<PAGE> 1
Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1996
Commission File Number: 000-18839
_______________
UNITED AMERICAN HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
_______________
Michigan 38-2526913
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Brewery Park Boulevard, Suite 200
Detroit, Michigan 48207
(313) 393-0200
(Address of principal executive offices including zip code and telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
6,560,941 Common Shares as of
May 14, 1996
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 1996
and June 30, 1995 1
Consolidated Statements of Operations-- Three and Nine Months
Ended March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows-- Nine Months
Ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBITS 18
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United American Healthcare Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, 1996 June 30, 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 25,239,298 $ 6,197,656
Restricted funds 987,154 -
Marketable securities 4,748,712 7,267,887
Accounts receivable
Commission and service fees 6,690,326 4,917,021
Capitation 5,595,171 -
Related parties 752,161 624,578
Other 385,969 628,432
------------ ------------
13,423,627 6,170,031
Refundable income taxes 4,268,739 1,810,414
Prepaid expenses and other 2,753,153 669,284
------------ ------------
Total current assets 51,420,683 22,115,272
FURNITURE AND EQUIPMENT- AT COST 11,251,999 9,255,156
Less accumulated depreciation and amortization (5,012,289) (3,486,344)
------------ ------------
6,239,710 5,768,812
INTANGIBLE ASSETS 16,006,568 6,595,864
Less accumulated amortization (2,020,155) (1,197,591)
------------ ------------
13,986,413 5,398,273
INVESTMENTS IN AND ADVANCES
TO AFFILIATES - 2,545,561
OTHER ASSETS
Marketable securities 3,709,362 4,071,117
Long-term accounts and notes receivable - related parties 3,786,840 7,869,780
Statutory reserves 8,000,485 5,100,000
Software development costs 3,853,390 2,395,036
Sundry 2,354,909 1,884,965
Deferred income taxes 133,873 606,511
------------ ------------
21,838,859 21,927,409
------------ ------------
$ 93,485,665 $ 57,755,327
============ ============
<CAPTION>
LIABILITIES March 31, 1996 June 30, 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 2,912,500 $ 1,400,000
Accounts payable - trade 2,677,287 2,328,724
Medical claims payable 17,002,055 -
Claims savings payable 11,259,917 -
Accrued liabilities
Related party 3,024,958 1,250,000
Salaries and wages 543,360 790,427
Vacation and sick pay 1,029,871 1,003,239
Payroll and other taxes - 301,374
------------ ------------
4,598,189 3,345,040
------------ ------------
Total current liabilities 38,449,948 7,073,764
LONG-TERM DEBT, LESS CURRENT
PORTION 14,970,980 9,074,437
ACCRUED RENT 1,177,058 1,099,011
STOCKHOLDERS' EQUITY
Preferred shares - authorirized
5,000,000 shares; none issued - -
Common shares - authorized,
15,000,000 shares; issued
6,560,941 shares 10,625,382 10,625,382
Retained earnings 28,470,460 30,159,190
Unrealized net holding losses
on marketable securities (208,163) (276,457)
------------ ------------
38,887,679 40,508,115
------------ ------------
$ 93,485,665 $ 57,755,327
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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United American Healthcare Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Capitation $ 13,426,096 $ - $ 13,426,096 $ -
Management fees from related parties 10,673,850 14,500,901 37,512,200 42,966,496
Commission and service fees 3,129,304 2,843,685 8,476,180 6,542,125
Interest and other 547,273 409,310 1,568,088 1,214,888
------------ ------------ ----------- ------------
Total revenues 27,776,523 17,753,896 60,982,564 50,723,509
EXPENSES
Medical expenses 11,218,903 - 11,218,903 -
Salaries, fringe benefits and payroll taxes 8,371,165 6,577,919 23,573,762 18,600,850
Promotion and advertising 1,456,739 818,042 3,798,641 2,861,574
Depreciation and amortization 1,170,274 636,152 2,621,091 1,738,314
Interest expense 296,929 144,164 673,429 340,037
General, administrative and other operating expenses 5,359,134 4,773,785 15,333,657 13,206,572
Contract settlement - - 9,684,974 -
Equity in net (earnings) losses of unconsolidated affiliates 343,361 555,407 (2,553,163) 1,360,838
------------ ------------ ----------- ------------
Total expenses 28,216,505 13,505,469 64,351,294 38,108,185
------------ ------------ ----------- ------------
(Loss) earnings before income tax expense (439,982) 4,248,427 (3,368,730) 12,615,324
Income tax expense (credit) 394,000 2,101,000 (1,680,000) 5,313,000
------------ ------------ ----------- ------------
NET (LOSS) EARNINGS $ (833,982) $ 2,147,427 $ (1,688,730) $ 7,302,324
============ ============ =========== ============
NET (LOSS) EARNINGS PER COMMON SHARE ($ 0.13) $ 0.33 ($ 0.26) $ 1.11
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
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United American Healthcare Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------------------
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings ($1,688,730) $ 7,302,324
Adjustments to reconcile net (loss) earnings to
net cash provided from operating activities
Bad debt expense 309,728 -
Loss on disposal of assets 18,932 -
Depreciation and amortization 2,621,091 1,738,314
Accrued rent 78,047 234,909
Contract settlement 9,684,974 -
Deferred income taxes (credit) 877,882 (84,276)
Equity in net (earnings) losses of unconsolidated
affiliates (2,553,162) 1,360,838
Changes in assets and liabilities
Decrease in restricted funds 169,365 -
(Increase) in accounts receivable (2,028,052) (2,302,413)
(Increase) in refundable income taxes (2,458,325) (65,209)
(Increase) in prepaid expenses and other (1,149,953) (171,074)
(Increase) in statutory reserves (218,413) (5,000,000)
(Decrease) increase in accounts payable (1,066,650) 58,922
Increase (decrease) in accrued liabilities 1,253,149 (209,663)
(Decrease) in medical claims payable 855,986 -
(Decrease) in claim savings payable 12,321 -
(Decrease) in federal income taxes - (98,673)
----------- ------------
Total adjustments 6,406,920 (4,538,325)
----------- ------------
Net cash provided from operating activities 4,718,190 2,763,999
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 2,813,885 5,719,382
Purchase of marketable securities - (2,090,504)
Purchase of furniture and equipment (1,907,401) (2,538,128)
Increase in intangible assets (6,657,386) -
Investments in and advances to affiliates (6,167,234) (2,452,097)
(Increase) in sundry assets (264,136) (2,792,306)
(Increase) in software development costs (1,458,354) -
(Increase) in long term accounts and notes receivable (2,098,570) -
Loans to related party - (1,318,250)
Acquisition of businesses, net of cash acquired 22,653,605 -
----------- ------------
Net cash provided from (used in) investing
activities 6,914,409 (5,471,903)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit 9,089,252 5,600,000
Borrowings under long-term debt - -
Payments made on long-term debt (1,680,209) (1,058,896)
----------- ------------
Net cash provided from financing activities 7,409,043 4,541,104
----------- ------------
Net increase in cash and cash equivalents 19,041,642 1,833,200
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,197,656 3,175,517
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,239,298 $ 5,008,717
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for
Interest $ 673,000 $ 337,000
=========== ============
Income taxes $ 589,000 $ 5,318,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(Unaudited)
NOTE A- BASIS OF PREPARATION
The financial statements as of and for the nine months ended March 31,
1996 and 1995 are unaudited, and in the opinion of management include all
adjustments necessary for a fair presentation thereof. The results of
operations for the period ended March 31, 1996 are not necessarily indicative
of the results of operations for the full fiscal year ending June 30, 1996.
Audited June 30, 1995 financial statements can be found in the Company's most
recent Form 10-K, with accompanying footnotes.
The accompanying consolidated financial statements include the accounts of
the Company and all majority owned subsidiaries. Intercompany transactions and
balances have been eliminated.
NOTE B - ACQUISITIONS
On January 31, 1996, the Company through its subsidiary United American of
Tennessee ("UA-TN"), purchased an additional 25% of the voting common stock,
and 100% of the preferred stock, of OmniCare-TN. This increased the Company's
ownership in the voting common stock of OmniCare-TN to 75%. The purchase price
for the additional common and preferred stock of OmniCare-TN was $2,319,334.
The acquisition was accounted for under the purchase method of accounting.
On January 29, 1996, the Company through its subsidiary, United American
of Florida ("UA-FL") purchased an additional 20.6% of the voting common stock,
of Ultramedix Health Care Systems, Inc. ("Ultramedix"). This increased the
Company's ownership in the voting common stock of Ultramedix to 51%. The
purchase price for the additional common and preferred stock of Ultramedix was
$1,931,355. The acquisition was accounted for under the purchase method of
accounting. In March 1996, the Company, through it's UA-FL subsidiary,
invested an additional $2,300,000 in Ultramedix, in satisfaction of applicable
net worth and surplus requirements. Of the $2,300,000, $860,000 was made
pursuant to a Subordinated Promissory Surplus Note dated March 29, 1996 and the
balance was made pursuant to a Subscription Agreement for 421 shares of
Ultramedix common stock. As of the date hereof, the Subscription Agreement had
not been accepted by Ultramedix shareholders. If accepted, this would increase
the Company's ownership in Ultramedix to approximately 66%. If Ultramedix's
shareholders fail to accept the Subscription Agreement, the entire investment
will be converted to additional surplus under the Subordinated Promissory
Surplus Note.
The excess purchase price over the fair value of the assets acquired of
approximately $6,000,000 has been recorded as goodwill, with a life of ten
years. The purchase prices and the allocation of the purchase prices to the
fair value of net assets acquired are based on estimates which
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may be revised at a later date, pending the finalization of purchase documents,
which the Company expects will occur prior to June 30, 1996.
The following unaudited pro forma consolidated results of operations assume
that the Tennessee and Florida purchases occurred on July 1, 1994 and 1995,
respectively:
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Total revenues........................... $103,180,335 $158,313,165
Net earnings (loss)..................... (2,689,894) 4,760,788
Earnings (loss) per common share......... $ (.41) $ .73
</TABLE>
The comparative pro forma results of operations do not purport to be indicative
of the results which would actually have been obtained had the acquisitions
occurred on the dates indicated or which may be obtained in the future.
NOTE C- NET (LOSS) EARNINGS PER COMMON SHARE
Net (loss) earnings per share is based on the average number of shares of
common stock outstanding during each period. The number of shares used in the
computation of (loss) earnings per share is 6,560,941 for the nine months ended
March 31, 1996 and 1995.
NOTE D- COMMITMENTS AND CONTINGENCIES
Pursuant to the contingent promissory note dated May 7, 1993 and as
amended May 13, 1996 related to the May 7, 1993 acquisition of CHF, the Company,
depending upon CHF's earnings over seven years from the acquisition date, could
increase the purchase price by a maximum amount of $6,598,000. Through March
31, 1996, the purchase price has been increased by approximately $4,459,000.
