SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. 4)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)).
UCI MEDICAL AFFILIATES, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:______________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________
(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):
(4) Proposed maximum aggregate value of transaction:______________
_______________________________________
(5) Total fee paid: ______________________________________________
[X] Fee paid previously with preliminary materials. ($1,774 paid
-------------
with February 24, 1998 filing.)
---------------------------------
[ ] 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: ______________________________________
(2) Form, Schedule or Registration Statement No.: ________________
(3) Filing Party: ________________________________________________
(4) Date Filed: __________________________________________________
PRELIMINARY PROXY STATEMENT DATED DECEMBER 7, 1998
UCI MEDICAL AFFILIATES, INC.
1901 MAIN STREET, SUITE 1200
COLUMBIA, SOUTH CAROLINA 29201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, JANUARY 27, 1999
TO THE STOCKHOLDERS OF UCI MEDICAL AFFILIATES, INC.:
The Annual Meeting of Stockholders of UCI Medical Affiliates, Inc., a
Delaware corporation ("UCI"), will be held on Tuesday, January 27, 1999 at 10:00
a.m., local time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia,
South Carolina 29210 for the following purposes:
A. In connection with the transaction in which UCI has acquired certain
assets and assumed certain liabilities of MainStreet Healthcare Corporation
("MHC"), a Delaware corporation, UCI stockholders will be asked:
1. To approve the issuance of shares of UCI common stock in
connection with the transaction.
2. To approve the issuance of warrants for the purchase of shares
of UCI common stock in connection with a private placement of
UCI common stock.
3. To approve an amendment to the Amended and Restated
Certificate of Incorporation of UCI to increase the authorized
shares of UCI common stock from 10 million shares to 50
million shares.
B. In connection with the Annual Meeting, UCI stockholders will be asked:
1. To approve the election of three members of the UCI Board of
Directors, each to hold office for a three-year term ending on
the date of the annual meeting of stockholders in the year
2001 and until such director's respective successor shall have
been duly elected and qualified.
2. To approve the adoption of the UCI 1999 Stock Incentive Plan
for officers, directors, employees and consultants.
3. To approve an amendment to the Amended and Restated
Certificate of Incorporation of UCI to give effect to a
one-for-five reverse stock split.
4. To ratify the appointment of Price Waterhouse LLP as the firm
of independent auditors to audit the consolidated financial
statements of UCI and its subsidiaries for the fiscal year
ended September 30, 1998.
C. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record of UCI common stock at the close of business
on December 4, 1998 are entitled to notice of, and will be entitled to vote at,
the Annual Meeting or any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
M. F. McFarland, III, M.D.
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
December 18, 1998
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, WE URGE
YOU TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY
IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE
IT IS VOTED.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SHARES OF UCI COMMON STOCK TO BE ISSUED IN THE
TRANSACTION, OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The accompanying Proxy Statement is dated December 18, 1998,
and was first mailed to stockholders on or about December 28, 1998.
TABLE OF CONTENTS
SUMMARY
Proposals Relating to the Acquisition...................................1
Description of the Acquisition.................................... .....1
Annual Meeting Proposals................................................5
Record Date; Vote Required for Stockholder Approval of the Proposals....6
Recommendations to Stockholders.........................................6
Markets and Market Prices...............................................7
Selected Historical Financial Data of the Company.......................8
Selected Historical Financial Data of MHC...............................9
Selected Pro Forma Financial Data of the Company........................10
RISK FACTORS
Financial Status of MHC.................................................11
Integration of Operations; Management of Growth.........................11
Dilution................................................................12
Resales of Common Stock.................................................13
Nasdaq Delisting........................................................13
THE ACQUISITION
Description of the Acquisition..........................................14
Background........................................................14
Closing of the Acquisition........................................16
Reasons for the Acquisition.......................................17
Recommendation of the UCI Board...................................18
Stockholder Approval..............................................18
Expectation of Stockholder Approval...............................19
Scheduling of Stockholder Approval................................19
Fairness Opinion..................................................19
Financing of the Acquisition......................................21
Certain Federal Income Tax Matters................................22
Accounting Treatment..............................................22
Resales of Common Stock...........................................22
Absence of Dissenters' Rights.....................................23
Interests of Certain Persons in the Acquisition...................23
Description of the Agreements...........................................23
Acquisition Agreement.............................................23
Related Agreements...............................................26
Non-Solicit Agreements......................................26
Registration Rights Agreement...............................26
Stockholder Agreements......................................26
FINANCIAL AND BUSINESS INFORMATION
Market Price and Dividend Information...................................27
Description of MHC......................................................28
Unaudited Pro Forma Combined Condensed Financial Statements.............29
THE ANNUAL MEETING
Business to be Conducted at the Annual Meeting..........................32
Proposals to be Voted Upon........................................32
Date, Time and Place of Meeting...................................32
Record Date.......................................................33
Shares Outstanding and Entitled to Vote...........................33
Voting and Revocation of Proxies..................................33
Quorum............................................................33
Vote Required.....................................................34
Solicitation of Proxies and Expenses..............................34
Description of Proposals................................................35
Acquisition Proposals...................................................35
Share Issuance and Warrant Issuance Proposals.....................35
Authorized Capital Stock Proposal.................................35
Annual Meeting Proposals................................................35
Election of Directors.............................................35
1999 Incentive Plan Proposal......................................36
Reverse Stock Split Proposal......................................40
Ratification of Auditors Proposal.................................42
Directors and Executive Officers........................................43
Directors ........................................................43
Executive Officers................................................44
Section 16(a) Beneficial Ownership Reporting Compliance...........44
Board of Directors and Board Committees...........................44
Executive Compensation............................................45
Director Compensation.............................................47
Employment Contracts..............................................47
Security Ownership of Certain Beneficial Owners and Management..........47
Certain Relationships and Related Party Transactions....................48
ADDITIONAL INFORMATION
Cautionary Statement Concerning Forward-Looking Statements..............52
Stockholder Proposals...................................................52
Other Matters...........................................................52
Annual and Quarterly Reports............................................52
Where You Can Find More Information.....................................53
APPENDICES
APPENDIX A..............................................................A-1
APPENDIX B..............................................................B-1
APPENDIX C..............................................................C-1
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT, AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
PROPOSED TRANSACTION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE TRANSACTION, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "ADDITIONAL INFORMATION - WHERE YOU
CAN FIND MORE INFORMATION."
This Proxy Statement is being furnished to the holders of common stock,
par value $0.05 per share (the "Common Stock"), of UCI Medical Affiliates, Inc.,
a Delaware corporation ("UCI"), in connection with the solicitation of proxies
by the UCI Board of Directors (the "UCI Board") for use at the Annual Meeting of
Stockholders of UCI to be held Tuesday, January 27, 1999 at 10:00 a.m., local
time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia, South
Carolina for the following purposes:
o To approve certain proposals relating to the May 1998 acquisition
(the "Acquisition") by UCI and certain of its affiliated entities of
substantially all of the assets and certain of the liabilities of
MainStreet Healthcare Corporation, a Delaware corporation ("MHC"),
and its affiliated entities, and the funding of a portion of the
Acquisition by UCI through the private placement of Common Stock,
and
o To approve certain proposals presented as part of the regularly
scheduled Annual Meeting of Stockholders of UCI.
PROPOSALS RELATING TO THE ACQUISITION
Three of the proposals stockholders are being asked to approve at the
Annual Meeting relate to matters necessary for UCI to satisfy its obligations
under agreements delivered at the closings of the Acquisition and the private
placement of certain securities by UCI to finance the cash portion of the
consideration exchanged in the Acquisition. Specifically, stockholders are being
asked to approve the issuance by UCI of 2,901,396 shares of Common Stock to MHC
following the Annual Meeting and the issuance by UCI of stock purchase warrants
for the purchase of 300,000 shares of Common Stock to certain investors
following the Annual Meeting. Also, because the number of shares of Common Stock
authorized under the Amended and Restated Certificate of Incorporation of UCI
(the "UCI Certificate") is not currently sufficient to accommodate the issuances
of Common Stock identified above, stockholders are being asked to approve an
amendment to the UCI Certificate to increase UCI's authorized shares of Common
Stock from 10 million to 50 million shares.
DESCRIPTION OF THE ACQUISITION
PARTIES TO THE ACQUISITION
On May 13, 1998, UCI Medical Affiliates of Georgia, Inc. ("UCI-GA"), a
wholly-owned subsidiary of UCI, and certain of its affiliated entities acquired
substantially all of the assets and certain of the liabilities of MHC and its
affiliated entities. MHC is a closely held corporation that prior to the
Acquisition provided nonmedical management and administrative services for its
network of 11 freestanding medical centers (the "MHC Centers") located in
Georgia and Tennessee.
UCI-GA was formed to acquire the assets and liabilities of MHC pursuant to
the Acquisition and to provide nonmedical management and administrative services
for the MHC Centers following the Acquisition. UCI Medical Affiliates of South
Carolina, Inc. ("UCI-SC"), another wholly-owned UCI subsidiary, performs this
same category of services for its network of freestanding medical centers (the
"UCI Centers") located throughout South Carolina. All medical services at the
UCI Centers are provided by Doctor's Care, P.A. ("DC-SC"), a professional
corporation affiliated with UCI and UCI-SC.
1
Prior to the Acquisition, in compliance with applicable laws governing the
corporate practice of medicine, two professional corporations, MainStreet
Healthcare Medical Group, P.C., Georgia ("MHC-GA") and MainStreet Healthcare
Medical Group, P.C ., Tennessee ("MHC-TN", and collectively with MHC-GA, the
"MHC-PCs") performed all medical services at the MHC Centers in Georgia and
Tennessee, respectively. The MHC-PCs operated solely to fulfill the licensed
medical provider responsibilities associated with the MHC Centers pursuant to
administrative service agreements between each of the MHC-PCs and MHC.
In connection with the Acquisition, two new professional corporations,
Doctor's Care of Georgia, P.C. ("DC-GA") and Doctor's Care of Tennessee, P.C.
("DC-TN" and, collectively with DC-GA, the "UCI-PCs") were formed to acquire the
assets of MHC-GA and MHC-TN, respectively, and to fulfill the licensed medical
provider responsibilities associated with the MHC Centers acquired by UCI-GA in
the Acquisition. These responsibilities, as well as various administrative,
management and support functions, are currently carried out pursuant to an
administrative services agreement between UCI-GA and each of the UCI-PCs.
AS USED IN THIS PROXY STATEMENT, THE TERM "COMPANY" REFERS TO UCI, UCI-SC,
UCI-GA, DC-SC, AND THE UCI-PCS, COLLECTIVELY.
ACQUISITION AGREEMENTS
The Acquisition was carried out pursuant to the terms of the Acquisition
Agreement and Plan of Reorganization dated February 9, 1998, as amended on April
15, 1998 and May 7, 1998 (the "Acquisition Agreement"). This agreement is
summarized in this Proxy Statement under the heading "The Acquisition -
Description of the Agreements - Acquisition Agreement." The Acquisition also
included the delivery of a Conditional Delivery Agreement, non-solicit
agreements and a registration rights agreement, all of which are summarized in
this Proxy Statement under the heading "The Acquisition Description of the
Agreements."
CLOSING OF THE ACQUISITION
The closing of the Acquisition took place on May 13, 1998 and is being
accounted for as of May 1, 1998. All of the transfers and exchanges identified
below were completed and accounted for as of such dates. At the closing of the
Acquisition, the following took place:
o MHC transferred to UCI-GA substantially all of the assets of MHC in
exchange for the following:
o assumption by UCI-GA of certain liabilities, including a $594,184
line of credit obligation and certain real property and equipment
lease obligations of MHC; and
o cash, note payable and a commitment to issue stock having an
aggregate value of $8.14 million, exchanged as follows:
o delivery of a cash payment of $450,000 to an escrow agent
selected by MHC and the delivery to the escrow agent of a
$800,000 promissory note of UCI-GA payable to the escrow
agent, with such cash and the proceeds from the repayment of
the note to be paid by the escrow agent to certain creditors
of MHC; and
o delivery of a Conditional Delivery Agreement pursuant to
which UCI commits to issue 2,901,396 shares of Common Stock to
the escrow agent subject to the receipt of stockholder
approval for such issuance (such shares valued at $6.89
million using a value of $2.375 per share pursuant to the
share price formula set forth in the Acquisition Agreement).
At the Annual Meeting, stockholders of UCI will be asked to
approve the issuance of such shares. See "Annual Meeting
Proposals."
o The MHC-PCs transferred to the UCI-PCs all of the assets of the MHC-PCs in
exchange for the following:
2
o assumption by the UCI-PCs of the obligations of the MHC-PCs under
employment agreements with medical service providers; and
o an aggregate cash payment of $200 ($100 to each of the two
MHC-PCs).
FINANCING THE ACQUISITION - THE PRIVATE PLACEMENT
UCI financed the cash portion of the consideration exchanged in the
Acquisition using a portion of the net proceeds received by UCI in a private
placement (the "Private Placement") by UCI of $1.2 million of Common Stock (1.2
million shares) which closed on May 12, 1998. As placement agent and financial
advisory services fees in connection with the Private Placement, UCI delivered a
Conditional Delivery Agreement at the closing of the Private Placement pursuant
to which UCI has agreed to issue warrants (the "Warrants") for the purchase of
an aggregate of 300,000 shares of Common Stock subject to the receipt of
stockholder approval for such issuance. At the Annual Meeting, stockholders of
UCI will be asked to approve the issuance of the Warrants and the shares of
Common Stock issuable upon their exercise. See "Annual Meeting Proposals."
STOCKHOLDER APPROVAL REQUIREMENT
Stockholders of UCI are not being asked at the Annual Meeting to approve
or ratify the Acquisition or the Private Placement. Stockholder approval is
being sought at the Annual Meeting to enable UCI to satisfy its obligations
under agreements delivered at the closings of the Acquisition and the Private
Placement. Specifically, as reflected above, under Conditional Delivery
Agreements delivered at the closings of each of the Acquisition and the Private
Placement, UCI has committed to issue 2,901,396 shares of Common Stock to an
escrow agent and to issue Warrants for the purchase of 300,000 shares of Common
Stock to certain parties who participated in the Private Placement. Because the
aggregate number of such shares of Common Stock will exceed 20 percent of the
number of outstanding shares of Common Stock prior to such issuances, rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
require that approval by UCI stockholders be received prior to the issuance of
the Common Stock and the Warrants. Also, because such number of shares will
exceed the existing number of shares authorized under the UCI Certificate,
stockholder approval is being sought to make an appropriate amendment to the UCI
Certificate to increase the authorized capital stock. Because the Common Stock
and the Warrants were not actually issued at the closings of the Acquisition and
the Private Placement, stockholder approval was not required for such closings
to take place.
The Conditional Delivery Agreement delivered at the closing of the
Acquisition states that in the event the stockholders of UCI fail to approve any
of the matters necessary to issue the shares to MHC as provided in the
Acquisition Agreement, each of the parties, to the extent possible, is to be
restored to its position held prior to the closing. In recognition of the fact
that the Acquisition resulted in the integration of multiple business operations
involving the combination of operating, accounting and software systems and
departments, as well as various re-allocations of administrative management and
staff, modifications and enhancements to support functions, and applicable
adjustments in arrangements with third parties, the Conditional Delivery
Agreement addresses the fact that it may not be possible to restore a party to
the position it held prior to the closing of the Acquisition. In such event, the
Conditional Delivery Agreement provides that should any party be unable to
return to any other party any assets or liabilities originally transferred by
such other party in the Acquisition, the party unable to fully return such
assets or liabilities shall instead deliver a promissory note in principal
amount equal to the excess of the fair market value of any assets not returned
over the fair market value of any liabilities not returned. It is expected that
the parties will resolve by mutual agreement the definitive amounts of any such
promissory notes and the extent of any set-offs to be recognized. The notes will
bear interest at the then prime rate, with all interest and principal due one
month following the date of the note.
3
EXPECTATION OF STOCKHOLDER APPROVAL
M.F. McFarland, III, M.D., Chairman and Chief Executive Officer of UCI; D.
Michael Stout, M.D., Executive Vice President of Medical Affairs for UCI;
Stephen F. Serbin, M.D., Director of the Family Medical Division of DC-SC; Peter
J. Stahl, M.D., Assistant Director of the Family Medical Division of DC-SC; and
two subsidiaries of Blue Cross Blue Shield of South Carolina ("BCBS") have
indicated to UCI that each of them intends to vote the shares of Common Stock
controlled by them in favor of each of the proposals relating to the Acquisition
scheduled to be presented for stockholder approval at the Annual Meeting. In
addition, each of these stockholders has executed a separate agreement with MHC
in which each of them has agreed to vote shares held by such stockholder in
favor of the proposals relating to the Acquisition and the Private Placement
that will be presented for stockholder approval. None of such stockholders has
any direct or indirect interest in the Acquisition other than as stockholders of
UCI. As of the record date for the Annual Meeting, shares held by these
stockholders represented approximately 54 percent of the outstanding Common
Stock.
ACCORDINGLY, IF EACH OF SUCH STOCKHOLDERS VOTES AS INDICATED, ALL OF THE
PROPOSALS RELATING TO THE ACQUISITION AND THE PRIVATE PLACEMENT ARE ASSURED TO
BE APPROVED, REGARDLESS OF THE VOTES THAT MAY BE CAST BY ANY OTHER HOLDERS OF
COMMON STOCK ENTITLED TO VOTE.
SCHEDULING OF STOCKHOLDER APPROVAL
The timing of the Acquisition and the Private Placement made it convenient
for UCI to seek stockholder approval for the issuance of the Common Stock and
the Warrants at the Annual Meeting. The Annual Meeting had originally been
scheduled to occur prior to the closing of the Acquisition and the Private
Placement. However, in the context of various operational needs of both UCI and
MHC which were to be addressed through the Acquisition, and the delays in the
scheduling of the Annual Meeting as a consequence of the review of this Proxy
Statement and related materials by the Securities and Exchange Commission (the
"SEC"), the respective managements of both companies determined that the
interests of the stockholders of both companies were better served by proceeding
to close the Acquisition and the Private Placement in advance of the Annual
Meeting. As discussed above, to ensure that UCI's commitment to issue the shares
contemplated by the Conditional Delivery Agreement would be approved, MHC
obtained the commitment of six stockholders of UCI holding votes sufficient to
approve the issuance of the Common Stock to vote in favor of such issuance at
the Annual Meeting. Prior to scheduling the closings, UCI also sought and
received confirmation from the NASD that closing of the Acquisition and the
Private Placement in advance of stockholder approval for the issuance of the
Common Stock and the Warrants would not violate applicable NASD rules and
regulations.
BOARD APPROVAL
The UCI Board believes the Acquisition was in the best interests of the
Company and its stockholders. Included among the potential benefits considered
by the UCI Board were the strategic value of a multi-state presence, competitive
advantages gained by a larger medical provider base, and the economies of scale,
operating efficiencies and other synergies available through consolidation with
MHC.
FAIRNESS OPINION
In deciding to approve the Acquisition, the UCI Board considered, among
other things, advice from Dr. Oliver G. Wood, Jr., an independent consulting
economist. The UCI Board received an opinion from Dr. Wood that as of the date
of his opinion the terms of the Acquisition were fair to UCI from a financial
point of view. Dr. Wood's opinion is attached as Appendix A to this Proxy
Statement. We encourage you to read it thoroughly.
4
TAX TREATMENT
For U.S. federal income tax purposes, no income, gain or loss will be
recognized by UCI or the stockholders of UCI as a result of the Acquisition.
ACCOUNTING TREATMENT
The Acquisition is being accounted for as a purchase in accordance with
generally accepted accounting principles.
RESALES OF COMMON STOCK
All of the shares of Common Stock issued in the Private Placement and all
of the shares proposed to be issued pursuant to the Acquisition and upon
exercise of the Warrants are considered "restricted securities" under federal
and state securities laws. Consequently, the transferability of such shares by
their holders is limited during the two years following the respective dates of
their issuances, and will remain limited thereafter to the extent such shares
are held by affiliates of UCI. To assist the holders of such shares in the
public resale of such shares following their issuance, UCI has granted certain
registration rights to MHC, MHC stockholders, the investors in the Private
Placement and certain of the holders of the Warrants.
ABSENCE OF DISSENTERS' RIGHTS
UCI stockholders are not entitled under Delaware law to seek appraisal of
their shares of Common Stock in connection with the Acquisition.
RISK FACTORS
For a description of certain things which you should consider in
connection with your vote on the proposals relating to the Acquisition, in
addition to the other information described in this document, see the
disclosures in this Proxy Statement under the heading "Risk Factors."
ANNUAL MEETING PROPOSALS
PROPOSALS TO APPROVE THE ISSUANCE OF SHARES AND WARRANTS
Because the number of shares of Common Stock as to which UCI has committed
to issue in connection with the Acquisition and the shares of Common Stock
issuable upon exercise of the Warrants to be delivered in connection with the
Private Placement will exceed 20 percent of the number of outstanding shares of
Common Stock prior to such issuances, approval by UCI stockholders of the
issuance of the Common Stock and the Warrants is required under the rules of the
NASD.
PROPOSAL TO INCREASE THE AUTHORIZED CAPITAL STOCK
The UCI Certificate currently authorizes 10 million shares of Common
Stock. The authorized capital stock proposal provides that the authorized shares
of Common Stock will be increased to 50 million shares. Any authorized but
unissued shares of Common Stock may be used by UCI for general corporate
purposes, including for possible future acquisitions. To the extent required by
applicable law, stockholder approval will be sought in advance of any such
acquisitions. The increase in the authorized number of shares of Common Stock is
necessary to complete the issuance of Common Stock in connection with the
Acquisition and the issuance of the Warrants in connection with the Private
Placement.
ELECTION OF UCI DIRECTORS
At the Annual Meeting, UCI stockholders will be asked to elect the
following three director nominees: A. Wayne Johnson, Ashby M. Jordan, M.D.
and John M. Little, Jr., M.D.
5
PROPOSAL TO APPROVE THE 1999 STOCK INCENTIVE PLAN
The UCI Board has approved the UCI 1999 Stock Incentive Plan. At the
Annual Meeting, you will be asked to approve this plan.
PROPOSAL TO APPROVE REVERSE STOCK SPLIT
The UCI Board has approved a one-for-five reverse stock split which would
result in one share of post-split Common Stock being received in exchange for
each five presently issued and outstanding shares of Common Stock. To give
effect to the split, the UCI Certificate is proposed to be amended to reduce by
a factor of five the number of authorized shares of Common Stock and to increase
by a factor of five the par value per share. UCI is presently authorized to
issue 10 million shares of Common Stock, of which 7,299,245 shares of Common
Stock were outstanding at the close of business on December 4, 1998. The
principal effect of the proposed reverse stock split will be to decrease the
number of authorized shares of Common Stock to 2 million shares (or 10 million
shares if the proposal to increase the authorized capital in connection with the
Acquisition is approved), to increase the par value per share to twenty-five
cents ($0.25), and to decrease the number of outstanding shares of Common Stock
to approximately 1,459,840. At the Annual Meeting, you will be asked to approve
the amendment of the UCI Certificate to give effect to the reverse stock split.
PROPOSAL TO RATIFY AUDITORS
UCI has appointed Price Waterhouse LLP as the independent auditors of the
Company's consolidated financial statements for the fiscal year ended September
30, 1998. At the Annual Meeting, you will be asked to ratify this appointment.
RECORD DATE; VOTE REQUIRED FOR STOCKHOLDER APPROVAL OF THE PROPOSALS
Only holders of record of Common Stock at the close of business on
December 4, 1998 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. Common Stock is entitled to one vote per share on each
matter that is presented for stockholder approval at the Annual Meeting.
The proposals to issue shares of Common Stock to MHC pursuant to the
Acquisition and to issue the Warrants (and the Common Stock issuable upon
exercise of the Warrants) in connection with the Private Placement must be
approved by the affirmative vote of the holders of a majority of the total votes
cast on the proposals.
The proposals to amend the UCI Certificate to increase the number of
authorized shares of Common Stock and to give effect to a one-for-five reverse
stock split must be approved by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock.
The three nominees receiving the greatest number of votes cast (although
not necessarily a majority of the votes cast) in the election of directors will
be elected to the UCI Board.
The proposal to approve the adoption of the UCI 1999 Stock Incentive Plan
and the proposal to ratify auditors must each be approved by the affirmative
vote of the holders of a majority of the shares of Common Stock represented in
person or by proxy and entitled to vote at the Annual Meeting.
RECOMMENDATIONS TO STOCKHOLDERS
The UCI Board recommends, by the unanimous consent of all directors, that
you vote FOR the proposals related to the Acquisition, FOR each of the
amendments to the UCI Certificate, FOR each of the three nominees for director
named in this Proxy Statement and FOR each of the other proposals being
submitted to you.
6
MARKETS AND MARKET PRICES
Until October 19, 1998, the Common Stock was traded on the Nasdaq SmallCap
Market under the symbol "UCIA". On October 20, 1998, the Common Stock was
delisted for trading on the Nasdaq SmallCap Market as a consequence of the
Company's failure to meet certain quantitative requirements under the NASD's
expanded listing criteria. Trading in the Common Stock is currently conducted in
the over-the-counter market. For information regarding the historical market
price of the Common Stock, see "Financial and Business Information - Market
Price and Dividend Information."
On February 12, 1998, the last trading day prior to the public
announcement of the Acquisition, the Common Stock closed at $2.3125 per share.
On December __, 1998, the last trading day before the printing of this Proxy
Statement, the high and low bid prices for the Common Stock were $____ and $____
per share, respectively.
MHC is a privately held corporation, and there is no public trading market
for its securities.
UCI's executive offices are located at 1901 Main Street, Suite 1200,
Columbia, South Carolina 29201 and its telephone number is (803) 252-3661. MHC's
executive offices are located at 2370 Main Street, Tucker, Georgia 30084 and its
telephone number is (770) 938-9355.
7
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
In the tables below, we provide you with selected historical financial
data of the Company. We prepared this data using the consolidated financial
statements of the Company. When you read this selected historical consolidated
financial data, you should read the historical financial statements and
accompanying notes that the Company has included in its Annual Report on Form
10-KSB/A for the year ended September 30, 1997 and its Quarterly Report on Form
10-QSB/A for the three and nine months ended June 30, 1998 (both of which
Reports accompany this Proxy Statement).
It is also important that you read the unaudited pro forma combined
financial information and accompanying notes that we have included in this Proxy
Statement under the heading "Financial and Business Information Unaudited Pro
Forma Combined Condensed Financial Statements."
SUMMARY CONSOLIDATED NINE MONTHS ENDED FISCAL YEAR ENDED
STATEMENTS OF OPERATIONS DATA JUNE 30, 1998 SEPTEMBER 30, 1997
------------------------------ ----------------- --------------------
Revenues ....................... $ 26,625,431 $ 27,924,772
Income (loss) from operations .. (540,181) 54,684
Net income (loss) .............. (1,360,388) (83,726)
Net income (loss) per common and
common equivalent share (basic) (0.22) (0.02)
Weighted average common shares
and common share equivalents
outstanding (basic) ............ 6,290,844 5,005,081
SUMMARY CONSOLIDATED JUNE 30, SEPTEMBER 30,
BALANCE SHEET DATA 1998 1997
-------------------- -------- -----------
Working capital ...... $ 3,615,627 $ 2,921,045
Total assets ......... 33,662,837 20,863,532
Long-term debt, net... 8,095,793 6,920,470
Capital .............. 10,136,179 9,488,497
8
SELECTED HISTORICAL FINANCIAL DATA OF MHC
In the table below, we provide you with selected historical financial data
of MHC. We prepared this data using the consolidated financial statements of
MHC. When you read this selected historical combined financial data, it is
important that you read the historical financial statements of MHC and
accompanying notes that we have included as Appendix C to this Proxy Statement.
It is also important that you read the unaudited pro forma combined
financial information and accompanying notes that we have included in this Proxy
Statement under the heading "Financial and Business Information Unaudited Pro
Forma Combined Condensed Financial Statements."
SUMMARY CONSOLIDATED FISCAL YEAR ENDED FISCAL YEAR ENDED
STATEMENTS OF OPERATIONS DATA MARCH 31, 1998 MARCH 31, 1997
----------------------------- ----------------- ---------------
Revenues ............................. $ 6,436,950 $ 3,665,982
Income (loss) from operations......... (3,311,679) (1,318,509)
Net income (loss)..................... (3,949,195) (1,569,273)
Note: MHC was not required to, and did not, compute earnings per share.
SUMMARY CONSOLIDATED
BALANCE SHEET DATA MARCH 31, 1998 MARCH 31, 1997
------------------- -------------- ---------------
Working capital................... $ (2,663,403) $ 327,283
Total assets...................... 4,706,262 5,795,876
Long-term debt, net............... 443,084 765,444
Total stockholders' deficit....... (5,591,271) (1,471,937)
9
SELECTED PRO FORMA FINANCIAL DATA OF THE COMPANY
(unaudited)
In the table below, we attempt to illustrate the financial results that
might have occurred if the Acquisition had been completed previously. Presented
is combined statement of operations information for the Company for the nine
months ended June 30, 1998 and the fiscal year ended September 30, 1997 as if
the Acquisition and the Private Placement (as defined herein) had been completed
on October 1, 1996.
It is important to remember that this information is hypothetical, and
does not necessarily reflect the financial performance that would have actually
resulted if the Acquisition and the Private Placement had been completed on
those dates. It is also important to remember that this information does not
necessarily reflect future financial performance if the Acquisition and the
Private Placement actually occur.
Please see the information in this Proxy Statement under the heading
"Financial and Business Information - Unaudited Pro Forma Combined Condensed
Financial Statements" for a more detailed explanation of this analysis.
SUMMARY PRO FORMA COMBINED NINE MONTHS ENDED FISCAL YEAR ENDED
STATEMENT OF OPERATIONS DATA JUNE 30, 1998 SEPTEMBER 30, 1997
--------------------------- ----------------- -------------------
Revenues .................................. $ 30,374,87 $33,933,214
Income (loss) from operations ............. (1,445,533) (2,302,180)
Net income (loss) ......................... (2,539,881) (2,845,301)
Net income (loss) per common and
common equivalent share (basic) .......... (0.37) (0.30)
Weighted average common shares and
common share equivalents outstanding..... 6,939,141 9,406,477
10
RISK FACTORS
Each UCI stockholder should carefully consider and evaluate the following
factors, among others, before voting.
FINANCIAL STATUS OF MHC
MHC has experienced losses (aggregating approximately $5.7 million) and
operating deficits since its inception in February 1996. UCI expects that the
operations associated with the assets acquired in the Acquisition may continue
to experience losses and require the infusion of substantial capital to build
those operations to a profitable state. Although UCI management believes that
the assets acquired from MHC in the Acquisition are valuable to the Company's
operations and are expected to contribute to long-term profitability and
enhanced stockholder value, there can be no assurance that such expectations can
be realized or that UCI can achieve profitability as a consequence of the
Acquisition.
