SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the registrant [ X ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
[ ] Confidential, for use of the Commission only (as permitted
by Rule 14a-6(e)(2)).
UCI MEDICAL AFFILIATES, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)
(1) and 0-11.
(1) Title of each class of securities to which transaction
applies: Common Stock
---------------
(2) Aggregate number of securities to which transaction
applies: 2,091,396 shares
------------------
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$8,050,000 assets acquired
807,841 liabilities assumed
----------
$8,857,841 total value of transaction
==========
(4) Proposed maximum aggregate value of transaction:
$8,857,841
---------------------------
(5) Total fee paid: $1,774
---------------------------
[X] Fee paid previously with preliminary materials.
($1,774 paid with February 24, 1998 filing.)
--------------------------------------------
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify
the filing for which the offsetting fee was paid
previously. Identify the previous filing by
registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------
(2) Form, Schedule or Registration Statement
No.:
-----------------------
(3) Filing Party:
-------------------
(4) Date Filed:
-----------------------
<PAGE>
PRELIMINARY PROXY STATEMENT DATED MAY 29, 1998
UCI MEDICAL AFFILIATES, INC.
1901 MAIN STREET, SUITE 1200
COLUMBIA, SOUTH CAROLINA 29201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, JUNE 25, 1998
TO THE STOCKHOLDERS OF UCI MEDICAL AFFILIATES, INC.:
The Annual Meeting of Stockholders of UCI Medical Affiliates, Inc., a
Delaware corporation ("UCI"), will be held on Thursday, June 25, 1998 at 10:00
a.m., local time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia,
South Carolina 29210 for the following purposes:
A. In connection with the transaction in which UCI has acquired certain
assets and assumed certain liabilities of MainStreet Healthcare Corporation
("MHC"), a Delaware corporation, UCI stockholders will be asked:
1. To approve the issuance of shares of UCI common stock
in connection with the transaction.
2. To approve the issuance of warrants for the purchase
of shares of UCI common stock in connection with a
private placement of UCI common stock.
3. To approve an amendment to the Amended and Restated
Certificate of Incorporation of UCI to increase the
authorized shares of UCI common stock from 10 million
shares to 30 million shares.
B. In connection with the Annual Meeting, UCI stockholders will be
asked:
1. To approve the election of three members of the UCI
Board of Directors, each to hold office for a
three-year term ending on the date of the annual
meeting of stockholders in the year 2001 and until
such director's respective successor shall have been
duly elected and qualified.
2. To approve the adoption of the UCI 1997 Stock
Incentive Plan for officers, directors, employees and
consultants.
3. To ratify the appointment of Price Waterhouse LLP as
the firm of independent auditors to audit the
consolidated financial statements of UCI and its
subsidiaries for the fiscal year ending September 30,
1998.
C. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
<PAGE>
Only stockholders of record of UCI common stock at the close of
business on May 11, 1998 are entitled to notice of, and will be entitled to vote
at, the Annual Meeting or any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
M. F. McFarland, III, M.D.
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
June 1, 1998
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, WE
URGE YOU TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT
PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY
TIME BEFORE IT IS VOTED.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SHARES OF UCI COMMON STOCK TO BE ISSUED IN THE
TRANSACTION, OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The accompanying Proxy Statement is dated June 1, 1998,
and was first mailed to stockholders on or about June 1, 1998.
<PAGE>
TABLE OF CONTENTS
SUMMARY
The Parties to the Acquisition...............................................1
Recommendations to Stockholders..............................................2
Risk Factors.................................................................2
The Acquisition..............................................................3
Annual Meeting Proposals.....................................................4
Markets and Market Prices....................................................6
Selected Historical Financial Data of the Company............................7
Selected Historical Financial Data of MHC....................................8
Selected Pro Forma Financial Data of the Company.............................9
RISK FACTORS
Financial Status of MHC.....................................................10
Integration of Operations; Management of Growth.............................10
Dilution....................................................................11
Resales of Common Stock and Market Volatility...............................12
Government Regulation.......................................................13
Possible Nasdaq Delisting...................................................15
Competition.................................................................15
THE ACQUISITION
Description of the Acquisition..............................................17
Background.........................................................17
Reasons for the Acquisition........................................19
Recommendation of the UCI Board....................................20
Fairness Opinion...................................................20
Financing of the Acquisition.......................................22
Certain Federal Income Tax Matters.................................22
Accounting Treatment...............................................22
Resales of Common Stock............................................23
Absence of Dissenters' Rights......................................23
Interests of Certain Persons in the Acquisition....................24
Description of the Agreements...............................................24
Acquisition Agreement..............................................24
Related Agreements.................................................27
Non-Solicit Agreements....................................27
Registration Rights Agreement.............................27
Shareholder Agreements....................................27
FINANCIAL AND BUSINESS INFORMATION
Market Price and Dividend Information......................................28
Description of MHC.........................................................29
Unaudited Pro Forma Combined Condensed Financial Statements................30
<PAGE>
THE ANNUAL MEETING
Business to Be Conducted at the Annual Meeting.............................36
Proposals to be Voted Upon........................................36
Date, Time and Place of Meeting...................................36
Record Date.......................................................37
Shares Outstanding and Entitled to Vote...........................37
Voting and Revocation of Proxies..................................37
Quorum............................................................37
Vote Required.....................................................38
Solicitation of Proxies and Expenses..............................38
Description of Proposals...................................................39
Share Issuance and Warrant Issuance Proposals.....................39
Authorized Capital Stock Proposal.................................39
Election of Directors.............................................39
1997 Incentive Plan Proposal......................................40
Ratification of Auditors Proposal.................................44
Directors and Executive Officers...........................................44
Directors.........................................................44
Executive Officers................................................45
Section 16(a) Beneficial Ownership Reporting Compliance...........46
Board of Directors and Board Committees...........................46
Executive Compensation............................................47
Director Compensation.............................................49
Employment Contracts..............................................49
Security Ownership of Certain Beneficial Owners and Management.............49
Certain Relationships and Related Party Transactions.......................51
ADDITIONAL INFORMATION
Cautionary Statement Concerning Forward-Looking Statements.................55
Stockholder Proposals......................................................55
Other Matters..............................................................55
Annual Report..............................................................55
Where You Can Find More Information........................................56
APPENDICES
Appendix A - Fairness Opinion.............................................A-1
Appendix B - Proposed Amendment to the UCI Certificate....................B-1
Appendix C - MHC Historical Financial Statements..........................C-1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT, AND
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND
THE PROPOSED TRANSACTION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE TRANSACTION, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "ADDITIONAL INFORMATION - WHERE YOU
CAN FIND MORE INFORMATION."
This Proxy Statement is being furnished to the holders of common stock,
par value $0.05 per share (the "Common Stock"), of UCI Medical Affiliates, Inc.,
a Delaware corporation ("UCI"), in connection with the solicitation of proxies
by the UCI Board of Directors (the "UCI Board") for use at the Annual Meeting of
Stockholders of UCI to be held Thursday, June 25, 1998 at 10:00 a.m., local
time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia, South
Carolina for the following purposes:
o To approve certain proposals relating to the acquisition,
effective May 1, 1998 (the "Acquisition"), by UCI and certain
of its affiliated entities of substantially all of the assets
and certain of the liabilities of MainStreet Healthcare
Corporation, a Delaware corporation ("MHC"), and its
affiliated entities, and the funding of a portion of the
Acquisition by UCI through the private placement of Common
Stock, and
o To approve certain proposals presented as part of the
regularly scheduled Annual Meeting of Stockholders of UCI.
THE PARTIES TO THE ACQUISITION
PURCHASING ENTITIES
UCI MEDICAL AFFILIATES, INC.
UCI is a holding company that operates through its wholly-owned
subsidiary, UCI Medical Affiliates of South Carolina, Inc., a South Carolina
corporation ("UCI-SC"), providing nonmedical management and administrative
services for its network of 40 freestanding medical centers (the "UCI Centers")
located throughout South Carolina. In compliance with applicable laws governing
the corporate practice of medicine, all medical services at the UCI Centers are
provided by or under the supervision of Doctor's Care, P.A. ("DC-SC"), a South
Carolina professional corporation affiliated with UCI and UCI-SC. DC-SC was
formed and operates solely to fulfill the licensed medical provider
responsibilities associated with the UCI Centers pursuant to an administrative
services agreement between DC-SC and UCI-SC. UCI's executive offices are located
at 1901 Main Street, Suite 1200, Columbia, South Carolina 29201 and its
telephone number is (803) 252-3661.
UCI MEDICAL AFFILIATES OF GEORGIA, INC. ("UCI-GA")
UCI-GA is a South Carolina corporation and a wholly-owned subsidiary of
UCI formed solely for the purpose of acquiring the assets and liabilities of MHC
pursuant to the Acquisition. UCI-GA performs the same functions with respect to
the medical centers acquired from MHC as are performed by UCI-SC with respect to
the UCI Centers.
1
<PAGE>
DOCTOR'S CARE OF GEORGIA, P.C. ("DC-GA")
DOCTOR'S CARE OF TENNESSEE, P.C. ("DC-TN")
Each of DC-GA, a Georgia professional corporation, and DC-TN, a
Tennessee professional corporation (collectively, the "UCI-PCs), were formed
prior to the closing of the Acquisition for the purpose of acquiring the assets
and liabilities of the MHC-PCs (defined below), and operate solely to fulfill
the licensed medical provider responsibilities associated with the medical
centers acquired by UCI-GA in the Acquisition. These responsibilities, as well
as various administrative, management and support functions, are carried out
pursuant to an administrative services agreement between UCI-GA and each of the
UCI-PCs.
FOR MORE INFORMATION RELATING TO UCI, UCI-SC, DC-SC AND UCI-GA
(COLLECTIVELY, THE "COMPANY") YOU SHOULD REVIEW THE DOCUMENTS REFERENCED IN
"ADDITIONAL INFORMATION - WHERE YOU CAN FIND MORE INFORMATION."
SELLING ENTITIES
MAINSTREET HEALTHCARE CORPORATION
MHC is a privately held corporation that prior to the Acquisition
provided nonmedical management and administrative services for its network of 11
freestanding medical centers (the "MHC Centers") located in Georgia and
Tennessee. In compliance with applicable laws governing the corporate practice
of medicine, prior to the Acquisition, all medical services at the MHC Centers
were provided by or under the supervision of the two professional corporations
identified in the following paragraph. MHC's executive offices are located at
2370 Main Street, Tucker, Georgia 30084 and its telephone number is (770)
938-9355.
MAINSTREET HEALTHCARE MEDICAL GROUP, P.C. ("MHC-GA")
MAINSTREET HEALTHCARE MEDICAL GROUP, PC ("MHC-TN")
MHC-GA, a Georgia professional corporation, and MHC-TN, a Tennessee
professional corporation (collectively, the "MHC-PCs"), were formed solely to
fulfill the licensed medical provider responsibilities associated with the MHC
Centers pursuant to administrative services agreements between each of the
MHC-PCs and MHC.
RECOMMENDATIONS TO STOCKHOLDERS
The UCI Board believes the Acquisition was in the best interests of the
Company and its stockholders and recommends, by the unanimous consent of all
directors, that you vote FOR the proposals related to the Acquisition, FOR the
amendment to UCI's Amended and Restated Certificate of Incorporation, FOR each
of the three nominees for director named in this Proxy Statement and FOR each of
the other proposals being submitted to you.
RISK FACTORS
For a description of certain things which you should consider in
connection with your vote on the proposals relating to the Acquisition, in
addition to the other information described in this document, see the
disclosures beginning on page 10 in this Proxy Statement under the heading "Risk
Factors."
2
<PAGE>
THE ACQUISITION
The Acquisition Agreement and Plan of Reorganization dated February 9,
1998, as amended on April 15, 1998 and May 7, 1998 (the "Acquisition
Agreement"), is the legal document that governs the Acquisition. This agreement
is summarized in this Proxy Statement under the heading "The Acquisition -
Description of the Agreements - Acquisition Agreement."
HOW THE ACQUISITION WAS COMPLETED
At the closing of the Acquisition, the following took place:
o MHC transferred to UCI-GA substantially all of the assets of
MHC in exchange for the following:
o assumption by UCI-GA of certain liabilities,
including a $594,184 line of credit obligation and
certain real property and equipment lease obligations
of MHC; and
o cash, note payable and stock having an aggregate
value of $8.14 million, exchanged as follows:
o cash payment of $450,000 to an escrow agent
selected by MHC and the delivery of an
$800,000 promissory note of UCI-GA payable
to the escrow agent, with such cash and the
proceeds from the repayment of the note to
be paid by the escrow agent to certain
creditors of MHC; and
o a commitment to issue 2,091,396 shares of
Common Stock to the escrow agent (such
shares valued at $6.89 million using a value
of $2.375 per share pursuant to the share
price formula set forth in the Acquisition
Agreement).
o The MHC-PCs transferred to the UCI-PCs all of the assets of
the MHC-PCs in exchange for the following:
o assumption by the UCI-PCs of the obligations of the
MHC-PCs under employment agreements with medical
service providers; and
o cash payment of $100 to each of the MHC-PCs.
RELATED AGREEMENTS
The Acquisition included the delivery of non-solicit agreements and a
registration rights agreement, all of which are summarized in this Proxy
Statement under the heading "The Acquisition - Description of the Agreements -
Related Agreements."
FAIRNESS OPINION
In deciding to approve the Acquisition, the UCI Board considered, among
other things, advice from Dr. Oliver G. Wood, Jr., an independent consulting
economist. UCI's Board received an opinion from Dr. Wood that as of the date of
his opinion the terms of the Acquisition were fair to UCI and its
3
<PAGE>
stockholders from a financial point of view. Dr. Wood's opinion is attached as
Appendix A to this Proxy Statement. We encourage you to read it thoroughly.
FINANCING THE ACQUISITION
UCI financed the cash portion of the consideration exchanged in the
Acquisition using a portion of the net proceeds received by UCI in a concurrent
private placement (the "Private Placement") by UCI of $1.2 million of Common
Stock. As placement agent and financial advisory services fees in connection
with the Private Placement, UCI has agreed to issue warrants (the "Warrants")
for the purchase of an aggregate of 300,000 shares of Common Stock subject to
the receipt of stockholder approval for such issuance. At the Annual Meeting,
shareholders of UCI will be asked to approve the issuance of the Warrants and
the shares of Common Stock issuable upon their exercise. See "Annual Meeting
Proposals."
TAX TREATMENT
For U.S. federal income tax purposes, no income, gain or loss will be
recognized by UCI or the stockholders of UCI as a result of the Acquisition.
ACCOUNTING TREATMENT
The Acquisition is to be accounted for as a purchase in accordance with
generally accepted accounting principles.
RESALES OF COMMON STOCK
All of the shares of Common Stock issued in the Private Placement and
all of the shares proposed to be issued pursuant to the Acquisition and upon
exercise of the Warrants are considered "restricted securities" under federal
and state securities laws. Consequently, the transferability of such shares by
their holders is limited during the two years following the respective dates of
their issuances, and will remain limited thereafter to the extent such shares
are held by affiliates of UCI. To assist the holders of such shares in the
public resale of such shares following their issuance, UCI has granted certain
registration rights to MHC, MHC stockholders, the investors in the Private
Placement and certain of the holders of the Warrants.
ABSENCE OF DISSENTERS' RIGHTS
UCI stockholders are not entitled under Delaware law to seek appraisal
of their shares of Common Stock in connection with the Acquisition.
ANNUAL MEETING PROPOSALS
PROPOSALS TO APPROVE THE ISSUANCE OF SHARES AND WARRANTS
Because the number of shares of Common Stock as to which UCI has
committed to issue in connection with the Acquisition and the shares of Common
Stock issuable upon exercise of the Warrants to be delivered in connection with
the Private Placement will exceed 20 percent of the number of outstanding shares
of Common Stock prior to such issuances, approval by UCI stockholders of the
issuance of the Common Stock and the Warrants is required under the rules of the
National Association of Securities Dealers, Inc. (the "NASD").
PROPOSAL TO INCREASE THE AUTHORIZED CAPITAL STOCK
4
<PAGE>
UCI's Amended and Restated Certificate of Incorporation (the "UCI
Certificate") currently authorizes 10 million shares of Common Stock. The
authorized capital stock proposal provides that the authorized shares of Common
Stock will be increased to 30 million shares. Any authorized but unissued shares
of Common Stock may be used by UCI for general corporate purposes, including for
possible future acquisitions. The increase in the authorized number of shares of
Common Stock is necessary to complete the issuance of Common Stock in connection
with the Acquisition and the issuance of the Warrants in connection with the
Private Placement.
ELECTION OF UCI DIRECTORS
At the Annual Meeting, UCI stockholders will be asked to elect the
following three director nominees: Charles P. Cannon, A. Wayne Johnson and Ashby
M. Jordan, M.D.
PROPOSAL TO APPROVE THE 1997 STOCK INCENTIVE PLAN
The UCI Board has approved the UCI 1997 Stock Incentive Plan. At the
Annual Meeting, you will be asked to approve this plan.
PROPOSAL TO RATIFY AUDITORS
UCI has appointed Price Waterhouse LLP as the independent auditors of
the Company's consolidated financial statements for the fiscal year ending
September 30, 1998. At the Annual Meeting, you will be asked to ratify this
appointment.
RECORD DATE; VOTE REQUIRED FOR STOCKHOLDER APPROVAL OF THE PROPOSALS
Only holders of record of Common Stock at the close of business on May
11, 1998 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. Common Stock is entitled to one vote per share on each matter that is
presented for stockholder approval at the Annual Meeting.
The proposals to issue shares of Common Stock to MHC pursuant to the
Acquisition and to issue the Warrants (and the Common Stock issuable upon
exercise of the Warrants) in connection with the Private Placement must be
approved by the affirmative vote of the holders of a majority of the total votes
cast on the proposals.
The proposal to amend the UCI Certificate to increase the number of
authorized shares of Common Stock must be approved by the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock.
The three nominees receiving the greatest number of votes cast
(although not necessarily a majority of the votes cast) in the election of
directors will be elected to the UCI Board.
The proposal to approve the adoption of the UCI 1997 Stock Incentive
Plan and the proposal to ratify auditors must each be approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting.
M.F. McFarland, III, M.D., Chairman and Chief Executive Officer of UCI,
and certain subsidiaries of Blue Cross Blue Shield of South Carolina ("BCBS")
have indicated to UCI that each of them intends to vote the shares of Common
Stock controlled by them in favor of each of the proposals scheduled to be
presented for stockholder approval at the Annual Meeting. In addition, each of
Dr. McFarland and such subsidiaries of BCBS have executed separate agreements
with MHC in which they
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<PAGE>
have agreed to vote their shares in favor of the proposals relating to the
Acquisition presented for stockholder approval. As of the record date for the
Annual Meeting, these shares represented 51.9 percent of the outstanding Common
Stock.
ACCORDINGLY, IF DR. MCFARLAND AND SUCH SUBSIDIARIES OF BCBS VOTE AS
INDICATED, ALL OF THE PROPOSALS ARE ASSURED TO BE APPROVED, REGARDLESS OF THE
VOTES THAT MAY BE CAST BY ANY OTHER HOLDERS OF COMMON STOCK ENTITLED TO VOTE.
MARKETS AND MARKET PRICES
The Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "UCIA". For information regarding the historical market price of the
Common Stock, see "Financial and Business Information - Market Price and
Dividend Information."
On February 12, 1998, the last trading day prior to the public
announcement of the Acquisition, the Common Stock closed at $2.3125 per share.
On May , 1998, the last trading day before the printing of this Proxy
Statement, the Common Stock closed at $____ per share.
MHC is a privately held corporation, and there is no public trading
market for its securities.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
In the tables below, we provide you with selected historical financial
data of the Company. We prepared this data using the consolidated financial
statements of the Company. When you read this selected historical consolidated
financial data, you should read the historical financial statements and
accompanying notes that the Company has included in its Annual Report on Form
10-KSB/A for the year ended September 30, 1997 (which accompanies this Proxy
Statement) and its Quarterly Report on Form 10-QSB for the three months ended
March 31, 1998. (You can obtain these reports by following the instructions we
provide in this Proxy Statement under the heading "Additional Information -
Where You Can Find More Information.")
It is also important that you read the unaudited pro forma combined
financial information and accompanying notes that we have included in this Proxy
Statement under the heading "Financial and Business Information - Unaudited Pro
Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
<S> <C> <C>
Summary Consolidated Six Months Ended Fiscal Year Ended
Statements of Operations Data March 31, 1998 September 30, 1997
- ------------------------------ --------------- ------------------
Revenues...................................... $16,692,563 $27,924,772
Income (loss) from operations................. 494,362 54,684
Net income (loss)............................. 1,051,319 (83,726)
Net income (loss) per common and common
equivalent share (basic)...................... (0.17) (0.02)
Weighted average common shares and
common share equivalents outstanding.......... 6,052,540 5,005,081
----
Summary Consolidated
Balance Sheet Data March 31, 1998 September 30, 1997
- -------------------------------- --------------- ------------------
Working capital............................... $3,159,560 $ 2,921,045
Total assets.................................. 23,234,120 20,863,532
Long-term debt, net........................... 8,480,985 6,920,470
Capital....................................... 9,341,549 9,488,497
</TABLE>
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MHC
In the table below, we provide you with selected historical financial
data of MHC. We prepared this data using the consolidated financial statements
of MHC. When you read this selected historical combined financial data, it is
important that you read the historical financial statements of MHC and
accompanying notes that we have included as Appendix C to this Proxy Statement.
It is also important that you read the unaudited pro forma combined
financial information and accompanying notes that we have included in this Proxy
Statement under the heading "Financial and Business Information - Unaudited Pro
Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
<S> <C> <C>
FISCAL YEAR ENDED
SUMMARY CONSOLIDATED MARCH 31, 1998 FISCAL YEAR ENDED
STATEMENTS OF OPERATIONS DATA (UNAUDITED) MARCH 31, 1997
- ----------------------------- --------------- ------------------
Revenues............................................. $ 6,696,957 $ 3,665,982
Income (loss) from operations....................... (2,218,047) (1,318,509)
Net income (loss)................................... (2,558,517) (1,569,273)
Note: MHC was not required to, and did not, compute earnings per share.
SUMMARY CONSOLIDATED MARCH 31, 1998
BALANCE SHEET DATA (UNAUDITED) MARCH 31, 1997
- -------------------------------------------------- ---------------- --------------------
Working capital................................... $ (1,666,165) $ 327,283
Total assets...................................... 5,416,218 795,876
Long-term debt, net............................... 440,976 765,444
Total stockholders' deficit....................... (4,080,399) (1,471,937)
</TABLE>
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<PAGE>
SELECTED PRO FORMA FINANCIAL DATA OF THE COMPANY
(unaudited)
In the table below, we attempt to illustrate the financial results that
might have occurred if the Acquisition had been completed previously. Presented
is combined statement of operations information for the Company for the six
months ended March 31, 1998 and the fiscal year ended September 30, 1997 as if
the Acquisition and the Private Placement (as defined herein) had been completed
on October 1, 1996. Also presented is combined balance sheet information for the
Company as of March 31, 1998 as if the Acquisition and the Private Placement had
been completed on that date.
It is important to remember that this information is hypothetical, and
does not necessarily reflect the financial performance that would have actually
resulted if the Acquisition and the Private Placement had been completed on
those dates. It is also important to remember that this information does not
necessarily reflect future financial performance if the Acquisition and the
Private Placement actually occur.
