<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
Commission file number 1-11568
----------------
UNIVERSAL SELF CARE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4228470
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11585 Farmington Road.
Livonia, Michigan 48150
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (313) 261-2988
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Check 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, $.0001
Par Value, as of September 30, 1997 was 9,724,579 shares.
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
------
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet - September 30, 1997
and June 30, 1997 3
Consolidated Statement of Operations - For the three
months ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows - For the
three months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 14 - 15
PART II - OTHER INFORMATION 15
Asset Purchase Agreement 15
SIGNATURE 16
2 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1997 1997
------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 471,658 $ 541,814
Accounts receivable, net allowance for doubtful accounts
of $2,347,967 and $2,261,684, respectively 8,552,235 10,241,191
Inventories 461,437 551,692
Prepaid expenses 74,200 111,910
------------ ------------
TOTAL CURRENT ASSETS 9,559,530 11,446,607
------------ ------------
PROPERTY AND EQUIPMENT
net of accumulated depreciation of $696,399 and $618,017, respectively 964,729 956,446
INTANGIBLE ASSETS, net of
net of accumulated amortization of $ 889,999 and $806,265, respectively 5,762,663 5,847,321
DEPOSITS AND OTHER ASSETS 41,706 48,356
------------ ------------
$ 16,328,628 $ 18,298,730
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,416,705 $ 5,319,625
Notes payable - current portion 206,528 208,126
Accrued liabilities 2,533,325 1,976,419
State audit reserves 700,000 700,000
Payroll taxes payable 75,252 113,632
------------ ------------
TOTAL CURRENT LIABILITIES 7,931,810 8,317,802
LONG TERM NOTES PAYABLE, net of current portion 207,083 262,916
REVOLVING CREDIT LOAN 3,675,823 4,365,410
REDEEMABLE PREFERRED STOCK, Series A 1,686,324 1,829,658
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series B Cumulative Convertible, $.0001 par value,
10,000,000 shares authorized, 1,580,000 shares issued and outstanding 505,000 505,000
Common stock, $.0001 par value, 40,000,000 shares authorized, 9,724,579
shares issued and outstanding as of September 30, 1997 972 972
Additional paid-in capital 14,045,838 14,045,838
Accumulated earnings/(deficit) (11,724,222) (11,028,866)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,827,588 3,522,944
------------ ------------
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,328,628 $ 18,298,730
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 3 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
1997 1996
--------------------------------
REVENUES $8,258,138 $9,212,566
COST OF GOODS SOLD 4,884,197 5,363,823
---------- ----------
GROSS PROFIT 3,373,941 3,848,743
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,875,907 3,812,673
---------- ----------
OPERATING INCOME/( LOSS) (501,966) 36,070
OTHER EXPENSES:
Interest expense, net 143,391 200,492
---------- ----------
NET INCOME/( LOSS) $ (645,357) $ (164,422)
========== ==========
NET INCOME/(LOSS) PER SHARE $ (0.07) $ (0.02)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 9,724,579 7,888,006
See notes to consolidated financial statements.
Page 4 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended September 30,
--------------------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- -----------
Net income/( loss) $ (645,357) $ (164,422)
---------- -----------
Adjustments to reconcile net income/(loss)
to net cash from operating activities:
Depreciation and amortization 163,040 158,841
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivables 1,688,956 (17,258)
Decrease (Increase) in inventories 90,255 (160,382)
Decrease (Increase) in prepaid expenses 37,710 (117,747)
Decrease in deposits and other assets 6,650 17,688
(Increase) in intangible assets (7,664) -
(Decrease) increase in accounts payable (902,921) (1,253,834)
Increase (Decrease) in accrued liabilities 556,906 (585,611)
(Decrease) in payroll taxes payable (38,380) (532,395)
---------- -----------
Total adjustments 1,594,552 (2,490,698)
---------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES 949,195 (2,655,120)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (78,999) (38,382)
---------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (78,999) (38,382)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance/(Repayments) of related party loans - (15,000)
Borrowing of revolving credit line - 3,000,000
Repayment of revolving credit line (689,589) (110,191)
Net proceeds from (repayment of) long-term debt (57,431) (102,370)
Dividends paid on Series A Preferred Stock (49,998) (53,664)
Redemption of Series A Preferred Stock (143,334) (91,336)
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (940,352) 2,627,439
---------- -----------
NET INCREASE (DECREASE) IN CASH (70,156) (66,063)
CASH AT BEGINNING OF PERIOD 541,814 91,066
---------- -----------
CASH AT END OF PERIOD $ 471,658 $ 25,003
========== ===========
See notes to consolidated financial statements.
Page 5 of 16
<PAGE>
UNIVERSAL SELF CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the annual report on form 10-KSB of Universal Self
Care, Inc. (the "Company") dated October 14, 1997 for the year ended June 30,
1997.
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented.
Except as otherwise disclosed, all such adjustments are of a normal and
recurring nature. The results of operations for any interim period are not
necessarily indicative of the results attainable for a full fiscal year.
2. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share are based on the weighted average number of
common shares and common share equivalents outstanding during the period after
giving effect for preferred stock dividends during the period.
3. CONTINGENCIES
DEPARTMENT OF HEALTH SERVICES
The Company has undergone an audit by representatives of the State of
California, State Controller's Office, Division of Audits. The purpose of the
audit was to determine the level of the Company's compliance with the guidelines
of the California Department of Health Services (Medi-Cal) and the California
State Board of Equalization. Representatives from the State Controller's Office
have raised the issue of whether the Company may have practiced two-tier pricing
policies in the charges to it's customers which are not in conformance with
Medi-Cal regulations. Under such regulations, a company may not charge any
customer prices less than those charged to the Medi-Cal program. Based upon
Management's independent review, the Company maintains that it has conformed
with pricing regulations because its prices are consistent within each of its
operating subsidiaries, Sugar Free and Home Therapy, and because these two
subsidiaries are offering different services. The Company's Management further
believes that the Medi-Cal program was charged the "prevailing prices" charged
for supplies, and that those charges were in compliance with current
regulations, and that the Representatives from the Controller's Office compared
prices for different services with different delivery methods. The State
Controller's Office contends that the reimbursement was paid for products, and
not for services, so the difference in pricing was not warranted based upon the
services rendered in conjunction with the products delivered. In July 1994, the
State Controller's Office issued an Auditor's Report with findings to the
Department
6 of 16
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of Health Services ("DHS") for the period beginning July 1, 1990 through June
30, 1993. The Report recommends a recovery of approximately $1.3 million due to
such alleged two-tier pricing. In November 1994 the State Controller's Office
issued Letter of Demand for the recovery of such amounts due. In November 1994,
the Company appealed the audit determination made by the State Controller's
Office. In January 1996 a hearing was held before an Administrative Law Judge.
In July 1996 the Judge recommended that the overpayment determination be upheld.
In August 1996 the DHS adopted the recommendation of the Law Judge as the final
decision of the Director of DHS. In January 1997 the Company filed an appeal to
the decision with the Superior Court for the County of Los Angeles. The Company
intends to vigorously contest any recovery by the State with respect to such
alleged improper pricing practices for services rendered.
Based upon the above contingency, the Company has provided a reserve, in the
event that a defense of its position does not prevail, of $700,000. Management
believes that a total estimated settlement amount of $700,000, or 54% of the
maximum amount demanded, is reasonable under the circumstances with respect to
this matter.
CALIFORNIA STATE BOARD OF EQUALIZATION
The Company has also undergone an audit by the California State Board of
Equalization ("SBE") as a result of separate findings made by the State
Controller's Office (see Department of Health Services above). The SBE has
disagreed with the Company's policies regarding its sales tax payments on
certain items. The SBE has maintained that blood glucose meters, testing strips
and finger-prick lancets are taxable items. The Company has taken the position
that these items are exempt from sales tax because they were provided pursuant
to a doctor's prescription and furthermore, they are part of an integrated
treatment for providing insulin and insulin syringes, items which are
specifically exempt from sales tax in California. In addition, the Company
maintains that a portion of the revenues earned from the sales of diabetic
supplies were non-taxable services rendered as a separate and distinct charge.
On January 6, 1997 the SBE issued a Notice of Determination of $860,004 for the
period July 1, 1989 through September 30, 1993. Of this amount, penalties of
$69,170 were subsequently waived. Additionally, interest has accrued on this
assessment of $186,330. The Company filed for appeal of this assessment. The
matter was referred to the SBE settlement department and Company management
determined that it would be in the Company's best interest to arrive at a final
negotiated settlement amount. On April 24, 1997, the Company agreed to a
settlement of this matter for a total amount of $980,000. Of this amount,
$50,000 had previously been paid. Of the remaining $930,000, $691,695 is
associated with taxes and $238,305 is associated with accrued interest. On
August 1, 1997 the members of the Board of Equalization tentatively approved the
Settlement Agreement signed by the Company on April 24, 1997. Under the terms
of the settlement, the full $930,000 accepted in settlement will be payable in
installments: $300,000 was paid on September 8, 1997, and $63,000 was paid on
September 30, 1997, and $63,000 was paid on October 31, 1997, and monthly
installments of $63,000 to be paid on the last day of each succeeding month
until the liability, plus accrued interest, is repaid through June 30, 1998.
7 of 16
<PAGE>
MEDICARE PART B
The Company has undergone an audit by Medicare covering the charges
submitted for reimbursement in the Western region (Region D) during the period
January 1, 1994 through December 31, 1995. Medicare determined that an
overpayment to the Company may have occurred as a result of the use of a
superseded diagnosis code on claims submitted. The claims in question were
originally submitted to Medicare in order to gain a denial of charges so that an
alternative carrier could be validly billed, since a denial is required by
certain intermediaries prior to billing for certain charges. Medicare may have
inappropriately made reimbursements on these charges. In November 1996 Medicare
issued a demand for refund of $795,702 plus interest of $35,475. In January
1997 Medicare began to offset the Company's claims for payment, and the
interest charged to the Company's account. The balance claimed, in the most
recent correspondence from Medicare to be owed by the Company on March 31, 1997
was $808,887, of which $795,701 was principal and $22,290 was accrued interest.
The Company rebilled Medi-Cal $732,853 in February and in March $62,849.
Company management feels that the ultimate settlement to Medicare will not have
a material impact on earnings since the Company will collect any amounts paid to
Medicare out of amounts collected after rebillings to Medi-Cal.
Patient Care Services was previously the subject of an investigation by
Medicare for (i) Medicare's alleged overpayment for products and services
provided by Patient Care Services and (ii) Medicare's payment to Patient Care
Services for claims which were allegedly not properly subject to Medicare
reimbursement. During fiscal 1995, Medicare withheld $300,766 of payments due
for claims reimbursement to cover previously estimated liabilities resulting
from this investigation. A further assessment in the amount of $78,500
resulting from a continuation of this investigation has been made, and that
amount withheld in July 1996. The Company went through an in-person hearing on
May 28, 1997 to contest Medicare's aggregate $379,000 of withheld
reimbursements, and on July 28, 1997 the Company received a partially favorable
Hearing Decision. The Company received a refund on October 31, 1997, for
$30,314 from Medicare Part B based upon the partially favorable Hearing
Decision. The Company's intends to appeal the partially unfavorable amount of
$348,686 from the Hearing Officer's decision and has retained counsel to contest
the decision in proceedings before an administrative law judge.
4. REVOLVING LINE OF CREDIT
In August, 1996, the Company entered into an accounts receivable funding
agreement with Healthpartners Funding, L.P. ("Healthpartners") under which the
Company is able to borrow up to $4,500,000 against its qualified accounts
receivable. Qualified accounts are generally defined as those which are less
than 91 days old and are due from a third-party payee source (i.e. Medicare,
Medicaid or commercial insurance) as opposed to those that are payable directly
by patients. Of the total credit facility, $1,500,000 has been specifically
allocated by the lender towards payment of the final settlement amount of the
California audit and is unavailable to the Company for other purposes. The base
rate applicable to outstanding principal amounts is prime + 2.2%. The term of
the agreement is three years. Outstanding
8 of 16
<PAGE>
principal under the agreement is secured by a first priority lien against
substantially all of the Company's accounts receivable.
On September 1, 1996, the Company transacted for the initial draw under
this agreement, the maximum available amount of $3,000,000. Substantially all
such funds were immediately expended by the Company for the repayment of past
due payroll taxes, past due accounts payable and certain short-term notes
payable.
The agreement contains certain other covenants, including but not limited
to, a deterioration in the Company's financial condition. The agreement also
forbids the payment of dividends on the Company's common stock. A violation of
such covenants gives the lender the right to immediately call the loan.
On November 4, 1996, HealthPartners amended the Loan Agreement ("Amendment
No. 1") to reduce the initial reserve of $1,500,000 to $100,000 and to make
available to the Company a maximum loan amount of $4,500,000. In consideration
for the supplemental $1,400,000 in financing, HealthPartners was issued warrants
to acquire 225,000 shares of common stock at a exercise price $2.25 per share
expiring March 18, 2002.
On March 14, 1997, HealthPartners amended the Loan Agreement ("Amendment
No. 2") to make available an increase in the $4,500,000 line of credit to a
maximum of $7,500,000 through June 18, 1997. In consideration for the three
month increase in the line of credit, the Company paid additional administrative
fees to HealthPartners of $ 10,000.00.
On June 20, 1997, HealthPartners amended the Loan Agreement ("Amendment
No. 3") to make available an increase in the $4,500,000 line of credit to a
maximum of $6,200,000 through September 22, 1997. In consideration for the
three month increase in the line of credit, the Company paid additional
administrative fees to HealthPartners of $ 15,000.00.
On September 25, 1997, HealthPartners amended the Loan Agreement
("Amendment No. 4") which contained a financial covenant that the Company will
achieve net income of at least $500,000 for its fiscal year ending June 30,
1997. The Loan Agreement ("Amendment No. 4") now contains a financial covenant
which requires that the Company's net income for its fiscal year ended June 30,
1998 be no lower than $0 (zero). In consideration for the waiver, the Company
paid additional administrative fees to HealthPartners of $ 2,500.00.
On November 6, 1997, Gainor Medical Management, L.L.C. entered into a
Security Agreement with Diabetes Self Care, Inc. and USCI Healthcare Management
Solutions. The Company's inventory will secure the obligation for products
purchased by Gainor on the Company's behalf.
5. ASSET PURCHASE AGREEMENT
On November 14, 1997, Gainor Medical Management, LLC and its
wholly-owned acquisition subsidiary ("Gainor"), and the Company, its
principal operating subsidiaries and its principal management stockholders
entered into an Asset Purchase Agreement (the "Agreement") to sell
substantially all of its assets to Gainor (the "transaction") for
approximately $37,000,000; $17,000,000 in cash at closing; and approximately
$20,000,000 in the form of a minimum 5-year note bearing interest, payable
quarterly, at 7% through December 31, 1998 and 8% thereafter (the "Note").
Closing is subject to several conditions, including but not limited to the
Company's receipt of a satisfactory "fairness" opinion with respect to the
terms of the Transaction, approval of the Transaction by the Company's
stockholders, and Gainor's receipt of satisfactory financing for the
Transaciton. In addition to offsets for damages incurred by Gainor that are
indemnifiable under the terms of the Agreement, principal of the Note is
subject to reduction in the event that Gainor does not achieve certain
revenue levels from operation of the acquired assets during calendar 1998 and
Gainor is not able to collect at least $5,000,000 from the accounts
receivable sold to Gainor as part of the Transaction during the one-year
period succeeding the closing. The Company anticipates consummation of the
Transaction in January 1998.
The following pro forma consolidated financial statements have been
prepared to show the proposed disposition of all of Universal Self Care, Inc.
and Subsidiaries' (the "Company") operating assets in a sale transaction to
Gainor Medical Management, LLC ("Gainor").
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of the Company at September 30, 1997 as if the
proposed sale had occurred on such date. Included are adjustments to record the
value of the consideration paid to the Company, the disposition of assets sold,
and liabilities assumed the write-off of intangible assets connected with the
disposed operations and the settlement of a substantial portion of the remaining
liabilities.
The unaudited pro forma consolidated statements of operations for the year
ended June 30, 1997 and three months ended September 30, 1997 reflect the
Company in a non-operating mode after the disposition, whereupon certain
corporate general and administrative expenses will remain with the Company and
the Company's income will consist of interest collected upon the note issued in
the sale and on excess cash, as if the sale had occurred on July 1, 1996.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the sale
occurred on July 1, 1996, nor may it be indicative of future operations. These
unaudited pro forma consolidated financial statements should be read in
conjunction with the Company's historical financial statements and notes
thereto.
9 of 16
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UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
BALANCE AT PRO FORMA ADJUSTMENTS
SEPTEMBER 30, ------------------------------
1997 DEBIT CREDIT TOTAL
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash............................................ $ 471,658(1) $ 13,130,970(3) $ 4,241,300 $ 9,361,328
Accounts receivable, net allowance for doubtful
accounts of $2,347,967........................ 8,552,235 (1) 8,552,235 --
Inventories..................................... 461,437 (1) 461,437 --
Prepaid expenses................................ 74,200 (1) 74,200 --
--------------- -------------
TOTAL CURRENT ASSETS........................ 9,559,530 9,361,328
-------------
LONG--TERM NOTES RECEIVABLE..................... (1) 20,000,000 20,000,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $696,729...................... 964,729 (1) 964,729 --
INTANGIBLE ASSETS, net of accumulated
amortization of $889,999...................... 5,762,663 (2) 5,762,663 --
DEPOSITS AND OTHER ASSETS....................... 41,706 (1) 41,706 --
--------------- --------------- ------------- -------------
$ 16,328,628 $ 33,130,970 $ 20,098,270 $ 29,361,328
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 4,416,705(1) $ 4,416,705 $ $ --
Notes payable--current portion................ 206,528 206,528
Accrued liabilities........................... 2,533,325(1) 795,711 1,172,137
(3) 565,477
State audit reserves 700,000 700,000
Payroll taxes payable........................... 75,252 75,252
Accrued income tax payable--current portion..... (1) 1,500,000 1,500,000
--------------- -------------
TOTAL CURRENT LIABILITIES.................. 7,931,810 3,653,917
LONG-TERM NOTES PAYABLE, net of current
portion....................................... 207,083 207,083
REVOLVING CREDIT LOAN........................... 3,675,823(3) 3,675,823 --
DEFERRED INCOME TAXES PAYABLE--long term
portion....................................... (1) 6,000,000 6,000,000
REDEEMABLE PREFERRED STOCK, Series A............ 1,686,324 1,686,324
STOCKHOLDERS' EQUITY
Preferred stock, Series B Cumulative
Convertible, $.0001 par value, 10,000,000
shares authorized, 1,580,000 shares issued
and outstanding............................. 505,000 505,000
Common stock, $.0001 par value 40,000,000
shares authorized, 9,724,579 shares issued and
outstanding as of September 30, 1997........ 972 972
Additional paid-in capital.................... 14,045,838 14,045,838
Retain earnings (deficit)..................... (11,724,222)(2) 5,762,663(1) 20,749,079 3,262,194
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY.................. 2,827,588 17,814,004
--------------- --------------- ------------- -------------
$ 16,328,628 $ 15,216,379 $ 28,249,079 $ 29,361,328
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
10 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PRO FORMA ADJUSTMENTS
SEPTEMBER 30, -------------------------------
1997 DEBIT CREDIT TOTAL
------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES............................... $ 8,258,138 (1) $ 8,258,138 $ $ --
COST OF GOODS SOLD..................... 4,884,197 (1) 4,884,197 --
--------------- ------------
GROSS PROFIT........................... 3,373,941 --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................. 3,875,907(3) 279,250(1) 3,875,907 279,250
------------------- ------------
OPERATING INCOME (LOSS)................ (501,966) (279,250)
------------------- ------------
OTHER INCOME (EXPENSES)
Interest (expense), net.............. (143,391) (1) 133,051 (10,340)
IRS interest on deferred installment
gain............................... -- (4) 87,500 (87,500)
Interest income...................... -- (2) 437,920 437,920
------------------- ------------
TOTAL OTHER INCOME (EXPENSES)........ (143,391) 340,080
------------------- ------------
NET INCOME INCOME (LOSS) BEFORE INCOME
TAXES................................ (645,357) 60,830
PROVISION FOR INCOME TAXES............. -- (5) 24,332 24,332
------------------- -------------- -------------- ------------
NET INCOME (LOSS)...................... $ (645,357) $ 8,649,220 $ 9,331,075 $ 36,498
------------------- -------------- ------------- ------------
------------------- -------------- ------------- ------------
NET INCOME (LOSS) PER SHARE............ $ (0.07) $ 0.00
------------------- ------------
------------------- ------------
WEIGHTED AVERAGE SHARES................ 9,724,579 9,724,579
------------------- ------------
------------------- ------------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
11 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA ADJUSTMENTS
JUNE 30, -------------------------------
1997 DEBIT CREDIT TOTAL
------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES............................... $ 34,001,626(1) $ 34,001,626 $ $ --
COST OF GOODS SOLD..................... 19,981,506 (1) 19,981,506 --
-------------------
GROSS PROFIT........................... 14,020,120 --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................. 15,798,780(3) 1,117,000(1) 15,798,780 1,117,000
------------------- ------------
OPERATING INCOME (LOSS)................ (1,778,660) (1,117,000)
------------------- ------------
OTHER INCOME (EXPENSES)
Interest (expense), net.............. (874,572) (1) 833,211 (41,361)
IRS interest on deferred
installment gain................... (4) 350,000 (350,000)
Interest income...................... -- (2) 1,739,618 1,739,618
------------------- ------------
TOTAL OTHER INCOME (EXPENSES)...... (874,572) 1,348,257
------------------- ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES......................... (2,653,232) 231,257
PROVISION FOR INCOME TAXES............. -- (5) 92,503 -- 92,503
------------------- -------------- -------------- ------------
NET INCOME (LOSS)...................... $ (2,653,232) $ 35,561,129 $ 38,353,115 $ 138,754
------------------- -------------- -------------- ------------
------------------- -------------- -------------- ------------
NET INCOME (LOSS) PER SHARE............ $ (0.33) $ 0.02
------------------- ------------
------------------- ------------
WEIGHTED AVERAGE SHARES................ 8,084,278 8,084,278
------------------- ------------
------------------- ------------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
12 of 16
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro-forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at
September 30, 1997:
(1) To record the sale of all the Company's operating assets with
assumption by the buyer of certain accounts payable totaling
$4,416,705 and accrued expenses of $795,711. The sale price is
assumed to be $37 million, constituted as follows: $17 million
cash (as decreased for the assumption of accounts payable and
accrued expenses totaling $5,212,416 and increased for the book
value of inventory, property and equipment and prepaid and other
assets) and a $20 million note receivable payable over a minimum
of 5 years, bearing interest at 7% for the first year and 8%
thereafter. The estimated gain on sale is $28,249,079. The
estimated tax impact to the Company is $7.5 million (after
consideration of the Company's net operating loss carry
forwards).
