<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
UNIVERSAL SELF CARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
PROPOSED CASH PAYMENT: $17,000,000 X 1/50 OF 1%
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
$3,400
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
UNIVERSAL SELF CARE, INC.
11585 Farmington Road
Livonia, Michigan 48150
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 19, 1998
TO THE STOCKHOLDERS OF
UNIVERSAL SELF CARE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Stockholders of Universal Self Care, Inc. (the "Company" or the
"Corporation") will be held at the Holiday Inn Livonia-West, 17123 North
Laurel Park Drive, Livonia, Michigan 48152 on January 19, 1998 at 10:00 a.m.
local time for the following purposes:
1. To elect four directors to hold office until the next Annual Meeting;
2. To ratify the selection of Feldman Radin & Co., P.C. auditors of the
Company for the Fiscal Year ending June 30, 1998;
3. To authorize the sale of all or substantially all of the assets of
the Company to a wholly-owned subsidiary of Gainor Medical Management, LLC
(the "Gainor Transaction") pursuant to the terms of the Asset Purchase
Agreement, dated November 14, 1997, by and among the Company, Gainor Medical
Management, LLC and certain other parties (the "Sale Agreement"); and
4. To authorize and approve the adoption of the Company's 1997 Stock
Option Plan for Non-Employee Directors;
5. To authorize an amendment to the Company's Certificate of
Incorporation to change the name of the Company to Tadeo Holdings, Inc., in
accordance with the terms of the Sale Agreement, to be effective only upon
the closing of the Sale Agreement identified in Proposal 3, above;
<PAGE>
6. To authorize an amendment to the Company's certificate of
incorporation to increase the authorized capital of the company by increasing
from 40,000,000 shares of common stock, $0001 par value (the "Common Stock")
to 100,000,000 shares the Company's authorized Common Stock; to be effective
only upon the closing of the Sale Agreement identified in Proposal 3 above;
and
7. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed December 18, 1997 as the record date for
the determination of stockholders entitled to notice of and to vote at the
meeting or any adjournment thereof. The stock transfer books of the Company
will not be closed, but only stockholders of record at the close of business
on December 18, 1997 will be entitled to vote at the meeting or any
adjournment or adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
BRIAN BOOKMEIER, PRESIDENT
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND RETURN YOUR
PROXY CARD PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE PROVIDED FOR YOUR USE.
2
<PAGE>
UNIVERSAL SELF CARE, INC.
11585 Farmington Road
Livonia, Michigan 48150
PROXY STATEMENT
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Universal Self Care,
Inc. (hereinafter referred to as the "Company" or the "Corporation"), for its
Annual Meeting of Stockholders (the "Meeting") to be held on January 19,
1998, or any adjournments thereof. Shares cannot be voted at the meeting
unless their owner is present in person or represented by proxy. Copies of
this proxy statement and the accompanying form of proxy shall be mailed to
the stockholders of the Company on or about December 18, 1997, accompanied by
a copy of the Company's Annual Report containing financial statements as of
and for the two (2) fiscal years ended June 30, 1997, together with other
information respecting the operations of the Company. The principal executive
offices of the Company are located at the address indicated above.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made the shares will be voted to approve each proposition
and to elect each nominee for director identified on the proxy. Any
stockholder giving a proxy has the power to revoke it at any time before it
is voted by filing with the Secretary of the Company a notice in writing
revoking it. A proxy may also be revoked by any stockholder present at the
Meeting who expresses a desire in writing to revoke a previously delivered
proxy and to vote his or her shares in person. The mere presence at the
Meeting of the person appointing a proxy does not revoke the appointment. In
order to revoke a properly executed and returned proxy, the Company must
receive a duly executed written revocation of that proxy before it is voted.
A proxy received after a vote is taken at the Meeting will not revoke a proxy
received prior to the Meeting; and a subsequently dated proxy received prior
to the vote will revoke a previously dated proxy.
All expenses in connection with the solicitation of proxies, including
the cost of preparing, handling, printing and mailing the Notice of Annual
Meeting, Proxies and Proxy Statements will be borne by the Company.
Directors, officers and regular employees of the Company, who will receive no
additional compensation therefore, may solicit proxies by telephone or
personal call, the cost of which will be nominal and will be borne by the
Company. In addition, the Company will reimburse brokerage houses and other
institutions and fiduciaries for their expense in forwarding proxies and
proxy soliciting material to their principals.
3
<PAGE>
Under Delaware statutory law stockholders are estopped from bringing any
action against a Delaware Corporation with regard to any matter approved or
ratified by stockholders, on which matter adequate information has been
provided to stockholders, solely for the reason that an interested director
is involved in the transaction. By voting to approve any such matter,
however, stockholders are not estopped from taking action against the Company
on the basis of other objections or under common law principles, such as
fraud.
At the close of business on December 18, 1997, there were outstanding
9,724,579 shares of Common Stock, 580,000 Shares of Series A Preferred Stock
and 1,000,000 shares of Series B Preferred Stock (all of which Series A and
Series B Preferred Stock is collectively referred to as the "Preferred
Stock"), which constituted the voting securities of the Company. Each
stockholder is entitled to cast one vote for each share of Common Stock and
Preferred Stock, which is present at the Meeting either in person or by
proxy. Only holders of record of the outstanding shares of Common Stock at
the close of business on December 18, 1997 will be entitled to vote at the
Meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.1-11568)
pursuant to the Exchange Act are incorporated herein by reference:
The Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997;
The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997; and
The Company's Current Report on Form 8-K filed on July 7, 1997.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies each person or entity known to the Company
to be the beneficial owner of more than five percent of the Company's common
stock on December 18, 1997, each director of the Company, each nominee for
director, and all the directors and officers of the Company as a group, and
sets forth the number of shares of the Company's common stock beneficially
owned by each such person and such group and the percentage of the shares of
the Company's outstanding common stock owned by each such person and such
group. In all cases, the named person has sole voting power and sole
investment power of the securities.
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) COMMON STOCK OWNED
- ----------------------- --------------------------- -------------------------
H. T. Ardinger 500,000 5.1%
9040 Governors Row
4
<PAGE>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) COMMON STOCK OWNED
- ----------------------- --------------------------- -------------------------
Dallas, TX 75356
Brian D. Bookmeier 579,148 5.7%
37119 Muirfield
Livonia, MI 48150 (2)
Edward T. Buchholz 601,358 5.8%
265 Waterside Drive
Moneta, VA 24124 (3)
Matthew B. Gietzen 577,147 5.7%
23307 Mystic Street
Novi, MI 48375 (2)
Fred Kassner 1,951,950 18.6%
59 Spring Street
Ramsey, NJ 07446 (4)
Alan M. Korby 574,148 5.6%
24054 Roma Ridge
Novi, MI 48375 (2)
Steven Leichter, M.D. -0- -0-
70 Benfield Court
Columbus, GA 31907
James Linesch 136,000 1.4%
3401 Walnut Avenue
Manhattan Beach, CA 90266
Robert L. Moody, Jr. 607,560 6.1%
2302 Post Office Street,
Suite 601
Galveston, TX 77550 (4)
Robert M. Rubin 613,789 6.2%
6060 Kings Gate Circle
Delray Beach, FL 33484 (4)
5
<PAGE>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) COMMON STOCK OWNED
- ----------------------- --------------------------- -------------------------
Damon D. Testaverde 437,372 4.4%
580 Oakdale Street
Staten Island, NY 10312(5)
Peter W. Rothberg 10,000 *-
c/o Greenberg Traurig
Hoffman Lipoff Rosen &
Quentel
153 East 53rd Street
New York, NY 10022(6)
All officers and directors 2,467,801 22.1%
as a group (6 persons)(2)(3)
- ------------------------
* Less than 1%.
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership, voting and
investment rights.
(2) Includes (i) 333,334 shares of Common Stock held by Mr. Korby as well as
166,666 shares of Common Stock issuable to Mr. Korby upon conversion of his
333,333 shares of Series B Preferred Stock, (ii) 338,333 shares of Common
Stock held by Mr. Bookmeier as well as 166,667 shares of Common Stock
issuable to Mr. Bookmeier upon conversion of his 333,334 shares of Series B
Preferred Stock and (iii) 336,334 shares of Common Stock held by Mr. Gietzen
as well as 166,667 shares of Common Stock issuable to Mr. Gietzen upon
conversion of his 333,333 shares of Series B Preferred Stock. Also includes
options to purchase 125,000 shares of Common Stock at $1.35 per share,
granted to each of Messrs. Korby, Bookmeier and Gietzen in connection with
the waiver of certain cash compensation in 1996. 39,179 of the shares of
Common Stock issued to each of Messrs. Korby, Bookmeier and Gietzen (117,537
shares in the aggregate), have been pledged to Barbara Milinko to secure a
$325,000 note payable to Ms. Milinko by Messrs. Korby, Bookmeier and
Gietzen. Does not include any shares of Series A Preferred Stock held by
Messrs. Korby (128,889 shares), Bookmeier (128,889 shares) and Geitzen
(128,888 shares), which Series A Preferred Stock vote on a one share for one
vote basis along with the Common Stock.
6
<PAGE>
(3) Includes shares underlying options to purchase 350,000 shares of common
stock granted to Mr. Buchholz under his Employment Agreement, 175,000 at
$1.70 per share and 175,000 at $1.25 per share, options to purchase an
aggregate of 175,000 shares of Company Common Stock at $1.25 per share
granted in connection with the acquisition of Diabetes Self Care, Inc. and
options to purchase an aggregate of 41,667 shares of Company Common Stock at
$1.35 per share granted in connection with the waiver of certain cash
compensation in 1996.
(4) For Mr. Kassner, includes 642,535 shares of Common Stock underlying the
Company's publicly-traded Class A Warrants and 100,000 shares of Common
Stock underlying Warrants granted in connection with certain financial
accommodations granted by Mr. Kassner related to the release of security
interests in Company assets. For Mr. Moody, includes Class A warrants to
purchase an aggregate of 307,560 shares of Company Common Stock. For Mr.
Rubin, includes the shares underlying 100,000 warrants granted in connection
with the waiver of defaults under then existing indebtedness.
(5) Includes options to acquire 150,000 shares of the Company's Common Stock
granted under the 1992 Stock Option Plan exercisable at $1.50 per share, and
warrants to acquire 50,000 shares of the Company's Common Stock exercisable
at $1.00 per share granted in connection with the waiver of defaults under
then existing indebtedness.
(6) Includes options to acquire 10,000 shares of the Company's Common Stock
granted under the 1992 Stock Option Plan exercisable at $1.50 per share.
DIRECTORS, NOMINEES FOR DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY
OFFICERS AND DIRECTORS
The executive officers, directors and nominees for director of the
Company are as follows:
NAME AGE POSITION WITH THE COMPANY
- ----------------------------- --- ------------------------------------------
Brian D. Bookmeier 39 President of Universal Self Care, Inc.,
Acting Chief Financial Officer,
Chairman of the Board of Directors and
Nominee for Director
Steven Leichter, M.D. 52 Director
Tod J. Robinson 36 Vice President-National Sales for Diabetes
Self Care, Inc. (formerly Thriftee Group)
7
<PAGE>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------- --- ------------------------------------------
Edward T. Buchholz 54 President, Healthcare Management
Solutions, Inc., Vice President Universal
Self Care and Vice Chairman of the Board
of Directors
Alan M. Korby 40 President, Diabetes Self Care, Inc.,
Vice President Universal Self Care, Inc.
and Director
Matthew B. Gietzen 34 Vice President of Fulfillment,
Secretary and Director
James Linesch 43 Director and Nominee for Director
Damon D. Testaverde 49 Nominee for Director
Peter W. Rothberg 45 Nominee for Director
Set forth below is a brief background of the officers, directors ,
nominees for director and key employees of the Company, based on information
supplied by them.
BRIAN D. BOOKMEIER. Mr. Bookmeier has served as President, Chief
Executive Officer and a director of the Company since July 1995. From
September 1989 until its Merger into the Company Mr. Bookmeier served as
Executive Vice President and a Director of Patient Care Services, a home
medical equipment supply company that specialized in diabetes management, and
the sale of related equipment and supplies. He has been a Director of the
American Diabetes Association since June 1995.
EDWARD T. BUCHHOLZ. Since May 14, 1997 Mr. Buchholz has served as Vice
Chairman of the Board. Mr. Buchholz has served as a Vice President and a
Director of the Company since February 8, 1994. Since December 16, 1996 Mr.
Buchholz has served as President and CEO of the Company's managed care
program, "Healthcare Management Solutions, Inc.". Prior to this he served as
President of Diabetes Self Care, Inc. Mr. Buchholz started his health care
career in 1969 with The Hartford Insurance Company and has held numerous
executive positions in the industry over the past 25 years. From October 1985
to December 1989, Mr. Buchholz served as President of Shoney's Va/Md
Construction Co., Inc., a commercial builder of restaurants and motels in
Virginia, Maryland and Delaware. During that same period he also served as
President of Eastern Commercial Real Estate Services, Inc., an insurance
consulting firm and developer of commercial property.
8
<PAGE>
ALAN M. KORBY. Mr. Korby has served as a Vice President and a director of
the Company since July 1995. Mr. Korby has also served as President of
USC-Michigan, Inc., the Company's wholly-owned subsidiary, since July 1995
and the President of Diabetes Self Care, Inc. Since March 8, 1997. From its
founding in November 1987 until its Merger into the Company, Mr. Korby served
as President and a Director of Patient Care Services, a home medical
equipment supply company that specialized in diabetes management, and the
sale of related equipment and supplies.
MATTHEW B. GIETZEN. Mr. Gietzen has been the Secretary and a director of
USC since July 1995. Mr. Gietzen has also served as Vice President of
USC-Michigan, Inc., the Company's wholly-owned subsidiary, since July 1995.
From January 1988 until its Merger into the Company, Mr. Gietzen served as
Executive Vice President and a Director of PCS Management, Inc., a home
medical equipment supply company that specialized in diabetes management, and
the sale of related equipment and supplies.
TOD J. ROBINSON. Mr. Robinson has served with the Company since April
1996, as the National Vice President of Sales for Diabetes Self Care, Inc.
From October 1989 to April 1996, Mr. Robinson held a variety of positions
with Home Diagnostics, Inc. (HDI), a medical device manufacturer that
specializes in diabetes testing equipment, serving as the Director of New
Business Development, National Accounts Manager and finally Sales Manager.