Please see the information in this Proxy Statement under the heading
"Financial and Business Information - Unaudited Pro Forma Combined Condensed
Financial Statements" for a more detailed explanation of this analysis.
<TABLE>
<CAPTION>
<S> <C>
SUMMARY PRO FORMA COMBINED SIX MONTHS ENDED FISCAL YEAR ENDED
STATEMENT OF OPERATIONS DATA MARCH 31, 1998 SEPTEMBER 30, 1997
- --------------------------------- ------------------ ---------------------
Revenues................................ $ 19,952,575 $ 33,933,214
Income (loss) from operations........... (1,258,050) (2,382,433)
Net income (loss)....................... (2,046,530) (2,925,554)
Net income (loss) per common and common
equivalent share (basic)................ (0.20) (0.31)
Weighted average common shares and
common share equivalents outstanding.. 10,153,936 9,489,860
Summary Pro Forma Combined
Balance Sheet Data MARCH 31, 1998
- ------------------------------------------- -------------------------
Working capital............................. $ 4,020,898
Total assets................................ 32,806,777
Long-term debt, net......................... 8,563,895
Capital..................................... 17,306,365
</TABLE>
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<PAGE>
RISK FACTORS
Each UCI stockholder should carefully consider and evaluate the
following factors, among others, before voting.
FINANCIAL STATUS OF MHC
MHC has experienced losses and operating deficits since its inception
in February 1996. UCI expects that the operations associated with the assets
acquired in the Acquisition may continue to experience losses and require the
infusion of substantial capital to build those operations to a profitable state.
Although UCI management believes that the assets acquired from MHC in the
Acquisition are valuable to the Company's operations and are expected to
contribute to long-term profitability and enhanced stockholder value, there can
be no assurance that such expectations can be realized or that UCI can achieve
profitability as a consequence of the Acquisition.
In addition, MHC continues to have various repayment obligations to its
third-party creditors. To the extent that MHC is unable to satisfy its
obligations to such creditors, MHC could be forced to file for protection under
applicable bankruptcy laws or could be placed into an involuntary bankruptcy
proceeding by its creditors. In such event, the transfer of assets to UCI
pursuant to the Acquisition could come under review of a bankruptcy trustee, who
could seek to characterize the transfer in the Acquisition as a preference that
could be set aside under applicable bankruptcy law, requiring UCI and MHC to
reverse the transactions comprising the Acquisition. Pursuant to the Acquisition
Agreement, MHC, the MHC-PCs and certain of the MHC stockholders have represented
and warranted that they will not hinder, delay, defraud or avoid any obligation
to any past, present or future creditor in the transactions contemplated by the
Acquisition Agreement; that the consideration received by MHC and the MHC-PCs is
more than a reasonably equivalent value in exchange for the transfer of the
assets of MHC and the MHC-PCs; that each of MHC and the MHC-PCs is solvent and
will not be rendered insolvent as a result of the transactions contemplated by
the Acquisition Agreement; and that neither MHC nor any of the MHC-PCs has
initiated, nor does it intend to initiate or expect to have initiated against it
as debtor, any proceeding under federal or any state's bankruptcy, insolvency or
similar laws. Additionally, MHC and the MHC-PCs have represented and warranted
to UCI-GA that MHC and the MHC-PCs shall, as and when due, use their reasonable
best efforts within eleven months after the closing of the Acquisition to pay
all valid liabilities of MHC and the MHC-PCs which are not assumed by UCI-GA.
The Company's remedy for any breach of the foregoing by MHC, the MHC-PCs or the
MHC stockholders is subject to certain limitations which apply to all breaches
of the Acquisition Agreement. See "The Acquisition - Description of Agreements -
Acquisition Agreement - Representations, Indemnifications and Holdback Shares."
Although MHC has represented that it intends to satisfy its third-party creditor
obligations following the Acquisition, in the event of a set-aside pursuant to
applicable bankruptcy law, the expected benefits to UCI from the Acquisition
would not be achieved and, subject to a possible recovery under the applicable
indemnification provisions of the Acquisition Agreement, the transaction costs
associated with the Acquisition would not be recoverable by UCI, thereby
adversely affecting UCI's operations.
INTEGRATION OF OPERATIONS; MANAGEMENT OF GROWTH
In determining that the Acquisition was in the best interests of the
Company, the UCI Board addressed the cost savings, operating efficiencies, and
other synergies that may result from the consummation of the Acquisition. The
consolidation of functions and the integration of departments, systems and
procedures following the Acquisition present significant management challenges
requiring the dedication of management resources that may temporarily detract
attention from the day-to-day business of the Company. The difficulties of
assimilation may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. The process of combining
the MHC assets
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may cause an interruption of, or a loss of momentum in, the Company's business,
which could have an adverse effect on the revenues and operating results of the
combined Company, at least in the near term. There can be no assurance that the
combined entity will be able to retain all of its key management and other
operating personnel or that the combined entity will realize any of the other
anticipated benefits of the Acquisition.
DILUTION
VOTING CONTROL
Upon receipt of requisite shareholder approval, UCI has committed to
issue 2,091,396 shares of Common Stock to a designated escrow agent in
connection with the Acquisition and has committed to issue the Warrants for the
purchase of up to 300,000 shares of Common Stock as placement agent and
financial advisory services fees in connection with the Private Placement.
Without giving effect to any other issuance of Common Stock by UCI following the
closing of the Acquisition, such additional shares of Common Stock to be issued
in connection with the Acquisition and pursuant to the exercise of the Warrants
would represent, in the aggregate, approximately 24.7 percent of the number of
shares of Common Stock outstanding immediately after the closing of the
Acquisition. Accordingly, the contemplated issuance of shares in connection with
the Acquisition and the exercise of the Warrants would have the effect of
substantially reducing the percentage voting interest in UCI represented by a
share of the Common Stock immediately prior to such share issuances.
As of the Record Date for the Annual Meeting, Companion HealthCare
Corporation ("CHC") and Companion Property and Casualty Company ("CP&C"), each a
wholly-owned subsidiary of BCBS (individually, a "BCBS Subsidiary," and
collectively, the "BCBS Subsidiaries"), own in the aggregate 2,624,623 shares,
or approximately 43 percent, of the outstanding Common Stock. Under various
agreements between UCI and the BCBS Subsidiaries (the "Anti-Dilution
Agreements"), the BCBS Subsidiaries have the right at any time to purchase from
UCI such number of shares of the voting stock of UCI as is necessary for BCBS
and its affiliated entities, as a group, to maintain an aggregate ownership of
47 percent of the outstanding voting stock of UCI. To the extent either of the
BCBS Subsidiaries exercises such right in conjunction with a sale of voting
stock by UCI, the price to be paid by the BCBS Subsidiary is the average price
to be paid by the other purchasers in such sale. Otherwise, the price is the
average closing bid price of the UCI voting stock on the ten trading days
immediately preceding the election by the BCBS Subsidiary to exercise its
purchase rights. Consequently, to the extent any of the BCBS Subsidiaries elect
to exercise any or a portion of their rights under the Anti-Dilution Agreements
following the Private Placement and, if approved, the issuance of shares
contemplated by the Acquisition and pursuant to the Warrants, the sale of shares
of Common Stock to such BCBS Subsidiary will have the effect of further reducing
the percentage voting interest in UCI represented by a share of the Common Stock
immediately prior to such sale.
The substantial ownership of Common Stock by the BCBS Subsidiaries, MHC
and other affiliates of the Company following the Acquisition and the Private
Placement will provide them with the ability to exercise substantial influence
in the election of directors and other matters submitted for approval by the UCI
stockholders. As a result, it may be difficult for other stockholders of UCI to
successfully oppose matters which are presented by such entities for action by
stockholders, or to take actions which are opposed by such entities. Such
ownership may also have the effect of delaying, deterring or preventing a change
in control of UCI without the consent of such entities. In addition, sales of
Common Stock by such entities could result in another stockholder obtaining
control over UCI.
EARNINGS AND BOOK VALUE PER SHARE
On a pro forma basis, the closing of the Acquisition and the Private
Placement have a dilutive effect on earnings per share of UCI for the fiscal
year ended September 30, 1997 (from $(0.02) per
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share to $(0.31) per share) and for the six-month period ended March 31, 1998
(from $(0.17) per share to $(0.20) per share). These pro forma amounts are based
on the assumptions reflected in the notes to the Unaudited Pro Forma Combined
Condensed Financial Statements included elsewhere in this Proxy Statement and,
consequently, may not be reflective of all of the actual cost savings or other
synergies, if any, or the related expenses that may be realized or incurred by
the Company as a result of the Acquisition and the Private Placement. The extent
of dilution to UCI stockholders with respect to future earnings per share and
book value per share will depend on the actual results achieved by the Company
following the Acquisition and the Private Placement as compared to the results
that could have been achieved by the Company on a stand-alone basis over the
same period in the absence of such transactions. No assurance can be given as to
such future results, and, accordingly, as to whether the Acquisition and the
Private Placement will ultimately be dilutive to UCI stockholders with respect
to future earnings per share or book value per share.
RESALES OF COMMON STOCK AND MARKET VOLATILITY
Upon receipt of requisite shareholder approval, UCI has committed to
issue 2,091,396 shares of Common Stock to a designated escrow agent in
connection with the Acquisition and the Warrants for the purchase of up to
300,000 shares of Common Stock as placement agent and financial advisory
services fees in connection with the Private Placement. In addition, 1,200,000
shares of Common Stock were issued to investors in the Private Placement.
Without giving effect to any other issuance of Common Stock by UCI following the
closing of the Acquisition, shares of Common Stock issued in the Private
Placement and the shares that may be issued pursuant to the Acquisition and
pursuant to the exercise of the Warrants would represent, in the aggregate,
approximately 37.1 percent of the number of shares of Common Stock outstanding
immediately after such share issuances. The shares issued in connection with the
Private Placement and the shares UCI has committed to issue in connection with
the Acquisition and pursuant to the Warrants are considered "restricted
securities" under applicable securities laws, thereby limiting the resale of
such shares into the public market, in the absence of an effective registration
or exemption from such registration requirements. The holders of shares issued
in the Private Placement have been granted registration rights which entitle
such holders to have such shares registered for sale into the public market.
Comparable registration rights are to be granted to the holders of the shares to
be issued pursuant to the Acquisition and to the holders of the Warrants to be
issued in connection with the Private Placement. To the extent that such holders
do not exercise such registration rights, all of such shares will nevertheless
become eligible for sale in the public market in accordance with the Securities
and Exchange Commission's Rule 144 or Rule 145 one year following the closing of
the Acquisition and the Private Placement, as applicable, with certain volume
and manner of sale limitations continuing only for one year thereafter (except
as to shares held by persons deemed to be affiliates of UCI). In addition, if
the proposed amendment to the UCI Certificate is approved by the stockholders at
the Annual Meeting, UCI will increase by 20 million the number of shares of
Common Stock available for issuance. Sales of substantial amounts of Common
Stock, or the availability of substantial amounts of Common Stock for future
sale, could adversely affect the prevailing market price of the Common Stock.
As of the Record Date for the Annual Meeting, approximately 2,671,500
shares, or 43.8 percent, of the outstanding Common Stock was held by
nonaffiliates of UCI. Trading in the Common Stock has historically been very
limited, and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained. Because of the limited trading
liquidity in the Common Stock, the market price of the Common Stock has been
vulnerable to significant fluctuations in response to very limited market
trading in such shares. The market price of the Common Stock will remain subject
to significant fluctuations in response to such factors as well as in response
to operating results and other factors affecting the stock market generally. The
stock market in recent years has experienced price and volume fluctuations that
often have been unrelated or disproportionate to the operating performance of
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock in the
future.
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GOVERNMENT REGULATION
As participants 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. Prior to the
Acquisition, MHC's operations and relationships were also subject to such
regulation.
LIMITATIONS ON THE CORPORATE PRACTICE OF MEDICINE
Federal law and the laws of many states, including Georgia, South
Carolina and Tennessee, 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, UCI-SC, UCI-GA and MHC are
prohibited from practicing medicine or exercising control over the provision of
medical services. In order to comply with such laws, the medical director and
all medical services at the UCI Centers are provided by or under the supervision
of DC-SC pursuant to its contract with UCI-SC. Prior to the Acquisition, a
comparable contractual relationship existed between MHC and the MHC-PCs with
respect to the MHC Centers. DC-SC is organized so that all physician services
are offered by the physicians who are employed by DC-SC. None of UCI, UCI-SC or
UCI-GA employ practicing physicians as practitioners, exert control over any
physician's decisions regarding medical care or represent to the public that it
offers medical services. UCI-SC has entered into an administrative services
agreement with DC-SC for the performance by UCI-SC of all administrative,
management and support functions of the UCI Centers. As part of the Acquisition,
DC-GA and DC-TN purchased all of the assets, including the medical records and
physician employment agreements, of MHC-GA and MHC-TN, respectively. As part of
the Acquisition, UCI-GA also entered into an administrative services agreement
with each of DC-GA and DC-TN which replaced similar agreements that were in
place between each of the MHC-PCs and MHC. UCI-SC believes that the services it
provides to DC-SC and the services UCI-GA provides to the UCI-PCs, which
currently result in control over the assets of DC-SC and the UCI-PCs, as
applicable, and mandate financial statement consolidation under generally
accepted accounting principles do not constitute the practice of medicine under
applicable laws. Accordingly, UCI believes that it is not in violation of
applicable state laws relating to the practice of medicine.
Nevertheless, because of the unique structure of the relationships
existing between UCI-SC and DC-SC and that formerly existed between MHC and the
MHC-PC's, many aspects of UCI's and MHC's business operations have not been the
subject of state or federal regulatory interpretation. There can be no assurance
that a review by the courts or regulatory authorities of the business formerly
conducted by any or all of the Company, MHC or the MHC-PCs or currently
conducted by the Company will not result in a determination that could adversely
affect the operations of any or all of them or that the healthcare regulatory
environment will not change so as to restrict the existing operations or
proposed expansion of the Company's business.
THIRD PARTY REIMBURSEMENTS
Prior to the Acquisition, approximately five percent of the revenues of
the Company and approximately 15 percent of the revenues of MHC were 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 healthcare providers that fraudulently or wrongfully bill
governmental or other third-party payors for healthcare 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.
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ANTI-KICKBACK LAWS
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. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. Although the Company believes that it is
not in violation of the Anti-kickback Statute or similar state statutes, its
operations do not fit within any of the existing or proposed federal safe
harbors.
SELF-REFERRAL LAWS
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 currently 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 laws. Nevertheless, expansion of the operations of the Company to
certain additional jurisdictions may require structural and organizational
modifications of the Company's relationships with physician groups to comply
with new or revised state statutes. Such modifications could adversely affect
the operations of the Company.
ANTITRUST LAWS
Because each of the UCI-PCs is a separate legal entity, each 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 believes it is in compliance with such state and
federal laws which may affect its development of integrated healthcare 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 operations of the Company.
HEALTHCARE REFORM
As a result of the continued escalation of healthcare 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 in state legislatures
relating to healthcare reform. There can be no assurance as to the ultimate
content, timing or effect of any healthcare reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material, on the Company.
REGULATION OF RISK ARRANGEMENTS AND PROVIDER NETWORKS
Federal and state laws regulate insurance companies, health maintenance
organizations 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
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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. The Company believes that it is in
compliance with these laws in the states in which it currently does business,
but there can be no assurance that future interpretations of these laws by the
regulatory authorities in Georgia, South Carolina, Tennessee or the states in
which the Company may expand in the future will not require licensure of the
Company's operations as an insurer or provider network or a restructuring of
some or all of the Company's operations. In the event 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.
POSSIBLE NASDAQ DELISTING
The Common Stock is currently listed for trading on the Nasdaq SmallCap
Market. The continued trading of the Common Stock on the Nasdaq SmallCap Market
is conditioned upon the Company meeting certain quantitative and qualitative
requirements regarding assets, capital, earnings surplus, stock price and
corporate governance features. During 1997, the NASD expanded the quantitative
and qualitative listing criteria for all companies listed on the Nasdaq Stock
Market and placed additional corporate governance listing standards on companies
currently listed on the Nasdaq SmallCap Market. These new requirements for
continued listing became effective as to the Company on February 23, 1998. On
February 26, 1998, UCI was formally notified by the Nasdaq Stock Market that a
review of its financial statements indicated that the Company was not in
compliance with the new requirements for continued listing as a consequence of
its failure to meet the requirement of at least $2 million in net tangible
assets. As of December 31, 1997, the Company had net tangible assets of
approximately $1 million. Giving effect to the Acquisition and the Private
Placement, the pro forma net tangible assets of the Company as of March 31, 1998
were approximately $3.45 million. Consequently, the Company believes that the
Company is currently in compliance with the Nasdaq Stock Market net tangible
assets requirement as well as with all other applicable listing requirements.
Prior to the Acquisition, the Company submitted a proposed plan of compliance to
the Nasdaq Stock Market indicating its proposed timetable for satisfying the new
listing requirements and the Company has notified the Nasdaq Stock Market of the
Company's belief that it is currently in compliance with applicable listing
requirements. As of the date of this Proxy Statement, the Company has not
received any communication from the Nasdaq Stock Market either accepting or
rejecting the Company's position that the Company is in compliance with such
requirements. To the extent that the Nasdaq Stock Market does not accept the
Company's position regarding satisfaction of the new maintenance criteria, the
Common Stock will be subject to being delisted, and trading in the Common Stock
thereafter, if any, will likely be conducted in the over-the-counter market. As
a consequence of any such delisting, it is expected that stockholders of UCI
will find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of, the Common Stock. In addition, any such delisting will
make the Common Stock substantially less attractive as collateral for margin and
purpose loans, for investment by financial institutions under their internal
policies or state legal investment laws, as consideration in the financing of
future acquisitions of other medical practices by the Company, and for issuance
by the Company in future capital raising transactions. Although following a
delisting, the Common Stock may be eligible for quotation on the
over-the-counter bulletin board, the Company is informed that the NASD may
presently be considering higher standards for permitting quotations of
securities on such bulletin board, thereby foreclosing this trading market to
UCI stockholders as well.
COMPETITION
The UCI Centers and the MHC Centers face competition, in varying
degrees, from hospital
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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 UCI and MHC. Following the Acquisition, the Company
changed the name under which the MHC Centers publicly conduct business. While
the Company's management believes that the MHC Centers will be able to compete
on the basis of accessibility, including evening and weekend hours, a
non-appointment policy, the attractiveness to large employers and third-party
payors of the Company's state-wide network, and on the basis of a competitive
fee schedule, there can be no assurance that the MHC Centers will be able to
compete successfully in the future, or that the change in the name of such
centers will not adversely affect the operations of such centers.
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THE ACQUISITION
DESCRIPTION OF THE ACQUISITION
BACKGROUND
The Company has experienced significant growth in the last few years as
a result of acquisitions of medical practices. Management has sought to increase
the Company's bargaining power with insurance payors and to lower operating
costs through negotiated discounts on medical supplies by enhancing the
Company's negotiating leverage through the clout associated with an expanding
number of medical practices under the Company's control and an expanding number
of medical providers employed by the Company. In this regard, several
out-of-state acquisition targets have been evaluated by the Company over the
past few years.
In the third calendar quarter of 1997, A. Wayne Johnson, Chairman and
Chief Executive Officer of MHC, contacted M.F. McFarland, III, M.D., Chairman
and Chief Executive Officer of UCI, to discuss the potential benefits of a
combination of UCI and MHC. Following their initial discussions, a determination
was reached by the two executives to informally exchange information about their
respective companies. In September 1997, several meetings took place among Dr.
McFarland, Mr. Johnson, Jerry F. Wells, Jr., Executive Vice President of Finance
and Chief Financial Officer of UCI, and Robert G. Riddett, Jr., President of
MHC. During these meetings, the possible combination of UCI and MHC was
discussed and analyzed at length in the context of both the existing operations
of the respective companies and the potential growth and estimated synergies
that could result.
The content and findings from the September 1997 meetings were
discussed with the UCI Board at its regularly scheduled September 1997 meeting
in the context of potential growth opportunities and the enhancement of
long-term value for the UCI stockholders.
During October 1997, Dr. McFarland and Mr. Johnson authorized the
continued exploration of combination possibilities at an expanded level,
involving only a few members of senior management from each company. Thereafter,
Mr. Wells notified Mr. Johnson of the kinds of additional information UCI would
need to conduct more in-depth due diligence with respect to MHC. Following the
receipt and review by UCI of this information from MHC, meetings among the top
executive officers of UCI and MHC were held in October and November of 1997 to
discuss and clarify the information provided, and to give UCI the opportunity to
provide MHC with UCI's preliminary business plan and ideas for a possible
acquisition of MHC by UCI.
Through a series of telephone conversations in November 1997, Dr.
McFarland and Mr. Wells discussed with and recommended to the UCI Board that UCI
pursue the acquisition of the MHC medical practices. As part of such
conversations, Dr. McFarland and Mr. Wells reported to the UCI Board members on
the course of negotiations related to the proposed acquisition, summarized the
results of the due diligence that had been conducted on MHC, discussed the
potential benefits and risks of the proposed acquisition, provided their
respective views of the business and financial condition of MHC, and responded
to questions from the directors.
At the regularly scheduled December 1997 UCI Board meeting, results of
due diligence to date, forecasts for combined operations, and purchase price
negotiation details were presented by Dr. McFarland and Mr. Wells to the UCI
Board. Following extensive deliberation, UCI's Board unanimously approved
proceeding with the proposed acquisition of MHC in accordance with the
objectives that had been set forth by UCI senior management.
In January 1998, the UCI Board engaged the services of Dr. Oliver G.
Wood, Jr., an independent consulting economist, to conduct a financial analysis
of the proposed acquisition and to
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render an opinion as to the fairness of the proposed acquisition to UCI and its
stockholders from a financial point of view.
A letter of intent relating to the proposed acquisition was negotiated
in the first week of February 1998 among top management officials of both
companies, outside counsel and financial advisors. Over the course of the same
period, Dr. McFarland and Mr. Wells continued to hold discussions with members
of the UCI Board and provided board members with oral and written information
regarding the proposed acquisition. The letter of intent and the form of a
definitive acquisition agreement, including additional supporting agreements,
was unanimously approved by the UCI Board in the first week of February 1998.
During the first week of February 1998, Dr. Wood provided an oral
indication to the Company of his initial assessment that the proposed
acquisition was fair to UCI and its stockholders from a financial point of view.
Dr. Wood subsequently confirmed in writing his opinion to the effect that, as of
February 9, 1998 and based on and subject to certain matters stated in his
opinion, the proposed acquisition was fair from a financial point of view to UCI
and its stockholders. On February 9, 1998, a definitive Acquisition Agreement
was executed by UCI and MHC.
During December of 1997, senior management of MHC provided the members
of the Board of Directors of MHC (the "MHC Board") with information on the
status of the discussions and negotiations with UCI and due diligence on UCI. A
meeting of the MHC Board was held on February 6, 1998. Prior to that meeting,
each director of MHC was provided with materials outlining and analyzing the
proposed acquisition. At the meeting of the MHC Board, MHC senior management
presented to the MHC Board the background of the proposed acquisition, the
outline of the terms and conditions of the proposed acquisition, a financial
analysis of the proposed acquisition, and the potential benefits and risks of
the proposed acquisition. MHC senior management also responded to questions from
directors. During the first week of February 1998, the MHC Board approved the
form of a definitive purchase agreement and related documentation, subject to
finalization by MHC management and its legal advisors.
On February 13, 1998, UCI issued a press release announcing the
Acquisition.