(2) To write off all remaining goodwill and intangible assets related
to the Company's operations upon the disposal.
(3) To utilize a portion of cash receipts from the sale to pay off
the revolving credit loan and amount due on the California sales
tax audit settlement.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statement of operations for the year
ended June 30, 1997 and three months ended September 30, 1997, which
have been prepared to reflect the sale as if it had occurred on
July 1, 1996:
(1) To eliminate the operations of the disposed business from the
Company's statement of operations.
(2) To record interest income at an annual rate of 7% on the $20
million note receivable, and 6% on the remaining cash.
(3) To record estimated general corporation expenses of $1,117,000
on an annual basis.
(4) To record IRS interest on deferred installment gain.
(5) To record provision of income tax.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in the Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (THE "1997 THREE MONTH PERIOD") as
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (THE "1996 THREE MONTH
PERIOD")
Revenue for the 1997 Three Month Period was $8,258,138, a decrease of
$954,428, or 10% from the 1996 Three Month Period. A contributing factor to the
decrease is the discontinuance of sales to certain unprofitable customers,
approximately $475,000 in net revenue in the 1997 Three Month Period, but which
discontinuance only reduced revenue by $108,000 in the 1996 Three Month Period.
Customer refunds increased $339,000 in the 1997 Three Month Period from the 1996
Three Month Period.
Total cost of goods sold during the 1997 Three Month Period were
$4,884,197, representing costs of approximately 59% of revenue for the period,
while total cost of goods sold for the 1996 Three Month Period were $5,363,823
or approximately 58% of revenue. This one point unfavorable variance as a
percentage of revenue is in part the result of customer refunds as mentioned
above, offset by favorable product discounts from various vendors, as well as
reduced sales of less profitable products and services. Additionally, the
Company continues to realize favorable variances regarding total cost of
packaging. Total packaging costs in the 1997 Three Month Period were $63,000
compared to $83,000 in the 1996 Three Month Period.
Selling, general and administrative expenses during the 1997 Three Month
Period increased to $3,875,907 or 47% of revenue, as compared to $3,812,673 or
41% of revenue during the 1996 Three Month Period. Contributing to this
unfavorable variance is partially due to an increase in accrual for bad debt
expense for the 1997 Three Month Period which is 7% of revenue, as compared to
2% in the 1996 Three Month Period, due to recent prior experience. The combined
costs of payroll and fringe benefits, including sales commissions, increased by
2% during the 1997 Three Month Period over the 1996 Three Month Period. This is
partially due to
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the one year waiver of income of Messrs. Bookmeier, Korby, and Gietzen which
ended May 1, 1997.
Other expenses include late fees and finance charges, which decreased by
$90,133 during the 1997 Three Month Period over the 1996 Three Month Period.
Interest expense also decreased by $35,173 during the 1997 Three Month Period
over the 1996 Three Month Period. These decreases were primarily due to the
Healthpartners Funding, L.P. ("Healthpartners") line of credit, which enabled
the Company to significantly reduce short term payables in a timely manner.
Net loss for the 1997 Three Month Period of $645,357 is primarily
attributable to the increase in selling, general and administrative expenses,
bad debt reserve and other factors identified above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had working capital of $1,627,720,
compared to working capital of $3,128,805 at June 30, 1997. The decrease in
working capital during the 1997 Three Month Period is primarily due to a
combination of the decrease in net accounts receivable of $1,688,956, repayment
of the revolving credit line $689,588, the redemption of Series A payments of
$143,334 and the net loss of $645,357.
Cash provided by operations during the 1997 Three Month Period was $949,195
as compared to cash used by operations of $2,655,120 during the 1996 Three Month
Period. This improvement is primarily attributable to, a net reduction in
accounts receivables as mentioned above, a net decreases of inventory on hand, a
net increase in accounts payable and accrued expenses as compared to the changes
which occurred in the 1996 Three Month Period.
On November 14, 1997, Gainor Medical Management, LLC and its
wholly-owned acquisition subsidiary ("Gainor"), and the Company, its
principal operating subsidiaries and its principal management stockholders
entered into an Asset Purchase Agreement (the "Agreement") to sell
substantially all of its assets to Gainor (the "transaction") for
approximately $37,000,000; $17,000,000 in cash at closing; and approximately
$20,000,000 in the form of a minimum 5-year note bearing interest, payable
quarterly, at 7% through December 31, 1998 and 8% thereafter (the "Note").
Closing is subject to several conditions, including but not limited to the
Company's receipt of a satisfactory "fairness" opinion with respect to the
terms of the Transaction, approval of the Transaction by the Company's
stockholders, and Gainor's receipt of satisfactory financing for the
Transaciton. In addition to offsets for damages incurred by Gainor that are
indemnifiable under the terms of the Agreement, principal of the Note is
subject to reduction in the event that Gainor does not achieve certain
revenue levels from operation of the acquired assets during calendar 1998 and
Gainor is not able to collect at least $5,000,000 from the accounts
receivable sold to Gainor as part of the Transaction during the one-year
period succeeding the closing. The Company anticipates consummation of the
Transaction in January 1998.
PART II - OTHER INFORMATION
1. ASSET PURCHASE AGREEMENT
On November 14, 1997, Gainor Medical Management, LLC and its
wholly-owned acquisition subsidiary ("Gainor"), and the Company, its
principal operating subsidiaries and its principal management stockholders
entered into an Asset Purchase Agreement (the "Agreement") to sell
substantially all of its assets to Gainor (the "transaction") for
approximately $37,000,000; $17,000,000 in cash at closing; and approximately
$20,000,000 in the form of a minimum 5-year note bearing interest, payable
quarterly, at 7% through December 31, 1998 and 8% thereafter (the "Note").
Closing is subject to several conditions, including but not limited to the
Company's receipt of a satisfactory "fairness" opinion with respect to the
terms of the Transaction, approval of the Transaction by the Company's
stockholders, and Gainor's receipt of satisfactory financing for the
Transaciton. In addition to offsets for damages incurred by Gainor that are
indemnifiable under the terms of the Agreement, principal of the Note is
subject to reduction in the event that Gainor does not achieve certain
revenue levels from operation of the acquired assets during calendar 1998 and
Gainor is not able to collect at least $5,000,000 from the accounts
receivable sold to Gainor as part of the Transaction during the one-year
period succeeding the closing. The Company anticipates consummation of the
Transaction in January 1998.
5. Exhibits and reports on form 8-K
(a) Exhibits
10.1 Asset Purchase Agreement, dated November 14, 1997, by and
between Gainor Medical Management, LLC, the Company and
certain of its subsidiaries, and certain stockholders of the
Company.
27.0 Financial data schedule
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SIGNATURE
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
it's behalf by the undersigned, thereunto duly authorized.
UNIVERSAL SELF CARE, INC.
BY: /S/ Brian Bookmeier
------------------------
BRIAN BOOKMEIER
PRESIDENT
Date: November 19, 1997
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EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
between
GAINOR MEDICAL MANAGEMENT, LLC,
GAINOR MEDICAL ACQUISITION COMPANY
and
UNIVERSAL SELF CARE, INC.,
its Subsidiaries
CLINISHARE DIABETES CENTERS, INC.
PHYSICIANS SUPPORT SERVICES, INC.
USC-MICHIGAN, INC.
PCS, INC. - WEST
DIABETES SELF CARE, INC.
and
USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC.
and Certain of its Stockholders,
BRIAN D. BOOKMEIER
EDWARD T. BUCHHOLZ
MATTHEW B. GIETZEN
and
ALAN M. KORBY
November 14, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), dated as of November __,
1997, is by and among UNIVERSAL SELF CARE, INC., a Delaware corporation
("Universal"), each of its wholly owned subsidiaries, CLINISHARE DIABETES
CENTERS, INC., a California corporation, PHYSICIANS SUPPORT SERVICES, INC., a
California corporation, USC-MICHIGAN, INC., a Michigan corporation, its
wholly owned subsidiary, PCS, INC. - WEST, a Michigan corporation, DIABETES
SELF CARE, INC., a Virginia corporation, USCI HEALTHCARE MANAGEMENT
SOLUTIONS, INC., a Delaware corporation, and certain of the stockholders of
Universal, BRIAN D. BOOKMEIER, EDWARD T. BUCHHOLZ, MATTHEW B. GIETZEN, and
ALAN M. KORBY (individually, each a "Stockholder" and collectively, the
"Stockholders"), on the one hand, and GAINOR MEDICAL MANAGEMENT, LLC ("Gainor
Management"), a Georgia limited liability company, and its subsidiary GAINOR
MEDICAL ACQUISITION COMPANY, a Georgia corporation ("Gainor Acquisition", and
collectively with Gainor Management, "Gainor"), on the other hand. The
Selling Companies (as herein defined) desire to sell the Transferred Assets
(as herein defined) to Gainor, and Gainor desires to buy the Transferred
Assets from the Selling Companies, on the terms and subject to the conditions
contained herein. Therefore, in consideration of the mutual representations,
warranties, covenants and agreements, and upon and subject to the terms and
the conditions hereinafter set forth in this Agreement, the parties do hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
"Accepted Contracts" means the contracts of the Selling Companies listed on
Schedule A hereto.
"Accounting Standards" means GAAP and where not inconsistent with GAAP, the
prior reasonable accounting practices of the Universal Entities as specified in
the Disclosure Memorandum.
"Affiliates" of a particular Person means other Persons controlled by,
controlling, or under common control with, such Person.
"Assigned Contracts" means those contracts of the Purchased Companies listed in
Schedule A hereto.
"Beneficiaries" is defined in Section 3.21(a).
"Bill of Sale" means the instrument in the form of Exhibit A attached hereto to
be executed and delivered at the Closing pursuant to which certain Transferred
Assets will be conveyed to Gainor Acquisition.
<PAGE>
"Charter Documents" means the articles or certificate of incorporation and
bylaws of each of the Universal Entities.
"Closing" means the consummation of the purchase and sale of the Transferred
Assets under the terms of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Closing Balance Sheets" is defined in Section 2.6(b).
"Closing Net Asset Value" is defined in Section 2.2(a).
"Contract Assignment Agreement" means the instrument in the form of Exhibit B to
be executed and delivered at Closing pursuant to which the Purchased Companies
will assign certain contracts to Universal, and the Selling Companies will
assign certain contracts to the Purchased Companies.
"Designated Official" means Mark J. Gainor, or any other person designated by
Gainor as a "Designated Official".
"Disclosure Memorandum" means the memorandum executed and delivered by the
Universal Entities and the Stockholders contemporaneously with the execution and
delivery of this Agreement containing information required to be disclosed under
this Agreement.
"Employees" means the employees of the Universal Entities.
"Employee Benefit" refers to employment related obligations of the Universal
Entities, including all actual or contingent liabilities relating to
unemployment, health, injury, death and retirement as well as any and all items
of a similar nature.
"Employment Agreement" means the instrument in the form of Exhibit C attached
hereto to be executed and delivered at the Closing regarding the employment by
Gainor Acquisition of Edward T. Buchholz.
"Encumbrance" means any mortgage, charge (whether fixed or floating), security
interest, pledge, claim, right of first refusal, lien (including, without
limitation any unpaid vendor's lien), option, hypothecation, title retention or
conditional sale agreement, lease, option, restriction as to transfer, use or
possession, easement, subordination to any right of any other person, and any
other encumbrance on the absolute and unfettered use and ownership of any asset
or property.
"Environmental Law" includes any statute, law, code, regulation, order, notice,
rule, ordinance, or any requirement, restriction, limitation, condition or
obligation contained therein, including any and all plans, orders, decrees,
judgments, and notices issued, entered, promulgated, or approved thereunder,
purporting to regulate the use, misuse, pollution or preservation of land, air
and water resources including but not limited to those purporting to regulate
building and planning, industrial buildings, plants or equipment, and health or
safety, only as such are directly related to environmental matters.
"Excluded Assets" means assets of the Selling Companies specifically identified
as Excluded Assets on Schedule A hereto, including without limitation all of the
outstanding shares of stock of each of the Selling Companies.
"Excluded Contracts" means all contracts of all Universal Entities other than
the Accepted Contracts.
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"GAAP" means generally accepted accounting principles consistently applied.
"Gainor Agreements" shall mean, collectively, this Agreement, the Gainor
Assumption Agreement, the Employment Agreement and the Note.
"Gainor Assumed Liabilities" means the liabilities of the Selling Companies
specifically identified on Schedule A hereto as Gainor Assumed Liabilities and
all liabilities incurred in connection with the operation of Universal's
Business by Gainor after the Closing.
"Gainor Assumption Agreement" means the instrument in the form of Exhibit D
attached hereto to be executed and delivered at the Closing pursuant to which
Gainor Acquisition will assume the Gainor Assumed Liabilities.
"Gainor's Business" means the business conducted by Gainor and its Affiliates of
the design, assembly and distribution of micro-sampling products and the
marketing, sale and distribution of diabetic supplies.
"Gainor Financial Statements" means the audited consolidated balance sheets of
Gainor Management as of December 31, 1996 and the related audited consolidated
statements of income, cash flows and shareholder's equity for the year then
ended and the unaudited consolidated balance sheets of Gainor Management as of
September 30, 1997 and the related unaudited consolidated statements of income
and cash flows for the nine months then ended.
"Hazardous Material" means any hazardous substance or any pollutant or
contaminant defined or included as such in (or for the purposes of) any
Environmental Law.
"Interim Financial Statements" means the unaudited consolidated and
consolidating balance sheet of the Universal Entities as of September 30, 1997,
and the related unaudited consolidated and consolidating statements of income,
cash flow and shareholder's equity for the three-month period then ended,
prepared by management of Universal or anyone under the direction of the
management of Universal.
"Knowledge of Universal" or "Universal's Knowledge" (or words of similar import)
refers, with respect to each Universal Entity, to all those things known after
reasonable inquiry by the directors and officers of such Universal Entity about
the thing or things in question.
"Knowledge of Stockholders" or "Stockholders' Knowledge" (or words of similar
import) refers to all those things known after reasonable inquiry by the
Stockholders.
"Material Adverse Effect" means a material adverse effect (i) on the business,
assets, financial condition or prospects of either the Selling Companies taken
as a consolidated whole, or either of the Purchased Companies, (ii) on the
relationship of any Universal Entity with any material customer or supplier,
(iii) on any material Universal Contract, or (iv) on the transactions
contemplated herein.
"Note" is defined in Section_2.3(b).
"Permitted Encumbrance" means an Encumbrance identified as a "Permitted
Encumbrance" in the Disclosure Memorandum.
"Person" means a corporation, partnership, trust, limited liability company,
other business entity or an individual.
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<PAGE>
"Plans" is defined in Section 3.21(a).
"Post Closing Revenue" is defined in Section 2.7(a).
"Preliminary Balance Sheets" is defined in Section 2.3(a).
"Proxy Statement" means the proxy statement to be used by Universal in
connection with the meeting at which the stockholders of Universal will be asked
to approve the transactions set forth herein.
"Purchased Companies" means USCI Healthcare Management Solutions, Inc. and
Diabetes Self Care, Inc.
"Purchased Shares" means all of the issued and outstanding equity interests of
each of the Purchased Companies.
"Rule" means any law, statute, rule, regulation, order, court decision, judgment
or decree of any federal, state, territorial, provincial or municipal authority.
"Section 338(h)(10) election" means an election described in Section_338(h)(10)
of the Code with respect to Universal's sale of the Purchased Shares to Gainor
Acquisition pursuant to this Agreement. Section_338(h)(10) Election shall also
include any substantially similar election under a state or local statute
corresponding to Federal laws.
"Section 338 forms" means all returns, documents, statements, and other forms
that are required to be submitted to any Federal, state, county or other local
taxing authority in connection with a Section 338(g) Election or a
Section 338(h)(10) Election. Section 338 forms shall include, without
limitation, any "statement of Section 338 election" and United States Internal
Revenue Service Form 8023 (together with any schedules or attachments thereto)
that are required pursuant to Treas. Reg. Section 1.3381 or Treas. Reg. Section
1.338(h)(10)1.
"Selling Companies" means collectively Universal and all of the Subsidiaries
other than the Purchased Companies.
"Stock Powers" means the stock transfer powers executed by Universal in blank
pursuant to which the Purchased Shares will be transferred to Gainor
Acquisition.
"Subsidiary" means any corporation, limited liability company, partnership,
joint venture or other legal entity, 50% or more of the capital stock or equity
of which is owned by Universal or any other Subsidiary of Universal, and shall
expressly include, without limitation, each of Clinishare Diabetes Centers,
Inc., a California corporation, Physicians Support Services, Inc., a California
corporation, USC-Michigan, Inc., a Michigan corporation, PCS, Inc. - West, a
Michigan corporation, Diabetes Self Care, Inc., a Virginia corporation, and USCI
Healthcare Management Solutions, Inc., a Delaware corporation.
"Tax" or "Taxes" means all forms of levies, taxes, customs and other duties
normally deemed to be of a fiscal or customs nature, including but not limited
to (a) all taxes levied, imposed or assessed under the Internal Revenue Code of
1986, as amended, or any rule, in the U.S. or elsewhere; (b) taxes in the nature
of sales tax, consumption tax, value added tax, payroll tax, group tax,
undistributed profits tax, fringe benefits tax, recoupment tax, withholding tax,
land tax, water rates, municipal rates, stamp duties, gift duties or other
state, territorial, provincial or municipal charges or impositions levied,
imposed or collected by any governmental body; and (c) any
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<PAGE>
additional tax, interest, penalty, charge, fee or other amount of any kind
assessed, charged or imposed in relation to the non-, late, short or
incorrect payment of the same or the failure to file any return.
"Trademark Assignments" means the instruments substantially in the form of
Exhibit E hereto to be executed and delivered at Closing pursuant to which all
trademarks included in the Transferred Assets will be assigned by Universal to
Gainor.
"Transferred Accounts" means those bank accounts listed on Schedule A.
"Transferred Assets" means all right, title and interest of the Selling
Companies in, to and under all of their respective properties and assets
(tangible or intangible, real or personal, fixed or contingent, owned directly
or indirectly, including but not limited to all trademarks, the goodwill
associated therewith and the right to sue for past infringements thereof),
including but not limited to the Purchased Shares, and excluding the Excluded
Assets.
"Transferring Employee" means each Employee to whom Gainor makes an offer of
employment and who accepts such offer.
"Universal Agreements" means, collectively, this Agreement, the Bill of Sale,
the Trademark Assignment, and the Universal Assumption Agreement.
"Universal Assumed Liabilities" means all the liabilities of the Purchased
Companies other than (a) liabilities retained by the Purchased Companies on and
after the Closing consisting of performance obligations under all contracts of
the Purchased Companies other than the Assigned Contracts, and those liabilities
of the Purchased Companies shown on the Closing Balance Sheets, and (b) all
liabilities that arise in connection with the operation of Universal's Business
by Gainor that arise after the Closing and are attributable to acts or omissions
occurring after the Closing.
"Universal Assumption Agreement" means the instrument in the form of Exhibit F
attached hereto to be executed and delivered at the Closing pursuant to which
Universal will assume the Universal Assumed Liabilities.
"Universal Financial Statements" means the audited consolidated and unaudited
consolidating balance sheets of the Universal Entities as of June 30, 1996 and
1997, and the related audited consolidated and unaudited consolidating
statements of income, cash flows and shareholder's equity for the three years
ended June 30, 1995, 1996 and 1997, together with all footnotes, annexes and
schedules thereto, accompanied by the audit reports of Feldman Radin & Co.,
P.C., together with the Interim Financial Statements, and all notes thereto, all
of which balance sheets, statements of income and cash flow, reports and notes
have been attached to and incorporated into the Disclosure Memorandum.
"Universal Representative" means Brian D. Bookmeier, a Stockholder acting as the
representative of each of the Stockholders for purposes of this Agreement.
"Universal Contracts" means all contracts, leases, agreements, indentures,
licenses, mortgages, commitments or binding arrangements or relationships
pursuant to which any Universal Entity is either a party or a third party
beneficiary.
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<PAGE>
"Universal Entity" means Universal and each Subsidiary; and "Universal Entities"
means, collectively, Universal and all Subsidiaries.
"Universal Permits" is defined in Section 3.18.
"Universal Premises" means the real estate (including fixtures, buildings and
other improvements thereon) at the addresses listed in the Disclosure Memorandum
owned or leased by a Universal Entity, as indicated therein.
"Universal Properties" is defined in Section 3.12(e).
"Universal's Business" means the business currently conducted by all of the
Purchased Companies, and any remaining business currently conducted by the
Selling Companies, namely the marketing, sale and retail distribution of
diabetic supplies, and the services related thereto, and disease management
programs and services.
"Warranty" means any representation of warranty of the Universal Entities and
Stockholders in this Agreement and in each certificate or other document
delivered by them or on their behalf in connection with this Agreement.
ARTICLE 2
TERMS OF TRANSACTION
2.1 Purchase and Sale of Transferred Assets. Upon the terms and
subject to the conditions of this Agreement, at the Closing Gainor Acquisition
shall purchase the Transferred Assets from Selling Companies and Selling
Companies shall sell, transfer and assign the Transferred Assets to Gainor
Acquisition.
2.2 Consideration. In consideration of the sale, transfer and
assignment to Gainor Acquisition of the Transferred Assets and Universal's
assumption of the Universal Assumed Liabilities, Gainor Acquisition shall:
(a) pay the Selling Companies the sum of
(i) $17 million; plus
(ii) an amount equal to 75% of the Post Closing Revenue (as
defined in Section 2.5(b)) or $20 million, whichever is less, plus
(iii) the sum (whether positive or negative) of (1) the cash
shown on the Closing Balance Sheets, (2) the lesser of the book value
or the net realizable value at Closing of all inventory shown on the
Closing Balance Sheets, and (3) the agreed value at Closing (as
determined in accordance with Section 2.6(a) below) of all other
tangible assets shown on the Closing Balance Sheets (excluding
accounts receivable, prepaid expenses, deposits and other like kind
assets, intercompany receivables, loan receivables, and Excluded
Assets), less (4) the book value at Closing of the Gainor Assumed
Liabilities required to be listed in a balance sheet, prepared in
accordance with GAAP, less (5) all liabilities of the Purchased
Companies shown on the Closing Balance Sheets, and less (6) the amount
of the pledge by the Universal Entities to the American Diabetes
Association (the aggregate of (1)-(6) being referred to herein as
the "Closing Net Asset Value"); and
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<PAGE>
(b) assume the Gainor Assumed Liabilities.
