class
mail or other equally prompt means within one business day of receipt of such
request, a copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2007 and the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended September 30, 2007 and December 31, 2007, as filed with
the U.S. Securities and Exchange Commission, including the financial statements
therein, and of any other document that has been incorporated by reference in
this proxy statement. This includes information contained in documents filed
subsequent to the date on which definitive copies of this proxy statement are
sent or given to shareholders, up to the date of responding to the request. The
address and telephone number to which such a request is to be directed are
United American Healthcare Corporation, 300 River Place,
28
Suite 4950, Detroit, Michigan 48207-5062, Attention: Investor Relations
Department, and (313) 393-4571, respectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the U.S.
Securities and Exchange Commission pursuant to the Exchange Act are incorporated
into this proxy statement by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2007, filed on August 30, 2007 (File No. 001-11638).
(b) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2007, filed on October 30, 2007 (File No. 000-18839).
(c) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2007, filed on February 7, 2008 (File No. 000-18839).
(d) The Company's Current Report on Form 8-K dated March 24, 2005, filed on
March 25, 2008 (File No. 001-11638).
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date on which the Special
Meeting of Shareholders to which this proxy statement pertains is held shall be
deemed to be incorporated by reference into this proxy statement.
By order of the Board of Directors
/s/ William C. Brooks
Chairman, President and
Chief Executive Officer
Detroit, Michigan
____________, 2008
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