FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-13265
<TABLE>
<CAPTION>
<S> <C> <C>
UCI MEDICAL AFFILIATES, INC.
--------------------------------------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 59-2225346
---------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
1901 Main Street, Suite 1200, Mail Code 1105, Columbia, SC 29201
- ----------------------------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 252-3661
-----------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
-----------------------------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value
-----------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
------- ------------
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( X )
The registrant's revenue for the year ended September 30, 1997, the registrant's
most recent year end, was $27,924,772.
The aggregate market value of voting stock held by nonaffiliates of the
registrant on December 5, 1997, is approximately $5,801,885.*
The number of shares outstanding of the registrant's common stock, $.05 par
value, was 5,744,965 at September 30, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
------ -------
* Calculated by excluding all shares held by officers, directors and controlling
shareholder of registrant without conceding that all such persons are
"affiliates" of registrant for purposes of the federal securities laws.
<PAGE>
UCI MEDICAL AFFILIATES, INC.
INDEX TO FORM 10-KSB/A
<TABLE>
<CAPTION>
PART I PAGE
------ ----
<S> <C> <C>
Item 1. Description of Business..............................................................................2
Item 2. Description of Properties............................................................................8
Item 3. Legal Proceedings....................................................................................8
Item 4. Submission of Matters to a Vote of Security Holders..................................................8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.............................................9
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations...............10
Item 7. Financial Statements................................................................................17
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act........................................................................................17
Item 10. Executive Compensation..............................................................................20
Item 11. Security Ownership of Certain Beneficial Owners and Management......................................22
Item 12. Certain Relationships and Related Transactions......................................................24
Item 13. Exhibits and Reports on Form 8-K....................................................................26
</TABLE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
UCI Medical Affiliates, Inc. ("UCI") is a Delaware corporation incorporated on
August 25, 1982. Operating through its wholly-owned subsidiary, UCI Medical
Affiliates of South Carolina, Inc. ("UCI-SC"), UCI provides nonmedical
management and administrative services for a network of 40 freestanding medical
centers (the "Centers") located throughout South Carolina (29 operating as
Doctor's Care, one as Doctor's Surgical Group, one as Doctor's Orthopedic Group,
four as Progressive Physical Therapy Services and five family practice offices
operating under different names).
Organizational Structure
Federal law and the laws of South Carolina generally specify who may practice
medicine and limit the scope of relationships between medical practitioners and
other parties. Under such laws, UCI and UCI-SC are prohibited from practicing
medicine or exercising control over the provision of medical services. In order
to comply with such laws, all medical services at the Centers are provided by or
under the supervision of Doctor's Care, P.A. (the "P.A.," and collectively with
UCI and UCI-SC, the "Company"), which has contracted with UCI-SC to be the sole
provider of all medical direction and supervisors of the Centers. The P.A. is
organized so that all physician services are offered by the physicians who are
employed by the P.A. Neither UCI nor UCI-SC employ practicing physicians as
practitioners, exert control over their decisions regarding medical care or
represent to the public that it offers medical services.
UCI has entered into a Facilities Agreement with the P.A. pursuant to which
UCI-SC performs all non-medical management of the P.A. and has exclusive
authority over all aspects of the business of the P.A. (other than those
directly related to the provision of patient medical services or as otherwise
prohibited by state law). The non-medical management provided by UCI-SC
includes, among other functions, treasury and capital planning, financial
reporting and accounting, pricing decisions, patient acceptance policies,
setting office hours, contracting with third party payors and all administrative
services. UCI-SC provides all of the resources (systems, procedures, and
staffing) to bill third party payors or patients, and it provides all of the
resources (systems, procedures, and staffing) for cash collection and management
of accounts receivables, including custody of the lockbox where cash receipts
are deposited. From the cash receipts, UCI-SC pays all physician salaries,
operating costs of the centers and operating costs of UCI-SC. Compensation
guidelines for the licensed medical professionals at the P.A. are set by UCI-SC,
and UCI-SC establishes guidelines for establishing, selecting, hiring and firing
the licensed medical professionals. UCI-SC also negotiates and executes
substantially all of the provider contracts with third party payors, with the
P.A. executing certain of the contracts at the request of a minority of payors.
Pursuant to the Facilities Agreement, the P.A. retains from its collections for
services rendered an amount equal to the salary and related employee benefits of
the medical personnel of the P.A., as well as an amount equal to the nominal
expenses incurred by the P.A. to purchase certain narcotic drugs required by law
to be owned by the P.A. or its employee-physicians. The balance of all fees and
other revenues generated by the P.A. is paid to UCI-SC as its management fee.
UCI-SC does not loan or otherwise advance funds to the P.A. for any purposes.
The calculation of the management fee paid by the P.A. to UCI-SC does not differ
if the collections of the P.A. were generated by its physical therapy group,
surgical group, orthopedic group, or family practice group.
UCI-SC and the P.A. are under common financial and operational control. The P.A.
and UCI-SC share a common management team, with the same individuals serving as
President and as Chief Financial Officer of both companies. The sole shareholder
of the P.A. is M.F. McFarland, III, M.D., the President and Chief Executive
Officer of UCI and UCI-SC.
UCI-SC believes that the services it provides to the P.A. do not constitute the
practice of medicine under applicable laws. Nevertheless, because of the
uniqueness of the structure of the relationship described above, many aspects of
the Company's business operations have not been the subject of state or federal
regulatory interpretation and there can be
2
<PAGE>
no assurance that a review of the Company's business by the courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or future
expansion.
The Centers
The Centers are 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.
The Centers typically are open for extended hours (weekends and evenings) and
out-patient care only. When hospitalization or specialty care is needed,
referrals to appropriate specialists are made.
The Company's Centers are broadly distributed throughout the state of South
Carolina. There are twenty-two primary care Centers in the Columbia region, five
in the Charleston region, five in the Myrtle Beach region, two in the Aiken
region, and six in the Greenville-Spartanburg region.
The Company is considering introducing its medical model into neighboring states
as management believes that the same conditions that led to the Company's growth
to date in South Carolina exist in other states. Although management believes
that expansion into neighboring states is possible, there can be no assurance
that expansion into other states would be successful.
Medical Services Provided at the Centers
The Company's Centers offer out-patient medical care, without appointment, for
treatment of acute and episodic medical problems. The 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 provided at the 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 Centers, a patient with a life-threatening condition would be
evaluated by the physician, stabilized and immediately referred to a nearby
hospital.
Patient Charges and Payments
The fees charged to a patient are determined by the nature of medical services
rendered. Management of the Company believes that the charges at its Centers are
significantly lower than the charges of hospital emergency departments and are
generally competitive with the charges of local physicians and other providers
in the area.
The Company's Centers accept payment from a wide range of sources. These include
patient payments 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. The Company also provides
services for members of the four largest health maintenance organizations
("HMOs") operating in South Carolina - Companion HealthCare Corporation,
HealthSource South Carolina, Inc., Physician's Health Plan, and Maxicare.
3
<PAGE>
The following table breaks out the Company's revenue and patient visits by
revenue source for fiscal year 1997:
<TABLE>
<CAPTION>
PERCENT (%) OF PERCENT (%) OF
PAYOR PATIENT VISITS REVENUE
- ------------------------------ ------------------- -------------------
<S> <C> <C>
Patient Pay 24% 24%
Employer Paid 15% 11%
HMO 10% 11%
Workers Compensation 10% 14%
Medicare/Medicaid 12% 7%
Managed Care Insurance 24% 28%
Other 5% 5%
</TABLE>
In accordance with the agreements described above, UCI-SC, as the agent for the
P.A., processes all billings and capitation payments for the P.A. When the
billings and capitation payments for the P.A. are received, they are deposited
in accounts owned by the P.A. In no event are the physicians entitled to receive
such billings and capitation payments.
Capitated Reimbursement Arrangements
Medical services traditionally have been provided on a fee-for-service basis
with insurance companies assuming responsibility for paying all or a portion of
such fees. The increase in medical costs under traditional indemnity health care
plans has been caused by a number of factors. These factors include: (i) the
lack of incentives on the part of health care providers to deliver
cost-effective medical care; (ii) the absence of controls over the utilization
of costly specialty care physicians and hospitals; (iii) a growing and aging
population which requires increased health care expenditures; and (iv) the
expense involved with the introduction and use of advanced pharmaceuticals and
medical technology.
As a result of escalating health care costs, employers, insurers and
governmental entities all have sought cost-effective approaches to the delivery
of and payment for quality health care services. HMOs and other managed health
care organizations have emerged as integral components in this effort. HMOs
enroll members by entering into contracts with employer groups or directly with
individuals to provide a broad range of health care services for a capitation
payment, with minimal or no deductibles or co-payments required of the members.
HMOs, in turn, contract with health care providers like the Company to
administer medical care to HMO members. These contracts provide for payment to
the Company on either a discounted fee-for-service or through capitation
payments based on the number of members covered, regardless of the amount of
necessary medical care required within the covered benefit period.
The Company negotiates contracts with HMOs for the P.A.'s physicians to provide
health care on a capitated reimbursement basis. Under these contracts, which
typically are automatically renewed on an annual basis, the P.A.'s physicians
provide virtually all covered primary care services in exchange for a fixed
monthly capitation payment from the HMOs for each member who chooses a P.A.
physician as his or her primary care physician. Note that the Company is only
capitated from and obligated to provide the primary care services for the
patient. The Company is not at risk for specialty care or hospital services. The
capitation amount is fixed depending upon the age and sex of the HMO enrollee.
Contracts with HMOs accounted for approximately 11% of the Company's net
revenues in fiscal 1997.
To the extent that enrollees require more care than is anticipated, aggregate
capitation payments may be insufficient to cover the costs associated with the
treatment of enrollees. No capitation contracts currently in place at the
Company have been determined to be insufficient to cover related costs of
treatment. Higher capitation rates are typically received for senior patients
because their medical needs are generally greater and consequently the cost of
covered care is higher. Certain third party payors are studying various
alternatives for reducing medical costs, some of which, if implemented, could
affect reimbursement levels to the Company. Management of the Company cannot
predict whether changes in present reimbursement methods or proposed future
modifications in reimbursement methods will affect payments for services
provided by the Centers and, if so, whether they will have an adverse impact
upon the business of the Company.
4
<PAGE>
Competition and Marketing
All of the Company's Centers face competition, in varying degrees, from hospital
emergency rooms, private doctor's offices and other competing freestanding
medical centers. Some of these providers have financial resources which are
greater than those of the Company. In addition, traditional sources of medical
services, such as hospital emergency rooms and private physicians, have had, in
the past, a higher degree of recognition and acceptance by patients than Centers
such as those operated by the Company. The Company's Centers compete on the
basis of accessibility, including evening and weekend hours, a no-appointment
policy, the attractiveness of the Company's state-wide network to large
employers and third party payors, and on a basis of a competitive fee schedule.
In an effort to offset the competition's community recognition, the Company has
substantially increased its marketing efforts. Regional marketing
representatives have been added, focused promotional material has been developed
and a newsletter for employers promoting the Company's activities has been
initiated. Additionally, the Company has created a Family Practice Division to
attract those patients who desire to visit the more traditional type doctor's
office - by appointment.
Government Regulation
Federal law and the laws of many states, including South Carolina, generally
specify who may practice medicine and limit the scope of relationships between
medical practitioners and other parties. Under such laws, business corporations
such as UCI and UCI-SC are prohibited from practicing medicine or exercising
control over the provision of medical services. In order to comply with such
laws, all medical services at the Centers are provided by or under the
supervision of the P.A., which has contracted with UCI-SC to provide the medical
direction of the Centers. The P.A. is organized so that all physician services
are offered by the physicians who are employed by the P.A. Neither UCI nor
UCI-SC employ practicing physicians as practitioners, exert control over their
decisions regarding medical care or represent to the public that it offers
medical services. UCI-SC has entered into an administrative services agreement
with the P.A. for the performance by UCI-SC of all administrative, management
and support functions. UCI-SC believes that the services it provides to the P.A.
which result in control over the assets of the P.A. and mandate financial
statement consolidation under Generally Accepted Accounting Principles do not
constitute the practice of medicine under applicable laws. Accordingly, the
Company believes that it is not in violation of applicable state laws relating
to the practice of medicine.
As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the uniqueness of the structure of the relationship
between UCI-SC and the P.A., many aspects of UCI's business operations have not
been the subject of state or federal regulatory interpretation and there can be
no assurance that a review of UCI's or the P.A.'s business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of UCI or that the health care regulatory environment will
not change so as to restrict UCI's existing operations or its expansion.
Approximately five (5%) percent of the revenues of the Company is derived from
payments made by government- sponsored health care programs (principally,
Medicare and Medicaid). As a result, any change in reimbursement regulations,
policies, practices, interpretations or statutes could adversely affect the
operations of the Company. There are also state and federal civil and criminal
statutes imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers that fraudulently or wrongfully bill
governmental or other third-party payors for health care services. The Company
believes it is in material compliance with such laws, but there can be no
assurance that the Company's activities will not be challenged or scrutinized by
governmental authorities.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Although the Company believes
that it is not in violation of the Anti-kickback Statute, its operations do not
fit within any of the existing or proposed federal safe harbors.
The Office of the Inspector General (the "OIG"), the government office that is
charged with the enforcement of the federal Anti-kickback Statute, recently
issued an advisory opinion regarding a proposed management services contract
5
<PAGE>
that involved a cost plus a percentage of net revenue payment arrangement
("Advisory Opinion 98-4"). Based on its analysis of the intent and scope of the
Anti-kickback Statute, the OIG determined that it could not approve the
arrangement because the structure of the management agreement raised the
following concerns under the Anti-kickback Statute: (i) the agreement might
include financial incentives to increase patient referrals; (ii) the agreement
did not include any controls to prevent over utilization; and (iii) the
percentage billing arrangement may include financial incentives that increase
the risk of abusive billing practices. The OIG opinion did not find that the
management arrangement violated the Anti-kickback Statute, rather that the
arrangement may involve prohibited remuneration absent sufficient controls to
minimize potential fraud and abuse. An OIG advisory opinion is only legally
binding on the Department of Health and Human Services (including the OIG) and
the requesting party and is limited to the specific conduct of the requesting
party because additional facts and circumstances could be involved in each
particular case. Accordingly, the Company believes that Advisory Opinion 98-4
does not have broad application to the Company's provision of nonmedical
management and administrative services for the Centers. The Company also
believes that the Company and the Centers have implemented appropriate controls
to ensure that the arrangements between the Company and the Centers do not
result in abusive billing practices or the over utilization of items and
services paid for by Federal health programs.
The applicability of the Anti-kickback Statute to many business transactions in
the health care industry, including the Company's service agreements with the
Centers and the development of ancillary services by the Company, has not been
subject to any significant judicial and regulatory interpretation. The Company
believes that although it receives remuneration for its management services
under its service agreements with the Centers, the Company is not in a position
to make or influence referrals of patients or services reimbursed under Medicare
or state health programs to the Centers. In addition, the Company is not a
separate provider of Medicare or state health program reimbursed services.
Consequently, the Company does not believe that the service and management fees
payable to it should be viewed as remuneration for referring or influencing
referrals of patients or services covered by such programs as prohibited by the
Anti-kickback Statute.
Significant prohibitions against physician referrals were enacted by the U.S.
Congress in the Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his immediate family is prohibited from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest
or with which the physician has entered into a compensation arrangement. While
the Company believes it is in compliance with such legislation, future
regulations could require the Company to modify the form of its relationships
with physician groups. Some states have also enacted similar self-referral laws
and the Company believes it is likely that more states will follow. The Company
believes that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's relationships with physician groups to comply with new or revised
state statutes.
South Carolina has adopted anti-kickback and self-referral laws that regulate
financial relationships between health care providers and entities that provide
health care services. The following is a summary of those laws. South Carolina's
Provider Self-Referral Act of 1993 generally provides that a health care
provider may not refer a patient for the provision of any designated health
service to an entity in which the health care provider is an investor or has an
investment interest. Under the Company's current operations, the Company does
not believe it is an entity providing designated health services for purposes of
the South Carolina Provider Self-Referral Act. The Centers provide all health
care services to patients through employees of the P.A. There are no provider
investors in the P.A. that refer patients to the Centers for designated health
care services. Accordingly, under South Carolina law, the Company believes that
the provider self-referral prohibition would not apply to the Centers' or the
Company's operations in South Carolina.
In addition to self-referral prohibitions, South Carolina's Provider
Self-Referral Act of 1993 also prohibits the offer, payment, solicitation, or
receipt of a kickback, directly or indirectly, overtly or covertly, in cash or
in kind, for referring or soliciting patients. The Company believes that its
payment arrangements are reasonable compensation for services rendered and do
not constitute payments for referrals.
Because the P.A. remains a separate legal entity, it may be deemed a competitor
subject to a range of antitrust laws which prohibit anti-competitive conduct,
including price fixing, concerted refusals to deal and division of market. The
Company intends to comply with such state and federal laws which may affect its
development of integrated health care delivery networks, but there can be no
assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operation of the Company.
6
<PAGE>
As a result of the continued escalation of health care costs and the inability
of many individuals to obtain health insurance, numerous proposals have been or
may be introduced in the U.S. Congress and state legislatures relating to health
care reform. There can be no assurance as to the ultimate content, timing or
effect of any health care reform legislation, nor is it possible at this time to
estimate the impact of potential legislation, which may be material, on the
Company.
Federal and state laws regulate insurance companies, HMOs and other managed care
organizations. Generally, these laws apply to entities that accept financial
risk. Certain of the risk arrangements entered into by the Company could
possibly be characterized by some states as the business of insurance. The
Company, however, believes that the acceptance of capitation payments by a
healthcare provider does not constitute the conduct of the business of
insurance. Many states also regulate the establishment and operation of networks
of healthcare providers. Generally, these laws do not apply to the hiring and
contracting of physicians by other healthcare providers. South Carolina does not
currently regulate the establishment or operation of networks of healthcare
providers except where such entities provide utilization review services through
private review agents. There can be no assurance that regulators of the states
in which the Company may operate would not apply these laws to require licensure
of the Company's operations as an insurer or provider network. The Company
believes that it is in compliance with these laws in the state in which it
currently does business, but there can be no assurance that future
interpretations of these laws by the regulatory authorities in South Carolina or
the states in which the Company may expand will not require licensure or a
restructuring of some or all of the Company's operations. In the event that the
Company is required to become licensed under these laws, the licensure process
can be lengthy and time consuming and, unless the regulatory authority permits
the Company to continue to operate while the licensure process is progressing,
the Company could experience a material adverse change in its business while the
licensure process is pending. In addition, many of the licensing requirements
mandate strict financial and other requirements which the Company may not
immediately be able to meet. Further, once licensed, the Company would be
subject to continuing oversight by and reporting to the respective regulatory
agency.
Employees
As of September 30, 1997 and 1996, the Company had 480 and 429 employees,
respectively (384 and 330, respectively, on a full-time equivalent basis). This
includes 84 and 72 medical providers, respectively, employed by the P.A.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 1 (Description of
Business) and in PART II, Item 6 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) that are not historical facts are
forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. The Company cautions readers of this
Annual Report on Form 10-KSB that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Although the
Company'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 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 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, and other factors described in this report and in
other reports filed by the Company with the Securities and Exchange Commission.
ITEM 2. DESCRIPTION OF PROPERTIES
All but one of the Company's primary care Centers' facilities are leased. The
properties are generally located on well-traveled major highways, with easy
access. Each property offers free, off-street parking immediately adjacent to
the center. One Center is leased from an entity affiliated with the Company's
Chairman. Six Centers are leased from Companion HealthCare Corporation and one
Center is leased from Companion Property and Casualty Insurance
7
<PAGE>
Company, principal shareholders of the Company. Ten of the Centers are leased
from physician employees of the P.A. See additional information regarding these
leases at Item 12, "Certain Relationships and Related Transactions."
The Company's Centers are broadly distributed throughout the state of South
Carolina. There are 22 primary care Centers in the Columbia, South Carolina
region, five in the Charleston, South Carolina region, five in the Myrtle Beach,
South Carolina region, two in the Aiken, South Carolina region, and six in the
Greenville - Spartanburg, South Carolina region. The Company's corporate offices
are located in downtown Columbia, South Carolina in 13,000 square feet of leased
space. The Centers are all in free-standing buildings in good repair.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various claims, legal activities and complaints arising
in the normal course of business. In the opinion of management and legal
counsel, aggregate liabilities, if any, arising from legal actions would not
have a material adverse effect on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the Nasdaq SmallCap Market under
the symbol UCIA. The prices set forth below indicate the high and low bid prices
reported on the Nasdaq SmallCap Market for the indicated periods.
<TABLE>
<CAPTION>
BID PRICE
FISCAL YEAR ENDED SEPTEMBER 30, 1997 HIGH LOW
<S> <C> <C>
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
BID PRICE
FISCAL YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW
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
BID PRICE
FISCAL YEAR ENDED SEPTEMBER 30, 1995 HIGH LOW
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
</TABLE>
The foregoing quotations reflect inter-dealer prices without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
As of September 30, 1997, there were 652 stockholders of record of the Company's
common stock, excluding individual participants in security position listings.
The Company has not paid cash dividends on its common stock since inception and
has no plans to declare cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
During the Company's fiscal year ended September 30, 1997, the securities
identified below were issued by the Company without registration under the
Securities Act of 1933. In each case, all of the shares were issued pursuant to
the exemption from registration contained in Section 4(2) of the Securities Act
of 1933 (the "Act") and Rule 506 of Regulation D under the Act as a transaction,
not involving a general solicitation, in which the purchaser was purchasing for
investment. The Company believes that each purchaser was given or had access to
detailed financial and other information with respect to the Company and
possessed requisite financial sophistication.
9
<PAGE>
On August 1, 1997, the Company issued 253,648 shares of its common stock to Dr.
Stephen F. Serbin, 253,648 shares of its common stock to Dr. Peter J. Stahl and
10,353 shares of its common stock to Dr. Sharon Silverman as consideration in
connection with the merger of the medical practice of Doctors Serbin, Stahl, and
Silverman with UCI-SC.
On September 9, 1997, the Company issued 19,513 shares of its common stock to
Dr. Leif M. Adams as part of the purchase price in connection with the Company's
acquisition of substantially all of the assets of the medical practice of Dr.
Adams.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which the Company
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $27,925 $23,254 $17,987 $12,540 $9,799
Income (loss) before extraordinary items (84) 466 (1,360) 644 268
Net income (loss) (84) 466 (1,360) 644 407
Net income (loss) per share1 (.02) .11 (.43) .28 .21
Weighted average number of shares
outstanding(1) 5,005 4,294 3,137 2,324 1,971
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------------
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 2,921 $ 2,020 $ (383) $ 763 $ (845)
Premises & equipment, net 4,003 3,300 2,795 1,098 487
Total assets 20,864 15,733 10,216 6,674 2,940
Long-term debt 7,939 5,373 4,366 2,838 667
Stockholders' equity 9,488 7,822 3,253 2,603 457
</TABLE>
- --------
1 The net income (loss) per share and the weighted average number of shares
outstanding has been restated for all periods presented to reflect the one for
five reverse stock split effected on July 27, 1994.
10
<PAGE>
Consolidation with the P.A.
The consolidated financial statements of the Company include the accounts of
UCI, UCI-SC and the P.A. The financial statements of the P.A. are consolidated
with UCI because UCI-SC has unilateral control over the assets and operations of
the P.A., and notwithstanding the lack of majority ownership of the P.A. by UCI
and UCI-SC, consolidation of the P.A. with UCI and UCI-SC is necessary to
present fairly the financial position and results of operations of UCI and
UCI-SC. The management agreement between UCI-SC and the P.A. conveys to UCI-SC
perpetual, unilateral control over the assets and operations of the P.A. Control
is perpetual rather than temporary because of (i) the length of the term of the
agreement, (ii) the continuing investment of capital by UCI-SC, (iii) the
employment of all of the non-physician personnel by UCI-SC and (iv) the nature
of the services provided to the P.A. by UCI-SC.
In November 1997 the Emerging Issue Task Force (EITF) finalized EITF 97-2 which
provides guidance on consolidation of physician practices and enhances related
disclosures of physician practice management companies. This EITF 97-2 is
effective for fiscal years ending after December 15 1998. The Company is in the
process of evaluating any potential effect on its financial reporting format.