2.3 Payment. The Purchase Price (which is subject to a post-closing
adjustment as set forth in Section 2.5 below) shall be paid as follows:
(a) At the Closing, Gainor Acquisition shall make a cash payment
by wire transfer of immediately available funds to the bank account of
Universal's choice equal to $17 million plus the Closing Net Asset Value.
For the purpose of the Closing, the Closing Net Asset Value shall be
estimated based upon a preliminary unaudited consolidated closing balance
sheet for the Selling Companies and separate unaudited closing balance sheets
for each of the Purchased Companies, each as of the Closing Date, which shall
be prepared by or on behalf of Universal in accordance with the Accounting
Standards and delivered to Gainor at the Closing. Such preliminary balance
sheets shall show detail sufficient to allow a preliminary determination of
the Closing Net Asset Value (the "Preliminary Balance Sheets").
(b) At the Closing, Gainor Management shall deliver to Universal a
subordinated promissory note substantially in the form of Exhibit G hereto
(the "Note") in the principal amount of $20 Million, having a term of at
least 5 years and 1 day, but no more than 6 years, with interest payable
quarterly at the rate of 7% per annum through December 31, 1998, and 8% per
annum thereafter, and all principal due and payable on the maturity date.
Upon determination of the Post Closing Revenue under Section 2.5(b), the
principal amount of the Note shall be reduced to the lessor of (i) $20
million or (ii) 75% of the Post Closing Revenue. Gainor shall have the right
to offset against any amount of principal or interest due under the Note any
amount to which Gainor is entitled under any claim for indemnification made
by Gainor against Universal hereunder, as determined in accordance with
Section 6.9 hereof. The Note shall be convertible into equity securities of
Gainor to the extent set forth therein.
1.1 The Closing.
(c) The Closing shall take place, subject to the satisfaction or
waiver of the conditions set forth herein in the offices of Nelson Mullins
Riley_& Scarborough, L.L.P., Atlanta, Georgia or in such other place as the
parties may agree upon in writing, on a date to be mutually agreed upon by
the parties provided, however, that the Closing shall take place not later
than ten (10) business days following stockholder approval and ratification
of this Agreement and the transactions contemplated hereby at the Universal
Stockholders Meeting described in Section 6.16 hereof.
(d) At the Closing, Universal shall execute and deliver to Gainor,
in substantially the forms attached hereto or otherwise in a form reasonably
acceptable to Gainor:
(i) certificates representing all of the Purchased Shares
along with the Stock Powers;
(i) the Preliminary Balance Sheets;
(ii) the Bill of Sale;
(iii) the Contract Assignment Agreement;
(iv) the Universal Assumption Agreement;
(v) the Trademark Assignments;
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(vi) all business and financial files and records of each
Selling Company (including but not limited to all customer lists,
payment records, financial statements and all other information, files
and records) which are required to operate Universal's Business after
the Closing as it was run by the Universal Entities prior to the
closing;
(ii) signature cards for bank accounts of each of the
Transferred Accounts;
(i) releases of all Encumbrances on all Transferred Assets;
(iii) the resignations of all of the directors and officers
of the Purchased Companies, effective as of the Closing Date;
(iv) the Purchased Companies' original corporate minute books;
(vii) all other corporate records of the Purchased Companies;
and
(viii) legal opinions of counsel to each of the Universal
Entities concerning, among other things, the organization and authority
of the Universal Entities, the Purchased Companies' authorized and
outstanding capital stock, the due authorization, execution and
delivery of this Agreement and each other agreement and instrument to
be delivered by the Stockholders and the Universal Entities hereunder,
the transfer of the Purchased Shares, the transfer of the Transferred
Assets, the Assumption of the Universal Assumed Liabilities, and other
reasonable and customary matters.
(e) At the Closing, in addition to payment of the Purchase Price
as set forth in Section 2.3, Gainor shall execute and deliver to Universal,
in substantially the forms attached hereto or otherwise in a form reasonably
acceptable to Universal:
(i) the Gainor Assumption Agreement;
(ix) the Contract Assignment Agreement;
(ii) the Note; and
(iii) legal opinions of counsel to each of Gainor Acquisition
and Gainor Management covering, among other things, the organization
and authority of each of Gainor Acquisition and Gainor Management, the
due authorization, execution, delivery, and enforceability of this
Agreement and each other agreement and instrument to be delivered by
Gainor hereunder, the Assumption of the Gainor Assumed Liabilities,
and other reasonable and customary matters.
(f) At the Closing, Gainor Acquisition and Edward T. Buchholz shall
execute and deliver the Employment Agreement.
(g) At the Closing, the Purchased Companies shall execute and deliver
the Contract Assignment Agreement.
1.2 Post-Closing Adjustment in Purchase Price.
(a) Within five business days after the final determination of the
Closing Net Asset Value under Section 2.6(b) below, if the final Closing Net
Value Asset shown in the Closing Balance Sheets is lower than the preliminary
Closing Net Asset Value shown in the Preliminary
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Balance Sheets, the principal amount of the Note shall be reduced (following
the procedure given in Section 2.7) by the amount of such difference, and if
the final Closing Net Asset Value shown in the Closing Balance Sheets is
greater than the preliminary Closing Net Asset Value shown in the Preliminary
Balance Sheets, the principal amount of the Note shall be increased
(following the procedure given in Section 2.7) by an amount equal to such
difference.
(b) Upon determination of the Post Closing Revenue (as defined
below), the principal amount of the Note shall be adjusted to equal the
lesser of (i) $20 million or (ii) 75% of the Post Closing Revenue following
the procedure set forth in Section 2.7. "Post Closing Revenue" shall mean
the gross revenues of the Purchased Companies for calendar year 1998, less
sales taxes, allowable adjustments and other sales adjustments, all
determined in accordance with GAAP. In the event that the Purchased
Companies are consolidated with other of Gainor's businesses or companies,
then the Post Closing Revenue shall exclude revenue from then existing
customers of such other businesses and companies, but the revenue of
customers of both the Purchased Companies and the consolidated businesses or
companies shall be included in Post Closing Revenue. By February 1, 1999,
Gainor shall deliver to Universal a statement showing the Post Closing
Revenue. Universal shall review such statement and shall, within 10 days of
receipt of such statement, notify Gainor in writing of any objections
thereto. If Universal fails to give such notice by such time, Universal
shall be deemed to have agreed with the statement as delivered. If Universal
gives such notice by such time, Gainor and Universal shall then have 10
business days after such notice to agree on the Post Closing Revenue. If
Gainor and Universal are not able to agree by such time, such statement will
be submitted to Ernst & Young, LLP, Atlanta, Georgia (or any successor
accounting firm), who shall have responsibility for determining the correct
Post Closing Revenue, under GAAP, within 30 days following such submission.
Ernst & Young, LLP's (or any such successor accounting firm's) determination
shall be final and binding on Gainor and Universal. The costs of any such
determination shall be shared equally by Gainor and Universal.
(c) Twelve months following the Closing, the principal amount of
the Note shall be reduced (following the procedure set forth in Section 2.7)
in the event and to the extent that the amount by which collections of the
trade accounts receivable shown on the Closing Balance Sheet shall be less
than $5 million during that 12 month period.
1.3 Determination of Value of Tangible Assets and Closing Net Asset Value
(h) Not later than 20 business days prior to the Closing, Gainor
and Universal shall agree upon the value of all of the tangible assets of the
Universal Entities to be included on the Closing Balance Sheets (excluding the
Excluded Assets). If Gainor and Universal are unable to agree by such time,
then the parties shall cause an appraisal to be made of such tangible assets by
an independent third party appraiser acceptable to both parties. The value so
determined shall be reflected on the Preliminary and Final Closing Balance
Sheets. The cost of such appraisal shall be shared equally by Gainor and
Universal.
(i) Not later than 20 business days after the Closing, Universal
shall prepare or cause to be prepared audited balance sheets as of the Closing
Date, in accordance with the Accounting Standards and consistent with prior
years' reasonable accounting practices, on a consolidated basis
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for the Selling Companies and separate balance sheets for each of the
Purchased Companies, in detail sufficient to allow the determination of the
Closing Net Asset Value (the "Closing Balance Sheets"). All intercompany
receivables and payables shall be satisfied and "zeroed out" on the Closing
Balance Sheets. Upon completion of the Closing Balance Sheets, Universal
shall deliver a copy of the Closing Balance Sheets to Gainor, who shall
review the Closing Balance Sheets and notify Universal in writing of any
objections thereto within 45 days after receiving them. If Gainor fails to
give such notice by such time, Gainor shall be deemed to have agreed with the
Closing Balance Sheets as delivered. If Gainor gives such notice by such time,
Gainor and Universal shall then have 10 business days after such notice to
agree on the Closing Net Asset Value. If Gainor and Universal are not able to
agree by such time, the Closing Balance Sheets will be submitted to Ernst &
Young, LLP in Atlanta, Georgia (or any successor accounting firm), who shall
have responsibility for determining the correct Closing Net Asset Value, under
the Accounting Standards and consistent with prior years' reasonable accounting
policies, within 30 days following such submission. Ernst & Young, LLP's (or
any such successor accounting firm's) determination shall be final and binding
on Gainor and Universal. The costs of any such determination shall be shared
equally by Gainor and Universal.
2.4 Note Adjustment. If any adjustment is required to be made to the Note
hereunder, the principal amount of the Note shall be reduced or increased, as
the case may be, by (a) the amount of such adjustment, plus (b) the total of
all interest paid on the amount of the adjustment through the date of such
adjustment, or the total of all interest that would have been paid on the
amount of the adjustment from the Closing Date through the date of such
adjustment, as the case may be. Upon any reduction of or increase in the Note,
Universal shall promptly annotate the Note to reflect such reduction or
increase and deliver to Gainor a copy of the Note so annotated. Adjustments
may be made separately or with other adjustments, and all adjustments shall be
cumulative.
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES
OF UNIVERSAL ENTITIES
To induce Gainor to execute, deliver and perform this Agreement, and in
acknowledgment of Gainor's reliance on the following Warranties, each of the
Universal Entities hereby jointly and severally represents and warrants to
Gainor as follows as of the date hereof and as of the Closing.
3.1 Organization of Universal Entities.
(a) Each Universal Entity is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation and has all
requisite power and authority, corporate or otherwise, to carry on and conduct
its business as it is now being conducted and to own or lease its properties
and assets. Except as set forth in the Disclosure Memorandum, or where the
failure to properly and timely file would have a Material Adverse Effect, all
documents required to be filed with any government entity with respect to
each Universal Entity have been properly and timely filed.
(b) Except as disclosed in the Disclosure Memorandum, no Universal
Entity has been, is currently being, or a result of the consummation of the
transactions contemplated herein will be
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(i) subject to any bankruptcy or insolvency related procedure in respect of
part or all of its assets, or (ii) involuntarily liquidated. Except as
specified in the Disclosure Memorandum, no Rule and no provision of any
Charter Document, or any agreement of any Universal Entity would require any
Universal Entity to be wound up or dissolved after the Closing Date whether as
a result of capital impairment of the Universal Entity or otherwise.
(c) The Disclosure Memorandum sets forth (i) the name, address and
jurisdiction of organization of each Universal Entity, (ii) every entity in
which any Universal Entity owns any of the outstanding equity, directly or
indirectly, (iii) the equity interest in such entity that is owned by such
Universal Entity, and (iv) each such entity's respective jurisdiction of
organization.
(d) The Disclosure Memorandum includes a true, complete and correct
copy of all of the Charter Documents for each of the Purchased Companies and
Universal has delivered to Gainor a true, complete and correct copy of each of
the Charter Documents and all minutes of shareholders' and directors' meetings
or written consents in lieu of such meetings for the Purchased Companies, all
as in effect on the date hereof. The minutes of directors' and stockholders'
meetings of each Universal Entity that have previously been delivered to Gainor
are the complete, true, valid and correct records of directors' and
stockholders' meetings through and including the date hereof and, reflect all
transactions and other matters required to be reflected in such records, as
well as such other matters customarily contained in records of such type.
(e) The current officers and directors of each Universal Entity
are listed in the Disclosure Memorandum.
(f) Except as set forth in the Disclosure Memorandum, since June 30,
1997, the Selling Companies (other than Universal) have not been engaged in
the Universal Business or any other corporate activity.
3.2 Power and Authority of Universal Entities. Other than the approval
of Universal's stockholders (which is a condition to Universal's and Gainor's
obligations hereunder) and other than as set forth in the Disclosure
Memorandum or except where the failure to obtain a consent, approval,
authorization or estoppel would not have a Material Adverse Effect, each
Universal Entity has obtained all necessary consents, approvals,
authorizations or estoppels of any other Person or governmental or regulatory
authority required to be obtained to execute and perform under this Agreement
and to authorize and permit the Universal Entities to transfer, or cause to
be transferred, to Gainor all of the Transferred Assets. The execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by
all necessary action, corporate or otherwise, on the part of each Universal
Entity required to take such action and except as set forth in the Disclosure
Memorandum will not without the giving of notice or the lapse of time, or
both (i) violate or conflict with any of the provisions of any Charter
Document; (ii) violate, conflict with or result in a breach or default under
or cause termination of any term or condition of any mortgage, indenture,
contract, license, permit, instrument, trust document, or other agreement,
document or instrument to which any Universal Entity is a party or by which
any Universal Entity or any of its properties may be bound; (iii) violate any
Rule the result of which would have a Material Adverse Effect; or (iv) result
in the creation or imposition of any material Encumbrance upon any asset of
any Universal Entity. This Agreement has been duly and validly executed by
each Universal
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Entity and constitutes each such parties legal, valid and binding obligation,
enforceable in accordance with its terms, except to the extent that its
enforceability is limited by bankruptcy, insolvency, reorganization or other
laws relating to or affecting the enforcement of creditor's rights generally
or by general principals of equity.
1.4 Ownership of the Shares. Universal owns, of record and
beneficially, good, valid and marketable title to the Purchased Shares, the
Purchased Shares are validly issued and are free and clear of any
Encumbrances, with no defects of title whatsoever, and Universal has full and
exclusive power, right and authority to vote and transfer the Purchased
Shares. Except as disclosed in the Disclosure Memorandum, other than the
Purchased Shares, Universal owns no capital shares of any Purchased Company
and has no right to acquire any such shares. Except as disclosed in the
Disclosure Memorandum, no Person (other than Universal) owns any capital
shares of any Purchased Company, no Person has any right to acquire any such
shares and there are no Encumbrances on any such shares. Upon consummation
of the Closing, Gainor Acquisition shall obtain good, valid and marketable
title to the Purchased Shares, free and clear of all Encumbrances, with no
defects of title whatsoever, and shall have full and exclusive power, right
and authority to vote the Purchased Shares. Universal is not a party to or
bound by any agreement affecting or relating to its right or obligation to
transfer or vote the Purchased Shares.
3.3 Issued Shares.
(a) The number of issued and outstanding shares or other equity
interests of each Universal Entity are set forth in the Disclosure
Memorandum. The number of shares of Universal owned by each Stockholder is
set forth in the Disclosure Memorandum. Universal owns all outstanding
shares of each of the Subsidiaries, with the exception of PCS, Inc.-West,
which is a wholly-owned subsidiary of USC-Michigan, Inc. All of such shares
and interests are validly issued. All issuances, transfers or purchases of
all such shares and interests have been in compliance with all applicable
agreements and all applicable Rules, and all Taxes thereon have been paid.
There are no shares or other capital interests held in the treasury of any
Universal Entity. Universal has full power, right and authority to vote all
of the shares and other interests of each Subsidiary, with the exception of
PCS, Inc.-West. USC-Michigan, Inc. has the full power, right and authority to
vote all of the shares and other interests of PCS, Inc.-West. All of the
shares of each Universal Entity are validly issued and are free and clear of
any Encumbrances, with no defects of title whatsoever.
(b) Except as set forth in the Disclosure Memorandum, no increase
in the capital of any Purchased Company has been agreed, resolved or
promised, nor is in the process of being effected, and none will be through
Closing. No instrument or security whatsoever which may, whether by
exchange, subscription, conversion or in any other manner, give right to
share capital or voting rights as to any Purchased Company has been issued,
resolved or promised.
1.5 Absence of Other Claims. Except as set forth in the
Disclosure Memorandum, there is not outstanding, nor is any Purchased Company
bound by, any subscriptions, options, preemptive rights, warrants, agreements
or rights of any character requiring such Purchased Company to issue or
transfer any of its shares or other equity interests, or any of the Purchased
Shares, including any right of conversion or exchange under any outstanding
security or other instrument. There are no
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outstanding obligations of any Purchased Company to repurchase, redeem or
otherwise acquire any of its outstanding shares or other equity interests.
1.6 Compliance with Law. No Universal Entity has violated any order of
any court, governmental authority, arbitration board or tribunal to which it
is or was subject, nor is any Universal Entity in violation of any Rule the
violation of which would have a Material Adverse Effect. Except as set forth
in the Disclosure Memorandum, (i) since June 30, 1992 no Universal Entity has
been the subject of an audit, investigation, or other enforcement action by
Medicare, any Medicaid agency of any state, MediCal, any intermediary or
agent of any state or local governmental entity, or other healthcare
regulatory bodies, and (ii) since June 30, 1994, no fines, assessments,
penalties or other amounts have been paid by any Universal Entity to or
withheld by Medicare, any Medicaid agency of any state, MediCal, any
intermediary or agent of any state or local governmental entity or other
healthcare regulatory bodies because of a violation of a Rule promulgated by
any such body.
1.7 Financial Matters. The Universal Financial Statements, as provided
to Gainor, including the footnotes thereto are complete, have been prepared
in accordance with the Accounting Standards, consistently applied, and fairly
present the financial position of the Universal Entities as of the dates
thereof and the results of their operations for the respective periods
thereof. The Universal Financial Statements contain all disclosures required
under the Accounting Standards as of the dates of, and for the periods
covered by, the Universal Financial Statements. Since June 30, 1992, the
books and records of each Universal Entity have been maintained in accordance
with the Accounting Standards.
1.8 Indebtedness. The Disclosure Memorandum sets forth a complete and
accurate list and description of all instruments or other documents relating
to any direct or indirect indebtedness for borrowed money of each Universal
Entity, as well as indebtedness by way of lease-purchase arrangements,
guarantees, undertakings on which others rely in extending credit, and all
conditional sales contracts, pledges and other security arrangements with
respect to personal property used or owned by such Universal Entity. Except
as expressly set forth in the Disclosure Memorandum, no Universal Entity is
in material default with respect to any indebtedness aggregating $30,000 or
more or, to the knowledge of Universal, any other indebtedness.
1.9 No Undisclosed Liabilities. Except as and to the extent reflected
and adequately reserved against on the Interim Balance Sheets or as shown in
the Disclosure Memorandum, no Universal Entity has any liabilities or
obligations whatsoever, whether accrued, absolute, contingent or otherwise,
in excess of $20,000.
3.4 Tax Matters.
(c) Tax Reserves. The amount of the Universal Entities'
liabilities for unpaid Taxes for all periods ending on or before the date of
this Agreement do not, in the aggregate, materially exceed the amount of the
current liability accruals for Taxes with respect to each Universal Entity,
as such accruals are reflected in the Interim Balance Sheets; and the amount
of any Universal Entity's liability for unpaid Taxes for all periods ending
on or before the Closing does not, in the aggregate, exceed the amount of the
current liability accruals for Taxes as shown on the Interim Balance Sheet
for each respective Universal Entity.
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(d) Tax and Employee Benefit Returns. Except as set forth in the
Disclosure Memorandum, any and all the Universal Entities have correctly and
timely (i) filed all Tax and Employee Benefit returns required to be filed in
the manner required by Tax and Employee Benefit authorities, (ii) responded
to information requested by said authorities and (iii) made all Tax and
Employee Benefit payments at due dates, including but not limited to federal
and state payroll taxes. All such payments that are due and unpaid, as well
as all penalties and interest on delinquencies, have been accrued as
liabilities of the Universal Entities.
(e) Other Matters. The Purchased Companies are not a party to any
tax sharing agreement with any other Person. Except as set forth in the
Disclosure Memorandum: (i) no Universal Entity is subject to income tax in
countries other than the U.S.; (ii) none of the Universal Entities has
entered into any transaction which could be disregarded or recharacterized
for Tax or Employee Benefit purposes on the grounds that it aimed at the
avoidance of Tax or Employee Benefit obligations; and (iii) none of the
Universal Entities is the subject matter of any inquiry, investigation or
audit relating to Tax or Employee Benefit matters and have not been informed
of any proposed audit.
(f) Tax and Employee Benefit Audits. The Disclosure Memorandum
sets forth the conclusions of any Tax or Employee Benefit audit or
reassessment made during the period not yet completely time barred by
applicable statutes of limitation.
(g) Returns Furnished. The Universal Entities have furnished
Gainor with true and complete copies of (i) income tax audit reports,
statements of deficiencies, closing or other agreements received by or on
behalf of each Universal Entity relating to Taxes, and (ii) all tax returns
for each Universal Entity for all periods since July 1, 1994.
Litigation. Except as set forth in the Disclosure Memorandum,
there is no action, suit, investigation or proceeding pending or, to
Universal's Knowledge, threatened against or affecting a Universal Entity,
Universal's Business or the assets of a Universal Entity before any court or
by or before any governmental body or arbitration board or tribunal, nor is
there any internal investigation at any Universal Entity as to any
circumstances that would adversely affect Universal's Business or the
Transferred Assets, nor is there a basis for any such action, suit,
investigation or
3.6 proceeding. No action, suit, investigation or proceeding listed on the
Disclosure Memorandum will have a Material Adverse Effect on Universal's
Business prior to or following the Closing.
3.7 Assets.
(a) Description. The Disclosure Memorandum sets forth a
description, the location, the historical cost and the net book value of all
personal property and leasehold improvements included in the Transferred
Assets and in the assets of the Purchased Companies with a net book value in
excess of $500.00.
(a) Title. Each Universal Entity has good, valid and marketable
title to all of its assets, free and clear of any and all Encumbrances other
than the Permitted Encumbrances. The
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Universal Entities own all the real and personal property reflected on the
Interim Financial Statements. Upon the Closing, Gainor shall have good,
valid and marketable title to all of the Transferred Assets free and clear of
any and all Encumbrances, other than the Permitted Encumbrances.
(b) Possession. Except as set forth in the Disclosure Memorandum,
each material tangible asset of the Universal Entities and materially all of
the tangible assets of each Universal Entity in the aggregate are on
Universal Premises, in their possession and control and no one else has any
right, title or interest in any property or asset of the Universal Entities
or used in Universal's Business.
(c) All Assets. The assets of the Universal Entities reflected on
the Interim Financial Statements are all the assets used to conduct
Universal's Business as of the date of the Interim Financial Statements, and
other than those transferred or consumed in the ordinary course of business,
all such assets are in the possession of the Universal Entities.