On February 24, 1998, the Company filed with the Securities and
Exchange Commission (the "SEC") its preliminary proxy statement relating to the
Annual Meeting. During the first week of March 1998, the SEC notified the
Company as to its timetable for reviewing the preliminary proxy statement. The
Company determined that the proposed timetable for the review of its proxy
statement by the SEC made it impracticable to obtain shareholder approval of the
issuance of Common Stock in the Acquisition prior to March 31, 1998, the date
originally contemplated by the parties for the closing of the Acquisition. As a
consequence of various operational needs of the Company and MHC, the respective
managements of both companies determined that it was in the best interests of
both companies to close the Acquisition prior to the Annual Meeting, but to
delay the actual delivery of Common Stock to MHC as contemplated in the
Acquisition Agreement until after requisite shareholder approval for such
issuance had been obtained at the Annual Meeting, all in accordance with
applicable NASD rules. To address the revised structure of the Acquisition and
the delay in delivery of the Common Stock portion of the purchase price, on
April 15, 1998 the parties to the original Acquisition Agreement executed a
First Amendment to the Acquisition Agreement. The Acquisition Agreement was
further amended on May 7, 1998 upon the parties' execution of a Second Amendment
which had the primary effect of changing the amounts of cash and the promissory
note to be delivered by the Company at closing.
Following the date of the second amendment to the Acquisition Agreement
and continuing through the date of the closing of the Acquisition, UCI and MHC
continued to meet to exchange information and to prepare for the anticipated
consummation of the Acquisition.
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REASONS FOR THE ACQUISITION
The UCI Board and UCI senior management believe that the terms of the
Acquisition are fair to, and in the best interests of, UCI and the UCI
stockholders. In reaching its determination to approve the Acquisition, the UCI
Board identified and analyzed the following factors and potential benefits,
among others, relating to the Acquisition:
o alternatives for growth in the healthcare business, including internal
development, which the UCI Board viewed as less advantageous due to
UCI's limited development resources as well as the uncertainty of the
success of such development efforts, none of which appeared to present
the opportunity that an acquisition of MHC presented;
o the strategic value of further developing a multi-state presence for
the Company;
o the competitive advantage gained by increasing the medical provider
base in negotiating insurance reimbursement rates and discounts to
medical supply costs;
o the expectation that the assets of MHC represented a complementary
business and that the Acquisition would be viewed favorably by
investors due to such complementary nature;
o the benefits of enjoying economies of scale by combining the two
companies and eliminating certain duplications of overhead;
o information concerning the Company's and MHC's respective prospects,
financial performance, financial condition, assets and operations;
o the financial terms of the Acquisition and its effect on future
earnings;
o the opinion of Dr. Oliver G. Wood Jr. that the terms of the Acquisition
were fair, from a financial point of view, to UCI, as well as the
underlying financial analysis of Dr. Wood presented in connection with
such opinion; and
o a review with UCI's outside legal counsel of the terms of the
Acquisition Agreement and related agreements.
Following its deliberations concerning such factors, the UCI Board
concluded that the Acquisition may increase the long-term prospects of the
Company for continued growth, may increase stockholder value and was in the best
interests of UCI and its stockholders from both a financial and strategic
perspective.
The UCI Board also considered a variety of potentially negative factors
in its deliberations concerning the Acquisition, including: (i) the possible
dilutive effect of the issuance of Common Stock in the Acquisition; (ii) the
charges expected to be incurred in connection with the Acquisition, including
the transaction costs and costs of integrating the businesses of the companies;
(iii) the risk that, despite the efforts of the combined company, key personnel
of MHC may not be retained by the Company and the MHC assets may continue to be
unprofitable; and (iv) the risk that other benefits sought to be obtained by the
Acquisition might not be obtained.
In view of the wide variety of factors, both positive and negative,
considered by the UCI Board, the UCI Board did not find it practical to, and did
not quantify or otherwise assign relative weights to the specific factors
considered. In addition, individual members of the UCI Board may have given
different weights to the various factors considered.
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RECOMMENDATION OF THE UCI BOARD
THE UCI BOARD HAS APPROVED THE ACQUISITION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT BY THE UNANIMOUS CONSENT
OF ALL DIRECTORS AND HAS DETERMINED THAT THE TERMS OF THE ACQUISITION AGREEMENT
AND RELATED AGREEMENTS ARE FAIR TO, AND THAT THE ACQUISITION IS IN THE BEST
INTERESTS OF, UCI AND ITS STOCKHOLDERS AND, THEREFORE, RECOMMENDS THAT THE
HOLDERS OF COMMON STOCK VOTE FOR THE PROPOSALS RELATING TO THE ACQUISITION.
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
FAIRNESS OPINION
Dr. Oliver G. Wood, Jr. has delivered his opinion to the effect that
the terms of the Acquisition are fair, from a financial point of view, to UCI
and its stockholders.
The full text of the written opinion of Dr. Wood, dated February 9,
1998, is attached as Appendix A to this Proxy Statement and describes the
assumptions made, matters considered and limits on the review undertaken. UCI
stockholders are urged to read the opinion in its entirety. Dr. Wood's opinion
is directed to the fairness, from a financial point of view, of the terms of the
Acquisition to UCI and does not constitute a recommendation of the Acquisition
over other courses of action that may have been available to UCI or constitute a
recommendation to any holder of Common Stock concerning how such holder should
vote with respect to the proposals relating to the Acquisition. The summary of
the opinion of Dr. Wood set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such opinion.
In arriving at his opinion, Dr. Wood (i) reviewed the terms and
conditions of the Acquisition, including drafts of the Acquisition Agreement and
agreements ancillary to the Acquisition Agreement; (ii) analyzed certain
financial aspects of the Acquisition and consideration to be paid by UCI and
UCI-GA in connection with the Acquisition, (iii) reviewed and analyzed publicly
available historical business and financial information relating to UCI, as
presented in documents filed with the Securities and Exchange Commission (the
"SEC") as well as historical financial information relating to MHC provided to
him by UCI and MHC; (iv) analyzed selected non-public financial and operating
results of operations of UCI and MHC; (v) analyzed the financial conditions and
prospects of UCI and MHC; (vi) reviewed and analyzed public information,
including certain stock market data and financial information of selected
companies with operating and financial characteristics similar to those of UCI
and MHC; (vii) reviewed the trading history of the Common Stock, including such
stock's performance in comparison to market indices and to selected companies
with operating and financial characteristics similar to those of UCI; (viii)
conferred with the management teams of UCI and MHC; (ix) reviewed public
financial and transaction information relating to multiples paid in selected
merger and acquisition transactions similar to the Acquisition or relevant
portions thereof; and (x) conducted such other financial analyses and
investigations as deemed necessary or appropriate for the purposes of his
opinion.
In connection with his review, Dr. Wood assumed and relied on the
accuracy and completeness of the information he reviewed for the purpose of his
opinion and did not assume any responsibility for independent verification of
such information or for any independent evaluation or appraisal of the assets of
UCI or MHC. With respect to UCI's and MHC's non-public financial and operating
data, Dr. Wood assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of UCI and MHC. Dr. Wood expressed no opinion with respect to such
non-public financial and operating data or the assumptions on which they were
based. Dr. Wood's opinion was necessarily based upon business, market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of his opinion. Dr. Wood's opinion did not
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imply any conclusion as to the likely trading range of the Common Stock
following the consummation of the Acquisition, which may vary depending on,
among other factors, changes in interest rates, dividend rates, financial and
operating performance of UCI market conditions, general economic conditions and
other factors that generally influence the price of securities.
Dr. Wood's analysis focused primarily upon the purchase prices and
implied transaction multiples paid in selected merger and acquisition
transactions involving physician practices. Included in the transactions relied
upon by Dr. Wood were mergers and acquisitions involving InPhyNet Medical
Management/MedPartners, Inc., AHI Healthcare Systems, Inc./FPA Medical
Management, Inc., ReadiCare, Inc./HealthSouth Corp., Sterling Healthcare Group,
Inc./FPA Medical Management, Inc., Caremark International, Inc./MedPartners,
Inc. and Pacific Physician Services, Inc./MedPartners, Inc. The weighted average
acquisition value-to-target net sales multiplier of the indicated transactions
was 1.017:1. Also considered by Dr. Wood were the acquisition value-to-target
net sales multipliers for the pending HealthSouth Corp./Company Doctor
acquisition (1.74:1) and the weighted average acquisition value-to-target net
patient revenue multiplier for six recently completed physician practice
acquisitions by the Company (0.823:1). Applying the same analysis, Dr. Wood
calculated an acquisition value-to-target net patient revenue multiplier for the
Acquisition of 1.31:1. In making his evaluation, Dr. Wood also considered
certain other factors, including, among other things, the changing dynamics of
the medical care consumer price index and its reflection of competitive
pressures in the healthcare industry, the potential for various synergies and
cost reductions in consolidation of selected marketing, operations and
administrative activities of the Company and MHC, the potential for growth in
certain geographic areas of MHC and various risks associated with the
Acquisition.
No company used in the comparable transaction analyses conducted by Dr.
Wood is identical to UCI or MHC, and no acquisition used in such analyses is
identical to the Acquisition. Accordingly, any such analysis of the
consideration to be paid by UCI in connection with the Acquisition involves
complex considerations and judgments concerning differences in the potential
financial and operating characteristics of the comparable companies and
acquisitions and other factors in relation to the trading and acquisition values
of the comparable companies.
The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Dr. Wood believes that his analyses and the
summary set forth above must be considered as a whole and that selecting
portions of his analyses and the factors considered by him, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in his opinion. Dr. Wood has not indicated
that any of the analyses which he performed had a greater significance than any
other.
In determining the appropriate analyses to conduct and when performing
those analyses, Dr. Wood made numerous assumptions with respect to industry
performance, general business, financial, market and economic conditions and
other matters, many of which are beyond the control of UCI and MHC. The analyses
which Dr. Wood performed are not necessarily indicative of actual values of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of Dr.
Wood's analysis of the fairness, from a financial point of view, to UCI of the
terms of the Acquisition. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or any time in the future.
Dr. Wood is engaged in the general business of providing valuations of
businesses and securities in connection with private placements and valuations
for corporations and other purposes. Dr. Wood was engaged by UCI primarily
because of his regional reputation in performing valuations and financial
analyses of the kind provided in connection with the Acquisition. Prior to the
engagement of Dr. Wood by UCI in connection with the matters discussed above,
neither UCI, MHC nor any affiliate of such companies had any material
relationship with Dr. Wood.
UCI entered into an agreement with Dr. Wood pursuant to which Dr. Wood
agreed to act as
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UCI's financial advisor in connection with the Acquisition and to evaluate the
fairness, from a financial point of view, of the terms of the Acquisition to UCI
and its stockholders. As compensation for his services, Dr. Wood will receive
approximately $10,000, plus reimbursement of certain out-of-pocket expenses,
payable without regard to the financial analyses presented or the conclusions
reached in the opinion rendered.
FINANCING OF THE ACQUISITION
UCI engaged Allen & Company ("Allen") as its financial advisor to
assist UCI in the private offering and sale of 1.2 million shares of Common
Stock in the Private Placement which closed on May 12, 1998. The net proceeds to
UCI from the sale of Common Stock in the Private Placement (after payment of
related commissions and expenses) was approximately $1,074,000. UCI financed the
cash portion of the consideration issued in the Acquisition using $450,000 of
the net proceeds received by UCI in the Private Placement.
For its financial advisory and placement agent services in connection
with the Private Placement, Allen was paid a commission of $96,000 (8% of the
aggregate purchase price in the Private Placement) and the Company committed to
issue the Warrants for the purchase of 150,000 shares of Common Stock upon
receipt of requisite shareholder approval at the Annual Meeting. The Warrants to
be issued to Allen are to be exercisable at any time during their five-year term
at a price per share of $1.00. In addition, the Company has committed to issue
Warrants for the purchase of 150,000 shares of Common Stock to Laidlaw Global
Securities, Inc. ("Laidlaw") for certain financial advisory services in
connection with the Private Placement. The Warrants to be issued to Laidlaw are
to be exercisable at any time during their five-year term at a price per share
of $1.50.
The shares of Common Stock and the Warrants issued in the Private
Placement were issued pursuant to exemptions from the registration requirements
of federal and state securities laws. Consequently, the transferability of such
securities is restricted following the Private Placement. UCI has entered into a
registration rights agreement with the investors in the Private Placement that
provides the investors with certain registration rights. Upon issuance of the
Warrants, UCI will enter into a similar registration rights agreement with Allen
with respect to the Common Stock issuable upon exercise of the Warrants issued
to Allen. See "Risk Factors - Dilution - Voting Control" and "Risk Factors -
Resales of Common Stock and Market Volatility."
CERTAIN FEDERAL INCOME TAX MATTERS
For U.S. federal income tax purposes, no income, gain or loss will be
recognized by UCI or the stockholders of UCI as a result of the Acquisition.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the
Acquisition is being accounted for as a purchase of certain assets and an
assumption of certain liabilities of MHC and its affiliated entities with the
Company treated as the acquiror for accounting purposes in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations," as amended.
Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
RESALES OF COMMON STOCK
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All shares of Common Stock that were issued in the Private Placement
and all shares of Common Stock that may be issued in connection with the
Acquisition and pursuant to the exercise of the Warrants are, or upon issuance
will be, deemed to be "restricted securities" as that term is defined in Rule
144 under the Securities Act of 1933, as amended (the "1933 Act"). As a
consequence, such shares may not be sold, pledged or otherwise transferred by
the stockholders receiving such shares except in transactions permitted by the
resale provisions of Rule 145 under the 1933 Act (with respect to shares issued
in the Acquisition) and Rule 144 under the 1933 Act (with respect to persons
purchasing such shares in the Private Placement and persons who are or become
affiliates of UCI), or as otherwise permitted under the 1933 Act. See "Risk
Factors - Resales of Common Stock and Market Volatility."
In general, under Rule 145 (with respect to shares received in the
Acquisition) and Rule 144 (with respect to shares received in the Private
Placement or purchased upon exercise of the Warrants) during the first year
following the issuance of the shares, any person receiving shares of Common
Stock in any of such transactions will be able to sell or otherwise transfer
such shares only pursuant to an effective registration statement under the 1933
Act or in compliance with an exemption from the registration requirements of the
1933 Act. During the second year following the receipt of such shares, such
person will be entitled to sell such shares only through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144. Additionally, the number of shares to be sold by such
person (together with certain related persons) within any three-month period for
the purposes of Rule 144 and Rule 145 cannot exceed the greater of one percent
of the outstanding shares of Common Stock or the average weekly trading volume
of such stock during the four calendar weeks preceding such sale. Rules 144 and
145 will only remain available, however, if UCI remains current with its
informational filings with the SEC under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). Two years after the issuance of shares in the
Acquisition, the Private Placement, or upon exercise of the Warrants, as
applicable, a stockholder who received Common Stock in such transaction will be
able to sell such Common Stock without such manner of sale or volume
limitations, provided that UCI has been current with its 1934 Act informational
filings and such person has not been an affiliate of UCI for at least three
months prior to such sale. Persons who may be deemed to be affiliates of UCI
generally include individuals or entities that control, are controlled by, or
are under common control with, UCI, and may include certain officers and
directors of UCI as well as principal stockholders of UCI.
In order to help assure compliance with Rule 144 and Rule 145 under the
1933 Act, each purchaser in the Private Placement signed, and each of MHC and
its stockholders will be required to sign prior to the issuance to any of them
of shares of Common Stock, an agreement providing that such person or entity
will not transfer any Common Stock received in the respective transaction except
in compliance with the 1933 Act, and a restrictive legend referencing such
transfer restrictions will be placed on the reverse side of certificates
representing such shares.
Under the terms of various registration rights agreements, the
investors in the Private Placement, Allen, MHC and the MHC Stockholders have
certain demand and piggyback registration rights pursuant to which they may
require UCI, subject to certain terms and conditions, to register under the 1933
Act all or part of the Common Stock received or to be by such stockholders in
connection with the Private Placement and the Acquisition and upon the exercise
of the Warrants, as applicable. See "Description of the Agreements - Other
Agreements Registration Rights Agreement."
ABSENCE OF DISSENTERS' RIGHTS
UCI is incorporated in the State of Delaware, and accordingly, is
governed by the provisions of the Delaware General Corporation Law (the "DGCL").
UCI stockholders are not entitled to appraisal rights under the DGCL with
respect to the Acquisition. Although approval of the stockholders of UCI is
required for the issuance of Common Stock in the Acquisition under the rules and
bylaws of the
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NASD, the approval of the Acquisition by the stockholders of UCI is not required
under the DGCL.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
Pursuant to the Acquisition Agreement, UCI agreed to undertake
appropriate corporate action to have A. Wayne Johnson, Chairman and Chief
Executive Officer of MHC, appointed to the UCI Board. The UCI Board has
nominated Mr. Johnson as one of the three nominees in the election of directors
at the Annual Meeting. To the extent Mr. Johnson is not elected as a director at
the Annual Meeting, promptly following the Annual Meeting, the UCI Board is
expected to vote to increase the size of the UCI Board from seven to eight
members and to appoint Mr. Johnson to fill the vacancy created by the expansion
in the number of directors. In the event Mr. Johnson is elected as a director at
the Annual Meeting and the issuance of Common Stock pursuant to the Acquisition
is not approved by the UCI stockholders thereby requiring the parties to the
Acquisition to reverse the effect of the Acquisition, there is no arrangement or
understanding currently in place or contemplated that would limit or otherwise
restrict his service on the UCI Board for the full three-year term to which he
is elected.
DC-GA and DC-TN were formed prior to the closing of the Acquisition for
the purpose of acquiring the assets and the liabilities of MHC-GA and MHC-TN,
respectively, and operate solely to fulfill the licensed medical provider
responsibilities associated with the MHC Centers that were acquired by UCI-GA in
the Acquisition. Dr. Michael Stout, M.D. was sole owner of each of DC-GA and
DC-TN as of the date of the closing of the Acquisition. Pursuant to the terms of
an administrative services agreement between UCI-GA and each of DC-GA and DC-TN,
Dr. Stout is not expected to receive any economic benefit as a consequence of
his sole ownership of DC-GA and DC-TN. Dr. Stout is the Executive Vice President
of Medical Affairs of UCI and is a principal stockholder of UCI.
DESCRIPTION OF THE AGREEMENTS
ACQUISITION AGREEMENT
GENERAL
The Acquisition Agreement (which includes as exhibits the Non-Solicit
Agreements and the Registration Rights Agreement) is the legal document that
governs the Acquisition. Pursuant to the terms of the Acquisition Agreement,
UCI-GA acquired substantially all of the assets of MHC (the "MHC Assets") and
the UCI-PCs acquired certain assets of the MHC-PCs (the "MHC-PC Assets"), all in
exchange for the assumption by UCI-GA of certain liabilities of MHC (the "MHC
Liabilities") and the payment of approximately $8.05 million in value, comprised
of a combination of cash paid by UCI-GA and the UCI-PCs and Common Stock issued
by UCI. The closing of the Acquisition was completed on May 13, 1998, effective
for accounting purposes as of May 1, 1998.
THE DESCRIPTION IN THIS SECTION OF THE ACQUISITION AGREEMENT IS
QUALIFIED BY REFERENCE TO THE FULL AGREEMENT WHICH HAS BEEN FILED AS AN EXHIBIT
TO THE UCI CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON FEBRUARY 17, 1998,
AS AMENDED BY FILING OF FORMS 8-K/A ON APRIL 20, 1998 AND MAY 28, 1998. YOU CAN
OBTAIN SUCH REPORTS BY FOLLOWING THE INSTRUCTIONS WE PROVIDE IN THIS PROXY
STATEMENT UNDER THE HEADING "ADDITIONAL INFORMATION - WHERE YOU CAN FIND MORE
INFORMATION."
ASSETS PURCHASED AND LIABILITIES ASSUMED
The MHC Assets include the MHC accounts receivable, machinery,
furniture, furnishings, equipment, computer hardware and software, inventory,
supplies, leasehold interests, other contract rights, permits, licenses and
goodwill. Excluded from the MHC Assets are cash and cash accounts (other than
any holdback amounts associated with MHC's line of credit, as described below),
accounts receivable from employees, automobile leases, certain real property,
and any furniture, equipment and
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software used at the MHC headquarters facility. Each of MHC and the MHC-PCs
(collectively, the "Selling Entities") also transfered or otherwise assigned to
the Company all of their rights to all corporate and trade names used by each of
the Selling Entities or their divisions. All MHC Assets, with the exception of
MHC's accounts receivable which are pledged in support of the MHC line of credit
obligation, were conveyed free and clear of all liens and encumbrances.
The MHC-PC Assets primarily include medical records and the rights
under the various employment agreements with medical providers employed at the
MHC Centers.
The MHC Liabilities include the obligations of MHC under existing
operating and capital equipment leases, the obligations of MHC under certain of
its existing real property leases (or the obligations under new leases with
similar terms), and the MHC line of credit obligation with Bank One, N.A. in the
amount of $594,184. UCI-GA did not assume any other of the Selling Entities'
obligations or liabilities, including current and long-term liabilities,
contingent liabilities, medical malpractice claims, environmental claims,
workers' compensation claims, and sales, income and payroll taxes.
CONSIDERATION TO BE PAID IN THE ACQUISITION
The aggregate purchase price for the MHC Assets was $8.05 million, plus
the assumption of the MHC Liabilities, including the $594,184 line of credit
obligation and lease obligations of MHC. Payment of the purchase price consisted
in part of a cash payment by UCI-GA at closing of $450,000 to an escrow agent
appointed by MHC and the delivery of a promissory note in the principal amount
of $800,000 executed by UCI-GA in favor of the escrow agent. Such promissory
note bears interest at a rate of 6.5% per annum and is due and payable on August
1, 1998. UCI guaranteed the promissory note. The purchase price received by the
escrow agent is to be used to pay certain creditors of MHC identified to the
escrow agent by MHC.
The balance of the purchase price of the Acquisition consisted of the
delivery to MHC at the closing of a Conditional Delivery Agreement (the
"Conditional Delivery Agreement") by and between UCI, UCI-GA and MHC which
requires UCI to issue to MHC 2,091,396 shares of Common Stock after the
shareholders of UCI approve such issuance. Pursuant to the Acquisition
Agreement, the price per share utilized to determine the number of shares of
Common Stock to be issued to MHC was $2.375. The Conditional Delivery Agreement
states that in the event the shareholders of UCI fail to approve any of the
matters necessary to issue the shares to MHC as provided in the Acquisition
Agreement, the transactions contemplated in the Acquisition Agreement shall be
unwound and each of the parties, to the extent possible, shall be restored to
its position held prior to the closing. In the event it is impossible to restore
a party to its position held prior to closing, any deficiency is to be resolved
by the exchanging of promissory notes among the parties.
The purchase price for the MHC-PC Assets was $200 which was paid by the
UCI-PCs to the MHC-PCs at the closing of the Acquisition.
The purchase price is to be allocated among the MHC Assets pursuant to
a letter to be provided by UCI-GA to MHC within 30 days following the closing.
In such allocation, the amount to be allocated to the fixed assets of the
Selling Entities is to be determined by an appraisal firm selected by UCI-GA.
ACCOUNTING TREATMENT
Although the parties believe that the purchase of the MHC Assets
qualifies as a tax-free reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Company will not be
responsible for assuring that the transaction so qualifies, and the Acquisition
was not conditioned upon such qualification.