Procedurally, the management agreement calls for the P.A. to provide medical
services and charge a fee to the patient or to the patient's insurance carrier
or employer for such services. Physician salaries are paid out of these revenues
and all remaining revenues are passed to UCI-SC as a management fee. UCI-SC
provides all support personnel (nurses, technicians, receptionists), all
administrative functions (billing, collecting, vendor payment), and all
facilities, supplies and equipment. The consolidated accounts of the Company
include all revenue and all expenses (including physician salaries) of all three
entities.
The P.A. enters into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses that allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. Over 80% of the physicians employed by the P.A. are paid on an
hourly basis for time scheduled and worked at the medical centers. The other
physicians are salaried. A few of the physicians have incentive compensation
arrangements, however, no amounts were accrued or paid during the Company's
three prior fiscal years that were significant. Any incentive compensation is
based upon a percentage of non-annually collectible charges for services
performed by a provider. Percentages range from 3% to 17% and vary by individual
employment contract. As of September 30, 1997 and 1996, the P.A. employed 84 and
72 medical providers, respectively.
The net assets of the P.A. are not material for any period presented and
intercompany accounts and transactions have been eliminated. For the fiscal year
ended September 30, 1997, the Company has shown a substantial increase in
revenues and in the number of medical centers under management. This growth is a
direct result of actions taken by management to increase marketing efforts, to
expand the state-wide network in South Carolina and to focus on the field of
occupational and industrial medicine.
Results of Operations for the Year Ended September 30, 1997 Compared to the Year
Ended September 30, 1996
For fiscal year 1997, revenues of $27,925,000 reflect an increase of 20% from
the amount reported for fiscal year 1996. The following reflects revenue trends
from fiscal year 1993 through fiscal year 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS)
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $27,925 $23,254 $17,987 $12,540 $9,799
Operating Costs 26,466 21,525 18,180 11,881 9,133
Operating Margin 1,458 1,729 (193) 660 666
</TABLE>
The increase in revenue for fiscal year 1997 is attributable to a number of
factors. The Company engaged in a significant expansion, increasing the number
of primary care medical Centers in South Carolina from 29 to 33 (as of September
30, 1997). The expansion included the addition of seven Centers and the closure
of three Centers, for a net
11
<PAGE>
addition of three Centers to the cluster in Columbia (bringing the total to 18)
and one Center in Greenville (bringing the total to six in this region). Myrtle
Beach has four locations and the Charleston area has the remaining five sites.
The revenue from the net increase in new locations in fiscal year 1997 and from
the full year of operations of the locations added in fiscal year 1996
represented the most significant portion of the revenue growth. Of the
$4,671,000 in revenue growth, approximately $876,000 was from the net increase
of four locations opened in fiscal year 1997 and approximately $2,462,000 was
the result of having the four locations opened during fiscal year 1996 operating
for all of fiscal year 1997.
The increase of four Centers in fiscal year 1997 was net of two centers in the
Columbia area and one center in the Myrtle Beach area that were closed during
fiscal year 1997. Each of these centers were start-ups (versus acquisitions)
and, therefore, had no related intangible assets recorded, and each had not
proven to be profitable in a reasonable period of time. The aggregate costs of
the three centers closed exceeded their aggregate revenues by $253,000 during
fiscal year 1997.
The remainder of the revenue growth in fiscal year 1997 (approximately
$1,333,000) was the result of "same center" growth in patient visits and
charges. This represents an average growth of approximately seven (7%) percent
in revenue at these established centers.
The Company, in fiscal year 1997, increased its services provided to members of
HMOs. In these arrangements, the Company, through the P.A., acts as the
designated primary caregiver for members of HMOs who have selected one of the
Company's centers or providers as their primary care provider. In fiscal year
1994, the Company began participating in an HMO operated by Companion HealthCare
Corporation ("CHC"), a wholly owned subsidiary of Blue Cross Blue Shield of
South Carolina ("BCBS"). BCBS, through CHC, is a primary stockholder of UCI.
Including its arrangement with CHC, the Company now participates in four HMOs
and is the primary care "gatekeeper" for more than 20,000 capitated lives in
fiscal year 1997 compared to 18,000 in fiscal year 1996 and 11,000 is fiscal
year 1995. While HMOs do not, at this time, have a significant penetration into
the South Carolina market, the Company believes that HMOs and other managed care
plans will experience a substantial increase in market share in the next few
years, and the Company is therefore positioning itself for this possibility.
Capitated revenue grew from approximately $2,400,000 for fiscal year 1996 to
$3,100,000 ($700,000, or 15%, of the $4,671,000 in total revenue growth) in
fiscal year 1997.
The Company negotiates contracts with HMOs for the P.A.'s physicians to provide
health care on a capitated reimbursement basis. Under these contracts, which
typically are automatically renewed on an annual basis, the P.A. physicians
provide virtually all covered primary care services and receive a fixed monthly
capitation payment from the HMOs for each member who chooses a P.A. physician as
his or her primary care physician. The capitation amount is fixed depending upon
the age and sex of the HMO enrollee. Contracts with HMOs accounted for
approximately 11% of the Company's net revenue in fiscal year 1997 compared to
10% in fiscal year 1996 and 8% in fiscal year 1995.
To the extent that enrollees require more care than is anticipated, aggregate
capitation payments may be insufficient to cover the costs associated with the
treatment of enrollees. No capitation contracts currently in place at the
Company have been determined to be insufficient to cover related costs of
treatment. Higher capitation rates are typically received for senior patients
because their medical needs are generally greater and consequently the cost of
covered care is higher.
Increased revenues in fiscal year 1997 also reflect the Company's heightened
focus on occupational medicine and industrial health services (these revenues
are referred to as "employer paid" on the table below). Focused marketing
materials, including quarterly newsletters for employers, were developed to
spotlight the Company's services for industry. The Company also entered into an
agreement with Companion Property and Casualty Insurance Company ("CP&C")
wherein the Company acts as the primary care provider for injured workers of
firms insured through CP&C. CP&C is a primary stockholder of UCI. See additional
information at Item 12, "Certain Relationships and Related Transactions".
Patient encounters increased to 393,000 in fiscal year 1997, from 338,000 in
fiscal year 1996. Of the 55,000 increase, 19,000 is attributable to the Centers
opened during the fiscal year. Patient encounters are not believed to have
declined due to the three center closures noted above as the Company, in each
case, had a nearby operating location.
Even with the positive effects of the factors mentioned above, revenues were
short of goals for the year, due in part to the increased competition from
hospitals and other providers in Columbia, Greenville, Sumter and Myrtle Beach.
In
12
<PAGE>
each of these areas, regional hospitals have acquired or opened new primary care
physician practices that compete directly with the Company for patients. In each
case, the hospital owner of the Company's competition is believed to have
significantly greater resources than the Company. Management believes that such
competition will continue into the future and plans to compete on a basis of
quality service and accessibility.
An operating margin of $1,458,000 was realized in fiscal year 1997 as compared
to an operating margin of $1,729,000 in fiscal year 1996. This margin
deterioration was primarily the result of the increased cost-cutting pressures
being applied by managed care insurance payors that cover many of the Company's
patients. The following table breaks out the Company's revenue and patient
visits by revenue source for fiscal year 1997:
PERCENT (%) OF PERCENT (%) OF
PAYOR PATIENT VISITS REVENUE
- ------------------------------ ------------------- -------------------
Patient Pay 24% 24%
Employer Paid 15% 11%
HMO 10% 11%
Workers Compensation 10% 14%
Medicare/Medicaid 12% 7%
Managed Care Insurance 24% 28%
Other 5% 5%
As managed care plans attempt to cut costs, they typically increase the
administrative burden of providers such as the Company by requiring referral
approvals and by requesting hard copies of medical records before they will pay
claims. The number of patients at the Company's Centers that are covered by a
managed care plan versus a traditional indemnity plan continues to grow.
Management expects this trend to continue.
The operating margin deterioration was also contributed to by the high costs of
the three centers closed during fiscal year 1997. Costs exceeded revenues by
$253,000 at these three centers during the fiscal year 1997.
Depreciation and amortization expense increased to $1,250,000 in fiscal year
1997, up from $961,000 in fiscal year 1996. This increase reflects higher
depreciation expense as a result of significant leasehold improvements and
equipment upgrades at a number of the Company's Centers, as well as an increase
in amortization expense related to the intangible assets acquired from the
Company's purchase of existing practices in Greenville and Columbia. Net
interest expense increased from $583,000 in fiscal year 1996 to $813,000 in
fiscal year 1997 primarily as a result of the interest costs associated with the
indebtedness incurred in the leasehold improvements, the operating line of
credit the Company has with its primary bank, and debt associated with the
acquisitions noted above.
Effective October 1, 1993, the company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an
asset and liability approach to accounting for income taxes. The effect of
adopting SFAS 109 was to reduce income tax expense for 1997 by approximately
$666,000 or $.13 per share. As a part of the adoption of SFAS 109, the Company
has recognized a deferred tax asset relating to net operating loss carryforwards
which are available to offset future taxable income.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
The budgets and forecasts that management and the Board of Directors
had adopted for the next five fiscal years including plans for
expansion.
The ability to utilize NOL's prior to their expiration.
The potential limitation of NOL utilization in the event of a change in
ownership.
The generation of future taxable income in excess of income reported on
the consolidated financial statements.
13
<PAGE>
A valuation allowance of $1.3 million and $1.9 million at September 30, 1997 and
1996, respectively, remained necessary in the judgement of management because
the factors noted above (i.e. forecasts) did not support the utilization of a
larger number. The deterioration of the operating margin discussed above was
also considered in the decision to maintain a valuation allowance.
Results of Operations and Balance Sheet Analysis for Fiscal Year 1996 Compared
to Fiscal Year 1995
Total revenues for fiscal year 1996 increased by 29% to $23,254,000 from
$17,987,000 for fiscal year 1995. The Company expanded from 25 to 29 Centers
during fiscal year 1996.
The Company, in fiscal year 1996, increased its services provided to members of
HMOs. In these arrangements, the Company, through the P.A., acts as the
designated primary caregiver for members of HMOs who have selected one of the
Company's Centers or providers as their primary care provider. The Company
participated in four HMOs during fiscal 1996 and was the primary care
"gatekeeper" for more than 18,000 capitated lives.
Patient encounters increased to 393,000 in fiscal year 1996 from 283,000 in
fiscal year 1995.
An operating margin of $1,729,000 was realized in fiscal 1996 as compared to an
operating loss of $193,000 in fiscal year 1995. This improvement was attributed
to cost cutting measures put into place in the third quarter of fiscal year 1995
which focused on personnel costs.
Depreciation and amortization expense increased to $961,000 in fiscal year 1996,
up from $579,000 in fiscal year 1995. This increase reflects higher depreciation
expense as a result of significant leasehold improvements and equipment upgrades
at a number of the Company's medical centers, as well as an increase in
amortization expense related to the intangible assets acquired from the
Company's purchase of existing practices in Greenville and Columbia. Net
interest expense increased from $505,000 in fiscal year 1995 to $583,000 in
fiscal year 1996 primarily as a result of the interest costs associated with the
indebtedness incurred in leasehold improvements and the operating line of credit
the Company had with its primary bank.
To evaluate possible impairment of goodwill and intangible assets at September
30, 1997, the Company follows the guidance provided in FAS 121 and APB 17,
paragraph 31. For each of the medical centers acquired which generated goodwill
on the books of the Company through purchase accounting, management reviewed the
projected undiscounted cash flows for the fiscal year 1998 and beyond. Only two
of the Company's medical centers indicated negative cash flow for fiscal year
1998 with a cumulative negative cash flow projected to be approximately $90,000.
Both these centers were projected by management to grow rapidly in fiscal year
1998 and beyond and a negative cash flow was projected in fiscal 1998 as
receivables grew in line with revenue; however, positive cash flow was expected
in the following years. Given management's assumption of positive cash flow for
these two centers beyond 1998, an impairment analysis based on after tax
discount cash flows was deemed not necessary.
It should be noted that the Company also has launched medical centers as
start-up operations, which have contributed in fiscal years 1996 and 1997 to the
Company's overall cash used in operations. However, the Company has not recorded
goodwill from these start-up medical centers as they were not purchased.
Effective October 1, 1993, the Company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an
asset and liability approach to accounting for income taxes. The effect of
adopting SFAS 109 was to reduce income tax expense for 1996 by approximately
$428,000 or $.10 per share. As part of the adoption of SFAS 109, the Company has
recognized a deferred tax asset relating to net operating loss carry forwards
which are available to offset future taxable income.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
The budgets and forecasts that management and the Board of Directors
had adopted for the next five fiscal years including plans for
expansion.
The ability to utilize NOL's prior to their expiration.
14
<PAGE>
The potential limitation of NOL utilization in the event of a change in
ownership.
The generation of future taxable income in excess of income reported on
the consolidated financial statements.
Cash and cash equivalents increased from $77,000 at September 30, 1995 to
$238,000 at September 30, 1996. Cash was provided mainly via the sale of stock
and the increase in debt.
Accounts receivable increased from $2,343,000 at September 30, 1995 to
$4,187,000 at September 30, 1996. This was attributable to the opening of four
additional primary care Centers and the overall growth in patient visits to
existing Centers. The decrease in the allowance was the result of the write-off
of old uncollectible balances and is not indicative of any known trends in the
collectibility of accounts receivable.
The increase in property and equipment during fiscal year 1996 is attributable
to the equipment needs of new centers and the upgrading of equipment at
established centers. The excess of cost over the net assets of acquired
businesses (goodwill) totaled $5,829,000 at September 30, 1996 compared to
$3,578,000 at the end of the previous fiscal year and reflects the medical
practices acquired.
The current portion of debt decreased in fiscal year 1996 to $914,000 from
$1,245,000 at the end of fiscal year 1995. This reduction was mainly due to the
refinancing of the line of credit to a long-term maturity. Long-term debt
increased from $3,121,000 to $4,459,000 primarily as a result of indebtedness
incurred in capital leases for Center upfits and in the utilization of an
operating line of credit.
Overall, the Company's current assets exceeded its current liabilities at
September 30, 1996 by $2,020,000.
Results of Operations for the Three Months Ended September 30, 1997 as Compared
to the Three Months Ended September 30, 1996:
The following summarizes the fiscal 1997 fourth quarter results of operations as
compared to the prior year:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
(IN 000'S) (IN 000'S)
----------------------- ------------------------
<S> <C> <C>
Revenues $ 7,625 $ 6,250
Operating Costs 7,590 6,012
Operating Margin 35 238
G&A Expenses 25 59
Depreciation & Amortization 358 273
Interest Expense, net 242 156
Benefit for Income Taxes 167 266
Net Income (loss) (423) 16
</TABLE>
Revenues of $7,625,000 for the quarter ending September 30, 1997 reflect an
increase of twenty-two (22%) percent from those of the quarter ending September
30, 1996.
Of the net increase of four centers during the year, discussed earlier, three
were added during the fourth quarter and represented $530,000 of the total
$1,375,000 in revenue growth from quarter to quarter.
Patient encounters increased to 106,000 in the fourth quarter of fiscal 1997
from 88,000 in the fourth quarter of fiscal 1996.
Even with the positive effects of the factors mentioned above, revenues were
short of goals for the quarter, due in part to the increased competition from
hospitals and other providers in Columbia, Greenville, Sumter and Myrtle Beach.
In each of these areas, regional hospitals have acquired or opened new primary
care physician practices that compete
15
<PAGE>
directly with the Company for patients. In each case, the hospital owners of our
competition are believed to have significantly greater resources than the
Company. Management believes that such competition will continue into the future
and plans to compete on a basis of quality service and accessibility.
During the fourth quarter of fiscal year 1997, the Company increased its
allowance for doubtful accounts by $279,000.
The increases in depreciation, amortization and interest expense are all related
to the items discussed in the year-to-date results with nothing unusual being
recorded in the fourth quarter.
Financial Condition at September 30, 1997
The Company grew significantly during the year ended September 30, 1997.
Cash and cash equivalents decreased from $238,000 at September 30, 1996 to
$15,000 at September 30, 1997. Cash was used mainly for acquisitions of
equipment and practice intangibles.
Accounts receivable increased from $4,187,000 at September 30, 1996 to
$5,944,000 at September 30, 1997. This was attributable to the net growth of
four additional primary care Centers and the overall growth in patient visits to
existing Centers. This growth was expected and management does not believe that
there has been a decline in the collectibility of accounts receivable.
The increase in property and equipment is attributable to the equipment needs of
new Centers and to the up-grading of equipment at established Centers. The
excess of cost over the net assets of acquired businesses (goodwill) totaled
$7,802,000 at September 30, 1997 compared to $5,829,000 at the end of the
previous fiscal year and reflects the medical practices acquired.
The growth in accounts payable ($1,392,000 at September 30, 1996 to $2,040,000
at September 30, 1997) and in accrued salaries ($751,000 at September 30, 1996
to $959,000 at September 30, 1997) is attributable to the overall growth in the
Company in terms of the number of centers and employees. Long-term debt
increased from $4,459,000 to $6,920,000 primarily as a result of indebtedness
incurred in capital leases for Center upfits, in the utilization of an operating
line of credit, and as part of practice acquisitions. Management believes that
it will be able to fund debt service requirements for the foreseeable future out
of cash generated through operations.
Liquidity and Capital Resources
The Company requires capital principally to fund growth (acquire new Centers),
for working capital needs and for the retirement of indebtedness. The Company's
capital requirements and working capital needs have been funded through a
combination of external financing (including bank debt and proceeds from the
sale of common stock to CHC and CP&C), and credit extended by suppliers.
The Company has a $3,000,000 bank line of credit with an outstanding
indebtedness of $2,906,000 at September 30, 1997. The line of credit bears
interest of prime plus 1% with a maturity of December 1998. (Prime rate was 8.5%
as of September 30, 1997.) The line of credit is used to fund the working
capital needs of the Company's expansion.
At September 30, 1997, the Company is in default of a debt covenant related to
the Line of Credit. The Company has received a written waiver from the financial
institution indicating that the financial institution does not intend to take
action related to this default. This Line of Credit is classified as long-term
debt on the Balance Sheet at September 30, 1997, as the line was renewed for an
additional twelve (12) month period in December 1997. The covenant was modified
as of renewal, and the Company is currently in compliance with all applicable
covenants.
Operating activities used $461,000 of cash during fiscal year 1997, compared
with $1,197,000 used during fiscal year 1996. The increased utilization of cash
for the increase of accounts receivable resulting from the growth in the
number of Centers and in the number of patient visits was offset by an increase
in accounts payable. This utilization of cash in operations is expected to
continue as the Company continues to grow.
16
<PAGE>
Investing activities used $808,000 of cash during fiscal year 1997 compared with
$693,000 in fiscal year 1996 as a result of continued expansion activity.
Continued growth is anticipated during fiscal year 1998. (See "Subsequent
Events" for a description of acquisition activity in the first quarter of fiscal
year 1998.)
The Company received $600,000 in cash during fiscal year 1997 resulting from
private placements of stock with CP&C which was used in part to manage the
Company's rapid growth. Should additional needs arise, the Company may consider
additional capital sources to obtain funding. There is no assurance that any
additional financing, if required, will be available on terms acceptable to the
Company. (See "Subsequent Events" for a description of $1,500,000 in funding
received by the Company in the first quarter of fiscal year 1998.)
Overall, the Company's current assets exceeded its current liabilities at
September 30, 1997 by $2,921,000 and by $2,020,000 at September 30, 1996.
The Company has a plan in place to ensure that the critical computer systems
that support the Company's business will be year 2000 compatible.
Subsequent Events
On October 1, 1997, the Company acquired certain assets of a three facility
physical therapy practice in Columbia, South Carolina for $856,756 by assuming
certain liabilities and issuing 276,976 shares of the common stock of the
Company. The Company entered into employment agreements with the physical
therapists who had been the owners of the practice. The Company also entered
into lease agreements or assumed existing lease agreements from the previous
owners. The practice previously had annual revenues of approximately $964,000.
On October 6, 1997, the Company completed a private placement of a $1.5 million,
6.5% five-year convertible subordinated debenture with FPA Medical Management,
Inc., a national physician practice management company headquartered in San
Diego, California. The debentures are convertible to common stock at any time
within the five year period at a fixed price of $3.20 which is a premium to the
current stock price and are subject to Rule 144 of the Securities and Exchange
Commission when converted.
On November 1, 1997, the Company acquired certain assets of a medical practice
in New Ellenton, South Carolina for $262,004 by paying $17,468 at closing,
financing $159,536 with the seller, and issuing 30,223 shares of the common
stock of the Company. The Company entered into an employment agreement with the
physician who had been the sole shareholder of the acquired medical practice.
The Company also entered into a lease agreement with the physician owner for the
facility occupied by the acquired medical practice. The practice previously had
annual revenues of approximately $409,000.
On December 11, 1997, the Company renewed its long-term debt agreement with
Carolina First Bank for a $3,000,000 line of credit, bearing interest at an
annual rate of prime plus one (1%) percent (prime rate was 8.5% as of September
30, 1997). This line of credit balance at September 30, 1997 is classified as
long-term on the accompanying balance sheet.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements on Page 28.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
17
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors
The UCI Restated Certificate of Incorporation provides for a classified Board of
Directors so that, as nearly possible, one-third of the UCI Board of Directors
is elected each year to serve a three-year term. Pursuant to the authority
granted to it by UCI's Bylaws, the Board of Directors has set the size of the
Board of Directors at seven members with staggered terms expiring at the Annual
Meetings of Stockholders in 1998, 1999 and 2000. Set forth below is certain
biographical information with respect to the directors of UCI.
Directors Whose Terms Expire in 2000
M.F. MCFARLAND, III, M.D., 49, 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 the P.A. for over five years. 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, 48, has served as a director of UCI since September 1995 and
as Executive Vice President and Chief Operating Officer of Companion Property
and Casualty Insurance Company ("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., 50, 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.
THOMAS G. FAULDS, 56, has served as a director of UCI since August 1996 and as
Executive Vice President of Private Business for Blue Cross Blue Shield of South
Carolina since October 1991. Mr. Faulds has been with Blue Cross Blue Shield of
South Carolina since March 1972 where he has served in key senior management
positions in government programs, information systems and operations.
Directors Whose Terms Expire in 1998
CHARLES P. CANNON, 47, has served as a director of UCI since September 1995, as
Vice President, Corporate Controller and Assistant Treasurer for Blue Cross Blue
Shield of South Carolina ("BCBS") since April 1988 and as Assistant Treasurer
for its subsidiary, Companion HealthCare Corporation, since April 1988. Prior to
joining BCBS in April 1988, he was a Senior Manager and consultant for Price
Waterhouse LLP for eleven years. Mr. Cannon is a member of the American
Institute of Certified Public Accountants, the South Carolina Association of
Certified Public Accountants, the Institute of Management Accountants, and the
Tennessee Society of Certified Public Accountants.
RUSSELL J. FRONEBERGER, 52, has served as a director of UCI since June 1994 and
as President of Global Consulting, a multinational marketing and financial
consulting firm, since 1991. Mr. Froneberger has over thirty years of
international corporate finance and marketing experience, having been associated
with Manufacturers Hanover Trust Company from 1967 to 1972, and South Carolina
National Bank, where he served as Senior Vice President of Marketing and
Corporate Development Relations from 1972 to 1991. He has lectured on finance
and capital formation at major universities and was the founder and first
Chairman of the Midlands International Trade Association in Columbia, South
Carolina.
18
<PAGE>
ASHBY JORDAN, M.D., 58, has served as a director of UCI since August 1996 and as
Vice President of Medical Affairs of Blue Cross Blue Shield of South Carolina
since December 1986. Prior to joining Blue Cross Blue Shield, 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.
Executive Officers
The names and certain other biographical information of the executive officers,
who are not also directors of UCI, are as follows:
JERRY F. WELLS, JR., 35, has served as Chief Financial Officer and Executive
Vice President of Finance of the Company since he joined the Company in February
1995 and as Corporate Secretary of the Company since December 1996. He has
served as Chief Financial Officer and Corporate Secretary of UCI-SC and
Corporate Secretary of the P.A. 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., 52, has served as Executive Vice President of Medical
Affairs of UCI and the P.A. since 1985. He is Board Certified in Emergency
Medicine and is a member of the American College of Emergency Physicians and the
Columbia Medical Society. Dr. Stout is also a member of the American College of
Physician Executives.
JON G. KEITH, 48, has served as Executive Vice President and Chief Operating
Officer of UCI and as Chief Operating Officer of UCI-SC since January 1997.
