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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 01-11638
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 RIVER PLACE, SUITE 4950
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Registrant's telephone number, including area code: (313) 393-4571
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X].
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF OCTOBER 31,
2008 IS 8,734,214.
As filed with the Securities and Exchange Commission on November 4, 2008.
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - September 30,
2008 and June 30, 2008............................... 2
Condensed Consolidated Statements of Operations - Three
months ended September 30, 2008 and 2007............. 3
Condensed Consolidated Statements of Cash Flows -Three
months ended September 30, 2008 and 2007............. 4
Notes to the Unaudited Condensed Consolidated Financial
Statements........................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk................................................. 19
Item 4. Controls and Procedures................................. 19
PART II. OTHER INFORMATION
Item 5. Other Information....................................... 20
Item 6. Exhibits................................................ 24
SIGNATURES............................................................... 25
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
2008 2008
------------- --------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $10,081 $10,713
Marketable securities 9,161 8,774
Accounts receivable - State of Tennessee, net 1,088 1,093
Interest receivable 218 551
Other receivables 419 374
Prepaid expenses and other 212 299
------- -------
Total current assets 21,179 21,804
Property and equipment, net 411 472
Marketable securities 7,562 7,514
Restricted assets 421 421
Other assets 586 586
------- -------
Total assets $30,159 $30,797
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Medical claims payable $ 2,362 $ 2,563
Accounts payable and accrued expenses 1,351 1,726
Accrued compensation and related benefits 488 896
Accrued rent 78 90
Other current liabilities 1,220 1,183
------- -------
Total current liabilities 5,499 6,458
------- -------
Total liabilities 5,499 6,458
Commitments and contingencies
Shareholders' equity
Preferred stock, 5,000,000 shares
authorized; none issued
Common stock, no par, 15,000,000 shares
authorized; 8,734,214 issued and
outstanding both at September 30, 2008
and June 30, 2008 18,558 18,558
Paid in capital - stock options 1,252 1,153
Warrants 444 444
Retained earnings 4,451 4,261
Accumulated other comprehensive loss, net of
deferred federal income taxes (45) (77)
------- -------
Total shareholders' equity 24,660 24,339
======= =======
Total liabilities and shareholders' equity $30,159 $30,797
======= =======
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
2
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2008 2007
------ -------
REVENUES
Fixed administrative fees $3,423 $3,706
Medical premiums 2,862 2,082
Interest and other income 208 400
------ ------
Total revenues 6,493 6,188
EXPENSES
Medical expenses 2,523 1,864
Marketing, general and administrative 3,639 4,191
Depreciation and amortization 61 40
------ ------
Total expenses 6,223 6,095
------ ------
Earnings from operations before income taxes 270 93
Income tax expense 80 20
------ ------
NET EARNINGS $ 190 $ 73
====== ======
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings per common share $ 0.02 $ 0.01
====== ======
Weighted average shares outstanding 8,734 8,589
====== ======
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings per common share $ 0.02 $ 0.01
====== ======
Weighted average shares outstanding 8,753 8,800
====== ======
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
3
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2008 2007
-------- -------
OPERATING ACTIVITIES
Net earnings $ 190 $ 73
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 61 40
Stock compensation 99 129
Net changes in other operating assets and liabilities (579) 849
-------- -------
Net cash provided by (used in) operating activities (229) 1,091
INVESTING ACTIVITIES
Proceeds from maturity/redemption of marketable securities 9,925 1,500
Purchase of marketable securities (10,328) (1,546)
Purchase of property and equipment -- (111)
-------- -------
Net cash used in investing activities (403) (157)
FINANCING ACTIVITIES
Proceeds from exercise of stock options -- 6
-------- -------
Net cash provided by financing activities -- 6
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (632) 940
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,713 8,932
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,081 $ 9,872
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 38 $ 20
Unrealized gain on investments 32 66
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
4
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
NOTE 1 - BASIS OF PREPARATION
General
The accompanying unaudited condensed consolidated financial statements include
the accounts of United American Healthcare Corporation and its wholly and
majority-owned subsidiaries, together referred to as the "Company." All
significant intercompany transactions and balances have been eliminated in
consolidation.
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP) and with the instructions for
Form 10-Q and Rule 10-01 of Regulation S-X as they apply to interim financial
information. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the financial
position and results of operations have been included. The results of operations
for the three-month period ended September 30, 2008 are not necessarily
indicative of the results of operations for the full fiscal year ending June 30,
2009. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the notes to the financial statements
contained in the Company's most recent annual report on Form 10-K.
NOTE 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are summarized as
follows (in thousands):
Three months ended
September 30,
-------------------
2008 2007
---- ----
Net earnings $190 $ 73
Unrealized holding gains, net of
deferred federal income taxes 32 66
---- ----
Comprehensive income $222 $139
==== ====
5
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
The components of accumulated other comprehensive income, included in
shareholders' equity at September 30, 2008 and June 30, 2008, include net
unrealized holding gains and losses, net of deferred federal income taxes.
NOTE 3 - NET EARNINGS PER COMMON SHARE
Basic net earnings per share excluding dilution have been computed by dividing
net earnings by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share are computed using the treasury stock method
for outstanding stock options and warrants.
NOTE 4 - INCOME TAXES
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" requires that companies assess whether valuation allowances
against their deferred tax assets are adequate based on the consideration of all
available evidence.