COVENANTS
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Each of MHC and the MHC-PCs agreed in the Acquisition Agreement not to
compete with the Company anywhere within the states of South Carolina, Tennessee
and Georgia for a period of three years after the closing. In addition, the
holders of the Class B voting common stock of MHC (the "Class B Shareholders")
executed a Non-Solicit Agreement attached as an exhibit to the Acquisition
Agreement. See "Related Agreements - Non-Solicit Agreements."
EMPLOYEES
Each of the Selling Entities made available for employment by the
Company all of each of the Selling Entities' employees, but the Company was not
be obligated to employ any particular employee. Certain of the
physician-employees, physician assistants and nurse practitioner employees of
the Selling Entities (collectively, the "Medical Providers") executed, effective
as of May 1, 1998, employment agreements with the Company. All of the such
employment agreements also include non-compete provisions which are consistent
with such employee's non-compete agreements, if any, with MHC and the MHC-PCs,
as applicable. MHC and the MHC-PCs will satisfy, and the Company will be
protected against, all accrued employee benefits, severance, accrued vacation or
other paid leave, and all obligations or liabilities to each of the employees of
MHC and the MHC-PCs arising in connection with their employment by any of MHC
and the MHC-PCs.
REPRESENTATIONS, INDEMNIFICATIONS AND HOLDBACK SHARES
The Acquisition Agreement contains certain customary comprehensive
representations and warranties of the Selling Entities, the Class B Shareholders
and the Company. The Acquisition Agreement also contains mutual indemnification
provisions which are subject to the following limitations which apply to all
claims for indemnification other than claims by the Company related to the
Selling Entities' pending and threatened litigation: (a) a basket of $125,000,
below which such indemnifying party will have no obligation for breaches of
representations, warranties and certain covenants, but when exceeded will
require payment of the first dollar of loss, (b) a general twelve-month survival
period for indemnification for breaches of representations, warranties and
certain covenants, and (c) a cap of $3 million for the total aggregate liability
of the indemnifying parties for breaches of representations, warranties and
certain covenants. Each Class B Shareholder is severally but not jointly liable
for any other Class B Shareholder's breach of the Acquisition Agreement. Also,
each Class B Shareholder's liability is limited to an agreed upon percentage of
the indemnified party's total damages which approximates each Class B
Shareholder's pro rata equity interest in MHC.
To provide the Company additional security in the event a claim for
indemnification by the Company arises, MHC will place into escrow for a period
of one year after the date of issuance of the shares of Common Stock to MHC
126,315 shares of Common Stock (the "Holdback Shares"). In the event ownership
of the Holdback Shares is transferred to a stockholder of MHC upon the
liquidation of MHC, or upon any other distribution by MHC, the Holdback Shares
will remain in escrow as an asset of such stockholder of MHC. Subject to certain
limitations described above, in the event a claim by the Company for
indemnification arises, the Company may elect to recover such indemnification
damages from the Selling Entities, the Class B Shareholders and the Holdback
Shares, or any one or more of them.
BOARD OF DIRECTORS
In accordance with the Acquisition Agreement, the Company has nominated
A. Wayne Johnson, Chairman and Chief Executive Officer of MHC, for election as a
director at the Annual Meeting. To the extent permitted by law, as long as MHC
or PENMAN Private Equity and Mezzanine Fund, L.P. ("PENMAN") is the holder or
record of five percent or more the issued and outstanding Common Stock, a
representative of PENMAN will be invited to attend, at PENMAN's expense, all
meetings of the UCI Board.
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RELATED AGREEMENTS
NON-SOLICIT AGREEMENTS
Each of the Class B Shareholders entered into a non-solicit agreement
with the Company which prohibits each of the Class B Shareholders for a period
of two years after closing from soliciting or inducing any person employed by
any of Selling Entities or the Company to terminate such person's contract of
employment with such entity. In addition, each of the Class B Shareholders is
obligated under a covenant in the Acquisition Agreement which prohibits each of
the Class B Shareholders for a period of five years after closing from
soliciting or inducing a certain senior management employee of the Selling
Entities to terminate such senior management employee's contract of employment
with the Company.
REGISTRATION RIGHTS AGREEMENT
Under the registration rights agreement between UCI, MHC and each of
the MHC stockholders, UCI, upon written demand of the holders of at least 20
percent of the shares (the "Demand"), agrees to register on one occasion, all or
any portion of the shares so requested to be registered. In addition, UCI grants
to MHC and its stockholders certain "piggyback" registration rights, subject to
standard underwriter cutbacks and company deferral for good cause. The
registration rights terminate one year after the date of closing. Provided UCI
receives the Demand within 30 days after the date of the issuance of the Common
Stock to MHC, UCI will file with the SEC such registration statement within 60
days after the receipt of the Demand. UCI agrees to use its reasonable best
efforts to cause such registration statement to become effective and to maintain
its effectiveness for a period of nine months after its effective date.
SHAREHOLDER AGREEMENTS
Each of Dr. M.F. McFarland III, CHC and CP&C have executed and
delivered to MHC separate agreements to vote their shares of Common Stock at the
Annual Meeting in favor of the transactions described in the Acquisition
Agreement. As of the record date for the Annual Meeting, Dr. McFarland, CHC and
CP&C held, in the aggregate, shares representing 51.9 percent of the outstanding
Common Stock. Accordingly, if Dr. McFarland, CHC and CP&C vote as indicated,
each of the proposals relating to the Acquisition are assured to be approved,
regardless of the votes that may be cast by any other holders of Common Stock
entitled to vote.
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FINANCIAL AND BUSINESS INFORMATION
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock 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>
<S> <C>
BID PRICE
High Low
------------ ------------------
Fiscal Year Ending September 30, 1998
1st quarter (10/01/97 - 12/31/97) $ 3-1/4 $ 1-3/4
2nd quarter (01/01/98 - 03/31/98) 2-1/2 2
Fiscal Year Ended September 30, 1997
1st quarter (10/01/96 - 12/31/96) 3-3/8 2-3/8
2nd quarter (01/01/97 - 03/31/97) 3-3/8 2-1/2
3rd quarter (04/01/97 - 06/30/97) 2-11/16 1-11/16
4th quarter (07/01/97 - 09/30/97) 2-3/4 1-5/16
Fiscal Year Ended September 30, 1996
1st quarter (10/01/95 - 12/31/95) 4-1/4 3-1/8
2nd quarter (01/01/96 - 03/31/96) 5-1/8 3-1/4
3rd quarter (04/01/96 - 06/30/96) 4 3-1/4
4th quarter (07/01/96 - 09/30/96) 3-3/4 2-7/8
Fiscal Year Ended September 30, 1995
1st quarter (10/01/94 - 12/31/94) 3-1/8 1-1/2
2nd quarter (01/01/95 - 03/31/95) 3-1/4 1-1/2
3rd quarter (04/01/95 - 06/30/95) 3-3/8 2-1/4
4th quarter (07/01/95 - 09/30/95) 3-1/4 1-3/4
</TABLE>
The foregoing quotations reflect inter-dealer prices without retail
markup, markdown or commission and may not necessarily reflect actual
transactions.
On February 12, 1998, the last trading day prior to the public
announcement of the Acquisition, the Common Stock closed at $2.3125 per share.
On May 1998, the latest practicable trading day before the printing of this
Proxy Statement, the Common Stock closed at $ per share.
As of the Record Date of May 11, 1998, there were 632 stockholders of
record of Common Stock, excluding individual participants in security position
listings.
28
<PAGE>
UCI has not paid cash dividends on the Common Stock since its inception
and has no plans to declare cash dividends in the foreseeable future.
DESCRIPTION OF MHC
Prior to the Acquisition, MHC provided nonmedical management and
administrative services for its 11 MHC Centers located in Georgia and Tennessee
(nine operating as MainStreet Healthcare in the Atlanta, Georgia area and two
operating as Prompt Care in Knoxville, Tennessee).
As a consequence of the matters described in this Proxy Statement under
"Risk Factors - Government Regulation," the organizational structure of MHC
closely paralleled the organizational structure of the Company. All medical
services at the MHC Centers were provided by or under the supervision of the
MHC-PCs which contracted with MHC to provide the medical direction of the MHC
Centers. The medical directors operated the MHC Centers under the financial and
operational control of MHC. However, medical supervision of the MHC Centers was
provided solely by the MHC-PCs. The MHC-PCs were organized so that all physician
services were offered by the physicians who were employed by the MHC-PCs. MHC
did not employ practicing physicians as practitioners, exert control over their
decisions regarding medical care or represent to the public that it offered
medical services. MHC entered into administrative services agreements with the
MHC-PCs for the performance of all administrative management and support
functions. See "Risk Factors - Government Regulation."
The MHC Centers were and continue to be staffed by licensed physicians,
other healthcare providers and administrative support staff. The medical support
staff includes licensed nurses, certified medical assistants, laboratory
technicians and x-ray technicians.
Both before and following the Acquisition, the MHC Centers have
continued to offer out-patient medical care, with and without appointment, for
treatment of acute and episodic medical problems. The MHC Centers provide a
broad range of medical services which would generally be classified as within
the scope of family practice and occupational medicine. The medical services are
provided by licensed physicians, nurses and auxiliary support personnel. The
services that were and continue to be provided at the MHC Centers include, but
are not limited to, the following:
o Routine care of general medical problems, including colds, flu, ear
infections, hypertension, asthma, pneumonia and other conditions
typically treated by primary care providers;
o Treatment of injuries, such as simple fractures, dislocations, sprains,
bruises and cuts;
o Minor surgery, including suturing of lacerations and removal of cysts
and foreign bodies;
o Diagnostic tests, such as x-rays, electrocardiograms, complete blood
counts, urinalysis and various cultures; and
o Occupational and industrial medical services, including drug testing,
workers' compensation and physical examinations.
At any of the MHC Centers, a patient with a life-threatening condition
would be evaluated by the physician, stabilized and immediately referred to a
nearby hospital.
The fees charged to a patient are determined by the nature of medical
services rendered. The MHC Centers accept payment from a wide range of sources.
These include patient payment at time of service (by cash, check or credit
card), patient billing and assignment of insurance benefits (including Blue
Cross Blue Shield, workers' compensation and other private insurance). Private
pay billings represent the most significant source of revenues.
29
<PAGE>
As of the closing date of the Acquisition, MHC had 103 full-time
equivalent employees and 20 part-time employees. Included in these numbers were
23 medical providers employed by the MHC-PCs.
Attached as Appendix C to this Proxy Statement are the audited
financial statements of MHC for the fiscal year ended March 31, 1997, the
unaudited financial statements of MHC for the fiscal year ended March 31, 1998,
and MHC's management's discussion and analysis of financial condition and
results of operations relating to such annual financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements (the "Condensed Statements") have been prepared to give effect to the
Acquisition and the Private Placement. The purchase method of accounting was
used to give effect to all transactions.
The Condensed Statements reflect certain assumptions regarding the
proposed Acquisition and the Private Placement and are based on the historical
consolidated financial statements of the respective entities. The Condensed
Statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the audited financial
statements and the unaudited interim financial statements, including the notes
thereto, of UCI, which are incorporated by reference in this Proxy Statement,
and the unaudited financial statements of MHC as of and for the twelve months
ended September 30, 1997 and the unaudited financial statements of MHC for the
six months ended March 31, 1998, as presented in the pro forma combined
condensed financial statements.
The pro forma combined condensed balance sheet as of March 31, 1998
gives effect to the Acquisition and the Private Placement as if they had
occurred on March 31, 1998 and combines the unaudited balance sheets of UCI and
MHC as of that date.
The pro forma combined condensed statements of operations combine UCI's
historical results of operations for the six months ended March 31, 1998 and the
fiscal year ended September 30, 1997 with MHC's historical results of operations
for the six months ended March 31, 1998 and the twelve months ended September
30, 1997, respectively, giving effect to the Acquisition and the Private
Placement as if they had occurred on October 1, 1996.
After the consummation of the Acquisition, UCI will determine the fair
value of significant assets, liabilities and business operations acquired, which
may include the use of independent appraisals. In connection with finalizing the
purchase price allocation, UCI is currently evaluating the fair value of assets
acquired and liabilities assumed. Using this information, UCI will make a final
allocation of the excess purchase price, including allocation to the intangibles
other than goodwill. Accordingly, the purchase accounting information is
preliminary and has been made solely for the purpose of developing such
unaudited pro forma combined condensed financial information.
The Condensed Statements are presented for illustrative purposes only
and are not necessarily indicative of the financial position or results of
operations which would have actually been reported had the Acquisition occurred
as of March 31, 1998, or for the six months ended March 31, 1998, or for the
fiscal year ended September 30, 1997, nor are the Condensed Statements
necessarily indicative of future financial position or results of operations.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
Pro Forma Pro Forma
UCI MHC Adjustments Combined
-------------- --------------- ---------------- ---------------
Assets
Cash and cash equivalents $ --- $ 57,603 $ (450,000) (a)
(57,603) (b)
1,074,000 (c) $ 624,000
Accounts receivable, net 6,789,279 1,755,558 (94,789) (b) 8,450,048
Medical supplies inventory 544,396 26,750 --- 571,146
Deferred taxes 334,945 --- --- 334,945
Prepaids and other assets 902,526 74,750 --- 977,276
-------------- --------------- ---------------- ---------------
Total current assets 8,571,146 1,914,661 471,608 10,957,415
Property, plant and equipment, net 4,468,271 1,520,504 (271,909)(b) 5,716,866
Deferred taxes 1,417,237 --- --- 1,417,237
Goodwill 8,513,467 1,383,611 3,956,740 (d) 13,853,818
Other assets 263,999 597,442 --- 861,441
-------------- --------------- ---------------- ---------------
Total assets $ 23,234,120 $ 5,416,218 $ 4,156,439 $ 32,806,777
============== =============== ================ ===============
Liabilities and Capital
Current portion - long-term debt $ 908,374 $ 537,150 $ 800,000 (a)
(477,095) (b) $ 1,768,429
Current debt to employees 220,508 --- --- 220,508
Accounts payable 2,817,692 1,381,330 (1,381,330) (b) 2,817,692
Accrued payroll 1,017,226 286,714 (286,714) (b) 1,017,226
Other accrued liabilities 447,786 1,375,132 (710,256) (b) 1,112,662
-------------- --------------- ---------------- ---------------
Total current liabilities 5,411,586 3,580,326 (2,055,395) 6,936,517
Long-term debt, net of current 7,882,309 440,976 (358,066) (b) 7,965,219
Non-current debt to employees 598,676 --- --- 598,676
-------------- --------------- ---------------- ---------------
Total liabilities 13,892,571 4,021,302 (2,413,461) 15,500,412
-------------- --------------- ---------------- ---------------
Preferred stock --- 4,779,000 (4,779,000) (b) ---
Common stock 304,230 760,620 (760,620) (b)
145,070 (a)
60,000 (c) 509,300
Paid-in capital 16,322,924 26,050 (26,050) (b)
6,745,746 (a)
1,014,000 (c) 24,082,670
Accumulated deficit (7,285,605) (4,170,754) 4,170,754 (b) (7,285,605)
-------------- --------------- ---------------- ---------------
Total capital 9,341,549 1,394,916 6,569,900 17,306,365
-------------- --------------- ---------------- ---------------
Total liabilities and capital $ 23,234,120 $ 5,416,218 $ 4,156,439 $ 32,806,777
============== =============== ================ ===============
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 1998
PRO FORMA PRO FORMA
UCI MHC ADJUSTMENTS COMBINED
--------------- ------------------ --------------- -----------------
Revenue $ 16,692,563 $ 3,260,012 $ --- $ 19,952,575
Operating costs 16,312,823 3,308,737 (157,500) (e)
(75,000) (f) 19,389,060
--------------- ------------------ --------------- -----------------
Operating margin 379,740 (48,725) 232,500 563,515
General and administrative expenses 46,088 688,245 --- 734,333
Depreciation and amortization 828,014 122,327 131,891 (g)
5,000 (h) 1,087,232
--------------- ------------------ --------------- -----------------
Income (loss) from operations (494,362) (859,297) 95,609 (1,258,050)
Interest expense, net (555,960) (231,523) --- (787,483)
Gain (loss) on equipment (439) --- --- (439)
--------------- ------------------ --------------- -----------------
Income (loss) before income tax (1,050,761) (1,090,820) 95,609 (2,045,972)
Income tax benefit (558) --- --- (558)
--------------- ------------------ --------------- -----------------
Net income (loss) $ (1,051,319) $ (1,090,820) $ 95,609 $ (2,046,530)
=============== ================== =============== =================
Basic earnings (loss) per share $ (0.17) --- (i) --- $ (0.20)
=============== ================== =============== =================
Basic weighted average common shares
outstanding 6,052,540 --- (i) --- 10,153,936
=============== ================== =============== =================
Diluted earnings (loss) per share $ (0.17) --- (i) --- $ (0.20)
=============== ================== =============== =================
Diluted weighted average common shares
outstanding 6,069,465 --- (i) --- 10,470,861
=============== ================== =============== =================
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
PRO FORMA Pro Forma
UCI MHC ADJUSTMENTS Combined
--------------- -------------- ----------------- ---------------
Revenue $ 27,924,772 6,008,442 --- 33,933,214
Operating costs 26,466,294 6,790,444 (315,000) (e)
(150,000) (f) 32,791,738
--------------- -------------- ----------------- ---------------
Operating margin 1,458,478 (782,002) 465,000 1,141,476
General and administrative expenses 153,445 1,420,580 --- 1,574,025
Depreciation and amortization 1,250,349 335,499 263,783 (g)
20,000 (h) 1,869,631
--------------- -------------- ----------------- ---------------
Income (loss) from operations 54,684 (2,538,081) 181,217 (2,302,180)
Interest expense, net (812,749) (273,721) --- (1,086,470)
Gain (loss) on equipment 8,809 (130,990) --- (122,181)
--------------- -------------- ----------------- ---------------
Income (loss) before income tax (749,256) (2,942,792) 181,217 (3,510,831)
Income tax benefit 665,530 --- --- 665,530
--------------- -------------- ----------------- ---------------
Net income (loss) $ (83,726) $ (2,942,792) $ 181,217 $ (2,845,301)
=============== ============== ================= ===============
Net income (loss) per common and
common equivalent share $ (.02) --- (i) --- $ (0.30)
=============== ============== ================= ===============
Weighted average common shares and
common share equivalents outstanding 5,005,081 --- (i) --- 9,406,477
=============== ============== ================= ===============
</TABLE>
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(a) The pro forma combined condensed balance sheet as of March 31, 1998 has
been prepared to give effect to the Acquisition as if it had occurred
on March 31, 1998 at an aggregate purchase price of $8,948,657. Pro
forma adjustments reflect the following components of the purchase
price and its preliminary allocation:
<TABLE>
<CAPTION>
<S> <C>
PURCHASE PRICE COMPONENTS: PURCHASE PRICE PRELIMINARY ALLOCATION:
Common Stock valued at $6.89 million
allocated as follows:
Stated capital
(2,901,396 shares, $0.05 par value)...........$ 145,070 Accounts receivable........$1,660,769
Additional paid-in capital.....................6,745,746 Inventory......................26,750
Liabilities assumed.................................807,841 Furniture and equipment.....1,248,595
Note payable delivered at closing...................800,000 Prepaids and other assets.....672,192
Cash paid...........................................450,000 Goodwill....................5,245,562
-------- ---------
$8,948,657 $8,948,657
========= =========
</TABLE>
The number of shares of Common Stock was calculated using a share price
of $2.375 in the share price formula of the Acquisition Agreement
(resulting in 2,901,396 shares issued) as set forth in this Proxy
Statement under "The Acquisition - Description of the Agreements -
Acquisition Agreement - Consideration to be paid in the Acquisition."
(b) Not included in the assets and liabilities of MHC acquired in the
Acquisition are the following: certain deposits ($57,603), employee
receivables ($94,789), certain furniture and equipment ($271,909),
accounts payable ($1,381,330), long-term debt ($835,161), payroll and
other accrued liabilities ($996,970) and MHC stockholders' equity
($1,394,916).
(c) The pro forma financial statements reflect the $1.2 million Private
Placement, resulting in net proceeds to UCI of $1,074,000 after payment
of placement agent commissions and expenses. The Private Placement
resulted in the sale of 1,200,000 shares of Common Stock at a price of
$1.00 per share, and the issuance of Common Stock purchase warrants for
the purchase of 300,000 shares of Common Stock. The earnings per share
computation includes the shares issuable under these warrants.
The following reflects the effects of the Private Placement on the pro
forma financial statements:
<TABLE>
<CAPTION>
<S> <C>
$ 60,000 Common Stock (1,200,000 shares, par value $0.05 per share)
1,014,000 Additional paid-in capital
-----------
$1,074,000 Net increase in cash
</TABLE>
(d) Excess of acquisition cost over the fair values of net assets acquired
represents goodwill of $5,340,351, which when reduced by acquired
goodwill of $1,383,611 results in a $3,956,740 adjustment to goodwill.
(e) Net decrease in salaries paid to former corporate officers is $157,500
for six months and $315,000 annually.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(f) Net decrease in salaries for clinic based administrative personnel is
$75,000 for six months and $150,000 annually.
(g) Amortization of goodwill on a straight line basis over 15 years is
$131,891 for six months and $263,783 annually.
(h) Net increase in amortization expense related to building improvements
in leased real estate is $5,000 for six months and $20,000 annually.
(i) As a privately held corporation, MHC was not required to, and did not,
compute earnings per share.
35
<PAGE>
THE ANNUAL MEETING
BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING
PROPOSALS TO BE VOTED UPON
This Proxy Statement is furnished to holders of Common Stock in
connection with the solicitation of proxies by the UCI Board for use at the
Annual Meeting of Stockholders of UCI to be held for the purposes described in
this Proxy Statement. Each copy of this Proxy Statement mailed to a holder of
Common Stock is accompanied by a form of proxy for use at the Annual Meeting.
There are two sets of proposals - one set relates to the Acquisition and the
other set relates to general business in connection with the Annual Meeting.
ACQUISITION PROPOSALS
UCI stockholders will be asked at the Annual Meeting to approve the
following proposals which relate to the Acquisition:
1. Issuance of shares of Common Stock in connection with the
Acquisition (the "Share Issuance Proposal").
2. Issuance of the Warrants, including the underlying shares
of Common Stock, issued in connection with the Private Placement (the
"Warrant Issuance Proposal").
3. Amendment of Article Fourth of the UCI Certificate to
increase the authorized shares of Common Stock from 10 million shares
to 30 million shares (the "Authorized Capital Stock Proposal").
ANNUAL MEETING PROPOSALS
In connection with the Annual Meeting, UCI stockholders will be asked:
1. To elect three members of the UCI Board, each to hold
office for a three-year term ending on the date of the annual meeting
of stockholders in the year 2001 and until such director's respective
successor shall have been duly elected and qualified.
2. To approve the adoption of the UCI Medical Affiliates, Inc.
1997 Stock Incentive Plan for officers, directors, employees and
consultants of UCI and its subsidiaries (the "1997 Incentive Plan
Proposal").
3. To ratify the appointment of Price Waterhouse LLP as the
firm of independent auditors to audit the consolidated financial
statements of the Company for the fiscal year ending September 30, 1998
(the "Ratification of Auditors Proposal").
DATE, TIME AND PLACE OF MEETING
The Annual Meeting will be held on Thursday, June 25, 1998 at 10:00
a.m. local time, at the Embassy Suites Hotel, 200 Stoneridge Drive, Columbia,
South Carolina 29210.