From September 1986 to October 1989, Mr. Robinson was Sales Manager and
Product Manager for Friden Alcatel in its business products division.
STEVEN LEICHTER, M.D.. Since February 1997, Dr. Leichter has served as a
Director of the Company. Dr. Leichter has been on the faculty at University
of California, Davis, from 1976 to 1977, the University of Kentucky from 1977
to 1988, and Eastern Virginia Medical School from 1988 to 1995, where he was
Professor of Internal Medicine. In 1995, he moved to Columbus, Georgia to
join Dr. Garry August in an endocrinology practice. He is also Co-Director of
the West Georgia Center for Metabolic Disorders and President of the Columbus
Metabolic Foundation. Dr. Leichter has more than 60 published scientific
papers and book chapters. His most recent paper was published in Diabetes
Care in September, 1995. He has been a consultant to the World Health
Organization and chaired the Committee that wrote the International Plan for
Diabetes of the United Nations. He is currently a consultant to 5 national
corporations in diabetes, and is on the editorial review for the Archives of
Internal Medicine, a journal of the American Medical Association.
JAMES LINESCH. Since February 1997, Mr. Linesch has served as a Director
of the Company. Mr. Linesch is currently the President, Chief Executive
Officer and Chief Financial Officer of CompuMed, a public computer company
involved with computer assisted diagnosis of medical conditions, which he
joined in April 1996 as Vice President and Chief Financial Officer. Mr.
Linesch served as a Vice President, Chief Financial Officer and Controller of
the Company from August 1991 to April 1996. From may 1988 to August 1991, Mr.
Linesch served as the Chief Financial Officer of Science Dynamics Corp., a
corporation involved in the development of computer software.
DAMON D. TESTAVERDE. Mr. Testaverde was President, Chief Executive
Officer and a director of the Company from May 1991 through February 1997.
Mr. Testaverde has also
9
<PAGE>
served as the President and principal stockholder of a R.H. Damon & Company,
Inc., a former full service securities broker-dealer which ceased operations
in March 1991. From 1986 to 1989, and from March 1991 to March 1994, Mr.
Testaverde served as Senior Vice President of F.N. Wolf & Co., Inc., a full
service securities broker-dealer. Since March 1994, Mr. Testaverde has been a
registered representative with Network One Financial Services, Inc., a full
service securities broker-dealer. Mr. Testaverde does not devote his full
time and efforts to his duties at Network One Financial Services, Inc.
Mr. Testaverde is a former director of American Complex Care,
Incorporated, a company that provided home healthcare infusion therapies and
distributed Medicare Part B products. In April 1995, American Complex Care
Incorporated's operating subsidiaries made assignments of their assets for
the benefit of creditors without resort to bankruptcy proceedings.
PETER W. ROTHBERG. Mr. Rothberg has practiced law in private practice for
more than the last 18 years, and has represented the Company since its 1992
initial public offering. Since February 1996 he has been Counsel to Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, New York, New York, the Company's
outside general counsel. Prior thereto, from June 1993 to January 1996, he
was a member of Solomon, Weiss & Moskowitz, P.C., and prior thereto he was a
member of Fink Weinberger P.C., both of which firms were located in New York,
New York.
Directors of the Company, including management directors, each receive
annual directors' fees of $25,000 for attendance at Board of Directors
meetings, and are reimbursed for actual expenses incurred in respect of such
attendance.
Compliance with Section 16(a) Of the Exchange Act.
To the knowledge of the Company, no officers, directors, beneficial
owners of more than 10 percent of any class of equity securities of the
Company registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any other person subject to Section
16 of the Exchange Act with respect to the Company, failed to file on a
timely basis reports required by Section 16(a) of the Exchange Act during the
most recent fiscal year, which ended June 30, 1997.
(The remainder of this page has been intentionally left blank)
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of 1995, 1996, and 1997 to the person
serving as the Company's Chief Executive Officer at any time during such periods
and to each of the three (3) highest paid Company current executive officers
whose total salary and bonus compensation exceeded $100,000.
11
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- ------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK OPTIONS/
PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARDS SARS(#)
- ------------------------------------ --------- --------- ------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian Bookmeier President and Chief 1995 $ 38,834 0 $ 3,250 $ 0 $ 0
Executive Office and Director 1996 $ 179,306 0 $ 15,000 $ 0 $ 0
1997 $ 51,408 0 $ 18,000 $ 0 $ 0
Edward T. Buchholz President 1995 $ 94,808 0 $ 7,800 $ 0 $ 0
Healthcare Management Solution, 1996 $ 163,900 0 $ 13,320 $ 0 $ 0
Inc. and Director 1997 $ 147,321 0 $ 6,610 $ 0 $ 0
Tod J. Robinson V.P. of National $ 0
Sales for Diabetes Self Care, Inc. 1995 0 0 0 $ 0 $ 0
1996 $ 26,962 0 $ 1,500 $ $ 0
1997 $ 122,879 0 $ 6,000 $ 0 $ 0
<CAPTION>
PAYOUTS
NAME AND LTIP ALL OTHER
PRINCIPAL PAYOUTS COMPENSATION
- ------------------------------------ ------------- -----------------
<S> <C> <C>
Brian Bookmeier President and Chief $ 0 $ 0
Executive Office and Director $ 0 $ 0
$ 0 $ 0
Edward T. Buchholz President $ 0 $ 0
Healthcare Management Solution, $ 0 $ 0
Inc. and Director $ 0 $ 0
Tod J. Robinson V.P. of National
Sales for Diabetes Self Care, Inc. $ 0 $ 0
$ 0 $ 0
$ 0 $ 0
</TABLE>
Officers and key employees of the Company receive employment benefits (e.g.,
health insurance, automobile allowances) other than cash compensation and
interests in the Company's employee stock option plan in amounts that are not
required to be separately reported .
STOCK OPTION GRANTS
The following table sets forth information concerning individual grants of
stock options made during the last completed fiscal year to each of the
executive officers named in the Summery Compensation Table.
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<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR
OPTIONS/SARS GRANTED IN FISCAL EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) YEAR PRICE($/SH) DATE
(A) (B) (C) (D) (E)
- ------------------------------------------- ------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Edward T. Buchholz......................... 175,000 100% $ 1.70 December, 2006
</TABLE>
The following table sets forth information concerning the number of
unexercised options, and the value of such unexercised options, for each of the
executive officers named in the Summary Compensation Table.
13
<PAGE>
AGGREGATED OPTION/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE REALIZED OPTIONS/SARS OPTIONS/SARS
NAME ON EXERCISE (#) ($) AT FY-END(#) AT FY-END($)
(A) (B) (C) (D) (E)
- ---------------------------------------------- --------------------- ------------------- ------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXECISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Brian D. Bookmeier 0 0 125,000/0 $ 187,500
Edward T. Buchholz $ 58,334/0
0 0 41,667/0 $ 187,500/$75,000
0 0 125,000/50,000 0
0 0 350,000 $ 367,500
Tod J. Robinson 0 0 30,000/0 $ 18,750/$18,750
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Edward Buchholz entered into a three year contract on December 16, 1996,
effective on January 1, 1997, employment the term of which ends on December 31,
1999. Mr. Buchholz's is the President and Chief Executive Officer of Healthcare
Management Solution, Inc., a subsidiary of the Company. Mr. Buchholz's
employment agreement provides him with an annual base salary of $ 150,000. In
connection with his employment agreement, Mr. Buchholz was granted options to
acquire 175,000 shares of common stock at an exercise price of $1.70 per share
(fair market value on the date of grant), vested on the date of grant. Upon
consummation of the Gainor Transaction, Mr. Buchholz's employment by the Company
and his employment agreement will terminate and the Company will negotiate a
severance arrangement with Mr. Buchholz with respect to such employment
termination.
In connection with consummation of the 1995 merger of the Company with
Patient Care Services, Inc. (the "PCS Merger"), the Company entered into
separate employment agreements expiring June 30, 2000 with each of Messrs. Alan
Korby, Brian Bookmeier and Matthew B. Gietzen. Under the terms of such
agreements, each of Messrs. Korby, Bookmeier and Gietzen serve as the Vice
President, President and Chief Executive Officer, and Vice President,
14
<PAGE>
respectively, of the Company. Under such employment agreements, they each
receive a base salary of $150,000 per annum, plus customary fringe benefits,
including medical insurance and the use of an automobile paid for by the
Company, the aggregate value of which fringe benefits to each such person is
estimated at no more than $18,000.
On April 25, 1996, each of Messrs. Bookmeier, Korby and Gietzen agreed to
waive the payment of installments of their annual compensation from the Company
during the annual period commencing May 1, 1996, in the aggregate amount of
$150,000 for each such person, and Mr. Buchholz agreed to waive the payment of
installments of his annual compensation from the Company during the annual
period commencing May 1, 1996 in the aggregate amount of $50,000. In
consideration for such waiver of compensation, each of Messrs. Bookmeier, Korby
and Gietzen was granted a five-year non-qualified stock option to acquire
125,000 shares of Company Common Stock at an exercise price of $1.35 per share
and Mr. Buchholz was granted a five-year non-qualified stock options to acquire
41,667 shares of Company Common Stock at an exercise price of $1.35 per share.
All of the options granted to Messrs. Bookmeier, Korby, Gietzen and Buchholz
vested in full on May 1, 1996. The closing sale price for a share of Common
Stock on April 25, 1996, as reported by Nasdaq, was $2-5/8. On May 1, 1997, each
of Messrs. Bookmeier, Korby and Gietzen again began to receive full annual
compensation under their employment agreement.
In March 1996, Mr. Tod Robinson entered into a two-year employment agreement
with Diabetes Self Care, Inc., a wholly-owned subsidiary of the Company. Under
such agreement, Mr. Robinson is to serve as the National Vice President-Sales
for Diabetes Self Care, having responsibility for marketing and sales
efforts throughout the United States for such company. Mr. Robinson's employment
base salary is $95,000 per annum. He has the opportunity to earn a Performance
Bonus of up to $1,000 based upon achieving performance goals to be identified by
the Company's management, as well as a Commission of $1,000 for each executed
managed care contract covering more than 10,000 lives which he originates. Mr.
Robinson's employment contract also provides for certain profit participation,
pursuant to which he will earn .5% of the net after-tax profits of Diabetes Self
Care for each fiscal year (and prorations thereof) during the term of the
employment agreement. In the event that such net after-tax profits exceed
$500,000 for any fiscal year, the profit participation shall be increased by
$10,000. Mr. Robinson may also receive additional discretionary bonuses, and
customary fringe benefits. On March 10, 1996, in connection with commencing his
employment, Mr. Robinson was granted options to acquire 30,000 shares of the
Company's common stock at an exercise price of $1.50 per share. The closing sale
price for a share of common stock on March 8, 1996 (the last business day before
the date of such agreement), as reported by Nasdaq, was $2-15/16. Whether or
not Mr. Robinson will be employed by Gainor following consummation of the
Gainor Transaction, under the terms of such transaction all obligations under
Mr. Robinson's employment agreement will be assigned to the Company.
15
<PAGE>
CERTAIN TRANSACTIONS
As of June 30, 1994, the Company had made advances to Edward Buchholz, then
President of Diabetes Self Care, Inc., in the amount of $14,929. Payments on
this receivable were made in amounts equivalent to 50% of Mr. Buchholz's sales
commissions. As of October 22, 1997, the balance of this loan due the Company
was approximately $6,347.
Under the terms of the PCS Merger Agreement, each of Messrs. Robert M.
Rubin, and Damon Testaverde, agreed to vote all of the shares of Company Common
Stock to be owned by them following the PCS Merger for so long as each of such
person(s) shall continue to hold not less than 73% of the percentage of the
outstanding shares of Company Common Stock issued to him upon consummation of
the PCS Merger, for the election of each of Messrs. Korby, Bookmeier and Gietzen
to the Board of Directors of the Company. In addition, any additional nominees
to the Company's Board of Directors must be acceptable to Messrs. Rubin and
Testaverde and to a majority of Messrs. Korby, Bookmeier and Gietzen to the
extent that such persons meet the share ownership criterion set forth above.
In April 1996, Fred Kassner exchanged $776,482 of indebtedness in
consideration for: the exercise of 450,000 Warrants at an exercise price of
$1.00 per share to acquire 450,000 shares of common stock; and the exercise of
217,655 Class B Warrants at an exercise price of $1.50 per share, to acquire
217,655 shares of common stock and the acquisition of 217,655 Class A Warrants.
In June 1997, the Company converted an aggregate of $2,018,829 of Company
indebtedness held by Messrs, H.T. Ardinger and Fred Kassner, principal
stockholders of the Company, into shares of Common Stock. The Company had
previously issued a $500,000 principal note, accruing interest at 10% per annum
and maturing on February 21, 1998, to Mr. Ardinger. Mr. Ardinger was paid
$71,156.54 in cash with respect to accrued interest on this note, and the
$500,000 of unpaid principal was converted by Mr. Ardinger into 250,000 shares
of common stock at $2.00 per share. The Company had previously issued a
$1,473,518 principal note to Mr. Kassner, accruing interest at a rate of prime
plus 2% and maturing on July 14, 1997. The aggregate of $1,518,829 of accrued
interest and unpaid principal was converted by Mr. Kassner into 759,415 shares
of Common Stock at $2.00 per share. The total amount of indebtedness converted
to Common Stock by Messrs. Ardinger and Kassner was $2,018,829, and 1,009,415
shares of Common Stock were issued. In June 1997, the Company also completed an
additional private placement of 250,000 shares of Common Stock at $2.00 per
share, paid in cash, to Mr. Ardinger. All of such shares received by Messrs.
Kassner and Ardinger are subject to "piggyback" registration rights granted by
the Company.
Mr. Testaverde, through Network 1 Financial Services, Inc., acted as a
financial adviser to the Company in connection with the debt conversion, as well
as in connection with the June 1997 private placement to Mr. Ardinger and the
Company's May 1997 private placement to accredited investors of 500,000 shares
of Common Stock at $2.00 per share. For such activities in connection with
structuring and obtaining investors for the May and June 1997 private
16
<PAGE>
placements and debt conversions, Mr. Testaverde, as the designee of Network 1
Financial Services, Inc., received 75,458 shares of Common Stock and a cash
payment of $100,000 from the Company.
See "Employment and Consulting Agreements." on page __.
ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a)
for the election of the persons named in the next succeeding table as
nominees for directors of the Company; (b) for the proposal to authorize the
appointment of Feldman Radin & Co., P.C. as the Company's auditors for the
current fiscal year ending June 30, 1998; (c) for the proposal to authorize
the sale of all or substantially all of the assets of the Company to a
wholly-owned subsidiary of Gainor Medical Management, LLC in accordance with
the terms of the Sale Agreement; (d) for the proposal to authorize and ratify
the 1997 Non-employee Director Stock Option Plan; (e) for the proposal to
authorize an amendment to the Company's Certificate of Incorporation to
change the name of the Company to Tadeo Holdings, Inc., in accordance with
the terms of the Sale Agreement, to be effective only upon the closing of the
Sale Agreement identified in Proposal (c ), above; (f) for the proposal to
amend the Company's Certificate of Incorporation to increase the Company's
authorized capital by increasing the authorized number of shares of Common
Stock of the Company from 40,000,000 shares of Common Stock, $.0001 par
value, to 100,000,000 shares of Common Stock, $.0001 par value, to be
effective only upon the closing of the Sale Agreement identified in Proposal
(c) above, and (g) in connection with the transaction of such other business
that may be brought before the Annual Meeting, in accordance with the
judgment of the persons voting the proxy.
I. Election of Directors
NOMINEES
At the Meeting four directors are to be elected, each to hold office until
the next Annual Meeting of Stockholders or until his or her successor shall be
elected and shall qualify. The names of the nominees for elections as directors,
now serve as directors of the Company, and certain information furnished to the
Company by such nominees with respect to them, as of December 18, 1997, are set
forth below. Unless authority to vote for one or more nominees is withheld, it
is intended that share represented by proxies in the accompanying form will be
voted for the election of the following nominees. With respect to any such
nominee who may become unable or unwilling to accept nomination or election, it
is intended that the proxies will be voted for the election in his stead of such
person as the Board of Directors may recommend, but the Board does not know of
any reason why any nominee will be unable or unwilling to serve if elected.
17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
DURING LAST
NAME AGE DIRECTOR SINCE FIVE YEARS
- ------------------------------------------------------------------------------- --- --------------- -------------------
<S> <C> <C> <C>
Brian D. Bookmeier............................................................. 39 1995 *
James Linesch.................................................................. 43 1997 *
Damon D. Testaverde............................................................ 49 *
Peter W. Rothberg.............................................................. 45 *
</TABLE>
- ------------------------
* See "Directors, Nominees for Director and Executive Officers of the Company"
on pages __ through __.
COMMITTEES AND MEETINGS OF THE BOARD
At present the Board of Directors has three committees, the Audit,
Compensation and Stock Option Committees which consist of the following
individuals, respectively: Messrs. Brian D. Bookmeier, James Linesch, and Steven
Leichter (Audit); Edward Buchholz, Brian D. Bookmeier (Compensation); and Brian
D. Bookmeier, Alan M. Korby (Stock Option). During the fiscal year ended June
30, 1997, the Board of Directors met eight times, including four action taken by
unanimous written consent of the directors. The Audit, Compensation and Stock
Option Committees did not meet, but rather conducted their operations through
meetings of the full Board of Directors. All of the nominated directors who
served as directors during the fiscal year ended June 30, 1997 attended more
than 75% of all the meetings of the Board held during their tenure during such
year. See "Directors, Nominees for Director and Executive Officers of the
Company" at page __ above for information concerning fees payable to
directors.
II. Ratification of Appointment of Independent Auditors for the Fiscal Year
Ending June 30, 1998
At the Meeting a vote will be taken on a proposal to ratify the
appointment by the Board of Directors of Feldman Radin & Co., P.C.,
independent certified public accountants, as the independent auditors of the
Company for the fiscal year ending June 30, 1998. Feldman Radin & Co., P.C.
has no interest in or any relationship with the Company except as its
auditors.
Management believes the appointment to be in the best interest of the
Company and recommends that it be ratified.
18
<PAGE>
III. Authorization of the Sale of all or Substantially all of the Assets of
the Company to the Wholly-Owned Subsidiary of Gainor Medical Management, LLC.
At the Annual Meeting a vote will be taken on a proposal to authorize the
sale of all or substantially all of the assets of the Company to a wholly-owned
subsidiary of Gainor Medical Management, LLC. The terms of such sale are
discussed below.
Pursuant to the terms of an Asset Purchase Agreement, dated as of
November 14, 1997, as amended by the First Amendment (the "First Amendment")
dated as of November 24, 1997 (collectively, the "Sale Agreement"), by and
among Gainor Medical Management, LLC, a Georgia limited liability company,
("Gainor"), as Buyer, and the Company and each of its Clinishare Diabetes
Centers, Inc., Physician's Support Services, Inc., USC-Michigan, Inc.,
Diabetes Self Care, Inc., PCS, Inc.-West and USCI Healthcare Management
Solutions, Inc. subsidiaries (collectively, the "Seller"), as Seller, and
certain shareholders of the Company--Messrs. Brian D. Bookmeier, Alan M.
Korby, Matthew B. Gietzen and Edward Buchholz (the "Shareholders"), the
Seller agreed to sell all or substantially all of the assets of the Seller
(the "Business"), subject to the assumption of certain limited liabilities of
the Business, to a subsidiary of Gainor newly-formed for the purpose of
acquiring the Business (the "Gainor Transaction"). A copy of the Sale
Agreement is annexed hereto as Exhibit A. The assets acquired by Gainor will
include all of the outstanding capital stock of the Company's Diabetes Self
Care, Inc. ("Diabetes") and USCI Healthcare Management Solutions,
Inc.("Healthcare") subsidiaries (collectively, the "Purchased Companies") and
substantially all of the assets (the "Purchased Assets") of the other
subsidiaries identified above (the "Selling Subsidiaries"). Gainor's
principal place of business is located at 2205 Highway 42 North, McDonough,
Georgia 30252-0353; telephone number (770) 474-0474. Gainor is a leading
supplier of lancets used in daily blood sampling by persons suffering from
diabetes, as well as a supplier of other micro-sampling devices, and is a
principal vendor of lancets to the Company. Certain financial information
with respect to Gainor is included below.
19
<PAGE>
Gainor Medical Management LLC
Summary of Selected Financial Information
<TABLE>
<CAPTION>
UNAUDITED AUDITED
AS OF OCTOBER 31, 1997 AS OF DECEMBER 31, 1996
---------------------- -----------------------
<S> <C> <C>
Balance Sheet
Cash and Cash Equivalents............................................. 5,085,000 930,000
Current Assets........................................................ 17,351,000 8,095,000
Total Assets.......................................................... 20,354,000 9,488,000
Current Liabilities................................................... 11,054,000 9,629,000
Long-Term Debt........................................................ 565,000 931,000
Deferred Revenue-Long Term............................................ 425,000 94,000
Member's Capital...................................................... 8,310,000 (1,166,000)
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED AUDITED
TEN MONTHS ENDED TWELVE MONTHS ENDED
OCTOBER 31, DECEMBER 31,
1997 1996
----------------------- ------------------------
<S> <C> <C>
Income Statement
Revenues........................................................... 34,380,000 25,939,000
Operating Income................................................... 4,937,000 1,577,000
Net Income*........................................................ 4,471,000 199,000
Depreciation and Amortization...................................... 644,000 434,000
</TABLE>
- --------------
* Stated on a pre-tax basis because a limited liability company is not
subject to federal or state income tax at the entity level.
Since October 31, 1997, the Company has purchased product from Gainor for
which it is currently obligated to pay a balance of approximately $1,920,000
on credit terms, and the Company granted to Gainor a security interest in the
inventory purchased.
Under the terms of the Sale Agreement, the Company and Gainor agreed that as
a condition to their respective obligations to close the Gainor Transaction (the
"Closing"), the Company would obtain approval and authorization for the Gainor
Transaction and the other transactions contemplated by the Sale Agreement at a
duly called meeting of Company stockholders.
FAILURE OF COMPANY STOCKHOLDERS TO AUTHORIZE THE GAINOR TRANSACTION AND THE
OTHER TRANSACTIONS CONTEMPLATED THEREIN WILL PREVENT THE EFFECTIVENESS AND
PROHIBIT THE CLOSING OF ANY OF THE GAINOR TRANSACTION AND THE TRANSACTIONS
CONTEMPLATED THEREBY, NONE OF WHICH HAVE BEEN CONSUMMATED. THE SHAREHOLDERS AND
MR. DAMON D. TESTAVERDE, A NOMINEE FOR ELECTION TO THE BOARD OF
20
<PAGE>
DIRECTORS, HAVE AGREED TO VOTE IN FAVOR OF AUTHORIZING THE GAINOR TRANSACTION
PURSUANT TO THE TERMS OF THE SALE AGREEMENT. THE SHAREHOLDERS AND MR.
TESTAVERDE, COLLECTIVELY, HOLD SECURITIES GIVING THEM THE RIGHT TO CAST
2,302,730 VOTES IN FAVOR OF THE GAINOR TRANSACTION (APPROXIMATELY 22% OF THE
VOTES WHICH MAY BE CAST AT THE MEETING).
RECENT DEVELOPMENTS
On December 16, 1997 the First Amendment was executed. Negotiation of the
First Amendment resulted from Gainor's appraisal of the Company's future
operations and its past operating performance for the first five months of
the Company's current fiscal year ended November 30, 1997, which past
performance was below that internally projected by the Company owing in part
to a decline in referrals of potential customers, computer-generated problems
in delivering recent Medicare billings and other revenue reductions during
the last several months. The First Amendment reduced the purchase price for
the assets from $37,000,000 to $34,000,000 (the "Purchase Price"), eliminated
upward adjustments to the Purchase Price based upon the value of the
Company's inventory and net tangible assets at closing, and reduced the
portion of the Purchase Price paid in the form of a convertible subordinated
note from $20,000,000 to $17,000,000. Pursuant to the First Amendment, in
addition to offsets for customary indemnifications under the Sale Agreement,
the principal of the Note is subject to reduction in the event that (i)
Gainor does not achieve Post Closing Revenue (as hereinafter defined) during
calendar 1998 at a level that is reduced in the First Amendment, and (ii)
Gainor is not able to collect at least $6,000,000 from the accounts
receivable sold to Gainor as part of the Transaction during the one-year
period succeeding the closing (which collection level was increased from
$5,000,000 in the First Amendment).
THE TRANSACTION
The purchase price for the Business (the "Purchase Price") is a maximum
of approximately $34,000,000. Approximately $17,000,000 will paid to the
Company in cash at closing, subject to certain adjustments for the cash of
the Purchased Companies and certain liabilities assumed based upon a
preliminary assessment at closing (the "Net Asset Value"). Management
anticipates that such adjustments, based on the Company's September 30, 1997
balance sheet, will reduce the cash portion of the purchase price to
approximately $10,500,000. Seventeen Million ($17,000,000) dollars of the
Purchase Price will be paid by delivery of a minimum 60-month, maximum 72-month
(subject to earlier prepayment), interest bearing convertible subordinated
promissory note (7% through December 31, 1998 and 8% thereafter) made payable
to the order of the Company by Gainor, with interest paid currently on a
quarterly basis and all principal paid at maturity (the "Note"). On or before
February 1, 1999, Gainor will deliver to the Company a statement showing its
revenue from operation of Diabetes during calendar 1998 (the "Post Closing
Revenue"), and principal of the Note will be adjusted to equal the lesser of 75%
of the Post Closing Revenue or $17,000,000. The Company's applicable revenue for
the fiscal year ended June 30, 1997 (substantially all of which was related to
the operations of Diabetes) was approximately $33,500,000, and 75% of such
revenue would equal $25,125,000, an amount which is $8,125,000 greater than the
required $17,000,000 minimum Post Closing Revenue for Diabetes in calendar 1998.
MANAGEMENT DOES NOT ANTICIPATE THAT THE NOTE WILL BE ADJUSTED TO REFLECT POST
CLOSING REVENUE BELOW $17,000,000. In addition, principal of the Note will be
further adjusted (i) within four months following the closing, either up or
down, based upon a final determination of the audited Net Asset Value at closing
(the "Final Net Asset Value") and (ii) 12 months following the closing, downward
by the amount that Gainor's collections of the trade account receivables shown
on the Company's balance sheet at closing are less than $6,000,000. On
September 30, 1997, the Company's net trade account receivables exceeded
$8,500,000. MANAGEMENT ANTICIPATES THAT FOLLOWING THE CLOSING GAINOR WILL
COLLECT MORE THAN $6,000,000 OF THE COMPANY'S NET TRADE ACCOUNTS RECEIVABLE.
The Company will be required to pay in full approximately $4,500,000 of its
outstanding indebtedness, out of the cash portion of the purchase price, as
necessary to release existing liens against the assets to be transferred to
Gainor under the Sale Agreement. In addition, as a condition to Gainor's
obligation to consummate the Gainor Transaction, the Company must pay its
remaining liability for unpaid sales taxes that is owed to the State of
California (an obligation that is reserved against in the Company's financial
statements), which
21
<PAGE>
equaled approximately $441,000 on November 30, 1997 and which must be reduced
by approximately $63,000 on the last day of each succeeding month thereafter.
The Note is fully subordinated to all Senior Indebtedness of Gainor, which
is defined as principal and accrued and unpaid interest on all Gainor financing
obtained specifically to consummate the Gainor Transaction, as well as all other
Gainor indebtedness for borrowed money from institutional lenders or from any
existing Gainor equity holder. The Note may be prepaid in whole or in part at
any time without penalty or premium. In the event that Gainor registers the sale
of any of its equity securities for its own account in a firm commitment
underwriting the proposed gross proceeds of which are at least $25,000,000, the
Company may elect to convert the Note, in whole or in part, into the type of
Gainor equity securities that are offered in the underwritten offering. In the
event that the proposed gross offering proceeds are less than $25,000,000,
however, Gainor and the underwriter of the proposed Gainor offering may limit
the amount outstanding under the Note that can be so converted. The number of
Gainor securities to be issued upon conversion (the "Conversion Shares") shall
be determined by dividing the aggregate outstanding dollar amount to be
converted by the per share offering price of the equity securities actually sold
in the underwritten offering. The Company will be granted "piggyback"
registration rights, exercisable on two occasions, to include its Conversion
Shares in an underwritten offering by Gainor , subject to the Company's entering
into an underwriting agreement on customary terms and conditions with the
underwriter selected by Gainor for its own offering (which terms may include the
underwriter's authority to limit the number of shares which may be offered by
the Company in such underwritten offering).