(d) Condition. The assets of the Universal Entities that
constitute tangible personal property (collectively, the "Universal
Properties") are in good condition and repair, in satisfactory working order
(ordinary wear and tear excepted), have been maintained in accordance with
reasonable procedures and are suitable for their respective intended uses in
connection with the operation of Universal's Business. The properties leased
or used by each Universal Entity do not have any known material defects.
(e) Compliance. Universal Properties and the existing and prior
uses thereof by the Universal Entitles are in substantial compliance in all
respects with all applicable Rules. The Universal Entities have delivered to
Gainor all material reports and documents generated by the Universal Entities
or any third party at the direction of the Universal Entities about the
condition of Universal Properties or about such compliance.
(f) Inventory. Except as set forth in the Disclosure Memorandum,
all of the Universal Entities' inventory included in the Interim Financial
Statements is of a quality usable and saleable in the ordinary and usual
course of Universal's Business, and the quantities of each type of inventory
are not excessive, but are reasonable, adequate and appropriate in the
Universal Entities' present circumstances. All of such inventory is valued
for the purposes of the Interim Financial Statements at the lower of cost or
net realizable market value.
(g) Accounts Receivable. Each Universal Entity has provided Gainor
with a current, complete and accurate aging report of its accounts receivable,
a copy of the most recent of which is included in the Disclosure Memorandum.
(i) [intentionally omitted]
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(j) Interests in Other Persons. Other than the shares of the
Subsidiaries owned by Universal and USC-Michigan, Inc. set forth in the
Disclosure Memorandum, no Universal Entity owns, either legally or
beneficially, directly or indirectly any participating interest in any
partnership, limited liability company, trust, joint venture, association or
other non-corporate business enterprise.
(k) Bank Accounts. The Disclosure Memorandum contains a list of
all the checking, depository or other bank accounts and any safe deposit
boxes of or relating to the assets, operations or business of the Universal
Entities, together with the authorized signers.
3.8 Suppliers and Customers.
(a) The Disclosure Memorandum contains a list of: each supplier
of goods or services to each Universal Entity to whom such Universal Entity
paid in the aggregate more than $25,000 during the 12-month period ended
September 30, 1997, together with the amount paid during such period; and
each customer or third-party payor of each Universal Entity to whom such
Universal Entity billed in the aggregate more than $50,000 during the
12-month period ended September 30, 1997, together with the amount billed
during this period. Except as set forth in the Disclosure Memorandum, there
has been no change in the reimbursement rates for any such third-party payor
during such 12-month period in excess of 2%, nor does any Universal Entity
have any knowledge of any such proposed change.
(b) The Universal Entities have agreements with the managed care
providers listed in the Disclosure Memorandum (identified by provider and the
applicable Universal Entity) covering approximately 8,300 patients (the
"Managed Care Customers"); true, correct, and complete copies of such
agreements are contained in the Disclosure Memorandum, and except as set
forth in the Disclosure Memorandum, all such agreements will remain in full
force and effect after the Closing; except as set forth in the Disclosure
Memorandum, no such agreement requires assignment, and no such agreement may
be terminated due to the transfer of the Purchased Shares to Gainor
Acquisition; and to Universal's Knowledge, each such provider will do
business with Gainor following the Closing substantially to the same extent
they did business with Universal prior to Closing.
(c) At least 50,691 customers have ordered from the Universal
Entities within the last 365 days; at least 35,507 customers have ordered
from the Universal Entities within the last 120 days; and the Universal
Entities have made monthly shipments of at least 18,291 packages in each of
the three full calendar months prior to date of this Agreement. The
Disclosure Memorandum sets forth, for each month between December 31, 1996
and
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September 30, 1997, the number of patient referrals, the number of
packages shipped and the net revenue of each Universal Entity.
(d) Except as set forth in the Disclosure Memorandum, there are no
material disputes between any Universal Entity (or to Universal's Knowledge,
any of the Universal Entities' employees or representatives) and any of the
Universal Entities' significant suppliers, customers or others doing business
with any Universal Entity. Except as set forth in the Disclosure Memorandum,
neither the execution of this Agreement nor the consummation of the
transactions contemplated hereunder will have any material adverse effect on
the business relationship of any Universal Entity with any significant
supplier or customer.
3.9 Trade Secret and Employment Claims. Except as set forth in the
Disclosure Memorandum, Universal has not received notice that any third party
has claimed that any Universal Entity, any Stockholder, or any director,
officer, manager, employee or agent of any Universal Entity, in respect of
activities on behalf of any Universal Entity or in respect of the operations
of Universal's Business to date, has (i) violated any of the terms or
conditions of any employment contract with a third party, (ii) infringed any
patent, trademark or copyright of a third party, (iii) disclosed or used any
trade secrets or proprietary information or documentation of such third
party, or (iv) interfered in the employment relationship between a third
party and any of his or its employees; nor does any Universal Entity have any
reason to believe that any such violation, disclosure, use or interference
has occurred.
3.10 Intellectual Property.
(a) The Disclosure Memorandum (i) lists all patents, patent
applications, trade names, trademarks, service marks, trademark and service
mark registrations and applications, all material patent, trademark and
service mark licenses, all material copyrights, all material computer
software, other than retail shrinkwrap software, and all databases and other
intellectual property, that are owned by or registered in the name of the
Universal Entities or to which the Universal Entities have any rights as
licensee or otherwise, which list specifies which items are owned and to
which items the Universal Entities have rights as a licensee or otherwise;
and (ii) lists all material contracts, agreements or understandings pursuant
to which the Universal Entities have authorized any person to use, or which
any person otherwise has the right to use, in any business or commercial
activity, any of the items listed in clause (i) above.
(b) The items listed or described in the Disclosure Memorandum
pursuant to the preceding subsection (a) constitute or represent all of the
material intellectual property used to conduct Universal's Business, and the
Universal Entities' ownership and use rights with respect thereto are free
and clear of Encumbrances, other than Permitted Encumbrances.
(c) All federal trademark or service mark registrations, and all
applications to register any trademarks or service marks with any trademark
register maintained by the United States Patent and Trademark Office or any
similar authority of any state or foreign country, filed or in the name of
any Universal Entity, are based on truthful affidavits or declarations of use.
(d) Except as set forth in the Disclosure Memorandum, no Universal
Entity has infringed upon any patent, service mark, trade name, trademark,
copyright, trade secret or other intellectual property belonging to any other
Person; and no Universal Entity has agreed to indemnify any Person for or
against any infringement of or by the intellectual property set forth in
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the Disclosure Memorandum. To the knowledge of Universal, no person is
infringing upon any of the Universal Entities' patents, patent applications,
trade names, trademarks, service marks, trademark and service mark
registrations, licenses, copyrights, computer software or other intellectual
property which infringement would have a Material Adverse Effect.
(e) The Universal Entities own or license all computer
software and databases that are necessary to conduct Universal's Business as
presently conducted by the Universal Entities and all material documentation
relating to all such computer software and databases. The computer software
performs in all material respects in accordance with the documentation related
thereto or used in connection therewith and is free of material defects in
programming and operation.
3.11 Contracts.
(a) The Disclosure Memorandum includes a list of all Universal
Contracts with a value, expected payments or expected benefits in excess of
$25,000, identified by Universal Entity, and all other Universal Contracts
that are material to Universal's Business, true, correct and complete copies
of which are contained in the Disclosure Memorandum, including without
limitation the following:
(i) all agreements and participation agreements between a
Universal Entity and any provider or pharmacy which serves Medicare or
Medicaid patients;
(ii) all managed care contracts or approvals in a managed care
plan or third-party program;
(iii) all third-party payor contracts;
(iv) all bank accounts associated with Universal's
participation in each Medicare/Medicaid or other third party payor
program; and
(v) all agreements with Medicare, MediCal, and any state
Medicaid or any fiscal intermediary for Medicare, MediCal, or any
Medicaid agency.
(vi) all agreements with billing agencies and financial or
fiscal intermediaries; and
(vii) all contracts or other documents regarding arrangements
with referral sources and marketing agents.
(b) True and correct copies of each of the following documents
received by any Universal Entity since January 1, 1995 have been delivered to
Gainor, and each such document which could reasonably be expected to have a
Material Adverse Effect has been listed on the Disclosure Memorandum:
(i) all notices or other correspondence with any third party
payor terminating a contract or relationship and the reason for such
termination or alleging any breach of any such contract;
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(ii) all notices or other correspondence with any managed care
plan terminating a contract or relationship and the reason for such
termination or alleging any breach of any such contract;
(iii) all notices, if any, to terminate a provider or
participation agreement with any Universal Entity or alleging a breach
of any such agreement; and
(iv) all discount pricing policies.
(c) Except as set forth in the Disclosure Memorandum:
(i) Each contract required to be listed in Section 3.16(a) is
in full force and effect and constitutes a binding obligation of all
parties thereto, enforceable against the other party or parties to
such contracts in accordance with its terms; no such contract has been
canceled or otherwise terminated, and to the knowledge of Universal
there is no threat to do so.
(ii) There are no existing defaults or events of default, real
or claimed, or events (including the sale of the Purchased Shares)
which with notice or lapse of time or both would constitute material
defaults under any Universal Contract.
(iii) There are no Universal Contracts relating to Universal's
Business or the assets of a Universal Entity with any director or
officer of any Universal Entity, any Stockholder, or any person with a
greater than 5% ownership interest in Universal's Common Stock, or with
any person related to any such person or with any company or other
organization in which any director, officer of any Universal Entity,
any Stockholder, or any person with a greater than 5% ownership
interest in Universal's Common Stock or anyone related to any such
person, has a direct or indirect financial interest, excluding less
than a 5% interest in any Company listed on a national or regional
stock exchange or on the NASDAQ market.
(iv) No Universal Entity is subject to any contract or
agreement: (i) that contains covenants limiting the freedom of any
Universal Entity to compete in any line of business in any geographic
area; (ii) that requires any Universal Entity to share any profits,
or requiring any payments or other distributions based on profits,
revenues cash flows or referrals; (iii) pursuant to which third
parties have been provided with products that can be returned to any
Universal Entity in the event they are not sold; or (iv) that
otherwise has had or would reasonably forseeably have a Material
Adverse Effect.
(v) There are and have been no referral agreements, discounts,
rebates, kickbacks, or referral payments or fees made or paid by any
Universal Entity in violation of any Rule.
3.12 Leases.
(a) Real Property. No Universal Entity owns any real property.
Except as set forth in the Disclosure Memorandum, no Universal Entity leases
any real property. Universal has delivered to Gainor true, correct, and
complete copies of the following with respect to each parcel of real property
listed or described in the Disclosure Memorandum: each lease and option to
purchase (if any) with respect to such property to which a Universal Entity
is a party and any surveys in
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Universal's possession with respect to such property. Except for Permitted
Encumbrances and other matters set forth in the Disclosure Memorandum, to the
knowledge of Universal no real property leased or used by any Universal
Entity is subject to (i) any governmental decree or order (or threatened or
proposed order known to such Universal Entity) to be sold, condemned or
otherwise taken by public authority; or (ii) any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever, not of record which would have a material adverse effect
on Gainor's use of such property. All such leases shall be transferred and
assigned as required herein, and shall remain in full force and effect
immediately following such transfers and assignments; provided, however, that
the Universal Entities make no representations with respect to the effect any
conduct by Gainor may have on the effectiveness of any such lease.
(b) Other Property. The Disclosure Memorandum contains a complete
and accurate list of all leases (including any capital leases) and
lease-purchase arrangements with a total annual lease payment in excess of
$10,000 pursuant to which any Universal Entity leases any property (other
than real property) from others. Except as set forth in the Disclosure
Memorandum, the Universal Entities' possession of such property has not been
disturbed, nor has any claim been asserted against the Universal Entities
adverse to its rights in such leasehold interests. All such leases that are
required to be capitalized by the Accounting Standards have been so accounted
for in the Universal Financial Statements, and such leases are identified as
capital leases in the Disclosure Memorandum. Except as set forth in the
Disclosure Memorandum, all such leases to which a Selling Company is a party
are fully assignable to Gainor and shall be assigned to Gainor at the Closing
and all of such leases to which a Purchased Company is a party will remain in
full force and effect after Closing. No lease will be adversely affected by
its assignment to Gainor, the transfer of the Purchased Shares or otherwise
by the consummation of the transaction contemplated herein.
3.13 Permits. Except as set forth in the Disclosure Memorandum:
(a) The Universal Entities and their employees (as applicable),
hold all permits, licenses, franchises and authorizations from governmental
and regulatory authorities as are necessary to conduct Universal's Business
in the manner in which it has been and is being conducted (the "Universal
Permits"), true, complete and correct copies of which Universal Permits are
contained in the Disclosure Memorandum, including but not limited to the
following:
(i) a list of all states from, in or to which any Universal
Entity mails prescription drugs, a description of any governmental
permits or licenses held by any Universal Entity required to do so or
regarding the use of the mails in any of these states, and a statement
as to where such mailings are made;
(ii) all medical, healthcare, and pharmacy related permits,
licenses, franchises and authorizations from governmental and
regulatory authorities, including DEA numbers and/or approvals, and
Medicare, MediCal, and any Medicaid agency supplier or provider
numbers and the Universal Entity which uses such number(s);
(iii) all approvals, certifications, or licenses granted by the
FDA (including 510(k)'s), with a description of the device or procedure
so approved; and
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(a) all approvals by or participation in private accrediting agency
programs, evidence of which has been provided to Gainor.
(b) True, correct and complete copies of all correspondence
regarding any material adverse information concerning any of the Universal
Permits, all material notices concerning any of the Universal Permits, and
other material information concerning the Universal Permits are contained in
the Disclosure Memorandum, including but not limited to the following:
(iv) all material documents relating to any governmental
agency surveys, investigations and inspections regarding any Universal
Entity or Universal's Business, the Universal Entity's response to any
deficiency or other problem noted, and copies of all documents
regarding any such problem or deficiency;
(v) all material correspondence with the Health Care
Financing Administration, any state Medicaid agency or any fiscal
intermediary relating to the filing or auditing of any Medicare and
Medicaid cost reports or any actions or claims relating to recoupment,
penalties, offsets or other material adverse actions relating to
reimbursement;
(vi) all current marketing materials and other material
communications with referral sources or patients.
(vii) all pricing and billing policies and procedures and
documentation permitting an audit of a sample of claims made to
Medicare, MediCal, and any Medicaid agency programs.
(viii) all correspondence with any licensing or permitting
agency in any state or the federal government referencing any
noncompliance (whether because of an action or an omission) with
any licensure or permitting requirement, any claims or charges past
or pending against any Universal Entity, its officers, directors,
employees, or, to Universal's knowledge, its agents, contractors or
affiliates, alleging violations of applicable regulatory requirements
including physician ownership or referral requirements of state or
federal law;
(ix) all court or agency orders, rulings, judgments or
settlement agreements or evidence of other regulatory sanctions against
any Universal Entity, its officers, directors or employees that relate
to Universal's Business which would have a Material Adverse Effect;
(x) all documents relating to investigations or material
inquiries, including subpoenas or other material requests for
information by governmental agencies and Universal's response;
(xi) each of Universal's compliance programs or policies and
documents relating to complaints, inquiries and internal investigations
relating to possible regulatory compliance issues including physician
ownership or referral requirements of state or federal law.
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(c) Except as set forth in the Disclosure Memorandum: all
of the Universal Permits of the Selling Companies are fully transferable to
Gainor, and none of the Universal Permits of the Purchased Companies will be
terminated, canceled, revoked or otherwise materially adversely affected by the
transactions contemplated herein. With respect to the Universal Permits of the
Purchased Companies which will be terminated, canceled, revoked or otherwise
materially adversely affected by the transactions contemplated herein, if any,
all standards and conditions to be met by Universal necessary for the reissuance
of such Universal Permits have been satisfied or obtained and will continue
until the Closing to be satisfied by the operation of the Universal Entities.
No event has occurred that allows (nor after notice or lapse of time or both
would allow) revocation or termination of any Universal Permit or would result
in any other impairment of the rights of the holder of any Universal Permit.
(d) The Disclosure Memorandum lists all physicians who had a direct
or indirect ownership interest in Universal prior to the initial public
offering of stock of Universal, which ownership interest would raise any
issue under Stark II, and all physicians having any compensation or any
referral arrangement with any Universal Entity. No Universal Entity is in or
has committed any violation of any state or federal physician self referral
law, including Stark II or the federal anti-kickback statute.
(e) Each Universal Entity has all necessary certificates of
medical need and benefit assignments as required to receive reimbursement
from Medicare, Medicaid and MediCal and other third party payors for each of
its customers who rely on third party payors for payment.
3.14 Labor Matters.
(a) The Universal Entities are in substantial compliance with all
Rules respecting employment and employment practices, terms and conditions of
employment, wages and hours.
(b) No Universal Entity is nor has been engaged in any unfair
labor practice, and no unfair labor practice complaints against the Universal
Entities are pending before the National Labor Relations Board or similar
authority. There are no labor strikes or other labor trouble actually
pending, or to the Knowledge of Universal being threatened against or
affecting the Universal Entities; relations between management and labor are
generally amicable; and there have not been, nor are there presently, to the
knowledge of Universal, any attempts or plans to organize the Universal
Entities' employees.
(c) There is no agreement, arrangement or understanding between
the Universal Entities and any trade union, any representative of any trade
union or any bargaining agent in respect of any of the Employees.
(d) No Universal Entity has done, nor omitted to, do any act or
thing the doing or omissions of which is or could be a material breach of any
term contained or implied in any agreement between the Universal Entities and
any of the Employees, or of any provision of any arrangement, practice,
custom or understanding (whether or not legally enforceable) between any
trade union and the Universal Entities, which act or thing, or the omission
thereof, would foreseeably result in any collective bargaining obligation.
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3.15 Employees.
(a) The Disclosure Memorandum sets forth as to each Employee: his
or her name, the Universal Entity he or she works for, the location of
employment, the date on which he or she was hired, the basic weekly or hourly
rate of pay (separately listing any bonus), a true and correct estimate of
each of the Employee's accrued sick leave entitlement up to the Closing Date,
a true and correct estimate of each of the Employee's accrued vacation up to
the Closing Date, and a true and correct estimate of all other benefits
actually or continently accruing to any Employee as of the Closing Date.
Except as set forth in the Disclosure Memorandum, no Universal Entity has any
obligation to pay severance to any Employee under any circumstances,
contingent or otherwise.
(b) The Disclosure Memorandum sets forth as to each officer or
other manager of any Universal Entity, the information described in
subsection (a) above, as well as the current compensation rate (salary,
bonus, commission or other) for each such person.
(c) All the items described in the preceding subsections (a) and
(b) which remain unpaid will have been accrued as liabilities of the
Universal Entities as of the Closing Date and reflected on the Closing
Balance Sheets.
(d) Except as set forth in the Disclosure Memorandum, no Universal
Entity has entered into any written employment agreement or any other
material agreement with any Employee, for a fixed term or otherwise.
(e) Since June 30, 1997, no Employee has received a raise out of
the ordinary course of business, and no raises have been withheld in
contemplation of the sale of Universal's business.
(f) Except as set forth in the Disclosure Memorandum, during the
last five years no significant accident or injury to an Employee has occurred
at Universal Premises.
(g) No Universal Entity or Stockholder has any reason to believe
that any key Employee of any Purchased Company will voluntarily leave such
Purchased Company in connection with the sale of the Transferred Assets to
Gainor hereunder, other than due to the termination of a significant number
of employees in connection herewith.
(h) The Universal Entities have made available to Gainor all
employment records for each Employee.
(i) To Universal's knowledge, no Transferring Employee is under
any obligation which would prevent or limit such employee from performing any
duty in furtherance of Universal's or Gainor's Business, including without
limitation any no-compete, no-hire, or non-solicitation obligation pursuant
to any employment or other agreement with any party.
(j) The Disclosure Memorandum contains a list of all licensed
pharmacists, pharmacy assistants and physicians employed or engaged by or
contracted with or by any Universal Entity, specifying the Universal Entity
which employs such person, the type of license, all states or other
governmental entities which have licensed such individual, the license number
(if any), any employed physicians' DEA number and a list of all
correspondence known to Universal relating to any adverse actions against any
such persons, true, correct and complete copies of which are contained in the
Disclosure Memorandum. All such persons
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are properly licensed by all applicable governmental and regulatory agencies
with respect to their activities on behalf of the Universal Entities, and
Universal has no Knowledge of any material problems or adverse actions
regarding any such license. No Universal Entity or Stockholder has any
reason to believe that any such licensed pharmacists, pharmacy assistants or
physicians of any Purchased Company will voluntarily terminate his or her
employed, engagement or contracted with or by such Purchased Company in
connection with the sale of the Transferred Assets to Gainor hereunder, for
any reason other than due to the termination of a significant number of
employees in connection herewith.
3.16 Employee Benefit Plans and Arrangements.
(k) List of Plans and Obligations. The Disclosure Memorandum sets
forth a complete and accurate list and description of all plans,
arrangements, agreements, commitments, promises and other obligations of all
the Universal Entities, including but not limited to pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, sick leave without compensation, bonus
and other incentive plans, every medical, vision, dental and other health
plan, every life insurance plan and every other written or unwritten employee
program, arrangement, agreement or understanding, commitment or method of
contribution or compensation, whether formal or informal, whether funded or
unfunded and other obligations under which the Universal Entities have been,
are or will be obligated to provide benefits to any current or former
Employee, retiree, director, independent contractor, shareholder, officer,
consultant or other beneficiary, or dependent, spouse or other family member
or beneficiary of such Employee, retiree, director, independent contractor,
shareholder, officer, consultant or other beneficiary, of such Universal
Entity whether during their employment with such Universal Entity or after
the termination of such employment (the "Plans" and the "Beneficiaries",
respectively).
(l) Compliance. All of the Plans have been maintained, funded and
administered in substantial compliance with all Rules, including but not
limited to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Internal Revenue Code of 1986, as amended and all final
regulations and rulings related thereto. There are no penalties, fines,
interest or Taxes related to the Plans due to any federal or state authority.
(m) No Liabilities or Obligations. Except as reflected on the
Interim Financial Statements, or as otherwise set forth on the Disclosure
Memorandum, the Universal Entities have no liabilities or obligations to any
Beneficiaries, governmental authorities or any other parties arising out of
or relating to the Plans.
(n) No Payments. Except as set forth in the Disclosure Memorandum,
the consummation of the transactions contemplated by this Agreement will not
(i) entitle any Beneficiary to any severance pay, unemployment compensation
or any other payment contingent upon a change in control or ownership of any
Universal Entity or its assets or (ii) accelerate the time of payment or
vesting or increase the amount of any compensation or benefit due to any
Beneficiary.
