<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to_____________
Commission file number 1-11568
----------------
TADEO HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4228470
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42705 Grand River Avenue - Suite 20
Novi, Michigan 48375
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (248) 344-9599
--------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Universal Self Care, Inc.
11585 Farmington Road
Livonia, Michigan 48150
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
<PAGE>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
PAGE
NUMBER
------
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet - December 31, 1997
and June 30, 1997 3
Consolidated Statement of Operations - For the three
and six months ended December 31, 1997 and 1996 4
Consolidated Statement of Cash Flows - For the six
months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 15 - 17
PART II - OTHER INFORMATION 17 - 23
SIGNATURE 24
2 of 24
<PAGE>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1997 1997
------ ------------ ------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 557,367 $ 541,814
Accounts receivable, net allowance for doubtful
accounts of $2,478,099 and $2,261,684,
respectively 9,443,261 10,241,191
Inventories 966,721 551,692
Prepaid expenses 62,520 111,910
------------ ------------
TOTAL CURRENT ASSETS 11,029,869 11,446,607
PROPERTY AND EQUIPMENT
net of accumulated depreciation of $776,368 and
$618,017, respectively 900,154 956,446
INTANGIBLE ASSETS, net of
net of accumulated amortization of $ 975,579 and
$806,265, respectively 5,678,007 5,847,321
DEPOSITS AND OTHER ASSETS 40,451 48,356
------------ ------------
$ 17,648,481 $ 18,298,730
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,015,262 $ 5,319,625
Notes payable - current portion 206,528 208,126
Accrued liabilities 2,295,557 1,976,419
State audit reserves 700,000 700,000
Payroll taxes payable 981,536 113,632
------------ ------------
TOTAL CURRENT LIABILITIES 9,198,883 8,317,802
LONG TERM NOTES PAYABLE, net of current portion 157,493 262,916
REVOLVING CREDIT LOAN 4,563,231 4,365,410
REDEEMABLE PREFERRED STOCK, Series A 1,589,555 1,829,658
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series B Cumulative Convertible,
$.0001 par value, 10,000,000 shares authorized,
1,580,000 shares issued and outstanding 505,000 505,000
Common stock, $.0001 par value, 40,000,000 shares
authorized, 9,724,579 shares issued and
outstanding as of December 31, 1997 972 972
Additional paid-in capital 14,045,838 14,045,838
Accumulated earnings/(deficit) (12,412,491) (11,028,866)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,139,319 3,522,944
------------ ------------
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,648,481 $ 18,298,730
============ ============
</TABLE>
See notes to consolidated financial statements.
3 of 24
<PAGE>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES $9,051,104 $9,256,398 $17,309,242 $18,468,964
COST OF GOODS SOLD 5,000,935 5,340,614 9,885,132 10,704,437
---------- ---------- ----------- -----------
GROSS PROFIT 4,050,169 3,915,784 7,424,110 7,764,527
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,529,260 3,471,112 8,405,167 7,283,785
---------- ---------- ----------- -----------
OPERATING INCOME/( LOSS) (479,091) 444,672 (981,057) 480,742
OTHER EXPENSES:
Interest expense, net 160,947 184,723 304,338 385,215
---------- ---------- ----------- -----------
NET INCOME/( LOSS) $ (640,038) $ 259,949 $(1,285,395) $ 95,527
========== ========== =========== ===========
NET INCOME/(LOSS) PER SHARE $ (0.07) $ 0.02 $ (0.14) $ 0.00
========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 9,724,579 7,889,706 9,724,579 7,889,706
</TABLE>
See notes to consolidated financial statements.
4 of 24
<PAGE>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended December 31,
-------------------------------
1997 1996
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income/( loss) $(1,285,396) $ 95,527
----------- -----------
Adjustments to reconcile net income/(loss)
to net cash from operating activities:
Depreciation and amortization 327,665 319,528
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivables 797,930 (873,207)
Decrease (Increase) in inventories (415,029) (64,950)
Decrease (Increase) in prepaid expenses 49,390 (107,448)
Decrease in deposits and other assets 7,905 5,919
(Increase) in intangible assets (7,664) -
(Decrease) increase in accounts payable (304,363) (2,171,176)
Increase (Decrease) in accrued liabilities 319,138 (541,438)
Increase (Decrease) in payroll taxes payable 867,904 (586,396)
----------- -----------
Total adjustments 1,642,876 (4,019,168)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES 357,480 (3,923,641)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (94,394) (138,413)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (94,394) (138,413)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance/(Repayments) of related party loans - (60,000)
Borrowing of revolving credit line 197,819 4,538,538
Repayment of revolving credit line - -
Net proceeds from (repayment of) long-term debt (107,021) (130,329)
Dividends paid on Series A Preferred Stock (98,228) (107,840)
Redemption of Series A Preferred Stock (240,103) (182,158)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (247,533) 4,058,211
----------- -----------
NET INCREASE (DECREASE) IN CASH 15,553 (3,843)
CASH AT BEGINNING OF PERIOD 541,814 91,066
----------- -----------
CASH AT END OF PERIOD $ 557,367 $ 87,223
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5 of 24
<PAGE>
TADEO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the annual report on form 10-KSB of Tadeo Holdings,
Inc. (formerly Universal Self Care, Inc.), (the "Company") dated October 14,
1997 for the year ended June 30, 1997.
