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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended June 30, 1998
Commission file number: 000-18839
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in charter)
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<S> <C>
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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1155 BREWERY PARK BOULEVARD, SUITE 200
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 393-0200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES AS OF SEPTEMBER 17, 1998, COMPUTED BY REFERENCE TO THE NYSE
CLOSING PRICE ON SUCH DATE, WAS $9,867,534.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF SEPTEMBER
17, 1998 WAS 6,578,356.
The following document (or portion thereof) has been incorporated by reference
in this Annual Report on Form 10-K: The definitive Proxy Statement for the
1998 Annual Meeting of Shareholders to be held on November 12, 1998 (Part III).
As filed with the Securities and Exchange Commission on September 28, 1998
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I..................................................................................2
Item 1. Business................................................................... 2
Item 2. Properties.................................................................20
Item 3. Legal Proceedings..........................................................20
Item 4. Submission of Matters to a Vote of Security Holders........................22
PART II................................................................................22
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters...22
Item 6. Selected Financial Data....................................................22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................23
Item 8. Financial Statements.......................................................33
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure.....................................33
PART III...............................................................................34
Item 10. Directors and Executive Officers of the Registrant.........................34
Item 11. Executive Compensation.....................................................34
Item 12. Security Ownership of Certain Beneficial Owners and Management.............34
Item 13. Certain Relationships and Related Transactions.............................34
PART IV................................................................................34
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............34
FINANCIAL STATEMENTS..................................................................F-1
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage management to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statements. Certain statements contained in this Form 10-K annual report,
including, without limitation, statements containing the words "believes",
"anticipates", "will", "may", "might", and words of similar import, constitute
"forward-looking statements" within the meaning of this "safe harbor".
Such forward-looking statements are based on management's current
expectations and involve known and unknown risks, uncertainties and other
factors, many of which the Company is unable to predict or control, that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. See "Item 1-Business
- - Cautionary Statement Regarding Forward-Looking Statements".
GENERAL
United American Healthcare Corporation (the "Company") was incorporated in
Michigan on December 1, 1983 and commenced operations in May 1985. Unless the
context otherwise requires, all references to the Company indicated herein shall
mean United American Healthcare Corporation and its consolidated subsidiaries.
The Company provides comprehensive management and consulting services to
managed care organizations, including health maintenance organizations in
Tennessee, 75% owned by the Company, in Michigan and, until February 26, 1998,
in Florida. The Company also arranges for the financing of health care services
and delivery of these services by primary care physicians and specialists,
hospitals, pharmacies and other ancillary providers to commercial employer
groups and government sponsored populations in Tennessee and, until February 26,
1998, Florida. Management and consulting services provided by the Company are
generally to health maintenance organizations with a targeted mix of Medicaid
and non-Medicaid/commercial enrollment. As of September 1, 1998, there were
approximately 142,000 enrollees in the managed care organizations owned or
managed by the Company.
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Management and consulting services provided by the Company include
feasibility studies for licensure, strategic planning, corporate governance,
management information systems, human resources, marketing, precertification,
utilization review programs, individual case management, budgeting, provider
network services, accreditation preparation, enrollment processing, claims
processing, member services and cost containment programs.
In 1985, the Company became one of the pioneers in arranging for the
financing and delivery of health care services to Medicaid recipients utilizing
managed care programs. Management believes the Company has gained substantial
expertise in understanding and serving the particular needs of the Medicaid
population. As of September 1, 1998, there were approximately 79,000 Medicaid
enrollees in the managed care organizations owned or managed by the Company,
OmniCare Health Plan, Inc., in Tennessee ("OmniCare-TN"), and Michigan Health
Maintenance Organization Plans, Inc., d/b/a OmniCare Health Plan, in Michigan
("OmniCare-MI" and, collectively with OmniCare-TN, the "Managed Plans"). The
Company complements its Medicaid focus by targeting non-Medicaid/commercial
business in the same geographic markets. As of September 1, 1998, there were
approximately 63,000 non-Medicaid/commercial enrollees in the Managed Plans.
The Company sold all of the stock of its wholly owned subsidiary, Corporate
Healthcare Financing, Inc. ("CHF"), on September 8, 1998, culminating a year's
effort to sell CHF. See "Business - Self-Funded Benefit Plans" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources". CHF designs customized employee
welfare plan arrangements for self-funded employers and provides marketing,
management and administrative services to self-funded employers generally. As
of August 1, 1998, CHF's client base included approximately 345 accounts in 47
states, with an estimated 629,000 covered lives.
RESTRUCTURING PROGRAM AND MANAGEMENT CHANGES
On January 12, 1998, as a result of significant operating losses, negative
working capital and a reduction in net worth, the Company announced a major
financial restructuring program which was designed to cut the Company's cash
losses and to position the Company for profitable operations. To oversee the
Company's restructuring efforts, the Company named a new Chairman of the Board
to serve in a non-executive capacity, with the day to day operations of the
Company continuing to be managed by its then current Chief Executive Officer and
then current President and Chief Operating Officer. The Company engaged Arthur
Andersen LLP to assist in the development and implementation of the financial
restructuring program and named Thomas J. Allison as Interim Chief Financial
Officer of the Company. Mr. Allison concurrently was also the head of Arthur
Andersen LLP's Chicago-based Corporate Recovery Services Group.
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The restructuring program encompassed Company plans to discontinue some
expansion projects, reduce non-core spending activities, reduce corporate
overhead, renegotiate its bank credit facilities, re-evaluate its investment in
affiliates and other assets and sell CHF.
On May 12, 1998, the Company announced three changes in management: (1)
the retirement of the then current Chief Executive Officer of the Company
effective August 6, 1998, including his immediate relinquishment of his
operational responsibilities, (2) the resignation of the then current President
and Chief Operating Officer of the Company and (3) the election of Gregory H.
Moses, Jr. as the new President and Chief Operating Officer of the Company. Mr.
Moses, a retired partner of the Coopers & Lybrand accounting firm, most recently
had been a consultant to a health maintenance organization in Detroit. He
previously had been partner-in-charge of the Coopers & Lybrand Healthcare
Consulting Group in New York and New Jersey for ten years, chairman of that
firm's National Healthcare Consulting Group for five years and its lead
engagement partner with respect to Mercy Health Services for seven years. In
August 1998, Mr. Moses additionally became the Chief Executive Officer of the
Company, the Company's Corporate Controller became its Treasurer and its Interim
Chief Financial Officer (replacing Mr. Allison, who had resigned that position)
and the Company appointed a new Senior Director of Management Information
Systems.
INDUSTRY
In an effort to control costs while assuring the delivery of quality
health care services, the public and private sectors in recent years have
increasingly turned to managed care solutions. As a result, the managed care
industry, which includes health maintenance organization ("HMO"), preferred
provider organization ("PPO") and prepaid health service plans, has grown
substantially.
While the trend toward managed care solutions has traditionally been
pursued most aggressively by the private sector, the public sector has recently
embraced the trend in an effort to control the costs of health care provided to
Medicaid recipients. Consequently, many states are promoting managed care
initiatives to contain these rising costs and supporting programs that
encourage or mandate Medicaid beneficiaries to enroll in managed care plans.
MANAGED CARE PRODUCTS AND SERVICES
The Company has an ownership interest in and manages the operations of an
HMO in Tennessee, OmniCare-TN. The Company also manages the operations of an
HMO in which it has no ownership interest, OmniCare-MI.
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The Company also had or has an ownership interest in three other HMOs:
UltraMedix Healthcare Systems, Inc., in Florida ("UltraMedix"); OmniCare Health
Plan of Louisiana, Inc., in Louisiana ("OmniCare-LA"); and PhilCare Health
Systems, Inc., in Pennsylvania ("PhilCare"). UltraMedix ceased operations and
is in the process of being liquidated (see "Business-Managed Plans Owned by the
Company - UltraMedix" below). OmniCare-LA was never operational and is in the
process of being liquidated and dissolved. PhilCare, having declined to
participate in Pennsylvania's Medicaid managed care program because of program
requirements that would have made such participation unprofitable, subsequently,
effective April 1, 1998, entered into an Integrated Delivery System agreement
with an entity that arranges for the provision of health care services for its
Medicaid membership through contracts with health care providers. The Company's
Board of Directors has determined, as part of the Company's financial
restructuring program, to withdraw from all involvement in Pennsylvania and to
pursue recouping its investment in PhilCare.
The following table shows the membership in the Managed Plans serviced by
the Company as of September 1, 1998:
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Non -
Medicaid/
Medicaid Commercial Total
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Managed Plans
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Owned :
OmniCare-TN 29,367 16,605 45,972
Operated:
OmniCare-MI 49,912 46,075 95,987
------------------------------------------
79,279 62,680 141,959
==========================================
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The following table sets forth data with respect to the Company's
principal revenue sources in dollar amounts and as a percentage of the
Company's total revenues for the periods indicated. Such data are not
indicative of the relative contributions to the Company's net earnings.
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<CAPTION>
Year ended June 30,
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1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except percentages)
OmniCare-TN $63,520 60% $56,508 50% $42,717 46%
OmniCare-MI 24,986 24% 28,865 26% 30,275 33%
UltraMedix 15,062 14% 13,922 12% 9,003 10%
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A substantial portion of the Company's gross revenues is derived through
its management agreement with OmniCare-MI. This management agreement is
long-term in nature, subject to review every five years with either automatic
continuation or elective termination. There can be no assurance that such
agreement will remain in effect or continue substantially under the same terms
and conditions. Effective June 1, 1998, the OmniCare-MI management agreement
was amended to reduce the management fee percentage charged by the Company.
UltraMedix has been placed in receivership for the purpose of its liquidation,
pursuant to judicial consent orders entered on February 26 and March 3, 1998.
See "Managed Plan Operated By the Company" and "Managed Plans Owned by the
Company - "UltraMedix" under "Managed Plans" below and "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources".
MANAGED PLANS
The Company has entered into long-term management agreements with
OmniCare-MI and, through a wholly owned subsidiary of the Company, with
OmniCare-TN. Pursuant to these management agreements with the Managed Plans,
the Company provides management and consulting services associated with the
financing and delivery of health care services. Table A summarizes the terms of
the management agreements.
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Table A- Summary of Terms of Management Agreements with the Managed Plans
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Managed Plans
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Terms OmniCare-MI OmniCare-TN
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(1) Duration:
(a) Effective dates:
(i) Commencement May 1, 1985 February 1, 1994
(ii) Expiration December 31, 2010 February 1, 1999
(b) Extension:
(i) Automatically renewable No Yes - 4 successive
5-year periods
(ii) Terms of renewal/continuation Subject to review 5 years
every 5 years
(iii) Next review period May 1, 2000 February 1, 1999
(c) Termination:
(i) Without cause by the Plan at such Yes Yes
reviews
(ii) Either party with cause Yes Yes
(2) Fees paid to the Company:
(a) Percentage of revenues Yes Yes
(b) Reimbursement of cost incurred to manage the
Plan No No
(3) Expenses incurred by the Company:
All administrative expenses necessary to
carry out and perform the functions of
the Plan, excluding:
(i) Audit No Yes
(ii) Legal No Yes
(iii) Marketing No No
(iv) Certain other No Yes
</TABLE>
Services provided to the Managed Plans include strategic planning;
corporate governance; human resource functions; provider network services;
provider profiling and credentialing; premium rate setting and review;
marketing services (group and individual); accounting and budgeting functions;
deposit, disbursement and investment of funds; enrollment functions; collection
of accounts; claims processing; management information systems; utilization
review; and quality management.
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Managed Plans Owned by the Company
OMNICARE-TN. OmniCare-TN was organized as a Tennessee corporation in
October 1993, and is headquartered in Memphis, Tennessee. The Company was
active in the development of OmniCare-TN and, through the Company's wholly owned
subsidiary, United American of Tennessee, Inc. ("UA-TN"), owns a 75% equity
interest in OmniCare-TN; a local partner owns the remaining 25%. OmniCare-TN
began as a PPO contractor in TennCare, a State of Tennessee program that
provides medical benefits to Medicaid and Working Uninsured recipients, and
operated as a full-risk prepaid health services plan until it obtained its
TennCare HMO license in March 1996. OmniCare-TN's TennCare HMO contract was
executed in October 1996, retroactive to the date of licensure.
In November 1993, OmniCare-TN contracted with TennCare as a PPO, to
arrange for the financing and delivery of health care services on a capitated
basis to Medicaid eligibles and the Working Uninsured and Uninsurable
("Non-Medicaid") individuals who lack access to private or employer sponsored
health insurance or to another government health plan. The TennCare Bureau
placed an indefinite moratorium on Working Uninsured enrollment in December
1994; however, such action did not affect persons enrolled in a plan prior to
the moratorium. In April 1997, enrollment was expanded to include the children
of the Working Uninsured up to age 18. The annually renewable TennCare contract
was renewed on July 1, 1998 for an additional 12-month term. Consistent with
past contract renewals, Plan management expects an approximate 3% increase in
premium rates.
OmniCare-TN currently serves Shelby and Davidson counties in Tennessee
(which include the cities of Memphis and Nashville). As of September 1, 1998,
total enrollment was approximately 45,972 members, of which 29,367 (64%) and
16,605 (36%) represent Medicaid and Non-Medicaid enrollees, respectively. A
30-day open enrollment change period for all TennCare eligibles occurs once a
year in October. Plan management expects a net 3%-5% increase in enrollment in
fiscal 1999 resulting from the change in individuals' Medicaid eligibility
status and net enrollment gains during the open enrollment period.
The Plan's application for a commercial HMO license is pending. Plan
management has been in frequent communication with the State to eliminate any
further processing delays of the application and expects the issuance of the
license in the third quarter of fiscal 1999. However, there can be no assurance
that the license will be issued within this time period. Management believes
that the receipt of the commercial license and the Plan's efforts to expand its
provider network to the southwestern area of Tennessee would enable OmniCare-TN
to increase its enrollment by marketing its managed care products to the various
employer groups in the regions served.
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ULTRAMEDIX. UltraMedix, a network model HMO headquartered in Tampa,
Florida, was founded as a Florida corporation in May 1992. Through its
majority owned subsidiary, United American of Florida, Inc. ("UA-FL"), the
Company owns 51% of UltraMedix, with the remaining 49% owned by local
shareholders. The March 3, 1998 court order, described below, placed
UltraMedix and UA-FL in liquidation.
As of December 31, 1997, UltraMedix was not in compliance with the Florida
Department of Insurance ("FDOI") statutory solvency requirement. The FDOI
requires that HMOs maintain a statutory reserve as determined in accordance
with statutory accounting practices of $.5 million. UltraMedix's statutory
deficiency at December 31, 1997 was estimated at $4.5 million. As a result, on
January 30, 1998, the Company, UltraMedix and the Plan's third-party
administrator, UA-FL, signed and delivered to the FDOI a Stipulation and
Consent to Appointment of Receiver and Order of Liquidation entitling FDOI to
obtain the entry of an accompanying consent order by the applicable Florida
court if the Company did not cure UltraMedix's existing statutory reserve
deficiency (estimated at $4.5 million) by February 6, 1998. On February 26,
1998, the deficiency had not been cured and pursuant to the FDOI's petition,
the Florida court entered such consent order.
Pursuant to the stipulation and consent order: UltraMedix and UA-FL (the
"Organizations") admitted that UltraMedix was statutorily insolvent as of
December 31, 1997; the Company paid $.5 million to the FDOI to cover UltraMedix
claims incurred during and provider capitation payments due for the eight days
ended February 6, 1998, and funded the Organizations' ordinary business
expenses for the same period; the FDOI took control of the Organizations' bank
accounts; the Plan ceased enrolling new members; and the Organizations
continued to provide services to all of the Plan's subscribers and to process
renewals on all policies as they came due. Pursuant to the consent order, on
February 26, 1998, the Organizations were declared insolvent and the FDOI was
appointed as Receiver for the purposes of their liquidation.
On March 3, 1998, the Florida court entered a Consent Order of Liquidation,
Injunction and Notice of Stay, declaring that any further efforts of the
Receiver to rehabilitate the Organizations would be useless, ordering the FDOI,
as Receiver, to take possession of and liquidate all assets of the Organizations
and ordering the immediate cancellation of UltraMedix's authority to provide
health services as an HMO in Florida. On April 15, 1998, the Florida Agency for
Health Care Administration notified the Company of the Agency's intent to
enforce the Company's Guarantee Agreement, under which the Company had agreed to
reimburse UltraMedix's contracted Medicaid providers for authorized, covered
Medicaid services rendered to covered Medicaid enrollees, for which the Agency
had made payment on behalf of such enrollees, limited to an amount equal to the
amount of surplus UltraMedix would have been required to maintain under the
Medicaid contract in the absence of such Guarantee Agreement. Although the
outcome cannot be predicted or reasonably estimated, Company management expects
that the ultimate resolution regarding the Guarantee Agreement will not have a
materially adverse effect on the Company's consolidated financial position.
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Managed Plan Operated by the Company
OMNICARE-MI. OmniCare-MI is a not-for-profit, tax-exempt corporation
headquartered in Detroit, Michigan and serving southeastern Michigan, operating
in Wayne, Oakland, Macomb, Monroe and Washtenaw counties. Its history includes
a number of innovations that were adopted and proved successful for the
industry. It was the first network model HMO in the country and the first to
capitate physician services in an IPA model HMO. OmniCare-MI also created and
implemented the first known mental health carve out in 1983.
OmniCare-MI enrollment is through 900 companies that offer the Plan to
employees and their family members, through individual enrollment that is open
once a year for a 30-day period, and through the State's Medicaid program
pursuant to an agreement with the Michigan Department of Community Health,
which makes HMO coverage available to eligibles in certain counties and
mandatory in others. This annually renewable agreement was extended by mutual
agreement for an additional twelve months from January 1, 1998 to December 31,
1998. As of September 1, 1998, total enrollment in OmniCare-MI was
approximately 95,987, of which 46,075 (48%) represent commercial members,
including approximately 8,274 point of service members and approximately 49,912
(52%) represent Medicaid members.
Among the major employers that offer OmniCare-MI, ranked by enrollment,
are: the City of Detroit, the Federal Government, the Detroit Board of
Education, Ford Motor Company, the State of Michigan, General Motors
Corporation, Chrysler Corporation, Detroit Edison, Wayne County and Comerica
Bank, the largest of which represents approximately 7% of OmniCare-MI's total
enrollment. No other group exceeds 5% of the Plan's total enrollment.
HMO growth in the State of Michigan has remained fairly static over the
last several years. HMO enrollment penetration has remained in the 20% range
during that period. However, management believes that this dormancy will not
continue as public acceptance of HMOs is growing and employer encouragement is
increasing as they realize that HMOs cost less and provide quality care.
The State of Michigan, in an effort to reduce the cost of its Medicaid
program, competitively bid its Medicaid contracts, with an effective date of
July 1997. The affected southeastern Michigan counties include a significant
portion of the Plan's Medicaid enrollment. In May 1997, OmniCare-MI was
notified that it had been selected to participate in the State's program.
Unsuccessful bidders to the State's request for proposal legally challenged the
initiative and, as a result, the State did not assign the Medicaid eligibles to
plans that were awarded contracts, but nonetheless
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instituted the rate reduction component of the new program effective July 1997.
With the indefinite delay of the assignment of approximately 90,000 eligible
recipients to the selected plans, and the implementation of the rate reductions
of 20%, the operating revenues of OmniCare-MI and the resulting management fee
revenues to the Company were adversely affected in fiscal 1998. There can be no
assurance that OmniCare-MI can control health care costs at the rate of the
premium reductions.
Newspaper stories in May 1998 reported that the Michigan Insurance Bureau
(the "Bureau") had obtained a sealed (confidential) court order on May 7, 1998
giving state regulators control over OmniCare-MI's assets. The Company
responded with a public statement on May 12, 1998, stating that OmniCare-MI was
not in receivership but was in active discussion with the Bureau regarding
compliance with certain regulatory issues, that all services to members of
OmniCare-MI would continue to be provided, with no decrease in the quality of
care, and all providers would continue to be paid for their services, and that
both the Company and OmniCare-MI had completely restructured their top
management.
In June 1998, the Company funded a $4.6 million unsecured loan to
OmniCare-MI, evidenced by a surplus note, to enable OmniCare-MI to meet its
minimum requirements for net worth and working capital. Pursuant to the
surplus note, interest and principal repayments are subject to approval by the
Bureau and are payable only out of the statutory surplus earnings of
OmniCare-MI. The interest rate is at prime, payable annually and if not paid
is forfeited. The principal has no stated maturity or repayment date. The
surplus note is subordinated to all other claimants of OmniCare-MI. The
Company recorded an impairment loss against its investment in this surplus note
based on its evaluation of the recoverable value of such investment and
accordingly, recognized bad debt expense of $2.3 million for the year ended
June 30, 1998.
On July 1, 1998, the Bureau issued a public statement in which the
Michigan Commissioner of Insurance announced reaching accord with OmniCare-MI
on a four-month plan to revitalize the HMO and cited "three major positive
developments respecting OmniCare": an unsecured loan of $4.6 million by the
Company, the corrective action plan and the "experienced and capable leadership
of Gregory H. Moses."
The reduction of Medicaid rates and other factors were considered in
developing the OmniCare-MI corrective action plan, which is in the process of
implementation. The corrective action plan includes the reduction of medical
costs through renegotiation of hospital provider contracts, reduction of
pharmacy costs and a reduction in the management fee percentage paid to the
Company from 17% to 14%, effective June 1, 1998. In fiscal 1998, the Company
derived 24% of its total revenues from its management agreement with
OmniCare-MI. Management believes that the continued viability of OmniCare-MI is
critical to the Company's future operations and concluded that the unsecured
loan, in the form of a surplus note, and reduction in the management fee
percentage were necessary actions to strengthen the financial condition and
continued viability of OmniCare-MI.
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The Company, in its restructuring efforts and forecasts, has considered the
impact of the reduction in the management fee percentage. Based on the fiscal
1998 level of operating revenues of OmniCare-MI, the pro forma impact of this
reduction if applicable for all of that year would have been a reduction in
management fee revenues of approximately $4.0 million or $.40 earnings per
share.
Other Managed Plan Ventures
OMNICARE-LA. OmniCare-LA, a network model HMO headquartered in New
Orleans, Louisiana, was organized as a Louisiana corporation in November 1994,
and is 100% owned by the Company's wholly owned subsidiary, United American of
Louisiana, Inc. (UA-LA) ("UA-LA"). The Plan was granted an HMO license by the
Louisiana Department of Insurance in June 1996. In connection therewith, the
Company funded OmniCare-LA's statutory reserve and net worth requirements
through letters of credit for $1.0 million and $1.0 million in cash deposited
in accounts at state banks in Louisiana. OmniCare-LA was in a pre-operational
phase since inception. Consistent with the Company's restructuring efforts, it
has ceased its operations in Louisiana and withdrawn its $1.0 million statutory
reserve and is in the process of liquidating and dissolving OmniCare-LA,
including the anticipated cancellation of its letter of credit commitments.
PHILCARE. PhilCare, a network model HMO headquartered in Philadelphia,
Pennsylvania, was organized as a Pennsylvania corporation in May 1994.
PhilCare is 49% owned by the Company's wholly owned subsidiary, United American
of Pennsylvania, Inc. ("UA-PA"), and 51% owned by local participants. In June
1996, PhilCare obtained its HMO license, with the Company funding PhilCare's
statutory reserve and net worth requirements of $2.1 million through cash
deposited at a Pennsylvania bank.
PhilCare's initial business plan was to participate in Pennsylvania's
mandatory Medicaid pilot program, HealthChoices, which required the enrollment
of approximately 540,000 Medicaid recipients in five metropolitan Philadelphia
counties into HMOs. In October 1996, the Company announced its decision to
withdraw its support of PhilCare's participation in the HealthChoices program
because existing program requirements would have made the Company's
participation in the program unprofitable. Effective April 1, 1998, PhilCare
entered into an Integrated Delivery System ("IDS") agreement with an entity that
arranges for the provision of health care services for its Medicaid membership
through contracts with health care providers. The IDS agreement places the
entity in the position of bearing the risk, but as the contractor with the
Pennsylvania Department of Public Welfare, the state's regulatory agency for
HMOs, PhilCare is looked upon as being responsible for compliance with all
applicable rules and regulations.
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In 1998, the Company recorded a full impairment loss against its
investment in PhilCare based on its evaluation of the net recoverable value of
such investment. This resulted in bad debt expense of $2.1 million for the
year ended June 30, 1998. The Company's Board of Directors has determined to
pursue recouping its investment in PhilCare.
Consistent with the Company's restructuring efforts, the Company has
ceased all operational activities of UA-PA, except its rent obligations for
leased office space in Philadelphia which has been substantially sublet
(80%) and with respect to which the Company continues to seek subtenants for
the remaining space. The Company is currently negotiating with its landlord to
assume the subleases and release the Company from its lease obligations, but
Company management is unable to predict the outcome of such discussions.
ADVICA HEALTH MANAGEMENT. In March 1993, the Company reached an agreement
with New York-based HealthScope Administrative Services Corporation, later
known as HealthScope/United, Inc. ("HealthScope"), to form a health care
management company intended to gain access to one of the largest Medicaid
eligible populations in the United States. Pursuant to the agreement,
HealthScope became a wholly owned subsidiary of Advica Health Management
(formerly United/HealthScope, Inc.) ("Advica"), which was organized to engage
in development, consulting and contract management services for publicly funded
managed care programs in the metropolitan New York area.
In 1995, New York City officials announced a four-year initiative to
enroll over 1.7 million Medicaid recipients residing in New York City in
managed care plans. The staggered enrollment aspect of the program was
necessitated by an insufficient capacity to enroll all such recipients. This
mandated initiative began to roll out in early 1997. Advica management
anticipated the phase-in for its service areas in early 1998, but as of
September 1998, the rollout to Advica's service areas has not yet begun.
Through May 1997, outstanding amounts owed to the Company from Advica
totaled approximately $4.9 million. In May 1997, Advica's outstanding debt and
preferred stock were restructured to attract other investors. The Company
converted its interest in Advica, including advances, accrued interest and the
value of warrants held by the Company, to one million shares of non-voting
preferred stock of the restructured Advica in the amount of $4.0 million, and a
warrant to purchase 3,310 shares of Advica common stock, exercisable at any
time at a nominal price, representing approximately 3% of Advica's common
shares on a fully diluted basis.
The conversion of the Company's loans to Advica to preferred stock was
treated as a "troubled debt restructuring" with the investment recorded at its
estimated fair value at the date of the restructuring. This resulted in bad
debt expense of $.7 million for the year ended June 30, 1997. Subsequently,
based on Advica's current and historical operating results as of June 30, 1998,
the Company recognized a full impairment loss on such
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<PAGE> 15
investment that resulted in bad debt expense of $2.3 million for fiscal year
1998.
SELF-FUNDED BENEFIT PLANS
In 1993, the Company acquired CHF for approximately $16.2 million in the
form of cash, stock, a contingent note and the assumption of liabilities. The
contingent note was for $6.6 million and was earned out at both June 30, 1998
and June 30, 1997. CHF designs customized employee welfare plan arrangements
for self-funded employers and provides marketing, management and administrative
services to self-funded employers generally. Management believed that its
acquisition of CHF represented an opportunity to expand its traditional
business into the self-funded market that comprises a majority of the private
sector employers. A self-funded health benefit plan is one in which an
employer directly assumes the financial risk for its employees' health care
costs by paying for employees' medical claims out of a separate fund consisting
of employee and/or employer contributions.
On September 12, 1997, the Company's Board of Directors approved the
proposed stock sale of CHF for $30 million in cash to an entity related to the
Company by certain common shareholders contingent on the buyer securing
financing. The buyer was unable to obtain financing, resulting in the
termination of the proposed sale.
Subsequently, on May 14, 1998, the Company's Board of Directors approved a
new proposed stock sale of CHF to a privately held national employee leasing
company for $15.25 million in net cash plus $2.5 million of the proposed
buyer's preferred stock, bearing a 6% annual preferred dividend payable in
stock for three years and, thereafter, a 14% annual preferred dividend payable
in cash. This proposed transaction was also not consummated.
With the approval of the Company's Board of Directors, the Company
reopened discussions with the principals of the first prospective buyer,
including Louis J. Nicholas, the Chief Executive Officer of CHF and a former
officer and director of the Company. On August 6, 1998, the Company's Board
of Directors approved the terms of a new proposed CHF stock sale. Pursuant
thereto, on September 8, 1998, CHFA, Inc., a corporation owned by Mr. Nicholas
and others, purchased all of the stock of CHF for $17.75 million, comprised of
$2 million in cash, a secured note for $13.25 million and an unsecured note for
$2.5 million. A regional investment banking firm issued a fairness opinion
supporting the reasonableness of the consideration to be received by the
Company for such sale.
The secured note is payable to the Company in four monthly installments of
$.5 million each on the last day of September through December 1998 with the
balance due in January 1999, with options to extend the final payment to March
1999, plus interest at the prime rate on short-term unsecured commercial
borrowings. The unsecured note is payable to the Company in two annual
installments of $.25 million with the balance due August 31, 2001. The security
for the secured note includes a pledge of the stock of CHF and a
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<PAGE> 16
limited personal guarantee of Mr. Nicholas. The proceeds from the sale of CHF
have been and will be used to reduce debt and provide security for the Company's
bank indebtedness.
OTHER VENTURE AND PRODUCT
CHOICEONE. In December 1997, the Company completed the stock sale of its
wholly owned subsidiary, ChoiceOne, a multi-state PPO created in 1993, for $.2
million in cash. The sale resulted from the Company's re-evaluating its
strategic objectives and determining that ChoiceOne was not a core business
segment. While owned by the Company, ChoiceOne was compensated by receiving
either a per member access fee or a percentage of the savings realized from
accessing the ChoiceOne network. As of August 1, 1997, ChoiceOne had
approximately 228,000 members representing 154 payors.
GOVERNMENT REGULATION
The Company is subject to extensive federal and state health care and
insurance regulations designed primarily to protect enrollees in the Managed
Plans, particularly with respect to government sponsored enrollees. Such
regulations govern many aspects of the Company's business affairs and typically
empower state agencies to review management agreements with health care plans
for, among other things, reasonableness of charges. Among the other areas
regulated by federal and state law are licensure requirements, premium rate
increases, new product offerings, procedures for quality assurance, enrollment
requirements, covered benefits, service area expansion, provider relationships
and the financial condition of the managed plans, including cash reserve
requirements and dividend restrictions. There can be no assurances that the
Company or its Managed Plans will be granted the necessary approvals for new
products or will maintain federal qualifications or state licensure.
The licensing and operation of OmniCare-MI, OmniCare-TN, UltraMedix,
PhilCare and OmniCare-LA are governed by the respective states' statutes and
regulations applicable to health maintenance organizations. The Managed Plans'
licenses are subject to denial, limitation, suspension or revocation if there
is a determination that the plans are operating out of compliance with the
states' HMO statutes, failing to provide quality health services, establishing
rates that are unfair or unreasonable, failing to fulfill obligations under
outstanding agreements or operating on an unsound fiscal basis. Except for
OmniCare-MI, the plans are not federally-qualified HMOs and, therefore, are not
subject to the federal HMO Act.
Federal and state regulation of health care plans and managed care products
is subject to frequent change, varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. Laws and
regulations relating to the Company's business are subject to amendment and/or
interpretation in each jurisdiction. In particular, legislation mandating
managed care for Medicaid recipients
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<PAGE> 17
is often subject to change and may not initially be accompanied by
administrative rules and guidelines. Changes in federal or state governmental
regulation could affect the Company's operations, profitability and business
prospects. Currently OmniCare-MI is in active discussions with state regulators
regarding compliance with certain regulatory issues. See "Managed Plan
Operated By the Company" under "Managed Plans" above and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources". While the Company is unable to
predict what additional government regulations, if any, affecting its business
may be enacted in the future or how existing or future regulations may be
interpreted, regulatory revisions may have a material adverse effect on the
Company.
INSURANCE
The Company presently carries comprehensive general liability, directors
and officers liability, property, business automobile, and workers'
compensation insurance. Management believes that coverage levels under these
policies are adequate in view of the risks associated with the Company's
business. The management agreements with OmniCare-MI and OmniCare-TN require,
and with UltraMedix required, the respective managed plans to maintain general
liability insurance, naming the Company as an additional insured. The Company
or the individual managed plans are or were required to pay the insurance
premiums under the terms of the respective management agreements. In addition,
the Managed Plans have professional liability insurance that covers liability
claims arising from medical malpractice, with the Company named as an additional
insured. There can be no assurance as to the future availability or cost of
such insurance, or that the Company's business risks will be maintained within
the limits of such insurance coverage.
COMPETITION
The managed care industry is highly competitive. The Company directly
competes with other entities that provide health care plan management services,
some of which are nonprofit corporations and others which have significantly
greater financial and administrative resources. The Company primarily competes
on the basis of fee arrangements, cost effectiveness and the range and quality
of services offered to prospective health care clients. While the Company
believes that its experience gives it certain competitive advantages over
existing and potential new competitors, there can be no assurance that the
Company will be able to compete effectively in the future.
The Company competes with other HMOs, PPOs and insurance companies. The
level of this competition may affect, among other things, the operating
revenues of the Managed Plans and, therefore, the revenues of the Company. The
predominant competitors in southeastern Michigan are Blue Cross/Blue Shield of
Michigan, The Wellness Plan, Total Health Plan and Health Alliance Plan. The
predominant competitors in central and southwestern Tennessee are Access-Med
Plus and Blue Cross/Blue Shield. The Company's Managed Plans primarily compete
on the basis of
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<PAGE> 18
enrollee premiums, covered benefits, provider networks, utilization limitations,
enrollee co-payments and other related plan features and criteria. Management
believes that the Company's existing clients are able to compete effectively
with their primary market competitors in these areas.
EMPLOYEES
The Company's ability to maintain its competitive position and expand its
business into new markets depends, in significant part, upon the maintenance of
its relationships with various existing senior officers, as well as its ability
to attract and retain qualified health care management professionals. Although
the Company has an employment agreement with its current Chief Executive
Officer, it neither has, nor intends to pursue employment agreements with all of
its key personnel. Accordingly, there is no assurance that the Company will be
able to maintain such relationships or attract such professionals.
Consistent with the Company's restructuring efforts, the total number of
employees was reduced from 427 at August 1, 1997 to 214 at September 1, 1998.
Of this 50% reduction in staff, approximately 44% was due to the Company's
cessation of its operations in Florida, Pennsylvania and Louisiana, and 56% was
attributable to a reduction in staffing, including attrition, of its corporate
and Tennessee operations. Management believes that the maintenance of the
current staff with nominal projected increases will allow it to complete its
restructuring efforts and stabilize operations in fiscal 1999. The Company's
employees do not belong to a collective bargaining unit and management
considers its relations with employees to be good.
MANAGEMENT INFORMATION SYSTEMS
Management believes that timely and relevant information is critical to a
managed care operation and utilizes its management information system ("MIS")
to process claims; analyze health care utilization; support provider, member
and employer requirements; and control administrative costs. The Company
previously initiated an MIS implementation plan intended to enhance its
operations, reduce costs and improve customer service with the development of a
proprietary client/server information system, along with complementary
automation products including claims scanning, claims imaging, electronic data
interchange and various select technologies for enterprise-wide installation.
The Company experienced substantial changes in its MIS personnel in recent
months, and appointed a new Senior Director of Management Information Systems in
August 1998. Management is currently reassessing its MIS requirements and
developing a comprehensive MIS strategy for the Company.
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<PAGE> 19
YEAR 2000
The Company is in the process of developing plans to address issues
related to the potential impact of the Year 2000 on its computerized systems
and equipment. The plans in development will address systems modification
requirements in the following primary areas: information systems, facilities,
payors and suppliers. While the financial impact of making the required
systems changes has not yet been quantified, it is not expected to have a
material effect on the Company's financial condition and results of operations.
The Company presently believes that with such modifications to software and
hardware, which are expected to be completed by the end of 1999, the Year 2000
issue will not pose material problems. However, if such modifications are not
made or are not completed timely, the Year 2000 issue could have a material
adverse impact on the Company's consolidated financial position.
Furthermore, the Company has initiated formal communications with its
significant suppliers and large payors to determine the extent to which the
Company may be vulnerable to those third parties' failure to remediate their
own Year 2000 issues. However, there can be no assurances that the systems of
other companies on which the Company relies will be timely converted and the
Company may be adversely affected by the failure of a significant third party to
become Year 2000 compliant.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage management to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statements. Certain statements contained in this Form 10-K annual report,
including, without limitation, statements containing the words "believes",
"anticipates", "will", "may", "might", and words of similar import, constitute
"forward-looking statements" within the meaning of this "safe harbor".
Such forward-looking statements are based on management's current
expectations and involve known and unknown risks, uncertainties and other
factors, many of which the Company is unable to predict or control, that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
potentially include, among others, the following:
1. Inability of the buyer of CHF to comply with the terms of
its secured and unsecured notes and the resultant impact on bank
agreements.
2. Inability of OmniCare-MI to remain as a viable entity.
3. Inability to increase premiums rates commensurate with
increases in medical costs due to utilization, government
regulation, or other factors.
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<PAGE> 20
4. Discontinuation of, limitations upon or restructuring of
government-funded programs, including but not limited to the
TennCare program.
5. Increases in medical costs, including increases in
utilization and costs of medical services and the effects of actions
by competitors or groups of providers.
6. Adverse state and federal legislation and initiatives,
including limitations upon or reductions in premium payments;
prohibition or limitation of capitated arrangements or financial
incentives to providers; federal and state benefit mandates
(including mandatory length of stay and emergency room coverage);
limitations on the ability to manage care and utilization; and any
willing provider or pharmacy laws.
7. The shift of employers from insured to self-funded coverage,
resulting in reduced operating margins to the Company.
8. Failure to obtain new customer bases, retain existing
customer bases or reductions in work force by existing customers;
failure to sustain commercial enrollment to maintain an enrollment
mix required by government programs.
9. Termination of the OmniCare-MI management agreement.
10. Increased competition between current organizations and the
entrance of new competitors and the introduction of new products by
new and existing competitors.
11. Adverse publicity and media coverage.
12. Inability to carry out marketing and sales plans.
13. Loss or retirement of key executives.
14. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
15. The selection by employers and individuals of higher
co-payment/deductible/coinsurance plans with relatively lower
premiums or margins.
16. Adverse regulatory determinations resulting in loss or
limitations of licensure, certification or contracts with
governmental payors.
17. Higher sales, administrative or general expenses occasioned
by the need for additional advertising, marketing, administrative or
MIS expenditures.
18. Increases by regulatory authorities of minimum capital,
reserve and other financial solvency requirements.
19. Denial of accreditation by quality accrediting agencies,
e.g., the National Committee for Quality Assurance (NCQA).
20. Adverse results from significant litigation matters.
21. Adverse impact from Year 2000 issues.
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<PAGE> 21
ITEM 2. PROPERTIES
The Company currently leases approximately 86,000 aggregate square feet
from which it conducts its operations in Michigan and Tennessee. The principal
offices of the Company are located at 1155 Brewery Park Boulevard, Suite 200,
Detroit, Michigan, where it currently leases approximately 54,000 square feet of
office space. In conjunction with the Company's restructuring efforts, it
vacated 10,000 square feet at its corporate headquarters and all of its 16,000
square feet of leased office space in the Renaissance Center, Detroit,
Michigan, which housed its management information system operations. In
consideration for negotiated lease concessions received by the Company,
including rental reductions and being allowed to vacate leased space, the
Company has agreed, among other things, that it will issue to its headquarters
landlord 22,500 unregistered shares of common stock of the Company.
The Company is a tenant of approximately 67,000 square feet of office
space it is not using in Philadelphia, Pennsylvania. The Company has sublet
80% of such premises to third parties for rent substantially equal to its own
and is attempting to sublease all or nearly all of the remaining space and is
currently negotiating with its landlord for a release from the Company's rental
obligations. Company management is unable to predict the outcome of these
negotiations.
The Company believes that its current facilities provide sufficient space
suitable for all of the Company's planned activities and that sufficient
additional space will be available on reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS
SHAREHOLDER LAWSUIT
As previously reported by the Company, certain former senior officers and
the Company were named defendants in two shareholder lawsuits filed in the
United States District Court for the Eastern District of Michigan (the "Court")
in August 1995. The Court consolidated these lawsuits into a single action.
The consolidated action alleged that certain senior officers and the Company
issued reports and statements that violated federal securities laws. The
Company and the officers contend that all material facts were disclosed during
the period in question and that certain material facts alleged not to have been
disclosed were already available in the financial marketplace.
Nevertheless, management concluded that continued defense of the litigation
was depleting the available insurance pool and that an unfavorable outcome in
excess of insurance policy limits potentially could have an adverse impact on
the Company's financial position. Continuation of this litigation would have
also diverted management's focus from operations. Based on these facts,
management pursued settlement with the plaintiffs. In January 1998, the parties
agreed to a proposed settlement requiring the release of all claims and damages
sought by the plaintiffs and
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<PAGE> 22
payment by the Company of $3.25 million, of which the Company anticipates the
insurance carrier to pay $2.1 million, which proposed settlement was subject
to federal court approval.
In late April 1998, the Company informed the plaintiffs' counsel and the
Court that the Company would not be able to fully fund its portion of the
tentative settlement amount. On September 14, 1998, the parties agreed to a
restructured proposed settlement requiring the release of all claims and
damages sought by the plaintiffs in exchange for (a) $2.0 million in cash from
the Company's insurance carrier, (b) a $625,000 promissory note of the Company
payable in 15 equal monthly installments beginning 13 months after entry of a
final court order approving the settlement, with interest at 4% per annum from
the date of such order, and (c) newly issued shares of common stock of the
Company with an aggregate value of $625,000 based on a share price equal to the
greater of (i) the average closing price of the Company's common stock for the
period from July 20, 1998 through the third trading day preceding the court
hearing on approval of the settlement and (ii) $2.25.
The pending settlement is subject to federal court approval following a
court hearing on the fairness of the proposed settlement, expected to be
scheduled for November 30, 1998. The Company has agreed to indemnify the named
officers from monetary exposure in connection with the lawsuit, subject to
reimbursement by any named officer, in the event he is found not to be entitled
to such indemnification.
RECEIVERSHIP AND LIQUIDATION OF UA-FL AND ULTRAMEDIX
On February 26, 1998, pursuant to a Stipulation and Consent to Appointment
of Receiver and Order of Liquidation earlier signed and delivered to the FDOI
by the Company, UltraMedix and UA-FL, upon the FDOI's petition, the Circuit
Court of the Second Judicial Circuit, in and for Leon County, Florida (the
"Florida court") entered a consent order declaring UltraMedix and UA-FL (the
"Organizations") insolvent and appointing the FDOI as Receiver for the purposes
of their liquidation.
On March 3, 1998, the Florida court entered a Consent Order of
Liquidation, Injunction and Notice of Stay, declaring that any further efforts
of the Receiver to rehabilitate the Organizations would be useless, ordering the
Receiver to take possession of and liquidate all assets of the Organizations,
and ordering the immediate cancellation of UltraMedix's authority to provide
health services as an HMO in Florida. On April 15, 1998, the Florida Agency for
Health Care Administration notified the Company of the Agency's intent to
enforce the Company's Guarantee Agreement, under which the Company had agreed to
reimburse UltraMedix's contracted Medicaid providers for authorized, covered
Medicaid services rendered to covered Medicaid enrollees, for which the Agency
had made payment on behalf of such enrollees, limited to an amount equal to the
amount of surplus UltraMedix would have been required to maintain under the
Medicaid contract in the absence of such Guarantee Agreement.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The shares of the Company's Common Stock are traded on the New York Stock
Exchange under the symbol "UAH." The table below sets forth the range of the
highest and lowest sales prices for the past two fiscal years, as reported by
the Exchange.
<TABLE>
<S> <C> <C> <C> <C>
1997 SALES PRICE 1998 SALES PRICE
FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- -------- -------- -------- --------
First 11 5/8 8 7 7/8 5
Second 8 1/8 5 1/2 5 9/16 1 9/16
Third 6 1/4 4 1/4 2 13/16 1 1/16
Fourth 6 3/8 4 2 3/4
</TABLE>
As of September 17, 1998, the closing price of the Common Stock on the
NYSE was $1.50 per share and there were approximately 265 shareholders of
record of the Company.
The Company has not paid any cash dividends on its Common Stock since its
initial public offering in the fourth quarter of fiscal 1991 and does not
anticipate paying such dividends in the foreseeable future. The Company
intends to retain earnings for use in the operation and expansion of
its business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
OPERATING DATA (YEAR ENDED JUNE 30):
Operating revenues $105,588 $112,549 $92,379 $59,790 $38,435
(Loss) earnings from continuing operations $(22,915) $ (5,260) $(3,657) $ 6,229 $ 6,470
Discontinued operation, net of income taxes $ (2,581) $ 1,845 $ 909 $ 367 $ 912
Net (loss) earnings $(25,496) $ (3,415) $(2,748) $ 6,596 $ 7,382
(Loss) earnings per common share from
continuing operations $ (3.48) $ (0.80) $ (0.56) $ 0.95 $ 0.99
Net (loss) earnings per common share $ (3.88) $ (0.52) $ (0.42) $ 1.01 $ 1.13
Weighted average common shares outstanding 6,578 6,553 6,561 6,561 6,561
</TABLE>
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<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (JUNE 30):
Cash and investments $ 14,690 $ 17,442 $30,930 $17,537 $20,136
Intangible assets, net 5,629 10,557 11,546 - -
Net assets of discontinued operation 16,703 19,746 14,703 10,542 9,150
Total assets 58,684 79,662 93,239 57,614 44,778
Medical claims and benefits payable 20,004 11,632 25,678 - -
Debt 22,444 23,868 21,654 10,474 5,833
Shareholders' equity 9,081 34,406 37,822 40,508 34,189
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
On January 12, 1998, as a result of significant operating losses, negative
working capital and a reduction in net worth, the Company announced a major
financial restructuring program which was designed to cut the Company's cash
losses and position the Company for profitable operations. To oversee the
Company's restructuring efforts, the Company named a new Chairman of the Board
to serve in a non-executive capacity, with the day to day operations of the
Company continuing to be managed by its then current Chief Executive Officer
and then current President and Chief Operating Officer. The Company engaged
Arthur Andersen LLP to assist in the development and implementation of the
financial restructuring program and named as Interim Chief Financial Officer of
the Company, the individual who was also the head of Arthur Andersen LLP's
Chicago-based Corporate Recovery Services Group.
The restructuring program encompassed Company plans to discontinue some
expansion projects, reduce non-core spending activities, reduce corporate
overhead, renegotiate its bank credit facilities, re-evaluate its investment in
affiliates and other assets and sell CHF.
On May 12, 1998, the Company announced three changes in management: (1)
the retirement of the then current Chief Executive Officer of the Company
effective August 6, 1998, including his immediate relinquishment of his
operational responsibilities, (2) the resignation of the then current President
and Chief Operating Officer of the Company and (3) the election of Gregory H.