The Company's effective tax rate for the three months ended September 30, 2008
is 30% and differs from the statutory rate of 34%. This difference is primarily
related to the change in the valuation allowance.
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes" -
an interpretation of SFAS No. 109 which clarifies the accounting for uncertainty
in tax positions. This interpretation requires that the Company recognize in the
financial statements the impact of a tax position if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. The provisions of FIN 48 are effective as of the beginning of the
Company's 2008 fiscal year, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings. The
Company adopted FIN 48 effective July 1, 2007. There was no adjustment required
to retained earnings as the Company was not aware of any material tax position
taken or expected to be taken in a tax return in which the tax law is subject to
varied interpretations.
NOTE 5 - CONTRACTUAL RISK AGREEMENT
Beginning July 1, 2002, TennCare, a State of Tennessee program that provides
medical benefits to Medicaid and working uninsured recipients, implemented an
18-month stabilization program, which entailed changes to TennCare's contracts
with managed care organizations ("MCOs"), including the Company's subsidiary,
UAHC Health Plan of
6
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
Tennessee, Inc. ("UAHC-TN"). During that period, MCOs were generally compensated
for administrative services only (commonly called ASO), earned fixed
administrative fees and were not at risk for medical costs. TennCare extended
the ASO reimbursement system applicable to UAHC-TN through several contractual
amendments effective through June 30, 2005.
Through an amendment with an effective date of July 1, 2005, TennCare
implemented a modified risk arrangement ("MRA") with all its contracted MCOs,
including UAHC-TN, which thereby were at risk for losing up to 10% of
administrative fee revenue and potentially could receive up to 15% incentive
bonus revenue based on performance relative to benchmarks. UAHC-TN received
notice from TennCare that it earned additional revenue of $1.1 million for its
performance under the MRA for fiscal 2006, representing a 7% bonus revenue
payout. Such additional revenue has been recorded, of which $0.3 million was
recorded in fiscal 2006, $0.5 million was recorded in fiscal 2007, and $0.3
million was recorded in the second quarter of fiscal 2008. UAHC-TN also earned
and received additional revenue of $1.4 million for fiscal 2007, representing a
9% bonus revenue payout, and the Company has recorded such additional MRA
earnings in the third quarter of fiscal 2008, when UAHC-TN was notified by
TennCare of the amount. Effective July 1, 2007, the evaluation period for the
MRA was changed from quarterly to annually, and the incentive bonus pool was
adjusted to 20% of administrative fee revenue.
On April 22, 2008, the Company learned that UAHC-TN will cease providing managed
care services as a TennCare contractor when its present TennCare contract
expires. UAHC-TN's TennCare members transferred to other managed care
organizations on November 1, 2008, after which UAHC-TN will perform its
remaining contractual obligations through its TennCare contract expiration date
of June 30, 2009. However, revenue under this contract was only earned through
October 31, 2008. Revenue under this contract represented 53% and 60% of the
Company's total revenues for the three months ended September 30, 2008 and 2007,
respectively. Total costs related to this contract discontinuance are estimated
to range between $4.6 million - $6.6 million, which includes claim processing
costs, employee severance, lease termination costs and other corporate general
administrative expenses beginning November 2008 through June 2009. Management
believes that the discontinuance of the TennCare contract will have a material
impact on the Company's operations.
As a result of the contract expiration as discussed above, the Company's
deferred tax valuation allowance was increased during fiscal 2008. In the third
quarter of fiscal 2008, the Company recorded deferred tax expense of $1.5
million. Also, management assessed the previously recorded goodwill of $3.5
million and determined that such amount was impaired in accordance with SFAS No.
142. As a result, the Company recorded a goodwill impairment charge of $3.5
million also during the third quarter of fiscal 2008.
7
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
NOTE 6 - STOCK OPTION PLANS
The Company has adopted SFAS No. 123(R), "Share-Based Payment," which is a
revision of SFAS No. 123, "Accounting for Stock Based Compensation," and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," which
was issued in December 2004. The revisions are intended to provide investors and
other users of financial statements with more complete and neutral financial
information by requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will be
measured based on the fair value of the equity or liability instruments issued.
The Company recorded stock option expense of $0.1 million for the three months
ended September 30, 2008 and 2007, respectively.
NOTE 7 - RESTRICTED ASSETS
Under two escrow agreements between the Company and TennCare on August 5, 2005
the Company funded two escrow accounts held by TennCare at the State Treasury.
Both escrow agreements recited that TennCare did not assert there had been any
breach of UAHC-TN's TennCare contract and that the Company funded the escrow
accounts as a show of goodwill and good faith in working with TennCare.
The larger escrow account, which has expired was in the original amount of
$2,300,000 and was security for repayment to TennCare of any overpayments to
UAHC-TN that might be determined by an audit of all UAHC-TN process claims since
2002. In August 2007, the Company received $1,289,851 plus accumulated interest
earnings back from that account. In November 2007, the remaining $1,010,149
account balance was paid to TennCare for claims discrepancies found in the
review by the Tennessee Department of Commerce and Insurance.