As previously reported by the Company, the Company is a named defendant in
two class action lawsuits filed in the United States District Court for the
Eastern District of Michigan (the "Court") on August 23 and August 24, 1995.
The complaints allege that the Company and certain senior officers, as signers
of reports filed with the Securities and Exchange Commission, violated the
anti-fraud provisions of federal securities laws. The Company and the officers
jointly filed motions to dismiss both of the class actions based on the
allegations of the lawsuits. The Company and the officers contend that they
disclosed all material facts during the alleged class period and that whatever
material facts they did not disclose, if any, were already available in the
financial marketplace. Both motions are currently pending before the Court.
The Company is awaiting the Court's decision with regard to the motions to
dismiss, which was heard on March 23, 1996. Company management believes that
it remains too early to form an opinion regarding the potential financial
impact of the lawsuits on the Company. The Company has agreed to indemnify the
named officers from monetary
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exposure in connection with the lawsuits, subject to reimbursement by any named
officer in the event he is found not to be entitled to such indemnification.
In addition, the Company is aware that the previously reported
investigation by the state of Tennessee's TennCare program, by the U.S.
Attorney in the Western District of Tennessee, in cooperation with a federal
grand jury and the United States Postal Inspectors Office, and by the Tennessee
Bureau of Investigation, is continuing. The Company and OmniCare-TN have not
been formally charged with wrongdoing and are cooperating in these
investigations. The Company cannot predict the ultimate outcome of these
investigations and proceedings or the potential financial impact on its
business, if any.
As previously reported, in November 1995 OmniCare-TN and representatives
from various agencies of the State of Tennessee reached a settlement, in
principle, on outstanding issues concerning findings by the Comptroller
Division of Audit and certain additional issues raised by OmniCare-TN.
OmniCare-TN received an HMO license from TennCare on March 13, 1996.
OmniCare-TN's application for a commercial HMO license is currently being
processed by the Tennessee Department of Commerce and Insurance.
OmniCare-TN is further pursuing a premium tax refund, which had been agreed to
by TennCare as part of the settlement in December 1995.
NOTE E- DEBT
In November 1995, the Company entered into an agreement amending an
earlier loan agreement that increased the line of credit and converted prior
borrowings under a line of credit to a term loan. Based on the revised
agreement, the Company has a $20,000,000 unsecured line-of-credit commitment
that expires in November 1997 and bears interest at prime or 1% over the one,
two, three or nine month LIBOR rate. The Company's outstanding borrowings at
March 31, 1996 were $9,089,252.
As noted above the Company in November 1995, entered into an agreement
converting $6,050,000 in borrowings under a line of credit to a term loan. This
term loan bears interest at prime or 1.25% over the one, two, three or nine
month LIBOR rate. The monthly principal payable is approximately $126,000, with
the loan due in November 1999. The outstanding balance at March 31, 1996 is
$5,419,792.
In August 1993, the Company entered into a $7,000,000 bank term loan
agreement. The term loan bears interest at prime or 1.5% over the nine month
LIBOR rate, not to exceed a total rate of 6.5% per annum. The monthly
principal payable is approximately $117,000 with the loan due in August 1998.
Covenants of the term loan agreement provide for certain net worth and
financial ratio requirements. The loan is collateralized by all the assets of
the Company. The Company's outstanding borrowings at March 31, 1996 were
$3,374,436.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN FINANCIAL CONDITION
MARCH 31, 1996 COMPARED TO JUNE 30, 1995
The Company's financial condition at March 31, 1996 was impacted by
several factors relative to June 30, 1995. The principal sources of funds for
the Company during the nine months ended March 31, 1996 were $4,718,190
provided from net operating activities, net sales of marketable securities of
$2,813,885, line of credit borrowings of $9,089,252, the acquisition of
businesses, net of cash acquired of $22,653,605, offset by furniture and
equipment additions of $1,907,401, increase in intangible assets of $6,657,386,
investments in and advances to affiliates of $6,167,234, increases in sundry
assets and development costs of $264,136 and $1,458,354 respectively, increase
in long term accounts and notes receivable from related parties of $2,098,570,
and $1,680,209 to repay long term debt. These changes resulted in a net
increase in cash and cash equivalents of $19,041,642.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31,
1995
On January 29 and 31, 1996, the Company through its subsidiaries, UA-FL
and UA-TN, purchased an additional 20.6% and 25% of the voting common stock,
and 100% of the preferred stock, of Ultramedix and OmniCare-TN, respectively.
This increased the Company's ownership in the voting common stock of Ultramedix
and OmniCare-TN to 51% and 75%, respectively. The acquisitions were accounted
for under the purchase method of accounting. The consolidated results include
the activities of these majority owned subsidiaries effective from the dates of
acquisition and significantly impact the statement of operations.
Total revenues for the nine months ended March 31, 1996 were $60,982,564,
an increase of $10,259,055 (20%) over revenues of $50,723,509 for the nine
months ended March 31, 1995.
Capitation revenues and medical expenses of OmniCare-TN and Ultramedix,
from the dates of acquisition through March 31, 1996 were $13,426,096 and
$11,218,903, respectively. The medical loss ratio for OmniCare-TN and
Ultramedix for this two month period was approximately 85% and 78%,
respectively. It is anticipated that OmniCare-TN's loss ratio will decrease as
it now operates as a licensed TennCare HMO as opposed to its previous
contractual relation with TennCare as a preferred provider organization which
fixed medical cost at 90%. The State of Tennessee prospectively disenrolled
approximately 3,400 members in April 1996. The State of Tennessee indicated
these members were disenrolled because of undeliverable returned
questionnaires. OmniCare-TN has contested this disenrollment with TennCare on
the basis that the disenrollment was in violation of the contract between
TennCare and OmniCare-TN.
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The Company anticipates that Medicaid enrollment in Ultramedix may be
reduced by June 30, 1996. The disenrollment would be required to assure
compliance by Ultramedix with a HCFA regulation which requires that Ultramedix
have a 75% medicaid/25% commercial enrollment mix by June 30, 1996. Ultramedix
is pursuing a one year extension application of the 75%/25% mix requirement
with HCFA and the Florida Agency for Health Care Administration ("AHCA"). The
Ultramedix contract with AHCA is subject to renewal on June 30, 1996. While
no assurances can be given, the Company believes that the contract will be
renewed.
Based on certain assumptions, including an 80% medical loss ratio and a
15% management fee expense, the monthly operating income before income taxes for
OmniCare-TN is projected to be 5% of net capitation. Based on the current
enrollment of approximately 52,000 at an average capitation rate of
approximately $105, and assuming an effective tax rate of 42%, the Company
estimates its 75% equity interest in OmniCare-TN could generate net earnings of
approximately $360,000 for the fiscal 1996 fourth quarter. The Company does not
expect any equity contributions from Ultramedix until the enrollment mix
requirements are resolved. In fact, as required by accounting literature, the
Company will absorb 100% of any losses from Ultramedix, as the minority interest
does not have the investment basis to absorb its share of the losses. The
Company will recover any minority interest losses absorbed from future earnings
of Ultramedix.
Management fees were $37,512,200 for the nine months ended March 31, 1996,
a $5,454,296 (13%) decrease from fees of $42,966,496 for the nine months ended
March 31, 1995, due in part to: (i) increased operating revenues of OmniCare
Health Plan-Michigan ("OmniCare-MI") due primarily to an increase in the
enrollment and premium rates of approximately 2%, which resulted in increased
management fees of approximately $921,000; (ii) increased operating revenues of
Personal Physician Care ("PPC") due to increased enrollment of approximately
20%, which resulted in increased management fees of approximately $923,000, and
(iii) decreased management fees of $475,000 from approximately $1,288,000 for
the nine months ended March 31, 1995 to $813,000 for the nine months ended
March 31, 1996 related to the Company's administration of OmniCare-MI's
coordination of benefits ("COB") program. The difference is due to the timing
of recognizing the revenues. Total COB management fees earned by the Company
based on OmniCare-MI's calendar year have been comparable for the past two
years ($1,288,000 in 1994 compared to $1,398,000 in 1995).
Under the Company's Ultramedix management agreement, which became
effective February 1, 1994, and amended February 1995, the Company is
reimbursed the administrative cost to manage the plan plus 3/4 of 1% of the
Plan's gross revenues. For the nine months ended March 31, 1996, the Company
recognized approximately $3,156,000 in management fees, compared to $3,680,000
for the nine months ended March 31, 1995, a decrease of $524,000 (14%). The
decrease is due to the elimination of February and March 1996 management fees
of approximately $884,000 in consolidation, offset by increased cost reimbursed
operating expenses.
Management fees related to the Company's management of OmniCare-TN
decreased approximately $6,270,000 (54%), from $11,630,000 for the nine months
ended March 31, 1995, to fees of $5,360,000 for the nine months ended March 31,
1996, due primarily to: (i) an approximate 28% decrease in enrollment member
months that resulted from a decrease in enrollment from
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<PAGE> 11
approximately 72,000 members at March 31, 1995 to approximately 52,000 members
at March 31, 1996, due to several factors including (a) the Bureau of TennCare's
termination of coverage for working uninsured who were delinquent in the payment
of their premiums to the State under the TennCare program and the Bureau's
determination that approximately 4,500 enrollees were ineligible in December
1994. The decrease in enrollment resulted in a reduction of management fees to
the Company of approximately $3,750,000; (ii) a decrease in management fees due
to the change in terms of the revised management agreement of approximately
$3,200,000; (iii) a 10% rate increase which resulted in increased management
fees to the Company of approximately $1,230,000; (iv) various rate and adverse
selection retroactive adjustments resulted in an increase of management fees of
approximately $431,000, and (v) a decrease in management fees of approximately
$1,022,000 due to the elimination of February and March 1996 management fees in
consolidation.
Commission and service fees relate primarily to the activities of
Corporate Healthcare Financing, Inc. ("CHF") and represent contract renewals
and new contracts for the nine months ended March 31, 1996. The revenue
recognition policy is to recognize the contract period revenue in the effective
month of the coverage. Commission and service fees were $8,476,180 for the
nine months ended March 31, 1996, a $1,934,055 (30%) increase over fees of
$6,542,125 for the same period last year. Approximately $1,127,000 of the
increase is due to the net increase in the number of groups (109 to 140) and
approximately $210,000 of the increase is due to the increase in the net
average revenues per group ($46,000 to $48,000). Additionally, revenues of
Statutory Benefits Management Corporation ("SBMC"), and United American Network
Systems ("UANS") wholly owned subsidiaries of CHF, which began operations in
October 1993 and March 1994, respectively, increased by approximately $500,000
and $50,000, respectively, due to new programs and groups.