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented.
Except as otherwise disclosed, all such adjustments are of a normal and
recurring nature. The results of operations for any interim period are not
necessarily indicative of the results attainable for a full fiscal year.
2. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share are based on the weighted average number of
common shares and common share equivalents outstanding during the period after
giving effect for preferred stock dividends during the period.
3. ACQUISITION OR DISPOSITION OF ASSETS
On January 28, 1998, the Company sold its operating assets and the stock of
its two principal operating subsidiaries, Diabetes Self Care, Inc. ("Diabetes")
and USCI Healthcare Management Solutions, Inc.("USCI Healthcare"), to Gainor
Medical Management, LLC, a privately held Georgia company. The gross purchase
price was $34 million: $17,000,000 in cash, as reduced by $8,725,226 of
specified liabilities of the Company, and a $17,000,000 Gainor convertible
subordinated prommissory note (the"Note"), less a recorded discount of $900,000.
Out of the cash received at closing, the Company satisfied an aggregate of
$4,451,136 in liabilities to permit the required transfer of assets to Gainor
free and clear of encumbrances. The Note bears interest at a simple rate of 7%
per annum through December 31, 1998 and 8% thereafter until payment in full of
the principal balance no later than January 28, 2003. Prior to its maturity,
the Note may be converted into equity securities of Gainor, at the election of
the Company, upon the successful completion of a public offering of such equity
securities by Gainor, subject to certain restrictions. The Company's
stockholders approved the sale of its business at their Annual Meeting held on
January 26, 1998 in Livonia, Michigan, at which time they also approved an
amendment to the Company's certificate of incorporation changing its name to
Tadeo Holdings, Inc.
In addition to offsets for customary indemnifications and other matters
under the Asset Purchase Agreement among the parties, dated November 14, 1997 as
amended, the principal
6 of 24
<PAGE>
amount of the Note is subject to reduction in the event that (i) such
principal amount does not equal at least 75% of Gainor's revenues from
operation of Diabetes during calendar 1998, in which event the Note will be
reduced by the difference between 75% of such revenues and $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), (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, in
which event the Note will be reduced by the difference between $6,000,000 and
the amount of receivables actually collected, while at the closing of the
Transaction, the Company transferred approximately $9,108,000 in accounts
receivable to Gainor, or approximately $3,108,000 in excess of the
$6,000,000, and (iii) prior to July 28, 1998 fewer than 3,334 former
customers of PCS, Inc. - West become customers of Gainor, in which event the
Note will be reduced by $600 for each former customer of PCS, Inc. - West
less than the minimum 3,334 who fail to transfer to Gainor, up to a maximum
amount of $2,000,000.
The following pro forma consolidated balance sheet has been prepared to
show the disposition of all of the Company's operating assets in the
Transaction.
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of the Company at December 31, 1997 as if the 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, the write-off
of intangible assets connected with the disposed operations and the settlement
of a substantial portion of the operating liabilities.
The unaudited pro forma consolidated statements of operations for the year
ended June 30, 1997 and three months ended December 31, 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 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.