The other escrow account, in the original amount of $420,500, is security for
any money damages that may be awarded to TennCare in the event of any future
litigation between the parties in connection with certain pending investigations
by state and federal authorities. The escrow account will terminate 30 days
after the conclusion of such investigations, unless the parties earlier agree
otherwise. The escrow account bears interest at a rate no lower than the
prevailing commercial interest rate for savings accounts at financial
institutions in Nashville, Tennessee. All amounts (including interest earnings)
credited to the escrow account will belong to the Company, except to the extent,
if any, they are paid to TennCare to satisfy amounts determined to be owed to
TennCare as provided in the escrow agreement.
8
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
NOTE 8 - MEDICARE CONTRACT
On October 10, 2006, UAHC-TN entered into a contract with the Centers for
Medicare & Medicaid Services (CMS) to act as a Medicare Advantage qualified
organization. The contract authorizes UAHC-TN to serve members enrolled in both
the Tennessee Medicaid and Medicare programs, commonly referred to as
"dual-eligibles," specifically to offer a Special Needs Plan to its eligible
members in Shelby County, Tennessee (including the City of Memphis), and to
operate a Voluntary Medicare Prescription Drug Plan, both beginning January 1,
2007. The current contract term is through December 31, 2008, after which the
contract may be renewed for successive one-year periods in accordance with its
terms. As of October 31, 2008, there were approximately 806 enrollees in
UAHC-TN's Medicare Advantage Special Needs Plan.
NOTE 9 - FAIR VALUE
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. An entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. SFAS 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. We adopted the provisions of
SFAS 159 on July 1, 2008.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 enhances existing guidance for measuring assets and
liabilities using fair value. SFAS 157 provides a single definition of fair
value, together with a framework for measuring it, and requires additional
disclosure about the use of fair value to measure assets and liabilities. SFAS
157 also emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and sets out a fair value hierarchy with the
highest priority being quoted prices in active markets. Under SFAS 157, fair
value measurements are disclosed by level within that hierarchy. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We adopted the
provisions of SFAS 157 related to financial assets and financial liabilities on
July 1, 2008. In February 2008, the FASB issued FASB Staff Position No. 157-2,
Effective Date of SFAS. 157 ("FSP 157-2"), which delays the effective date of
SFAS 157 for nonfinancial assets and nonfinancial liabilities. Therefore, the
Company has delayed application of SFAS 157 to its nonfinancial assets and
nonfinancial liabilities, which include assets and liabilities
9
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
acquired in connection with a business combination, goodwill, intangible assets
and asset retirement obligations, until July 1, 2009.
Hierarchical levels, defined by SFAS No. 157 and directly related to the amount
of subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:
Level 1 -- Inputs were unadjusted, quoted prices in active markets for
identical assets or liabilities at the measurement date.
Level 2 -- Inputs (other than quoted prices included in Level 1) were
either directly or indirectly observable for the asset or liability through
correlation with market data at the measurement date and for the duration
of the instrument's anticipated life.
Level 3 -- Inputs reflected management's best estimate of what market
participants would use in pricing the asset or liability at the measurement
date. Consideration was given to the risk inherent in the valuation
technique and the risk inherent in the inputs to the model.
Determining which hierarchical level an asset or liability falls within requires
significant judgment. We will evaluate our hierarchy disclosures each quarter.
The following table summarizes the financial instruments measured at fair value
in the Condensed Consolidated Balance Sheet as of September 30, 2008:
FAIR VALUE MEASUREMENTS
------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ------- ------- ------
Assets
Marketable Securities-short-term $9,161 $-- $-- $9,161
Marketable Securities- long-term $7,562 $-- $-- $7,562
Liabilities $ -- $-- $-- $ --
We classified our marketable securities as available-for-sale which were
reported at fair market value. Unrealized gains and losses, to the extent such
losses are considered temporary in nature, are included in Accumulated Other
Comprehensive Loss, net of applicable taxes. At such time as the decline in fair
market value and the related unrealized loss is determined to be a result of
impairment of the underlying instrument, the loss is recorded as a charge to
earnings. Fair values for marketable securities are based upon market prices.
10
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
NOTE 10 - UNAUDITED SEGMENT FINANCIAL INFORMATION
Summarized financial information for the Company's principal operations, as of
and for the three-month periods ended September 30, 2008 and 2007, is as follows
(in thousands):
MANAGEMENT HMO & CORPORATE & CONSOLIDATED
COMPANIES (1) MANAGED PLAN (2) ELIMINATIONS COMPANY
------------- ---------------- ------------ ------------
THREE MONTHS ENDED
SEPTEMBER 30, 2008
Revenues - external customers $ -- $ 6,285 $ -- $ 6,285
Revenues - intersegment 3,261 -- (3,261) --
Interest and other income 93 115 -- 208
------- ------- -------- -------
Total revenues $ 3,354 $ 6,400 $ (3,261) $ 6,493
======= ======= ======== =======
Interest expense $ -- $ -- $ -- $ --
Earnings (loss) from operations 922 (732) -- 190
Cash 3,508 6,573 -- 10,081
Marketable securities 3,988 5,173 -- 9,161
Segment assets 62,286 20,595 (52,722) 30,159
Purchase of equipment -- -- -- --
Depreciation and amortization 61 -- -- 61
------- ------- -------- -------
THREE MONTHS ENDED
SEPTEMBER 30, 2007
Revenues - external customers $ -- $ 5,788 $ -- $ 5,788
Revenues - intersegment 3,447 -- (3,447) --
Interest and other income 129 271 -- 400
------- ------- -------- -------
Total revenues $ 3,576 $ 6,059 $ (3,447) $ 6,188
======= ======= ======== =======
Interest expense $ -- $ $ -- $ --
Earnings (loss) from operations (376) 449 -- 73
Cash 3,604 6,268 -- 9,872
Marketable securities 2,806 2,537 -- 5,343
Segment assets 64,710 19,332 (50,806) 33,236
Purchase of equipment 111 -- -- 111
Depreciation and amortization 40 -- -- 40
------- ------- -------- -------
(1) Management Companies: United American Healthcare Corporation and United
American of Tennessee, Inc.