Interest and other income for the nine months ended March 31, 1996 was
$1,568,088, an increase of $353,200 (29%) over income of $1,214,888 for the
comparable period last year OmniCare-TN and Ultramedix interest represented
approximately $280,000 of the increase.
Total expenses for the nine months ended March 31, 1996 were $64,351,294,
an increase of $26,243,109 (69%) over expenses of $38,108,185 for the nine
months ended March 31, 1995.
As noted above medical expenses of the consolidated HMO's was $11,218,903
for the periods from acquisition through March 31, 1996.
Salaries, fringe benefits and payroll taxes increased $4,972,912 (27%)
from $18,600,850 for the nine months ended March 31, 1995 to $23,573,762 for
the nine months ended March 31, 1996. The increase is attributable primarily to
the number of new employees. For the comparable nine months ending March 31,
1995 and 1996 the number of employees increased from approximately 500 to 625.
The increase in the number of employees is due primarily to increased marketing
efforts, new programs and the maturation of start-up operations. Additionally,
effective July 1, 1995, the company granted an average salary increase of
approximately 5%.
Promotion and advertising increased $937,067 (33%) from $2,861,574 for the
nine months ended March 31, 1995 to $3,798,641 for the comparable period this
year. The consolidation of the
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<PAGE> 12
HMO's represent approximately $206,000 of the increase. Printing, duplication
and graphics and public relations increased approximately $200,000 and
$100,000, respectively. The overall increased marketing efforts contributed to
the increase in the managed plans' enrollment, excluding Tennessee, where
marketing costs were minimal.
The $882,777 (51%) increase in depreciation and amortization from
$1,738,314 for the nine months ended March 31, 1995 to $2,621,091 for the nine
months ended March 31, 1996 was due primarily to depreciation taken on
approximately $5,400,000 in furniture and equipment acquired over the past
twenty four months, as well as the commencement of amortization of goodwill
relating to the additional HMO interests acquired and the Company's new client
server software in the third quarter.
Interest expense for the nine months ending March 31, 1996 was $673,429, a
$333,392 (98%) increase from the comparable period last year of $340,037. The
increase relates primarily to long-term borrowings of approximately $9,100,000
and $5,600,000 in fiscal 1996 and 1995, respectively. Interest expense is
expected to continue to increase as debt funding is used for expansionary
initiatives.
General, administrative and other operating expenses increased $2,127,085
(16%) from $13,206,572 for the nine months ended March 31, 1995 to $15,333,657
for the nine months ended March 31, 1996, due primarily to: (i) a decrease in
bad debt expense resulting from the reversal of a $355,000 valuation allowance
established in June 1995 representing a charge to adjust the carrying value of
the Company's investments, advances and notes receivable from and related to
OmniCare-TN to their estimated fair values at June 30, 1995; (ii) a $684,000
increase in the valuation allowance related to notes receivable from HealthScope
and Ultramedix; (iii) increased occupancy expense of $950,000 including $486,000
related to the Pennsylvania operations; (iv) a net decrease in professional
services of approximately $280,000, including increases in legal of $600,000 and
accounting of $190,000 due primarily to regulatory issues in Tennessee and
investor class action litigation, consolidated HMO expenses of approximately
$108,000 and other net increases of $140,000, offset by decreases in broker
commissions of $780,000, due primarily to UA-FL shifting commission costs from
professional services to internal salary expense, consulting cost of $360,000
due primarily to the reduction of computer access fees and recruitment fees of
$170,000; (v) an increase in administrative costs, which includes insurance,
license and fees, employee related expenses, property tax, charitable
contributions and others of approximately $537,000 and consolidated HMO expenses
of approximately $385,000 including premium tax expense of $223,000 and
management fees of $162,000; (vi) an increase in consumable supplies of
approximately $260,000, and (vii) a decrease in travel related cost of $132,000.
Contract settlement expense was $9,684,974 for the nine months ended March
31, 1996. This expense represents a one-time non-recurring net charge to
adjust management fee revenues and its effect on other related accounts based
on the provisions of the revised management agreement as approved by the State
of Tennessee in November 1995, retroactive to January 1, 1994. The contract
settlement charge represents the effect of retroactively applying the
provisions of the revised management agreement from January 1, 1994 to
September 30, 1995. The effect on management fees for the quarter ending
December 31, 1995 of approximately $615,000 is reflected as a reduction of
10
<PAGE> 13
management fee revenues during that quarter. The effect on management fee
revenues for the period January 1, 1994 to September 30, 1995, as adjusted in
December 1995, was a reduction in management fees of approximately $11,702,000,
offset by a decrease in goodwill of approximately $622,000 related to the
Company's 50% equity ownership in OmniCare-TN. Additionally, the contract
settlement charge was reduced by the $1,395,000 reversal of the valuation
allowance established in June 1995 representing a charge to adjust the carrying
value of the Company's investments, advances and notes receivable from and
related to OmniCare-TN to their estimated fair values at June 30, 1995. The
one-time impact of this adjustment on earnings per share was approximately
$.86.
Equity in net earnings of unconsolidated affiliates of $2,553,163 for the
nine months ended March 31, 1996 was due to the Company's recognition of its 50%
share of net earnings from OmniCare-TN of $2,818,072, offset by losses as a
30.4% shareholder of Ultramedix of $264,908. This was a $3,914,002 (288%) change
from net losses of $1,360,838 for the nine months ended March 31, 1995.
Effective on the dates of acquisition of OmniCare-TN and Ultramedix, the
Company consolidates these affiliates rather than using the equity method of
accounting.
As a result of the foregoing, the Company recognized losses before income
taxes of $3,368,730 for the nine months ended March 31, 1996, compared to
earnings before income taxes of $12,615,324 for the nine months ended March 31,
1995, a decrease of $15,984,054 (127%). The effective tax rate increased from
approximately 42% to 49% for the respective nine months ended March 31, 1995
and 1996, primarily due to the current year reversal of valuation allowances
and the effects of state income tax.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH
31, 1995
Total revenues for the three months ended March 31, 1996 were $27,776,523,
an increase of $10,022,627 (56%) from revenues of $17,753,896 for the three
months ended March 31, 1995.
Capitation revenues and medical expenses related to the consolidation of
OmniCare-TN and Ultramedix, from the dates of acquisition through March 31,
1996 were $13,426,096 and $11,218,903, respectively.
Management fees were $10,673,850 for the three months ended March 31,
1996, a $3,827,051 (26%) decrease from fees of $14,500,901 for the three months
ended March 31, 1995, in part to: (i) increased operating revenues of
OmniCare-MI due primarily to a decrease in enrollment and an increase in
premium rates of approximately 1% and 2%, respectively, which resulted in a net
increase in management fees of approximately $140,000, and (ii) increased
operating revenues of PPC due to an increase in enrollment and premium rates of
approximately 29% and 2%, respectively, which resulted in increased management
fees of approximately $480,000.
Management fees related to the Company's management of Ultramedix
decreased approximately $798,000 (65%), from fees of approximately $1,235,000
for the three months ended March 31, 1995 to fees of $437,000 for the three
months ended March 31, 1996. The decrease is due
11
<PAGE> 14
to the elimination of February and March 1996 management fees of approximately
$884,000 in consolidation.
Management fees related to the Company's management of OmniCare-TN
decreased approximately $3,611,000 (87%), from $4,157,000 for the three months
ended March 31, 1995, to fees of $546,000 for the three months ended March 31,
1996, due to: (i) an approximate 28% decrease in enrollment due primarily to
the Bureau Of TennCare's termination of coverage for working uninsured who were
delinquent in the payment of their premiums and the determination by the State
that approximately 4,500 enrollees were ineligible. The decrease in total
enrollment resulted in a reduction of management fees to the Company of
approximately $800,000; (ii) a decrease in management fees due to the change in
terms of the revised management agreement of approximately $2,000,000; (iii) an
8% rate increase which resulted in increased management fees to the Company of
approximately $240,000; and (iv) a decrease in management fees of approximately
$1,022,000 due to the elimination of February and March 1996 management fees in
consolidation.
Commission and service fees relate primarily to the activities of CHF for
the three months ended March 31, 1996. Commission and service fees were
$3,129,304 for the three months ended March 31, 1996, a $285,619 (10%) increase
from fees of $2,843,685 for the same period last year.
Interest and other income for the three months ended March 31, 1996 was
$547,273, an increase of $137,963 (34%) over income of $409,310 for the
comparable period last year. OmniCare-TN and Ultramedix interest represented
approximately $280,000 of the increase offset by a decrease in related party
interest income.
Total expenses for the three months ended March 31, 1996 were $28,216,505,
an increase of $14,711,036 (109%) over expenses of $13,505,469 for the three
months ended March 31, 1995.
Medical expenses of the consolidated HMO's was $11,218,903 for the periods
from acquisition through March 31, 1996.
Salaries, fringe benefits and payroll taxes increased $1,793,246 (27%)
from $6,577,919 for the three months ended March 31, 1995 to $8,371,165 for the
comparable period this year. The increase is attributable primarily to the
number of new employees. Salaries for the current quarter of approximately
$5.8 million were comparable to the second quarter of $5.7 million.
Promotion and advertising increased $638,697 (78%) from $818,042 for the
three months ended March 31, 1995 to $1,456,739 for the comparable period this
year. The consolidation of the HMO's represent approximately $206,000 of the
increase and the balance due to increased electronic and print media activity.
The $534,122 (84%) increase in depreciation and amortization from $636,152
for the three months ended March 31, 1995 to $1,170,274 for the three months
ended March 31, 1996 was due primarily to depreciation taken on approximately
$5,400,000 in furniture and equipment acquired over the past twenty four
months, as well as the commencement of amortization of goodwill relating
12
<PAGE> 15
to the additional equity interests acquired and the Company's new client server
software in the third quarter.
Interest expense for the three months ending March 31, 1996 was $296,929,
a $152,765 (106%) increase from the comparable period last year of $144,164.
The increase relates primarily to increased long term borrowings.
General, administrative and other operating expenses increased $585,349,
(12%) from $4,773,785 for the three months ended March 31, 1995 to $5,359,134
for the three months ended March 31, 1996, due to: (i) a $142,000 increase in
the valuation allowance related to notes receivable from HealthScope and
Ultramedix; (ii) increased occupancy expense of $173,000; (iii) a net decrease
in professional services of approximately $250,000, including increases in
legal of $180,000 and accounting of $40,000 due primarily to regulatory issues
in Tennessee and investor class action litigation, consolidated HMO expenses of
approximately $108,000 and other net increases of $50,000, offset by decreases
in broker commissions of $260,000, due primarily to UA-FL shifting commission
costs from professional services to internal salary expense, consulting cost of
$370,000 due primarily to the reduction of computer access fees; (iv) an
increase in administrative costs, which includes insurance, license and fees,
employee related expenses, property tax, charitable contributions and others of
approximately $196,000 and consolidated HMO expenses of approximately $385,000
which includes premium tax expense of $223,000 and management fees of $162,000,
and (vi) a decrease in consumable supplies and travel related expenses of
$38,000 and $62,000, respectively.