Moses, Jr. as the new President and Chief Operating Officer of the Company. In
August 1998, Mr. Moses additionally became the Chief Executive Officer of the
Company, the Company's Corporate Controller became its new Treasurer and
Interim Chief Financial Officer and the Company appointed a new Senior Director
of Management Information Systems.
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<PAGE> 25
Restructuring actions completed include the change in senior management,
the sale of CHF for $17.75 million, the cessation of operations in Florida,
Louisiana and Pennsylvania, renegotiations of the bank credit facility and of
the proposed shareholder lawsuit settlement, employee downsizing, cancellation
of certain facility leases, reduction of corporate overhead, establishing
impairment losses on the Company's investments in affiliates and the write-off
of certain property and equipment.
The pre-tax effect of these restructuring efforts included: a) employee
downsizing, including attrition, at the Company's Corporate and Tennessee
operations of approximately 120 persons, or approximately 35% of the work force
at those locations, resulting in savings during fiscal 1998 of $1.8 million and
with annualized savings estimated at $5.7 million, and the recognition of $.2
million of severance expenses; b) renegotiation of the Company's corporate
office lease space which resulted in the reduction of accrued rent by $.6
million; c) expensing $.7 million and $.3 million of deferred HMO
licensure-related costs in Louisiana and Pennsylvania, respectively; d)
establishing impairment losses of $2.3 million and $2.1 million on the
Company's investments in Advica and PhilCare, respectively; e) the
write-off of certain property and equipment of $.8 million; and f) professional
fees related to the restructuring efforts and the sale of CHF, of $3.0 million.
The net of these efforts resulted in a pre-tax loss of approximately $9.0
million in fiscal 1998.
Additionally, the Company recognized $12.2 million in losses related to
the operations and subsequent cessation of the Company's Florida operations.
Newspaper stories in May 1998 reported that the Michigan Insurance Bureau
(the "Bureau") had obtained a sealed (confidential) court order on May 7, 1998
giving state regulators control over OmniCare-MI's assets. The Company
responded with a public statement on May 12, 1998, stating that OmniCare-MI was
not in receivership, but was in active discussion with the Bureau regarding
compliance with certain regulatory issues. On July 1, 1998, the Bureau issued
a public statement in which the Michigan Commissioner of Insurance announced
reaching accord with OmniCare-MI on a four-month plan to revitalize the HMO and
cited "three major positive developments respecting OmniCare": the Company's
cash infusion of $4.6 million, the corrective action plan and the "experienced
and capable leadership of Gregory H. Moses."
In June 1998, the Company funded a $4.6 million unsecured loan to
OmniCare-MI, evidenced by a surplus note, to enable OmniCare-MI to meet its
minimum
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<PAGE> 26
requirements for net worth and working capital. Pursuant to the surplus note,
interest and principal repayments are subject to approval by the Bureau and are
payable only out of the statutory surplus earnings of OmniCare-MI. The
interest rate is at prime, payable annually and if not paid is forfeited. The
principal has no stated maturity or repayment date. The surplus note is
subordinated to all other claimants of OmniCare-MI. The Company recorded an
impairment loss against its investment in this surplus note based on its
evaluation of the recoverable value of such investment and accordingly,
recognized bad debt expense of $2.3 million for the year ended June 30, 1998.
The State of Michigan, in an effort to reduce the cost of its Medicaid
program, competitively bid its Medicaid contracts, with an effective date of
July 1997. The affected southeastern Michigan counties include a significant
portion of the Medicaid enrollment for OmniCare-MI. OmniCare-MI was selected
to participate in the State's program. It was anticipated that approximately
90,000 additional eligible recipients would be assigned to the selected plans.
The membership increase was expected to help offset the rate reductions under
the program. Unsuccessful bidders to the State's request for proposal legally
challenged the initiative and, as a result, the State did not assign the
Medicaid eligible recipients to plans that were awarded contracts, but did
institute the rate reduction component of the new program effective July 1997.
With the indefinite delay of the assignment of the eligible recipients and
with Medicaid rate reductions of 20%, the operating revenues of OmniCare-MI and
the resulting management fees to the Company decreased in fiscal 1998. The
effect of the rate reductions on management fees from OmniCare-MI was an
approximately $3.0 million decrease.
The reduction of Medicaid rates and other factors were considered in
developing the OmniCare-MI corrective action plan, which is in the process of
implementation. The corrective action plan includes the reduction of medical
costs through renegotiation of hospital provider contracts, reduction of
pharmacy costs and a reduction in the management fee percentage paid to the
Company. In fiscal 1998, the Company derived 24% of its total revenues from its
management agreement with OmniCare-MI. Management believes that the continued
viability of OmniCare-MI is critical to the Company's future operations and
concluded that the unsecured loan, in the form of a surplus note, and reduction
in the management fee percentage were necessary actions to strengthen the
financial condition and support the continued viability of OmniCare-MI.
The Company reported a fiscal 1998 loss from continuing operations of $22.9
million, or $3.48 per share. Including discontinued operation, the loss totaled
$25.5 million, or $3.88 per share. The effect of the Company's restructuring
efforts, losses from and subsequent cessation of its Florida operation and other
asset impairment charges represented approximately $17 million of the loss from
continuing operations, or $2.56 per share.
25
<PAGE> 27
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Total revenues from continuing operations decreased $6.9 million (6.1%),
from $112.5 million in fiscal 1997 to $105.6 million in fiscal 1998.
Medical premium revenues were $78.6 million in fiscal 1998, an increase of
$8.2 million (12%) over medical premium revenues of $70.4 million in fiscal
1997. Medical premiums for OmniCare-TN increased $7.0 million (12%), from
$56.5 million in 1997 to $63.5 million in fiscal 1998. Of the increase, $1.1
million relates to the TennCare Bureau's 1998 annual settlement to managed
care organizations for high cost chronic conditions of their membership and new
medical technologies. The remaining OmniCare-TN increase of $5.9 million is
due to rate and enrollment increases. The per member per month ("PMPM") premium
rate - based on an average membership of 44,000 compared to 43,000 for the
prior year excluding the effects of the adverse selection and medical
technologies settlement - was $119 in fiscal 1998, compared to $110 in fiscal
1997, an increase of 8% or $4.7 million. The rate increase included changes in
the enrollment mix. A 2% increase in enrollment accounted for the remaining
$1.2 million increase.
Medical premiums for UltraMedix increased $1.2 million (9%), from $13.9
million in fiscal 1997 to $15.1 million in fiscal 1998.
Management fees were $25.0 million in fiscal 1998, a decrease of $15.0
million (38%) from fees of $40.0 million in fiscal 1997. The operating
revenues of OmniCare-MI decreased in fiscal 1998 due primarily to a net
decrease in premium and enrollment rates of approximately 10% and 2%,
respectively, which contributed to the decrease in management fees to the
Company of approximately $4.2 million. As noted in the overview, the State
Medicaid initiative in Michigan was the primary factor in the reduced premium
rates. Additionally, the reduction in the management fee percentage in June
1998 resulted in a decrease of management fees of $.4 million. The Company
recognized a decrease in management fee revenues from fiscal 1997 of $10.4
million, related to the PPC management agreement, which was terminated in May
1997.
Total expenses before income taxes from continuing operations totaled
$132.9 million in fiscal 1998, compared to $119.0 million in fiscal 1997, an
increase of $13.9 million (12%).
Medical service expenses were $70.3 million in fiscal 1998, an increase of
$12.5 million (22%) over medical service expenses of $57.8 million for fiscal
1997. Medical expenses for OmniCare-TN increased by $7.6 million (17%), from
$45.4 million for fiscal 1997 to $53.0 million in fiscal 1998. Medical
expenses for UltraMedix increased $4.9 million (40%), from $12.4 million in
fiscal 1997 to $17.3 million in fiscal 1998. The percentage of medical service
expenses to medical premium revenues, or the medical loss ratio ("MLR"), was 83%
and 80% for OmniCare-TN in
26
<PAGE> 28
fiscal 1998 and 1997, respectively, and 115% and 88% for UltraMedix in fiscal
1998 and 1997, respectively.
Marketing, general and administrative expenses ("MG&A") decreased $8.5
million (16%), from $52.8 million in fiscal 1997 to $44.3 million in fiscal
1998, due to the following: (i) termination of the PPC management agreement,
which resulted in a $9.1 million decrease; (ii) an increase in professional
fees of $4.6 million, related primarily to the financial restructuring program
of $3.0 million, expensing deferred HMO licensure-related cost in Louisiana and
Pennsylvania of $1.0 million and information system development and maintenance
of $.6 million; (iii) a $2.3 million loss related to the liquidation of the
assets and certain liabilities of the Florida operations; (iv) a $1.3 million
decrease in occupancy related cost, of which $.6 million related to the
renegotiation of the Company's corporate office lease space which reduced
accrued rent; and (v) decreases in salary costs of $3.0 million, promotional and
advertising activities of $.9 million, consumables of $.5 million and travel of
$.6 million.
Depreciation and amortization in fiscal 1998 was $9.7 million, compared to
$4.1 million in fiscal 1997, an increase of $5.6 million (137%). Of this
increase, $3.5 million was due to the write-off of the remaining goodwill
related to the Company's purchase of UltraMedix due to the liquidation order as
to UltraMedix in fiscal 1998. Also see Notes 4 and 7 to the audited
Consolidated Financial Statements. Additional increases included $.3 million
due to the change in estimate of the remaining useful life of the Company's
managed care software, and the write-off of certain property and equipment of
approximately $.8 million.
Bad debt expense increased $5.0 million (278%), from $1.8 million in
fiscal 1997 to $6.8 million in fiscal 1998. The increase related to impairment
losses established on certain of the Company's investments and surplus note
receivable.
As a result of the foregoing, the Company recognized a loss from
continuing operations, before income taxes, of $27.4 million for fiscal 1998,
compared to a loss from continuing operations, before income taxes, of $6.5
million for fiscal 1997, a $20.9 million change. The loss from continuing
operations, net of income taxes, was $22.9 million for fiscal 1998, compared to
a loss from continuing operations, net of income taxes, of $5.3 million for
fiscal 1997, a change of $17.6 million. The federal statutory tax rate for
continuing operations for both periods was approximately 34%. Goodwill
amortization related to equity investments, the write-off of capital
investments not deductible for tax purposes and state income taxes resulted in
an effective tax rate of approximately 16% for fiscal 1998 compared to 19% for
the prior fiscal year.
The loss from discontinued operation, net of income taxes, was $2.6 million
for fiscal 1998, compared to earnings of $1.9 million for 1997, a change of $4.5
million. This is due primarily to increased contract servicing costs and the
reduction in the net carrying value of net assets to the net realizable value of
$2.5 million.
27
<PAGE> 29
The net loss for fiscal 1998 was $25.5 million, or $3.88 per share,
compared to a net loss of $3.4 million, or $0.52 per share, for fiscal 1997.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
Total revenues from continuing operations increased $20.1 million (22%),
from $92.4 million in fiscal 1996 to $112.5 million in fiscal 1997.
Medical premium revenues were $70.4 million in fiscal 1997, an increase of
$35.9 million (104%) over medical premium revenues of $34.5 million in fiscal
1996. Medical premiums for OmniCare-TN increased $27.8 million (97%), from
$28.7 million in fiscal 1996 to $56.5 million in fiscal 1997. The net increase
is due to 12 months of activity in fiscal 1997 compared to 5 months in fiscal
1996, offset by a net decrease in member months. The enrollment for OmniCare-TN
was approximately 40,100 at June 30, 1997, compared to approximately 48,200 at
June 30, 1996, a decrease of 8,100 members or 17%. The State of Tennessee's
disenrollment of approximately 7,000 members in the quarter ending December
1996 was the primary reason for the decrease. This action was taken by the
State based upon the return of undeliverable questionnaires mailed to members,
which the State requested for continued participation.
Medical premiums for UltraMedix increased $8.1 million (140%), from $5.8
million in fiscal 1996 to $13.9 million in fiscal 1997. The net increase is due
to 12 months of activity in fiscal 1997 compared to 5 months in fiscal 1996.
UltraMedix's enrollment at June 30, 1997 was approximately 18,100, an increase
of 7,000 (63%) from the June 30, 1996 enrollment of approximately 11,100
members. UltraMedix made significant enrollment gains in the commercial market
since approval of its HMO license in October 1995. The increase in the
commercial market was due in part to the State of Florida's unsuccessful
initiative to mandate the enrollment of Medicaid eligibles into managed care
organizations. UltraMedix was selected to participate in this program and the
contract award would have capped UltraMedix's Medicaid enrollment, including
existing members, at approximately 48,000 during the contract period. Because
of legal challenges from unsuccessful bidders to the State's request for
proposal, the initiative was halted indefinitely. To minimize the uncertainty
related to rate reductions contemplated by the initiative, UltraMedix retargeted
its marketing efforts to expand its commercial business. This contributed to
the change in UltraMedix's enrollment mix from 98%:2% (Medicaid-to-commercial)
as of June 1996, to 53%:47% as of June 1997. As of September 1997, the mix was
46%:54%.
28
<PAGE> 30
The average PMPM premium rate in fiscal 1997 for OmniCare-TN was $110 and
for UltraMedix, $98.
Management fees were $40.0 million in fiscal 1997, a decrease of $15.9
million (28%) from fees of $55.9 million in fiscal 1996. $8.5 million of the
decrease was due to the purchase of majority ownership interests in UltraMedix
and OmniCare-TN in January 1996, resulting in the consolidation of these
entities, including the elimination of inter-company management fees. $8.7
million of the decrease was due to an agreement reached in June 1996 between
the Company and OmniCare-TN, pursuant to which OmniCare-TN agreed to reimburse
the Company approximately $8.7 million for start-up costs and other expenses
incurred for the period January 1994 through September 1995.
Operating revenues of OmniCare-MI decreased in fiscal 1997 due primarily
to a net decrease in enrollment rates of approximately 2%, which resulted in
decreased management fees to the Company of approximately $1.4 million. These
decreases were offset by a $2.0 million increase in management fees from PPC,
attributable primarily to increased PPC enrollment of approximately 52%, offset
by a decrease in premium rates of approximately 15% and 11 months of management
fees in fiscal 1997 compared to 12 months in fiscal 1996.
The Company's management agreement with PPC was terminated pursuant to
binding arbitration, effective May 31, 1997, based in part on a dispute between
the parties with respect to the payment of non-emergent transportation costs
for enrollees as a marketing expense to be incurred under the management
agreement.
OmniCare-MI was notified in May 1997 that it had been selected to
participate in the State of Michigan's initiative to mandate Medicaid
enrollment into managed care organizations. Similar to the initiative in
Florida, the State's initiative was legally challenged by unsuccessful bidders
responding to the State's request for proposal. Because of these legal
challenges, the State did not assign the Medicaid eligibles to plans that were
awarded contracts in the bid process, but did, however, institute the rate
reduction component of this new program effective July 1997.
Total expenses before income taxes from continuing operations totaled
$119.0 million in 1997, compared to $95.8 million in fiscal 1996, an increase of
$23.2 million or 24%.
Of the total medical service expenses of $57.8 million in fiscal 1997,
$45.4 million relates to OmniCare-TN and $12.4 million to UltraMedix, an
increase of $27.9 million (93%) over medical service expenses of $29.9 million
in fiscal 1996. The MLR was 80% for OmniCare-TN and 88% for UltraMedix in
fiscal 1997. The OmniCare-TN MLR for fiscal 1997 was positively affected by the
State of Tennessee's $2.4 million settlement to adjust the amount of claims
saving paid and/or
29
<PAGE> 31
accrued to the State of Tennessee prior to OmniCare-TN obtaining its TennCare
HMO license and the recognition of duplicate claims paid to providers.
Marketing, general and administrative expenses (MG&A) increased $2.7
million (5%), from $50.1 million in fiscal 1996 to $52.8 million in fiscal
1997, due to the following: (i) MG&A for the Company's operation of PPC
increased $1.0 million, but PPC-related MG&A as a percentage of management fee
revenues decreased 9% from 95% in fiscal 1996 to 86% in fiscal 1997, due
primarily to the mandated Medicaid initiative that increased enrollment without
a corresponding marketing effort; (ii) MG&A for corporate headquarters,
including the cost to operate OmniCare-MI, increased $1.9 million, and MG&A as
a percentage of management fee revenues increased 9%, from 93% in 1996 to 102%
in fiscal 1997, due to several factors, including: (a) a $1.4 million decrease
in management fees from OmniCare-MI; (b) an average 5% salary rate increase,
and (c) a $.3 million adjustment to increase rent expense in fiscal 1997
calculated as the difference between the lease obligations of the Company and
the estimated rental income from sub-tenants for the remaining life of the
Company's lease in Pennsylvania; and (iii) a net decrease of approximately
$.2 million related to the Company's Florida and Tennessee operations.
Equity in net losses of unconsolidated affiliates decreased approximately
$.7 million, from $.7 million in fiscal 1996 to zero in fiscal 1997, due to the
Company's acquisition of a majority interest in OmniCare-TN and UltraMedix in
January 1996.
Depreciation and amortization in fiscal 1997 was $4.1 million, compared to
$3.4 million in fiscal 1996, an increase of $.7 million (21%). The increase
was due primarily to the amortization of goodwill related to acquisitions and
computer software.
Interest expense increased approximately $.3 million (27%), from $1.1
million in fiscal 1996 to $1.4 million in fiscal 1997, due to increased
borrowings against the line of credit.
Of the bad debt expense of $1.8 million in fiscal 1997, $1.1 million
relates to a valuation reserve established to estimate the net recovery of $1.2
million in refundable advances made by OmniCare-TN to a third party
administrator. The third party administrator has denied the obligation and, as
a result, the Company is pursuing legal action to collect the receivable. The
balance of the fiscal 1997 bad debt expense is due to an additional write-down
of approximately $.7 million recorded to reduce the Company's $4.0 million
investment in Advica. Prior year Advica reserves totaled $1.1 million. As the
investment was capital in nature, no tax credits have been taken against the
cumulative reserve of $1.8 million.
The contract settlement expense recorded in December 1995 of $9.7 million
represented a one-time adjustment to management fee revenues and its effect on
other related accounts based on the provisions of the revised management
agreement between UA-TN and OmniCare-TN, as approved by the State of Tennessee
in November 1995,
30
<PAGE> 32
retroactive to January 1994. Despite the fact that OmniCare-TN agreed to
reimburse the Company approximately $8.7 million in June 1996 for the start-up
and other costs incurred by the Company between January 1994 and September
1995, the transaction was not sufficiently documented to allow recognition of
the same on the Company's financial statements in December 1995.
For fiscal 1997, the estimated Company expense related to the then
proposed shareholder class action lawsuit settlement, net of insurance
coverage, was $1.15 million. The proposed settlement was subject to federal
court approval. See also "Legal Proceedings".
As a result of the foregoing, the Company recognized a loss from continuing
operations before income taxes of $6.5 million in fiscal 1997, compared to a
loss from continuing operations before income taxes of $3.4 million in fiscal
1996, a $3.1 million change. The federal statutory tax rate for continuing
operations for fiscal 1997 and fiscal 1996 was approximately 34%. Goodwill
amortization related to equity investments, equity losses from unconsolidated
affliates, losses related to capital investments not deductible for tax
purposes and state income taxes resulted in an effective tax rate of
approximately 19% in fiscal 1997. These differences resulted in tax expense on
the fiscal 1996 loss. The net loss from continuing operations in fiscal 1997
was $5.3 million, compared to a net loss from continuing operations of $3.7
million in fiscal 1996, a change of $1.6 million.
Earnings from discontinued operation, net of income taxes, were $1.8
million in fiscal 1997, compared to $.9 million in fiscal 1996, an increase of
$.9 million. This change is due primarily to a contract entered into with the
State of Maryland's Injured Workers' Insurance Fund in June 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had (i) cash and cash equivalents and
short-term marketable securities of $14.7 million, compared to $17.4 million at
June 30, 1997; (ii) working capital of negative $14.1 million, compared to
negative $13.0 million at June 30, 1997; and (iii) a current assets-to-current
liabilities ratio of .64-to-1, compared to .67-to-1 at June 30, 1997. The
principal sources of funds for the Company during fiscal 1998 were $1.2 million
provided from net operating activities, net sales of marketable securities of
$9.9 million, debt borrowings of $.1 million and proceeds from the issuance of
common stock of $.2 million--offset by furniture and equipment additions of $.8
million, investing cash used in discontinued operation of $.8 million, $1.6
million to repay long-term debt and $4.6 million to fund an unsecured loan
evidenced by a surplus note issued by OmniCare-MI.
In previous fiscal years, to satisfy applicable statutory requirements,
the Company provided $1.0 million in letters of credit on behalf of, and a $1.0
million capital contribution to, OmniCare-LA, and made a $2.1 million capital
contribution to
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<PAGE> 33
\
PhilCare. The foregoing funds were provided by the Company from its line of
credit arrangement. Due to the cessation of its Louisiana operations, the
Company withdrew the $1.0 million capital contribution and is in the process of
cancelling its letter of credit commitments. The Company's Board of Directors
has determined to withdraw from all of its involvement in Pennsylvania and to
pursue recouping its investment in PhilCare.
On September 8, 1998, the Company sold the stock of CHF for $17.75
million, comprised of $2 million in cash, a secured note for $13.25 million and
an unsecured note for $2.5 million. The secured note is payable to the Company
in four monthly installments of $.5 million each on the last day of September
through December 1998 with the balance due in January 1999, with options to
extend the final payment to March 1999, plus interest at the prime rate on
short-term unsecured commercial borrowings. The unsecured note is payable to
the Company in two annual installments of $.25 million with the balance due
August 31, 2001, plus interest at 6% per annum. The security for the secured
note includes a pledge of the stock of CHF and a limited personal guarantee of
Louis J. Nicholas, a principal of the buyer. The proceeds from the sale of CHF
have been and will be used to reduce debt and provide security for the
Company's bank indebtedness.
On March 12, 1998, effective as of February 1, 1998, the Company entered
into an amended loan agreement and promissory note for a $22.9 million line of
credit facility with its current bank lender. On September 1, 1998, the
Company and the bank amended the loan agreement and promissory note to decrease
the line of credit amount to $20.94 million and modify other terms. The
purposes of the line of credit facility as of February 1, 1998 were to (i)
renew and increase the existing line of credit to pay off outstanding term
loans with the same bank and (ii) guarantee the payment of an existing $.5
million letter of credit. The agreement requires the permanent reduction of
the outstanding balance and the line of credit facility (a) at October 15, 1998
to $20.44 million, (b) at November 15, 1998 to $19.94 million, (c) at December
15, 1998 to $19.44 million, (d) at January 15, 1999 to $18.44 million, (e) at
February 15, 1999 to $17.94 million and (f) at April 15, 1999 to the lesser of
the then outstanding principal balance or $8 million, and the cancellation of
the $.5 million letter of credit by January 1, 1999. The maturity date of the
line of credit facility is October 1, 1999.
The line of credit facility is secured by all of the Company's rights,
title and interest in the secured and unsecured promissory notes of the
purchaser of the stock of CHF representing part of the purchase price for such
stock (which purchaser has covenanted with the bank to make all payments on
such notes directly to the bank for credit against the Company's indebtedness
to the bank) and in the pledged CHF stock and other documents related to such
purchase. Financial covenants for minimum net worth, debt service coverage
ratio, and maximum debt to worth ratio will be established prior to March 1,
1999.
32
<PAGE> 34
The Company is unable at this time to assess the capital requirements, if
any, related to the final disposition of UltraMedix.
The Company's restructuring efforts significantly contributed to the $22.9
million loss from continuing operations in fiscal 1998. However, after
adjusting for non-cash activities and changes in assets and liabilities, the
Company generated positive cash flows from operations in fiscal 1998. The
Company's ability to generate adequate amounts of cash to meet its future cash
needs will depend on a number of factors, including the stabilization of
OmniCare-MI, continuation of its restructuring efforts, achieving increased
operational efficiencies at its Tennessee operation and the collection of the
CHF sale proceeds.
Management believes that the negative working capital, excluding the $6.3
million in medical claims liability established for UltraMedix and including
long term debt at June 30, 1998 of $15.8 million, can be funded from the CHF
sale proceeds and operations in fiscal 1999. Management further expects that
the OmniCare-MI corrective action plan, which is in the process of
implementation, will stabilize that Plan and eliminate the need for future cash
infusions from the Company. Omnicare-MI has successfully renegotiated certain
major hospital provider contracts,including its most significant hospital
contract, which was one of the major components of the corrective action plan,
the effects of which will reduce medical costs.
RECENTLY ENACTED PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued in June, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components. This Statement requires that all items that are required as
components of comprehensive income be displayed in a financial statement.
Management does not expect the adoption of SFAS 130 will have a significant
impact on the financial statement disclosures of the Company.
ITEM 8. FINANCIAL STATEMENTS
Presented beginning at page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None that has not been previously reported.
33
<PAGE> 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Shareholders to be held on November 12, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Shareholders to be held on November 12, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Shareholders to be held on November 12, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to United American Healthcare Corporation
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Shareholders to be held on November 12, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) & (2) The financial statements listed in the accompanying Index to
Consolidated Financial Statements at page F-1 are filed as part of this Form
10-K report.
(3) The Exhibit Index lists the exhibits required by Item 601 of
Regulation S-K to be filed as a part of this Form 10-K report. The Exhibit
Index identifies those documents which are exhibits filed herewith or
incorporated by reference to (i) the Company's Form S-1 Registration Statement
under the Securities Act of 1933, as amended, declared effective on April 23,
1991 (Commission File No. 33-36760), (ii) the Company's Form 10-K for its
fiscal years ended June 30, 1993, 1994, 1995, 1996 and 1997; (iii) the
Company's Form 10-Q for its quarters ended March 31, 1996;
34
<PAGE> 36
September 30, 1996; March 31, 1997 and March 31, 1998 (iv) the Company's Form
8-Ks filed with the Commission August 8, 1991; April 23, 1993; May 24, 1993;
January 29, 1996; April 19, 1996; October 30, 1997 and January 12, 1998; or (v)
the Company's Form 8-K/A filed with the Commission July 21, 1993 and November
12, 1997. The Exhibit Index is hereby incorporated by reference into this Item
14.
(b) No reports on Form 8-K were filed with respect to the last
three months of fiscal 1998.
35
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on September 28, 1998.
UNITED AMERICAN HEALTHCARE
CORPORATION
(Registrant)
By: /s/GREGORY H. MOSES, JR.
-------------------------------------
Gregory H. Moses, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on September 28, 1998.
SIGNATURE CAPACITY
--------- --------
/s/GREGORY H. MOSES, JR. President, CEO and Director
- ------------------------
Gregory H. Moses, Jr. (Principal Executive Officer)
/s/ANITA C.R. GORHAM Secretary and Director
- --------------------
Anita C.R. Gorham
/s/PAUL G. SAMUELS Treasurer
- ------------------
Paul G. Samuels (Principal Financial Officer and
Principal Accounting Officer)
/s/WILLIAM C. BROOKS Director
- --------------------
William C. Brooks
/s/JULIUS V. COMBS, M.D. Director
- ------------------------
Julius V. Combs, M.D.
/s/WILLIAM B. FITZGERALD Director
- ------------------------
William B. Fitzgerald
/s/DARREL W. FRANCIS Director
- --------------------
Darrel W. Francis
36
<PAGE> 38
/s/HARCOURT G. HARRIS, M.D. Director
- ---------------------------
Harcourt G. Harris, M.D.
/s/PEARL M. HOLFORTY Director
- --------------------
Pearl M. Holforty
/s/RONALD M. HORWITZ, Ph.D. Director
- ---------------------------
Ronald M. Horwitz, Ph.D.
/s/EMMETT S. MOTEN, JR. Director
- -----------------------
Emmett S. Moten, Jr.
37
<PAGE> 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report................................................F-2
Report of Independent Certified Public Accountants..........................F-3
Consolidated Balance Sheets as of June 30, 1998 and 1997....................F-4
Consolidated Statements of Operations for each of the
years in the three year period ended June 30, 1998.......................F-5
Consolidated Statements of Shareholders' Equity for each
of the years in the three year period ended June 30, 1998................F-6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended June 30, 1998.......................F-7
Notes to Consolidated Financial Statements..................................F-9
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
Board of Directors
United American Healthcare Corporation:
We have audited the accompanying consolidated balance sheet of United
American Healthcare Corporation and Subsidiaries as of June 30, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of United American Healthcare Corporation and Subsidiaries as of June
30, 1998, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Detroit, Michigan
September 28, 1998
F-2
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
UNITED AMERICAN HEALTHCARE CORPORATION
We have audited the accompanying consolidated balance sheet of United American
Healthcare Corporation (a Michigan corporation) and Subsidiaries as of June 30,
1997 and the related consolidated statements of operations, shareholders' equity
and cash flows for the years ended June 30, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of OmniCare Health Plan,
Inc. of Tennessee, a 75 percent owned subsidiary, which statements reflect total
assets of $12,751,000 as of June 30, 1997 and total revenues of $57,384,000 and
$29,247,000 for the periods ended June 30, 1997 and 1996, respectively. These
statements were audited by other independent auditors whose reports thereon have
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amounts included for OmniCare Health Plan, Inc. of Tennessee, is based
solely on the reports of the other independent auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the aforementioned reports of other
independent auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
United American Healthcare Corporation and Subsidiaries as of June 30, 1997, and
the results of their operations and their cash flows for each of the two years
in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ GRANT THORNTON LLP
Southfield, Michigan
September 30, 1997
F-3
<PAGE> 42
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1997
-------------------------
ASSETS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $13,259 $ 9,582
Marketable securities 1,431 7,860
Premium receivables 2,723 5,275
Other receivables 1,816 2,441
Refundable federal income taxes 5,453 115
Prepaid expenses and other 281 587
Deferred income taxes 594 746
-------------------------
Total current assets 25,557 26,606
Property and equipment, net 6,098 10,100
Intangible assets, net 5,629 10,557
Investments in and advances to affiliates, net - 4,400
Surplus note receivable, net 2,300 -
Marketable securities 1,396 3,937
Deferred income taxes 417 2,376
Other assets 584 1,940
Net assets of discontinued operation 16,703 19,746
-------------------------
$58,684 $79,662
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $14,444 $21,851
Medical claims payable 20,004 11,632
Accounts payable and accrued expenses 3,549 3,642
Accrued compensation and related benefits 1,240 2,098
Other current liabilities 420 380
-------------------------
Total current liabilities 39,657 39,603
Long-term debt, less current portion 8,000 2,017
Accrued rent 935 1,599
Deferred income taxes 1,011 2,037
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued - -
Common stock, no par, 15,000,000 shares authorized; 6,578,356
and 6,535,941 issued and outstanding in 1998 and 1997 10,715 10,498
Retained earnings (deficit) (1,500) 23,996
Unrealized net loss on marketable securities (134) (88)
-------------------------
9,081 34,406
-------------------------
$58,684 $79,662
=========================
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 43
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
REVENUES
Medical premiums $78,582 $70,430 $34,523
Management fees from related parties 24,986 40,033 55,906
Interest and other income 2,020 2,086 1,950
----------------------------------------------
Total revenues 105,588 112,549 92,379
EXPENSES
Medical services 70,309 57,832 29,901
Marketing, general and administrative 44,336 52,755 50,077
Depreciation and amortization 9,679 4,069 3,370
Equity in net losses of unconsolidated affiliates - - 652
Interest expense 1,796 1,360 1,087
Bad debt expense 6,825 1,844 980
Contract settlement - - 9,685
Shareholder lawsuit settlement - 1,150 -
------------------------------- --------------
Total expenses 132,945 119,010 95,752
----------------------------------------------
Loss from continuing operations before income taxes (27,357) (6,461) (3,373)
Income tax expense (benefit) (4,442) (1,201) 284
----------------------------------------------
Loss from continuing operations (22,915) (5,260) (3,657)
(Loss) earnings from discontinued operation, net of income taxes (2,581) 1,845 909
----------------------------------------------
NET LOSS $(25,496) $(3,415) $(2,748)
==============================================
NET LOSS PER COMMON SHARE (BASIC AND DILUTED)
LOSS PER COMMON SHARE FROM CONTINUING OPERATION $(3.48) $(0.80) $(0.56)
==============================================
NET LOSS PER COMMON SHARE $(3.88) $(0.52) $(0.42)
==============================================
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 6,578 6,553 6,561
==============================================
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 44
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
NUMBER NET GAIN
OF RETAINED (LOSS) ON TOTAL
COMMON COMMON EARNINGS MARKETABLE SHAREHOLDERS'
SHARES STOCK (DEFICIT) SECURITIES EQUITY
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1995 6,561 $10,625 $30,159 $(276) $40,508
Net loss - - (2,748) - (2,748)
Unrealized net gain
on marketable securities - - - 62 62
--------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1996 6,561 10,625 27,411 (214) 37,822
Net loss - - (3,415) - (3,415)
Unrealized net gain
on marketable securities - - - 126 126
Purchase of common stock (25) (127) - - (127)
--------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1997 6,536 10,498 23,996 (88) 34,406
Net loss - - (25,496) - (25,496)
Unrealized net loss
on marketable securities - - - (46) (46)
Issuance of common stock 42 217 - - 217
--------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1998 6,578 $10,715 $(1,500) $(134) $ 9,081
======================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 45
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(25,496) $(3,415) $(2,748)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Loss (earnings)from discontinued operation, net 2,581 (1,845) (909)
Bad debt expense 6,825 1,844 980
Loss (gain) on disposal of assets 305 (11) (23)
Depreciation and amortization 9,679 4,069 3,370
Accrued rent (664) 388 155
Contract settlement - - 9,685
Deferred income taxes (credit) 1,085 (1,604) 656
Equity in net losses of unconsolidated affiliates - - 652
Changes in assets and liabilities net of effects from acquisitions
in 1997 and 1996
Decrease (increase) in premium receivables 2,552 (1,531) 716
Decrease (increase) in other receivables 625 (342) (469)
(Increase) decrease in refundable federal income taxes (5,338) 1,407 649
Decrease (increase) in prepaid expenses and other 306 37 (123)
Decrease in other assets 1,356 108 -
(Increase) decrease in intangible assets (241) 8 -
Increase (decrease) in medical claims payable 8,372 (16,943) (2,625)
Increase (decrease) in accounts payable and accrued expenses 78 3,563 (203)
(Decrease) increase in accrued compensation and related benefits (858) 157 484
Increase (decrease) in other current liabilities 40 380 (254)
--------------------------------------------
Net cash provided by (used in) operating activities 1,207 (13,730) 9,993
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired - - 10,664
Purchase of marketable securities (1,210) (3,551) (81)
Proceeds from the sale and maturity of marketable securities 11,104 7,063 4,183
Purchase of property and equipment (820) (3,276) (4,839)
Proceeds from the sale of property and equipment - 400 -
Investments in and advances to affiliates - 108 (8,267)
Increase in other assets - - (336)
Investment in surplus note receivable (4,600) - -
Increase in long term note receivable - - (1,764)
Cash used in discontinued operation (797) (3,198) (3,252)
--------------------------------------------
Net cash provided by (used in) investing activities 3,677 (2,454) (3,692)
FINANCING ACTIVITIES
Borrowing under line of credit agreement 142 5,117 13,588
Payments made on long-term debt (1,566) (2,903) (2,408)
Issuance (repurchase) of common stock 217 (127) -
--------------------------------------------
Net cash (used in) provided by financing activities (1,207) 2,087 11,180
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,677 (14,097) 17,481
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,582 23,679 6,198
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,259 $9,582 $23,679
============================================
</TABLE>
F-7
<PAGE> 46
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $1,751 $ 1,673 $ 989
======================================
Income taxes paid $ 61 $ 1,150 $ 815
======================================
</TABLE>
Supplemental schedule of non-cash investing activities for fiscal 1997
represents the acquisition of certain contract rights and assets and assumed
certain liabilities of Spectera, Inc., and is included with net cash flows used
in investing activities of discontinued operation; and for 1996 represents the
acquisition of majority interests in OmniCare Health Plan, Inc. of Tennessee and
UltraMedix Healthcare Systems, Inc. as follows:
<TABLE>
<S> <C> <C> <C>
Fair value of assets acquired $ - $(1,765) $(33,174)
Cash acquired - - 20,327
Liabilities assumed - 750 23,511
--------------------------------------
$ - $(1,015) $ 10,664
======================================
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE> 47
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
- ----------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
- ----------------------------------
BUSINESS. United American Healthcare Corporation, together with its
wholly and majority owned subsidiaries (collectively, the Company) is
a multi-state provider of health care services, including consulting
services to managed care organizations and the provision of health
care services in Tennessee and, through February 26, 1998, in Florida.
The Company operates in a single segment.
- -----------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------
a. PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of United American Healthcare
Corporation, and its wholly owned subsidiaries: U.A. Health Care
Corporation (UA-OH), United American of Tennessee, Inc. and
Subsidiary (UA-TN), United American of Louisiana, Inc. and Subsidiary
(UA-LA), United American of Pennsylvania, Inc. (UA-PA), United
American of Georgia, Inc. and Subsidiary (UA-GA), United American of
Illinois, Inc. and Subsidiary (UA-ILL), ChoiceOne Preferred Provider
Plan, Inc. (ChoiceOne), and Corporate Healthcare Financing, Inc. and
Subsidiaries (CHF),and its 80% owned subsidiary United American of
Florida, Inc. and Subsidiary (UA-FL). OmniCare Health Plan
(OmniCare-TN) is a 75% owned subsidiary of UA-TN.
The Company ceased activities related to UA-FL, UA-LA and UA-PA in
fiscal 1998 and UA-OH, UA-GA and UA-ILL in fiscal 1997. ChoiceOne was
sold in December 1997. All significant intercompany transactions and
balances have been eliminated in consolidation. Non-majority
investments in affiliates in which management has the ability to
exercise significant influence are recorded on the equity method. As
discussed in Note 4, CHF is presented as a discontinued operation and
was sold subsequent to year end.
b. USE OF ESTIMATES. The accompanying consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Actual results could differ
from those estimates as more information becomes available and any
such difference could be significant. The most significant estimates
that are susceptible to change in the near term relate to the
determination of medical claims payable.
c. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
instruments purchased with original maturities of three months or
less to be cash equivalents.
F-9
<PAGE> 48
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
d. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and
cash equivalents, receivables and marketable securities approximate
fair values of these instruments at June 30, 1998 and 1997.
e. MARKETABLE SECURITIES. Investments in marketable securities are
primarily comprised of U.S. Treasury notes, debt issuances of
municipalities and foreign countries and common stocks all carried at
fair value, based upon published quotations of the underlying
securities and six month certificates of deposit carried at cost plus
interest earned, which approximates fair value. Marketable securities
placed in escrow to meet statutory funding requirements, although
considered available for sale, are not reasonably expected to be used
in the normal operating cycle of the Company and are classified as
noncurrent. All other securities available for sale are classified as
current.
Premiums and discounts are amortized or accreted, respectively, over
the life of the related debt security as adjustment to yield using
the yield-to-maturity method. Interest and dividend income is
recognized when earned. Realized gains and losses on investments in
marketable securities are included in investment income and are
derived using the specific identification method for determining the
cost of the securities sold; unrealized gains and losses on
marketable securities are reported as a separate component of
shareholders' equity, net of the provision for deferred federal
income taxes.
f. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Expenditures and improvements, which add significantly to the
productive capacity or extend the useful life of an asset are
capitalized. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related
assets. Estimated useful lives of the major classes of property and
equipment are as follows: furniture and fixtures - 5 to 13 years;
equipment - 5 years and computer software - 2 to 5 years. Leasehold
improvements are included in furniture and fixtures and are amortized
on a straight-line basis over the shorter of the lease term or the
estimated useful life, which ranges from 5 to 13 years. The Company
uses accelerated methods for income tax purposes. The Company has
internally developed customized software, and has capitalized the
related costs.
g. INTANGIBLE ASSETS. Intangible assets resulting from business
acquisitions are carried at cost and are currently being amortized on
a straight-line basis over their estimated useful lives of 10 years.
h. LONG-LIVED ASSETS. Following the criteria set forth in Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of " (SFAS 121), long-lived assets and certain identifiable
intangibles are reviewed by the Company for events or changes in
circumstances, which would indicate that the carrying value may
F-10
<PAGE> 49
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
not be recoverable. In making this determination, the Company
considers a number of factors, including estimated future
undiscounted cash flows associated with long-lived assets, current
and historical operating and cash flow results and other economic
factors. When any such impairment exists the related assets are
written down to fair value. Based upon its most recent analysis, the
Company believes that long-lived assets are recorded at their net
recoverable values (see Notes 4, 8 and 9).
i. MEDICAL CLAIMS PAYABLE. The Company provides for medical claims
incurred but not reported and the cost of adjudicating claims based
primarily on past experience, together with current factors, using
accepted actuarial methods. Although considerable variablity is
inherent in such estimates, management believes that these reserves
are adequate.
j. REVENUE RECOGNITION. Medical premium revenues are recognized in the
month in which members are entitled to receive health care services.
Medical premiums collected in advance are recorded as deferred
revenues. Management fee revenues are recognized in the period the
related services are performed.
k. MEDICAL SERVICES EXPENSE RECOGNITION. The Company contracts with
various health care providers for the provision of certain medical
services to its members and generally compensates those providers on
a capitated and fee for service basis. The estimates for medical
claims payable are regularly reviewed and adjusted as necessary,
with such adjustments generally reflected in current operations.
l. REINSURANCE. Reinsurance premiums are reported as medical services
expense, while the related reinsurance recoveries are reported as
deductions from medical services expense.
m. INCOME TAXES. Deferred income tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled.
The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in income in the period that involves the
deferred tax assets to the amount expected to be realized. Valuation
allowances are established when necessary to reduce the deferred tax
assets to the amount expected to be realized.
F-11
<PAGE> 50
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The deferred income tax provision or benefit generally reflects the
net change in deferred income tax assets and liabilities during the
year. The current income tax provision reflects the tax consequences
of revenues and expenses currently taxable or deductible for the
period.
n. STOCK BASED COMPENSATION. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). The Company
records compensation expense for stock options only if the market
price of the Company's stock, on the date of grant, exceeds the
amount an individual must pay to acquire the stock, if dilutive.
o. LOSS PER SHARE. The Company has adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). In
accordance with SFAS 128, basic net loss per share excluding dilution
has been computed by dividing net loss by the weighted-average number
of common shares outstanding for the period. Diluted loss per share
is computed the same as basic except that the denominator also
includes shares issuable upon assumed exercise of stock options.
For the fiscal year ended June 30, 1998, the Company did not have any
outstanding securities having a dilutive effect on loss per share. If
the Company were to recognize net earnings in the future, stock
options for 100,000 common shares issued and outstanding could have a
potentially dilutive effect on earnings per share.
p. RECENT ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), was
issued in June, 1997. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components. This
Statement requires that all items that are required as components of
comprehensive income be displayed in a financial statement.
Management does not expect the adoption of SFAS 130 to have a
significant impact on the financial statement disclosures of the
Company.
q. RECLASSIFICATIONS. Certain reclassifications have been made to prior
years' financial statements' amounts to conform to the current year
classifications.
- --------------------------------------------
NOTE 3 - LIQUIDITY & RESTRUCTURING PROGRAM
- --------------------------------------------
During fiscal 1998, the Company experienced negative working
capital, a reduction in net worth and significant losses from
operations, primarily related to a number of non-recurring items
including: $12.2 million related to the losses from and subsequent
cessation of its Florida operations (see Note 4); and the following
charges related to the retructuring program: impairment losses on
certain investments totaling $4.4 million; professional fees of $3.0
million; write off of certain non-operating assets totaling $.8
million; and $1.0 million related to the cessation of its Louisiana and
Pennsylvania operations. Additionally, an unsecured loan, evidenced by
a surplus note, totaling $4.6 million was made to the Company's managed
plan client, Michigan Health Maintenance Organization Plans, Inc.,
d/b/a OmniCare Health Plan, Inc. (OmniCare-MI) (see Note 9).
On January 12, 1998 the Board of Directors of the Company approved
a restructuring plan designed to improve operating efficiencies,
eliminate cash losses and position the Company for profitable
operations. The restructuring program encompassed Company plans to
discontinue some expansion projects, reduce non-core spending
activities, reduce corporate overhead, renegotiate its bank credit
facility and evaluate the Company's investments in affiliates and other
assets. The Company recognized restructuring charges of approximately
$9 million in fiscal 1998.
F-12
<PAGE> 51
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The Company has been engaged in continuous efforts to implement
its restructuring plan and effectuate significant internal changes
which together include: the sale of CHF and use of proceeds thereon to
reduce outstanding debt to $8 million by April 15, 1999 (see Notes 4
and 10); reduction of management fees charged to OmniCare-MI and
OmniCare-TN which is expected to reduce the need for additional cash
outlays to meet minimum statutory capital requirements; implementing
significant cost savings measures to continue to reduce overhead,
including advertising and promotion, divesting non-operating ancillary
components of the organization which require disproportionate
utilization of management and operational resources; renegotiated
leases; and significant restructuring of key management positions.
Additional activities, which are in process and are important for
the overall success of the restructuring program, include management's
efforts to achieve further cost reductions and maintain the Company's
net revenues. The primary source of future net revenues is expected to
include those from healthcare plans owned or operated by the Company.
If the projected net revenues from these health care plans are not
maintained, without mitigation by further cost reductions, it would
represent a significant adverse development for the Company and its
restructuring plan.
The Company's ability to generate adequate amounts of cash to meet
its future cash needs will depend on a number of factors, including the
stabilization of OmniCare-MI, continuation of its restructuring
efforts, achieving increased operational efficiencies at its Tennessee
operations and the collection of the CHF sale proceeds (see Notes 4 and
10).
- ----------------------------------------
NOTE 4 - ACQUISITIONS AND DISPOSITIONS
- ----------------------------------------
CORPORATE HEALTHCARE FINANCING, INC. (CHF)
CHF provides administrative services to self-funded employers
and employee welfare plans, including health benefit plan design and
development of workers' compensation and unemployment benefit programs.
On May 7, 1993, CHF acquired substantially all of the assets and
assumed certain liabilities of a Maryland limited partnership, in a
business combination accounted for as a purchase. The cost at the
F-13
<PAGE> 52
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
time of the acquisition was approximately $9.6 million and is included
with net assets of discontinued operation in the accompanying balance
sheets. Through June 30, 1998 and 1997, the purchase price was
increased as defined in the asset purchase agreement by the maximum
amount of $6.6 million.
Effective December 31, 1996, CHF acquired certain contract
rights and assets and assumed certain liabilities of Spectera, Inc. for
approximately $1.8 million in cash and debt. The excess purchase price
over the fair market value of the net assets acquired of approximately
$1.0 million has been charged to goodwill, and is included with net
assets of discontinued operation in the accompanying balance sheet.