In addition, MHC continues to have various repayment obligations to its
third-party creditors. As of May 1, 1998, the effective closing date of the
Acquisition, these obligations totaled approximately $4 million. To the extent
that MHC is unable to satisfy its obligations to such creditors, MHC could be
forced to file for protection under applicable bankruptcy laws or could be
placed into an involuntary bankruptcy proceeding by its creditors. In such
event, the transfer of assets to UCI pursuant to the Acquisition could come
under review of a bankruptcy trustee, who could seek to characterize the
transfer in the Acquisition as a preference that could be set aside under
applicable bankruptcy law, requiring UCI and MHC to reverse the transactions
comprising the Acquisition. Pursuant to the Acquisition Agreement, MHC, the
MHC-PCs and certain of the MHC stockholders have represented and warranted that
they will not hinder, delay, defraud or avoid any obligation to any past,
present or future creditor in the transactions contemplated by the Acquisition
Agreement; that the consideration received by MHC and the MHC-PCs is more than a
reasonably equivalent value in exchange for the transfer of the assets of MHC
and the MHC-PCs; that each of MHC and the MHC-PCs is solvent and will not be
rendered insolvent as a result of the transactions contemplated by the
Acquisition Agreement; and that neither MHC nor any of the MHC-PCs has
initiated, nor does it intend to initiate or expect to have initiated against it
as debtor, any proceeding under federal or any state's bankruptcy, insolvency or
similar laws. Additionally, MHC and the MHC-PCs have represented and warranted
to UCI-GA that MHC and the MHC-PCs shall, as and when due, use their reasonable
best efforts within eleven months after the closing of the Acquisition to pay
all valid liabilities of MHC and the MHC-PCs which are not assumed by UCI-GA.
The Company's remedy for any breach of the foregoing by MHC, the MHC-PCs or the
MHC stockholders is subject to certain limitations which apply to all breaches
of the Acquisition Agreement. See "The Acquisition - Description of Agreements
Acquisition Agreement - Representations, Indemnifications and Holdback Shares."
Although MHC has represented that it intends to satisfy its third-party creditor
obligations following the Acquisition, in the event of a set-aside pursuant to
applicable bankruptcy law, the expected benefits to UCI from the Acquisition
would not be achieved and, subject to a possible recovery under the applicable
indemnification provisions of the Acquisition Agreement, the transaction costs
associated with the Acquisition would not be recoverable by UCI, thereby
adversely affecting UCI's operations.
INTEGRATION OF OPERATIONS; MANAGEMENT OF GROWTH
In determining that the Acquisition was in the best interests of the
Company, the UCI Board addressed the cost savings, operating efficiencies, and
other synergies that may result from the consummation of the Acquisition. The
consolidation of functions and the integration of departments, systems and
procedures following the Acquisition present significant management challenges
requiring the dedication of management resources that may temporarily detract
attention from the day-to-day business of the Company. The difficulties of
assimilation may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. The process of combining
the MHC assets may cause an interruption of, or a loss of momentum in, the
Company's business, which could have an adverse effect on the revenues and
operating results of the combined Company, at least in the near term. There can
be no assurance that the combined entity will be able
11
to retain all of its key management and other operating personnel or that the
combined entity will realize any of the other anticipated benefits of the
Acquisition.
DILUTION
VOTING CONTROL
Upon receipt of requisite stockholder approval, UCI has committed to issue
2,901,396 shares of Common Stock to a designated escrow agent in connection with
the Acquisition and has committed to issue the Warrants for the purchase of up
to 300,000 shares of Common Stock as placement agent and financial advisory
services fees in connection with the Private Placement. Without giving effect to
any other issuance of Common Stock by UCI following the closing of the
Acquisition, such additional shares of Common Stock to be issued in connection
with the Acquisition and pursuant to the exercise of the Warrants would
represent, in the aggregate, approximately 24.7 percent of the number of shares
of Common Stock outstanding immediately after the closing of the Acquisition.
Accordingly, the contemplated issuance of shares in connection with the
Acquisition and the exercise of the Warrants would have the effect of
substantially reducing the percentage voting interest in UCI represented by a
share of the Common Stock immediately prior to such share issuances.
As of the Record Date for the Annual Meeting, Companion HealthCare
Corporation ("CHC") and Companion Property and Casualty Company ("CP&C"), each a
wholly-owned subsidiary of BCBS (individually, a "BCBS Subsidiary," and
collectively, the "BCBS Subsidiaries"), own in the aggregate 2,624,623 shares,
or approximately 36 percent, of the outstanding Common Stock. Under various
agreements between UCI and the BCBS Subsidiaries (the "Anti-Dilution
Agreements"), the BCBS Subsidiaries have the right at any time to purchase from
UCI such number of shares of the voting stock of UCI as is necessary for BCBS
and its affiliated entities, as a group, to maintain an aggregate ownership of
47 percent of the outstanding voting stock of UCI. To the extent either of the
BCBS Subsidiaries exercises such right in conjunction with a sale of voting
stock by UCI, the price to be paid by the BCBS Subsidiary is the average price
to be paid by the other purchasers in such sale. Otherwise, the price is the
average closing bid price of the UCI voting stock on the ten trading days
immediately preceding the election by the BCBS Subsidiary to exercise its
purchase rights. Consequently, to the extent any of the BCBS Subsidiaries elect
to exercise any or a portion of their rights under the Anti-Dilution Agreements
following the Private Placement and, if approved, the issuance of shares
contemplated by the Acquisition and pursuant to the Warrants, the sale of shares
of Common Stock to such BCBS Subsidiary will have the effect of further reducing
the percentage voting interest in UCI represented by a share of the Common Stock
immediately prior to such sale.
The substantial ownership of Common Stock by the BCBS Subsidiaries, MHC
and other affiliates of the Company following the Acquisition and the Private
Placement will provide them with the ability to exercise substantial influence
in the election of directors and other matters submitted for approval by the UCI
stockholders. As a result, it may be difficult for other stockholders of UCI to
successfully oppose matters which are presented by such entities for action by
stockholders, or to take actions which are opposed by such entities. Such
ownership may also have the effect of delaying, deterring or preventing a change
in control of UCI without the consent of such entities. In addition, sales of
Common Stock by such entities could result in another stockholder obtaining
control over UCI.
EARNINGS AND BOOK VALUE PER SHARE
On a pro forma basis, the closing of the Acquisition and the Private
Placement have a dilutive effect on earnings per share of UCI for the fiscal
year ended September 30, 1997 (from $(0.02) per share to $(0.30) per share) and
for the nine-month period ended June 30, 1998 (from $(0.22) per share to $(0.37)
per share). These pro forma amounts are based on the assumptions reflected in
the notes to the Unaudited Pro Forma Combined Condensed Financial Statements
included elsewhere in this Proxy Statement and, consequently, may not be
reflective of all of the actual cost savings or other synergies, if any, or the
related expenses that may be realized or incurred by the Company as a result of
the Acquisition and the
12
Private Placement. The extent of dilution to UCI stockholders with respect to
future earnings per share and book value per share will depend on the actual
results achieved by the Company following the Acquisition and the Private
Placement as compared to the results that could have been achieved by the
Company on a stand-alone basis over the same period in the absence of such
transactions. No assurance can be given as to such future results, and,
accordingly, as to whether the Acquisition and the Private Placement will
ultimately be dilutive to UCI stockholders with respect to future earnings per
share or book value per share.
RESALES OF COMMON STOCK
Upon receipt of requisite stockholder approval, UCI has committed to issue
2,901,396 shares of Common Stock to a designated escrow agent in connection with
the Acquisition and the Warrants for the purchase of up to 300,000 shares of
Common Stock as placement agent and financial advisory services fees in
connection with the Private Placement. In addition, 1,200,000 shares of Common
Stock were issued to investors in the Private Placement. Without giving effect
to any other issuance of Common Stock by UCI following the closing of the
Acquisition, shares of Common Stock issued in the Private Placement and the
shares that may be issued pursuant to the Acquisition and pursuant to the
exercise of the Warrants would represent, in the aggregate, approximately 37
percent of the number of shares of Common Stock outstanding immediately after
such share issuances. The shares issued in connection with the Private Placement
and the shares UCI has committed to issue in connection with the Acquisition and
pursuant to the Warrants are considered "restricted securities" under applicable
securities laws, thereby limiting the resale of such shares into the public
market, in the absence of an effective registration or exemption from such
registration requirements. The holders of shares issued in the Private Placement
have been granted registration rights which entitle such holders to have such
shares registered for sale into the public market. Comparable registration
rights are to be granted to the holders of the shares to be issued pursuant to
the Acquisition and to the holders of the Warrants to be issued in connection
with the Private Placement. To the extent that such holders do not exercise such
registration rights, all of such shares will nevertheless become eligible for
sale in the public market in accordance with the Securities and Exchange
Commission's Rule 144 or Rule 145 one year following the closing of the
Acquisition and the Private Placement, as applicable, with certain volume and
manner of sale limitations continuing only for one year thereafter (except as to
shares held by persons deemed to be affiliates of UCI). In addition, if the
proposed amendments to the UCI Certificate are approved by the stockholders at
the Annual Meeting, UCI will substantially increase the number of shares of
Common Stock available for issuance. Sales of substantial amounts of Common
Stock, or the availability of substantial amounts of Common Stock for future
sale, could adversely affect the prevailing market price of the Common Stock.
NASDAQ DELISTING
On October 20, 1998, the Common Stock was delisted for trading on the
Nasdaq SmallCap Market. The delisting was a consequence of the Company's failure
to meet certain quantitative requirements regarding assets as set forth in the
NASD's expanded quantitative and qualitative listing criteria for all companies
listed on the Nasdaq Stock Market. These new requirements for continued listing
became effective as to the Company on February 23, 1998. As of June 30, 1998,
after giving effect to the issuance of Common Stock contemplated in the
Conditional Delivery Agreement executed at the closing of the Acquisition, the
amount of the Company's net tangible assets exceeded the applicable Nasdaq Stock
Market $2 million net tangible assets requirement. As of September 30, 1998,
however, the Company's net tangible assets were below the Nasdaq requirements.
As a consequence of such delisting, trading in the Common Stock is currently
conducted in the over-the-counter market, and it is expected that stockholders
of UCI will find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Common Stock. In addition, delisting
makes the Common Stock substantially less attractive as collateral for margin
and purpose loans, for investment by financial institutions under their internal
policies or state legal investment laws, as consideration in the financing of
future acquisitions of other medical practices by the Company, and for issuance
by the Company in future capital raising transactions. Although the Common Stock
remains eligible for quotation on the over-the-counter bulletin board, the
Company is informed that the NASD may presently be considering higher standards
for permitting quotations of securities on such bulletin board, thereby
foreclosing this trading market to UCI stockholders as well.
13
THE ACQUISITION
DESCRIPTION OF THE ACQUISITION
BACKGROUND
The Company has experienced significant growth in the last few years as a
result of acquisitions of medical practices. Management has sought to increase
the Company's bargaining power with insurance payors and to lower operating
costs through negotiated discounts on medical supplies by enhancing the
Company's negotiating leverage through the clout associated with an expanding
number of medical practices under the Company's control and an expanding number
of medical providers employed by the professional corporations affiliated with
UCI. In this regard, several out-of-state acquisition targets have been
evaluated by the Company over the past few years.
In the third calendar quarter of 1997, A. Wayne Johnson, Chairman and
Chief Executive Officer of MHC, contacted M.F. McFarland, III, M.D., Chairman
and Chief Executive Officer of UCI, to discuss the potential benefits of a
combination of UCI and MHC. Mr. Johnson and Dr. McFarland had not met or had any
discussions regarding a combination of the two companies prior to that time.
Following their initial discussions, a determination was reached by the two
executives to informally exchange information about their respective companies.
In September 1997, several meetings took place among Dr. McFarland, Mr. Johnson,
Jerry F. Wells, Jr., Executive Vice President of Finance and Chief Financial
Officer of UCI, and Robert G. Riddett, Jr., President of MHC. During these
meetings, the possible combination of UCI and MHC was discussed and analyzed at
length in the context of both the existing operations of the respective
companies and the potential growth and estimated synergies that could result.
The content and findings from the September 1997 meetings were discussed
with the UCI Board at its regularly scheduled September 1997 meeting in the
context of potential growth opportunities and the enhancement of long-term value
for the UCI stockholders.
During October 1997, Dr. McFarland and Mr. Johnson authorized the
continued exploration of combination possibilities at an expanded level,
involving only a few members of senior management from each company. Thereafter,
Mr. Wells notified Mr. Johnson of the kinds of additional information UCI would
need to conduct more in-depth due diligence with respect to MHC. Following the
receipt and review by UCI of this information from MHC, meetings among the top
executive officers of UCI and MHC were held in October and November of 1997 to
discuss and clarify the information provided, and to give UCI the opportunity to
provide MHC with UCI's preliminary business plan and ideas for a possible
acquisition of MHC by UCI.
The two most in-depth meetings concerning the possible acquisition were
held on October 16, 1997 at the corporate headquarters of MHC in Tucker, Georgia
and on November 19, 1997 at the corporate offices of UCI in Columbia, South
Carolina. Each of these two meetings were attended by Dr. McFarland and Mr.
Wells of UCI and by Mr. Johnson and Mr. R. G. Riddett, President of MHC. At both
of these meetings, each of the MHC operating facilities was discussed in detail
(including the provider complement, provider contract issues, patient base,
competition, growth potential, facility operating costs, equipment status,
etc.). The proposed purchase price for the MHC assets was also discussed at both
of these meetings. Mr. Johnson commenced these discussions by proposing a
purchase price of approximately 1.9 times the annual revenue stream of MHC,
primarily on the basis of his estimation of the attractiveness of the MHC
markets. Dr. McFarland and Mr. Wells, however, proposed that approximately one
times the annual revenue stream was closer to the industry average for a
practice of the nature and size of that operated by MHC. Following additional
negotiation, Messrs. Johnson, Wells and Dr. McFarland settled on a purchase
price of approximately 1.3 times the annual revenue stream of MHC.
Through a series of telephone conversations in November 1997, Dr.
McFarland and Mr. Wells discussed with and recommended to the UCI Board that UCI
pursue the acquisition of the MHC medical practices. As part of such
conversations, Dr. McFarland and Mr. Wells reported to the UCI Board members
14
on the course of negotiations related to the proposed acquisition, summarized
the results of the due diligence that had been conducted on MHC, discussed the
potential benefits and risks of the proposed acquisition, provided their
respective views of the business and financial condition of MHC, and responded
to questions from the directors.
At the regularly scheduled December 1997 UCI Board meeting, results of due
diligence to date, forecasts for combined operations, and purchase price
negotiation details were presented by Dr. McFarland and Mr. Wells to the UCI
Board. Following extensive deliberation, UCI's Board unanimously approved
proceeding with the proposed acquisition of MHC in accordance with the
objectives that had been set forth by UCI senior management.
In January 1998, the UCI Board engaged the services of Dr. Oliver G. Wood,
Jr., an independent consulting economist, to conduct a financial analysis of the
proposed acquisition and to render an opinion as to the fairness of the proposed
acquisition to UCI from a financial point of view. Dr. Wood was not engaged to,
and did not, participate in the determination of the consideration to be paid by
UCI in the proposed acquisition.
At a meeting among Dr. McFarland, Mr. Wells and Mr. Johnson during the
last week of January 1998, Mr. Wells informed Mr. Johnson that under NASD rules,
UCI stockholder approval would be necessary to issue Common Stock to MHC as
partial consideration in the proposed acquisition. To address the concern
expressed at that meeting by Mr. Johnson over the uncertainty of UCI stockholder
approval, Mr. Johnson required as a condition to MHC executing an acquisition
agreement that Dr. McFarland and certain subsidiaries of BCBS (who at that time
owned in the aggregate a majority of the outstanding Common Stock) execute
agreements with MHC under which each stockholder committed to vote the
stockholder's shares in favor of the issuance of Common Stock to MHC. Such
agreements were executed on February 9, 1998.
A letter of intent relating to the proposed acquisition was negotiated in
the first week of February 1998 among top management officials of both
companies, outside counsel and financial advisors. Over the course of the same
period, Dr. McFarland and Mr. Wells continued to hold discussions with members
of the UCI Board and provided board members with oral and written information
regarding the proposed acquisition. The letter of intent and the form of a
definitive acquisition agreement, including additional supporting agreements,
was unanimously approved by the UCI Board in the first week of February 1998.
On February 9, 1998, Dr. Wood delivered a written opinion to the effect
that, as of that date and based on and subject to certain matters stated in his
opinion, the proposed acquisition was fair from a financial point of view to
UCI. On February 9, 1998, a definitive Acquisition Agreement was executed by UCI
and MHC.
During December of 1997, senior management of MHC provided the members of
the Board of Directors of MHC (the "MHC Board") with information on the status
of the discussions and negotiations with UCI and due diligence on UCI. A meeting
of the MHC Board was held on February 6, 1998. Prior to that meeting, each
director of MHC was provided with materials outlining and analyzing the proposed
acquisition. At the meeting of the MHC Board, MHC senior management presented to
the MHC Board the background of the proposed acquisition, the outline of the
terms and conditions of the proposed acquisition, a financial analysis of the
proposed acquisition, and the potential benefits and risks of the proposed
acquisition. MHC senior management also responded to questions from directors.
During the first week of February 1998, the MHC Board approved the form of a
definitive purchase agreement and related documentation, subject to finalization
by MHC management and its legal advisors.
On February 13, 1998, UCI issued a press release announcing the
Acquisition.
On February 24, 1998, the Company filed with the Securities and Exchange
Commission (the "SEC") its preliminary proxy statement relating to the Annual
Meeting. During the first week of March 1998, the SEC notified the Company as to
its timetable for reviewing the preliminary proxy statement. The Company
determined that the proposed timetable for the review of its proxy statement by
the SEC made it impracticable to obtain stockholder approval of the issuance of
Common Stock in the Acquisition prior to March 31,
15
1998, the date originally contemplated by the parties for the closing of the
Acquisition. As a consequence of various operational needs of the Company and
MHC, the respective managements of both companies determined that it was in the
best interests of both companies to close the Acquisition prior to the Annual
Meeting, but to delay the actual delivery of Common Stock to MHC as contemplated
in the Acquisition Agreement until after requisite stockholder approval for such
issuance had been obtained at the Annual Meeting, all in accordance with
applicable NASD rules. To address the revised structure of the Acquisition and
the delay in delivery of the Common Stock portion of the purchase price, on
April 15, 1998 the parties to the original Acquisition Agreement executed a
First Amendment to the Acquisition Agreement. The Acquisition Agreement was
further amended on May 7, 1998 upon the parties' execution of a Second Amendment
which had the primary effect of changing the amounts of cash and the promissory
note to be delivered by the Company at closing.
Following the date of the second amendment to the Acquisition Agreement
and continuing through the date of the closing of the Acquisition, UCI and MHC
continued to meet to exchange information and to prepare for the anticipated
consummation of the Acquisition.
On May 12, 1998, UCI closed the Private Placement of 1,200,000 shares of
Common Stock for net proceeds of approximately $1,074,000. A portion of these
proceeds was necessary to satisfy the cash portion of the consideration
exchanged by the Company in the Acquisition.
CLOSING OF THE ACQUISITION
The closing of the Acquisition took place on May 13, 1998 and is being
accounted for as of May 1, 1998. All of the transfers and exchanges identified
below were completed and accounted for as of such dates. At the closing of the
Acquisition, the following took place:
o MHC transferred to UCI-GA substantially all of the assets of MHC in
exchange for the following:
o assumption by UCI-GA of certain liabilities, including a $594,184
line of credit obligation and certain real property and equipment
lease obligations of MHC; and
o cash, note payable and a commitment to issue stock having an
aggregate value of $8.14 million, exchanged as follows:
o delivery of a cash payment of $450,000 to an escrow agent
selected by MHC and the delivery to the escrow agent of a
$800,000 promissory note of UCI-GA payable to the escrow
agent, with such cash and the proceeds from the repayment of
the note to be paid by the escrow agent to certain creditors
of MHC; and
o delivery of a Conditional Delivery Agreement pursuant to
which UCI commits to issue 2,901,396 shares of Common Stock
to the escrow agent subject to the receipt of stockholder
approval for such issuance (such shares valued at $6.89
million using a value of $2.375 per share pursuant to the
share price formula set forth in the Acquisition
Agreement). At the Annual Meeting, stockholders of UCI
will be asked to approve the issuance of such shares. See
"Annual Meeting Proposals."
o The MHC-PCs transferred to the UCI-PCs all of the assets of the MHC-PCs in
exchange for the following:
o assumption by the UCI-PCs of the obligations of the MHC-PCs under
employment agreements with medical service providers; and
o an aggregate cash payment of $200 ($100 to each of the two
MHC-PCs).
16
REASONS FOR THE ACQUISITION
The UCI Board and UCI senior management believe that the terms of the
Acquisition are fair to, and in the best interests of, UCI and the UCI
stockholders. In reaching its determination to approve the Acquisition, the UCI
Board identified and analyzed the following factors and potential benefits,
among others, relating to the Acquisition:
o alternatives for growth in the healthcare business, including internal
development, which the UCI Board viewed as less advantageous due to UCI's
limited development resources as well as the uncertainty of the success of
such development efforts, none of which appeared to present the
opportunity that an acquisition of MHC presented;
o the strategic value of further developing a multi-state presence for
the Company;
o the competitive advantage gained by increasing the medical provider base
in negotiating insurance reimbursement rates and discounts to medical
supply costs;
o the expectation that the assets of MHC represented a complementary
business and that the Acquisition would be viewed favorably by investors
due to such complementary nature;
o the benefits of enjoying economies of scale by combining the two companies
and eliminating certain duplications of overhead (The expected savings
from the elimination of certain MHC overhead are estimated to range from
$465,000 to $2 million annually.);
o information concerning the Company's and MHC's respective prospects,
financial performance, financial condition, assets and operations;
o the financial terms of the Acquisition and its effect on future
earnings;
o the opinion of Dr. Oliver G. Wood Jr. that the terms of the Acquisition
were fair, from a financial point of view, to UCI, as well as the
underlying financial analysis of Dr. Wood presented in connection with
such opinion; and
o a review with UCI's outside legal counsel of the terms of the Acquisition
Agreement and related agreements.
Following its deliberations concerning such factors, the UCI Board
concluded that the Acquisition may increase the long-term prospects of the
Company for continued growth, may increase stockholder value and was in the best
interests of UCI and its stockholders from both a financial and strategic
perspective. The timing of the discussions between UCI and MHC which led to the
Acquisition was a consequence of the election by the Chief Executive Officer of
MHC to initiate contact with UCI in the third quarter of 1997 as disclosed
above. The election by the respective managements of UCI and MHC to proceed with
the closing of the Acquisition was based on their observations regarding the
expected advantages of the Acquisition and the absence of any compelling basis
on which to delay the closing.
The UCI Board also considered a variety of potentially negative factors in
its deliberations concerning the Acquisition, including: (i) the possible
dilutive effect of the issuance of Common Stock in the Acquisition; (ii) the
charges expected to be incurred in connection with the Acquisition, including
the transaction costs and costs of integrating the businesses of the companies;
(iii) the risk that, despite the efforts of the combined company, key personnel
of MHC may not be retained by the Company and the MHC assets may continue to be
unprofitable; and (iv) the risk that other benefits sought to be obtained by the
Acquisition might not be obtained.
The financial condition of MHC (including its losses to date) was
considered by both UCI management and the UCI Board whose members evaluated this
factor in conjunction with the potential cost
17
savings expected to be achieved by the elimination of certain duplications of
overhead following the proposed acquisition. An estimate of approximately
$100,000 in related costs of the acquisition (including professional, legal and
accounting fees) was presented to the UCI Board by UCI management.
In view of the wide variety of factors, both positive and negative,
considered by the UCI Board, the UCI Board did not find it practical to, and did
not quantify or otherwise assign relative weights to the specific factors
considered. In its deliberations, the UCI Board also did not undertake to
segregate its analysis of any one factor or a group of factors from the context
of all factors under consideration, nor did individual members express how their
conclusion as to any single factor or group of factors affected or was otherwise
relevant to that member's decision. In addition, individual members of the UCI
Board may have given different weights to the various factors considered.
RECOMMENDATION OF THE UCI BOARD
The UCI Board has approved the Acquisition Agreement and the transactions
contemplated by the Acquisition Agreement by the unanimous consent of all
directors and has determined that the terms of the Acquisition Agreement and
related agreements are fair to, and that the Acquisition is in the best
interests of, UCI and its stockholders and, therefore, recommends that the
holders of common stock vote FOR the proposals relating to the Acquisition.
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
STOCKHOLDER APPROVAL
Stockholders of UCI are not being asked at the Annual Meeting to approve
or ratify the Acquisition or the Private Placement. Stockholder approval is
being sought at the Annual Meeting to enable UCI to satisfy its obligations
under agreements delivered at the closings of the Acquisition and the Private
Placement. Specifically, under Conditional Delivery Agreements delivered at the
closings of each of the Acquisition and the Private Placement, UCI has committed
to issue 2,901,396 shares of Common Stock to an escrow agent and to issue
Warrants for the purchase of 300,000 shares of Common Stock to certain parties
who participated in the Private Placement. Because the aggregate number of such
shares of Common Stock will exceed 20 percent of the number of outstanding
shares of Common Stock prior to such issuances, rules and regulations of the
NASD require that approval by UCI stockholders be received prior to the issuance
of the Common Stock and the Warrants. Also, because such number of shares will
exceed the existing number of shares authorized under the UCI Certificate,
stockholder approval is being sought to make an appropriate amendment to the UCI
Certificate to increase the authorized capital stock. Because the Common Stock
and the Warrants were not actually issued at the closings of the Acquisition and
the Private Placement, stockholder approval was not required for such closings
to take place.
The Conditional Delivery Agreement delivered at the closing of the
Acquisition states that in the event the stockholders of UCI fail to approve any
of the matters necessary to issue the shares to MHC as provided in the
Acquisition Agreement, each of the parties, to the extent possible, is to be
restored to its position held prior to the closing. In recognition of the fact
that the Acquisition resulted in the integration of multiple business operations
involving the combination of operating, accounting and software systems and
departments, as well as various re-allocations of administrative management and
staff, modifications and enhancements to support functions, and applicable
adjustments in arrangements with third parties, the Conditional Delivery
Agreement addresses the fact that it may not be possible to restore a party to
the position it held prior to the closing of the Acquisition. In such event, the
Conditional Delivery Agreement provides that should any party be unable to
return to any other party any assets or liabilities originally transferred by
such other party in the Acquisition, the party unable to fully return such
assets or liabilities shall instead deliver a promissory note in principal
amount equal to the excess of the fair market value of any assets not returned
over the fair market value of any liabilities not returned. It is expected that
the parties will resolve by mutual agreement the definitive amounts of any such
promissory notes and the extent of any set-offs to be recognized. The notes will
bear interest at the then prime rate, with all interest and principal due one
month following the date of the note.
18
EXPECTATION OF STOCKHOLDER APPROVAL
As noted above, on February 9, 1998 M.F. McFarland, III, M.D., Chairman
and Chief Executive Officer of UCI, and two subsidiaries of Blue Cross Blue
Shield of South Carolina ("BCBS") executed separate agreements with MHC in which
each of them has agreed to vote shares held by such stockholder in favor of the
proposals relating to the Acquisition and the Private Placement that will be
presented for stockholder approval. Following the execution of such agreements,
it became necessary to move the record date for the Annual Meeting to a date
following the closing of the Private Placement. Because the shares held by these
three stockholders were no longer sufficient as of the rescheduled Record Date
to ensure stockholder approval of the proposals relating to the Acquisition, in
late July 1998 MHC obtained separate agreements with each of D. Michael Stout,
M.D., Executive Vice President of Medical Affairs for UCI; Stephen F. Serbin,
M.D., Director of the Family Medical Division of DC-SC; and Peter J. Stahl,
M.D., Assistant Director of the Family Medical Division of DC-SC, in which each
of them has agreed to vote his shares in favor of the Acquisition proposals. As
of the record date for the Annual Meeting, shares held by these stockholders
represented approximately 54 percent of the outstanding Common Stock.
ACCORDINGLY, IF EACH OF SUCH STOCKHOLDERS VOTES AS INDICATED, ALL OF THE
PROPOSALS RELATING TO THE ACQUISITION AND THE PRIVATE PLACEMENT ARE ASSURED TO
BE APPROVED, REGARDLESS OF THE VOTES THAT MAY BE CAST BY ANY OTHER HOLDERS OF
COMMON STOCK ENTITLED TO VOTE.
SCHEDULING OF STOCKHOLDER APPROVAL
The timing of the Acquisition and the Private Placement made it convenient
for UCI to seek stockholder approval for the issuance of the Common Stock and
the Warrants at the Annual Meeting. The Annual Meeting had originally been
scheduled to occur prior to the closing of the Acquisition and the Private
Placement. However, in the context of various operational needs of both UCI and
MHC which were to be addressed through the Acquisition, and the delays in the
scheduling of the Annual Meeting as a consequence of the review of this Proxy
Statement and related materials by the SEC, the respective managements of both
companies determined that the interests of the stockholders of both companies
were better served by proceeding to close the Acquisition and the Private
Placement in advance of the Annual Meeting. As discussed above, to ensure that
UCI's commitment to issue the shares contemplated by the Conditional Delivery
Agreement would be approved, MHC obtained the commitment of six stockholders of
UCI holding votes sufficient to approve the issuance of the Common Stock to vote
in favor of such issuance at the Annual Meeting. Prior to scheduling the
closings, UCI also sought and received confirmation from the NASD that closing
of the Acquisition and the Private Placement in advance of stockholder approval
for the issuance of the Common Stock and the Warrants would not violate
applicable NASD rules and regulations.
FAIRNESS OPINION
Dr. Oliver G. Wood, Jr. has delivered his opinion to the effect that
the terms of the Acquisition are fair to UCI from a financial point of view.
The full text of the written opinion of Dr. Wood, dated February 9, 1998,
is attached as Appendix A to this Proxy Statement and describes the assumptions
made, matters considered and limits on the review undertaken. UCI stockholders
are urged to read the opinion in its entirety. Dr. Wood's written opinion is
addressed to the UCI Board, is directed only to the fairness, from a financial
point of view, of the terms of the Acquisition to UCI, and does not constitute a
recommendation of the Acquisition over other courses of action that may have
been available to UCI or constitute a recommendation to any holder of Common
Stock concerning how such holder should vote with respect to the proposals
relating to the Acquisition. The summary of the opinion of Dr. Wood set forth in
this Proxy Statement is qualified in its entirety by reference to the full text
of such opinion.
In arriving at his opinion, Dr. Wood (i) reviewed the terms and conditions
of the Acquisition, including drafts of the Acquisition Agreement and agreements
ancillary to the Acquisition Agreement; (ii)
19
analyzed certain financial aspects of the Acquisition and consideration to be
paid by UCI and UCI-GA in connection with the Acquisition, (iii) reviewed and
analyzed publicly available historical business and financial information
relating to UCI, as presented in documents filed with the Securities and
Exchange Commission (the "SEC") as well as historical financial information
relating to MHC provided to him by UCI and MHC; (iv) analyzed selected
non-public financial and operating results of operations of UCI and MHC; (v)
analyzed the financial conditions and prospects of UCI and MHC; (vi) reviewed
and analyzed public information, including certain stock market data and
financial information of selected companies with operating and financial
characteristics similar to those of UCI and MHC; (vii) reviewed the trading
history of the Common Stock, including such stock's performance in comparison to
market indices and to selected companies with operating and financial
characteristics similar to those of UCI; (viii) conferred with the management
teams of UCI and MHC; (ix) reviewed public financial and transaction information
relating to multiples paid in selected merger and acquisition transactions
similar to the Acquisition or relevant portions thereof; and (x) conducted such
other financial analyses and investigations as deemed necessary or appropriate
for the purposes of his opinion. All material analyses conducted by Dr. Wood
are described in this section of this Proxy Statement.