Equity in net losses of unconsolidated affiliates of $343,361 for the
three months ended March 31, 1996 was due to the Company's recognition of its
50% share of net losses and adjustments from OmniCare-TN of $249,000 and as a
30.4% shareholder of Ultramedix of $94,000. This was a $212,046 (38%) change
from net losses of $555,407 for the three months ended March 31, 1995.
As a result of the foregoing, the Company recognized losses before income
taxes of $439,982 for the three months ended March 31, 1996, compared to
earnings before income taxes of $4,248,427 for the three months ended March 31,
1995, a decrease of $4,688,409 (110%). The effective tax rate increased from
approximately 49% to 90% for the respective three months ended March 31, 1995
and 1996, primarily due to the current year reversal of valuation allowances,
the effects of state income tax and other adjustments to the tax provision.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had (i) cash and cash equivalents and
short-term marketable securities of $29,988,010 compared to $13,465,543 at June
30, 1995, $21,567,889 represents cash and cash equivalents of the majority
owned HMO's (ii) working capital of $12,970,735 compared to $15,041,508 at June
30, 1995, and (iii) a current assets to current liabilities ratio of 1.3-to-1
and 3.1-to-1 at March 31, 1996 and June 30, 1995, respectively. The Company's
financial condition at March 31, 1996 was impacted by several factors relative
to June 30, 1995. The principal sources of funds for the Company during the
nine months ended March 31, 1996 were $4,718,190 provided from net operating
activities, net sales of marketable securities of $2,813,885, line of credit
borrowings of $9,089,252, the acquisition of businesses, net of cash acquired of
$22,653,605, offset
13
<PAGE> 16
by furniture and equipment additions of $1,907,401, increase in intangible
assets of $6,657,386, investments in and advances to affiliates of $6,167,234,
increases in sundry assets and development costs of $264,136 and $1,458,354
respectively, increase in long term accounts and notes receivable from related
parties of $2,098,570, and $1,680,209 to repay long term debt. These changes
resulted in a net increase in cash and cash equivalents of $19,041,642.
Each of the Company's submissions of HMO license applications in
Louisiana, Georgia and Pennsylvania is currently undergoing initial review by
the respective state regulators. The Company provided a $1,000,000 letter of
credit on behalf of OmniCare-LA and a $1,000,000 capital contribution to
OmniCare-LA, in satisfaction of applicable statutory requirements. In addition,
the Company funded $4,100,000 on behalf of OmniCare of Georgia, Inc. in
satisfaction of applicable reserve and net worth requirements. The foregoing
funds were provided by the Company in March 1995, from the line of credit
arrangement. The Company anticipates additional funding requirements for its
initiatives in Georgia, Louisiana and Pennsylvania in the approximate aggregate
amount of $6,800,000, to be applied towards the establishment of statutory
reserves and payment of pre-operational costs. The source for these funding
requirements is anticipated to be a combination of cash reserves and debt
borrowings.
The total cost of the client server project is approximately $5,000,000.
Cost to complete the project is approximately $1,200,000, and is anticipated to
be funded from operations.
The Company anticipates that additional cash flow and working capital may
be necessitated by business expansion needs, including potential acquisitions
and new marketing program requirements. The Company has submitted and expects
to continue to submit proposals to governmental, quasi-governmental and private
entities to provide managed care services. Management believes that, as it
continues to pursue other contractual relationships, the Company's cash
reserves, marketable securities, cash flows from operations and proceeds from
borrowings will be sufficient to enable the Company to continue to develop its
operations, support its anticipated business expansion and satisfy its working
capital needs for the foreseeable future.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported by the Company, the Company is a named defendant in
two class action lawsuits filed in the United States District Court for the
Eastern District of Michigan (the "Court") on August 23 and August 24, 1995.
The complaints allege that the Company and certain senior officers, as signers
of reports filed with the Securities and Exchange Commission, violated the
anti-fraud provisions of federal securities laws. The Company and the officers
jointly filed motions to dismiss both of the class actions based on the
allegations of the lawsuits. The Company and the officers contend that they
disclosed all material facts during the alleged class period and that whatever
material facts they did not disclose, if any, were already available in the
financial marketplace. Both motions are currently pending before the Court.
The Company is awaiting the Court's decision with regard to the motions to
dismiss, which was heard on March 23, 1996. Company management believes that
it remains too early to form an opinion regarding the potential financial
impact of the lawsuits on the Company. The Company has agreed to indemnify the
named officers from monetary exposure in connection with the lawsuits, subject
to reimbursement by any named officer in the event he is found not to be
entitled to such indemnification.
In addition, the Company is aware that the previously reported
investigation by the state of Tennessee's TennCare program, by the U.S.
Attorney in the Western District of Tennessee, in cooperation with a federal
grand jury and the United States Postal Inspectors Office, and by the Tennessee
Bureau of Investigation, is continuing. The Company and OmniCare-TN have not
been formally charged with wrongdoing and are cooperating in these
investigations. The Company cannot predict the ultimate outcome of these
investigations and proceedings or the potential financial impact on its
business, if any.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
15
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Description of Document
-------------- -----------------------
3(ii) Amendment to the Company's Bylaws.
4 Amendment to CHF Contingent Note.
27 Financial Data Schedules
(b) Form 8-K filed with the See Form 8-K filed with the Securities
Securities and Exchange and Exchange Commission on
Commissionon April 19, 1996. April 19, 1996.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED AMERICAN HEALTHCARE CORPORATION
Dated: May 14, 1996 By: /s/ Ronald R. Dobbins
--------------------------------------
Ronald R. Dobbins
President & Chief Operating Officer
Dated: May 14, 1996 By: /s/ Jagannathan Vanaharam
--------------------------------------
Jagannathan Vanaharam
Senior Vice President-Finance & Treasurer
17
<PAGE> 20
EXHIBIT INDEX
Exhibit Number Description of Document
- -------------- -----------------------
3(ii) Amendment to the Company's Bylaws.
4 Amendment to CHF Contingent Note.
27 Financial Data Schedule
18
<PAGE> 1
EXHIBIT 3(ii)
AMENDED AND RESTATED BY LAWS
OF
UNITED AMERICAN HEALTHCARE CORPORATION
ARTICLE I
Offices
The Corporation shall continuously maintain a registered office in
Michigan and may have such other office(s) at such place(s), both within and
outside the State of Michigan, as the Board of Directors (the "Board") from
time to time determines or as the business of the Corporation from time to time
requires.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. Subject to the provisions of Section 6(c) of
Article IX of these bylaws (the "Bylaws"), annual meetings of the Corporation's
shareholders ("Shareholders") shall be held at such time and place (within or
outside the State of Michigan) as shall be designated from time to time by the
Board and stated in the notice of the meeting. Subject to the Restated
Articles of Incorporation of the Corporation (the "Articles"), at each annual
meeting Shareholders shall elect directors to succeed those whose terms expire
and shall transact such other business as may properly be brought before the
meeting.
Section 2. Special Meetings. Unless otherwise prescribed by law, the
Articles or these Bylaws, special meetings of Shareholders for any purpose or
purposes may be called only by the chairman of the Board, if any, or by the
president, and shall be called by the president or secretary upon the written
request of a majority of the total number of directors of the Corporation.
Requests for special meetings shall state the purpose or purposes of the
proposed meeting and shall state that no other business shall be conducted.
Special meetings of Shareholders shall be held at such time and place (within
or outside the State of Michigan) as shall be designated from time to time by
the Board and stated in the notice of the meeting. Business transacted at
special meetings shall be confined to the purpose or purposes stated in the
notice.
FEBRUARY 8, 1996
-1-
Section 3. Notices of Annual and Special Meetings.
<PAGE> 2
(a) Except as otherwise provided by law, the Articles
of these Bylaws, written notice of any annual or special
meeting of Shareholders shall state the place, date and time
thereof and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, and shall be given,
either personally or by mail, to each Shareholder of record
entitled to vote at such meeting not less than 10 or more than
60 days prior to the meeting.
(b) Notice of any meeting of Shareholders (whether
annual or special) to act upon an amendment to the Articles, a
reduction of stated capital or a plan of merger, consolidation
or sale of all or substantially all of the Corporation's assets
shall be accompanied by a copy of the proposed amendment or
plan of reduction, merger, consolidation or sale.
Section 4. List of Shareholders. At least 10 days (but not more than 60
days) before any meeting of Shareholders, the officer or transfer agent in
charge of the stock transfer books of the Corporation shall prepare and make a
complete list of the Shareholders entitled to vote at such meeting, which list
shall be arranged alphabetically within each class and series of shares and
shall show the address of each Shareholder and the number of shares registered
in the name of each Shareholder. The list so prepared shall be maintained as a
place within the locality where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, and shall be open to inspection by any
Shareholder, for any purpose germane to the meeting, during ordinary business
hours during a period of no less than 10 days prior to the meeting. The list
also shall be produced and kept open at the meeting (during the entire duration
thereof) and, except as otherwise provided by law, may be inspected by any
Shareholder or proxy of a Shareholder who is present in person at such meeting.
Section 5. Presiding Officers; Order of Business
(a) Meetings of Shareholders shall be presided over by
the chairman of the Board, if any, or, if the chairman is not
present (or, if there is none), by the president, or, if the
president is not present, by a vice president, or, if a vice
president is not present, by such person who is chosen by the
Board, or, if none, by a chairman to be chosen at the meeting
by Shareholders present in person or by proxy who own a
majority of the shares of capital stock of the Corporation
entitled to vote and represented at such meeting. The
secretary of meetings shall be the secretary of the
Corporation, or, if the secretary is not present, an assistant
secretary, or, if an assistant secretary is not present, such
person as may be chosen by the Board, or, if none, by such
person who is chosen by the chairman at the meeting.
(b) The following order of business, unless otherwise
ordered at the meeting by the chairman thereof, shall be
observed as far as practicable and consistent with the purposes
of the meeting:
(i) Call of the meeting to order.
<PAGE> 3
(ii) Presentation of proof of mailing of notice of the
meeting and, if the meeting is a special meeting, the
call thereof.
(iii) Presentation of proxies.
(iv) Determination and announcement that a quorum is
present.
(v) Reading and approval (or waiver thereof) of the minutes
of the previous meeting.
(vi) Reports, if any, of officers.
(vii) Election of directors to succeed those whose terms
expired, if the meeting is an annual meeting or a
special meeting called for such purpose.
(viii) Consideration of the specific purpose or purposes
for which the meeting has been called (other than the
election of directors).