(2) HMO and Managed Plan: UAHC Health Plan of Tennessee, Inc.
11
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
NOTE 11 - RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
The following are new accounting standards and interpretations that may be
applicable in the future to the Company:
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an
Amendment of ARB No. 51. SFAS No. 141(R) requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. SFAS
No. 160 clarifies that a noncontrolling interest in a subsidiary should be
reported as equity in the consolidated financial statements. The calculation of
earnings per share will continue to be based on income amounts attributable to
the parent. SFAS No. 160 also requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS No. 160 also
provides guidance when a subsidiary is deconsolidated and requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent's owners and the interests of
the noncontrolling owners of a subsidiary. SFAS No. 141(R) and SFAS No. 160 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company has not yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS No. 141(R) or SFAS No. 160.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("SFAS 161"), which amends and expands the
disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), with the intent to provide users of
financial statements with an enhanced understanding of: (a) how and why an
entity uses derivative instruments; (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations;
and (c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. SFAS 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit-risk-related contingent
features in derivative instruments. This statement applies to all entities and
all derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The Company has not yet determined the effect on its financial statements, if
any, upon adoption of SFAS 161.
12
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
In May, 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). SFAS 162 will be effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board's
amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The FASB has stated that it does not
expect SFAS 162 will result in a change in current practice. SFAS 162 is
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to remove the GAAP hierarchy from the auditing
standards. The application of SFAS 162 will have no effect on the Company's
financial position, results of operations or cash flows.
Also in May 2008, the FASB issued SFAS No. 163, Accounting for Financial
Guarantee Insurance Contracts - an interpretation of SFAS Statement No. 60
("SFAS 163"). SFAS 163 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. SFAS 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
June 30, 2010. The Company is currently evaluating the impact of SFAS 163 on its
financial statements but does not expect it to have an effect on the Company's
financial position, results of operations or cash flows.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement) ("FSP APB 14-1"). FSP APB 14-1 applies to convertible debt
securities that, upon conversion, may be settled by the issuer fully or
partially in cash. FSP APB 14-1 specifies that issuers of such instruments
should separately account for the liability and equity components in a manner
that will reflect the entity's nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and must be applied on a retrospective basis. Early adoption is not permitted.
The Company is assessing the potential impact of this FSP on its convertible
debt issuances.
In June 2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the earnings
allocation in computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per Share. Under the guidance of FSP EITF
03-6-1, unvested share-based payment awards that contain nonforfeitable rights
to dividends or dividend
13
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2008 AND 2007
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings-per-share pursuant to the two-class
method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and all prior-period earnings per share
data presented shall be adjusted retrospectively. Early application is not
permitted. The Company is assessing the potential impact of this FSP on its
earnings per share calculation.
In June 2008, the FASB ratified EITF No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock ("EITF 07-5"). EITF
07-5 provides that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. EITF 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. Early application is not
permitted. The Company is assessing the potential impact of this EITF on its
financial condition and results of operations.
NOTE 12 - SUBSEQUENT EVENT
The Company has entered into retention and severance agreements with each of the
Company's named executive officers, William C. Brooks, Stephen D. Harris and
Stephanie Dowell, to incentivize their continued service to the Company. These
agreements (each a "Retention Agreement") were dated and effective as of October
30, 2008, the date on which the agreements were approved by our Board of
Directors. See "Item 5. Other Information" below for a detailed description of
each agreement.
In additiion, the Company entered into severance agreements with other
employees. As of September 30, 2008, the Company had accrued $0.04 million
related to these severance payments.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
You should read the following discussion and analysis of our financial
condition and results of operations together with our financial statements and
the related notes and other financial data included elsewhere in this report.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to our plans and
strategy for our business, includes forward-looking statements that involve
risks and uncertainties. You should review the cautionary statement regarding
forward-looking statements" in the first paragraph of Item 1A of our Annual
Report on Form 10-K for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis.
OVERVIEW
This Financial Review discusses the Company's results of operations, financial
position and liquidity. This discussion should be read in conjunction with the
consolidated financial statements and related notes thereto contained elsewhere
in this quarterly report.
The Company provides comprehensive management and consulting services to UAHC
Health Plan of Tennessee, Inc. ("UAHC-TN"), a managed care organization ("MCO")
which is a wholly owned second-tier subsidiary of United American Healthcare
Corporation. Since November 1993, UAHC-TN has had a contract with the State of
Tennessee, Bureau of TennCare ("TennCare"), to arrange for the financing and
delivery of health care services on a capitated basis to eligible Medicaid
beneficiaries and non-Medicaid individuals who lack access to private or
employer sponsored health insurance or to another government health plan. As of
September 30, 2008, there were approximately 96,899 TennCare enrollees in
UAHC-TN.