If prior to the third anniversary of the closing of the Gainor Transaction
(the "Third Anniversary") the Company elects to convert an amount outstanding
under the Note such that outstanding principal would fall below $10,000,000, or
if any conversion at any time would result in outstanding Note principal falling
below the aggregate amount of all outstanding, unpaid and unresolved claims for
indemnification under the Sale Agreement (the "Claim Amount"), then a number of
the Conversion Shares shall be pledged to Gainor to secure the Company's
indemnification obligations under the Sale Agreement. The pledge shall operate
such that the aggregate of the amount of remaining Note principal and the value
of the Conversion Shares pledged shall equal the greater of $10,000,000 or the
Claim Amount, if conversion occurs prior to the Third Anniversary; if conversion
occurs after the Third Anniversary, then the number of shares pledged shall have
a value equal to the Claim Amount.
At the Closing, Healthcare and Edward Buchholz, a member of the Company's
Board of Directors and the Company's Executive Vice President, will enter
into a 3-year Employment Agreement pursuant to which Mr. Buchholz will act as
President of Healthcare. Mr. Buchholz's compensation under such Employment
Agreement will be $150,000 per year, plus an annual bonus equal to a maximum
of $35,000 per year based upon Mr. Buchholz meeting certain performance
criteria set by Healthcare's board of directors. Mr. Buchholz will also receive.
customary employment benefits available to other Gainor executives (e.g.,
medical, dental , disability and life insurance coverage). Mr. Buchholz's
current employment agreement with the Company provides a base salary of
$150,000 per year, a discretionary bonus, a maximum $1,000 per month car
allowance, a $350,000 life insurance policy and other customary employment
benefits. Each of the Company and the Shareholders will enter into a 5-year
Non-
22
<PAGE>
Competition Agreement pursuant to which the Company and such Shareholders
will be prohibited from competing with Gainor in its operation of the
Business and the existing Gainor business at the time of consummating the
Gainor Transaction. Following consummation of the Gainor Transaction all
obligations under Mr. Robinson's employment agreement with Diabetes will be
assigned to the Company.
At the time that it negotiated the Purchase Price for the Gainor
Transaction, although the Company was actively soliciting the sale of the
Business, it was not aware of any other potential purchasers of the Business.
Due to the fact that the Purchase Price offered by Gainor was believed to be
quite favorable to the Company and its stockholders, the Company did not
actively solicit additional potential purchasers for the Business following
its receipt of Gainor's proposal. The Company did not seek the report or
opinion of any outside party to help in establishing or negotiating the
amount of consideration to be received by the Company for sale of the
Business in the Gainor Transaction. As a condition to consummation of its
purchase, however, the Company sought and obtained an independent opinion to
confirm that the previously established and negotiated purchase price was
fair to the Company and its stockholders. Such independent opinion was not
used to establish the Purchase Price for the business negotiated with Gainor,
but merely confirmed the fairness of such consideration.
In the event that the Gainor Transaction does not close for any reason not
attributable to Gainor, and prior to November 14, 1998 either (i) a person
other than a Shareholder gains control of more than 15% of the issued and
outstanding stock of the Company with the assistance or approval of the
Company, its management, members of its Board of Directors or any
Shareholder, (ii) the Company merges or effects any other business
combination with any person the result of which is that the stockholders of
the Company prior to such transaction own less than 80% of the resulting
entity, or (iii) the Company sells or leases or otherwise transfers all or 30%
or more of its assets taken as a whole to any person, then in such event the
Company shall pay to Gainor the sum of $2,000,000 upon the consummation of
such transaction.
23
<PAGE>
OPINION OF FINANCIAL ADVISOR
Valuemetrics, Inc. has acted as a financial advisor to the Company in
connection with the Gainor Transaction and has assisted the Board of
Directors in its examination of the fairness, from a financial point of view,
of the Purchase Price, as hereinafter defined, to be paid to the Company and
the Selling Subsidiaries for the Purchased Companies and Purchased Assets.
Pursuant to the terms of the Agreement, at the Closing (as defined therein),
the Company and the Selling Subsidiaries will receive the Purchase Price.
On December 16, 1997, Valuemetrics rendered its oral opinion to the Board
of Directors that, as of the date of such opinion, the Purchase Price was
fair, from a financial point of view, to the Company and the Selling
Subsidiaries. Valuemetrics subsequently rendered a written opinion confirming
its earlier oral opinion that, as of December 16, 1997, the Purchase Price is
fair, from a financial point of view, to the Company and the Selling
Subsidiaries.
Valuemetrics' opinion is for the benefit and use of the Board of
Directors of Universal Self Care, Inc. in its consideration of the Gainor
Transaction. The opinion does not constitute a recommendation of the
Transaction over any other alternative transactions which may be available to
the Company and does not address the underlying business decision of the
Board of Directors of Universal Self Care, Inc. to proceed with or effect the
Transaction. Furthermore, the opinion does not constitute a recommendation by
Valuemetrics to any stockholder to vote in favor of the Gainor Transaction.
The summary of the opinion of Valuemetrics set forth herein is qualified in
its entirety by reference to the full text of such opinion, which is annexed
hereto as Exhibit B.
FACTORS CONSIDERED. In connection with rendering its oral opinion to the
Board of Directors on December 16, 1997, Valuemetrics performed a variety of
financial analyses and considered the following material factors: (i) the
Company's business and operations and the industry in which the Company
operates; (ii) the Company's historical operating results and budget; (iii)
the Purchase Price proposed to be paid in connection with the proposed
transaction; (iv) the current tangible book value of the Company; (v) the
stock price performance of the Company; (vi) the Purchase Price compared to
the value implied by the publicly quoted stock price of Universal Self Care,
Inc. and by other companies in comparable transactions; and (vii) the recent
deterioration in the Company's operating performance. Based upon such
analyses and factors, Valuemetrics concluded that the Purchase Price is fair,
from a financial point of view, to the Company and the Selling Subsidiaries.
The summary set forth below does not purport to be a complete description of
the analyses performed by Valuemetrics in this regard.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or a summary description. In arriving at its
opinion, Valuemetrics did not attribute any particular weight to any one
analysis or factor considered by it, but rather made qualitative judgements
as to the significance and relevance of each analysis and factor.
Accordingly, Valuemetrics believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its
analyses, Valuemetrics made numerous assumptions with respect to Universal
Self Care, Inc. and Gainor, industry outlook, general business, economic
market and financial conditions and other matters, many of which are beyond
the control of the Company. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
24
<PAGE>
UNIVERSAL SELF CARE DUE DILIGENCE AND ANALYSIS. Valuemetrics reviewed
certain financial and other information of the Company that was publicly
available, including SEC filings. In conducting its due diligence of the
Company, Valuemetrics reviewed a number of documents, including, but not
limited to:
(i) Monthly consolidated budget of Universal Self Care, Inc. and
Subsidiaries for the fiscal year ending June 30, 1998 (the "Budget");
(ii) Forms 8-K filed on September 9, 1996 and July 7, 1997;
(iii) Prospectus of Universal Self Care, Inc. dated December 10, 1992;
(iv) Form S-3 Registration Statement and Post-Effective Amendment No. 1 to
Form SB-2 Registration Statement on Form S-3 Registration Statement
filed on July 11, 1997;
(v) Certificate of Incorporation of Universal Self Care, Inc. and all
amendments thereto;
(vi) Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series A Redeemable Preferred
Stock;
(vii) Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series B Convertible Preferred
Stock;
(viii) Certificate of Correction to Correct a Certain Error in the
Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series B Convertible Preferred
Stock;
(ix) Universal Self Care, Inc. 1992 Employee Stock Option Plan;
(x) Universal Self Care, Inc. Management Non-Qualified Stock Option Plan;
(xi) Loan and Security Agreement by and among Universal Self Care, Inc.,
Diabetes Self Care, Inc., PCS, Inc.-West, Physicians Support Services,
Inc. and Healthpartners Funding L.P. dated August 15, 1996;
(xii) Publicly reported trading activity in the common stock of Universal
Self Care, Inc. for the period from November 11, 1994 through October
1, 1997; and
(xiii) Public news releases by Universal Self Care, Inc. for the period from
November 5, 1995 through July 28, 1997.
Valuemetrics also reviewed the annual financial statements of the Company
for the fiscal years ended June 30, 1993 through June 30, 1997 as presented
in the Forms 10-KSB and/or 10-KSB/A, as well as the quarterly financial
statements of the Company for the fiscal quarters ended September 30,
December 31, and March 31, 1996 and 1997 as presented in Forms 10-Q and
10-QSB. Valuemetrics also reviewed the internally prepared, unaudited
Consolidating Financial Statements of Universal Self Care, Inc. and
Subsidiaries for the fiscal year ended June 30, 1997 and the fiscal quarter
ended September 30, 1997, portions of the Company's internal financial and
operating reports for the months of October and November 1997, and the
Company's current and future operating performance as compared to the Budget.
In addition, Valuemetrics reviewed available industry and market research
concerning: (i) diabetes, (ii) the history and development of the Company,
(iii) industry trends, (iv) competition, and (vii) substitute technology or
procedures.
In rendering its opinion, Valuemetrics conducted on site due diligence
and held discussions with the Company's key management and advisors. Material
investigation topics included: (i) Company history, (ii) products, (iii) end
markets, (iv) competitors, (v) suppliers, (vi) personnel and management,
(vii) general industry trends, (viii) development strategy for the Company,
(ix) operating cost structure, (x) capital spending program, (xi) financial
contingency plans, (xii) budgets and financial controls, (xiii) status of
discussions with alternative buyers of the Purchased Companies and the
Purchased Assets and (xiv) the deterioration in the operating performance of
the Company during the first five months of the Company's fiscal year ending
June 30, 1998.
MARKET EFFICIENCY STUDY. In connection with rendering its opinion,
Valuemetrics performed a variety of financial analyses including an
assessment of the public market valuation of the Company as well as
independent valuations of the Company. With respect to such analyses,
Valuemetrics conducted a study of the efficiency of the market price of the
Company's common stock. This efficiency study was comprised of both
qualitative and quantitative analyses, including a statistical analysis of
the historical market price of the Company's stock to determine the degree of
auto-correlation from trade to trade. During recent times, the Company's
stock has been thinly traded. According to Valuemetrics' analysis, the market
for Universal Self Care, Inc.'s stock did not exhibit the characteristics of
an efficient market.
25
<PAGE>
Therefore, it is Valuemetrics' determination that the per share market value
of Universal Self Care, Inc. may not be a reliable indicator of value.
COMPARABLE TRANSACTIONS ANALYSIS. Valuemetrics performed a Merger &
Acquisition Analysis of the multiples paid in selected acquisition
transactions. The companies utilized in the Merger & Acquisition Analysis
included companies that possessed general business, operating and financial
characteristics representative of the companies in the industry in which the
Company operates. The specific transactions reviewed included, but were not
limited to, the following (target, acquiror, date of announcement): Health
Management, Inc. by Counsel Corporation, August 1997; American Medserve Corp.
by Omnicare, Inc., August 1997; HMIS, Inc. by American Medserve Corp., June
1997; Health Management, Inc. by Transworld Home Healthcare, Inc. November
1996 and January 1997; Pharmacare, Inc. by Capstone Pharmacy Services, Inc.,
March 1997; Pennsylvania Prescriptions, Inc. by Capstone Pharmacy Services,
Inc., March 1997; TeamCare, Inc. by Vitalink Pharmacy Services, Inc.,
February 1997; Portaro Pharmacies, Inc. by Capstone Pharmacy Services, Inc.,
January 1997; Clinical Care-SNF Pharmacy, Inc. Capstone Pharmacy Services,
Inc., January 1997; Alger Health Services, Inc. by Capstone Pharmacy
Services, Inc., January 1997; Institutional Pharmacy, Inc. by Capstone
Pharmacy Services, Inc., December 1996; Happy Harry's, Inc., by Capstone
Pharmacy Services, Inc., October 1996; Liberty Medical Supply, Inc. by
Polymedica Industries, Inc., August 1996; StatScript Management Services,
Inc., by Chronimed, Inc., July 1996; Good Samaritan Supply Services, Inc. by
America Medserve Corp, April 1996; Systemed, Inc. by Merck & Co., Inc., April
1996; IMD Corporation by Capstone Pharmacy Services, Inc., February 1996;
Geri-Care Systems, inc. and Scripts & Things, Inc. by Capstone Pharmacy
Services, Inc., January 1996; Home Pharmacy, a division of Arc Ventures, Inc.
by Mednet MPC Corp., September 1995; and Premier Pharmacy, Inc. by Capstone
Pharmacy Services, Inc., May 1995.
In its comparable transaction analysis, Valuemetrics utilized the
following ratios: the market capital as a multiple of sales, operating
income, EBITDA, and pretax income of the selected acquired companies. The
estimated range of values for the Purchased Companies and the Purchased
Assets using the Merger & Acquisition Analysis was $6,000,000 to $68,000,000,
with a midpoint of $32,300,000 (rounded). Valuemetrics noted that the value
of the Purchase Price is approximately $27,900,000, which is within the range
of value suggested by the Merger & Acquisition Analysis.
MARKET COMPARABLES ANALYSIS. In its Market Comparables Analysis,
Valuemetrics compared the relevant historical and current operating results
of the Purchased Companies and the Purchased Assets with such financial and
operating results of selected publicly traded companies in the context of a
Comparable Company Analysis. The companies utilized in the Market Comparables
Analysis included companies that possessed general business, operating and
financial characteristics representative of the companies in the industry in
which the Company operates. The specific companies reviewed included: Advance
Paradigm, Inc.; Express Scripts, Inc.; MIM Corp.; Vitalink Pharmacy Services,
Inc.; Chronimed, Inc.; Transworld Home Healthcare, Inc.; Omnicare, Inc.;
Capstone Pharmacy Services, Inc.; and Polymedica Industries, Inc.
In its Market Comparables Analysis, Valuemetrics utilized the following
ratios in its determination of the fair market value of the Purchased Assets
and the Purchased Companies: the market capital as a multiple of book
capital, sales, historical earnings, historical cash flow, historical
earnings before interest and taxes (EBIT), and historical earnings before
interest taxes, depreciation, and amortization (EBITDA) of the selected
public companies. Valuemetrics also examined the ratios of market capital to
future earnings and future cash flow to determine the value of the Purchased
Companies and Purchased Assets. The estimated value of the Purchased
Companies and Purchased Assets using the historical measures of operating
performance from the Market Comparables Analysis was $15,700,000 (rounded).