Prior to that time, Mr. Keith served as Vice President for Corporate Services
and Vice President for Administration for Baptist Healthcare System of South
Carolina and Baptist Medical Center from 1985 until January 1997. Mr. Keith is a
Diplomate with the American College of Healthcare Executives and a member of the
Medical Group Management Association.
JITENDRA S. MEHTA, 46, has served as Executive Vice President of Development and
Procurement of UCI since November 1993. Mr. Mehta has an extensive background in
hospital and medical personnel administration. He served as Business Director of
Multispecialty Clinic in Maryland from 1985 to 1989 and served as Vice President
and Partner of Citrus Diagnostic Center from 1990 to 1993. Mr. Mehta is
currently a member of American Registry for Radiological Technology and the
Nuclear Medicine Technologist Certification Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the directors
and officers of UCI to file reports of holdings and transactions in the common
stock of UCI with the Securities and Exchange Commission ("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
fiscal year ended September 30, 1997.
19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
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 Company's President and Chief Executive Officer and the executive officers
of the Company whose annual compensation from the Company exceeded $100,000 for
all services provided to UCI, UCI-SC, and the P.A. No other executive officer of
UCI, UCI-SC or the P.A. earned compensation in excess of $100,000 for services
provided to UCI, UCI-SC or the P.A. in any of the three fiscal years reflected
below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
-------------------------------------------
NAME AND PRINCIPAL POSITION FY SALARY(1) BONUS(1) OPTIONS COMPENSATION(2)
--------- ----------------- ---------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(1) AMOUNTS INCLUDED UNDER THE HEADING "SALARY" AND "BONUS" INCLUDE
COMPENSATION FROM BOTH UCI-SC AND THE P.A.
(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 THE P.A., AN AFFILIATED PROFESSIONAL ASSOCIATION THAT CONTRACTS
WITH UCI-SC TO PROVIDE ALL MEDICAL SERVICES AT THE COMPANY'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. THE P.A. ACCRUED A BONUS
PAYABLE TO DR. MCFARLAND DURING THE FISCAL YEAR ENDED SEPTEMBER 30,
1995 OF $145,000. DR. MCFARLAND RECEIVED DRAWS FROM THE P.A. 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 THE P.A., 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) THE P.A. 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.
20
<PAGE>
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 Company's executive officers. (All options reflected below vest
one-third in each of the three years following grant date.)
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FY 1997 PER SHARE DATE
- --------------------------------- ------------------ --------------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
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
D. Michael Stout, 5,000 1.12% 2.6250 Dec. 18, 2006
EXECUTIVE VICE PRESIDENT OF 74,825 16.80% 1.9375 June 18, 2007
MEDICAL AFFAIRS
</TABLE>
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.
1997 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT 09/30/97 IN-THE-MONEY OPTIONS AT 09/30/97
----------------------------------------- ------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
M.F. McFarland, III, M.D. 33,333 173,342 $ 0 $ 44,862
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
D. Michael Stout 16,666 93,159 0 42,090
EXECUTIVE VICE PRESIDENT OF
MEDICAL AFFAIRS
</TABLE>
Compensation of Directors
Non-employee directors are paid a fee of $500 for attendance at each meeting of
the Board of Directors. 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 Board of Directors.
21
<PAGE>
During the fiscal year 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 UCI's 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 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 UCI's 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 H. 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.
Employee 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 Company's fiscal
year subject to the Board of Directors' determination and based upon net income
and gross revenue of the Company for the same year. Also, effective October 1,
1995, Dr. McFarland entered into a five year contract with the P.A. 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 the P.A. that
provides for annual compensation of $160,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the common stock of UCI as of September
30, 1997. Information is presented for (i) shareholders owning more than five
percent of the outstanding common stock, (ii) each director and executive
officer of UCI, individually, and (iii) all directors and executive officers of
UCI, as a group. Except as otherwise specified, each of the shareholders named
in the table has indicated to UCI that such shareholder has sole voting and
investment power with respect to all shares of common stock beneficially owned
by that shareholder. Beneficial ownership reflected in the table below 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 sixty 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.
22
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENTAGE
- -------------------------------------------------------- ----------------------- -------------------
<S> <C> <C>
Blue Cross Blue Shield of South Carolina 2,624,623(1) 45.69%
I-20 at Alpine Road
Columbia, SC 29219
M.F. McFarland, III, M.D. 572,461(2) 9.91%
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
D. Michael Stout, M.D. 275,126(3) 4.78%
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Harold H. Adams, Jr. 2,000 -
6137 Hampton Ridge Road
Columbia, SC 29209
Charles P. Cannon 0 0
I-20 at Alpine Road
Columbia, SC 29219
Thomas G. Faulds 0 0
I-20 at Alpine Road
Columbia, SC 29219
Russell J. Froneberger 2,000 *
1201 Main Street, Suite 1980
Columbia, SC 29201
Ashby Jordan, M.D. 0 0
I-20 at Alpine Road
Columbia, SC 29219
Jitendra Mehta 16,667(4) *
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Jon G. Keith 500 *
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
Charles M. Potok 0 0
I-20 at Clemson Road
Columbia, SC 29219
Jerry F. Wells, Jr. 25,000(5) *
1901 Main Street, Suite 1200, Mail Code 1105
Columbia, SC 29201
All current directors and executive officers
as a group (11 persons) 893,754 15.56%
</TABLE>
- --------
(1*) Amount represents less than 1.0%.
(1) Shares 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.
(2)2 Includes 33,333 shares which may be acquired pursuant to the exercise of
stock options.
(3)3 Includes 16,666 shares which may be acquired pursuant to the exercise of
stock options.
(4)4 Includes 16,667 shares which may be acquired pursuant to the exercise of
stock options.
(5)5 Includes 25,000 shares which may be acquired pursuant to the exercise of
stock options.
23
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Doctor's Care
FACILITIES AGREEMENT. Pursuant to a Facilities Agreement between UCI-SC and the
P.A. (the "Facilities Agreement"), UCI-SC supplies to the P.A. the facilities,
equipment and assets of the Centers as well as such non-medical personnel as are
reasonably required by the P.A. in the operation of the Centers. In exchange,
the P.A. provides the necessary staffing for the performance of medical services
at the Centers, including a physician to serve as Executive Medical Director
having overall responsibility for the operations of the Centers. From the fees
paid each month to the P.A. for services rendered at the Centers, the P.A.
retains an amount equal to the payroll and related personnel costs of the P.A.
for physicians and other medical providers at the UCI Centers, as well as an
amount equal to the nominal expenses incurred by the P.A. to purchase certain
narcotic drugs required by law to be owned by the P.A. or its
employee-physicians. The balance of all fees and other revenues generated by the
P.A. is paid to UCI-SC as its management fee. Consequently, the calculation of
the management fee paid by the P.A. to UCI-SC does not differ if the P.A.
collections are generated by the P.A.'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, the P.A. received an aggregate of
approximately $27,925,000, $23,254,000, and $17,987,000, respectively, in fees
prior to deduction by the P.A. of its payroll and other related deductible costs
covered under the Facilities Agreement. For accounting purposes, the operations
of the P.A. are combined with the operations of UCI and are reflected in the
consolidated financial statements of UCI. Pursuant to the employment agreement
between the P.A. and Dr. McFarland, Dr. McFarland serves as Executive Medical
Director of the Centers, and is paid an annual salary for his services in such
position. Refer to footnotes (3) and (4) of the Summary Compensation Table for
compensation paid to Dr. McFarland by the P.A. during the fiscal years ended
September 30, 1997, 1996, and 1995. Pursuant to the employment agreement between
the P.A. and Dr. Stout, Dr. Stout provides medical services to the P.A., and is
paid an annual salary for such services. Refer to footnotes (5) and (6) of the
Summary Compensation Table for compensation paid to Dr. Stout by the P.A. 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 the P.A., 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 the P.A.
REFUND AGREEMENT. Pursuant to a Facilities Fee Refund Agreement (the "Refund
Agreement") entered into among UCI, UCI-SC and the P.A., the P.A. 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 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 the P.A. of $62,000
and $120,000, respectively, against accumulated refunds payable. At September
30, 1997 and 1996, UCI- SC had refunds payable to the P.A. of approximately
$94,000 and $156,000, respectively.
Facility 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 the
P.A. 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 Company's fiscal years ended September 30,
1997 and 1996 were $319,730 and $306,178, respectively.
Several of the medical center facilities operated by UCI-SC are leased or were
leased from entities owned or controlled by certain principal shareholders
and/or members of the Company'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.
o 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.
24
<PAGE>
o 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 the Company. Total lease payments
made by UCI-SC under this lease during the fiscal years ended September
30, 1997 and 1996 were zero and $14,125, respectively, plus utilities and
real estate taxes.
o 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 the Company.
Total lease payments made by UCI-SC under these two leases during the
fiscal years ended September 30, 1997 and 1996 were zero and $46,516,
respectively, plus utilities and real estate taxes. In connection with
its agreement to lease these two facilities, UCI-SC guaranteed the
lessor's mortgage debt relating to the two facilities. At September 30,
1997 and 1996, the outstanding balance of such debt was zero and zero,
respectively, plus utilities and real estate taxes.
o 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 the Company. Total lease payments made by UCI-SC under this lease
during the fiscal years ended September 30, 1997 and 1996 were zero and
$16,613, respectively, plus utilities and real estate taxes.
Other Transactions with Related Parties
Blue Cross Blue Shield of South Carolina ("BCBS") owns 100% of Companion
HealthCare Corporation ("CHC"), Companion Property & Casualty Insurance Company
("CP&C") and Companion Technologies, Inc. ("CT"). At September 30,1997, CHC
owned 2,006,442 shares of UCI's outstanding common stock and CP&C owned 618,181
shares of UCI's outstanding common stock, which combine to approximately 46% of
UCI's outstanding common stock.
The following is a historical summary of BCBS and its subsidiaries' purchases of
UCI's common stock.
<TABLE>
<CAPTION>
PRICE TOTAL
DATE NUMBER PER PURCHASE
PURCHASED ENTITY OF SHARES SHARE PRICE
- ------------------ ----------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
Including shares purchased by CHC from third parties, at September 30, 1997,
BCBS controlled 2,624,623 shares, or approximately 46% of UCI's outstanding
common stock. The shares acquired by CHC and CP&C from UCI were purchased
pursuant to stock purchase agreements and were not registered. The shares
acquired by CHC and CP&C were purchased at amounts below fair value at time of
purchase due to lower issuance costs incurred by UCI of these unregistered
securities. CHC and CP&C have the right to require registration of the stock
under certain circumstances as described in the agreement. BCBS and its
subsidiaries have the option to purchase as many shares as may be necessary for
BCBS to maintain ownership of 47% of the outstanding common stock of UCI in the
event that UCI issues additional stock to other parties (excluding shares issued
to employees or directors of UCI).
During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a
new billing and accounts receivable system from CT for an aggregate purchase
price of $504,000. The Company entered into a capital lease agreement for this
system, which includes computer equipment. The Company 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 lease addenda. The
terms of the purchase agreement are believed to have been 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.
25
<PAGE>
During the Company's fiscal year ended September 30, 1994, UCI-SC entered into
an agreement with CP&C pursuant to which UCI-SC, through the P.A., acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through CP&C. Additionally, during the Company's fiscal
year ended September 30, 1995, UCI-SC executed a $400,000.00 note payable to
CP&C payable in monthly installments of $4,546 (including 11% 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 the P.A., provides services to members of a health maintenance
organization ("HMO") operated by CHC who have selected the P.A. 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 year ended September 30, 1996, BCBS provided a non-interest bearing
advance to the Company in the amount of $600,000. This advance was paid in full
in December 1996. Management of the Company believes that the terms of this
advance are no less favorable than those that would have been obtainable through
arm's-length negotiations with related third parties for similar services.
The employees of the Company are offered health, life, and dental insurance
coverage at group rates from BCBS and its subsidiaries. The group rates offered
to the employees of the Company are believed to be no more or less favorable to
the Company than those that would have been obtainable through arm's-length
negotiations with unrelated third parties for similar services.
The Company contracts with Adams and Associates for its workers compensation and
professional liability insurance coverage. Aggregate premiums paid during the
fiscal year ended September 30, 1997 in connection with such policies were
approximately $155,000. Adams and Associates contracts with CP&C to be the
insurance carrier for the Company's workers compensation insurance coverage.
During the fiscal year ended September 30, 1996, Adams and Associates provided
short-term financing to the Company 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 the Company. Effective November 1, 1997,
the Company no longer contracts through Adams and Associates for any of its
insurance coverage. Management of the Company believes that the terms of its
contracts with Adams and Associates were no more or less favorable to the
Company than those that would have been obtainable through arm's-length
negotiations with unrelated third parties for similar services.
The Company has contracted since September 1994 with Global Consulting, Inc. for
financial and marketing consulting services. Russell J. Froneberger is the
President and owner of Global Consulting, Inc. and is also a director of the
Company. Fees paid during the fiscal year ended September 30, 1997 in connection
with these services were approximately $96,000. Management of the Company
believes that the terms of its contracts with Global Consulting, Inc. are no
more or less favorable to the Company than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
services.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A listing of the exhibits to the Form 10-KSB is set forth on the Exhibit Index
which immediately precedes such exhibits in this Form 10-KSB.
Reports on Form 8-K
The Company filed a Form 8-K on August 5, 1997 which reported the
acquisition by UCI-SC of Springwood Lake Family Practice Center, P.A. of
Columbia, South Carolina. Financial statements of the acquired entity and pro
forma financial information regarding the combined entity were filed in a Form
8-K/A on October 18, 1997.
The Company filed a Form 8-K on September 1, 1997 which reported the acquisition
by UCI-SC of Clifton G. Aycock, M.D., P.A. of Camden, South Carolina. Financial
statements of the acquired entity and pro forma financial information regarding
the combined entity were filed in a Form 8-K/A on November 13, 1997.
The Company filed a Form 8-K on September 9, 1997 which reported the acquisition
by UCI-SC of Leif Martin Adams, D.O., P.A. of Summerville, South Carolina.
Financial statements of the acquired entity and pro forma financial information
regarding the combined entity were filed in a Form 8-K/A on November 19, 1997.
26
<PAGE>
27
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
-------
<S> <C>
Report of Independent Accountants............................................................................29
Consolidated Balance Sheets at September 30, 1997 and 1996...................................................30
Consolidated Statements of Operations for the years
ended September 30, 1997, 1996 and 1995.............................................................31
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1997, 1996 and 1995...............................................32
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996 and 1995.............................................................33
Notes to Consolidated Financial Statements................................................................34-50
</TABLE>
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED
INFORMATION IS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR NOTES
THERETO.
28
<PAGE>
Report of Independent Accountants
December 4, 1997
To the Board of Directors and
Stockholders of UCI Medical Affiliates, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UCI Medical Affiliates, Inc. at September 30, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE
Columbia, South Carolina
ORIGINAL SIGNED OPINION ON PRICE WATERHOUSE LLP LETTERHEAD
IS ON FILE WITH
UCI MEDICAL AFFILIATES, INC.
29
<PAGE>
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-----------------------------------------
1997 1996
-------------------- -----------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 14,676 $ 237,684
Accounts receivable, less allowance for doubtful accounts
of $878,469 and $1,021,856 5,943,884 4,187,394
Inventory 502,888 407,617
Deferred taxes 334,945 197,056
Prepaid expenses and other current assets 579,217 441,384
-------------------- -----------------
Total current assets 7,375,610 5,471,135
Property and equipment less accumulated depreciation of
$2,724,222 and $2,025,970 4,002,699 3,300,048
Deferred taxes 1,417,237 855,126
Excess of cost over fair value of assets acquired, less
accumulated amortization of $1,664,739 and
$1,210,569 7,801,607 5,828,963
Other assets 266,379 277,422
-------------------- -----------------
Total Assets $ 20,863,532 $ 15,732,694
==================== =================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 840,879 $ 795,652
Current portion of long-term debt payable to employees 177,445 118,097
Accounts payable 2,039,506 1,391,858
Accrued salaries and payroll taxes 959,068 750,745
Other accrued liabilities 437,667 394,635
------------------- ------------------
Total current liabilities 4,454,565 3,450,987
Long-term debt, net of current portion 6,438,655 4,442,503
Long-term debt payable to employees, net of current portion 481,815 16,981
-------------------- -----------------
Total Liabilities 11,375,035 7,910,471
-------------------- -----------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, par value $.01 per share:
Authorized shares - 10,000,000; none issued 0 0
Common stock, par value $.05 per share:
Authorized shares - 10,000,000
Issued and outstanding- 5,744,965 and 4,807,807
shares 287,248 240,390
Paid-in capital 15,435,535 13,732,393
Accumulated deficit (6,234,286) (6,150,560)
-------------------- ----------------
Total Stockholders' Equity 9,488,497 7,822,223
-------------------- -----------------
Total Liabilities and Stockholders' Equity $ 20,863,532 $ 15,732,694
==================== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
30
<PAGE>
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1997 1996 1995
--------------- ------------- - -----------
<S> <C> <C> <C>
Revenues $ 27,924,772 $ 23,254,351 $ 17,987,147
Operating costs 26,466,294 21,525,421 18,180,080
------------ ------------ ------------
Operating margin 1,458,478 1,728,930 (192,933)
General and administrative expenses 153,445 148,637 87,616
Depreciation and amortization 1,250,349 961,115 579,224
------------ ------------ ------------
Income (loss) from operations 54,684 619,178 (859,773)
Other income (expenses)
Interest expense, net of interest income (812,749) (582,937) (505,459)
Gain (loss) on disposal of equipment 8,809 2,105 5,493
------------ ------------ ------------
Other income (expense) (803,940) (580,832) (499,966)
Income (loss) before benefit for income taxes (749,256) 38,346 (1,359,739)
Benefit for income taxes 665,530 427,733 0
------------ ------------ ------------
Net income (loss) $ (83,726) $ 466,079 $ (1,359,739)
============ ============ ============
Net Income (loss) per common and
common equivalent share $ (.02) $ .11 $ (.43)
============ ============ ============
Weighted average common shares
outstanding 5,005,081 4,294,137 3,136,544
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
31
<PAGE>
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK PAID-IN ACCUMULATED
---------------------------------
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
---------------- -------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 2,622,178 $131,109 $7,728,554 $ (5,256,896) $ 2,602,767
Net income (loss) -- -- -- (1,359,739) (1,359,739)
Issuance of common stock 885,888 44,294 1,975,706 -- 2,020,000
Other 98 5 (10,004) (4) (10,003)
------------- ----------- ------------ -------------- --------------
Balance, September 30, 1995 3,508,164 175,408 9,694,256 (6,616,639) 3,253,025
------------- ----------- ------------ ------------- --------------
Net income (loss) -- -- -- 466,079 466,079
Exercise of Stock Options 2,300 115 460 -- 575
Issuance of common stock 1,297,350 64,868 4,077,677 -- 4,142,545
Other (7) (1) (40,000) -- (40,001)
------------- ----------- ----------- ------------- --------------
Balance, September 30, 1996 4,807,807 240,390 13,732,393 (6,150,560) 7,822,223
------------- ----------- ----------- ------------- --------------
Net income (loss) -- -- -- (83,726) (83,726)
Issuance of common stock 937,162 46,858 1,703,142 -- 1,750,000
Other (4) -- -- -- --
------------- ---------- ----------- ------------- -------------
Balance, September 30, 1997 5,744,965 $ 287,248 $15,435,535 $ (6,234,286 $ 9,488,497
============= ========== =========== ============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
32
<PAGE>
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1997 1996 1995
----------- ---------- ------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (83,726) $ 466,079 $(1,359,739)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Gain) loss on disposal of equipment (8,809) (2,105) (5,493)
Provision for losses on accounts receivable 1,106,252 627,508 544,208
Depreciation and amortization 1,250,349 961,115 579,224
Common stock issued 0 0 4,125
Deferred taxes (700,000) (440,000) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,679,489) (2,447,650) (1,379,019)
(Increase) decrease in inventory (83,521) (142,549) (47,992)
(Increase) decrease in prepaid expenses and other
current assets (137,833) (159,324) (158,536)
Increase (decrease) in accounts payable and accrued
expenses 876,253 (59,707) 1,363,180
----------- ----------- -----------
Cash provided by (used in) operating activities (460,524) (1,196,633) (460,042)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (531,941) (438,491) (620,584)
Acquisitions of goodwill (286,896) (239,832) (24,426)
(Increase) decrease in other assets 11,042 (14,654) 2,760
----------- ----------- -----------
Cash provided by (used in) investing activities (807,795) (692,977) (642,250)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of redemptions 600,000 2,089,990 1,240,000
Net borrowings (payments) under line-of-credit agreement 2,030,844 400,000 475,000
Proceeds from issuance of common stock under
stock option plan 0 575 0
Proceeds from increase in long-term debt 280,000 600,095 0
Payments on long-term debt (1,865,533) (1,039,879) (746,481)
----------- ----------- -----------
Cash provided by financing activities 1,045,311 2,050,781 968,519
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (223,008) 161,171 (133,773)
Cash and cash equivalents at beginning of year 237,684 76,513 210,286
----------- ----------- -----------
Cash and cash equivalents at end of year $ 14,676 $ 237,684 $ 76,513
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
33
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of UCI Medical
Affiliates, Inc. ("UCI") and all wholly-owned and beneficially owned
subsidiaries (UCI Medical Affiliates of South Carolina, Inc. ("UCI-SC") and
Doctor's Care, P.A. ("P.A."). Because of the corporate practice of medicine laws
in the state in which the Company operates, the Company does not own medical
practices but instead enters into an exclusive long-term management services
agreement with the P.A. which operate the medical practices. In addition, the
Company has the contractual right to designate, in its sole discretion and at
any time, the licensed medical provider who is the owner of the capital stock of
the P. A. at a nominal cost ("nominee arrangements"). Through the Administrative
Services Agreement, the Company has exclusive authority over decision making
relating to all major ongoing operations of the underlying professional
corporations with the exception of the professional aspects of medical practice
as required by state law. Under the Administrative Services Agreement, the
Company establishes annual operating and capital budgets for the P. A. and
compensation guidelines for the licensed medical professionals. The
Administrative Services Agreement has an initial term of forty years. The method
of computing the management fees are based on billings of the affiliated
practices less the amounts necessary to pay professional compensation and other
professional expenses. In all cases, these fees are meant to compensate the
Company for expenses incurred in providing covered services plus a profit. These
interest are unilaterally salable and transferable by the Company and fluctuate
based upon the actual performance of the operations of the professional
corporation.
Through the Administrative Services Agreement and the nominee arrangement, the
Company has a significant long-term financial interest in the affiliated
practices and, therefore, according to Emerging Issues Task Force Issue No.
97-2, "Application of FASB Statement No. 94, CONSOLIDATION OF ALL MAJORITY-OWNED
SUBSIDIARIES, and APB No. 16, BUSINESS COMBINATIONS, to Physician Practice
Management Entities and Certain Other Entities with Contractual management
Arrangements," may consolidate the results of the affiliated practices with
those of the Company. Because the Company must present consolidated financial
statements, net patient service revenues are presented in the accompanying
statement of operations. All significant intercompany accounts and transactions,
including management fees, have been eliminated.
The P.A. enters into employment agreements with physicians for terms ranging
from one to ten years. All employment agreements have clauses that allow for
early termination of the agreement if certain events occur such as the loss of a
medical license. Over 80% of the physicians employed by the P.A. are paid on an
hourly basis for time scheduled and worked at the medical centers while other
physicians are salaried. A few of the physicians have incentive compensation
arrangements which are contractually based upon factors such as productivity,
collections and quality.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates and assumptions. Significant estimates are discussed
in these footnotes, as applicable.
The Company operates as one segment as defined by SFAS 131.
Medical Supplies and Drug Inventory
The inventory of medical supplies and drugs is carried at the lower of average
cost or market.
Property and Equipment
34
<PAGE>
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the assets, ranging from three to thirty years.
Maintenance, repairs and minor renewals are charged to expense. Major renewals
or betterments, which prolong the life of the assets, are capitalized.
Upon disposal of depreciable property, the asset accounts are reduced by the
related cost and accumulated depreciation. The resulting gains and losses are
reflected in the consolidated statements of operations.
Intangible Assets
Prior to September 30, 1994, the excess of cost over fair value of assets
acquired (goodwill) was amortized on the straight-line method over periods from
15 to 30 years. Since October 1, 1994, goodwill arising from acquisitions has
been amortized on the straight line method over 15 years. Subsequent to an
acquisition, the Company periodically evaluates whether later events and
circumstances have occurred that indicate that the remaining balance of goodwill
may not be recoverable or that the remaining useful life may warrant revision.