(o) No Multi-Employer Plans. Except as set forth in the Disclosure
Memorandum, none of the Plans is a multi-employer plan, as defined in Section
3(37) of ERISA.
3.17 Environmental Matters.
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(p) No Universal Entity has been at any time in, and no condition
or event has occurred in relation to Universal's Business which with notice
or the passage of time or both would constitute a material violation or
contravention of any Environmental Law or any licenses, approvals, consents,
permissions or permits issued under any Environmental Law.
(q) Universal Premises are not contaminated nor are they in such
condition as to justify or lead any government or semi-government body to
issue any notice, direction or order requiring clean-up, decontamination,
remedial action or making good under any Environmental Law.
(r) There are no circumstances whatsoever affecting Universal
Premises or Universal's Business or operations conducted by or on behalf of
the Universal Entities in connection with Universal's Business which may give
rise to a claim by any third party arising from property damage or personal
injury or death caused by any Hazardous Material of whatever nature caused or
contributed to in whole or in part by the Universal Entities or Universal
Premises, operations or business of the Universal Entities.
(s) Except as set forth in the Disclosure Memorandum: (i) there
are no Hazardous Materials in, on or under Universal Premises; (ii) there are
no current and there have not been any past releases of Hazardous Materials
from or onto Universal Premises that are or were subject to regulation under
any Environmental Law, or that may make the Universal Entities or Gainor
subject to an action under any Rule, or liable in tort or under a common law
public or private nuisance action; and (iii) Universal Premises and all
activities conducted thereon have complied with all applicable Environmental
Laws. Neither the Universal Entities nor, to the knowledge of the Universal
Entities, anyone related to the Universal Entities, directly or indirectly,
has indemnified any other party with respect to transportation, storage or
use of Hazardous Materials.
(t) The Universal Entities have obtained from all governmental,
local and other relevant authorities or agencies all necessary licenses or
other authorizations required under the Environmental Laws in relation to the
carrying on of Universal's Business. Except as set forth in the Disclosure
Memorandum, all such licenses and authorizations have been granted on the
basis that they are unconditional and do or did not require the undertaking
or performance by the Universal Entities of any obligation of any nature
(including, without limitation, any obligation to make any payment of any
nature to any person), remain in full force and effect and permit the
carrying on by the Universal Entities of the Universal Entities' Business and
all activities related thereto on the basis disclosed to Gainor, and at least
at the same level of activity as has existed in relation thereto over the
period of one year prior to the date hereof. No Universal Entity has any
knowledge that any such permit, license or authorization is in the process of
being terminated or revoked or knows of any reason why any such license,
permit or authorization should or could be terminated or revoked.
(u) No Universal Premises has and no Universal Entity has or has
ever had responsibility for or control of any underground storage tank or
other underground storage facilities.
(v) Except as set forth in the Disclosure Memorandum, no building
or other improvement on Universal Premises contains any asbestoscontaining
materials.
(w) Except as set forth in the Disclosure Memorandum, Universal
Premises do not contain any PCBs in any form.
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3.18 Insurance Policies. The Disclosure Memorandum sets forth a complete and
accurate list and description of all insurance policies in force naming any
Universal Entity, or any employees thereof in their capacity as such, as an
insured or beneficiary or as a loss payable payee, or for which any Universal
Entity has paid or is obligated to pay all or part of the premiums. Except as
set forth in the Disclosure Memorandum, the Universal Entities have not
received notice of any pending or threatened termination or premium increase
(retroactive or otherwise) with respect thereto, and the Universal Entities
are in compliance with all material conditions contained therein. Except as
set forth in the Disclosure Memorandum, there have been no lapses (whether
cured or not) in the coverage provided under the insurance policies,
referenced herein and as set forth in the Disclosure Memorandum.
3.19 Events After June 30, 1997. Except as set forth in the Disclosure
Memorandum, since June 30, 1997, each Universal Entity has conducted its
business only in the ordinary course, consistent with reasonable past
practices, and has not:
(x) suffered any material property or casualty loss, or aived any
material right;
(y) made any changes in officer, director or employee
compensation, or paid any other bonus, except in the ordinary course of
business and consistent with reasonable past practice;
(z) lost a major customer or vendor or received a notice of
nonrenewal from a major customer or vender, suffered a material deterioration
in any relationship with any third-party payor or any other significant
relationship or experienced any other Material Adverse Effect;
(aa) made any change in any method, practice or principle of
financial or tax accounting;
(bb) made any sales on terms (including but not limited to
discounts, extended payment terms and other incentives) inconsistent with
reasonable prior practices;
(cc) entered into any commitment or transaction resulting in a
Material Adverse Effect ;
(dd) realized a material asset (or material group of assets) or
reduced a material liability (or material group of liabilities) related to a
transaction with a customer or supplier that was not authorized by the
customer or supplier;
(ee) failed to maintain the Universal Financial Statements and its
books of account in accordance with the Accounting Standards;
(ff) sold, assigned, transferred or encumbered any of its assets or
affected the carrying value of any its liabilities, including without
limitation any commercial agreements, or entered into any arrangement to
purchase assets and/or assume liabilities (except in each case as required in
the ordinary course of business);
(gg) paid, discharged, satisfied or renewed any claim, liability or
obligation other than payment in the ordinary course of business and
consistent with reasonable past practice;
(hh) made any distribution or declared or paid any dividends to any
stockholders, received any capital contribution, or redeemed, purchased or
otherwise acquired any shares;
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(ii) made any payment of cash or any transfer of other assets, to
any shareholder or affiliate thereof, or paid, loaned, advanced, sold,
transferred or leased any asset to any employee, except for normal
compensation involving salary and benefits;
(jj) failed to perform in all material respects its obligations
under the Universal Contracts;
(kk) failed to manage working capital components (including cash,
receivables, other current assets, trade payables and other current
liabilities) in a fashion consistent with reasonable past practice, including
failing to sell inventory and other property in an orderly and prudent manner
or failing to make all budgeted and other normal capital expenditures,
repairs, improvements and dispositions;
(ll) failed to use commercially reasonable efforts to increase its
sales in a profitable manner, enhance its financial position, address market
changes, preserve its business, keep available the services of its present
employees, and preserve the goodwill of its customers, suppliers and others
having business relations with it; or
(mm) agreed to take any action described in this Section 3.24.
3.20 Copies Provided to Gainor. Universal has delivered to Gainor true,
correct and complete copies of each of the contracts, agreements,
instruments, other documents, material notices and correspondence listed in
the Disclosure Memorandum.
3.21 Brokers. No broker or finder has acted on behalf of any Universal
Entity or Stockholders in connection with this Agreement and the transactions
contemplated hereby, and neither the Universal Entities nor any Stockholder
has made any other agreement to pay any agent, finder, broker or any other
representative any fee or commission in the nature of a finder's or
originator's fee arising out of or in connection with the subject matter of
this Agreement.
3.22 Public Filings. All registration statements, periodic reports, and
other material filed by Universal with the Securities and Exchange Commission
(the "SEC"), and all press releases issued by Universal, as of the respective
dates thereof were true and correct in all material respects in light of the
circumstances in which they were made, and accurately portrayed the then
current business and status of Universal, and all financial statements filed
with the SEC as of the respective dates thereof were true and correct in all
material respects, were prepared in accordance with generally accepted
accounting practices, and fairly presented Universal's financial position as
of the dates thereof and the results of Universal's operations for the
periods covered thereby. Except as set forth in the Disclosure Memorandum,
no changes have occurred which would make any such materials filed with the
SEC, press releases or financial statement untrue or misleading in any
material respect.
3.23 Proxy Statement. The Proxy Statement (including any amendments and
supplements thereto) will conform in all material respects to the
requirements of the Securities Act and the rules and regulations of the SEC
thereunder and shall not when filed with the SEC or mailed to the
stockholders of Universal contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, provided that Universal
makes no representation with respect to disclosures concerning Gainor based
on information provided by Gainor for inclusion in the Proxy Statement.
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3.24 Adverse Information. No Universal Entity, nor any Stockholder, has
withheld information about any conditions, facts or circumstances that have
had or reasonably could be expected to have a Material Adverse Effect.
3.25 Other Information. No representation, warranty or statement made by
any Universal Entity or Stockholders in this Agreement, the Disclosure
Memorandum or any other document or instrument furnished to Gainor in
connection with the transactions contemplated herein, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein in light of the circumstance
in which they were made not misleading.
ARTICLE 1B
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDERS
To induce Gainor to execute, deliver and perform this Agreement, and in
acknowledgment of Gainor's reliance on the following Warranties, each of the
Stockholders hereby severally represents and warrants to Gainor as follows as of
the date hereof and as of the Closing.
3B.1 Power and Authority of Stockholders. Each Stockholder has the right,
power and capacity to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by such of the Stockholders and
constitutes each Stockholder's legal, valid and binding obligation,
enforceable in accordance with its terms except to the extent that its
enforceability is limited by bankruptcy, insolvency, reorganization or other
laws relating to or affecting the enforcement of creditors' rights generally
or by general principles of equity. The execution and delivery of this
Agreement by each Stockholder, the consummation of the transactions
contemplated herein by such Stockholder, and the performance of the covenants
and agreements of the Stockholders, will not, with or without the giving of
notice or the lapse of time, or both, (i) violate, conflict with or result in
a breach or default under or cause termination of any term or condition of
any material mortgage, indenture, contract, lease, license, permit,
instrument, trust document, or other agreement, document or instrument to
which such Stockholder is a party or by which the Stockholders or any of
their properties may be bound; (ii) violate any Rule, the result of which
would have a Material Adverse Effect.
3B.2 Warranties of the Universal Entities. To Stockholder's Knowledge, of
the Stockholders, the Warranties of the Universal Entities in Article 3A
hereof are true and correct in all material respects and none of such
Warranties omits to state a material fact necessary to be stated therein in
order to make any such Warranty in light of the circumstances in which they
were made not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF GAINOR
4.26 To induce Universal, the Universal Entities and the Stockholders to
execute, deliver and perform this Agreement, and in acknowledgment of each of
their reliance on the following representations and warranties, each of
Gainor Acquisition and Gainor Management hereby jointly and severally
represent and warrant to each of the Universal Entities and each of the
Stockholders as follows as of the date hereof and as of the Closing:
(a) Gainor Acquisition is a corporation duly organized and
validly existing under the laws of Georgia and has all requisite power and
authority, corporate or otherwise, to carry on and conduct its business as it
is now being conducted and to own or lease its properties and assets.
(b) Gainor Management is a limited liability company duly
organized and validly existing under the laws of Georgia and has all
requisite power and authority, to carry on and conduct its business as it is
now being conducted and to own or lease its properties and assets.
(c) Each of Gainor Acquisition and Gainor Management has
obtained all necessary consents, approvals, authorizations or estoppels of
any other Person or governmental or regulatory authority required to be
obtained to execute and perform under this Agreement and to authorize and
permit Gainor Acquisition to purchase all of the Transferred Assets. The
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, by Gainor Acquisition and Gainor
Management have been duly and validly authorized by all necessary action,
corporate or otherwise, on the part of Gainor Acquisition and Gainor
Management required to take such action and will not, without the giving of
notice or the lapse of time, or both (i) violate or conflict with any of the
provisions of the Articles of Incorporation, bylaws or other governing
documents of Gainor Acquisition or Gainor Management; (ii) violate, conflict
with or result in a breach or default under or cause termination of any term
or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, or other agreement, document or instrument to
which Gainor Acquisition or Gainor Management is a party or by which it or
any of their respective properties may be bound; (iii) violate any Rule.
(d) This Agreement has been duly and validly executed by each
of Gainor Management and Gainor Acquisition and constitutes each such party's
legal, valid and binding obligation, enforceable in accordance with its
terms, except to the extent that its enforceability is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors rights generally or by general principles of equity.
4.27 Proxy Statement. None of the information relating to Gainor to
be supplied by Gainor for use in the Proxy Statement, at the time the Proxy
Statement is filed with the SEC and when mailed to the stockholders of
Universal, will contain any untrue statement of a material fact or will omit
to state a material fact necessary to be stated therein in order to make the
statements contained therein in light of the circumstances in which they were
made not misleading. If at any time prior to the Closing Date, an event or
circumstance relating to Gainor or any of their officers, directors or
stockholders occurs that should be set forth in an amendment or supplement to
the Proxy Statement, Gainor shall promptly inform Universal.
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1.10 Financial Matters. The Gainor Financial Statements, as provided to
Universal, including the footnotes thereto are complete, have been prepared
in accordance with the Accounting Standards, consistently applied, and fairly
present the financial position of Gainor Management as of the dates thereof
and the results of its operations for the respective periods thereof.
ARTICLE 5
CONDUCT OF BUSINESS PRIOR TO CLOSING
Pending the Closing or earlier termination of this Agreement in accordance with
its terms, each Universal Entity will operate and conduct its Business
diligently and only in accordance with reasonable prior practices and will not
make or institute any material changes in its methods of purchase, sale,
management, distribution, marketing, accounting or operation. Pursuant
thereto and not in limitation of the foregoing:
5.1 Financial Statements; Financial Position. Each Universal Entity
shall maintain its financial statements in accordance with the Accounting
Standards, use reasonable efforts to maintain each Universal Entity's
financial position, and use commercially reasonable efforts to maintain each
Universal Entity's revenues in a profitable manner.
5.2 Working Capital. Each Universal Entity shall manage its working
capital, including cash, receivables, other current assets, trade payables
and other current liabilities, in a profitable manner consistent with
reasonable past practices, including by maintaining adequate reserves of
inventory to fulfill customer orders, and paying outstanding obligations,
trade accounts and other indebtedness as they come due in accordance with
reasonable and prudent past practices.
5.3 Maintenance of Assets, Permits Business. Each Universal Entity
shall maintain its assets in their present state of repair (ordinary wear and
tear excepted), and shall use its reasonable best efforts to keep available
the services of its employees, to continue to perform in material compliance
with its obligations under the Universal Contracts and to preserve the
goodwill, if any, of its business and relationships with the customers,
licensors, suppliers, distributors and brokers with whom it has business
relations. Each Universal Entity shall maintain all Universal Permits and
shall obtain any permit or license required to conduct any of Universal's
Business prior to the Closing.
5.4 Notice of Disputes. Universal shall promptly advise the Designated
Official of the details of any material disputes, claims, actions, suits or
proceedings pertaining to or otherwise materially adversely affecting
Universal's Business, affairs, assets or contracts.
5.5 No Action without Consent. No Universal Entity shall take any of
the following actions after the date of this Agreement and prior to Closing
or termination of this Agreement without the prior written consent of the
Designated Official:
(a) sell, assign, transfer or otherwise dispose of any material
Transferred Asset or any material fixed asset of any Purchased Company except in
the ordinary course of business consistent with past practice;
(b) dispose of any other asset of a Universal Entity except in
the ordinary course of business consistent with reasonable past practices;
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(c) subject any material asset of any Universal Entity to a
material Encumbrance, other than a Permitted Encumbrance;
(d) materially affect the carrying value of any existing
liability or enter into any arrangement to assume liabilities (except as
required in the ordinary course of business);
(e) purchase or commit to purchase any capital asset for a
price exceeding $25,000;
(f) enter into any leasing arrangement for any real or personal
property where the annual payments will exceed $25,000;
(g) enter into or modify any contractual arrangement with
directors or officers or any material contract with any manager, employee or
consultant;
(h) increase or announce any increase of any salaries, wages or
benefits for directors, officers, managers or employees, or hire, commit to hire
or terminate any employee (except in the ordinary course of business, including
but not limited to anniversary date salary or wage increases consistent with
reasonable past practice);
(i) amend any of its Charter Documents (other than as set forth
in the Proxy Statement or required by law);
(j) issue, sell or repurchase any of its shares, or make any
change in its issued and outstanding shares, or issue any warrant, option or
other right to purchase shares or any security convertible into its shares, or
redeem, purchase or otherwise acquire any shares, or declare or pay any
dividends or make any other distribution with respect to its shares except
pursuant to obligations set forth in the Disclosure Memorandum;
(k) incur, assume or guarantee any material obligation or
liability for borrowed money, except for repayments, and reborrowings under
Universal's revolving credit facility with Health Partners Funding, L.P., or
exchange, refund or renew any outstanding indebtedness in such a manner as to
reduce the principal amount of such indebtedness and increase the interest rate
or balance outstanding, except in the ordinary course of business consistent
with past practice;
(l) cancel any material debts owed to it, except for
consideration deemed fair and reasonable by the Board of Directors of the
appropriate Universal Entity;
(m) amend or terminate any material agreement, including any
employee benefit plan or any insurance policy, in force on the date hereof;
(n) solicit or entertain any offer for, or sell or agree to
sell, or participate in any business combination with respect to, any of its
shares;
(o) make any material changes in accounting methods, principles
or practices;
(p) do any act, omit to do any act or permit any act within its
control which will cause a material breach or untruth of any Warranty, or a
material breach of any obligation contained in this Agreement or contained in
any material contract;
(q) issue substitute share certificates to replace certificates
which have been lost, misplaced, destroyed, stolen or are otherwise
irretrievable, unless an adequate bond or indemnity agreement has been duly
executed and delivered to the Universal Entity (with the exception of
Universal);
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(r) enter into any material contract or commitment except in
the ordinary course of business consistent with reasonable past practice;
(a) take any action which would have an adverse effect on
any Universal Permit; or
(s) Agree to take any of the prohibited actions described in
this Section 5.5.
ARTICLE 6
COVENANTS OF THE PARTIES
6.1 Cooperation. The Universal Entities and Stockholders, on the one
hand, and Gainor, on the other hand, shall cooperate fully with each other
and their respective employees, legal counsel, accountants and other
representatives and advisers in connection with the steps required to be
taken as part of their respective obligations under this Agreement; and
shall, at any time and from time to time after the Closing, upon the request
of the other, do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney, receipts,
acknowledgments, acceptances and assurances as may be reasonably required
(without incurring unreasonable unreimbursed expense) to satisfy and perform
the obligations of such party hereunder, and to allow Gainor to operate
Universal's Business after Closing in the manner in which it was operated
before the Closing.
6.2 Access. Prior to the Closing, Universal shall (i) provide Gainor
and its designees (officers, counsel, accountants, actuaries, and other
authorized representatives) with such information as Gainor may from time to
time reasonably request with respect to the Universal Entities and the
transactions contemplated by this Agreement; (ii) provide Gainor and its
designees complete access to the books, records, offices, personnel, counsel,
accountants and actuaries of Universal as Gainor or its designees may from
time to time reasonably request; and (iii) permit Gainor and its designees to
make such inspections of Universal Premises and Universal Properties as
Gainor may reasonably request. No such investigation shall limit or modify
in any way Universal's Entities or any Stockholder's obligations with respect
to any breach, inaccuracy or untruth of its representations, warranties,
covenants or agreements contained herein; provided, that if in the course of
their investigation, Gainor or its Affiliates shall, prior to the Closing,
discover any such breach, inaccuracy or untruth, they shall, in good faith
disclose the same to Universal prior to the Closing; provided, further, that
the failure of Gainor so to disclose same before Closing shall not limit or
modify such obligations of the Universal Entities or Stockholders unless such
failure was deliberate and in bad faith. Any information so furnished by
Universal or any Stockholder shall be true, correct and complete in all
material respects and shall not contain any untrue statement of a fact or
omit to state a fact required to be stated therein or necessary to make the
statements therein not materially misleading.
6.3 Interim Financials. As promptly as practicable after each regular
monthly accounting period after September 30, 1997, and prior to the Closing
Date, the Universal Entities shall deliver to Gainor periodic financial
reports in the form which it customarily prepares for its internal purposes
and, if available, consolidated and consolidating unaudited statements of the
financial position of the Universal Entities as of the last day of each month
and consolidated and
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consolidating statements of income, cash flow and stockholders' equity of
the Universal Entities for each such month.
6.4 Records. The Stockholders shall provide to Gainor, as soon as is
reasonably practicable after the Closing, copies of any and all files,
records or other data in their possession or under their control in respect
of or relating to the operation of Universal's Business.
6.5 Use of Universal Name. From and after the Closing, each Selling
Company, the Stockholders and Universal's directors, officers, employees,
agents and representatives shall cease to use the name of any of the
Universal Entities (with the exception of Clinishare Diabetes Centers, Inc.
and Physicians Support Services, Inc.) or any of the trademarks, service
marks, or trade names listed in Section 3.15 of the Disclosure Memorandum (or
any variation thereof) for any business purpose, except as employees or
agents of Universal or Gainor, for the benefit of Universal or Gainor. Each
Selling Company (with the exception of Clinishare Diabetes Centers, Inc. and
Physicians Support Services, Inc.) shall within 60 days after Closing either
change its name to a name that is not confusing with the current name or
dissolve. In the Proxy Statement, Universal shall seek its stockholders'
approval to change its name.
6.6 Expenses. Whether or not the expenses are incurred before or after
the Closing, each of the expenses incurred by Gainor, Universal, any other
Universal Entity and any Stockholder in connection with the authorization,
preparation, execution and performance of this Agreement, including without
limitation all fees, commissions, and expenses of agents, representatives,
counsel, accountants, brokers and finders, shall be paid by the party that
incurred such expenses. Without limiting the generality of the foregoing,
Universal shall be responsible for the payment of any fees, commissions or
expenses of any broker or finder engaged by Universal, any other Universal
Entity or Stockholders; and any expenses of Universal, or any other Universal
Entity, including but not limited to expenses related to agents,
representatives, counsel, accountants, brokers or finders.
6.7 Tax Matters.
(a) Universal shall pay all Taxes arising from or relating to
the sale of the Purchased Shares to Gainor Acquisition and the other
transactions contemplated by this Agreement.
(b) Universal shall file and control any returns required to be
filed by the Selling Companies after the Closing Date. Gainor shall have the
right to review and comment on such returns before they are filed.
(c) Each of the Selling Companies, on the one hand, and Gainor,
on the other hand, agree to give prompt notice to each other of any proposed
adjustment to Taxes for periods prior to the Closing. The Selling Companies
and Gainor shall cooperate with each other in the conduct of any Tax audit or
other proceedings involving any Universal Entity for such periods. In
connection with any such audit or other proceeding Gainor, upon Universal's
request and at their expense, shall provide Universal copies of all notices,
correspondence, demands, assessments and other documents generated in
connection with such audit or other proceeding, all of which information
shall remain subject to Section 6.12 below. Universal shall also have the
right to discuss the status of such audit or other proceeding with Gainor's
representatives and, with prior written notice to Gainor, with the applicable
taxing authorities involved. All of such activities by Universal shall be
conducted in a manner so as not to adversely impact the best interests of
Gainor or the Purchased
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Companies; provided that notwithstanding the above, Universal shall at all
times be permitted to act as required by law and to dealhonestly and accurately
with all applicable taxing authorities and in its preparation for submissions
to such Authorities without being in violation ofthis subsection (c).