(The remainder of this page has been intentionally left blank)
7 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
Balance at Pro Forma Adjustments
-----------------------------------------
December 31,
--------------- ----------------- -----------------
1997 DEBIT CREDIT Total
--------------- ----------------- ----------------- ---------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 557,367 (1) $ 9,081,236 (3) $ 4,563,231 $ 5,075,371
Accounts receivable, net allowance for doubtful
accounts of $2,478,099 9,443,261 (1) 9,443,261
Inventories 966,721 (1) 966,721
Prepaid expenses 62,520 (1) 62,520
--------------- ----------------
TOTAL CURRENT ASSETS 11,029,868 5,075,371
----------------
LONG--TERM NOTES RECEIVABLE, net of
discount of $900,000 (1) 16,100,000 16,100,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $776,368 900,154 (1) 900,154
INTANGIBLE ASSETS, net of accumulated
amortization of $975,579 5,678,007 (2) 5,678,007
DEPOSITS AND OTHER ASSETS 40,451 (1) 40,451
--------------- -----------------
$ 17,648,480 $ 25,181,236 $ 21,654,345 $ 21,175,371
=============== ================ ================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 5,015,262 (1) $ 5,015,262 $
Notes payable- current portion 206,528 206,528
Accrued liabilities 2,295,557 (1) 2,216,606 78,951
State audit reserves 700,000 700,000
Payroll taxes payable 981,536 (1) 981,536 0
--------------- ----------------
TOTAL CURRENT LIABILITIES 9,198,883 985,479
LONG-TERM NOTES PAYABLE, net of current portion 157,493 157,493
REVOLVING CREDIT LOAN 4,563,231 (3) 4,563,231
DEFERRED INCOME TAXES PAYABLE--long term (1) 2,000,000 2,000,000
REDEEMABLE PREFERRED STOCK, Series A 1,589,555 1,589,555
STOCKHOLDERS' EQUITY
Preferred stock, Series B Cumulative
Convertible, $.0001 par value,
10,000,000 shares
authorized, 1,580,000 shares issued 505,000 505,000
and outstanding
Common stock, $.0001 par value 40,000,000
shares authorized, 9,724,579 shares
issued and outstanding as of
December 31, 1997 972 972
Additional paid-in capital 14,045,838 14,045,838
Accumulated earning (deficit) (12,412,491)(2) 5,678,007 (1) 19,981,531 1,891,033
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 2,139,320 16,442,844
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,648,482 $ 18,454,642 $ 21,981,531 21,175,371
=============== ================ ================ ================
</TABLE>
See notes to pro forma financial statements
8 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended Pro Forma Adjustments
--------------------------------------------
December 31,
------------------- ------------------- -------------------
1997 DEBIT CREDIT Total
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 17,309,242 (1) $ 17,309,242 $ $
COST OF GOODS SOLD 9,885,132 (1) 9,885,132
------------------ ------------------
GROSS PROFIT 7,424,110
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,405,167 (3) 558,500 (1) 8,405,167 558,500
------------------ ------------------
OPERATING INCOME (LOSS) (981,057) (558,500)
------------------
OTHER INCOME (EXPENSES)
Interest (expense), net (304,338) (1) 293,998 (10,340)
IRS interest on deferred
installment gain (4) 167,000 (167,000)
Interest income (2) 706,000 706,000
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (304,338) 528,660
------------------ ------------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (1,285,395) (29,840)
------------------ ------------------- ------------------- ------------------
NET INCOME (LOSS) $ (1,285,395) 18,067,074 19,290,297 $ (29,840)
================== =================== =================== ==================
NET LOSS PER SHARE $ (0.13) $ (0.00)
================== ==================
WEIGHTED AVERAGE SHARES 9,724,579 9,724,579
================== ==================
</TABLE>
See notes to pro forma financial statements
9 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended Pro Forma Adjustments
--------------------------------------------
June 30,
------------------- ------------------- -------------------
1,997 DEBIT CREDIT Total
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 34,001,626 (1) $ 34,001,626 $ $ 0
COST OF GOODS SOLD 19,981,506 (1) 19,981,506 0
------------------ -----------------
GROSS PROFIT 14,020,120 0
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) 334,000 (334,000)
Interest income 0 (2) 1,412,000 1,412,000
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (874,572) 1,036,639
------------------ ------------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (2,653,232) (80,361)
------------------ ---------------- ----------------- ------------------
NET INCOME (LOSS) $ (2,653,232) $ 35,561,129 $ 38,025,497 $ (81,361)
================== ================ ================= =================
NET LOSS PER SHARE $ (0.33) $ (0.01)
================== =================
WEIGHTED AVERAGE SHARES 8,084,278 8,084,278
================== =================
</TABLE>
See notes to pro forma financial statements
10 of 24
<PAGE>
TADEO HOLDINGS, 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 December
31, 1997:
(1) To record the sale of all the Company's operating assets with
assumption by the buyer of certain accounts payable totaling
$5,015,262 and accrued expenses of $3,198,142. 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 $8,213,404) and a $17 million note receivable
payable over a minimum of 5 years, 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 $21,981,531. The
estimated tax impact to the Company is $5.1 million (after
consideration of the Company's net operating loss carry forwards). In
addition, the Company will be subject to an annual IRS interest charge
on the deferred income tax which is estimated to be $334,000 for the
first year.
(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.
B. The following following pro-forma adjustments are included in the
accompanying unaudited pro-forma consolidated statements of operatons for
the year endedJune 30, 1997 and the six months ended December 31, 1997,
which have been prepared to reflect the sale as if it had occurred on July
1, 1996:
(1) To elimiate 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 estimated IRS interest on deferred installment gain.