When external factors indicate that goodwill should be evaluated for possible
impairment, the Company uses and estimate of the related center's undiscounted
cash flows to determine if an impairment exists. If an impairment exists, it is
measured based on the difference between the carrying amount and fair value, for
which discounted cash flows are used. Examples of external factors that are
considered in evaluation possible impairment include significant changes in the
third party payor reimbursement rates and unusual turnover or licensure
difficulties of clinical staff at a center.
Revenue Recognition
Revenue is recognized at estimated net amounts to be received from employers,
third party payors, and others at the time the related services are rendered.
Capitation payments from payors are paid monthly and are recognized as revenue
during the period in which enrollees are entitled to receive services. The
Company recognizes capitation revenue from HMOs that contract with the Company
for the delivery of health care services on a monthly basis. This capitation
revenue is at the contractually agreed-upon per-member, per-month rates.
Capitation revenue was approximately $3,100,000, $2,400,000 and $1,400,000 for
the fiscal years ended September 30, 1997, 1996 and 1995, respectively. The
Company records contractual adjustments at the time bills are generated for
services rendered. Third parties are billed at the discounted amounts. As such,
estimates of outstanding contractual adjustments or any type of third party
settlements of contractual adjustments are not necessary.
Earnings Per Share
The computation of income per common and common equivalent share is based on the
weighted average number of common shares outstanding during the period plus (in
periods in which they have a dilutive effect) the effect of common shares
issuable from stock options and warrants, using the treasury stock method. SFAS
128 redefines the terms and method of calculating earnings per share. SFAS 128
is effective for periods ended after December 15, 1997. Had the Company adopted
SFAS 128 during the year ended September 30, 1997, there would be no change to
the earnings per share reported.
Income Taxes
Deferred tax assets and liabilities are recorded based on the difference between
the financial statement and tax bases of assets and liabilities as measured by
the enacted tax rates which are anticipated to be in effect when these
differences reverse. The deferred tax (benefit) provision is the result of the
net change in the deferred tax assets to amounts expected to be realized.
Cash and Cash Equivalents
The Company considers all short-term deposits with a maturity of three months or
less at acquisition date to be cash equivalents.
Fair Value of Financial Instruments
35
<PAGE>
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of September 30,
1997 and 1996. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date and current estimates of fair value may differ significantly from the
amounts presented herein. The fair values of the Company's financial instruments
are estimated based on current market rates and instruments with the same risk
and maturities. The fair values of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and payables to related parties
approximate the carrying values of these financial instruments.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996 and 1997
presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------------------- -------------------------------------------
ACCUM ACCUM
COST DEPRECIATION COST DEPRECIATION
---- ------------ ---- -------------
<S> <C> <C> <C> <C>
Building 437,583 34,661 326,581 20,260
Land 66,000 0 66,000 0
Leasehold Improvements 827,218 329,996 558,098 243,116
Furniture & Fixtures 885,421 333,817 601,274 243,116
EDP - Companion 841,356 429,886 734,142 324,155
EDP - Other 592,499 270,898 431,774 202,597
Medical Equipment 2,555,564 1,016,950 2,044,079 749,609
Other Equipment 453,943 266,642 430,186 202,597
Autos 67,337 41,372 113,688 40,520
--------------------- ------------------- --------------------- ---------------------
Totals 6,726,921 2,724,222 5,305,822 2,025,970
=================== =================== ===================== =====================
</TABLE>
At September 30, 1997 and 1996 capitalized leased equipment included above
amounted to approximately $3,063,000 and $2,298,000, net of accumulated
amortization of $969,000 and $538,000, respectively. Depreciation and
amortization expense equaled $796,179, $619,817 and $384,638 for the years ended
September 30, 1997, 1996 and 1995, respectively.
3. BUSINESS COMBINATIONS
During the fiscal year ended September 30, 1997, the Company acquired the net
assets of five medical practices, and in most cases, entered into employment
agreements with the physician owners of those practices. The acquisitions were
accounted for under the purchase method, and the financial activity since the
date of acquisition of these acquired practices has been included in the
accompanying consolidated financial statements. The combined pro forma results
listed below reflect purchase price accounting adjustments assuming the
acquisitions occurred at the beginning of each fiscal year presented. Individual
pro forma disclosures are not provided here as the information is deemed to be
insignificant for separate presentation.
Refer to Note 14 for details regarding business combinations in fiscal year
1997.
36
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Revenue $30,124,821 $26,287,192
Net income (loss) $ 26,717 $ 583,222
Net income (loss) per common and common equivalent share $ 0 $ .12
</TABLE>
4. INCOME TAXES
The components of the (benefit) provision for income taxes for the years ended
September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
Current:
<S> <C> <C>
Federal $ 31,675 $ 12,267
State 2,795 --
----------------- ------------------
34,470 12,267
----------------- ------------------
Deferred:
Federal (643,243) (404,324)
State (56,757) (35,676)
---------------- ------------------
(700,000) (440,000)
----------------- ------------------
Total income tax benefit $(665,530) $(427,733)
================= ==================
</TABLE>
Deferred taxes result from temporary differences in the recognition of certain
items of income and expense, and the changes in the valuation allowance
attributable to deferred tax assets.
37
<PAGE>
<TABLE>
<CAPTION>
The principal sources of temporary differences and the related deferred tax
effects as of September 30, were as follows:
1997 1996 1995
---------- ------------ -----------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 53,053 $(151,008) $ 169,043
Related party accruals 22,940 21,734 (7,673)
Operating loss carryforwards (238,726) 180,489 (687,242)
Accumulated depreciation 68,809 75,388 58,324
--------- --------- ---------
(93,924) 126,603 (467,548)
Changes in valuation allowance (606,076) (566,603) 467,548
--------- ---------
$(700,000) $(440,000) $ --
========= ========= =========
</TABLE>
At September 30, 1997, 1996 and 1995 the Company's deferred tax assets
(liabilities) and the related valuation allowances are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- ------------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 325,034 $ 378,087 $ 227,079
Related party accruals 58,420 81,360 103,094
Operating loss carryforwards 2,993,578 2,754,874 2,935,363
Accumulated depreciation (279,548) (210,762) (135,374)
----------- ----------- -----------
$ 3,097,483 $ 3,003,559 $ 3,130,162
=========== =========== ===========
Valuation allowance $ 1,345,301 $ 1,951,377 $ 2,517,980
=========== =========== ===========
</TABLE>
The principal reasons for the differences between the consolidated income tax
(benefit) expense and the amount computed by applying the statutory federal
income tax rate of 34% to pre-tax income were as follows for the years ended
September 30:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ------------------ -------------------
<S> <C> <C> <C>
Tax at federal statutory rate $ (254,747) $ 13,038 $ (462,311)
Effect on rate of:
Amortization of goodwill 67,528 48,704 15,708
Non deductible expenses 12,068 32,091 21,107
Life insurance premiums 815 5,392 3,044
One-time realization of income from acquisition AR 95,772 27,378 (45,096)
Other 19,110 --
Change in valuation allowance (606,076) 566,603) 467,548
----------------- ------------------ -------------------
$ (665,530) $ (440,000) $ --
================= ================== ===================
</TABLE>
38
<PAGE>
At September 30, 1997, the Company has net tax operating loss (NOL)
carryforwards expiring in the following years ending September 30,
2000 $ 910,935
2001 1,783,595
2002 1,802,220
2003 458,112
2005 470,006
2006 76,306
2010 1,944,371
2012 645,206
------------------
$ 8,090,751
==================
During the year ended September 30, 1996, the Company experienced an ownership
change which limits the amount of net operating losses the Company may use on an
annual basis for income tax purposes. The Company may use $893,507 of net
operating losses on an annual basis. This limitation should not severely limit
the Company's ability to utilize its net operating loss carryforwards.
In determining that it was more likely than not that the recorded deferred tax
asset would be realized, management of the Company considered the following:
o The generation of future taxable income in excess of income reported on
the consolidated financial statements.
o The budgets and forecasts that management and the Board of Directors had
adopted for the next five fiscal years including plans for expansion.
o The ability to utilize NOL's prior to their expiration.
o The potential limitation of NOL utilization in the event of a change in
ownership.
The Company has $7,800 and $8,450 of investment tax credit carryforwards which
expire in 1999 and 2000, respectively.
39
<PAGE>
<TABLE>
<CAPTION>
5. LONG-TERM DEBT
Long-term debt consists of the following at September 30:
1997 1996
----------------- ------------------
<S> <C> <C>
Line of Credit with a financial institution in the amount of $3,000,000 dated
December 9, 1996, bearing interest at a rate of prime plus 1% (prime rate is
8.5% as of September 30, 1997), secured by certain accounts receivable and
inventory, and the personal guarantee of an
officer of the Company, renewable annually in December of each year. $2,905,845 $ 0
Note payable in the amount of $1,600,000 with monthly installments of $8,889
plus interest at prime plus 6% (prime rate is 8.5% as of September 30, 1997),
through February 1, 2009 collateralized by certain accounts
receivable and leasehold interests and the guarantee of the P.A. 1,208,889 1,315,556
Note payable to Companion Property & Casualty Insurance Company (a shareholder)
in the amount of $400,000, with monthly installments of $4,546 (including 11%
interest) from April 1, 1995 to March 1, 2010,
collateralized by certain accounts receivable 368,624 381,832
Note payable to a financial institution in the amount of $280,000, dated March
11, 1997, with monthly installments (including interest at a variable rate of
prime plus 1%) (prime rate is 8.5% as of September 30, 1997) of $3,100 from
April 1997 to February 2002, with a final payment of all remaining principal and
accrued interest due in March 2002,
collateralized by a mortgage on one of the Company's medical facilities. 274,715 0
Note payable to a financial institution in the amount of $194,782, payable in
monthly installments of interest only at a rate of 9.25%, maturing on January 1,
2005, personally guaranteed by three physician employees of
the P.A. 194,782 0
Note payable in the amount of $250,000 with monthly installments of $1,389 plus
interest at prime plus 2% (prime rate is 8.5% as of September
30, 1997), through February 1, 2009 collateralized by a condominium 188,889 205,556
Note payable to a financial institution in the amount of $99,209, payable in
monthly installments of interest only at a rate of 9%, maturing on May
1, 2002, personally guaranteed by three physician employees of the P.A. 99,209 0
Note payable in the amount of $240,000 dated March 1, 1996, with monthly
installments of $11,075 (including 10% interest) from April 1, 1996 to March 1,
1998, collateralized by a security agreement executed
by UCI-SC and the P.A. 54,016 174,866
Note payable in the amount of $43,500 dated September 1, 1997, with monthly
installments (including 8% interest) of $1,500, payable from
January 1998 to September 2000. 43,500 0
Notes payable in monthly installments over three to four years at interest
rates ranging from 3.9% to 10.5%, collateralized by related vehicles 18,508 39,662
40
<PAGE>
<CAPTION>
5. Long-Term Debt (Continued)
1997 1996
----------------- ------------------
<S> <C> <C>
Note payable in the amount of $725,000 dated March 22, 1996, bearing interest at
a rate of prime plus 1.5% (prime rate is 8.5% as of September
30, 1997), due October 23, 1996, collateralized by a personal investment 0 725,000
of an officer of the Company
Note payable in the amount of $150,000 dated August 15, 1996, bearing interest
at a rate of prime plus 1.5% (prime rate is 8.5% at September 30,
1997), due October 23, 1996, collateralized by a personal investment of 0 150,000
an officer of the Company
Advance payable to Blue Cross Blue Shield of SC (a shareholder) in the
amount of $600,000 dated September 24, 1996, bearing no interest. 0 600,000
----------------- ------------------
Subtotal 5,356,977 3,592,472
Note payable to a physician employee of the P.A. in the amount of
$294,000 with monthly installments (including 8.5% interest) of $6,032
from August 1997 to August 2002. 286,073 0
Note payable to a physician employee of the P.A. in the amount of
$294,000 with monthly installments (including 8.5% interest) of $6,032
from August 1997 to August 2002. 286,073 0
Note payable to a physician employee of the P.A. in the amount of $43,000, with
monthly principal payments of $4,000 from October 1997 to January 1998 and
$3,000 from February 1998 to October 1998, plus
interest at 8%. 39,000 0
Note payable to a physician employee of the P.A. in the amount of
$80,000 with monthly installments (including 8.25% interest) of $3,174
from October 1996 to October 1998. 36,438 0
Note payable to a physician employee of the P.A. in the amount of
$12,000 with monthly installments (including 8.5% interest) of $246
from August 1997 to August 2002. 11,676 0
Note payable to a physician employee of the P.A. in the amount of $350,000 with
monthly installments (including 9% interest) of $25,000 from July 15, 1995 to
September 15, 1995, and $12,842 from October
15, 1995 to September 15, 1997. 0 135,078
----------------- ------------------
Subtotal - payable to employees 659,260 135,078
----------------- ------------------
Capitalized lease obligations 1,920,725 1,617,400
Other 1,832 28,283
----------------- ------------------
7,938,794 5,373,233
Less, current portion -840,879 -795,652
Less, current portion payable to employees -177,445 -118,097
----------------- ------------------
$ 6,920,470 $ 4,459,484
================= ==================
</TABLE>
Aggregate maturities of notes payable and capital leases in each of the five
years 1998 through 2002 are as follows:
41
<PAGE>
<TABLE>
<CAPTION>
NOTES CAPITAL
Year ending September 30: PAYABLE LEASES TOTAL
----------------- ------------------ -----------------
<S> <C> <C> <C>
1998 $ 402,144 $ 616,180 $ 1,018,324
1999 3,188,388 589,373 3,777,761
2000 292,597 390,557 683,154
2001 284,319 228,674 512,993
2002 598,929 95,941 694,870
Thereafter 1,251,692 0 1,251,692
----------------- ------------------ -----------------
$ 6,018,069 $ 1,920,725 $ 7,938,794
================= ================== =================
</TABLE>
At September 30, 1997, the Company is in default of a debt covenant related to
the Line of Credit. The Company has received a written waiver from the financial
institution indicating that the financial institution does not intend to take
action related to this default. This Line of Credit is classified as long-term
debt on the Balance Sheet at September 30, 1997, as the line was renewed for an
additional twelve (12) month period in December 1997. (See Note 15, "Subsequent
Events.")
6. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan ( the "Savings Plan") that qualifies as
a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Effective in June 1995, the Company discontinued its matching contribution. In
February 1996, the Company reinstated its matching contribution. Effective
January 1, 1997, the Company increased its matching contribution from 50% to 75%
of each employee's contribution up to a maximum of 3.75% of the employee's
earnings. The company's matching contributions were $172,792, $97,610 and
$71,463 in fiscal years 1997, 1996, and 1995, respectively.
The incentive stock option plan adopted in 1984 (the "1984 Plan") expired under
its terms in December 1993.
Pursuant to the Company's incentive stock option plan adopted in 1994, (the
"1994 Plan"), "incentive stock options", within the meaning of Section 422 of
the Internal Revenue Code, may be granted to employees of the Company. The 1994
Plan provides for the granting of options for the purchase of 750,000 shares at
100% of the fair market value of the stock at the date of grant (or for 10% or
higher shareholders, at 110% of the fair market value of the stock at the date
of grant). Options granted under the 1994 Plan vest at a rate of 33% in each of
the three years following the grant. Vested options become exercisable one year
after the date of grant and can be exercised within ten years of the date of
grant, subject to earlier termination upon cessation of employment.
During the fiscal year ended September 30, 1996, the Company 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 the Company's 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.
During the fiscal year ended September 30, 1997, the Company 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 the Company's common stock at the
fair market value of the date of grant. Under this plan, 5,000 options were
issued each to Charles P. Cannon, Thomas G. Faulds, Ashby 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.
Please refer to Note 7, "Stockholders' Equity" for activity information
regarding these four stock option plans.
42
<PAGE>
7. STOCKHOLDERS' EQUITY
On June 30, 1994, the Company's shareholders approved an amendment to, and a
restatement of, the Restated Certificate of Incorporation to provide for a 1 for
5 reverse stock split. The Amended and Restated Certificate of Incorporation
increased the number of authorized shares of common stock from 4,000,000 to
10,000,000 (as adjusted for the reverse stock split as discussed above) and
increased the par value per share of common stock from one cent ($.01) to five
cents ($.05). In addition, the Amended and Restated Certificate of Incorporation
authorized the Company to issue up to 10,000,000 shares of $.01 par value
preferred stock to be issued in one or more series. The Board of Directors is
authorized, without further action by the stockholders, to designate the rights,
preferences, limitations and restrictions of and upon shares of each series,
including dividend voting, redemption and conversion rights. All references in
the financial statements to average number of shares outstanding and related
prices, per share amounts, common stock and stock option plan data have been
restated to reflect the split . The following table summarizes activity and
weighted average fair value of options granted for the three previous fiscal
years for the Company's four stock option plans. (Please refer also to Note 6,
"Employee Benefit Plans.")
<TABLE>
<CAPTION>
1996 NON- 1996 NON- 1997 NON- 1997 NON-
1984 1984 1994 1994 EMPLOYEE EMPLOYEE EMPLOYEE EMPLOYEE
STOCK OPTIONS PLAN PLAN PLAN PLAN PLAN PLAN PLAN PLAN
- ---------------------------- ----------- --------- ----------- --------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at 10/01/94 20,600 0
Granted FY 94/95 0 242,000
Exercised FY 94/95 0 0
Forfeited FY 94/95 (5,100) 0
----------- ----------- ------------- -------------
Outstanding at 09/30/95 15,500 242,000
----------- ----------- ------------- -------------
Exercisable at 09/30/95 15,500 0
----------- ----------- ------------- -------------
Weighted average fair value
of options granted during
fiscal year 94/95 for
options whose exercise price:
(1) equals fair value N/A 2.9318 N/A N/A
(2) exceeds fair value N/A 2.8750 N/A N/A
Granted FY 95/96 0 140,500 10,000
Exercised FY 95/96 (2,300) 0 0
Forfeited FY 95/96 (400) (23,000) 0
----------- ----------- ------------- -------------
Outstanding at 09/30/96 12,800 359,500 10,000
----------- ----------- ------------- -------------
Exercisable at 09/30/96 12,800 73,000 0
----------- ----------- ------------- -------------
Weighted average fair value
of options granted during
fiscal year 95/96 for
options whose exercise price:
(1) equals fair value N/A 3.5395 3.5000 N/A
(2) exceeds fair value N/A 4.0000 N/A N/A
Granted FY 96/97 0 445,500 0 20,000
Exercised FY 96/97 0 0 0 0
Forfeited FY 96/97 0 (55,000) 0 0
Outstanding at 09/30/97 12,800 750,000 10,000 20,000
----------- ----------- ------------- -------------
Exercisable at 09/30/97 12,800 164,500 0 0
----------- ----------- ------------- -------------
Weighted average fair
value of options granted
during fiscal year 96/97 for
options whose exercise price:
(1) equals fair value N/A 2.1608 N/A 2.5000
(2) exceeds fair value N/A 2.6250 N/A N/A
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the weighted average exercise price of stock
options exercisable at the end of each of the three previous fiscal years:
1996 1997
WEIGHTED AVERAGE NON-EMPLOYEE NON-EMPLOYEE
EXERCISE PRICE 1984 PLAN 1994 PLAN PLAN PLAN
- ------------------------------------ --------------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at 10/01/94 .25 0
Granted FY 94/95 0 2.9941
Exercised FY 94/95 0 0
Forfeited FY 94/95 .25 0
--------------- -------------- ------------------- -------------------
Outstanding at 09/30/95 .25 2.9941
--------------- -------------- ------------------- -------------------
Exercisable at 09/30/95 .25 0
--------------- -------------- ------------------- -------------------
Granted FY 95/96 0 3.7055 3.50
Exercised FY 95/96 .25 0 0
Forfeited FY 95/96 .25 2.8750 0
--------------- -------------- ------------------- -------------------
Outstanding at 09/30/96 .25 3.2797 3.50
--------------- -------------- ------------------- -------------------
Exercisable at 09/30/96 .25 3.0066 0
--------------- -------------- ------------------- -------------------
Granted FY 96/97 0 2.1934 0 2.50
Exercised FY 96/97 0 0 0 0
Forfeited FY 96/97 0 3.3409 0 0
--------------- -------------- ------------------- -------------------
Outstanding at 09/30/97 .25 2.6320 3.50 2.50
--------------- -------------- ------------------- -------------------
Exercisable at 09/30/97 .25 3.1591 0 0
--------------- -------------- ------------------- -------------------
</TABLE>
The following table summarizes options outstanding and exercisable by price
range as of September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
WEIGHTED-
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------- ---------------- ---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$0.00 to $ .99 12,800 5.25 years .25 12,800 .25
$1.00 to $1.99 210,825 9.67 1.9375 0 N/A
$2.00 to $2.99 388,675 7.06 2.583 87,667 2.875
$3.00 to $3.99 137,500 6.81 3.364 62,500 3.301
$4.00 to $4.99 43,000 4.68 4.279 14,333 4.279
---------------- ---------------
792,800 177,300
================ ===============
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock
44
<PAGE>
option plans. Had compensation costs for the Company's stock option plans been
determined based on the fair value at the grant date for awards in fiscal 1997,
1996 and 1995 consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below. The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
---------------------------------------
1997 1996
----------------- -------------------
<S> <C> <C>
Net income - as reported (83,726) 466,079
Net income - pro forma (171,232) 455,188
Earnings per share - as reported (.02) .11
Earnings per share - pro forma (.03) .11
Weighted average number of shares 5,005,081 4,294,137
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Expected Dividend Yield 0
Expected Stock Price Volatility 35.77%
Risk-free Interest Rate 5.45% to 6.75%
Expected Life of Options 1 to 6 years
During the year ended September 30, 1997, warrants for the purchase of shares of
the Company's common stock were issued, ranging in exercise price from $1.9375
to $5.00. Fifty-five thousand (55,000) warrants were issued in connection with
services to be rendered by an investor relations advisor to the Company. Two
hundred fifty thousand (250,000) warrants were issued in connection with
consulting and financial analysis services to be rendered (i.e., financial
analyst report, etc.). The following is a schedule of warrants issued and
outstanding during the year ended September 30, 1997:
<TABLE>
<CAPTION>
Number of Exercise Date Expiration
Warrants Price Exercisable Date
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at 09/30/96 0
Activity during FY 96/97:
Issued at $1.9375 30,000 1.9375 06/18/97 06/18/02
Issued at $3.125 137,500 3.1250 10/09/96 09/16/99
Issued at $5.00 137,500 5.0000 10/09/96 09/16/99
Exercised 0
Expired 0
---------------
Outstanding at 09/30/97 305,000
===============
</TABLE>
In accordance with SFAS No. 123, no expense has been recognized in relation to
these warrants.
8. LEASE COMMITMENTS
UCI-SC leases office and medical center space under various operating lease
agreements. Certain operating leases provide for escalation payments, exclusive
of renewal options.
45
<PAGE>
Future minimum lease payments under noncancellable operating leases with a
remaining term in excess of one year as of September 30, 1997, are as follows:
OPERATING
LEASES
------------------
Year ending September 30:
1998 $ 1,848,037
1999 1,836,627
2000 1,697,263
2001 1,605,596
2002 1,289,692
Thereafter 7,685,245
------------------
Total minimum lease payments $ 15,962,460
==================
Total rental expense under operating leases for fiscal 1997, 1996 and 1995 was
approximately $1,475,000, $1,188,000, and $923,000, respectively.
9. RELATED PARTY TRANSACTIONS
Relationship between UCI-SC and the P.A.
Pursuant to an agreement between UCI-SC and the P.A., UCI-SC provides
non-medical management services and personnel, facilities, equipment and other
assets to the Centers . UCI-SC guarantees the compensation of the physicians
employed by the P.A. The agreement also allows UCI-SC to negotiate contracts
with HMOs and other organizations for the provision of medical services by the
P.A.'s physicians. Under the terms of the agreement, the P.A. assigns all
revenue generated from providing medical services to UCI-SC after paying
physician salaries and the cost of narcotic drugs held by the P.A. The P.A. is
owned by M.F. McFarland, III, M.D. Dr. McFarland is also President, Chief
Executive Officer and Chairman of UCI and UCI-SC.