On April 22, 2008 we learned that UAHC-TN will cease providing managed care
services as a TennCare contractor when its present TennCare contract expires.
(See Note 5 to our Unaudited Condensed Consolidated Financial Statements in Item
1 above.) UAHC-TN's TennCare members transferred to other managed care
organizations on November 1, 2008, after which UAHC-TN will perform its
remaining contractual obligations through its TennCare contract expiration date
of June 30, 2009. Revenue under this contract represented 53% of the Company's
total revenues for the three months ended September 30, 2008. Total costs
related to this contract discontinuance are estimated to range between $4.6
million - $6.6 million, which includes claim processing costs, employee
severance, lease termination costs and other corporate general administrative
expenses beginning November 2008 through June 2009.
On October 10, 2006, UAHC-TN entered into a contract with the Centers for
Medicare & Medicaid Services (CMS) to act as a Medicare Advantage qualified
organization. The
15
contract authorizes UAHC-TN to serve members enrolled in both the Tennessee
Medicaid and Medicare programs, commonly referred to as "dual-eligibles,"
specifically to offer a Special Needs Plan to its eligible members in Shelby
County, Tennessee (including the City of Memphis), and to operate a Voluntary
Medicare Prescription Drug Plan, both beginning January 1, 2007. The contract
term is through December 31, 2008, after which the contract may be renewed for
successive one-year periods in accordance with its terms. As of October 31, 2008
there were approximately 806 enrollees in UAHC-TN's Medicare Advantage Special
Needs Plan ("our MA-SNP").
The total number of employees of the Company at November 1, 2008 was 41 compared
to 115 at November 1, 2007. As a result of the impending expiration of the
TennCare contract, management expects a substantial decrease in the total number
of employees.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2007
Total revenues increased $0.3 million (5%) to $6.5 million for the three months
ended September 30, 2008, compared to $6.2 million for the three months ended
September 30, 2007. The increase was principally due to an increase in our
MA-SNP revenues and variable administrative fees offset by a decrease in
TennCare revenues primarily due to a decrease in TennCare enrollees.
Fixed administrative fees related to TennCare's ASO program (as described under
the heading "Liquidity and Capital Resources" below) were $3.4 million for the
three months ended September 30, 2008, a decrease of $0.3 million (8%) from $3.7
million for the three months ended September 30, 2007. The decrease is
principally due to a decrease in TennCare enrollees.
Our MA-SNP medical premiums revenues were $2.9 million for the three months
ended September 30, 2008 compared to $2.1 million for the three months ended
September 30, 2007. The increase of $0.8 million is attributable to the increase
in MA-SNP enrollees.
Our MA-SNP per member per month ("PMPM") premium rate for the three months ended
September 30, 2008 was $1,216.
Total expenses increased $0.1 million to $6.2 million for the three months ended
September 30, 2008 as compared to $6.1 million for the three months ended
September 30, 2007. The increase in medical expenses related to the MA-SNP was
offset by a decrease in marketing, general and administrative expenses.
Medical expenses for our MA-SNP were $2.5 million for the three months ended
September 30, 2008 compared to $1.9 million for the three months ended September
30, 2007. The increase in medical expenses is attributable to the growth in our
MA-SNP activity. The ratio of such medical expenses to medical premiums revenues
for our MA-SNP, expressed as a percentage -- the medical loss ratio ("MLR") --
was 88.1% for the three months ended September 30, 2008.
16
Marketing, general and administrative expenses decreased $0.6 million (13%) to
$3.6 million for the three months ended September 30, 2008 from $4.2 million for
the three months ended September 30, 2007. The decrease was principally due to
reductions in labor costs, adminstrative costs and professional services
expenses resulting from the TennCare contract expiration.
Depreciation and amortization expense was $0.06 million for the three months
ended September 30, 2008, a $0.02 million increase from $0.04 million for the
three months ended September 30, 2007.
Income tax expense was $0.08 million for the three months ended September 30,
2008 compared to $0.02 million for the three months ended September 30, 2007.
The Company's effective tax rate for the three months ended September 30, 2008
is 30% and differs from the statutory rate of 34%. This difference is primarily
related to the change in the valuation allowance.
Income before income taxes was $0.3 million for the first fiscal quarter ended
September 30, 2008 compared to income before income taxes of $0.09 million for
the quarter ended September 30, 2007.
Net income was $0.2 million, or $0.02 per basic share, for the quarter ended
September 30, 2008, compared to net income of $0.07 million, or $0.01 per basic
share, for the quarter ended September 30, 2007. The increase is primarily due
to the increase in overall revenue resulting from our MA-SNP and the decrease in
marketing, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2008, the Company had (i) cash and cash equivalents and
short-term marketable securities of $19.2 million, compared to $19.5 million at
June 30, 2008; (ii) working capital of $15.7 million, compared to working
capital of $15.3 million at June 30, 2008; and (iii) a current assets-to-current
liabilities ratio of 3.85-to-1, compared to 3.85-to-1 at June 30, 2008.
Cash used in operating activities of $0.2 million was primarily due to increased
labor related payments such as accrued vacation, resulting from the termination
of the TennCare contract. (See Note 5 to our Unaudited Condensed Consolidated
Financial Statements in Item 1 above.)