(a) Universal, on the one hand, and Gainor, on the other hand, agree
to furnish or cause to be furnished to each other, upon request, such
information and assistance (including access to books and records) relating
to the Universal Entities as is reasonably necessary for the preparation of
any return, claim for refund or audit, and the prosecution or defense of any
claim, suit or proceeding relating to any proposed adjustment.
(d) Section 338(h)(10) Elections and Forms.
(i) Universal and Gainor shall jointly make all Section 338(h)
(10) elections in accordance with applicable Tax Rules on a timely basis
and as set forth herein. Universal and Gainor will supply in advance to
one another copies of all correspondence filings or communications (or
memoranda setting forth the substance thereof) to be sent or made by
Universal and Gainor or their respective representatives to be sent or
made by Universal or Gainor or their respective representatives to or
with the Internal Revenue Service and other taxing authority relating to
any Section 338(h)(10) elections. Universal and Gainor agree to report
the transfer of the Purchased Shares under this Agreement consistent
with any Section 338(h)(10) elections, and shall take no position
contrary thereto unless required to do so by applicable Tax Rules
pursuant to a "determination" (as described in Section 1313 of the Code).
(i) Gainor shall be responsible for the preparation and filing of
all Section 338 forms in accordance with applicable Tax Rules and the
terms of this Agreement and Gainor shall deliver such forms and related
documents to Universal at least forty (40) days prior to the date such
Section 338 forms are required to be filed under applicable Tax Rules
for Universal's review and approval (such approval not to be
unreasonably withheld). If reasonably acceptable to Universal, Universal
shall execute and deliver to Gainor such documents or forms as are
reasonably requested by Gainor and are required by any Tax Rules to
properly complete the Section 338 forms, no more than twenty (20) days
after the date such documents or forms are requested by Gainor.
(ii) Universal and Gainor will allocate the Purchase Price as
computed under applicable Treasury Regulations (or similar state law
provisions), among the assets of the Purchased Companies for tax and
accounting purposes in accordance with Universal and Gainor's joint
reasonable determination before Closing.
(e) Tax Payments. Universal shall pay or cause to be paid in a timely
fashion all Taxes of the Selling Companies for which the Purchased Companies
could be liable and for all Taxes of the Purchased Companies incurred prior
to and through the Closing, including, without limitation, all Taxes
attributable to the Section 338(h)(10) election, provided that with prior
written notice to Gainor, Universal may take such extensions to tax filings
and make such estimated interim payments as may be permitted under applicable
Rules.
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6.8 Survival of Representations and Warranties. Except as
otherwise provided in this Section 6.8, the representations and warranties made
by the parties to this Agreement or pursuant hereto shall survive for three
years after the Closing.
(a) The representations and warranties made by the Selling
Companies and by the Stockholders in Sections 3.6, 3.10, 3.18, 3.21, or 3.22
shall survive Closing until 60 days following the expiration of all applicable
statutes of limitation, and any extensions
(b) thereof. The representations and warranties made by the
Selling Companies in Section 3.11 shall survive the Closing until 60 days after
all applicable actions, suits, investigations and proceedings are fully and
finally resolved, as determined in accordance with Section 6.9(g)(iii).
(c) The representations and warranties made by the Selling
Companies and the Stockholders in Sections 3.1(a) and 3.2, 3.3, 3.4, and 3.5
related to the Purchased Companies and the Purchased Shares shall survive the
Closing indefinitely.
(d) The representations and warranties made by Gainor in
Sections 4.1(a) and (b) shall survive the Closing indefinitely.
(e) Subject to the two provisos in Section 6.2, the
representations and warranties of the parties shall not be affected or
diminished by any investigation at any time by or on behalf of the party for
whose benefit such representations and warranties were made.
(f) The expiration of any representation or warranty shall not
affect any parties' right to pursue any claim made prior to such expiration.
(g) Notwithstanding the foregoing, any party may make a claim
at any time based on fraud in connection with any representation or warranty.
6.9 Indemnification.
(a) By the Selling Companies. From and after the Closing, each of
the Selling Companies jointly and severally, shall indemnify, reimburse and
hold harmless Gainor, the Purchased Companies, and any of their Affiliates,
any successors or assigns for any and all direct or indirect claims, losses,
liabilities, damages (including special and consequential damages), costs
(including court costs) and expenses (including all reasonable attorneys' and
accountants' fees and expenses) (hereinafter "a Loss" or "Losses"), as a result
of or in connection with (i) any breach, inaccuracy or untruth of any Warranty,
whether such breach, inaccuracy or untruth exists or is made on the date of
this Agreement or as of the Closing; or (ii) any breach of or noncompliance by
any Universal Entity or any Stockholder of any covenant or agreement of any
Universal Entity or Stockholder contained in this Agreement or in any other
agreement or instrument delivered in connection with this Agreement; or (iii)
any action, enforcement action, charges, litigation, mediation or arbitration
before any court, governmental or regulatory agency, mediator or arbitrator
involving any Universal Entity, any Stockholder, or Universal's Business,
arising from actions taken or facts existing before the Closing or arising out
of or related to the transactions contemplated by this Agreement; or (iv) any
liability of the Selling Companies other than the Gainor Assumed Liabilities;
or (v) any of the Universal Assumed
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(b) Liabilities; or (vi) any Loss in connection with the Diabetes
Self Care 401(k) Plan or any termination thereof; (vii) any Loss in connection
with the trademark infringement claims related to (A) "USCI" (provided that
Gainor makes no use of "USCI" after January 31, 1998) or (B) "Healthcare
Management Solutions" arising out of the use of such mark prior to the Closing
or the use of such mark after the Closing in the same manner and to the same
extent it was used prior to the Closing.
(c) By the Stockholders. From and after the Closing, each of the
Stockholders severally shall indemnify, reimburse and hold harmless Gainor, the
Purchased Companies, and any of their Affiliates, any successors or assigns for
any and all direct or indirect claims, losses, damages, costs (including court
costs) and expenses (including all reasonable attorneys' and accounts' fees and
expenses), as a result or in connection with (i) any breach, inaccuracy or
untruth of any representation or warranty made by the Stockholder in Article 3B
hereof; or (ii) any breach of or noncompliance by the Stockholder of any
covenant or agreement of the Stockholder contained in this Agreement or in any
other agreement or instrument delivered in connection with this Agreement.
(d) By Gainor. From and after the Closing, each of Gainor Management
and Gainor Acquisition jointly and severally shall indemnify, reimburse and
hold harmless the Selling Companies and the Stockholders, and any of their
Affiliates, any successors or assigns for any and all direct or indirect
claims, losses, liabilities, damages (including special and consequential
damages), costs (including court costs) and expenses (including all reasonable
attorneys' and accountants' fees and expenses) (hereinafter "a Loss" or
"Losses"), as a result of or in connection with (i) any breach, inaccuracy or
untruth of any warranty of Gainor, whether such breach, inaccuracy or untruth
exists or is made on the date of this Agreement or as of the Closing; or (ii)
any breach of or noncompliance by Gainor of any covenant or agreement of Gainor
contained in this Agreement or in any other agreement or instrument delivered
in connection with this Agreement; or (iii) any of the Gainor Assumed
Liabilities.
(e) Definitions. A person entitled to make a claim of
indemnification hereunder shall be referred to as an "Indemnified Party". A
person obligated for indemnification hereunder shall be referred to as an
"Indemnifying Party".
(f) Claim Threshold. Notwithstanding the foregoing, no claim for
indemnification under Sections 6.8(a)(i) through (iv) or Sections 6.9(b)(i)
and (ii) may be made by an Indemnified Party against an Indemnifying Party
unless and until the cumulative total of all Losses suffered by such
Indemnified Party exceeds or is reasonably expected to exceed $100,000 (the
"Threshold"). Once Losses exceed the Threshold, the Indemnified Party
suffering such Losses may recover all Losses. The foregoing limitation shall
not apply to any Loss either intentionally caused by the Indemnifying Party or
of which the Indemnifying Party had knowledge prior to the Closing.
(g) Order of Remedies. No claim may be made by a Gainor
Indemnified Party under this Section 6.9 against any Stockholder unless and
until (i) there is no further amount available under the Note to set off
against such claim, and (ii) Gainor has used reasonable efforts to collect
such amount from Universal.
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(h) Procedures.
(i) The Indemnifying Party shall be entitled to defend any
claim, action, suit or proceeding made by any third party against
an Indemnified Party; provided, however, the Indemnified Party
shall be entitled to participate in such defense with counsel of its
choice and at its own expense, and if the Indemnifying Party does
not provide a competent and vigorous defense then the Indemnified
Party's participation shall be at the expense of the Indemnifying
Party. The Indemnified Party shall provide such cooperation and
access to its books, records and properties as the Indemnifying
Party shall reasonably request with respect to such matter; and
the parties shall cooperate with each other in order to ensure the
proper and adequate defense thereof.
(ii) An Indemnified Party shall not settle any claim
subject to indemnification hereunder without the prior written
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed.
(iii) With regard to claims of third parties for which
indemnification is payable hereunder, such indemnification shall
be paid by the Indemnifying Party (or amounts may be set off by the
Indemnified Party) upon the earliest to occur of: (A) the entry of
a judgment against the Indemnified Party and the expiration of any
applicable appeal period, (B) the entry of an unappealable judgment
or final appellate decision against the Indemnified Party, (C) the
settlement of the claim, (D) with respect to indemnities for Tax
liabilities, upon the issuance of any final resolution by a taxation
authority, or (E) with respect to claims before any administrative
or regulatory authority when the Loss is finally determined and not
subject to further review or appeal; provided, however, the
Indemnifying Party shall pay on the Indemnified Party's demand any
cost or expenses reasonably incurred by the Indemnified Party in
defending or otherwise dealing with such claim.
(i) Notice of Claim. To seek indemnification hereunder, an
Indemnified Party shall notify the Designated Official or the Universal
Representative, as applicable, of any claim for indemnification, specifying
in reasonable detail the nature of the Loss and the amount or an estimate of
the amount thereof.
(j) No Prejudice. Nothing herein shall prevent an Indemnified
Party from making a claim for a Loss hereunder notwithstanding its knowledge
of the Loss or possibility of the Loss on, prior to, or after the Closing
Date.
(k) Other Rights. The indemnities granted hereunder are in
addition to and not in substitution for any other right or remedy an
Indemnified Party may now have or may subsequently take or hold, and may be
enforced without first recourse to such other right or remedy and without
taking any steps or proceedings in connection therewith, and notwithstanding
any rule of law or equity or statutory provision to the contrary, provided
all claims for indemnification against Universal must first be satisfied by
setting off against the Note.
(l) Note Reduction. If a Loss is realized at any time during
which any amount is outstanding under the Note, then an amount sufficient to
cover such Loss shall be deducted from the then current outstanding principal
balance of the Note
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as set forth in Section 2.7. Gainor shall give at least 20 business days
prior written notice to Universal prior to setting off any amount hereunder.
Universal shall have 10 business days to deliver written notice to Gainor of
dispute of such claim. If Universal does not deliver such notice within such
10 business day period, then Universal shall be deemed to have agreed with
such deduction. If Universal delivers such notice within such 10 business
day period, the parties shall attempt to resolve any such dispute in good
faith within 10 business days thereafter.
6.10 Casualty. The Universal Entities shall bear the risk of any loss
or damage or destruction to any of the assets of a Universal Entity from fire
or other casualty or cause at all times prior to the Closing. Upon the
occurrence of any loss or damage to any significant portion of such assets as
a result of fire, casualty, or other causes prior to the Closing, Universal
shall immediately notify Gainor of the same in writing, stating with
particularity the extent of loss or damage incurred, the cause thereof, if
known, and the extent to which restoration, replacement, and repair of such
assets lost or destroyed will be reimbursed under any insurance policy with
respect thereto. Gainor shall have the option, but not the obligation,
exercisable within 15 business days after receipt of such notice from
Universal to:
a) Postpone the Closing until such time as such assets have been
completely repaired, replaced, or restored;
b) Elect to consummate the Closing and accept such assets in
their "then" condition, in which event the appropriate Universal Entity shall
assign to Gainor all rights under any insurance claim covering the loss and pay
over to Gainor any proceeds under any such insurance policy theretofore
received by Universal Entity with respect thereto; or
c) If in the good faith opinion of Gainor the loss or damage
materially adversely affects Universal's Business or the assets taken as a
whole, terminate this Agreement, whereupon this Agreement shall be of no
further force or effect and no party shall have any further rights, duties,
or obligations hereunder except under Section 6.11.
6.11 Confidentiality.
(a) The Universal Entities and the Stockholders shall hold in trust
and confidence all Confidential Information, Trade Secrets and Inventions of
Gainor and shall not use, divulge or communicate any Confidential Information,
Trade Secrets or Inventions of Gainor to any Person other than those officers,
employees, or professional advisors of Universal or any Universal Entity who
have a need to know such information for the purpose of the completion of the
transactions contemplated herein, or as specifically allowed by the Designated
Official in writing, or which Universal is required to disclose pursuant to any
law, regulation, or court or administrative order. Following the Closing, the
foregoing restrictions shall also apply to all Confidential Information,
Inventions and Trade Secrets of Universal and each Universal Entity and
relating to Universal's Business.
(b) Notwithstanding anything herein to the contrary, the provisions
of Section D.7. of the Letter of Intent dated as of August 15, 1997 from Gainor
to Universal shall continue in full force and effect through the Closing, or
for a period of five years from any termination of this Agreement in accordance
with its terms (and with respect to Trade Secrets, as long as such information
remains a Trade Secret under applicable law).
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(c) "Confidential Information" means technical, business,
financial and other information relating of Gainor, its Affiliates, Universal,
any Universal Entity, or relating to relating to Gainor's Business or
Universal's Business, regardless of the form or medium of storage, and whether
originated or obtained by, or coming into the possession, custody, control or
knowledge of the Universal, the Stockholders, or any of their Affiliates either
alone or jointly; provided, however, "Confidential Information" shall not be
deemed to include any information that is in the public domain at the time of
disclosure, or enters the public domain through no fault of Universal or the
Stockholders.
(d) "Invention" means any invention, drawing, design, model,
contrivance, structure, specification, improvement, discovery, creation, idea,
concept, formula, process and other work or contribution related to the past,
current or future business of Gainor, its Affiliates, Universal, or any
Universal Entity, however developed, created, made discovered or conceived,
and whether or not patented or patentable (whether by renewal or otherwise),
protected by copyright, or otherwise protected or capable of protection by law
anywhere.
(e) "Trade Secrets" means any information about or regarding
Universal, any Universal Entity, Gainor, any of its Affiliates, or Gainor's
Business or Universal's Business, in whatever form, whether written down or
not, which (i)derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
6.12 Noncompetition.
(a) The Selling Companies and Stockholders acknowledge and
recognize the highly competitive nature of Gainor's Business and accordingly
agree that, to induce Gainor to consummate the transaction contemplated by
this Agreement, each of the Selling Companies and the Stockholders shall not,
for a period of five (5) years after the Closing Date: (i) engage directly or
indirectly in any Competitive Business (as defined below) anywhere in the
Restricted Territory (as defined below), whether such engagement be as an
employer, officer, director, owner, investor, employee, partner, consultant
or other participant in any Competitive Business; (ii) solicit or accept
business from anyone who is or becomes an active or prospective customer of
Gainor or its Affiliates or who was an active or prospective customer of
Universal or any other Universal Entity at or prior to the Closing Date; (iii)
solicit for employment or hire any employee of Universal, any other Universal
Entity, Gainor or its Affiliates; or (iv) attempt to do any of the things or
assist anyone else in doing any of the things specified in subsections (i), (ii)
or (iii) above. Notwithstanding the foregoing, the ownership or control of up
to 1% of the outstanding securities of any company which has a class of
securities traded on any national or regional stock exchange or on the NASDAQ
market shall not be deemed a violation of this Section 6.12.
(a) As used in this Section 6.12: (1) "Competitive Business"
means and includes any business individual, corporation or other entity which
is engaged wholly or partly in any business competitive with or in competition
with Universal's Business, or Gainor's Business as conducted at the Closing;
and (2) "Restricted Territory" means the entire United States.
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(c) Not later than the Closing Universal shall
have obtained non-competition agreements from the Stockholders, directors and
officers of the Universal Entities, containing terms substantially identical to
the terms of this Section 6.12.
6.13 Funds Received After Closing. Any and all funds received by any
Stockholder or Selling Company after Closing in respect of the Purchased
Companies, the Transferred Assets or otherwise to Universal's Business
transferred to Gainor shall be remitted to Gainor immediately upon receipt.
6.14 No Public Announcements. Prior to Closing, without the prior
written consent of the other parties, neither Gainor, Stockholders nor any
Universal Entity shall make any press release or other public disclosure, or
make any statement to any customer, supplier or other person with regard to
the transactions contemplated by this Agreement, except as may required by
any applicable securities law or regulations; provided, however, that
Universal may issue a press release and file such other reports and make such
other disclosure as may be required by applicable securities law or the rules
or regulations of NASDAQ or the Boston Stock Exchange upon execution of this
Agreement. Universal shall provide Gainor with any such press release or
other disclosure document prior to its release for Gainor's review and
comment. After Closing, without the prior written consent of the Designated
Official, neither the Selling Companies nor Stockholders shall make any press
release or other public disclosure, or make any statement to any customer,
supplier or other person with regard to the transactions contemplated by this
Agreement, except as required by applicable securities law or regulations or
the rules or regulations of NASDAQ or the Boston Stock Exchange without prior
consultation with Gainor.
6.15 Acquisition Proposals. Prior to the Closing or termination of this
Agreement, Universal Entities and Stockholders shall not, and shall not
permit any officer, director, employee or agent of any Universal Entity or
any Affiliate thereof (a) to solicit, initiate or encourage submission of
proposals or offers, or accept any offers, from any person relating to any
acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, or any merger, consolidation or business combination
with, any Universal Entity (an "Acquisition Proposal"), or (b) to participate
in any discussions or negotiations regarding, or furnish to any other person
any information with respect to, or otherwise cooperate in any way with or
assist, facilitate or encourage any Acquisition Proposal by any other Person.
The Stockholders and the Universal Entities shall immediately notify Gainor
if any Person makes an Acquisition Proposal.
6.16 Preparation Of The Proxy Statement; Company Stockholders Meeting.
(a) As soon as practicable following the date of
this Agreement, Universal, in consultation with Gainor, shall prepare and
file with the SEC a preliminary Proxy Statement. All information in the
Proxy Statement concerning Gainor shall be submitted to Gainor for its
approval prior to filing with the SEC or mailing to stockholders. Universal
shall use all reasonable efforts to respond to any comments of the SEC
regarding the Proxy Statement. Universal will use commercially reasonable
efforts to cause the Proxy Statement to be mailed to Universal's stockholders
as promptly as practicable. Universal will notify Gainor promptly of the
receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Proxy Statement or for additional
information and Universal will supply Gainor with copies of all
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correspondence between Universal or any of its representatives and the SEC.
The Proxy Statement shall comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement, Universal shall
promptly inform Gainor of such occurrences and shall use commercially
reasonable efforts to promptly file with the SEC and/or mail to the
stockholders of Universal such amendment or supplement. The Proxy Statement
shall include the recommendation of the Board of Directors of Universal in
favor of the transactions set forth herein. Universal shall also take any
action required to be taken under any applicable state securities or "blue
sky" laws in connection with the completion of the transaction hereunder and
will pay all expenses incident thereto. Notwithstanding the foregoing,
Universal shall not be required to mail the Proxy Statement to its
Shareholders until (a) Gainor has received a commitment letter for the
financing required to complete the transactions contemplated herein or (b)
Universal is otherwise reasonably satisfied as to the terms and availability
of such financing.
(b) Universal will, as soon as practicable following the
date of this Agreement (but in no event sooner than 20 business days following
the date the Proxy Statement is mailed to the stockholders of Universal),
convene and hold a meeting of its stockholders (the "Universal Stockholders
Meeting") for the purpose of obtaining such approval of the transactions set
forth herein of Universal's stockholders as may be required by any Rule.
Universal will, through its Board of Directors, recommend to its stockholder's
approval of this Agreement and the transactions set forth herein and shall use
all reasonable efforts to solicit from its stockholders proxies in favor of
approval of this Agreement and such transactions and take all other reasonable
action necessary or advisable to secure the vote of stockholders to obtain such
approvals. Each of the Stockholders shall vote in favor of the transactions set
forth herein, and against any proposal that would prevent the consummation of
such transactions, at any stockholders meeting at which approval for such
transactions is sought, and each Stockholder shall use his best efforts to cause
the requisite number of the Universal stockholders to vote in favor of such
transactions at any such meeting, and against any proposal that would prevent
the consummation of such transactions, so that such transactions may be
consummated.
6.17 Closing. Each of the parties shall use all reasonable efforts to
close the transactions contemplated herein on or before January 15, 1997.
6.18 Post Closing Corporate Existence. Universal shall maintain its
corporate existence and a minimum tangible net worth of $2 million (excluding
the value of the Note) for at least five years following the Closing.
6.19 Termination and Break-Up Fee. Either party may terminate this
Agreement upon (i) a material breach of the terms or conditions of this
Agreement by the other party which breach is not cured within 10 days
following written notice thereof to the breaching party or (ii) on or after
March 30, 1998, provided, however, that no party may terminate this Agreement
who is in material breach of the provisions hereof. In the event that the
Closing does not occur for any reason not attributable to Gainor or its
Affiliates, and within a year following the date of this Agreement either (a)
a Person other than a Stockholder gains control of more than 15% of the
issued and outstanding stock of Universal with the help, assistance, or
approval of Universal, any Universal Entity, any of their management, any of
their Boards of Directors, or any Stockholder, or (b) Universal or the
Universal Entities or any of them merge, consolidate, or effect any other
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business combination with any Person, the result of which is that the current
stockholders of Universal own less than 80% of the resulting entity or (c)
Universal or the Universal Entities or any of them sell, lease or otherwise
transfer all or 30% or more of their assets taken as a whole to any Person or
Persons, then Universal shall pay to Gainor the sum of $2 million upon the
consummation of any such transaction.
6.20 Collection of Accounts Receivable. Gainor shall use good faith
reasonable commercial efforts to collect all trade accounts receivable of
Universal purchased by Gainor hereunder, which efforts shall be at least as
diligent as those used by Universal prior to the Closing.
6.21 Universal Permits. Each and all of the Universal Entities shall
cooperate with and use its best efforts to assist Gainor, both in advance of
the Closing and after the Closing, in maintaining or reapplying for any
Universal Permits for Gainor's use after the Closing (without incurring any
unreasonable expense).