(ix) Transaction of such other business as may properly
come before the meeting.
(x) Adjournment
Section 6. Quorum; Adjournments.
(a) The holders of a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at any
given meeting present in person or by proxy shall be necessary
to and shall constitute a quorum for the transaction of business
at all meetings of Shareholders, except as otherwise provided by
law or by the Articles; provided, however, that no quorum shall
be deemed to exist unless 33-1/3% of the outstanding shares of
the Corporation's common voting stock is present in person or by
proxy.
(b) If a quorum is not present in person or by proxy at
any meeting of Shareholders, the chairman of the meeting or the
holders of a majority of all of the shares of stock entitled to
vote at the meeting, present in person or by proxy, shall have
the power to adjourn the meeting from time to time, without
notice of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken
and at the adjourned meeting only business is transacted as
might have been transacted at the original meeting, until a
quorum is present in person or by proxy.
<PAGE> 4
(c) Even if a quorum is present in person or by proxy at any meeting
of the Shareholders, the Shareholders entitled to vote thereat
present in person or by proxy shall have the power to adjourn
the meeting from time to time for good cause, without notice of
the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken and
at the adjourned meeting only business is transacted as might
have been transacted at the original meeting, until a date which
is not more than 30 days after the date of the original meeting.
(d) Anything in paragraph (b) of this Section 6 to the contrary
notwithstanding, if an adjournment is for more than 30 days, or
if after an adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be
given to each Shareholder of record entitled to vote thereat.
Section 7. Voting.
(a) At any meeting of Shareholders every Shareholder having the
right to vote shall be entitled to vote in person or by proxy
authorized by an instrument in writing filed in accordance with
the procedure established for the meeting. Except as otherwise
provided by law or by the Articles, each Shareholder of record
shall be entitled to one vote (on each matter submitted to a
vote for each share of capital stock registered in his name on
the books of the Corporation.
(b) All elections of directors and, except as otherwise provided by
law or by the Articles, all other matters, shall be determined
by a vote of a majority of the share present in person or
represented by proxy and voting on such other matters.
(c) All voting, including on the election of directors but excepting
where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefor by a Shareholder
entitled to vote or his proxy, a written share vote shall be
taken. Every written share vote shall be taken by ballots, each
of which shall state the name of the Shareholder or proxy voting
and such other information as may be required under the
procedure established for the meeting. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed
by the chairman of the meeting.
Section 8. Notice of Shareholder Business. At any annual or special
meeting of Shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (b) properly
brought before the meeting by or at the direction of the Board, or (c) properly
brought before an annual meeting by a Shareholder, and if and only if the
notice of a special meeting provides for business to be brought before the
special meeting by Shareholders, properly brought before the special meeting by
a Shareholder. For business to be properly brought before a meeting by a
Shareholder, the
<PAGE> 5
Shareholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a Shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 90 days prior to the meeting; provided, however, that if less than 100
days' notice or prior public disclosure of the date of the meeting is given or
made to Shareholders, notice by the Shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Furthermore, Shareholders are not permitted to nominate individuals to
serve as directors, unless notice of such nomination is given to the Corporation
in accordance with Section 14 of Article III of these Bylaws. A Shareholder's
notice to the secretary shall set forth as to each matter the Shareholder
proposes to bring before the meeting: (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (b) the name and address, as they appear on the
Corporation's books, of the Shareholder proposing such business; (c) the class
and number of shares of the Corporation which are beneficially owned by the
Shareholder; and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any meeting of Shareholders except in accordance with the
procedures set forth in this Section 8 of Article II. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this Section 8, and if he should so determine, he shall so declare
that the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding anything in these Bylaws to the
contrary, the Corporation shall be under no obligation to submit for action any
Shareholder proposal at any meeting of Shareholders, which proposal the
Corporation would otherwise be permitted to omit in accordance with Rule 14a-8
under the Securities Exchange Act of 1934, as amended.
Section 9. Meetings Required; No Action by less Than Unanimous Consent.
Any action required or permitted to be taken by the Shareholders must be taken
at a duly called annual or special meeting of Shareholders and may not be
effected by any consent in writing signed by fewer than all of such
Shareholders.
Section 10. Proxies. The Corporation shall solicit proxies and provide
proxy statements for all meetings of Shareholders and shall provide copies of
such proxy solicitation to all national securities exchange ("Exchange") on
which the Corporation's shares are listed, including the New York Stock
Exchange.
ARTICLE III
Directors
Section 1. General Powers; Number; Tenure. The business and affairs of the
Corporation shall be managed under the direction of the Board, which may
exercise all powers of the Corporation and perform or authorize the performance
of all lawful acts and things which are not by law, the Articles or these
Bylaws directed or required to be exercised or performed by the Shareholders.
The number of directors of the Corporation shall be fixed from time to time
exclusively by the Board
<PAGE> 6
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption), but shall not at any time be less than ten (10). Subject to the
rights of the holder of any class or series of preferred shares of the
Corporation then outstanding, the directors shall be classified, with respect to
the time for which they severally hold office, into three (3) classes, as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire initially at the 1991 annual meeting of shareholders, the term
of office of the second class to expire initially at the 1992 annual meeting of
shareholders and the term of office of the third class to expire initially at
the 1993 annual meeting of shareholders, and with the directors of each class to
hold office until their successors are duly elected and qualified. At each
annual meeting of shareholders following such classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
shareholders after their election. Directors need not be shareholders of the
Corporation nor residents of the State of Michigan. At least two of the
directors shall be Independent Directors, as that term is defined in the
Articles.
Section 2. Vacancies. Subject to the Rights of the holders of any class or
series of preferred shares of the corporation then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office though less than a quorum, or by
the sole remaining director, and directors so chosen shall hold office for a
term expiring at the annual meeting of Shareholders at which the term of office
of the class to which they have been elected expires or until their successors
have been duly elected and qualified.
Section 3. Removal; Resignation.
(a) Subject to the rights of the holders of any class
or series of preferred shares of the Corporation then
outstanding, and except as otherwise provided by law, the
Articles or these Bylaws, at any meeting of the Shareholders
called expressly for such purpose, any director, or the entire
Board, may be removed, but only for cause, by a vote of
Shareholders holding a majority of the shares issued and
outstanding and entitled to vote at an election of directors,
voting together as a single class.
(b) Any director may resign at any time by giving
written notice to the Board, the chairman of the Board, the
president, or the secretary of the Corporation. Unless a
subsequent time is specified in such written notice, a
resignation shall take effect upon its receipt by the
Corporation.
Section 4. Place of Meetings. The Board may hold both regular and special
meetings either within or outside the State of Michigan, at such place as the
Board from time to time deems advisable.
<PAGE> 7
Section 5. Annual Meeting. The annual meeting of each newly elected Board
shall be held as soon as is practicable following the annual meeting of
Shareholders, and no notice to the newly elected directors of such meeting
shall be necessary for such meeting to be lawful.
Section 6. Regular Meetings. Additional regular meetings of the Board may
be held without notice, at such time and place as from time to time may be
determined by the Board.
Section 7. Special Meetings. Special meetings of the Board may be called
by the chairman of the Board or by the president or by a majority of directors
upon 24 hours' notice to each director if such notice is delivered personally
or sent by telegram, or upon 5 days' notice if sent by mail, unless such notice
is waived. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 8. Quorum; Adjournments. A majority of the total number of
directors then in office shall constitute a quorum for the transaction of
business at each and every meeting of the Board, and the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board, except as otherwise specifically provided by law, the
Articles or these Bylaws. If a quorum is not present at any meeting of the
Board, the directors present may adjourn the meeting, from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
Section 9. Duties of Directors. The directors of the Corporation shall
have a fiduciary duty to the Shareholders to arrange, oversee and supervise the
affairs and business of the Corporation.
Section 10. Compensation. Directors shall be entitled to such compensation
for their services as directors as from time to time may be fixed by the Board,
including, without limitation, for their services as members of committees of
the Board and in any event shall be entitled to reimbursement of all reasonable
expenses incurred by them in attending directors' meetings. Any director may
waive compensation for any meeting. No director who receives compensation as a
director shall be barred from serving the Corporation in any other capacity or
from receiving compensation and reimbursement of reasonable expenses for any or
all such other services.
Section 11. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or a committee of the Board may be taken
without a meeting and without prior notice if a written consent in lieu of such
meeting which sets forth the action so taken is signed either before or after
such action by all directors or all members of the committee, as the case may
be. All written consents shall be filed with the minutes of the Board's
proceedings. A written consent has the same effect as a vote of the Board or
committee for all purposes.
Section 12. Meetings by Telephone or Similar Communications. The directors
may participate in meetings by means of conference telephone or similar
communications equipment, whereby all directors participating in the meeting
can hear each other at the same time, and participation in any such meeting
shall constitute presence in person by such director at such meeting. A
written record shall be made of all actions taken at any meeting conducted by
means of a conference telephone or similar communications equipment.
<PAGE> 8
Section 13. Nomination of Director Candidates. Subject to the rights of
holders of any class or series of preferred shares then outstanding,
nominations for the election of directors may be made by: (a) the Board or a
proxy committee appointed by the Board or (b) any Shareholder entitled to vote
in the election of directors generally; provided, however, any Shareholder
entitled to vote in the election of directors generally may nominate one or
more persons for election as directors at a meeting only if timely notice of
such Shareholder's intent to make such nomination or nominations has been given
in writing to the secretary of the Corporation. To be timely, a Shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not fewer than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days' notice or prior
public disclosure of the date of the meeting is given or made to Shareholders,
notice by the Shareholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the Shareholder who
intends to make the nomination and of the person or persons to be nominates;
(b) a representation that the Shareholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the Shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the Shareholder; (d) such other
information regarding each nominee proposed by such Shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board; and (e) the consent of each nominee to
serve as a director of the Corporation if so elected.
<PAGE> 9
In the event that a person is validly designated as a nominee in
accordance with this Section 13 and shall thereafter become unable or unwilling
to stand for election to the Board, the Board or the Shareholder who proposed
such nominee, as the case may be, may designate a substitute nominee upon
delivery, not fewer than 10 days prior to the date of the meeting for the
election of such nominee, of a written notice to the secretary setting forth
such information regarding such substitute nominee as would have been required
to be delivered to the secretary pursuant to this Section 13 had such
substitute nominee been initially proposed as a nominee. Such notice shall
include a signed consent to serve as a director of the Corporation, if elected,
of each such substitute nominee.
If the chairman of the meeting for the election of directors determines
that a nomination of any candidate for election as a director at such meeting
was not made in accordance with the applicable provisions of this Section 13,
such nomination shall be void.