Cash decreased $0.6 million for the three months ended September 30, 2008,
compared to an increase of $0.9 million for the comparable period a year
earlier. The decrease was principally due to increased net purchases of
marketable securities and the timing of medical claims payments.
Accounts receivable from the State of Tennesee changed slightly at September 30,
2008 compared to June 30, 2008, primarily due to timing of cash receipts from
TennCare.
Property, plant and equipment decreased by $0.06 million at September 30, 2008
compared to June 30, 2008, due to recording depreciation of $0.06 million.
17
The Company's wholly owned subsidiary, UAHC-TN, had a required minimum net worth
requirement using statutory accounting practices of $7.1 million at September
30, 2008. UAHC-TN had excess statutory net worth of approximately $7.5 million
at September 30, 2008.
Beginning July 1, 2002, TennCare, a State of Tennessee program that provides
medical benefits to Medicaid and working uninsured recipients, implemented an
18-month stabilization program, which entailed changes to TennCare's contracts
with managed care organizations ("MCOs"), including the Company's subsidiary,
UAHC -TN. During that period, MCOs were generally compensated for administrative
services only (commonly called ASO), earned fixed administrative fees and were
not at risk for medical costs. Through successive contractual amendments,
TennCare extended the ASO reimbursement system applicable to UAHC-TN through
several contractual amendments effective through June 30, 2005.
Through an amendment with an effective date of July 1, 2005, TennCare
implemented a modified risk arrangement ("MRA") with all its contracted MCOs,
including UAHC-TN, which thereby were at risk for losing up to 10% of
administrative fee revenue and potentially could receive up to 15% incentive
bonus revenue based on performance relative to benchmarks. UAHC-TN received
notice from TennCare that it earned additional revenue of $1.1 million for its
performance under the MRA for fiscal 2006, representing a 7% bonus revenue
payout. Such additional revenue has been recorded, of which $0.3 was recorded in
fiscal 2006, $0.5 million was recorded in fiscal 2007, and $0.3 million was
recorded in the second quarter of fiscal 2008. UAHC-TN also earned and received
additional revenue of $1.4 million for fiscal 2007, representing a 9% bonus
revenue payout, and the Company has recorded such additional MRA earnings in the
third quarter of fiscal 2008, when UAHC-TN was notified by TennCare of the
amount. Effective July 1, 2007, the evaluation period for the MRA was changed
from quarterly to annually, and the incentive bonus pool was adjusted to 20% of
administrative fee revenue.
Under two escrow agreements between the Company and TennCare, on August 5, 2005
the Company funded two escrow accounts held by TennCare at the State Treasury.
Both escrow agreements recited that TennCare did not at that time assert there
had been any breach of UAHC-TN's TennCare contract and that the Company funded
the escrow accounts as a show of goodwill and good faith in working with
TennCare.
The larger escrow account, which has expired, was in the original amount of
$2,300,000 and was security for repayment to TennCare of any overpayments to
UAHC-TN that might be determined by an audit of all UAHC-TN process claims since
2002. In August 2007, the Company received $1,289,851 plus accumulated interest
earnings back from that account. In November 2007, the remaining $1,010,149
account balance was paid to TennCare for claims discrepancies found in the audit
by the Tennessee Department of Commerce and Insurance.
The other escrow account, in the original amount of $420,500, is security for
any money damages that may be awarded to TennCare in the event of any future
litigation between the parties in connection with certain pending investigations
by state and federal authorities. The escrow account will terminate 30 days
after the conclusion of such
18
investigations, unless the parties earlier agree otherwise. The escrow account
bears interest at a rate no lower than the prevailing commercial interest rate
for savings accounts at financial institutions in Nashville, Tennessee. All
amounts (including interest earnings) credited to the escrow account will belong
to the Company, except to the extent, if any, they are paid to TennCare to
satisfy amounts determined to be owed to TennCare as provided in the escrow
agreement.
On April 22, 2008, the Department of Finance and Administration of the State of
Tennessee, Bureau of TennCare, disclosed its decision to award new TennCare
contracts to two named organizations, not including the Company's subsidiary,
UAHC-TN, as the culmination of TennCare's selection process pursuant to its
Request for Proposals for managed care services to be provided in the West Grand
Region of Tennessee. Consequently, UAHC-TN's TennCare members transferred to
other managed care organizations on November 1, 2008, after which UAHC-TN will
perform its remaining contractual obligations through its TennCare contract
expiration of June 30, 2009. Revenue under this contract represented 53% of the
Company's total revenues for the three months ended September 30, 2008. Total
costs related to this contract discontinuance are estimated to range between
$4.6 million - $6.6 million, which includes claim processing costs, employee
severance, lease termination costs and other corporate general administrative
expenses beginning November 2008 through June 2009. As of September 30, 2008,
there were approximately 96,899 TennCare enrollees in UAHC-TN. Management
believes that the discontinuance of the TennCare contract will have material
impact on the Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Our management has evaluated, with the participation of our principal executive
and principal financial officers, the effectiveness of our disclosure controls
and procedures as of September 30, 2008, and based on their evaluation, our
principal executive and principal financial officers have concluded that these
controls and procedures are effective as of September 30, 2008. There was no
change in our internal controls over financial reporting identified in
connection with such evaluation that occurred during our fiscal quarter ended
September 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file and submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is accumulated and communicated to our
19
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial officers, and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect our transactions and dispositions of
assets, (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors, and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
AMENDMENTS TO BYLAWS
On October 30, 2008, our Board of Directors adopted amendments to three
provisions of our Amended and Restated Bylaws pertaining to one of our officer
positions - the chief executive officer ("CEO"). The amendments will become
effective upon the election of a new director at our 2008 annual meeting of
shareholders, scheduled to be held on November 7, 2008. As a result of the
amendments, when effective, our Bylaws will no longer require that our CEO must
be a director of United American Healthcare Corporation (Article V, Section 1),
will no longer provide that our CEO is a member of our Executive Committee
(Article IV, Section 3), and will no longer entitle our CEO to call special
meetings of our Board (Article III, Section 7).