11 of 24
<PAGE>
4. CONTINGENCIES
DEPARTMENT OF HEALTH SERVICES
The Company has undergone an audit by representatives of the State of
California, State Controller's Office, Division of Audits. The purpose of the
audit was to determine the level of the Company's compliance with the guidelines
of the California Department of Health Services (Medi-Cal) and the California
State Board of Equalization. Representatives from the State Controller's Office
have raised the issue of whether the Company may have practiced two-tier pricing
policies in the charges to its customers which are not in conformance with Medi-
Cal regulations. Under such regulations, a company may not charge any customer
prices less than those charged to the Medi-Cal program. Based upon Management's
independent review, the Company maintains that it has conformed with pricing
regulations because its prices are consistent within each of its operating
subsidiaries, Diabetes and USCI Healthcare, and because these two subsidiaries
are offering different services. The Company's Management further believes that
the Medi-Cal program was charged the "prevailing prices" charged for supplies,
and that those charges were in compliance with current regulations, and that the
Representatives from the Controller's Office compared prices for different
services with different delivery methods. The State Controller's Office
contends that the reimbursement was paid for products, and not for services, so
the difference in pricing was not warranted based upon the services rendered in
conjunction with the products delivered. In July 1994, the State Controller's
Office issued an Auditor's Report with findings to the Department of Health
Services ("DHS") for the period beginning July 1, 1990 through June 30, 1993.
The Report recommends a recovery of approximately $1.3 million due to such
alleged two-tier pricing. In November 1994 the State Controller's Office issued
Letter of Demand for the recovery of such amounts due. In November 1994, the
Company appealed the audit determination made by the State Controller's Office.
In January 1996 a hearing was held before an Administrative Law Judge. In July
1996 the Judge recommended that the overpayment determination be upheld. In
August 1996 the DHS adopted the recommendation of the Law Judge as the final
decision of the Director of DHS. In January 1997 the Company filed an appeal to
the decision with the Superior Court for the County of Los Angeles. The Company
intends to vigorously contest any recovery by the State with respect to such
alleged improper pricing practices for services rendered.
Based upon the above contingency, the Company has provided a reserve, in
the event that a defense of its position does not prevail, of $700,000.
Management believes that a total estimated settlement amount of $700,000, or 54%
of the maximum amount demanded, is reasonable under the circumstances with
respect to this matter. Unless the California two-tier pricing controversy is
either settled or the related claims made by the State of California otherwise
released prior to the maturity date of the Note delivered to the Company in
partial consideration for the sale of the Company's operating subsidiaries
pursuant to the terms of the Transaction (see Note 3 above), then the principal
of the Note payable to the Company may be reduced by the amount then alleged to
be owed to the State of California with respect to such controversy.
12 of 24
<PAGE>
CALIFORNIA STATE BOARD OF EQUALIZATION
The Company has also undergone an audit by the California State Board of
Equalization ("SBE") as a result of separate findings made by the State
Controller's Office (see Department of Health Services above). The SBE has
disagreed with the Company's policies regarding its sales tax payments on
certain items. The SBE has maintained that blood glucose meters, testing strips
and finger-prick lancets are taxable items. The Company has taken the position
that these items are exempt from sales tax because they were provided pursuant
to a doctor's prescription and furthermore, they are part of an integrated
treatment for providing insulin and insulin syringes, items which are
specifically exempt from sales tax in California. In addition, the Company
maintains that a portion of the revenues earned from the sales of diabetic
supplies were non-taxable services rendered as a separate and distinct charge.
On January 6, 1997 the SBE issued a Notice of Determination of $860,004 for
the period July 1, 1989 through September 30, 1993. Of this amount, penalties
of $69,170 were subsequently waived. Additionally, interest has accrued on this
assessment of $186,330. The Company filed for appeal of this assessment. The
matter was referred to the SBE settlement department and Company management
determined that it would be in the Company's best interest to arrive at a final
negotiated settlement amount. On April 24, 1997, the Company agreed to a
settlement of this matter for a total amount of $980,000. Of this amount,
$50,000 had previously been paid. Of the remaining $930,000, $691,695 is
associated with taxes and $238,305 is associated with accrued interest. On
August 1, 1997 the members of the Board of Equalization tentatively approved the
Settlement Agreement signed by the Company on April 24, 1997. On January 28,
1998 the remaining balance of $ 392,230 was paid in full with the consummation
of the sale of the Company's operating subsidiaries as part of the Transaction.
See Note 3 above.
MEDICARE PART B
The Company has undergone an audit by Medicare covering the charges
submitted for reimbursement in the Western region (Region D) during the period
January 1, 1994 through December 31, 1995. Medicare determined that an
overpayment to the Company may have occurred as a result of the use of a
superseded diagnosis code on claims submitted. The claims in question were
originally submitted to Medicare in order to gain a denial of charges so that an
alternative carrier could be validly billed, since a denial is required by
certain intermediaries prior to billing for certain charges. Medicare may have
inappropriately made reimbursements on these charges. In November 1996 Medicare
issued a demand for refund of $795,702 plus interest of $35,475. As of January
28, 1998, Medicare offset a total of $ 630,918 of the Company's claims for
payment. In the most recent correspondence from Medicare on this subject, it
was claimed that on March 31, 1997 the Company owed Medicare a refund of
$808,887, of which $795,701 was principal and $22,290 was accrued interest. The
Company rebilled Medi-Cal $732,853 in February 1997 and $62,849 in March 1997.