RECORD DATE
36
<PAGE>
Only holders of record of Common Stock at the close of business on May
11, 1998 (the "Record Date") are entitled to notice of and will be entitled to
vote at the Annual Meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE
The Common Stock is entitled to one vote per share on each matter that
is presented for stockholder approval at the Annual Meeting. At the close of
business on the Record Date, there were 6,099,241 shares of Common Stock
outstanding and entitled to vote, held of record by 632 stockholders. All of
such shares are eligible to be voted on each matter currently scheduled to come
before the Annual Meeting.
VOTING AND REVOCATION OF PROXIES
The form of proxy accompanying this Proxy Statement is solicited on
behalf of the UCI Board for use at the Annual Meeting. You are requested to
complete, date and sign the accompanying form of proxy and promptly return it in
the accompanying envelope or otherwise mail it to UCI. All proxies that are
properly executed and returned, and that are not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated on the proxies. If
no instructions are indicated, such proxies will be voted FOR each of the
proposals described in this Proxy Statement, including election of the director
nominees set forth in this Proxy Statement.
The UCI Board does not presently intend to bring any business before
the Annual Meeting other than the specific UCI proposals referred to in this
Proxy Statement and specified in the notice of the Annual Meeting. So far as is
known to the UCI Board, no other matters are to be brought before the Annual
Meeting. If any other business properly comes before the Annual Meeting,
however, it is intended that proxies, in the form enclosed, will be voted on
such matters in accordance with the judgment of the persons voting such proxies.
Any UCI stockholder who has signed the proxy referred to in this Proxy
Statement may revoke it at any time before it is exercised at the Annual Meeting
by (i) delivering to the Corporate Secretary of UCI a written notice, bearing a
date later than the proxy, stating that the proxy is revoked, (ii) signing and
so delivering a proxy relating to the same shares and bearing a later date prior
to the vote at the Annual Meeting or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not, by itself,
revoke a proxy). Whether or not you plan to attend the Annual Meeting, you are
urged to sign and return the enclosed proxy.
QUORUM
The quorum required for the transaction of business at the Annual
Meeting is a majority of shares of Common Stock, or 3,049,621 shares, issued and
outstanding on the Record Date, which shares must be present in person or
represented by proxy at the Annual Meeting. Directions to withhold authority to
vote for directors, abstentions and broker non-votes will be considered shares
present in person or by proxy and entitled to vote and therefore will be counted
for purposes of determining whether there is a quorum at the Annual Meeting. If
a quorum is not present or represented at the Annual Meeting, the chairman of
the meeting or the stockholders holding a majority of the shares of Common Stock
entitled to vote, present in person or represented by proxy, have the power to
adjourn the meeting from time to time, without notice other than an announcement
at the meeting, until a quorum is present or represented. Directors, officers
and employees of UCI may solicit proxies for the reconvened Annual Meeting in
person or by mail, telephone or telegraph. At any such reconvened Annual Meeting
at which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally scheduled.
37
<PAGE>
VOTE REQUIRED
GENERAL
Under the NASD rules, approval by the affirmative vote of the holders
of a majority of the total votes cast on each of the Share Issuance Proposal and
the Warrant Issuance Proposal, in person or by proxy, is required to approve
such proposals. Accordingly, abstentions and broker non-votes will have no
effect on the outcome of the vote.
Under the DGCL, approval by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote is required
to approve the Authorized Capital Stock Proposal. Accordingly, abstentions and
broker non-votes will have the same effect as a vote against the proposal.
Under the DGCL, the three director nominees receiving the greatest
number of votes cast (although not necessarily a majority of the votes cast) in
the election of directors at the Annual Meeting will be elected to the Board of
Directors. Accordingly, directions to withhold authority, abstentions and broker
non-votes will have no effect on the outcome of the vote. The UCI Certificate
does not allow for cumulative voting in the election of directors.
Approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote is required to approve each of the 1997 Incentive
Plan Proposal and the Ratification of Auditors Proposal. Accordingly,
abstentions and broker non-votes will have the same effect as a vote against
such proposals. Approval of the 1997 Incentive Plan Proposal is required
pursuant to the rules and bylaws of the NASD and by the Code.
A broker non-vote occurs when a broker or other nominee holding shares
for a beneficial owner votes on one proposal, but does not vote on another
proposal because the broker or other nominee does not have the discretionary
voting power and has not received voting instructions from the beneficial owner.
SHAREHOLDER AGREEMENTS
Each of M. F. McFarland, III, M.D., CHC and CP&C has separately agreed
with MHC in agreements dated February 9, 1998, to vote shares of Common Stock as
to which each of them has voting control in favor of the proposals relating to
the Acquisition to be presented at the Annual Meeting. Each of them has also
indicated to the Company their intent to vote in favor of all other proposals
scheduled to be presented at the Annual Meeting. As of the Record Date, these
shares represented 51.9 percent of the outstanding Common Stock.
BASED ON THESE NUMBERS, APPROVAL OF ALL PROPOSALS AND THE ELECTION OF
THE THREE DIRECTORS TO BE ELECTED BY THE HOLDERS OF COMMON STOCK IS ASSURED,
REGARDLESS OF THE VOTE CAST BY ANY OTHER UCI STOCKHOLDER.
SOLICITATION OF PROXIES AND EXPENSES
UCI will bear the cost of preparing, assembling and mailing this Proxy
Statement and the accompanying form of proxy to stockholders. In addition to
solicitation by mail, the directors, officers and employees of UCI may solicit
proxies from stockholders by telephone, telegram, letter, facsimile or in
person. No compensation will be paid for such solicitations. UCI may request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
Common Stock and to request authority for the
38
<PAGE>
exercise of proxies. In such cases, UCI, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
DESCRIPTION OF PROPOSALS
The UCI Board has considered each of the proposals described in this
Proxy Statement and believes that each proposal is in the best interests of UCI
stockholders.
THE UCI BOARD RECOMMENDS, BY THE UNANIMOUS CONSENT OF ALL DIRECTORS,
THAT YOU VOTE FOR EACH PROPOSAL DESCRIBED IN THIS SECTION.
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
SHARE ISSUANCE AND WARRANT ISSUANCE PROPOSALS
Because the shares of Common Stock to be issued in the Acquisition and
the shares of Common Stock issuable upon exercise of the Warrants to be
delivered in connection with the Private Placement will exceed 20 percent of the
number of shares of Common Stock outstanding prior to such issuances, the NASD
rules require that UCI stockholders approve the issuance of such Common Stock
and the Warrants.
AUTHORIZED CAPITAL STOCK PROPOSAL
The Authorized Capital Stock Proposal provides that Article Fourth of
the UCI Certificate will be amended to increase the authorized shares of Common
Stock from 10 million shares to 30 million shares. The remaining shares of
authorized but unissued Common Stock may thereafter be used for general
corporate purposes, including in connection with future acquisitions. Approval
of this proposal is required to consummate the issuance of the shares of Common
Stock contemplated by the Share Issuance Proposal and the issuance of the
Warrants and underlying Common Stock contemplated by the Warrant Issuance
Proposal discussed above. The full text of the Authorized Capital Stock Proposal
is included in Appendix B attached to this Proxy Statement.
ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting. The UCI
Certificate provides for a classified Board of Directors so that, as nearly as
possible, one-third of the UCI Board is elected each year to serve a three-year
term. Pursuant to the authority granted to it under the UCI Bylaws, the UCI
Board has set the size of the UCI Board at seven members with staggered terms
expiring at the forthcoming Annual Meeting and at the annual meetings of
stockholders in the years 1999 and 2000. Charles P. Cannon, A. Wayne Johnson and
Ashby M. Jordan, M.D. have been nominated by the UCI Board for election as
directors at the forthcoming Annual Meeting for terms expiring at the annual
meeting of stockholders in the year 2001. Mr. Cannon's and Dr. Jordan's terms as
directors expire at the forthcoming Annual Meeting. See "Directors and Executive
Officers."
The persons named in the accompanying proxy have been designated by the
UCI Board and, unless authority is specifically withheld, they intend to vote
for the election of the nominees listed above. A stockholder executing the
enclosed proxy may vote for the nominees or may withhold such vote from the
nominees. In each case where the stockholder has appropriately specified how the
proxy is to be voted, it will be voted in accordance with such stockholder's
specifications. Although it is not contemplated that the nominees will become
unable to serve prior to the Annual Meeting, the persons named on the enclosed
proxy will have the authority to vote for the election of another person in
accordance with their best judgment.
39
<PAGE>
Pursuant to the Acquisition Agreement, in the event Mr. Johnson is not
elected to the UCI Board at the Annual Meeting, promptly following the Annual
Meeting, the UCI Board, acting pursuant to the authority granted to it under the
UCI Bylaws, will increase the size of the UCI Board to eight directors, and Mr.
Johnson is to be appointed by the UCI Board as the director to fill the vacancy
created by such expansion of the size of the UCI Board.
1997 INCENTIVE PLAN PROPOSAL
GENERAL
The UCI Board approved the adoption of the UCI Medical Affiliates, Inc.
1997 Stock Incentive Plan (the "Stock Plan") effective as of December 17, 1997,
subject to the approval of the Stock Plan by the stockholders at the Annual
Meeting. The following discussion of the Stock Plan is qualified in its entirety
by reference to the Stock Plan. UCI will provide promptly, upon request and
without charge, a copy of the full text of the Stock Plan to each stockholder to
whom a copy of this Proxy Statement is delivered. Requests should be directed
to: Mr. Jerry F. Wells, Jr., Chief Financial Officer, UCI Medical Affiliates,
Inc., 1901 Main Street, Suite 1200, Columbia, South Carolina 29201 (803)
252-3661.
PURPOSE
The Stock Plan is intended to provide UCI with maximum flexibility to
meet the evolving needs of UCI and its subsidiaries over the next ten years in
providing stock-based incentives and rewards to officers, directors and
employees of UCI, and to consultants and advisors to UCI, who are and have been
in a position to contribute materially to improving UCI's profits. The enhanced
employment incentives available through the Stock Plan are expected to promote
the interests of UCI and its stockholders by strengthening UCI's ability to
attract and retain key officers and employees. Through the operation of the
Stock Plan, such present and future officers and employees may be encouraged to
acquire, or to increase their acquisition of, Common Stock, thus maintaining
their personal and proprietary interests in UCI's continued success and
progress.
ADMINISTRATION
The UCI Board will oversee and carry out the provisions of the Stock
Plan, and may establish one or more Committees (the "Committee") to assume such
duties and any other duties as are contemplated for any of such Committees under
the terms of the Stock Plan. When and if established by the UCI Board, the
Committee will be responsible to the UCI Board for the operation of the Stock
Plan and will make recommendations to the UCI Board with respect to
participation in the Stock Plan by officers, directors and employees of, and
consultants and advisors to, UCI and its subsidiaries, and with respect to the
extent of that participation. (All further references to the Committee contained
in this description of the Stock Plan should be deemed to be references to the
UCI Board to the extent that a Committee has not been established by the Board.)
The interpretation and construction by the Committee of any provisions of the
Stock Plan or of any award granted under it will be final. All awards made under
the Stock Plan will be evidenced by written agreements between UCI and the
participant.
OPERATION
The Stock Plan provides for the grant of incentive stock options
("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights
("SARs") and restricted stock awards ("Restricted Stock"). The Stock Plan will
be effective for a term of ten years after the effective date of its adoption by
the UCI Board. A maximum of 1,500,000 shares of Common Stock may be issued
pursuant to awards granted under the Stock Plan, and the UCI Board has reserved
1,500,000 shares for this purpose. The
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<PAGE>
number of shares reserved for issuance under the Stock Plan will be adjusted in
the event of an adjustment in the capital stock structure of UCI affecting the
Common Stock (in connection with a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split or similar event),
and the Committee is authorized to adjust the terms of awards under the Stock
Plan in the event of a change in the capital stock in order to prevent dilution
or enlargement of awards under the Stock Plan. UCI intends to register the
shares of Common Stock reserved under the Stock Plan under the 1933 Act.
All obligations of UCI under the Stock Plan and under any award granted
under the Stock Plan will be binding upon any successor to UCI, whether the
existence of such successor is the result of a direct or indirect purchase of
all or substantially all of the business or assets of UCI, or a merger,
consolidation or otherwise. Unless otherwise specifically prohibited by the
terms of any award or under any applicable laws, rules or regulations, upon the
occurrence of a change in control of UCI, each then outstanding option and SAR
that is not otherwise exercisable will become immediately and fully exercisable,
and any restrictions imposed on Restricted Stock will lapse. Under the Stock
Plan, events constituting a change in control include the acquisition by any
third party or group of 35 percent or more of the outstanding Common Stock; the
change over a two-year period of the makeup of a majority of the members of the
UCI Board; a tender offer to acquire control of the outstanding Common Stock;
and shareholder approval of the liquidation of UCI, the sale of substantially
all of its assets, or the merger, consolidation or reorganization of UCI where
the voting securities of UCI prior to such event do not continue to constitute
at least 65 percent of the voting securities of the surviving entity.
ELIGIBILITY
Each officer, director and employee of UCI or any of its subsidiaries
is eligible to participate in the Stock Plan, and awards under the Stock Plan
may also be granted from time to time to persons serving as consultants or
advisors to UCI or any of its subsidiaries. The Committee will select the
individuals who will participate in the Stock Plan, and members of the Committee
will not be restricted under the terms of the Stock Plan from participating in
the Stock Plan while serving as members of the Committee. On the date of this
Proxy Statement, seven directors, approximately 775 employees and no consultants
and advisors were eligible to participate in the Stock Plan. The Committee may
grant awards under the Stock Plan to any officer, director or other employee of,
or any consultant or advisor to, UCI or any of its subsidiaries. Awards that are
granted at the same or at different times under the Stock Plan are not required
to contain similar provisions.
No awards may be granted under the Stock Plan after December 17, 2007.
The Board may terminate the Stock Plan sooner without further action by the
stockholders. The UCI Board also may amend the Stock Plan without stockholder
approval, except that no amendment that increases the number of shares of Common
Stock that may be issued under the Stock Plan or changes the class of
individuals who may be selected to participate in the Stock Plan will become
effective until it is approved by the stockholders.
STOCK OPTIONS
The Stock Plan permits the granting of non-transferable ISOs that
qualify as incentive stock options under Section 422A(b) of the Code and
non-transferable NSOs that do not so qualify. The option exercise price of each
option will be determined by the Committee in its sole discretion, but may not
be less than the fair market value of the Common Stock on the date the option is
granted in the case of ISOs and may not be less than 50 percent of such fair
market value in the case of NSOs. On May 27, 1998, the reported last sale price
of the Common Stock on the Nasdaq SmallCap Market was $1.56 per share.
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<PAGE>
The term of each option will be fixed by the Committee, but may not
exceed ten years from the date of grant. The Committee will determine at what
time or times each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee. The exercise price of options granted under the Stock Plan must be
paid in cash or by delivery of shares of Common Stock or a combination of cash
and shares.
Except as otherwise provided below, upon termination of a participant's
employment, an option will terminate upon the earliest to occur of the full
exercise of the option, the expiration of the option by its terms, and the date
three months following the date of employment termination. Should termination of
employment (a) result from the death or permanent and total disability of a
participant, such three-month termination period shall extend to one year, or
(b) be for cause, the option will terminate on the date of employment
termination. The employment of a consultant or advisor will be deemed terminated
upon UCI's notice to the participant that UCI will no longer transact business
with the consultant or advisor.
To qualify as ISOs, options must currently meet additional federal tax
requirements, including limits on the value of shares subject to ISOs first
exercisable annually to any participant, and a shorter exercise period and
higher minimum exercise price in the case of certain large stockholders. To the
extent these special requirements are changed or eliminated, the Stock Plan will
be amended accordingly.
STOCK APPRECIATION RIGHTS
The Committee may also grant non-transferrable rights, alone or in
conjunction with options, entitling the holder upon exercise to receive an
amount in any combination of cash or shares of Common Stock (in the sole
discretion of the Committee) equal to the increase since the date of grant in
the fair market value of the shares covered by such SAR over the SAR price for
such shares. The SAR price will be established at the date of grant of the SAR
and will be determined by the Committee in its sole discretion, except that the
SAR price may not be less than the fair market value of the Common Stock on the
date the SAR is granted in the case of an SAR issued in tandem with an ISO, and
may not be less than 50 percent of such fair market value in the case of all
other SARs. The restrictions applicable to the exercise of SARs under the Stock
Plan in the context of termination of employment with UCI are the same as those
restrictions applicable to the exercise of stock options under the Stock Plan as
discussed above.
RESTRICTED STOCK AWARDS
The Committee may also award shares of Common Stock subject to such
conditions and restrictions, if any, as the Committee may determine. The
purchase price, if any, of shares of Restricted Stock shall be determined by the
Committee. Recipients of Restricted Stock may be required to enter into a
Restricted Stock award agreement with UCI in such form as the Committee may
determine, setting forth the restrictions to which the shares are subject and
the date or dates on which the restrictions will lapse. The Committee may at any
time waive such restrictions or accelerate such dates. Shares of Restricted
Stock will be non-transferable. If a participant who holds shares of Restricted
Stock terminates employment for any reason (including death) prior to the lapse
or waiver of any restrictions, then the shares shall be forfeited to UCI for no
payment. Prior to the lapse of any restrictions on shares of Restricted Stock,
the participant will have all rights of a stockholder with respect to the
shares, including voting and dividend rights, subject only to the conditions and
restrictions generally applicable to Restricted Stock or specifically set forth
in any Restricted Stock award agreement.
CURRENT AWARDS
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The number and value of awards that may be granted under the Stock Plan
in the future to officers, directors and employees of, and consultants and
advisors to, UCI or any of its subsidiaries cannot currently be determined and
will be within the discretion of the Committee. As of the date of this Proxy
Statement, one award of an ISO for the purchase of 60,000 shares of Common Stock
at an exercise price of $1.75 per share was made effective December 17, 1997 to
an officer (non-executive) of UCI. One-third of that ISO vests on each of the
first three anniversaries of its date of grant. As of the date of this Proxy
Statement, no other grants of any awards have been approved under the Stock Plan
to any other persons.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the
federal income tax rules currently in effect that are generally relevant to
stock incentive awards. The laws governing the tax aspects of awards are highly
technical and such laws are subject to change.
INCENTIVE STOCK OPTIONS: For regular income tax purposes, no taxable
income is realized by the optionee upon the grant or exercise of an ISO. As long
as no disposition of shares issued upon exercise of the ISO is made by the
optionee within two years from the date of grant or within one year after the
transfer of such shares to the optionee, then (a) upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain, and any loss sustained will be a long-term capital loss,
and (b) no deductions will be allowed to UCI for federal income tax purposes.
However, the exercise of an ISO will give rise to an item of tax preference that
may result in alternative minimum tax liability for the optionee.
If shares acquired upon the exercise of an ISO are disposed of prior to
the expiration of the holding periods described above (a "disqualifying
disposition"), generally (a) the optionee will realize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of the shares at exercise (or, if less, the amount realized on a sale of
such shares) over the option price thereof, and (b) UCI will be entitled to
deduct such amount. Any further gain realized will be taxed as short-term or
long-term capital gain and will not result in any deduction by UCI. Special
rules apply when all or a portion of the exercise price of the ISO is paid by
tendering shares of Common Stock, and special rules may also apply where the
optionee is subject to Section 16(b) of the 1934 Act. A disqualifying
disposition will eliminate the item of tax preference associated with the
exercise of the ISO if it occurs in the same taxable year as the exercise of the
ISO.
NONQUALIFIED STOCK OPTIONS: No income is realized by the optionee at
the time an NSO is granted. Generally, (a) at exercise, ordinary income is
realized by the optionee in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise, and UCI
receives a tax deduction for the same amount, and (b) at disposition,
appreciation or depreciation after the date of the exercise is treated as either
short-term or long-term capital gain or loss, depending on how long the shares
have been held. Special rules could apply in some situations if the optionee is
subject to Section 16(b) of the 1934 Act.
STOCK APPRECIATION RIGHTS: No income will be realized by a participant
in connection with the grant of an SAR. When the SAR is exercised, or when a
participant receives payment in cancellation of an SAR, the participant will
generally be required to include as taxable ordinary income in the year of such
exercise or payment an amount equal to the amount of cash received and the fair
market value of any stock received. UCI will generally be entitled at the same
time to a deduction for federal income tax purposes equal to the amount
includable as ordinary income by such participant.
RESTRICTED STOCK AWARDS: The recipient of Restricted Stock generally
will realize ordinary income equal to the fair market value of the stock at the
time the stock is no longer subject to forfeiture, minus any amount paid for
such stock, and UCI will receive a corresponding deduction.
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However, unless prohibited by any award agreement, a recipient may elect under
Section 83(b) of the Code to realize ordinary income on the date of issuance
equal to the fair market value of the shares of Restricted Stock at that time
(measured as if the shares were unrestricted and could be sold immediately),
minus any amount paid for such stock. If the shares are forfeited, the recipient
will not be entitled to any deduction, refund or loss for tax purposes with
respect to the forfeited shares. Upon sale of the shares after the forfeiture
period has expired, the holding period to determine whether the recipient has
long-term or short-term capital gain or loss begins when the restriction period
expires (or upon earlier issuance of the shares, if the recipient elected
immediate recognition of income under Section 83(b) of the Code). If Restricted
Stock is received in connection with another award under the Stock Plan, the
income and the deduction, if any, associated with such award may be deferred in
accordance with the rules described above for Restricted Stock.
The foregoing discussion is provided for the information of
stockholders and is not a complete description of the federal tax consequences
in respect of transactions under the Stock Plan, nor does it describe state or
local tax consequences.
RATIFICATION OF AUDITORS PROPOSAL
The UCI Board, adopting the recommendation of the Audit Committee of
the UCI Board (the "Audit Committee"), has appointed the certified public
accounting firm of Price Waterhouse LLP as UCI's independent auditors for the
fiscal year ending September 30, 1998, subject to ratification by the
stockholders at the Annual Meeting. Representatives of Price Waterhouse LLP are
expected to be present at the Annual Meeting and will be available to respond to
questions and may make a statement if such representatives so desire.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The following sets forth certain information concerning the persons
nominated for election as directors and the current directors whose terms will
continue beyond the Annual Meeting.
DIRECTOR NOMINEES FOR TERMS EXPIRING IN 2001
CHARLES P. CANNON, 47, has served as a director of UCI since September
1995, as Vice President, Corporate Controller and Assistant Treasurer for BCBS
since April 1988 and as Assistant Treasurer for its subsidiary, CHC, 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.
A. WAYNE JOHNSON, 46, has served as Chairman and Chief Executive
Officer of MHC from its inception in February 1996. Mr. Johnson has 23 years of
entrepreneurial and business operations experience in the field of financial
services and corporate development. Prior to co-founding MHC in February 1996,
Mr. Johnson had served since 1991 as President of one of the major operating
subsidiaries of First Data Corporation and Chief Marketing Officer and strategic
planner for First Data Card Services Group, a subsidiary of First Data
Corporation. Mr. Johnson was the founder of both Integratec, a collection
company, and QualiServ, a credit card outsourcing service company.
ASHBY M. JORDAN, M.D., 58, has served as a director of UCI since August
1996 and as Vice President of Medical Affairs of BCBS since December 1986. Prior
to joining BCBS, Dr. Jordan was the Vice President of Medical Affairs for CIGNA
HealthPlan of South Florida, Inc. Dr. Jordan is
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<PAGE>
Board Certified by the American Board of Pediatrics.