The Amended and Restated Bylaws of United American Healthcare Corporation,
effective as of the time stated above, are filed herewith as Exhibit 3.4 and
incorporated herein by reference. The above descriptions of provisions of the
Amended and Restated Bylaws are qualified in their entirety by reference to the
Amended and Restated Bylaws.
ENTRY INTO MATERIAL DEFINITIVE AGREEMENTS
Retention and Severance Agreements
United American Healthcare Corporation (the "Company") has entered into
Retention and Severance Agreements with each of the Company's named executive
officers, William C. Brooks, Stephen D. Harris and Stephanie Dowell (each an
"Executive"), to
20
incentivize their continued service to the Company. These agreements (each a
"Retention Agreement") were dated and effective as of October 30, 2008, the date
on which the agreements were approved by our Board of Directors.
With respect to Mr. Brooks and Mr. Harris, in addition to any payments due under
their current pay arrangements, the Retention Agreements provide that the
Company will pay a Retention Payment of $320,000 and $184,000 to Mr. Brooks and
Mr. Harris, respectively (equal to their current annual base salaries), provided
that such Executive is still employed by the Company through a 2-year retention
period ending October 30, 2010. A portion equal to 25% of such Executive's
Retention Payment is to be paid to him in cash within 30 days after the earlier
of (i) expiration of the existing contract between our subsidiary, UAHC Health
Plan of Tennessee, Inc., and the State of Tennessee, Bureau of TennCare
(currently scheduled for June 30, 2009), and (ii) the date the State of
Tennessee releases statutory reserves currently required by such TennCare
contract. Thereafter, the unpaid balance of such Executive's Retention Payment
is to be paid to him in cash within 30 days after October 30, 2010.
With respect to Ms. Dowell (the chief executive officer of UAHC Health Plan of
Tennessee, Inc., as well as our Vice President), in addition to any payments due
under her current pay arrangement, her Retention Agreement provides that the
Company will pay her a Retention Payment of $92,000 (equal to half of her
current annual base salary), provided that she is still employed by the Company
through a retention period ending January 1, 2009. Such Retention Payment is to
be paid to Ms. Dowell in cash within 30 days after January 1, 2009. In addition,
under her Retention Agreement the Company retains the option, in its sole
discretion, to retain Ms. Dowell for an extended period beyond January 1, 2009,
in which case the Company will award her an Additional Retention Payment,
provided that she is still employed by the Company through the end of her
extended retention period. Such Additional Retention Payment would equal a
percentage of her current annual base salary, as determined by January 1, 2009
by our CEO or Compensation Committee based on the length of the extended
retention period and other factors, as they may determine. This Additional
Retention Payment is to be paid to Ms. Dowell in cash within 30 days after the
end of her extended retention period.
If any of Mr. Brooks, Mr. Harris or Ms. Dowell is terminated for cause (as
defined in his or her Retention Agreement), or voluntarily resigns from the
Company, before the completion of such Executive's retention period (or her
extended retention period, if applicable), such Executive's right to his or her
Retention Payment (or her Additional Retention Payment, if applicable) will be
forfeited. If such Executive separates from service with the Company on account
of death or disability, or upon his or her Involuntary Separation From Service
(as defined in his or her Retention Agreement) with the Company other than for
cause, before the end of his or her retention period (or her extended retention
period, if applicable), the Executive, or his or her designated beneficiary, as
applicable, is entitled to his or her Retention Payment (or Additional Retention
Payment) on a pro-rata basis.
In addition to the above described retention payments, the Retention Agreements
provide that in the event of an Executive's Involuntary Separation From Service,
other than for
21
cause, that is not on account of a change-in-control event ("CIC Event"), Mr.
Brooks, Mr. Harris and Ms. Dowell are entitled to a cash Severance Benefit equal
to 12 months, 12 months or 6 months, respectively, of his or her base salary.
This Severance Benefit will be payable every other Friday on the same schedule
and in the same manner as his or her monthly compensation was paid while the
Executive was employed by the Company. This Severance Benefit will be thus paid
periodically beginning on the first payroll date of the seventh month
immediately following the Executive's Separation From Service date.
The Retention Agreements also provide that in the event of an Executive's
Separation From Service on account of a CIC Event, the Executive is entitled to
the amount due under the Company's Supplemental Executive Retirement Plan (the
"SERP") to be paid in a lump sum on the first day of the seventh month
immediately following his or her Separation From Service date. Nothing in the
Retention Agreements modifies the Executive's entitlement to benefits to which
he or she is otherwise entitled under the SERP.