Because of the negative variance of the Company's operating performance
during the first five months of the Company's fiscal year ending June 30,
1998 from the Budget, which may cause the Company to incur operating losses
for such fiscal year, the future measures of operating performance derived
from the Market Comparable Analysis did not produce meaningful estimates of
the value of the Purchased Companies and the Purchased Assets. Valuemetrics
noted that the value of the Purchase Price of approximately $27,900,000 is
greater than the range of value suggested by the Market Comparables Analysis.
26
<PAGE>
OPTION PRICING ANALYSIS. Valuemetrics performed an Option Pricing
Analysis which included an analysis of (i) all options issued and outstanding
under the 1992 Stock Option Plan (ii) the Management Non-Qualified Stock
Option Plan, (iii) Series B Convertible Preferred Stock and (iv) all other
outstanding options and warrants. Valuemetrics used a Black Scholes option
valuation methodology to value the outstanding options and warrants. Based
upon the Company's current stock price, the specific terms and conditions of
the outstanding options and warrants and certain assumptions regarding the
future volatility of asset returns, Valuemetrics estimated the value of the
outstanding options and warrants to be within the range of approximately
$500,000 to $2,300,000 (rounded).
GAINOR DUE DILIGENCE AND ANALYSIS. Valuemetrics reviewed certain
financial and other information concerning Gainor. Among other things,
Valuemetrics reviewed: (i) the Operating Agreement of Gainor Medical
Management, LLC; (ii) the audited financial statements of Gainor Medical
Management, LLC and Affiliated Companies for the fiscal year ending December
31, 1996; (iii) the description of the business and ownership of Gainor
Medical Management, LLC, prepared by Gainor; and (iv) the pro forma operating
and financial forecast of Gainor and the Purchased Companies and the
Purchased Assets for the fiscal years ending December 31, 1998 through 2004.
In addition, Valuemetrics reviewed available industry and market research
concerning: (i) diabetes, (ii) the history and development of Gainor, (iii)
industry trends, (iv) competition, and (v) substitute technology or
procedures.
In rendering its opinion, Valuemetrics conducted due diligence and held
discussions with Gainors's management. Among other things, investigation
topics included: (i) Gainor's history, (ii) current business strategy, (iii)
competitors, (iv) sources of cash and liquidity, (v) personnel and
management, (vi) general industry trends, (vi) services and technologies,
(vii) operating cost structure, (viii) capital spending program, (ix)
contingency plans, (x) budgets and financial controls, and (xi) investors.
FORM OF PURCHASE PRICE. As consideration for the Purchased Companies and
the Purchased Assets, the Company will receive approximately $10,500,000 in
cash ($17,000,000, subject to certain adjustments for the cash of the
Purchased Companies and certain liabilities assumed) and a convertible
subordinated promissory note with a face value of $17,000,000. The Note,
whose issuer will be Gainor, will mature in greater than five years, but less
than six years, bear interest at 7.00 percent for the first year and 8.00
percent thereafter and be subordinated to the senior indebtedness of Gainor.
If Gainor registers the sale of any of its equity securities for its own
account in a public offering under a firm underwriting agreement, the Note
will be convertible into the shares of Gainor at fair market value of the
shares at the time of the offering at the option of the holder of the Note,
subject to the permission of the underwriters of the offering. The face value
of the Note is subject to adjustment based on any claims by Gainor or the
Company under the indemnification provisions of the Agreement, on any post
closing adjustments under the provisions of the Agreement, and on the revenue
of Diabetes Self Care, Inc. during the twelve-month period ending December
31, 1998. Based on the operating forecast prepared by the management of the
Company, Valuemetrics assumed that a reduction in the face value of the Note
would not be expected. Also, based on the operating forecast of Diabetes
prepared by Gainor, Valuemetrics assumed that a reduction in the face value
of the Note would not be expected.
Valuemetrics also assessed the value and credit quality of the Note.
Based on the terms of the Note, assuming that the Note is not converted into
the stock of Gainor prior to its maturity and, further, that the Note is not
reduced or increased due to a claim under the indemnification provisions of
the Agreement, to a post closing adjustment, or to a shortfall of the
revenues derived from Diabetes, Valuemetrics assumed that the present value
of the cash flows from the Note is approximately $16,100,000, taking into
consideration market rates of interest for similar instruments. Also, based
on the same assumptions and the pro forma projections of Gainor, the
Purchased Companies, and the Purchased Assets, provided by Gainor,
Valuemetrics assumed that Gainor would meet the payment schedule and would
comply with the terms of the Note.
27
<PAGE>
COMPARISON OF PURCHASE PRICE TO PUBLIC MARKET VALUES OF COMPANY COMMON
STOCK. Prior to the announcement of the Gainor Transaction, which was
disclosed in the Form 10-Q for the fiscal quarter ended September 30, 1997
filed by the Company on November 17, 1997, the publicly quoted price for the
common stock of the Company was approximately $2.44 per share. Subsequent to
the filing of the Form 10-Q for the fiscal quarter ended September 30, 1997
and its disclosure of the initial proposed terms of the Gainor Transaction,
the per share price for the common stock of the Company declined. On
December 16, 1997, one day prior to the announcement of the First Amendment to
Asset Purchase Agreement, the publicly quoted per share price for the common
stock of the Company was approximately $1.625 per share. The Purchase Price
suggests a sale of the Purchased Companies and Purchased Assets below the
value of the Purchased Companies and Purchased Assets implied by the publicly
quoted stock price of the Company as of November 14, 1997, the trading day
immediately prior to the initial announcement of the Gainor Transaction and
the operating and financial performance of the Company during the fiscal
quarter ended September 30, 1997. However, Valuemetrics noted that the
Purchase Price of approximately $27,900,000 represents a premium of five
percent from the value of the Purchased Companies and the Purchased Assets
implied by the publicly quoted stock price as of December 15, 1997, one day
prior to public disclosure of the First Amendment to Asset Purchase
Agreement. Given the results of the market efficiency study, the value
implied by the public stock price is not necessarily reflective of the value
of the Purchased Companies and the Purchased Assets. Also, given some
disparity between the value of the Purchased Companies and the Purchased
Assets as determined by the Merger & Acquisition and Market Comparables
Analyses and as implied by the publicly quoted stock price of Universal Self
Care, Inc., Valuemetrics considered the publicly quoted stock price and the
value that it implies for the Purchased Companies and the Purchased Assets as
less significant in the determination of the fairness of the Gainor
Transaction.
PURCHASE PRICE OF TAX CONSEQUENCES. Valuemetrics' assistance provided to
the Board of Directors as to the fairness, from a financial point of view, of
the Purchase Price to be paid to the Company and the Selling Subsidiaries for
the Purchased Companies and Purchased Assets is limited exclusively to the
pretax value of the Purchase Price. It is Valuemetrics' understanding that
the structure of the Transaction is costly to the Company from a taxation
standpoint. As a result of the Transaction, the Company will incur a tax
liability of approximately $6,225,000, net of the realization of the
Company's net operating loss carryforwards. The payment of the tax liability
may cause substantial dilution. However, Valuemetrics is not aware of
alternative transaction structures mutually agreeable to both the Company and
Gainor. Furthermore, the tax consequences of the Transaction are beyond the
purview of Valuemetrics.
FEES AND EXPENSES. As compensation for its services as financial advisor
to the Company, the Company has agreed to pay Valuemetrics a fee of
approximately $47,000, plus out of pocket costs. The Company has also agreed
to indemnify Valuemetrics against certain liabilities arising out of or in
connection with its engagement.
Valuemetrics, Inc., a nationally recognized financial advisory firm, has
regularly been engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, sales and other corporate purposes.
The Company selected Valuemetrics based on its experience and expertise.
Prior to October 23, 1997, the date upon which the Company's Board engaged
Valuemetrics to render financial advisory services to the Board, Valuemetrics
had not previously provided financial advisory services to the Company, nor
did Valuemetrics have any relationship with the Company or any of its Board
members.
28
<PAGE>
MANAGEMENT'S APPRAISAL OF THE GAINOR TRANSACTION AND FUTURE STRATEGY
THE COMPANY'S MANAGEMENT ALSO BELIEVES THAT THE CONSIDERATION TO BE RECEIVED
IN THE GAINOR TRANSACTION IS FAIR TO THE COMPANY AND ITS STOCKHOLDERS FOR
SEVERAL REASONS.
First, without regard to income tax considerations, the anticipated cash
portion of the Purchase Price alone will be less, by only approximately
$13,253,888, than the market value for all the outstanding Company Common
Stock based upon the last reported sale price for a share of Company Common
Stock on the Nasdaq Small Cap Market ("Nasdaq") on the trading date
immediately preceding the announcement by the Company (November 17, 1997) of
the Gainor Transaction ($23,727,972). However, the anticipated cash portion
of the Purchase Price will be only $5,328,357 less than such market value on
the date preceding the announcement by the Company (December 16, 1997) of the
signing of the First Amendment ($15,802,441). When the principal of the Note is
added to the cash portion of the Purchase Price, the total Purchase Price
exceeds by more than $3,746,000 such market value on the trading date
immediately preceding the announcement by the Company of the Gainor Transaction.
However, the total Purchase Price exceeds such market value on the date
preceding the announcement by the Company of the First Amendment
(December 16, 1997) by more than $11,671,644. On November 17, 1997, the date of
the first announcement, the last reported sale price for a share of Company
Common Stock was $2.625, for an aggregate market value for all outstanding
Company Common Stock as reported on Nasdaq of approximately $25,527,019 on
that date. Second, the Business operates in a rapidly developing, heavily
regulated industry that is increasingly dominated by large companies having
significantly greater financial resources than the Company, and it is
believed that without significantly increasing its financial resources the
Company will find it difficult to improve upon its operating performance, and
even more difficult to become profitable and generate annual income. The
Company's past performance in the last two fiscal years has been
characterized by a decreasing annual revenue stream that has resulted in
increasingly limited cash flow and accelerating financial losses. Third, the
Business derives a significant amount of revenues (more than 90%) from
payments made by governmental intermediaries, and the future impact of
federal and state budget constraints and shifting federal and state health
care policies upon governmental programs and reimbursement rates is uncertain
to predict. For example, the Company has recently been informed that Medicare
reimbursement rates on many of the products that it sells will be reduced by
approximately 10% in 1998. Fourth, as an existing vendor to the Company,
Gainor is a strategic purchaser of the Business and a purchaser that the
Company believes is intent upon entering the businesses in which the Company
operates either by purchasing existing operations or by developing competing
operations of its own. Gainor is better financed than the Company, in part
through relationships with a significant equity holder. The Company believes
that should Gainor enter the markets in which the Business operates
independently and not through purchase of the Business itself, Gainor would
constitute a formidable competitor in the industry to the detriment of the
Company's future operations. Fifth, and lastly, insofar as Gainor is a
strategic purchaser of the Business, the Company believes that in the event
that the Company were to decide to sell the Business at a future time it
would not be able to obtain as favorable of a price for that business should
another strategic purchaser not be subsequently available.
29
<PAGE>
The Company has entered into the Gainor Transaction principally as a way
to create additional value for its stockholders by obtaining an attractive
price for sale of the Business, approximately 35% in cash anticipated at
closing. Indeed, the net book value of the assets of the Business to be sold
in the Gainor Transaction, based upon the Company's September 30, 1997
unaudited financial statements (approximately $4,770,000), represents
approximately 40% of the anticipated cash proceeds to be received at closing
($11,820,000), without any deduction for the estimated taxes to be paid with
respect to such cash proceeds (see below).
Following closing of the Sale Agreement in connection with the Gainor
Transaction, the Company's management intends to redirect the Company's business
focus through the acquisition of a new business or new businesses, although it
is not yet known in which direction the Company will develop its future business
operations. At this time the Company has no specific business or businesses
which it intends, or is obligated, to purchase.
Management believes that receipt of the proceeds from sale of the
Business will increase stockholder value. The significant amount of cash made
available to the Company for its acquisition program will permit the
acquisition of businesses which, over the long-term, will be expected to
generate higher levels of net income than those historically generated by the
Business. Finally, following the Gainor Transaction, the amount of cash
resources to be available to the Company should enable the Company to obtain
favorable pricing for any future businesses that it decides to acquire.
As a result of all of the factors recited above with respect to the fairness
of the terms of the Gainor Transaction to the Company and its stockholders, as
well as the potential for increased stockholder value as a result of the
application of proceeds from the Gainor Transaction, Management of the Company
believes the Gainor Transaction to be in the best interests of the Company and
its stockholders.
FEDERAL INCOME TAX CONSEQUENCES
For Federal income tax purposes, the sale by the Company will generate a
taxable gain, measured by the difference between the amount realized on the sale
and the tax basis of the assets sold. This gain can be offset by current year
operating losses, and available net operating loss carry forwards.
It is currently estimated that the Federal income tax on this sale, after
taking into account the estimated losses and carry forwards, would be
approximately $4,900,000. In addition, the gain would be subject to state income
taxes in the approximate amount of $1,325,000.
To the extent that a portion of the sales price is payable with a note, the
Company can elect to report the gain under the installment method, whereby the
tax on the portion of the gain, attributable to such note is deferred until the
note is collected, pledged or otherwise disposed of. This would operate to defer
the entire Federal tax of approximately $4,900,000 and $840,000 of the
30
<PAGE>
state taxes.
The Company will be liable for an interest charge on the deferred Federal
tax in the amount of approximately $310,000 per year. Such interest charge will
be reduced as the gain is reported.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements have been prepared
to show the proposed disposition of all of the Company's (including its
subsidiaries') operating assets in the Gainor Transaction.
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, which are included in the Company's 1997 Annual Report, which has been
delivered along with this Proxy Statement.