On August 6, 1998, the Company's Board of Directors approved
the stock sale of CHF to an entity related to the Company through
certain common shareholders, including a former officer and director of
the Company. On September 8, 1998, such sale occurred for $17.75
million, comprised of $2 million in cash, a secured note for $13.25
million and an unsecured note for $2.5 million. The secured note is
payable to the Company in four monthly installments of $.5 million each
on the last day of September through December 1998 with the balance due
in January 1999, with options to extend the final payment to March
1999, plus interest at the prime rate on short-term unsecured
commercial borrowings. The unsecured note is payable to the Company in
two annual installments of $.25 million with the balance due August 31,
2001, plus interest at 6% per annum. As discussed in Note 10, the
Company's line of credit facility required (1) approval by the bank of
the sale of CHF and (2) use of proceeds to reduce the indebtedness to
the bank. In anticipation of this sale, the results of CHF and its
subsidiaries are reported as a discontinued operation in the
consolidated financial statements for all periods presented.
The assets and liabilities of CHF were written down by $2.5
million, which has been reflected in the loss from discontinued
operation in fiscal 1998, to reflect a reduction in the net carrying
value to the net realizable value of CHF. The net carrying value of the
assets and liabilities of CHF have been recorded in the accompanying
consolidated balance sheets as net assets of discontinued operation,
except for cash and cash equivalents of $1 million and $.8 million,
which are included with cash and cash equivalents in the accompanying
consolidated balance sheets as of June 30, 1998 and 1997, respectively.
(Loss) earnings from discontinued operation for each year
ended June 30 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Total revenues $21,949 $18,803 $10,661
Total expenses 24,530 16,958 9,752
---------------------------------------
(Loss) earnings from discontinued operation (1) $(2,581) $ 1,845 $ 909
=======================================
</TABLE>
(1) Net of income tax (benefit) of $(239), $1,164 and $766 in
1998, 1997 and 1996, respectively.
F-14
<PAGE> 53
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
CHF and its subsidiaries' consolidated balance sheets at each
June 30 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------
ASSETS
-------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 1,047 $ 804
Commission, service fees and other receivables, net 10,602 9,927
Property and equipment, net 2,602 2,126
Intangible assets, net 5,239 9,217
Other assets 1,330 982
--------------------------
$20,820 $ 23,056
==========================
LIABILITIES AND SHAREHOLDER'S EQUITY
-------------------------------------------------------------------
Accounts payable and accrued expenses $ 1,597 $ 1,221
Accrued compensation and related benefits 953 628
Payable to parent - 2,201
Debt payable within one year 200 197
Long-term debt 320 461
--------------------------
3,070 4,708
Shareholder's equity 17,750 18,348
--------------------------
$ 20,820 $ $23,056
==========================
</TABLE>
PRO FORMA EFFECTS OF THE CHF SALE
On a pro forma basis, the CHF sale would have decreased the
fiscal 1998 loss from continuing operations by approximately $1.0
million ($1.5 million pretax), or $0.15 per share. Approximately $.9
million represents interest income on the balance due from the sale and
approximately $.1 million represents a reduction of interest expense
resulting from the repayment of debt. On a pro forma basis, the impact
on the June 30, 1998 Consolidated Balance Sheet would be the reduction
of debt by approximately $2 million and the increase in note receivable
by $15.25 million.
ULTRAMEDIX HEALTHCARE SYSTEMS, INC. (ULTRAMEDIX)
In February 1994, the Company entered into a long-term
agreement to manage UltraMedix and acquired a 30.4% equity interest for
approximately $1.4 million in cash. Effective January 29, 1996, the
Company purchased an additional 20.6% of the voting common stock, and
100% of the preferred stock, of UltraMedix. The purchase price for the
additional common stock and preferred stock of UltraMedix was
approximately $1.9 million in cash. This increased the Company's
ownership in the voting common stock of UltraMedix to 51%.
F-15
<PAGE> 54
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
This acquisition was accounted for under the purchase method
of accounting. The excess of the purchase price over the fair value of
the net assets acquired was approximately $4.5 million and was recorded
as goodwill. Results of operations are included in the accompanying
financial statements effective with the date of purchase of the
majority common stock ownership interest.
As of December 31, 1997, UltraMedix was not in compliance with
the Florida Department of Insurance's (FDOI) statutory solvency
requirement. UltraMedix's statutory deficiency at December 31, 1997 was
estimated at $4.5 million. As a result of the deficiency, on February
26, 1998, UltraMedix and the Plan's third-party administrator, United
American of Florida, Inc. (UA-FL), a Company subsidiary, were placed
into receivership, and on March 3, 1998, into liquidation, by the FDOI.
Through the date of the commencement of liquidation, the
results of these operations were included in the consolidated results
of operations of the Company, which included a net loss totaling $ 9.3
million. In connection with the liquidation, the Company wrote off
goodwill and accumulated amortization of approximately $4.5 million and
$1.0 million, respectively, and recognized a loss on the liquidation of
approximately $2.3 million.
On April 15, 1998, the Florida Agency for Health Care
Administration notified the Company of the Agency's intent to enforce
the Company's Guarantee Agreement, under which the Company had agreed
to reimburse UltraMedix's contracted Medicaid providers for authorized,
covered Medicaid services rendered to covered Medicaid enrollees, for
which the Agency had made payment on behalf of such enrollees, limited
to an amount equal to the amount of surplus UltraMedix would have been
required to maintain under the Medicaid contract in the absence of such
Guarantee Agreement.
OMNICARE HEALTH PLAN, INC. OF TENNESSEE (OMNICARE-TN)
In February 1994, the Company entered into a long-term
agreement to manage OmniCare-TN and effective July 1994 acquired a 50%
equity interest in OmniCare-TN for approximately $1.3 million in cash.
Effective January 31, 1996, the Company 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 stock and preferred stock of OmniCare-TN was $.1
million and $10.9 million, respectively, of which $8.7 million was the
conversion of OmniCare-TN debt to the Company to equity and $2.3
million was paid in cash.
This acquisition was accounted for under the purchase method
of accounting. The excess of the purchase price over the fair value of
the net assets acquired of approximately $7.4 million has been recorded
as goodwill, and is being amortized over ten years on a straight-line
basis. Results of operations are included in the accompanying financial
statements effective with the date of purchase of the majority
F-16
<PAGE> 55
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
common stock ownership interest. Goodwill is reduced by the subsequent
utilization of OmniCare-TN's net operating losses.
In July 1998, the Company made an additional cash contribution
of $.75 million to OmniCare-TN, in exchange for additional preferred
stock of OmniCare-TN to be issued to the Company.
- -------------------------------
NOTE 5 - MARKETABLE SECURITIES
- -------------------------------
A summary of amortized cost, gross unrealized gain and loss
and estimated fair value of marketable securities as of June 30 was as
follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED ESTIMATED
COST -------------------------- FAIR VALUE
GAIN LOSS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Available for sale -Current:
Certificates of deposit $ 582 $ - $ - $ 582
U.S. government obligations
Foreign government debt securities 25 25
Equity securities 1,040 - (216) 824
------------------ ------------ ------------- ---------------
1,647 - (216) 1,431
Available for sale - Noncurrent:
U.S. government obligations 1,385 11 - 1,396
------------------ ------------ ------------- ---------------
$3,032 $11 $(216) $ 2,827
================== ============ ============= ===============
1997
Available for sale - Current:
U.S. government obligations $ 532 $ 3 $ - $ 535
Foreign government debt securities 25 - - 25
Municipalities and local agencies 6,935 41 - 6,976
Equity securities 504 - (180) 324
------------------ ------------ ------------- ---------------
7,996 44 (180) 7,860
Available for sale - Noncurrent:
Certificates of deposit 500 67 - 567
U.S. government obligations 2,954 416 - 3,370
------------------ ------------ ------------- ---------------
3,454 483 - 3,937
------------------ ------------ ------------- ---------------
$11,450 $527 $ (180) $11,797
================== ============ ============= ===============
</TABLE>
At June 30, 1998, the statement value and estimated fair value
of fixed maturities, by contractual maturity, are shown below (in
thousands). Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $1,967 $1,978
Due in one year through five years 25 25
-------------------------------
$1,992 $2,003
===============================
</TABLE>
F-17
<PAGE> 56
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
Certain of the Company's subsidiaries are obligated by state
regulations to maintain a specified level of escrowed funds to assure
the provision of healthcare services to enrollees. To fulfill these
statutory requirements, the Company maintains funds in highly liquid
escrowed investments, which amounted to $1.4 million and $3.9 million
at June 30, 1998 and 1997, respectively.
- -------------------------------
NOTE 6 - CONCENTRATION OF RISK
- -------------------------------
During the years ended June 30, 1998, 1997 and 1996
approximately 60%, 50% and 31%, respectively, of the Company's revenues
were derived from a single customer, TennCare, a State of Tennessee
program that provides medical benefits to Medicaid and Working
Uninsured recipients. TennCare withholds 10% of the Company's monthly
capitation payment. TennCare remits the monthly withheld amounts to the
Company when certain informational filing requirements are met by the
Company. Amounts withheld by TennCare as of June 30, 1998 and 1997
totaled approximately $1.6 million and $1.8 million, respectively. The
Company has recorded a receivable of approximately $1.1 million and $.8
million at June 30, 1998 and 1997, respectively, from the TennCare
program adverse selection pool. The receivable is based on tentative
information provided to the Company by the State of Tennessee.
The Company has entered into a long-term management agreement
with OmniCare-MI. Pursuant to the management agreement, the Company
provides management and consulting services to OmniCare-MI and is
generally paid a percentage of revenues to manage the plan. Management
fee revenues from OmniCare-MI as a percentage of the Company's total
revenues were 24%, 26% and 33% for 1998, 1997 and 1996, respectively.
- ------------------------------------------------------
NOTE 7 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
- ------------------------------------------------------
Property and equipment at each June 30 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Furniture and fixtures $2,390 $2,092
Equipment 8,158 9,185
Computer software 6,347 6,402
-------------------------
16,895 17,679
Less accumulated depreciation and amortization (10,797) (7,579)
-------------------------
$6,098 $10,100
=========================
</TABLE>
Intangible assets at each June 30 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Goodwill $7,466 $11,987
Less accumulated amortization (1,837) (1,430)
-------------------------
$5,629 $10,557
=========================
</TABLE>
F-18
<PAGE> 57
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
- ---------------------------------------------------
NOTE 8 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
- ---------------------------------------------------
Investments in and advances at each June 30 to affiliates are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
PhilCare Health Systems $2,100 $2,100
Advica Health Management 2,300 2,300
Less impairment loss (4,400) -
--------------------------
$ - $4,400
==========================
</TABLE>
In May 1994, the Company acquired at book value a 49% equity
interest in PhilCare Health Systems, Inc. (PhilCare), a start-up HMO in
Philadelphia, Pennsylvania for approximately $1,000 in cash. In
connection therewith, the Company funded PhilCare's applicable
statutory reserve and net worth requirements of $2.1 million in cash.
Advica Health Management (formerly United/HealthScope, Inc.)
was organized in March 1993 to engage in development, consulting and
contract management services for publicly-funded managed care programs
in the metropolitan New York area. Through May 1997, outstanding
amounts owed to the Company from Advica totaled approximately $4.9
million. In May 1997, Advica's outstanding debt and preferred stock
were restructured. The Company converted its interest in Advica,
including advances, accrued interest and the value of warrants held by
the Company, to one million shares of non-voting preferred stock of the
restructured Advica with a par value of $4 million and a warrant to
purchase 3,310 shares of Advica common stock, exercisable at any time
at a nominal price. The conversion of the Company's loans to Advica to
preferred stock was treated as a "troubled debt restructuring" and the
investment was recorded at its estimated fair value at the date of the
restructuring of $2.3 million. This resulted in bad debt expense of $.7
million for the year ended June 30, 1997.
In fiscal 1998, the Company recorded full impairment losses
against its investments in PhilCare and Advica. The establishment of
the impairment losses were based on the Company's evaluation of the net
recoverable value of such investments. This resulted in bad debt
expense of $4.4 million for the year ended June 30, 1998.
- ---------------------------------
NOTE 9 - SURPLUS NOTE RECEIVABLE
- ---------------------------------
In June 1998 the Company funded a $4.6 million unsecured loan
to OmniCare-MI, evidenced by a surplus note, to enable OmniCare-MI to
meet its minimum statutory requirements for net worth and working
capital. Pursuant to the surplus note, interest and principal payments
are subject to approval by the Michigan Insurance Bureau (Bureau) and
shall be repaid only out of the statutory surplus earnings of
OmniCare-MI.
F-19
<PAGE> 58
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The interest rate is at prime, payable annually and if not paid
annually is forfeited. The principal has no stated maturity or
repayment date. The surplus note is subordinated to all other claimants
of OmniCare-MI.
The Company recorded an impairment loss based on its
evaluation, which considered the estimate of OmniCare-MI's future
undiscounted cash flows and statutorily derived surplus earnings and
repayments conditioned on Bureau approval, of the net recoverable
value of its note receivable from OmniCare-MI. This resulted in bad
debt expense of $2.3 million for the year ended June 30, 1998.
- -------------------------
NOTE 10 - LONG TERM DEBT
- -------------------------
On March 12, 1998, effective as of February 1, 1998, the
Company entered into an amended loan agreement and promissory note for
a $22.9 million line of credit facility with its current bank lender.
On September 1, 1998, the Company and the bank amended the loan
agreement and promissory note to decrease the line of credit amount to
$20.94 million and modify other terms. The purposes of the line of
credit facility as of February 1, 1998 were to (i) renew and increase
the existing line of credit to pay off outstanding term loans with the
same bank and (ii) guarantee the payment of an existing $.5 million
letter of credit. The agreement requires the permanent reduction of the
outstanding balance and the line of credit facility (a) at October 15,
1998 to $20.44 million, (b) at November 15, 1998 to $19.94 million, (c)
at December 15, 1998 to $19.44 million, (d) at January 15, 1999 to
$18.44 million, (e) at February 15, 1999 to $17.94 million and (f) at
April 15, 1999 to the lesser of the then outstanding principal balance
or $8 million, and the cancellation of the $.5 million letter of credit
by January 1, 1999. The maturity date of the line of credit facility is
October 1, 1999.
The Company's outstanding debt at each June 30 is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
Line of credit $22,444 $19,356
Term loans - 4,512
-----------------------------
22,444 23,868
Less debt payable within one year (14,444) (21,851)
-----------------------------
Long-term debt, less current portion $ 8,000 $2,017
=============================
</TABLE>
Pursuant to the promissory note, interest is payable monthly
at the bank's prime rate (8.5% at June 30, 1998) through August 31,
1998, and thereafter, at the bank's prime rate plus one percent.
The line of credit facility is secured by all of the Company's
rights, title and interest in the secured and unsecured promissory
notes of the purchaser of the stock of CHF representing part of the
purchase price for such stock (which purchaser has covenanted with the
bank to make all payments on such notes directly to the bank for credit
against the Company's indebtedness to the bank) and in the pledged CHF
stock
F-20
<PAGE> 59
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
and other documents related to such purchase. Financial covenants for
minimum net worth, debt service coverage ratio, and maximum debt to
worth ratio will be established prior to March 1, 1999.
On May 13, 1998, the bank conditionally approved the Company's
request for a waiver of a restrictive covenant in their loan agreement,
subject to requirements that the Company has accepted, including that
(i) any default by OmniCare-MI, a plan operated by the Company, under
any arrangement made by it with the Michigan insurance regulators would
be a cross-default under the Company's indebtedness to the bank, and
(ii) the Company will use its best efforts to cause its wholly owned
subsidiary, United American of Pennsylvania, Inc. to pledge to the bank
whatever interest it has in or to preferred stock of PhilCare Health
Systems, Inc.
At June 30, 1998 and 1997 the Company had provided a $1
million letter of credit ($.5 million issued under the line of credit
facility) on behalf of its wholly owned subsidiary, United American of
Louisiana, Inc. (UA-LA) and its wholly owned subsidiary, OmniCare
Health Plan of Louisiana, Inc.
- ---------------------------------
NOTE 11 - MEDICAL CLAIMS PAYABLE
- ---------------------------------
The Company has recorded a liability of $20.0 million and
$11.6 million at June 30, 1998 and 1997, respectively, for medical
claims incurred by enrollees but not reported to the Company for
payment by the health care providers as of each date. The ultimate
settlement of medical claims may vary from the estimated amounts
reported at June 30, 1998 and 1997.
The following table provides a reconciliation of the unpaid
claims for the years ended June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Balance at beginning of fiscal year $11,632 $25,678
Incurred loss related to current year 68,245 55,444
Incurred loss related to prior year 2,064 2,388
----------------------------
Total loss incurred 70,309 57,832
Paid claims related to current year 48,241 43,813
Paid claims related to prior year 13,696 18,547
Claims savings related to prior year - 9,518
----------------------------
Total paid claims 61,937 71,878
----------------------------
Balance at end of fiscal year $20,004 $11,632
============================
</TABLE>
F-21
<PAGE> 60
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The $2.1 million and $2.4 million unfavorable development in
fiscal 1998 and fiscal 1997 on incurred loss related to prior years,
respectively, was primarily attributable to UltraMedix ($3.4 million in
1998 and $1.3 million in 1997) and that plan's use of high cost
hospital providers and an increase in utilization driven by the plan's
rapid commercial membership growth. The fiscal 1998 loss was offset by
OmniCare-TN's stricter approach to reviewing authorizations and denying
claims for untimely filing and procedures that were not authorized or
were not medically necessary. In addition to the UltraMedix loss, the
fiscal 1997 loss was further increased due to OmniCare-TN allowing
providers an extended amount of time to file claims and to get all
previously unfiled claims reported to the Company.
Under an agreement with its reinsurer, the Company is liable
for the first $50,000 in medical costs per enrollee per year. Liability
in excess of this amount is assumed by the reinsurer, subject to a 20%
deductible and limits on maximum cost per day of hospitalization.
- -----------------------
NOTE 12 - INCOME TAXES
- -----------------------
The components of income tax expense (benefit) for each year
ended June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Continuing operations:
Current expense (benefit) $ (5,527) $ 403 $ (372)
Deferred expense (credit) 1,085 (1,604) 656
--------------------------------------
$ (4,442) $ (1,201) $ 284
======================================
Discontinued operation $ (239) $ 1,164 $ 766
======================================
</TABLE>
A reconciliation of the provision for income taxes for each
year ended June 30 follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Income tax benefit at the statutory tax rate $(9,302) $(2,197) $(1,147)
State and city income tax 19 115 99
Tax-exempt interest on municipal bonds (97) (138) (165)
Non-deductible goodwill amortization 1,676 334 235
Other, net 181 (28) 136
NOL reduction of goodwill - (8) -
Valuation allowance 3,081 721 1,126
---------------------------------------
$(4,442) $(1,201) $ 284
=======================================
</TABLE>
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary
F-22
<PAGE> 61
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
differences become deductible. Management considers the scheduled
reversals of deferred taxes, projected future taxable income, and tax
planning strategies in making this assessment.
In order to fully realize the deferred tax assets, the Company
will need to generate future taxable income of approximately $2.1
million prior to the expiration of the net operating loss carryforwards
in 2013. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these
deductible differences, net of the existing valuation allowance at June
30, 1998. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Components of the Company's deferred tax assets and
liabilities at each June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Deferred tax assets
Shareholder lawsuit settlement $ 379 $ 391
Losses in unconsolidated affiliates 1,826 3,629
Accrued rent 318 395
Bad debt expense 2,856 734
Deferred compensation 130 331
Unrealized net depreciation on marketable securities 70 46
Other, net 10 -
Net operating loss carryforward of consolidated losses 700 -
Net operating loss carryforward of purchased subsidiary 5,736 5,529
-------------------------
Total gross deferred tax assets 12,025 11,055
Valuation allowance (11,014) (7,933)
-------------------------
Total net deferred tax assets 1,011 3,122
Deferred tax liabilities
Depreciation and amortization (33) (348)
Software development (978) (1,422)
Licensure costs - (267)
-------------------------
Total gross deferred tax liabilities (1,011) (2,037)
-------------------------
Net deferred tax asset $ - $ 1,085
=========================
</TABLE>
The valuation allowance balance at June 30, 1998 includes
allowances relating to net loss carryforwards (NOLs) of OmniCare-TN,
the purchased subsidiary, an entity which is consolidated as of June
30, 1998, consolidated loss NOL carryforwards, valuation on the
realizability of net deferred assets and that portion of equity in net
losses and bad debt expense in affiliates which reduces the Company's
investments. As of June 30, 1998, the purchased subsidiary had NOLs for
federal income tax purposes of approximately $5.7 million that expire
from 2009 to 2013.
F-23
<PAGE> 62
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
Activity in the valuation allowance is as follows (in
thousands):
<TABLE>
<S> <C>
Balance at June 30, 1995 $557
Change in valuation allowance 1,126
NOLs of purchased subsidiary 5,537
------------
Balance at June 30, 1996 7,220
Change in valuation allowance 721
Use of NOLs of purchased subsidiary (8)
------------
Balance at June 30, 1997 7,933
Change in valuation allowance 3,081
------------
Balance at June 30, 1998 $11,014
============
</TABLE>
The Company believes it is more likely than not that if a tax
deductible event occurs, the result will be a capital loss on that
portion of valuation allowance provided for equity in net losses and
bad debt expense in affiliates which reduces the Company's investments.
The capital loss is able to be offset only by capital gains currently
not generated by the Company. The portion of the valuation allowance
attributable to NOLs that are subsequently utilized will reduce
goodwill of the acquired companies.
- -------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS
- -------------------------------------
The Company has entered into a long-term management agreement
with OmniCare-MI. OmniCare-MI is related to the Company via certain
common officers and directors. The agreement commenced in May 1985 and
expires in December 2010, is subject to review every five years and can
be terminated without cause by OmniCare-MI at the time of the review or
by either party with cause. Pursuant to the management agreement the
Company is generally paid a percentage of revenues to manage
OmniCare-MI. The Company is required to pay certain administrative
expenses associated with its activity on behalf of OmniCare-MI. All
costs associated with the management of OmniCare-MI are expensed as
incurred.
Health insurance for some of the Company's employees was
provided by the clients it manages. This expense was approximately $1.0
million, $1.6 million and $1.5 million for the years ended June 30,
1998, 1997 and 1996, respectively.
- -----------------------------------
NOTE 14 - BENEFIT AND OPTION PLANS
- -----------------------------------
The Company offers a 401(K) retirement and savings plan that
covers substantially all of its employees. The Company's maximum
matching contribution is 5% of compensation through January 1, 1998 and
1% thereafter. Company contributions to the 401(K) plan were
approximately $.4 million, $.6 million, and $.5 million for the years
ended June 30, 1998, 1997 and 1996, respectively.
F-24
<PAGE> 63
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The Company has reserved 200,000 common shares for its
Employee Stock Purchase Plan (ESPP), which became effective October
1996, and enables all eligible employees of the Company to subscribe
for shares of common stock on an annual offering date at a purchase
price which is the lesser of 85% of the fair market value of the shares
on the first day or the last day of the annual period. Employee
contributions to the ESPP were approximately $9,000 for 1998 and $.2
million for 1997.
The Company has adopted a stock option plan (the Old Stock
Option Plan), under which a maximum of 331,250 common shares are
presently reserved for issuance upon exercise of options granted under
the Old Stock Option Plan. No options have been granted under the Old
Stock Option Plan through June 30, 1998. The Old Stock Option Plan
shall be terminated and superseded upon shareholder approval of the
Company's 1998 Stock Option Plan (1998 Plan) adopted by its Board of
Directors on August 6, 1998. The Company has an aggregate of 500,000
common shares reserved for issuance upon exercise of options under both
stock option plans. On September 9, 1998, nonqualified options for a
total of 325,000 common shares were granted under the 1998 Stock Option
Plan, subject to requisite shareholder approval of such Plan which
management will seek at the annual meeting of shareholders in
November 1998. Such options expire September 9, 2008 and are fully
exercisable beginning March 10, 1999, at a price of $1.625 per share.
Independent of any stock option plan, on May 11, 1998 the
Company issued nonqualified stock options for 100,000 common shares to
Gregory H. Moses, Jr. in connection with his employment as its new
President and Chief Operating Officer, and reserved that number of
common shares for issuance upon exercise of such options. Such options
expire May 11, 2003 and are exercisable beginning May 11, 1999 for up
to 77,000 common shares and in full beginning May 11, 2000, at a price
of $1.38 per share.
SFAS 123 prescribes a method of accounting for stock-based
compensation that recognizes compensation cost based on the fair value
of options at grant date. In lieu of applying this fair value based
method, a company may elect to disclose only the pro forma effects of
such application. The Company has adopted the disclosure-only
provisions of SFAS 123. Accordingly, if the Company had elected to
recognize compensation cost based on the fair value of the options at
grant date, the Company's net loss and loss per share from continuing
operations, assuming dilution for 1998, would have been the pro forma
amounts indicated below (in thousands, except per share amounts):
<TABLE>
<S> <C>
Net loss from continuing operations:
As reported $(22,915)
Pro forma $(22,967)
</TABLE>
Net loss from continuing operations per share
F-25
<PAGE> 64
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
<TABLE>
<S> <C>
(Basic and Diluted):
As reported $(3.48)
Pro forma $(3.49)
</TABLE>
The fair value of options at date of grant was estimated using
the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998: dividend yield of 0%;
expected volatility of 60.56%; risk free interest rate of 5.65%; and
expected life of 5 years. The effects of applying SFAS 123 in the above
pro forma disclosures are not necessarily indicative of future amounts,
because additional stock option awards could be made in future years.
Information regarding the stock options for 1998 follows (in
thousands except prices):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------
NUMBER OF
WEIGHTED AVERAGE SHARES WEIGHTED
AVERAGE REMAINING EXERCISABLE AVERAGE
EXERCISE CONTRACTUAL AT JUNE EXERCISE
SHARES PRICE LIFE 30, 1998 PRICE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding at June 30, 1997 - - - - -
Granted 100 $1.38 5 years - -
Exercised - - - - -
Expired - - - - -
Options outstanding at June 30, 1998 100 $1.38 5 years - -
</TABLE>
The exercise price for all options outstanding at end of year
was $1.38. Options available for grant, at end of year was 331,250.
The weighted average fair value of options granted during the year was
$1.38.
- ------------------
NOTE 15 - LEASES
- ------------------
The Company leases its facilities and certain furniture and
equipment under operating leases expiring at various dates through May
2005. Terms of the facility leases generally provide that the Company
pay its pro rata share of all operating expenses, including insurance,
property taxes and maintenance.
Rent expense charged to operations for the years ended June
30, 1998, 1997 and 1996 totaled approximately $3.3 million, $3.5
million, and $3.0 million, respectively.
Minimum future rental payments under all non-cancelable
operating leases having remaining terms in excess of one year as of
June 30, 1998, net of sublease rentals, total $7.1 million as follows
(in thousands): 1999-$1,247; 2000-$1,439; 2001-$1,092; 2002-$847;
2003-$850; thereafter $1,629.
F-26
<PAGE> 65
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
- -------------------------------
NOTE 16 - YEAR 2000 COMPLIANCE
- -------------------------------
The Company is in the process of developing plans to address
issues related to the potential impact of the Year 2000 on its
computerized systems and equipment. The plans in development will
address systems modification requirements in the following primary
areas: information systems, facilities, payors and suppliers. While the
financial impact of making the required systems changes has not yet
been quantified, it is not expected to have a material effect on the
Company's financial condition and results of operations. The Company
presently believes that with such modifications to software and
hardware, which are expected to be completed by the end of 1999, the
Year 2000 issue will not pose material problems. However, if such
modifications are not made or are not completed timely, the Year 2000
issue could have a material adverse impact on the Company's
consolidated financial position.
Furthermore, the Company has initiated formal communications
with its significant suppliers and large payors to determine the extent
to which the Company may be vulnerable to those third parties' failure
to remediate their own Year 2000 issues. However, there can be no
assurances that the systems of other companies on which the Company
relies will be timely converted and the Company may be adversely
affected by the failure of a significant third party to become Year
2000 compliant.
- ------------------------
NOTE 17 - CONTINGENCIES
- ------------------------
As previously reported by the Company, certain former senior
officers and the Company are named as defendants in two shareholder
lawsuits filed in the United States District Court for the Eastern
District of Michigan (the Court) in August 1995. The Court consolidated
these lawsuits into a single action. In January 1998, the parties
agreed to a proposed settlement requiring the release of all claims and
damages sought by the plaintiffs and payment by the Company of $3.25
million, of which the Company anticipates the insurance carrier to pay
approximately $2.1 million. The Company recorded an expense for the
balance of $1.15 million as of June 30, 1997.
In late April 1998, the Company informed the plaintiffs'
counsel and the Court that the Company would not be able to fully fund
its portion of the tentative settlement amount. In September 1998, the
parties agreed to a restructured proposed settlement requiring the
release of all claims and damages sought by the plaintiffs in exchange
for (a) $2.0 million in cash from the Company's insurance carrier, (b)
a $625,000 promissory note of the Company payable in 15 equal monthly
installments beginning 13 months after entry of a final court order
approving the settlement, with interest at 4% per annum from the
date of such order, and (c) newly issued shares of common
stock of the Company with an aggregate value of $625,000 based on a
share price equal to the greater of (i) the average closing price of
the Company's common stock for the period from July 20, 1998 through
the third trading day preceding the court hearing on approval of the
settlement and (ii) $2.25.
F-27
<PAGE> 66
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
The pending settlement is subject to federal court approval
following a court hearing on the fairness of the proposed settlement,
expected to be scheduled for November 30, 1998. The Company has agreed
to indemnify the named officers from monetary exposure in connection
with the lawsuit, subject to reimbursement by any named officer, in the
event he is found not to be entitled to such indemnification.
- -------------------------------------------------------
NOTE 18 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
- -------------------------------------------------------
The following table presents selected quarterly financial
data for the years ended June 30, 1998 and 1997 (in thousands, except
per share data):
<TABLE>
<CAPTION>
JUNE MARCH DECEMBER SEPTEMBER TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Total revenues $22,708 $26,656 $29,192 $27,032 $105,588
Loss from continuing
operations (6,792) (7,080) (7,501) (1,542) (22,915)
Net loss (9,252) (6,878) (8,033) (1,333) (25,496)
Net loss per common
share assuming
dilution (1.41) (1.05) (1.22) (0.20) (3.88)
1997
Total revenues $29,573 $28,030 $26,457 $28,489 $112,549
Loss from continuing
operations (3,660) (17) (1,033) (550) (5,260)
Net (loss) earnings (3,953) 416 114 8 (3,415)
Net (loss) earnings per
common share
assuming dilution (0.60) 0.06 0.02 0.00 (0.52)
</TABLE>
In the quarter ended June 1998, the Company made the following
significant adjustments: (i) recorded impairment losses against its
investment in PhilCare and its note receivable from OmniCare-MI, which
resulted in bad debt expense of $4.4 million, (ii) expensed $.3
million of capitalized software development costs and changed the
estimate of the remaining useful life of the Company's internally
developed software which resulted in additional amortization expense of
$.3 million, (iii) decreased rent expense by $.6 million as a result of
rent concessions obtain on the Company's corporate headquarters, (iv)
expensed to medical expense $.5 million established as a contra
liability related to the liquidation of UltraMedix, and (v) adjusted
the vacation accrual which resulted in a decrease of vacation expense
of $.2 million.
F-28
<PAGE> 67
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998, 1997 AND 1996
In the quarter ended June 1997, the Company recorded a tentative
settlement of the consolidated class action shareholder lawsuit for
$1.15 million. The Company also recorded bad debt expense in the
amount of $1.1 million related to the valuation of an account
receivable of OmniCare-TN and $.7 million for an impairment loss on its
investment in Advica. Additionally, during the quarter, a $.3 million
rent expense estimate was established for the difference between the
Company's lease obligation and the expected sub-lease rental income
over the remaining life of the lease related to the Company's lease in
Pennsylvania. Also during the quarter, the Company increased the
incurred but not reported medical liabilities for UltraMedix and
OmniCare-TN by $1.4 million.
F-29
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation Exhibit 3.1 to the Registrant's Form S-1
of Registrant Registration Statement under the Securities
Act of 1933, as amended, declared effective
on April 23, 1991 ("1991 S-1")
3.1(a) Certificate of Amendment to the Exhibit 3.1(a) to 1991 S-1
Articles of Incorporation of
Registrant
3.2 Amended and Restated Bylaws of Exhibit 3.2 to the Registrant's
Registrant 1993 Form 10-K
4.1 Incentive and Non-Incentive Stock Exhibit 4.1 to the Registrant's
Option Plan of Registrant effective 1995 Form 10-K
March 25, 1991, as amended
4.2 Form of Common Share Certificate Exhibit 4.2 to the Registrant's
1995 Form 10-K
10.1 Employees' Retirement Plan for Exhibit 10.1 to 1991 S-1
Registrant dated May 1, 1985, with
First Amendment thereto and Summary
Plan Description therefor
10.2 Management Agreement between Exhibit 10.2 to 1991 S-1
Michigan Health Maintenance
Organization Plans, Inc. and
Registrant dated March 15, 1985, as
amended June 12, 1985
10.3 Management Agreement between U.A. Exhibit 10.3 to 1991 S-1
Health Care Corporation and
Personal Physician Care, Inc. dated
March 18, 1987
10.4 Amendment dated February 16, 1993 Exhibit 10.5 to the Registrant's
to Management Agreement between 1995 Form 10-K
United American Healthcare
Corporation and Personal Physician
Care, Inc. dated March 18, 1987
</TABLE>
1
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
10.5 Amendment dated June 16, 1994 to Exhibit 10.4 to the Registrant's
Management Agreement between U.A. 1994 Form 10-K
Health Care Corporation and
Personal Physician Care, Inc. dated
March 18, 1987
10.6 Management Agreement between Exhibit 10.5 to Registrant's 1994 Form 10-K
OmniCare Health Plan, Inc. and
United American of Tennessee, Inc.
dated February 2, 1994
10.7 Management Agreement between Exhibit 10.6 to Registrant's 1994 Form 10-K
UltraMedix Health Care Systems,
Inc. and United American of
Florida, Inc. dated February 1,
1994
10.8 Amendment dated September 4, 1995 Exhibit 10.9 to the Registrant's
to Management Agreement between 1995 Form 10-K
UltraMedix Healthcare Systems, Inc.
and United American of Florida,
Inc. dated February 1, 1995
10.9 Amendment dated September 20, 1995 Exhibit 10.10 to Registrant's 1995
to Management Agreement between Form 10-K
UltraMedix Health Care Systems,
Inc. and United American of
Florida, Inc. dated February 1,
1995
10.10 Lease Agreement between 1155 Form 8-K filed August 8, 1991
Brewery Park Limited Partnership
and Registrant dated July 24, 1991,
effective May 1, 1992
10.11 Amendment dated December 8, 1993 to Exhibit 10.8 to the Registrant's
Lease agreement between 1155 1994 Form 10-K
Brewery Park Limited Partnership
and Registrant dated July 24, 1991
10.12 Amendment dated April 15, Exhibit 10.13 to Registrant's 1995
</TABLE>
2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
1993 to Lease Agreement between Form 10-K
1155 Brewery Park Limited
Partnership and Registrant dated
July 24, 1991
10.13 Lease Agreement between Baltimore Exhibit 10.7 to the Registrant's
Center Associates Limited 1993 Form 10-K
Partnership and Corporate
Healthcare Financing, Inc. dated
August 24, 1988, as amended April
12, 1993, effective the later of
May 1, 1993 or the date premises
are ready for occupancy
10.14 Amendment dated May 11, 1994 Exhibit 10.11 to the Registrant's
(effective June 30, 1994) to Lease 1994 Form 10-K
agreement between Baltimore Center
Associates Limited Partnership and
Corporate Healthcare Financing,
Inc
10.15 Lease Agreement between CLW Realty Exhibit 10.2 to Registrant's 1994 Form 10-K
Asset Group, Inc., as agent for The
Prudential Insurance Company of
America and United American of
Florida dated May 31, 1994,
effective June 1, 1994
10.16 Lease Agreement between Fleming Exhibit 10.3 to Registrant's 1994 Form 10-K
Companies, Inc. and United American
of Tennessee dated June 30, 1994,
effective the date premises are
ready for occupancy
10.17 Lease Agreement between Exhibit 10.19 to Registrant's 1995
International Business Machines Form 10-K
Corporation and Registrant dated
August 29, 1994
10.18 Amended and Restated Line of Credit Exhibit 10.20 to Registrant's 1995
</TABLE>
3
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
Facility Agreement between Michigan Form 10-K
National Bank and Registrant dated
March 14, 1995
10.19 Promissory notes between Michigan Exhibit 10.9 to the Registrant's
National Bank and Registrant dated 1993 Form 10-K
August 26, 1993
10.20 Asset Purchase Agreement between Form 8-K filed May 24, 1993 and Form 8-K/A
CHF, Inc., Healthcare Plan filed July 21, 1993
Management, Inc., CHF-HPM Limited
Partnership, Louis J. Nicholas and
Keith B. Sullivan and Registrant
dated May 7, 1993
10.21 Loan and Security Agreement between Exhibit 10.18 to Registrant's 1994 Form 10-K
UltraMedix Health Care Systems,
Inc. and United American of Florida
dated February 1, 1994
10.22 Amendment dated June 13, 1995 to Exhibit 10.26 to Registrant's 1995
the Loan and Security Agreement Form 10-K
between UltraMedix Care Systems,
Inc. and United American of
Florida, Inc. dated February 1,
1994
10.23 Form of Stock Transfer Services Exhibit 10.19 to Registrant's 1994 Form 10-K
Agreement between Huntington
National Bank and Registrant
10.24 Employment Agreement between Julius Exhibit 10.15 to 1991 S-1
V. Combs, M.D. and Registrant dated
March 15, 1991
10.25 Employment Agreement between Ronald Exhibit 10.16 to 1991 S-1
R. Dobbins and Registrant dated
March 15, 1991
10.26 Employment Agreement between Louis Exhibit 10.22 to Registrant's 1994
J. Nicholas and Form 10-K
</TABLE>
4
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
Corporate Healthcare Financing,
Inc. dated May 7, 1993
10.27 First Amendment to Contingent Note Form 10-Q for the Quarter Ended March 31,
Promissory Note between CHF-HPM 1996, filed May 14, 1996
Limited Partnership and the
Registrant
10.28 Acquisition of majority interest in Form 8-K filed April 19, 1996
OmniCare Health Plan, Inc. of
Tennessee and UltraMedix Healthcare
Systems, Inc.
10.29 Injured Workers' Insurance Fund Form 10-K/A filed October 14, 1996, as amended
Contract No. IWIF 9-96 Managed Care
Contract with Statutory Benefits
Management Corporation dated June
19, 1996
10.30 Ernst & Young LLP Report of *
Independent Auditors as of June
30, 1996
10.31 Renaissance Center Office Lease Form 10-Q for the Quarter Ended September
between Renaissance Center Venture 30, 1996, filed November 13, 1996
and Registrant
10.32 Purchase Agreement between Form 10-Q for the Quarter Ended December
Statutory Benefits Management 31, 1996, filed February 10, 1997
Corporation and Spectera, Inc.
10.33 Agreement of Purchase and Sale of Form 10-K filed October 14, 1997
Stock, dated September 12, 1997
between CHF Acquisition, Inc. and
the Registrant
10.34 Ernst & Young LLP Report of Form 10-K filed October 14, 1997
Independent Auditors as of June
30, 1997
10.35 Amended and Restated Business Loan Form 10-Q for the Quarter Ended
Agreement between Michigan National March 31, 1998, filed May 15, 1998
Bank and Registrant dated March 12,
1998 (effective as of February 1,
1998)
</TABLE>
5
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
10.36 Business Loan Agreement Addendum Form 10-Q for the Quarter Ended
between Michigan National Bank and March 31, 1998, filed May 15, 1998
Registrant dated March 12, 1998
(effective as of February 1, 1998)
10.37 Promissory Note dated March 12, Form 10-Q for the Quarter Ended
1998 (effective as of February 1, March 31, 1998, filed May 15, 1998
1998) from Registrant to Michigan
National Bank
10.38 Employment Agreement between
Gregory H. Moses, Jr. and
Registrant dated May 11, 1998 *
10.39 Amendment dated as of June 30, 1998
to Lease Agreement between 1155
Brewery Park Limited Partnership
and Registrant dated June 24, 1991 *
10.40 Termination of Lease dated
June 24, 1998 between Renaissance
Holdings, Inc. (successor to
Renaissance Center Venture) and
Registrant *
10.41 United American Healthcare
Corporation 1998 Stock Option Plan *
10.42 Stock Purchase Agreement among
Registrant, CHFA, Inc. and
Corporate Healthcare Financing,
Inc. dated August 31, 1998 *
10.43 Secured Promissory Note
dated August 31, 1998 from CHFA,
Inc.to Registrant *
</TABLE>
6
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
10.44 Unsecured Promissory Note dated
August 31, 1998 from CHFA, Inc.
to Registrant *
10.45 Guaranty Agreement of Louis J.
Nicholas dated August 31, 1998 *
10.46 Pledge Agreement between CHFA, Inc.
and Registrant dated August 31,
1998 *
10.47 Amendment of Business Loan
Agreement between Registrant and
Michigan National Bank dated
September 1, 1998 *
10.48 Promissory Note dated September 1,
1998 of Registrant to Michigan
National Bank *
10.49 Pledge Agreement dated September 1,
1998 from Registrant to Michigan
National Bank *
16.1 Concurring Letter regarding change Form 8-K filed October 30, 1997
in Certifying Accountants dated
October 30, 1997, from Grant
Thornton LLP
16.2 Concurring Letter regarding change Form 8-K/A filed November 12, 1997
in Certifying Accountants dated
November 12, 1997, from Grant
Thornton LLP.
16.3 Concurring Letter regarding change Form 8-K/A filed November 12, 1997
in Certifying Accountants dated
November 12, 1997, from Ernst &
Young LLP.
16.4 Concurring Letter regarding change Form 8-K filed January 20, 1998
in Certifying Accountants dated
January 16, 1998, from Arthur
Andersen LLP.
</TABLE>
7
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN BY FILED
NUMBER DESCRIPTION OF DOCUMENT REFERENCE TO HEREWITH
- ------ ----------------------- ------------ --------
<S> <C> <C> <C>
21 Subsidiaries of the Registrant *
27 Financial Date Schedule *
99.1 Press Release dated January 12, 1998 Form 8-K filed January 20, 1998
</TABLE>
8
<PAGE> 1
EXHIBIT 10.30
Report of Independent Auditors
Board of Directors
OmniCare Health Plan, Inc.
We have audited the accompanying balance sheet of OmniCare Health Plan, Inc. as
of June 30, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the six month period ended June 30, 1996 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OmniCare Health Plan, Inc. at
June 30, 1996, and the results of its operations and cash flows for the six
month period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
September 2, 1996
<PAGE> 1
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the 11th day
of May, 1998 by and between United American Healthcare Corporation, a Michigan
corporation (the "Company) and Gregory Moses, an individual ("Employee").
RECITALS:
WHEREAS, the Company desires to hire Employee as its President and Chief
Operating Officer, and
WHEREAS, Employee desires to be employed by the Company in such capacity,
and
WHEREAS, the Company and Employee wish to set forth in this Agreement all
of the terms and conditions of such employment relationship,
NOW, THEREFORE, in consideration of the mutual covenants and consideration
set forth below, the sufficiency of which is hereby acknowledged, the parties
agree as follows:
I. EMPLOYMENT AND TERM
Employee's employment by Company shall commence on May 11, 1998 (the
"Effective Date") and shall continue until May 11, 2001 unless and until
earlier terminated by either party as provided below.
II. DUTIES
Employee shall have the title and perform the duties of President and
Chief Operating Officer of the Company and shall hold such additional titles
and perform such additional duties as the Board of Directors may prescribe from
time to time. Not later than August 6, 1998 Employee shall be designated by
the Board of Directors as Chief Executive officer of the Company and shall
perform the duties of such office. As President and Chief Operating Officer,
Employee shall (a) report to the Chairman of the Board of the Company (the
"Chairman") and the Office of the Chairman and the Board of Directors of the
Company, and (b) have authority to hire and terminate, in his sole discretion
subject to the established policies of the Company, any and all employees of
the Company. Employee shall devote all of his skill, knowledge, energies and
business time exclusively to the business and affairs of the Company and its
subsidiaries and affiliates, including Michigan Health Maintenance Organization
Plans, Inc. d/b/a OmniCare Health Plan ("OmniCare-Michigan"), and shall not
accept other employment nor maintain any other business interests except with
the prior written approval of the Chairman or the Board of Directors of the
Company. Additionally, Employee shall maintain no personal interest which
interferes with the performance of his duties hereunder.
III. COMPENSATION
As total compensation for Employee's services rendered hereunder, Company
shall pay or provide to Employee the following:
-2-
<PAGE> 2
(a) Base Salary
A base annual salary in the gross amount of Two Hundred Twenty Five
Thousand and no/100 Dollars ($225,000.00), payable in installments throughout
the year in accordance with the Company's regular payroll practice. Employee's
salary and performance shall be reviewed annually by the Board of Directors of
the Company. The Company may, in its sole discretion, increase such salary
from time to time, but in no event shall such salary be reduced below Two
Hundred Twenty Five Thousand and no/100 Dollars ($225,00.00) without the
written consent of Employee.
(b) Annual Bonus
An annual performance bonus expressed as a percentage of Employee's annual
base salary defined in subparagraph (a) above (which percentage may be less
than or greater than 100%) and determined with reference to reasonable
performance criteria selected in the discretion of the Board of Directors of
the Company. Such annual performance bonus shall be paid in March of each year
for the prior year. Notwithstanding the foregoing, Employee's first bonus
period shall be from the date of this Agreement through December 31, 1998 and
the amount of Employee's bonus for such period shall be One Hundred Thousand
Dollars ($100,000), based upon the achievement of reasonable performance
criteria mutually agreed upon by the Board of Directors of the Company and
Employee.
(c) Fringe Benefits
Those fringe benefits provided from time to time by the Company to its
other senior executives, except as otherwise set forth on Attachment A. The
Company shall have the right to modify or eliminate any or all of such
benefits, provided that such modification or elimination applies generally to
other senior executives of the Company. The fringe benefits presently
applicable to Employee are described in and made a part of this Agreement as
Attachment A.
(d) Stock Options
The Company hereby grants Employee the option to purchase up to one
hundred thousand (100,000) shares of common stock of the Company on the terms
and conditions set forth in Attachment B.
(e) Payment of Accrued Compensation on Termination
Except as provided in Section V, upon termination of the employment of
Employee from the Company for any reason, he shall receive payment of his
compensation described in this Section III (including salary, bonus and fringe
benefits) accrued to the date of such termination. The amount of Employee's
annual bonus which shall be deemed to be accrued in the event of such
termination shall be the amount computed as if the Employee had remained
employed for an entire year, prorated to the date of termination.
IV. EXPENSES
The Company will pay or reimburse Employee for all travel, lodging, and
meal expenses incurred in connection with performance of his duties, subject to
evidence of the occurrence and the purpose of each such expense being deemed
reasonable by the Company.