For purposes of this Agreement a "CIC Event" occurs when one person, or more
than one person acting as a group, (i) acquires control of stock which, when
combined with stock already held by such person or group, constitutes more than
50% of the total fair market or total voting power of the Company's stock
("Majority Control"), (ii) acquires, or has acquired during the 12-month period
ending on the date of the most recent acquisition of stock by such person or
group, ownership of stock in the Company possessing 30% or more of the total
voting power of the Company's stock ("Effective Control"), or (iii) acquires, or
has acquired during the 12-month period ending on the date of the most recent
acquisition by such person or group, Company assets having a gross market value
equal to or greater than 40% of the total gross fair market value of the assets
of the Company immediately before such acquisition or acquisitions.
In consideration for the foregoing payments, each Executive agrees to the
non-competition, non-solicitation, non-disparagement, non-disclosure,
confidentiality and other related provisions set forth in his or her Retention
Agreement. In addition, the Executive will be required to execute a general
release of claims against the Company in consideration for the severance
payments described above.
The foregoing descriptions of the Retention Agreements do not purport to be
complete and are qualified in their entirety by reference to the Retention and
Severance Agreements with Mr. Brooks, Mr. Harris and Ms. Dowell, copies of which
are filed as Exhibits 10.68, 10.69 and 10.70, respectively, hereto and
incorporated herein by reference.
Director and Officer Indemnification Agreements
On October 30, 2008, the Board of Directors of United American Healthcare
Corporation (the "Company") approved, and the Company executed, indemnification
agreements for the benefit of each of its non-employee directors (Richard M.
Brown, D.O., Darrel W. Francis, Tom A. Goss, Ronald E. Hall, Sr., Emmett S.
Moten, Jr., and Eddie R. Munson), its officer-directors (William C. Brooks and
Stephen D. Harris) and its non-director
22
corporate officer (Stephanie Dowell). The indemnification agreements supplement
indemnification provisions contained in the Company's Articles of Incorporation
and Amended and Restated Bylaws.
In general, the indemnification agreements provide that the Company will
indemnify each indemnitee to the fullest extent permitted under applicable law
if the indemnitee was or is a party or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding of any kind, whether
civil, criminal, administrative or investigative and whether formal or informal,
by reason of the fact that the indemnitee is or was a director, officer,
employee or agent of the Company or is or was serving at its request as a
director, officer, employee or agent of another corporation (including a
subsidiary), employee benefit plan or other enterprise, whether or not for
profit, or by reason of anything done or not done by the indemnitee in any such
capacity (collectively, "Covered Matters"). The indemnification agreements
provide that such indemnification will cover all expenses, liabilities,
judgments (including punitive and exemplary damages), penalties, fines
(including excise taxes relating to employee benefit plans and civil penalties)
and amounts paid in settlement which are incurred or imposed upon the indemnitee
in connection with a Covered Matter (collectively, "Indemnified Amounts"). The
indemnification agreements provide that the indemnitee will be indemnified for
all Indemnified Amounts and the Company will defend the indemnitee against
claims (including threatened claims and investigations) in any way related to
the indemnitee's service as a director or officer, except if it is finally
determined by the court of last resort (or by a lower court if not timely
appealed) that (1) the payment is prohibited by applicable law or (2) the
indemnitee engaged in intentional misconduct for the primary purpose of
significant personal financial benefit through actions adverse to Company's and
its shareholders' best interests.
In addition, the indemnification agreements provide for the advancement of
expenses incurred by the indemnitee in connection with any proceeding covered by
his or her indemnification agreement, provided that the indemnitee will repay
any amounts actually advanced if it is determined that the indemnitee is not
entitled to be indemnified against such expenses. The indemnification agreements
also establish procedures for the defense of indemnifiable claims, generally
require the Company to maintain director and officer insurance.
The foregoing description of the indemnification agreements does not purport to
be complete and is qualified in its entirety by reference to the forms of the
indemnification agreements, copies of which are filed as Exhibits 10.71, 10.72,
10.73 and 10.74 hereto and incorporated herein by reference.
23
Item 6. Exhibits
The following exhibits are filed as part of this Report:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.4 Amended and Restated Bylaws of United American Healthcare
Corporation
10.68 Retention and Severance Agreement dated October 30, 2008, between
United American Healthcare Corporation and William C. Brooks
10.69 Retention and Severance Agreement dated October 30, 2008, between
United American Healthcare Corporation and Stephen D. Harris
10.70 Retention and Severance Agreement dated October 30, 2008, between
United American Healthcare Corporation and Stephanie Dowell
10.71 Indemnification Agreement dated October 30, 2008, between United
American Healthcare Corporation and William C. Brooks
10.72 Indemnification Agreement dated October 30, 2008, between United
American Healthcare Corporation and Stephen D. Harris
10.73 Indemnification Agreement dated October 30, 2008, between United
American Healthcare Corporation and Stephanie Dowell
10.74 Form of Indemnification Agreement dated October 30, 2008, between
United American Healthcare Corporation and each of its non-employee
directors
31.1 Certifications of Chief Executive Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certifications of Chief Financial Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
UNITED AMERICAN HEALTHCARE CORPORATION
Dated: November 4, 2008 By: /s/ William C. Brooks
------------------------------------
William C. Brooks
Chairman, President &
Chief Executive Officer
Dated: November 4, 2008 By: /s/ Stephen D. Harris
------------------------------------
Stephen D. Harris
Executive Vice President,
Chief Financial Officer & Treasurer
25