Company management feels that the ultimate settelment to Medicare will not have
a material impact on earnings since the Comapny believes Medi-Cal will pay the
amount Medicare retracted.
13 of 24
<PAGE>
Patient Care Services was previously the subject of an investigation by
Medicare for (i) Medicare's alleged overpayment for products and services
provided by Patient Care Services and (ii) Medicare's payment to Patient Care
Services for claims which were allegedly not properly subject to Medicare
reimbursement. During fiscal 1995, Medicare withheld $300,766 of payments due
for claims reimbursement to cover previously estimated liabilities resulting
from this investigation. A further assessment in the amount of $78,500
resulting from a continuation of this investigation has been made, and that
amount withheld in July 1996. The Company went through an in-person hearing on
May 28, 1997 to contest Medicare's aggregate $379,000 of withheld
reimbursements, and on July 28, 1997 the Company received a partially favorable
Hearing Decision. The Company received a refund on October 31, 1997, for
$30,314 from Medicare Part B based upon the partially favorable Hearing
Decision. The Company's intends to appeal the partially unfavorable amount of
$348,686 from the Hearing Officer's decision and has retained counsel to contest
the decision in proceedings before an administrative law judge.
5. REVOLVING LINE OF CREDIT
In August, 1996, the Company entered into an accounts receivable funding
agreement with Healthpartners Funding, L.P. ("Healthpartners") under which the
Company is able to borrow up to $4,500,000 against its qualified accounts
receivable. Qualified accounts are generally defined as those which are less
than 91 days old and are due from a third-party payee source (i.e. Medicare,
Medicaid or commercial insurance) as opposed to those that are payable directly
by patients. Of the total credit facility, $1,500,000 has been specifically
allocated by the lender towards payment of the final settlement amount of the
California audit and is unavailable to the Company for other purposes. The base
rate applicable to outstanding principal amounts is prime + 2.2%. The term of
the agreement is three years. Outstanding principal under the agreement is
secured by a first priority lien against substantially all of the Company's
accounts receivable.
On January 28, 1998, the Company retired the HealthPartners Loan Agreement
in the amount of $ 4,451,135 upon the closing of the sale of the Company's
operating subsidiaries. See Note 3 above.
6. PAYROLL TAXES
The third and fourth quarter calender year payroll taxes of $981,536 have
been paid in full as of January 26, 1998 by the Company.
(The remainder of this page has been intentionally left blank)
14 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in the Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which
speaks only as of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
RESULTS OF OPERATIONS
On January 28, 1998, the Company sold its operating assets to Gainor
Medical Management, LLC.
THE THREE MONTHS ENDED DECEMBER 31, 1997 (THE "1997 THREE MONTH PERIOD") as
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1996 (THE "1996 THREE MONTH
PERIOD")
Revenue for the 1997 Three Month Period was $9,051,104, a decrease of
$205,294, or 2% from the 1996 Three Month Period. A contributing factor to the
decrease is the discontinuance of sales to certain unprofitable customers,
approximately $175,000 in net revenue in the 1997 Three Month Period, but which
discontinuance only reduced revenue by $ 50,000 in the 1996 Three Month Period.
Customer refunds increased $33,000 in the 1997 Three Month Period from the 1996
Three Month Period.
Total cost of goods sold during the 1997 Three Month Period were
$5,000,935, representing costs of approximately 55% of revenue for the period,
while total cost of goods sold for the 1996 Three Month Period were $5,340,614
or approximately 58% of revenue. This three point favorable variance as a
percentage of revenue is in part the result of favorable product discounts from
various vendors, as well as reduced sales of less profitable products and
services. Additionally, the Company realized favorable variances regarding
purchase discounts. Total purchase discounts in the 1997 Three Month Period
were $37,000 compared to $29,000 in the 1996 Three Month Period.
Selling, general and administrative expenses during the 1997 Three Month
Period increased to $4,529,260 or 50% of revenue, as compared to $3,471,112 or
37% of revenue during the 1996 Three Month Period. Contributing to this
unfavorable variance is partially due to an increase in accrual for bad debt
expense for the 1997 Three Month Period which is 6% of
15 of 24
<PAGE>
revenue, as compared to 2% in the 1996 Three Month Period, due to recent prior
experience. The combined costs of payroll and fringe benefits, including sales
commissions, increased by 6% during the 1997 Three Month Period over the 1996
Three Month Period. This is partially due to the one year waiver of income of
Messrs. Bookmeier, Korby, and Gietzen which ended May 1, 1997.
Other expenses include late fees and finance charges, which decreased by
$68,798 during the 1997 Three Month Period over the 1996 Three Month Period.