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 DC-SC for over five years and of UCI-GA since its
organization in February 1998. He served as Associate Professional Director of
the Emergency Department of Richland Memorial Hospital in Columbia, South
Carolina from 1978 to 1981 and was President of the South Carolina Chapter of
the American College of Emergency Physicians in 1979. Dr. McFarland is currently
a member of the Columbia Medical Society, the South Carolina Medical Association
and the American Medical Association.
CHARLES M. POTOK, 48, has served as a director of UCI since September
1995 and as Executive Vice President and Chief Operating Officer of CP&C since
March 1984. Mr. Potok is an Associate of the Casualty Actuarial Society and a
member of the American Academy of Actuaries. Prior to joining CP&C, Mr. Potok
served as Chief Property and Casualty Actuary and Director of the Property and
Casualty Division of the South Carolina Department of Insurance.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
HAROLD H. ADAMS, JR., 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 BCBS since October 1991.
Mr. Faulds has been with BCBS since March 1972 where he has served in key senior
management positions in government programs, information systems and operations.
EXECUTIVE OFFICERS
The following sets forth certain information concerning the persons who
currently serve as executive officers of UCI who do not also serve on the UCI
Board.
JERRY F. WELLS, JR., 35, has served as Chief Financial Officer and
Executive Vice President of Finance of UCI since he joined UCI in February 1995
and as Corporate Secretary of UCI since December 1996. He has served as
Executive Vice President of Finance, Chief Financial Officer and Corporate
Secretary of UCI-SC since December 1996, and of UCI-GA since its organization in
February 1998, and as Corporate Secretary of DC-SC since December 1996. Prior to
joining UCI, he served as a Senior Manager and consultant for Price Waterhouse
LLP from 1985 until February 1995. Mr. Wells is a certified public accountant
and is a member of the American Institute of Certified Public Accountants, the
South Carolina Association of Certified Public Accountants and the North
Carolina CPA Association.
D. MICHAEL STOUT, M.D., 52, has served as Executive Vice President of
Medical Affairs of
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UCI since 1985. He is Board Certified in Emergency Medicine and is a member of
the American College of Emergency Physicians, the Columbia Medical Society and
the American College of Physician Executives.
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 he
joined the Company in January 1997. From 1985 until he joined the Company, 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. 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 he joined the Company in 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 1934 Act requires the directors and officers of
UCI to file reports of holdings and acquisitions in Common Stock with the SEC.
Based on UCI records and other information, UCI believes that all SEC filing
requirements applicable to its directors and officers were complied with in
respect to the Company's fiscal year ended September 30, 1997.
BOARD OF DIRECTORS AND BOARD COMMITTEES
UCI BOARD
The UCI Board had a total of four regular meetings and no special
meetings during the Company's fiscal year ended September 30, 1997. No director
attended fewer than 75 percent of the total of such Board meetings and the
meetings of the committees upon which the director served. Among the standing
committees established by the UCI Board are a Compensation Committee, an Audit
Committee, and a Revenue Enhancement Committee. The UCI Board does not have a
nominating committee for recommending to stockholders candidates for positions
on the UCI Board. Currently, seven directors serve on the UCI Board.
AUDIT COMMITTEE
The Audit Committee consists of Messrs. Adams and Cannon. This
committee recommends to the UCI Board the engagement of the independent auditors
for the Company, determines the scope of the auditing of the books and accounts
of the Company, reviews the reports submitted by the auditors, examines
procedures employed in connection with the Company's internal control structure,
reviews and approves the terms of acquisitions between the Company and any
related party entities, undertakes certain other activities related to the
fiscal affairs of the Company and makes recommendations to the UCI Board as may
be appropriate. This committee met once during the Company's fiscal year ended
September 30, 1997.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs Adams, Cannon, Potok and
Russell J. Froneberger. (Mr. Froneberger is not standing for reelection at the
Annual Meeting.) This committee monitors the Company's executive compensation
plan, practice and policies, including all salaries, bonus awards and fringe
benefits, and makes recommendations to the UCI Board with respect to
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changes in existing executive compensation plans and the formation and adoption
of new executive compensation plans. This committee met once during the
Company's fiscal year ended September 30, 1997.
REVENUE ENHANCEMENT COMMITTEE
The Revenue Enhancement Committee consists of Messrs. Adams, Faulds,
Froneberger and Potok. This committee monitors the Company's ancillary and
complementary services, and makes recommendations to the UCI Board with respect
to changes in such existing services. This committee met once during the
Company's fiscal year ended September 30, 1997.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned during the
fiscal year ended September 30, 1997 and during each of the two prior fiscal
years by the President and Chief Executive Officer of UCI and the executive
officers of UCI whose annual compensation from UCI exceeded $100,000 for all
services provided to the Company. No other executive officer of the Company
earned compensation in excess of $100,000 for services provided to the Company
in any of the three fiscal years reflected in the table.
<TABLE>
<CAPTION>
<S> <C>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ----------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (1) OPTIONS COMPENSATION(2)
- ---------------------------- ------ ---------- ------------ ----------- ------------------
M.F. McFarland, III, M.D. 1997 $ 316,540 (3) $ - 0- (4) 141,675 $ 7,968
CHAIRMAN, PRESIDENT AND 1996 315,000 (3) 63,500 (4) 30,000 7,368
CHIEF EXECUTIVE OFFICER 1995 194,616 (3) 145,000 (4) 35,000 6,818
D. Michael Stout, M.D. 1997 $ 216,825 (5) $ - 0- (6) 79,825 $ - 0-
EXECUTIVE VICE PRESIDENT OF 1996 198,316 (5) - 0- (6) 10,000 - 0-
MEDICAL AFFAIRS 1995 157,600 (5) 32,000 (6) 20,000 -0-
</TABLE>
(1) Amounts included under the heading "Salary" and "Bonus" include
compensation from both UCI-SC and DC-SC.
(2) Amounts included under the heading "All Other Compensation" are
comprised of premiums for long term disability and life insurance
provided by the Company for the benefit of Dr. McFarland.
(3) For services performed by Dr. McFarland for UCI-SC, a wholly-owned
subsidiary of UCI, Dr. McFarland received an annual salary of $157,500
and $157,500 during the fiscal years ended September 30, 1997 and 1996,
respectively. Dr. McFarland served without compensation from UCI-SC for
his services during the fiscal year ended September 30, 1995. For
services performed by Dr. McFarland for DC-SC, an affiliated
professional association wholly owned by Dr. McFarland that contracts
with UCI-SC to provide all medical services at UCI's medical
facilities, Dr. McFarland received an annual salary of $159,040,
$157,500, and $194,616 for the fiscal years ended September 30, 1997,
1996, and 1995, respectively.
(4) Pursuant to the employment agreement dated October 1, 1995 between
UCI-SC and Dr. McFarland, UCI-SC accrued incentive bonuses during the
fiscal years ended September 30, 1997 and 1996 payable to Dr. McFarland
of zero and $63,500, respectively, and made no payments to Dr.
McFarland against accrued bonuses. DC-SC accrued a bonus payable to Dr.
McFarland during the fiscal year ended September 30, 1995 of $145,000.
Dr. McFarland received draws from DC-SC out of previously accrued
bonuses of $62,000, $120,000 and $167,430 during the fiscal years
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ended September 30, 1997, 1996, and 1995, respectively.
(5) For services performed by Dr. Stout for UCI-SC, Dr. Stout received an
annual salary of $50,000 and $45,833 during the fiscal years ended
September 30, 1997 and 1996, respectively. Dr. Stout served without
compensation from UCI-SC for his services during the fiscal year ended
September 30, 1995. For services performed by Dr. Stout for DC-SC, Dr.
Stout received an annual salary of $166,825, $152,483, and $157,600 for
the fiscal years ended September 30, 1997, 1996, and 1995,
respectively.
(6) DC-SC accrued and paid bonuses to Dr. Stout of zero, zero and $32,000
during the fiscal years ended September 30, 1997, 1996 and 1995,
respectively.
OPTION GRANTS
The following table sets forth certain information with respect to
options to purchase Common Stock granted during the fiscal year ended September
30, 1997 to certain of the executive officers of UCI. (All options reflected
below vest one-third on each of the first three anniversaries of the grant
date.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
GRANTED IN FY 1997 PER SHARE DATE
NAME
- ------------------------------- ---------------------- ------------------ --------------- ----------------
M.F. McFarland, III, M.D. 20,000 4.49% $ 2.8875 Dec. 18, 2001
CHAIRMAN, PRESIDENT 121,675 27.31 2.1313 June 18, 2002
AND CHIEF EXECUTIVE OFFICER
A. Michael Stout, M.D. 5,000 1.12 2.6250 Dec. 18, 2006
EXECUTIVE VICE PRESIDENT 74,825 16.80 1.9375 June 18, 2007
OF 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997 FISCAL YEAR-END
OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
FISCAL YEAR END OPTIONS AT FISCAL YEAR END
--------------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------------ ----------------- ------------ ---------------
M.F. McFarland, III, M.D. 33,333 173,342 $ -0- $ 44,862
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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<CAPTION>
<S> <C> <C> <C> <C>
1997 FISCAL YEAR-END
OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
FISCAL YEAR END OPTIONS AT FISCAL YEAR END
--------------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------------ ----------------- ------------ ---------------
A. Michael Stout, M.D. 16,666 93,159 -0- 42,090
EXECUTIVE VICE PRESIDENT
OF MEDICAL AFFAIRS
</TABLE>
DIRECTOR COMPENSATION
Non-employee directors are paid a fee of $500 for attendance at each
meeting of the UCI Board. Non-employee directors of UCI are reimbursed by UCI
for all out-of-pocket expenses reasonably incurred by them in the discharge of
their duties as directors, including out-of-pocket expenses incurred in
attending meetings of the UCI Board.
During the fiscal year ended September 30, 1996, UCI adopted a
Non-Employee Director Stock Option Plan (the "1996 Non-Employee Plan"). The 1996
Non-Employee Plan provides for the granting of options to two non-employee
directors for the purchase of 10,000 shares of Common Stock at the fair market
value as of the date of grant. Under this plan, 5,000 options were issued to
Harold H. Adams, Jr. and 5,000 options were issued to Russell J. Froneberger.
These options are exercisable during the period commencing on March 20, 1999 and
ending on March 20, 2006. At September 30, 1997, there were stock options
outstanding under the 1996 Non-Employee Plan for 10,000 shares, none of which
were exercisable.
During the fiscal year ended September 30, 1997, UCI adopted a
Non-Employee Director Stock Option Plan (the "1997 Non-Employee Plan"). The 1997
Non-Employee Plan provides for the granting of options to four non-employee
directors for the purchase of 20,000 shares of Common Stock at the fair market
value as of the date of grant. Under this plan, 5,000 options were issued each
to Charles P. Cannon, Thomas G. Faulds, Ashby M. Jordan, M.D., and Charles M.
Potok. These options are exercisable during the period commencing on March 28,
2000 and ending on March 28, 2007. At September 30, 1997, there were stock
options outstanding under the 1997 Non-Employee Plan for 20,000 shares, none of
which were exercisable.
EMPLOYMENT CONTRACTS
Effective October 1, 1995, Dr. McFarland entered into a five-year
contract with UCI-SC that provides for annual compensation of $157,500, the use
of one automobile and an incentive bonus payable at the end of the fiscal year,
subject to the determination of the UCI Board and based upon net income and
gross revenue of UCI for the same year. Also, effective October 1, 1995, Dr.
McFarland entered into a five-year contract with DC-SC that provides for annual
compensation of $157,500.
Effective November 1, 1995, Dr. Stout entered into a five-year contract
with UCI-SC that provides for annual compensation of $50,000. Also, effective
November 1, 1995, Dr. Stout entered into a five-year contract with DC-SC that
provides for annual compensation of $160,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to UCI
regarding the beneficial ownership of Common Stock as of April 30, 1998.
Information is presented for (i) stockholders owning more than five percent of
the outstanding Common Stock, (ii) each director, director nominee and executive
officer of UCI, individually, and (iii) all directors and executive officers of
UCI, as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENTAGE
- --------------------- -------------------------- -------------
49
<PAGE>
<CAPTION>
<S> <C> <C>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENTAGE
- --------------------- -------------------------- -------------
Blue Cross Blue Shield of South Carolina (2)....... 2,624,623 43.37 %
M.F. McFarland, III, M.D. (3).............................589,128 9.65
Harold H. Adams, Jr. .......................................2,500 *
Charles P. Cannon ............................................-0- -0-
Thomas G. Faulds............................................. -0- -0-
Russell J. Froneberger.....................................2,000 *
A. Wayne Johnson..............................................-0- -0-
Ashby M. Jordan, M.D.........................................-0- -0-
Jon G. Keith...............................................20,500 (4) *
Jitendra Mehta............................................18,334 (5) *
Charles M. Potok..............................................-0- -0-
D. Michael Stout, M.D. .................................280,627 (6) 4.62
Jerry F. Wells, Jr. ......................................33,333 (7) *
All current directors and executive officers
as a group (11 persons)...................................946,422 15.28%
</TABLE>
- ----------------------
* Amount represents less than 1.0 percent.
(1) Beneficial ownership reflected in the table is determined in
accordance with the rules and regulations of the SEC and generally
includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise of options currently
exercisable or convertible, or exercisable or convertible within 60
days, are deemed outstanding for computing the percentage ownership of
the person holding such options, but are not deemed outstanding for
computing the percentage ownership of any other person. Except as
otherwise specified, each of the stockholders named in the table has
indicated to UCI that such stockholder has sole voting and investment
power with respect to all shares of Common Stock beneficially owned by
that stockholder.
(2) The business address of the named beneficial owner is I-20 at Alpine
Road, Columbia, SC 29219. The shares reflected in the table are held
of record by CHC (2,006,442 shares) and CP&C (618,181 shares), each of
which is a wholly-owned subsidiary of BCBS.
(3) The business address of the named beneficial owner is 1901 Main
Street, Suite 1200, Columbia, SC 29201. Shares reflected in the table
include 50,000 shares issuable pursuant to currently exercisable stock
options.
(4) Includes 20,000 shares issuable pursuant to currently exercisable
stock options.
(5) All shares are issuable pursuant to currently exercisable stock
options.
(6) Includes 21,667 shares issuable pursuant to currently exercisable
stock options.
(7) All shares are issuable pursuant to currently exercisable stock
options.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
AGREEMENTS WITH DC-SC
FACILITIES AGREEMENT
Pursuant to a Facilities Agreement between UCI-SC and DC-SC (the
"Facilities Agreement"), UCI-SC supplies to DC-SC the facilities, equipment and
assets of the UCI Centers as well as such non-medical personnel as are
reasonably required by DC-SC in the operation of the UCI Centers. In exchange,
DC-SC provides the necessary staffing for the performance of medical services at
the UCI Centers, including a physician to serve as Executive Medical Director
having overall responsibility for the operations of the UCI Centers. From the
fees paid each month to DC-SC for services rendered at the UCI Centers, DC-SC
retains an amount equal to the cost of all narcotic drugs purchased by DC-SC
during the month and an amount sufficient to satisfy the payroll and related
personnel costs of DC-SC for physicians and other medical providers at the UCI
Centers, with the balance of the fees paid to UCI-SC. During the Company's
fiscal years ended September 30, 1997, 1996, and 1995, DC-SC received an
aggregate of approximately $27,925,000, $23,254,000, and $17,987,000,
respectively, in fees prior to deduction by DC-SC of its payroll and other
related deductible costs covered under the Facilities Agreement. For accounting
purposes, the operations of DC-SC are combined with the operations of UCI and
are reflected in the consolidated financial statements of UCI. Pursuant to the
employment agreement between DC-SC and Dr. McFarland, Dr. McFarland serves as
Executive Medical Director of the UCI Centers, and is paid an annual salary for
his services in such position. Footnotes (3) and (4) of the Summary Compensation
Table in this Proxy Statement describe compensation paid to Dr. McFarland by
DC-SC during the fiscal years ended September 30, 1997, 1996 and 1995. Pursuant
to the employment agreement between DC-SC and Dr. Stout, Dr. Stout provides
medical services to DC-SC, and is paid an annual salary for such services.
Footnotes (5) and (6) of the Summary Compensation Table in this Proxy Statement
describe compensation paid to Dr. Stout by DC-SC during the fiscal years ended
September 30, 1997, 1996 and 1995. In September 1996, the Facilities Agreement
was renewed for an additional fifteen-year term. In January 1995, the Facilities
Agreement was modified to provide UCI-SC with certain rights to terminate the
Facilities Agreement (a) upon the death of Dr. McFarland, (b) upon Dr. McFarland
ceasing to own, either directly or indirectly, a controlling interest in DC-SC,
or (c) upon Dr. McFarland becoming a "disqualified person" as defined by the
South Carolina Business Corporation Act of 1988, as amended. Dr. McFarland is
the President, sole director and sole owner of DC-SC.
REFUND AGREEMENT
Pursuant to a Facilities Fee Refund Agreement (the "Refund Agreement")
entered into among UCI, UCI-SC and DC-SC, DC-SC was entitled to receive a refund
of a portion of the fees payable to UCI-SC under the Facilities Agreement with
respect to fourteen of the UCI Centers. The Refund Agreement was terminated
effective October 1, 1995. During UCI's fiscal years ended September 30, 1997
and 1996, UCI-SC made payments to DC-SC of $62,000 and $120,000, respectively,
against accumulated refunds payable. At September 30, 1997 and 1996, UCI-SC had
refunds payable to DC-SC of approximately $94,000 and $156,000, respectively.
MEDICAL CENTER LEASES
UCI-SC leases six medical center facilities from CHC and one medical
center facility from CP&C under operating leases with fifteen-year terms
expiring in 2008, 2009 and 2010. The terms of these leases are believed to be no
more or less favorable to UCI-SC than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
arrangements. Each of these leases has a five-year renewal option, and a rent
guarantee by DC-SC. One of the leases has a purchase option allowing UCI-SC to
purchase the center at fair market value after February 1,
51
<PAGE>
1995. Total lease payments made by UCI-SC under these leases during the fiscal
years ended September 30, 1997 and 1996 were $319,730 and $306,178,
respectively.
Several of the UCI Centers are leased or were leased from entities
owned or controlled by certain principal stockholders and/or members of UCI's
management. The terms of these leases are believed to be no more or less
favorable to UCI-SC than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar arrangements.
The Doctor's Care Northeast facility is leased from a partnership in
which Dr. McFarland is a general partner. The lease was renewed in
October 1994 for a five-year term. The lease has two five-year renewal
options and provides UCI-SC with an option to purchase the facility at
its fair market value after October 1995. Total lease payments made by
UCI-SC under this lease during the fiscal years ended September 30,
1997 and 1996 were $45,600 and $45,600, respectively, plus utilities
and real estate taxes.
The Doctor's Care Lexington facility was leased from a general
partnership in which Dr. McFarland and Dr. Stout were general partners.
The Doctor's Care Lexington facility was sold in February 1996 to
unrelated third parties who lease it to UCI-SC. Total lease payments
made by UCI-SC 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.
The Doctor's Care West Columbia and the Doctor's Care Beltline
facilities were leased from a general partnership in which Dr.
McFarland and Dr. Stout were general partners. Both of these centers'
facilities were sold in May 1996 to unrelated third parties who lease
them to UCI-SC. Total lease payments made by UCI-SC 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.
The Doctor's Care Lugoff facility was leased directly from Dr.
McFarland. This facility was sold in May 1996 to an unrelated third
party who leases it to UCI-SC. Total lease payments made by UCI-SC
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
At December 31,1997, CHC owned 2,006,442 shares of Common Stock and
CP&C owned 618,181 shares of Common Stock, which combine to approximately 43.37
percent of the outstanding Common Stock. Each of CHC and CP&C is a wholly-owned
subsidiary of BCBS. The following is a historical summary of purchases of Common
Stock by BCBS subsidiaries directly from UCI.
<TABLE>
<CAPTION>
<S> <C>
PRICE TOTAL
DATE BCBS NUMBER PER PURCHASE
PURCHASED SUBSIDIARY OF SHARES SHARE PRICE
--------------- ------------ -------------- ---------- --------------
12/10/93 CHC 333,333 $1.50 $ 500,000
06/08/94 CHC 333,333 3.00 1,000,000
01/16/95 CHC 470,588 2.13 1,000,000
05/24/95 CHC 117,647 2.13 250,000
11/03/95 CHC 218,180 2.75 599,995
12/15/95 CHC 218,180 2.75 599,995
03/01/96 CHC 109,091 2.75 300,000
06/04/96 CP&C 218,181 2.75 599,998
06/23/97 CP&C 400,000 1.50 600,000
</TABLE>
52
<PAGE>
The Common Stock acquired by CHC and CP&C directly from UCI was
purchased pursuant to exemptions from the registration requirements of federal
and state securities laws. Consequently, the ability of the holders to resell
such shares in the public market is subject to certain limitations and
conditions. The shares acquired by CHC and CP&C were purchased at share prices
below market value at the respective dates of purchase in part as a consequence
of the lower issuance costs incurred by UCI in the sale of these unregistered
securities and in part as consequence of the restricted nature of the shares.
CHC and CP&C have the right to require registration of the stock under certain
circumstances as described in the respective stock purchase agreements. BCBS and
its subsidiaries have the option to purchase as many shares as may be necessary
for BCBS and its subsidiaries to maintain ownership of 47 percent of the
outstanding Common Stock in the event that UCI issues additional stock to other
parties (excluding shares issued to employees or directors of UCI).
During the fiscal year ended September 30, 1994, UCI-SC entered into a
capital lease purchase agreement with BCBS for a new billing and accounts
receivable system, which includes computer equipment, for an aggregate purchase
price of $504,000. UCI-SC has the option to purchase the equipment at the end of
the lease term for $1. The lease obligation recorded at September 30, 1997 is
$340,916, which includes lease addenda. The terms of the lease purchase
agreement are believed to be no more or less favorable to UCI-SC than the terms
that would have been obtainable through arm's-length negotiations with unrelated
third parties for a similar billing and accounts receivable system, which
includes computer equipment.
During the fiscal year ended September 30, 1994, UCI-SC entered into an
agreement with CP&C pursuant to which UCI-SC, through DC-SC, acts as the primary
care provider for injured workers of firms carrying worker's compensation
insurance through CP&C. Additionally, during the fiscal year ended September 30,
1995, UCI-SC executed a $400,000 note payable to CP&C payable in monthly
installments of $4,546 (including 11 percent interest) from April 1, 1995 to
March 1, 2010, collateralized by certain accounts receivable. The terms of the
agreement with CP&C are believed to be no more or less favorable to UCI-SC than
those that would have been obtainable through arm's-length negotiations with
unrelated third parties for similar arrangements.
UCI-SC, through DC-SC, provides services to members of a health
maintenance organization operated by CHC who have selected DC-SC as their
primary care provider. The terms of the agreement with CHC are believed to be no
more or less favorable to UCI-SC than those that would have been obtainable
through arm's-length negotiations with unrelated third parties for similar
arrangements.
During the fiscal year ended September 30, 1996, BCBS provided a
non-interest bearing advance to UCI in the amount of $600,000. This advance was
paid in full in December 1996. The terms of this advance are believed to have
been no more or less favorable to UCI than those that would have been obtainable
through arm's-length negotiations with related third parties for similar
arrangements.
The employees of UCI and its subsidiaries are offered health, life, and
dental insurance coverage at group rates from BCBS and its subsidiaries. The
group rates offered to the employees of UCI and its subsidiaries are believed to
be no more or less favorable to UCI and its subsidiaries than those that would
have been obtainable through arm's-length negotiations with unrelated third
parties for similar services.