Relationship between the Company and Blue Cross Blue Shield of South Carolina
Blue Cross Blue Shield of South Carolina (BCBS) owns 100% of Companion
HealthCare Corporation ("CHC"), Companion Property & Casualty Insurance Company
("CP&C") and Companion Technologies, Inc. ("CT"). At September 30,1997, CHC
owned 2,006,442 shares of the Company's outstanding common stock and CP&C owned
618,181 shares of the Company's outstanding common stock, which combine to
approximately 46% of the Company's outstanding common stock.
Facility 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. Each of these leases has a five year renewal option, and a
rent guarantee by the P.A. 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 Company's fiscal
years ended September 30, 1997, 1996, and 1995 were $319,730, $306,178, and
$271,100, respectively.
Several of the medical center facilities operated by UCI-SC are leased or were
leased from entities owned or controlled by certain principal shareholders
and/or members of the Company's management. Total lease payments made by UCI-SC
under these leases during the fiscal years ended September 30, 1997, 1996 and
1995 were $45,600, $122,854, and $244,300, respectively.
Ten of the medical center facilities operated by UCI-SC are or were leased from
physician employees of the P.A. Total lease payments made by UCI-SC under these
leases during the Company's fiscal years ended September 30, 1997, 1996 and 1995
were $258,026, $189,945, and $140,100, respectively.
46
<PAGE>
Other Transactions with Related Parties
The following is a historical summary of BCBS and its subsidiaries' purchases of
the Company's common stock.
<TABLE>
<CAPTION>
DATE NUMBER PRICE TOTAL
PURCHASED ENTITY OF SHARES PER SHARE PURCHASE PRICE
- ------------------- ------------ --------------- ------------- -------------------
<S> <C> <C> <C> <C>
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
</TABLE>
Including shares purchased by CHC from third parties, at September 30, 1997,
BCBS controls 2,624,623 shares, or approximately 46% of the Company's
outstanding common stock. The shares acquired by CHC and CP&C from the Company
were purchased pursuant to stock purchase agreements and were not registered.
CHC and CP&C have the right to require registration of the stock under certain
circumstances as described in the agreement. BCBS and its subsidiaries have the
option to purchase as many shares as may be necessary for BCBS to maintain
ownership of 47% of the outstanding common stock of the Company in the event
that the Company issues additional stock to other parties (excluding shares
issued to employees or directors of the Company).
In June 1997, CP&C purchased 400,000 shares of the Company's common stock for
$600,000. The purchase price was below fair value due to lower issuance costs
incurred by the Company.
During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a
new billing and accounts receivable system from CT for an aggregate purchase
price of $504,000. The Company entered into a capital lease agreement for this
system, which includes computer equipment. The Company 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 lease addenda.
During the Company's fiscal year ended September 30, 1994, UCI-SC entered into
an agreement with CP&C pursuant to which UCI-SC, through the P.A., acts as the
primary care provider for injured workers of firms carrying worker's
compensation insurance through CP&C. Additionally, during the Company's fiscal
year ended September 30, 1995, UCI-SC executed a note payable to CP&C consisting
of monthly installments of $4,546 (including 11% interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable.
UCI-SC, through the P.A., provides services to members of a health maintenance
organization ("HMO") operated by CHC who have selected the P.A. as their primary
care provider.
During the year ended September 30, 1996, BCBS provided a non-interest bearing
advance to the Company in the amount of $600,000. This advance was paid in full
in December 1996.
The employees of the Company are offered health, life, and dental insurance
coverage at group rates from BCBS and its subsidiaries.
The Company contracts with Adams and Associates for its workers compensation and
professional liability insurance coverage. Aggregate premiums paid during the
fiscal year ended September 30, 1997 in connection with such policies were
approximately $155,000. Adams and Associates contracts with CP&C to be the
insurance carrier for the Company's workers compensation insurance coverage.
During the fiscal year ended September 30, 1996, Adams and Associates provided
short-term financing to the Company 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 the Company.
47
<PAGE>
The Company has contracted since September 1994 with Global Consulting, Inc. for
financial and marketing consulting services. Russell J. Froneberger is the
President and owner of Global Consulting, Inc. and is also a director of the
Company. Fees paid during the fiscal year ended September 30, 1997 in connection
with these services were approximately $96,000.
10. EARNINGS PER SHARE
The calculation of earnings per share and common equivalent share is based on
the weighted average number of shares outstanding (5,005,081 in fiscal 1997,
4,294,137 in fiscal 1996 and 3,136,544 in fiscal 1995). Outstanding stock
options and warrants are common stock equivalents, but had no dilutive effects
on earnings per share in either of the three fiscal years presented.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," ("SFAS No. 128") which requires the
Company to disclose both basic and diluted earning per share. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. SFAS 128 would have
had no impact on the reported earnings per share for the Company for each of the
three years ended September 30, 1997.
11. CONCENTRATION OF CREDIT RISK
In the normal course of providing health care services, the Company may extend
credit to patients without requiring collateral. Each individual's ability to
pay balances due the Company is assessed and reserves are established to provide
for management's estimate of uncollectible balances.
Future revenues of the Company are largely dependent on third-party payors and
private insurance companies, especially in instances where the Company accepts
assignment.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved
in litigation, claims, and administrative proceedings. Certain litigation,
claims, and proceedings were pending at September 30, 1997, and management
intends to vigorously defend the Company in such matters. While the ultimate
results cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position or results
of operations of the Company.
13. SIGNIFICANT FOURTH QUARTER ADJUSTMENT
During the quarter ended September 30, 1997, the Company made a change in an
accounting estimate totaling approximately $279,000 ($.06 per share). The change
involved increasing the allowance for doubtful accounts to provide for higher
than anticipated write-offs of uncollectible accounts. Bad debt expense is
reflected as a component of operating costs on the Statement of Operations.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Cash Flow Information
The Company made interest payments of $813,569, $583,981, and $448,311, in the
years ended September 30, 1997, 1996, and 1995, respectively. The Company made
income tax payments of $0, $15,350 and $0 in the years ended September 30, 1997,
1996 and 1995, respectively.
Supplemental Non-Cash Operating Activities
In July 1995, the Company paid for certain corporate expenses through an
issuance of 6,000 shares of common stock of the Company in the amount of
$16,500, of which $4,125 was expensed in fiscal 1995 and the remainder was
expensed in fiscal 1996.
48
<PAGE>
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES
Capital lease obligations of $1,004,837, $711,569 and $1,069,915 were incurred
in fiscal 1997, 1996 and 1995. Additionally, in February 1995, the Company
acquired property which was financed through a note payable in the amount of
$400,000.
In January 1995, the Company acquired certain assets of a medical practice in
West Columbia, South Carolina for $291,000, consisting of 145,500 shares of
common stock of the Company.
In May 1995, the Company acquired a medical practice in Cayce, South Carolina
for $150,000, consisting of 46,153 shares of common stock of the Company.
In August 1995, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $662,500, by financing $350,000 with the seller,
and issuing 100,000 shares of common stock of the Company.
In December 1995, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $300,000, by paying $30,000 at closing, financing
$30,000 with the seller, and issuing 60,000 shares of the common stock of the
Company.
In December 1995, the Company acquired a medical practice in Myrtle Beach, South
Carolina for $334,400, consisting of 70,400 shares of the common stock of the
Company. The Company commenced management of the facility in January 1995, prior
to the closing date of the acquisition in December 1995. Financial results of
operations of the acquired facility since January 1995 are included in these
consolidated financial statements for fiscal years 1995 and 1996.
In March 1996, the Company acquired certain assets of a medical practice in
Columbia, South Carolina for $125,000, by assuming $25,000 in the seller's
accounts payable, and issuing 24,243 shares of the common stock of the Company.
In March 1996, the Company acquired certain assets of a medical practice in
Murrells Inlet, South Carolina for $600,000, by paying $60,000 at closing,
financing $240,000 with the seller, and issuing 72,728 shares of the common
stock of the Company.
In April 1996, the Company acquired certain assets of a medical practice in
Greenville, South Carolina for $513,931, by paying $6,315 at closing, financing
$69,462 with the seller, and issuing 125,187 shares of the common stock of the
Company.
In June 1996, the Company acquired certain assets of a medical practice in
Lugoff, South Carolina for $675,000, by paying $15,000 at closing, financing
$60,000 with the seller, and issuing 172,588 shares of the common stock of the
Company.
In October 1996, the Company acquired certain assets of a medical practice in
Aiken, South Carolina for $80,000 by financing $80,000 with the seller.
In October 1996, the Company acquired certain assets of a medical practice in
Simpsonville, South Carolina for $25,000 by financing $25,000 with the seller.
In August 1997, the Company acquired a three facility medical practice in
Columbia, South Carolina for $2,271,250, by paying $200,000 at closing, assuming
$371,250 in notes payable, financing $600,000 with the seller and issuing
517,649 shares of the common stock of the Company.
In September 1997, the Company acquired certain assets of a medical practice in
Camden, South Carolina for $45,000 by paying $1,500 at closing and financing
$43,500 with the seller.
In September 1997, the Company acquired certain assets of a medical practice in
Summerville, South Carolina for $100,000 by paying $7,000 at closing, financing
$43,000 with the seller and issuing 19,513 shares of the common stock of the
Company.
49
<PAGE>
15. SUBSEQUENT EVENTS
On October 1, 1997, the Company acquired certain assets of a three facility
physical therapy practice in Columbia, South Carolina for $856,756 by assuming
certain liabilities and issuing 276,976 shares of the common stock of the
Company. The Company entered into employment agreements with the physical
therapists who had been the owners of the practice. The Company also entered
into lease agreements or assumed existing lease agreements from the previous
owners. The practice previously had annual revenues of approximately $964,000.
On October 6, 1997, the Company completed a private placement of a $1.5 million,
6.5% five-year convertible subordinated debenture with FPA Medical Management,
Inc., a national physician practice management company headquartered in San
Diego, California. The debentures are convertible to common stock at any time
within the five year period at a fixed price premium to the current stock price
and are subject to Rule 144 of the Securities and Exchange Commission when
converted.
On November 1, 1997, the Company acquired certain assets of a medical practice
in New Ellenton, South Carolina for $262,004 by paying $17,468 at closing,
financing $159,536 with the seller, and issuing 30,223 shares of the common
stock of the Company. The Company entered into an employment agreement with the
physician who had been the sole shareholder of the acquired medical practice.
The Company also entered into a lease agreement with the physician owner for the
facility occupied by the acquired medical practice. The practice previously had
annual revenues of approximately $409,000.
On December 11, 1997, the Company renewed its long-term debt agreement with
Carolina First Bank for a $3,000,000 line of credit, bearing interest at an
annual rate of prime plus one (1%) percent (prime rate is 8.5% at September 30,
1997). This line of credit balance at September 30, 1997 is classified as
long-term on the accompanying balance sheet.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
<S> <C>
Date: August 19, 1998 By: /S/ M. F. MCFARLAND
----------------------
M.F. McFarland, III, M.D.
President and
Chief Executive Officer
By: /S/ JERRY F. WELLS, JR.
--------------------------
Jerry F. Wells, Jr.
Executive Vice President of Finance,
Chief Financial Officer, and
Principal Accounting Officer
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
UCI MEDICAL AFFILIATES, INC.
EXHIBIT INDEX
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ---------------- ------------------------------------------------------- -------------------------------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of Exhibit 3.1 on the Form 10-KSB
UCI Medical Affiliates, Inc. ("UCI") filed for fiscal year 1995
3.2 Amended and Restated Bylaws of UCI Exhibit 3.2 on the Form 10-KSB
filed for fiscal year 1995
3.3 Amendment to Amended and Restated Bylaws of UCI Exhibit 3.3 on the Form 10-KSB
filed for fiscal year 1996
4.1 Convertible Subordinated Debenture of UCI dated 54
October 6, 1997 payable to FPA Medical Management,
Inc. ("FPAMM")
4.2 Stock Purchase Warrant Agreement dated October 6, 60
1996 between UCI and FPAMM
10.1 Facilities Agreement dated May 8, 1984 by and Exhibit 10.1 on the Form 10-KSB
between UCI Medical Affiliates of South Carolina, Inc. filed for fiscal year 1996
("UCI-SC") and Doctor's Care, P.A., as amended
September 24, 1984 and January 13, 1995
10.2 Amendment No. 3 dated September 17, 1996 to the 64
Facilities Agreement listed as Exhibit 10.1 to this report
10.3 Employment Agreement dated October 1, 1995 between Exhibit 10.4 on the Form 10-KSB
UCI-SC and M.F. McFarland, III, M.D. filed for fiscal year 1995
10.4 Employment Agreement dated October 1, 1995 between Exhibit 10.5 on the Form 10-KSB
Doctor's Care, P.A. and M.F. McFarland, III, M.D. filed for fiscal year 1995
10.5 Employment Agreement dated November 1, 1995 Exhibit 10.6 on the Form 10-KSB
between UCI-SC and D. Michael Stout, M.D. filed for fiscal year 1995
10.6 Employment Agreement November 1, 1995 between Exhibit 10.7 on the Form 10-KSB
Doctor's Care, P.A. and D. Michael Stout, M.D. filed for fiscal year 1995
10.7 Lease and License Agreement dated March 30, 1994 Exhibit 10.8 on the Form 10-KSB
between Doctor's Care, P.A. and Blue Cross Blue filed for fiscal year 1995
Shield of South Carolina
Note Payable dated February 28, 1995 between UCI- SC, as
payor, and Companion Property and Casualty
10.8 Insurance Company, as payee 66
52
<PAGE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ---------------- ------------------------------------------------------- -------------------------------------
<S> <C> <C>
10.9 Revolving Line of Credit dated November 11, 1996 69
between Carolina First Bank and UCI
10.10 Stock Option Agreement dated March 20, 1996 75
between UCI and Harold H. Adams, Jr.
10.11 Stock Option Agreement dated March 20, 1996 78
between UCI and Russell J. Froneberger
10.12 Stock Option Agreement dated March 27, 1997 81
between UCI and Charles P. Cannon
10.13 Stock Option Agreement dated March 27, 1997 84
between UCI and Thomas G. Faulds
10.14 Stock Option Agreement dated March 27, 1997 87
between UCI and Ashby Jordan, M.D.
10.15 Stock Option Agreement dated March 27, 1997 90
between UCI and Charles M. Potok
10.16 UCI Medical Affiliates, Inc. 1994 Incentive Stock Exhibit 10.9 on the Form 10-KSB
Option Plan filed for fiscal year 1995
10.17 Consulting Agreement dated December 10, 1996 93
between UCI and Global Consulting, Inc.
10.21 Administrative Services Agreement dated August 11, 97
1998 between UCI Medical Affiliates of South
Carolina, Inc. and Doctor's Care, P.A.
21 Subsidiaries of the Registrant Exhibit 21 on the Form 10-QSB
filed for period ending December
31, 1997
27 Financial Data Schedule Filed separately as Article Type 5
via Edgar
</TABLE>
53
EXHIBIT 4.1
CONVERTIBLE SUBORDINATED DEBENTURE
54
<PAGE>
UCI MEDICAL AFFILIATES, INC.
CONVERTIBLE SUBORDINATED DEBENTURE
$1,500,000 PRINCIPAL AMOUNT DENOMINATION
5-YEAR MATURITY
6.50% FIXED INTEREST RATE
ISSUANCE DATE: OCTOBER 6, 1997
FOR VALUE RECEIVED, UCI MEDICAL AFFILIATES, INC., a Delaware
corporation (the "Company"), hereby promises to pay to FPA MEDICAL MANAGEMENT,
INC., a Delaware corporation, or registered assigns (the "Holder"), the sum of
One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00) on October
5, 2002, upon presentation and surrender of this Debenture at the principal
offices of the Company at 1901 Main Street, Suite 1200, Columbia, South Carolina
29201, or at such other address as the Company may designate by notice to the
Holder (the "Company Office"), and to pay interest computed from October 6, 1997
(the "Issue Date") at the fixed rate of six and one-half (6.50%) percent per
annum payable annually on each anniversary of the Issue Date, until payment of
the principal amount of this Debenture has been made.
Payments of principal and the final payment of interest on this
Debenture will be made at the Company Office. All other payments of interest
shall be made by check mailed to the Holder at the address which shall appear on
the Register (as defined below).
1. HOLDER DEEMED OWNER. The Company shall cause to be kept at the
Company Office a register in which the Company shall provide for the
registration of transfers of this Debenture (the "Register"). The Company may
treat the person in whose name the Debenture is registered as the absolute owner
thereof for all purposes, whether or not the Debenture is overdue, and the
Company shall not be affected by notice to the contrary.
2. TRANSFERABILITY. This Debenture is transferable by the Holder only
on the Register of the Company, upon surrender of the Debenture for transfer at
the Company Office, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by, the Holder or
such Holder's attorney duly authorized in writing, and thereupon a new
Debenture, for the same aggregate principal amount, will be issued to the
designated transferee. No service charge shall be made for any such transfer,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
NEITHER THIS CONVERTIBLE SUBORDINATED DEBENTURE NOR THE SHARES OF COMMON STOCK
WHICH MAY BE ISSUED UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED
OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. UCI MEDICAL AFFILIATES,
INC. (THE "COMPANY") WILL TRANSFER SUCH SECURITIES ONLY UPON RECEIPT OF EVIDENCE
SATISFACTORY TO THE COMPANY, WHICH MAY INCLUDE AN OPINION OF COUNSEL, THAT THE
REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR THAT SUCH
REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE ANY
APPLICABLE STATE SECURITIES LAWS.
3. SUBORDINATION. The rights of the Holder of this Debenture to receive
payment of any principal or interest hereon is subject and subordinate to the
prior payment of the principal of, (and premium, if any) and the interest on,
all other indebtedness of the Company, whether now outstanding or subsequently
incurred, whether secured or unsecured, and any deferrals, renewals or
extensions of such indebtedness or any debentures, bonds or notes evidencing
such indebtedness (the "Senior Indebtedness"). Upon any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
sale of all or substantially all of the assets, dissolution, liquidation, or any
other marshaling of the assets and liabilities of the Company, or in the event
this Debenture is declared due and payable upon the occurrence of a default as
defined in this Debenture, then no amount shall be paid by the Company with
respect to principal and interest hereon unless and until the principal of, and
interest on, all Senior Indebtedness then outstanding is paid in full.
4. CONVERSION. Subject to the provisions hereof, the Holder shall have
the right, at its sole option, at any
55
<PAGE>
time after the date hereof and on or before the maturity date of the Debenture
to convert the outstanding principal amount of this Debenture in whole but not
in part into fully paid and nonassessable shares of common stock, $0.05 par
value per share (the "Common Stock"), of the Company at the price of Three and
20/100 ($3.20) Dollars of principal per share (the "Conversion Price") or, in
the event the Conversion Price has been adjusted as hereinafter provided, then
at the Conversion Price as last adjusted.
To convert this Debenture, the Holder shall surrender this Debenture to
the Company at the Company Office duly endorsed for conversion, or accompanied
by written notice to the Company stating that the Holder elects to convert the
Debenture (the "Notice of Conversion"). The conversion shall be deemed to have
been effected on the date (the "Conversion Date") on which the Company shall
have received the Debenture so endorsed or accompanied by such notice and at
such time the rights of the Holder as to the Debenture shall cease and the
Holder shall become the holder of record of the shares of Common Stock being
issued upon such conversion. As promptly as practicable thereafter the Company
shall issue, at its expense, and shall deliver or cause to be delivered to the
Holder a certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion. Also, immediately upon conversion, the
Company shall pay to the Holder the accrued and unpaid interest on the amount of
principal so converted. No fractional shares of Common Stock shall be issued
upon the conversion of the Debenture. In lieu of issuing a fractional share, the
Company shall pay a cash adjustment equal to the Conversion Price of such
fractional share.
The Company shall at all times reserve and keep available out of its
authorized Common Stock that number of shares of Common Stock equal to the
number of shares of Common Stock issuable upon conversion of the entire unpaid
principal amount of this Debenture. All Common Stock which is delivered upon
conversion shall be validly issued, fully paid and nonassessable and free and
clear of all liens, pledges, security interests and encumbrances of any kind.
No payment or adjustment shall be made by or on behalf of the Company
on the Common Stock issued upon conversion on account of any cash dividends
which were declared for payment to the holders of Common Stock of record as of a
date prior to the Conversion Date. The Holder shall have no right to receive
notice of or to vote as a stockholder at meetings of the Company's stockholders.
Notwithstanding anything herein to the contrary, if the Company shall
be a party to any transaction which involves any consolidation or merger of the
Company with another corporation, which corporation does not control, is not
controlled by or is not under common control with the Company, and which
transaction is effected in such a way that the holders of Common Stock shall be
entitled to receive stock, securities or other assets with respect to or in
exchange for Common Stock, then the right to convert this Debenture shall
terminate at the close of business on the date as of which the holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other assets deliverable upon such consolidation, merger or sale
or, if later, twenty (20) days following written notice of such event to the
Holder.
If after the date hereof the Company (a) pays a dividend or makes a
distribution in shares of Common Stock, (b) subdivides its outstanding shares of
Common Stock into a greater number of shares, (c) combines its outstanding
shares of Common Stock into a smaller number of shares or (d) reclassifies or
recapitalizes its Common Stock or any other shares of capital stock of the
Company, the Conversion Price in effect immediately prior to such action shall
be adjusted so that the Holder may receive the number of shares of capital stock
to which such Holder would have been entitled upon such action if such Holder
had converted the entire principal amount of the Debenture immediately prior
thereto. Any such adjustment shall become effective immediately after the record
date for the determination of owners of Common Stock entitled thereto in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. Whenever the Conversion Price is adjusted, as provided herein,
the Company promptly shall give written notice of such adjustment to the Holder,
at the Holder's last address appearing in the Register.
5. REDEMPTION. This Debenture may be redeemed at any time prior to
maturity in whole but not in part at the option of the Company, at the Company
Office, upon the notice referred to below and given as provided herein (the
"Notice of Redemption"), at the following redemption prices (expressed in
percentages of the principal amount of this Debenture) together with accrued
interest to the date of redemption:
<TABLE>
DATE OF REDEMPTION PERCENTAGE OF PRINCIPAL AMOUNT
- --------------------- --------------------------------
56
<PAGE>
<CAPTION>
<S> <C>
October 6, 1997, through April 5, 1998 108.5
April 6, 1998 through October 5, 1998 108
October 6, 1998 through April 5, 1999 107.5
April 6, 1999 through October 5, 1999 107
October 6, 1999 through April 5, 2000 106.5
April 6, 2000 through October 5, 2000 106
October 6, 2000 through April 5, 2001 105.5
April 6, 2001 through October 5, 2001 105
October 6, 2001 through April 5, 2002 104.5
April 6, 2002 through October 5, 2002 104
</TABLE>
Where Notice of Conversion precedes Notice of Redemption, the Company's
redemption rights do not apply. Conversely, where Notice of Redemption precedes
Notice of Conversion, the Holder's conversion right does not apply. If Notice of
Conversion and Notice of Redemption are deemed given on the same day, then
Notice of Redemption will be considered to have been first given for purposes of
this Debenture.
Notice of Redemption to the Holder of this Debenture shall be given by
the Company not later than the 30th day, and not earlier than the 60th day,
before the date fixed for redemption to the Holder at the address of the Holder
as set forth in the Register. The Company shall have the right to revoke Notice
of Redemption upon notice of such revocation to the Holder at the address of the
Holder as set forth in the Register given by the Company not later than the 5th
day before the date fixed for redemption by the Notice of Redemption.
6. DEFAULT. An "Event of Default" or "Default" shall mean, whenever
such terms are used in this Debenture, any one or more of the following events:
(a) The Company fails to pay any interest on this
Debenture when it is due and payable, and the failure
continues for a period of five (5) days after notice
of non-payment is delivered to the Company by the
Holder;
(b) The Company fails to pay the principal
of this Debenture at its maturity;
(c) The Company commences any voluntary proceeding under
any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute, of any
jurisdiction, whether now or subsequently in effect;
or the Company is adjudicated insolvent or bankrupt
by a court of competent jurisdiction; or the Company
petitions or applies for, acquiesces in, or consents
to, the appointment of any receiver or trustee of the
Company or for all or substantially all of its
property or assets; or the Company makes an
assignment for the benefit of its creditors; or the
Company admits in writing its
57
<PAGE>
inability to pay its debts as they mature; or
(d) There is commenced against the Company any
proceeding relating to the Company under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or
liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect, and the
proceeding remains undismissed for a period of ninety
(90) days or the Company by any act indicates its
consent to, approval of, or acquiescence in, the
proceeding; or a receiver or trustee is appointed for
the Company or for all or substantially all of its
property or assets, and the receivership or
trusteeship remains undischarged for a period of
ninety (90) days; or a warrant of attachment,
execution or similar process is issued against any
substantial part of the property or assets of the
Company, and the warrant or similar process is not
dismissed or bonded within ninety (90) days after the
levy.