Interest expense also decreased by $23,776 during the 1997 Three Month Period
over the 1996 Three Month Period. These decreases were primarily due to the
Healthpartners Funding, L.P. ("Healthpartners") line of credit, which enabled
the Company to significantly reduce short term payables in a timely manner.
Net loss for the 1997 Three Month Period of $640,038 is primarily
attributable to the increase in selling, general and administrative expenses,
bad debt reserve and other factors identified above.
THE SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1997 SIX MONTH PERIOD") as COMPARED
TO THE SIX MONTHS ENDED DECEMBER 31, 1996 (THE "1996 SIX MONTH PERIOD")
Revenue for the 1997 Six Month Period was $17,309,242, a decrease of
$1,159,722, or six percent from the 1996 Six Month Period. A contributing
factor to the decrease is the discontinuance of sales to certain unprofitable
customers, approximately $975,000 in net revenue in the 1997 Three Month Period,
but which discontinuance only reduced revenue by $350,000 in the 1996 Three
Month Period . Customer refunds in the 1997 Six Month Period were $349,973, an
increase of $313,273 from the 1996 Six Month Period.
Total cost of goods sold during the 1997 Six Month Period were $9,885,132,
representing costs of approximately 57% of revenue for the period, while total
cost of goods sold for the 1996 Six Month Period were $10,704,437 or
approximately 58% of revenue. This one point improvement is in part the result
of a volume discount from various suppliers. Additionally, improved pricing
agreements with several vendors has contributed to the improved margin on sales
and a reduction in the Company's shipping and packaging costs by utilizing a new
vendor for the distribution of our products .
Selling, general and administrative expenses during the 1997 Six Month
Period increased to $8,405,167 or 49% of revenue, as compared to $7,283,785 or
39% of revenue during the 1996 Six Month Period. Accrual for bad debt expense
for the 1997 Six Month Period is 6% of revenue, as compared to the 1996 Six
Month Period which was approximately 2% of revenue. The combined costs of
payroll and fringe benefits, including sales commissions, increased by 4% during
the 1997 Six Month Period over the 1996 Six Month Period.
Other expenses include late fees and finance charges, which increased by
$559,349 during the 1997 Six Month Period over the 1996 Six Month Period. These
increases were primarily due to fees charged by Gainor Medical for purchasing
product.
16 of 24
<PAGE>
Net loss for the 1997 Six Month Period of $1,285,395 is primarily
attributable to the losses from operations, in the amount of $981,057, which
were insufficient to support debt service costs in the total amount of $304,338.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had working capital of $1,830,986,
compared to working capital of $3,128,805 at June 30, 1997. The decrease in
working capital during the 1997 Six Month Period is primarily due to a
combination of the decrease in net accounts receivable of $797,930, repayment of
long term debt $107,021, the redemption of Series A payments of $240,103,
increases in payroll taxes of $867,904 and the net loss of $1,285,395.
Cash provided by operations during the 1997 Six Month Period was $357,480
as compared to cash used by operations of $3,923,641 during the 1996 Six Month
Period. This improvement is primarily attributable to a net reduction in
accounts receivable as mentioned above, a net decrease of inventory on hand, a
net decrease in accounts payable and a net increase in accrued expenses as
compared to the changes which occurred in the 1996 Six Month Period.
On January 28, 1998 the Company sold its operating subsidiaries to Gainor
Medical Management, LLC. For information concerning the impact on the Company's
liquidity and capital resources, see Part II, item 5 "Other Information" below.
PART II - OTHER INFORMATION
5. Other Information
On January 28, 1998, the Company sold its operating assets and the stock of
its two principal operating subsidiaries, Diabetes Self Care, Inc. ("Diabetes")
and USCI Healthcare Management Solutions, Inc., to Gainor Medical Management,
LLC, a privately held Georgia company. The gross purchase price was $34
million: $17,000,000 in cash, as reduced by $8,725,226 of specified liabilities
of the Company, and a $17,000,000 Gainor convertible subordinated prommissory
note (the"Note"), less a recorded discount of $900,000. Out of the cash
received at closing, the Company satisfied an aggregate of $4,451,136 in
liabilities to permit the required transfer of assets to Gainor free and clear
of encumbrances. The Note bears interest at a simple rate of 7% per annum
through December 31, 1998 and 8% thereafter until payment in full of the
principal balance no later than January 28, 2003. Prior to its maturity, the
Note may be converted into equity securities of Gainor, at the election of the
Company, upon the successful completion of a public offering of such equity
securities by Gainor, subject to certain restrictions. The Company's
stockholders approved the sale of its business at their Annual Meeting held on
January 26, 1998 in Livonia, Michigan, at which time they also approved an
amendment to the Company's certificate of incorporation changing its name to
Tadeo Holdings, Inc.