V. TERMINATION PROVISIONS
The Company may terminate this Agreement at any time with or without
cause, upon written notice to Employee. Employee may terminate this Agreement
with or without cause upon three (3) months advance written notice to Company.
-3-
<PAGE> 3
The term "for cause", as applied to the Company's termination of this
Agreement, shall mean and be limited to the following events:
(1) Employee's willful and continued failure to perform his duties in
accordance with this Agreement; or
(2) Employee's conviction of any crime or offense involving money or other
property of the Company, or any other crime (whether or not involving the
Company) that constitutes a felony in the jurisdiction involved; or
(3) Except as otherwise provided by applicable law, Employee's inability
for any reason (other than an act or omission by the Company) to perform the
essential functions of his duties in accordance with this Agreement; or
(4) Employee's willful violation of any specific material direction from
the Chairman of the Board or the Board of Directors of the Company where such
direction is reasonably consistent with this Agreement.
For purposes of the preceding provisions, no act, or failure to act, on
Employee's part will be deemed "willful" unless done, or omitted to be done, by
Employee not in good faith and without reasonable belief that Employee's act,
or failure to act, was in the best interest of the Company. Notwithstanding
the foregoing, "cause" will not exist unless and until the Company has
delivered to Employee a resolution duly adopted by the affirmative vote of a
majority of the Board of Directors of the Company then in office finding that
one or more of the events set forth in any of the immediately foregoing four
numbered subparagraphs has occurred.
The term "for cause" as applied to Employee's termination of this
Agreement shall mean and be limited to the following events:
(1) The Company shall make any material change in the duties of Employee
without his consent; or
(2) The Company shall relocate its principal office more than 45 miles
from its present location; or
(3) The consummation of a Sale (as hereinafter defined). A "Sale" shall
have occurred: (1) if the Company or OmniCare shall sell all or substantially
all of its respective assets to a third party; (2) if the Company or OmniCare
shall merge or consolidate into or with another corporation and the Company or
OmniCare, as the case may be shall not be the surviving corporation; or (3) if
the Company or person owning voting securities of the Company shall issue or
sell voting securities of the Company to a third party or parties in a
transaction or series of related transactions which result in such third party
or parties owning a majority of the voting securities of the Company (or such
amount of the voting securities of the Company which permits such party or
parties to control the Company).
(a) Termination by Company Without Cause
In the event the Company elects to terminate this Agreement without cause:
(i) the Company shall continue to pay Employee his base salary in installments
in accordance with the Company's regular payroll practice for a period of
eighteen (18) months from the effective date of such termination ("Termination
Date"); (ii) the Company shall pay Employee his bonus under Section III(b),
prorated to the Termination Date in accordance with Section III(e); and (iii)
until the earlier of (a) eighteen (18) months from the Termination Date or (b)
the date Employee shall have commenced new employment or received an offer of
employment comparable to Employee's employment under this Agreement which
Employee does not accept, the Company shall continue to provide the fringe
benefits under Section III(c).
(b) Termination by Company for Cause
-4-
<PAGE> 4
In the event Company terminates Employee's performance for cause, Employee
shall be entitled to no payment or benefit of any nature from the Company other
than the payment of Employee's base salary as provided under Section III(e).
(c) Termination by Employee
In the event Employee terminates Employee's performance without cause,
Employee shall be entitled to no payment or benefit of any nature from the
Company other than the payment of Employee's base salary as provided under
Section III(e). In the event Employee terminates Employee's performance for
cause: (i) the Company shall continue to pay Employee his base salary in
installments in accordance with the Company's regular payroll practice for a
period of eighteen (18) months from the effective date of such termination;
(ii) the Company shall pay Employee his bonus under Section III(b), prorated to
the effective date of such termination in accordance with Section III(e); and
(iii) until the earlier of (a) eighteen months from the Termination Date or (b)
the date Employee shall have commenced new employment or received an offer of
employment comparable to Employee's employment under this Agreement which
Employee does not accept, the Company shall continue to provide the fringe
benefits under Section III(c).
(d) Death of Employee
This Agreement and the Company's obligations to pay any consideration to
Employee shall terminate immediately upon Employee's death. In such event, the
net salary and any other payments owed to Employee for work performed through
to the date of his death shall be paid by the Company to Employee's estate in
accordance with applicable law.
(b) Prerequisite Release
Anything to the contrary herein notwithstanding, Employee, as a
precondition to receiving any severance benefit described in this Agreement,
must execute in a form reasonably satisfactory to the Company, a full release
and covenant not to sue relating to the Company and its related entities (as
well as each's officers, directors, employees and agents for any acts or
omissions occurring prior to the date of termination of Employee).
VI. CONFIDENTIALITY
Beginning on the date hereof and at all times hereafter Employee shall
treat as confidential any and all information (irrespective of the form of such
information) deemed by the Company (or any entity related thereto) to be
proprietary, confidential, or secret, including but not limited to, information
relating to the Company's organizational structure, operations, business plans,
research data, research results, inventions, customer lists, or other work
product ("confidential information"), whether developed by or for the Company
(or any entity related thereto) and whether developed on the premises of the
Company or elsewhere. Beginning on the date hereof and at any time hereafter,
Employee shall not, without the prior written consent of the Company, disclose
to any third party or otherwise make use of in any manner or in any form any
confidential information, except to the extent necessary to perform the
services required of him under this Agreement.
Additionally, Employee acknowledges that all confidential information is
the sole and exclusive property of the Company. Upon request by the Company
and/or on termination of this Agreement, Employee shall immediately return to
Company all Company records, information, documents (including any and all
copies thereof), and other property of the Company in the possession and/or
control of Employee. If requested by the Company, Employee shall certify in
writing at the time of his termination of employment that he has complied in
all respects with the confidentiality requirements of this Agreement.
-5-
<PAGE> 5
VII. NON-COMPETITION
For a period of one (1) year from termination of this Agreement, Employee
will not anywhere in any metropolitan area in the United States in which the
Company (or any entity related thereto) conducts business:
(a) Solicit or otherwise contact, either directly or indirectly, for
purposes of selling or otherwise promoting any product or service competitive
with any product or service sold or actively in development by the Company at
the time of the termination of the Agreement, or sell any such product or
service to, any person, firm, association, corporation or other entity:
(1) to which the Company sold any product or service during the
twenty-four (24) months immediately preceding the termination of this
Agreement; or
(2) which Employee solicited, contacted or otherwise dealt with on
behalf of the Company during the twenty-four (24) months immediately
preceding the termination of this Agreement;
(b) make or facilitate any such sale either for the benefit of him or for
the benefit of any other person, firm, association, or corporation;
(c) in any manner, directly or indirectly, assist any person, firm,
association, or corporation to make any such contact, solicitation, or sale;
(d) participate, engage, or have an interest in, directly or indirectly,
whether as director, officer, employee, advisor, consultant, stock broker,
partner, joint venturer, owner, agent, or in any other capacity, in any
business, in whole or in part, in the nature of or competitive with the
business of the Company in any geographic territory served by the Company at
the time of termination of this Agreement; or
(e) directly or indirectly, employ or solicit for employment (by any
person, firm, association, or corporation other than the Company), or engage in
any manner any employee of the Company or consultant to the Company, without
the prior written consent of the Company.
VIII. ENFORCEMENT
The parties agree that upon violation of any provision of Article VI
and/or VII above, monetary damages would be inadequate and difficult to
ascertain, and would result in irreparable injury to the Company. The parties
therefore agree that upon the existence of any such violation, the Company
would be entitled to the issuance by a court of competent jurisdiction of a
temporary restraining order, preliminary injunction, or any other form of
equitable relief prohibiting Employee from committing or continuing any such
violation. Employee further agrees not to contest or object to the Company's
entitlement to such injunction, restraining order or other equitable relief
restraining any such violation or threatened violation of any of the terms of
this Agreement. Any right to obtain an injunction, restraining order, or other
equitable relief hereunder will not be deemed a waiver of any right to assert
any other remedy the Company may have under this Agreement or otherwise at law
or in equity.
IX. NOTICES
All notices which either party hereto is required or permitted to give to
the other will be given in writing and delivered personally or by certified
mail, addressed to the address referred to below:
-6-
<PAGE> 6
If to the Company, to it at: United American Healthcare Corporation
1155 Brewery Park Boulevard, Ste. 200
Detroit, MI 48207-2602
Attention: Chairman of the Board;
If to Employee, to him at: Gregory Moses
5000 Towne Center
Suite 2606
Southfield, MI 48075
The certified date of receipt of any such notice will be deemed to be the
date of delivery thereof.
X. WAIVERS
No waiver by either party of any breach of non-performance of any
provision or obligation of this Agreement shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision of this
Agreement.
XI. ENTIRE AGREEMENT
This Agreement and its Exhibits constitute the entire Agreement between
the parties and there are no representations, warranties, covenants, or
obligations except as set forth herein. This Agreement supersedes all prior
and contemporaneous contracts, agreements, understandings, negotiations, and
discussions, whether written or oral, between Company (and any entity related
to Company) and Employee, relating in any way to Employee's employment,
termination of employment and/or to any other transaction contemplated by the
Agreement, and may only be changed in writing signed by both Company and
Employee.
XII. NON-ASSIGNABILITY
This Agreement and the benefits hereunder are personal to Employee and are
not assignable or transferrable by Employee to any person, firm, or
corporation.
XIII. SEVERABILITY
If any portion or provision of this Agreement shall for any reason be held
invalid or unenforceable by any court, governmental agency, or arbitrator of
competent jurisdiction, such invalidity or unenforceability shall be construed
as if such invalid or unenforceable provision had never been contained herein.
Such invalidity of any provision shall not effect any other provision of this
Agreement.
XIV. GOVERNING LAW
The validity, interpretation, construction, and performance of this
Agreement shall be governed by the laws of the state of Michigan.
XV. ARBITRATION
Except as to injunctive relief for the Company, all disputes arising under
this Agreement shall be submitted to binding arbitration in Detroit, Michigan
to a single arbitrator chosen in accordance with the rules of the American
Arbitration Association. Such arbitrator's decision shall be final and binding
upon the parties, and shall be entitled to enforcement in any court of
competent jurisdiction. The costs and expenses of the arbitrator shall be
shared equally by the parties.
IN WITNESS WHEREOF, the parties have read and fully understand the
contents of this Agreement and have duly executed this Agreement as of the day
and year first written above.
UNITED AMERICAN HEALTHCARE
CORPORATION
_______________________________ By:_______________________________
-7-
<PAGE> 7
Gregory Moses William C. Brooks
TITLE: Chairman of the Board
-8-
<PAGE> 8
DESCRIPTION OF FRINGE BENEFITS
PROVIDED TO SENIOR EXECUTIVES
OF UAHCC AS OF MAY 1, 1998
Attachment A
<PAGE> 9
ATTACHMENT B
STOCK OPTION
The option to purchase 100,000 shares of common stock of the Company (the
"Shares") granted to Employee pursuant to Section III(d) of the Employment
Agreement (the "Employment Agreement") dated as of May 11, 1998 between United
American Healthcare Corporation and Gregory Moses (the "Option") shall be
subject to the following terms and conditions:
1. Capitalized terms not otherwise defined herein have the meanings given to
them in the Employment Agreement.
2. The exercise price shall be $1.38 per Share.(1)
3. The Option may not be transferred or assigned by Employee other than by will
or the laws of descent and distribution and, during Employee's lifetime, the
Option is exercisable only by him.
4. Employee may exercise the Option in accordance with the following schedule:
(a) Commencing May 11, 1999, up to 77,000 Shares
may be purchased;
(b) Commencing May 11, 2000, up to an additional
23,000 Shares may be purchased.
5. The Option shall expire (to the extent not previously exercised) on the
earlier of (a) May 11, 2003 or (b) the date the Company terminates the
Employment Agreement pursuant to Section V(b) thereof.
6. The Option shall be exercised by Employee giving a written notice of
exercise to the Chief Financial Officer of the Company or other person
designated by the Company. Such notice shall specify the number of Shares to
be purchased and shall be accompanied by payment in full of the exercise price
for such Shares. Such notice shall be effective only upon the actual receipt
of such written notice and of the option price, and no rights or privileges of
a shareholder of the Company in respect of any of the Shares issuable upon the
exercise of any part of the Option shall inure to Employee, or any other person
entitled to exercise the Option, unless and until certificates representing
such Shares shall have been issued, and prior to such issuance no adjustment
shall be made for dividends, distributions or other rights in respect of such
Shares, except as provided in Sections 8 and 9 below.
7. If upon exercise of the Option there shall be payable by the Company any
amount for income tax withholding, then, in the sole discretion of the
Company's Board of Directors, either Employee shall pay such amount to the
Company or the number of Shares delivered by the Company to Employee shall be
appropriately reduced, to reimburse the Company for such payment. The
Company's Board of Directors, in its sole discretion, may permit Employee to
satisfy such withholding obligations, in whole or in part, by electing (a) to
have the number of Shares delivered or deliverable by the Company upon exercise
of the Option appropriately reduced or (b) to tender Shares back to the Company
subsequent to exercise of the Option, to reimburse the Company for such income
tax withholding. The Company's Board of Directors may make such other
arrangements with respect to income tax withholding as it shall determine.
8. In case the Company (i) consolidates with or merges into any other
corporation or entity and is not the continuing or surviving entity of such
consolidation or merger, or (ii) permits any other corporation or other
entity to consolidate with or merge into the Company and the Company is the
continuing or surviving entity but, in connection with such consolidation or
merger, the common stock of the Company ("Common Stock") is changed into or
exchanged for stock or other securities of any other corporation or other
entity or cash or any other assets, or (iii) transfers all or substantially all
of its properties and assets to any other corporation or other person or
entity, or (iv) dissolves or liquidates, or (v) effects a capital
reorganization or reclassification in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other assets with
respect to or in exchange for the Common Stock, then, and in each such case,
proper provision shall be made so that Employee upon the exercise of the Option
at any time after the consummation of such consolidation, merger, transfer,
dissolution, liquidation, reorganization or reclassification (each transaction,
for purposes of this Section 8, being herein called a "Transaction"), shall be
entitled to receive (at the aggregate exercise price in effect for all shares
of Common Stock issuable upon such exercise immediately prior to such
consummation and as adjusted to the time of such Transaction), in lieu of
shares of Common Stock issuable upon such exercise prior to such consummation,
the stock and other securities, cash and assets to which Employee would have
been entitled upon such consummation if he had so exercised the Option in full
immediately prior thereto (subject to adjustments subsequent to such
Transaction provided for in Section 9 below).
Notwithstanding anything to the contrary herein, in connection with any
Transaction and effective as of a date selected by the Board of Directors of
the Company or any committee appointed by the Board of Directors to administer
the Option (being herein called, whether the Board of Directors or such
committee, the "Committee"), which date shall, in the Committee's judgment, be
far enough in advance of the Transaction to permit Employee to exercise the
Option and participate in the Transaction as a holder of Common Stock, the
Committee, acting in its sole discretion without the consent of Employee, may
effect one or more of the following alternatives with respect to the Option
(which alternatives may be made conditional on the occurrence of the applicable
Transaction): (a) accelerate the time at which the Option may be exercised so
that the Option may be exercised in full for a limited period of time on or
before a specified date fixed by the Committee after which specified date the
unexercised Option and all rights of Employee thereunder shall terminate; (b)
accelerate the time at which the Option may be exercised so that the Option may
be exercised in full for its then remaining term; or (c) require the mandatory
surrender to the Company of the Option (irrespective of whether the Option is
then exercisable) as of a date, before, or not later than 60 days after, such
Transaction, specified by the
1 (The closing price of the common stock on the New York Stock Exchange on
Friday, May 8, 1998 rounded to the next penny)
<PAGE> 1
FOURTH AMENDMENT TO LEASE AGREEMENT
EXHIBIT 10.39
THIS FOURTH AMENDMENT TO LEASE AGREEMENT, is made and entered into as of
this 30th day of June, 1998, and is effective as of July 1, 1998 ("Effective
Date"), by and between 1155 BREWERY PARK LIMITED PARTNERSHIP, a Michigan limited
partnership, as landlord, and UNITED AMERICAN HEALTHCARE CORPORATION, a Michigan
corporation, as Tenant.
WITNESSETH:
WHEREAS, on July 24, 1991, Landlord and Tenant did make and enter into a
certain Lease Agreement covering premises located in the building commonly
known as "1155 Brewery Park Boulevard" situated in the City of Detroit, Wayne
County, Michigan, and which premises are more particularly described in the
Lease as the original premises of approximately 54,168 rentable square feet;
and
WHEREAS, on April 15, 1993, Landlord and Tenant did make and enter into a
certain First Amendment to Lease Agreement ("First Amendment") amending certain
terms of the Lease Agreement to include a reduction of the expansion space
option; and
WHEREAS, on December 8, 1993, Landlord and Tenant did make and enter into
a certain Second Amendment to Lease Agreement ("Second Amendment") for the
purpose of incorporating Suite 350 (approximately 3,591 rentable square feet)
as expansion premises; thereby increasing the square footage (original premises
and expansion premises) to approximately 57,759 rentable square feet; and
WHEREAS, on July 1, 1995, Landlord and Tenant did make and enter into a
certain Third Amendment to Lease Agreement ("Third Amendment") for the purpose
of incorporating Suites 333, 343 and 353 (approximately 5,826 rentable square
feet) as expansion premises; thereby increasing the square footage (original
premises and expansion premises) to 63,585 rentable square feet (which Third
Amendment, together with the First Amendment, Second Amendment and the Lease,
is herein collectively referred to as the "Lease"); and
NOW, THEREFORE, in consideration of the foregoing, the parties hereto do
hereby mutually agree as follows:
1. From and after the Effective Date of this Agreement, the provisions of
subparagraph B of Paragraph 1 of the Lease, shall be amended to provide that
the following space shall be deleted from the Premises ("Deleted Premises") and
the Premises shall thereafter consist of approximately 54,168 rentable square
feet:
(a) Suite No. 333 located on
the third (3rd) floor containing approximately
2,130 rentable square feet.
(b) Suite No. 343 located on
the third (3rd) floor containing approximately
1,329 rentable square feet.
(c) Suite No. 350 located on
the third (3rd) floor containing approximately
3,591 rentable square feet.
(d) Suite No. 353 located on
the third (3rd) floor containing approximately
2,367 rentable square feet.
Rentable square footage for the above shall be determined in accordance with
the provisions of Paragraph 34 of the Lease. The Premises, giving effect to
the Deleted Premises, shall be referred to as the "Premises" and is shown on
Exhibit A attached.
2. From and after the Effective Date, Tenant hereby remises, releases,
quitclaims, and surrenders to Landlord, its successors and assigns forever, all
rights of Tenant in and to the Deleted Premises, however acquired, together
with all of its right and interest (and title, if any)
<PAGE> 2
in and to any and all improvements therein contained, and all of the estate and
rights of Tenant in and to the Deleted Premises.
3. Tenant, for itself and its successors and assigns, subject to the
warranties herein made by Landlord, hereby forever releases and discharges
Landlord from any and all obligations and liabilities under the Lease with
respect to the Deleted Premises and from and all claims, demands, or causes of
action whatsoever against Landlord, its successors and assigns, arising from
and after the Effective Date out of the surrender of the Deleted Premises.
4. Landlord, for itself and its successors and assigns, subject to the
warranties herein made by Tenant, hereby forever releases and discharges Tenant
from any and all obligations and liabilities under the Lease with respect to
the Deleted Premises and from any and all claims, demands, or causes of action
whatsoever against Tenant, its successors and assigns, arising from and after
the Effective Date out of the surrender of the Deleted Premises.
5. From and after the Effective Date, the Base Rent for the Premises shall
be reduced by $3.20 per rentable square foot for a period of twelve (12) months
ending May 31, 1999. The parties acknowledge that such rental reduction shall
amount to $173,241 for the twelve month period. As of May 31, 1999, Landlord
shall determine, in its discretion, and based upon publicly disclosed financial
statements of Tenant, whether the rental reduction shall continue, and if so,
the additional period of time for such reduction.
6. In consideration of the rental reduction, Tenant agrees, subject to the
approval of Tenant's Board of Directors, to issue to Landlord and register in
the name of Landlord 22,500 shares of the Common Stock of Tenant ("Shares").
In connection with the acquisition of the Shares, Landlord represents and
warrants the following to Tenant:
(a) Accredited Investor. Landlord is an "accredited investor" as
such term is defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities
Act"). Landlord is a Michigan limited partnership, and the
information checked below is correct and complete:
(i) X Landlord's net worth is in excess of $5,000,000.
---
(ii) X Landlord's income was in excess of $1,000,000 for
--- each of 1996 and 1997 and is reasonably expected
to be so for 1998.
(b) Sophistication. Landlord has substantial prior investment
experience, including investments in non-listed and
non-registered securities, and either (I) Landlord has such
knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of the
potential purchase of the Shares, or (ii) Landlord has
employed the services of an independent investment advisor,
attorney or accountant who qualifies as a "purchaser
representative", as such term is defined in Rule 501
promulgated under the Securities Act, to evaluate the merits
and risks of such an investment on its behalf.
(c) Economic Risk. Landlord acknowledges and recognizes that an
investment in the Shares involves a high degree of risk in
that, although other Common Stock of Tenant is publicly traded
on the New York Stock Exchange ("NYSE"), the Shares have not
been registered with the U.S. Securities and Exchange
Commission nor listed with NYSE and, consequently, (i)
Landlord may not be able to liquidate the investment, (ii)
transferability is extremely limited, (iii) there is currently
no market for the Shares, nor is a market likely to develop,
and (iv) Landlord could sustain the loss of the entire
investment. The total purchase price of the Shares that
Landlord might purchase would represent less than 10% of
Landlord's net worth. Landlord is able to bear the economic
risk it would assume by buying the Shares.
(d) Investment Intent; Resale. Landlord would purchase the Shares
for investment, for Landlord's own account, and not with a
view to, or for sale in connection with, any distribution of
the Shares. Landlord acknowledges and recognizes that the
Shares would not be registered under the Securities Act, the
Michigan Uniform Securities Act or the
<PAGE> 3
securities statutes of any other state or jurisdiction,
that there is no present intention of so registering
the Shares or any right of Landlord to cause them
to be registered, that the Shares cannot be resold (and
Landlord covenants that it will not resell them) unless they
are subsequently registered under applicable Federal and
state securities laws or unless exemptions from all such
applicable registration requirements (including, without
limitation, after a one-year holding period as provided in
SEC Rule 144) are available, and, consequently, Landlord
would have to bear the economic risk of the investment during
such restricted time. Tenant agrees that, upon notification
from Landlord of its intent to sell the Shares after the
one-year holding period, Tenant shall take such necessary
action, at Tenant's expense, to cause the Shares to be listed
with the NYSE. Landlord acknowledges and recognizes that the
certificates evidencing any of the Shares purchased by
Landlord will be legended to indicate the foregoing
restrictions.
7. As provided in subparagraph D of Paragraph 1 of the Lease, the Base
Rent to be paid by Tenant during the balance of the Lease Term, will be in
accordance with the Lease Rate Schedule. Such Lease Rate Schedule shall be
applicable to the Premises (excluding the Deleted Premises):
<TABLE>
LEASE RATE SCHEDULE
PERIOD RATE
------ ----
<S> <C>
6/01/98 - 5/31/99 $10.06
6/01/99 - 5/10/00 13.26
5/11/00 - 5/10/02 13.78
5/11/02 - 5/10/05 15.69
</TABLE>
8. From and after the Effective Date, Tenant shall relinquish fifteen
percent (15%) of its parking spaces under the Lease for the balance of the
Lease Term, and the rent for the parking spaces shall be reduced by fifteen
percent (15%) from the level provided under the Lease as of the Effective Date.
The parties acknowledge that the reduction in parking space rental shall
amount to $19,440 for the twelve month period ending May 31, 1999.
9. The parties acknowledge that the reductions in payments due from Tenant
under the Lease for the twelve month period commencing on the Effective Date
and ending May 31, 1999 shall be:
<TABLE>
<S> <C>
(a) Base Rent for Deleted Premises $207,362
(b) Base Rent reduction for remaining Premises 173,241
(c) Parking rent reduction 19, 440
--------
$400,043
</TABLE>
10. Landlord hereby warrants to Tenant that it is the owner of the
Premises and of the lessor's interest in the Lease, with full power and
authority to amend and modify the Lease.
11. Except as expressly amended herein, all other terms and conditions of
the Lease shall remain in full force and expect and are hereby ratified and
confirmed by the parties hereto.
12. This Agreement is executed in duplicate, either counterpart of which
is to be considered an original.
13. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors assigns.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as of the day and year first above written.
WITNESSES: 1155 BREWERY PARK LIMITED PARTNERSHIP
a Michigan limited partnership
By its General Partner:
BREWERY PARK ASSOCIATES
LIMITED PARTNERSHIP,
a Michigan limited partnership
By one of its General Partners:
AMK ASSOCIATES LIMITED PARTNERSHIP,
a Michigan limited partnership
--------------------------- By:
---------------------------------
Alan M. Kiriluk, General Partner
"LANDLORD"
UNITED AMERICAN HEALTHCARE CORPORATION,
a Michigan corporation
--------------------------- By:
---------------------------------
Its:
--------------------------------
"TENANT"
<PAGE> 1
EXHIBIT 10.40
TERMINATION OF LEASE
THIS AGREEMENT, made as of the 24th day of June, 1998 by and between
RIVERFRONT HOLDINGS, INC., a Delaware corporation, successor in interest to
Renaissance Center Venture, (herein called "Landlord"), and United American
Healthcare Corporation, a Michigan corporation, (herein called "Tenant").
WITNESSETH
WHEREAS, on May 2, 1996, Landlord entered into a lease (herein called
the "Lease") with Tenant whereby Landlord demised and let to Tenant certain
premises commonly known as:
200 RENAISSANCE CENTER, SUITE 1400
Detroit, Michigan 48243
being herein called the "Premises," for a Term ending June 30, 2001, on the
terms and conditions contained in the Lease, and
WHEREAS, Landlord and Tenant have decided that it is in their mutual
best interest to cancel and terminate the Lease and it is the intention of
Landlord and Tenant to effect the cancellation of the Lease by this instrument.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter contained, and of the release and surrender by Tenant of the Lease
and all of its rights therein and thereunder and all of its rights in and to
Premises (except as otherwise specifically provided herein), and of the release
by Landlord of all obligations of Tenant under the Lease as of June 30, 1998
(the "Termination Date"), and for other good and valuable consideration, the
parties hereto agree and warrant (where specifically stated) as follows:
1. From and after the "Termination Date," Tenant hereby remises,
releases, quitclaims, and surrenders to Landlord, its successors and assigns
forever, the Lease and all rights of Tenant in and to the Premises, however
acquired, together with all of its right and interest (and title, if any) in and
to any and all improvements therein contained, and all of the estate and rights
of Tenant in and to the Lease.
TO HAVE AND TO HOLD THE SAME UNTO LANDLORD, its successors and assigns
forever, from and after said Termination Date.
2. Tenant, for itself and its successors and assigns, subject to the
warranties herein made by Landlord, hereby forever releases and discharges
Landlord from any and all obligations and liabilities under the Lease and from
any and all claims, demands, or causes of action whatsoever against Landlord,
its successors and assigns, arising from and after the Termination Date out of
the Lease thereunder, or the termination and surrender of the Lease and
surrender of Premises.
3. Landlord shall receive all rental payments due and payable through
the Termination Date. Tenant is granted a license to use the Premises for the
period of July 1-15, 1998 ("License Period") for moving and relocating furniture
and other personal property of Tenant from the Premises. Such license
incorporates the terms and conditions contained in the Lease including without
limitation the insurance and indemnity obligations of Tenant. Rental payments
shall be due and payable for the License Period on a per diem basis through the
date the Tenant completes its move,
<PAGE> 2
calculated at a rate per day equal to 1/365 of the applicable annual rental
payment due under the Lease.
4. Subject to the Tenant's compliance with its disclosure obligations
to local, state and federal regulatory agencies:
a. Tenant agrees to use reasonable efforts to keep (and to
cause its employees, consultants and consultants' employees to keep)
the existence, terms and subject matter of this Termination of Lease
Agreement confidential; and
b. Tenant agrees to use its reasonable efforts (and to cause
its employees, consultants and consultants' employees) to not reveal
the existence, terms and subject matter of this Termination of Lease
Agreement to any Renaissance Center Phase 1 tenant.
5. Landlord, for itself and its successors and assigns, subject to the
warranties herein made by Tenant, hereby forever releases and discharges Tenant
from any and all obligations and liabilities under the Lease and from any and
all claims, demands, or causes of action whatsoever against Tenant, its
successors and assigns, arising from and after the Termination Date out of the
Lease thereunder, or the termination and surrender of the Lease and surrender of
Premises.
6. Landlord and Tenant agree that the Lease is to be canceled and
terminated and the term thereby demised brought to an end as of the Termination
Date with the same force and effect as if the term of the Lease were in and by
the provisions thereof fixed to expire on the Termination Date.
7. Tenant agrees that Landlord shall have the right to re-enter upon
the Premises as of the Termination Date, as fully as it would or could have done
if that were the date provided for the expiration or termination of the Lease.
8. Landlord hereby warrants to Tenant that it is the owner of the
Premises and of the Lessor's interest in the Lease, with full power and
authority to cancel and terminate same.
9. This agreement is executed in duplicate, either counterpart of which
is to be considered an original.
10. This agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors assigns.
IN WITNESS WHEREOF, of the parties hereto have caused this instrument
to be executed by their duly authorized officers, and their seals to be affixed
and duly attested, the day and year first above written.
WITNESSETH RIVERFRONT HOLDINGS, INC.,
a Delaware corporation
________________________ By: ________________________________
Its: Authorized Agent
"Landlord"
UNITED AMERICAN HEALTHCARE
CORPORATION,
a Michigan corporation
<PAGE> 1
EXHIBIT 10.41
UNITED AMERICAN HEALTHCARE CORPORATION
1998 STOCK OPTION PLAN
1. DEFINITIONS: As used herein, the following definitions shall
apply:
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Corporation.
(b) "COMMITTEE" shall mean the Compensation Committee
designated by the Board of Directors of the Corporation, or such other
committee as shall be specified by the Board of Directors to perform
the functions and duties of the Committee under the Plan; provided,
however, that the Committee shall comply with the applicable
requirements of (i) Rule 16b-3 of the Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
(ii) Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "CODE"), and the regulations thereunder.
(c) "CORPORATION" shall mean United American Healthcare
Corporation., a Michigan corporation, or any successor thereof.
(d) "DISCRETION" shall mean the sole discretion of the
Committee, with no requirement whatsoever that the Committee follow
past practices, act in a manner consistent with past practices, or
treat an officer, director or key employee in a manner consistent with
the treatment afforded other officers, directors or key employees with
respect to the Plan.
(e) "INCENTIVE OPTION" shall mean an option to purchase Common
Stock of the Corporation which meets the requirements set forth in the
Plan and also meets the definition of an incentive stock option within
the meaning of Section 422 of the Code. The stock option agreement for
an Incentive Option shall state that the option is intended to be an
Incentive Option.
(f) "NONQUALIFIED OPTION" shall mean an option to purchase
Common Stock of the Corporation which meets the requirements set forth
in the Plan but does not meet the definition of an incentive stock
option within the meaning of Section 422 of the Code. The stock option
agreement for a Nonqualified Option shall state that the option is
intended to be a Nonqualified Option.
(g) "PARTICIPANT" shall mean any individual designated by the
Committee under Paragraph 6 for participation in the Plan.
(h) "PLAN" shall mean the United American Healthcare
Corporation 1998 Stock Option Plan.
(i) "SUBSIDIARY" shall mean any corporation or similar entity
in which the Corporation owns, directly or indirectly, stock or other
equity interest ("STOCK") possessing more than 25% of the combined
voting power of all classes of Stock; provided, however, that an
Incentive Option may be granted to an employee of a Subsidiary only if
the Subsidiary is a corporation and the Corporation owns, directly or
indirectly, 50% or more of the total combined voting power of all
classes of Stock of the Subsidiary.
2. PURPOSE OF PLAN: The purpose of the Plan is to provide officers,
directors and key employees of the Corporation and its Subsidiaries with an
increased incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Corporation and its Subsidiaries, to
join the interests of officers, directors and key employees with the interests
of the shareholders of the Corporation, and to facilitate attracting and
retaining officers, directors and key employees of exceptional ability.
3. ADMINISTRATION: The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, the amount of stock to be optioned to each such person, and the terms
and conditions of any stock options. Subject to the provisions of the Plan, the
Committee is authorized to interpret the Plan, to make, amend and rescind rules
and regulations relating to the Plan and to make all other determinations
necessary or advisable for the Plan's administration. Interpretation and
construction of any provision of the Plan by the Committee shall, unless
otherwise determined by the Board of Directors of the Corporation, be final and
conclusive. A majority of the Committee shall constitute a quorum, and the acts
approved by a majority of the members of the Committee present at any meeting at
which a quorum is present, or acts approved in writing by a majority of the
Committee, shall be the acts of the Committee.
4. INDEMNIFICATION OF COMMITTEE MEMBERS: In addition to such other
rights of indemnification as they may have, the members of the Committee shall
be indemnified by the Corporation in connection with any claim, action, suit or
proceeding relating to any action taken or failure to act under or in connection
with the Plan or any option granted hereunder to the full extent provided for
under the Corporation's Bylaws with respect to indemnification of directors of
the Corporation.
5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The maximum number of
shares with respect to which stock options may be granted under the Plan shall
be 500,000 shares in the aggregate of Common Stock of the Corporation. If a
stock option expires or terminates for any reason without having been fully
exercised, the number of shares with respect to which the stock option was not
exercised at the time of its expiration or termination shall again become
available for the grant of stock options under the Plan, unless the Plan shall
have been terminated.
<PAGE> 2
Notwithstanding any other provision in this Plan, no officer, director
or employee of the Corporation or a Subsidiary may receive options for more than
300,000 shares of Common Stock of the Corporation over the term of the Plan, as
provided in Paragraph 22. For purposes of this 300,000 share per-Participant
limitation, there shall be taken into account all shares covered by stock
options granted to an individual regardless of whether such stock options expire
or terminate without being fully exercised.
The number of shares subject to each outstanding stock option, the
option price with respect to outstanding stock options, the aggregate number of
shares remaining available under the Plan and the 300,000 share per-Participant
limitation shall be subject to such adjustment as the Committee, in its
Discretion, deems appropriate to reflect such events as stock dividends, stock
splits, recapitalizations, mergers, consolidations or reorganizations of or by
the Corporation; provided, however, that no fractional shares shall be issued
pursuant to the Plan, no rights may be granted under the Plan with respect to
fractional shares, and any fractional shares resulting from such adjustments
shall be eliminated from any outstanding stock option.
6. PARTICIPANTS: The Committee shall determine and designate from time
to time, in its Discretion, those officers, directors and key employees of the
Corporation or any Subsidiary to receive stock options who, in the judgment of
the Committee, are or will become responsible for the direction and financial
success of the Corporation or any Subsidiary; provided, however, that Incentive
Options may be granted to officers, directors and key employees of a Subsidiary
only if (i) the Corporation owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of Stock of the Subsidiary and (ii)
the Subsidiary is a corporation.
7. WRITTEN AGREEMENT: Each stock option shall be evidenced by a written
agreement (each a "CORPORATION-PARTICIPANT AGREEMENT") containing such
provisions as may be approved by the Committee. Each such
Corporation-Participant Agreement shall constitute a binding contract between
the Corporation and the Participant and every Participant, upon acceptance of
such Agreement, shall be bound by the terms and restrictions of the Plan and of
such Agreement. The terms of each such Corporation-Participant Agreement shall
be in accordance with the Plan, but each Agreement may include such additional
provisions and restrictions determined by the Committee, in its Discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan.
8. ALLOTMENT OF SHARES: The Committee shall determine and fix, in its
Discretion, the number of shares of Common Stock with respect to which a
Participant may be granted stock options under the Plan; provided, however, that
no Incentive Option may be granted under the Plan to any one Participant which
would result in the aggregate fair market value, determined as of the date the
option is granted, of underlying stock with respect to which incentive stock
options are exercisable for the first time by such Participant during any
calendar year under any plan maintained by the Corporation (or any parent or
subsidiary corporation of the Corporation) exceeding $100,000.
<PAGE> 3
9. STOCK OPTIONS: Subject to the terms of the Plan, the Committee, in
its Discretion, may grant to Participants either Incentive Options or
Nonqualified Options or any combination thereof; provided, that directors of the
Corporation or a Subsidiary who are not employees of the Corporation or
Subsidiary shall be eligible for only Nonqualified Options. Each option granted
under the Plan shall designate the number of shares covered thereby, if any,
with respect to which the option is an Incentive Option, and the number of
shares covered thereby, if any, with respect to which the option is a
Nonqualified Option.
10. STOCK OPTION PRICE: Subject to the rules set forth in this
Paragraph 10, at the time any stock option is granted, the Committee, in its
Discretion, shall establish the price per share for which the shares covered by
the option may be purchased. With respect to an Incentive Option, such option
price shall not be less than 100% of the fair market value of the stock on the
date on which such option is granted; provided, however, that with respect to an
Incentive Option granted to an employee who at the time of the grant owns (after
applying the attribution rules of Section 424(d) of the Code) more than 10% of
the total combined voting stock of the Corporation or of any parent or
subsidiary, the option price shall not be less than 110% of the fair market
value of the stock on the date such option is granted. With respect to a
Nonqualified Option, the option price shall not be less than 75% of the fair
market value of the stock on the date upon which such option is granted. Fair
market value of a share shall be determined by the Committee and may be
determined by taking the mean between the highest and lowest quoted selling
prices of the Corporation's Common Stock on any exchange or other market on
which the shares of Common Stock of the Corporation shall be traded on such
date, or if there are no sales on such date, on the next following day on which
there are sales. The option price shall be subject to adjustment in accordance
with the provisions of Paragraph 5.
11. PAYMENT OF STOCK OPTION PRICE: To exercise in whole or in part any
stock option granted hereunder, payment of the option price in full in cash
shall be made by the Participant for all shares so purchased. In the Discretion
of and subject to such conditions as may be established by the Committee,
payment of the option price may also be made by the Corporation retaining from
the shares to be delivered upon exercise of the stock option that number of
shares having a fair market value on the date of exercise equal to the option
price of the number of shares with respect to which the Participant exercises
the stock option. Such payment may also be made in such other manner as the
Committee determines is appropriate, in its Discretion. No Participant shall
have any of the rights of a shareholder of the Corporation under any stock
option until the actual issuance of shares to such Participant, and prior to
such issuance no adjustment shall be made for dividends, distributions or other
rights in respect of such shares, except as provided in Paragraph 5.
12. GRANTING AND EXERCISING OF STOCK OPTIONS: Subject to the provisions
of this Paragraph 12, each stock option granted hereunder shall be exercisable
at any such time or times or in any such installments as may be determined by
the Committee at the time of the grant; provided, however, that no stock option
may be exercisable prior to the expiration of six months from the date of grant
unless the Participant dies or becomes disabled prior thereto. In addition, the
aggregate fair market value (determined at the time the option is granted) of
the Common Stock with respect to which Incentive Options are exercisable for the
first time by a Participant during any calendar year shall not exceed $100,000.
A Participant may exercise a stock option, if then exercisable, in
whole or in part by delivery to the Corporation of written notice of the
exercise, in such form as the Committee may prescribe, accompanied (i) by
payment for the shares with respect to which the stock option is exercised in
accordance with Paragraph 11, or (ii) in the Discretion of the Committee,
irrevocable instructions to a stock broker to promptly deliver to the
Corporation full payment for the shares with respect to which the stock option
is exercised from the proceeds of the stock broker's sale of or loan against the
shares. Except as provided in Paragraph 16, stock options granted to a
Participant may be exercised only while the Participant is an officer, director
or employee of the Corporation or a Subsidiary.
Successive stock options may be granted to the same Participant,
whether or not the stock option(s) previously granted to such Participant remain
unexercised. A Participant may exercise a stock option, if then exercisable,
notwithstanding that stock options previously granted to such Participant remain
unexercised.
13. NON-TRANSFERABILITY OF STOCK OPTIONS: No stock option granted under
the Plan to a Participant shall be transferable by such Participant otherwise
than by will or by the laws of descent and distribution, and stock options shall
be exercisable, during the lifetime of the Participant, only by the Participant.
14. TERM OF STOCK OPTIONS: If not sooner terminated, each stock option
granted hereunder shall expire not more than ten (10) years from the date of the
granting thereof; provided, however, that with respect to an Incentive Option
granted to a Participant who, at the time of the grant, owns (after applying the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting stock of all classes of stock of the Corporation or of any
parent or subsidiary, such option shall expire not more than five (5) years
after the date of the granting thereof.
15. CONTINUATION OF EMPLOYMENT: The Committee may require, in its
Discretion, that any Participant under the Plan to whom a stock option shall be
granted shall agree in writing as a condition of the granting of such stock
option to remain in the employ of the Corporation or a Subsidiary for a
designated minimum period from the date of the granting of such stock option as
shall be fixed by the Committee.
16. TERMINATION OF EMPLOYMENT: If the employment of a Participant by
the Corporation or a Subsidiary shall terminate, the Committee may, in its
Discretion, permit the exercise of Incentive Options granted to such Participant
(i) for a period not to exceed three months following termination of employment
if termination of employment is not due to death or permanent disability of the
Participant, and (ii) for a period not to exceed one year following termination
of employment if termination of employment is due to the death or permanent
disability of the Participant. With respect to Nonqualified Options, the
Committee may, in its Discretion, permit the exercise of such stock options
granted to a director of the Corporation or a Subsidiary who ceases to be such a
director (regardless of whether he or she is or was also an officer or director
of the Corporation or Subsidiary) for a period not to extend beyond the
expiration date of the Nonqualified Options. In no event, however, shall a stock
option be exercisable subsequent to its expiration date and, furthermore, unless
the Committee in its Discretion determines otherwise, a stock option may only be
exercised after termination of a Participant's employment, or of a Participant's
status as a non-employee director, to the extent exercisable on the date of
termination of such employment or status or to the extent exercisable as a
result of the reason for
<PAGE> 4
termination of such employment or status. The period of time, if any, a
Participant shall have to exercise stock options upon termination of employment,
or of status as a non-employee director, shall be set forth in the
Corporation-Participant Agreement, subject to extension of such time period by
the Committee in its Discretion.
17. INVESTMENT PURPOSE: If the Committee in its Discretion determines
that as a matter of law such procedure is or may be desirable, it may require a
Participant, upon any acquisition of Common Stock hereunder by reason of the
exercise of stock options, and as a condition to the Corporation's obligation to
issue or deliver certificates representing such shares, to execute and deliver
to the Corporation a written statement, in form satisfactory to the Committee,
representing and warranting that the Participant's acquisition of shares of
stock shall be for such person's own account, for investment and not with a view
to the resale or distribution thereof and that any subsequent offer for sale or
sale of any such shares shall be made either pursuant to (a) a registration
statement on an appropriate form under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), which registration statement has become effective and is
current with respect to the shares being offered and sold, or (b) a specific
exemption from the registration requirements of the Securities Act, but in
claiming such exemption the Participant shall, prior to any offer for sale or
sale of such shares, obtain a favorable written opinion from counsel for or
approved by the Corporation as to the availability of such exemption. The
Corporation may endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any shares issued
or transferred to a Participant under the Plan.
18. RIGHTS TO CONTINUED EMPLOYMENT: Nothing contained in the Plan or in
any stock option granted pursuant to the Plan, nor any action taken by the
Committee hereunder, shall confer upon any Participant any right with respect to
continuation of employment by the Corporation or a Subsidiary nor interfere in
any way with the right of the Corporation or a Subsidiary to terminate such
person's employment at any time.
19. WITHHOLDING PAYMENTS: If upon the exercise of a Nonqualified
Option, or upon a disqualifying disposition (within the meaning of Section 422
of the Code) of shares acquired upon exercise of an Incentive Option, there
shall be payable by the Corporation or a Subsidiary any amount for income tax
withholding, in the Committee's Discretion, either the Corporation shall
appropriately reduce the amount of Common Stock or cash to be delivered or paid
to the Participant or the Participant shall pay such amount to the Corporation
or Subsidiary to reimburse it for such income tax withholding. The Committee
may, in its Discretion, permit Participants to satisfy such withholding
obligations, in whole or in part, by electing to have the amount of Common Stock
delivered or deliverable by the Corporation upon exercise of a stock option
appropriately reduced, or by electing to tender Common Stock back to the
Corporation subsequent to exercise of a stock option, to reimburse the
Corporation or a Subsidiary for such income tax withholding (any such election
being irrevocable), subject to such rules and regulations as the Committee may
adopt, including such rules as it determines appropriate with respect to
Participants subject to the reporting requirements of Section 16(a) of the
Exchange Act of 1934 to effect such tax withholding in compliance with the Rules
established by the Securities and Exchange Commission (the "COMMISSION") under
Section 16 to the Exchange Act and the positions of the staff of the Commission
thereunder expressed in no-action letters exempting such tax withholding from
liability under Section 16(b) of the Exchange Act. The Committee may make such
other arrangements with respect to income tax withholding as it shall determine.
20. EFFECTIVENESS OF PLAN: The Plan shall be effective on the date the
Board of Directors of the Corporation adopts the Plan, provided that the
shareholders of the Corporation approve the Plan within 12 months of its
adoption by the Board of Directors. Stock options may be granted prior to
shareholder approval of the Plan, but each such stock option grant shall be
subject to shareholder approval of the Plan. No stock option may be exercised
prior to shareholder approval.
21. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be
abandoned or terminated at any time by the Board of Directors of the
Corporation. Unless sooner terminated, the Plan shall terminate on the date ten
(10) years after its adoption by the Board of Directors, and no stock options
may be granted thereafter. The termination of the Plan shall not affect the
validity of any stock option outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Corporation, to amend or revise the terms of the Plan at any time; provided,
however, that no such amendment or revision shall (i) without approval or
ratification of the shareholders of the Corporation (A) increase the maximum
number of shares in the aggregate which are subject to the Plan (subject,
however, to the provisions of Paragraph 5), (B) increase the maximum number of
shares for which any Participant may be granted stock options under the Plan
(except as contemplated by Paragraph 5), (C) change the class of persons
eligible to be Participants under the Plan, or (D) materially increase the
benefits accruing to Participants under the Plan, or (ii) without the consent of
the holder thereof, change the stock option price (except as contemplated by
Paragraph 5)) or alter or impair any stock option which shall have been
previously granted under the Plan.
As adopted by the Board of Directors on August 6, 1998.