In connection with his review, Dr. Wood assumed and relied on the accuracy
and completeness of the information he reviewed for the purpose of his opinion
and did not assume any responsibility for independent verification of such
information or for any independent evaluation or appraisal of the assets of UCI
or MHC. With respect to UCI's and MHC's non-public financial and operating data,
Dr. Wood assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of UCI and
MHC. Dr. Wood expressed no opinion with respect to such non-public financial and
operating data or the assumptions on which they were based. Dr. Wood's opinion
was necessarily based upon business, market, economic and other conditions as
they existed on, and could be evaluated as of, the date of his opinion. Dr.
Wood's opinion did not imply any conclusion as to the likely trading range of
the Common Stock following the consummation of the Acquisition, which may vary
depending on, among other factors, changes in interest rates, dividend rates,
financial and operating performance of UCI market conditions, general economic
conditions and other factors that generally influence the price of securities.
Dr. Wood's analysis focused primarily upon the purchase prices and implied
transaction multiples paid in selected merger and acquisition transactions
involving physician practices. Included in the transactions relied upon by Dr.
Wood were mergers and acquisitions involving InPhyNet Medical
Management/MedPartners, Inc., AHI Healthcare Systems, Inc./FPA Medical
Management, Inc., ReadiCare, Inc./HealthSouth Corp., Sterling Healthcare Group,
Inc./FPA Medical Management, Inc., Caremark International, Inc./MedPartners,
Inc. and Pacific Physician Services, Inc./MedPartners, Inc. The acquisition
value-to-target net sales multipliers of the indicated transactions ranged from
0.754:1 to 1.992:1. The weighted average acquisition value-to-target net sales
multiplier of the indicated transactions was 1.017:1. Also considered by Dr.
Wood were the acquisition value-to-target net sales multipliers for the pending
HealthSouth Corp./Company Doctor acquisition (1.74:1) and the weighted average
acquisition value-to-target net patient revenue multiplier for six recently
completed physician practice acquisitions by the Company (0.823:1). Applying the
same analysis, Dr. Wood calculated an acquisition value-to-target net patient
revenue multiplier for the Acquisition of 1.31:1. In making his evaluation, Dr.
Wood also considered certain other factors, including, among other things, the
changing dynamics of the medical care consumer price index and its reflection of
competitive pressures in the healthcare industry, the potential for various
synergies and cost reductions in consolidation of selected marketing, operations
and administrative activities of the Company and MHC, the potential for growth
in certain geographic areas of MHC and various risks associated with the
Acquisition.
No company used in the comparable transaction analyses conducted by Dr.
Wood is identical to UCI or MHC, and no acquisition used in such analyses is
identical to the Acquisition. Accordingly, any such analysis of the
consideration to be paid by UCI in connection with the Acquisition involves
complex considerations and judgments concerning differences in the potential
financial and operating characteristics of the comparable companies and
acquisitions and other factors in relation to the trading and acquisition values
of the comparable companies.
20
The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Dr. Wood believes that his analyses and the
summary set forth above must be considered as a whole and that selecting
portions of his analyses and the factors considered by him, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in his opinion. Dr. Wood has not indicated
that any of the analyses which he performed had a greater significance than any
other.
In determining the appropriate analyses to conduct and when performing
those analyses, Dr. Wood made numerous assumptions with respect to industry
performance, general business, financial, market and economic conditions and
other matters, many of which are beyond the control of UCI and MHC. The analyses
which Dr. Wood performed are not necessarily indicative of actual values of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of Dr.
Wood's analysis of the fairness, from a financial point of view, to UCI of the
terms of the Acquisition. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or any time in the future.
Dr. Wood is engaged in the general business of providing valuations of
businesses and securities in connection with private placements and
valuations for corporations and other purposes. Dr. Wood was engaged by UCI
primarily because of his regional reputation in performing valuations and
financial analyses of the kind provided in connection with the Acquisition.
Prior to the engagement of Dr. Wood by UCI in connection with the matters
discussed above, neither UCI, MHC nor any affiliate of such companies had any
material relationship with Dr. Wood.
UCI entered into an agreement with Dr. Wood pursuant to which Dr. Wood
agreed to act as UCI's financial advisor in connection with the Acquisition and
to evaluate the fairness to UCI, from a financial point of view, of the terms of
the Acquisition. As compensation for his services, Dr. Wood received $10,000,
plus reimbursement of certain out-of-pocket expenses, payable without regard to
the financial analyses presented or the conclusions reached in the opinion
rendered.
FINANCING OF THE ACQUISITION
UCI engaged Allen & Company ("Allen") as its financial advisor to assist
UCI in the private offering and sale of 1.2 million shares of Common Stock in
the Private Placement which closed on May 12, 1998. The net proceeds to UCI from
the sale of Common Stock in the Private Placement (after payment of related
commissions and expenses) was approximately $1,074,000. UCI financed the cash
portion of the consideration issued in the Acquisition using $450,000 of the net
proceeds received by UCI in the Private Placement.
For its financial advisory and placement agent services in connection with
the Private Placement, Allen was paid a commission of $96,000 (8% of the
aggregate purchase price in the Private Placement) and the Company committed to
issue the Warrants for the purchase of 150,000 shares of Common Stock upon
receipt of requisite stockholder approval at the Annual Meeting. The Warrants to
be issued to Allen are to be exercisable at any time during their five-year term
at a price per share of $1.00. In addition, the Company has committed to issue
Warrants for the purchase of 150,000 shares of Common Stock to Laidlaw Global
Securities, Inc. ("Laidlaw") for certain financial advisory services in
connection with the Private Placement. The Warrants to be issued to Laidlaw are
to be exercisable at any time during their five-year term at a price per share
of $1.50.
The shares of Common Stock and the Warrants issued in the Private
Placement were issued pursuant to exemptions from the registration requirements
of federal and state securities laws. Consequently, the transferability of such
securities is restricted following the Private Placement. UCI has entered into a
registration rights agreement with the investors in the Private Placement that
provides the investors with certain registration rights. Upon issuance of the
Warrants, UCI will enter into a similar registration rights
21
agreement with Allen with respect to the Common Stock issuable upon exercise of
the Warrants issued to Allen. See "Risk Factors - Dilution - Voting Control" and
"Risk Factors - Resales of Common Stock."
CERTAIN FEDERAL INCOME TAX MATTERS
For U.S. federal income tax purposes, no income, gain or loss will be
recognized by UCI or the stockholders of UCI as a result of the Acquisition.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the
Acquisition is being accounted for as a purchase of certain assets and an
assumption of certain liabilities of MHC and its affiliated entities with the
Company treated as the acquiror for accounting purposes in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations," as
amended.
Under EITF 97-2, the Company is consolidating the results of the
affiliated medical practices of the MHC-PCs acquired in the Acquisition by the
UCI-PCs with those of the Company. Consolidation is required by EITF 97-2 as a
consequence of the nominee shareholder arrangement that exists with respect to
each of the UCI-PCs.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
RESALES OF COMMON STOCK
All shares of Common Stock that were issued in the Private Placement and
all shares of Common Stock that may be issued in connection with the Acquisition
and pursuant to the exercise of the Warrants are, or upon issuance will be,
deemed to be "restricted securities" as that term is defined in Rule 144 under
the Securities Act of 1933, as amended (the "1933 Act"). As a consequence, such
shares may not be sold, pledged or otherwise transferred by the stockholders
receiving such shares except in transactions permitted by the resale provisions
of Rule 145 under the 1933 Act (with respect to shares issued in the
Acquisition) and Rule 144 under the 1933 Act (with respect to persons purchasing
such shares in the Private Placement and persons who are or become affiliates of
UCI), or as otherwise permitted under the 1933 Act. See "Risk Factors - Resales
of Common Stock."
In general, under Rule 145 (with respect to shares received in the
Acquisition) and Rule 144 (with respect to shares received in the Private
Placement or purchased upon exercise of the Warrants) during the first year
following the issuance of the shares, any person receiving shares of Common
Stock in any of such transactions will be able to sell or otherwise transfer
such shares only pursuant to an effective registration statement under the 1933
Act or in compliance with an exemption from the registration requirements of the
1933 Act. During the second year following the receipt of such shares, such
person will be entitled to sell such shares only through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144. Additionally, the number of shares to be sold by such
person (together with certain related persons) within any three-month period for
the purposes of Rule 144 and Rule 145 cannot exceed the greater of one percent
of the outstanding shares of Common Stock or the average weekly trading volume
of such stock during the four calendar weeks preceding such sale. Rules 144 and
145 will only remain available, however, if UCI remains current with its
informational filings with the SEC under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). Two years after the issuance of shares in the
Acquisition, the Private Placement, or upon exercise of the Warrants, as
applicable, a stockholder who received Common Stock in such transaction will be
able to sell such Common Stock without such manner of sale or volume
limitations, provided that UCI has been current with its 1934 Act informational
filings and such person has not been an affiliate of UCI for at least three
months prior to such sale. Persons who may be deemed to be affiliates of UCI
generally include individuals or entities that control, are controlled by, or
22
are under common control with, UCI, and may include certain officers and
directors of UCI as well as principal stockholders of UCI.
In order to help assure compliance with Rule 144 and Rule 145 under the
1933 Act, each purchaser in the Private Placement signed, and each of MHC and
its stockholders will be required to sign prior to the issuance to any of them
of shares of Common Stock, an agreement providing that such person or entity
will not transfer any Common Stock received in the respective transaction except
in compliance with the 1933 Act, and a restrictive legend referencing such
transfer restrictions will be placed on the reverse side of certificates
representing such shares.
Under the terms of various registration rights agreements, the investors
in the Private Placement, Allen, MHC and the MHC Stockholders have certain
demand and piggyback registration rights pursuant to which they may require UCI,
subject to certain terms and conditions, to register under the 1933 Act all or
part of the Common Stock received or to be by such stockholders in connection
with the Private Placement and the Acquisition and upon the exercise of the
Warrants, as applicable. See "Description of the Agreements - Other Agreements -
Registration Rights Agreement."
ABSENCE OF DISSENTERS' RIGHTS
UCI is incorporated in the State of Delaware, and accordingly, is governed
by the provisions of the Delaware General Corporation Law (the "DGCL"). UCI
stockholders are not entitled to appraisal rights under the DGCL with respect to
the Acquisition. Approval of the stockholders of UCI is required under the DGCL
to amend the UCI Certificate to increase the number of authorized shares of
Common Stock, and is required under the rules and bylaws of the NASD for the
issuance of Common Stock pursuant to the Conditional Delivery Agreement
delivered at the closing of the Acquisition and for the issuance of the Warrants
pursuant to the Conditional Delivery Agreement delivered at the closing of the
Private Placement. Stockholder approval of neither the Acquisition nor the
Private Placement themselves is required under the DGCL.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
Pursuant to the Acquisition Agreement, UCI agreed to undertake appropriate
corporate action to have A. Wayne Johnson, Chairman and Chief Executive Officer
of MHC, appointed to the UCI Board. The UCI Board has nominated Mr. Johnson as
one of the three nominees in the election of directors at the Annual Meeting. To
the extent Mr. Johnson is not elected as a director at the Annual Meeting,
promptly following the Annual Meeting, the UCI Board is expected to vote to
increase the size of the UCI Board from seven to eight members and to appoint
Mr. Johnson to fill the vacancy created by the expansion in the number of
directors. In the event Mr. Johnson is elected as a director at the Annual
Meeting and the issuance of Common Stock pursuant to the Conditional Delivery
Agreement delivered at the closing of the Acquisition is not approved by the UCI
stockholders, thereby requiring the parties to the Acquisition to return, to the
extent possible, to their postures held prior to the Acquisition, there is no
arrangement or understanding currently in place or contemplated that would limit
or otherwise restrict his service on the UCI Board for the full three-year term
to which he is elected.
DESCRIPTION OF THE AGREEMENTS
ACQUISITION AGREEMENT
GENERAL
The Acquisition Agreement (which includes as exhibits the Non-Solicit
Agreements and the Registration Rights Agreement) is the legal document that
governs the Acquisition. Pursuant to the terms of the Acquisition Agreement,
UCI-GA acquired substantially all of the assets of MHC (the "MHC Assets") and
the UCI-PCs acquired certain assets of the MHC-PCs (the "MHC-PC Assets"), all in
exchange for the assumption by UCI-GA of certain liabilities of MHC (the "MHC
Liabilities") and the payment of
23
approximately $8.14 million in value, comprised of a combination of cash paid by
UCI-GA and the UCI-PCs, a note payable of UCI-GA, and an agreement to issue UCI
Common Stock. The closing of the Acquisition was completed on May 13, 1998,
effective for accounting purposes as of May 1, 1998. 24
THE DESCRIPTION IN THIS SECTION OF THE ACQUISITION AGREEMENT IS QUALIFIED
BY REFERENCE TO THE FULL AGREEMENT WHICH HAS BEEN FILED AS AN EXHIBIT TO THE UCI
CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON FEBRUARY 17, 1998, AS AMENDED
BY FILING OF FORMS 8-K/A ON APRIL 20, 1998, MAY 28, 1998, JULY 24, 1998, AUGUST
13, 1998, OCTOBER 13, 1998 and DECEMBER 7, 1998. YOU CAN OBTAIN SUCH REPORTS BY
FOLLOWING THE INSTRUCTIONS WE PROVIDE IN THIS PROXY STATEMENT UNDER THE HEADING
"ADDITIONAL INFORMATION - WHERE YOU CAN FIND MORE INFORMATION."
ASSETS PURCHASED AND LIABILITIES ASSUMED
The MHC Assets included the MHC accounts receivable, machinery, furniture,
furnishings, equipment, computer hardware and software, inventory, supplies,
leasehold interests, other contract rights, permits, licenses and goodwill.
Excluded from the MHC Assets were cash and cash accounts (other than any
holdback amounts associated with MHC's line of credit, as described below),
accounts receivable from employees, automobile leases, certain real property,
and any furniture, equipment and software used at the MHC headquarters facility.
Each of MHC and the MHC-PCs (collectively, the "Selling Entities") also
transferred or otherwise assigned to the Company all of their rights to all
corporate and trade names used by each of the Selling Entities or their
divisions. All MHC Assets, with the exception of MHC's accounts receivable which
were pledged in support of the MHC line of credit obligation, were conveyed free
and clear of all liens and encumbrances.
The MHC-PC Assets primarily included medical records and the rights under
the various employment agreements with medical providers employed at the MHC
Centers.
The MHC Liabilities included the obligations of MHC under operating and
capital equipment leases, the obligations of MHC under certain of its real
property leases (or the obligations under new leases with similar terms), and
the MHC line of credit obligation with Bank One, N.A. in the amount of $594,184.
UCI-GA did not assume any other of the Selling Entities' obligations or
liabilities, including current and long-term liabilities, contingent
liabilities, medical malpractice claims, environmental claims, workers'
compensation claims, and sales, income and payroll taxes.
CONSIDERATION PAID IN THE ACQUISITION
The aggregate purchase price for the MHC Assets was $8.14 million, plus
the assumption of the MHC Liabilities, including the $594,184 line of credit
obligation and lease obligations of MHC. Payment of the purchase price consisted
in part of a cash payment by UCI-GA at closing of $450,000 to an escrow agent
appointed by MHC and the delivery of a promissory note in the principal amount
of $800,000 executed by UCI-GA in favor of the escrow agent. Such promissory
note, as amended, is in the principal amount of $759,079, bears interest at a
rate of 6.5% per annum for the period May 1, 1998 through August 1, 1998, and
interest at the rate of 10.5% thereafter until the note is paid in full. Such
promissory note, as amended, is interest only until its maturity date which is
defined as the earlier of January 31, 1999; the sale by UCI of substantially all
of its assets; any person, entity or group acquiring more than 50% of the voting
stock of UCI; or the sale by UCI of more than $1 million of Common Stock. UCI
guaranteed the promissory note. The purchase price received by the escrow agent
is to be used to pay certain creditors of MHC identified to the escrow agent by
MHC.
The balance of the purchase price of the Acquisition consisted of the
delivery to MHC at the closing of a Conditional Delivery Agreement (the
"Conditional Delivery Agreement") by and between UCI, UCI-GA and MHC which
requires UCI to issue to MHC 2,901,396 shares of Common Stock after the
stockholders of UCI approve such issuance. Pursuant to the Acquisition
Agreement, the price per share utilized to determine the number of shares of
Common Stock to be issued to MHC was $2.375. The Conditional Delivery Agreement
states that in the event the stockholders of UCI fail to approve any of the
matters necessary to issue the shares to MHC as provided in the Acquisition
Agreement, the parties are to undertake, to the extent possible, such actions as
are necessary to restore the parties to their positions held prior to the
24
closing of the Acquisition. In the event it is impossible to restore a party to
its position held prior to closing, any deficiency is to be resolved by the
exchanging of promissory notes among the parties.
The purchase price for the MHC-PC Assets was $200 which was paid by the
UCI-PCs to the MHC-PCs at the closing of the Acquisition.
The purchase price was allocated among the MHC Assets pursuant to a letter
provided by UCI-GA to MHC following the closing. In such allocation, the amount
allocated to the fixed assets of the Selling Entities was determined by an
appraisal firm selected by UCI-GA.
TAX TREATMENT
Although the parties believe that the purchase of the MHC Assets qualified
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company will not be responsible for
assuring that the transaction so qualifies, and the Acquisition was not
conditioned upon such qualification.
COVENANTS
Each of MHC and the MHC-PCs has agreed in the Acquisition Agreement not to
compete with the Company anywhere within the states of South Carolina, Tennessee
and Georgia for a period of three years after the closing. In addition, the
holders of the Class B voting common stock of MHC (the "Class B Stockholders")
executed a Non-Solicit Agreement attached as an exhibit to the Acquisition
Agreement. See "Related Agreements - Non-Solicit Agreements."
EMPLOYEES
Each of the Selling Entities made available for employment by the Company
all of each of the Selling Entities' employees, but the Company was not
obligated to employ any particular employee. Each of the physician-employees,
physician assistants and nurse practitioner employees of the Selling Entities
(collectively, the "Medical Providers") executed, effective as of May 1, 1998,
employment agreements with the UCI-PCs. All of the such employment agreements
also include non-compete provisions which are consistent with such employee's
non-compete agreements, if any, with MHC and the MHC-PCs, as applicable. MHC and
the MHC-PCs will satisfy, and the Company will be protected against, all accrued
employee benefits, severance, accrued vacation or other paid leave, and all
obligations or liabilities to each of the employees of MHC and the MHC-PCs
arising in connection with their employment by any of MHC and the MHC-PCs.
REPRESENTATIONS, INDEMNIFICATIONS AND HOLDBACK SHARES
The Acquisition Agreement contains certain customary comprehensive
representations and warranties of the Selling Entities, the Class B Stockholders
and the Company. The Acquisition Agreement also contains mutual indemnification
provisions which are subject to the following limitations which apply to all
claims for indemnification other than claims by the Company related to the
Selling Entities' pending and threatened litigation: (a) a basket of $125,000,
below which such indemnifying party will have no obligation for breaches of
representations, warranties and certain covenants, but when exceeded will
require payment of the first dollar of loss, (b) a general twelve-month survival
period for indemnification for breaches of representations, warranties and
certain covenants, and (c) a cap of $3 million for the total aggregate liability
of the indemnifying parties for breaches of representations, warranties and
certain covenants. Each Class B Stockholder is severally but not jointly liable
for any other Class B Stockholder's breach of the Acquisition Agreement. Also,
each Class B Stockholder's liability is limited to an agreed upon percentage of
the indemnified party's total damages which approximates each Class B
Stockholder's pro rata equity interest in MHC.
25
To provide the Company additional security in the event a claim for
indemnification by the Company arises, after the date of issuance of the shares
of Common Stock to MHC pursuant to the Conditional Delivery Agreement, MHC will
place into escrow 126,315 shares of Common Stock (the "Holdback Shares") for a
period of one year. In the event ownership of the Holdback Shares is transferred
to a stockholder of MHC upon the liquidation of MHC, or upon any other
distribution by MHC, the Holdback Shares will remain in escrow as an asset of
such stockholder of MHC. Subject to certain limitations described above, in the
event a claim by the Company for indemnification arises, the Company may elect
to recover such indemnification damages from the Selling Entities, the Class B
Stockholders and the Holdback Shares, or any one or more of them.
BOARD OF DIRECTORS
In accordance with the Acquisition Agreement, the Company has nominated A.
Wayne Johnson, Chairman and Chief Executive Officer of MHC, for election as a
director at the Annual Meeting. To the extent permitted by law, as long as MHC
or Penman Private Equity and Mezzanine Fund, L.P. ("Penman") is the holder or
record of five percent or more the issued and outstanding Common Stock, a
representative of Penman will be invited to attend, at Penman's expense, all
meetings of the UCI Board.
RELATED AGREEMENTS
NON-SOLICIT AGREEMENTS
Each of the Class B Stockholders entered into a non-solicit agreement with
the Company which prohibits each of the Class B Stockholders for a period of two
years after closing from soliciting or inducing any person employed by any of
Selling Entities or the Company to terminate such person's contract of
employment with such entity. In addition, each of the Class B Stockholders is
obligated under a covenant in the Acquisition Agreement which prohibits each of
the Class B Stockholders for a period of five years after closing from
soliciting or inducing a certain senior management employee of the Selling
Entities to terminate such senior management employee's contract of employment
with the Company.
REGISTRATION RIGHTS AGREEMENT
Under the registration rights agreement between UCI, MHC and each of the
MHC stockholders, UCI, upon written demand of the holders of at least 20 percent
of the shares (the "Demand"), agrees to register on one occasion, all or any
portion of the shares so requested to be registered. In addition, UCI grants to
MHC and its stockholders certain "piggyback" registration rights, subject to
standard underwriter cutbacks and company deferral for good cause. The
registration rights terminate one year after the date of closing. Provided UCI
receives the Demand within 30 days after the date of the issuance of the Common
Stock to MHC, UCI will file with the SEC such registration statement within 60
days after the receipt of the Demand. UCI agrees to use its reasonable best
efforts to cause such registration statement to become effective and to maintain
its effectiveness for a period of nine months after its effective date.
STOCKHOLDER AGREEMENTS
As noted elsewhere in this Proxy Statement, each of M.F. McFarland III,
M.D.; D. Michael Stout, M.D.; Stephen F. Serbin, M.D.; Peter J. Stahl, M.D.; CHC
and CP&C have executed and delivered to MHC separate agreements to vote their
shares of Common Stock at the Annual Meeting in favor of the transactions
described in the Acquisition Agreement. As of the record date for the Annual
Meeting, such stockholders held, in the aggregate, shares representing
approximately 54 percent of the outstanding Common Stock. Accordingly, if such
stockholders vote as indicated, each of the proposals relating to the
Acquisition are assured to be approved, regardless of the votes that may be cast
by any other holders of Common Stock entitled to vote. See "Description of the
Acquisition - Expectation of Stockholder Approval."
26
FINANCIAL AND BUSINESS INFORMATION
MARKET PRICE AND DIVIDEND INFORMATION
Until October 19, 1998, the Common Stock was traded on the Nasdaq SmallCap
Market under the symbol "UCIA". On October 20, 1998, the Common Stock was
delisted for trading on the Nasdaq SmallCap Market as a consequence of the
Company's failure to meet certain quantitative requirements under the NASD's
expanded listing criteria. Trading in the Common Stock is currently conducted in
the over-the-counter market. The prices set forth below indicate the high and
low bid prices reported on the Nasdaq SmallCap Market for the indicated periods.
The quotations reflect inter-dealer prices without retail markup, markdown or
commission and may not necessarily reflect actual transactions.
BID PRICE
---------
HIGH LOW
--------- -------------
FISCAL YEAR ENDING SEPTEMBER 30, 1998
1st quarter (10/01/97 - 12/31/97) $3-1/4 $1-3/4
2nd quarter (01/01/98 - 03/31/98) 2-1/2 2
3rd quarter (04/01/98 - 06/30/98) 2-1/16 1-3/8
4th quarter (07/01/98 - 09/30/98) 1.469 0.75
FISCAL YEAR ENDED SEPTEMBER 30, 1997
1st quarter (10/01/96 - 12/31/96) 3-3/8 2-3/8
2nd quarter (01/01/97 - 03/31/97) 3-3/8 2-1/2
3rd quarter (04/01/97 - 06/30/97) 2-11/16 1-11/16
4th quarter (07/01/97 - 09/30/97) 2-3/4 1-5/16
FISCAL YEAR ENDED SEPTEMBER 30, 1996
1st quarter (10/01/95 - 12/31/95) 4-1/4 3-1/8
2nd quarter (01/01/96 - 03/31/96) 5-1/8 3-1/4
3rd quarter (04/01/96 - 06/30/96) 4 3-1/4
4th quarter (07/01/96 - 09/30/96) 3-3/4 2-7/8
FISCAL YEAR ENDED SEPTEMBER 30, 1995
1st quarter (10/01/94 - 12/31/94) 3-1/8 1-1/2
2nd quarter (01/01/95 - 03/31/95) 3-1/4 1-1/2
3rd quarter (04/01/95 - 06/30/95) 3-3/8 2-1/4
4th quarter (07/01/95 - 09/30/95) 3-1/4 1-3/4
On February 12, 1998, the last trading day prior to the public announcement
of the Acquisition, the Common Stock closed at $2.3125 per share. On December
___, 1998, the latest practicable trading day before the printing of this Proxy
Statement, the high and low bid prices for the Common Stock were $____ and $____
per share, respectively.
As of the Record Date, there were 631 stockholders of record of Common
Stock, excluding individual participants in security position listings.
UCI has not paid cash dividends on the Common Stock since its inception
and has no plans to declare cash dividends in the foreseeable future.
27
DESCRIPTION OF MHC
Prior to the Acquisition, MHC provided nonmedical management and
administrative services for its 11 MHC Centers located in Georgia and Tennessee
(nine operating as MainStreet Healthcare in the Atlanta, Georgia area and two
operating as Prompt Care in Knoxville, Tennessee). All medical services at the
MHC Centers were provided by or under the supervision of the MHC-PCs which
contracted with MHC to be the sole provider of all medical direction and
supervision of the MHC Centers. Each of the MHC-PCs designated one of its
licensed physicians as a medical director. The medical director was available
for professional consultation by any of the healthcare providers concerning
patient matters to ensure that quality medical care was provided at each patient
encounter at the MHC Centers. The medical director did not exert control over
the financial management of medical treatment. Pricing for medical treatment was
dictated almost exclusively by insurance payor contracts. The MHC-PCs were
organized so that all physician services were offered by the physicians who were
employed by the MHC-PCs. MHC did not employ practicing physicians as
practitioners, exert control over their decisions regarding medical care or
represent to the public that it offered medical services. MHC entered into
administrative services agreements with the MHC-PCs for the performance by MHC
of all financial functions (billings, collections, payables, payroll, etc.) and
all administrative management and support functions (excluding, as required by
state law, any functions involving the professional aspects of medical
practice).
The MHC Centers were and continue to be staffed by licensed physicians,
other healthcare providers and administrative support staff. The medical support
staff includes licensed nurses, certified medical assistants, laboratory
technicians and x-ray technicians.
Both before and following the Acquisition, the MHC Centers have continued
to offer out-patient medical care, with and without appointment, for treatment
of acute and episodic medical problems. The MHC Centers provide a broad range of
medical services which would generally be classified as within the scope of
family practice and occupational medicine. The medical services are provided by
licensed physicians, nurses and auxiliary support personnel. The services that
were and continue to be provided at the MHC Centers include, but are not limited
to, the following:
o Routine care of general medical problems, including colds, flu, ear
infections, hypertension, asthma, pneumonia and other conditions typically
treated by primary care providers;
o Treatment of injuries, such as simple fractures, dislocations, sprains,
bruises and cuts;
o Minor surgery, including suturing of lacerations and removal of cysts
and foreign bodies;
o Diagnostic tests, such as x-rays, electrocardiograms, complete blood
counts, urinalysis and various cultures; and
o Occupational and industrial medical services, including drug testing,
workers' compensation and physical examinations.
At any of the MHC Centers, a patient with a life-threatening condition
would be evaluated by the physician, stabilized and immediately referred to a
nearby hospital.
The fees charged to a patient are determined by the nature of medical
services rendered. The MHC Centers accept payment from a wide range of sources.
These include patient payment at time of service (by cash, check or credit
card), patient billing and assignment of insurance benefits (including Blue
Cross Blue Shield, workers' compensation and other private insurance). Private
pay billings represent the most significant source of revenues.
As of the closing date of the Acquisition, MHC had 103 full-time
equivalent employees and 20 part-time employees. Included in these numbers were
23 medical providers employed by the MHC-PCs.
28
Attached as Appendix C to this Proxy Statement are the audited financial
statements of MHC for the two fiscal years ended March 31, 1998 and MHC's
management's discussion and analysis of financial condition and results of
operations relating to such annual financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
(the "Condensed Statements") have been prepared to give effect to the
Acquisition and the Private Placement. The purchase method of accounting was
used to give effect to all transactions.
The Condensed Statements reflect certain assumptions regarding the
Acquisition and the Private Placement and are based on the historical
consolidated financial statements of the respective entities. The financial
information relating to UCI reflected in the Condensed Statements, including the
notes thereto, is qualified in its entirety by reference to, and should be read
in conjunction with, the audited financial statements and the unaudited interim
financial statements, including the notes thereto, of UCI, which are
incorporated by reference in this Proxy Statement. The Condensed Statements were
prepared on the basis of such audited and unaudited financial statements of UCI,
as well as the internal unaudited monthly financial statements of MHC as of and
for each of the months in the twelve-month period ended September 30, 1997 and
the internal unaudited monthly financial statements of MHC for each of the
months in the seven-month period ended April 30, 1998.
The pro forma combined condensed statements of operations combine UCI's
historical results of operations for the nine months ended June 30, 1998 and the
fiscal year ended September 30, 1997 with MHC's historical results of operations
for the seven months ended April 30, 1998 and the twelve months ended September
30, 1997, respectively, giving effect to the Acquisition and the Private
Placement as if they had occurred on October 1, 1996.
The Condensed Statements are presented for illustrative purposes only and
are not necessarily indicative of the financial position or results of
operations which would have actually been reported had the Acquisition occurred
as of October 1, 1996, nor are the Condensed Statements necessarily indicative
of future financial position or results of operations.
Under EITF 97-2, the Company is consolidating the results of the
affiliated medical practices of the MHC-PCs acquired by the UCI-PCs in the
Acquisition with those of the Company. Such consolidation is required under EITF
97-2 as a consequence of the nominee shareholder arrangement that exists with
respect to each of the UCI-PCs. In each case, the nominee (and sole) shareholder
of the UCI-PC has entered into an agreement with UCI-GA which satisfies the
requirements set forth in footnote 1 of EITF 97-2. Under each agreement, UCI-GA,
in its sole discretion, can effect a change in the nominee shareholder at any
time for a payment of $100 from the new nominee shareholder to the old nominee
shareholder, with no limits placed on the identity of any new nominee
shareholder and no adverse impact resulting to either UCI-GA or the UCI-PC
resulting from such change.