In addition to offsets for customary indemnifications under the Asset
Purchase Agreement among the parties, dated November 14, 1997, as amended, the
principal amount of the Note is subject to reduction in the event that (i)
such principal amount does not equal at least 75% of
17 of 24
<PAGE>
Gainor's revenues from operation of Diabetes during calendar 1998, in which
event the Note will be reduced by the difference between 75% of such revenues
and $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),
(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, in which event the Note will be reduced by the
difference between $6,000,000 and the amount of receivables actually collected,
while at the closing of the Transaction, the Company transferred approximately
$9,108,000 in accounts receivable to Gainor, or approximately $3,108,000 in
excess of the $6,000,000, and (iii) prior to July 28, 1998 fewer than 3,334
former customers of PCS, Inc. - West become customers of Gainor, in which
event the Note will be reduced by $600 for each former customer of PCS, Inc. -
West less than the minimum 3,334 who fails to transfer to Gainor, up to a
maximum amount of $2,000,000.
The following pro forma consolidated balance sheet has been prepared to
show the disposition of all of the Company's operating assets in the
Transaction.
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of the Company at December 31, 1997 as if the 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, the write-off
of intangible assets connected with the disposed operations and the settlement
of a substantial portion of the operating liabilities.
The unaudited pro forma consolidated statements of operations for the year
ended June 30, 1997 and three months ended December 31, 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 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.
18 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
Balance at Pro Forma Adjustments
-----------------------------------------
December 31,
--------------- ----------------- -----------------
1997 DEBIT CREDIT Total
--------------- ----------------- ----------------- ---------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 557,367 (1) $ 9,081,236 (3) $ 4,563,231 $ 5,075,371
Accounts receivable, net allowance for doubtful
accounts of $2,478,099 9,443,261 (1) 9,443,261
Inventories 966,721 (1) 966,721
Prepaid expenses 62,520 (1) 62,520
--------------- ----------------
TOTAL CURRENT ASSETS 11,029,868 5,075,371
----------------
LONG--TERM NOTES RECEIVABLE, net of
discount of $900,000 (1) 16,100,000 16,100,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $776,368 900,154 (1) 900,154
INTANGIBLE ASSETS, net of accumulated
amortization of $975,579 5,678,007 (2) 5,678,007
DEPOSITS AND OTHER ASSETS 40,451 (1) 40,451
--------------- -----------------
$ 17,648,480 $ 25,181,236 $ 21,654,345 $ 21,175,371
=============== ================ ================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 5,015,262 (1) $ 5,015,262 $
Notes payable- current portion 206,528 206,528
Accrued liabilities 2,295,557 (1) 2,216,606 78,951
State audit reserves 700,000 700,000
Payroll taxes payable 981,536 (1) 981,536 0
--------------- ----------------
TOTAL CURRENT LIABILITIES 9,198,883 985,479
LONG-TERM NOTES PAYABLE, net of current portion 157,493 157,493
REVOLVING CREDIT LOAN 4,563,231 (3) 4,563,231
DEFERRED INCOME TAXES PAYABLE--long term (1) 2,000,000 2,000,000
REDEEMABLE PREFERRED STOCK, Series A 1,589,555 1,589,555
STOCKHOLDERS' EQUITY
Preferred stock, Series B Cumulative
Convertible, $.0001 par value,
10,000,000 shares
authorized, 1,580,000 shares issued 505,000 505,000
and outstanding
Common stock, $.0001 par value 40,000,000
shares authorized, 9,724,579 shares
issued and outstanding as of
December 31, 1997 972 972
Additional paid-in capital 14,045,838 14,045,838
Accumulated earning (deficit) (12,412,491)(2) 5,678,007 (1) 19,981,531 1,891,033
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 2,139,320 16,442,844
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,648,482 $ 18,454,642 $ 21,981,531 21,175,371
=============== ================ ================ ================
</TABLE>
See notes to pro forma financial statements
19 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended Pro Forma Adjustments
--------------------------------------------
December 31,
------------------- ------------------- -------------------
1997 DEBIT CREDIT Total
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 17,309,242 (1) $ 17,309,242 $ $
COST OF GOODS SOLD 9,885,132 (1) 9,885,132
------------------ ------------------
GROSS PROFIT 7,424,110
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,405,167 (3) 558,500 (1) 8,405,167 558,500
------------------ ------------------
OPERATING INCOME (LOSS) (981,057) (558,500)
------------------
OTHER INCOME (EXPENSES)
Interest (expense), net (304,338) (1) 293,998 (10,340)
IRS interest on deferred
installment gain (4) 167,000 (167,000)
Interest income (2) 706,000 706,000
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (304,338) 528,660
------------------ ------------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (1,285,395) (29,840)
------------------ ------------------- ------------------- ------------------
NET INCOME (LOSS) $ (1,285,395) 18,067,074 19,290,297 $ (29,840)