<PAGE> 1
EXHIBIT 10.42
STOCK PURCHASE AGREEMENT
THIS AGREEMENT OF PURCHASE AND SALE OF STOCK (this "Agreement"), dated
August 31, 1998, by and among UNITED AMERICAN HEALTHCARE CORPORATION, a Michigan
corporation (the "Seller"), CORPORATE HEALTHCARE FINANCING, INC., a Michigan
corporation (the "Company") and CHFA, INC., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner of all the issued and outstanding
capital stock of the Company; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all of the issued and outstanding shares of
capital stock of the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and in order to set forth the terms and conditions
of the purchase and sale of stock and the manner of carrying the same into
effect, the parties hereto hereby agree as follows:
1. Purchase and Sale of Stock. Subject to and upon the terms
and conditions set forth in this Agreement, as of the date hereof (the "Closing
Date"), Seller hereby sells, transfers, conveys, assigns and delivers to
Purchaser, and Purchaser hereby purchases from Seller all of the issued and
outstanding shares of capital stock (the "Stock") of the Company (the
"Closing").
2. (a) Purchase Price. In consideration of the sale, transfer,
conveyance, assignment and delivery of the Stock by Seller to Purchaser, and in
reliance upon the representations and warranties made herein by Seller, in full
payment therefor, Purchaser hereby delivers to Seller the sum of Seventeen
Million, Seven Hundred Fifty Thousand Dollars ($17,750,000.00), paid as follows:
(i) $500,000 (the "Initial Amount"), by delivery of funds in like amount to
Seller's Account No. 6843105237 ("Seller's Account") at Michigan National Bank,
NA (the "Bank"), by wire transfer of immediately available funds on July 13,
1998, the receipt of which Initial Amount is hereby acknowledged by Seller; (ii)
$1,500,000 by wire transfer to Seller's Account; (iii) $2,500,000 by issuance
and delivery to Seller of an unsecured promissory note of Purchaser, in like
amount, in the form attached as Exhibit 2(a)(iii) ("Unsecured Note"); and (iv)
$13,250,00 by issuance and delivery to Seller of a promissory note of Purchaser
in like amount, in the form attached as Exhibit 2(a)(iv) ("Secured Note") ((i)
through (iv), collectively, the "Purchase Price").
(b) Tax Election. Seller and Purchaser hereby agree to make
an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Regulations promulgated thereunder, and
corresponding provisions of applicable state laws (the "Tax Election"), with
respect to the Stock to be purchased and sold hereunder. In connection
therewith, within thirty (30) days after Closing, Seller and Purchaser shall
file with the Internal Revenue Service (the "IRS") and the appropriate state
taxing authorities Form 8023-A and any other documents necessary to make the Tax
Election. The parties shall allocate (the "Allocation") the Purchase Price (plus
any liabilities deemed assumed) in accordance with Section 338 of the Code and
the Regulations promulgated thereunder for purposes of completing Form 8023; the
parties agree that no amount is allocable to the Non-Competition Covenant
provided for in Section 8 hereof. Any dispute regarding the Allocation shall be
resolved by the joint decision of the Baltimore office of Grant Thornton, LLP
and the Detroit office of KPMG Peat Marwick, LLP. The Seller and Purchaser each
agree that, in the event the Allocation, or any tax reporting position taken
with respect thereto, is challenged by the IRS or any other taxing authority in
the course of an examination of any income tax return of the Seller or Purchaser
(or the individual return of any shareholder of the Purchaser, if the Purchaser
is an S corporation, but in such case only the Purchaser and not such
Shareholder shall be an Audited Party or a Notified Party), (i) notice shall be
given by the party under said examination (the "Audited Party") to the other
party (the "Notified Party"); (ii) if the Audited Party elects to defend the
Allocation, then the Notified Party shall reasonably cooperate with and take no
position inconsistent with such defense; and (iii) if the Audited Party elects
not to defend the Allocation, then the Notified Party may, at its election and
expense, assume the reasonable, good faith defense of the Allocation, in which
case the Audited Party shall reasonably cooperate with and take no position
inconsistent with the defense of the Allocation. The parties intend, but neither
represents or warrants to the other, that
<PAGE> 2
the effect of the Tax Election will be to cause the transaction contemplated
hereby to be treated as an asset sale for state and federal income tax purposes,
but for all other purposes the transaction shall be treated as a stock purchase.
In the event either Seller or Purchaser fails to make any necessary filing or
takes any other action not contemplated by this Agreement that causes the Tax
Election to be ineffective, then such party shall indemnify the other party from
any additional costs or taxes or loss of deductions, including interest and
penalties, as a result of such failure or action. Purchaser shall further
indemnify Seller from such additional costs or taxes if the IRS independently
disqualifies the election as a result of any action or inaction by Purchaser.
3. Further Action.
(a) Consents. Seller and the Company, as promptly as
practicable after the Closing Date, will use all reasonable efforts to obtain,
or cause to be obtained, all consents of any governmental authority and of any
third party listed on Exhibit 3 (collectively, the "Consents") necessary to be
obtained in order to consummate the sale and transfer of the Stock pursuant to
this Agreement and the consummation of the other transactions contemplated
hereby.
(b) Corporate Records. Seller agrees to and shall (unless
prohibited from doing so by contract or license, in which case Seller shall use
its commercially reasonable best efforts to remove or secure a waiver of such
prohibition) upon the written request of the Company or the Purchaser, deliver
to the Company or Purchaser, without any charge or expense, the originals or
copies, including in electronic form where applicable, of any and all records or
documents maintained by or in the possession of Seller that relate to, or to the
business activities of, any of the Company or Statutory Benefits Management
Corporation ("SBMC") and United American Network Services, Inc. ("UANS") (SBMC
and UANS, both wholly-owned subsidiaries of the Company, are hereinafter
collectively referred to as the "Subsidiaries") and which any of the Purchaser,
the Company or any Subsidiary reasonably require.
4. Seller's Obligations at Closing.
(a) Deliveries. At the Closing, Seller has delivered, or
caused to be delivered, to Purchaser (and, as applicable, has executed):
(i) stock certificates representing the Stock, duly
endorsed in blank, and with all necessary stock transfer stamps, if any,
attached;
(ii) resignations or evidence of removal pursuant to
duly authorized and approved corporate action, each in form reasonably
satisfactory to Purchaser, of such of the directors and officers of the Company
and the Subsidiaries as shall have been requested by Purchaser, effective as of
the Closing Date, which resignations shall include a statement that neither the
Company nor any Subsidiary is indebted or obligated to the resigning party in
any way whatsoever;
(iii) certificates as to the good standing of the
Company and the Subsidiaries from the appropriate officials of the jurisdictions
in which the Company and the Subsidiaries are incorporated all dated within
thirty (30) days of the Closing;
(iv) a certified copy of resolutions adopted by the
Seller's Board of Directors, and a copy of resolutions adopted by the Company's
Board of Directors, each authorizing the execution, delivery and performance of
this Agreement;
(v) a copy of the Company's Articles of Incorporation,
as amended, certified by the Office of the Secretary of State of the State of
Michigan, and a copy of the By-Laws of the Company as in the Seller's
possession;
(vi) a copy of the certificate of incorporation, as
amended, of each of the Subsidiaries certified by the office of the Secretary of
State of the state of its incorporation (or other applicable governing body),
and a copy of the By-Laws of each such Subsidiary as in the Seller's possession;
(vii) an Assignment and Assumption Agreement (the
"Lease Assignments") in a form specified by the respective Landlords for the
assignment by Seller to the Purchaser of each Lease listed on Exhibit 4(a)(vii)
(the "Leases"), which Lease Assignments shall be duly executed by Seller;
provided, however, that all such Lease Assignments shall provide that any
<PAGE> 3
security deposits held by the Landlords on account of such Leases shall be
promptly returned to the Seller;
(viii) all Consents set forth on Schedule 6(m);
(ix) that certain Release in the form attached hereto
as Exhibit 4(a)(ix);
(x) an opinion or opinions from either or both of
Seller's Counsel, Hopkins & Sutter and Honigman, Miller, Schwartz and Cohn, in
the form or forms attached hereto as Exhibit 4(a)(x);
(xi) a release of its security interest in the Stock
and an acknowledgement that it has no security interest in the assets of the
Company and the Subsidiaries duly executed by the Bank in form reasonably
satisfactory to Purchaser;
(xii) that certain Trademark Assignment and Assumption
Agreement attached hereto as Exhibit 4(a)(xii);
(xiii) that certain Employment Agreement Termination
Agreement attached hereto as Exhibit 4(a)(xiii);
(xiv) that certain Termination Agreement attached
hereto as Exhibit 4(a)(xiv);
(xv) all other documents and instruments required to be
delivered to Purchaser by Seller and the Company pursuant to the provisions of
this Agreement; and
(xvi) the minute book and stock records of each of the
Company, SBMC and UANS as in the possession of the Seller.
(b) Further Assurances. At any time and from time to time
after the Closing, at Purchaser's request, without further consideration, Seller
shall execute and deliver such other additional instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as Purchaser
may reasonably deem necessary or desirable, including without limitation
assistance in securing governmental or other third party consents, (i) in order
to transfer, convey and assign to Purchaser, and confirm Purchaser's title to,
the Stock and (ii) to put Purchaser in actual possession and operating control
of all of the business, properties, assets and goodwill of the Company thereof.
In addition thereto, Seller shall take such action and execute such documents or
instruments as may be reasonably requested by Purchaser, and as may be
reasonably necessary, in connection with any governmental or regulatory matters
or filings required to be made by Purchaser in connection with the transactions
contemplated hereby.
(c) Certain Assignments. Notwithstanding anything to the
contrary in this Agreement, this Agreement shall not constitute an agreement to
assign or transfer any instrument, contract, lease, permit or other agreement or
arrangement or any claim, right or benefit arising thereunder or resulting
therefrom if an assignment or transfer or an attempt to make such an assignment
or transfer without the consent of a third party would constitute a breach or
violation thereof or affect adversely the rights of Purchaser or the Company
thereunder; any transfer or assignment to Purchaser by Seller of any interest
under any such instrument, contract, lease, permit or other agreement or
arrangement that requires the consent or approval of a third party shall be made
subject to such consent or approval being obtained. In the event any such
consent or approval has not been obtained on or prior to the Closing Date, each
of the Company and Seller agrees to use its commercially reasonable best efforts
to obtain such approval or consent after the Closing Date until such time as
such consent or approval has been obtained. During such interim period, Seller
shall accord Purchaser and the Company the benefits underlying each agreement or
arrangement listed on Schedule 6(m) attached hereto pending receipt of such
approval or consent.
5. Purchaser's Obligations at Closing.
(a) Deliveries. At the Closing, Purchaser has delivered, or
caused to be delivered, as the case may be, to Seller (and, as applicable,
execute):
<PAGE> 4
(i) the Purchase Price as provided in Section 2 hereof,
including without limitation, and delivery of the Unsecured Note and the Secured
Note;
(ii) that certain Personal Guaranty of Louis J.
Nicholas, in the form attached hereto as Exhibit 5(a)(ii);
(iii) that certain Pledge Agreement (the "Pledge
Agreement") in the form attached hereto as Exhibit 5(a)(iii) together with the
certificate or certificates representing the Stock pledged pursuant to the
Pledge Agreement and a blank stock power duly executed by the Purchaser;
(iv) those certain UCC financing statements of
Purchaser, in the forms attached hereto as Exhibit 5(a)(iv) to provide a
security interest with respect to payment of the Secured Note;
(v) a certified copy of resolutions adopted by the
Board of Directors of Purchaser authorizing the execution, delivery and
performance of this Agreement;
(vi) a copy of Purchaser's certificate of
incorporation, certified by the Office of the Secretary of State of Delaware,
and a true and correct copy of the by-laws of Purchaser as certified by the
secretary of Purchaser;
(vii) intentionally deleted;
(viii) all Consents set forth on Schedule 7(g);
(ix) that certain Release in the form attached hereto
as Exhibit 5(a)(ix);
(x) an opinion of Purchaser's counsel, Venable, Baetjer
and Howard, LLP, in the form attached hereto as Exhibit 5(a)(x);
(xi) that certain Security Agreement (the "Security
Agreement") attached hereto as Exhibit 5(a)(xi);
(xii) that certain Trademark Assignment And Assumption
Agreement attached hereto as Exhibit 4(a)(xii);
(xiii) the Lease Assignments as described in Section
4(a)(vii) hereof;
(xiv) that certain Employment Agreement Termination
Agreement attached hereto as Exhibit 4(a)(xiii);
(xv) that certain Termination Agreement attached hereto
as a part hereof as Exhibit 4(a)(xiv); and
(xvi) all other documents and instruments required to
be delivered to Seller pursuant to the provisions of this Agreement.
(b) Further Assurances. At any time and from time to time
after the Closing, at Seller's request and expense, without further
consideration, Purchaser shall execute and deliver such other additional
instruments as Seller may reasonably deem necessary to evidence Purchaser's
obligations under this Agreement, and Purchaser agrees to take such actions as
may be reasonably necessary to carry out the purposes and intentions of this
Agreement.
6. Representations, Warranties of Seller. Seller represents
and warrants to Purchaser as follows; provided, however, that the following
representations shall be deemed specifically to exclude matters which are known
as of the date hereof to any of Louis J. Nicholas, Keith B. Sullivan, Spencer
Vavas and Pamela Lee and any attorneys or accountants with whom the foregoing
individuals may have consulted regarding the Company.
(a) Organization, Standing and Qualification. The Company
and each Subsidiary (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan, and (ii) has all
requisite corporate power and authority and is entitled to carry
<PAGE> 5
on its business as now being conducted and to own, lease or operate its
properties in the places where such business is now conducted and such
properties are now owned, leased or operated. The Company and each Subsidiary
has delivered to Purchaser true and complete copies of its certificate of
incorporation and all amendments thereto, certified as true and correct by the
Office of the Secretary of State of the State of Michigan and copies of its
by-laws as in the Seller's possession. The Company and each Subsidiary have paid
or caused to be paid all franchise taxes and other similar taxes due from such
corporation, and have filed or caused to be filed all required returns and
reports in each jurisdiction in which the Company or any Subsidiary is
incorporated or does business.
(b) Execution, Delivery and Performance of Agreement;
Authority. Except as set forth on Schedule 6(b) annexed hereto, neither the
execution, delivery nor performance by Seller of this Agreement and all other
agreements to which Seller is a party required to be delivered by Seller
pursuant to Section 4(a) hereof (which documents are hereinafter sometimes
collectively referred to as "Seller's Related Agreements") (i) will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to any provision of the
Seller's certificate of incorporation or by-laws, or any franchise, mortgage,
deed of trust, lease, license, agreement, applicable law, rule or regulation or
any order, judgment or decree to which Seller is a party or by which it may be
bound or materially or adversely affected or (ii) require any consent,
authorization, approval or any other action by, or any notice to, or filing or
registration with, any governmental authority or other third party on account of
any undertaking or other agreement to which Seller is a party, in any case,
which either has not been obtained prior to or at the Closing or which, if not
obtained, would have a material adverse effect upon the Company or any
Subsidiary. Except as set forth on Schedule 6(b) annexed hereto, no other party,
including, without limitation, any present or former partner, shareholder in
common with, or employee of the Company or Seller have, may or will have any
right to any of Seller's interest in the Company or in any Subsidiary or the
proceeds of the sale of the Stock. Except as set forth on Schedule 6(b) annexed
hereto, (w) no consent from any third party is required to be obtained or made
by Seller with respect to any agreement to which Seller is a party in connection
with the execution and delivery of this Agreement or the Seller's Related
Agreements and to consummate the transactions contemplated hereby which has not
been obtained prior to or at the Closing, (x) Seller has the full power and
authority to enter into this Agreement and, as applicable, Seller's Related
Agreements and to carry out the transactions contemplated hereby, as applicable,
(y) all proceedings required to be taken by it to authorize and approve the
execution, delivery and performance of this Agreement and Seller's Related
Agreements have been properly taken, and (z) this Agreement and Seller's Related
Agreements constitute valid and binding obligations of Seller enforceable in
accordance with their terms, except that such enforcement may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar law affecting creditors' rights generally. The execution, delivery and
performance of this Agreement and Seller's Related Agreements have been duly
authorized by all requisite corporate and shareholder action of Seller.
(c) Capitalization. The authorized capital of the Company
consists of Sixty Thousand (60,000) shares, no par value per share, of which One
Thousand (1,000) shares are issued and outstanding on the date hereof. All of
the shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable. All of the presently authorized,
issued and outstanding shares of capital stock of the Company are owned by
Seller. All of the presently authorized, issued and outstanding shares of
capital stock of each Subsidiary are owned by the Company. Except as set forth
on Schedule 6(c), there are no outstanding subscriptions, rights, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatsoever under
which the Seller is or may become obligated to issue, assign or transfer any
shares of the capital stock of the Company or of any Subsidiary.
(d) Ownership of the Capital Stock. Upon the release by the
Bank of its security interest in the Stock, (i) Seller is the lawful record and
beneficial owner of all of the Company's capital stock free and clear of any
liens, claims, encumbrances or restrictions of any kind; (ii) except as set
forth on Schedule 6(d), the Company is the lawful record and beneficial owner of
all of each Subsidiary's capital stock free and clear of any liens, claims,
encumbrances or restrictions of any kind; and (iii) except as set forth on
Schedule 6(d), or as otherwise expressly provided herein, neither Seller nor any
person or entity affiliated with Seller is a party to or otherwise subject to
any agreement, understanding or arrangement regarding the transfer, sale,
disposition, purchase, acquisition or voting of the Stock or of the capital
stock of any Subsidiary. Upon the delivery thereof to Purchaser at Closing,
together with executed stock transfer forms in respect thereof, Purchaser will
acquire good, marketable and valid title to the Stock free and clear of any
liens, claims, encumbrances
<PAGE> 6
or restrictions of any kind, except for the lien under the Pledge Agreement and
the Security Agreement.
(e) Absence of Certain Business Practices. Except as set
forth on Schedule 6(e) annexed hereto, to the knowledge of Seller, neither
Seller nor any other person acting on its behalf, has, directly or indirectly,
given or agreed to give any gift or similar benefit, of a material nature to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, would have had an
adverse effect on the assets, business or operations of the Company or (iii) if
not continued in the future, would adversely affect the assets, business, or
operations or which might subject the Company to suit or penalty in any private
or governmental litigation or proceeding.
(f) Employee Benefit Plans. Except as provided in the last
sentence of this Section 6(f), Seller makes the following representations
regarding the employee benefit plans, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any other
employee benefit plans, programs or arrangements that have been maintained by
any members of a controlled group of corporations, as defined in Code Section
414(b) or (c), that includes Seller (collectively, the "Controlled Group Benefit
Plans"). The only Controlled Group Benefit Plans in which the employees of the
Company or any Subsidiary participate are the United American Healthcare
Corporation Employee's Retirement Plan (the "Retirement Plan") and the United
American Healthcare Corporation Stock Purchase Plan (the "Stock Purchase Plan";
the Retirement Plan and the Stock Purchase Plan are hereinafter collectively
referred to as the "Benefit Plans"). True and current copies of all plan
documents with respect to the Benefit Plans are attached hereto as Schedule 6(f)
(the "Benefit Plan Documents"). All requirements of applicable law, including
without limitation, the Code, ERISA, the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), have been fulfilled in all
material respects by Seller with regard to the Benefit Plans and the
administration thereof and shall continue to be fulfilled through the Closing.
All required governmental filings and required disclosures to employees with
respect to all such Benefit Plans have been timely filed or distributed and are
accurate and complete. No nonexempt "prohibited transaction" (as defined in
Section 4975 of the Code and Section 406 of ERISA) has occurred or will occur
prior to the Closing Date with respect to any Controlled Group Benefit Plan. No
excise taxes are payable, nor do any facts exist that could give rise to the
imposition of excise taxes at any future time, with respect to any Controlled
Group Benefit Plan. None of the Controlled Group Benefit Plans is a single
employer or multiemployer pension plan subject to Code Section 412 and/or Title
IV of ERISA. The Retirement Plan meets the requirements of Code Section 401(a)
and (k) and has received a determination letter from the Internal Revenue
Service to that effect which addresses the requirements of the Tax Reform Act of
1986. With respect to the Benefit Plans, all requirements of the Benefit Plan
Documents have been met and Seller has not received written notice from any
present or former employee of the Company or of any Subsidiary making a claim as
a result of a violation by Seller or the Company or any Subsidiary of the
Benefit Plan Document or ERISA, and Seller does not know of any facts which
would form the basis of such a claim. Seller makes no representation or warranty
as to employee benefit plans, programs or arrangements maintained by and solely
for the employees of the Company or any Subsidiary.
(g) Disclosure. No representation or warranty by the Seller
contained in this Agreement or in any other certificate furnished or to be
furnished by the Seller in connection herewith or pursuant hereto contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact required to make the statements herein or therein
contained not misleading.
(h) Transactions with Certain Persons. Except for matters
which are known to or have been undertaken or caused by the CHF Persons (who for
the purposes of this Agreement shall be the former or present officers,
directors, agents or employees of the Company or any Subsidiary, other than
Julius V. Combs, M.D., Ronald R. Dobbins, Denise Davis, Danny McNeal and Jagu
Vanaharam), and except as set forth on Schedule 6(h) attached hereto, (i) since
June 30, 1998, the Company and each Subsidiary has not, directly or indirectly,
purchased, leased or otherwise acquired any property or assets or obtained any
services from, or sold, leased, or otherwise disposed of any property or assets
or furnished any services to, or otherwise dealt with (except with respect to
remuneration for services rendered as a director, officer or employee of the
Company), in the ordinary course of business or otherwise (A) the Seller or the
subsidiaries of Seller (other than the Company and its Subsidiaries), (B) any
person who is or was an employee, director or officer of the Seller, other
<PAGE> 7
than Louis J. Nicholas, or (C) any person controlled by, controlling or under
common control with, the Seller (other than the Company and its Subsidiaries)
(the parties in clauses (A), (B) and (C) collectively, the "Seller Related
Parties"); and (ii) except as set forth on Schedule 6(h) attached hereto, (A)
the Company and each Subsidiary does not owe any amount to, or have any contract
with or commitment to the Seller or the Seller Related Parties, (B) no part of
the property or assets of any Seller Related Party are used by the Company or
any Subsidiary, and (C) the property or assets of the Company and each
Subsidiary are not used by any Seller Related Party for its benefit or any
purpose not related to the business of the Company.
(i) Absence of Undisclosed Liabilities. Except for matters
which are known to or have been undertaken or caused by the CHF Persons, and
except as (i) reflected in the Company's balance sheet dated June 30, 1998, or
(ii) disclosed in the notes thereto, or (iii) set forth on Schedule 6(i) annexed
hereto, or (iv) expressly disclosed elsewhere in this Agreement or in the
Schedules annexed hereto, the Company and each Subsidiary has on the date of
this Agreement no debts, liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature whatsoever to any Seller Related Party or
which have been arranged, incurred or committed to by Seller or any Seller
Related Party.
(j) Taxes.
(i) Except as set forth on Schedule 6(j) annexed
hereto, all Taxes imposed by the United States or by any foreign country or by
any state, municipality, subdivision or instrumentality of the United States or
of any foreign country, or by any other taxing authority, which are due and
payable by the Company or the Subsidiaries, and all interest and penalties
thereon, whether disputed or not, have been paid in full; and all tax returns
required to be filed in connection therewith have been accurately prepared and
duly and timely filed prior to the expiration of any available extension
periods. Except as set forth on Schedule 6(j) annexed hereto, neither the
Company nor any Subsidiary is currently delinquent in the payment of any foreign
or domestic tax, assessment or governmental charge or deposit and has no tax
deficiency or claim outstanding, or, to its knowledge, proposed or assessed
against it, and, to its knowledge, there is no basis for a successful assertion
that any such tax deficiency or claim exists. Except as set forth on Schedule
6(j) annexed hereto, there is not now in force any extension of time with
respect to the date on which any tax return was or is due to be filed by or with
respect to the Company or any Subsidiary. As used in this Agreement, "Taxes"
shall include, without limitation, all federal, state, provincial, local,
foreign or other income, alternative minimum, accumulated earnings, add-on,
personal holding company, franchise, capital stock, net worth, capital, profits,
gross receipt, value added, sales, use, goods and services, transaction, excise
customs duties, transfer, conveyance, mortgage, registration, stamp,
documentary, recording, premium, charges, fees, severance, environmental
(including, taxes under Section 59A of the Code), real property, gains tax,
personal property, ad valorem, intangibles, rent, occupancy, license, estimated
or other similar tax, duty or other governmental charge or assessment or
deficiency thereof, including all interest and penalties thereon and additional
thereto whether disputed or not.
(ii) As of the date of this Agreement, except as set
forth on Schedule 6(j) annexed hereto or as stated herein, there are and have
been no tax sharing agreements or arrangements or tax indemnity agreements to
which any Seller Related Party, the Company or any Subsidiary is a party which
impose, contemplate or may result in any liability for the Company or any
Subsidiary.
(iii) Neither the Company nor any Subsidiary has any
unpaid liability for the Taxes (other than Taxes not yet due and payable) of any
person (A) under Section 1.1502-6 of the Treasury Regulations promulgated under
the Code (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or (D) otherwise.
(iv) Notwithstanding any other provision hereof to the
contrary, for purposes of this Agreement, all statements, facts and other
disclosures set forth on Schedule 6(j) hereof shall be disregarded in
determining whether there has been a breach of any warranty, any untrue
representation or non-fulfillment of any covenant or agreement made by Purchaser
in this Section 6(j).
(k) Title to Properties. Except for matters which are known
to or have been undertaken or caused by the CHF Persons, the Company and each
Subsidiary has good, marketable and insurable title to all of the properties and
assets it owns and uses in its business or purports to own, including, without
limitation, those reflected in its books and records and in its balance sheet
<PAGE> 8
dated June 30, 1998 (the "Company Assets"). No Seller Related Party has taken or
omitted to take any action which has adversely affected or will adversely affect
the title of the Company and each Subsidiary to any of the Company Assets.
Except for matters which are known to or have been undertaken or caused by the
CHF Persons, and except as set forth on Schedule 6(k) attached hereto, none of
the Company Assets are subject to any loan agreement, conditional sale or title
retention agreement, equipment obligation, lease purchase agreement, mortgage,
indenture, pledge, security agreement, guaranty, lien, charge, security
interest, encumbrance, restriction, lease, license, easement, liability or
adverse claim of any nature whatsoever (excluding trade and account payables),
direct or indirect, whether accrued, absolute, contingent or otherwise.
(l) No Guarantees. Except for matters which are known to or
have been undertaken or caused by the CHF Persons, neither the Company nor any
Subsidiary has guaranteed the obligations or liabilities of any other person,
firm or corporation, including, but not limited to, the Seller or any of the
other Seller Related Parties.
(m) Consents. Schedule 6(m) attached hereto is a true,
correct and complete list of all Consents from any third party relating to
agreements, instruments or arrangements to which the Seller is a party, which
will be required to be obtained in order to consummate the transactions
contemplated hereby and which have not been obtained prior to or at the Closing.
(n) Trademarks. Except for matters which are known to or
have been undertaken or caused by the CHF Persons, and except for matters which
occurred prior to May 7, 1993, (i) Seller holds all right, title and interest in
and to the Trademarks (as that term is defined in the Trademark Assignment and
Assumption Agreement of even date herewith by and between Seller, as Assignor,
and the Company, as Assignee) free and clear of any pledge, security agreement,
guarantee, lien, security interest, encumbrance, license or any adverse claim of
any nature whatsoever; and (ii) neither Seller nor any person or entity
affiliated with Seller has assigned, sold, leased, encumbered or otherwise
transferred any of Seller's rights in the Trademarks. Seller has no knowledge of
any alleged claims, and has no notice that the use of the Trademarks infringe or
may infringe the rights of any third party.
7. Representations and Warranties by Purchaser. Purchaser
represents and warrants to Seller as follows:
(a) Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Purchaser has full corporate power and authority to enter into this
Agreement and all other agreements to which Purchaser is a party required to be
delivered by Purchaser pursuant to Section 5(a) hereof (which documents are
hereinafter sometimes collectively referred to as "Purchaser's Related
Agreements") and to carry out the transactions contemplated by this Agreement
and the Purchaser's Related Agreements. Purchaser has delivered to Seller copies
of Purchaser's certificate of incorporation, and all amendments thereto, and the
by-laws of Purchaser as presently in effect, each certified as true and correct
by Purchaser's secretary.
(b) Execution, Delivery and Performance of Agreement;
Authority. Except as set forth on Schedule 7(b) annexed hereto, neither the
execution, delivery nor performance by Purchaser of this Agreement and all
Purchaser's Related Agreements (i) will, with or without the giving of notice or
the passage of time, or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any provision of the Purchaser's certificate
of incorporation or by-laws, or any franchise, mortgage, deed of trust, lease,
license, agreement, applicable law, rule or regulation or any order, judgment or
decree to which Purchaser is a party or by which it may be bound or materially
or adversely affected, or (ii) require any consent, authorization, approval or
any other action by, or any notice to, or filing or registration with, any
governmental authority or other third party on account of any undertaking or
other agreement to which Purchaser, the Company or any Subsidiary is a party, in
any case, which either has not been obtained prior to or at the Closing or
which, if not obtained, would have a material adverse effect upon the Company.
Except as set forth on Schedule 7(b) annexed hereto, (w) no consent from any
third party is required to be obtained with respect to any agreement to which
Purchaser, the Company or any Subsidiary is a party, in connection with the
execution and delivery of this Agreement or the Purchaser's Related Agreements
and to consummate the transactions contemplated hereby which has not been
obtained prior to or at the Closing, (x) Purchaser has the full power and
authority to enter into this Agreement and, as applicable, Purchaser's Related
Agreements and to carry out the transactions contemplated hereby, as applicable,
(y) all proceedings required to be taken by it to authorize and approve the
execution, delivery and performance of this Agreement and
<PAGE> 9
Purchaser's Related Agreements have been properly taken, and (z) this Agreement
and Purchaser's Related Agreements constitute valid and binding obligations of
Purchaser enforceable in accordance with their terms, except that such
enforcement may be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and similar law affecting creditors'
rights generally. The execution, delivery and performance of this Agreement and
Purchaser's Related Agreements have been duly authorized by all requisite
corporate and shareholder action of Purchaser.
(c) Purchase for Investment. Purchaser will acquire the
Stock, for investment for Purchaser's own account, not as a nominee or agent,
and not with a view to distributing all or any part thereof in any transaction
which could constitute a "distribution" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). Purchaser acknowledges that the
Stock has not been registered under the Securities Act or any state securities
laws and neither the Seller nor the Company is under any obligation (or has any
intention) to file a registration statement with the SEC or any state securities
commission with respect to the Stock. Purchaser acknowledges and understands
that there is no present market for resale of the Stock, and that there is no
assurance that such a market will ever develop. Purchaser further understands
that, as a result of the foregoing, Purchaser will not readily be able to
liquidate its investment in the Stock.
(d) Investor Qualifications. Purchaser (i) has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Stock; (ii) is able to
bear the complete loss of its investment in the Stock; (iii) is owned,
controlled and managed by individuals who are the current management of the
Company, and as a result Purchaser is informed of all material information
relating to the Company (and its Subsidiaries) and its business, operations and
financial condition; and (iv) has had the opportunity to ask questions of, and
receive answers from, Seller and its management concerning the Company and its
business and to obtain additional information as requested by Purchaser.
Purchaser is not relying upon any statements or instruments made or issued by
any Person other than Seller in making its decision to invest in the Stock.
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D,
as amended, promulgated under the Securities Act.
(e) Litigation. There is no claim, legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding, nor any order, decree or judgment in progress, pending or in effect
or, to Purchaser's knowledge, threatened against or relating to Purchaser in
connection with or relating to the transactions contemplated by this Agreement
and the Purchaser's Related Agreements and Purchaser does not know or have any
reason to be aware of any basis for the same.
(f) Compliance. For purposes of this Section 7(f), all
capitalized terms have the meanings set forth in 16 C.F.R. Part 801 of the
regulations promulgated by the United States Federal Trade Commission. At the
time of closing of the transactions contemplated herein: (i) except for Keith
Sullivan ("Sullivan"), no Person will Hold fifty percent (50%) or more of the
outstanding Voting Securities of the Purchaser; (ii) no Person will have the
contractual power presently to designate fifty percent (50%) or more of the
directors of the Purchaser; and (iii) the total assets and net sales (each as
determined in accordance with 16 CFR Rule 801.11) of Purchaser, Sullivan and all
other Entities Held or Controlled by Sullivan, will be less than Ten Million
Dollars ($10,000,000).
(g) Consents. Schedule 7(g) attached hereto is a true,
correct and complete list of all Consents from any third party relating to
agreements, instruments or arrangements to which Purchaser, the Company or any
Subsidiary is a party, which will be required to be obtained in order to
consummate the transactions contemplated hereby and which have not been obtained
prior to or at the Closing.
8. Non-Competition.
(a) Non Competition. Seller agrees that it will not
directly or indirectly solicit any present, or former customers of the Company
in connection with the performance of any work related directly to the Company's
business, or become involved in, represent in any way, be connected with or
perform any work related to the business of the Company, in the geographic area
designated by a one hundred mile radius from each of the offices of the Company
listed on Schedule 8(a) attached hereto, for the period expiring three (3) years
after the Closing Date. Seller agrees that its promise herein made so to refrain
from engaging in the business of the Company means that it will not, directly or
indirectly, either on its own account or as a partner, agent or consultant of or
for any person, firm, association or corporation, or stockholder of any
corporation, engage in the business of the Company, as stated herein. For
purposes of this Agreement, the business of the Company shall be defined as the
provision of services related to self funded health insurance programs
(excluding Third
<PAGE> 10
Party Administrative related activities), worker's compensation risk management
and third party liability management.
(b) Records of the Company. The Seller, during the course
of its ownership of the Stock may have worked on and been consulted with respect
to matters for clients of the Company. All such matters are highly confidential.
The Seller acknowledges and agrees that the Seller has not acquired and shall
not acquire any rights to any of this information. All records, notes,
memoranda, files, client and client lists, brochures, documents and all other
similar material which are the records of the Company and not the records of the
Seller or which relate directly to the Company or the business of the Company or
those of its clients rather than the business of Seller (hereinafter referred to
as the "Records") which have or shall come into the possession of the Seller,
shall remain and be deemed to be the property of the Company. The Seller shall
return any originals and all copies of the Records determined to be in its
possession and as specifically requested by Purchaser in writing, to the Company
at or after Closing; provided that Seller may retain (i) one copy of all
financial statements of the Company and (ii) Records which are necessary to
support any tax returns filed by Seller. The Company shall make available to
Seller upon written request and upon reasonable terms during normal business
hours such Records as Seller may reasonably require for its legitimate business
purposes, or in the Company's discretion, copies of such Records;
(c) Non-Disclosure. Except with the prior written consent
of the Company, which consent is within the sole discretion of the Company, the
Seller agrees that it will not directly or indirectly, disclose or reveal
(except as Seller is required to disclose by court order, summons, subpoena or
similar process of law or to Seller's attorney in connection with the foregoing)
to or use for the benefit of Seller or others, the confidential information of
the Company or its clients including, but not limited to proprietary
information, secrets, the lists of the Company's clients, the lists of employees
of the Company, any secret or confidential information or data regarding the
business of the Company, any secret or confidential information or data
concerning the clients or prospective clients of the Company. Such business
methods and secrets shall include but are not limited to programs, data systems,
processes, computer programs, computer systems, equipment and configurations,
financial information, pricing policies, names of employees, names of clients,
any information contained on any Records and all other business knowledge and
techniques of the Company.
(d) Remedies. Seller acknowledges that a violation of any
of the agreements or covenants contained in this Section 8 by it could cause
irreparable injury to the Purchaser and the Company and there may be no adequate
remedy at law for such violation. In the event of a breach or a threatened
breach by Seller, its officers, directors or employees of the provisions of this
Section 8, the Company and/or the Purchaser shall have the right, in addition to
any other remedies available to it at law or in equity, to seek to enjoin the
violating party or any of its representatives, agents, or employees, in a court
of equity from violating any of the provisions hereof.
The parties acknowledge that the restrictions contained
herein are reasonable, but agree that if any court of competent jurisdiction
shall hold such restrictions unreasonable as to time, geographic area,
activities, or otherwise, such restrictions shall be deemed to be reduced to the
extent necessary in the opinion of the court to make them reasonable. This
subsection shall not be construed to limit in any manner whatsoever any other
rights and remedies an aggrieved party may have by virtue of any breach of this
Agreement. The covenants of the Seller set forth herein are a part of the
essence of this Agreement; they shall be construed as independent of any other
provisions in this Agreement; and the existence of any claim or cause of action
of Seller against the Purchaser, whether predicated on this Agreement or not,
shall not constitute a defense to the enforcement of these covenants.
9. Tax Information; Tax Returns; Disputes; Tax Indemnity.
(a) After the Closing Date, (i) Purchaser shall provide
such assistance as may reasonably be requested by Seller in connection with the
preparation of any tax return, the conduct of any audit or the defense of any
litigation or other proceeding with respect to any Tax liability of the Company
for any period prior to or including the Closing Date, including the period from
July 1, 1998 through the date of Closing, and (ii) Purchaser shall retain, or
shall cause to be retained, for ten (10) years following the Closing, or such
longer period as Seller notifies Purchaser remains open under applicable tax law
statutes of limitation, any records or information that may be relevant to any
such return or audit. The assistance provided for in this Section shall include
providing such information as might reasonably be expected to be of use in
connection with any audit or the defense of any litigation. Any information
provided shall not be used by the recipient other
<PAGE> 11
than in connection with such return, audit or litigation without the written
consent of the supplier of the information, except as required by law. The term
"audit" as used in this Section 9 shall include any inquiry, examination or
other conduct of any taxing authority or any judicial or administrative
proceedings.
(b) The Seller shall prepare and timely file (or cause to
be prepared and timely filed) all tax returns required to be filed for all
taxable periods ending on or before the Closing Date, including the period from
July 1, 1998 through the Closing Date, with respect to which the Company or the
assets of the Company are liable or otherwise in any way subject; and Seller
shall be responsible for and shall pay all Taxes attributable to such period
(other than Taxes which have been reserved for or which have been paid or
provided for through estimated payments or similar remittances), and except that
Company shall make such estimated tax payments or similar remittances as the
Company and the Seller shall reasonably agree to be appropriate for such periods
to Seller, taxing authorities, or other persons, with final estimates for
periods ending on the Closing Date payable on or before the Closing Date.
Purchaser shall prepare and timely file (or cause to be prepared and timely
filed) all tax returns required to be filed for all taxable periods ending after
the Closing Date, with respect to which the Company or the assets of the Company
are liable or otherwise in any way subject; and Purchaser and Company shall be
responsible for and shall pay all Taxes attributable to such periods.
(c) Seller will pay all sales, transfer and documentary
taxes, if any, payable in connection with the sale of Stock to Purchaser
hereunder. Seller shall prepare and file and the Purchaser shall cooperate in
the filing of all returns relating to any tax described in this Section 9(c), if
any.
(d) Seller shall be entitled to any refunds or credits of
Taxes, interest or penalties received by the Company attributable to Taxable
Periods (or portions thereof) ending on or prior to the Closing Date.
(e) Purchaser shall not liquidate, merge, dispose of the
Company, or undertake any other transaction, if as a result Purchaser would not
be considered for tax purposes to be the purchaser of the Company Stock.
10. Indemnification.
(a) Seller hereby indemnifies and agrees to defend and hold
Purchaser harmless from, against and in respect of (and shall, subject to the
other provisions of this Agreement, on demand reimburse Purchaser for):
(i) any and all loss, liability or damage suffered or
incurred by Purchaser by reason of any untrue representation, breach of warranty
or nonfulfillment of any covenant by Seller contained herein, or in any
certificate delivered by Seller to the Purchaser hereunder, provided that Seller
shall not be liable for any loss, liability, or damage suffered by the Company
or Purchaser as a result of any untrue representation or warranty with respect
to the Company, which, when made, was known by the Purchaser, Louis Nicholas,
Pamela Lee, Keith Sullivan, and/or Spencer Vavas, to be inaccurate or untrue;
(ii) any and all loss, liability or damage suffered or
incurred by Purchaser, the Company or any Subsidiary which arises out of or
results from the failure of Seller to deliver pursuant to Section 4(a)(ii)
hereof a resignation requested by Purchaser including a statement that neither
the Company nor any Subsidiary is indebted or obligated to the resigning
director or officer;
(iii) any violation of Seller's obligations under
Sections 8 or 9 hereof;
(iv) any and all loss, liability or damage suffered or
incurred by Purchaser by reason of or in connection with any claim for finder's
fee or brokerage or other commission arising by reason of any services alleged
to have been rendered to or at the instance of Seller with respect to this
Agreement or any of the transactions contemplated hereby; and
(v) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees and
<PAGE> 12
expenses, incident to (i) through (iv) above or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(b) Seller shall not be entitled to contribution or any
other payments from the Company for any amounts that Seller is obligated to pay
pursuant to this Section 10.
(c) Purchaser shall indemnify, defend and hold Seller
harmless from, against and in respect of (and shall, subject to the other
provisions of this Agreement, on demand reimburse it for):
(i) any and all loss, liability or damage suffered or
incurred by Seller by reason of or resulting from any untrue representation,
breach of warranty or non-fulfillment of any covenant or agreement by Purchaser
contained herein or in the Secured Note, the Unsecured Note, the Security
Agreement or the Pledge Agreement or in any certificate delivered by Purchaser
to Seller hereunder;
(ii) any and all liabilities or obligations of Seller
assumed by Purchaser hereunder, including, but not limited to, obligations under
the Leases;
(iii) any violation of Purchaser's obligations under
Section 9 hereof;
(iv) any and all actual loss, liability or damage
suffered or incurred by Seller by reason of or in connection with any claim for
finder's fee or brokerage or other commission arising by reason of any services
alleged to have been rendered to or at the instance of Purchaser with respect to
this Agreement or any of the transactions contemplated hereby, including,
without limitation, any and all claims by H.C. Wainwright & Co. in connection
with this Agreement, previous agreements contemplating sale of the stock of the
Company or other efforts to promote and sell the stock or the assets of the
Company;
(v) any and all actual loss, liability or damage
suffered or incurred by Seller arising from any amendment or modification,
including without limitation an amendment or modification which extends the
term, of that certain Lease Agreement by and between Seller, as tenant, and
Baltimore Center Associates Limited Partnership, as landlord, dated August 24,
1998, as amended by First Amendment to Lease Agreement dated January 6, 1992 and
Second Amendment to Lease dated April 12, 1993, as assigned to Seller pursuant
to an Assignment and Assumption of Lease Agreement dated May 7, 1993, and
further amended by Third Amendment to Lease Agreement dated May 11, 1994 and
Fourth Amendment to Lease Agreement dated August 29, 1996 and which will be
assigned to Purchaser pursuant to the Lease Assignment; and
(vi) Any and all actual loss, liability or damage
suffered or incurred by Seller from which Seller would have been released
pursuant to Section 1(a) of that certain Purchaser's Release of even date if
Spencer Vavas was a party to such Purchaser's Release, including, without
limitation, any claim under or by reason of that certain Employment Agreement of
Spencer Vavas dated as of October 4, 1993 (as the same may have been amended
from time to time), including, without limitation, any claim or rights which
Spencer Vavas may assert in connection with the handwritten provisions on page 2
of such Employment Agreement referencing his right to a 10% equity interest in
SBMC or to stock or stock options of the Seller in lieu thereof.
(vii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees and expenses, incident to (i) through (vi)
above or incurred in investigating or attempting to avoid the same or to oppose
the imposition thereof, or in enforcing this indemnity.
* (d) Seller, on the one hand, and Purchaser, on the other
hand, shall not be required to indemnify the other under this Section 10 hereof
unless the aggregate amounts for which indemnity would otherwise be due
thereunder exceeds One Hundred Thousand Dollars ($100,000.00) (the
"Indemnification Basket"), in which case Seller, on the one hand, or Purchaser,
on the other hand, shall, as the case may be, be responsible for all such
indemnifiable amounts in excess of the Indemnification Basket due pursuant to
this Section 10. Notwithstanding the foregoing, the Indemnification Basket shall
not apply to a breach of a representation, warranty or covenant contained in (i)
Section 6(c) (Capitalization), (ii) Section 6(d) (Ownership of the Capital
Stock), (iii) Section 6(j) (Taxes), (iv) Section 9 (Tax Matters) and (v) Section
8 (Non-Competition) and, in such event, Seller's obligation thereunder shall be
to indemnify Purchaser therefor from the first dollar and Purchaser's obligation
thereunder shall be to indemnify Seller therefor from the first dollar.
<PAGE> 13
(e) Any indemnifiable liability or reimbursement under this
Section 10 shall be limited to the amount of damages (of any nature) subject to
indemnification sustained by a party hereto, net of any applicable insurance
payments actually received, other reimbursement or tax benefit actually realized
by such party (or other persons whose tax liability reflects the income or loss
of such party, such as other members of the party's consolidated group, or the
individual shareholders if the party is an S corporation).
(f) If a claim by a third party is made against a party
hereto (an "Indemnified Party"), and if an Indemnified Party intends to seek
indemnity with respect thereto under this Section 10, the Indemnified Party
shall promptly notify the party required to indemnify the Indemnified Party
pursuant to this Section 10 (an "Indemnifying Party") of such claim (the
"Indemnity Notice"); provided, however, that failure by an Indemnified Party to
notify an Indemnifying Party of such claim shall not affect the Indemnified
Party's right to seek indemnification so long as the Indemnifying Party is not
materially prejudiced by such failure to have been notified of such claim. The
Indemnifying Party shall have twenty (20) days after receipt of the Indemnity
Notice to undertake, conduct and control, through counsel of its own choosing
and at its expense, but reasonably acceptable to the Indemnified Party, the
settlement or defense thereof, and the Indemnified Party shall cooperate with it
in connection therewith including execution of all lawful, true and correct
powers of attorney as reasonably required by the Indemnifying Party; provided,
however, that with respect to settlements entered into by the Indemnifying
Party, the Indemnifying Party shall obtain the release of the claiming party in
favor of the Indemnified Party with respect to such dispute. If the Indemnifying
Party undertakes, conducts and controls the settlement or defense of such claim,
the Indemnifying Party shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by the Indemnified Party, providing
that the fees and expenses of such counsel shall be borne by the Indemnified
Party. With respect to indemnification provided for hereunder, the Indemnified
Party shall not pay or settle any such claim so long as the Indemnifying Party
is reasonably contesting any such claim in good faith. Notwithstanding the
immediately preceding sentence, the Indemnified Party shall have the right to
pay or settle any such claims, provided that in such event it shall waive any
right to indemnity therefor by the Indemnifying Party.
(g) Subject to the limitations set forth in Sections
10(d)-(f), if the Indemnifying Party does not notify the Indemnified Party
within twenty (20) days after the receipt of the Indemnified Party's notice of a
claim of indemnity hereunder that it elects to undertake the defense thereof,
the Indemnified Party shall have the right to contest, settle or compromise the
claim in the exercise of its good faith reasonable judgment at the expense of
the Indemnifying Party subject to the other terms and provisions of this Section
10.