31
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 30, PRO FORMA ADJUSTMENTS
------------- -----------------------------
1997 DEBIT CREDIT TOTAL
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash................................................ $ 471,658 (1) $ 10,474,084 (3) $ 4,241,300 $6,704,442
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 6,704,442
LONG-TERM NOTES RECEIVABLE, NET OF DISCOUNT......... (1) 16,100,000 16,100,000
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 $26,574,084 $20,098,270 $22,804,442
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable................................ $ 3,941,435 (1) $ 3,941,435 $ $ --
Notes payable-current portion................... 206,528 206,528
Accrued liabilities............................. 2,533,325 (1) 1,878,637 89,211
(3) 565,477
State audit reserves............................ 700,000 700,000
Payroll taxes payable........................... 550,522 (1) 550,522
Accrued income tax payable--current portion..... (1) 475,000 475,000
------------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES..................... 7,931,810 1,470,739
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) 5,750,000 5,750,000
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
Retained earnings (deficit)..................... (11,724,222) (2) 5,762,663 (1) 16,625,371 (861,514)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY...................... 2,827,588 13,690,296
------------ ----------- ----------- -----------
$16,328,628 $16,374,557 $22,850,371 $22,804,442
------------ ----------- ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
- ------------------------
See Notes to Pro forma Financial Statements
32
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, PRO FORMA ADJUSTMENTS TOTAL
------------- -------------------------- ------------
1997 DEBIT CREDIT
------------- ---------- -----------
<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) 77,500 (77,500)
Interest income............................. -- (2) 412,000 412,000
------------- ------------
TOTAL OTHER INCOME (EXPENSES)..................... (143,391) 324,160
------------- ------------
NET INCOME (LOSS) BEFORE INCOME TAXES............. (645,357) 44,910
PROVISION FOR INCOME TAXES........................ -- (5) 17,964 17,964
------------- ------------ ------------ ------------
NET INCOME (LOSS) $ (645,357) $ 8,632,852 $9,305,155 $ 26,946
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
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
33
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, PRO FORMA ADJUSTMENTS TOTAL
------------ ----------------------------- ----------
<S> <C> <C> <C> <C>
1997 DEBIT CREDIT
------------ ------------ -----------
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) 310,000 (310,000)
Interest income.............................. -- (2) 1,645,000 1,645,000
------------ ----------
TOTAL OTHER INCOME (EXPENSES)................ (874,572) 1,293,639
------------ ----------
NET INCOME (LOSS) BEFORE INCOME TAXES................ (2,653,232) 176,639
PROVISION FOR INCOME TAXES........................... -- (5) 70,656 92,503
------------ ------------ ----------- ----------
NET INCOME (LOSS).................................... $ (2,653,232) $35,499,282 $38,258,497 $105,983
------------ ------------ ----------- ----------
------------ ------------ ----------- ----------
NET INCOME (LOSS) PER SHARE.......................... $ (.33) $ 0.01
------------ ----------
------------ ----------
WEIGHTED AVERAGE SHARES.............................. 8,084,278 8,084,278
------------ ----------
------------ ----------
</TABLE>
See Notes to Pro Forma Financial Statements
34
<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 $3,941,435
and accrued expenses of $1,878,637. The sale price is assumed to be $34
million, constituted as follows: $17 million cash (as decreased for the
assumption of accounts payable and accrued expenses totaling $5,212,416)
and a $17 million note receivable payable over a minimum of 5 years
(subject to prepayment), bearing interest at 7% for the first year
and 8% thereafter. The Company has recorded a discount of $900,000 on
the note. The estimated gain on sale is $22,534,035. The estimated
tax impact to the Company is $6.225 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 statements 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 $17
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.
35
<PAGE>
Following consummation of the Gainor Transaction, the assets comprising the
Business that is sold will be accounted for as constituting discontinued
operations of the Company.
The Company is not in arrears with respect to the declaration and payment of
dividends on its securities.
The Company's Common Stock is traded principally on Nasdaq under the trading
symbol "USCI". On November 14, 1997, the trading date immediately preceding
public announcement of execution of the Sale Agreement, the high and low sale
prices of the Company's Common Stock as reported on Nasdaq were $2.625 and
$2.5625, respectively.
The failure by Company stockholders to authorize and approve the Gainor
Transaction will prevent the effectiveness and prevent consummation of the
Gainor Transaction.
MANAGEMENT BELIEVES THE SALE OF THE COMPANY'S BUSINESS TO GAINOR MEDICAL
MANAGEMENT, LLC IS IN THE BEST INTEREST OF THE COMPANY AND RECOMMENDS THAT IT BE
AUTHORIZED AND APPROVED.
IV. Authorization and Ratification of the 1997 Stock Option Plan for
Non-employee Directors
The Company established the 1997 Stock Option Plan for Non-Employee
Directors (the "Directors Plan") on November 21, 1997. A copy of the Directors
Plan is annexed as Exhibit C. The purpose of the Directors Plan is to provide
additional incentive to the non-employee directors of the Company who share a
significant role in and responsibility for guiding management's planning for the
growth of the Company. Under the Directors Plan, which is to be administered by
a committee of the Company's Board of Directors the members of which are not
eligible to participate in the Directors Plan (the "Committee"), each eligible
Non-Employee Director will be granted non-qualified options to acquire 10,000
shares of the Company's Common Stock on the date following approval of the
Directors Plan by the Company's stockholders, and on each succeeding July 1 upon
which such Non-Employee Director is an existing member of the Company's Board of
Directors (or the first succeeding business day thereafter on which the Common
Stock is traded on the principal securities exchange on which it is listed).
There will be 300,000 shares of Common Stock reserved for issuance pursuant to
options granted under the Directors Plan. The exercise price per share of Common
Stock for which each option is exercisable shall be the average of the closing
bid and asked prices of the stock (or the closing sale price of the stock if
traded on a national securities exchange) as generally reported for the
principal securities market on which the Company's Common Stock is listed. Each
option granted under the Plan shall be fully exercisable on the date of option
grant. Each option granted under the Plan shall expire five years from the date
of grant, and shall be subject to earlier termination as hereinafter provided.
In the event of the termination of service on the Board by the holder of any
option granted under the Directors Plan, other than by reason of mandatory
retirement, permanent disability or death, the then outstanding options of such
holder shall be exercisable only to the extent that they were exercisable on the
date of such termination and shall expire three months after such termination,
or on their stated expiration
36
<PAGE>
date, whichever occurs first. In the event of termination of service by
reason of mandatory retirement pursuant to Board policy or permanent
disability of the holder of any option, each of such holder's then
outstanding options granted under the Directors Plan will continue to become
exercisable in accordance with the terms set forth above, but the holder
shall be entitled to exercise such options (including any portions that
become exercisable after termination) within three years of such termination,
but in no event shall any affected option be exercisable after its expiration
date. In the event of the death of the holder of any option, each of the then
outstanding options of such holder shall become immediately exercisable in
full, and shall be exercisable by the holder's legal representative at any
time within a period of three years after death, but in no event shall any
affected option be exercisable after its expiration date. However, if the
holder dies within two years following termination of service on the Board by
reason of mandatory retirement or permanent disability, any option granted
under the Directors Plan shall be exercisable only until the earlier of (x)
the later of (i) one year after the holder's death or (ii) two years after
such termination, or (y) the expiration date of the option. The option
exercise price shall be paid in cash and the cash price can be paid with the
proceeds of a loan from the Company to the participant for such purpose or by
the surrender of shares of Common Stock of the Company, valued at their fair
market value on the date of exercise, or by any combination of cash and such
shares.
Management believes authorization and approval of the Directors Plan of the
Company is in the best interest of the Company and recommends that it be
authorized and ratified.
V. Authorization and Approval of A Name Change Amendment to the
Company's Certificate of Incorporation.
Pursuant to the terms of the Sale Agreement, upon consummation of the
Gainor Transaction the Company is required to change its corporate name to
from "Universal Self Care, Inc. to Tadeo Holdings, Inc. in order to avoid any
confusion between the Business acquired from the Company by Gainor and any
business operated by the Company in the future. As a result, as a part of the
consummation of the Gainor Transaction, Company stockholders must authorize
and approve an amendment to the Company's Certificate of Incorporation that
effects a change of the Company's name to Tadeo Holdings, Inc. in order for
the Gainor Transaction to be consummated. A copy of the Amendment to the
Company's Certificate of Incorporation that changes the name of the
Corporation to Tadeo Holdings, Inc. (the "Amendment") is annexed as Exhibit
D. The Amendment is only to be effective in the event that the Gainor
Transaction is consummated pursuant to the Terms of the Sale Agreement, and
management of the Company. is only authorized to execute and file the
Amendment with the appropriate regulatory authorities upon such consummation
of the Gainor Transaction.
Management believes authorization and approval of the Amendment as part of
then Gainor Transaction is in the best interest of the Company and recommends
that it be authorized and ratified.
37
<PAGE>
VI. TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF THE CORPORATION'S AUTHORIZED SHARES BY 60,000,000 SHARES OF
COMMON STOCK
At the Annual Meeting a vote will be taken on a proposal to authorize the
amendment of the Company's Certificate of Incorporation to increase the number
of shares authorized for issuance thereunder from 40,000,000 authorized shares
of Common Stock to 100,000,000 authorized shares of Common Stock, which
amendment is to be effective only upon closing the Sale Agreement identified in
Proposal III ,above. In reflecting upon the Company's present capital structure,
management of the Company believes that the current authorized number of common
and preferred shares is inadequate for the Company's purposes following the
closing of the Sale Agreement with respect to the sale of the Company's existing
business and operating assets to Gainor Medical. Management believes that the
Company needs more authorized shares of Common Stock in its capital structure in
order either to support its ability to consummate potential future acquisitions
of new businesses or to raise additional working capital funds for any such
business that it may acquire in the future. The purpose of the proposal to amend
the Company's Certificate of Incorporation is to enhance the Company's ability
to meet the needs of its post-Closing acquisition program, by providing added
flexibility for consummation of potential acquisitions and working capital
financing by creating a large pool of unissued shares of Common Stock to be used
as consideration for such acquisitions, as well as for capital formation.
Management sees the need for the proposed increase in its capital structure at
this time despite the absence of current plans for issuance of such shares to
raise additional working capital funds, or in connection with any specific
acquisitions. Management also believes that, insofar as the Company is seeking
stockholder approval at this time for the other proposals identified in this
solicitation material, it is more cost effective for the Company concurrently to
approach stockholders for approval of such increase in its authorized capital.
Management believes approval of the amendment of the Company's Certificate
of Incorporation to increase the Company's authorized capital by 60,000,000
shares of Common Stock, effective upon the closing of the Sale Agreement with
Gainor Medical, is in the best interest of the Company and recommends that such
amendment be authorized and ratified.
XIXI. Other Business
While management of the Company does not know of any matters which may be
brought before the Meeting, other than as set forth in the Notice of Meeting,
the proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question which may properly be submitted to the meeting.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
If any stockholder desires to put forth a proposal to be voted on at the
1999 Annual Meeting of Stockholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to stockholders in connection with
such meeting, that stockholder must cause such proposal to be received by the
Company at its principal executive office no later than August 21, 1998. The
Company intends to hold its 1999 Annual Meeting of Stockholders on or before
January 31, 1999. Any request for such a proposal, should be accompanied by a
written representation that the person making the request is a record or
beneficial owner of the lesser of
38
<PAGE>
at least 1% of the outstanding shares of the Company's Common Stock or $1,000
in market value of the Company's common shares and has held such shares for
at least one year as required by the Proxy Rules of the Securities and
Exchange Commission.
Availability of Form 10-KSB
The Company will provide, without charge, to any stockholder, upon written
request of such stockholder, a copy of the Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 as filed with the Securities and Exchange
Commission, including all financial statements and financial statement schedules
required to be filed therewith.
Any request for a copy of the Form 10-KSB should include a representation
that the person making the request was the beneficial owner, as of the record
date, of securities entitled to vote at the Annual Meeting of Stockholders. Such
requests should be addressed to: Universal Self Care, Inc., 11585 Farmington
Road, Livonia, Michigan 48150- Attention: Robert Ortlieb, Investor Relations.
- -------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED FOR SUCH PURPOSE
- -------------------------------------------------------------------------------
39
<PAGE>
UNIVERSAL SELF CARE, INC.
PROXY-ANNUAL MEETING OF STOCKHOLDERS
JANUARY 19, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS OF UNIVERSAL SELF CARE, INC. TO BE HELD ON
JANUARY 19, 1998. ANY STOCKHOLDERS HAS THE RIGHT TO APPOINT AS HIS PROXY A
PERSON (WHO NEED NOT BE A STOCKHOLDER) OTHER THAN ANY PERSON DESIGNATED BELOW,
BY INSERTING THE NAME OF SUCH OTHER PERSON IN ANOTHER PROPER FORM OF PROXY.
The undersigned, a stockholder of Universal Self Care, Inc., (the
"Corporation"), hereby revoking any proxy herein before given, does hereby
appoint Brian D. Bookmeier and Alan M. Korby, or either of them, as his proxy
with full power of substitution, for and in the name of the undersigned to
attend the Annual Meeting of Stockholders to be held on January 19, 1998 at
the Holiday Inn Livonia-West, 17123 North Laurel Park Drive, Livonia, Michigan
48152, at 10:00 a.m., local time, and at any adjournments thereof, and to vote
upon all matters specified in the notice of said meeting, as set forth herein,
and upon such other business as may properly come before the meeting, all
shares of stock of said Corporation which the undersigned would be entitled to
vote if personally present at the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL
PROPOSALS.
1. THE ELECTION OF DIRECTORS
Election of the following proposed directors to hold office until the
next Annual Meeting of Stockholders or until their successors shall be
elected and shall qualify: Brian D. Bookmeier, James Linesch. Damon D.
Testaverde and Peter W. Rothberg.
FOR ALL NOMINEES (EXCEPT AS MARKED TO THE CONTRARY) WITHHOLD ALL NOMINEES
( )FOR ( )AGAINST ( )ABSTAIN
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD
BE INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE
NOMINEE.
40
<PAGE>
2. Ratify the Appointment of Feldman, Radin & Co., P.C. as independent
auditors for the Corporation for the fiscal year ending June 30, 1998.
( )FOR ( )AGAINST ( )ABSTAIN
3. Authorize and approve the sale of all or substantially all of the assets
of the Company's Business to a subsidiary of Gainor Medical Management,
LLC as part of the Gainor Transaction under the terms of the Sale
Agreement, and authorize and approve the terms of the Sale Agreement, all
Exhibits thereto, and the transactions contemplated thereby.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. To authorize and approve the 1997 Stock Option Plan for Non-Employee
Directors.
( ) FOR ( ) AGAINST ( ) ABSTAIN
5. To authorize an amendment to the Company's Certificate of Incorporation,
effective upon consummation of the Gainor Transaction pursuant to the
terms of the Sale Agreement, to change the name of the Corporation from
"Universal Self Care, Inc." to "Tadeo Holdings, Inc."