ARTICLE IV
Committees
Section 1. Formation of Committees. The Board may, by resolution passed by
a majority of the entire Board, designate one or more committees, with each
committee consisting of one or more directors of the Corporation. The Board
shall designate an Audit Committee, which shall be comprised solely of
Independent Directors, as that term is defined in the Articles. The Board may
designate one or more directors as alternate members of the committee who may
replace any absent or disqualified member at any meeting of the committee;
provided, however, that at all times all members of the Audit Committee shall
be Independent Directors. Except as prohibited by law, any such committee, to
the extent provided in the resolution, shall have and may exercise the powers
of the Board conferring upon such committee by the Board in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee
or committees shall have the name as may be determined from time to time by
resolution adopted by the Board.
Section 2. Other Provisions Regarding Committees.
(a) Subject to the limitations set forth in Section 1
of this Article IV, the Board shall have the power at any time
to fill vacancies in, change the membership of, or discharge
any committee.
(b) Members of any committee shall be entitled to such
compensation for their services as from time to time may be
fixed by the Board and in any event shall be entitled to
reimbursement of all reasonable expenses incurred in attending
committee meetings. Any member of a committee may waive
compensation for any meeting. No committee member who receives
compensation as a member of any one or more committee shall be
barred from serving the Corporation in any other capacity or
from receiving compensation and reimbursement of reasonable
expenses for any or all such other services.
<PAGE> 10
(c) Unless prohibited by law, the provisions of Section
11 ("Action by Consent") and Section 12 ("Meetings by Telephone
or Similar Communications") of Article III shall apply to all
committees from time to time created by the Board.
(d) Each Committee may determine the procedural rules
for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or
required by law. Adequate provision shall be made for notice
to members of all meetings; one-third of the authorized members
shall constitute a quorum unless the committee shall consist of
one or two members, in which event one member shall constitute
a quorum; and all matters shall be determined by a majority
vote of the members present.
Section 3. Executive Committee. The Board of Directors shall appoint from
its number an executive committee, consisting of not less than four (4) nor
more than five (5) members, which membership shall include the chief executive
officer and chief operating officer and shall have as its chairperson the
Chairman of the Board of Directors, with further requirements for the
membership composition of the executive committee to include one non-management
member. The executive committee shall have and may exercise the power and the
authority of the Board when necessary or advisable between meetings of the
Board, subject to the prohibitions below; and the executive committee shall
report all of its actions to the Board at the next regular or special meeting
of the Board and such actions shall be subject to revision and alteration by
the Board at such meeting; provided, however, that the rights of third party
shall not be affected by any such revision or alteration; provided, however,
the executive committee shall not have the power to: (I) fill vacancies in the
Board of Directors: (I) amend the Articles of Incorporation; (iii) adopt,
amend or repeal the ByLaws; (iv) adopt an agreement of merger or share
exchange; (v) recommend to shareholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets; (vi) recommend to
shareholders a dissolution of the Corporation or a revocation of a dissolution;
(vii) declare a distribution, dividend, or to authorize the issuance of
shares. At each meeting of the executive committee, the presence of at least a
majority of the members of the executive committee shall be necessary to
constitute a quorum for the transaction of business, and the vote of the
majority of the members present at any meeting, at which a quorum is present,
shall be the act of the executive committee. The Chairman shall vote only to
make or break a tie.
ARTICLE V
Officers
Section 1. Positions. The Corporation's officers shall be chosen and
appointed by the Board and shall consist of a president, one or more vice
presidents (if and to the extent required by law or if not required, if the
Board from time to time appoints a vice president or vice presidents), a
secretary and a treasurer. Only the president must be a director. The Board
also may choose a chairman of the Board, one or more assistant secretaries
and/or assistant treasurers and such other officers and/or agents as the Board
from time to time deems necessary or appropriate. The Board
<PAGE> 11
may delegate to the president of the Corporation the authority to appoint any
officer or agent of the Corporation and to fill a vacancy other than the
chairman of the Board, president, secretary or treasurer. The election or
appointment of any officer of the Corporation in itself shall not create
contract rights for any such officer. All officers of the Corporation shall
exercise such powers and perform such duties as from time to time shall be
determined by the Board. Any two or more offices may be held by the same
person.
Section 2. Term of Office; Removal. Each officer of the Corporation shall
hold office at the pleasure of the Board and any officer may be removed, with
or without cause, at any time by the affirmative vote of a majority of the
directors then in office, provided that any officer appointed by the president
pursuant to authority delegated to the president by the Board may be removed,
with or without cause, at any time whenever the president in his or her
absolute discretion shall consider that the best interests of the Corporation
shall be served by such removal. Removal of any officer by the Board or by the
president, as the case may be, shall not prejudice the contract rights, if any,
of the person so removed. Vacancies (however caused) in any office may be
filled for the unexpired portion of the term by the Board (or by the president
in the case of a vacancy occurring in an office to which the president has been
delegated the authority to make appointments).
<PAGE> 12
Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board, and no officer shall be
prevented from receiving a salary by reason of the fact that he also receives
from the Corporation compensation in any other capacity.
Section 4. Action With Respect to Securities of Other Corporations. Unless
otherwise directed by the Board, the president or any officer of the
Corporation authorized by the president shall have power to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
Shareholders of or with respect to any action of Shareholders of any other
corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
Section 5. Chairman of the Board. The chairman of the Board shall be the
chief executive officer of the Corporation and, subject to the direction of the
Board shall perform such executive, supervisory and management functions and
duties as from time to time may be assigned to him or her by the Board. The
chairman of the Board, if present, shall preside at all meetings of the
Shareholders and all meetings of the Board.
Section 6. President. The president shall be the chief operating office of
the Corporation and, subject to the direction of the Board, shall have general
charge of the business affairs and property of the Corporation and general
supervision over its other officers and agents. In general, the president
shall perform all duties incident to the office of president of a stock
corporation and shall see that all orders and resolutions of the Board are
carried into effect. Unless otherwise prescribed by the Board, the president
shall have full power and authority on behalf of he Corporation to attend, act
and vote at any meeting of security holders of other corporations in which the
Corporation may hold securities. At any such meeting the president shall
possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation possesses and has the power
to exercise. The Board from time to time may confer like powers upon any other
person or persons.
Section 7. Vice Presidents. In the absence or disability of the president,
the vice president, if any (or in the event there is more than one, the vice
presidents in the order designated, or in the absence of any designation, in
the order of their election), shall perform the duties and exercise the powers
of the president. The vice president(s) also generally shall assist the
president and shall perform such other duties and have such other powers as
from time to time may be prescribed by the Board.
<PAGE> 13
Section 8. Secretary. The secretary shall attend all meetings of the Board
and of the Shareholders and shall record all votes and the proceedings of all
meetings in a book to be kept for such purposes. The secretary also shall
perform like duties for the committees, if required by any such committee. The
secretary shall give (or cause to be given) notice of all meetings of the
Shareholders and all special meetings of the Board and shall perform such other
duties as from item to time may be prescribed by the Board, the chairman of the
Board or the president. The secretary shall have custody of the seal of the
Corporation, shall have authority (as shall any assistant secretary) to affix
the same to any instrument requiring it, and to attend the seal by his or her
signature. The Board may give general authority to officers other than the
secretary or any assistant secretary to affix the seal of the Corporation and
to attest the affixing thereof by his or her signature.
Section 9. Assistant Secretary. The assistant secretary, if any (or in the
event there is more than one, the assistant secretaries in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the secretary, shall perform the
duties and exercise the powers of the secretary. The assistant secretary(ies)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board.
Section 10. Assistant Treasurer. The assistant treasurer, if any (or in
the event there is more than one, the assistant treasurers in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the treasurer, shall perform the
duties and exercise the powers of the treasurer. The assistant treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board.
ARTICLE VI
Notices
Section 1. Form; Delivery. Any notice required or permitted to be given to
any director, officer, Shareholder or committee member shall be given in
writing, either personally or by first-class mail with postage prepaid, in
either case addressed to the recipient at his or her address as it appears in
the records of the Corporation. Personally delivered notices shall be deemed
to be given at the time they are delivered at the address of the named
recipient as it appears to be given at the time they are deposited in the
United States mail. Notice to a director also may be given by telegram sent to
his address as it appears on the records of the Corporation and shall be deemed
given at the time delivered at such address.
Section 2. Waiver; Effect of Attendance. Whenever any notice is required
to be given by law, the Articles or these Bylaws, a written waiver thereof,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be the equivalent of the giving of such
notice. Any director or committee member who attends a meeting of the Board or
a committee thereof shall be deemed to have had timely and proper notice of the
meeting, unless such director of committee member attends for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called or convened. A Shareholder's attendance at a
meeting (whether in person or by proxy) shall result in: (i) waiver of
objection to lack
<PAGE> 14
of notice or defective notice of the meeting, unless the Shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting and (ii.) waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the Shareholder objects to considering the matter
when it is presented.
ARTICLE VII
Indemnification
Section 1. Indemnification.
(a) The Corporation shall indemnify each of the directors and
officers of the Corporation, and may indemnify any other
individual, to the fullest extent permitted by Sections 561 and
562 of the Business Corporation Act of Michigan, as it may be
amended from time to time (the "Act") and as otherwise
permitted by law, and shall promptly make or cause to be made
any determination required by Section 564a of the Act. The
Corporation shall pay and reimburse each of the directors and
officers of the Corporation, and may pay and reimburse any
other individual, to the fullest extent permitted by Section
564b of the Act and as otherwise permitted by law, and the
Corporation shall promptly make or cause to be made any
determination required by Section 564b.
Section 2. Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any
director, officer, employee or agent of the Corporation or of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the Act.
Section 3. Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VII by the Shareholders or the directors of the
Corporation shall not adversely affect any right or protection of a director,
officer, employee or agent of the Corporation existing at the time of such
amendment, repeal or modification.
ARTICLE VIII
Stock Certificates
Section 1. Forms; Signatures. Each Shareholder who has fully paid for any
stock of the Corporation shall be entitled to receive a certificate
representing such shares, which shall be nonassessable, and such certificate
shall be signed by the chairman of the Board or the president or a vice
president and by the treasurer or an assistant treasurer or the secretary or an
assistant secretary of the Corporation. Signatures on the certificate may be
facsimile, in the manner prescribed by law.
<PAGE> 15
Each certificate shall exhibit on its fact the number and class (and series, if
any) of the shares it represents. Each certificate also shall state upon its
face the name of the person to whom it is issued and that the Corporation is
organized under the laws of the State of Michigan. Each certificate may (but
need not) be sealed with the seal of the Corporation or facsimile thereof. In
the event any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate ceases to be such
officer, transfer agent or registrar before the certificate is issued, the
certificate nevertheless may be issued by the Corporation with the same effect
as if such person were such officer at the date of issue of the certificate.