10A. Assumption of Liability. Purchaser and the Company hereby
assume liability for and agree to pay or satisfy any and all obligations of
Seller to any present or former officer, director or employee of the Company or
the Subsidiaries other than Julius V. Combs, M.D., Ronald R. Dobbins, Denise
Davis, Danny McNeal and Jagu Vanaharam (the "Officers") (including without
limitation any bonus payments due to any of the Officers or any claim under any
employment agreement, but expressly excluding any obligations resulting from
Seller's willful misconduct or gross negligence). Seller shall refer all demands
or claims asserting any such obligation to Purchaser promptly upon receipt
thereof by Seller and shall not itself process, negotiate, pay or otherwise
satisfy any such claim or demand and Purchaser shall promptly and in good faith
process, negotiate and pay or otherwise settle such claim or demand. The parties
acknowledge and agree that this assumption of liability is not an indemnity and
that neither the Purchaser, the Company nor any Subsidiary shall be obligated or
required to pay or to reimburse Seller for any cost, in expense or payment
incurred or made by Seller with respect to the processing, negotiation, payment
or satisfaction of any such claims unless Purchaser breaches its obligations
under this Section 10A.
11. Nature and Survival of Representations and Warranties;
Rules Regarding Indemnification and Other Actions.
(a) All statements, representations, warranties and
indemnities made by each of the parties to this Agreement (and in any schedule
or exhibit annexed hereto) are true and correct as of the Closing Date, and each
of them shall survive the Closing as provided in section 11(b) hereof and shall
be subject to Section 10 hereof.
(b) No claim shall be made or enforced against an
Indemnifying Party, whether pursuant to Section 10 hereof or by an action at law
or any other action including, but not
<PAGE> 14
limited to, a claim of a breach of a representation and warranty (collectively,
"Other Action") unless and to the extent that the Indemnity Notice or notice of
an Other Action shall have been given by the party seeking indemnification or
instituting an Other Action to the Indemnifying Party not later than eighteen
(18) months after the Closing Date or, (i) with respect to any claim arising
under or in connection with any Controlled Group Benefit Plan, including without
limitation the Benefit Plans, the date upon which the applicable statute of
limitations has expired, or, (ii) in the case of Taxes, the date upon which the
applicable period of limitation on assessment or refund of any relevant tax has
expired; provided that claims asserted pursuant to an Indemnity Notice or notice
of an Other Action prior to the expiration of the applicable survival period
shall survive until such claim shall be resolved and payment in respect thereof,
if any is owing, shall be made.
(c) Nothing in this Section 11 shall bar, limit or impede
any claim to enforce the Secured Promissory Note, the Unsecured Promissory Note,
the Guaranty, the Pledge Agreement, the Security Agreement, the Assignment and
Assumption Agreement, the Lease Assignments, the Purchaser's Release, the
Seller's Release, the Trademark Assignment and Assumption Agreement, the
Termination Agreement and the Employment Agreement Termination Agreement.
12. Benefit Plans.
(a) As of the Closing Date, Seller, the Company and each
Subsidiary shall cause such action to be taken as will result in the Company and
each Subsidiary ceasing to be a participating employer as of the Closing Date in
the Stock Purchase Plan (as such term is defined in section 6(f) hereof) and all
employees of the Company and each Subsidiary shall terminate active
participation in such plan as of the Closing Date. The rights of employees of
Company and each Subsidiary under the Stock Purchase Plan following such
withdrawal shall be determined in accordance with the terms of the Stock
Purchase Plan, provided that such employees shall be deemed to have terminated
employment for purposes of such plan upon the occurrence of the Closing.
(b) As of the Closing Date or such earlier date as shall be
acceptable to Seller and Purchaser, Seller, the Company and each Subsidiary
shall cause such action to be taken as will result in (i) the Company and each
Subsidiary ceasing to be a participating employer in the Retirement Plan (as
such term is defined in section 6(f) hereof) and (ii) the adoption by the
Company and each Subsidiary of a defined contribution plan ("Company Plan")
which incorporates eligibility, benefit accrual, benefit forms, vesting, and
service credit provisions which are substantially identical to those in the
Retirement Plan.
(c) As of the Closing Date or such earlier date as shall be
acceptable to Seller and Purchaser, Seller shall cause such actions to be taken
as will result in (i) a spin-off of the portion of the Retirement Plan covering
the employees of the Company and each Subsidiary, which portion shall thereafter
be maintained by the Company and each Subsidiary as the Company Plan, and (ii) a
transfer by the trustees of the Retirement Plan to the trustees of the Company
Plan of the accounts maintained for employees of the Company and each Subsidiary
under the Retirement Plan as soon as reasonably practicable after the Closing
Date.
(d) All employees of the Company and each Subsidiary shall
cease active participation in the Retirement Plan as of the Closing Date or such
earlier date as shall be acceptable to Seller and the Purchaser and shall cease
to accrue any benefits or earn additional vesting service under the Retirement
Plan as of such date. Subject to the foregoing, the Company and each Subsidiary
shall continue to be obligated to make contributions to the Retirement Plan for
benefits accrued under such plan by current and former employees of the Company
or any Subsidiary, and their beneficiaries, through the Closing Date or such
earlier date as shall be acceptable to Seller and the Purchaser.
(e) The Purchaser and the Company do hereby jointly and
severally indemnify the Seller and all fiduciaries under the Retirement Plan
from and against any and all claims, actions, suits, causes of action, damages,
or other liabilities which may hereafter be asserted against the Seller or any
fiduciary of the Retirement Plan in connection with, arising out of, or in any
manner related to the withdrawal of the Company or any Subsidiary from the
Retirement Plan, the creation of the Company Plan, or the transfer of assets
from the Retirement Plan to the Company Plan, provided such action was not the
result of willful misconduct or gross negligence.
(f) All costs and expenses incurred by each party in
connection with such transfer of assets shall be borne solely by such party.
<PAGE> 15
13. Software. Seller shall, for a fee payable by Purchaser to
Seller at Closing in the amount of Five Thousand Dollars ($5,000.00), to the
extent permitted under any applicable contract or license, reasonably cooperate
to assist Purchaser in transferring data relating to the Company and the
Subsidiaries from the "Platinum" accounting software to Purchaser's or the
Company's new accounting software. If Seller is prohibited by applicable
contract or license from assisting Purchaser in transferring data relating to
the Company and the Subsidiary from the "Platinum" accounting software to
Purchaser's or the Company's new accounting software as aforesaid, Seller shall
utilize its commercially reasonable best efforts promptly to secure permission
for such assistance and transfer and shall, pending receipt of such permission,
continue to maintain the accounts of the Company and the subsidiaries without
interruption during the ninety (90) day period immediately following Closing.
14. Notices. Any and all notices, demands or requests required
or permitted to be given under this Agreement shall be given in writing and
sent, by registered or certified U.S. mail, return receipt requested, by hand,
or by overnight courier, addressed to the parties hereto at their addresses set
forth above or such other addresses as they may from time-to-time designate by
written notice, given in accordance with the terms of this Section, together
with copies thereof as follows:
In the case of Seller: United American Healthcare
Corporation
Gregory Moses
President and Chief Executive
Officer
1155 Brewery Park Boulevard,
Suite 200
Detroit, Michigan 48207
With a copy to: Alex Parrish, Esq.
Honigman, Miller, Schwartz and
Cohn
2290 First National Building
Detroit, MI 48226
If to the Company: CHFA, INC.
Suite 2670, Legg Mason Tower
111 S. Calvert Street
Baltimore, MD 21202
Attn: Keith B. Sullivan
With a copy to: Bryson L. Cook, Esq.
Venable, Baetjer and Howard,
LLP
Mercantile Bank and Trust
Building
2 Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201
Notice given as provided in this Section shall be deemed effective: (i) on the
date hand delivered, (ii) on the first business day following the sending
thereof by overnight courier, and (iii) on the third calendar day (or, if it is
not a business day, then the next succeeding business day thereafter) after the
depositing thereof into the exclusive custody of the U.S. Postal Service.
15. Miscellaneous.
(a) This Agreement, including, without limitation, the
schedules and other documents referred to herein, constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements or understandings with
respect hereto, and may not be modified or amended except by a written agreement
signed by all of the parties hereto.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
(c) This Agreement shall be binding upon and inure to the
benefit of each party hereto, its successors and permitted assigns.
(d) The section headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections.
<PAGE> 16
(e) Each party hereto shall cooperate, shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(f) Except as otherwise provided herein or in agreements
delivered in connection with this Agreement, all legal, accounting and other
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party or parties incurring
the same.
(g) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
(h) This Agreement and all amendments hereto shall be
governed by, construed and enforced in accordance with the internal laws of the
State of Maryland without reference to principles of conflict of laws.
(i) If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision, only to the extent it is invalid or unenforceable, and shall
not in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
(j) All schedules and exhibits attached hereto shall be
incorporated by reference herein as if set forth herein in full.
(k) This Agreement is not intended to, and shall not confer
any rights upon, any parties other than the express parties hereto.
(l) In the event of a dispute between the parties resulting
from an alleged breach of warranty, untrue representation or non-fulfillment of
any covenant contained in any of Sections 6(c), 6(d), 6(i), 6(j), 6(k), 8(a),
8(c) or 9 of this Agreement, the parties shall submit the dispute to binding,
expedited arbitration under the Expedited Procedures of the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
be held in the Baltimore, Maryland area, and the losing party shall bear all
reasonable costs and expenses of the arbitration, including the fees and
expenses of the prevailing party (including reasonable attorney's fees).
(Signatures begin on following page)
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WITNESS: UNITED AMERICAN HEALTHCARE
CORPORATION
_________________________ By:__________________________(SEAL)
Seller
CORPORATE HEALTHCARE
FINANCING, INC.
_________________________ By:__________________________(SEAL)
Company
CHFA, INC.
_________________________ By:__________________________(SEAL)
Purchaser
<PAGE> 1
EXHIBIT 10.43
August 31, 1998
SECURED PROMISSORY NOTE
For value received as of August 31, 1998, the undersigned,
CHFA, Inc. ("Maker"), promises to pay to the order of UNITED AMERICAN HEALTHCARE
CORPORATION ("Payee") the principal sum of Thirteen Million, Two Hundred Fifty
Thousand Dollars ($13,250,000), together with the interest thereon at the rate
hereinafter specified and any and all other sums which may be due and owing to
the holder of this Note in accordance with the following terms:
1. Repayment.
(a) Commencing on September 30, 1998, Maker shall pay to
the holder hereof four (4) consecutive equal monthly principal installments of
Five Hundred Thousand Dollars ($500,000.00) plus all then accrued and unpaid
interest, with each such installment payable on the last day of each of
September, 1998, October, 1998, November, 1998 and December, 1998.
(b) If Maker does not extend the final maturity date of
this Note pursuant to the terms of Section 1(c) or (d) hereof, Maker shall pay
in full to the holder hereof the balance of all then outstanding and unpaid
principal, accrued and unpaid interest, and any other amounts payable hereunder
on January 31, 1999.
(c) Maker shall have the right and option (the "First
Option"), exercisable upon written notice delivered to Payee on or before
January 24, 1999, to extend the final maturity date of this Note to February 28,
1999. If Maker exercises the First Option, Maker shall make an additional
monthly principal installment of Five Hundred Thousand Dollars ($500,000.00)
plus all then accrued and unpaid interest, with such installment payable on the
31st day of January, 1999.
(d) If Maker has timely exercised the First Option, Maker
shall have the right and option (the "Second Option"), exerciseable upon written
notice delivered to Payee on or before February 21, 1999, to extend the final
maturity date of this Note to March 31, 1999. If Maker exercises the Second
Option, Maker shall not be required to pay any installment of principal or
interest in connection with such exercise.
(e) If Maker exercises the First Option but not the Second
Option, Maker shall pay in full to the holder hereof the balance of all then
outstanding and unpaid principal, accrued and unpaid interest, and any other
amounts payable hereunder on February 28, 1999. If Maker exercises the Second
Option, Maker shall pay in full to the holder hereof the balance of all then
outstanding and unpaid principal, accrued and unpaid interest, and any other
amounts payable hereunder on March 31, 1999.
(f) Payment shall be made to Payee at 1155 Brewery Park
Boulevard, Suite 200, Detroit, Michigan 48207 or such other place as the holder
hereof may from time to time direct in writing received by Maker. Payment of the
amounts due under this Note is secured by (i) the Pledge Agreement, (ii) the
Guaranty Agreement, and (iii) the Security Agreement (each as defined in Section
6(c) or 6(d) hereafter).
2. Interest Rate. Interest shall accrue from the date of this
Note on the principal amount outstanding from time to time thereafter at a rate
equal to the prime rate on short term unsecured commercial borrowings of
Michigan National Bank, NA, or its successor in effect on the date of this Note,
to be adjusted on each payment date under this Note to the prime rate of
Michigan National Bank in effect on the date of such payment. If such bank
discontinues announcing such a rate, the parties shall agree on a comparable
standard for determining the rate.
3. Calculation of Interest. Interest on this Note shall be
calculated on the basis of a 360 day per year factor applied to the actual days
on which there exists an unpaid principal balance due under this Note.
4. Application of Payments. All payments made hereunder shall
be applied first to late penalties, costs of collection or other sums owing the
holder, then to accrued interest and last to repayment of the principal amount
of this Note. If the due date for the payment of principal and interest falls on
a day which is either a Saturday, Sunday or federal banking holiday, such
payment shall be due on the next succeeding business day.
<PAGE> 2
5. Prepayment. The Maker may prepay this Note in whole or in
part at any time or from time to time without penalty or additional interest,
provided that payments are applied as provided in Section 4 above.
6. Events of Default. The occurrence of any one or more of
the following events (the "Events of Default") shall constitute an Event of
Default hereunder:
(a) any failure by the Maker to pay any principal,
interest or other amount due under this Note at or prior to the time when it is
due and payable, if such failure remains uncured for a period of ten (10)
business days after the payment date;
(b) a petition for relief in a bankruptcy court is filed
by either of Maker or Corporate Healthcare Financing, Inc., a Michigan
corporation ("CHF") or the Maker or CHF applies for, consents to or acquiesces
in the appointment of a trustee, custodian or receiver for the Maker or CHF or
any of their respective assets or property or makes a general assignment for the
benefit of their respective creditors or, in the absence of such application,
consent or acquiescence, a trustee, custodian or receiver is appointed for the
Maker or CHF or for a substantial part of their respective assets or property
and is not discharged within thirty (30) days hereafter; or any bankruptcy,
reorganization, debt arrangement or other proceeding or case under any
bankruptcy or insolvency law or any dissolution or liquidation proceeding is
instituted against the Maker or CHF and if instituted against the Maker or CHF
is consented to or acquiesced in by the Maker or CHF or remains undismissed for
thirty (30) days thereafter; or the Maker or CHF takes any action to authorize
any of the actions described in this subsection;
(c) any material breach by the Maker of any material
representation, warranty or covenant made by Maker in this Note (other than an
Event of Default described in Section 6(a) hereof), the Purchase Agreement (as
defined in Section 12 hereafter), that certain Pledge Agreement of even date
herewith by and between Maker and Payee (the "Pledge Agreement"), or that
certain Security Agreement of even date herewith by Maker (the "Security
Agreement"), which material breach is not cured by Maker within twenty (20) days
(thirty (30) days with respect to a breach of Section 4(l) of the Pledge
Agreement) after the receipt by Maker of written notice from the holder of this
Note pursuant to the provisions of Section 14 of the Purchase Agreement which
sets forth the nature of such breach.
(d) any of this Note, the Purchase Agreement, the Pledge
Agreement, the Security Agreement or that certain Guaranty Agreement of even
date herewith by Louis J. Nicholas ("Nicholas"), as guarantor in favor of Payee
(the "Guaranty Agreement") (this Note, the Purchase Agreement, the Security
Agreement, the Pledge Agreement and the Guaranty Agreement are collectively
referred to as the "Credit Agreements") (i) ceases to be in full force and
effect by any action taken or not taken by the Maker or Nicholas, or (ii) either
the Maker or Nicholas contests the validity or enforceability of any of the
Credit Agreements to which it or he is a party, or renounces or denies that it
or he has any further liability under any of the Credit Agreements to which he
or it is a party, provided, however, that this Section 6(d)(ii) shall not be
construed to deny to Maker the right to assert its rights under any of such
Credit Agreements;
(e) any final, nonappealable order of legal process
(including an attachment) in an aggregate amount which exceeds Two Hundred
Thousand Dollars ($200,000.00) shall be issued against any of the stock of CHF,
pledged as collateral under the Pledge Agreement (the "CHF Stock") or the
Collateral under the Security Agreement;
(f) any default by the Maker in or with respect to any
obligation of the Maker in excess of Two Hundred Thousand Dollars ($200,000.00)
which remains uncured by Maker for more than thirty (30) days after receipt by
Maker of written notice specifying the nature of such default;
(g) Maker, or a wholly-owned subsidiary of Maker, ceases
to be the owner of all the CHF Stock;
(h) The consummation of the sale or conveyance of all or
substantially all of the assets of CHF to or with an unaffiliated third party;
<PAGE> 3
(i) Any one or more of Nicholas, Keith B. Sullivan or
Pamela Lee shall cease to be employed on a full-time basis by Maker or its
wholly-owned subsidiaries for any reason except the death or disability of such
person; or
(j) The consummation of the sale of shares of stock of
Maker in one or more transactions), or one or more of a merger, consolidation or
other combination of Maker if, as a result of such transactions, the owners of
Maker's stock (and their spouses, siblings, parents or children) on the day of
this Note do not continue to own beneficially at least fifty percent (50%) of
the combined voting power of the shares of stock of Maker which such persons
owned as of the date of this Note.
7. Default Interest Rate. Upon a default under this Note, if
payment of the amount outstanding under this Note is accelerated, or if the full
amount outstanding is then due, from and after the earlier of the date of
acceleration or the date that such amount becomes due and payable in full, the
interest rate applicable to the then outstanding balance shall be increased to a
rate which is two percent (2%) above the rate which would otherwise be
applicable to amounts due under this Note (the "Default Interest Rate").
8. Rights and Remedies. If any one or more Events of Default
shall occur, then in each and every such case, the Payee at its option may at
any time thereafter exercise and/or enforce any or all of the following rights
and remedies:
(a) declare without notice to the Maker all of the amounts
payable hereunder to be immediately due and payable, whereupon same shall become
due and payable, together with accrued and unpaid interest thereon and all other
sums due hereunder, immediately without presentment, demand, protest or notice,
all of which the Maker hereby waives, provided that upon the occurrence of an
Event of Default described in Section 6(b), all amounts shall automatically be
and become due and payable immediately without any declaration, notice or any
other act;
(b) bring suit for payment and exercise any other rights
and remedies available to the Payee pursuant to this Note, any related document
or any other applicable law; and
(c) exercise any and all rights under any of the Credit
Agreements.
Each right, power and remedy of the Payee specified herein or
in the Credit Agreements or available at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Note or in the Credit Agreements or available at
law or in equity and the exercise or beginning of the exercise by the Payee of
any one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by the Payee of any one or more of such other
rights, powers or remedies.
9. Costs of Collection. If at any time the indebtedness
evidenced by this Note is collected through legal proceedings or this Note is
placed in the hands of an attorney or attorneys for collection, the Maker and
each endorser and guarantor (subject to the terms of the Guaranty) of this Note
hereby severally agree to pay all costs and expenses (including attorneys' fees)
incurred by the holder of this Note in enforcing its rights and collecting or
attempting to collect all amounts due hereunder and under any related documents.
10. Extensions or Modifications. All parties to this Note
agree that the maturity of this Note or any payment due hereunder may be
extended at any time or from time to time, this Note or any other agreement or
document evidencing or securing payment of the debt described herein may be
modified, any collateral or other security or guarantee of payment may be
released or waived and any defaults hereunder may be waived without releasing,
discharging or affecting the liability of the Maker or any other party not
specifically released.
11. Choice of Law and Consent to Jurisdiction. This Note
shall be deemed to be made in Maryland and shall be governed, construed and
enforced in strict accordance with the laws of the State of Maryland, without
reference to principles of conflict of laws.
12. Stock Purchase Agreement. This Note has been issued
pursuant to that certain Stock Purchase Agreement, of even date, between Maker
and Payee, among others (the "Purchase Agreement"). Maker shall not be entitled
to offset any amounts due under this Note in satisfaction of any amounts due
pursuant to the Purchase Agreement.
<PAGE> 4
13. Waiver of Defenses. In the event the holder of this Note
transfers this Note for value, the Maker agrees that none of such subsequent
holders of this Note shall be subject to any claims or defenses which the Maker
may have against the prior holder, all of which are waived as to the subsequent
holders and all subsequent holders shall have the rights of a holder in due
course with respect to the Maker even though the subsequent holder might not
qualify under applicable law absent this paragraph as a holder in due course.
14. Waiver of Protest. The Maker, and all parties to this
Note, whether maker, endorser or guarantor, hereby waive presentment, protest
and demand and notice of protest, demand, dishonor and nonpayment of this Note.
15. No Waiver. The delay or failure of any holder to exercise
its rights hereunder shall not be deemed a waiver thereof. No waiver of any
rights of holder shall be effective unless in writing and signed by the holder
and any waiver of any right shall not apply to any other right or to such right
in any subsequent event or circumstance not specifically included in such
waiver.
[Signatures on next page]
<PAGE> 1
EXHIBIT 10.44
August 31, 1998
UNSECURED PROMISSORY NOTE
For value received as of August 31, 1998, the undersigned, CHFA,
Inc. ("Maker"), promises to pay to the order of UNITED AMERICAN HEALTHCARE
CORPORATION ("Payee") the principal sum of Two Million, Five Hundred Thousand
Dollars ($2,500,000.00), together with the interest thereon at the rate
hereinafter specified and any and all other sums which may be due and owing to
the holder of this Note in accordance with the following terms:
1. Repayment. (a) Maker shall pay to the holder hereof annually
on each of August 1, 1999 and August 1, 2000 (each a "Payment Date") principal
payments in the amount of ten percent (10%) of the unpaid principal amount
hereof as of each such Payment Date, together with all accrued and unpaid
interest on the unpaid principal amount hereof as of each such Payment Date.
(b) This Note shall mature, and Maker shall pay to the holder
hereof the entire unpaid principal amount hereof, together with all accrued and
unpaid interest thereon, on the earlier of (i) August 31, 2001, (ii) the
consummation by Maker of an "Initial Public Offering" (as that term is defined
in Section 17(a) below), or (iii) the consummation of a "Change of Control" (as
that term is defined in Section 17(b) below) with respect to Maker (the earlier
of the dates in clauses (i), (ii) and (iii), the "Maturity Date").
(c) Payment shall be made to Payee at 1155 Brewery Park
Boulevard, Suite 200, Detroit, Michigan 48207 or such other place as the holder
hereof may from time to time direct in writing received by Maker.
2. Interest Rate. Interest shall accrue from the date of this
Note on the principal amount outstanding from time to time thereafter at a rate
of interest equal to six percent (6%) per annum, compounded quarterly on the
first day of August, November, February and May until this Note is paid in full.
3. Calculation of Interest. Interest on this Note shall be
calculated on the basis of a 360 day per year factor applied to the actual days
on which there exists an unpaid principal balance due under this Note.
4. Application of Payments. All payments made hereunder shall be
applied first to late penalties, costs of collection or other sums owing the
holder, then to accrued interest and last to repayment of the principal amount
of this Note. If the due date for the payment of principal and interest falls on
a day which is either a Saturday, Sunday or federal banking holiday, such
payment shall be due on the next succeeding business day.
5. Prepayment. The Maker may prepay this Note in whole or in part
at any time or from time to time without penalty or additional interest,
provided that payments are applied as provided in Section 4 above.
6. Events of Default. The occurrence of any one or more of the
following events (the "Events of Default") shall constitute an Event of Default
hereunder:
(a) any failure by the Maker to pay any principal, interest or
other amount due under this Note at or prior to the time when it is due and
payable, if such failure remains uncured for a period of ten (10) business days
after the payment date;
(b) a petition for relief in a bankruptcy court is filed by the
Maker or Corporate Healthcare Financing, Inc., a Michigan corporation (the
"Company"), or the Maker or the Company applies for, consents to or acquiesces
in the appointment of a trustee, custodian or receiver for the Maker or the
Company or any of their respective assets or property or makes a general
assignment for the benefit of their respective creditors or, in the absence of
such application, consent or acquiescence, a trustee, custodian or receiver is
appointed for the Maker or the Company or for a substantial part of their
respective assets or property and is not discharged within thirty (30) days
hereafter; or any bankruptcy, reorganization, debt arrangement or other
proceeding or case under any bankruptcy or insolvency law or any dissolution or
liquidation proceeding is instituted against the Maker or the Company and if
instituted against the Maker or the Company is consented to or acquiesced in by
the
<PAGE> 2
Maker or the Company or remains undismissed for thirty (30) days thereafter;
or the Maker or the Company takes any action to authorize any of the actions
described in this subsection;
(c) any material breach by Maker of any material representation
or other material obligation of Maker in or under the Purchase Agreement, (as
that term is defined in Section 12 hereof) or this Note (other than an Event of
Default described in Section 6(a) of this Note), which material breach is not
cured by Maker within twenty (20) days after the receipt by Maker of written
notice from the holder of this Note pursuant to the provisions of Section 14 of
the Purchase Agreement which sets forth the nature of such breach;
(d) Maker's gross revenues (or, for any partial or short fiscal
year, Maker's annualized gross revenues) as reported on its audited or reviewed
financial statements for any fiscal year during which this Note remains unpaid
shall not equal or exceed Five Million Dollars ($5,000,000.00).
(e) (i) any of this Note and the Purchase Agreement ceases to be
in full force and effect; or (ii) the Maker contests the validity or
enforceability of any of this Note or the Purchase Agreement or renounces or
denies that it has any further liability under any of this Note or the Purchase
Agreement, provided, however, that this Section 6(e)(ii) shall not be construed
to deny to Maker the right in good faith to assert its rights under this Note or
the Purchase Agreement;
(f) any Event of Default under Section 6(a) of the Secured
Promissory Note of Maker of even date herewith in favor of Payee for so long as
the Secured Promissory Note remains in effect.
(g) Maker or a wholly owned subsidiary of Maker ceases to be the
owner of all of the stock of the Company or a sale or conveyance of all or
substantially all of the assets of the Company to or with an unaffiliated third
party is consummated.
(h) the entry of a final, nonappealable judgment or judgments,
which has or have not been satisfied, against the Maker in an aggregate amount
which exceeds Two Hundred Thousand Dollars ($200,000.00).
(i) any default by the Maker in or with respect to any obligation
of the Maker in excess of Two Hundred Thousand Dollars ($200,000) which remain
uncured by Maker for more than thirty (30) days after receipt by Maker of
written notice specifying the nature of such Default.
(j) either (i) Louis J. Nicholas or (ii) both Keith Sullivan and
Pamela Lee shall cease to be employed on a full-time basis by Maker or its
wholly-owned subsidiaries for any reason other than death or disability.
7. Default Interest Rate. Upon the occurrence of an Event of
Default under this Note, if payment of the amount outstanding under this Note is
accelerated, or if the full amount outstanding is then due, from and after the
earlier of the date of acceleration or the date that such amount becomes due and
payable in full, the interest rate applicable to the then outstanding balance
shall be increased to eighteen percent (18%).
8. Rights and Remedies. If any one or more Events of Default
shall occur, then in each and every such case, the Payee at its option may at
any time thereafter exercise and/or enforce any or all of the following rights
and remedies:
(a) declare without notice to the Maker all of the amounts
payable hereunder to be immediately due and payable, whereupon same shall become
due and payable, together with accrued and unpaid interest thereon and all other
sums due hereunder, immediately without presentment, demand, protest or notice,
all of which the Maker hereby waives, provided that upon the occurrence of an
Event of Default described in Section 6(b), all amounts shall automatically be
and become due and payable immediately without any declaration, notice or any
other act; and
(b) bring suit for payment and exercise any other rights and
remedies available to the Payee pursuant to this Note, any related document
(including the Purchase Agreement) or any other applicable law.
Each right, power and remedy of the Payee specified herein or in
the related loan documents or available at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Note or in the related loan
<PAGE> 3
documents (including the Purchase Agreement) or available at law or in equity
and the exercise or beginning of the exercise by the Payee of any one or more of
such rights, powers or remedies shall not preclude the simultaneous or later
exercise by the Payee of any one or more of such other rights, powers or
remedies.
9. Costs of Collection. If at any time the indebtedness evidenced
by this Note is collected through legal proceedings or this Note is placed in
the hands of an attorney or attorneys for collection, the Maker and each
endorser and guarantor of this Note hereby severally agree to pay all costs and
expenses (including attorneys' fees) incurred by the holder of this Note in
enforcing its rights and collecting or attempting to collect all amounts due
hereunder and under any related documents.
10. Extensions or Modifications. All parties to this Note agree
that the maturity of this Note or any payment due hereunder may be extended at
any time or from time to time, this Note or any other agreement or document
evidencing or securing payment of the debt described herein may be modified, any
collateral or other security or guarantee of payment may be released or waived
and any defaults hereunder may be waived without releasing, discharging or
affecting the liability of the Maker or any other party not specifically
released.
11. Choice of Law and Consent to Jurisdiction. This Note shall be
deemed to be made in Maryland and shall be governed, construed and enforced in
strict accordance with the laws of the State of Maryland, without reference to
principles of conflict of laws.
12. Stock Purchase Agreement; Set Off Right. This Note has been
issued pursuant to that certain Stock Purchase Agreement, of even date, between
Maker and Payee, among others (the "Purchase Agreement"). With notice to Payee,
Maker shall be entitled to offset any amounts due under this Note in
satisfaction of an equal amount due to Maker pursuant to Section 10 of the
Purchase Agreement that has been awarded in an arbitral proceeding or other
adjudication or agreed upon by Maker and Payee and that results from any untrue
representation, breach of warranty or nonfulfillment of any covenant or
agreement by Payee under the terms of any of Sections 6(c), 6(d), 6(i), 6(j),
6(k), 8(a), 8(c) or 9 of the Purchase Agreement. One-half (1/2) of the amount of
any such set-off shall be applied to the next scheduled payment of principal
under this Note (or, if adjudicated or agreed to may, in Maker's discretion, be
applied as a prepayment pursuant to Section 5 hereof against the amount next
due) and the remaining one-half (1/2) of the amount of such offset shall be
applied against the final payment of principal due under this Note on August 31,
2001. Without limiting Maker's rights under the Purchase Agreement, Maker shall
not be entitled to offset any other amounts due under this Note in satisfaction
of any amounts due pursuant to the Purchase Agreement.
13. Waiver of Defenses. In the event the holder of this Note
transfers this Note for value, the Maker agrees that none of such subsequent
holders of this Note shall be subject to any claims or defenses which the Maker
may have against the prior holder, all of which are waived as to the subsequent
holders and all subsequent holders shall have the rights of a holder in due
course with respect to the Maker even though the subsequent holder might not
qualify under applicable law absent this paragraph as a holder in due course.
14. Waiver of Protest. The Maker, and all parties to this Note,
whether maker, endorser or guarantor, hereby waive presentment, protest and
demand and notice of protest, demand, dishonor and nonpayment of this Note.
15. No Waiver. The delay or failure of any holder to exercise its
rights hereunder shall not be deemed a waiver thereof. No waiver of any rights
of holder shall be effective unless in writing and signed by the holder and any
waiver of any right shall not apply to any other right or to such right in any
subsequent event or circumstance not specifically included in such waiver.
16. Maker's Covenants.
(a) Maker shall deliver to Payee (i) within forty-five
(45) days after the end of each quarterly fiscal period of each fiscal year of
the Maker, statements of income and cash flow for the Maker and its consolidated
subsidiaries for such period and for the period from the beginning of the fiscal
year to the end of such period, and the related balance sheets as at the end of
such period, setting forth in each case in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year; and (ii)
within seventy-five (75) days after the end of each fiscal year of the Maker,
statements of income and cash flow for the Maker and its consolidated
subsidiaries for
<PAGE> 4
such year and the related balance sheets at the end of such year, setting forth
in each case in comparative form the corresponding figures for the preceding
fiscal year.
(b) Promptly upon (i) any default under or with respect to
any material obligation of the Maker under this Note or the Purchase Agreement,
or (ii) any notice from any Federal, state or local governmental or regulatory
body or authority of any matter that, if determined adversely to the Maker,
would have a material adverse effect upon the business of the Maker, the Maker
shall provide written notice thereof to Payee setting forth details respecting
such event and the action, if any, that the Maker proposes to take with respect
thereof.
(c) Maker shall provide to Payee from time to time such other
information regarding the financial condition, operations, business or prospects
of the Maker or any of its subsidiaries as Payee may reasonably request; shall
permit Payee's representatives to visit and inspect any of the properties of
Maker to examine, audit, check and make copies of the financial and accounting
records, books, journals, orders, receipts and any correspondence or other data
relating to the business of Maker and to discuss the affairs, finances and
accounts of Maker with its officers and independent certified public
accountants, all upon reasonable notice and at such reasonable times, during
normal business hours, as may be reasonably requested; provided, however, that
except (i) as may be required by law; (ii) except for information which has
become available to the public; and (iii) except to the extent necessary to
enforce this Note or the Purchase Agreement, Payee shall keep all information
learned pursuant to this Section 16(c) confidential and shall not disclose such
information to any person or entity.
17. Definitions. For purposes of this Note:
(a) "Initial Public Offering" shall mean an effective initial
underwritten public offering of the shares of stock of Maker or any other
securities of Maker that are convertible into or exchangeable for common stock
pursuant to a registration statement filed with the United States Securities
Exchange Commission other than a registration statement on Form S-8 or any
successor or similar form thereto.
(b) "Change of Control" shall mean the consummation of the sale
of shares of stock of Maker (in one or more transactions), or one or more of a
merger, consolidation, or other combination of Maker, or a sale or conveyance of
all or substantially all of the assets of Maker to or with an unaffiliated third
party if, as a result of such transactions, the owners of Maker's stock (and
their spouses, siblings, parents or children) on the date of this Note as a
group do not continue to own beneficially at least twenty-five percent (25%) of
the combined voting power of the shares of stock of Maker which such persons
owned as of the date of this Note.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed
on its behalf by its duly authorized officer and its corporate seal to be
affixed and attested by its Secretary as of the day and year first above
written.
[Signatures on next page]
<PAGE> 1
EXHIBIT 10.45
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty") is made by Louis J.
Nicholas (the "Guarantor") as of August 31, 1998, to and for the benefit of
United American Healthcare Corporation (the "Beneficiary"). In consideration of
these presents and of other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Guarantor gives the following
guaranty to the Beneficiary and the Beneficiary's successors and assigns:
1. Purpose. The Beneficiary and CHFA, Inc. (the "Company")
have entered into that certain Stock Purchase Agreement, dated this date (the
"Agreement"), relating to the purchase by CHFA of all of the issued and
outstanding stock of Corporate Healthcare Financing, Inc., in exchange for the
execution and delivery by the Company of that certain secured promissory note,
dated this date, payable to the order of the Beneficiary in the principal amount
of $13,250,000 (the "Note"), among other consideration. Guarantor is a principal
stockholder of the Company. To induce, and as a condition of, the execution and
delivery of the Agreement by Beneficiary, the Guarantor has agreed to guarantee
the full and prompt payment when due of the first Four Million, Five Hundred
Thousand Dollars ($4,500,000) due under the Note (the "Obligations"). The
Beneficiary agrees that the amount of the Obligations subject to this Guaranty
shall be reduced dollar for dollar by the amount of any payments of any kind or
nature made (i) by the Company pursuant to the Note; or (ii) by the Guarantor
pursuant to this Guaranty, other than pursuant to Section 12 hereof (and such
reduced amount from time to time shall then constitute the "Obligations"
hereunder).
2. Guaranty. The Guarantor unconditionally and irrevocably
guarantees the due and punctual payment in full of the Obligations when and as
due in accordance with the terms and conditions of the Note. If the Company
fails to pay the Obligations when due under the Note and after the expiration of
any applicable grace and cure periods, the Guarantor shall pay or satisfy on
demand in full and all of the Obligations. The Guarantor represents and warrants
to the Beneficiary that: (i) the Guarantor has full power, authority and legal
right to execute and deliver, and to perform the Obligations under this
Guaranty; and (ii) this Guaranty has been duly executed and delivered by the
Guarantor and constitutes a legal, valid and binding obligations of the
Guarantor enforceable against the Guarantor in accordance with its terms,
subject to (a) the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, equitable subordination or other similar laws relating to
or affecting the rights of creditors generally, and (b) the exercise of judicial
discretion in accordance with public policy limitations and general principles
of equity, regardless of whether considered in a proceeding at law or in equity.
3. Nature of the Guaranty. The guaranty of the Guarantor
hereunder shall be direct, immediate, and primary and is one of payment and
performance and not just collection or surety.
4. The Beneficiary Need Not Pursue Rights Against the
Company. The Beneficiary shall be under no obligation to pursue the
Beneficiary's rights against the Company or any collateral securing the
Obligations before pursuing the Beneficiary's rights against the Guarantor.
5. Rights of the Beneficiary to Deal With Guarantor. The
Guarantor hereby consents to any and all agreements between the Beneficiary and
the Company or between the Beneficiary and any person who has guaranteed or
secured, in whole or in part, the payment of the Obligations, and any and all
amendments and modifications thereof, whether presently existing or hereafter
made. The Beneficiary may without compromising, impairing, diminishing, or in
any way releasing the Guarantor from the Guarantor's obligations hereunder, and
without notifying or obtaining the prior approval of the Guarantor, at any time
or from time to time: (a) waive or excuse a default or defaults by the Company
or any person who has guaranteed or secured, in whole or in part, any of the
Obligations, or delay in exercising any or all of the Beneficiary's rights or
remedies with respect to such default or defaults; (b) grant extensions of time
for payment by the Company or any person who has guaranteed or secured, in whole
or in part, any of the Obligations; (c) release, substitute, exchange,
surrender, or add collateral of the Company or of any person who has guaranteed
or secured, in whole or in part, any of the Obligations, or waive, release, or
subordinate, in whole or in part, any lien or security interest held by the
Beneficiary on any real or personal property securing payment, in whole or in
part, of the Obligations; (d) release the Company or any person who has
guaranteed or secured, in whole or in part, any of the Obligations; or (e)
modify, change, renew,
<PAGE> 2
extend, or amend, in any respect, the Beneficiary's agreements with the Company
or any person who has guaranteed or secured, in whole or in part, any of the
Obligations, or any document, instrument, or writing, embodying or reflecting
the same.
6. Waivers by the Guarantor. Except for any notice
requirements and any cure periods provided in the Note with respect to the
Obligations, the Guarantor waives: (a) any and all notices whatsoever with
respect to the enforceability of this Guaranty or with respect to any of the
Obligations, including, but not limited to, the notice and enforceability of (i)
the Beneficiary's acceptance hereof or the Beneficiary's intention to act, or
the Beneficiary's action, in reliance hereon; and (ii) any default by the
Company or any surety, pledgor, grantor of security, guarantor or other person
who has guaranteed or secured, in whole or in part, the Obligations; and (b) (i)
presentment, protest and demand for payment, notice of protest, notice of
dishonor and nonpayment of any sum due from the Company or any person who has
guaranteed or secured, in whole or in part, any of the Obligations; (ii) notice
of default by the Company or any person who has guaranteed or secured, in whole
or in part, any of the Obligations; and (iii) demand for performance by the
Company or any person who has guaranteed or secured, in whole or in part, any of
the Obligations.
7. Default. Following any event constituting an "Event of
Default" (as defined in the Note) with respect to the Obligations under the Note
(after giving effect to any notice requirements and the passage of any cure
periods provided therein), the Guarantor shall pay to the Beneficiary, upon
demand, the lesser of (i) the entire amount of the Obligations, or (ii) all
amounts due under the Note.
8. Nature of Guarantor's Liability; Remedies Cumulative. The
liability of the Guarantor under this Guaranty is absolute and unconditional,
not subject to any counterclaim, recoupment, setoff, reduction or defense,
without regard to the liability of any other person, and shall not in any manner
be affected by reason of any action taken or not taken by the Beneficiary, nor
by the partial or complete unenforceability or invalidity of the Note or any
other instrument, agreement, promissory note or document referred to therein or
reflecting, securing or evidencing the obligations described therein, or any
other guaranty or surety agreement, pledge, assignment or other security for any
of the Obligations. This Guaranty shall remain in full force and effect until
the Obligations have been paid in full. No delay in making demand on the
Guarantor for satisfaction of the Guarantor's liability hereunder shall
prejudice the Beneficiary's right to enforce such satisfaction. All of the
Beneficiary's rights and remedies shall be cumulative and any failure of the
Beneficiary to exercise any right hereunder shall not be construed as a waiver
of the right to exercise the same or any other right at any time, and from time
to time, thereafter.
9. Binding Nature. This Guaranty shall inure to the benefit
of and be enforceable by the Beneficiary, the Beneficiary's successors and
assigns, as the case may be, and shall be binding upon and enforceable against
the Guarantor and the Guarantor's heirs, executors, administrators, personal
representatives, successors and assigns.
10. Invalidity of Any Part. If any provision or part of any
provision of this Guaranty shall for any reason be held invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions or the remaining part of any effective
provisions of this Guaranty and this Guaranty shall be construed as if such
invalid, illegal, or unenforceable provision or part thereof had never been
contained herein, but only to the extent of its invalidity, illegality, or
unenforceability.
11. Choice of Law. This Guaranty shall be construed,
interpreted, and enforced in accordance with the laws of the State of Maryland,
without regard to principles of conflicts of law.
12. Costs of Collection. The Guarantor agrees to pay, in
addition to the Obligations, all costs and expenses (including attorney fees)
incurred by Beneficiary in enforcing its rights and collecting or attempting to
collect from the Guarantor any or all amounts due hereunder.
13. Reinstatement. To the extent that any of the first Four
Million, Five Hundred Thousand Dollars ($4,500,000) due under the Note has been
paid by the Company to the Beneficiary, and thereafter any of such payments have
been rescinded and restored by any holder of the Note (such amount restored, the
"Restoration Payment"), whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, then the Obligations of the Guarantor under this
Guaranty shall be automatically reinstated solely to the extent of the amount of
the Restoration Payment; provided, however, that the amount of the Obligations
of the Guarantor under this Guaranty shall never exceed an amount determined by
subtracting the amount of all payments Guarantor has made hereunder
<PAGE> 3
(excluding amounts paid pursuant to Section 12 hereof) from Four Million, Five
Hundred Thousand Dollars ($4,500,000).
14. Subordination. Any indebtedness of the Company now or
hereafter held by the Guarantor on account of any payment made by the Guarantor
pursuant to this Guaranty is hereby subordinated to the indebtedness of the
Company to the Beneficiary. No such indebtedness of the Company to the Guarantor
shall be paid unless and until all amounts due Beneficiary under the Note and
that certain unsecured promissory note of even date herewith have been paid in
full. Prior to the transfer by the Guarantor of any agreement, note or
negotiable instrument evidencing any such indebtedness of the Company to the
Guarantor, the Guarantor shall mark such agreement, note or negotiable
instrument with a legend that the same is subject to this subordination.
15. Termination. Except with respect to Section 14 hereof,
this Guaranty, the guarantee hereunder and all of Guarantor's duties,
obligations and covenants hereunder shall terminate when all of the Obligations
shall have been fully paid.
IN WITNESS WHEREOF, the Guarantor has duly executed this
Guaranty under seal as of the date set forth above, with the specific intention
that this Guaranty constitute an instrument under seal.
WITNESS:
- -------------------------- ----------------------(SEAL)
Louis J. Nicholas
<PAGE> 1
EXHIBIT 10.46
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "AGREEMENT"), dated as of August 31, 1998,
is entered into between CHFA, INC., a Delaware corporation (the "PLEDGOR"), and
United American Healthcare Corporation, a Michigan corporation (the "SELLER").
RECITALS
A. Pursuant to the terms of that certain Stock Purchase Agreement (the
"STOCK PURCHASE AGREEMENT") of even date herewith among the Pledgor, the Seller
and Corporate Healthcare Financing, Inc., a Michigan corporation ("the
"COMPANY"), the Pledgor is this day purchasing from the Seller 1000 shares (the
"SHARES") of the capital stock, no par value per share (the "COMMON STOCK"), of
the Company, which represents all of the issued and outstanding Common Stock of
the Company.
B. As part of the consideration under the Stock Purchase Agreement, the
Pledgor is executing and delivering to the Seller a promissory note in the
principal amount of $13,250,000 (the "NOTE").
C. The Company owns Statutory Benefits Management Corporation, a
Michigan corporation ("SBMC"), and United American Network Services, Inc., a
Michigan corporation ("UANS") (the Company, SBMC and UANS hereafter each a "CHF
Entity" and collectively the "CHF Entities").
D. In order to induce the Seller to enter into the Stock Purchase
Agreement and to consummate the transactions contemplated thereby, the Pledgor
is executing and delivering this Agreement to the Seller.
AGREEMENTS
NOW THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. (A) Pledge and Grant of
Security Interest. AS SECURITY FOR THE PROMPT AND COMPLETE PAYMENT AND
PERFORMANCE WHEN DUE (WHETHER AT THE STATED MATURITY, BY ACCELERATION OR
OTHERWISE) OF THE OBLIGATIONS (AS DEFINED BELOW), THE PLEDGOR HEREBY
PLEDGES, ASSIGNS, CONVEYS, HYPOTHECATES, SETS OVER AND TRANSFERS TO THE
SELLER, AND HEREBY GRANTS TO THE SELLER A FIRST PRIORITY LIEN ON, AND
SECURITY INTEREST IN, (I) THE SHARES, AND (II) ALL PROCEEDS OF THE SHARES
(OTHER THAN THE DIVIDENDS PERMITTED UNDER SECTION 4(J)(I)), AND ALL
SECURITIES OR OTHER PROPERTY AT ANY TIME AND FROM TIME TO TIME RECEIVABLE
OR OTHERWISE DISTRIBUTED IN RESPECT OF OR IN EXCHANGE FOR ANY OR ALL OF THE
SHARES OR ADDITIONAL SECURITIES (ALL THE STOCK, PROCEEDS AND OTHER ITEMS
REFERRED TO IN CLAUSES (I) AND (II) ABOVE, COLLECTIVELY, THE "Pledged
Securities"). SIMULTANEOUSLY WITH THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE PLEDGOR IS DELIVERING A CERTIFICATE OR CERTIFICATES
REPRESENTING THE SHARES TO THE SELLER, TOGETHER WITH STOCK POWERS EXECUTED
IN BLANK. AS USED IN THIS AGREEMENT, THE TERM "Obligations" MEANS (I) THE
DUE AND PUNCTUAL PAYMENT BY PLEDGOR OF THE UNPAID PRINCIPAL AMOUNT OF, AND
ACCRUED INTEREST ON, THE NOTE, (II) THE DUE AND PUNCTUAL PERFORMANCE BY
PLEDGOR OF ALL OBLIGATIONS OF THE PLEDGOR ARISING UNDER THE NOTE AND THIS
AGREEMENT, AND (III) ANY COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
ALL REASONABLE FEES AND DISBURSEMENTS OF COUNSEL TO THE SELLER) INCURRED IN
THE ENFORCEMENT OR COLLECTION OF THE NOTE AND THIS AGREEMENT.