( ) FOR ( ) AGAINST ( ) ABSTAIN
6. To authorize an amendment to the Company's Certificate of Incorporation,
effective upon consummation of the Gainor Transaction pursuant to the
terms of the Sale Agreement, to increase the authorized capital of the
Company by increasing the number of authorized shares of Common Stock from
40,000,000 shares, $.0001 par value, to 100,000,000 shares of Common
Stock, $.0001 par value.
( ) FOR ( ) AGAINST ( ) ABSTAIN
7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
( )FOR ( )AGAINST ( )ABSTAIN
Dated: , 1998. -----------------------------------
Signature
-----------------------------------
Print Name
-----------------------------------
Signature, if Jointly Held
41
<PAGE>
-----------------------------------
Print Name
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREIN, if signing as
attorney, executor, administrator,
trustee or guardian, indicate such
capacity. All joint tenants must sign.
If a corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
The Board of Directors request that
you fill in the date and sign the
Proxy and return it in the enclosed
envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE
SPACE, IT IS DEEMED TO BE DATED ON THE
DAY ON WHICH IT WAS MAILED BY THE
CORPORATION.
42
<PAGE>
Exhibit A
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.
2
<PAGE>
"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.
3
<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
4
<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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"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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(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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<PAGE>
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
49
<PAGE>
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
50
<PAGE>
STOCKHOLDERS:
_________________________________ ______________________________
BRIAN D. BOOKMEIER EDWARD T. BUCHHOLZ
_________________________________ ______________________________
MATTHEW B. GIETZEN ALAN M. KORBY
51
<PAGE>
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.
52
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Transferred Accounts.
All bank accounts of the Selling Companies.
53
<PAGE>
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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<PAGE>
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
2
<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
3
<PAGE>
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
4
<PAGE>
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
5
<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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<PAGE>
(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.
7
<PAGE>
(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
8
<PAGE>
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
9
<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:
10
<PAGE>
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
<PAGE>
FIRST AMENDMENT TO THE ASSET PURCHASE AGREEMENT
This First Amendment to the Asset Purchase Agreement (the "AGREEMENT"), dated as
of November 24, 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 parties named above entered
into an Asset Purchase Agreement on November 14, 1997 (the "Purchase
Agreement"). The Purchase Agreement contained an error with respect to the
calculation of the amount to be paid to Universal, using the revenue of the
"Purchased Companies" for calculation of the Post Closing Revenue, rather than
the revenue of Diabetes Self Care, Inc. only, as agreed by the parties. In order
to correct such mistake, and to make additional changes agreed to by the
parties, the parties hereby agree as follows:
1. Sections 2.2(a)(ii) and (iii) of the Asset Purchase Agreement are hereby
replaced in their entirety with the following:
(ii) an amount equal to 75% of the Post Closing Revenue (as defined in
Section 2.5(b)) or $17 million, whichever is less, plus
(iii) the sum (whether positive or negative) of (1) the cash shown on the
Closing Balance Sheets, less (2) the book value at Closing of the Gainor Assumed
Liabilities required to be listed in a balance sheet, prepared in accordance
with GAAP, less (3) all liabilities of the Purchased Companies shown on the
Closing Balance Sheets, and less (4) the amount of the pledge by the Universal
Entities to the American Diabetes Association (the aggregate of (1)-(4) being
referred to herein as the "Closing Net Asset Value"); and
2. The second sentence of Section 2.3(b) is hereby replaced in its entirety
with the following:
The Note shall be reduced post closing as set forth in Section 2.5(b)
3. Section 2.5 (b) of the Asset Purchase Agreement is hereby replaced in its
entirety with the following:
<PAGE>
(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)
$17 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
Diabetes Self Care, Inc. for calendar year 1998, less sales taxes, allowable
adjustments and other sales adjustments, all determined in accordance with GAAP.
In the event that Diabetes Self Care, Inc. is 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 Diabetes Self Care, Inc. 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.
4. Section 2.5(c) of the Asset Purchase Agreement is hereby replaced in its
entirety with the following:
(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 $6
million during that 12 month period.
5. Section 2.6(a) shall be replaced in its entirety with the word "Omitted".
6. Section 6.6 of Exhibit C to the Asset Purchase Agreement entitled
"Employment Agreement" shall have a new Section 6.6 as follows:
6.6 For a period of three years from the date hereof, Employee shall
not directly or indirectly work for Universal Self Care, Inc. or any of its
subsidiaries, affiliates or successors in interest to its business or
assets, whether as an officer, director, key employee, partner, consultant,
holder of an equity or debt investment, lender or in any other management,
sales, consulting or business development capacity, except in accordance
with the written authorization of HMS.
<PAGE>
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:/s/ Mark J. Gainor By:/s/ Mark J. Gainor
------------------------------------- --------------------------------
Mark J. Gainor Mark J. Gainor
- ---------------------------------------- -----------------------------------
Print Name Print Name
Pres./CEO/Mgr Part. Pres/CEO
- ---------------------------------------- -----------------------------------
Print Title Print Title
UNIVERSAL:
UNIVERSAL SELF CARE, INC. CLINISHARE DIABETES CENTERS, INC.
By:/s/ Brian D. Bookmeier By:/s/Brian D. Bookmeier
------------------------------------- --------------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- -----------------------------------
Print Name Print Name
President President
- ---------------------------------------- -----------------------------------
Print Title Print Title
<PAGE>
PHYSICIANS SUPPORT SERVICES, INC. USC-MICHIGAN, INC.
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- -----------------------------------
Print Name Print Name
President President
- ---------------------------------------- -----------------------------------
Print Title Print Title
PCS, INC. - WEST DIABETES SELF CARE, INC.
By:/s/ Brian D. Bookmeier By:/s/ Brian D. Bookmeier
------------------------------------- --------------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- -----------------------------------
Print Name Print Name
President President
- ---------------------------------------- -----------------------------------
Print Title Print Title
USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC.
By:/s/ Brian D. Bookmeier
-------------------------------------
Brian D. Bookmeier
- ----------------------------------------
Print Name
President
- ----------------------------------------
Print Title
<PAGE>
STOCKHOLDERS:
/s/ Brian D. Bookmeier /s/ Edward T. Buchholz
- ---------------------------------------- -----------------------------------
BRIAN D. BOOKMEIER EDWARD T. BUCHHOLZ
/s/ Matthew B. Gietzen /s/ Alan M. Korby
- ---------------------------------------- -----------------------------------
MATTHEW B. GIETZEN ALAN M. KORBY
<PAGE>
Exhibit B
December 16, 1997
The Board of Directors of Universal Self Care, Inc.
Universal Self Care, Inc.
11585 Farmington Road
Livonia, MI 48150
Board of Directors:
We understand that Universal Self Care Inc. (the "Company"), its
subsidiaries, Clinishare Diabetes Centers, Inc., Physicians Support Services,
Inc., USC-Michigan, Inc., PCS, Inc.-West, Diabetes Self Care, Inc., ("DSC")
and USCI Healthcare Management Solutions, Inc. ("HMS"), (together, the
"Subsidiaries"), and Certain of its Stockholders, Brian D. Bookmeier, Edward
T. Buchholtz, Matthew B. Gietzen, and Alan M. Korby (together, the
"Stockholders") and Gainor Medical Management, LLC, and Gainor Medical
Acquisition Company (together, "Gainor") have entered into an Asset Purchase
Agreement, as amended, (the "Agreement"), whereby, among other things, the
Company will sell DSC and HMS (the "Purchased Companies"), and the
Subsidiaries, excluding DSC and HMS (the "Selling Subsidiaries"), will sell
substantially all of their assets (the "Purchased Assets") to Gainor (the
"Transaction"). As consideration for the Purchased Companies and the
Purchased Assets, the Company and the Selling Subsidiaries will receive (i)
cash in the amount of $17,000,000, net of certain adjustments, including the
cash of the Purchased Companies and certain liabilities of the Company and
the Subsidiaries to be assumed (the "Cash Consideration"), (ii) a convertible
subordinated promissory note in the face value of $17,000,000 (the "Note"),
and Gainor will assume certain liabilities of the Subsidiaries (the Gainor
Assumed Liabilities" and together with the Cash Consideration and the Note,
the "Consideration"). The Note, whose maker will be Gainor, will mature in
greater than five years, but less than six years, bear interest at 7.00
percent for the first year and 8.00 percent thereafter, will be convertible
at fair market value into the shares of Gainor at the time of the closing of
an underwritten public offering of any equity securities of Gainor, subject
to certain conditions, including, but not limited to, the registration of the
equity securities of Gainor for an underwritten public offering, and will be
subordinated to the senior indebtedness of Gainor. Furthermore, the face
value of the Note will be subject to adjustment based on any claims by Gainor
or the Company under the indemnification provisions of the Agreement, on any
post closing adjustments under
<PAGE>
Universal Self Care, Inc.
December 16, 1997
Page 2
the provisions of the Agreement, and on the revenue of DSC during the
twelve-month period ending December 31, 1998.
You have requested our opinion, as financial advisors, as to the
fairness, from a financial point of view, to the Company and to the Selling
Subsidiaries of the Consideration to be paid for the Purchased Companies and
the Purchased Assets in the Transaction.
In conducting our analysis of the Company and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of the Company that was publicly available; including filings
made with the Securities and Exchange Commission (the "SEC"). The documents
reviewed by Valuemetrics include, but are not limited to:
(i) Monthly consolidated budget of Universal Self Care, Inc. and
Subsidiaries for the fiscal year ending June 30, 1998 (the "Budget");
(ii) Forms 8-K filed on September 9, 1996 and July 7, 1997;
(iii) Prospectus of Universal Self Care, Inc. dated December 10, 1992;
(iv) Form S-3 Registration Statement and Post-Effective Amendment No. 1 to
Form SB-2 Registration Statement on Form S-3 Registration Statement
filed on July 11, 1997;
(v) Certificate of Incorporation of Universal Self Care, Inc. and all
amendments thereto;
(vi) Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series A Convertible Preferred
Stock;
(vii) Certificate of Designation, Preferences and Relative, Participating,
Optional or Other Special Rights of Series B Convertible Preferred
Stock;
(viii) Certificate of Correction to Correct a Certain Error in the
Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series B Convertible Preferred
Stock;
(ix) Universal Self Care, Inc. 1992 Employee Stock Option Plan;
(x) Universal Self Care, Inc. Management Non-Qualified Stock Option Plan;
(xi) Loan and Security Agreement by and among Universal Self Care, Inc.,
Diabetes Self Care, Inc., PCS, Inc.-West, Physicians Support
Services, Inc. and Healthpartners Funding L.P. dated August 15, 1996;
(xii) Publicly reported trading activity in the common stock of Universal
Self Care, Inc. for the period from November 11, 1994 through
October 1, 1997; and
(xiii) Public news releases by Universal Self Care, Inc. for the period from
November 6, 1995 through July 28, 1997.
Valuemetrics also reviewed the annual financial statements of the Company for
the fiscal years ended June 30, 1993 through June 30, 1997 as presented in
the Forms 10-KSB and/or 10-KSB/A, as well as the quarterly financial
statements of the Company for the fiscal quarters ended September 30,
December 31, and March 31, 1996 and 1997 as presented in Forms 10-Q and
10-QSB. Valuemetrics also reviewed the internally
<PAGE>
prepared, unaudited Consolidating Financial Statements of Universal Self
Care, Inc. and Subsidiaries for the fiscal year ending June 30, 1997 and the
fiscal quarter ending September 30, 1997, portions of the Company's internal
financial and operating reports for the months of October and November, 1997,
and the Company's current and future operating performance as compared to the
Budget. In addition, we have reviewed available industry and market research
and publicly available financial and stock performance data of companies that
we deemed comparable to the Company.
In conducting our analysis of Gainor and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of the Company and Gainor. The documents reviewed by Valuemetrics
include, but are not limited to:
(i) Letter regarding the Acquisition of Assets of Universal Self Care,
Inc. and Subsidiaries from Gainor Medical Management, LLC, dated
August 15, 1997;
(ii) Letter regarding the Acquisition of Assets of Universal Self Care,
Inc. and Subsidiaries from Gainor Medical Management, LLC, dated
November 6, 1997;
(iii) Asset Purchase Agreement between Gainor Medical Management,
LLC, Gainor Medical Acquisition Company and Universal Self
Care, Inc. and its Subsidiaries Clinishare Diabetes Centers,
Inc., Physicians Support Services, Inc., USC-Michigan, Inc.,
PCS, Inc.-West, Diabetes Self Care Inc., Medical Accounting
Specialists, Inc., and USCI Healthcare Management Solutions,
Inc., and Certain of its Shareholders, Brian D. Bookmeier,
Edward T. Buchholz, Matthew B. Gietzen, and Alan M. Korby,
Dated November 14, 1997 and all Exhibits attached thereto,
including, the Bill of Sale, the Contract Assignment Agreement,
the Employment Agreement, the Gainor Assumption Agreement, the
Trademark Assignment Agreement, the Universal Assumption Agreement,
and the Convertible Subordinated Promissory Note;
(iv) the unexecuted First Amendment to the Asset Purchase Agreement, dated
as of November 24, 1997;
(v) Letter regarding the Financing Proposal of Gainor Medical Management,
LLC from LaSalle National Bank, Dated October 8, 1997;
(vi) Letter regarding the Discussion Draft of Proposed Terms and Conditions
for Gainor Medical Management, LLC from U.S. Bank National Association,
d/b/a First Bank National Association, Dated October 8, 1997;
(vii) Operating Agreement of Gainor Medical Management, LLC;
(viii) Unaudited Pro Forma Consolidated Financial Statements of Universal
Self Care, Inc. and Subsidiaries as of September 30, 1997, compiled
by Feldman Radin & Co., P.C.;
(ix) Audited Financial Statements of Gainor Medical Management, LLC and
Affiliated Companies for the fiscal year ending December 31, 1996;
(x) Description of the business and ownership of Gainor Medical
Management, LLC, prepared by Gainor; and
<PAGE>
(xi) Pro forma operating and financial forecast of Gainor and the
Purchased Companies and the Purchased Assets for the fiscal years
ending December 31, 1998 through 2004.
In addition, we have reviewed available industry and market research
pertaining to Gainor's operations and various assets.