All stock certificates representing shares of capital stock which are subject to
restrictions on transfer or to other restrictions may have imprinted thereon a
notation or legend of such restriction.
A certificate representing shares issued by the Corporation shall
substantially set forth on its face or back that the Corporation will furnish
to a Shareholder upon request and without charge a full statement of the
designation, relative rights, preferences, and limitations of the shares, and
if any class of shares has been issued in series, the designation, relative
rights, preferences, and limitations of shares, and if any class of shares has
been issued in series, the designation, relative rights, preferences, and
limitations of each series so far as the same have been prescribed and the
authority of the Board to designate and prescribe the relative rights,
preferences, and limitations of other series.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
to any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation, or its transfer agent, shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon the Corporation's books.
Section 3. Registered Shareholders. Except as otherwise provided by law,
the Corporation shall be entitled to recognize the exclusive right of a person
who is registered on its books as the owner of shares of its capital stock to
receive dividends or other distributions (to the extent otherwise distributable
or distributed) and to vote (in the case of voting stock) as such owner, and to
hold liable for calls and assessments a person who is registered on its books
as the owner of shares of its capital stock. The Corporation shall not be
bound to recognize any equitable or legal claim to or interest in such shares
on the part of any other person. The Corporation (or its transfer agent) shall
not be required to send notices or dividends to a name or address other than
the name and address of the Shareholder appearing on the stock ledger
maintained by the Corporation (or by the transfer agent or registrar, if any),
unless any such Shareholder shall have notified the Corporation (or the
transfer agent or registrar, if any), in writing, of another name or address at
least 10 days prior to the mailing of such notice or dividend.
Section 4. Record Date. In order that the Corporation may determine the
Shareholders of record who are entitled (i) to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, (ii) to receive payment of
any dividend or other distribution or allotment of any rights, or (iii) to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board, in advance, may fix a
date as the record date for any such determination. Such date shall not be
more than 60 days nor less than 10 days before the date of such meeting, nor
more than 60 days prior to the date of any other action. A determination of
<PAGE> 16
Shareholders of record entitled to notice of or to vote at a meeting of the
Shareholders shall apply to any adjournment of the meeting taken pursuant to
Section 6 of Article II; provided, however, that the Board, in its discretion,
may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificate. The Board may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation which is claimed to have been lost, stolen or destroyed, upon
the making of an affidavit of the fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board, in its discretion, may require as a condition precedent
to issuance that the owner of such lost, stolen or destroyed certificate, or
his or her legal representative, advertise the same in such manner as the Board
shall require and/or to give the Corporation a bond in such sum, or other
security in such form, as the Board may direct, as indemnity against any claim
that may be made against the Corporation with respect to the certificate
claimed to have been lost, stolen or destroyed.
Section 6. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board may establish.
ARTICLE IX
General Provisions
Section 1. Dividends. Subject to the Act and to any provisions of the
Articles relating to dividends, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board at any annual, regular or special
meeting and may be paid in cash, in property or in shares of the Corporation's
capital stock. Any distribution to Shareholders of income or capital assets of
the Corporation will be accompanied by a written statement disclosing the
source of the funds distributed. If, at the time of distribution, this
information is not available, a written explanation of the relevant
circumstances will accompany the distribution and the written statement
disclosing the source of the funds distributed will be sent to the Shareholders
not later than 60 days after the close of the fiscal year in which the
distribution was made.
Section 2. Reserves. The Board, in its sole discretion, may fix a sum
which may be set aside or reserved over and above the paid-in capital of the
Corporation for working capital or as a reserve for any proper purpose, and
from time to time may increase, diminish or vary such fund or funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "State of Michigan".
<PAGE> 17
Section 5. Amendment of the Bylaws. The Board is expressly empowered to
adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws by the Board shall require the approval of a majority of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The Shareholders
shall also have power to adopt, amend or repeal the Bylaws. In addition to any
vote of the holders of any class or series of stock of the Corporation required
by law or these Bylaws, the affirmative vote
<PAGE> 18
of the holders of at least 66-2/3% of the voting power of all of the
then-outstanding shares of the capital stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt, amend or repeal any provisions of the Bylaws.
Section 6. Reports.
(a) The chairman of the Board or the president shall
prepare or cause to be prepared annually a full and correct
annual report ("Annual Report") concerning the operations of
the Corporation and containing audited financial statements of
the Corporation and its subsidiaries for the preceding fiscal
year prepared in accordance with generally accepted accounting
principles.
(b) The Annual Report shall be mailed or delivered to
each Shareholder as of a record date after the end of such
fiscal year and each holder of other publicly held securities
of the Corporation within 120 days after the end of the fiscal
year, and shall be filed at the time the Annual Report is
distributed to the Shareholders with any Exchange on which the
Corporation's shares are listed and traded.
(c) There shall be an annual meeting of the
Corporation's Shareholders upon reasonable notice following
delivery of the Annual Report. The Annual Report shall also be
submitted at the annual meeting and shall be placed on file
thereafter at the principal office of the Corporation.
(d) To the extent that the Corporation is required to
file with the Securities Exchange Commission ("SEC") quarterly
reports, including statements of operating results, the
Corporation shall make copies of such quarterly reports
available to the Shareholders on a timely basis. The statement
of operations contained in such quarterly reports shall
disclose, as a minimum, any substantial items of an unusual or
nonrecurrent nature and net income before and after estimated
federal income tax or net income in the amount of estimated
federal taxes.
(e) To the extent that the Corporation is required to
file with the SEC or other federal or state regulatory
authority interim reports relating primarily to operations and
financial positions, the Corporation shall make reports which
reflect the information contained in such interim reports
available to the Shareholder before or as soon as practicable
after such interim reports are filed with the SEC or other
regulatory authority. If the form of the report provided to
the shareholders differs from the interim report filed with the
SEC or the regulatory authority, the Corporation shall file a
copy of the report provided to the shareholders with any
Exchange (including the New York Stock Exchange) on which the
Corporation's shares are listed and traded.
Section 7. Inspection of Books and Records. Inspection of the
Corporation's books and records (including Shareholder records) shall be
provided to the Shareholders and to the official or
<PAGE> 19
agency administering the securities laws of the various states upon reasonable
notice for any proper purpose and as is consistent with applicable laws and
regulations.
Section 8. Review of Transactions. As long as the Corporations shares are
listed and traded on any Exchange (including the New York Stock Exchange), the
Corporation shall conduct an appropriate review of all related party
transactions on an ongoing basis and shall utilize the Corporation's Audit
Committee or a comparable body for the review of potential conflict of interest
situations where appropriate.
Section 9. Shareholder Approval. In addition to any other matter with
respect to which Shareholder approval is required by law, the Articles or these
Bylaws, Shareholder approval shall be required for any matters with respect to
which Shareholder approval is required by the rules and regulations of any
Exchange (including the New York Stock Exchange), on which the Corporation's
shares are listed and traded, including but not limited to matters involving
the issuance of the securities of the Corporation in connection with the
following:
(a) Options plans or other special remuneration plans for directors,
officers or key employees.
(b) Actions resulting in a change in control of the Corporation.
(c) The acquisition, direct or indirect, of a business, a company,
tangible or intangible assets or property or securities
representing any such interests:
(i) From a director, officer of substantial security holder of
the Corporation (including its subsidiaries) or from any
company or party in which one of such persons has a direct
or indirect interest;
(ii) Where the present or potential issuance of common stock or
securities convertible into common stock could result in an
increase in outstanding common shares of 25% or more.
Where shareholder approval is required, unless a higher vote is required
by law, the Articles or these Bylaws, the minimum vote which will constitute
shareholder approval shall be a majority of votes cast provided that the total
vote cast on the proposal represents over 50% in interest of all securities
entitled to vote on the proposal.
/s/ Julius V. Combs
- -----------------------------------------
Julius V. Combs, M.D., Chairman
APPROVED BY THE BOARD ON February 8, 1996
----------------
<PAGE> 1
EXHIBIT 4
FIRST AMENDMENT TO CONTINGENT PROMISSORY NOTE
THIS FIRST AMENDMENT TO CONTINGENT PROMISSORY NOTE (this "Amendment")
made this 13th day of May, 1996, by and between UNITED AMERICAN HEALTHCARE
CORPORATION, a Michigan corporation (hereinafter referred to as the "Company")
and CHF-HPM LIMITED PARTNERSHIP, a Maryland limited partnership (also known as
CHF/HPM Limited Partnership and hereinafter referred to as the "Payee").
WHEREAS, by Contingent Promissory Note dated May 7, 1993 (hereinafter
referred to as the "Note"), the Company promised to pay to the order of the
Payee up to the sum of Six Million Five Hundred Ninety-Eight Thousand Dollars
($6,598,000.00) on or prior to September 15, 2000, subject to the contingencies
and provisions of the Note; and
WHEREAS, certain disputes have arisen regarding the interpretation of the
various terms and conditions of the Note and payments due thereunder, and the
parties desire to resolve the dispute and clarify the terms and conditions of
the Note upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing recitals which are
incorporated by reference herein, the mutual promises herein contained and
other good and valuable consideration, the receipt and sufficiency whereof, are
by acknowledged by each of the parties, the Company and Payee hereby agree as
follows:
1. Notwithstanding the provisions of the second paragraph of Section
2(b)(ii) of the Note, for each Quarterly Payment Period commencing with the
Quarterly Payment Period ending June 30, 1996, the Payee or the Subsidiary (as
long as the principals of the Payee are employed by the Subsidiary), rather than
the Company, shall provide the report of estimated Cumulative Operating Earnings
with respect to any Quarterly Payment Date and the Payee shall deliver the same
in writing to the Company, within forty-five (45) days of the last day of the
Quarterly Payment Period. Subject to the Year End Adjustment Amount pursuant to
Section 2(a)(1) of the Note, the Company shall pay the Quarterly Payments on the
Quarterly Payment Dates pursuant to the provisions of Section 2(a) of the Note
based on the report of estimated Cumulative Operating Earnings provided by the
Payee under this paragraph. In the event that Louis J. Nicholas, Keith B.
Sullivan and Sanford K. Walters are all no longer employed by the Subsidiary,
for any reason, prior to payment in full of the Note, then the foregoing two (2)
sentences shall no longer be operative and the report of estimated Cumulative
Operating Earnings shall be prepared and determined in accordance with the
second paragraph of Section 2(b)(ii) of the Note, which as of such time shall be
deemed to be modified by inserting after the first sentence thereof the
following:
Notwithstanding the foregoing sentence, on any Quarterly Payment Date when
the Company has failed to deliver the report of estimated Cumulative
Operating Earnings upon the terms and within the time set forth in Section
2(b)(ii) for the Quarterly
<PAGE> 2
Payment Period, the amount due from the Company to the Payee on the
Quarterly Payment Date shall equal the Cap, provided that solely with
respect to such failure for the Quarterly Payment Period having a Quarterly
Payment Date on September 15 of calendar years 1996-1999, the amount due
from the Company to the Payee on the Quarterly Payment Date shall equal One
Million Eight Hundred Twenty Thousand Dollars ($1,820,000.00) less the sum
of the Quarterly Payments received on December 15, March 15 and June 15
immediately preceding such September 15 Quarterly Payment Date.