If an Event of Default shall have occurred and be continuing, the
entire amount of this Debenture plus all accrued interest shall be due and
payable immediately at the election of the Holder. It is further agreed that the
acceptance after maturity of any payment or payments shall not constitute a
waiver of the right of the Holder to demand payment in full of any unpaid
balance. The Holder may exercise this option to accelerate during any Event of
Default regardless of any prior forbearance. If suit is brought to collect this
Debenture, the Holder shall be entitled to collect all reasonable costs and
expenses of suit, including, but not limited to, reasonable attorney's fees.
No delay or failure on the part of the Holder in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. The Holder shall
be under no duty to exercise any or all of the rights and remedies given by this
Debenture, and the Company shall not be discharged from its obligations or
undertaking hereunder (a) should the Holder release or agree not to sue any
person against whom the Company has, to the knowledge of the Holder, a right of
recourse or (b) should the Holder agree to suspend its right to enforce this
Debenture or otherwise discharge such person.
The Company expressly waives presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Debenture. No recourse shall
be had for the payment of the principal of, or interest on, this Debenture or
for any claim based hereon, or otherwise in any manner in respect hereof,
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any predecessor or successor
corporation, whether by virtue of any constitutional provision or statute or
rule of law, or by the enforcement of any assessment or penalty or in any other
manner, all such liability being expressly waived and released by the acceptance
hereof and as part of the consideration for the issuance hereof.
7. NOTICES. All notices and other communications provided for herein
shall be in writing, signed by the sender or an authorized representative of the
sender, and addressed to the receiver as follows: if to the Company, at the
Company Office; and if to the Holder, at the address of the Holder as set forth
in the Register. Any notice or other communication hereunder shall be deemed
given and effective upon the first to occur of the following: (i) upon delivery
by hand to the receiver at the receiver's notice address, or (ii) upon being
deposited in the U.S. Mail, certified, with return receipt requested, directed
to the receiver's notice address.
8. MISCELLANEOUS. This Debenture shall be enforced, governed and
construed in all respects in accordance with the laws of the State of South
Carolina. In case any one or more of the provisions contained in this Debenture
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. This Debenture constitutes the
entire agreement of the Company respecting the subject matter hereof and shall
not be modified or amended except by written instrument signed by both parties
hereto. Whenever the context and construction so require, all words used in the
singular number herein shall be deemed to be used in the plural, and vice versa,
and the masculine gender shall include the feminine and neuter and the neuter
shall include the masculine and feminine. The section and paragraph headings
contained in this Debenture are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Debenture. Terms such as
"hereof", "hereunder", "hereto", "herein", and words of similar import shall
refer to this Debenture in its entirety and all references to "Paragraphs",
"Sections", and similar cross references shall refer to specified portions of
this Debenture, unless the context clearly requires otherwise. This Debenture
shall be binding upon the Company, the Holder, and their respective assigns; and
shall inure to the benefit of the Company and its successors and permitted
assigns, and the Holder and its permitted successors and assigns.
58
<PAGE>
IN WITNESS WHEREOF, the Company has signed and sealed this Convertible
Subordinated Debenture as of this 6th day of October, 1997.
UCI MEDICAL AFFILIATES, INC.
ATTEST:
/s/ Jerry F. Wells By: /s/ M. F. McFarland
- -------------------- ------------------------------------------
Its: Secretary Its: President and Chief Executive Officer
(Corporate Seal)
59
EXHIBIT 4.2
STOCK PURCHASE WARRANT
60
<PAGE>
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY OTHER JURISDICTION, AND NEITHER THIS WARRANT NOR THE
SHARES ISSUABLE UPON ITS EXERCISE OR CONVERSION MAY BE OFFERED FOR SALE, SOLD,
OR OTHERWISE TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND THE SECURITIES LAWS OF
APPLICABLE JURISDICTIONS, OR UNLESS IN THE OPINION OF COUNSEL SATISFACTORY IN
FORM AND SUBSTANCE TO THE COMPANY, SUCH OFFER, SALE, HYPOTHECATION OR TRANSFER
IS EXEMPT FROM THE REGISTRATION PROVISIONS OF SUCH ACT AND SUCH LAWS.
STOCK PURCHASE WARRANT
UCI MEDICAL AFFILIATES, INC.
COMMON STOCK
($0.05 PAR VALUE)
50,000 Shares Dated: October 6, 1997
This certifies that, for value received, FPA MEDICAL MANAGEMENT, INC.,
a Delaware corporation ("FPA"), is entitled upon the due exercise hereof to
purchase up to Fifty Thousand (50,000) shares of Common Stock, $0.05 par value,
(the "Warrant Shares"), of UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(hereinafter called the "Company"), upon the terms and conditions set forth
herein.
1. Grant of Warrants
A. First Warrant. At any time during the period commencing on
the date hereof and terminating at 5:00 P.M. Columbia, South Carolina time on
September 30, 2000, FPA may purchase up to Twenty- Five Thousand (25,000)
Warrant Shares for a cash purchase price of $2.5625 per Warrant Share (the
"Exercise Price"), payable upon the exercise of this First Warrant, subject to
adjustment upon the occurrence of the contingencies set forth hereinbelow. This
First Warrant may be exercised in whole or in part but not as to a fractional
share of Common Stock.
B. Second Warrant. So long as on April 6, 1998 (a) the
principal amount of the Convertible Subordinated Debenture described in Section
2 below (the "Debenture") remains outstanding, and (b) the Debenture has not
been converted into Common Stock pursuant to the terms thereof, the Company on
such date grants to FPA a warrant (the "Second Warrant") to purchase up to Ten
Thousand (10,000) additional Warrant Shares at any time during the period
commencing on April 6, 1998 and terminating at 5:00 P.M. Columbia, South
Carolina time on April 5, 2001 for the Exercise Price per Warrant Share payable
upon the exercise of this Second Warrant, subject to adjustment upon the
occurrence of the contingencies set forth hereinbelow. This Second Warrant may
be exercised in whole or in part but not as to a fractional share of Common
Stock.
C. Third Warrant. So long as on October 6, 1998 (a) the
principal amount of the Debenture remains outstanding, and (b) the Debenture has
not been converted into Common Stock pursuant to the terms thereof, the Company
on such date grants to FPA a warrant (the "Third Warrant") to purchase up to Ten
Thousand (10,000) additional Warrant Shares at any time during the period
commencing on October 6, 1998 and terminating at 5:00 P.M. Columbia, South
Carolina time on October 5, 2001 for the Exercise Price per Warrant Share
payable upon the exercise of this Third Warrant, subject to adjustment upon the
occurrence of the contingencies set forth hereinbelow. This Third Warrant may be
exercised in whole or in part but not as to a fractional share of Common Stock.
D. Fourth Warrant. So long as on October 6, 1999 (a) the
principal amount of the Debenture remains outstanding, and (b) the Debenture has
not been converted into Common Stock pursuant to the terms thereof, the Company
on such date grants to FPA a warrant (the "Fourth Warrant") to purchase up to
Ten Thousand (10,000) additional Warrant Shares at any time during the period
commencing on October 6, 1999 and terminating at 5:00 P.M. Columbia, South
Carolina time on October 5, 2002 for the Exercise Price per Warrant Share
payable upon the exercise of this Fourth Warrant, subject to adjustment upon the
occurrence of the contingencies set forth hereinbelow. This Fourth Warrant may
be exercised in whole or in part but not as to a fractional share of Common
Stock.
61
<PAGE>
E. Fifth Warrant. So long as on October 6, 2000 (a) the
principal amount of the Debenture remains outstanding, and (b) the Debenture has
not been converted into Common Stock pursuant to the terms thereof, the Company
on such date grants to FPA a warrant (the "Fifth Warrant") to purchase up to Ten
Thousand (10,000) additional Warrant Shares at any time during the period
commencing on October 6, 2000 and terminating at 5:00 P.M. Columbia, South
Carolina time on October 5, 2003 for the Exercise Price per Warrant Share
payable upon the exercise of this Fifth Warrant, subject to adjustment upon the
occurrence of the contingencies set forth hereinbelow. This Fifth Warrant may be
exercised in whole or in part but not as to a fractional share of Common Stock.
2. Subject to Debenture. This Stock Purchase Warrant is executed in
connection with, and is subject to, that certain Convertible Subordinated
Debenture in the original principal amount of One Million Five Hundred Thousand
and No/100 Dollars ($1,500,000.00) executed as of the date hereof by the Company
in favor of FPA.
3. Exercise. Upon delivery of notice of exercise, duly executed,
together with payment of the Exercise Price in cash or by check for the shares
of Common Stock thereby purchased, at the principal executive offices of the
Company, FPA shall be entitled to receive, and shall promptly receive, a
certificate or certificates in proper form for the shares of Common Stock so
purchased.
4. No Transfer of Warrant. This Warrant and all rights hereunder may
not be sold, transferred, assigned, pledged or hypothecated in whole or in part,
except FPA upon written notice to the Company may assign its rights and
obligations, if any, hereunder to any corporation wholly-owned by FPA.
5. Adjustment of Exercise Price and Number of Shares Purchasable
Hereunder. In case the Company shall at any time after the date of this
Agreement (i) declare a dividend or make a distribution on the Common Stock in
shares of its Common Stock, (ii) subdivide the outstanding Common Stock, (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation), the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of the Warrant exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Warrant had been exercised immediately prior to
such date, he would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
6. Charges, Taxes and Expenses. The issuance of certificates of shares
of Common Stock upon any exercise or conversion of this Warrant shall be made
without charge to the holder hereof for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company.
7. Covenants of Issuer. The Company covenants and agrees that all
Common Stock and, if applicable, other securities that may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof (other than taxes in respect of any transfer to a person
other than the holder of this Warrant occurring contemporaneously with such
issue). The Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock and, if applicable, other securities to provide for the exercise in
full of the rights represented by this Warrant. The Company will provide to, or
make available to, as the case may be, the holder of this Warrant the same
information, reports and notices as it shall provide to, or make available to,
the holders of its Common Stock.
8. Holder's Rights. No holder of this Warrant, as such, shall be
entitled to vote or receive dividends or be deemed to be a shareholder of the
Company for any purpose.
9. Applicable Law. The validity, interpretation, and performance of
this Warrant shall be governed by the laws of the State of South Carolina.
10. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Company and the holder hereof.
11. Headings. Headings of the paragraphs in this Warrant are for
convenience and reference only and
62
<PAGE>
shall not, for any purpose, be deemed a part of this Warrant.
12. Notices. Any notice, request, approval, consent, demand or other
communication shall be effective upon the first to occur of the following: (i)
upon receipt by the party to whom such notice, request, approval, consent,
demand or other communication is being given; or (ii) three (3) business days
after being duly deposited in the United States mail, registered or certified,
return receipt requested, and addressed as follows:
Company: UCI Medical Affiliates, Inc.
1901 Main Street
Suite 1200
Columbia, SC 29201
Attn: Jerry F. Wells, Jr.
FPA: FPA Medical Management, Inc.
3636 Nobel Drive
Suite 200
San Diego, CA 92122
Attn: Steve Lash
The parties hereto may change their respective addresses by notice in writing
given to the other party to this Agreement.
13. Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which Federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or holiday.
IN WITNESS WHEREOF, the Company has caused this Stock Purchase Warrant
to be signed by its duly authorized officer and its corporate seal to be affixed
hereto.
UCI MEDICAL AFFILIATES, INC.
ATTEST: By: /s/ M. F. McFarland
-------------------------------
Its: President and Chief Executive Officer
---------------------------------------------
/s/ Jerry F. Wells
- -------------------
Secretary
63
EXHIBIT 10.2
AMENDMENT NO. 3 TO FACILITIES AGREEMENT
64
<PAGE>
AMENDMENT NO. 3 TO FACILITIES AGREEMENT
This Amendment to Facilities Agreement (this "Amendment") entered into
to be effective as of this 27th day of September, 1996, by and between UCI
Medical Affiliates of South Carolina, Inc., a South Carolina corporation and
wholly-owned subsidiary of UCI Medical Affiliates, Inc. ("UCISC") and Doctor's
Care, P.A. ("Doctor's Care").
Introduction. UCISC and Doctor's Care previously entered into that
certain Facilities Agreement dated May 8, 1984 (the "Agreement") whereby
Doctor's Care agreed to provide medical and medically related services at
certain primary care clinics in South Carolina owned and/or leased by UCISC. The
Agreement was amended on September 24, 1984 and on January 13, 1995. The parties
hereto desire to further amend the terms of the Agreement to extend the term of
the Agreement as set forth in this Amendment. All capitalized terms not
otherwise defined herein shall have the respective meanings set forth in the
Agreement.
Agreement. NOW, THEREFORE, for and in consideration of the mutual
promises set forth herein and other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. The Agreement shall continue, unless earlier terminated by the parties,
until September 30, 2010.
2. All terms and conditions of the Agreement, except as modified hereby,
shall remain in full force and effect.
UCI MEDICAL AFFILIATES OF
SOUTH CAROLINA, INC. (SEAL)
By: /s/ M. F. McFarland
-----------------------------
Its: President
----------------------------
DOCTOR'S CARE, P.A. (SEAL)
By: /s/ M. F. McFarland
----------------------------
Its: President
---------------------------
65
EXHIBIT 10.8
NOTE PAYABLE
DATED FEBRUARY 28, 1995
BETWEEN UCI-SC, AS PAYOR,
AND
COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY, AS PAYEE
66
<PAGE>
PROMISSORY NOTE
$400,000.00 Columbia, South Carolina
February 28, 1995
FOR VALUE RECEIVED, UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC. (the
"Borrower"), promises to pay to the order of COMPANION PROPERTY AND CASUALTY
INSURANCE COMPANY the principal sum of FOUR HUNDRED THOUSAND AND NO/100 DOLLARS
($400,000.00) with interest thereon at an annual rate equal to Eleven percent
(11.0%).
Borrower shall pay monthly payments of principal and interest in the
amount of Four Thousand Five Hundred Forty-Six and 39/100 ($4,546.39) Dollars
beginning April 1, 1995, and continuing on the first day of each month
thereafter through the Maturity Date.
The entire outstanding principal balance of this Note and any
outstanding accrued interest shall be due and payable in full on the fifteenth
anniversary of the date of this Note (the "Maturity Date").
All payments under this Note shall be applied first to late charges, if
any, then to accrued interest and then to principal. All installments of
principal and all interest are payable in lawful money of the United States of
America, which shall be legal tender in payment of all debts and dues, public
and private, at the time of payment; and in the event of (a) failure to pay this
Note in full on the Maturity Date, or (b) default in the payment of any other
installment of interest or principal or any other sum payable pursuant to the
terms of this Note or any lien document securing this Note, not cured within ten
days after written notice from Lender, then or at any time thereafter, at the
option of lender, the whole of the principal sum then remaining unpaid hereunder
together with all interest accrued thereof shall immediately become due and
payable without further notice, and the liens given to secure the payment of
this Note may be foreclosed. From and after the maturity of this Note either
according to its terms or as the result of a declaration of maturity, the entire
principal remaining unpaid hereunder shall bear interest at a rate of five (5%)
percent per annum above the rate otherwise in effect hereunder (the "Default
Rate"), or the highest applicable lawful rate, whichever is the lesser. Failure
to exercise such option or any other rights Lender may in the event of any such
default be entitled to, shall not constitute a waiver of the right to exercise
such option or any other rights in the event of any subsequent default, whether
of the same or different nature.
If this Note is placed in the hands of an attorney for collection or is
collected through any legal proceedings, Borrower promises to pay all expenses
of collection and reasonable attorney's fees incurred by Lender.
In the event the interest provisions hereof or any exactions provided
for herein or in the lien documents or any other instruments securing this Note
shall result, because of the monthly reduction of principal or any other reason
related or unrelated to the interest provisions, at any time during the life of
the loan, in an effective rate of interest which, for any period of time,
transcends the limit of the usury or any other law applicable to the loan
evidenced hereby, all sums in excess of those lawfully collectible as interest
for the period in question shall, without further agreement or notice between or
by any party hereto, be applied to principal immediately upon receipt of such
monies by Lender with the same force and effect as though the payor had
specifically designated such and agreed to accept such extra payment(s) as a
premium free payment.
Lender may collect a late charge of five (5%) percent of any
installment of principal or interest which is not paid within ten (10) days of
the due date thereof to cover the extra time and expense involved in handling
delinquent payments. Such late charge shall apply to late payments prior to
maturity or acceleration. Upon maturity or acceleration, no further late charges
shall be assessed, but Borrower shall pay the Default Rate of interest on all
amounts due from the date of maturity or acceleration until the Note is paid in
full. The collection of the late charge shall not be deemed a waiver by Lender
of interest accruing after the due date of any installment or of any of Lender's
other rights under this Note.
Borrower agrees that the large charge provided above is fair and
reasonable compensation to Lender for the additional administrative time and
effort incurred in collecting and processing delinquent payments. Borrower
further
67
<PAGE>
agrees that the Default Rate is a fair and reasonable rate of interest to be
charged after maturity or acceleration of this Note in light of the increased
risks to Lender inherent in a past due loan and the administrative time and
effort incurred in collecting a past due loan.
Borrower and all endorsers, guarantors and all persons liable or to
become liable on this Note waive presentment, protest and demand, note of
protest, demand and dishonor and nonpayment of this Note, ad consent to any and
all renewals and extensions of the time of payment hereof, and agree, further,
that at any time and from time to time without notice, the terms of payment
herein may be modified or the security described in the lien document securing
the Note released in whole or in part, or increased, changed or exchanged by
agreement between lender and any owner of premises affected by said lien
document securing this Note without in anywise affecting the liability of any
party to this instrument or any person liable with respect to any indebtedness
evidenced hereby.
Lender is not required to rely on the collateral for the payment of the
Note in the event of default by the maker, but may proceed directly against the
maker, endorsers, or guarantors, if any, in such manner as it deems desirable.
None of the rights and remedies of Lender hereunder is to be waived or affected
by failure or delay to exercise them. All remedies conferred on Lender by this
Note or any other instrument or agreement shall be cumulative, and none is
exclusive. Such remedies may be exercised concurrently or consecutively at
Lender's option.
The Borrower may prepay this Note at any time without penalty.
This Note shall be governed as to validity, interpretation,
construction, effect, and in all other respects by the laws and decisions of the
State of South Carolina.
UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC.
By: /s/ M.F. McFarland, III (SEAL)
Its: President
The undersigned hereby guarantees payment in full of this Promissory
Note. The undersigned's obligation is primary and not secondary, and Lender
shall not be required to bring suit against Borrower or to foreclose on this
Promissory Note before enforcing this Guaranty. The undersigned shall also pay
all reasonable attorney's fees and expenses incurred in enforcing this Guaranty.
DOCTOR'S CARE, P.A.
By: /s/ M.F. McFarland, III, MD (SEAL)
Its: President
68
EXHIBIT 10.9
REVOLVING LINE OF CREDIT
69
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
UCI Medical Affiliates, Inc. Carolina First Bank ID # 1971
1901 Main Street, Ste 1200 1225 Lady Street Loan Number __________
Columbia, SC 29201 Columbia, SC 29201 Date _________________
Maturity Date __________
BORROWER'S NAME AND LENDER'S NAME AND Loan Amount $3,000,000
ADDRESS ADDRESS Renewal Of ___________
"I" INCLUDES EACH BORROWER "YOU" MEANS THE LENDER, ITS 57-07844959
ABOVE, JOINT AND SEVERALLY. SUCCESSORS AND ASSIGNS.
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of Three Million and 00/100 Dollars
($3,000,000.00).
_____ Single Advance: I will receive all of this principal sum on
_____________. No additional advances are contemplated under
this note.
XX Multiple Advance: The principal sum shown above is the
maximum amount of principal I can borrow under this note. On
_____________ I will receive the amount of $__________ and
future principal advances are contemplated.
Conditions: The conditions for future advances are .
XX Open End Credit: You and I agree that I may borrow up to the
maximum amount of principal more than one time. This feature
is subject to all other conditions and expires on December 2,
1998.
_____ Closed End Credit: You and I agree that I may borrow up to
the maximum only one time (and subject to all other
conditions).
INTEREST: I agree to pay interest on the outstanding principal balance
from _________________ at the rate of P + 1.0% per year until date the
Index Rate changes.
XX Variable Rate: This rate may then change as stated below.
XX Index Rate: The future rate will be 1.0% above the following
index rate: CAROLINA FIRST BANK PRIME RATE AS ANNOUNCED FROM
TIME TO TIME.
______ No Index: The future rate will not be subject to any internal
or external index. It will be entirely in your control.
XX Frequency and Timing: The rate on this note may change as
often as DAILY. A change in the interest rate will take
effect IMMEDIATELY THE DAY OF SUCH CHANGE.
______ Limitations: During the term of this loan, the applicable
annual interest rate will not be more than _____% or less
than _____%.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
XX The amount of each scheduled payment will change.
______ The amount of the final payment will change.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 day basis.
70
<PAGE>
POST MATURITY RATE: I agree to pay interest on the unpaid balance of
this note owing after maturity, and until paid in full, as stated below:
XX on the same fixed or variable rate basis in effect before
maturity (as indicated above).
_____ at a rate equal to __________.
XX LATE CHARGE: If a payment is made more than 20 days after it
is due, I agree to pay a late charge of the greater of 5% of
pmt or $25.00.
XX ADDITIONAL CHARGES: In addition to interest, I agree to pay
the following charges which ___ are XX are not included in
the principal amount above: $15,000 fee.
PAYMENTS: I agree to pay this note as follows:
XX Interest: I agree to pay accrued interest due monthly
beginning January 2, 1997.
XX Principal: I agree to pay the principal at maturity, December
2, 1998.
_____ Installments: I agree to pay this note in ____ payments. The
first payment will be in the amount of $_________ and will be
due _________________. A payment of $_______ will be due
_______________ thereafter. The final payment of the entire
unpaid balance of principal and interest will be due
___________.
ADDITIONAL TERMS: This loan is secured by A/R, inventory, and stock.
PURPOSE: The purpose of this loan is Line of Credit.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE
2). I have received a copy on today's date.
UCI Medical Affiliates, Inc.
/s/ M.F. McFarland, CEO
Signature for Lender
/s/ Alfred H. Barnett, Vice President
71
<PAGE>
APPLICABLE LAW: The law of the state in which you are located will
govern this note. Any term of this note which contrary to applicable law
will not be effective, unless the law permits you and me to agree to
such a variation. If any provision of this agreement cannot be enforced
according to its terms, this face will not affect the enforceability of
the remainder of this agreement. No modification of this agreement may
be made without your express written consent. Time is of the essence in
this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount
I owe you for charges which are neither interest nor principal. The
remainder of each payment will then reduce accrued unpaid interest, and
then unpaid principal. If you and I agree to a different application of
payments, we will describe our agreement on this note. I may prepay a
part of, or the entire balance of this loan without penalty, unless we
specify to the contrary of this note. Any partial prepayment will not
excuse or reduce any later scheduled payment until this note is paid in
full (unless, when I make the prepayment, you and I agree in writing to
the contrary).
INTEREST: If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the
entire principal advance at that time. Notwithstanding anything to the
contrary, I do not agree to pay and you do not intend to charge any rate
of interest that is higher than the maximum rate of interest you could
charge under applicable law for the extension of credit that is agreed
to here (either before or after maturity). If any notice of interest
accrual is sent and is in error, we mutually agree to correct it, and if
you actually collect more interest than allowed by law and this
agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate
on this note. You do not guarantee by selecting this index, or the
margin, that the rate on this note will be the same rate you charge on
any other loans or class of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will
be calculated using the interest rate and accrual method stated on page
1 of this note. For the purpose of interest calculation, the accrual
method will determine the number of days in a "year". If no accrual
method is stated, then you may use any reasonable accrual method for
calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity
Rate" (shown on page 1) applies, the term "maturity" means the date of
the last scheduled payment indicated on page 1 of this note or the date
you accelerate payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect
that you will make only one advance of principal. However, you may add
other amounts to the principal if you make any payments described in the
"PAYMENTS BY LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I
expect that you will make more than one advance of principal. If this is
closed end credit, repaying a part of the principal will not entitle me
to additional credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges
I am obligated to pay (such as property insurance premiums), then you
may treat those payments made by you as advances and add them to the
unpaid principal under this note, or you may demand immediate payment of
the charges.