The Condensed Statements do not give pro forma effect to the acquisitions
by UCI-SC, completed since October 1, 1996, of certain assets (including patient
lists and goodwill) associated with the professional practices of the physicians
and entities identified below:
Acquisition Date Seller Acquisition Price
October 1, 1996 H. A. Langston, Jr., M.D., P.A. $ 80,000
October 14, 1996 William J. Banner, Jr., M.D., F.A.A.F.P., A.M.E., P.A. 25,000
August 1, 1997 Springwood Lake Family Practice Center, P.A. 2,271,250
September 1, 1997 Clifton J. Aycock, M.D. 45,000
September 9, 1997 Leif Martin Adams, D.O. 100,000
October 1, 1997 Progressive Therapy Services, P.A. 550,720
October 1, 1997 Bar-Ed, Professional Corporation 306,036
November 1, 1997 Marvin Dees, M.D. 259,536
March 1, 1998 Allan M. Weldon, M.D. 235,000
29
Forms 8-K dated the respective acquisition dates and describing the
acquisition transactions were filed by UCI with the SEC in connection with each
of the acquisitions identified above. Forms 8-K/A which included historical and
pro forma financial information with respect to each of the acquisitions were
also filed by UCI with the SEC. You can obtain such reports by following the
instructions we provide in this Proxy Statement under the heading "Additional
Information - Where You Can Find More Information." In light of the existing
public disclosure of each of these other acquisitions and consistent with the
Company's objective of isolating for the reader of this Proxy Statement the pro
forma impact of the Acquisition, the Company has elected not to reflect the pro
forma impact of such other acquisitions in the Condensed Statements. The
inclusion of such transactions in the Condensed Statements would have reflected
a pro forma increase in revenues, operating and administrative costs,
depreciation and amortization, and loss for the combined entity and a pro forma
decrease in the operating margins for the combined entity.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS AND
ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED JUNE 30, 1998
UCI MHC
(NINE MONTHS SEVEN MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JUNE 30, 1998) APRIL 30,1998) ADJUSTMENTS COMBINED
------------- ------------- ------------- -----------
Revenue $ 26,625,431 $ 3,749,440 $ --- $30,374,871
Operating costs 25,748,944 3,812,855 (236,250)(a)
(112,500)(b) 29,213,049
------------- ------------- ------------- -----------
Operating margin 876,487 (63,415) 348,750 1,161,822
General and administrative expenses 66,817 827,895 --- 894,712
Depreciation and amortization 1,349,851 149,955 197,837(c)
15,000(d) 1,712,643
------------- ------------- ------------- -----------
Income (loss) from operations (540,181) (1,041,265) 135,913 (1,445,533)
Interest expense, net (846,864) (274,141) --- (1,121,005)
Gain (loss) on equipment 27,215 --- --- 27,215
------------- ------------- ------------- ------------
Income (loss) before income tax (1,359,830) (2,539,323)
Income tax benefit (558) --- 135,913 (558)
------------- ------------- ------------- ------------
Net income (loss) $ (1,360,388) $ (1,315,406) $ 135,913 $ (2,539,881)
============= ============= ============= ============
Basic earnings (loss) per share (0.22) --- (e) --- (0.37)
============= ============= ============= ============
Basic weighted average common
shares outstanding 6,290,844 --- (e) --- 6,939,141
============= ============= ============= ============
Diluted earnings (loss) per share (0.22) --- (e) --- (0.37)
============= ============= ============= ============
Diluted weighted average
common shares outstanding 6,309,164 --- (e) --- 6,957,461
============= ============= ============= ============
30
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS AND
ACCUMULATED DEFICIT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
PRO FORMA PRO FORMA
UCI MHC ADJUSTMENTS COMBINED
----------- ---------- -------------- ------------
Revenue
$ 27,924,772 $ 6,008,442 $ --- $ 33,933,214
Operating costs 26,466,294 6,790,444 (315,000)(a)
(150,000)(b) 32,791,738
----------- ---------- -------------- ------------
Operating margin 1,458,478 (782,002) 465,000 1,141,476
General and administrative
expenses 153,445 1,420,580 --- 1,574,025
Depreciation and
amortization 1,250,349 335,499 263,783 (c)
20,000 (d) 1,869,631
----------- ---------- -------------- ------------
Income (loss) from
operations 54,684 (2,538,081) 181,217 (2,302,180)
Interest expense, net (812,749) (273,721) --- (1,086,470)
Gain (loss) on equipment 8,809 (130,990) --- (122,181)
----------- ---------- -------------- ------------
Income (loss) before
income tax (749,256) (2,942,792) 181,217 (3,510,831)
Income tax benefit 665,530 --- --- 665,530
----------- ---------- -------------- ------------
Net income (loss) $ (83,726) $(2,942,792) $ 181,217 $(2,845,301)
=========== ========== ============== ============
Basic earnings (loss) per
share $ (.02) ---(e) --- $ (0.30)
=========== ========== ============== ============
Basic weighted average
common shares
outstanding 5,005,080 ---(e) --- 9,406,477
=========== ========== ============== ============
Diluted earnings (loss)
per share $ (.02) ---(e) --- $ (0.30)
=========== ========== ============== ============
Diluted weighted average
common shares outstanding 5,022,736 ---(e) --- 9,424,133
=========== ========== ============== ============
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(a) Net decrease in salaries paid to former corporate officers is $236,250 for
nine months and $315,000 annually.
(b) Net decrease in salaries for clinic based administrative personnel is
$112,500 for nine months and $150,000 annually.
(c) Amortization of goodwill on a straight line basis over 15 years is
$197,837 for nine months and $263,783 annually.
(d) Net increase in amortization expense related to building improvements in
leased real estate is $15,000 for nine months and $20,000 annually.
(e) As a privately held corporation, MHC was not required to, and did not,
compute earnings per share.
31
THE ANNUAL MEETING
BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING
PROPOSALS TO BE VOTED UPON
This Proxy Statement is furnished to holders of Common Stock in connection
with the solicitation of proxies by the UCI Board for use at the Annual Meeting
of Stockholders of UCI to be held for the purposes described in this Proxy
Statement. Each copy of this Proxy Statement mailed to a holder of Common Stock
is accompanied by a form of proxy for use at the Annual Meeting. There are two
sets of proposals - one set relates to the Acquisition and the other set relates
to general business in connection with the Annual Meeting.
ACQUISITION PROPOSALS
UCI stockholders will be asked at the Annual Meeting to approve the
following proposals which relate to the Acquisition:
1. Issuance of shares of Common Stock in connection with the
Acquisition (the "Share Issuance Proposal").
2. Issuance of the Warrants in connection with the Private
Placement, including the shares of Common Stock underlying the Warrants
(the "Warrant Issuance Proposal").
3. Amendment of Article Fourth of the UCI Certificate to increase
the authorized shares of Common Stock from 10 million shares to 50 million
shares (the "Authorized Capital Stock Proposal").
ANNUAL MEETING PROPOSALS
In connection with the Annual Meeting, UCI stockholders will be asked:
1. To elect three members of the UCI Board, each to hold office for
a three-year term ending on the date of the annual meeting of stockholders
in the year 2001 and until such director's respective successor shall have
been duly elected and qualified.
2. To approve the adoption of the UCI Medical Affiliates, Inc. 1999
Stock Incentive Plan for officers, directors, employees and consultants of
UCI and its subsidiaries (the "1999 Incentive Plan Proposal").
3. To approve an amendment of the UCI Certificate to give effect to
a one-for-five reverse stock split of the Common Stock (the "Reverse Stock
Split Proposal").
4. To ratify the appointment of Price Waterhouse LLP as the firm of
independent auditors to audit the consolidated financial statements of the
Company for the fiscal year ended September 30, 1998 (the "Ratification
of Auditors Proposal").
DATE, TIME AND PLACE OF MEETING
The Annual Meeting will be held on Tuesday, January 27, 1999 at 10:00 a.m.
local time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia, South
Carolina 29210.
32
RECORD DATE
Only holders of record of Common Stock at the close of business on
December 4, 1998 (the "Record Date") are entitled to notice of and will be
entitled to vote at the Annual Meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE
The Common Stock is entitled to one vote per share on each matter that is
presented for stockholder approval at the Annual Meeting. At the close of
business on the Record Date, there were 7,299,245 shares of Common Stock
outstanding and entitled to vote, held of record by approximately 631
stockholders. All of such shares are eligible to be voted on each matter
currently scheduled to come before the Annual Meeting.
VOTING AND REVOCATION OF PROXIES
The form of proxy accompanying this Proxy Statement is solicited on behalf
of the UCI Board for use at the Annual Meeting. You are requested to complete,
date and sign the accompanying form of proxy and promptly return it in the
accompanying envelope or otherwise mail it to UCI. All proxies that are properly
executed and returned, and that are not revoked, will be voted at the Annual
Meeting in accordance with the instructions indicated on the proxies. If no
instructions are indicated, such proxies will be voted FOR each of the proposals
described in this Proxy Statement, including election of the director nominees
set forth in this Proxy Statement.
The UCI Board does not presently intend to bring any business before the
Annual Meeting other than the specific UCI proposals referred to in this Proxy
Statement and specified in the notice of the Annual Meeting. So far as is known
to the UCI Board, no other matters are to be brought before the Annual Meeting.
If any other business properly comes before the Annual Meeting, however, it is
intended that proxies, in the form enclosed, will be voted on such matters in
accordance with the judgment of the persons voting such proxies.
Any UCI stockholder who has signed the proxy referred to in this Proxy
Statement may revoke it at any time before it is exercised at the Annual Meeting
by (i) delivering to the Corporate Secretary of UCI a written notice, bearing a
date later than the proxy, stating that the proxy is revoked, (ii) signing and
so delivering a proxy relating to the same shares and bearing a later date prior
to the vote at the Annual Meeting or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not, by itself,
revoke a proxy). Whether or not you plan to attend the Annual Meeting, you are
urged to sign and return the enclosed proxy.
QUORUM
The quorum required for the transaction of business at the Annual Meeting
is a majority of shares of Common Stock, or 3,649,624 shares, issued and
outstanding on the Record Date, which shares must be present in person or
represented by proxy at the Annual Meeting. Directions to withhold authority to
vote for directors, abstentions and broker non-votes will be considered shares
present in person or by proxy and entitled to vote and therefore will be counted
for purposes of determining whether there is a quorum at the Annual Meeting. If
a quorum is not present or represented at the Annual Meeting, the chairman of
the meeting or the stockholders holding a majority of the shares of Common Stock
entitled to vote, present in person or represented by proxy, have the power to
adjourn the meeting from time to time, without notice other than an announcement
at the meeting, until a quorum is present or represented. Directors, officers
and employees of UCI may solicit proxies for the reconvened Annual Meeting in
person or by mail, telephone or telegraph. At any such reconvened Annual Meeting
at which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally scheduled.
33
VOTE REQUIRED
GENERAL
Under the NASD rules, approval by the affirmative vote of the holders of a
majority of the total votes cast on each of the Share Issuance Proposal and the
Warrant Issuance Proposal, in person or by proxy, is required to approve such
proposals. Accordingly, abstentions and broker non-votes will have no effect on
the outcome of the vote.
Under the DGCL, approval by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote is required
to approve the Authorized Capital Stock Proposal and the Reverse Stock Split
Proposal. Accordingly, abstentions will have the same effect as a vote against
such proposals. Broker non-votes will be considered shares present but not
entitled to vote and therefore will have no effect on the outcome of the vote.
Under the DGCL, the three director nominees receiving the greatest number
of votes cast (although not necessarily a majority of the votes cast) in the
election of directors at the Annual Meeting will be elected to the Board of
Directors. Accordingly, directions to withhold authority, abstentions and broker
non-votes will have no effect on the outcome of the vote. The UCI Certificate
does not allow for cumulative voting in the election of directors.
Approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote is required to approve each of the 1999 Incentive
Plan Proposal and the Ratification of Auditors Proposal. Accordingly,
abstentions will have the same effect as a vote against such proposals. Broker
non-votes will be considered shares present but not entitled to vote and
therefore will have no effect on the outcome of the vote. Approval of the 1999
Incentive Plan Proposal is required pursuant to the rules and bylaws of the NASD
and by the Code.
A broker non-vote occurs when a broker or other nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on another proposal
because the broker or other nominee does not have the discretionary voting power
and has not received voting instructions from the beneficial owner.
STOCKHOLDER AGREEMENTS
Each of M. F. McFarland, III, M.D., D. Michael Stout, M.D., Stephen F.
Serbin, M.D., Peter J. Stahl, CHC and CP&C has separately agreed with MHC to
vote shares of Common Stock as to which each of them has voting control in favor
of the proposals relating to the Acquisition to be presented at the Annual
Meeting. Each of them has also indicated to the Company their intent to vote in
favor of all other proposals scheduled to be presented at the Annual Meeting. As
of the Record Date, these shares represented approximately 54 percent of the
outstanding Common Stock.
BASED ON THESE NUMBERS, APPROVAL OF ALL PROPOSALS AND THE ELECTION OF THE
THREE DIRECTORS TO BE ELECTED BY THE HOLDERS OF COMMON STOCK IS ASSURED,
REGARDLESS OF THE VOTE CAST BY ANY OTHER UCI STOCKHOLDER.
SOLICITATION OF PROXIES AND EXPENSES
UCI will bear the cost of preparing, assembling and mailing this Proxy
Statement and the accompanying form of proxy to stockholders. In addition to
solicitation by mail, the directors, officers and employees of UCI may solicit
proxies from stockholders by telephone, telegram, letter, facsimile or in
person. No compensation will be paid for such solicitations. UCI may request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
Common Stock and to request authority for the exercise of proxies. In such
cases, UCI, upon the request of the record holders, will reimburse such holders
for their reasonable expenses.
34
DESCRIPTION OF PROPOSALS
The UCI Board has considered each of the proposals described in this Proxy
Statement and believes that each proposal is in the best interests of UCI
stockholders.
THE UCI BOARD RECOMMENDS, BY THE UNANIMOUS CONSENT OF ALL DIRECTORS, THAT
YOU VOTE FOR EACH PROPOSAL DESCRIBED IN THIS SECTION.
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
ACQUISITION PROPOSALS
SHARE ISSUANCE AND WARRANT ISSUANCE PROPOSALS
Because the shares of Common Stock to be issued in the Acquisition and the
shares of Common Stock issuable upon exercise of the Warrants to be delivered in
connection with the Private Placement will exceed 20 percent of the number of
shares of Common Stock outstanding prior to such issuances, the NASD rules
require that UCI stockholders approve the issuance of such Common Stock and the
Warrants.
AUTHORIZED CAPITAL STOCK PROPOSAL
The Authorized Capital Stock Proposal provides that Article Fourth of the
UCI Certificate will be amended to increase the authorized shares of Common
Stock from 10 million shares to 50 million shares. The remaining shares of
authorized but unissued Common Stock may thereafter be used for general
corporate purposes, including in connection with future acquisitions. Approval
of this proposal is required to consummate the issuance of the shares of Common
Stock contemplated by the Share Issuance Proposal and the issuance of the
Warrants and underlying Common Stock contemplated by the Warrant Issuance
Proposal discussed above. The full text of the Authorized Capital Stock Proposal
is included in Appendix B attached to this Proxy Statement.
The Conditional Delivery Agreement delivered at the closing of the
Acquisition states that in the event the stockholders of UCI fail to approve any
of the matters necessary to issue the shares to MHC as provided in the
Acquisition Agreement, each of the parties, to the extent possible, is to be
restored to its position held prior to the closing. In the event it is
impossible to restore a party to its position held prior to closing, any
deficiency is to be resolved by the exchanging of promissory notes among the
parties.
ANNUAL MEETING PROPOSALS
ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting. The UCI
Certificate provides for a classified Board of Directors so that, as nearly as
possible, one-third of the UCI Board is elected each year to serve a three-year
term. Pursuant to the authority granted to it under the UCI Bylaws, the UCI
Board has set the size of the UCI Board at seven members with staggered terms
expiring at the forthcoming Annual Meeting and at the annual meetings of
stockholders in the years 1999 and 2000. Charles P. Cannon, a director whose
term would have expired at the forthcoming Annual Meeting, resigned from the UCI
Board effective June 1, 1998. On August 11, 1998, the UCI Board appointed
John M. Little, Jr., M.D. to fill the vacancy on the UCI Board created by
Mr. Cannon's resignation. A. Wayne Johnson, Ashby M. Jordan, M.D. and John M.
Little, Jr., M.D. have been nominated by the UCI Board for election as directors
at the forthcoming Annual Meeting for terms expiring at the annual meeting of
stockholders in the year 2001. Dr. Jordan's and Dr. Little's terms as directors
expire at the forthcoming Annual Meeting. See "Directors and Executive
Officers."
The persons named in the accompanying proxy have been designated by the
UCI Board and, unless authority is specifically withheld, they intend to vote
for the election of the nominees listed above. A
35
stockholder executing the enclosed proxy may vote for the nominees or may
withhold such vote from the nominees. In each case where the stockholder has
appropriately specified how the proxy is to be voted, it will be voted in
accordance with such stockholder's specifications. Although it is not
contemplated that the nominees will become unable to serve prior to the Annual
Meeting, the persons named on the enclosed proxy will have the authority to vote
for the election of another person in accordance with their best judgment.
Pursuant to the Acquisition Agreement, in the event Mr. Johnson is not
elected to the UCI Board at the Annual Meeting, promptly following the Annual
Meeting, the UCI Board, acting pursuant to the authority granted to it under the
UCI Bylaws, is expected to increase the size of the UCI Board to eight
directors, and Mr. Johnson is to be appointed by the UCI Board as the director
to fill the vacancy created by such expansion of the size of the UCI Board.
1999 INCENTIVE PLAN PROPOSAL
GENERAL
The UCI Board approved the adoption of the UCI Medical Affiliates, Inc.
1999 Stock Incentive Plan (the "Stock Plan") to be effective as of January 1,
1999, subject to the approval of the Stock Plan by the stockholders at the
Annual Meeting. The following discussion of the Stock Plan is qualified in its
entirety by reference to the Stock Plan. UCI will provide promptly, upon request
and without charge, a copy of the full text of the Stock Plan to each
stockholder to whom a copy of this Proxy Statement is delivered. Requests should
be directed to: Mr. Jerry F. Wells, Jr., Chief Financial Officer, UCI Medical
Affiliates, Inc., 1901 Main Street, Suite 1200, Columbia, South Carolina 29201
(803) 252-3661.
PURPOSE
The Stock Plan is intended to provide UCI with maximum flexibility to meet
the evolving needs of UCI and its subsidiaries over the next ten years in
providing stock-based incentives and rewards to officers, directors and
employees of UCI, and to consultants and advisors to UCI, who are and have been
in a position to contribute materially to improving UCI's profits. The enhanced
employment incentives available through the Stock Plan are expected to promote
the interests of UCI and its stockholders by strengthening UCI's ability to
attract and retain key officers and employees. Through the operation of the
Stock Plan, such present and future officers and employees may be encouraged to
acquire, or to increase their acquisition of, Common Stock, thus maintaining
their personal and proprietary interests in UCI's continued success and
progress.
ADMINISTRATION
The UCI Board will oversee and carry out the provisions of the Stock Plan,
and may establish one or more Committees (the "Committee") to assume such duties
and any other duties as are contemplated for any of such Committees under the
terms of the Stock Plan. When and if established by the UCI Board, the Committee
will be responsible to the UCI Board for the operation of the Stock Plan and
will make recommendations to the UCI Board with respect to participation in the
Stock Plan by officers, directors and employees of, and consultants and advisors
to, UCI and its subsidiaries, and with respect to the extent of that
participation. (All further references to the Committee contained in this
description of the Stock Plan should be deemed to be references to the UCI Board
to the extent that a Committee has not been established by the Board.) The
interpretation and construction by the Committee of any provisions of the Stock
Plan or of any award granted under it will be final. All awards made under the
Stock Plan will be evidenced by written agreements between UCI and the
participant.
36
OPERATION
The Stock Plan provides for the grant of incentive stock options ("ISOs"),
nonqualified stock options ("NSOs"), stock appreciation rights ("SARs") and
restricted stock awards ("Restricted Stock"). The Stock Plan will be effective
for a term of ten years after the effective date of its adoption by the UCI
Board. A maximum of 1,500,000 shares of Common Stock may be issued pursuant to
awards granted under the Stock Plan, and the UCI Board has reserved 1,500,000
shares for this purpose. The number of shares reserved for issuance under the
Stock Plan will be adjusted in the event of an adjustment in the capital stock
structure of UCI affecting the Common Stock (in connection with a merger,
consolidation, recapitalization, reclassification, combination, stock dividend,
stock split or similar event), and the Committee is authorized to adjust the
terms of awards under the Stock Plan in the event of a change in the capital
stock in order to prevent dilution or enlargement of awards under the Stock
Plan. UCI intends to register the shares of Common Stock reserved under the
Stock Plan under the 1933 Act.
All obligations of UCI under the Stock Plan and under any award granted
under the Stock Plan will be binding upon any successor to UCI, whether the
existence of such successor is the result of a direct or indirect purchase of
all or substantially all of the business or assets of UCI, or a merger,
consolidation or otherwise. Unless otherwise specifically prohibited by the
terms of any award or under any applicable laws, rules or regulations, upon the
occurrence of a change in control of UCI, each then outstanding option and SAR
that is not otherwise exercisable will become immediately and fully exercisable,
and any restrictions imposed on Restricted Stock will lapse. Under the Stock
Plan, events constituting a change in control include the acquisition by any
third party or group of 35 percent or more of the outstanding Common Stock; the
change over a two-year period of the makeup of a majority of the members of the
UCI Board; a tender offer to acquire control of the outstanding Common Stock;
and stockholder approval of the liquidation of UCI, the sale of substantially
all of its assets, or the merger, consolidation or reorganization of UCI where
the voting securities of UCI prior to such event do not continue to constitute
at least 65 percent of the voting securities of the surviving entity.
ELIGIBILITY
Each officer, director and employee of UCI or any of its subsidiaries is
eligible to participate in the Stock Plan, and awards under the Stock Plan may
also be granted from time to time to persons serving as consultants or advisors
to UCI or any of its subsidiaries. The Committee will select the individuals who
will participate in the Stock Plan, and members of the Committee will not be
restricted under the terms of the Stock Plan from participating in the Stock
Plan while serving as members of the Committee. On the date of this Proxy
Statement, six directors, approximately 616 employees and no consultants and
advisors were eligible to participate in the Stock Plan. The Committee may grant
awards under the Stock Plan to any officer, director or other employee of, or
any consultant or advisor to, UCI or any of its subsidiaries. Awards that are
granted at the same or at different times under the Stock Plan are not required
to contain similar provisions.
No awards may be granted under the Stock Plan after December 31, 2009. The
Board may terminate the Stock Plan sooner without further action by the
stockholders. The UCI Board also may amend the Stock Plan without stockholder
approval, except that no amendment that increases the number of shares of Common
Stock that may be issued under the Stock Plan or changes the class of
individuals who may be selected to participate in the Stock Plan will become
effective until it is approved by the stockholders.
37
STOCK OPTIONS
The Stock Plan permits the granting of non-transferable ISOs that qualify
as incentive stock options under Section 422A(b) of the Code and
non-transferable NSOs that do not so qualify. The option exercise price of each
option will be determined by the Committee in its sole discretion, but may not
be less than the fair market value of the Common Stock on the date the option is
granted in the case of ISOs and may not be less than 50 percent of such fair
market value in the case of NSOs. On December ___, 1998, the high and low bid
prices of the Common Stock on the over-the-counter market were $_____ and $_____
per share, respectively.
The term of each option will be fixed by the Committee, but may not exceed
ten years from the date of grant. The Committee will determine at what time or
times each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee. The exercise price of options granted under the Stock Plan must be
paid in cash or by delivery of shares of Common Stock or a combination of cash
and shares.
Except as otherwise provided below, upon termination of a participant's
employment, an option will terminate upon the earliest to occur of the full
exercise of the option, the expiration of the option by its terms, and the date
three months following the date of employment termination. Should termination of
employment (a) result from the death or permanent and total disability of a
participant, such three-month termination period shall extend to one year, or
(b) be for cause, the option will terminate on the date of employment
termination. The employment of a consultant or advisor will be deemed terminated
upon UCI's notice to the participant that UCI will no longer transact business
with the consultant or advisor.
To qualify as ISOs, options must currently meet additional federal tax
requirements, including limits on the value of shares subject to ISOs first
exercisable annually to any participant, and a shorter exercise period and
higher minimum exercise price in the case of certain large stockholders. To the
extent these special requirements are changed or eliminated, the Stock Plan will
be amended accordingly.
STOCK APPRECIATION RIGHTS
The Committee may also grant non-transferrable rights, alone or in
conjunction with options, entitling the holder upon exercise to receive an
amount in any combination of cash or shares of Common Stock (in the sole
discretion of the Committee) equal to the increase since the date of grant in
the fair market value of the shares covered by such SAR over the SAR price for
such shares. The SAR price will be established at the date of grant of the SAR
and will be determined by the Committee in its sole discretion, except that the
SAR price may not be less than the fair market value of the Common Stock on the
date the SAR is granted in the case of an SAR issued in tandem with an ISO, and
may not be less than 50 percent of such fair market value in the case of all
other SARs. The restrictions applicable to the exercise of SARs under the Stock
Plan in the context of termination of employment with UCI are the same as those
restrictions applicable to the exercise of stock options under the Stock Plan as
discussed above.
RESTRICTED STOCK AWARDS
The Committee may also award shares of Common Stock subject to such
conditions and restrictions, if any, as the Committee may determine. The
purchase price, if any, of shares of Restricted Stock shall be determined by the
Committee. Recipients of Restricted Stock may be required to enter into a
Restricted Stock award agreement with UCI in such form as the Committee may
determine, setting forth the restrictions to which the shares are subject and
the date or dates on which the restrictions will lapse. The Committee may at any
time waive such restrictions or accelerate such dates. Shares of Restricted
Stock will be non-transferable. If a participant who holds shares of Restricted
Stock terminates employment for any reason (including death) prior to the lapse
or waiver of any restrictions, then the shares shall be forfeited to UCI for no
payment. Prior to the lapse of any restrictions on shares of Restricted Stock,
the participant will have all rights of a stockholder with respect to the
shares, including voting and dividend rights, subject only to the conditions and
restrictions generally applicable to Restricted Stock or specifically set forth
in any Restricted Stock award agreement.
38
CURRENT AWARDS
The number and value of awards that may be granted under the Stock Plan in
the future to officers, directors and employees of, and consultants and advisors
to, UCI or any of its subsidiaries cannot currently be determined and will be
within the discretion of the Committee. As of the date of this Proxy Statement,
no grants of any awards have been approved under the Stock Plan
to any persons.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the
federal income tax rules currently in effect that are generally relevant to
stock incentive awards. The laws governing the tax aspects of awards are highly
technical and such laws are subject to change.
INCENTIVE STOCK OPTIONS: For regular income tax purposes, no taxable
income is realized by the optionee upon the grant or exercise of an ISO. As long
as no disposition of shares issued upon exercise of the ISO is made by the
optionee within two years from the date of grant or within one year after the
transfer of such shares to the optionee, then (a) upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain, and any loss sustained will be a long-term capital loss,
and (b) no deductions will be allowed to UCI for federal income tax purposes.
However, the exercise of an ISO will give rise to an item of tax preference that
may result in alternative minimum tax liability for the optionee.
If shares acquired upon the exercise of an ISO are disposed of prior to
the expiration of the holding periods described above (a "disqualifying
disposition"), generally (a) the optionee will realize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of the shares at exercise (or, if less, the amount realized on a sale of
such shares) over the option price thereof, and (b) UCI will be entitled to
deduct such amount. Any further gain realized will be taxed as short-term or
long-term capital gain and will not result in any deduction by UCI. Special
rules apply when all or a portion of the exercise price of the ISO is paid by
tendering shares of Common Stock, and special rules may also apply where the
optionee is subject to Section 16(b) of the 1934 Act. A disqualifying
disposition will eliminate the item of tax preference associated with the
exercise of the ISO if it occurs in the same taxable year as the exercise of the
ISO.
NONQUALIFIED STOCK OPTIONS: No income is realized by the optionee at the
time an NSO is granted. Generally, (a) at exercise, ordinary income is realized
by the optionee in an amount equal to the difference between the option price
and the fair market value of the shares on the date of exercise, and UCI
receives a tax deduction for the same amount, and (b) at disposition,
appreciation or depreciation after the date of the exercise is treated as either
short-term or long-term capital gain or loss, depending on how long the shares
have been held. Special rules could apply in some situations if the optionee is
subject to Section 16(b) of the 1934 Act.
STOCK APPRECIATION RIGHTS: No income will be realized by a participant in
connection with the grant of an SAR. When the SAR is exercised, or when a
participant receives payment in cancellation of an SAR, the participant will
generally be required to include as taxable ordinary income in the year of such
exercise or payment an amount equal to the amount of cash received and the fair
market value of any stock received. UCI will generally be entitled at the same
time to a deduction for federal income tax purposes equal to the amount
includable as ordinary income by such participant.
RESTRICTED STOCK AWARDS: The recipient of Restricted Stock generally will
realize ordinary income equal to the fair market value of the stock at the time
the stock is no longer subject to forfeiture, minus any amount paid for such
stock, and UCI will receive a corresponding deduction. However, unless
prohibited
39
by any award agreement, a recipient may elect under Section 83(b) of the Code to
realize ordinary income on the date of issuance equal to the fair market value
of the shares of Restricted Stock at that time (measured as if the shares were
unrestricted and could be sold immediately), minus any amount paid for such
stock. If the shares are forfeited, the recipient will not be entitled to any
deduction, refund or loss for tax purposes with respect to the forfeited shares.
Upon sale of the shares after the forfeiture period has expired, the holding
period to determine whether the recipient has long-term or short-term capital
gain or loss begins when the restriction period expires (or upon earlier
issuance of the shares, if the recipient elected immediate recognition of income
under Section 83(b) of the Code). If Restricted Stock is received in connection
with another award under the Stock Plan, the income and the deduction, if any,
associated with such award may be deferred in accordance with the rules
described above for Restricted Stock.
The foregoing discussion is provided for the information of stockholders
and is not a complete description of the federal tax consequences in respect of
transactions under the Stock Plan, nor does it describe state or local tax
consequences.
REVERSE STOCK SPLIT PROPOSAL
The UCI Board has concluded that it would be advisable to amend the UCI
Certificate to effect a one-for-five reverse stock split of the presently issued
and outstanding shares of Common Stock, and to provide for the payment of cash
in lieu of fractional shares otherwise issuable (the "Split"). The Split
requires that the UCI Certificate be amended to reduce the number of authorized
shares of Common Stock and increase the par value per share of Common Stock, as
described below. Accordingly, the Split is subject to approval by the
stockholders. Assuming approval of the Split by the stockholders, the Split
would result in one share of post-Split Common Stock ("New Common Stock") being
received in exchange for each five presently issued and outstanding shares of
Common Stock.
Except for those stockholders who receive cash in lieu of fractional
interests, the Split will not affect any stockholder's proportionate equity
interest in the Company. The Split will not have any impact on the aggregate
assigned value of the shares of Common Stock for financial statement purposes.
The full text of the Reverse Stock Split Proposal is included in Appendix B
attached to this Proxy Statement.