2. The Company shall not be entitled to any amount under Section 2(a)(3)
of the Note for any Catchup Date through and included September 15, 1996.
Notwithstanding the foregoing, for the Year End Adjustment Amount that would be
due on December 15, 1996 under Section 2(a)(1) of the Note, the Company may
include the period from May 7, 1993 through June 30, 1996, provided that if the
Year End Adjustment Amount for such period is equal to or less than Fifty
Thousand Dollars ($50,000.00), then the Company shall not be entitled to any
Year End Adjustment Amount for such period. If the Year End Adjustment Amount
for such period is in excess of Fifty Thousand Dollars ($50,000.00), then the
Company shall be entitled to the full amount of the Year End Adjustment Amount
pursuant to Section 2(a)(1). In conducting its examination in the form of an
audit or agreed upon procedures to determine the Year End Adjustment Amount for
such period of May 7, 1993 through June 30, 1996, the Company may only examine
items of income and expense in excess of One Thousand Dollars ($1,000.00),
except the Company may do a random sampling of no more than twenty-five (25)
items under One Thousand Dollars ($1,000.00).
3. For purposes of interpreting the term "consistent with past practices"
in Section 2(b)(iii) of the Note, the parties agree as follows: (i) all
accounting shall be done on an accrual basis using the same methods of
recognizing income and expense of the Subsidiary as used for the audited
financial statements of the Company from May 7, 1993 through the date hereof
despite the fact that the past practices prior to May 7, 1993 may have been to
use a different method, (ii) any employer contributions by the Subsidiary to
any 401(k) plan prior to June 30, 1996 shall not be accounted as an expense, but
any such employer contributions made after June 30, 1996 shall be accounted as
an expense; and (iii) with respect to the items of expense listed on Exhibit A
attached to and made a part of this Amendment, only one-half (1/2) of the
aggregate amount of such expenses incurred through the Quarterly Payment Period
ending June 30, 1996 shall be accounted as an expense for purposes of
determining Operating Earnings, but all of such expenses incurred after June
30, 1996 shall be accounted as an expense for purposes of determining Operating
Earnings for Quarterly Payment Periods commencing on or after July 1, 1996.
4. For purposes of interpreting Sections 2(b)(iii)(A) and 2(b)(iii)(B)(VI)
of the Note, the parties agree as follows: (i) none of the gross revenues or
expenses of Statutory Benefits Management Corporation shall be included in
determining Operating Earnings, (ii) one-half ( 1/2) of the net operating loss
before income taxes of United American Network Systems, Inc. ("UANS") incurred
through March 31, 1996 shall be included as an expense in determining Operating
Earnings, and (iii) for any Quarterly Payment Period after March 31, 1996, if
UANS has a net operating loss, there shall be included as an expense of the
Subsidiary in determining Operating Earnings any net operating loss
<PAGE> 3
before income taxes of UANS, but if UANS has net operating income, there shall
not be included as gross revenue of the Subsidiary in determining Operating
Earnings any net operating income before income taxes of UANS. The parties
acknowledge and agree that the unaudited amount of the expense as determined
under subparagraph (ii) above is $442,282.00.
5. Section 2(b)(vi) of the Note hereby is amended by adding to the end
thereof the following:
The time periods for applying the dispute resolution procedures under
Section 2(b)(ii) shall commence by the Company making a written demand for
a Year End Adjustment Amount, which demand shall include a copy of the
Company's calculation and audit no later than ninety (90) days after the
end of the fiscal year. The Company's failure to make the demand within
the time required shall constitute a waiver of the Company's right to a
Year End Adjustment Amount for that fiscal year. In the event that Payee
is required to provide the Company a Year End Adjustment Amount, such
credit shall not prevent the Payee from receiving the amount of the Year
End Adjustment Amount in future Quarters based on Cumulative Operating
Earnings in the subsequent Quarters, it being the intention of the parties
that the Year End Adjustment Amount should not prevent the Payee from
receiving the Face Amount of the Note if there are sufficient Cumulative
Operating Earnings prior to the stated maturity of the Note.
6. Section 3(a)(i) of the Note hereby is deleted in its entirety and the
following inserted in lieu thereof:
(i) the Company's failure to pay, when due, any Quarterly
Payment or other amount due under this Note, if such failure shall
continue for a period of five (5) business days after written notice
from Payee to the Company advising of such failure;
7. Section 3(b)(i) of the Note hereby is amended by adding after the word
"Sections" in the third line thereof the following: "3(a)(i)",.
8. Section 3(b) hereby is amended by adding a new subparagraph (viii) as
follows:
(viii) Upon the occurrence of any Event of Default under Section
3(a)(i), the Payee may without notice or demand declare immediately due and
payable under this Note the sum of (A) the Face Amount, minus (B) the Prior
Payout (the difference being the "Payment Default Amount"). After maturity
of this Note by acceleration pursuant to the foregoing sentence, the
Company hereby authorizes the clerk of any court of record in the State of
Maryland or any attorney designated by the Payee to appear for the Company
in any court of record in the State of Maryland and confess judgment
against the Company for and in the amount of the Payment Default Amount
with interest accrued thereon (pursuant to Section 3(b)(ii) of the Note),
together with costs of suit and reasonable attorneys' fees (pursuant to
Section 3(b)(iii) of the Note). The Company irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of Maryland
over any suit, action, or proceeding arising out of or relating
<PAGE> 4
to this Section 3(b)(viii), provided that the Payee agrees that any such
suit, action or proceeding shall be brought in a federal court sitting in
Maryland, unless the federal court does not have subject matter
jurisdiction over the Company. The Company irrevocably waives, to the
fullest extent permitted by law, any objection that the Company may now or
hereafter have to the laying the venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit,
action, or proceeding brought in any such court has been brought in an
inconvenient forum. Final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon the Company
and may be enforced in any court in which the Company is subject to
jurisdiction by a suit upon such judgment provided that service of process
is effected upon the Company as provided in this Note or as otherwise
permitted by applicable law. In the event that the Company prevails in any
action brought under this Section 3(b)(viii), then the Payee shall pay the
Company's reasonable attorneys' fees and costs in defending such action.
9. Section 4(b) of the Note hereby is amended to provide a required copy
of any notice to the Company, in addition to being sent to Lewis, Clay &
Munday, P.C., shall be sent to:
Margaret Marchak, Esquire
Vice President of Legal Affairs
United American Healthcare Corporation
1155 Brewery Park Boulevard, Suite 200
Detroit, MI 48207
Section 4 further is amended to provide that a required copy any notice to the
Payee, instead of being sent to Venable, Baetjer & Howard, shall be sent to:
Kaplan, Heyman, Greenberg, Engelman & Belgrad, P.A.
10th Floor - Sun Life Building
20 South Charles Street
Baltimore, Maryland 21201
ATTN: Barry Weiskopf
Section 4 of the Note further is amended by deleting subparagraph (b)(iv)
thereof. Section 4 finally is amended by adding to the end thereof the
following: "All required copies shall be given or made in the same manner as
the notice to the Company or the Payee, as the case may be."
10. The Note hereby is amended by adding a new Section 11 as follows:
Section 11. Arbitration. Except as specifically set forth herein,
any dispute or controversy arising under or in connection with this
Note shall be settled exclusively by arbitration in the County of
Wayne, Michigan in accordance with the rules of the American
Arbitration Association then in effect. The arbitrator shall be
chosen mutually by the parties and shall not have jurisdiction or
authority to change, add to or subtract from any of the provisions of
this Note. The
<PAGE> 5
arbitration decision shall be final and binding and judgment may be
entered on the arbitrator's award in any court having jurisdiction.
Notwithstanding the foregoing, any remedy under Section 3(b)(8) hereof
shall be exercised in a court in accordance with the forum selection
clause contained therein. Additionally, wherever herein a dispute is
to be determined by arbitration submitted to a nationally recognized
independent certified public accounting firm, the provisions thereof
shall control to the extent of any conflict with this Section 11.
11. Wherever capitalized terms are used herein, to the extent not
otherwise defined herein, such terms shall have the meanings set forth in the
Note.
12. The term "this Note" as used in the Note shall mean the Note as
modified herein unless the context clearly indicates or dictates a contrary
meaning.
13. The Company will execute such confirmatory instruments with respect to
the Note as the Payee may require.
14. Each party ratifies and confirms all of its liabilities and
obligations under the Note and agrees that, except as expressly modified in this
Amendment, the Note continues in full force and effect as if the terms hereof
were set forth specifically therein. The Company and the Payee agree that this
Amendment shall not construed as an agreement to extinguish the original
obligations under the Note and shall not constitute a novation as to the
obligations of the Company under the Note.
15. This Amendment may not be amended, changed, modified, altered, or
terminated without in each instance the prior written consent of the Payee.
(SIGNATURES CONTINUED ON NEXT PAGE.)
<PAGE> 6
IN WITNESS WHEREOF, in consideration of the foregoing, and intending to be
legally bound, the undersigned have executed this Amendment by affixing their
hands and respective seals, as evidenced by their signature immediately next to
the word ("Seal").
WITNESS: UNITED AMERICAN HEALTHCARE
CORPORATION
_______________________________ By: /s/ Ronald R. Dobbins
------------------------------ (SEAL)
Ronald R. Dobbins, President
DATED: May 13, 1996
CHF-HPM LIMITED PARTNERSHIP
BY: PHASE V, INC., GENERAL PARTNER
_______________________________ By: /s/ Louis J. Nicholas
------------------------------ (SEAL)
Louis J. Nicholas, President
DATED: May 13, 1996
<PAGE> 7
EXHIBIT A
ADJUSTED EXPENSES
Fixed Assets
Stationery
Vision
401(k)
Accounting
Travel
Operations
Network
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,239,298
<SECURITIES> 4,748,712
<RECEIVABLES> 13,423,627
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,420,683
<PP&E> 11,251,999
<DEPRECIATION> (5,012,289)
<TOTAL-ASSETS> 93,485,665
<CURRENT-LIABILITIES> 38,449,948
<BONDS> 0
0
0
<COMMON> 10,625,382
<OTHER-SE> (208,163)
<TOTAL-LIABILITY-AND-EQUITY> 93,485,665
<SALES> 0
<TOTAL-REVENUES> 27,776,523
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,919,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,929
<INCOME-PRETAX> (439,982)
<INCOME-TAX> 394,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,982)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