UCI and its subsidiaries contract with Adams and Associates for
worker's compensation, and professional liability insurance coverage, which in
turn contracts with CP&C to be the insurance carrier for the workers
compensation insurance coverage of UCI and its subsidiaries. Aggregate premiums
paid during the fiscal year ended September 30, 1997 in connection with such
policies were approximately $155,000. During the fiscal year ended September 30,
1996, Adams and Associates
53
<PAGE>
provided short-term financing to UCI for approximately $17,000 in workers
compensation audit premiums, which was paid in full during the fiscal year ended
September 30, 1997. Harold H. Adams, Jr. is the President and owner of Adams and
Associates and is also a director of UCI. Effective November 1, 1997, UCI and
its subsidiaries no longer contract through Adams and Associates for any of
their insurance coverage. Management of UCI believes that the terms of its
contracts with Adams and Associates were no more or less favorable to UCI and
its subsidiaries than those that would have been obtainable through arm's-length
negotiations with unrelated third parties for similar services.
UCI contracts with Global Consulting, Inc. for certain financial and
marketing consulting services. Russell J. Froneberger is the President and owner
of Global Consulting, Inc. and is also a director of UCI whose term expires at
the forthcoming Annual Meeting. Mr. Froneberger is not standing for reelection
as a director at the Annual Meeting. Fees paid during the fiscal year ended
September 30, 1997 in connection with these services were approximately $96,000.
The terms of the contracts with Global Consulting, Inc. are believed to be no
more or less favorable to UCI than those that would have been obtainable through
arm's-length negotiations with unrelated third parties for similar services.
54
<PAGE>
ADDITIONAL INFORMATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are
subject to known and unknown risks and uncertainties. Forward-looking statements
include the information concerning possible or assumed future results of
operations of the combined company set forth under "Risk Factors" and "The
Acquisition - Description of the Acquisition - Reasons for the Acquisition" and
"- Fairness Opinion" and those preceded by, followed by or that include the
words "believes," "expects," "anticipates" or similar expressions. Such
statements reflect the current views of UCI and/or MHC with respect to future
events. For those statements as they relate to UCI only, we claim the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, to the extent provided by applicable
law. This safe harbor does not apply to forward-looking statements of MHC
because MHC has never registered its securities with the SEC. You should
understand that the important factors set forth below, in addition to those
discussed elsewhere in this document and in the documents which we incorporate
by reference, could affect the future results of the Company and could cause
those results to differ materially from those expressed or implied in our
forward-looking statements. Although UCI's management believes that their
expectations of future performance are based on reasonable assumptions within
the bounds of their knowledge of their business and operations, there can be no
assurance that actual results will not differ materially from their
expectations. Factors which could cause actual results to differ from
expectations include, among other things, the difficulty in controlling the
Company's costs of providing healthcare and administering its network of medical
centers; the possible negative effects from changes in reimbursement and
capitation payment levels and payment practices by insurance companies,
healthcare plans, government payors and other payment sources; the difficulty of
attracting primary care physicians; the increasing competition for patients
among healthcare providers; possible government regulations in multiple
jurisdictions negatively impacting the existing organizational structure of the
Company; the possible negative effects of prospective healthcare reform; the
challenges and uncertainties in the implementation of the Company's expansion
and development strategy; the dependence on key personnel, a significant delay
in the expected date of the closing of the Acquisition; the ability to
successfully integrate the management structures of MHC and consolidate the
operations of MHC with those of the Company; and other factors described in this
document and in other document filed by UCI with the SEC.
STOCKHOLDER PROPOSALS
Proposals of stockholders of UCI which are intended to be presented by
such stockholders at the next Annual Meeting of UCI stockholders must be
received by UCI no later than February 1, 1999 in order to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The UCI Board knows of no other matters which are likely to be brought
before the Annual Meeting. If any matters are brought before the Annual Meeting,
the proxy agents named in the enclosed proxy will vote on such matters in
accordance with their best judgment.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended September 30, 1997, which has been filed with the SEC, is included in
the Company's 1997 Annual Report to Stockholders which accompanies this Proxy
Statement.
55
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
UCI files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
"http://www.sec.gov." Reports, proxy statements and other information should
also be available for inspection at the offices of the NASD.
The SEC allows us to "incorporate by reference" information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information contained
directly in this Proxy Statement. This Proxy Statement incorporates by reference
the documents set forth below that we have previously filed with the SEC. These
documents contain important information about UCI and its finances.
<TABLE>
<CAPTION>
<S> <C>
UCI SEC Filings (File No. 0-13265) Period
Annual Report on Form 10-KSB/A.......................Fiscal year ended September 30, 1997
Quarterly Reports on Form 10-QSB.....................Quarters ended December 31, 1997 and March 31, 1998
Current Reports on Form 8-K and Form 8-K/A...........Filed April 20, 1998, May 11, 1998 and May 28, 1998
A description of Common Stock
contained in UCI's Registration
Statement on Form 8-A.................................Dated March 6, 1985
</TABLE>
We are also incorporating by reference additional documents we file
with the SEC from the date of this Proxy Statement to the date of the Annual
Meeting. Any statement in this document or in a document incorporated or deemed
to be incorporated by reference in this document shall be deemed to be modified
or superseded for purposes of this document to the extent that a statement
contained in this document or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this document modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this document, except as so modified or
superseded.
UCI has supplied all information contained or incorporated by reference
in this Proxy Statement relating to UCI. MHC has supplied all such information
relating to its operations. UCI does not take any responsibility for the
accuracy of the information provided by MHC.
A copy of the UCI Form 10-KSB/A for the fiscal year ended September 30,
1997 is included in the UCI Annual Report to Stockholders which accompanies this
Proxy Statement. If you are a stockholder, we may have already sent you some of
the other documents incorporated by reference, but you can obtain any document
incorporated by reference through us, the SEC, or the SEC's Internet web site as
described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this Proxy Statement. Stockholders may obtain
documents incorporated by reference in this Proxy Statement by requesting them
in writing or by telephone to us at the following address:
UCI Medical Affiliates, Inc.
Investor Relations Department
1901 Main Street, Suite 1200
56
<PAGE>
Columbia, South Carolina 29201
(803) 252-3661
If you would like to request documents from us, please do so by June
15, 1998 to receive them before the Annual Meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS RELATING TO THE
ACQUISITION. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY
STATEMENT IS DATED MAY 29, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THE PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS NOR THE
ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE ACQUISITION SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
57
<PAGE>
APPENDIX A
February 9, 1998
The Board of Directors
UCI Medical Affiliates, Inc.
1901 Main Street, Suite 1200
Columbia, SC 29201
Members of the Board of Directors:
You have requested my opinion, as of this date, as to the fairness,
from a financial point of view, to UCI Medical Affiliates, Inc., a Delaware
corporation ("UCI"), and its stockholders of the terms of the proposed
transactions referred to below.
Pursuant to the proposed Acquisition Agreement and Plan of
Reorganization (the "Acquisition Agreement") dated as of the date hereof, to be
entered among UCI, UCI Medical Affiliates of Georgia, Inc. ("UCI-GA"),
MainStreet Healthcare Corporation ("MainStreet") and certain of its affiliated
entities, the parties thereto are to effect a business combination transaction
pursuant to which, on the terms and subject to the conditions set forth in the
Acquisition Agreement (the "Proposed Transactions"): (i) UCI-GA and certain of
its affiliates will acquire from MainStreet and its affiliates certain assets
and liabilities for a purchase price of $8,870,000 consisting of a combination
of cash, common stock of UCI and assumption of certain liabilities. I understand
that all approvals required for the consummation of the Proposed Transactions
have been or, prior to consummation of the Proposed Transactions will be,
obtained.
In arriving at my opinion, I have among other things:
(i) reviewed the terms and conditions of the Proposed
Transactions, including the draft Acquisition
Agreement and the draft agreements ancillary thereto;
(ii) analyzed certain financial aspects of the Proposed
Transactions and consideration to be paid by UCI and
UCI-GA in connection with the Proposed Transactions;
(iii) reviewed and analyzed publicly available historical
business and financial information relating to UCI
and its affiliated entities, as presented in
documents filed with the Securities and Exchange
Commission and otherwise provided to me by UCI, as
well as historical financial information relating to
MainStreet and its affiliated entities as provided to
me by UCI and MainStreet;
(iv) analyzed selected summary non-public financial and
operating results of operations of UCI (consolidated)
and MainStreet;
(v) analyzed the financial conditions and prospects of
UCI and MainStreet;
(vi) reviewed and analyzed public information, including
certain stock market data and financial information
relating to selected companies with operating
statistics and dynamics similar to those of UCI and
MainStreet;
(vii) reviewed the trading history of UCI's common stock,
including such stock's performance in comparison to
market indices and to selected companies with
operating statistics and dynamics similar to those of
UCI;
A-1
<PAGE>
The Board of Directors
UCI Medical Affiliates, Inc.
February 9, 1998
Page 2
- -------------------------------
(viii) conferred with the management teams of each of UCI
and MainStreet;
(ix) reviewed public financial and transaction information
relating to premiums and multiples paid in certain
merger and acquisition transactions similar to the
Proposed Transactions or relevant portions thereof;
and
(x) conducted such other financial analyses and
investigations as I deemed necessary or appropriate
for the purposes of the opinion expressed herein.
In rendering my opinion, I have assumed and relied upon the accuracy
and completeness of the financial and other information respecting UCI and
MainStreet and any other information provided to me by the parties, and we have
not assumed any responsibility for any independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of UCI and MainStreet. With respect to selected summary financial
and operating results referred to above, I have assumed they were reasonably
prepared on a basis reflecting the best currently available information and the
good faith estimates and judgements of the management of UCI as to the future
financial performance of UCI and the management of MainStreet as to the future
financial performance of MainStreet.
In addition to my review and analysis of the specific information set
forth above, my opinion herein reflects and gives effect to my assessment of
general economic, monetary and market conditions existing as of the date of this
letter as they may affect the business and prospects of UCI and MainStreet.
My engagement and the opinion expressed herein are for the benefit of
the Board of Directors of UCI in its evaluation of the Proposed Transactions and
may not be used for any other purpose without my prior written consent, except
that this opinion may be included in its entirety and referred to in any filing
made by UCI with the Securities and Exchange Commission with respect to the
Proposed Transactions. Furthermore, the opinion rendered herein does not
constitute a recommendation that UCI pursue the Proposed Transactions over any
other alternative transactions which may be available to UCI or that any
stockholder of UCI vote to approve the Proposed Transactions.
Based on and subject to the foregoing, I am of the opinion that, as of
the date of this letter, the terms of the Proposed Transactions are fair, from a
financial point of view, to UCI and its stockholders.
Very truly yours,
/s/ Oliver G. Wood, Jr.
------------------------
Oliver G. Wood, Jr.
A-2
<PAGE>
APPENDIX B
PROPOSED AMENDMENTS TO THE UCI CERTIFICATE
AUTHORIZED CAPITAL STOCK PROPOSAL
The Authorized Stock Proposal provides that the UCI Certificate will be
amended by restating the first paragraph of Article Fourth to read in its
entirety as follows:
"FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is as follows: Thirty Million (30,000,000) shares
of Common Stock, having a par value of five cents ($.05) per share, amounting in
the aggregate to One Million Five Hundred Thousand Dollars ($1,500,000) and Ten
Million (10,000,000) shares of Preferred Stock having a par value of one cent
($.01) per share, amounting in the aggregate to One Hundred Thousand Dollars
($100,000)."
B-1
<PAGE>
APPENDIX C
INDEX TO FINANCIAL STATEMENTS OF
MAINSTREET HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Page
Unaudited Consolidated Financial Statements as of March 31, 1998 and
for the year ended March 31, 1998:
Consolidated Balance Sheet................................................C-2
Consolidated Statement of Operations......................................C-3
Consolidated Statement of Stockholders' Deficit...........................C-4
Consolidated Statement of Cash Flows......................................C-5
Notes to Consolidated Financial Statements................................C-6
Audited Consolidated Financial Statements as of March 31, 1997 and for the
period from February 6, 1996 (date of incorporation) to March 31, 1997:
Independent Auditors' Report..............................................C-7
Consolidated Balance Sheet................................................C-8
Consolidated Statement of Operations......................................C-9
Consolidated Statement of Stockholders' Deficit..........................C-10
Consolidated Statement of Cash Flows.....................................C-11
Notes to Consolidated Financial Statements...............................C-12
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................C-21
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MainStreet Healthcare Corporation
Unaudited Consolidated Balance Sheet
March 31, 1998
-------------------------
ASSETS
Current assets:
Cash $57,603
Accounts receivable, less allowances for contractural adjustments and
uncollectible accounts of $1,306,160 1,755,558
Accounts receivable, stockholders
Other receivables 4,820
Prepaid and other 96,680
-------------------------
Total current assets 1,914,661
Property and equipment, net 1,520,504
Intangible assets, net 1,558,194
Other assets 422,859
-------------------------
Total assets $5,416,218
=========================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $1,381,327
Other accrued expenses and liabilities 1,637,873
Current portion of notes payable 477,095
Current portion of capital lease obligations 60,055
Stockholder loan 24,476
-------------------------
Total current liabilities 3,580,826
Notes payable, less current portion 358,066
Capital lease obligations, less current portion 82,910
-------------------------
Total liabilities 4,021,802
Redeemable preferred stock, $.01 par value; 412 shares authorized, no 412,000
shares issued and outstanding
5% cumulative redeemable preferred stock, $1,000 redemption value; 6,000 4,367,000
authorized, 4,367 shares issued and outstanding
Class A nonvoting convertible common stock, $.01 par value; 5,000,000
shares authorized, 276,000 shares issued and outstanding 695,815
STOCKHOLDER'S DEFICIT
Class B common stock, $.01 par value; 20,000,000 shares authorized,
6,460,452 shares issued and outstanding 64,605
Additional paid-in capital 162,710
Accumulated deficit 4,307,714
-------------------------
Total stockholder's deficit (4,080,399)
-------------------------
Total liabilities and stockholders' deficit $5,416,218
=========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
C-2
<PAGE>
MainStreet Healthcare Corporation
Unaudited Consolidated Statement of Operations
For the Year Ended March 31, 1998
Net patient service revenue $ 6,696,957
Operating expenses:
Cost of affiliated physician services 3,072,496
Clinic salaries, wages and benefits 2,347,521
Clinic rent and lease expense 565,377
Clinic supplies 706,748
Other clinic costs 907,509
General corporate expenses 966,614
Depreciation and amortization 348,739
---------------
Total expenses 8,915,004
---------------
Operating loss (2,218,047)
---------------
Other expense:
Interest expense, net 340,470
---------------
Loss before income taxes (2,558,517)
---------------
Income taxes --
---------------
Net loss $ (2,558,517)
===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Unaudited Consolidated Statement of Stockholders' Deficit
For the Year Ended March 31, 1998
Class B Additional Total
Common Stock Paid-in Accumulated Stockholder's
Shares Capital Deficit Deficit
Amount
Balance at March 31, 1997 $ 5,875,000 $ 58,750 $ 81,550 $ (1,612,237) $ (1,471,937)
Issuance of common stock 585,452 5,855 3,932 - 9,787
Write-off of closed practices - 5,855 (59,732) - -
Accretion of difference
Between fair value and
guaranteed value of stock
issued in connection with
acquisition - - 136,960 (136,960) -
Net loss - - - (2,558,517) (2,558,517)
------------ -------- ---------- --------------- --------------
Balance at March 31, 1998 $ 6,460,452 $ 64,605 $ 162,710 $ (4,307,714) $ (4,080,399)
============ ========== ========== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MainStreet Healthcare Corporation
Unaudited Consolidated Statement of Cash Flows
For the Year Ended March 31, 1998
OPERATING ACTIVITIES:
Net income $ (2,558,517)
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 348,739
Intangible assets and organizational costs 226,599
(Increase) decrease in assets:
Accounts receivable, net (645,539)
Other receivables 105,838
Prepaid expenses and other assets (52,670)
Increase (decrease) in liabilities:
Accounts payable 685,916
Other accrued expenses and liabilities 1,022,636
--------------------
Net cash provided (used) by operating activities (866,998)
--------------------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired (80,000)
Purchases of property and equipment (228,578)
--------------------
Net cash used by investing activities (308,578)
--------------------
FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock 550,972
Proceeds from shareholder loans 6,224
Proceeds from issuance of common stock 4,235
Net borrowings under capital lease obligations 205,381
Receipt of preferred stock subscriptions 750,000
Repayments of notes payable (285,583)
Repayments of shareholder loans --
--------------------
Net cash provided by financing activities 1,231,229
--------------------
Net increase in cash and cash equivalents 55,653
Cash and cash equivalents, beginning of period 1,950
====================
Cash and cash equivalents, end of period $
57,603
====================
Cash paid during the year:
Interest $ 176,665
====================
Income taxes $ --
====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
C-5
<PAGE>
MainStreet Healthcare Corporation
Notes to Unaudited Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited and omit
disclosures which would substantially duplicate those contained in the most
recent audited financial statements. The financial statements as of March 31,
1998, in the opinion of management, include all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation. The
unaudited financial information as of March 31, 1997 has been derived from the
audited financial statements as of that date. For further information, refer to
the financial statements and the notes included in the financial report of
MainStreet Healthcare Corporation ("MHC").
NOTE 2. SUBSEQUENT EVENT
On May 13, 1998, UCI Medical Affiliates of Georgia, Inc. ("UCI-GA") acquired
substantially all of the assets and assumed certain equipment and real property
lease obligations and line of credit obligations of MHC in a transaction
accounted for as a purchase to be effective as of May 1, 1998. The purchase
price consisted in part of a cash payment of $450,000 to an escrow agent
appointed by MHC, the delivery of a promissory note in the amount of $800,000
from UCI-GA in favor of the escrow agent, and the delivery of an agreement to
issue to MHC 2,091,396 shares of common stock of UCI Medical Affiliates, Inc.
The delivery of such shares is subject to approval by the stockholders of UCI
Medical Affiliates, Inc.
C-6
<PAGE>
KPMG Peat Marwick LLP
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MainStreet Healthcare Corporation:
We have audited the accompanying consolidated balance sheet of MainStreet
Healthcare Corporation as of March 31, 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the period
February 6, 1996 (date of incorporation) to March 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MainStreet
Healthcare Corporation at March 31, 1997, and the results of its operations and
its cash flows for the period February 6, 1996 (date of incorporation) to March
31, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that MainStreet Healthcare Corporation will continue as a going concern. As
discussed in note 1(b) to the consolidated financial statements, MainStreet
Healthcare Corporation has suffered recurring losses and has a working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 1(b). The accompanying consolidated financial statements do not include
any adjustment that might result from the outcome of this uncertainty.
November 14, 1997, except
as to note 12(b), which is
as of February 3, 1998 /s/ KPMG Peat Marwick LLP
C-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Consolidated Balance Sheet
March 31, 1997
Assets
Current assets:
<PAGE>
Cash $ 1 ,950
Accounts receivable, less allowances for contractual adjustments
and uncollectible accounts of $1,258,571 1,110,019
Redeemable preferred stock subscriptions receivable (notes 4 and 11) 750,000
Other receivables 110,658
Prepaid and other 44,010
--------
Total current assets 2,016,637
Property and equipment, net (notes 3 and 6) 1,422,594
Intangible assets, net (notes 3 and 5) 1,968,252
Other assets 388,393
-------
Total assets $ 5,795,876
=========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 695,411
Other accrued expenses and liabilities 615,237
Current portion of notes payable (notes 3 and 7) 357,053
Current portion of capital lease obligation (note 7) 3,401
Shareholder loan (note 8) 18,252
--------
Total current liabilities 1,689,354
Long-term liabilities:
Notes payable, less current portion (notes 3 and 7) 751,261
Capital lease obligation, less current portion (note 7) 14,183
----------
Total long-term liabilities 765,444
Total liabilities 2,454,798
Redeemable preferred stock, $.01 par value; 13,250 shares authorized,
no shares issued and outstanding -
5% cumulative redeemable preferred stock, $1,000 redemption value;
6,000 shares authorized, 3,367 shares issued and outstanding, 750
shares subscribed (notes 4, 11, and 12) 4,117,000
Class A nonvoting convertible common stock, $.01 par value;
5,000,000 shares authorized, 268,000 shares issued and outstanding 696,015
Stockholders' deficit (note 4):
Class B common stock, $.01 par value; 20,000,000 shares authorized,
5,875,000 shares issued and outstanding 58,750
Additional paid-in capital 81,550
Accumulated deficit (1,612,237)
Total stockholders' deficit (1,471,937)
-----------
Total liabilities and stockholders' deficit $ 5,795,876
=========
</TABLE>
See accompanying notes to consolidated financial statements.
C-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statement of Operations
For the period February 6, 1996 (date of incorporation) to March 31, 1997
Net patient service revenue $ 3,665,982
---------
Operating expenses:
Cost of affiliated physician services 1,733,826
Clinic salaries, wages, and benefits 1,131,729
Clinic rent and lease expense (notes 7 and 8) 306,571
Clinic supplies 287,431
Other clinic costs 428,987
General corporate expenses (note 8) 571,499
Depreciation and amortization (notes 5 and 6) 217,029
Clinic start-up expenses 307,419
---------
Total expenses 4,984,491
Operating loss (1,318,509)
Interest expense, net (note 7) 161,774
Loss on clinic disposals (note 12(a)) 88,990
-----------
Loss before income taxes (1,569,273)
Income taxes (note 9) -
------------
Net loss $ (1,569,273)
=========
</TABLE>
See accompanying notes to consolidated financial statements.
C-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statement of Stockholders' Deficit
For the period February 6, 1996 (date of incorporation) to March 31, 1997
Class B Additional Total
Common Stock Paid-in Accumulated Stockholder's
------------
Shares Capital Deficit Deficit
------
Amount
------- --------- ----------- -------------
Balance at February 6, 1996 - $ - - - -
Issuance of common stock 5,875,000 58,750 38,586 97,336
Accretion of difference
Between fair value and
guaranteed value of stock
issued in connection with
acquisition (note 3) - - 42,964 (42,964) -
Net loss - - - (1,569,273) (1,569,273)
----------- ------------ ---------- ------------ --------------
Balance at March 31, 1997 5,875,000 $ 58,750 81,550 (1,612,237) (1,471,937)
=========== ============ =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
C-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Consolidated Statement of Cash Flows
For the period February 6, 1996 (date of incorporation) to March 31, 1997
Operating activities:
Net loss $ (1,569,273)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 217,029
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net (517,720)
Other receivables (110,658)
Prepaid expenses and other assets (64,010)
Accounts payable 580,688
Other accrued expenses and liabilities 615,237
-------------
Net cash used by operating activities (848,707)
-------------
Investing activities:
Acquisitions of businesses, net of cash acquired (note 3) (1,226,480)
Purchases of property and equipment (631,279)
------------
Net cash used by investment activities (1,857,759)
-----------
Financing activities:
Net proceeds from issuance of preferred stock 2,071,607
Proceeds from shareholder loans 1,370,300
Proceeds from issuance of common stock 65,810
Net borrowings under capital lease obligations 17,584
Repayment of notes payable (423,363)
Repayment of shareholder loans (393,522)
----------
Net cash provided by financing activities 2,708,416
----------
Net increase in cash 1,950
Cash at beginning of period -
Cash at end of period $ 1,950
============
Supplemental disclosure of cash flow information -
cash paid during the period for:
Interest $ 55,476
Income taxes -
</TABLE>
See accompanying notes to consolidated financial statements.