UCI is presently authorized to issue 10 million shares of Common Stock, of
which 7,299,245 shares of Common Stock were outstanding at the close of business
on December 4, 1998. In the event stockholders approve the proposal to increase
the authorized number of shares of Common Stock in connection with the
Acquisition, as discussed above, UCI will be authorized to issue 50 million
shares of Common Stock. To give effect to the Split, the UCI Certificate is
proposed to be amended to reduce by a factor of five the number of authorized
shares of Common Stock and to increase by a factor of five the par value per
share. The principal effect of the proposed Split will be to decrease the number
of authorized shares of Common Stock to 2 million shares (or 10 million shares
if the proposal to increase the authorized capital in connection with the
Acquisition is approved), to increase the par value per share to twenty-five
cents ($0.25), and to decrease the number of outstanding shares of Common Stock
to approximately 1,459,840 (approximately 2,040,120 shares following the
issuance, if approved, of shares contemplated by the Conditional Delivery
Agreement executed and delivered at the closing of the Acquisition). Assuming
the Reverse Stock Split Proposal is approved by the stockholders and UCI issues
the 2,901,396 shares (580,279 shares, post-split) of Common Stock to the escrow
agent as contemplated by the Conditional Delivery Agreement executed and
delivered at the closing of the Acquisition, and assuming no other changes in
the outstanding shares of Common Stock, UCI will have approximately 242,400
authorized but unissued shares reserved for issuance pursuant the Warrants, the
UCI stock option plans (including the UCI 1997 Stock Incentive Plan, if approved
by the stockholders), and certain other outstanding warrants of UCI, and will
have approximately 7,717,481 authorized but unissued shares of Common Stock
which are not otherwise reserved for any specific issuance.
The proposal to amend the UCI Certificate also includes a provision to
increase the number of authorized shares of New Common Stock from 2 million to
10 million shares immediately after the Split in the event the proposal to
increase the authorized capital stock in connection with the Acquisition is not
approved. Because the Reverse Stock Split Proposal includes this provision to
increase the authorized shares
40
of Common Stock, approval of the Reverse Stock Split Proposal by the
stockholders will enable UCI to issue the shares of Common Stock and Warrants in
connection with the Acquisition even if the Authorized Capital Stock Proposal is
not approved by the stockholders. UCI does not presently have any plans or
understandings with respect to the issuance of additional shares of Common
Stock, except for issuances in connection with agreements delivered at the
closings of the Acquisition and the Private Placement described in this Proxy
Statement, and as otherwise necessary in connection with exercises from time to
time of stock options granted under the employee stock option plans of UCI.
The UCI Board believes that the current share price of the Common Stock
has reduced the effective marketability of the Common Stock because of the
reluctance of many leading brokerage firms to recommend low-priced stocks to
their clients. Further, a variety of brokerage house policies and practices tend
to discourage individual brokers within those firms from dealing in low-priced
stocks. Some of those policies and practices pertain to the payment of brokers'
commissions and to time-consuming procedures that function to make the handling
of low-priced stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of low-priced stocks because the brokerage commission on the
sale of a low-priced stock generally represents a higher percentage of the sales
price than the commission on a relatively higher-priced issue.
The UCI Board is hopeful that the decrease in the number of shares of
Common Stock outstanding as a consequence of the Split, and the expected
increase in share price, will encourage interest in the New Common Stock,
and possibly promote greater liquidity for the UCI stockholders. Also, although
it may be anticipated that the expected increase in the price level of the New
Common Stock as a consequence of the Split will be proportionately less than the
decrease in the number of shares outstanding, the Split could result in a price
level for the shares that will overcome the reluctance, policies and practices
referred to above and diminish the adverse impact of trading commissions on the
market for the shares. There can, however, be no assurance that the foregoing
effects will occur, or that the per share price level of the New Common Stock
immediately after the Split will be maintained for any period of time.
If the Split is approved by the stockholders, UCI will promptly file an
amendment to the UCI Certificate with the Secretary of State of the State of
Delaware. The proposed Split will become effective on the date of that filing
(the "Effective Date"). Commencing with the Effective Date, each certificate
representing shares of Common Stock will be deemed for all corporate purposes to
evidence ownership of a number of shares of New Common Stock equal to one-fifth
of the number of shares reflected as Common Stock, or, to the extent a
stockholder holds a number of shares not evenly divisible by five, fractional
interests for which UCI will pay cash as described below. Stockholders will not
have the opportunity on or after the Effective Date to round off their
share-holdings to a number evenly divisible by five.
American Stock Transfer & Trust Company has been appointed exchange agent
(the "Exchange Agent") to act for the stockholders in effecting the exchange of
their certificates. As soon as practicable after the Effective Date,
stockholders will be notified and requested to surrender their certificates
representing shares of Common Stock to the Exchange Agent in exchange for
certificates representing shares of New Common Stock.
No scrip or fractional share certificates of New Common Stock will be
issued in connection with the Split. Assuming approval of the Split by the
Company's stockholders, those stockholders who would otherwise receive
fractional shares will be entitled to payment of the applicable fraction of the
fair market value of each share of Common Stock held prior to the Effective Date
upon surrender of certificates representing such shares of Common Stock to the
Exchange Agent. Such fair market value shall be the closing price of the Common
Stock as of the trading date immediately prior to the Effective Date.
UCI will deposit sufficient cash with the Exchange Agent for the purchase
of the fractional interests expected to result from the Split. Stockholders are
urged to surrender their certificates to the Exchange Agent and to claim the
sums, if any, due them for fractional interests promptly after the Effective
Date. Under the escheat laws of the various jurisdictions where stockholders
reside, UCI is domiciled, and the funds are
41
deposited, sums due for fractional interests which are not timely claimed after
the Effective Date will, unless correspondence has been received by UCI or the
Exchange Agent concerning those funds within the time allowed by those
jurisdictions, be paid to those various jurisdictions. Thereafter stockholders
otherwise entitled to the funds will have to seek to obtain them directly from
the state to which the funds were paid.
The ownership of a fractional interest will not give the holder any
voting, dividend or any other right except the right to receive payment therefor
as described above. No service charges will be payable by stockholders in
connection with the exchange of stock certificates or the issuance of cash for
fractional interests, all of which costs will be borne by UCI.
The federal income tax consequences of the Split are expected to be as set
forth below. The following information is based upon existing law which is
subject to change by legislation, administrative action and judicial decision
and is necessarily general. Therefore, stockholders are advised to consult with
their own tax advisor for more detailed information relating to their individual
tax circumstances.
1. The Split is expected to be a tax-free recapitalization for UCI and its
stockholders to the extent that shares of Common Stock are exchanged for shares
of New Common Stock.
2. The shares of New Common Stock in the hands of a stockholder will have
an aggregate basis for computing gain or loss equal to the aggregate basis of
shares of Common Stock held by that stockholder immediately prior to the Split,
reduced by the amount of proceeds, if any, received from the redemption by UCI
of fractional interests and increased by any gain recognized on that redemption.
3. A stockholder's holding period for shares of New Common Stock will
include the holding period of shares of Common Stock exchanged therefor,
provided that the shares of Common Stock were capital assets in the hands of the
stockholder.
4. Stockholders who receive cash for all of their holdings will recognize
a gain or loss for federal income tax purposes as a result of the disposition of
their shares of Common Stock. Although the tax consequences to stockholders who
receive cash for some of their holdings are not entirely certain, those
stockholders in all likelihood will recognize a gain or loss for federal income
tax purposes as a result of the disposition of a portion of their shares of
Common Stock. Stockholders who do not receive any cash for their holdings will
not recognize any gain or loss for federal income tax purposes as a result of
the Split.
It is estimated that the number of shares of Common Stock outstanding
after payment of cash for fractional interests would be reduced by less than
0.03% (equivalent to approximately 7,000 shares of Common Stock or 400 shares of
New Common Stock) and the number of stockholders of record would not change.
Since the number of the UCI stockholders of record will not be reduced below 300
as a consequence of the Split, UCI will not as a result of those actions become
eligible to terminate the registration of the Common Stock under the Securities
Exchange Act of 1934 or to cease filing reports under that act with the SEC. UCI
does not have any present plans to take any action which would further reduce
the number of its stockholders.
RATIFICATION OF AUDITORS PROPOSAL
The UCI Board, adopting the recommendation of the Audit Committee of the
UCI Board (the "Audit Committee"), has appointed the certified public accounting
firm of Price Waterhouse LLP as UCI's independent auditors for the fiscal year
ended September 30, 1998, subject to ratification by the stockholders at the
Annual Meeting. Representatives of Price Waterhouse LLP are expected to be
present at the Annual Meeting and will be available to respond to questions
and may make a statement if such representatives so desire.
42
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The following sets forth certain information concerning the persons
nominated for election as directors and the current directors whose terms will
continue beyond the Annual Meeting.
DIRECTOR NOMINEES FOR TERMS EXPIRING IN 2001
A. WAYNE JOHNSON, 47, has served as Chairman and Chief Executive Officer
of MHC from its inception in February 1996. Mr. Johnson has 23 years of
entrepreneurial and business operations experience in the field of financial
services and corporate development. Prior to co-founding MHC in February 1996,
Mr. Johnson had served since 1991 as President of one of the major operating
subsidiaries of First Data Corporation and Chief Marketing Officer and strategic
planner for First Data Card Services Group, a subsidiary of First Data
Corporation. Mr. Johnson was the founder of both Integratec, a collection
company, and QualiServ, a credit card outsourcing service company.
ASHBY M. JORDAN, M.D., 59, has served as a director of UCI since August
1996 and as Vice President of Medical Affairs of BCBS since December 1986.
Prior to joining BCBS, Dr. Jordan was the Vice President of Medical Affairs
for CIGNA HealthPlan of South Florida, Inc. Dr. Jordan is Board Certified by
the American Board of Pediatrics.
JOHN M. LITTLE, JR., M.D., 48, has served as a director of UCI since
August 11, 1998 and as Chief Medical Officer of CHC since 1996. Additionally, he
has served since 1994 as Medical Director of Managed Care Services of CHC, as
Chairman of the Quality Assurance Committee and the Pharmacy and Therapeutics
Committee of CHC and as a Co-Chair of the Managed Care Oversight Committee of
CHC. Prior to joining CHC in 1994, Dr. Little served as Assistant Chairman for
Academic Affairs, Department of Family Practice, Carolinas Medical Center,
Charlotte, North Carolina from 1992 to 1994.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
M.F. MCFARLAND, III, M.D., 50, has served as Chairman of the Board,
President and Chief Executive Officer of UCI since January 1987 and as a
director of UCI since September 1984. From September 1984 until January 1987, he
served as Vice President of UCI. He has served as President and as the sole
director of UCI-SC and DC-SC for over five years and of UCI-GA since its
organization in February 1998. He served as Associate Professional Director of
the Emergency Department of Richland Memorial Hospital in Columbia, South
Carolina from 1978 to 1981 and was President of the South Carolina Chapter of
the American College of Emergency Physicians in 1979. Dr. McFarland is currently
a member of the Columbia Medical Society, the South Carolina Medical Association
and the American Medical Association.
CHARLES M. POTOK, 49, has served as a director of UCI since September 1995
and as Executive Vice President and Chief Operating Officer of CP&C since March
1984. Mr. Potok is an Associate of the Casualty Actuarial Society and a member
of the American Academy of Actuaries. Prior to joining CP&C, Mr. Potok served as
Chief Property and Casualty Actuary and Director of the Property and Casualty
Division of the South Carolina Department of Insurance.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
HAROLD H. ADAMS, JR., 51, has served as a director of UCI since June 1994
and as President and owner of Adams and Associates, International, Adams and
Associates, and Southern Insurance Managers since June 1992. He served as
President of Adams Eaddy and Associates, an independent insurance agency, from
1980 to 1992. Mr. Adams has been awarded the Chartered Property Casualty
Underwriter designation and is currently a member of the President's Board of
Visitors of Charleston Southern University in Charleston, South Carolina. He has
received numerous professional awards as the result of over 25 years of
involvement in the insurance industry and is a member of many professional and
civic organizations.
43
THOMAS G. FAULDS, 57, has served as a director of UCI since August 1996
and as Executive Vice President of Private Business for BCBS since October 1991.
Mr. Faulds has been with BCBS since March 1972 where he has served in key senior
management positions in government programs, information systems and operations.
EXECUTIVE OFFICERS
The following sets forth certain information concerning the persons who
currently serve as executive officers of UCI who do not also serve on the UCI
Board.
JERRY F. WELLS, JR., 36, has served as Chief Financial Officer and
Executive Vice President of Finance of UCI since he joined UCI in February 1995
and as Corporate Secretary of UCI since December 1996. He has served as
Executive Vice President of Finance, Chief Financial Officer and Corporate
Secretary of UCI-SC since December 1996, and of UCI-GA since its organization in
February 1998, and as Corporate Secretary of DC-SC since December 1996. Prior to
joining UCI, he served as a Senior Manager and consultant for Price Waterhouse
LLP from 1985 until February 1995. Mr. Wells is a certified public accountant
and is a member of the American Institute of Certified Public Accountants, the
South Carolina Association of Certified Public Accountants and the North
Carolina CPA Association.
D. MICHAEL STOUT, M.D., 53, has served as Executive Vice President of
Medical Affairs of UCI and DC-SC since 1985. He is Board Certified in Emergency
Medicine and is a member of the American College of Emergency Physicians, the
Columbia Medical Society and the American College of Physician Executives.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the directors and officers of UCI
to file reports of holdings and acquisitions in Common Stock with the SEC. Based
on UCI records and other information, UCI believes that all SEC filing
requirements applicable to its directors and officers were complied with in
respect to the Company's fiscal year ended September 30, 1997.
BOARD OF DIRECTORS AND BOARD COMMITTEES
UCI BOARD
The UCI Board had a total of four regular meetings and no special meetings
during the Company's fiscal year ended September 30, 1997. No director attended
fewer than 75 percent of the total of such Board meetings and the meetings of
the committees upon which the director served. Among the standing committees
established by the UCI Board are a Compensation Committee, an Audit Committee,
and a Revenue Enhancement Committee. The UCI Board does not have a nominating
committee for
44
recommending to stockholders candidates for positions on the UCI Board.
Currently, seven directors serve on the UCI Board.
AUDIT COMMITTEE
The Audit Committee consisted of Messrs. Adams and Cannon until Mr.
Cannon's resignation from the UCI Board in June 1998. Mr. Cannon was replaced on
the Audit Committee by the appointment of Mr. Faulds in July 1998. This
committee recommends to the UCI Board the engagement of the independent auditors
for the Company, determines the scope of the auditing of the books and accounts
of the Company, reviews the reports submitted by the auditors, examines
procedures employed in connection with the Company's internal control structure,
reviews and approves the terms of acquisitions between the Company and any
related party entities, undertakes certain other activities related to the
fiscal affairs of the Company and makes recommendations to the UCI Board as may
be appropriate. This committee met once during the Company's fiscal year ended
September 30, 1997.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs Adams, Potok and Russell J.
Froneberger. (Mr. Froneberger is not standing for reelection at the Annual
Meeting.) This committee monitors the Company's executive compensation plan,
practice and policies, including all salaries, bonus awards and fringe benefits,
and makes recommendations to the UCI Board with respect to changes in existing
executive compensation plans and the formation and adoption of new executive
compensation plans. This committee met once during the Company's fiscal year
ended September 30, 1997.
REVENUE ENHANCEMENT COMMITTEE
The Revenue Enhancement Committee consists of Messrs. Adams, Faulds,
Froneberger and Potok. This committee monitors the Company's ancillary and
complementary services, and makes recommendations to the UCI Board with respect
to changes in such existing services. This committee met once during the
Company's fiscal year ended September 30, 1997.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned during the
fiscal year ended September 30, 1997 and during each of the two prior fiscal
years by the President and Chief Executive Officer of UCI and the executive
officers of UCI whose annual compensation from UCI exceeded $100,000 for all
services provided to the Company. No other executive officer of the Company
earned compensation in excess of $100,000 for services provided to the Company
in any of the three fiscal years reflected in the table.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- ----------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) OPTIONS COMPENSATION(2)
- --------------------------- ------ --------- -------- ---------- --------------
M.F. MCFARLAND III, M.D. 1997 $ 316,540(3) $ -0-(4) 141,675 $ 7,968
CHAIRMAN, PRESIDENT AND 1996 315,000(3) 63,500(4) 30,000 7,368
CHIEF EXECUTIVE OFFICER 1995 194,616(3) 145,000(4) 35,000 6,818
D. MICHAEL STOUT, M.D. 1997 $ 216,825(5) -0-(6) 79,825 $ -0-
EXECUTIVE VICE PRESIDENT OF 1996 198,316(5) -0-(6) 10,000 -0-
MEDICAL AFFAIRS 1995 157,600(5) 32,000(6) 20,000 -0-
45
(1) Amounts included under the heading "Salary" and "Bonus" include
compensation from both UCI-SC and DC-SC.
(2) Amounts included under the heading "All Other Compensation" are comprised
of premiums for long term disability and life insurance provided by the
Company for the benefit of Dr. McFarland.
(3) For services performed by Dr. McFarland for UCI-SC, a wholly-owned
subsidiary of UCI, Dr. McFarland received an annual salary of $157,500
and $157,500 during the fiscal years ended September 30, 1997 and 1996,
respectively. Dr. McFarland served without compensation from UCI-SC
for his services during the fiscal year ended September 30, 1995. For
services performed by Dr. McFarland for DC-SC, an affiliated
professional association wholly owned by Dr. McFarland that contracts
with UCI-SC to provide all medical services at UCI's medical
facilities, Dr. McFarland received an annual salary of $159,040,
$157,500, and $194,616 for the fiscal years ended September 30, 1997,
1996, and 1995, respectively.
(4) Pursuant to the employment agreement dated October 1, 1995 between
UCI-SC and Dr. McFarland, UCI-SC accrued incentive bonuses during the
fiscal years ended September 30, 1997 and 1996 payable to Dr. McFarland
of zero and $63,500, respectively, and made no payments to Dr.
McFarland against accrued bonuses. DC-SC accrued a bonus payable to
Dr. McFarland during the fiscal year ended September 30, 1995 of
$145,000. Dr. McFarland received draws from DC-SC out of previously
accrued bonuses of $62,000, $120,000 and $167,430 during the fiscal
years ended September 30, 1997, 1996, and 1995, respectively.
(5) For services performed by Dr. Stout for UCI-SC, Dr. Stout received an
annual salary of $50,000 and $45,833 during the fiscal years ended
September 30, 1997 and 1996, respectively. Dr. Stout served without
compensation from UCI-SC for his services during the fiscal year ended
September 30, 1995. For services performed by Dr. Stout for DC-SC, Dr.
Stout received an annual salary of $166,825, $152,483, and $157,600 for
the fiscal years ended September 30, 1997, 1996, and 1995, respectively.
(6) DC-SC accrued and paid bonuses to Dr. Stout of zero, zero and $32,000
during the fiscal years ended September 30, 1997, 1996 and 1995,
respectively.
OPTION GRANTS
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the fiscal year ended September 30, 1997
to certain of the executive officers of UCI. (All options reflected below vest
one-third on each of the first three anniversaries of the grant date.)
OPTION GRANTS IN 1997 FISCAL YEAR
INDIVIDUAL GRANTS
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN 1997 FISCAL YEAR PER SHARE DATE
- ---------------- ------------------- --------------------- ----------- -------------
M.F. McFarland, III, M.D. 20,000 4.49% $ 2.8875 DEC. 18, 2001
CHAIRMAN, PRESIDENT AND 121,675 27.31 2.1313 JUNE 18, 2002
CHIEF EXECUTIVE OFFICER
A. Michael Stout, M.D. 5,000 1.12 2.6250 DEC. 18, 2006
EXECUTIVE VICE PRESIDENT OF 74,825 16.80 1.9375 JUNE 18, 2007
MEDICAL AFFAIRS
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to
unexercised options to purchase Common Stock held at September 30, 1997. None of
the named executive officers exercised any options during the fiscal year ended
September 30, 1997.
46
1997 FISCAL YEAR-END
OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL YEAR
FISCAL YEAR END END
----------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------
M.F. McFarland, III, M.D. 33,333 173,342 -0- $ 44,862
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
A. Michael Stout, M.D. 16,666 93,159 -0- 42,090
EXECUTIVE VICE PRESIDENT OF
MEDICAL AFFAIRS
DIRECTOR COMPENSATION
Non-employee directors are paid a fee of $500 for attendance at each
meeting of the UCI Board. Non-employee directors of UCI are reimbursed by UCI
for all out-of-pocket expenses reasonably incurred by them in the discharge of
their duties as directors, including out-of-pocket expenses incurred in
attending meetings of the UCI Board.
During the fiscal year ended September 30, 1996, UCI adopted a
Non-Employee Director Stock Option Plan (the "1996 Non-Employee Plan"). The 1996
Non-Employee Plan provides for the granting of options to two non-employee
directors for the purchase of 10,000 shares of Common Stock at the fair market
value as of the date of grant. Under this plan, 5,000 options were issued to
Harold H. Adams, Jr. and 5,000 options were issued to Russell J. Froneberger.
These options are exercisable during the period commencing on March 20, 1999 and
ending on March 20, 2006. At September 30, 1997, there were stock options
outstanding under the 1996 Non-Employee Plan for 10,000 shares, none of which
were exercisable.
During the fiscal year ended September 30, 1997, UCI adopted a
Non-Employee Director Stock Option Plan (the "1997 Non-Employee Plan"). The 1997
Non-Employee Plan provides for the granting of options to four non-employee
directors for the purchase of 20,000 shares of Common Stock at the fair market
value as of the date of grant. Under this plan, 5,000 options were issued each
to Charles P. Cannon, Thomas G. Faulds, Ashby M. Jordan, M.D., and Charles M.
Potok. These options are exercisable during the period commencing on March 28,
2000 and ending on March 28, 2007. At September 30, 1997, there were stock
options outstanding under the 1997 Non-Employee Plan for 20,000 shares, none of
which were exercisable.
EMPLOYMENT CONTRACTS
Effective October 1, 1995, Dr. McFarland entered into a five-year
contract with UCI-SC that provides for annual compensation of $157,500, the use
of one automobile and an incentive bonus payable at the end of the fiscal year,
subject to the determination of the UCI Board and based upon net income and
gross revenue of UCI for the same year. Also, effective October 1, 1995, Dr.
McFarland entered into a five-year contract with DC-SC that provides for annual
compensation of $157,500.
Effective November 1, 1995, Dr. Stout entered into a five-year contract
with UCI-SC that provides for annual compensation of $50,000. Also, effective
November 1, 1995, Dr. Stout entered into a five-year contract with DC-SC that
provides for annual compensation of $160,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to UCI regarding
the beneficial ownership of Common Stock as of September 30, 1998. Information
is presented for (i) stockholders owning more than five percent of the
outstanding Common Stock, (ii) each director, director nominee and executive
officer
47
of UCI, individually, and (iii) all directors and executive officers of UCI, as
a group. The percentages are calculated based on 7,299,245 shares of Common
Stock outstanding on September 30, 1998.
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENTAGE
- ------------------------------ ---------------------- ----------
Blue Cross Blue Shield of South Carolina (2)........... 2,624,623 35.96 %
M.F. McFarland, III, M.D. (3).......................... 641,353 8.67
Harold H. Adams, Jr.................................... 2,500 *
Thomas G. Faulds....................................... -0- -0-
Russell J. Froneberger................................. 2,000 *
A. Wayne Johnson....................................... -0- -0-
Ashby M. Jordan, M.D................................... -0- -0-
John M. Little, Jr., M.D............................... -0- -0-
Charles M. Potok....................................... -0- -0-
D. Michael Stout, M.D. (4)............................. 319,436 4.34
Jerry F. Wells, Jr. (5)................................ 69,942 *
-------------- ------
All current directors and executive officers
as a group (9 persons)............................. 1,035,231 13.75 %
============== =======
- ----------------------
* Amount represents less than 1.0 percent.
(1) Beneficial ownership reflected in the table is determined in accordance
with the rules and regulations of the SEC and generally includes voting or
investment power with respect to securities. Shares of Common Stock
issuable upon the exercise of options currently exercisable or convertible,
or exercisable or convertible within 60 days, are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage ownership of any
other person. Except as otherwise specified, each of the stockholders named
in the table has indicated to UCI that such stockholder has sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by that stockholder.
(2) The business address of the named beneficial owner is I-20 at Alpine
Road, Columbia, SC 29219. The shares reflected in the table are held of
record by CHC (2,006,442 shares) and CP&C (618,181 shares), each of which
is a wholly-owned subsidiary of BCBS.
(3) The business address of the named beneficial owner is 1901 Main Street,
Suite 1200, Columbia, SC 29201. Shares reflected in the table include
102,225 shares issuable pursuant to currently exercisable stock options.
(4) Includes 53,276 shares issuable pursuant to currently exercisable stock
options.
(5) All shares are issuable pursuant to currently exercisable stock
options.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
AGREEMENTS WITH DC-SC AND THE MHC-PCS
FACILITIES AGREEMENT
Pursuant to a Facilities Agreement between UCI-SC and DC-SC (the
"Facilities Agreement"), UCI-SC supplies to DC-SC the facilities, equipment and
assets of the UCI Centers as well as such non-medical personnel as are
reasonably required by DC-SC in the operation of the UCI Centers. In exchange,
DC-SC provides the necessary staffing for the performance of medical services at
the UCI Centers, including a physician to serve as Executive Medical Director
having overall responsibility for the operations of the UCI Centers. From the
fees paid each month to DC-SC for services rendered at the UCI Centers, DC-SC
retains an amount equal to the payroll and related personnel costs of DC-SC for
physicians and other medical providers at the UCI Centers, as well as an amount
equal to the nominal expenses incurred by DC-SC to purchase certain narcotic
drugs required by law to be owned by DC-SC or its employee-physicians. The
balance of all fees and other revenues generated by DC-SC is paid to UCI-SC as
its management fee. Consequently, the calculation of the management fee paid by
DC-SC to UCI-SC does not differ if the DC-SC collections are generated by
DC-SC's physical therapy group, surgical group, orthopedic group or family
practice group. During the Company's fiscal years ended September 30, 1997,
1996, and 1995, DC-SC received an aggregate of approximately $27,925,000,
$23,254,000, and $17,987,000, respectively, in fees
48
prior to deduction by DC-SC of its payroll and other related deductible costs
covered under the Facilities Agreement. For accounting purposes, the operations
of DC-SC are combined with the operations of UCI and are reflected in the
consolidated financial statements of UCI. Pursuant to the employment agreement
between DC-SC and Dr. McFarland, Dr. McFarland serves as Executive Medical
Director of the UCI Centers, and is paid an annual salary for his services in
such position. Footnotes (3) and (4) of the Summary Compensation Table in this
Proxy Statement describe compensation paid to Dr. McFarland by DC-SC during the
fiscal years ended September 30, 1997, 1996 and 1995. Pursuant to the employment
agreement between DC-SC and Dr. Stout, Dr. Stout provides medical services to
DC-SC, and is paid an annual salary for such services. Footnotes (5) and (6) of
the Summary Compensation Table in this Proxy Statement describe compensation
paid to Dr. Stout by DC-SC during the fiscal years ended September 30, 1997,
1996 and 1995. In September 1996, the Facilities Agreement was renewed for an
additional fifteen-year term. In January 1995, the Facilities Agreement was
modified to provide UCI-SC with certain rights to terminate the Facilities
Agreement (a) upon the death of Dr. McFarland, (b) upon Dr. McFarland ceasing to
own, either directly or indirectly, a controlling interest in DC-SC, or (c) upon
Dr. McFarland becoming a "disqualified person" as defined by the South Carolina
Business Corporation Act of 1988, as amended. Dr. McFarland is the President,
sole director and sole owner of DC-SC.
To better comply with EITF 97-2, on August 11, 1998, UCI-SC and DC-SC
entered into that certain Administrative Services Agreement which terminates and
replaces in its entirety the Facilities Agreement. The calculation of the
management fee paid by DC-SC to UCI-SC does not differ from the calculation set
forth in the Facilities Agreement.
REFUND AGREEMENT
Pursuant to a Facilities Fee Refund Agreement (the "Refund Agreement")
entered into among UCI, UCI-SC and DC-SC, DC-SC was entitled to receive a refund
of a portion of the fees payable to UCI-SC under the Facilities Agreement with
respect to fourteen of the UCI Centers. The Refund Agreement was terminated
effective October 1, 1995. During UCI's fiscal years ended September 30, 1997
and 1996, UCI-SC made payments to DC-SC of $62,000 and $120,000, respectively,
against accumulated refunds payable. At September 30, 1997 and 1996, UCI-SC had
refunds payable to DC-SC of approximately $94,000 and $156,000, respectively.
MEDICAL CENTER LEASES
UCI-SC leases six medical center facilities from CHC and one medical center
facility from CP&C under operating leases with fifteen-year terms expiring in
2008, 2009 and 2010. The terms of these leases are believed to be no more or
less favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
Each of these leases has a five-year renewal option, and a rent guarantee by
DC-SC. One of the leases has a purchase option allowing UCI-SC to purchase the
center at fair market value after February 1, 1995. Total lease payments made by
UCI-SC under these leases during the fiscal years ended September 30, 1997 and
1996 were $319,730 and $306,178, respectively.
Several of the UCI Centers are leased or were leased from entities owned or
controlled by certain principal stockholders and/or members of UCI's management.
The terms of these leases are believed to be no more or less favorable to UCI-SC
than those that would have been obtainable through arm's-length negotiations
with unrelated third parties for similar arrangements.
The Doctor's Care Northeast facility is leased from a partnership in
which Dr. McFarland is a general partner. The lease was renewed in
October 1994 for a five-year term. The lease has two five-year renewal
options and provides UCI-SC with an option to purchase the facility at
its fair market value after October 1995. Total lease payments made by
UCI-SC under this lease during the fiscal years ended September 30, 1997
and 1996 were $45,600 and $45,600, respectively, plus utilities
and real estate taxes.
49
The Doctor's Care Lexington facility was leased from a general
partnership in which Dr. McFarland and Dr. Stout were general partners.
The Doctor's Care Lexington facility was sold in February 1996 to
unrelated third parties who lease it to UCI-SC. Total lease payments
made by UCI-SC to such general partnership under this lease during the
fiscal year ended September 30, 1996 were $14,125, plus utilities and
real estate taxes.
The Doctor's Care West Columbia and the Doctor's Care Beltline
facilities were leased from a general partnership in which Dr. McFarland
and Dr. Stout were general partners. Both of these centers' facilities
were sold in May 1996 to unrelated third parties who lease them to
UCI-SC. Total lease payments made by UCI-SC to such general partnership
under these two leases during the fiscal year ended September 30, 1996
were $46,516, plus utilities and real estate taxes. In connection with
its agreement with such general partnership to lease these two
facilities, UCI-SC guaranteed the lessor's mortgage debt relating to the
two facilities. At September 30, 1996, the outstanding balance of such
debt was zero.
The Doctor's Care Lugoff facility was leased directly from Dr.
McFarland. This facility was sold in May 1996 to an unrelated third
party who leases it to UCI-SC. Total lease payments made by UCI-SC to
Dr. McFarland under this lease during the fiscal year ended September
30, 1996 were $16,613, plus utilities and real estate taxes.
OTHER TRANSACTIONS WITH RELATED PARTIES
At August 20, 1998, CHC owned 2,006,442 shares of Common Stock and CP&C
owned 618,181 shares of Common Stock, which combine to approximately 35.96
percent of the outstanding Common Stock. Each of CHC and CP&C is a wholly-owned
subsidiary of BCBS. The following is a historical summary of purchases of Common
Stock by BCBS subsidiaries directly from UCI.