6.22 Two Tiered Pricing Dispute. Notwithstanding anything herein to the
contrary or in the terms of the Note, Gainor shall not be required to pay the
principal amount of the Note below the amount then alleged to be owed to the
State of California or any agency thereof with respect to the two-tiered
pricing dispute between Universal and MediCal unless either (i) such claim
has been paid in full and released, or (ii) Universal makes provisions
acceptable to Gainor for payment of all such amounts or for reimbursement of
Gainor in the event Gainor is required to pay such amounts or incurs any cost
or expense related thereto. Any settlement of such dispute shall include
terms and conditions reasonably acceptable to Gainor.
6.23 Financing. Gainor shall use all reasonable efforts to obtain
financing necessary to consummate the transactions contemplated herein.
6.24 Fairness Opinion. Universal shall use all reasonable efforts to
obtain a fairness opinion as described in Section 7.6.
6.25 Employees. Prior to the Closing, Universal shall hire, and the
Purchased Companies shall terminate, all employees of the Purchased Companies
designated by Gainor. Prior to the Closing, Diabetes Self Care, Inc. shall
terminate its 401(k) plan and pay in full or discharge all liabilities
associated therewith. Universal shall provide all notices and take all other
actions required under the WARN act and any state law in connection with such
transfers and subsequent termination of employees.
6.26 Permits. Universal consents to Gainor Acquisition making any and
all necessary application for new permits, licenses and certifications, as
may be required by any Rule and agrees to allow Gainor Acquisition to use and
continue to use existing permits, licenses and certifications as may be
allowed by
6.27 any Rule. Upon Gainor's request Universal will execute and deliver
separate documents containing the consents and agreements given in the
preceding sentence.
6.28 Unemployment Taxes. Universal shall reimburse Gainor, or Gainor
may, at its option, reduce the amount of the Note (following the procedures
set forth in Section 2.7), by the amount of any increase in premiums for
unemployment insurance attributable to the termination of any employees in
connection with the transactions set forth herein or any termination of
former Universal employees by Gainor within 6 months of the Closing.
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6.29 Accounts Receivable. Notwithstanding anything herein to the
contrary, no third party payor accounts receivable of the Selling Companies
shall be assigned to Gainor hereunder which may not be assigned under
applicable regulations. Gainor shall collect all such accounts receivable on
behalf of the Selling Companies, and shall keep such amounts as may be
collected. Any accounts receivable received by the Selling Companies after
the Closing shall be promptly forwarded to Gainor. Each of the Selling
Companies agrees to execute and deliver to Gainor such powers of attorney and
other documents as may be reasonably necessary to allow Gainor to collect and
otherwise deal with such accounts receivable on the Selling Companies'
behalf.
6.30 Managed Care and Third Party Payor Contracts.
(a) Prior to the Closing, all agreements between any Selling
Company and a managed care provider (including those listed in Section 3.13 of
the Disclosure Memorandum) shall be assigned or transferred to USCI Healthcare
Management Solutions, Inc., and the applicable Selling Companies shall obtain
all applicable consents and approvals as may be required under such agreements
to effect such assignments or transfers.
(b) Prior to the Closing, all agreements between any Selling
Company and a third party payor shall be assigned, transferred or re-executed
with Diabetes Self Care, Inc., and the applicable Selling Companies shall obtain
all applicable consents and approvals.
1.1 Customer Transfers. Prior to the Closing, Diabetes Self Care, Inc. shall
obtain assignments of benefits for all patients and customers billed under
the PCS, Inc. - West provider numbers, and as of the Closing Date, such
customers and patients shall be billable under the provider numbers of
Diabetes Self Care, Inc.
1.2 State Qualification. Each of the Purchased Companies shall be qualified
to do business in all states in which they lease real property or have
employees, or are otherwise required to have such qualifications, and each of
the Purchased Companies shall pay all applicable taxes in such states,
including all applicable late fees and penalties.
1.3 Consents. If any Universal Contract listed in the Disclosure Memorandum
pursuant to Section 3.16 (a) hereof to which a Purchased Company is a party
will terminate in accordance with its terms or otherwise be materially
adversely affected due to the consummation of the transactions contemplated
herein, including the transfer of the Purchased Shares, then the Universal
Entities shall, prior to Closing, obtain such consents, approvals or waivers
as may be required to prevent such termination or material adverse effect.
6.31 Release of Encumbrances. At or before Closing, Universal shall
obtain releases of all Encumbrances on the Transferred Assets, and on any of
the assets of the Purchased Companies, including UCC-3 termination
statements, from HCFP Funding, Inc. and any other Person in whose favor any
such Encumbrance exists, such releases to be in form and substance reasonably
satisfactory to Gainor.
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ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLING COMPANIES AND STOCKHOLDERS
The obligations of Selling Companies to consummate the sale of the Transferred
Assets hereunder shall be subject to the satisfaction (or waiver by Universal)
at or prior to the Closing Date of each of the following conditions:
7.1 Representations, Warranties and Covenants. Each of the
representations and warranties of Gainor contained in this Agreement shall be
true in all respects as of the time of the Closing with the same force and
effect as though made at that time; Gainor shall have performed and complied
in all material respects with the respective covenants and agreements set
forth herein to be performed or complied with by it at or before the Closing;
and Gainor shall have delivered to Universal a certificate, signed on behalf
of each of Gainor Acquisition and Gainor Management by its President to all
such effects.
7.2 Litigation. No suit, investigation, action or other proceeding
shall be pending or overtly threatened before any court or governmental
agency, which has resulted in the restraint or prohibition of Universal
Entities or Stockholders, or in the reasonable opinion of counsel for
Universal could result in the obtaining of material damages or other relief
from Universal Entities or Stockholders, in connection with this Agreement or
the consummation of the transactions contemplated hereby.
7.3 Opinion of Counsel to Gainor. Universal shall have received from
counsel to each of Gainor Management and Gainor Acquisition an opinion dated
the Closing Date in form and substance reasonably satisfactory to Universal
and its counsel.
7.4 Required Approvals. All governmental authorizations, consents and
approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental preacquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having
authority to grant such waivers. The stockholders of Universal shall have
approved the consummation of the transactions contemplated herein at the
meeting of stockholders called for such purpose.
7.5 Execution and Delivery of Documents. Gainor Acquisition and Gainor
Management shall have executed and delivered all the documents required
herein to be executed and delivered by them; and all other agreements,
certificates and other documents delivered by Gainor to Universal hereunder
shall be in form and substance reasonably satisfactory to counsel for
Universal.
7.6 Fairness Opinion. The Board of Directors of Universal shall have
received an opinion, in form and substance reasonably satisfactory to the
Board, of an investment bank advisor or other Person acceptable to the Board
to the effect that the consideration to be received by the Selling Companies
hereunder is fair to Universal and it stockholders, from a financial point of
view.
7.7 No Material Adverse Change. Gainor shall not have suffered any
material adverse change since September 30, 1997 in its business or financial
condition as a whole.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF GAINOR
The obligations of Gainor to be performed hereunder shall be subject to the
satisfaction (or waiver by Gainor) at or before the Closing of each of the
following conditions:
8.1 Representations, Warranties and Covenants. Each of the
representations and warranties of the Universal Entities and Stockholders
contained in this Agreement shall be true in all respects as of the time of
the Closing with the same force and effect as though made at that time; the
Universal Entities and Stockholders shall have performed and complied in all
respects with the respective covenants and agreements set forth herein to be
performed or complied with by it at or before the Closing; and the Universal
Entities and each Stockholder shall have delivered to Gainor a certificate,
signed on behalf of each Universal Entity by its President, and by each
Stockholder to all such effects. Notwithstanding the foregoing, Gainor may
not fail to perform hereunder in the event that the Universal Entities fail
to comply with their obligations in Section 6.29, 6.30 or 6.32 in any
immaterial respect, provided that (a) all agreements required to be assigned
under Section 6.29 producing revenue in excess of $30,000 have been assigned,
(b) 90% of the patients and customers required to be transferred under
Section 6.30 have been transferred, (c) all consents required under Section
6.32 for agreements with value in excess of $30,000 have been obtained, and
(d) the Universal Entities and the Stockholders have used their best efforts
to comply with such provisions and any request of Gainor with respect to
performance under any such provision.
8.2 Litigation. No suit, investigation, action or other proceeding
shall be pending or overtly threatened before any court or governmental
agency, which has resulted in the restraint or prohibition of Gainor, or in
the reasonable opinion of counsel for Gainor could result in the obtaining of
material damages or other relief from Gainor, in connection with this
Agreement or the consummation of the transactions contemplated hereby.
8.3 Opinion of Counsel to Universal. Gainor shall have received from
counsel to each Universal Entity and Stockholders an opinion dated the
Closing Date in form and substance reasonably satisfactory to Gainor and its
counsel.
8.4 Execution and Delivery of Documents. The Universal Entities and
Stockholders shall have executed and delivered all the documents required
herein; and all other agreements, certificates and other documents delivered
by the Universal Entities and Stockholders to Gainor hereunder shall be in
form and substance reasonably satisfactory to counsel for Gainor. Edward T.
Buchholz shall have executed the Employment Agreement and delivered it to
Gainor.
8.5 No Material Adverse Change. No Universal Entity shall have suffered
any material adverse change since September 30, 1997 in its business,
prospects, financial condition, working capital, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves or operations.
8.6 Required Approvals. All governmental authorizations, consents and
approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental preacquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having
authority to grant such waivers. The
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stockholders of Universal shall have approved the consummation of the
transactions contemplated herein at the meeting of stockholders called for
such purpose.
8.7 Other Necessary Consents and Approvals. Each Universal Entity
shall have obtained any approval of its stockholders required by any Rule,
all consents, approvals and estoppels required under any material Universal
Contract, all consents and approvals listed in the Disclosure Memorandum, and
all other consents and approvals, the failure of which to obtain would have a
material adverse effect on Universal's Business as conducted by Gainor
following the Closing or the Transferred Assets at any time after the
Closing. With respect to each such consent, approval and estoppel, Gainor
shall have received written evidence, reasonably satisfactory to Gainor, that
such consent, approval or estoppel has been duly and lawfully filed, given,
obtained or taken and is effective, valid and subsisting.
8.8 Encumbrances. All of the Transferred Assets and all of the assets of
the Purchased Companies shall be free and clear of all Encumbrances at the
Closing other than Permitted Encumbrances, if any.
8.9 Payment of Sales Tax Claim. Universal shall have paid in full all
amounts owed to the State of California relating to any claim for sales taxes
due, including those referenced by the California State Board of Equalization
as SR-AC 402029-010, and Gainor shall have received adequate proof and
assurance of such payment.
8.10 Completion of Financing. Gainor Acquisition shall have completed
the financing of the purchase of the Transferred Assets on terms satisfactory
to Gainor in its sole discretion.
8.11 Permits. Gainor shall be satisfied that it can obtain or that
Universal can transfer all permits necessary to the continued conduct of
Universal's Business following the Closing.
ARTICLE 9
MISCELLANEOUS
9.1 Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given when delivered by overnight courier or
express mail service or by postage pre-paid certified or registered mail,
return receipt requested (the return receipt constituting prima facie
evidence of the giving of such notice, request, demand or other
communication), by personal delivery, or by fax with confirmation of receipt
to the following address or such other address of which a party subsequently
may give notice to all the other parties:
To a Universal Entity
or Stockholders: Universal Self Care, Inc.
11585 Farmington Road
Livonia, Michigan 48150
Attention: Brian D. Bookmeier
Fax: (313) 261-6511
And
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Greenberg Trauig, Hoffman, Lipoff
Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Attention: Stephen A. Weiss
Fax: (212) 223-7161
To Gainor or Gainor Acquisition: Gainor Medical Management, LLC
2205 Highway 42 North
McDonough, Georgia 30252-0353
Attention: Mark J. Gainor
Fax: (770) 474-1600
And
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Building
Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Philip H. Moise
Fax: (404) 817-6050
9.2 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and the respective successors and
assigns thereof. Without the prior written consent of Gainor, neither
Stockholders nor the Universal Entities may assign their rights, duties or
obligations hereunder or any part thereof to any other Person. Gainor may
assign its rights and duties hereunder in whole or in part (before or after
the Closing) to one or more Affiliates, provided that Gainor Management may
not assign its obligations relating to the Guarantee, nor the confidentiality
nor indemnification provisions without the prior written consent of Universal.
9.3 Entire Agreement. This Agreement, the Disclosure Memorandum and all
other certificates, schedules and other documents delivered pursuant thereto
constitute the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersede and are in full substitution
of any and all prior agreements and understandings written or oral between
the arties relating to such transactions.
9.4 Descriptive Headings. The descriptive headings of the Sections of
this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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9.6 Amendments and Waivers. No modification, termination, extension,
renewal or waiver of any provision of this Agreement shall be binding upon a
party unless made in writing and signed by such party. A waiver on one
occasion shall not be construed as a waiver of any right on any future
occasion. No delay or omission by a party in exercising any of its rights
hereunder shall operate as a waiver of such rights.
9.7 Governing Law, Jurisdiction and Venue. This Agreement is executed
by the parties in, and shall be construed in accordance with and governed by
the laws of the State of Georgia, and any dispute in relation hereto will be
submitted to the Superior Court of Henry County, Georgia, or the U.S. federal
District Court for the Northern District of Georgia.
9.8 No ThirdParty Beneficiaries. With the exception of the parties to
this Agreement and the Indemnified Parties, there shall exist no right of any
person to claim a beneficial interest in this Agreement or any rights
accruing by virtue of this Agreement.
9.9 Gender and Number. Where the context requires, the use of a pronoun
of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural,
and vice versa.
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Each of the parties hereto has caused this Agreement to be duly executed on its
behalf as of the date indicated on the first page hereof.
GAINOR:
GAINOR MEDICAL MANAGEMENT, LLC GAINOR MEDICAL ACQUISITION COMPANY
By: By:
_________________________________ ______________________________
________________________ ______________________________
Print Name Print Name
_________________________________ ______________________________
Print Title Print Title
UNIVERSAL:
UNIVERSAL SELF CARE, INC. CLINISHARE DIABETES CENTERS, INC.
By: By:
_________________________________ ______________________________
_________________________________ ______________________________
Print Name Print Name
_________________________________ ______________________________
Print Title Print Title
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PHYSICIANS SUPPORT SERVICES, INC. USC-MICHIGAN, INC.
By: By:
_________________________________ ______________________________
_________________________________ ______________________________
Print Name Print Name
_________________________________ ______________________________
Print Title Print Title
PCS, INC. - WEST DIABETES SELF CARE, INC.
By: By:
_________________________________ ______________________________
_________________________________ ______________________________
Print Name Print Name
_________________________________ ______________________________
Print Title Print Title
USCI HEALTHCARE MANAGEMENT
SOLUTIONS, INC.
By:
_________________________________
_________________________________
Print Name
_________________________________
Print Title
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STOCKHOLDERS:
_________________________________ ______________________________
BRIAN D. BOOKMEIER EDWARD T. BUCHHOLZ
_________________________________ ______________________________
MATTHEW B. GIETZEN ALAN M. KORBY
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SCHEDULE A
Accepted Contracts
The lease for real property at 5946 Kester Avenue, Van Nuys, CA shall be
assigned to Diabetes Self Care, Inc.
The lease for personal property with Target Equipment Leasing, Inc. dated
February 27, 1996 shall be assigned to Diabetes Self Care, Inc.
The lease for personal property with Target Equipment Leasing, Inc. dated March
12, 1996 shall be assigned to Diabetes Self Care, Inc.
All agreements of the Selling Companies listed in Schedule 3.16(a).
Assigned Contracts
The leases for real property in North Hollywood, CA and 990 Highland Drive,
Solana Beach, California shall be assigned to one of the Selling Companies.
The employment agreement between USCI Healthcare Management Solutions, Inc., and
Edward Buchholz shall be assigned to Universal Self Care, Inc.
The employment agreement between Diabetes Self Care, Inc. and Tod Robinson shall
be assigned to Universal Self Care, Inc.
Excluded Assets
Stock of the Selling Companies
All leases other than the leases for real property at 5946 Kester Avenue, Van
Nuys, CA 91411
Intercompany receivables
Prepaid loan fees
Prepaid expenses
Deposits and other like kind assets
Goodwill and other intangible assets
Gainor Assumed Liabilities
Trade accounts payable and obligations under Accepted Contracts.
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Transferred Accounts.
All bank accounts of the Selling Companies.
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Exhibit List
Exhibit A Bill of Sale
Exhibit B Contract Assignment Agreement
Exhibit C Employment Agreement
Exhibit D Gainor Assumption Agreement
Exhibit E Trademark Assignments
Exhibit F Universal Assumption Agreement
Exhibit G Promissory Note
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Exhibit G
THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND SUCH SECURITIES MAY
NOT BE TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND SUCH LAWS, OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION.
THIS NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF GAINOR (AS DEFINED
BELOW) AND EACH HOLDER OF THIS NOTE, BY ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
SUBORDINATION AND OTHER PROVISIONS HEREOF.
THIS NOTE MAY NOT BE TRANSFERRED OR ASSIGNED, EXCEPT IN ACCORDANCE WITH THE
TERMS OF SECTION 9 HEREOF.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$20,000,000.00 ____________, 1997
Simple Interest 7.00%-8.00% Per Annum
FOR VALUE RECEIVED, the undersigned, GAINOR MEDICAL MANAGEMENT, LLC, a
Georgia corporation (together with its permitted successors and assigns,
"Gainor"), promises to pay to the order of UNIVERSAL SELF CARE, INC., a Delaware
corporation (together with its permitted successors and assigns, "Holder"), the
principal sum of TWENTY MILLION AND 00/100 DOLLARS ($20,000,000.00), plus
interest as provided herein, on and subject to the terms set forth herein. This
Note is made in accordance with Section 2.3(c) of the Asset Purchase Agreement
dated November ___, 1997 by and among Gainor and Gainor Medical Acquisition
Company, on the one hand, and Holder, Clinishare Diabetes Centers, Inc.,
Physicians Support Services, Inc., USC-Michigan, Inc., PCS, Inc. - West,
Diabetes Self Care, Inc., USCI Healthcare Management Solutions, Inc., and
certain of the shareholders of Holder on the other hand (the "Purchase
Agreement").
1. Payment.
Subject to Section 3 below, the principal amount of this Note shall be paid in a
single payment with all accrued and unpaid interest thereon no later than
__________________ (the "Maturity Date"). Beginning on the date hereof,
interest at a simple rate of 7.00% per annum through December 31, 1998 and 8.00%
per annum thereafter shall accrue on the unpaid principal balance of this Note
outstanding from time to time. On the first business day in each calendar
quarter, commencing on January 2, 1998, Gainor shall pay to Holder the interest
accrued hereunder in arrears. Interest shall be calculated based on a
365(6)-day year, for actual days elapsed. The principal amount of this Note may
be adjusted as set forth in Sections 2.3, 2.5 and 2.7 of the Purchase Agreement,
which adjustments may be made separately or with another adjustment, and all
such adjustments shall be cumulative.
2. Default.
For purposes of this Note, a "Default" shall occur whenever:
(a) Gainor fails to pay any amount of principal of or interest on
this Note
<PAGE>
when due hereunder and fails to cure its non-payment within 10 days after
receiving notice from Holder of such failure.
(b) Gainor shall commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect); file a petition seeking to
take advantage as against its creditors of any other laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts; consent to or fail to contest in a timely
and appropriate manner any petition filed against Gainor in an involuntary
case under such bankruptcy laws or other laws; apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or
the taking of possession by, a receiver, custodian, trustee, or liquidator of
itself or of a substantial part of the property of Gainor; admit in writing
its inability to pay its debts as they become due; make a general assignment
for the benefit of creditors; or take any company action for the purpose of
authorizing any of the foregoing.
(c) A case or other proceeding shall be commenced against Gainor
in any court of competent jurisdiction seeking relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustments of debts, or the appointment of a trustee,
receiver, custodian, liquidator or the like of Gainor or of all or any
substantial part of the assets, domestic or foreign, of Gainor, and such
case, proceeding or appointment shall continue undismissed or unstayed for a
period of sixty (60) consecutive calendar days, or an order granting the
relief requested in such case or proceeding (including, but not limited to,
an order for relief under such federal bankruptcy laws) shall be entered.
Subject to Section 3 below, upon the occurrence and continuance of a Default,
Holder may declare any or all of the unpaid principal balance and accrued
interest under this Note to be immediately due and payable.
3. Subordination.
(a) Notwithstanding any other provision in this Note to the
contrary, Holder hereby agrees, to the extent so provided in this Section 3,
that the indebtedness represented by this Note shall be subordinated and
subject in all respects, including in right of payment to the prior
indefeasible payment in full in cash or immediately available funds of all
Senior Indebtedness. As used herein, the term "Senior Indebtedness" shall
mean (i) the principal of, accrued and unpaid interest on and all fees and
other amounts owing in connection with all indebtedness of Gainor for
borrowed money in connection with its term loan or line of credit with
______________________, and (ii) all or any other indebtedness of Gainor for
borrowed money from any bank, commercial finance company, factor, insurance
company, SBIC or other institutional lender, or from a currently existing
equity holder of Gainor.
(b) No payment on account of principal, interest or other amount
owing on this Note shall be made if, at the time of such payment or
immediately after giving effect thereto, there shall have occurred and be
continuing a default, with respect to any particular Senior Indebtedness,
which default shall not have been cured or waived.