In rendering our opinion, we have conducted on site due diligence and
held discussions with certain officers, employees and representatives
(including counsel and independent auditors) of the Company and Gainor,
respectively, concerning the business and operations, assets, present
condition and future prospects of the Company and Gainor and undertook such
other studies, analyses and investigations as we have deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information supplied to or
otherwise used by us in arriving at our opinion and have not attempted
independently to verify such information. With respect to the pro forma
projections provided to us by Gainor of the expected future operating and
financial performance of the Purchased Companies and the Purchased Assets
combined with Gainor, we have assumed that they have been reasonably prepared
on the bases reflecting the best currently available estimates and judgement
of Gainor's management as to their expected future performance. We have not
assumed any responsibility for the independent verification of any such
information or projections provided to us and we have further relied upon the
assurance of the management of Gainor that they are unaware of any facts that
would make the information or projections provided to us incomplete or
misleading. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of the Company, its
subsidiaries, or Gainor. We have also assumed that the transactions described
in the Agreement, as amended, would be consummated on the terms set forth
therein, without waiver of any such terms.
We have assumed, with the consent of the Company and Gainor, that the
Transaction will comply with applicable federal and state laws, including,
without limitation laws relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer or other similar laws now or
hereafter in effect affecting creditors' rights generally.
Our opinion, as expressed herein, is limited exclusively to the pretax
value of the Consideration. It is our understanding that the structure of the
Transaction is costly to the Company from a taxation standpoint. As a result
of the Transaction, the Company will incur a tax liability of approximately
$6,225,000, net of the realization of the Company's net operating loss
carryforwards. The payment of the tax liability may cause substantial
dilution. However, we are not aware of alternative transaction structures
mutually agreeable to both the Company and Gainor. Furthermore, the tax
consequences of the Transaction are beyond our purview.
<PAGE>
Universal Self Care, Inc.
December 16, 1997
Page 5
As part of our professional services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers,
acquisitions, leveraged buyouts, sales of unlisted securities, and valuations
for estate, corporate and other purposes. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in similar transactions, as well as our experience in securities
valuation in general. Our opinion necessarily is based upon conditions as
they exist and can be evaluated on the date hereof. Subsequent developments
may affect this opinion, and we disclaim any obligation to update, revise or
reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and
use of the Board of Directors of the Company in its consideration of the
Transaction. The Board of Directors of the Company may rely upon this opinion
with respect to the Transaction. This letter does not constitute a
recommendation of the Transaction over any other alternative transactions
which may be available to the Company and does not address the underlying
business decision of the Board of Directors of the Company to proceed with or
effect the Transaction. In addition, in rendering this opinion, we do not
express any view as to the prices at which the Company's securities may
trade prior to or following the Transaction. This letter does not constitute
a recommendation by our firm to any particular member of the Board of
Directors or to any Stockholder as to how such member or stockholder should
vote in connection with the Transaction. This letter and the contents hereof
may not be published, disseminated, referred to, summarized, described or
otherwise used, nor shall any public reference to Valuemetrics, Inc., be
made, without our prior written consent. We understand that this opinion will be
filed with the SEC and distributed to the Company's Shareholders as part of
the Proxy Statement related to the proposed Transaction. As you are aware, we
will receive a fee for our services to the Board of Directors in connection
with rendering this opinion, and the Company has indemnified Valuemetrics for
certain liabilities arising out of this engagement including the rendering
of this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be paid for the Purchased Companies and
Purchased Assets is fair, from a financial point of view, to the Company and
the Selling Subsidiaries.
Very truly yours,
VALUEMETRICS, INC.
<PAGE>
Exhibit C
UNIVERSAL SELF CARE, INC.
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSES.
The 1997 Stock Option Plan for Non-Employee Directors (the "Plan") is
established to attract, retain and compensate highly qualified individuals who
are not employees of Universal Self Care, Inc.(the "Company") for service as
members of the Board of Directors ("Non-Employee Directors") and to provide them
with an ownership Interest in the Company's common stock (the "Common Stock").
The Plan will be beneficial to the Company and its stockholders by allowing
these Non-Employee Directors to have a personal financial stake in the Company
through an ownership interest in the Company's common stock, in addition to
underscoring their common interest with stockholders in increasing the value of
the Company's stock over the long term.
2. EFFECTIVE DATE.
The Plan shall be effective as of the date it is adopted by the Board of
Directors of the Company, subject to the approval of the Plan by the holders of
at least a majority of the outstanding shares of Company common stock present,
or represented, and entitled to vote at the 1998 Annual Meeting of Stockholders.
Grants of options may be made under the Plan on and after its effective date,
subject to stockholder approval of the Plan as provided above. In the event
such approval is not obtained, any options granted under the Plan shall be null
and void.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee appointed by the Board of
Directors and consisting of Directors who are not eligible to participate in the
Plan (the "Committee"), or by the full Board of Directors in the event that a
Committee has not been appointed (in the event that a Committee has not been
appointed, any action hereunder to be taken by the Committee shall be taken by
the Board of Directors). Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; PROVIDED, HOWEVER,
that the Committee shall have no discretion with respect to the eligibility or
Election of Non-Employee Directors to receive options under the Plan, the number
of shares of stock subject to any such options or the Plan, or the purchase
price thereunder; and PROVIDED FURTHER, that the Committee shall not have the
authority to take any action or make any determination that would materially
increase the benefits accruing to participants under
<PAGE>
the Plan. The Committee's interpretation of the Plan, and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder, shall be conclusive and binding upon all parties concerned including
the Company, its stockholders and persons granted options under the Plan. The
Chairman of the Board and Chief Executive Officer of the Company, or any other
officer of the Company as designated by the Committee, shall be authorized to
implement the Plan in accordance with its terms and to take or cause to be taken
such actions of a ministerial nature as shall be necessary to effectuate the
intent and purposes thereof.
4. PARTICIPATION IN THE PLAN.
All active members of the Company's Board of Directors who are not as of
the date of any option grant employees of the Company or any of its subsidiaries
or affiliates shall be eligible to participate in the Plan. Directors emeritus
shall not be eligible to participate.
5. NON-QUALIFIED STOCK OPTIONS.
Only non-qualified stock options ("Options") may be granted under this
Plan.
6. TERMS, CONDITIONS AND FORM OF OPTIONS.
(A) OPTION GRANT DATES. Options to purchase Ten Thousand (10,000) shares
of Common Stock (as adjusted pursuant to Section 8) shall be automatically
granted to each eligible Non-Employee Director on the date following approval of
the Plan at the 1998 Annual Stockholders Meeting and on an annual basis to each
eligible Non-Employee Director on each July 1 thereafter (or the first
succeeding business day thereafter of which the Common Stock is traded on the
principal securities exchange on which it is listed).
(B) EXERCISE PRICE. The exercise price per share of Common Stock for
which each option is exercisable shall be 100% of the fair market value per
share of Common Stock on the date the Option is granted, which shall be the
average of the closing bid and asked prices of the stock (or the closing sale
price of the stock if traded on a national securities exchange) as generally
reported for the principal securities exchange on which the Company's Common
Stock is listed.
(C) EXERCISABILITY AND TERM OF OPTIONS. Each Option granted under the
Plan shall become fully exercisable on the date of grant. Each Option granted
under the Plan shall expire five years from the date of grant, and shall he
subject to earlier termination as hereinafter provided.
(D) TERMINATION OF SERVICE. In the event of the
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termination of service on the Board by the holder of any Option, other than by
reason of mandatory retirement, permanent disability or death as set forth in
paragraph (e) hereof, the then outstanding Options of such holder shall be
exercisable only to the extent that they were exercisable on the date of such
termination and shall expire three months after such termination, or on their
stated expiration date, whichever occurs first.
(E) RETIREMENT, DISABILITY OR DEATH. In the event of termination of
service by reason of mandatory retirement pursuant to Board policy or permanent
disability of the holder of any Option, each of the then outstanding Options of
such holder will continue to become exercisable in accordance with Section 6(c)
above, but the holder shall be entitled to exercise such Options, including any
portions thereof that become exercisable after such termination, within three
years of such termination, but in no event, after the expiration date of the
Option. In the event of the death of the holder of any Option, each of the then
outstanding Options of such holder shall become immediately exercisable in full,
and shall be exercisable by the holder's legal representative at any time within
a period of three years after death, but in no event after the expiration date
of the Option. However, if the holder dies within two years following
termination of service on the Board by reason of mandatory retirement or
permanent disability, such option shall be exercisable only until (x) the later
of (i) one year after the holder's death or (ii) two years after such
termination, or (y) the expiration date of the Option, if earlier.
(F) PAYMENT. The option price shall be paid in cash (whether or not such
cash is loaned by the Company to the participant for such purpose) or by the
surrender of shares of Common Stock of the Company, valued at their fair market
value on the date of exercise, or by any combination of cash and such shares.
7. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be purchased pursuant to Options under the Plan shall
not exceed an aggregate of 300,000 shares of Company Common Stock (as adjusted
pursuant to Section 8). Any shares subject to an Option grant which for any
reason expires or is terminated unexercised as to such shares shall again be
available for issuance under the Plan.
8. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of Company Common
Stock by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange
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<PAGE>
of shares or other similar corporate change, such equitable adjustment shall be
made in the Plan and the grants thereunder, including the exercise price of
outstanding Options, as the Committee determines are necessary or appropriate,
including, if necessary, any adjustments in the maximum number of shares
referred to in Section 7 of the Plan. Such adjustment shall be conclusive and
binding for all purposes of the Plan.
9. MISCELLANEOUS PROVISIONS.
(A) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no
rights as a holder of Company Common Stock with respect to Option grants
hereunder, unless and until certificates for shares of such Common Stock are
issued to the participant.
(B) ASSIGNMENT OR TRANSFER. No Options granted under the Plan or any
rights or interests therein shall be assignable or transferable by a participant
except by will or the laws of descent and distribution. During the lifetime of
a participant, Options granted hereunder are exercisable only by, and payable
only to, the participant.
(C) AGREEMENTS. All Options granted under the Plan shall be evidenced by
agreements or certificates in such form and containing such terms and conditions
(not inconsistent with the Plan) as the Committee shall adopt.
(D) COMPLIANCE WITH LEGAL REGULATIONS. During the term of the Plan and
the term of any Options granted under the Plan, the Company shall at all times
reserve and keep available such number of shares as may be issuable under the
Plan, and shall seek to obtain from any regulatory body having jurisdiction,
including the Office of the Secretary of State of the State of Delaware, any
requisite authority required in the opinion of counsel for the Company in order
to grant Options to purchase Shares of Company Common Stock or to issue such
stock pursuant thereto. If in the opinion of counsel for the Company the
transfer, issue or sale of any shares of its stock under the Plan shall not be
lawful for any reason, including the inability of the Company to obtain from any
regulatory body having jurisdiction authority deemed by such counsel to be
necessary to such transfer, issuance or sale, the Company shall not be obligated
to transfer, issue or sell any such shares. In any event, the Company shall not
be obligated to transfer, issue or sell any shares to any participant unless a
registration statement which complies with the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), is in effect at the time with
respect to such shares or other appropriate action has been taken under and
pursuant to the terms and provisions of the Securities Act, or the Company
receives evidence satisfactory to the Committee that the transfer, issuance
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<PAGE>
or sale of such shares, in the absence of an effective registration statement or
other appropriate action, would not constitute a violation of the terms and
provisions of the Securities Act. The Company's obligation to issue shares upon
the exercise of any Option granted under the Plan shall in any case be subject
to the Company being satisfied that the shares purchased are being purchased for
investment and not with a view to the distribution thereof, if at the time of
such exercise a result of such issuance of shares would otherwise violate the
Securities Act in the absence of an effective registration statement relating to
such shares.
(C) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Option or to any
Non-Employee Director receiving an Option.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(A) AMENDMENT. The Committee may from time to time amend the Plan in
whole or in part; PROVIDED, that no such action shall adversely affect any
rights or obligations with respect to any Options theretofore granted under the
Plan, AND PROVIDED FURTHER, that the provisions of Sections 4 and 6 hereof may
not he amended more than once every six months, other than to comport with a
change in the Internal Revenue Code or regulations thereunder.
Unless the holders of at least a majority of the outstanding shares of
Company Common Stock present, or represented, and entitled to vote at a meeting
of stockholders shall have first approved thereof, no amendment of the Plan
shall be effective which would (i) increase the maximum number of shares
referred to in Section 7 of the Plan or the number of shares subject to Options
that may be granted pursuant to section 6(a) of the Plan to any one Non-Employee
Director or (ii) extend the maximum period during which Options may be granted
under the Plan.
With the consent of the Non-Employee Director affected, the Committee may
amend outstanding agreements or certificates evidencing Options under the Plan
in a manner not inconsistent with the terms of the Plan.
(B) TERMINATION. The Committee may terminate the Plan (but not any
Options theretofore granted under the Plan) at any time. The Plan (but not any
Options theretofore granted under the Plan) shall in any event terminate on, and
no Options shall be granted after, September 1, 2006.
11. COMPLIANCE WITH SEC REGULATIONS.
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It is the Company's intent that the Plan comply in all respects with Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any related regulations. If any provision of this Plan is later
found not to be in compliance with such Rule and regulations, the provision
shall be deemed null and void. All grants and exercises of Options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and regulations promulgated thereunder.
12. GOVERNING LAW.
The validity and construction of the Plan and any agreements entered into
thereunder shall he governed by the laws of the State of Delaware.
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<PAGE>
Exhibit D
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
UNIVERSAL SELF CARE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law, the undersigned, being the Chief Executive Officer of the
Corporation, hereby certifies and set forths as follows:
FIRST: The name of the Corporation is Universal Self Care, Inc.
(the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was
filed by the Secretary of State on the 12th day of May, 1989.
THIRD: The Certificate of Incorporation is hereby amended to change
the corporate name and increase the number of authorized shares of the
Corporation pursuant to Sections 241 and 242 of the General Corporation Law.
Articles "FIRST" and "FOURTH" of the Certificate of Incorporation are hereby
amended as follows:
"FIRST: The name of the Corporation is Tadeo Holdings, Inc."
"FOURTH: The aggregate number of shares of capital stock that may be
issued by the Corporation is One Hundred (100,000,000) Shares, consisting of
90,000,000 shares of Common Stock, par value $.0001 per share ("Common Stock")
and Ten Million (10,000,000) shares of Preferred Stock ("Preferred Stock").
FOURTH: The amendment to the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Business Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned hereby execute his name and affirm
that the statements made herein are true under the penalties of perjury, this
__th day of _________, 1998.
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Brian Bookmeier, Chief Executive Officer