PRICE TOTAL
DATE BCBS NUMBER PER PURCHASE
PURCHASED SUBSIDIARY OF SHARES SHARE PRICE
------------ ------------ ----------- ---------- ------------
12/10/93 CHC 333,333 $1.50 $ 500,000
06/08/94 CHC 333,333 3.00 1,000,000
01/16/95 CHC 470,588 2.13 1,000,000
05/24/95 CHC 117,647 2.13 250,000
11/03/95 CHC 218,180 2.75 599,995
12/15/95 CHC 218,180 2.75 599,995
03/01/96 CHC 109,091 2.75 300,000
06/04/96 CP&C 218,181 2.75 599,998
06/23/97 CP&C 400,000 1.50 600,000
The Common Stock acquired by CHC and CP&C directly from UCI was purchased
pursuant to exemptions from the registration requirements of federal securities
laws available under Section 4(2) of the 1933 Act. Consequently, the ability of
the holders to resell such shares in the public market is subject to certain
limitations and conditions. The shares acquired by CHC and CP&C were purchased
at share prices below market value at the respective dates of purchase in part
as a consequence of the lower issuance costs incurred by UCI in the sale of
these unregistered securities and in part as consequence of the restricted
nature of the shares. CHC and CP&C have the right to require registration of the
stock under certain circumstances as described in the respective stock purchase
agreements. BCBS and its subsidiaries have the option to purchase as many shares
as may be necessary for BCBS and its subsidiaries to maintain ownership of 47
percent of the outstanding Common Stock in the event that UCI issues additional
stock to other parties (excluding shares issued to employees or directors of
UCI).
During the fiscal year ended September 30, 1994, UCI-SC entered into a
capital lease purchase agreement with BCBS for a new billing and accounts
receivable system, which includes computer equipment, for an aggregate purchase
price of $504,000. UCI-SC has the option to purchase the equipment at the end of
the lease term for $1. The lease obligation recorded at September 30, 1997 is
$340,916, which includes
50
lease addenda. The terms of the lease purchase agreement are believed to be no
more or less favorable to UCI-SC than the terms that would have been obtainable
through arm's-length negotiations with unrelated third parties for a similar
billing and accounts receivable system, which includes computer equipment.
During the fiscal year ended September 30, 1994, UCI-SC entered into an
agreement with CP&C pursuant to which UCI-SC, through DC-SC, acts as the primary
care provider for injured workers of firms carrying worker's compensation
insurance through CP&C. Additionally, during the fiscal year ended September 30,
1995, UCI-SC executed a $400,000 note payable to CP&C payable in monthly
installments of $4,546 (including 11 percent interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable. The terms of the
agreement with CP&C are believed to be no more or less favorable to UCI-SC than
those that would have been obtainable through arm's-length negotiations with
unrelated third parties for similar arrangements.
UCI-SC, through DC-SC, provides services to members of a health maintenance
organization operated by CHC who have selected DC-SC as their primary care
provider. The terms of the agreement with CHC are believed to be no more or less
favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
During the fiscal year ended September 30, 1996, BCBS provided a
non-interest bearing advance to UCI in the amount of $600,000. This advance was
paid in full in December 1996. The terms of this advance are believed to have
been no more or less favorable to UCI than those that would have been obtainable
through arm's-length negotiations with related third parties for similar
arrangements.
The employees of UCI and its subsidiaries are offered health, life, and
dental insurance coverage at group rates from BCBS and its subsidiaries. The
group rates offered to the employees of UCI and its subsidiaries are believed to
be no more or less favorable to UCI and its subsidiaries than those that would
have been obtainable through arm's-length negotiations with unrelated third
parties for similar services.
UCI and its subsidiaries contract with Adams and Associates for worker's
compensation, and professional liability insurance coverage, which in turn
contracts with CP&C to be the insurance carrier for the workers compensation
insurance coverage of UCI and its subsidiaries. Aggregate premiums paid during
the fiscal year ended September 30, 1997 in connection with such policies were
approximately $155,000. During the fiscal year ended September 30, 1996, Adams
and Associates provided short-term financing to UCI for approximately $17,000 in
workers compensation audit premiums, which was paid in full during the fiscal
year ended September 30, 1997. Harold H. Adams, Jr. is the President and owner
of Adams and Associates and is also a director of UCI. Effective November 1,
1997, UCI and its subsidiaries no longer contract through Adams and Associates
for any of their insurance coverage. Management of UCI believes that the terms
of its contracts with Adams and Associates were no more or less favorable to UCI
and its subsidiaries than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar services.
UCI contracts with Global Consulting, Inc. for certain financial and
marketing consulting services. Russell J. Froneberger is the President and owner
of Global Consulting, Inc. and is also a director of UCI whose term expires at
the forthcoming Annual Meeting. Mr. Froneberger is not standing for reelection
as a director at the Annual Meeting. Fees paid during the fiscal year ended
September 30, 1997 in connection with these services were approximately $96,000.
The terms of the contracts with Global Consulting, Inc. are believed to be no
more or less favorable to UCI than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar services.
51
ADDITIONAL INFORMATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject
to known and unknown risks and uncertainties. Forward-looking statements include
the information concerning possible or assumed future results of operations of
the combined company set forth under "Risk Factors" and "The Acquisition -
Description of the Acquisition - Reasons for the Acquisition" and "- Fairness
Opinion" and those preceded by, followed by or that include the words
"believes," "expects," "anticipates" or similar expressions. Such statements
reflect the current views of UCI and/or MHC with respect to future events. For
those statements as they relate to UCI only, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, to the extent provided by applicable law. This
safe harbor does not apply to forward-looking statements of MHC because MHC has
never registered its securities with the SEC. You should understand that the
important factors set forth below, in addition to those discussed elsewhere in
this document and in the documents which we incorporate by reference, could
affect the future results of the Company and could cause those results to differ
materially from those expressed or implied in our forward-looking statements.
Although UCI's management believes that their expectations of future performance
are based on reasonable assumptions within the bounds of their knowledge of
their business and operations, there can be no assurance that actual results
will not differ materially from their expectations. Factors which could cause
actual results to differ from expectations include, among other things, the
difficulty in controlling the Company's costs of providing healthcare and
administering its network of medical centers; the possible negative effects from
changes in reimbursement and capitation payment levels and payment practices by
insurance companies, healthcare plans, government payors and other payment
sources; the difficulty of attracting primary care physicians; the increasing
competition for patients among healthcare providers; possible government
regulations in multiple jurisdictions negatively impacting the existing
organizational structure of the Company; the possible negative effects of
prospective healthcare reform; the challenges and uncertainties in the
implementation of the Company's expansion and development strategy; the
dependence on key personnel; the ability to successfully integrate the
management structures of MHC and consolidate the operations of MHC with those of
the Company; and other factors described in this document and in other documents
filed by UCI with the SEC.
STOCKHOLDER PROPOSALS
Proposals of stockholders of UCI which are intended to be presented by
such stockholders at the next Annual Meeting of UCI stockholders must be
received by UCI on or before September 2, 1999 in order to be considered for
inclusion in such proxy statement and form of proxy.
OTHER MATTERS
The UCI Board knows of no other matters which are likely to be brought
before the Annual Meeting. If any matters are brought before the Annual Meeting,
the proxy agents named in the enclosed proxy will vote on such matters in
accordance with their best judgment.
ANNUAL AND QUARTERLY REPORTS
A copy of the Company's Annual Report on Form 10-KSB/A for the fiscal year
ended September 30, 1997, and a copy of the Company's Quarterly Report on Form
10-QSB/A for the quarter and nine-month period ended June 30, 1998, each of
which has been filed with the SEC, is included with the Company's 1997 Annual
Report to Stockholders which accompanies this Proxy Statement.
52
WHERE YOU CAN FIND MORE INFORMATION
UCI files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
"http://www.sec.gov." Reports, proxy statements and other information should
also be available for inspection at the offices of the NASD.
The SEC allows us to "incorporate by reference" information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information contained
directly in this Proxy Statement. This Proxy Statement incorporates by reference
the documents set forth below that we have previously filed with the SEC. These
documents contain important information about UCI and its finances.
UCI SEC Filings (File No. 0-13265) Period
- ---------------------------------- --------
Annual Report on Form 10-KSB/A..............Fiscal year ended September 30, 1997
Quarterly Reports on Form 10-QSB............Quarters ended December 31, 1997,
and Form 10-QSB/A......................March 31, 1998 and June 30, 1998
Current Reports on Form 8-K and Form 8-K/A..Filed October 14, 1997, October
15, 1997, November 5, 1997, November
13, 1997, November 19, 1997,
December 11, 1997, January 7, 1998,
February 17, 1998, March 11, 1998,
April 20, 1998, May 11, 1998, May
28, 1998, July 24, 1998, August 13,
1998, August 21, 1998, September 1,
1998, September 2, 1998, October
13, 1998 and December 7, 1998
A description of Common Stock
contained in UCI's Registration
Statement on Form 8-A.......................Dated March 6, 1985
Any statement in this document or in a document incorporated or deemed to
be incorporated by reference in this document shall be deemed to be modified or
superseded for purposes of this document to the extent that a statement
contained in this document or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this document modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this document, except as so modified or
superseded.
UCI has supplied all information contained or incorporated by reference in
this Proxy Statement relating to UCI. MHC has supplied all such information
relating to its operations.
If you are a stockholder, we may have already sent you some of the
documents incorporated by reference, but you can obtain any document
incorporated by reference through us, the SEC, or the SEC's Internet web site as
described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this Proxy Statement. Stockholders may obtain
documents incorporated by reference in this Proxy Statement by requesting them
in writing or by telephone to us at the following address:
UCI Medical Affiliates, Inc.
Investor Relations Department
1901 Main Street, Suite 1200
Columbia, South Carolina 29201
(803) 252-3661
53
If you would like to request documents from us, please do so by
January 13, 1999 to receive them before the Annual Meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS RELATING TO THE
ACQUISITION. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY
STATEMENT IS DATED DECEMBER 18, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THE PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS NOR THE
ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE ACQUISITION SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
54
APPENDIX A
February 9, 1998
The Board of Directors
UCI Medical Affiliates, Inc.
1901 Main Street, Suite 1200
Columbia, SC 29201
Members of the Board of Directors:
You have requested my opinion, as of this date, as to the fairness, from a
financial point of view, to UCI Medical Affiliates, Inc., a Delaware corporation
("UCI"), of the terms of the proposed transactions referred to below.
Pursuant to the proposed Acquisition Agreement and Plan of Reorganization
(the "Acquisition Agreement") dated as of the date hereof, to be entered among
UCI, UCI Medical Affiliates of Georgia, Inc. ("UCI-GA"), MainStreet Healthcare
Corporation ("MainStreet") and certain of its affiliated entities, the parties
thereto are to effect a business combination transaction pursuant to which, on
the terms and subject to the conditions set forth in the Acquisition Agreement
(the "Proposed Transactions"): (i) UCI-GA and certain of its affiliates will
acquire from MainStreet and its affiliates certain assets and liabilities for a
purchase price of $8,870,000 consisting of a combination of cash, common stock
of UCI and assumption of certain liabilities. I understand that all approvals
required for the consummation of the Proposed Transactions have been or, prior
to consummation of the Proposed Transactions will be, obtained.
In arriving at my opinion, I have among other things:
(i) reviewed the terms and conditions of the Proposed Transactions,
including the draft Acquisition Agreement and the draft
agreements ancillary thereto;
(ii) analyzed certain financial aspects of the Proposed Transactions
and consideration to be paid by UCI and UCI-GA in connection
with the Proposed Transactions;
(iii) reviewed and analyzed publicly available historical business
and financial information relating to UCI and its affiliated
entities, as presented in documents filed with the Securities
and Exchange Commission and otherwise provided to me by UCI, as
well as historical financial information relating to MainStreet
and its affiliated entities as provided to me by UCI and
MainStreet;
(iv) analyzed selected summary non-public financial and operating
results of operations of UCI (consolidated) and MainStreet;
(v) analyzed the financial conditions and prospects of UCI and
MainStreet;
(vi) reviewed and analyzed public information, including certain
stock market data and financial information relating to
selected companies with operating statistics and dynamics
similar to those of UCI and MainStreet;
(vii) reviewed the trading history of UCI's common stock, including
such stock's performance in comparison to market indices and to
selected companies with operating statistics and dynamics
similar to those of UCI;
(viii) conferred with the management teams of each of UCI
and MainStreet;
A-1
The Board of Directors
UCI Medical Affiliates, Inc.
February 9, 1998
Page 2
(ix) reviewed public financial and transaction information relating
to premiums and multiples paid in certain merger and
acquisition transactions similar to the Proposed Transactions
or relevant portions thereof; and
(x) conducted such other financial analyses and investigations as I
deemed necessary or appropriate for the purposes of the opinion
expressed herein.
In rendering my opinion, I have assumed and relied upon the accuracy and
completeness of the financial and other information respecting UCI and
MainStreet and any other information provided to me by the parties, and we have
not assumed any responsibility for any independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of UCI and MainStreet. With respect to selected summary financial
and operating results referred to above, I have assumed they were reasonably
prepared on a basis reflecting the best currently available information and the
good faith estimates and judgements of the management of UCI as to the future
financial performance of UCI and the management of MainStreet as to the future
financial performance of MainStreet.
In addition to my review and analysis of the specific information set
forth above, my opinion herein reflects and gives effect to my assessment of
general economic, monetary and market conditions existing as of the date of this
letter as they may affect the business and prospects of UCI and MainStreet.
My engagement and the opinion expressed herein are for the benefit of the
Board of Directors of UCI in its evaluation of the Proposed Transactions and may
not be used for any other purpose without my prior written consent, except that
this opinion may be included in its entirety and referred to in any filing made
by UCI with the Securities and Exchange Commission with respect to the Proposed
Transactions. Furthermore, the opinion rendered herein does not constitute a
recommendation that UCI pursue the Proposed Transactions over any other
alternative transactions which may be available to UCI or that any stockholder
of UCI vote to approve the Proposed Transactions.
Based on and subject to the foregoing, I am of the opinion that, as of the
date of this letter, the terms of the Proposed Transactions are fair to UCI from
a financial point of view.
Very truly yours,
/s/ Oliver G. Wood, Jr.
Oliver G. Wood, Jr.
A-2
APPENDIX B
PROPOSED AMENDMENTS TO THE UCI CERTIFICATE
AUTHORIZED CAPITAL STOCK PROPOSAL
The Authorized Stock Proposal provides that the UCI Certificate will be
amended by restating the first paragraph of Article Fourth to read in its
entirety as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is as follows: Fifty Million (50,000,000) shares of
Common Stock, having a par value of five cents ($0.05) per share, amounting in
the aggregate to Two Million Five Hundred Thousand Dollars ($2,500,000) and Ten
Million (10,000,000) shares of Preferred Stock having a par value of one cent
($0.01) per share, amounting in the aggregate to One Hundred Thousand Dollars
($100,000)."
REVERSE STOCK SPLIT PROPOSAL
The Reverse Stock Split Proposal provides that if the Authorized Capital
Stock Proposal is approved by the UCI stockholders, the UCI Certificate will be
amended by restating Article Seventh to read in its entirety as follows:
"SEVENTH: Pursuant to a 1 for 5 reverse stock split, the amount of the
total authorized Common Stock of this corporation is decreased and the number
and par value are by these means changed so that the authorized Common Stock of
this corporation, which, prior to the filing of this amendment, was Fifty
Million (50,000,000) shares of Common Stock, having a par value of five cents
($0.05) per share, amounting in the aggregate to Two Million Five Hundred
Thousand Dollars ($2,500,000), shall be Ten Million (10,000,000) shares of
Common Stock, having a par value of twenty-five cents ($0.25) per share,
amounting in the aggregate to Two Million Five Hundred Thousand Dollars
($2,500,000).
At the time this amendment becomes effective, each five (5) prior issued
and outstanding shares of the Common Stock of this corporation, par value five
cents ($0.05) per share, shall thereby and thereupon be combined into one (1)
share of validly issued, fully paid and nonassessable shares of Common Stock of
this corporation, par value twenty-five cents ($0.25) per share. Each person at
that time holding of record any issued and outstanding shares of Common Stock of
this corporation shall receive upon surrender thereof to the corporation's
authorized agency a stock certificate or certificates to evidence and represent
the number of shares of post reverse stock split Common Stock of this
corporation to which such person is entitled after this reverse split; provided,
however, that this corporation shall not issue fractional shares of Common Stock
in connection with this reverse stock split, but, in lieu thereof, this
corporation shall make a cash payment at the rate equal to the fraction of the
share of Common Stock that would otherwise be issuable, multiplied by the
closing bid price for the Common Stock of this corporation as quoted by the
Nasdaq Stock Market on the trading day immediately prior to the date this
amendment is filed with the Delaware Secretary of State (or at the rate of One
and No/100th Dollar ($1.00) per share in the event the Common Stock of this
corporation is not listed for trading by the Nasdaq Stock Market on the trading
day immediately proceeding the date of filing of this amendment) upon surrender
to the corporation's authorized agent of certificates representing shares as to
which a fractional share would otherwise be issuable. The ownership of such
fractional interests shall not entitle the holder thereof to any voting,
dividend or other right except the right to receive payment therefor as
described above."
The Reverse Stock Split Proposal also provides that if the Authorized
Capital Stock Proposal is not approved by the UCI stockholders, the UCI
Certificate will be amended as set forth in the preceding paragraphs, except
that the first paragraph of Article Seventh shall be restated to read in its
entirety as follows:
"SEVENTH: Pursuant to a 1 for 5 reverse stock split, the amount of the
total authorized Common Stock of this corporation is decreased and the number
and par value are by these means changed so that the
B-1
authorized Common Stock of this corporation, which, prior to the filing of this
amendment, was Ten Million (10,000,000) shares of Common Stock, having a par
value of five cents ($0.05) per share, amounting in the aggregate to Five
Hundred Thousand Dollars ($500,000), shall be Two Million (2,000,000) shares of
Common Stock, having a par value of twenty-five cents ($0.25) per share,
amounting in the aggregate to Five Hundred Thousand Dollars ($500,000); provided
however, immediately after the effectuation of such reverse stock split, the
authorized Common Stock of this corporation shall be increased so that the
authorized Common Stock of this corporation shall be Ten Million (10,000,000)
shares of Common Stock, having a par value of twenty-five cents ($0.25) per
share, amounting in the aggregate to Two Million Five Hundred Thousand Dollars
($2,500,000)."
B-2
APPENDIX C
INDEX TO FINANCIAL STATEMENTS OF
MAINSTREET HEALTHCARE CORPORATION
Page
Audited Consolidated Financial Statements as of March 31, 1998 and 1997 and
for the fiscal years ended March 31, 1998 and 1997
Independent Auditors' Report........................................ C-2
Consolidated Balance Sheets......................................... C-3
Consolidated Statements of Operations............................... C-5
Consolidated Statements of Stockholders' Deficit.................... C-6
Consolidated Statements of Cash Flows............................... C-7
Notes to Consolidated Financial Statements.......................... C-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... C-19
C-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MainStreet Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of MainStreet
Healthcare Corporation as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MainStreet
Healthcare Corporation at March 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that MainStreet Healthcare Corporation will continue as a going concern. As
discussed in note 1(b) to the consolidated financial statements, MainStreet
Healthcare Corporation has suffered recurring losses and has a working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 1(b) and note 13. The accompanying consolidated financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
/S/ KPMG Peat Marwick, LLP
June 2, 1998, except as to the third
paragraph of note 7, which is
as of July 6,1998
C-2
MAINSTREET HEALTHCARE CORPORATION
Consolidated Balance Sheets
March 31, 1998 and 1997
Assets 1998 1997
------ ---- ----
Current assets:
Cash $ 34,231 1,950
Accounts receivable, less allowances for
contractual adjustments and uncollectible
accounts of $1,216,718 and $1,258,571 in
1998 and 1997, respectively 1,410,219 1,110,019
Redeemable preferred stock subscriptions
receivable (note 4) - 750,000
Other receivables 68,222 110,658
Prepaid and other 83,367 109,380
-------- --------
Total current assets 1,596,039 2,082,007
Property and equipment, net (notes 3 and 5) 1,520,503 1,422,594
Intangible assets, net (notes 3 and 6) 1,549,861 1,968,252
Other assets 39,859 323,023
--------- ---------
Total assets $ 4,706,262 5,795,876
========= =========
C-3
Liabilities and Stockholders' Deficit 1998 1997
------------------------------------- ---- ----
Current liabilities:
Accounts payable $ 1,136,606 695,411
Line of credit (note 7) 574,327 -
Accrued expenses and liabilities 1,928,547 615,237
Current portion of notes payable (notes 3 and 8) 477,095 357,053
Current portion of capital lease obligation (note 8) 48,693 3,401
Stockholder loan (note 9) 94,174 18,252
-------- --------
Total current liabilities 4,259,442 1,689,354
--------- -----------
Long-term liabilities:
Notes payable, less current portion (notes 3 and 8) 368,704 751,261
Capital lease obligation, less current portion (note 8)
74,380 14,183
Total long-term liabilities -------- --------
443,084 765,444
-------- --------
Total liabilities
4,702,526 2,454,798
Preferred stock, $.01 par value; 11,500 and 14,000 shares
authorized, no shares issued and outstanding at March 31,
1998 and 1997, respectively (note 4) - -
5% cumulative redeemable preferred stock, $1,000 redemption
value; 6,000 shares authorized, 4,367 shares issued
and outstanding at March 31, 1998 and 3,367 shares issued
and outstanding, 750 shares subscribed at March 31, 1997
(notes 4, 9, and 12) 4,367,000 4,117,000
10% cumulative redeemable preferred stock, $1,000 redemption
value; 2,500 and -0- shares authorized, 412 and -0- shares issued
and outstanding at March 31, 1998 and 1997, respectively
(notes 4, 9, and 12) 412,000 -
Class A nonvoting convertible common stock, $.01 par value; 5,000,000 shares
authorized, 248,000 and 268,000 shares issued and outstanding at March 31,
1998 and 1997,
respectively (notes 3 and 4) 816,007 738,979
Stockholders' deficit:
Class B common stock, $.01 par value; 20,000,000 shares authorized, 6,460,452
and 5,875,000 shares issued and outstanding at March 31, 1998 and 1997, 64,605 58,750
respectively (notes 4, 9, and 12) 42,516 38,586
Additional paid-in capital (5,698,392) (1,612,237)
Accumulated deficit --------- ---------
(5,591,271) (1,514,901)
Total stockholders' deficit --------- ---------
$ 4,706,262 5,795,876
Total liabilities and stockholders' deficit ========= =========
See accompanying notes to consolidated financial statements.
C-4
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statements of Operations
For the Years ended March 31, 1998 and 1997
1998 1997
Net patient service revenue $6,436,950 3,665,982
--------- ---------
Operating expenses:
Cost of affiliated physician services 3,082,389 1,689,235
Clinic salaries, wages, and benefits 2,404,156 1,188,415
Clinic rent and lease expense (notes 8 and 9) 566,245 306,571
Clinic supplies 784,825 317,417
Other clinic costs 788,919 371,001
General corporate expenses (note 9) 1,655,974 587,404
Depreciation and amortization (notes 5 and 6) 466,121 217,029
Clinic start-up expenses - 307,419
-------- --------
Total expenses 9,748,629 4,984,491
------------- -------------
Operating loss (3,311,679) (1,318,509)
Interest expense, net (note 8) 364,292 161,774
Deferred financing costs (note 2(f)) 273,224 -
Loss on clinic disposals (note 3) - 88,990
------------ ----------
Loss before income taxes (3,949,195) (1,569,273)
Income taxes (note 10) - -
----------- ----------
Net loss $ (3,949,195) (1,569,273)
=========== ==========
See accompanying notes to consolidated financial statements.
C-5
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statements of Stockholders' Deficit
For the Years ended March 31, 1998 and 1997
Class B Additional Total
common stock paid-in Accumulated stockholders'
------------------------------
Shares Amount capital deficit deficit
Balance at April 1, 1996 --- $ --- --- --- ---
Issuance of common stock
(notes 4 and 9) 5,875,000 58,750 38,586 --- 97,336
Accretion of difference
between fair value and
repurchase value of stock
issued in connection with
acquisition (note 3) --- --- --- (42,964) (42,964)
Net loss --- --- --- (1,569,273) (1,569,273)
-------------- -------------- --------------- ------------------ --------------------
Balance at March 31, 1997 5,875,000 58,750 38,586 (1,612,237) (1,514,901)
Issuance of common stock
(notes 4 and 9) 585,452 5,855 3,930 --- 9,785
Accretion of difference
between fair value
and repurchase value of
stock issued
in connection with
acquisition (note 3) 0 0 0 (136,960) (136,960)
Net loss 0 0 0 (3,949,195) (3,949,195)
============== ============== =============== ================== ====================
Balance at March 31, 1998 6,460,452 $ 64,605 42,516 (5,698,392) (5,591,271)
============== ============== =============== ================== ====================
See accompanying notes to consolidated financial statements.
C-6
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statements of Cash Flows
For the Years ended March 31, 1998 and 1997
1998 1997
Operating activities:
Net loss $(3,949,195) (1,569,273)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 466,121 217,029
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (320,013) (517,720)
Other receivables 42,436 (110,658)
Prepaid expenses and other assets (75,061) (64,010)
Accounts payable 441,195 580,688
Other accrued expenses and liabilities 1,410,974 615,237
Deferred financing costs 273,224 -
-------- --------
Net cash used by operating activities ( 1,710,319) (848,707)
------------ --------
Investing activities:
Acquisitions of businesses, net of cash acquired - (1,226,480)
Purchases of property and equipment (236,730) (631,279)
-------- -----------
Net cash used by investment activities (236,730) (1,857,759)
-------- -----------
Financing activities:
Net proceeds from issuance of preferred stock 1,298,000 2,071,607
Proceeds from shareholder loans 192,500 1,370,300
Proceeds from issuance of common stock 7,207 65,810
Net borrowings under capital lease obligations 105,489 17,584
Net borrowings from line of credit 574,327 -
Repayment of notes payable (198,193) (423,363)
Repayment of shareholder loans - (393,522)
--------- ----------
Net cash provided by financing activities 1,979,330 2,708,416
--------------------------
Net increase in cash 32,281 1,950
Cash at beginning of period 1,950 -
--------- --------
Cash at end of period $ 34,231 1,950
======== ========
Supplemental disclosure of cash flow
information cash paid during the period for:
Interest $ 117,077 55,476
========== =======
Income taxes $ - -
======== ========
See accompanying notes to consolidated financial statements.
C-7
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(1) Organization and Basis of Presentation
(a) Description of Business
MainStreet Healthcare Corporation ("the Company") was incorporated
on February 6, 1996 and commenced operations on April 1, 1996. The Company
was organized to purchase general practitioner outpatient clinics in
Georgia and Tennessee. After purchasing a clinic, the Company focuses on
centralizing fixed costs and reducing the overall overhead of each
outpatient clinic in order to maximize income and cash flow. From April 1,
1996 to March 31, 1998, the Company has acquired 14 primary care clinics.
(b) Basis of Presentation
The consolidated financial statements have been prepared on the
accrual basis of accounting and include the accounts of the Company and
the affiliated professional corporations ("Professional Corporations").
Through the initial management services agreements between the Company and
the Professional Corporations which contain fifty-year terms, the Company
has assumed full responsibility for the operating expenses in return for
the assignment of the revenue of the Professional Corporations.
The Company has perpetual, unilateral control over the assets and
operations of the Professional Corporations, and notwithstanding the lack
of technical majority ownership of the stock of such entities,
consolidation of the various Professional Corporations is necessary to
present fairly the financial position and results of operations of the
Company because control exists by means other than ownership of stock.
Control by the Company is perpetual rather than temporary because (i) the
length of the original terms of the agreements, (ii) the successive
extension periods provided by the agreements, (iii) the continuing
investment of capital by the Company, (iv) the employment of the
nonphysician personnel, and (v) the nature of the services provided to the
Professional Corporations by the Company. All intercompany accounts and
transactions have been eliminated during consolidation.
The Company has experienced recurring losses of approximately
$5,700,000 since its inception and has a net working capital deficiency of
approximately $2,700,000 at March 31, 1998. In addition, the liabilities
of the Company, including preferred stock and Class A common stock,
exceeded its assets by approximately $5,600,000. Effective May 1, 1998,
the Company sold substantially all of its assets for which the ultimate
proceeds will not be determined until the stock to be received is sold
(note 13). The Company is currently negotiating with its creditors and
preferred and Class A common shareholders to satisfy its debt obligations.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
C-8
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
(a) Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives
of the assets.
Equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or
estimated useful life of the assets.
(b) Intangible Assets
(1) Noncompete Agreements
In connection with certain clinic acquisitions, the Company
entered into noncompete agreements with physicians. Such agreements
are being amortized using the straight-line method over the terms of
the agreements, generally three to five years.
(2) Excess of Cost
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on the straight-line
method over the expected periods to be benefited, generally fifteen
years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The assessment
of recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved. In management's estimation,
the remaining amount of goodwill has continuing value.
(c) Net Revenue
Patient revenue is recorded at established rates reduced by
allowances for doubtful accounts and contractual adjustments. Contractual
adjustments arise due to the terms of certain reimbursement and managed
care contracts. Such adjustments represent the difference between charges
at established rates and estimated recoverable amounts and are recognized
in the period the services are rendered. Any differences between estimated
contractual adjustments and actual final settlements under reimbursement
contracts are reported as contractual adjustments in the year final
settlements are made.
(d) Income Taxes
The Company accounts for income taxes using the asset and liability
method of Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences
C-9
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
attributable to differences between financial statement carrying amounts
of existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Prior to the merger of MainStreet Georgia with and into MainStreet
Delaware, as discussed in note 4, the Company was taxed as an S
Corporation under the Internal Revenue Code. As a result, the Company was
taxed in a manner similar to a partnership for the period prior to
December 9, 1997, and has not provided any federal or state income taxes
as the results of operations were passed through to, and the related
income taxes became the individual responsibility of the Company's
shareholders.
(e) Impairment of Long-Lived Assets
Financial Accounting Standards No. 121 ("SFAS No. 121"), ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF, requires the Company to review for the impairment of
long-lived assets and certain identifiable intangibles to be held and used
by the Company whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
The statement also addresses the accounting for long-lived assets
that are expected to be disposed. SFAS No. 121 is applicable for most
long-lived assets, identifiable intangibles, and goodwill related to those
assets. Management has determined that long-lived assets are fairly stated
in the accompanying consolidated balance sheets.
(f) Redeemable Preferred Stock Offering Costs
Costs associated with the issuance of redeemable preferred stock
have been capitalized and are being amortized using a straight-line method
over five years and are included in other assets in the accompanying 1997
consolidated balance sheet. During 1998, the unamortized portion of these
costs was written off.
(g) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Reclassifications
Certain reclassifications have been made in the 1997 consolidated
financial statements to conform with the presentation in the 1998
consolidated financial statements.
C-10
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(3) Clinic Acquisitions and Closures
Since its inception, the Company has acquired, through its wholly owned
subsidiaries, certain operating assets of 14 primary care physician practices.
A summary of the 14 primary care physician practice acquisitions is as
follows:
Acquired practices Location Date acquired
Dr. Pamela Erdman, DO Tucker, GA April 1996
Tucker Eye, Ear, Nose, Throat Tucker, GA April 1996
Family Care Associates Covington, GA April 1996
Mountain East Family Care Stone Mtn, GA May 1996
Lawrenceville Family Care Lawrenceville, GA June 1996
Dr. Frank Corker, MD Valdosta, GA August 1996
Promptcare, Inc. Knoxville, TN November 1996
Dr. Dennis Thomas, MD Adel, GA December 1996
Gwinnett Family Medicine Snellville, GA December 1996
Salem Gate Family Medicine Conyers, GA December 1996
Dr. I. Oliver, MD Austell, GA December 1996
Occupational Medicine Macon, GA January 1997
Park Central Family Medicine Decatur, GA February 1997
Dr. Lanier L. Allen, MD Thomaston, GA May 1997
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets acquired and the liabilities assumed based upon their fair values at the
dates of acquisition. In connection with these acquisitions, the Company issued
268,000 shares of Class A common stock in MainStreet Healthcare Corporation in
1997. The Company also entered into stock repurchase agreements with the selling
physicians whereby in the event there has not been an initial public stock
offering, or a sale of substantially all of the Company's assets, or a change in
control of the Company's voting stock which would produce for the Class A
shareholders a value of $5 per share, the shareholders could compel the Company
to purchase the stock for $5 a share at a predetermined future date (the
"repurchase date"). The Company recorded the stock by discounting the $5 per
share price from the repurchase date using a risk-based interest rate of 15%.