SET-OFF: I agree that you may set off any amount due and payable under
this note against any right I have to receive money from you.
"Right to receive money from you" means:
1. any deposit account balance I have with you;
2. any money owed to me on an item presented to you or in your
possession for collection or exchange; and
3. any repurchase agreement or other nondeposit obligation.
72
<PAGE>
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at
the time you set off. This total includes any balance the due date for
which you properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my
interest in the obligation and to any other amounts I could withdraw on
my sole request or endorsement. Your right of set-off does not apply to
an account or other obligation where my rights are only as a
representative. It also does not apply to any Individual Retirement
Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree
to hold you harmless from any such claims arising as a result of your
exercise of your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real
estate or a residence that is personal property, the existence of a
default and your remedies for such a default will be determined by
applicable law, by the terms of any separate instrument creating the
security interest and, to the extent not prohibited by law and not
contrary to the terms of the separate security instrument, by the
"Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur:
(1) I fail to make a payment on time or in the amount due; (2) I fail to
keep the property insured, if required; (3) I fail to pay, or keep any
promise, on any debt or agreement I have with you; (4) any other
creditor of mine attempts to collect any debt I owe him through court
proceedings; (5) I die, am declared incompetent, make an assignment for
the benefit of creditors, or become insolvent (either because my
liabilities exceed my assets or I am unable to pay my debts as they
become due); (6) I make any written statement or provide any financial
information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you
will have difficulty collecting the amount I owe you; (8) any collateral
securing this note is used in a manner or for a purpose which threatens
confiscation by a legal authority; (9) I change my name or assume an
additional name without first notifying you before making such a change;
(10) I fail to plant, cultivate and harvest crops in due season; (11)
any loan proceeds are used for a purpose that will contribute to
excessive erosion of highly erodible land or to the conversion of
wetlands to produce an agricultural commodity, as further explained in 7
C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited
to, the following remedies:
1. You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
2. You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph
herein.
3. You may demand security, additional security, or additional parties
to be obligated to pay this note as a condition for not using any
other remedy.
4. You may refuse to make advances to me or allow purchases on credit by
me.
5. You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an
event to be a default, you do not waive your right to later consider the
event as a default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of
collection, replevin or any other or similar type of cost if I am in
default. In addition, if you hire an attorney to collect this note, I
also agree to pay any fee you incur with such attorney plus court costs
(except where prohibited by law). To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's
fees and costs you incur to collect this debt as awarded by any court
exercising jurisdiction under the Bankruptcy Code.
73
<PAGE>
WAIVER: I give up my rights to require you to do certain things. I will
not require you to:
1. demand payment of amounts due (presentment);
2. obtain official certification of nonpayment (protest); or
3. give notice that amounts due have not been paid (notice of dishonor).
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if
someone else has also agreed to pay it (by, for example, signing this
form or a separate guarantee or endorsement). You may sue me alone, or
anyone else who is obligated on this note, or any number of us together,
to collect this note. You may do so without any notice that it has not
been paid (notice of dishonor). You may without notice release any party
to this agreement without releasing any other party. If you give up any
of your rights, with or without notice, it will not affect my duty to
pay this note. Any extension of new credit to any of us, or renewal of
this note by all or less than all of us will not release me from my duty
to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time
to time without limit or notice and for any term without affecting my
liability for payment of the note. I will not assign my obligation under
this agreement without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit
information about me from time to time (for example, by requesting a
credit report) and to report to others your credit experience with me
*such as a credit reporting agency). I agree to provide you, upon
request, any financial statement or information you may deem necessary.
I warrant that the financial statements and information I provide to you
are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be
given by delivering it or by mailing it by first class mail addressed to
me at my last known address. My current address is on page 1. I agree to
inform you in writing of any change in my address. I will give any
notice to you by mailing it first class to your address stated on page 1
of this agreement, or to any other address that you have designated.
<TABLE>
<CAPTION>
BORROWER'S INTEREST
DATE OF PRINCIPAL INITIALS (NOT PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE REQUIRED) PAYMENTS BALANCE RATE PAYMENTS THROUGH
- ---------------- ------------- --------------- ------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
$ $ $ % $
$ $ $ % $
$ $ $ % $
$ $ $ % $
$ $ $ % $
$ $ $ % $
</TABLE>
74
EXHIBIT 10.10
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
75
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 20th day of
March, 1996, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(the "Company"), and Harold H. Adams, Jr. ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Three and 50/100 ($3.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 20, 1999 and ending at 11:59 p.m. eastern time on March 20, 2006. This
Option shall expire on March 21, 2006. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Option understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
76
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
---------------------------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Harold H. Adams, Jr.
--------------------------------------------
Print Name: Harold H. Adams, Jr.
---------------------------------
77
EXHIBIT 10.11
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
78
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 20th day of
March, 1996, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(the "Company"), and Russell J. Froneberger ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Three and 50/100 ($3.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 20, 1999 and ending at 11:59 p.m. eastern time on March 20, 2006. This
Option shall expire on March 21, 2006. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Option understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
79
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
--------------------------------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Russell J. Froneberger
------------------------------------------
Print Name: Russell J. Froneberger
-------------------------------
80
EXHIBIT 10.12
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
81
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 27th day of
March, 1997, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(the "Company"), and Charles P. Cannon ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Two and 50/100 ($2.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 27, 2000 and ending at 11:59 p.m. eastern time on March 27, 2007. This
Option shall expire on March 28, 2007. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Optionee understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
82
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
------------------------------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Charles P. Cannon
----------------------------------------------
Charles P. Cannon
83
EXHIBIT 10.13
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
84
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 27th day of
March, 1997, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(the "Company"), and Thomas G. Faulds ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Two and 50/100 ($2.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 27, 2000 and ending at 11:59 p.m. eastern time on March 27, 2007. This
Option shall expire on March 28, 2007. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Optionee understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
85
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Thomas G. Faulds
---------------------
Thomas G. Faulds
86
EXHIBIT 10.14
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
87
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 27th day of March,
1997, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation (the
"Company"), and Ashby Jordan, M.D. ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Two and 50/100 ($2.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 27, 2000 and ending at 11:59 p.m. eastern time on March 27, 2007. This
Option shall expire on March 28, 2007. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Optionee understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
88
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Ashby Jordan
-----------------
Ashby Jordan, M.D.
89
EXHIBIT 10.15
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
90
<PAGE>
UCI MEDICAL AFFILIATES, INC.
NON-EMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
This Option Agreement is made to be effective as of the 27th day of
March, 1997, by and between UCI MEDICAL AFFILIATES, INC., a Delaware corporation
(the "Company"), and Charles M. Potok ("Optionee").
Preliminary Statement
The Board of Directors has deemed that it is in the best interest of
the Company and its shareholders that each non-employee director of the Company
on the effective date hereof be granted a non-statutory option for the purchase
of shares of the common stock of the Company, $0.05 par value (the "Stock"), in
connection with their service on the Board of Directors of the Company. In
accordance therewith and in consideration of the mutual agreements and other
matters set forth herein, the Company and Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right and
option (the "Option") to purchase from the Company all or any part of an
aggregate of Five Thousand (5,000) shares of the Stock, on the terms and
conditions set forth herein. This Option shall not be treated as an incentive
stock option within the meaning of Section 422A(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Purchase Price. The purchase price per share of the Stock to be
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Two and 50/100 ($2.50) Dollars, the closing ask price of the Stock on the
effective date hereof which price is hereby confirmed by the Company to be the
fair market value of the Stock on the effective date hereof.
3. Term. This Option shall be exercisable during the period commencing
on March 27, 2000 and ending at 11:59 p.m. eastern time on March 27, 2007. This
Option shall expire on March 28, 2007. This Option may be exercised during the
term hereof only by Optionee during Optionee's lifetime, except that if Optionee
dies during the term of this Option Agreement, Optionee's estate may exercise
this Option in full at any time during the period of six (6) months following
the date of Optionee's death, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death.
4. Exercise and Closing. This Option shall be exercisable by written
notice to the Company at its principal executive offices, addressed to the
attention of its Chief Financial Officer, at any time and from time to time
during the term of this Option as set forth herein, for any or all of the
aggregate number of shares covered by this Option. No fraction of a share of the
Stock shall be issued by the Company upon any exercise of this Option. Multiple
exercises of this Option shall be permitted so long as the total number of
shares of the Stock purchased pursuant to this Option does not exceed in the
aggregate the total number of shares as to which this Option is exercisable as
set forth in Paragraph 1 hereof. Closing of the purchase of the shares of the
Stock as to which this Option may be exercised shall take place in the offices
of the Company on or before thirty (30) days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).
5. Stock Restrictions. Optionee understands that at the time of the
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities law, and that the
Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising
this Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees that
the shares of the Stock which Optionee may acquire by exercising this Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state. In
addition, Optionee agrees that (i) the certificates representing the shares of
the Stock purchased under this Option may bear such restrictive
91
<PAGE>
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under this Option
on the stock transfer records of the Company if such proposed transfer would, in
the opinion of counsel satisfactory to the Company, constitute a violation of
any applicable securities laws, and (iii) the Company may give related
instructions to its transfer agent to stop registration of the transfer of the
shares of Stock purchased under this Option.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.
7. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of South Carolina.
8. Transferability. This Option is not transferable or assignable, in
whole or in part, by Optionee.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officer thereunto duly authorized, and Optionee has
executed this Option Agreement, all to be effective as of the day and year first
above written.
UCI MEDICAL AFFILIATES, INC.
By: /s/ M. F. McFarland
------------------------
M.F. McFarland, III, M.D.
Its: President and Chief Executive Officer
OPTIONEE:
/s/ Charles M. Potok
---------------------
Charles M. Potok
92
EXHIBIT 10.17
CONSULTING AGREEMENT
93
<PAGE>
ORIGINAL SIGNED AGREEMENT ON GLOBAL CONSULTING, INC. LETTERHEAD
IS ON FILE IN THE CORPORATE OFFICE OF UCI MEDICAL AFFILIATES, INC.
December 10, 1996
Dr. M.F. McFarland, III
Chairman and Chief Executive Officer
UCI Medical Affiliates, Incorporated
1901 Main Street, Suite 1200
Columbia, South Carolina 29201
Dear M.F.:
Re: Agreement dated September 20, 1996 (copy attached for
immediate reference).
The subject Agreement is amended as follows:
1. The term is extended from March 31, 1997 to September 30, 1998 at ten
(10) hours per month (at $2,000 per month).
2. The Agreement may be terminated by either UCI or Global, upon ninety
(90) days written notice, with or without reason.
3. Section 5. Additional Hours: will include a calendar semi-annual
adjustment on September 30, 1997, March 31, 1998 and September 30, 1998.
All other terms and conditions of the subject Agreement remain unchanged.
I hope this amendment meets your requirements. If it does, please sign and date
in the spaces provided below and return one original of this amendment to me.
Sincerely,
/s/ Russ
- --------
Russell J. Froneberger
For UCI Medical Affiliates, Inc.
Authorized Signature: /s/ M.F. McFarland, III, M.D.
-------------------------------
Date: /s/ 12/10/96
--------------
94
<PAGE>
ORIGINAL SIGNED AGREEMENT ON GLOBAL CONSULTING, INC. LETTERHEAD
IS ON FILE IN THE CORPORATE OFFICE OF UCI MEDICAL AFFILIATES, INC.
September 20, 1996
Dr. M.F. McFarland, III
Chairman and Chief Executive Officer
UCI Medical Affiliates, Incorporated
1901 Main Street, Suite 1200
Columbia, South Carolina 29201
Dear M.F.
This letter is intended to serve as an agreement between UCI Medical Affiliates,
Incorporated ("UCI") and Global Consulting ("Global").
Global will become UCI's financial and marketing consultant and will perform
duties as follows: update and facilitate in the implementation of the firm's
business and marketing plans; assist the Chief Financial Officer in developing
and maintaining sufficient banking and other financing facilities which will
comfortably provide for UCI's working capital and other credit needs; and, to
advise the Chief Executive Officer in the growth and development of UCI as a
leading primary health care provider.
To accomplish the preceding, UCI and Global agree to the following:
1. Term: Six (6) months, beginning October 1, 1996 and ending March 31,
1997, renewable in six (6) month increments.
2. Monthly Retainer Amount: $5,000, payable on or about the end of each
month, beginning October 1, 1996. Global will bill UCI approximately ten
days before each due date.
3. Hours: The Monthly Retainer Amount provides for up to twenty-five (25)
hours of consultant's time each month.
4. Hours Not Utilized: Hours not utilized in one month will be carried
forward to subsequent months for so long as this agreement is in force.
5. Additional Hours: Where Global's services are required beyond
twenty-five (25) hours per month, and there are no accumulated hours
(number 4. above), such additional hours will be carried forward to March
31, 1997 at which time these hours will be multiplied by $200 per hour. The
resultant amount will be payable to Global by April 15, 1997.
6. Expenses: Out-of-pocket expenses (such as travel and long-distance
telephone) will be billed and payable at the same time as the Monthly
Retainer Amount.
UCI also agrees to reimburse Global for consulting done between August 1, 1996
and September 30, 1996, at $175 per hour, plus out-of-pocket expenses. Global
will bill UCI for this time/expense on or about October 1, 1996 with the sum
payable by October 9, 1996.
Both parties agree that any modification to this agreement shall be set out in
writing and agreed to by both parties.
95
<PAGE>
Page Two
M.F. McFarland
September 20, 1996
I hope this arrangement meets your requirements. If it does, please sign and
date in the spaces provided and return one original to me, after which this
agreement will be in force.
Sincerely,
Russell J. Froneberger
For UCI Medical Affiliates, Inc. For Global Consulting
/s/ M.F. McFarland, III /s/ Russ
Authorized Signature Russell J. Froneberger
Date: /s/ 09/24/96 Date: September 20, 1996
96
EXHIBIT 10.21
ADMINISTRATIVE SERVICES AGREEMENT
dated August 11, 1998 by and between
Doctor's Care, P.A. and
UCI Medical Affiliates of South Carolina, Inc.
97
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement ("Agreement") is entered into
and effective as of the 11th day of August, 1998, by and between Doctor's Care,
P.A., a South Carolina professional corporation (hereinafter referred to as
"Doctor's Care"); and UCI Medical Affiliates of South Carolina, Inc, a South
Carolina corporation (hereinafter referred to as "Medical Management").
RECITALS
WHEREAS, Doctor's Care and Medical Management previously entered into
that certain Facilities Agreement dated May 8, 1984, as amended (the "Facilities
Agreement"), whereby Doctor's Care agreed to provide medical and medically
related services at certain primary care clinics in South Carolina owned and/or
leased by Medical Management;
WHEREAS, the parties hereto desire to enter into this Agreement and
forever terminate the Facilities Agreement all as set forth below;
WHEREAS, Doctor's Care is a medical practice that provides medical
services to patients. Doctor's Care's services are performed by employed
physicians, by physician employees of independent physician practices under
contract with Doctor's Care and pursuant to contracts with independent
physicians, as well as by nurse practitioners and other physician extenders
(collectively referred to as "Doctor's Care Personnel");
WHEREAS, Doctor's Care does not own or possess facilities for the
provision of its services nor does it own or possess medical equipment,
furnishings or supplies that are required for the delivery of medical services;
WHEREAS, except for the Doctor's Care Personnel, Doctor's Care does not
employ, and is not desirous of employing, other personnel who may be necessary
to the proper operation of a medical practice, including nurses, technicians,
administrative and management staff;
WHEREAS, Medical Management is in the business of providing
comprehensive management services to medical practices, including the provision
of office space and equipment, the hiring of non-medical personnel, the
recruitment of medical personnel, the provision of billing and collection
services, and the coordination of relationships between primary care physicians,
specialist physicians and hospitals under managed care and other arrangements;
WHEREAS, Medical Management has special expertise and experience in the
operation, management and marketing of the non-medical aspects of medical
clinics of the type operated or intended to be operated by Doctor's Care.
Medical Management has been and will continue to be primarily involved in the
non-medical development and management of medical facilities. Medical Management
has developed and will continue to develop the non-medical aspects of a number
of facilities where high quality health care has been and will be provided at
low cost because of efficiencies of scale and management expertise; and
WHEREAS, the parties desire that Medical Management provide the
above-described services to Doctor's Care, according to the terms and conditions
set forth below.
THEREFORE, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. Definitions.
1.1 "Ancillary Services" means services other than medical and
nursing services, including but not limited to radiology, health education,
pharmacy, pathology and laboratory, and therapy services provided to Doctor's
Care patients.
1.2 "Quality Assurance Program" (Program) is the ongoing
monitoring of the quality of medical services through qualitative and
quantitative analyses and the recommendation of quality improvements.
98
<PAGE>
1.3 "Utilization Review" means the review of medical care
provided to patients for necessity and appropriateness conducted either
concurrently with the provision of the services or retrospectively after they
have been rendered, and which review may result in advice to a physician that a
reviewed service is not necessary or appropriate or not eligible for
reimbursement under a Payor Agreement.
1.4 "Patient" means a person who receives medical care
services from Doctor's Care.
1.5 "Payor" means an employer, insurance carrier, health
service plan, trust, nonprofit hospital service plan, governmental unit or any
other entity which is obligated to provide or reimburse health care providers
for providing health care services to a Patient.
1.6 "Payor Agreement" means an agreement between a Payor and
Doctor's Care (or its authorized representative) under which Doctor's Care
renders health care services to Patients.
2. Term of Agreement. Commencing on the effective date set forth above,
this Agreement shall continue in effect for a period of forty (40) years. It
shall automatically renew for an additional ten (10) year term unless Medical
Management shall provide Doctor's Care at least one hundred and twenty (120)
days' advance written notice of its intention to let the Agreement expire.
Thereafter, it shall renew for successive ten (10) year terms unless either
party shall provide the other at least one hundred and twenty (120) days'
advance written notice of its intention to let the Agreement expire at the end
of any such term prior to the end of such term.
3. Obligations of Medical Management.
3.1 Facilities. Medical Management shall provide to Doctor's
Care, for Doctor's Care's use, suitable facilities in which it can provide
health care services. Medical Management shall own, enter into a lease, sublease
or other occupancy agreement for each such facility if required by the owner.
The facilities which are subject to this Agreement shall be designated from time
to time exclusively by Medical Management. Each such facility and hereafter
acquired or leased facility so designated by Medical Management is hereinafter
referred to as an "Office" and all such facilities and hereafter acquired or
leased facility so designated by Medical Management are hereinafter referred to
as the "Offices."
3.2 Furniture, Fixtures and Equipment
3.2.1 During the term of this Agreement and all
renewals and extensions hereof, Medical Management shall provide
Doctor's Care at each Office at which Doctor's Care performs its health
care services, the medical equipment, office equipment, furniture,
fixtures, furnishings and leasehold improvements.
3.2.2 The use by Doctor's Care of such furniture,
fixtures, furnishings, and equipment shall be subject to the following
conditions:
3.2.2.1 Title to all such furniture,
fixtures, furnishings, and equipment shall remain in Medical
Management and upon termination of this Agreement, Doctor's
Care shall immediately return and surrender all such
furniture, fixtures, furnishings, and equipment to Medical
Management in as good condition as when received, normal wear
and tear excepted. Doctor's Care expressly agrees to execute
any appropriate UCC-1 Financing Statement and UCC-1 Fixture
Filings, and any amendments thereto, if so requested in
writing by Medical Management.
3.2.2.2 Medical Management shall be fully
and entirely responsible for all repairs and maintenance of
all such furniture, fixtures, furnishings, and equipment,
provided, however, that Doctor's Care agrees that it will use
its best efforts to prevent damage, excessive wear, and
breakdown of all such furniture, fixtures, furnishings, and
equipment, and shall advise Medical Management of any and all
needed repairs and equipment failures.
3.3 Development, Management and Administrative Services.
During the term of this Agreement, and all renewals and extensions hereof,
Doctor's Care hereby engages Medical Management to serve as Doctor's Care's
exclusive manager and administrator of all non-medical functions and
non-physician services relating to the operation of the Offices; and Medical
Management agrees to furnish to Doctor's Care all of the non-medical
development,
99
<PAGE>
management and administrative services as may be needed by Doctor's Care in
connection with the operation of the Offices. Such non-medical development,
management and administrative services shall include the following:
3.3.1 Bookkeeping and Accounts. Medical Management
shall provide all bookkeeping and accounting services necessary or
appropriate to support the Offices, including, without limitation,
maintenance, custody and supervision of all business records, papers,
documents, ledgers, journals and reports, and the preparation,
distribution and recordation of all bills and statements for
professional services rendered by Doctor's Care, including the billing
and completion of reports and forms required by insurance companies or
governmental agencies, or other third-party payors (such records,
papers, documents, ledgers, journals and reports shall not be deemed to
include patient records and other records, reports and documents which
relate to patient treatment by Doctor's Care's physicians); provided,
however, it is understood that all such business records, papers and
documents are the sole property of Doctor's Care, and shall be
available for inspection by Doctor's Care at all times, and shall be
delivered to Doctor's Care upon termination of this Agreement. Doctor's
Care shall provide Medical Management with a complete copy of all such
documents, records, and papers at Doctor's Care's expense upon
termination of this Agreement.
3.3.2 General Administrative Services. Medical
Management shall provide Doctor's Care with overall supervision and
management, including the maintenance and repair, of the Offices, and
all furniture, fixtures, furnishings, equipment and leasehold
improvements located in or at the Offices.
3.3.3 Contract Administration. Medical Management
shall provide Doctor's Care with administrative services to enable
Doctor's Care to perform on a timely basis all non-medical aspects of
all Payor Agreements. Such services shall include the preparation and
analysis of reports to enable Doctor's Care to provide physician
staffing and supervision at the Offices for the rendering of efficient,
high quality medical care to patients.
3.4. Non-Physician Personnel. Medical Management shall provide
such support personnel and nursing personnel to Doctor's Care as may be
reasonably necessary to enable Doctor's Care to perform medical services at the
Offices subject to the following:
3.4.1 Medical Management shall provide all support
personnel necessary for Doctor's Care's practice, including, but not
limited to, all non-physician technical personnel, nurses,
receptionists, secretaries, clerks, purchasing and marketing personnel,
janitorial and maintenance personnel, and non-physician supervisory
personnel as may be deemed reasonably necessary by Medical Management
for the proper and efficient operation of the Office. Notwithstanding
the foregoing, if any billing rules (such as Medicare/Medicaid
"incident to" rules) require Doctor's Care to be the employer of
certain non-physician medical personnel in order for their services to
be reimbursed, then Doctor's Care shall be the employer of such
non-physician medical personnel (who shall be deemed to be a portion of
the "Doctor's Care Personnel"); and
3.4.2 Medical Management shall be responsible for
hiring and firing all such support personnel, and shall determine
compensation for all such personnel, including determination of
salaries, fringe benefits, bonuses, health and disability insurance,
workers' compensation insurance, and any other benefits that each such
employee shall receive; and
3.4.3 Medical Management shall manage and supervise
all such licensed support personnel employed on behalf of Doctor's Care
including, but not limited to all nurses, x-ray technicians and
laboratory technicians, regarding those aspects of their employment
that do not involve performance under the scope of their licensure;
provided, however, that Doctor's Care shall manage and supervise all
activities of such licensed support personnel performed under the scope
of their licensure;
3.5 Supplies. Medical Management shall acquire and supply to
Doctor's Care all medical and non-medical supplies of every kind, name or
nature, which may reasonably be required by Doctor's Care for the operations of
the Offices.
3.6 Security and Maintenance. Medical Management shall provide
Doctor's Care with all services and personnel necessary to provide Doctor's Care
with proper security, maintenance, and cleanliness of the
100
<PAGE>
Offices and the furniture, fixtures, equipment, and leasehold improvements
located thereat. Additionally, Medical Management shall furnish to or obtain for
group all laundry, linens, uniforms, printing, stationery, forms, telephone
service, postage, duplication services, and any and all other supplies and
services of a similar nature which are necessary in connection with the
day-to-day operation of the Offices.