(b) TRANSFER OF SBMC AND UANS SHARES. The parties
acknowledge and agree that, notwithstanding any other provision of this
Agreement, the Pledgor may, upon written notice to Seller,
(i) either (A) cause a wholly-owned subsidiary
of Pledgor to be incorporated or organized under the laws of any state in the
United States and transfer or cause the transfer of all or any portion of the
stock of SBMC and UANS to such wholly-owned subsidiary which shall then be
deemed a CHF Entity for all purposes under this Agreement, or (B) cause the
transfer of all or any portion of the stock of SBMC and UANS to Pledgor;
(ii) cause all or any portion of the stock of
SBMC or UANS, or cause all or any portion of the assets of SBMC or UANS, to be
sold or otherwise transferred including without limitation through a merger,
consolidation or other form of corporate reorganization (each a "TRANSFER")
either to a third party which is not a Pledgor Affiliate (as defined in Section
6(j)), or to a third party which is not a Pledgor Affiliate (in which Spencer
Vavas may hold an equity interest not exceeding 25% or, in the event the gross
proceeds of the Transfer of SBMC or its assets exceed eleven million dollars
($11,000,000), such greater percentage not to exceed 50% as may have been
negotiated and agreed to by and between Spencer Vavas and the third party), and
in each case the net proceeds of such sale to Pledgor or its wholly-owned
subsidiary, after payment of all costs, expenses and obligations associated with
such sale (including without limitation (x) any obligation to pay a portion of
such sale proceeds (not in excess of 25% of such proceeds or, in the event the
gross proceeds of the Transfer of SBMC or its assets exceed eleven million
dollars ($11,000,000.00), such greater percentage not to exceed 45% as has been
negotiated and agreed to by and between Spencer Vavas and the Company) to
Spencer Vavas and (y) the payment of income tax cost (calculated by using an
effective tax rate equal to the sum of adding the then-effective (i) Federal
capital gain tax rate applicable to such transaction, and (ii) the Maryland
capital gain tax rate applicable to such transaction) to the individual
shareholders of the Pledgor which results from any such sale), shall be paid and
applied in the manner provided in Section 8 of this Agreement;
<PAGE> 2
(iii) cause all of any portion of the stock of
SBMC or UANS to be Transferred to a Pledgor Affiliate if (x) prior to such sale
all such SBMC or UANS stock shall be pledged to secure the Obligations, and
shall be made subject to the provisions of the Agreement as Pledged Securities
and to the provisions of the Security Agreement of even date herewith (the
"Security Agreement") as Collateral, in each case in a manner reasonably
acceptable to Seller such that Seller suffers or incurs no diminution in its
security position with respect to such stock, and (y) the net proceeds of such
sale, if any, are paid and applied in the manner provided in Section 8 of this
Agreement; and
(iv) cause all or a portion of the assets of SBMC
or UANS to be Transferred to a Pledgor Affiliate, or cause SBMC or UANS to be
merged into or consolidated with a Pledgor Affiliate, if (x) prior to such
Transfer, merger or consolidation either (1) all the stock of such Pledgor
Affiliate shall be pledged to secure the Obligations, and shall be made subject
to the provisions of this Agreement as Pledged Securities and to the Security
Agreement as Collateral, in each case in a manner reasonably acceptable to
Seller such that Seller suffers or incurs no diminution in its security
position, or (2) the SBMC or UANS assets subject to such Transfer, merger or
consolidation shall be subjected to the lien and security interest of the
Security Agreement of even date herewith by and between Pledgor and Seller, and
shall be made subject to the provisions of such Security Agreement as
Collateral, in each case in a manner reasonably acceptable to Seller such that
Seller suffers or incurs no diminution in its security position with respect to
such assets, and (y) the net proceeds of such sale or merger, if any, are paid
and applied in the manner provided in Section 8 of this Agreement.
(c) NICHOLAS LOAN. The parties acknowledge and agree
that, notwithstanding any other provision of this Agreement, the Pledgor may
borrow Two Million Dollars ($2,000,000.00) from Louis J. Nicholas pursuant to a
note dated August 31, 1998 (the "NICHOLAS LOAN").
(d) NICHOLAS FEE. The parties acknowledge and agree that,
notwithstanding any other provisions of this Agreement, the Pledgor may agree
(the "Credit Facility Agreement") to pay Nicholas a fee not exceeding $100,000
for each 30 day period (or portion thereof) that Nicholas' guaranty of the Note
pursuant to that certain Guaranty Agreement dated August 31, 1998 remains
outstanding; provided that such fee may not in the aggregate exceed $700,000;
and provided further that such fee may not be paid unless and until the
Obligations are paid in full.
(e) ADDITIONAL LOANS. The parties acknowledge and agree
that, notwithstanding any other provision of the Agreement, the Pledgor may, in
addition to the Nicholas Loan, borrow in one or more transactions up to Two
Million Five Hundred Thousand Dollars ($2,500,000) from any one or more of Louis
J. Nicholas, Keith Sullivan or Pamela Lee (collectively, the "Additional Loan").
2. Voting Rights, Etc.
(a) Rights of the Pledgor. UNLESS AND UNTIL AN
EVENT OF DEFAULT (AS DEFINED IN SECTION 5) SHALL HAVE OCCURRED AND SHALL BE
CONTINUING, THE PLEDGOR SHALL BE ENTITLED TO EXERCISE ANY AND ALL VOTING RIGHTS,
CONSENSUAL RIGHTS AND POWERS ACCRUING TO AN OWNER OF THE PLEDGED SECURITIES OR
ANY PART THEREOF FOR ANY PURPOSE NOT INCONSISTENT WITH THE TERMS HEREOF;
PROVIDED, HOWEVER, THAT NO VOTE SHALL BE CAST OR CONSENT, WAIVER OR RATIFICATION
BE GIVEN OR ACTION TAKEN WHICH WOULD IMPAIR THE PLEDGED SECURITIES OR BE
INCONSISTENT WITH OR VIOLATE ANY PROVISION OF THIS AGREEMENT, THE NOTE OR THE
STOCK PURCHASE AGREEMENT; AND
(b) Rights of the Seller. UPON THE OCCURRENCE
AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, ALL RIGHTS OF THE PLEDGOR TO
EXERCISE NOTE VOTING RIGHTS, CONSENSUAL RIGHTS AND POWERS THAT IT IS ENTITLED TO
EXERCISE PURSUANT TO SUBSECTION (A) OF THIS SECTION SHALL CEASE, AND ALL THOSE
RIGHTS SHALL THEREUPON BECOME VESTED IN THE SELLER, WHO SHALL HAVE THE SOLE AND
EXCLUSIVE RIGHT AND AUTHORITY TO EXERCISE THOSE RIGHTS AND POWERS.
3. Representations and
Warranties. THE PLEDGOR HEREBY REPRESENTS AND WARRANTS TO THE SELLER AS OF THE
DATE HEREOF AS FOLLOWS:
(a) Existence, Power and Qualification of the
Pledgor. THE PLEDGOR IS A CORPORATION VALIDLY EXISTING AND IN GOOD STANDING
UNDER THE LAW OF THE STATE OF DELAWARE, HAS FULL CORPORATE POWER AND AUTHORITY
TO ENTER INTO AND PERFORM THIS AGREEMENT, TO CARRY ON ITS BUSINESS AS NOW
CONDUCTED AND TO OWN, LEASE AND OPERATE ITS PROPERTIES AS IT NOW DOES, IS
QUALIFIED TO DO BUSINESS AND IS IN GOOD STANDING IN EACH JURISDICTION IN WHICH
THE NATURE OF ITS BUSINESS OR THE PROPERTIES OWNED OR LEASED BY IT REQUIRES
QUALIFICATION.
(B) Title to Pledged Securities. THE PLEDGOR IS THE
LEGAL RECORD AND BENEFICIAL OWNER OF, AND HAS GOOD AND MARKETABLE TITLE TO, THE
PLEDGED SECURITIES, SUBJECT TO NO PLEDGE, LIEN, MORTGAGE, HYPOTHECATION,
SECURITY INTEREST, VOTING AGREEMENT OR TRUST, SHAREHOLDER AGREEMENT, CHARGE,
OPTION OR OTHER ENCUMBRANCE WHATSOEVER (EXCEPT THE LIEN AND SECURITY INTEREST
CREATED BY THIS AGREEMENT AND THE SECURITY AGREEMENT AND THE SECURITY
AGREEMENT).
(c) Authorization. THE EXECUTION, DELIVERY AND
PERFORMANCE OF THIS AGREEMENT BY THE PLEDGOR HAVE BEEN DULY AUTHORIZED BY ALL
NECESSARY CORPORATE ACTION OF THE
<PAGE> 3
PLEDGOR AND THIS AGREEMENT CONSTITUTES THE VALID AND BINDING OBLIGATION OF THE
PLEDGOR ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS, EXCEPT TO THE
EXTENT ENFORCEABILITY MAY BE LIMITED BY BANKRUPTCY, INSOLVENCY, REORGANIZATION,
MORATORIUM OR OTHER SIMILAR LAWS AFFECTING THE ENFORCEMENT OF CREDITORS' RIGHTS
IN GENERAL AND SUBJECT TO GENERAL PRINCIPLES OF EQUITY (REGARDLESS OF WHETHER
ENFORCEABILITY IS CONSIDERED IN A PROCEEDING IN EQUITY OR AT LAW).
(D) Certificates. PLEDGOR HAS DELIVERED TO SELLER ANY
AND ALL CERTIFICATES OR OTHER INSTRUMENTS OR DOCUMENTS REPRESENTING OR
EVIDENCING THE PLEDGED SECURITIES, TOGETHER WITH CORRESPONDING ASSIGNMENT OR
TRANSFER POWERS DULY EXECUTED IN BLANK BY PLEDGOR.
(E) Security Interest. THE PLEDGE OF THE PLEDGED
SECURITIES IN ACCORDANCE WITH THE TERMS HEREOF CREATES A VALID AND PERFECTED
FIRST PRIORITY SECURITY INTEREST IN THE PLEDGED SECURITIES SECURING PAYMENT OF
THE OBLIGATIONS.
(f) Consents of Third Parties. THE EXECUTION, DELIVERY
AND PERFORMANCE OF THIS AGREEMENT BY THE PLEDGOR WILL NOT: (I) VIOLATE OR
CONFLICT WITH THE CERTIFICATE OF INCORPORATION OR BY-LAWS OF THE PLEDGOR; (II)
CONFLICT WITH, RESULT IN THE BREACH, TERMINATION OR ACCELERATION OF, OR
CONSTITUTE A DEFAULT UNDER, ANY LEASE, AGREEMENT, COMMITMENT OR OTHER INSTRUMENT
TO WHICH THE PLEDGOR IS A PARTY OR BY WHICH THE PLEDGOR OR ANY OF ITS PROPERTIES
ARE BOUND; (III) CONSTITUTE A VIOLATION Of ANY LAW, REGULATION, ORDER, WRIT,
JUDGMENT, INJUNCTION OR DECREE APPLICABLE TO THE PLEDGOR OR ANY OF ITS
PROPERTIES, OR (IV) RESULT IN THE CREATION OF ANY CLAIM, LIEN, SECURITY INTEREST
OR OTHER ENCUMBRANCE (COLLECTIVELY, "Liens") UPON ANY OF THE PROPERTIES OR
ASSETS OF THE PLEDGOR EXCEPT AS CONTEMPLATED BY THIS AGREEMENT, THE STOCK
PURCHASE AGREEMENT AND THE NOTE.
4. Other Covenants. UNTIL
THIS AGREEMENT HAS BEEN TERMINATED IN ACCORDANCE WITH SECTION 7 HEREOF:
(a) Payment of Obligations. THE PLEDGOR SHALL PAY
PROMPTLY WHEN DUE ALL TAXES, ASSESSMENTS AND GOVERNMENTAL CHARGES OR LEVIES
IMPOSED UPON THE PLEDGED SECURITIES OR IN RESPECT OF ITS INCOME OR PROFITS
THEREFROM, AS WELL AS ALL CLAIMS OF ANY KIND AGAINST OR WITH RESPECT TO THE
PLEDGED SECURITIES, EXCEPT THAT NO SUCH CHARGE NEED BE PAID IF (I) THE VALIDITY
THEREOF IS BEING CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS, (II) SUCH
PROCEEDINGS DO NOT INVOLVE ANY MATERIAL DANGER OF THE SALE, FORFEITURE OR LOSS
OF ANY OF THE PLEDGED SECURITIES OR THE PRIORITY OF THE LIEN IN FAVOR OF THE
SELLER THEREON AND (III) SUCH CHARGE IS ADEQUATELY RESERVED AGAINST ON THE
PLEDGOR'S BOOKS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
("GAAP").
(b) Limitations on Liens on Pledged Securities. THE
PLEDGOR SHALL NOT CREATE, INCUR OR PERMIT TO EXIST, AND WILL DEFEND THE PLEDGED
SECURITIES AGAINST, AND WILL TAKE SUCH OTHER ACTION AS IS NECESSARY TO REMOVE,
ANY LIEN, CLAIM OR OTHER ENCUMBRANCE ON OR TO THE PLEDGED SECURITIES, OTHER THAN
THE LIENS CREATED HEREBY AND THE SECURITY AGREEMENT AND WILL DEFEND THE RIGHT,
TITLE AND INTEREST OF THE SELLER IN AND TO ANY OF THE PLEDGED SECURITIES AND IN
AND TO THE PROCEEDS THEREOF AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS
WHOMSOEVER.
(c) Limitations on Disposition of Pledged Securities.
THE PLEDGOR SHALL NOT SELL, TRANSFER, LEASE OR OTHERWISE DISPOSE OF ANY OF THE
PLEDGED SECURITIES OR ATTEMPT, OFFER OR CONTRACT TO DO SO WITHOUT THE PRIOR
WRITTEN CONSENT OF THE SELLER. WITHOUT THE PRIOR WRITTEN CONSENT OF THE SELLER,
THE PLEDGOR AGREES THAT IT WILL NOT VOTE TO ENABLE ANY CHF ENTITY TO, OR
OTHERWISE PERMIT ANY CHF ENTITY TO, ISSUE ANY STOCK OR OTHER SECURITIES OF ANY
NATURE IN ADDITION TO OR IN EXCHANGE OR SUBSTITUTION FOR THE PLEDGED SECURITIES.
(D) Payment of Taxes, etc. THE PLEDGOR AGREES TO PAY OR
CAUSE TO BE PAID ALL TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL CHARGES (OTHER
THAN TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL CHARGES WHICH SELLER HAS AGREED
TO PAY OR CAUSE TO BE PAID PURSUANT TO THE STOCK PURCHASE AGREEMENT) LEVIED UPON
ANY OF ITS ASSETS OR THOSE OF ANY CHF ENTITY, OR IN RESPECT OF THEIR RESPECTIVE
FRANCHISES, BUSINESSES, INCOME OR PROFITS, ALL TRADE ACCOUNTS PAYABLE IN
ACCORDANCE WITH USUAL AND CUSTOMARY BUSINESS TERMS, AND ALL CLAIMS FOR WORK,
LABOR OR MATERIALS, WHICH IF UNPAID MIGHT BECOME A LIEN OR CHARGE UPON ANY ASSET
OF THE PLEDGOR OR ANY CHF ENTITY, BEFORE THE SAME BECOME DELINQUENT, EXCEPT THAT
(UNLESS AND UNTIL FORECLOSURE, SALE OR OTHER SIMILAR PROCEEDINGS SHALL HAVE BEEN
COMMENCED) NO SUCH CHARGE NEED BE PAID IF BEING CONTESTED IN GOOD FAITH AND BY
APPROPRIATE MEASURES PROMPTLY INITIATED AND DILIGENTLY CONDUCTED IF (I) SUCH
RESERVE OR OTHER APPROPRIATE PROVISION, IF ANY, AS SHALL BE REQUIRED BY
<PAGE> 4
GAAP SHALL HAVE BEEN MADE THEREFOR, AND (II) SUCH CONTEST DOES NOT HAVE A
MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE COMPANY OR THE PLEDGOR
OR THE ABILITY OF THE COMPANY OR THE PLEDGOR TO PAY ANY INDEBTEDNESS AND NO
ASSETS ARE In IMMINENT DANGER OF FORFEITURE.
(E) Liquidation, Dissolution. THE PLEDGOR SHALL NOT
LIQUIDATE, DISSOLVE OR EFFECT A RECAPITALIZATION OR REORGANIZATION IN ANY FORM
OF TRANSACTION AND SHALL NOT CAUSE ANY CHF ENTITY TO LIQUIDATE, DISSOLVE OR
EFFECT A RECAPITALIZATION OR REORGANIZATION IN ANY FORM OF TRANSACTION
(F) Compliance With Laws. THE PLEDGOR SHALL COMPLY, AND
SHALL CAUSE EACH CHF ENTITY TO COMPLY, IN ALL MATERIAL RESPECTS WITH ALL LAWS,
RULES, REGULATIONS, JUDGMENTS, ORDERS AND DECREES OF ANY GOVERNMENTAL OR
REGULATORY AUTHORITY APPLICABLE TO IT AND ITS RESPECTIVE ASSETS, AND WITH ALL
CONTRACTS, AND AGREEMENTS TO WHICH IT IS A PARTY OR SHALL BECOME A PARTY, AND TO
PERFORM ALL OBLIGATIONS WHICH IT HAS OR SHALL INCUR. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, PLEDGOR SHALL, AND SHALL CAUSE EACH OF THE CHF
ENTITIES TO, ESTABLISH, MAINTAIN AND OPERATE ALL BENEFIT PLANS TO COMPLY IN ALL
MATERIAL RESPECTS WITH THE PROVISIONS OF ERISA, THE INTERNAL REVENUE CODE, ALL
THE APPLICABLE LAWS, AND THE REGULATIONS AND INTERPRETATIONS THEREUNDER AND THE
RESPECTIVE REQUIREMENTS OF THE GOVERNING DOCUMENTS FOR SUCH PLANS.
(G) Corporate Existence, Property and Shares. THE
PLEDGOR AGREES TO PRESERVE, PROTECT, AND MAINTAIN, AND CAUSE EACH CHF ENTITY TO
PRESERVE, PROTECT, AND MAINTAIN, (I) ITS CORPORATE EXISTENCE, AND (II) ALL
RIGHTS, FRANCHISES, ACCREDITATIONS, QUALIFICATIONS TO DO BUSINESS, PRIVILEGES,
PERMITS, LICENSES AND PROPERTIES, THE FAILURE OF WHICH TO PRESERVE, PROTECT, AND
MAINTAIN MIGHT HAVE A MATERIAL ADVERSE EFFECT ON THE BUSINESS, AFFAIRS, ASSETS,
PROSPECTS, OPERATIONS, OR CONDITION, FINANCIAL OR OTHERWISE, OF THE PLEDGOR OR
SUCH CHF ENTITY.
(h) Access to Records. PLEDGOR SHALL PERMIT, AND CAUSE
EACH CHF ENTITY TO PERMIT, ANY AUTHORIZED REPRESENTATIVE(S) DESIGNATED BY SELLER
TO VISIT AND INSPECT ANY OF THE PROPERTIES OF PLEDGOR AND OF ANY CHF ENTITY TO
EXAMINE, AUDIT, CHECK AND MAKE COPIES OF THE RESPECTIVE FINANCIAL AND ACCOUNTING
RECORDS, BOOKS, JOURNALS, ORDERS, RECEIPTS AND ANY CORRESPONDENCE AND OTHER DATA
RELATING TO THE RESPECTIVE BUSINESSES OF PLEDGOR AND THE CHF ENTITIES AND TO
DISCUSS THE AFFAIRS, FINANCES AND ACCOUNTS OF PLEDGOR AND THE CHF ENTITIES WITH
THEIR OFFICERS AND INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, ALL UPON REASONABLE
NOTICE AND AT SUCH REASONABLE TIME, DURING NORMAL BUSINESS HOURS, AS OFTEN AS
MAY BE REASONABLY REQUESTED; PROVIDED, HOWEVER, THAT, EXCEPT AS MAY BE REQUIRED
BY LAW AND EXCEPT FOR INFORMATION WHICH HAS BECOME AVAILABLE TO THE PUBLIC AND
EXCEPT TO ENFORCE THE OBLIGATIONS, SELLER AND EACH SUCH SELLER REPRESENTATIVE
SHALL KEEP ALL INFORMATION LEARNED FROM ANY SUCH ACTIVITY CONFIDENTIAL AND SHALL
NOT DISCLOSE SUCH INFORMATION TO ANY PERSON OR ENTITY.
(i) Books and Records. PLEDGOR SHALL KEEP AND MAINTAIN,
AND CAUSE TO KEEP AND MAINTAIN, IN ALL MATERIAL RESPECTS PROPER BOOKS OF RECORD
AND ACCOUNT IN WHICH ENTRIES IN CONFORMITY WITH GAAP SHALL BE MADE OF ALL
DEALINGS AND TRANSACTIONS IN RELATION TO THEIR RESPECTIVE BUSINESSES AND
ACTIVITIES.
(J) Restricted Dividends; Transactions with Affiliates;
Dealings with Management.
(i) Pledgor shall not, and shall not cause or permit
any CHF Entity to, declare or make any dividend or other distribution to any
shareholder of Pledgor; provided, however, that during each fiscal year of
Pledgor with respect to which a Subchapter S election for Pledgor is in effect,
Pledgor may pay on a quarterly basis (on or before each April 1, June 1,
September 1 and January 1), dividends sufficient to permit the payment by the
stockholders of Pledgor of the federal, state and local income taxes (including
estimated taxes) that are due with respect to the income of Pledgor. Pledgor
shall not enter into any transaction directly or indirectly with (A) any person
or entity that owns or controls (in whole or in part) Pledgor, (B) any spouse,
sibling, parent or child of such person, or (C) any entity owned or controlled
(in whole or in part) by any person or entity described in the preceding clauses
(A) or (B). Pledgor shall not cause or allow any CHF Entity to enter into any
transaction directly or indirectly with (D) Pledgor or (E) any person or entity
directly or indirectly owning or controlling Pledgor (in whole or in part), or
(F) any spouse, sibling, parent or child of any such person or (G) any entity
owned or controlled (in whole or in part) by any person or entity described in
the preceding clauses (D), (E) or (F) (each of the persons or entities described
in clauses (D), (E), (F) or (G) a "PLEDGOR AFFILIATE"). Pledgor shall not
directly or indirectly cause or allow any business of any CHF Entity to be
transferred to, renewed by, or in any other way assumed by, any Pledgor
Affiliate except as provided in Section 1(b)(iii) (to the extent applicable) and
(iv) hereof.
(ii) Pledgor shall not, and shall not cause or allow
any CHF Entity to, (x) except for the Nicholas Loan, the Additional Loan and the
Credit Facility Agreement, directly or indirectly enter into transaction with
Louis J. Nicholas, Keith Sullivan, Pamela Lee, Spencer Vavas or any other
shareholder of the Pledgor (collectively, Pledgor
<PAGE> 5
Management") or any spouse, sibling, parent or child of the Pledgor Management
or any other person or entity that owns or controls, or is owned or controlled
by any of the foregoing persons ) in whole or in part), (y) directly or
indirectly make loans to any officer or director of Pledgor or any CHF Entity or
to any member of Pledgor Management (or to any spouse, sibling, parent or child
of any such officer or director or member of CHF Management), or (z) increase
any salary or benefits of any such officer or director over the level of the
salary or benefits existing as of the date hereof. Pledgor shall not pay any
principal or interest or any other amount due under or with respect to the
Nicholas Loan or the Additional Loan unless and until the Obligations have been
paid in full.
(iii) Notwithstanding the foregoing provisions of the
Section 4(j), Pledgor and the CHF Entities may (w) elect one or more of the
Pledgor Management as officers or directors of Pledgor and/or the CHF Entities,
(x) pay such Pledgor Management salaries and benefits as in effect on the date
hereof (excluding the payment referred to in Section 6(e) of the Employment
Agreements dated May 7, 1993 or any similar payment), (y) reimburse the expenses
incurred by Pledgor Management in the ordinary course of business and (z) pay
the dividend permitted by Section 4(j)(i) hereof.
(iv) The parties recognize and agree that the
foregoing provisions of this Section 4(j) do not preclude members of the Pledgor
Management from reaching any lawful agreement among themselves (without any
commitment or obligation of Pledgor or any CHF Entity) on such matters as they
may desire, including without limitation voting of their stock in the Pledgor.
(k) Indebtedness; Liens. EXCEPT FOR THE NICHOLAS
LOAN, THE ADDITIONAL LOAN AND THE CREDIT FACILITY AGREEMENT, PLEDGOR SHALL NOT,
NOR SHALL PLEDGOR CAUSE OR ALLOW ANY CHF ENTITY TO, DIRECTLY OR INDIRECTLY
CREATE, INCUR, ASSUME OR OTHERWISE BECOME OR REMAIN DIRECTLY OR INDIRECTLY
LIABLE WITH RESPECT TO ANY INDEBTEDNESS EXCEPT ACCRUED EXPENSES AND CURRENT
TRADE ACCOUNTS PAYABLE INCURRED IN THE ORDINARY COURSE OF BUSINESS. PLEDGOR
SHALL NOT, AND PLEDGOR SHALL NOT CAUSE Or ALLOW ANY CHF ENTITY TO, DIRECTLY OR
INDIRECTLY CREATE, INCUR, ASSUME OR PERMIT TO EXIST ANY LIEN, CLAIM OR
ENCUMBRANCE ON OR WITH RESPECT TO ANY OF THEIR RESPECTIVE PROPERTY OR ASSETS
EXCEPT LIENS CREATED BY THIS AGREEMENT Or THE SECURITY AGREEMENT OR EQUIPMENT
FINANCING LIENS OR PURCHASE MONEY SECURITY INTERESTS CREATED IN THE ORDINARY
COURSE OF ITS BUSINESS.
(l) Minimum Liquidity. PLEDGOR SHALL CAUSE THE CHF
ENTITIES ON A CONSOLIDATED BASIS TO MAINTAIN AT ALL TIMES (I) WORKING CAPITAL IN
AN AMOUNT EXCEEDING $4,000,000, AND (II) A CURRENT RATIO OF 2.00 (IN EACH CASE
AS THE TERMS USED IN CLAUSES (I) AND (II) ARE DETERMINED IN ACCORDANCE WITH GAAP
BUT, FOR PURPOSES OF CALCULATING WORKING CAPITAL AND THE CURRENT RATIO, (X) THE
RECORDING OF REVENUE OF THE CHF ENTITIES SHALL BE EFFECTED IN THE SAME MANNER AS
EFFECTED ON THE DATE OF THIS AGREEMENT, AND (Y) INDEBTEDNESS INCURRED BY PLEDGOR
UNDER THE NOTE AND THE UNSECURED PROMISSORY NOTE OF EVEN DATE HEREWITH (AND ALL
INTEREST THEREON) SHALL BE EXCLUDED FROM SUCH CALCULATION).
(m) Financial Information. THE PLEDGOR WILL DELIVER
TO THE SELLER:
(i) as soon as practicable, and in any event within
forty-five (45) days after the end of each fiscal quarter of the Company, an
unaudited consolidated balance sheet of the CHF Entities as of the end of such
fiscal quarter, and unaudited consolidated statements of income and retained
earnings, and of cash flow of the CHF Entities for such fiscal quarter, prepared
in accordance with GAAP (other than year-end adjustments and footnotes), all in
reasonable detail and certified by the principal financial officer of the
Company;
(ii) as soon as practicable, and in any event within
twenty (20) days after the end of each calendar month of the Company, (A) an
unaudited consolidated balance sheet of the CHF Entities as of the end of such
calendar month, and unaudited consolidated statements of income and retained
earnings, and of cash flow of the CHF Entities for such calendar month and for
the then current fiscal year to date, prepared in accordance with GAAP (other
than year-end adjustments and footnotes), all in reasonable detail and certified
by the principal financial officer of the Company;
(iii)promptly upon receipt thereof, copies of all
management letters, recommendations and reports, if any, submitted to any CHF
Entity by any independent certified public accountants in connection with any
annual or interim review, compilation or audit of any CHF Entity made by such
accountants;
(iv) promptly upon obtaining knowledge of the
occurrence thereof, notice of any event or circumstance (including without
limitation any suit or administrative proceeding or default) which either
individually or together with other events or circumstances may have a material
adverse effect;
(v) with reasonable promptness, all such other data
and information as from time to time may be reasonably requested by the Seller.
Except as required by law and except for information which has become
available to the public and except to enforce the Obligations, Seller shall keep
all information delivered to or obtained by it pursuant to this Section 4(m)
confidential and shall not disclose any such information to any other person or
entity.
(N) Further Documents. PLEDGOR AGREES TO DELIVER TO
SELLER FROM TIME TO TIME UPON REQUEST OF SELLER SUCH DOCUMENTS (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO
<PAGE> 6
SELLER) WITH RESPECT TO THE PLEDGED SECURITIES AS SELLER MAY REASONABLY REQUEST
IN ORDER TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
5. Events of Default. AN EVENT
OF DEFAULT SHALL BE DEEMED TO HAVE OCCURRED UPON THE OCCURRENCE OF ANY OF THE
FOLLOWING:
(A) ANY REPRESENTATION OR WARRANTY MADE BY PLEDGOR
HEREIN IS FALSE OR MISLEADING IN ANY MATERIAL RESPECT WHEN MADE;
(B) THE DEFAULT BY THE PLEDGOR IN THE OBSERVANCE OR
PERFORMANCE OF ANY OF THE PROVISIONS OF THIS AGREEMENT WHICH DEFAULT SHALL
CONTINUE FOR A PERIOD OF 20 CALENDAR DAYS (30 CALENDAR DAYS IN THE CASE OF THE
COVENANT IN SECTION 4(L)) FOLLOWING WRITTEN NOTICE OF THE DEFAULT GIVEN BY THE
SELLER; OR
(C) THE OCCURRENCE OF ANY EVENT OF DEFAULT (AS
DEFINED IN THE NOTE), INCLUDING, WITHOUT LIMITATION, THE FAILURE BY THE PLEDGOR
TO MAKE ANY PAYMENT OF PRINCIPAL OR INTEREST ON THE NOTE WHEN DUE, BY
ACCELERATION OR OTHERWISE, WITHIN TEN (10) BUSINESS DAYS FOLLOWING NOTICE OF THE
FAILURE GIVEN BY THE SELLER.
6. Remedies, Rights Upon
Default.
(a) Remedies Upon Default. UPON THE OCCURRENCE AND
DURING THE CONTINUATION OF ANY EVENT OF DEFAULT, THE SELLER MAY SELL THE PLEDGED
SECURITIES, OR ANY PART THEREOF, AT PUBLIC OR PRIVATE SALE OR AT ANY BROKER'S
BOARD OR ON ANY SECURITIES EXCHANGE, FOR CASH, UPON CREDIT OR FOR FUTURE
DELIVERY AS THE SELLER SHALL DEEM APPROPRIATE SUBJECT TO THE TERMS HEREOF OR AS
OTHERWISE PROVIDED IN THE MARYLAND UNIFORM COMMERCIAL CODE. THE SELLER SHALL BE
AUTHORIZED AT ANY SUCH SALE (IF IT DEEMS It ADVISABLE TO DO SO) TO RESTRICT THE
PROSPECTIVE BIDDERS OR PURCHASERS TO PERSONS WHO WILL REPRESENT AND AGREE THAT
THEY ARE PURCHASING THE PLEDGED SECURITIES FOR THEIR OWN ACCOUNT FOR INVESTMENT
AND NOT WITH A VIEW TO THE DISTRIBUTION OR SALE THEREOF, AND UPON CONSUMMATION
OF ANY SUCH SALE THE SELLER SHALL HAVE THE RIGHT TO ASSIGN, TRANSFER AND DELIVER
TO THE PURCHASER OR PURCHASERS THEREOF THE PLEDGED SECURITIES SO SOLD. THE
PLEDGOR ACKNOWLEDGES AND AGREES THAT ANY SUCH PRIVATE SALE MAY RESULT IN PRICES
AND OTHER TERMS LESS FAVORABLE TO THE SELLER THAN IF SUCH SALE WERE A PUBLIC
SALE AND, NOTWITHSTANDING SUCH CIRCUMSTANCES, AGREES THAT ANY SUCH PRIVATE SALE
SHALL BE DEEMED TO HAVE BEEN MADE IN A COMMERCIALLY REASONABLE MANNER.
(b) Notice of Sale, Etc. THE SELLER SHALL GIVE THE
PLEDGOR 10 DAYS PRIOR WRITTEN NOTICE OF THE SELLER'S INTENTION TO MAKE ANY SUCH
PUBLIC OR PRIVATE SALE OR SALE AT ANY BROKER'S BOARD OR ON ANY SUCH SECURITIES
EXCHANGE OR OF ANY OTHER DISPOSITION OF THE PLEDGED SECURITIES. SUCH NOTICE, IN
CASE OF PUBLIC SALE, SHALL STATE THE TIME AND PLACE FOR SUCH SALE AND, In THE
CASE OF SALE AT A BROKER'S BOARD OR ON A SECURITIES EXCHANGE, SHALL STATE THE
BOARD OR EXCHANGE AT WHICH SUCH SALE IS TO BE MADE AND THE DAY ON WHICH THE
PLEDGED SECURITIES, OR PORTION THEREOF, WILL FIRST BE OFFERED FOR SALE AT SUCH
BOARD OR EXCHANGE. ANY SUCH PUBLIC SALE SHALL BE HELD AT SUCH TIME OR TIMES
WITHIN ORDINARY BUSINESS HOURS AND AT SUCH PLACE OR PLACES AS THE SELLER MAY FIX
AND SHALL STATE IN THE NOTICE OF SUCH SALE. AT ANY SUCH SALE, THE PLEDGED
SECURITIES, OR PORTION THEREOF, TO BE SOLD MAY BE SOLD IN ONE LOT AS AN ENTIRETY
OR IN SEPARATE PARCELS, AS THE SELLER MAY (IN ITS SOLE AND ABSOLUTE DISCRETION)
DETERMINE. THE SELLER SHALL NOT BE OBLIGATED TO MAKE ANY SALE OF THE PLEDGED
SECURITIES IF IT SHALL DETERMINE NOT TO DO SO, REGARDLESS OF THE FACT THAT
NOTICE OF SALE OF THE PLEDGED SECURITIES MAY HAVE BEEN GIVEN. THE PLEDGOR SHALL
HAVE THE RIGHT TO BID AT ANY PUBLIC OR PRIVATE SALE. THE SELLER MAY, WITHOUT
NOTICE OR PUBLICATION, ADJOURN ANY PUBLIC OR PRIVATE SALE OR CAUSE THE SAME TO
BE ADJOURNED FROM TIME TO TIME BY ANNOUNCEMENT AT THE TIME AND PLACE FIXED FOR
SALE, AND SUCH SALE MAY, WITHOUT FURTHER NOTICE, BE MADE AT THE TIME AND PLACE
TO WHICH THE SAME WAS SO ADJOURNED. IN CASE SALE OF ALL OR ANY PART OF THE
PLEDGED SECURITIES IS MADE ON CREDIT OR FOR FUTURE DELIVERY, THE PLEDGED
SECURITIES SO SOLD MAY BE RETAINED BY THE SELLER UNTIL THE SALE PRICE IS PAID BY
THE PURCHASER OR PURCHASERS THEREOF, BUT THE SELLER SHALL NOT INCUR ANY
LIABILITY IN CASE ANY SUCH PURCHASER OR PURCHASERS SHALL FAIL TO TAKE UP AND PAY
FOR THE PLEDGED SECURITIES SO SOLD AND, IN CASE OF ANY SUCH FAILURE, SUCH
PLEDGED SECURITIES MAY BE SOLD AGAIN UPON LIKE NOTICE. As AN ALTERNATIVE TO
EXERCISING THE POWER OF SALE HEREIN CONFERRED UPON IT, THE SELLER MAY PROCEED BY
A SUIT OR SUITS AT LAW OR IN EQUITY TO FORECLOSE THIS AGREEMENT AND TO SELL THE
PLEDGED SECURITIES, OR ANY PORTION THEREOF, PURSUANT TO A JUDGMENT OR DECREE OF
A COURT OR COURTS HAVING COMPETENT JURISDICTION.
<PAGE> 7
(c) Securities Laws. ALL ACTIONS THAT MAY BE TAKEN
PURSUANT TO THE PROVISIONS OF THIS SECTION 6 ARE SUBJECT IN EVERY INSTANCE TO
STATE AND FEDERAL SECURITIES LAWS.
(d) Application of Proceeds of Sale and Cash. THE
PROCEEDS OF SALE OF THE PLEDGED SECURITIES SOLD PURSUANT TO THIS SECTION 6 SHALL
BE APPLIED BY THE SELLER FIRST TO THE PAYMENT OF COSTS INCURRED PURSUANT TO THIS
SECTION 6 AND THEN TO THE PAYMENT OR REPAYMENT OF THE OBLIGATIONS (AND, UPON
SATISFACTION OF THE OBLIGATIONS, THEREAFTER TO ANY PRINCIPAL, INTEREST OR OTHER
AMOUNTS DUE UNDER THE UNSECURED PROMISSORY NOTE OF PLEDGOR OF EVEN DATE HEREWITH
IN FAVOR OF SELLER IN THE PRINCIPAL AMOUNT OF $2,500,000 IF THERE HAS OCCURRED
(I)(A) ANY FAILURE BY PLEDGOR TO PAY PRINCIPAL, INTEREST OR OTHER AMOUNTS DUE
UNDER THE NOTE OR (B) ANY BREACH BY PLEDGOR OF THE PROVISIONS OF THIS AGREEMENT,
IN EACH CASE WHICH HAS NOT BEEN CURED WITHIN THE APPLICABLE PERIODS SET FORTH IN
THE NOTE OR AGREEMENT OR (II) ANY DEFAULT UNDER SUCH UNSECURED PROMISSORY NOTE
WHICH HAS NOT BEEN CURED WITHIN THE APPLICABLE PERIOD). ANY AMOUNTS REMAINING
AFTER SUCH APPLICATIONS SHALL BE REMITTED TO THE PLEDGOR OR AS A COURT OF
COMPETENT JURISDICTION MAY OTHERWISE DIRECT. ANY SUCH REMITTANCE SHALL BE
WITHOUT RECOURSE UPON OR WARRANTY BY SELLER AND AT THE EXPENSE OF PLEDGOR.
(e) Seller Appointed Attorney-in-Fact. UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE PLEDGOR HEREBY
APPOINTS THE SELLER ITS ATTORNEY-IN-FACT FOR THE PURPOSE OF CARRYING OUT THE
PROVISIONS OF THIS AGREEMENT AND THE PLEDGE OF THE PLEDGED SECURITIES HEREUNDER
AND TAKING ANY ACTION AND EXECUTING ANY INSTRUMENT THAT THE SELLER MAY DEEM
NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES HEREOF, WHICH APPOINTMENT IS
IRREVOCABLE AND COUPLED WITH AN INTEREST. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE SELLER SHALL HAVE THE RIGHT AND POWER TO RECEIVE, INDORSE AND
COLLECT ALL CHECKS AND OTHER ORDERS FOR THE PAYMENT OF MONEY MADE PAYABLE TO
SUCH PLEDGOR REPRESENTING ANY DIVIDEND OR OTHER DISTRIBUTION PAYABLE IN RESPECT
OF THE PLEDGED SECURITIES OR ANY PART THEREOF AND TO GIVE FULL DISCHARGE FOR THE
SAME.
7. Termination. THIS AGREEMENT,
THE PLEDGE HEREUNDER AND PLEDGOR'S DUTIES, OBLIGATIONS AND COVENANTS HEREUNDER
SHALL TERMINATE WHEN ALL OBLIGATIONS SHALL HAVE BEEN FULLY PAID, AT WHICH TIME
THE SELLER SHALL REASSIGN AND DELIVER TO THE PLEDGOR, OR TO SUCH PERSON OR
PERSONS AS THE PLEDGOR SHALL DESIGNATE, SUCH OF THE PLEDGED SECURITIES (IF ANY)
AS SHALL NOT HAVE BEEN SOLD OR OTHERWISE APPLIED BY THE SELLER PURSUANT TO THE
TERMS OF THIS AGREEMENT, AND SHALL STILL BE HELD BY IT HEREUNDER, TOGETHER WITH
APPROPRIATE INSTRUMENTS OF REASSIGNMENT AND RELEASE. ANY SUCH REASSIGNMENT AND
DELIVERY SHALL BE AT THE EXPENSE OF PLEDGOR. SELLER SHALL RETURN AND DELIVER
SUCH PLEDGED SECURITIES TO PLEDGOR FREE AND CLEAR OF ALL LIENS, CLAIMS AND
ENCUMBRANCES CREATED BY SELLER.
8. Payments Held in Trust. ALL
PAYMENTS RECEIVED BY THE PLEDGOR UNDER OR IN CONNECTION WITH ANY OF THE PLEDGED
SECURITIES (INCLUDING ANY PROCEEDS THEREOF AND ANY NET PROCEEDS OF THE SALE OR
TRANSFER OF THE STOCK OR ASSETS OF SBMC AND UANS OR OF THE MERGER, CONSOLIDATION
OR REORGANIZATION OF SBMC AND UANS, BUT EXCLUDING ANY DIVIDENDS PERMITTED UNDER
SECTION 4(J)(I)) SHALL BE HELD BY THE PLEDGOR IN TRUST FOR THE SELLER, SHALL BE
SEGREGATED FROM OTHER FUNDS OF THE PLEDGOR AND SHALL FORTHWITH UPON RECEIPT BY
THE PLEDGOR BE TURNED OVER TO THE SELLER, IN THE SAME FORM AS RECEIVED BY THE
PLEDGOR (DULY INDORSED BY THE PLEDGOR TO THE SELLER, IF REQUIRED); AND ANY AND
ALL SUCH PAYMENTS SO RECEIVED BY THE SELLER (WHETHER FROM THE PLEDGOR OR
OTHERWISE) MAY, IN THE SOLE DISCRETION OF THE SELLER, BE HELD BY THE SELLER AS
COLLATERAL SECURITY FOR, AND/OR THEN OR AT ANY TIME THEREAFTER APPLIED IN WHOLE
OR IN PART BY THE SELLER, AGAINST ALL OR ANY PART OF THE OBLIGATIONS IN SUCH
ORDER AS THE SELLER SHALL ELECT (AND, UPON SATISFACTION OF THE OBLIGATIONS,
THEREAFTER TO THE PRINCIPAL, INTEREST AND OTHER AMOUNTS DUE UNDER THE UNSECURED
PROMISSORY NOTE DESCRIBED IN THE NEXT SENTENCE IN SUCH ORDER AS THE SELLER SHALL
ELECT IF THE EVENTS DESCRIBED IN THE PARENTHETICAL OF THE NEXT SENTENCE OCCUR).
ANY BALANCE OF SUCH PAYMENTS HELD BY THE SELLER AND REMAINING AFTER PAYMENT IN
FULL OF ALL THE OBLIGATIONS (AND, UPON SATISFACTION OF THE OBLIGATIONS, OF ANY
PRINCIPAL, INTEREST OR OTHER AMOUNTS DUE UNDER THE UNSECURED PROMISSORY NOTE OF
PLEDGOR OF EVEN DATE HEREWITH IN FAVOR OF SELLER IN THE PRINCIPAL AMOUNT OF
$2,500,000 IF THERE HAS OCCURRED (I)(A) ANY FAILURE BY PLEDGOR TO PAY PRINCIPAL,
INTEREST OR OTHER AMOUNTS DUE UNDER THE NOTE OR (B) ANY BREACH BY PLEDGOR OF THE
PROVISIONS OF THIS AGREEMENT, IN EACH CASE WHICH HAS NOT BEEN CURED WITHIN THE
APPLICABLE PERIODS SET FORTH IN THE NOTE OR THIS AGREEMENT OR (II) ANY DEFAULT
UNDER THE UNSECURED PROMISSORY NOTE WHICH HAS NOT BEEN CURED WITHIN THE
APPLICABLE PERIOD) SHALL BE PAID OVER TO THE PLEDGOR OR TO WHOMSOEVER MAY BE
LAWFULLY ENTITLED TO RECEIVE THE SAME.
9. Certain Rights Regarding
Pledged Securities and Obligations. SELLER MAY FROM TIME TO TIME, WHETHER BEFORE
OR AFTER ANY OF THE OBLIGATIONS SHALL BECOME DUE AND PAYABLE, WITHOUT NOTICE TO
PLEDGOR, TAKE ALL OR ANY OF THE FOLLOWING ACTIONS:
<PAGE> 8
(A) RETAIN OR OBTAIN A SECURITY INTEREST IN ANY
PROPERTY, IN ADDITION TO THE PLEDGED SECURITIES, TO SECURE ANY OF THE
OBLIGATIONS;
(B) RETAIN OR OBTAIN THE PRIMARY OR SECONDARY LIABILITY
OF ANY PARTY OR PARTIES, IN ADDITION TO PLEDGOR, WITH RESPECT TO ANY OF THE
OBLIGATIONS;
(C) EXTEND OR RENEW FOR ANY PERIOD (WHETHER OR NOT
LONGER THAN THE ORIGINAL PERIOD) OR EXCHANGE ANY OF THE OBLIGATIONS OR RELEASE
OR COMPROMISE ANY OBLIGATION OF ANY NATURE OF ANY PARTY WITH RESPECT THERETO;
(D) SURRENDER, RELEASE OR EXCHANGE ALL OR ANY PART OF
ANY PROPERTY, IN ADDITION TO THE PLEDGED SECURITIES, SECURING ANY OF THE
OBLIGATIONS, OR COMPROMISE OR EXTEND OR RENEW FOR ANY PERIOD ANY OBLIGATIONS OF
ANY NATURE OF ANY PARTY WITH RESPECT TO ANY SUCH PROPERTY; AND
(E) RESORT TO THE PLEDGED SECURITIES FOR PAYMENT OF ANY
OF THE OBLIGATIONS WHICH SHALL HAVE BECOME DUE AND PAYABLE, WHETHER OR NOT IT
SHALL HAVE RESORTED TO ANY OTHER PROPERTY SECURING THE OBLIGATIONS OR SHALL HAVE
PROCEEDED AGAINST ANY PARTY PRIMARILY OR SECONDARILY LIABLE ON ANY OF THE
OBLIGATIONS.