The difference between the recorded value and the maximum repurchase value of
its stock issued in connection with these acquisitions was $643,395, which is
being accreted over the period from the date of issuance to the repurchase dates
through periodic charges to accumulated deficit. Effective May 1, 1998, the
Company sold substantially all of the assets of the Company (see note 13). The
Company is in the process of negotiating settlements with each Class A
shareholder to satisfy these obligations. The ultimate settlement amount has not
been determined. The Company also issued $71,876 and $1,531,677 in notes payable
in 1998 and 1997, respectively. The excess of the purchase price over the fair
values of the net assets acquired was $29,612 and $1,813,179 in 1998 and 1997,
respectively, and has been recorded as goodwill and is being amortized using a
straight-line method over 15 years. The composition of acquisition of
businesses, net of cash acquired, is set forth below:
C-11
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
1998 1997
Working capital, other than cash
Property and equipment $ 12,264 477,577
Noncompete agreements 30,000 862,916
Excess of costs over fair value - 300,500
of assets acquired
Less: 29,612 1,813,179
Value of stock issued
Value of notes payable issued - (696,015)
(71,876) (1,531,677)
Cash purchase price, net of cash acquired $ - 1,226,480
==== =========
The operating results of the acquired clinics have been included in the
consolidated statements of operations from the respective dates of acquisition.
During 1998, the Company closed three physician clinics resulting in
losses of $88,990 which were accrued for at March 31, 1997. In connection with
the closure of the physician clinics, 28,000 shares of Class A common stock in
the Company and $50,000 in notes payable were canceled.
During 1998, in consideration for a release of a covenant not to compete, a
physician canceled $94,872 in notes payable which was used to reduce goodwill.
The Company then wrote off the remaining unamortized noncompete agreement of
$8,334.
(4) Reorganization
MainStreet Healthcare Corporation (MainStreet Georgia), an S Corporation,
was organized on February 6, 1996 as a Georgia Corporation and was authorized
10,000,000 shares of no par common stock of which 5,375,000 shares were issued.
On December 4, 1996, MainStreet Healthcare Corporation (MainStreet
Delaware), a C Corporation, was incorporated and was authorized 10,000,000
shares of no par common stock. Effective December 9, 1996, the shareholders of
MainStreet Georgia exchanged their shares for equal shares in MainStreet
Delaware pursuant to a merger of MainStreet Georgia with and into MainStreet
Delaware.
On December 11, 1996, MainStreet Delaware amended and restated the
Certificate of Incorporation in order to give MainStreet Delaware the authority
to issue preferred stock and common stock as follows:
(a) 20,000 shares of preferred stock, par value $.01 per share. MainStreet
Delaware's Board of Directors has the authority to fix the terms of the
preferred stock. These shares were subsequently used to issue five and ten
percent cumulative redeemable preferred stock in MainStreet Delaware
during 1998 and 1997.
(b)5,000,000 shares of Class A non-voting convertible common stock, par
value $.01 per share. One share of Class A non-voting is convertible
upon: (i) a qualified public offering; (ii) a sale of substantially all
of the assets; or (iii) a sale of a majority of the Class B common stock,
into one fully paid and non-assessable share of Class B common stock. On
May 1, 1998, substantially all the assets of the Company were sold. The
Company is negotiating with all Class A shareholders to either effect the
conversion or enter into a settlement agreement (note 13).
C-12
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(c)20,000,000 shares of Class B common stock, par value $.01 per share.
The Class A and Class B common stocks are identical, except with respect
to voting rights, where the Class A shares have no voting rights.
Effective December 12, 1996, MainStreet Delaware entered into a
recapitalization agreement with its shareholders. The shareholders exchanged all
of the 5,375,000 outstanding shares of no par common stock and $964,336 of debt
owed them by MainStreet Delaware for 2,350,000 shares of Class B common stock
and 927 shares of five percent cumulative redeemable preferred stock.
In addition, Penman Private Equity and Mezzanine Fund, L.P., (Penman)
purchased 3,525,000 shares of Class B common stock for $60,000 and 2,440 shares
of five percent cumulative redeemable preferred stock in MainStreet Delaware for
$2,071,607, net of offering expenses of $368,393.
On March 21, 1997, Penman subscribed to 750 shares of the five percent
cumulative redeemable preferred stock for $750,000. On April 8, 1997, the
Company received $750,000 for the subscribed preferred stock.
In 1998, an additional 423,458 shares of Class B common stock, 250 shares
of five percent cumulative redeemable preferred stock, and 298 shares of ten
percent cumulative redeemable preferred stock in the Company were issued to
Penman for $555,207. In addition, a shareholder of the Company exchanged
$116,578 of debt owed by the Company to the shareholder for 161,994 shares of
Class B common stock and 114 shares of ten percent cumulative redeemable
preferred stock in the Company.
(5) Property and Equipment
Property and equipment consists of:
1998 1997
Land $ 104,600 104,600
Buildings and improvements 426,494 406,635
Furniture and fixtures 181,946 181,621
Clinic equipment 774,166 559,451
Office equipment 218,048 193,843
Leasehold improvements 50,143 48,046
-------- --------
1,755,397 1,494,196
Accumulated depreciation and amortization (234,894) (71,602)
---------- ----------
$1,520,503 1,422,594
=========== =========
C-13
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(6) Intangible Assets
Intangible assets consists of:
1998 1997
Excess of cost over fair value of
assets acquired $ 1,586,601 1,813,179
Noncompete agreements 275,500 300,500
Less accumulated amortization
and amounts written-off (312,240) (145,427)
$ 1,549,861 1,968,252
========= =========
(7) Line of Credit
On October 14, 1997, the Company entered into a loan and subservicing
agreement (the "Loan Agreement") with National Century Financial Enterprises
(NCFE) whereby the Company is allowed to borrow against its accounts receivable.
At March 31, 1998, the Company had outstanding borrowings under this Loan
Agreement aggregating $574,327, bearing interest at 13% and collateralized by
gross accounts receivable aggregating $1,895,388.
Pursuant to the Acquisition Agreement and Plan of Reorganization entered
into between UCI Medical Affiliates Inc. (UCI) and the Company, UCI purchased
the accounts receivable and assumed the liability for the outstanding borrowings
(see note 13).
The Loan Agreement contained certain terms and financial covenants for
which the Company was not in compliance at March 31, 1998. In a letter dated May
1, 1998, NCFE acknowledged that the remedies available to NCFE should the
Company be in default of the terms of the Loan Agreement, would not be pursued
by NCFE so long as UCI satisfied the outstanding loan balance on or before May
31, 1998. UCI did not pay off the loan by May 31, 1998 which subsequently put
the Company in default. On July 6, 1998, the loan was paid.
(8) Long-Term Debt and Leases
Long-term debt and capital leases consist of:
1998 1997
Notes payable to physician groups with interest
rates ranging from 7% to 10.5%, with payments
due at varying intervals through March 1, 2006 $ 845,799 1,108,314
Capital leases 123,073 17,584
------- ---------
968,872 1,125,898
Less amounts due within one year 525,788 360,454
--------- -----------
$ 443,084 765,444
======= ==========
C-14
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
The following is a schedule of principal maturities of long-term debt,
including capital leases, as of March 31, 1998.
1999 $ 525,788
2000 174,171
2001 52,503
2002 47,982
2003 35,466
Thereafter 132,962
-------
Total $ 968,872
=======
CAPITAL LEASES: The Company is the lessee of equipment under a
capital lease which expires during the next ten years. The related
equipment is being amortized over ten years and the related
amortization expense is included with depreciation and amortization
expense in the consolidated statement of operations.
The following is a schedule of future minimum lease payments under the
capital leases together with the present value of the net minimum lease payments
as of March 31, 1998.
1999 $ 60,055
2000 47,055
2001 22,648
2002 13,908
2003 1,159
--------
Total minimum lease payments 144,825
Less amounts representing interest 21,752
Obligation under capital leases 123,073
Less current portion of capital lease obligations 48,693
----------
Long-term obligations under capital leases $ 74,380
============
Capitalized equipment leases included in equipment were 169,007 and
$18,600 at March 31, 1998 and 1997, respectively. Imputed interest rates ranged
from 6.20% to 16.45% at March 31, 1998 and 1997, respectively.
OPERATING LEASES: Operating leases generally consist of short-term lease
agreements for professional office space where the medical practices are
located. These leases generally have five-year terms with renewal options. Lease
expense of approximately $565,000 and $250,000 for 1998 and 1997, respectively,
consists of corporate office space, corporate equipment and medical office
space, and equipment for the operating practices.
The following is a schedule of future minimum lease payments under
noncancelable operating leases as of March 31, 1998.
C-15
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
1999 $ 515,583
2000 458,279
2001 423,524
2002 266,906
2003 82,732
---------
$ 1,747,024
=========
(9) Related Party Transactions
During 1998, Penman and the Chief Executive Officer made loans to the
Company of $42,500 and $12,500, respectively. The Chief Executive Officer also
made an additional loan in lieu of $137,500 in salary, of which $114,000 was
converted into ten percent cumulative redeemable preferred stock and $2,578 was
converted to Class B common stock. There were no cash repayments made to the
stockholders during 1998.
In 1997, the officers of the Company made loans to finance the Company's
operations in the amounts of $1,376,110, of which $927,000 was converted into
five percent cumulative redeemable preferred stock; $37,336 was converted into
Class B common stock; $393,522 was repaid during the year; and the remainder of
$18,252 is outstanding at March 31, 1998 and 1997.
During the year ended March 31, 1998 and the period ended March 31, 1997,
the Company made payments of $21,624 and $14,270, respectively, to related
parties for rent expense in connection with the clinic facilities. Also, the
Company made principal and interest payments of $9,000 and $423,363,
respectively, on behalf of the Chief Executive and Operations Officers of the
Company for the corporate office location.
In the process of acquiring the physician clinic groups during 1997, the
Company paid $47,650 to a consultant who became an officer of the Company. The
Company did not make any similar payments in 1998.
(10) Income Taxes
Because of operating losses, the Company has not provided any income tax
expense for the year ended March 31, 1998 and the period ended March 31, 1997.
The Company has operating loss carryforwards, which may be used to reduce future
taxable income, of approximately $3,296,000 and $280,000 at March 31, 1998 and
1997, respectively, which expire beginning in 2013.
The income tax recognition of temporary differences originating before the
Company became a C Corporation will reverse. Accordingly, an income tax
liability of $101,500 was recorded as of the date the Company became a C
Corporation.
Deferred income taxes determined in accordance with Statement 109 reflect
the net tax effects of (a) temporary differences between carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes and (b) operating loss and tax credit carryforwards. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred
C-16
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Due to
the uncertainty of future realization, the Company's deferred tax assets are
subject to a valuation allowance that results in the recognition of no deferred
tax asset at March 31, 1998 and 1997. The increase in the valuation allowance of
approximately $1,413,000 during 1998 was equal to the increase in the deferred
asset.
The tax effects of significant items comprising the Company's deferred
income taxes for March 31, 1998 and 1997 are as follows:
1998 1997
Deferred tax assets:
Accrual to cash $ 31,300 62,600
Net operating loss carryforwards 1,252,600 106,400
Allowance for doubtful accounts 438,800 144,400
Intangible assets 35,800 15,500
Accrued expenses 64,500 33,800
-------- -------
1,823,000 362,700
Less valuation allowance (1,731,700) (318,600)
--------- -------
Net deferred tax assets 91,300 44,100
Deferred tax liabilities - depreciation (91,300) (44,100)
-------- -------
Net deferred taxes $ - -
======== =======
The significant components of the deferred income tax expense (benefit)
for the year ended March 31, 1998 and the period ended March 31, 1997 are as
follows:
1998 1997
Deferred income tax benefit $ 1,413,100 420,100
Change in tax status from S Corporation
to C Corporation - (101,500)
Increase in valuation allowance (1,413,100) (318,600)
----------- ---------
Deferred income tax expense $ - -
======= =======
(11) Contingencies
In addition to the general liability and malpractice insurance carried by
the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims-made basis. To the extent
that any claims-made coverage is not renewed or replaced with equivalent
insurance, claims based on occurrences during the term of the coverage, but
reported subsequently, would be uninsured. In connection with the sale of
substantially all the assets of the Company, the Company did not extend its
medical malpractice beyond May 1, 1998. However, general liability will be
extended through May 1, 1999.
C-17
(12) Redeemable Preferred Stock
The five and ten percent preferred stock is cumulative, mandatory
redeemable nonvoting shares issued in connection with the reorganization
described in note 4. The five percent preferred stock dividend is payable when
declared by the Company. During 1998 and 1997, the Company declared a dividend
on the five percent preferred stock of $215,674 and $47,046, respectively, based
on the preferred stock issuance date of December 12, 1996. During 1998, the
Company also declared a dividend on the ten percent preferred stock issued in
1998 of $29,793. Upon sale of the Company or a qualified public offering and
providing that sufficient proceeds remain after satisfying secured and unsecured
obligations (see note 1(b)), the Company will redeem the preferred stock at the
redemption price which is $1,000 per share plus the amount of accrued and unpaid
dividends at such date. The preferred shares are mandatory redeemable on
December 12, 2001.
During 1997, the Company granted options to acquire up to 146,875 shares
of Class B common stock to officers of the Company, which are vested and are
exercisable at $5.50 per share.
(13) Sale of Company
Pursuant to an Acquisition Agreement and Plan of Reorganization (the
"Agreement") dated February 9, 1998 and as amended on April 15, 1998 and May 7,
1998, the Company sold effective May 1, 1998, substantially all of its assets to
UCI Medical Affiliates, Inc. (UCI). The purchase price by UCI to the Company for
the assets, as defined in the agreement consisted of: (i) cash of $450,000; (ii)
a promissory note receivable of $800,000 due August 1, 1998; (iii) 2,901,396
shares of UCI common stock; (iv) the assumption of capital leases aggregating
$123,073 at March 31, 1998; and (v) the assumption of the line of credit having
a balance of $574,327 at March 31, 1998.
The issuance of the shares of UCI common stock to the Company is
contingent upon the approval of UCI shareholders. The market value of the shares
to be received based on the closing price of UCI common stock at May 1, 1998 was
approximately $4,442,000; however, the ultimate value will be determined when
the Company sells the common stock which cannot take place prior to November 1,
1998. Based on the closing price of UCI common stock at July 30, 1998, the
market value of the shares to be received was approximately $2,901,000
(unaudited). As of August 3, 1998, approval of UCI shareholders had not occurred
(unaudited).
C-18
MAINSTREET HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MainStreet Healthcare Corporation ("MHC") was organized and incorporated
with the purpose of acquiring and subsequently managing, primary care, family
health centers. Within a period of 24 months, MHC acquired fourteen practices
and attained net revenues of $6.4 million. MHC, after acquisition of a practice,
utilizes management expertise to encourage growth in services and revenues, and
promote cost consolidation within each practice.
To facilitate the organization of the business, MHC formed both MainStreet
Healthcare Medical Group, PC, Georgia, and MainStreet Healthcare Medical Group
PC, Tennessee, (collectively the "PC") to provide employment to physicians who
provide patient care and other medical services at the practices. Management
service agreement(s) were executed to provide an underlying basis of rights and
obligations between both MHC and the PC. Also, such agreements provided proper
delineation of duties and responsibilities for the management of, and
administration within, each practice.
The consolidated financial statements include the accounts of MHC and PC.
The management service agreement between MHC and the PC conveys to MHC perpetual
and unilateral control over the assets and operations of the PC. Control is
perpetual rather than temporary because of (1) the length of term of the
agreement (50 years), (2) the continuing investment of capital by MHC, (3) the
employment of all of the non-physician personnel by MHC, and (4) the nature of
the services provided to the PC by MHC.
The financial terms of the management service agreement call for the PC to
provide medical service to patients. MHC, charges a fee to the patient or to the
patient's insurance carrier, or employer for such services (pursuant to the
agreement PDC assigns to MHC the rights to receive all payments for all services
performed by the PC). MHC collects all of the "Net Business Revenues" through
the collection of open accounts receivable. MHC agrees to compensate the PC for
payment of physician salaries and physician related expenses for continuing
education and payroll taxes. MHC is financially responsible to provide all
support personnel (nurses, technicians, clerical staff), all administrative
functions (billing, collecting, vendor payment), all facilities, supplies (both
medical, equipment and administrative), and equipment in substance all other
business costs and expenses.
MHC has the obligation to provide to the business the management services,
personnel, equipment and supplies provided for and encapsulated as follows:
1. the payment for all facility costs, including rent, repairs,
maintenance, utilities, insurance, janitorial, refuse disposal,
property taxes and improvements.
2. the provision of supplies, items of furniture, fixtures and
equipment, and repairs or improvements of same.
3. preparation of annual capital budgets.
4. maintaining the role of exclusive manager and administrator of all
business functions and services related to the business, including
(but not limited to):
(a) evaluating, negotiating, administering all managed care
contracts on behalf of the PC.
(b) provision of on-going assessment of business activity, such as
product line activity and patient satisfaction.
(c) ordering and purchasing all medical and office supplies
reasonably required.
(d) billing and collection from patients all professional fees for
medical services and for ancillary services performed at the
medical offices.
(e) marketing services, physician recruitment, analysis and
procurement for expansion of business.
The PC has obligations to MHC including (but not limited to) payment of
all costs and expenses for insurance premiums for malpractice insurance
coverage, and physician employment expenses related to
C-19
salaries, worker's compensation, retirement plan contributions, health,
disability and life insurance premiums, payroll taxes and automobile expenses.
The PC enters into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses which allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. The physicians are paid on a salary basis. A few of the
physicians have incentive compensation agreements which afford them incentive
for additional earnings based upon an increase, as compared to previous
financial quarters, in the collections of Net Business Revenues at the medical
office the physician is employed Such agreements have no effect upon MHC's
rights to collect the net profits of the business. Any amounts paid in fiscal
years ending March 31, 1998 and 1997 were minimal.
MHC and the PC jointly establish fees for all professional and other
ancillary services and pharmaceutical items provided at the medical offices. To
facilitate consolidated billing and collection functions, MHC established a
centralized department during the second half of fiscal year 1998. This
department developed the communication systems (using computer systems,
telecommunications and administrative operations) to allow the billing and
collecting functions at 70% of the medical centers to be centralized. The intent
is to centralize the remaining 30% of the medical centers during the fiscal year
1999. This plan encouraged more moderate fee structures within the medical
centers. MHC is better able to set pricing plans within the company and between
he various medical offices using this centralized approach. Billing practices
for using proper and correct coding methods required by the various insurance
carriers and governmental programs are also more effectively monitored by using
a centralized department.
Subsequent to acquisition(s), MHC entered into several operational
agreements to facilitate cost consolidation, as well as to promote improved
services within the medical practices. Processes for ordering all medical
supplies and office supplies were centralized. All computer processes and
telecommunication processes were provided by single sources. Acquisitions of new
and more modern equipment provided the medical practices with improved patient
handling and treatment methods. Patient billing and collection processes were
centralized, the intent being to reduce the administrative costs of processing
such information.
Three unprofitable practices were closed by MHC on August 31, 1997 and
effectively transferred back to their original owners through specific
agreement. As discussed in Note 3 of the MHC consolidated financial statements,
accrued losses of $88,990 were recorded as of March 31, 1997. Goodwill recorded
during the acquisition of these three practices amounted to a total of $4,500
and was considered immaterial in the presentation of the financial statements.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AS COMPARED TO THE
YEAR ENDED MARCH 31, 1997:
Revenues of $6,436,950 for the year ended March 31, 1998 reflects an
increase of 75.5% over those of the year ended March 31, 1997. The majority of
this increase related to having all of the acquired practices reporting revenues
for the full twelve months of the fiscal year ended March 31, 1998. MHC
commenced operations with its first acquisition on April 1, 1996, and grew
through a series of acquisitions through July, 1997 when a maximum of 14 clinics
had been acquired.
MHC revenues per practice per month decreased from $46,700 in fiscal 1997
to $44,701 in fiscal 1998. Revenues were short of goals for fiscal 1998 due in
part to the increased competition from hospitals and other providers in the
metropolitan Atlanta market. In this area, regional hospitals have acquired or
opened new primary care physician practices that compete directly with the
company for patients. In each case, the hospital owners (MHC's competition) are
believed to have significantly greater resources than MHC.
MHC contracted with a broad cross section of managed care markets in an
attempt to increase its viability and marketability to the general patient
public. The following table listing the percentage of revenue by revenue source
provides an indication of the type of insurance markets which MHC entered.
C-20
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
Private Pay 6.5%
Medicare 16.8%
Medicaid 5.1%
Commercial Insurance 25.5%
PPO Insurance 41.7%
Workers Compensation Insurance 2.8%
All others 1.6%
------
100.0%
The following table shows the percentage of net revenue by various expense
categories reflected in the MHC Consolidated Statements of Operations:
1998 1997
----------- -------
Net Patient service revenue 100% 100%
Operating expenses
Cost of affiliated physician services........... 48% 46%
Clinic salaries/benefits........................ 37% 32%
Clinic rent and lease expense................... 9% 9%
Clinic supplies................................. 12% 9%
Other clinic costs.............................. 12% 10%
General corporate expenses...................... 26% 16%
Depreciation and amortization................... 7% 6%
Clinic start-up expenses........................ 0% 8%
---- --
Total expenses............................ 151% 136%
Operating loss........................................ -51% -36%
Interest expense...................................... 6% 4%
Most of the categories of expenses increased during fiscal 1998 as
compared to fiscal 1997, primarily due to the fact that fiscal 1998 included a
full year of operations for all acquired practices.
Cost for clinic salary, wages and benefits increased from $1,188,415 in
fiscal 1997, to $2,404,156 in fiscal 1998. This increase was mostly related to
the process of moving billing and collection processes out from the medical
centers staff and into the corporate staff. The reduction in personnel at the
medical center level upon transferring duties to the corporate staff level did
not transition in such a way as to allow for any significant costs savings. It
was quickly determined after most acquisitions that many medical centers were
over staffed, thus requiring many staffing changes. Most of the staffing changes
would have benefited fiscal periods beyond March 31, 1998.
General corporate expenses increased from $587,404 in fiscal 1997 to
$1,655,974 in fiscal 1998. This was due in part to several issues, including
operation of a departmental staff to locate, make recommendations on, hire,
train and administer, all medical office personnel. Responsibilities included
engaging and contracting with insurance carriers, as well as obtaining admission
privileges at local hospital centers for employed physicians. Secondly, both
hard and soft costs were incurred to establish a centralized collection
department, designed to bill and collect net business revenues for all medical
practices. Thirdly, greater than anticipated expenses were incurred to manage
changes resulting from the growth oriented phase the company went through from
November 1996 to May 1997. A total of nine medical centers were either acquired
or started up during this time. The ability to bring all three of the above
mentioned departmental staff and processes up to operational profitability took
most of the end of fiscal year 1997 as well as the entire fiscal year 1998, a
period of 12 to 15 months, when it was originally anticipated such processes
would only take 3 to 6 months.
Depreciation and amortization expense increased to $466,121 in fiscal 1998
from $217,029 in fiscal 1997. This increase is a direct reflection of the
additional practice months in 1998 (144 in 1998, as compared to 75 in 1997).
C-21
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
Interest expense of $364,292 in fiscal 1998 and $161,774 in fiscal 1997 is
composed of those costs associated with amortization of interest on debt for
long-term financing of the acquisition of physician practices, interest for the
financing of accounts receivable, and interest associated with the indebtedness
incurred with the issuance of 5% and 10% cumulative redeemable preferred shares.
Operating losses (before corporate expenses and non cash items) decreased
on a monthly basis during five of the final six months of fiscal 1998.
FINANCIAL CONDITION AT MARCH 31, 1998
Working capital at March 31, 1997 was $392,653. At March 31, 1998, there
was a deficit working capital of $2,663,403. Operating losses in fiscal 1998
were not offset by equity transactions as they had been in fiscal 1997.
Management entered into a financing agreement on certain accounts
receivable in October 1997. Approximately 70% of the outstanding accounts were
placed into the agreement, as well as future billed revenues from those same
medical centers. This financing provided MHC with some of the new capital needed
to operate the practices during fiscal year 1998.
Accounts receivable allowances for contractual adjustments and
uncollectible accounts decreased from 53% of gross accounts receivable at March
31, 1997 to 46% of gross accounts receivable at March 31, 1998, due to the
changes in make-up which occurred in gross receivables during the year. At March
31, 1997, outstanding accounts receivable from acquired practices represented
32% of the outstanding gross accounts receivable. Those acquired accounts had a
98% allowance. At March 31, 1998, acquired accounts receivable balances totaled
only 4% of total gross accounts receivable, as the majority of those accounts
were either collected or written off in fiscal 1998. The remaining 96% of gross
accounts receivable was allowed for at a more defined basis for contractual
adjustments and uncollectible accounts. See the table below:
1998 1997
---------- -----------
Gross accounts receivable (acquired) $ 112,617 4% $ 766,206 32%
Gross accounts receivable (generated) $ 2,514,320 96% $1,602,384 68%
--------- ---------
Total gross accounts receivable $ 2,626,937 $2,368,590
========== =========
Allowance account (acquired) $ 61,809 55% $ 752,312 98%
Allowance account (generated) $ 1,154,909 46% $ 506,259 32%
----------- ---------
Total allowance account $ 1,216,718 46% $1,258,571 53%
=========== ==========
Total liabilities increased from $2,454,798 at March 31, 1997 to
$4,702,526 at March 31, 1998 primarily as a result of indebtedness incurred in
the establishment of equipment capital leases and financing accounts receivable.
Increases to accounts payable and accrued expenses resulted from losses incurred
in operations.
New equity in the form of working capital was derived during fiscal year
1998 through the sale of both 5% and 10% cumulative preferred stock, and Class B
common stock. This infusion of capital (approximately $550,000) provided some of
the working capital needed to operate the business during fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES
MHC requires capital principally to fund growth (acquire new medical
centers), for working capital needs and for the retirement of indebtedness.
MHC's capital requirements and working capital needs have been funded through a
combination of external financing (including receivable funding and proceeds
from the sale of 5% and 10% cumulative redeemable preferred stock) and credit
extended by suppliers.
C-22
SUBSEQUENT EVENTS
In May of 1998, MHC sold substantially all of the assets of MHC to UCI
Medical Affiliates, Inc. And affiliated entities ("UCI") in exchange for the
assumption of certail indebtedness and certain leases of MHC and the payment of
approximately $8.14 million in value, comprised of a combination of cash, a note
payable and a commitment to issue common stock of UCI.
C-23
UCI MEDICAL AFFILIATES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON TUESDAY, JANUARY 27, 1999 AT THE EMBASSY SUITES
HOTEL, 200 STONERIDGE DRIVE, COLUMBIA, SOUTH CAROLINA AT 10:00 A.M. LOCAL TIME.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated December 18, 1998 and
appoints each of Jerry F. Wells, Jr. and Mary M. Gardner as proxy and
attorney-in-fact of the undersigned, each with full power of substitution, to
vote all of the shares of common stock of UCI Medical Affiliates, Inc., a
Delaware corporation, held or owned by the undersigned or standing in the name
of the undersigned at the Annual Meeting of Stockholders of the Company and
at any adjournments thereof, and the undersigned hereby instructs said proxies
and attorneys to vote as follows:
1. To approve the issuance of shares of Common Stock of the Company in
connection with the Acquisition.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To approve the issuance of Warrants and underlying Common Stock in
connection with the Private Placement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Election of Directors: Terms Expiring in 2001
FOR the nominee listed below WITHHOLD AUTHORITY
to vote as to the nominee
A. Wayne Johnson [ ] [ ]
Ashby M. Jordan, M.D. [ ] [ ]
John M. Little, Jr., M.D.[ ] [ ]
5. To approve the adoption of the Company's 1999 Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. To approve the amendment and restatement of the Company's Amended
and Restated Certificate of Incorporation to give effect to a
one-for-five reverse stock split.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. To ratify the appointment of Price Waterhouse LLP as the firm of
independent auditors for the Company for the fiscal year ended
September 30, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. In the discretion of each proxy and attorney-in-fact, upon any
other business which may properly come before the meeting or any
adjournment thereof.
DATE: , 1998
----------------------------- ----------------------------------
(Signature)*
(Please sign exactly as shown on the envelope addressed to you.)
NUMBER OF SHARES:
----------- ---------------------------------------------
(Signature, if held jointly)
*Note: When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee, guardian or
corporate officer or partner, please give full title as such. If a
corporation, please sign in corporate name by president or other
authorized officer. If a partnership, please sign in partnership
name by authorized person.
THIS PROXY WILL BE VOTED AS INSTRUCTED. IN THE ABSENCE OF SUCH
INSTRUCTIONS, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED,
AND THE PROXIES HEREIN NAMED WILL VOTE ON OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF IN ACCORDANCE WITH
THEIR JUDGMENT.
(Transmitted Pursuant to Insertion No. 3 to Item 10 at Schedule 14A)
UCI MEDICAL AFFILIATES, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSES
1.1. The purposes of the UCI Medical Affiliates, Inc.1999 Stock Incentive
Plan are to (i) provide an incentive and reward to directors and employees of
the Company and any Parent or Subsidiary, and consultants and advisors to the
Company and any Parent or Subsidiary, who are and have been in a position to
contribute materially to improving the Company's profits, (ii) aid in the growth
of the Company, and (iii) encourage ownership of Shares by directors and
employees of the Company and any Parent or Subsidiary.
2. DEFINITIONS
2.1. For purposes of this Plan the following terms shall have the
definition which is attributed to them below, unless another definition is
clearly indicated by a particular usage and context.
(a) "Agreement" means the written document issued by the Committee to
a Participant whereby an Award is made to that Participant.
(b) "Award" means the issuance pursuant to this Plan of an Option, an
SAR or Restricted Stock.
(c) "Awarded Shares" means Shares subject to outstanding Awards.
(d) "Board" means the Company's Board of Directors.
(e) "Cause" means theft or destruction of property of the Company, a
Parent or Subsidiary, disregard of Company rules or policies, or conduct
evidencing willful or wanton disregard of the interest of the Company. Such
determination shall be made by the Committee based on information presented
by the Company and the Participant and shall be final and binding on all
parties to the Agreement.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Stock Incentive Plan Committee(s) appointed
by the Board pursuant to Section 3.1. To the extent the Board has not
established a Committee hereunder, all references herein to the Committee
shall be deemed to be references to the Board.
(h) "Company" means UCI Medical Affiliates, Inc., a corporation
incorporated under the laws of the state of Delaware, and any successor
thereto.
(i) "Consultant" means any person or entity that provides services to
the Company as a consultant or advisor.
(j) "Director" means any individual appointed or elected to the Board.
1
(k) "Effective Date of Grant" means the effective date on which the
Committee makes an Award.
(l) "Employee" means any individual who performs services as a common
law employee for the Company, a Parent or Subsidiary, and is included on
the regular payroll of the Company, a Parent or Subsidiary.