C-11
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
March 31, 1997
(1) Organization and Basis of Presentation
(a) Description of Business
MainStreet Healthcare Corporation ("the Company") was
incorporated on February 6, 1996. The Company was organized to
purchase general practitioner outpatient clinics in Georgia and
Tennessee. After purchasing a clinic, the Company focuses on
centralizing fixed costs and reducing the overall overhead of
each outpatient clinic in order to maximize income and cash flow.
During the period from February 6, 1996 to March 31, 1997,
MainStreet acquired 12 primary care clinics.
(b) Basis of Presentation
The consolidated financial statements have been prepared on the
accrual basis of accounting and include the accounts of the
Company and the affiliated professional corporations
("Professional Corporations"). Through the clinic services
agreements between the Company and the Professional Corporations,
the Company has assumed full responsibility for the operating
expenses in return for the assignment of the revenue of the
professional corporations.
The Company has perpetual, unilateral control over the assets and
operations of the Professional Corporations, and notwithstanding
the lack of technical majority ownership of the stock of such
entities, consolidation of the various professional corporations
is necessary to present fairly the financial position and results
of operations of the Company because of control by means other
than ownership of stock. Control by the Company is perpetual
rather than temporary because of (i) the length of the original
terms of the agreements, (ii) the successive extension periods
provided by the agreements, (iii) the continuing investment of
capital by the Company, (iv) the employment of the nonphysician
personnel, and (v) the nature of the services provided to the
Professional Corporations by the Company. All intercompany
accounts and transactions have been eliminated in the
consolidation.
The Company has experienced recurring losses since its inception,
including approximately $1,900,000 (unaudited) from April 1, 1997
through December 31, 1997, and has a net working capital
deficiency of approximately $1,200,000 (unaudited) as of December
31, 1997. Management has entered into a letter of intent to sell
its operating clinics at an amount that in its opinion would
generate sufficient value to satisfy all its outstanding debt
obligations in either cash or stock (see note 12(b)). The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(2) Summary of Significant Accounting Policies
(a) Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation and
C-12
<PAGE>
amortization. Depreciation of property and equipment is
calculated using the straight-line method over the estimated
useful lives of the assets. MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
Equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or
estimated useful life of the assets.
(b) Intangible Assets
(1) Noncompete Agreements
In connection with certain clinic acquisitions, the
Company entered into noncompete agreements with
physicians. Such agreements are being amortized using
the straight-line method over the terms of the
agreements, generally three to five years.
(2) Excess of Cost
Goodwill, which represents the excess of purchase price
over fair value of net assets acquired, is amortized on
a straight-line method over the expected periods to be
benefited, generally fifteen years. The Company assesses
the recoverability of this intangible asset by
determining whether the amortization of the goodwill
balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating
cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of
recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. In
management's estimation, the remaining amount of
goodwill has continuing value.
(c) Net Revenue
Patient revenue is recorded at established rates reduced by
allowances for doubtful accounts and contractual adjustments.
Contractual adjustments arise due to the terms of certain
reimbursement and managed care contracts. Such adjustments
represent the difference between charges at established rates and
estimated recoverable amounts and are recognized in the period
the services are rendered. Any differences between estimated
contractual adjustments and actual final settlements under
reimbursement contracts are reported as contractual adjustments
in the year final settlements are made.
(d)Income Taxes
The Company accounts for income taxes using the asset and
liability method of Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS No. 109"). Under SFAS
No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
financial statement carrying
(Continued)
C-13
<PAGE>
amounts of existing assets and liabilities and their respective
tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
C-14
<PAGE>
Simultaneous with each acquisition, the Company enters into
long-term clinic services agreements. Under these agreements, the
Company manages all aspects of the affiliated practices other
than the provision of medical services, which is controlled by
the physician groups. For providing services under the clinic
services agreements, the physicians receive compensation based on
individually negotiated contracts. Generally, the clinic services
agreements cannot be terminated by the physician group or the
Company without cause, which includes material default or
bankruptcy of either party.
C-15
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
Prior to the merger of MainStreet Georgia with and into MainStreet
Delaware, as discussed in note 4, the Company was taxed as an S
Corporation under the Internal Revenue Code. As a result, the Company
has been taxed in a manner similar to a partnership for the period
prior to December 9, 1997, and has not provided any federal or state
income taxes as the results of operations were passed through to, and
the related income taxes became the individual responsibility of the
Company's shareholders.
(e) Impairment of Long-Lived Assets
Financial Accounting Standards No. 121 ("SFAS No. 121"),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, requires the Company to
review for the impairment of long-lived assets and certain
identifiable intangibles to be held and used by the Company
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
The statement also addresses the accounting for long-lived assets
that are expected to be disposed. SFAS No. 121 is applicable for
most long-lived assets, identifiable intangibles, and goodwill
related to those assets. Management has determined that
long-lived assets are fairly stated in the accompanying
consolidated balance sheet and that no indicators of impairment
are present.
(f) Redeemable Preferred Stock Offering Costs
Costs associated with the issuance of mandatory redeemable
preferred stock have been capitalized and are being amortized
using a straight-line method over five years and are included in
other assets in the accompanying consolidated balance sheet (see
note 5).
(g) Use of Estimates
Management of the Company has made certain estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(3) Acquisitions
The Company acquired, through its wholly owned subsidiaries, certain
operating assets of 12 primary care physician clinics.
Simultaneouswith each acquisition, the Company enters into long-term clinic
services agreements. Under these agreements, the Company manages all aspects
of the affiliated practice other than the provision of medical services,
which is controlled by the physician groups. For providing services under the
clinic services agreements, the physicians receive compensation based on
individually negotiated contracts. Generally, the clinic service agreements
cannot be terminated by the physician group or the Company without cause,
which includes material default or bankruptcy of either party.
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
The acquisitions have been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the net assets
acquired and the liabilities assumed based upon the fair values at the dates
of acquisition. In connection with the acquisitions, the Company issued
268,000 shares of common stock in MainStreet Healthcare Corporation. The
Company guaranteed the fair market value of the stock to be $5 per share at
various dates in the future and recorded the stock by discounting the
guarantee price using a risk-based interest rate of 15%. The difference
between the fair value and guaranteed value of stock issued in connection
with the issuance of stock of $643,395 is being accreted over the period from
the date of issuance to the various settlement dates through periodic charges
to accumulated deficit. The Company also issued $1,531,677 in notes payable.
The excess of the purchase price over the fair values of the net assets
acquired was $1,813,179 and has been recorded as goodwill and is being
amortized using a straight-line method over 15 years. The composition of
acquisition of businesses, net of cash acquired, is set forth below:
Working capital, other than cash $ 477,577
Property and equipment 862,916
Noncompete agreements 300,500
Excess of costs over fair value of assets acquired 1,813,179
Less:
Value of stock issued (696,015)
Value of notes payable issued (1,531,677)
------------
Cash purchase price, net of cash acquired $ 1,226,480
===========
The operating results of the acquired clinics have been included in the
consolidated statement of operations from the respective dates of
acquisition.
(4) Reorganization
MainStreet Healthcare Corporation (MainStreet Georgia) was organized on
February 6, 1996 as a Georgia Corporation and was authorized 10,000,000
shares of no par common stock of which 5,375,000 shares were issued.
On December 4, 1996, MainStreet Healthcare Corporation (MainStreet Delaware)
was incorporated and was authorized 10,000,000 shares of no par common
stock. Effective December 9, 1996, the shareholders of MainStreet Georgia
exchanged their shares for equal shares in MainStreet Delaware pursuant to a
merger of MainStreet Georgia with and into MainStreet Delaware.
On December 11, 1996, MainStreet Delaware amended and restated the
Certificate of Incorporation in order to give MainStreet Delaware the
authority to issue preferred stock and common stock as follows:
(a) 20,000 shares of Preferred Stock, par value $.01 per share.
MainStreet Delaware's Board of Directors has the authority
to fix the terms of the Preferred Stock.
C-16
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(b) 5,000,000 shares of Class A Non-Voting Convertible Common
Stock, par value $.01 per share. One share of Class A
Non-Voting is convertible upon: (i) a Qualified Public
Offering; (ii) a sale of MainStreet Delaware; or (iii) a
sale of a majority of the Class B Common Stock, into one
fully paid and non-assessable share of Class B Common
Stock.
(c) 20,000,000 shares of Class B Common Stock, par value $.01
per share.
The Class A and Class B common stocks are identical, except
with respect to voting rights, where the Class A shares
have no voting rights. The Class A shares are nonvoting
convertible into one share of Series B stock upon: (i) a
Qualified Public Offering; (ii) a sale of the Company; or
(iii) a sale of a majority of the shares of Class B stock.
Effective December 12, 1996, MainStreet Delaware entered into a
recapitalization agreement. The shareholders of MainStreet Georgia exchanged
a total of 5,375,000 shares of no par common stock in MainStreet Georgia and
$948,026 of debt owed by MainStreet Georgia to the shareholders for 2,350,000
shares of no par common stock and 927 shares of five percent cumulative
mandatory redeemable preferred stock in MainStreet Delaware. In addition,
Penman Private Equity and Mezzanine Fund, L.P., (Penman) purchased 3,525,000
shares of Class B Common Stock for $60,000 and 2,440 shares of five percent
mandatory redeemable preferred stock in MainStreet Delaware for $2,071,607,
net of offering expenses of $368,393. The preferred stock is mandatory
redeemable on December 12, 2001.
On March 21, 1997, Penman subscribed to 750 shares of the five percent
mandatory redeemable preferred stock for $750,000. On April 8, 1997, the
Company received $750,000 for the subscribed preferred stock.
(5) Intangible Assets
Intangible assets consists of:
Excess of cost over fair value of assets acquired $ 1,813,179
Noncompete agreements 300,500
Less accumulated amortization (145,427)
---------
$ 1,968,252
=========
(6) Property and Equipment
Property and equipment consists of:
Land $ 104,600
Buildings and improvements 406,635
Furniture and fixtures 181,621
Clinic equipment 559,451
Office equipment 193,843
Leasehold improvements 48,046
---------
1,494,196
Accumulated depreciation and amortization (71,602)
---------
$ 1,422,594
=========
C-17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(7) Long-Term Debt and Leases
Long-term debt and capital leases consists of:
Notes payable to physician groups with interest rates ranging from
7% to 10.5%, with payments
due at varying intervals through March 1, 2006 $ 1,108,314
Capital leases 17,584
----------
1,125,898
Less amounts due within one year 360,454
-----------
$ 765,444
===========
The following is a schedule of principal maturities of long-term debt,
including capital leases, as of March 31, 1997.
1998 $ 360,454
1999 360,717
2000 161,691
2001 37,929
2002 34,814
Thereafter 170,293
-----------
Total $ 1,125,898
===========
</TABLE>
CAPITAL LEASES: The Company is the lessee of equipment under a capital
lease which expires during the next ten years. The related equipment is
being amortized over ten years and the related amortization expense is
included with depreciation expense in the consolidated statement of
operations.
The following is a schedule of future minimum lease payments under the
capital leases together with the present value of the net minimum lease
payments as of March 31, 1997.
1998 $ 6,045
1999 6,045
2000 6,045
2001 5,892
-------
Total minimum lease payments 24,027
Less amounts representing interest (6,443)
------
Obligation under capital leases 17,584
Less current portion of capital lease obligations (3,401)
------
Long-term obligations under capital leases $ 14,183
========
C-18
<PAGE>
Capitalized equipment leases included in equipment was $18,600 at March
31, 1997. The imputed interest rate was 16.45% at March 31, 1997.
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
OPERATING LEASES: Operating leases generally consist of short-term
lease agreements for professional office space where the medical practices are
located. These leases generally have five-year terms with renewal options. Lease
expense of $250,000 for 1997 consists of corporate office space, corporate
equipment and medical office space, and equipment for the operating practices.
The following is a schedule of future minimum lease payments under
noncancelable operating leases as of March 31, 1997.
1998 $ 512,353
1999 453,355
2000 426,199
2001 411,586
2002 258,130
Thereafter 76,757
----------
$ 2,138,380
=========
(8) Related Party Transactions
The Chief Executive Officer and Chief Operating Officer of the Company
made loans to finance the Company's operations in the amounts of $1,345,000 and
$25,300, respectively, of which $20,000 and $500, respectively, of contributed
capital was converted to debt under the Reorganization discussed in note 4. Of
the $1,345,000, $927,000 was converted into preferred stock; $21,026 was
converted into Class B common stock; $378,722 was repaid during the year; and
the remainder of $18,252 is outstanding at March 31, 1997. Of the $25,300,
$10,500 was converted into Class B common stock, and $14,800 was repaid during
the year.
During the period ended March 31, 1997, the Company made payments of
$116,260 to related parties for rent expense in connection with the clinic
facilities. Also, the Company made principal and interest payments of $14,220 on
behalf of the Chief Executive and Operations Officers of the Company for the
corporate office location.
In the process of acquiring the physician clinic groups, the Company
paid $47,650 to a consultant who became an officer of the Company.
(9) Income Taxes
Because of operating losses, the Company has not provided any income
tax expense for the year ended March 31, 1997. The Company has operating loss
carryforwards, which may be used to reduce future taxable income, of
approximately $280,014 at March 31, 1997 which expire beginning in 2010.
The income tax recognition of temporary differences originating before
the Company became a C Corporation will reverse. Accordingly, an income tax
liability of $101,500 was recorded as of the date
C-19
<PAGE>
the Company became a C Corporation.
C-20
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
Deferred income taxes determined in accordance with Statement 109
reflect the net tax effects of (a) temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and (b) operating loss and tax credit
carryforwards. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Due to
the uncertainty of future realization, the Company's deferred tax assets are
subject to a valuation allowance that results in the recognition of no deferred
tax asset at March 31, 1997.
The tax effects of significant items comprising the Company's deferred
income taxes for March 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accrual to cash $ 207,000
Net operating loss carryforwards 106,400
Other 49,300
--------
362,700
Less valuation allowance ( 318,600)
Net deferred tax assets 44,100
Deferred tax liabilities - depreciation (44,100)
--------
Net deferred taxes $ -
=======
The significant components of the deferred income tax expense (benefit)
for the period ended March 31, 1997 are as follows:
Deferred income tax benefit $ 420,100
Change in tax status from S Corporation
to C Corporation
(101,500)
Increase in valuation allowance (318,600)
Deferred income tax expense $ -
========
</TABLE>
(10) Contingencies
In addition to the general liability and malpractice insurance carried
by the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims-made basis. To the extent
that any claims-made coverage is not renewed or replaced with
C-21
<PAGE>
equivalent insurance, claims based on occurrences during the term of the
coverage, but reported subsequently, would be uninsured. Management anticipates
that the claims-made coverage currently in place will be renewed or replaced
with equivalent insurance as the term of such coverage expires.
C-22
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
Notes to Consolidated Financial Statements
(11) Redeemable Preferred Stock
Five percent preferred stock is cumulative, mandatory redeemable
nonvoting shares issued in connection with the reorganization described
in note 4. The five percent dividend is payable when declared by the
Company. During 1997, the Company declared a dividend of $47,046 based on
the preferred stock issuance date of December 12, 1996. Upon sale of the
Company or a Qualified Public Offering, the Company will redeem the
preferred stock at the redemption price which is $1,000 per share plus
the amount of accrued and unpaid dividends at such date. The preferred
shares are mandatory redeemable on December 12, 2001. If the Company is
unable or does not redeem the preferred shares, the dividend rate will
increase to nine percent.
The Company granted options to acquire up to 146,875 shares of Class B
common stock to officers of the Company, which are vested and are
exercisable at $5.50 per share.
(12) Subsequent Events
(a) Subsequent to March 31, 1997, the Company closed two physician
clinics which were purchased during the period. The amount of the
loss, including write-off of goodwill, accounts receivable, and
property and equipment, was $88,990.
(b) The Company has signed a letter of intent dated February 3, 1998
for the sale of substantially all of its assets to UCI Medical
Affiliates Inc. ("UCI"). The consideration paid by UCI to the
Company for the assets, as defined in the letter of intent, shall
be $8,050,000 plus assumption of debt of $685,000.
C-23
<PAGE>
MAINSTREET HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which the MainStreet Healthcare Corporation ("MHC") believes is
relevant to an assessment and understanding of MHC's consolidated
results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial
statements of MHC and the notes thereto.
The consolidated financial statements of MHC include the
accounts of MHC, MainStreet Healthcare Medical Group, P.C. of
Georgia and MainStreet Healthcare Medical Group PC of Tennessee
(collectively, the "MHC-PCs"). The financial statements of the
MHC-PCs are consolidated with MHC because MHC has unilateral
control over the assets and operations of the MHC-PCs and
notwithstanding the lack of technical majority ownership,
consolidation of the MHC-PCs with MHC is necessary to present
fairly the financial position and results of operations of MHC. The
management agreement between MHC and the MHC-PCs conveys to MHC
perpetual, unilateral control over the assets and operations of the
MHC-PCs. Control is perpetual rather than temporary because of: (i)
the length of the term of the agreement, (ii) the continuing
investment of capital by MHC, (iii) the employment of all of the
non-physical personnel by MHC, and (iv) the nature of the services
provided to the MHC-PCs by MHC.
Procedurally, the management agreement calls for the MHC-PCs
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 MHC as a management fee. MHC provides all
support personnel (nurses, technicians, receptionists), all
administrative functions (billing, collecting, vendor payment), and
all facilities, supplies and equipment. The consolidated accounts
of MHC include all revenue and all expenses including physician
salaries of all three entities.
The MHC-PCs enter into employment agreements with physicians
for terms ranging from 1-10 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. The
physicians employed by the MHC-PCs. are paid on a salary basis. A
few of the physicians have incentive compensation agreements. As of
March 31, 1998 and March 31, 1997, the MHC-PCs employed 19 and 26
medical providers, respectively.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AS
COMPARED TO THE YEAR ENDED MARCH 31, 1997
Revenues of $6,696,957 for the year ended March 31, 1998
reflects an increase of 83% from those of the year ended March
31, 1997. MHC commenced its operations in March of 1996 with the
acquisition of its first medical practice and grew through
a series of acquisitions through July of 1997 when a maximum of
14 clinics had been acquired. During August and September of
1997, MHC closed three unprofitable practices in South Georgia
(Valdosta, Adel, Thomaston) and continued their liquidation
through fiscal year-end.
MHC's revenues per practice per month decreased from
$48,880 in fiscal 1997 to $47,162
C-24
<PAGE>
in fiscal 1998, a decline of 3.5%. This was due to more proactive
billing and collection methods.
Revenues were short of goals for fiscal 1998 due in part to
the increased competition from hospitals and other providers in the
metropolitan Atlanta market. In this area, regional hospitals have
acquired or opened new primary care physician practices that
compete directly with the company for patients. In each case, the
hospital owners 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.
An operating loss of $2,558,517 was incurred in fiscal
1998 as compared to an operating loss of $1,569,273 in fiscal 1997.
Management believes that lack of improvement in the margin
resulted from both the inability to attain revenue goals, and
increased bad debt write off due to narrower margins afforded from
health care insurance plans. Development costs from acquiring
practices in fiscal 1997 affected loss/expenses for up to nine
months of fiscal fiscal 1998.
Depreciation and amortization expense increased to $348,739
in fiscal 1998 from $217,029 in fiscal 1997. This increase is a
reflection of additional clinic months in fiscal 1998. Interest
expense increased from $161,774 in fiscal 1997 to $340,470 in
fiscal 1998, primarily as a result of the interest costs
associated with the indebtedness incurred in MHC's purchase of
these centers and as a result of the issuance of 250 shares of 5%
cumulative redeemable preferred shares ($1,000 redemption value),
the issuance of 412 shares of 10% cummulative redeemable preferred
shares ($1,000 redemption value), and interest costs associated
with an agreement entered into in October 1997 with a firm to
finance MHC's receivables.
FINANCIAL CONDITION AT MARCH 31, 1998
Cash and cash equivalents increased by $55,653 during the
year ended March 31, 1998. Cash was utilized mainly for working
capital needs and to fund the expansion previously discussed.
Accounts receivable increased 58% during the period,
reflecting the overall growth in patient visits to existing medical
centers and an increase in the number of clinic months.
Total liabilities increased from $2,454,798 at March 31,
1997 to $4,021,802 at March 31, 1998 primarily as a result
of indebtedness incurred in capital leases for equipment purchases
and an increase in unpaid accounts payable and accrued expenses.
MHC's current liabilities exceeded its current assets at March 31,
1998 by $1,666,165.
Management believes that MHC should be able to continue to
operate and meet its continuing current operating costs out of cash
generated from operations.
C-25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
MHC requires capital principally to fund growth (acquire new
medical centers), for working capital needs and for the retirement
of indebtedness. MHC's capital requirements and working capital
needs have been funded through a combination of external financing
(including receivable funding and proceeds from the sale of 5%
and 10% cumulative redeemable preferred stock) and credit
extended by suppliers.
SUBSEQUENT EVENTS
In May of 1998, MHC sold substantially all of the assets of
MHC to UCI Medical Affiliates, Inc. for $8,050,000 plus the
assumption of certain indebtedness and certain leases of MHC.
C-26
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
UCI MEDICAL AFFILIATES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1998 ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON THURSDAY, JUNE 25, 1998 AT THE EMBASSY SUITES
HOTEL, 200 STONERIDGE DRIVE, COLUMBIA, SOUTH CAROLINA AT 10:00 A.M. LOCAL
TIME.
The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated June 1, 1998
and appoints each of Jerry F. Wells, Jr. and Jon G. Keith as proxy and
attorney-in-fact of the undersigned, each with full power of substitution,
to vote all of the shares of common stock of UCI Medical Affiliates, Inc., a
Delaware corporation, held or owned by the undersigned or standing in the
name of the undersigned at the 1998 Annual Meeting of Stockholders of the
Company and at any adjournments thereof, and the undersigned hereby
instructs said proxies and attorneys to vote as follows:
1. To approve the issuance of shares of Common Stock of the Company in
connection with the Acquisition.
<TABLE>
<CAPTION>
<S> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To approve the issuance of Warrants and underlying Common Stock in
connection with the Private Placement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Election of Directors: Terms Expiring in 2001
FOR the nominee listed below WITHHOLD AUTHORITY
to vote as to the nominee
Charles P. Cannon [ ] [ ]
A. Wayne Johnson [ ] [ ]
Ashby M. Jordan, M.D. [ ] [ ]
5. To approve the adoption of the Company's 1997 Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. To ratify the appointment of Price Waterhouse LLP as the firm of
independent auditors for the Company for the fiscal year ending
September 30, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. In the discretion of each proxy and attorney-in-fact, upon any
other business which may properly come before the meeting or any
adjournment thereof.
DATE: , 1998
--------------------------------------- -------------------------------------------------
(Signature)*
(Please sign exactly as shown on the envelope addressed to you.)
NUMBER OF SHARES:
-------------------- --------------------------------------------------
(Signature, if held jointly)
* Note: When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee, guardian or
corporate officer or partner, please give full title as such. If a
corporation, please sign in corporate name by president or other
authorized officer. If a partnership, please sign in partnership
name by authorized person.
THIS PROXY WILL BE VOTED AS INSTRUCTED. IN THE ABSENCE OF SUCH INSTRUCTIONS,
THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED, AND THE PROXIES
HEREIN
<PAGE>
<CAPTION>
<S> <C>
NAMED WILL VOTE ON OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF IN ACCORDANCE WITH THEIR JUDGMENT.
</TABLE>