10. Care of Pledged Securities.
SELLER SHALL BE DEEMED TO HAVE EXERCISED REASONABLE CARE WITH RESPECT TO THE
INTEREST OF PLEDGOR IN THE CUSTODY AND PRESERVATION OF THE PLEDGED SECURITIES IF
IT TAKES SUCH ACTION FOR THAT PURPOSE AS PLEDGOR SHALL REQUEST IN WRITING, BUT
FAILURE OF SELLER TO COMPLY WITH ANY SUCH REQUEST SHALL NOT OF ITSELF BE DEEMED
A FAILURE TO EXERCISE REASONABLE CARE, AND NO FAILURE OF THE SELLER TO PRESERVE
OR PROTECT ANY RIGHTS WITH RESPECT TO THE PLEDGED SECURITIES AGAINST PRIOR
PARTIES, OR TO DO ANY ACT WITH RESPECT TO PRESERVATION OF THE PLEDGED SECURITIES
NOT SO REQUESTED BY PLEDGOR, SHALL BE DEEMED A FAILURE TO EXERCISE REASONABLE
CARE IN THE CUSTODY OR PRESERVATION OF THE PLEDGED SECURITIES.
11. Authority of Seller. SELLER
SHALL HAVE AND BE ENTITLED TO EXERCISE ALL SUCH POWERS HEREUNDER AS ARE
SPECIFICALLY DELEGATED TO SELLER BY THE TERMS HEREOF, TOGETHER WITH SUCH POWERS
AS ARE INCIDENTAL THERETO. SELLER MAY EXECUTE ANY OF ITS DUTIES HEREUNDER BY OR
THROUGH AGENTS OR EMPLOYEES AND SHALL BE ENTITLED TO RETAIN COUNSEL AND TO ACT
IN RELIANCE UPON THE ADVICE OF SUCH COUNSEL CONCERNING ALL MATTERS PERTAINING TO
ITS DUTIES HEREUNDER. NEITHER SELLER, NOR ANY DIRECTOR, OFFICER OR EMPLOYEE OF
SELLER, SHALL BE LIABLE FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR
THEM HEREUNDER OR IN CONNECTION THEREWITH, EXCEPT FOR ITS OR THEIR OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
12. Waivers. THE PLEDGOR HEREBY
WAIVES PRESENTMENT, DEMAND, PROTEST OR NOTICE (TO THE EXTENT PERMITTED BY
APPLICABLE LAW) OF ANY KIND IN CONNECTION WITH THIS AGREEMENT OR ANY PLEDGED
SECURITIES.
13. Amendments, etc. with
Respect to the Obligations. THE PLEDGOR SHALL REMAIN OBLIGATED HEREUNDER, AND
THE PLEDGED SECURITIES SHALL REMAIN SUBJECT TO THE LIEN AND SECURITY INTEREST
GRANTED HEREBY, NOTWITHSTANDING THAT, WITHOUT ANY RESERVATION OF RIGHTS AGAINST
THE PLEDGOR, AND WITHOUT NOTICE TO OR FURTHER ASSENT BY THE PLEDGOR, ANY DEMAND
FOR PAYMENT OF ANY OF THE OBLIGATIONS MADE BY THE SELLER MAY BE RESCINDED BY THE
SELLER, AND ANY OF THE OBLIGATIONS CONTINUED, AND THE OBLIGATIONS OR ANY
COLLATERAL SECURITY OR GUARANTEE THEREFOR OR RIGHT OF OFFSET WITH RESPECT
THERETO MAY FROM TIME TO TIME, IN WHOLE OR IN PART, BE RENEWED, EXTENDED,
AMENDED, MODIFIED, ACCELERATED, COMPROMISED, WAIVED, SURRENDERED, OR RELEASED BY
THE SELLER, AND THE NOTE, AND ANY OTHER DOCUMENTS EXECUTED AND DELIVERED IN
CONNECTION THEREWITH MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR TERMINATED, IN
WHOLE OR PART, AS THE SELLER MAY DEEM ADVISABLE FROM TIME TO TIME, AND ANY
GUARANTEE, RIGHT OF OFFSET OR OTHER COLLATERAL SECURITY AT ANY TIME HELD BY THE
SELLER FOR THE PAYMENT OF THE OBLIGATIONS MAY BE SOLD, EXCHANGED, WAIVED,
SURRENDERED OR RELEASED.
14. Notices. ANY NOTICE OR OTHER
COMMUNICATION UNDER THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE CONSIDERED
GIVEN WHEN MAILED BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
THE PARTIES AT THE FOLLOWING ADDRESSES (OR AT SUCH OTHER ADDRESS AS A PARTY MAY
SPECIFY BY NOTICE TO THE OTHERS):
If to the Pledgor, to:
CHFA, Inc.
111 S. Calvert Street
Suite 2670
Baltimore, Maryland 21202
Attention: Keith B. Sullivan
<PAGE> 9
if to the Seller, to:
United American Healthcare Corporation
1155 Brewery Park Boulevard, Suite 200
Detroit, Michigan 48207
Attention: President
15. Severability. ANY PROVISION
OF THIS AGREEMENT THAT IS PROHIBITED OR UNENFORCEABLE SHALL BE INEFFECTIVE TO
THE EXTENT OF THE PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE
REMAINING PROVISIONS HEREOF.
16. No Waiver. THE SELLER SHALL
NOT BY ANY ACT, DELAY, OMISSION OR OTHERWISE BE DEEMED TO HAVE WAIVED ANY OF THE
RIGHTS OR REMEDIES OF THE SELLER HEREUNDER AND NO SUCH WAIVER SHALL BE VALID
UNLESS IN WRITING, SIGNED BY THE SELLER, AND THEN ONLY TO THE EXTENT THEREIN SET
FORTH. NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED,
MODIFIED OR AMENDED EXCEPT BY AN INSTRUMENT IN WRITING, DULY EXECUTED BY THE
PARTY TO BE CHARGED WITH THE WAIVER, ALTERATION, MODIFICATION OR AMENDMENT.
17. Successors and Assigns;
Governing Law. THIS AGREEMENT AND ALL OBLIGATIONS OF THE PLEDGOR HEREUNDER SHALL
BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE PLEDGOR, AND SHALL INURE TO
THE BENEFIT OF THE SELLER, AND ITS SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL
BE GOVERNED BY AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF MARYLAND APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN
MARYLAND. THE PLEDGOR MAY ASSIGN ITS RIGHTS HEREUNDER TO ITS LENDER MICHIGAN
NATIONAL BANK AND TO ANY SUCCEEDING LENDER.
18. Counterparts. THIS AGREEMENT
MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER
SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT AND ANY OF THE PARTIES HERETO MAY
EXECUTE THIS AGREEMENT BY EXECUTING ANY SUCH COUNTERPART.
<PAGE> 1
EXHIBIT 10.47
AMENDMENT OF BUSINESS LOAN AGREEMENT
THIS AMENDMENT OF BUSINESS LOAN AGREEMENT ("Amendment") made SEPTEMBER
1, 1998, by and between UNITED AMERICAN HEALTHCARE CORPORATION, a MICHIGAN
CORPORATION, whose address is 1155 BREWERY PARK BOULEVARD, SUITE 200, DETROIT,
MICHIGAN 48207 (the "Borrower"), and MICHIGAN NATIONAL BANK, a NATIONAL BANKING
ASSOCIATION, whose address is 27777 INKSTER ROAD, FARMINGTON HILLS, MICHIGAN
48333-9065 (the "Bank").
RECITALS
WHEREAS the Bank has made or agreed to make one or more loans to
Borrower described in and subject to the terms and conditions of a certain
Business Loan Agreement dated MARCH 12, 1998, EFFECTIVE AS OF FEBRUARY 1, 1998
(the "Loan Agreement") and the Related Documents described therein;
WHEREAS the $22,944,205.00 LINE OF CREDIT LOAN described in the Loan
Agreement (the "Loan") will mature on OCTOBER 1, 1999;
WHEREAS Borrower has requested the Bank to DECREASE AND AMEND the Loan
and modify and amend the terms and conditions of the Loan Agreement to evidence
that DECREASE AND AMENDMENT and the Bank has agreed to do so upon the terms and
conditions of the Loan Agreement, Related Documents and this Amendment; and
NOW THEREFORE in consideration of and in reliance upon the foregoing
recitals of fact (which are a material part of this Amendment) and the
agreements between the parties hereinafter set forth, Borrower and Bank AGREE AS
FOLLOWS:
A. DEFINITIONS:
Capitalized terms not defined in this Amendment shall have the meaning
provided in the Loan Agreement.
B. AMENDMENTS TO LOAN AGREEMENT:
1. SECTION I. of the Loan Agreement is by this Amendment deleted in its
entirety and replaced by the following new SECTION I.:
I. LOANS. The following Loans and any amendments, extensions,
renewals or refinancing thereof are subject to this Agreement:
LOAN
TYPE OF LOAN NOTE AMOUNT DATE
LINE OF CREDIT $20,944,205.00 09/__1998
PURPOSE of Loans listed above:
DECREASE AND AMENDMENT TO EXISTING LINE OF CREDIT, NOTE NO.
02007144, USED FOR WORKING CAPITAL LIQUIDITY, AND GUARANTY
PAYMENT FOR EXISTING LETTER OF CREDIT NO. LC0-17478-DY ISSUED
FOR INSURANCE PURPOSES FOR THE ACCOUNT OF OMNICARE HEALTH PLAN
OF LOUISIANA, LISTING LIBERTY BANK AND TRUST AS BENEFICIARY,
WHICH EXPIRES ON JANUARY 12, 1999.
2. SECTION II.J. of the Loan Agreement is by this Amendment deleted in its
entirety and replaced by the following new SECTION II.J.:
J. YEAR 2000 PROBLEM. Borrower has reviewed all areas within its
business and operations which could be adversely affected by
the Year 2000 Problem and, except as Borrower has specifically
disclosed to Bank in writing, Borrower has developed and
implemented or is developing and will implement a program by
not later than January 31, 1999, to assure that Borrower's
computer applications will not have a Year 2000 Problem.
3. SECTION III.A. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION III.A.:
A. FINANCIAL REQUIREMENTS.
1. MEET WITH BANK TO ESTABLISH FINANCIAL COVENANTS FOR A MINIMUM
NET WORTH; DEBT SERVICE COVERAGE RATIO AND MAXIMUM DEBT TO
WORTH RATIO, PRIOR TO MARCH 1, 1999.
<PAGE> 2
4. SECTION III.B.5. of the Loan Agreement is hereby deleted in its
entirety and replaced by the following new SECTION III.B.5.:
5. FINANCIAL STATEMENTS. Within THIRTY (30) DAYS after the end of
each fiscal QUARTER, furnish to Bank, in form acceptable to
Bank, a TURNAROUND STATUS REPORT of Borrower, which Borrower's
management prepared for the foregoing period and is certified
to be correct by Borrower's Treasurer or Chief Financial
Officer.
5. SECTION III.B. of the Loan Agreement is hereby amended by the addition
of the following new SECTION III.B. 11. AND 12.:
11. CHFA, INC., FINANCIAL STATEMENTS. Within TEN (10) DAYS after
receipt, cause to be furnished to Bank, in form acceptable to
Bank, after the end of each QUARTERLY FISCAL PERIOD of each
fiscal year, UNAUDITED CONSOLIDATED income and cash flow
statements of CHFA, INC., AND ITS CONSOLIDATED SUBSIDIARIES,
for such period and for the period from the beginning of the
fiscal year to the end of such period, and the related balance
sheets as at the end of such period, setting forth in each
case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year; and
UNAUDITED CONSOLIDATED statements of income and cash flow of
CHFA, INC., AND ITS CONSOLIDATED SUBSIDIARIES, for such year
and the related balance sheets at the end of such year,
setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year.
12. MANAGEMENT LETTERS, RECOMMENDATIONS AND REPORTS. Promptly upon
receipt thereof, furnish to Bank, copies of all management
letters, recommendations and reports, INCLUDING, BUT NOT
LIMITED TO ANY FINANCIAL STATEMENTS RECEIVED IN ADDITION TO
THOSE LISTED IN SECTION III.B. 11. ABOVE, if any, submitted to
CHFA, Inc., and any related entities thereof, by any
independent certified public accountants in connection with
any annual or interim review, compilation or audit of CHFA,
Inc., and any related entities thereof, made by such
accountants.
6. SECTION III. N. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION III. N.:
N. MANAGEMENT CONTINUATION. Borrower agrees that CURRENT
MANAGEMENT shall continue to actively manage and operate
Borrower's business, and acknowledges that the Bank has made
the Loans in
reliance thereon.
7. SECTION III. O. AND P. of the Loan Agreement are hereby deleted in
their entirety.
8. SECTION V.A. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION V.A.:
A. SECURITY/MORTGAGE INTERESTS. Borrower and the other Obligor(s)
named in this Agreement have granted or agree to grant to Bank
on the date of this Agreement, security/mortgage interests in
certain Property as collateral security for the Loans and
repayment of the Indebtedness, among which are the following
Related Documents:
AGREEMENT FOR DIRECT ASSIGNMENT OF NOTE PAYMENTS DATED
SEPTEMBER _____, 1998 PLEDGE AGREEMENT DATED SEPTEMBER _____,
1998 SECURITY AGREEMENT DATED SEPTEMBER _____, 1998
9. SECTION VI.K. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION VI.K.:
K. CANCELLATION OF LETTER OF CREDIT. BORROWER FAILS TO OBTAIN OR
ARRANGE FOR THE RETURN OR CANCELLATION OF THE EXISTING LETTER
OF CREDIT NO. LC-017478-DY, IN THE AMOUNT OF $500,000.00 FROM
THE BENEFICIARY ON OR BEFORE JANUARY 1, 1999.
10. SECTION VIII. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION VIII.:
VIII. CROSS-COLLATERALIZATION/CROSS-DEFAULT.
A. Borrower agrees the Collateral is security for the Loans under
this Agreement and for all other Indebtedness of Borrower to
Bank, whether or not such Indebtedness is related by class or
kind and whether or not contemplated by the parties at the
time of executing each evidence of Indebtedness. Any Borrower
default under the terms of any Indebtedness to Bank shall also
constitute an Event of Default under this Agreement and any
Event of Default under this Agreement shall be a default under
any Indebtedness of Borrower to Bank.
B. Unless Bank otherwise consents in writing, Borrower shall take
the following actions in the event of a default by CHFA, Inc.,
on the secured note (which default is not cured within any
applicable grace period provided for therein): (i) notify
CHFA, Inc., and guarantor in writing of the occurrence of
default and acceleration of the secured note payment
obligations; (ii) initiate and prosecute legal proceedings
against CHFA, Inc., to collect the secured note and enforce
secured note obligations; (iii) initiate and prosecute
foreclosure proceedings with respect to collateral; (iv)
initiate and prosecute legal proceedings against guarantor to
enforce guarantor obligations, and (v) take any and all other
actions as Bank may reasonably direct to assure collection and
payment of the secured note.
11. SECTION IX.L. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION IX.L.:
L. ADDITIONAL COSTS AND EXPENSES AFTER DEFAULT. Borrower
acknowledges and agrees that after an Event of Default the
Bank will incur additional fees, costs and expenses not
included in the Bank's original pricing of the Loans,
including, without limitation, field audits of the Bank's
Collateral, the salary and fringe benefits of the defaulted
loans officer assigned to the Loans, the professional fees of
appraisers, accountants, lawyers, field engineers and other
consultants, and the cost to the Bank of obtaining, verifying
and/or updating property surveys, Environmental Laws reports,
insurance coverages, tax searches, title reports and Uniform
65
<PAGE> 3
Commercial Code search fees, and Borrower agrees to pay all of
said fees, costs and expenses incurred by the Bank, at the
Bank's cost, and authorizes the Bank to charge any of
Borrower's Bank accounts as and when said fees, costs and
expenses are incurred.
12. SECTION IX.M. of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new SECTION IX.M.:
M. COMMITMENT FEE. Borrower hereby agrees to pay to Bank, upon
execution of this Agreement and related documents, a TEN
THOUSAND AND 00/100 DOLLAR ($10,000.00) non-refundable
Commitment Fee.
13. SECTION IX. of the Loan Agreement is hereby amended by the addition of
the following new SECTIONS, IX.N. AND IX.O.:
N. NOTICE OF SALE. Borrower agrees and understands that should
CHFA, Inc., decide to sell CHF, Borrower shall immediately
provide verbal, followed with written, notice to Bank. All
such documentation and issues which would affect the security
being pledged to Bank as stated on, but not limited to, the
Pledge Agreement by and between Borrower and Bank executed on
even date hereof shall be provided to Bank for Bank's review
and approval of same within a reasonable time frame to be
determined by Bank.
O. AGREEMENT. Borrower hereby agrees and understands that this
Loan is subject to the terms and conditions of a certain
Agreement dated August 31, 1998, by and between CHFA, Inc.,
and Bank (the "CHFA Agreement").
14. SECTION XI. of the Loan Agreement is hereby deleted in its entirety and
replaced by the following new SECTION XI.:
XI. ADDITIONAL AGREEMENTS:
SEE THE BUSINESS LOAN AGREEMENT ADDENDUM (LINE OF CREDIT WITH LETTER OF
CREDIT ADVANCES), DATED MARCH 12, 1998, EFFECTIVE AS OF FEBRUARY 1,
1998, AS AMENDED BELOW, FOR ADDITIONAL TERMS AND CONDITIONS.
C. AMENDMENTS TO ADDENDUM TO BUSINESS LOAN AGREEMENT:
1. SECTION I. of the Business Loan Agreement Addendum (Line of Credit with
Letter of Credit Advances) is hereby deleted in its entirety and
replaced by the following new SECTION I.:
I. LINE OF CREDIT LOAN
Under those terms and conditions set forth in the Business
Loan Agreement and in this Addendum, and provided there shall exist no
Event of Default, Bank agrees from time to time, at Borrower's request,
to provide Borrower with Advances in an aggregate amount up to but not
to exceed THE LESSER OF the sum of TWENTY MILLION FOUR HUNDRED FORTY
FOUR THOUSAND TWO HUNDRED FIVE AND 00/100 DOLLARS ($20,444,205.00), or
the maximum of Advances allowable under the Advance Requirement set
forth in Section IV of this Addendum, AND CREDIT ADVANCES UP TO BUT NOT
TO EXCEED FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00), (the
"Line of Credit Loan").
2. SECTION III. of the Business Loan Agreement Addendum (Line of Credit
with Letter of Credit Advances) is hereby deleted in its entirety and
replaced by the following new SECTION III.:
66
<PAGE> 4
III. EXPIRATION OF BANK'S COMMITMENT
Bank's obligation to make any Advance or Credit Advance under
the Line of Credit Loan and Line of Credit Note shall automatically (a)
cease and terminate upon the maturity date stated in the Line of Credit
Note; (b) suspend or terminate (at Bank's option), upon the occurrence
of any Event of Default unless Bank in writing agrees to waive said
Event of Default; AND (C) CREDIT ADVANCE UNDER THE LINE OF CREDIT LOAN
AND LINE OF CREDIT NOTE SHALL AUTOMATICALLY CEASE AND TERMINATE ON
JANUARY 1, 1999, OR BORROWER WILL BE IN DEFAULT. No subsequent Advance
by Bank shall be construed as a waiver by Bank of the benefit of this
provision, nor shall Bank be estopped thereby to refuse any subsequent
Borrower Advance request.
3. SECTION IV. of the Business Loan Agreement Addendum (Line of Credit
with Letter of Credit Advances) is hereby deleted in its entirety and
replaced by the following new SECTION IV.:
IV. ADVANCE REQUIREMENT
All Advances and Credit Advances to Borrower under the Line of
Credit Loan shall be made under the following Advance Requirement:
A. PAY DOWNS AND READVANCES UNDER THE LINE OF CREDIT LOAN WILL BE
ALLOWED TO THE EXTENT THAT THE LOAN HAS BEEN PAID DOWN FROM
CASH FLOW OR ASSET SALES EXCLUDING THE PAYMENT PROCEEDS
RECEIVED FROM CHFA, INC., AND/OR BORROWER FROM THE SALE OF
CORPORATE HEALTH CARE, FINANCING, INC. ("CHF"), PLUS;
B. PAYMENT PROCEEDS, AS STATED ABOVE AND DEFINED IN SECTION X.,
ARE TO BE APPLIED AS PERMANENT REDUCTIONS TO THE BANK'S
COMMITMENT UPON RECEIPT BY BANK, PLUS;
C. BY APRIL 1, 1999, BANK'S COMMITMENT SHALL BE PERMANENTLY
REDUCED TO THE LESSER OF THE THEN OUTSTANDING PRINCIPAL
BALANCE OR $8,000,000.00, PLUS;
D. ON OR BEFORE JANUARY 1, 1999, BORROWER WILL OBTAIN OR ARRANGE
FOR THE RETURN OR CANCELLATION OF THE EXISTING LETTER OF
CREDIT NO.: LC-017478-DY, IN THE AMOUNT OF $500,000.00 FOR THE
ACCOUNT OF OMNICARE HEALTH PLAN OF LOUISIANA, LISTING LIBERTY
BANK AND TRUST AS THE BENEFICIARY, AT WHICH TIME CREDIT
ADVANCE CAPABILITY WILL CEASE TO EXIST.
4. SECTION VI. of the Business Loan Agreement Addendum (Line of Credit
with Letter of Credit Advances) is hereby deleted in its entirety and
replaced by the following new SECTION VI.:
VI. CREDIT ADVANCE PROCEDURE
Subject to Paragraph III above, Credit Advances would be
provided to Borrower through DECEMBER 31, 1998, upon Bank receiving
draft instructions, acceptable to Bank, from Liberty Bank and Trust on
Letter of Credit No. LC-017478-DY, in an amount not to exceed Five
Hundred Thousand and 00/100 Dollars ($500,000.00). Credit Advances
shall be made only under the following terms and conditions:
A. Borrower acknowledges and agrees that the Letter of Credit
issued by Bank for the account of OMNICARE HEALTH PLAN OF
LOUISIANA is subject to all terms and conditions set forth in
the Application including, without limitation, the grant to
Bank of a security interest in such collateral as is
identified in the Business Loan Agreement and/or in the
Application.
B. Borrower shall pay to Bank, for the Letter of Credit issued by
Bank for the account of OMNICARE HEALTH PLAN OF LOUISIANA, all
fees, charges, and expenses specified in Bank's international
department standard fee schedule then in effect including,
without limitation, issuance fees, payment fees, amendment
fees, non-utilization fees, communication and delivery
expenses, and any and all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in defending any
suit or claim brought against the Bank by any Letter of Credit
beneficiary. For each Letter of Credit draft received and
paid by Bank, Borrower's obligation to immediately put Bank in
good funds shall be funded by an Advance under the Line of
Credit Note to the extent unpaid Advances and other open and
outstanding Credit Advances do not exceed the lesser of the
Line of Credit Loan or Advance Requirement, otherwise Borrower
shall immediately pay Bank the entire amount of any Letter of
Credit draft paid by Bank.
5. SECTION VIII.A. of the Business Loan Agreement Addendum (Line of Credit
with Letter of Credit Advances) is hereby deleted in its entirety and
replaced by the following new SECTION VIII.A.:
A. Any Event of Default under the Business Loan Agreement of
which this Addendum is a part, INCLUDING, BUT NOT LIMITED TO
BORROWER'S FAILURE TO OBTAIN OR ARRANGE FOR THE RETURN OR
CANCELLATION OF THE EXISTING LETTER OF CREDIT NO.
LC-017478-DY, ON OR BEFORE JANUARY 1, 1999;
67
<PAGE> 5
6. SECTION DEFINITIONS of the Business Loan Agreement Addendum (Line of
Credit with Letter of Credit Advances) is hereby deleted in its
entirety and replaced by the following new SECTION X. DEFINITIONS:
X. DEFINITIONS
The following terms used in this Addendum shall have the following
meanings:
A. "ADVANCE" or "ADVANCES" shall mean a loan or loans of money
from Bank to Borrower.
B. "ADVANCE REQUIREMENT" shall mean the maximum aggregate
Advances and Credit Advances for which Borrower from time to
time will be eligible under the Line of Credit Loan by
application of the requirements set forth in Section IV above.
C. "CREDIT ADVANCE" shall mean the Bank's liability, direct or
contingent, for or arising under Letter of Credit No.
LC-017478-DY, issued by Bank.
D. "LETTER OF CREDIT" shall have the meaning ascribed to such
term under Article 5 of the Michigan Uniform Commercial Code,
as amended from time to time, as supplemented by the Uniform
Customs and Practice for Documentary Credits, ICC Publication
500, as amended from time to time, PERTAINING TO LETTER OF
CREDIT NO. LC-017478-DY.
E. "PAYMENT PROCEEDS" SHALL MEAN THE PRINCIPAL AND INTEREST
PAYMENTS AS STATED ON A SECURED PROMISSORY NOTE AND UNSECURED
PROMISSORY NOTE BY AND BETWEEN BORROWER AND CHFA, INC.,
PLEDGED TO BANK UNDER A PLEDGE AGREEMENT OF EVEN DATE HEREOF
BY AND BETWEEN BORROWER AND BANK.
D. SURVIVAL:
In all other respects and except as expressly amended, modified or
restated in this Amendment, the Loan Agreement and all of the terms, covenants
and conditions thereof as originally executed and delivered and heretofore
modified and amended are hereby ratified and confirmed in their entirety and
shall remain in full force and effect until all of the Loans, with all accrued
interest thereon, shall be fully paid and satisfied.
E. EFFECT OF AMENDMENT AND CONSTRUCTION WITH LOAN AGREEMENT AND RELATED
DOCUMENTS:
This Amendment shall not be construed as an agreement to substitute a
new obligation or to extinguish an obligation under the Loan Agreement or
Related Documents and shall not constitute a novation as to the obligations of
the parties. If any express conflict shall exist between the agreements of the
parties herein and as set forth in the Loan Agreement or the Related Documents,
this Amendment shall govern and supersede the agreements set forth in the
previous documents. The Loan Agreement and Related Documents shall continue in
full force and effect, and except as above specifically modified and amended,
shall be unamended, unchanged, and unmodified by this Amendment and shall
continue to secure to Bank the repayment and performance of Borrower's
Indebtedness to Bank.
IN WITNESS WHEREOF Borrower and Bank have executed this Amendment on
the date first above written.
BORROWER:
UNITED AMERICAN HEALTHCARE
CORPORATION,
a MICHIGAN CORPORATION
By: /s/ Grgory Moses
Gregory Moses
Its: Chief Operating Officer
AND
By: /s/ Paul G. Samuels
Paul G. Samuels
Its: Interim Chief Financial Officer
(CONTINUED ON THE FOLLOWING PAGE)
BANK:
MICHIGAN NATIONAL BANK,
A NATIONAL BANKING ASSOCIATION
By: /s/ Eric L. Johnson
Eric L. Johnson
Its: Corporate Asset Manager
<PAGE> 1
EXHIBIT 10.48
PROMISSORY NOTE
(LINE OF CREDIT)
THIS PROMISSORY NOTE (LINE OF CREDIT) AMENDS, RESTATES AND DECREASES,
WITHOUT NOVATION OR SATISFACTION, A PROMISSORY NOTE (LINE OF CREDIT
NOTE), NOTE NO. 02007144, DATED MARCH 12, 1998, EFFECTIVE FEBRUARY 1,
1998
$20,944,205.00 Note No.: _______________________
FARMINGTON HILLS, MICHIGAN
Due Date: OCTOBER 1, 1999 Dated: SEPTEMBER 1, 1998
FOR VALUE RECEIVED on the Due Date, the undersigned, jointly and
severally (the "Borrower"), promise to pay to the order of MICHIGAN NATIONAL
BANK, a NATIONAL BANKING ASSOCIATION (the "Bank"), at its office set forth below
or at such other place as Bank may designate in writing, the principal sum of
TWENTY MILLION NINE HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND 00/100
DOLLARS ($20,944,205.00), UNTIL OCTOBER 1, 1998, AT WHICH TIME THE PRINCIPAL
SUMS SHALL BE REDUCED AS FOLLOWS:
(1) AS OF OCTOBER 15, 1998, THE PRINCIPAL SUM SHALL NOT EXCEED TWENTY
MILLION FOUR HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND 00/100
DOLLARS ($20,444,205.00);
(2) AS OF NOVEMBER 15, 1998, THE PRINCIPAL SUM SHALL NOT EXCEED
NINETEEN MILLION NINE HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND
00/100 DOLLARS ($19,944,205.00);
(3) AS OF DECEMBER 15, 1998, THE PRINCIPAL SUM SHALL NOT EXCEED
NINETEEN MILLION FOUR HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND
00/100 DOLLARS ($19,444,205.00);
(4) AS OF JANUARY 15, 1999, THE PRINCIPAL SUM SHALL NOT EXCEED EIGHTEEN
MILLION FOUR HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND 00/100
DOLLARS ($18,444,205.00);
(5) AS OF FEBRUARY 15, 1999, THE PRINCIPAL SUM SHALL NOT EXCEED
SEVENTEEN MILLION NINE HUNDRED FORTY FOUR THOUSAND TWO HUNDRED FIVE AND
00/100 DOLLARS ($17,944,205.00);
(6) AS OF APRIL 15, 1999, THE PRINCIPAL SUM SHALL NOT EXCEED EIGHT
MILLION AND 00/100 DOLLARS ($8,000,000.00); or
such lesser sum as shall have been advanced by Bank to Borrower under the loan
account hereinafter described, plus interest as hereinafter provided, all in
lawful money of the United States of America. The unpaid principal balance of
this promissory note ("Note") shall bear interest computed upon the basis of a
year of 360 days for the actual number of days elapsed in a month, at a rate of
interest (the "Effective Interest Rate") which is equal to:
ONE PERCENT (1.00%) per annum in excess of that rate of interest
established by BANK as its PRIME RATE (the "Index"), as such Index may
vary from time to time. Borrower understands and agrees that the
Effective Interest Rate payable to Bank under this Note shall be
determined by reference to the Index and not by reference to the actual
rate of interest charged by the Bank to any particular borrower(s). If
the Index shall be increased or decreased, the Effective Interest Rate
under this Note shall be increased or decreased by the same amount,
effective upon the day of each increase or decrease in the Index.
Interest on all principal amounts advanced by Bank from time to time
and unpaid by Borrower shall be paid on the FIRST day of OCTOBER, 1998,
and on the FIRST day of each MONTH thereafter.
Advances of principal, repayment, and readvances may be made under this
Note AS STATED ABOVE AND AS SET FORTH IN THE BUSINESS LOAN AGREEMENT ADDENDUM
(LINE OF CREDIT WITH LETTER OF CREDIT ADVANCES), SECTION IV. ADVANCE REQUIREMENT
EXECUTED ON MARCH 12, 1998, EFFECTIVE FEBRUARY 1, 1998, AS AMENDED ON EVEN DATE
HEREOF, from time to time, but Bank, in its sole discretion, may refuse to make
advances or readvances hereunder during any period(s) this Note is in default.
All advances made hereunder shall be charged to a loan account in Borrower's
name on Bank's books, and Bank shall debit to such account the amount of each
advance made to, and credit to such account the amount of each repayment made by
Borrower. From time to time, Bank shall furnish Borrower a statement of
Borrower's loan account, which statement shall be deemed to be correct, accepted
by, and binding upon Borrower, unless Bank receives a written statement of
exceptions from Borrower within ten (10) days after such statement has been
furnished.
<PAGE> 2
This Note may be paid in full or in part at any time without payment of
any prepayment fee. All payments received shall, at the option of the Bank,
first be applied against accrued and unpaid interest and the balance against
principal. Borrower expressly assumes all risks of loss or delay in the delivery
of any payments made by mail, and no course of conduct or dealing shall affect
Borrower's assumption of these risks. Borrower shall not be required to pay
interest at a rate greater than the maximum allowed by law and any interest
payment received by Bank which exceeds the maximum legal rate shall be
automatically credited upon the unpaid principal balance of this Note. If the
Bank determines the Effective Interest Rate is, or may be, usurious or otherwise
limited by law, the unpaid balance of this Note shall, at Bank's option, become
immediately due and payable.
Upon the occurrence of any of the Events of Default DESCRIBED IN THE
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT EXECUTED ON MARCH 12, 1998,
EFFECTIVE FEBRUARY 1, 1998, AS AMENDED ON EVEN DATE HEREOF, the Bank, at its
option, and without FURTHER notice to Borrower, may declare the entire unpaid
principal balance of this Note and all accrued interest, together with all other
indebtedness of Borrower to Bank, to be immediately due and payable.
Upon the occurrence of any Event of Default, or upon non-payment of
this Note after demand, the unpaid principal balance of this Note shall bear
interest at a rate which is two percent (2%) greater than the Effective Interest
Rate otherwise applicable. If any payment under this Note is not paid within ten
(10) days after the date due, at the option of Bank a late charge of not more
than five cents ($.05) for each dollar of the installment past due may be
charged by Bank. In addition to any other security interest granted, Borrower
hereby grants Bank a security interest in all of Borrower's bank deposits,
instruments, negotiable documents, and chattel paper which at any time are in
the possession or control of Bank, and after the occurrence of any Event of
Default, Bank may apply its own indebtedness or liability to Borrower or any
guarantor to any indebtedness due under this Note. Borrower agrees to pay all of
the Bank's costs incurred in the collection of this Note, including reasonable
attorney fees.
Acceptance by Bank of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and Bank's acceptance of
any such partial payment shall not constitute a waiver of Bank's right to
receive the entire amount due. Borrower and all guarantors of this Note do
hereby (I) jointly and severally waive presentment for payment, demand, notice
of non-payment, notice of protest or protest of this Note, any defenses under
3-605 of the Michigan Uniform Commercial Code, the release of any collateral or
part thereof, with or without substitution, and Bank diligence in collection or
bringing suit, and (ii) do hereby consent to any and all extensions of time,
renewals, waivers or modifications as may be granted by Bank with respect to
payment or any other provisions of this Note. The liability of the Borrower
under this Note shall be absolute and unconditional, without regard to the
liability of any other party. This Note shall be deemed to have been executed in
Michigan, and all rights and obligations hereunder shall be governed by the laws
of the State of Michigan.
This Note is secured by:
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT DATED MARCH 12, 1998,
EFFECTIVE FEBRUARY 1, 1998, AS AMENDED BY AN AMENDMENT OF BUSINESS LOAN
AGREEMENT DATED SEPTEMBER 1, 1998
TRI-PARTY AGREEMENT DATED SEPTEMBER 1, 1998
PLEDGE AGREEMENT DATED SEPTEMBER 1, 1998
SECURITY AGREEMENT DATED SEPTEMBER 1, 1998
Reference is hereby made to the document(s) and agreement(s) described
above (the "Related Documents") for additional terms and conditions relating to
this Note.
BORROWER:
UNITED AMERICAN HEALTHCARE
CORPORATION ,
a MICHIGAN CORPORATION
BORROWER ADDRESS:
1155 Brewery Park Blvd. Suite 200 By:_____________________________________
Detroit, Michigan 48207 Gregory Moses
Its: Chief Operating Officer
AND
By:______________________________________
Paul G. Samuels
Its: Interim Chief Financial Officer
Tax ID No.: 38-2526913
----------
BANK ADDRESS:
27777 Inkster Road [10-60]
Farmington Hills, Michigan 48333
<PAGE> 1
EXHIBIT 10.49
PLEDGE AGREEMENT
Date: SEPTEMBER 1, 1998
In this agreement, the words YOU and YOUR mean anyone signing this
agreement, and the words WE, US and OUR mean MICHIGAN NATIONAL BANK, a NATIONAL
BANKING ASSOCIATION, located at 27777 INKSTER ROAD [10-60], FARMINGTON HILLS,
MICHIGAN 48333-9065. The word BORROWER means UNITED AMERICAN HEALTHCARE
CORPORATION, a MICHIGAN CORPORATION, located at 1155 BREWERY PARK BOULEVARD,
SUITE 200, DETROIT, MICHIGAN 48207.
YOUR PROPERTY
In this agreement, the words YOUR PROPERTY means any warehouse receipt,
letter of credit, promissory note, stock, bond, debenture, certificate of
deposit, and any other instrument, document, or security described below, and
any money, stock, bond, dividend, or other security issued directly or
indirectly from such property, all renewals of any certificate of deposit, and
all replacement property as you deliver or cause to be delivered to us from time
to time.
You are delivering to us your property described below:
ALL OF YOUR RIGHTS, TITLE AND INTEREST IN, TO AND UNDER ALL DOCUMENTS
RELATING TO THE STOCK PURCHASE OF CORPORATE HEALTHCARE FINANCING, INC.
("CHF") BY CHFA, INC., FROM BORROWER, INCLUDING, BUT NOT LIMITED TO THE
FOLLOWING:
SECURED PROMISSORY NOTE IN THE AMOUNT OF $13,250,000.00, DATED AUGUST
31, 1998, BY AND BETWEEN CHFA, INC., AS MAKER AND UNITED AMERICAN
HEALTHCARE CORPORATION AS THE PAYEE, INCLUDING BUT NOT LIMITED TO ALL
PAYMENTS OF PRINCIPAL AND ACCRUED INTEREST AS THEY ARE DUE AND PAYABLE
FROM MAKER.
UNSECURED PROMISSORY NOTE IN THE AMOUNT OF $2,500,000.00, DATED AUGUST
31, 1998, BY AND BETWEEN CHFA, INC., AS MAKER AND UNITED AMERICAN
HEALTHCARE CORPORATION AS THE PAYEE, INCLUDING BUT NOT LIMITED TO ALL
PAYMENTS OF PRINCIPAL AND ACCRUED INTEREST AS THEY ARE DUE AND PAYABLE
FROM MAKER.
PLEDGE AGREEMENT DATED AUGUST 31, 1998, BY AND BETWEEN CHFA, INC., AS
THE PLEDGOR AND UNITED AMERICAN HEALTHCARE CORPORATION AS THE SELLER.
SECURITY AGREEMENT DATED AUGUST 31, 1998, BY AND BETWEEN CHFA, INC., AS
DEBTOR AND UNITED AMERICAN HEALTHCARE CORPORATION AS THE SECURED PARTY,
SUPPORTED BY A FINANCING STATEMENT - UCC-1 TO BE FILED IN THE STATE OF
MARYLAND.
GUARANTY AGREEMENT DATED AUGUST 31, 1998, BY AND BETWEEN LOUIS J.
NICHOLAS, AS THE GUARANTOR AND UNITED AMERICAN HEALTHCARE CORPORATION
AS THE BENEFICIARY.
STOCK PURCHASE AGREEMENT DATED AUGUST 31, 1998, BY AND BETWEEN UNITED
AMERICAN HEALTHCARE CORPORATION, THE SELLER; CORPORATE HEALTHCARE
FINANCING, INC., THE COMPANY, AND CHFA, INC., THE PURCHASER.
1,000 SHARES OF CORPORATE HEALTHCARE FINANCING, INC., CERTIFICATE NO.
2, ISSUED TO CHFA, INC., AS OF AUGUST 31, 1998
STOCK POWER DATED AUGUST 31, 1998, RECEIVED AS SECURITY FROM CHFA,
INC., FOR PAYMENT OF THE SECURED PROMISSORY NOTE.
SELLER'S RELEASE DATED AUGUST 31, 1998, BY AND BETWEEN UNITED AMERICAN
HEALTHCARE CORPORATION, THE SELLER; CORPORATE HEALTHCARE FINANCING,
INC., THE COMPANY, AND CHFA, INC., THE PURCHASER.
PURCHASER'S RELEASE DATED AUGUST 31, 1998.
TERMINATION AGREEMENT DATED AUGUST 31, 1998.
TRADEMARK ASSIGNMENT AND ASSUMPTION AGREEMENT DATED AUGUST 31, 1998.
You agree to promptly deliver to us within twenty-one (21) days after your
receipt, all dividends, money, interest, stock dividends, warrants, options,
promissory notes, and all other property, documents, or agreements which you
receive and which are related to any of your property described above and here
delivered to us.
<PAGE> 2
SECURITY INTEREST
By signing this agreement you are pledging and giving us a security
interest in your property described above, in all money and other property
payable or issued directly or indirectly on account of your property, and all
proceeds of your property, to secure the payment to us of all loans or other
obligations owed to us by you or by the borrower, either now or in the future. A
person with a security interest in your property has, among other rights, the
right to sell your property under certain circumstances. You agree to promptly
pay all taxes, fees, and charges concerning the purchase or ownership of your
property. If you do not, we can do so, and you agree to reimburse us for all
amounts we pay, plus interest on those amounts at the same rate of interest
charged to the borrower.
OWNERSHIP OF YOUR PROPERTY
You promise us that you own your property free of any and all claims by
anyone other than you or us, EXCEPT FOR THE RIGHTS OF CHFA, Inc., UNDER THE
TERMS OF THE PLEDGED DOCUMENTS DESCRIBED HEREIN, that no one other than you owns
your property, and that all of the owners of your property have signed this
agreement.
CARE OF YOUR PROPERTY
You agree that we will have taken reasonable care of your property if
we treat it in the same way as we treat our own property of the same kind, but
that we are not responsible for taking any steps necessary to preserve or
protect your rights in your property against any prior or other parties. You
agree that if your property is of a kind which can be registered in our name, we
can at any time register your property in our name or in the name of someone who
holds securities for us, and you agree to sign all documents which we think are
needed to do so.
AUTHORITY TO EXERCISE RIGHTS IN YOUR PROPERTY
In general, you agree that as long as we have possession of your
property, we may do anything concerning your property that you could do, but we
are not required to do so. Without limiting this general power, we, or if we
have your property registered in the name of someone other than you that person,
will have all of your rights in your property (such as the right to vote
securities and the right to receive dividends or interest) but neither we nor
such other person are required to exercise any of those rights on your behalf.
If you have previously given authority to exercise rights in your property to
someone other than us, by signing this agreement you are revoking that authority
previously given. You agree that we can apply any money, such as cash dividends
or interest, which we receive from your property to pay any loans or other
obligations secured by your property, applying this money in any order we
choose, whether or not the loans or other obligations secured by your property
are then due.
MARGIN REQUIREMENTS
You understand and agree that if your property is "margin stock," as
that term is defined in Regulation U of Federal Reserve Board Regulations, and
is pledged to us to directly or indirectly secure the purchase or carrying of
any margin stock, we can not at anytime allow the unpaid balance of borrower's
loan(s) to exceed the maximum loan value prescribed under Regulation U. You
agree that if at any time the loan value of your margin stock exceeds the
maximum loan value allowed under Regulation U, you will immediately reduce or
cause to be reduced the unpaid balance of the loan(s) directly or indirectly
secured by your margin stock, or will immediately pledge to us additional margin
stock, so that the maximum loan value prescribed under Regulation U is not
exceeded.
SALE OF YOUR PROPERTY
You agree that we can sell your property if any event of default occurs
in any loan or other obligation owed us by you or by the borrower, either now or
in the future, is not paid or performed when the payment or performance is due
AND AN EVENT OF DEFAULT IN THE TERMS AND CONDITIONS OF THE SECURED PROMISSORY
NOTE OR UNSECURED PROMISSORY NOTE DESCRIBED HEREIN.
Unless your property is likely to speedily decline in value or is
property commonly sold on a recognized market, we will give you AND CHFA, INC.,
at least seven (7) days written notice before selling your property, sending the
notice by regular mail to your current address shown in our records. Upon your
receipt of our notice that we intend to sell your property, you can redeem it by
paying in full all loans, obligations, and costs secured by your property, prior
to sale of your property. Upon our sale of your property, we will apply the sale
proceeds to pay any attorney fees and other costs and expenses we have incurred
on the loans or obligations secured by your property, and then to the loans or
other obligations secured by your property, in any order we choose. If there is
a surplus remaining after applying the proceeds from sale of your property to
our fees, costs, and expenses and to the loans and obligations secured by your
property, we will promptly return the surplus to you.
You understand that our ability to sell your property may be limited
because of special laws and regulations applying to the sale of securities. You
agree to do anything we think is needed to help us sell
<PAGE> 3
your property, whether needed because of these special laws and regulations or
for any other reason, and you agree that we will have a continuing power of
attorney to sign your name on any document necessary to sell your property if
any of the events listed in 1. through 5. above occur.
CHANGE OF ADDRESS/NOTICE TO US
If your address changes, you agree to promptly notify us in writing of
your new address. Any notice you give us must be in writing and must be sent to
our address shown in this agreement.
NO NOTICE OR LOSS OF RIGHTS
You agree that we may, but are not required to, notify you if any loan
or obligation secured by your property is not paid or performed, and that we can
exercise any of our rights without losing any other rights against you or your
property. You agree that we can do any of the following without notifying you or
losing any rights against you or your property:
1. Allow additional time for payment or otherwise amend any loan
agreements with the borrower;
2. Delay exercising any rights against you, the borrower, your
property, and any other person or property;
3. Fail to protect or enforce our interest in any of your
property.
ATTORNEY'S FEES AND COURT COSTS
If we hire an attorney to enforce or defend our rights in your
property, to perform any legal services in connection with the holding or sale
of your property, or in connection with the loans or obligations secured by your
property, you agree to pay us reasonable attorney fees and any court costs which
we have to pay.
OTHER AGREEMENTS
Any changes in this agreement must be in writing and signed by you and
by us. This agreement is the complete agreement between you and us concerning
the security interest in your property given by this agreement and supersedes
all prior agreements, written or oral. If any part of this agreement is
determined to be invalid, the rest of this agreement will remain in effect. All
questions about this agreement will be decided according to Michigan law.
AGREEMENT TERMINATION
This agreement will end when we return all of your property described
in the beginning of this agreement. We will return your property to you at such
time as neither you nor the borrower is indebted or otherwise obligated to us.
YOUR RESPONSIBILITY
You and everyone else signing this agreement will be, individually and
together, liable under it, and you understand that we can sue you to enforce
this agreement even if we do not sue anyone else. You agree that you have read,
understand, and agree to be bound by all of the provisions of this agreement.
You also agree that we have provided you an opportunity for review of this
agreement with legal counsel of your choice before signing this agreement.
UNITED AMERICAN HEALTHCARE
CORPORATION,
a MICHIGAN CORPORATION
By:________________________________________
Gregory Moses
Its: Chief Operating Officer
AND
By:_________________________________________
Paul G. Samuels
Its: Interim Chief Financial Officer
74
<PAGE> 1
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
United American of Tennessee, Inc, a Tennessee Corporation, and its 75% owned
subsidiary, OmniCare Health Plan, Inc.
77
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FILES
AS PART OF THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,259,000
<SECURITIES> 1,431,000
<RECEIVABLES> 9,992,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,557,000
<PP&E> 16,895,000
<DEPRECIATION> (10,797,000)
<TOTAL-ASSETS> 58,684,000
<CURRENT-LIABILITIES> 39,657,000
<BONDS> 0
0
0
<COMMON> 10,715,000
<OTHER-SE> (134,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,081,000
<SALES> 105,588,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 124,324,000
<LOSS-PROVISION> 6,825,000
<INTEREST-EXPENSE> 1,796,000
<INCOME-PRETAX> (27,357,000)
<INCOME-TAX> (4,442,000)
<INCOME-CONTINUING> (22,915,000)
<DISCONTINUED> (2,581,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,496,000)
<EPS-PRIMARY> (3.88)
<EPS-DILUTED> (3.88)
</TABLE>