(m) "Fair Market Value" means the value established by the Committee
based upon such factors as the Committee in its sole discretion shall
decide including, but not limited to, a valuation prepared by an
independent third party appraiser selected or approved by the Committee. If
at any time the Shares are traded on an established trading system, it
means the last sale price reported on any stock exchange or over-the
counter trading system on which Shares are trading on a specified date or,
if not so trading, the average of the closing bid and asked prices for a
Share on a specified date. If no sale has been made on the specified date,
then prices on the last preceding day on which any such sale shall have
been made shall be used in determining fair market value under either
method prescribed in the previous sentence.
(n) "Incentive Stock Option" means any option granted under this Plan
which meets the requirements of Code (ss)422A and any regulations or
rulings promulgated thereunder and is designated by the Committee as an
Incentive Stock Option.
(o) "Nonqualified Stock Option" means any Option granted under this
Plan which is not an Incentive Stock Option.
(p) "Option" means the right to purchase from the Company a stated
number of Shares at a specified price.
(q) "Option Price" means the purchase price per Share subject to an
Option and shall be fixed by the Committee.
(r) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of
the granting of the Award, each of the corporations (other than the
Company) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain within the meaning of Code (ss)425(e) and any regulations or rulings
promulgated thereunder.
(s) "Participant" means a Director, an Employee or a Consultant who
has received an Award under this Plan.
(t) "Permanent and Total Disability" shall have the same meaning as
given to that term by Code (ss)22(e)(3) and any regulations or rulings
promulgated thereunder.
(u) "Plan" means this UCI Medical Affiliates, Inc. 1999 Stock
Incentive Plan, as evidenced herein and as amended from time to time.
(v) "Restricted Stock" means Shares issued to the Participant pursuant
to Section 9 hereof which are subject to the restrictions of this Plan and
the Agreement.
2
(w) "Restriction Period" means a period commencing on the Effective
Date of Grant and ending on such date or upon the achievement of such
performance or other criteria as the Committee shall determine. The
Restriction Period may, in the sole discretion of the Committee, be
structured to provide for a release of restrictions in installments.
(x) "SAR" means stock appreciation rights issued to a Participant
pursuant to Section 8 hereof.
(y) "SAR Price" means the base value established by the Committee for
an SAR on the Effective Date of Grant used in determining the amount of
benefit, if any, paid to a Participant.
(z) "Share" means one share of the common stock of the Company.
(aa) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of
the Award, each of the corporations (other than the last corporation) in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain, within the meaning of Code (ss) 425(f) and any regulations or
rulings promulgated thereunder.
(bb) "1933 Act" means the Securities Act of 1933, as amended.
(cc) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
3. ADMINISTRATION
3.1. This Plan shall be administered by the Board, or at the Board's
election, by an existing or newly established Committee whose members are
appointed by the Board, or by more than one such Committee if desired and deemed
necessary by the Board in order to provide separate Committee authority for the
granting of Awards to separate categories of eligible Participants. Any such
Committee shall consist of not less than two members. The Board may from time to
time remove members from or add members to the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board.
3.2. The action of a majority of the Committee at which a quorum is
present, or an action approved in writing by a majority of the Committee, shall
be the valid action of the Committee.
3.3. The Committee shall from time to time at its discretion designate the
Directors, Employees and Consultants who shall be Participants, determine all
the terms and conditions as set forth in Section 6.1 or otherwise, including the
type of Award to be made to each, the exercise period, expiration date and other
applicable time periods for each Award, the number of Shares subject to each
Award, with respect to each Option whether it is an Incentive Stock Option or
Nonqualified Stock Option and, if applicable, the Option Price or SAR Price and
the general terms of the Award.
3
3.4. The interpretation and construction by the Committee of any provisions
of this Plan or of any Option granted under it and all actions of the Committee
shall be final and binding on all parties hereto. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to this Plan or any Award granted under it.
4. ELIGIBILITY
4.1. Each Participant shall be a Director, an Employee or a Consultant of
the Company, a Parent or a Subsidiary as selected by the Committee in its sole
discretion from time to time.
4.2. A Participant may hold more than one Award, but only on the terms and
subject to the restrictions set forth in this Plan.
5. SHARES SUBJECT TO AWARD
5.1. The securities subject to the Awards shall be 1,500,000 Shares. Such
number shall be adjusted as appropriate in order to give effect to changes made
in the number of outstanding Shares as a result of a merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock split, or
other relevant change.
5.2. In the event that any outstanding Award under this Plan expires or is
terminated for any reason, the Awarded Shares subject to that Award may again be
the subject of an Award under this Plan.
6. TERMS AND CONDITIONS
6.1. Awards granted pursuant to this Plan shall be authorized by the
Committee under terms and conditions approved by the Committee and shall be
evidenced by Agreements in such form as the Committee shall from time to time
approve, which Agreements shall contain or shall be subject to the following
terms and conditions, whether or not such terms and conditions are specifically
included therein:
(a) Number of Shares. Each Award shall state the number of Shares to
which it pertains.
(b) Date. Each Award shall state the Effective Date of Grant.
(c) Price. With respect to each Award or portion thereof, which
requires payment of an Option Price, it shall state the Option Price. With
respect to an SAR, it shall state the SAR Price.
(d) Method and Time of Payment. With respect to an Award, or portion
thereof, which requires payment of an Option Price, the Option Price shall
be payable on the exercise of the Award and shall be paid in (i) cash, (ii)
Shares, including Shares acquired pursuant to this Plan,
4
or (iii) part in cash and part in Shares. Shares transferred in payment of
the Option Price shall be valued as of date of transfer based on their Fair
Market Value.
(e) Transfer of Option or Stock. No Award, Option, SAR, or Restricted
Stock (prior to the expiration of the Restriction Period) shall be
transferable by the Participant, except by will or the laws of descent and
distribution upon the Participant's death and subject to any other
limitations of this Plan. In addition to any other restriction hereunder or
otherwise provided in the Agreement with the Participant, no Shares
acquired pursuant to an Award of any type may be sold, transferred or
otherwise disposed of prior to the end of the six month period which begins
on the Effective Date of Grant of such Award.
(f) Recapitalization. The Committee shall make appropriate adjustments
in the number of Awarded Shares or in the Option Price or SAR Price in
order to give effect to changes made in the number of outstanding Shares as
a result of a merger, consolidation, recapitalization, reclassification,
combination, stock dividend, stock split, or other relevant change.
(g) Investment Purpose.
(i) The Company shall not be obligated to sell or issue any Shares
pursuant to any Award unless such Shares are at that time effectively
registered or exempt from registration under the 1933 Act. The
determination of whether a Share is exempt from registration shall be
made by the Company's legal counsel and its determination shall be
conclusive and binding on all parties to the Agreement.
(ii) Notwithstanding anything in this Plan to the contrary, each
Award under this Plan shall be granted on the condition that the
purchases of Shares thereunder shall be for investment purposes and
not with a view for resale or distribution except that in the event
the Shares subject to such Award are registered under the 1933 Act, or
in the event of a resale of such Shares without such registration that
would otherwise be permissible, such condition shall be inoperative if
in the opinion of counsel for the Company such condition is not
required under the 1933 Act or any other applicable law, regulation,
or rule of any governmental agency.
(h) Other Provisions. Awards authorized under this Plan may contain
any other provisions or restrictions as the Committee in its sole and
absolute discretion shall deem advisable including, but not limited to:
(i) Offering Options in tandem with or reduced by other Options,
SARs or other employee benefits and reducing one Award by the exercise
of another Option, SAR or benefit; or
(ii) Providing for the issuance to the Participant upon exercise
of an Option and payment of the exercise price thereof with previously
owned Shares, of an additional Award for the number of shares so
delivered, having such other terms and conditions not inconsistent
with this Plan as the Committee shall determine.
5
(i) Duration of Award. Each Award shall be for a term of up to ten
years from the Effective Date of Grant as determined in the sole discretion
of the Committee. In the case of a grant of an Incentive Stock Option to a
person who owns more than 10% of the voting power of the Company's voting
stock on the Effective Date of Grant, such Incentive Stock Option shall not
be exercisable after the expiration of five (5) years from its Effective
Date of Grant.
6.2. The Company may place such legends on stock certificates representing
the Shares as the Company, in its sole discretion, deems necessary or
appropriate to reflect restrictions under this Plan, the Agreement, the Code,
the securities laws or otherwise.
6.3. Notwithstanding any provision herein to the contrary, employment shall
be at the pleasure of the Board, of its designees, of the Company, a Parent or
Subsidiary, as the case may be, at such compensation as the appropriate board or
designee shall determine. Nothing contained in this Plan or in any Award granted
pursuant to it shall confer upon any Participant any right to continue in the
employ of the Company, Parent or Subsidiary, as the case may be, or to interfere
in any way with the right of the Company, Parent or Subsidiary to terminate
employment at any time. So long as the Participant shall continue to be a
Director, an Employee or a Consultant, the Award shall not be affected by any
change of the Participant's duties or position except to the extent the
Agreement with the Participant provides otherwise.
6.4. Any person entitled to exercise an Option or an SAR may do so in whole
or in part by delivering to the Company at its principal office, attention
Corporate Secretary, a written notice of exercise. The written notice shall
specify the number of Shares for which an Option or SAR is being exercised.
(a) With respect to an Option, the notice shall be accompanied by full
payment of the Option Price for the Shares being purchased.
(b) During the Participant's lifetime, an Option or SAR may be
exercised only by the Participant, or on the Participant's behalf by the
Participant's legal guardian.
7. INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
7.1. The Committee in its sole discretion may designate whether an Award to
an Employee is to be considered an Incentive Stock Option or a Nonqualified
Stock Option. AN AWARD TO A NON-EMPLOYEE DIRECTOR OR CONSULTANT MAY BE ONLY A
NONQUALIFIED STOCK OPTION. The Committee may grant both an Incentive Stock
Option and a Nonqualified Stock Option to the same Employee. However, where both
an Incentive Stock Option and a Nonqualified Stock Option are awarded at one
time, such Awards shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event will the exercise of one such Award
affect the right to exercise the other such Award except to the extent the
Agreement with the Participant provides otherwise.
7.2. Any Award to an Employee designated by the Committee as an Incentive
Stock Option will be subject to the general provisions applicable to all Awards
granted under this Plan. In addition, the aggregate Fair Market Value of Shares
(determined at the Effective Date of Grant) with respect to which Incentive
Stock Options granted under all Incentive Stock Option Plans of the
6
Company, a Parent or Subsidiary, are exercisable by the Employee for the first
time during any calendar year shall not exceed $100,000.
7.3. The Option Price shall be established by the Committee in its sole
discretion. With respect to an Incentive Stock Option, the Option Price shall
not be less than 100% of the Fair Market Value of a Share on the Effective Date
of Grant, and in the case of a grant of an Incentive Stock Option to a person
who owns more than 10% of the voting power of the Company's voting stock on the
Effective Date of Grant, shall not be less than 110% of the Fair Market Value of
a Share on the Effective Date of Grant. With respect to a Nonqualified Stock
Option, the Option Price shall not be less than 50% of the Fair Market Value of
a Share on the Effective Date of Grant.
7.4. Any Award to an Employee will be considered to be a Nonqualified Stock
Option to the extent that any or all of the grant or the exercise of such option
is in conflict with Section 7.2, Section 7.3 or with any requirement for
Incentive Stock Options pursuant to Code (ss)422A and the regulations issued
thereunder.
7.5. An Option may be terminated as follows:
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, an Option will be terminated only if it has been
fully exercised or it has expired by its terms.
(b) In the event of termination of a Participant's employment with the
Company, the Option will terminate upon the earliest to occur of (i) the
full exercise of the Option (ii) the expiration of the Option by its terms,
and (iii) the date three months following the date of employment
termination; provided, however, should termination of employment (A) result
from the death or Permanent and Total Disability of the Participant, such
three-month period shall be one year or (B) be for Cause, the Option will
terminate on the date of employment termination. For purposes of this Plan,
a leave of absence approved by the Company shall not be deemed to be
termination of employment except with respect to an Incentive Stock Option
as required to comply with Code (ss)422A and the regulations issued
thereunder.
(c) Subject to the terms of the Agreement with the Participant, if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company, Parent
or Subsidiary and prior to the termination of an Option, such Option may be
exercised to the extent that the Participant shall have been entitled to
exercise it at the time of death or disability, as the case may be, by the
Participant, the estate of the Participant or the person or persons to whom
the Option may have been transferred by will or by the laws of descent and
distribution.
7.6. Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an Option beyond
the date of termination of employment allow the Participant, or the
beneficiaries or heirs of the Participant, to accrue additional rights under
this Plan, or to purchase more Shares through the exercise of an Option than
could have been purchased on the day that employment was terminated.
7
7.7. A Participant shall have no rights as a stockholder with respect to
any Shares subject to an Option until the date of the issuance of a stock
certificate to such Participant for such Shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section
6.1.(f).
7.8. The continuous employment of a Consultant will be deemed terminated
for purposes of this Plan upon receipt of written notice from the Company to the
effect that the Company will no longer transact business with the Consultant.
8. STOCK APPRECIATION RIGHTS
8.1. The Committee, in its sole discretion, may grant to a Participant
an SAR.
8.2. The SAR Price shall be established by the Committee in its sole
discretion. The SAR Price shall not be less than 100% of Fair Market Value of a
Share on the Effective Date of Grant for a SAR issued in tandem with an
Incentive Stock Option and for other SARs, shall not be less than 50% of Fair
Market Value of a Share on the Effective Date of Grant.
8.3. Upon exercise of an SAR, the Participant shall be entitled, subject to
the terms and conditions of this Plan and the Agreement, to receive the excess
for each Share being exercised under the SAR (i) the Fair Market Value of a
Share on the date of exercise over (ii) the SAR Price for such Share.
8.4. At the sole discretion of the Committee, the payment of such excess
shall be made in (i) cash, (ii) Shares, or (iii) a combination of cash and
Shares. Shares used for this payment shall be valued at their Fair Market Value
on the date of exercise of the applicable SAR.
8.5. An Award of an SAR shall be considered an Award for purposes of the
number of Shares subject to an Award pursuant to Section 5.1, unless the
Agreement making the Award of the SAR provides that the exercise of an SAR
results in the termination of an unexercised Option for the same number of
Shares.
8.6. An SAR may be terminated as follows:
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, an SAR will be terminated only if it has been fully
exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate upon the
earliest of (i) the full exercise of the SAR (ii) the expiration of the SAR
by its terms, and (iii) not more than three months following the date of
employment termination; provided, however, should termination of employment
(I) result from the death or Permanent and Total Disability of the
Participant, such three month period shall be one year or (II) be for
Cause, the SAR will terminate on the date of employment termination. For
purposes of this Plan, a leave of absence
8
approved by the Company shall not be deemed to be termination of employment
unless otherwise provided in the Agreement or by the Company on the date of
the leave of absence.
(c) Subject to the terms of the Agreement with the Participant if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company, Parent
or Subsidiary and prior to the termination of an SAR, such SAR may be
exercised to the extent that the Participant shall have been entitled to
exercise it at the time of death or disability, as the case may be, by the
Participant, the estate of the Participant or the person or persons to whom
the SAR may have been transferred by will or by the laws of descent and
distribution.
(d) Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an SAR beyond
the date of termination of employment allow the Employee, or his
beneficiaries or heirs, to accrue additional rights under this Plan, have
additional SARs available for exercise or to receive a higher benefit than
the benefit payable as if the SAR was exercised on the date of employment
termination.
8.7. If an SAR which was considered an Award for purposes of Section 8.5 is
terminated or unexercised for any reason, the number of Shares of such SAR that
were unexercised shall be again available for Award under this Plan.
8.8. The Participant shall have no rights as a stockholder with respect to
an SAR. In addition, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or rights except as provided in Section 6.1.(f).
9. RESTRICTED STOCK
9.1. The Committee may award to a Participant Restricted Stock under such
terms or conditions as the Committee, in its sole discretion, shall determine
and as otherwise provided herein.
9.2. Restricted Stock shall be Shares which are subject to a Restriction
Period.
9.3. Should the Participant terminate employment for any reason, all
Restricted Stock which is still subject to the Restriction Period shall be
forfeited and returned to the Company for no payment.
9.4. Upon such forfeiture, shares representing such forfeited restricted
Stock shall obtain become available for Award under the Plan.
9.5. The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock awarded
under this Plan may be held by the Company or its designee until the Restriction
Period expires. In addition, the Committee may place upon such certificate such
legend as the Committee deems necessary or appropriate and may require as a
condition of any receipt of Restricted Stock that the Participant shall deliver
a stock power endorsed in blank relating to the Restricted Stock.
9
10. AMENDMENT OR DISCONTINUANCE OF PLAN
10.1. The Board may at any time amend, suspend, or discontinue this Plan;
provided, however, that without further approval of the shareholders of the
Company no amendments by the Board shall:
(a) Change the class of Employees eligible to participate; or
(b) Except as provided in Section 5, increase the number of Shares
which may be subject to Options granted under this Plan.
10.2. No amendment to this Plan shall alter or impair any Award granted
under this Plan without the consent of the holder of such Award.
11. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually incurred in connection with the defense of any pending,
threatened or possible action, suit or proceeding, or in connection with any
pending, threatened or possible appeal therein, to which they or any of them may
be a party by reason of any actual or alleged action taken or failure to act
under or in connection with this Plan or any option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Committee member
is liable for gross negligence or willful misconduct in the performance of his
duties: provided that within sixty days after institution of any such action,
suit or proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
12. NO OBLIGATION TO EXERCISE OPTION OR SAR
The granting of an Option or SAR shall impose no obligation upon the
Participant to exercise such Option.
13. EFFECTIVE DATE; DURATION OF PLAN
13.1. This Plan shall become effective as of January 1, 1999.
13.2. No Award may be made after the tenth anniversary of the effective
date of this Plan.
10
14. EFFECT OF PLAN
The making of an Award under this Plan shall not give the Participant any
right to similar grants in future years or any right to be retained in the
employ of the Company, the Parent or a Subsidiary, but a Participant shall
remain subject to discharge to the same extent as if this Plan were not in
effect.
15. CHANGE IN CONTROL
15.1. Treatment of Outstanding Awards. Upon the occurrence of a Change In
Control, as defined below, unless otherwise specifically prohibited under
applicable laws, or by the rules and regulations of any governmental agencies or
national securities exchanges, or by the express provisions of any Agreement,
(a) each Option and each SAR then outstanding hereunder that is not otherwise
exercisable shall become immediately and fully exercisable, and shall remain
exercisable throughout their entire term, notwithstanding any provision in the
Agreement relating to such Option or SAR for the exercise of such Option or SAR
in installments or otherwise pursuant to a vesting schedule, and (b) any
Restriction Period and restrictions imposed on Restricted Stock shall lapse.
15.2. Change in Control Defined. For purposes of this Section, a Change In
Control shall mean that any of the following events shall have occurred:
(i) A person, partnership, joint venture, corporation or other entity,
or two or more of any of the foregoing acting as a group (or a
"person" within the meaning of Section 13(d)(3) of the 1934 Act),
other than the Company, a majority-owned subsidiary of the Company, an
employee benefit plan (or related trust) of the Company or such
subsidiary, become(s) after the effective date of this Plan the
"beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act) of
35% or more of the then outstanding voting stock of the Company;
(ii) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board (together with any
new director whose election by the Board or whose nomination for
election by the Company's shareholders, was approved by the vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office;
(iii) The Board determines that a tender offer for the Company's
shares indicates a serious intention by the offeror to acquire control
of the Company; or
(iv) The shareholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all of the Company's assets; or
(c) a merger, consolidation, or reorganization of the Company with or
involving any other corporation, other than a merger, consolidation,
or reorganization that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least sixty-five percent (65%)
of the
11
combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger,
consolidation or reorganization.
15.3. Termination, Amendment and Modifications of Change in Control
Provisions. Notwithstanding any other provision of this Plan or any Agreement,
the provisions of this Section may not be terminated, amended or modified on or
after the effective date of a Change in Control to affect adversely the
operation of any Award theretofore granted under the Plan without the prior
written consent of the Participant with respect to said Participant's
outstanding Awards.
16. SUCCESSORS; CONSOLIDATION, MERGER AND OTHER EVENTS
16.1. All obligations of the Company under this Plan or any Agreement with
respect to any Award granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase of all or substantially all of the business and/or assets of
the Company, or a merger, consolidation or otherwise. Specifically, in case of
any capital reorganization of the Company, or of any reclassification of any
Shares (other than a change as a result of subdivision or combination), or in
case of the consolidation of the Company with or the merger of the Company with
any other corporation (other than a consolidation or merger in which (i) the
Company is the continuing corporation and (ii) the holders of the Shares
immediately prior to such merger or consolidation continue as holders of Shares
after such merger or consolidation) or of the sale of the properties and assets
of the Company as, or substantially as, an entirety to any other corporation,
each Option and each SAR then outstanding shall after such reorganization,
reclassification, consolidation, merger or sale be exercisable, upon the terms
and conditions specified herein and in the Agreement relating to such Option or
SAR, for or with respect to the number of Shares or other securities or property
to which a holder of the number of Shares relating to such Option or SAR (at the
time of such reorganization, reclassification, consolidation, merger or sale)
upon exercise of such Option or SAR would have been entitled in connection with
such reorganization, reclassification, consolidation, merger or sale; and in any
such case, if necessary, the provisions set forth in this Section with respect
to the rights and interests thereafter of the holder of the Option or SAR shall
be appropriately adjusted so as to be applicable, as nearly as may reasonably
be, to any shares of stock or other securities or property thereafter
deliverable on the exercise of the Option or SAR.
12
INCENTIVE STOCK OPTION AGREEMENT
This Agreement, dated as of ___________, ________________ (the "Effective
Date of Grant") implements the grant to the party identified as optionee on the
signature page hereof (the "Optionee") of an Incentive Stock Option pursuant to
and subject to the terms and conditions of the UCI Medical Affiliates, Inc. 1999
Stock Incentive Plan (the "Plan") and the terms and conditions set forth below.
Terms defined in the Plan shall have the same meaning herein as in the Plan.
The Committee desires to afford the Optionee the opportunity to acquire
Shares of the Company's common stock so the Optionee has a proprietary interest
in the Company, and the Optionee desires the opportunity to acquire Shares.
Accordingly, the Company and the Optionee agree as follows:
1. Grant of Option and Purchase Price. The Company, pursuant to action of the
Committee, grants to the Optionee an Option to purchase ____________ Shares (the
"Option Shares") at a price of $____________ per share ("Option Price"), which
has been determined to be not less than the Fair Market Value of a Share on the
Effective Date of Grant of this Option.
2. Expiration of the Option. This Option shall expire ("Expiration Date") on the
earliest to occur of (i) ten (10) years from the date hereof; (ii) three (3)
months after the Optionee ceases to be an Employee of the Company, a Parent or a
Subsidiary (twelve (12) months if termination of employment is due to the
Optionee's death or the Optionee having incurred a Permanent and Total
Disability); (iii) the date this Option is fully exercised; (iv) the date
mutually agreed to by the Committee and the Optionee;or (v) the date of
termination of employment, if termination of employment is for Cause.
3. Exercise of Option
3.1. Subject to any other conditions herein, this Option shall vest and
become exercisable:
[SELECT ANY ONE OF THE FOLLOWING ALTERNATIVES]
[ ] on the Effective Date of Grant;
[ ] on the _________ anniversary of the Effective Date of Grant;
[ ] in _______ ( ) installments, the Optionee having the right
hereunder to purchase from the Company the following number of
Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:
(a) on and after the _____ anniversary of the Effective Date of
Grant, up to _____% (ignoring fractional shares) of the total
number of Option Shares;
(b) on and after the _____ anniversary of the Effective Date of
Grant, up to an additional _____% (ignoring fractional shares) of
the total number of Option Shares; and
1
(c) on and after the____ anniversary of the Effective Date of
Grant, the remaining Option Shares.
[ ] in accordance with the vesting schedule set forth in
Schedule A attached hereto and incorporated herein by
reference.
The Optionee's vested percentage of the total grant hereunder shall be fixed as
of the date the Optionee is no longer an Employee of the Company, a Subsidiary
or a Parent and shall not increase during the additional period, if any, during
which this Option may be exercised under Section 2, 2 hereof. Vested portions of
this Option may be exercised at any time, in whole or in part, before the
Expiration Date.
3.2. This Option may be exercised by mailing or delivering to the Company,
Attention: Corporate Secretary, 1901 Main Street, Suite 1200, Columbia, South
Carolina 29201, (i) a written signed notice of such exercise which specifies the
Effective Date of Grant of this Option, and the number of Shares being
purchased, and (ii) payment for such Shares by check (which clears in due
course) payable to the Company and/or by surrender of Shares previously owned by
the Optionee valued at the Fair Market Value thereof on the date received by the
Company. The Option shall be deemed exercised and the Shares purchased thereby
shall be deemed issued as of the date such payment is received by the Company.
4. Non-transferability of Option. This Option shall not be transferable by the
Optionee other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee.
5. Adjustment in Shares Subject to the Option. The Committee will make
appropriate adjustments in the number of Shares subject to this Option or the
Option Price in order to give effect to changes made in the number of
outstanding Shares as a result of a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split, or other relevant
change.
6. Rights as Shareholder or Employee.
6.1. This Option shall not entitle the Optionee to any rights as a
shareholder of the Company with respect to any Shares subject to this Option
until it has been exercised and any such Shares issued.
6.2. This Option does not confer upon the Optionee any right with respect
to continuation of employment by the Company or a Subsidiary, nor does it in any
way interfere with or affect Optionee's right, the Company's right or a
Subsidiary's right to terminate such employment at any time.
7. Withholding. The Committee will make whatever arrangements the Company deems
necessary or appropriate to comply with all applicable withholding requirements.
The Committee and the Company shall have no obligation to deliver a certificate
evidencing the Shares purchased upon exercise of the Option unless and until
withholding arrangements satisfactory to the Company are made. The Optionee's
failure to comply with the required withholding arrangements shall result in a
forfeiture of any benefits hereunder.
2
8. Entire Agreement. This Agreement, together with the provisions of the Plan
which are incorporated herein by reference, constitutes the entire Agreement
between the Optionee and the Company with respect to the Option granted
hereunder.
9. Applicable Law. The Plan and this Agreement shall be governed by the laws of
the State of South Carolina.
UCI MEDICAL AFFILIATES, INC.
By: _____________________________________________
Its: __________________________________________
_________________________________________________
Optionee
3
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement, dated as __________________ of ________________, (the
"Effective Date of Grant") implements the grant to the party identified as
optionee on the signature page hereof (the "Optionee") of a Nonqualified Stock
Option subject to the terms and conditions of the UCI Medical Affiliates, Inc.
1999 Stock Incentive Plan (the "Plan") and the terms and conditions set forth
below. Terms defined in the Plan shall have the same meaning herein as in the
Plan.
The Committee desires to afford the Optionee the opportunity to acquire
Shares of the Company's common stock so the Optionee has a proprietary interest
in the Company, and the Optionee desires the opportunity to acquire Shares.
Accordingly, the Company and the Optionee agree as follows:
1) Grant of Option and Purchase Price. The Company, pursuant to action of the
Committee, grants to the Optionee an Option to purchase ________ Shares (the
"Option Shares") at a price of $_________ per share ("Option Price"), [OPTIONAL:
WHICH HAS BEEN DETERMINED TO BE NOT LESS THAN THE FAIR MARKET VALUE OF A SHARE
ON THE EFFECTIVE DATE OF GRANT OF THIS OPTION].
2) Expiration of the Option. This Option shall expire ("Expiration Date") on the
earlier of (i) the date ten (10) years from the date hereof; (ii) the date three
(3) months after the Optionee ceases to be a Director, an Employee or a
Consultant of the Company, a Parent or a Subsidiary (twelve (12) months if
termination of employment is due to the Optionee's death or the Optionee having
incurred a Permanent and Total Disability); (iii) the date this Option is fully
exercised; (iv) the date mutually agreed to by the Committee and the Optionee;
or (v) the date of termination of employment, if termination of employment is
for Cause.
3) Exercise of Option
3.1. Subject to any other conditions herein, this Option shall vest and
become exercisable:
[SELECT ANY ONE OF THE FOLLOWING ALTERNATIVES]
[ ] on the Effective Date of Grant;
[ ] on the _________ anniversary of the Effective Date of Grant;
[ ] in _________ (____) installments, the Optionee having the right
hereunder to purchase from the Company the following number of
Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:
(a) on and after the ____ anniversary of the Effective Date of
Grant, up to _____% (ignoring fractional shares) of the total
number of Option Shares;
1
(b) on and after the ____ anniversary of the Effective Date of
Grant, up to an additional _____% (ignoring fractional shares) of
the total number of Option Shares; and
(c) on and after the ____ anniversary of the Effective Date of
Grant, the remaining Option Shares.
[ ] in accordance with the vesting schedule set forth in
Schedule A attached hereto and incorporated herein by
reference.
The Optionee's vested percentage of the total grant hereunder shall be fixed as
of the date the Optionee is no longer a Director, an Employee or a Consultant of
the Company, a Subsidiary or a Parent and shall not increase during the
additional period, if any, during which this Option may be exercised under
Section 2, 2 hereof. Vested portions of this Option may be exercised at any
time, in whole or in part, before the Expiration Date.
3.2. This Option may be exercised by mailing or delivering to the Company,
Attention: Corporate Secretary, 1901 Main Street, Suite 1200, Columbia, South
Carolina 29201, (i) a written signed notice of such exercise which specifies the
Effective Date of Grant of this Option, and the number of Shares being
purchased, and (ii) payment for such Shares by check (which clears in due
course) payable to the Company and/or by surrender of Shares previously owned by
the Optionee valued at the Fair Market Value thereof on the date received by the
Company. The Option shall be deemed exercised and the Shares purchased thereby
shall be deemed issued as of the date such payment is received by the Company.
4) Non-transferability of Option. This Option shall not be transferable by the
Optionee other than by will or the laws of descent and distribution and shall b
exercisable during the Optionee's lifetime only by the Optionee.
5) Adjustment in Shares Subject to the Option. The Committee will make
appropriate adjustments in the number of Shares subject to this Option or the
Option Price in order to give effect to changes made in the number of
outstanding Shares as a result of a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split, or other relevant
change.
6) Rights as Shareholder or Employee.
6.1. This Option shall not entitle the Optionee to any rights as a
shareholder of the Company with respect to any Shares subject to this Option
until it has been exercised and any such Shares issued.
6.2. This Option does not confer upon the Optionee any right with respect
to continuation of employment by the Company or a Subsidiary, nor does it in any
way interfere with or affect Optionee's right, the Company's right or a
Subsidiary's right to terminate such employment at any time.
7) Withholding. The Committee will make whatever arrangements the Company deems
necessary or appropriate to comply with all applicable withholding requirements.
The Committee and the
2
Company shall have no obligation to deliver a certificate evidencing the Shares
purchased upon exercise of the Option unless and until withholding arrangements
satisfactory to the Company are made. The Optionee's failure to comply with the
required withholding arrangements shall result in a forfeiture of any benefits
hereunder.
8) Entire Agreement. This Agreement, together with the provisions of the Plan
which are incorporated herein by reference, constitutes the entire Agreement
between the Optionee and the Company with respect to the Option granted
hereunder.
9) Applicable Law. The Plan and this Agreement shall be governed by the laws of
the State of South Carolina.
UCI MEDICAL AFFILIATES, INC.
By:_____________________________________
Its:__________________________________
________________________________________
Optionee
3