3.7 Physician Recruiting and Training. Medical Management
shall assist Doctor's Care in recruiting, screening and evaluating prospective
physician employees and physician contractors for Doctor's Care, and Medical
Management shall assist Doctor's Care in training Doctor's Care's physicians in
the delivery of medical services at the Offices in a manner consistent with
Medical Management's established standards, practices, procedures and policies
as may from time to time be in effect.
3.8 Insurance. Medical Management shall use all reasonable
efforts to obtain and maintain in full force and effect during the term of this
Agreement, and all extensions and renewals thereof, commercial general liability
and property insurance which Medical Management deems appropriate to protect
against loss in the nature of fire, other catastrophe, theft, business
interruption, public liability, and non-medical negligence, with minimum
coverage limits of $1,000,000 per occurrence. Medical Management shall use all
reasonable efforts to obtain medical malpractice insurance for Doctor's Care and
its physician employees in an amount not less than $1,000,000 per incident with
a $3,000,000 annual limit per physician either on an "occurrence" or on a
"claims made" basis in its judgment. If obtained on a "claims made" basis, such
insurance arrangements shall include provision for the purchase of "tail
coverage" if such coverage is available at reasonable rates. Medical Management
may arrange for such malpractice insurance or portion thereof, including "tail
coverage" to be underwritten or funded by an entity which is wholly or partially
owned by Medical Management.
3.9 Billing and Collection. In order to relieve Doctor's Care
of the administrative burden of handling the billing and collection of sums due
under prepaid health plans, fees for medical, x-ray, laboratory and all services
provided by or on behalf of Doctor's Care and for which Doctor's Care may
charge, Medical Management shall be responsible, on behalf of and for Doctor's
Care and any contract physicians or independent physician groups or other
organizations practicing medicine for or on behalf of Doctor's Care, on their
respective billheads as their agent, for billing and collecting the charges made
with respect to all medical, x-ray, laboratory and all other services provided
at the Offices. Doctor's Care agrees that it will keep and provide to Medical
Management all documents, opinions, diagnoses, recommendations, and other
evidence and records necessary for the purpose of supporting the fees charged
for all medical and other services from time to time. It is expressly understood
that the extent to which Medical Management will endeavor to collect such
charges, the methods of collecting, the settling of disputes with respect to
charges, and the writing off of charges that may be or appear to be
uncollectible shall at all times be within the sole discretion of Medical
Management (but subject to all applicable governmental regulations and the terms
and conditions of applicable provider agreements), and that Medical Management
does not guarantee the extent to which any charges billed will be collected.
Doctor's Care or its duly authorized agent shall have the right at all
reasonable times and upon the giving of reasonable notice to examine, inspect
and copy the records of Medical Management pertaining to such fees, charges,
billings and collections. At Doctor's Care's request, Medical Management will
re-assign to Doctor's Care for collection by Doctor's Care, any accounts which
Medical Management has determined to be uncollectible.
3.10 Bank Accounts and Disbursements. During the term of this
Agreement, Medical Management is hereby expressly authorized to, and shall
disburse from one or more bank accounts of Doctor's Care sums for the payment of
the Cost of Medical Services as that term is defined in Section 7 below, Medical
Management's compensation and all other costs, expenses and disbursements which
are required or authorized by this Agreement. For administrative convenience,
Medical Management shall maintain said bank accounts.
3.11 Market Research. Medical Management shall conduct market
research with respect to rates, charges, competitive conditions, competition and
business opportunities for Medical Management and Doctor's Care. Medical
Management shall compile such information and provide marketing reports and
analyses to Doctor's Care. All such marketing services shall be conducted in
accordance with the laws, rules, regulations and guidelines of all applicable
governmental and quasi-governmental agencies including, but not limited to, the
Medical Board of South Carolina.
3.12 Contract Negotiations. Medical Management shall negotiate
on Doctor's Care's behalf, contracts with prepaid health plans, preferred
provider organizations, other group plans, independent physician associations,
hospitals and other health care providers for Doctor's Care's services at the
Offices, for admission of
101
<PAGE>
Doctor's Care's patients for hospitalization and for the provision of health
care services for Doctor's Care's patients by other physicians with specialties
not available at Doctor's Care. Upon request by Medical Management, Doctor's
Care hereby agrees to take any action convenient or necessary for Doctor's Care
to approve and enter into any such contracts.
3.13 Management and Planning Reports. Medical Management shall
supply Doctor's Care on a regular, periodic basis, such internal reports as may
be necessary or appropriate for the parties to assist each other in evaluating
the non-medical aspects of the performance and productivity of their respective
employees and contractors as well as in evaluating the efficiency and
effectiveness of the rendition of their respective management and other
non-professional services. Medical Management shall provide Doctor's Care with
data and reports for Doctor's Care's exclusive use in conducting Doctor's Care's
medical practice, evaluating the performance of Doctor's Care's physicians and
for other purposes related to maintaining a high level of patient care quality
and improving the efficiency of Doctor's Care's physicians. Medical Management
shall meet periodically with Doctor's Care's utilization review designees,
medical directors of Offices, Doctor's Care's peer review committees and other
representatives of Doctor's Care to review the data and reports provided by
Medical Management, to consult with each other with regard to the interpretation
of such data and reports, to evaluate the application of such data and reports
to the operation of the Offices and to detect and discuss trends in Doctor's
Care's medical practice at the Offices.
3.14 Utilization Review. Medical Management shall establish
and administer a program of Utilization Review of medical care rendered by
Doctor's Care that is consistent with the terms of the Payor Agreements, and
Doctor's Care agrees that it and its physicians shall adhere to the advice of
such program to the extent that it is consistent with the physician's
professional judgment.
3.15 Quality Assurance. It is understood that Doctor's Care
has an established Quality Assurance Program to assure a standard of care that
is consistent with the laws of the state and federal governments, with the
applicable contractual obligations of Doctor's Care, and with the prevailing
standards of medical practice and medical care in the community. Medical
Management shall assist in the implementation of this Quality Assurance Program.
3.16 Arrangements with Other Providers. The parties hereto
acknowledge and agree that Medical Management may enter into arrangements with
health care providers other than Doctor's Care, including specialty physicians
and hospitals, for the provision of services to patients.
3.17 Doctor's Care Operations. Medical Management shall have
exclusive authority over all decision-making for ongoing Doctor's Care major or
central operations except for the dispensing of medical services. This authority
includes, but is not limited to, the scope of services, patient acceptance
policies and procedures, pricing of services, negotiation and execution of
contracts, issuance of debt, and establishment and approval of operating and
capital budgets.
3.18 Compensation and Selection of Physicians. Medical
Management shall have exclusive decision-making authority over the total
compensation of Doctor's Care's Personnel. Medical Management shall have the
authority to establish and implement guidelines for the selection, hiring and
firing of Doctor's Care's Personnel; without limiting the generality of the
foregoing, Doctor's Care shall not employ or contract with any Doctor's Care
Personnel without the prior consent of Medical Management.
3.19 Notice of Certain Corporate Actions. During the term of
this Agreement and any extension or renewal thereof, (i) if Doctor's Care shall
desire to amend its bylaws or its Articles of Incorporation; or (ii) if any
capital reorganization of the Doctor's Care, reclassification of the capital
stock of Doctor's Care, consolidation or merger of Doctor's Care with or into
another corporation, sale lease, or transfer of all or substantially all of the
property and assets of Doctor's Care shall desire to be effected; or (iii) if
Doctor's Care shall desire to pay any dividend, in shares of stock or cash or
otherwise, or make any distribution upon the shares of its capital stock, then
in any such case, Doctor's Care shall cause to be delivered to Medical
Management, at least thirty (30) days prior to the record date fixed for the
purpose of determining shareholders entitled to vote on such action, or to
receive such dividend, distribution, or offer, or to receive shares or other
assets deliverable upon such reorganization, reclassification, consolidation,
merger, sale, lease, transfer, dissolution, liquidation, or winding up, as the
case may be, a notice containing a brief description of the proposed action and
stating such record date.
3.20 Proceeds of Sale of Doctor's Care and/or Offices. During
the term of this Agreement and any renewal or extension thereof, in the event
all or substantially all the assets of Doctor's Care or one or more of the
102
<PAGE>
Offices are sold or otherwise transferred, such sale or transfer shall not be
effective except upon the prior written consent of Medical Management which may
be withheld for any or no reason, and Medical Management shall be entitled to
any and all the proceeds of such sale or transfer.
4. Compliance with Payor Agreements. Medical Management agrees to
perform its duties hereunder so as to comply with Doctor's Care's obligations
under the Payor Agreements.
5. Conduct of Medical Practice. Doctor's Care shall be solely and
exclusively in control of all aspects of the practice of medicine and the
delivery of medical services in its practice. The rendition of all medical
professional services, including, but not limited to, diagnosis, treatment,
surgery, therapy and the prescription of medicine and drugs, and the supervision
of preparation of medical reports shall be the responsibility of Doctor's Care.
Except as otherwise set forth herein, Doctor's Care shall have the sole right
and authority to hire, employ, train, supervise, terminate and compensate all of
the Doctor's Care Personnel. Medical Management shall have the authority to
establish fees or charges for the rendition of such services. Doctor's Care
agrees to assign a physician to act as its Medical Director and to assure that
its Offices are adequately staffed during operating hours with such medical
personnel as may be necessary to efficiently carry out the practice of medicine
at such Offices, all of whom shall be duly licensed by the state in which they
practice.
6. Exclusivity. During the term of this Agreement, Doctor's Care agrees
not to contract for or to obtain management or administrative services with any
organization other than Medical Management.
7. Medical Management's Compensation.
7.1 Definitions.
7.1.1 "Books and Records" means Doctor's Care's books
of account, accounting and financial records and all other records
relating to and used in the conduct of Medical Management's duties
hereunder and also used in the preparation of reports and financial
statements. The books and records at all times shall be correct and
complete and contain correct and timely entries made with respect to
transactions entered into pursuant hereto in accordance with GAAP.
7.1.2 "Cost of Medical Services" means any and all
expenses of Doctor's Care with respect to providing services at the
Offices or related in any way to the business of Doctor's Care,
including without limitation the aggregate compensation of Doctor's
Care Personnel, plus the cost of such Doctor's Care Personnel's
benefits, including, but not limited to vacation pay, sick pay, health
care expenses, Doctor's Care's share of Doctor's Care Personnel's,
employment and payroll taxes, professional dues, and other expenses and
payments required to be made to or for said Doctor's Care Personnel,
pursuant to employment agreements or otherwise, including expense
reimbursements and all discretionary bonuses, incentives, and/or
payments based on profitability or productivity paid or accrued for
Doctor's Care Personnel at said Offices; and also includes the cost of
Ancillary Services ordered by Doctor's Care Personnel on behalf of
Doctor's Care's patients and the cost of medical malpractice insurance
for Doctor's Care and Doctor's Care Personnel.
7.1.3 "GAAP" means at any particular time generally accepted
accounting principles as m effect at such time. Any accounting term
used in this Agreement shall have, unless otherwise specifically
provided herein, the meaning customarily given in accordance with
GAAP, and all financial computations hereunder shall be computed
unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied and using the same method of valuation as used
in the preparation of Medical Management's financial statements.
7.1.4 "Net Revenues" means all Revenues net of
allowances for uncollectible accounts.
7.1.5 "Revenues" means all amounts assigned and paid
hereunder by Doctor's Care to Medical Management pursuant to Subsection
7.2.
7.2 Assignment to Medical Management. Doctor's Care hereby
assigns to Medical Management all of Doctor's Care's rights and interest in all
sums which Doctor's Care receives or becomes entitled to receive for the
103
<PAGE>
performance of medical services by employees of Doctor's Care and from charges
by Doctor's Care for supplies and other items for which Doctor's Care is
entitled to charge as reflected in invoices issued by Doctor's Care with respect
to the Offices. Notwithstanding the foregoing, no assignment shall be made of
any sums or rights to payment, the assignment of which is prohibited by law
(e.g., amounts receivable from Medicare claims). In lieu of assignment of the
payments described above, Doctor's Care hereby agrees to pay to Medical
Management an amount equal to the amount of any such payments within two (2)
business days of receiving such payments.
7.3 Remittances on Behalf of Doctor's Care. Medical Management
shall pay on Doctor's Care's behalf from the Net Revenues the Cost of Medical
Services. Medical Management shall have access to the Books and Records for the
purpose of determining payments to be made under this Subsection 7.3.
7.4 Medical Management's Compensation. As compensation for the
provision of its services hereunder, Medical Management shall receive the
balance, if any, of the Net Revenues remaining after payments of the Costs of
Medical Services as set forth in Section 7.3.
8. Records.
8.1 Medical Management agrees to maintain documentation of
source data related to quality assurance, Utilization Review and cost and
utilization reports prepared for and/or submitted to Doctor's Care for a period
of at least five years from the close of the contract period specified in this
Agreement.
8.2 Medical Management agrees to make all of its books and
records pertaining to the services furnished under the terms of this Agreement
(subject to applicable ethical and legal confidentiality requirements) available
for inspection, examination or copying by duly authorized representatives of
Doctor's Care.
9. Insurance and Indemnification.
9.1 Medical Management shall confirm that any physician
provider used by Doctor's Care to serve the needs of Patients shall have
professional liability insurance or protection limits of coverage as follows: at
least $1,000,000 per occurrence and $3,000,000 annual aggregate for said
physician. Medical Management shall provide evidence of the above-described
coverage to Doctor's Care upon request.
9.2 Doctor's Care further agrees, during the term of this
Agreement, to indemnify and hold harmless Medical Management against any claims
or liabilities arising under this Agreement which are the sole responsibility of
Doctor's Care or its employees or agents.
10. Confidentiality.
10.1 Patient Records. All patients records, reports and
information obtained, generated, or encountered relating to Offices, which have
not and hereafter are not designated by Medical Management as being Medical
Management's property shall at all times be the property of Doctor's Care and so
long as in the possession, use or control of either party, shall be kept in the
strictest confidence by both parties. Medical Management shall instruct all of
its personnel to keep confidential any such information, as well as any
financial, statistical, personnel, and patient information obtained or
encountered relating to Doctor's Care or to Doctor's Care's operations. Both
parties agree to comply with all applicable laws, regulations and professional
standards concerning the confidentiality of patient records.
10.2 Proprietary Information. Doctor's Care recognizes that
due to the nature of this Agreement, Doctor's Care will have access to
information of a proprietary nature owned by Medical Management including, but
not limited to, any and all computer programs (whether or not completed or in
use) and any and all operating manuals or similar materials which constitute the
non-medical systems, policies and procedures, and methods of doing business
developed by Medical Management for the operation of facilities managed by
Medical Management. Consequently, Doctor's Care acknowledges and agrees that
Medical Management has a proprietary interest in all such information and that
all such information constitutes confidential and proprietary information and is
the trade secret property of Medical Management. Doctor's Care hereby waives any
and all right, title and interest in and to such trade secrets and confidential
information and agrees to return all copies of such trade secrets and
confidential information related thereto to Medical Management, at Doctor's
Care's expense, upon the termination of the Agreement.
104
<PAGE>
Doctor's Care further acknowledges and agrees that Medical Management
is entitled to prevent its competitors from obtaining and utilizing its trade
secrets and confidential information. Therefore, Doctor's Care agrees to hold
Medical Management's trade secrets and confidential information in strictest
confidence and not to disclose them or allow them to be disclosed, directly or
indirectly, to any person or entity other than those persons or entities who are
employed by or affiliated with Medical Management or Doctor's Care, without the
prior written consent of Medical Management. Doctor's Care shall not, either
during the term of this Agreement, or at any time after the expiration or sooner
termination of this Agreement, disclose to anyone other than persons or entities
who are employed by or affiliated with Medical Management or Doctor's Care any
confidential or proprietary information or trade secret information obtained by
Doctor's Care from Medical Management, except as otherwise required by law.
Doctor's Care agrees to require each independent contractor and employee of
Doctor's Care, and any such persons or entities to whom such information is
disclosed for the purpose of performance of Medical Management's or Doctor's
Care's obligations under this Agreement, to execute a "Confidentiality
Agreement" in a form acceptable to Medical Management.
Doctor's Care acknowledges and agrees that a breach of this Section 10
will result in irreparable harm to Medical Management which cannot be reasonably
or adequately compensated in damages, and therefore Medical Management shall be
entitled to injunctive and equitable relief to prevent a breach and to secure
enforcement thereof, in addition to any other relief or award to which Medical
Management may be entitled.
11. Cooperation.
11.1 Doctor's Care and Medical Management agree that they
shall at all times maintain an effective liaison and close cooperation with each
other to facilitate provision of high quality and cost effective health care to
Patients.
11.2 Each of the parties agrees to cooperate fully with each
other in connection with the performance of their respective obligations under
this Agreement, and both parties agree to employ their best efforts to resolve
any dispute that may arise under or in connection with this Agreement. Subject
to Medical Management maintaining the confidentiality of patient records and
Doctor's Care's confidential information, Doctor's Care shall provide to Medical
Management full and complete access to Doctor's Care's premises, and to Doctor's
Care charts, books, and records, in order that Medical Management can perform
its functions hereunder.
11.3 During the term of this Agreement, Doctor's Care shall
not add facilities or clinics for the practice of medicine by Doctor's Care's
physicians without the prior approval of Medical Management.
11.4 Notwithstanding any other provisions contained herein,
Medical Management shall not be liable to Doctor's Care, and shall not be deemed
to be in default hereunder, for the failure to perform or provide any of the
supplies, services, personnel, or other obligations to be performed or provided
by Medical Management pursuant to this Agreement if such failure is a result of
a labor dispute, act of God, or any other event which is beyond the reasonable
control of Medical Management.
12. License of Intellectual Property. During the term of this Agreement
and any extension or renewals thereof, each of the party's hereto hereby grants
royalty free to the other party hereto the non-exclusive right and license to
use any and all trademarks, trade names, service marks, logos, and other
intellectual property rights owned by the granting party. The licensed
intellectual property and any goodwill associated therewith are and shall at all
times remain the property of the granting party.
13. Doctor's Care Patient Grievances. Medical Management agrees to
comply with the complaint, grievance and disenrollment policies of Payors in
resolving any Patient grievances related to the provision of medical services by
Doctor's Care. Doctor's Care shall bring to the attention of Medical Management
all applicable complaints or grievances involving Doctor's Care, and Medical
Management shall promptly, in accordance with any applicable Payor procedures,
investigate such complaints and use its best efforts to resolve them in a fair
and equitable manner. Medical Management agrees to notify Doctor's Care monthly
of any complaints from Patients and of actions taken or proposed with respect to
the disposition of such complaints.
14. Professional Training and Licensing Standards.
105
<PAGE>
14.1 Medical Management warrants that any provider that it
engages to provide services to Patients is in compliance with applicable local,
state, and federal laws, regulations and/or licensing requirements relating to
the provision of services that they will provide.
14.2 Doctor's Care shall provide Medical Management with a
copy of credentials requirements and agrees to provide Medical Management with
documentation that each physician providing services to Doctor's Care Patients
is appropriately credentialed. This documentation will include proof of
licensure and specialty certification as applicable. This documentation shall be
maintained on file by Medical Management and reviewed by Doctor's Care and
Medical Management on an annual basis. Doctor's Care will maintain oversight
responsibility to assure that all licensed physicians are credentialed according
to its managed care Quality Assurance Program.
15. Non-Discrimination.
15.1 In the performance of this contract, Doctor's Care and
Medical Management shall not unlawfully discriminate against any employee or
applicant for employment because of race, religion, color, national origin,
ancestry, physical or psychological disability, medical condition, marital
status, age, sex or sexual orientation. Doctor's Care and Medical Management
shall insure that the evaluation and treatment of their employees and applicants
for employment are free of such discrimination and shall comply with all the
provisions of law applicable thereto.
15.2 The applicable regulations of law relating to the
treatment and evaluation of employees and applicants for employment are
incorporated into this Agreement by reference and made a part hereof as if set
forth in full. Doctor's Care and Medical Management shall give written notice of
their obligations under this clause to labor organizations with which they have
a collective bargaining or other agreement.
16. Arbitration. If a dispute or matter in controversy arises between
the parties hereto which they are unable to resolve to their mutual satisfaction
within ten (10) days of written notice from one to the other of the existence of
such dispute, then either party may notify the other party in writing (the
"Notice") that the dispute be submitted to binding arbitration as provided
herein. The arbitration panel shall consist of three (3) arbitrators, one of
whom shall be selected by Medical Management, one of which shall be selected by
Doctor's Care, each within 10 days of the Notice, and the third shall be
selected by the first two within ten (10) days of their selection. If either
party shall fail to make a selection within ten (10) days, the first arbitrator
shall select the remaining two (2). In the event that any arbitrator shall
resign or otherwise fail to perform his duties, his successor shall immediately
be selected by the party who selected such arbitrator in the first instance. The
arbitration panel shall have the authority to assess costs and shall award
attorneys' fees. Either party may have recourse to the courts for enforcement of
the award of the arbitration panel. Notwithstanding any provision of this
Section 16, the arbitration panel shall have no authority to override Medical
Management's exclusive authority over the ongoing major or central operations of
Doctor's Care, as specifically set forth in Subsection 3.17 and as otherwise set
forth in this Agreement. With respect to any dispute brought by Doctor's Care,
the arbitration panel and any court of competent jurisdiction may order
termination of this Agreement only upon a finding beyond a reasonable doubt that
Medical Management (a) was grossly negligent, (b) committed a fraudulent act, or
(c) committed illegal acts.
17. Waiver of Violation. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach thereof.
18. Miscellaneous.
18.1 Enforceability. If any provision of this Agreement shall
be for any reason invalid or unenforceable, the remaining provisions shall be
nevertheless effective.
18.2 Amendments. This Agreement constitutes the entire written
understanding between the parties and may only be amended by Medical Management
providing notice to Doctor's Care of such amendment.
18.3 Independent Relationship. In the performance of this
Agreement, it is mutually understood and agreed that all physicians practicing
medicine at any of the Offices are at all times acting and performing as
employees of Doctor's Care or as independent contractors with Doctor's Care
("Doctor's Care's Physicians") and not employees or agents of Medical
Management. Medical Management shall neither have nor exercise any control or
direction over the methods by which Doctor's Care or Doctor's Care's Physicians
shall practice medicine. The function
106
<PAGE>
of Medical Management is to provide Doctor's Care with all non-medical services
in a competent, efficient, and satisfactory manner. Doctor's Care and Doctor's
Care's Physicians shall have no claim under this Agreement or otherwise against
Medical Management for workers' compensation, unemployment compensation, sick
leave, vacation pay, retirement benefits, Social Security benefits, or any other
employee benefits, all of which shall be the sole responsibility of Doctor's
Care. Since Doctor's Care's Physicians are not employees of Medical Management,
it shall not withhold on behalf of Doctor's Care's Physicians pursuant to this
Agreement any sums for income tax, unemployment insurance, Social Security, or
otherwise pursuant to any law or requirement of any governmental agency, and all
such withholding, if any is required, shall be the sole responsibility of
Doctor's Care. Doctor's Care shall indemnify and hold harmless Medical
Management from any and all loss or liability arising with respect to any of the
foregoing benefits or withholding requirements.
18.4 Assignability. This Agreement and all rights and
obligations hereunder may not be assigned by Doctor's Care without the prior
written consent of Medical Management. Medical Management may assign this
Agreement or any or all rights and obligations hereunder at any time upon notice
to Doctor's Care.
18.5 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of South Carolina.
19. Termination of Facilities Agreement. The parties hereto acknowledge
and agree that by mutual agreement of the parties thereto, that certain
Facilities Agreement is hereby and forever terminated and declared null and
void; provided however, this termination shall not be deemed to extinguish any
payments which are owed to one party thereto by the other party thereto pursuant
to the terms of such Facilities Agreement; provided further however, no party
thereto shall be entitled to any fee or penalty accruing as a result of such
termination.
[SIGNATURE PAGE ATTACHED]
107
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Administrative Services Agreement to be executed by their duly authorized
representatives as of the date first above written.
UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC.
By: /S/ JERRY F. WELLS, JR.
------------------------
Jerry F. Wells, Jr.
Title: Executive Vice-President and
Chief Financial Officer
Address:
1901 Main Street
Suite 1200
Columbia, SC 29201
DOCTOR'S CARE, P.A.
By: /S/ M. F. MCFARLAND, III, M.D.
-------------------------------
M. F. McFarland, III, M.D.
Title: President
Address:
1901 Main Street
Suite 1200
Columbia, SC 29201
108