(c) Upon any distribution of assets of Gainor, whether in cash,
properties or securities, or any payment by Gainor or any liquidating trustee
or to creditors in connection with any dissolution or winding up or
assignment for the benefit of creditors or any total or partial
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<PAGE>
liquidation or reorganization of Gainor, whether voluntary or involuntary, in
bankruptcy, insolvency, receivership or other similar proceedings, (i) all
amounts then due upon all Senior Indebtedness (including all interest
accruing thereon after the commencement of such proceeding, whether or not
allowed or allowable as a claim therein) shall first be indefeasibly paid in
full in cash, before any payment or distribution is made on account of this
Note, (ii) any payment or distribution, whether in cash, property or
securities which, but for the terms hereof, otherwise would be payable or
deliverable in respect of the obligations owing under this Note, shall be
paid or delivered directly to the holders of the Senior Indebtedness until
all Senior Indebtedness is indefeasably paid in full in cash; (iii) Holder
agrees not to initiate or prosecute any claim, action or other proceeding
challenging the enforceability of the Senior Indebtedness or any liens and
security interests securing the Senior Indebtedness; and (iv) Holder agrees
to execute, verify, deliver and file any proofs of claim in respect of the
obligations owing under this Note in connection with any such proceeding and
hereby irrevocably authorizes, empowers and appoints the holders of the
Senior Indebtedness as its agent and attorney-in-fact to (A) execute, verify,
deliver and file such proofs of claim upon the failure of Holder promptly to
do so (and, in any event, prior to 10 days before the expiration of the time
to file any such proof of claim) and (B) vote such claim in any such
proceeding upon the failure of Holder to do so prior to 10 days before the
expiration of the time to vote any such claim; provided, however, that the
holders of the Senior Indebtedness shall have no obligation to execute,
verify, deliver, file and/or vote any such proof of claim. The Senior
Indebtedness shall continue to be treated as Senior Indebtedness and the
provisions of this Section 3 shall continue to govern the relative rights and
priorities of the holders of the Senior Indebtedness and Holder even if all
or part of the Senior Indebtedness or the security interests securing the
Senior Indebtedness are subordinated, set aside, avoided or disallowed in
connection with any such proceeding and the provisions of this Section 3
shall be reinstated if at any time any payment of any of the Senior
Indebtedness is rescinded or must otherwise be returned by any holder of
Senior Indebtedness or any representative of such holder. In the event that,
notwithstanding the foregoing, any payment or distribution of assets
prohibited by the foregoing or by subsection (b) above shall be received by
Holder before all Senior Indebtedness is indefeasibly paid in full in cash,
such payment or distribution shall be received and held in trust for, and
shall be promptly paid over or delivered to the holders of Senior
Indebtedness or their representatives, as their respective interests may
appear, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to indefeasibly pay all Senior Indebtedness in
full in cash.
(d) The rights of Holder shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payment or distributions of cash,
property or securities of Gainor applicable to the Senior Indebtedness,
provided, however, that no payment or distribution to the holders of the
Senior Indebtedness pursuant to the provisions of this Note shall entitle
Holder to exercise any rights of subrogation in respect thereof until the
Senior Indebtedness shall have indefeasibly been paid in full in cash.
(e) Until the Senior Indebtedness is indefeasibly paid in full in
cash, Holder shall not take any collection or enforcement action with respect
to amounts due hereunder (including (i) to demand, sue for or set-off any
moneys, (ii) to initiate or participate with others in any such enforcement
action, including the bringing of any proceeding described in Section 3(c)
above and (iii) to accelerate this Note), except (i) with the express prior
written consent of the holders of the Senior Indebtedness or (ii) after
giving 180 days' prior written notice to the
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holders of the Senior Indebtedness that a default under this Note has
occurred and is continuing, Holder may accelerate this Note and take such
collection or enforcement action.
(f) Gainor shall be permitted to modify the Senior Indebtedness,
including increasing principal amounts owing and interest rate chargeable
thereunder and changing the manner, amount and time for payments thereunder,
and to incur additional indebtedness on a senior and/or secured basis at any
time, without notice to Holder, provided, however that Gainor shall not
extend the final maturity date of any Senior Indebtedness beyond the Maturity
Date.
(g) Holder hereby agrees to promptly notify the holders of the
Senior Indebtedness in writing of each default by Gainor hereunder, and the
cure thereof.
(h) Holder agrees to execute an intercreditor or subordination
agreement with terms and conditions consistent with the subordination
provisions of this Note or otherwise reasonable under the circumstances, if
required by the holders of the Senior Indebtedness, and to take all such
other reasonable action as the holders of the Senior Indebtedness may request
in order to enable such holders to enforce their rights hereunder.
(i) The holders of the Senior Indebtedness may foreclose on their
security interests securing payment of the Senior Indebtedness in any manner
that they, in their sole discretion, may elect even though a higher price
might have been obtained had such security interests been foreclosed upon in
another manner. Holder waives any requirement that the holders of the Senior
Indebtedness protest, secure, perfect or insure any security interest or lien
on any property subject thereto or exhaust any right or take any action
against Gainor. The right of any present or future holder of Senior
Indebtedness to enforce subordination of this Note pursuant to the provisions
of this Section 3 shall not at any time be prejudiced or impaired by any act
or failure to act on the part of Gainor or any such holder of Senior
Indebtedness, including but not limited to any application of any sums by
whomsoever paid or however realized to the Senior Indebtedness, or any
amendment of the amount, manner, place or terms of payment of the Senior
Indebtedness, or any extension of the time of payment of or renewal of the
Senior Indebtedness, or any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in
respect of any Senior Indebtedness or by noncompliance by Gainor with the
terms of such subordination regardless of any knowledge thereof with which
such holders may have or otherwise be charged.
(j) The holders of the Senior Indebtedness are hereby authorized
to demand specific performance of the subordination provisions contained in
this Note at any time when Holder shall have failed to comply with any of the
subordination provisions contained in this Note applicable to it. Holder
hereby irrevocably waives any defense based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific performance.
(k) Each current and future holder of Senior Indebtedness, whether
now outstanding or hereafter created, incurred, assumed or guaranteed, shall
be deemed to have acquired the Senior Indebtedness in reliance on the
subordination provisions contained in this Note, which are made for the
benefit of all such holders and their successors, assigns and participants,
and in this regard all such holders shall be third party beneficiaries of
this Note.
(l) This Note shall not at any time be secured by the assets or
properties of Gainor.
4. Right of Set Off. Payment (and prepayment, if applicable) of all
amounts due under this Note, including principal and interest, is subject to
(i) Gainor's right to setoff, against
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principal and interest and all other amounts due hereunder, any amounts due
to Gainor from Holder and/or another Selling Company (as defined in the
Purchase Agreement) under their respective indemnification and other
obligations under the Purchase Agreement, (ii) the provisions of Sections 2.3
and 2.5 of the Purchase Agreement concerning the adjustment in the principal
amount of this Note under certain circumstances, (iii) the provisions of
Section 6.22 of the Purchase Agreement concerning Holder's potential
liability in California for alleged two-tiered pricing practices, and (iv)
the last sentence of this Section 4. This Note is subject to such rights and
such other terms and conditions of the Purchase Agreement as may be
applicable. Notwithstanding any other provision of this Note, Gainor shall
not be obligated to make any payment hereunder that would reduce the
principal outstanding hereunder below the aggregate amount of all
outstanding, unpaid and unresolved claims for indemnification made by Gainor
under Section 6.9 of the Purchase Agreement.
5. Prepayment; Escrow. Gainor may prepay the principal hereof and
interest hereunder in whole or in part at any time and from time to time
without penalty or premium. If any such prepayment is made prior to the end
of the three year period following the date hereof and would result in the
principal amount outstanding under the Note to fall below $10 million, then
part of such prepayment shall be placed in escrow to secure Holder's
indemnification and other obligations under the Purchase Agreement, such that
the amount of principal remaining outstanding under this Note and the amount
in escrow total $10 million at all times. The amounts to be placed in escrow
shall be placed with SunTrust Bank, Atlanta or another escrow agent
acceptable to both Holder and Gainor pursuant to an escrow agreement with
terms and conditions reasonably acceptable to each of Holder and Gainor. If
Gainor elects to make such a prepayment and any amounts are so required to be
placed in escrow, the parties shall negotiate in good faith to agree upon the
terms and conditions of such escrow agreement as soon as possible following
such election. All amounts remaining in escrow at the end of such three year
period shall be released to Holder, except such amounts as may be required to
cover outstanding claims by Gainor against amounts held in escrow.
6. Conversion of Note.
(a) Conversion at Option of Holder. If Gainor shall at any time
determine in its sole discretion to register the sale of any of its equity
securities for its own account in a public offering on a firm commitment
underwritten basis through one or more underwriters pursuant to an
underwriting agreement between Gainor and such underwriters (an "Underwritten
Public Offering"), then Gainor shall notify Holder in writing (the "Offering
Notice") as soon as practicable but no less than 20 days prior to filing a
registration statement for such Underwritten Public Offering, which Offering
Notice shall include the most recent financial statements of Gainor and the
most recent description of Gainor's business proposed to be included in the
registration statement, and a copy of such other information available to
Gainor and reasonably requested by Holder concerning the terms of the
proposed Underwritten Public Offering. Within 10 business days after receipt
of the Offering Notice, Holder may elect to convert this Note, in whole or in
part, into the equity securities of Gainor offered pursuant to such
Underwritten Public Offering (the "Conversion Shares"), contingent upon the
closing of such offering. The number of Conversion Shares shall be determined
by dividing the aggregate amount of this Note to be converted by the per
share offering price of the equity securities actually offered in such
Underwritten Public Offering. Notwithstanding the above: if the aggregate
offering price of the securities offered in the Underwritten Public Offering
is less than $25 million, and if the managing underwriter or underwriters
determine that marketing or other factors so require, the underwriter and
Gainor may limit the amount of this Note that may be converted under this
Section 6; and the conversion rights
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<PAGE>
of this Section 6 are subject to the provisions of Section 9 hereof
concerning the sale, transfer or assignment hereof by Holder.
(b) Conversion Procedures. Such conversion shall be made by delivery to
Gainor of a written notice of Holder's election to convert this Note within
10 business days after receipt of the Offering Notice. Such conversion shall
be deemed to have been made at the close of business on the date immediately
prior to the commencement of such Underwritten Public Offering. No
fractional shares of Common Stock shall be issued upon conversion of this
Note, and in lieu thereof, Gainor shall pay to Holder the amount of
outstanding principal that is not so converted. Upon the conversion of this
Note, Holder shall surrender the Note, duly endorsed, at the principal office
of Gainor. At its expense, Gainor shall, upon the closing of the
Underwritten Public Offering, issue and deliver to Holder a certificate or
certificates for Conversion Shares (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to
Gainor), together with a check payable to Holder for any cash amount payable
for fractional shares. Upon conversion of this Note, Gainor shall be forever
released from all its obligations and liabilities under this Note, provided,
however, that the obligations of Gainor set forth in Section 7 shall remain
in effect.
(c) Security Pledge. If any conversion hereunder is made prior to
the end of the three year period following the date hereof and would result
in the principal amount outstanding under the Note to fall below $10 million,
or if any conversion hereunder is made at any time and would result in the
principal amount outstanding under the Note to fall below the aggregate
amount of all outstanding, unpaid and unresolved claims for indemnification
made by Gainor under Section 6.9 of the Purchase Agreement, then a number of
the Conversion Shares shall be pledged to Gainor to secure Holder's and/or
the other Selling Companies' indemnification and other obligations under the
Purchase Agreement, such that the amount of principal remaining under this
Note and the value of the Conversion Shares so pledged (valued at the
offering price) shall total the greater of $10 million or the aggregate
amount of all such claims if conversion occurs during such three-year period,
or the aggregate amount of all such claims if conversion occurs after such
three-year period. Such shares shall be pledged pursuant to a pledge
agreement with terms and conditions reasonably acceptable to each of Holder
and Gainor, in any event providing that obligations of Holder to Gainor may
be satisfied by Gainor's reacquisition of an appropriate number of the
Conversion Shares, valued at the average of the closing market price for such
shares during the five trading days prior thereto. The parties shall
negotiate in good faith to agree upon the terms and conditions of such pledge
agreement as soon as possible following the conversion election. All shares
remaining under pledge at the end of such three year period shall be released
to Holder, except such shares as may be required to cover outstanding claims
by Gainor under the indemnification provisions of the Purchase Agreement.
7. Registration Rights.
(a) Piggyback Registration. Not more than two times after the
date of this Note, if Gainor determines to effect an Underwritten Public
Offering and Holder has elected to acquire Conversion Shares through the
conversion of all or any portion of this Note, Gainor will:
(i) promptly give to Holder written notice of such
Underwritten Public Offering (which shall include, to the
extent available, a list of the jurisdictions in which
Gainor intends to attempt to qualify the offer and sale
of such securities under the applicable blue sky or other
state securities laws); and
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(ii) use its reasonable efforts to include in such registration
(and any related qualification under blue sky laws or other
compliance), and in any Underwritten Public Offering
involved therein, all the Conversion Shares specified in a
written request by Holder received by Gainor within ten
days after such written notice is given. Any such request
from Holder shall (i) specify the number of Conversion
Shares requested to be included in such registration and
(ii) include an undertaking to provide all information and
materials concerning Holder, to comply with all
requirements hereunder concerning such Underwritten Public
Offering, and to take any other actions reasonably
requested by Gainor to enable Gainor to comply with the
Securities Act, any applicable state securities law, and
the applicable rules and regulations thereunder
(b) Underwriting. The registration rights of Holder shall be
conditioned upon Holder's participation in the Underwritten Public Offering,
the inclusion of the Conversion Shares in the Underwritten Public Offering to
the extent provided herein, and Holder's entering into an underwriting
agreement in customary form with the underwriter or underwriters selected by
Gainor for such Underwritten Public Offering.
(c) Termination of Registration by Gainor. Notwithstanding any
other provision herein, at any time before or after the filing of a
registration statement in connection with such Underwritten Public Offering,
Gainor may, in its sole discretion, abandon or terminate such registration
without the consent of Holder.
(d) Limitations on Rights. Gainor shall not be required to
include the Conversion Shares in the securities covered by a registration
statement on any form which limits the amount of securities that may be
registered by the issuer or selling security holders if, and to the extent
that, such inclusion would make the use of such form unavailable. In
addition, the registration rights under this Section 7 are subject to the
provisions of Section 9 hereof concerning the sale, transfer or assignment
hereof by Holder.
(e) Reduction of Rights. Notwithstanding any other provision
herein, if the managing underwriter or underwriters determine that marketing
or other factors require a limitation of the amount of securities to be
offered in the Underwritten Public Offering, the underwriter and Gainor may
limit the number of Conversion Shares to be included in any registration and
Underwritten Public Offering.
(f) Prohibition on Selling Stock During Underwritten Public
Offering. In the event of an Underwritten Public Offering, Holder shall not
sell any of the Conversion Shares, except to the underwriters in connection
with such offering, during the period of distribution of the offered
securities by the underwriters and the period in which the underwriting
syndicate participates in the aftermarket. The securities registered under
the terms of this Section 5 shall be subject to such restrictions on sale or
lock up periods as may be required by the Underwriters.
(g) Registration Expenses. Gainor shall pay, on behalf of Holder,
all of the expenses in connection with the registration of the Conversion
Shares as provided herein, including all registration, filing and NASD fees,
and all fees and expenses of complying with securities or blue sky laws, but
excluding any underwriting discounts and commissions and transfer taxes, if
any, and any fees or disbursements of any counsel to Holder. In any
registration, Holder shall pay for its own counsel, underwriting discounts
and commissions, and transfer taxes.
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(h) Registration Procedures. In the case of any registration
effected by Gainor in which the Conversion Shares are included pursuant to
this Section 5, Gainor will, at its expense:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement
with respect to the Conversion Shares and use its
reasonable efforts to cause such registration
statement to become and remain effective for such
period as may be reasonably necessary to effect the
sale of the Conversion Shares under the plan of
distribution chosen by Gainor for the Underwritten
Public Offering;
(ii) prepare and file with the Commission such amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
correct any statements or omissions if, during the time
when the prospectus is required to be delivered under
the Securities Act of 1933 (the "Securities Act"), any
event shall have occurred as a result of which the
prospectus would include any untrue statement of a
material fact or omit to state any material fact
necessary to make the statements therein, in the
light of the circumstances in which they were made, not
misleading;
(iii) furnish to Holder a copy of any opinion letters which
Gainor shall provide to the underwriters pursuant to
the underwriting agreement;
(iv) furnish to Holder such reasonable number of copies of
the registration statement, preliminary prospectus,
final prospectus and such other documents as Holder may
reasonably request in order to facilitate the public
offering of the Conversion Shares; and
(v) use its reasonable efforts to register or qualify the
Conversion Shares covered by such registration statement
under such state securities or blue sky laws of such
jurisdictions as the underwriters and Gainor determine
appropriate.
(i) Indemnification. In the case of a registration effected by
Gainor pursuant to this Section 5 in which Conversion Shares are included:
(i) Gainor agrees to indemnify and hold harmless Holder
against any and all losses, claims, damages or liabilities
to which Holder may become subject under the Securities
Act or any other statute or common law, and to reimburse
Holder for any reasonable legal or other expenses incurred
by it in connection with the investigation of any claims
and defense of any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out
of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
registration statement, any prospectus contained therein,
or any amendment or supplement thereto, or in any blue
sky application, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, however, that the indemnification
contained in this subsection shall not (A) apply to such
losses, claims, damages, liabilities or actions arising
out of, or based upon, any such untrue statement or
alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in
reliance upon and in conformity with information furnished
to Gainor by Holder for use in connection with the
preparation
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of the registration statement or any prospectus contained
in the registration statement or any such amendment
thereof or supplement thereto; or (B) inure to the benefit
of any person to the extent such person's claim for
indemnification hereunder arises out of or is based on any
violation of such person of applicable law.
(ii) Holder shall be obligated, in the same manner and to the
same extent as set forth in subsection (i) of this
Section 5(i), to indemnify and hold harmless Gainor
and each person, if any, who controls Gainor within the
meaning of Section 15 of the Securities Act, and their
directors and officers, with respect to any statement or
alleged untrue statement in, or omission or alleged
omission from, such registration statement, any prospectus
contained therein, or any amendment or supplement thereto,
or in any blue sky application, if such statement or
omission was made in reliance upon and in conformity with
information furnished to Gainor by Holder for use in
connection with the preparation of such registration
statement or any prospectus contained in such registration
statement or any such amendment thereof or supplement
thereto or blue sky application; provided, however, that
the liability of Holder hereunder shall be limited to the
proceeds received by Holder from the sale of Conversion
Shares covered by such registration statement, amendment,
supplement, prospectus or blue sky application, as the
case may be.
(iii) Each person to be indemnified pursuant to this Section 5
shall, promptly after its receipt of written notice of
the commencement of any action against such indemnified
person in respect of which indemnity may be sought from an
indemnifying person under this Section 5, notify the
indemnifying person in writing of the commencement thereof.
The failure of any indemnified person to so notify an
indemnifying person of the commencement of any such action
shall relieve the indemnifying person from any liability
in respect of such action which it may have to such
indemnified person on account of the indemnity contained
in this Section 5, but shall not relieve the indemnifying
person from any other liability which it may have to such
indemnified person. Upon notification of such an action
as provided above, the indemnifying person shall be
entitled to participate therein and, to the extent it may
desire, jointly with any other indemnifying persons
similarly notified, to assume the defense thereof, and
after notice from the indemnifying person to such
indemnified person of its election to assume the defense
thereof, the indemnifying person will not be liable to
such indemnified person under this Section 5 for any legal
or other expenses subsequently incurred by such
indemnified person in connection with the defense thereof
other than reasonable costs of investigation unless
(A) the indemnified party shall have employed counsel in
an action in which the indemnified party and indemnifying
party are both defendants and there is a conflict of
interest between such parties that would prevent counsel
from adequately representing both parties, or (B) the
indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the
indemnifying party.
8. Representations, Warranties and Covenants of Holder. Holder hereby
represents and warrants to Gainor as follows:
(a) Restricted Securities. Holder understands that neither the
issuance of this Note nor the issuance of the Conversion Shares will be
registered under the Securities Act or the
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<PAGE>
securities laws of any, in reliance upon exemptions from registration
contained in the Securities Act and such laws, and that Gainor's reliance
upon such exemptions is based in part upon the representations, warranties
and agreements of Holder contained herein.
(b) Investment Intent. Holder is acquiring this Note (and will
acquire the Conversion Shares) for its own account and not for distribution
or resale to others, and agrees that it will not sell or otherwise transfer
this Note or the Conversion Shares except pursuant to an effective
registration statement under the Securities Act and applicable state
securities laws, or exemptions available therefrom.
(c) Legend Requirement. Holder acknowledges that the certificates
representing the Conversion Shares will contain a legend stating that the
issuance thereof was not registered under the Securities Act or any state
securities laws and referring to the above restrictions on transferability
and sale. A notation will also be made in the records of Gainor so that
transfers of such Conversion Shares will not be effected in the records of
Gainor without compliance with these restrictions.
9. Assignment. Neither party hereto shall have the right to sell,
transfer or assign this Note or any rights or delegate any duties hereunder
except with the express prior written consent of the other party, except that
(a) Gainor shall have the right to assign any rights or delegate any duties
hereunder to any Affiliate (as that term is defined in the Purchase
Agreement) who is a successor in interest to all or substantially all of its
business or assets or to any other Affiliate provided that Gainor guarantees
the performance of all obligations by such Affiliate hereunder, and (b)
Holder may sell, transfer or assign this Note (in whole but not in part) to
another person through a direct assignment or through a merger or
consolidation with such other person upon at least 10 days prior written
notice to Gainor, provided, however, that Holder may not sell, transfer or
assign this Note to any person engaged in any business that is competitive
with any business conducted by Gainor at the time of such sale, transfer or
assignment. Any sale, transfer or assignment by either party, when permitted
hereunder, shall be subject to all terms contained herein, and the buyer,
transferee or assignee shall agree in writing to all terms and conditions
contained herein. Subject to the restrictions on transfer contained herein
and the proviso at the end of this sentence, the rights and obligations of
Gainor and Holder shall be binding upon and benefit the successors and
permitted assigns of such party; provided, however, that upon any sale,
transfer or assignment of this Note by Holder, the provisions of Section 6
(Conversion of Note) and 7 (Registration Rights) hereof shall become null and
void and the buyer, transferee or assignee shall not be entitled to any of
the benefits thereof. This Note shall be deemed to be canceled, and all
obligations of Gainor hereunder shall terminate, if, without the prior
written consent of Gainor Holder attempts to distribute this Note or any
interests therein to its security holders or liquidate.
10. Amendment. Any provision of this Note may be amended or modified
only upon the written agreement of Gainor and Holder.
11. Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given when delivered by overnight courier or
express mail service or by postage pre-paid certified or registered mail,
return receipt requested (the return receipt constituting prima facie
evidence of the giving of such notice, request, demand or other
communication), by personal delivery, or by fax with confirmation of receipt
to the following address or such other address of which a party subsequently
may give notice to all the other parties:
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To Holder: Universal Self Care, Inc.
1158 Farmington Road
Livonia, Michigan 48150
Attention: Brian D. Bookmeier
Fax: (313) 261-6511
To Gainor : Gainor Medical Management, LLC
2205 Highway 42 North
McDonough, Georgia 30252-0353
Attention: Mark J. Gainor
Fax: (770) 471-1600
And
Nelson Mullins Riley & Scarborough, L.L.P.
Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Philip H. Moise
Fax: (404) 817-6050
12. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
13. Governing Law. The provisions of this Note are to be governed by
and construed according to the laws of the State of Georgia.
GAINOR MEDICAL MANAGEMENT, LLC
By:_______________________________
Mark J. Gainor
President
Consented and Agreed to:
UNIVERSAL SELF CARE, INC.
By: ________________________________
Brian D. Bookmeier
President
11
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