================== =================== =================== ==================
NET LOSS PER SHARE $ (0.13) $ (0.00)
================== ==================
WEIGHTED AVERAGE SHARES 9,724,579 9,724,579
================== ==================
</TABLE>
See notes to pro forma financial statements
20 of 24
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended Pro Forma Adjustments
--------------------------------------------
June 30,
------------------- ------------------- -------------------
1,997 DEBIT CREDIT Total
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 34,001,626 (1) $ 34,001,626 $ $ 0
COST OF GOODS SOLD 19,981,506 (1) 19,981,506 0
------------------ -----------------
GROSS PROFIT 14,020,120 0
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) 334,000 (334,000)
Interest income 0 (2) 1,412,000 1,412,000
------------------ ------------------
TOTAL OTHER INCOME (EXPENSES) (874,572) 1,036,639
------------------ ------------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (2,653,232) (80,361)
------------------ ---------------- ----------------- ------------------
NET INCOME (LOSS) $ (2,653,232) $ 35,561,129 $ 38,025,497 $ (80,361)
================== ================ ================= =================
NET LOSS PER SHARE $ (0.33) $ (0.01)
================== =================
WEIGHTED AVERAGE SHARES 8,084,278 8,084,278
================== =================
</TABLE>
See notes to pro forma financial statements
21 of 24
<PAGE>
TADEO HOLDINGS, 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 December
31, 1997:
(1) To record the sale of all the Company's operating assets with
assumption by the buyer of certain accounts payable totaling
$5,015,262 and accrued expenses of $3,198,142. 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 $8,213,404) and a $17 million note receivable
payable over a minimum of 5 years, 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 $21,981,531. The
estimated tax impact to the Company is $6.2 million (after
consideration of the Company's net operating loss carry forwards). In
addition, the Company will be subject to an annual IRS interest charge
on the deferred income tax which is estimated to be $334,000 for the
first year.
(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.
B. The following following pro-forma adjustments are included in the
accompanying unaudited pro-forma consolidated statements of operatons for
the year endedJune 30, 1997 and the six months ended December 31, 1997,
which have been prepared to reflect the sale as if it had occurred on July
1, 1996:
(1) To elimiate 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 estimated IRS interest on deferred installment gain.
22 of 24
<PAGE>
6. Exhibits and reports on form 8-K
(a) Exhibits
10.1 Closing Agreement dated January 28, 1998.
10.2 Termination Agreement of Edward T. Buchholz dated January 28,
1998.
10.3 Termination Agreement of Tod Robinson dated January 28, 1998.
27.0 Financial data schedule.
(b) Reports on form 8-K
During the quarter ended December 31, 1997, the Company made the
following filings on Form 8-K/A: (i) Report on Form 8-K filed on
December 18, 1997, with respect to Item 5, "Other Information"; and
(ii) Report on Form 8-K filed on December 31, 1997, with respect to
Item 5, "Other Information", and the pro forma financials required to
be filed thereunder.
(The remainder of this page has been intentionally left blank)
23 of 24
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
it's behalf by the undersigned, thereunto duly authorized.
TADEO HOLDINGS, INC.
BY: /s/ Brian Bookmeier
------------------------
BRIAN BOOKMEIER
PRESIDENT
Date: February 12, 1998
24 of 24
<PAGE>
EXHIBIT 10.1
CLOSING AGREEMENT
This Closing Agreement, dated as of January 28, 1998, 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, as amended by the First Amendment to the Asset Purchase
Agreement dated November 24, 1997 (the "ASSET PURCHASE AGREEMENT"). In order to
consummate the Asset Purchase Agreement, the parties thereto hereby agree as
follows. (References to "Sections" are references to sections of the Asset
Purchase Agreement, and references to "paragraphs" are references to paragraphs
of this Agreement. Capitalized terms used but not defined herein are defined in
the Asset Purchase Agreement.)
1. Notwithstanding the first sentence of Section 2.3(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, less the amount paid under
paragraph 3 below.
2. The principal amount of the Note referred to in the first sentence of
Section 2.3(b) shall be $17 Million.
3. In connection with the condition stated in Section 8.9 Gainor shall deliver
to the State of California Board of Equalization on the Closing Date, as an
accommodation to Universal, a Gainor Management check payable to the Board
of Equalization in the amount of $391,230.00, the amount stated in the
pay-off letter dated on or about January 27, 1998 from the Board of
Equalization delivered to Gainor by Universal; and prior to Closing Gainor
shall have received adequate of the Board of Equalization's receipt of such
check.
4. In addition to those documents to be delivered to Gainor by Universal
pursuant to Section 2.4(b), Universal shall also deliver to Gainor the
following:
(i) Termination Agreement executed by Tod Robinson releasing Diabetes Self
Care, Inc. from any and all obligations to him under his employment
agreement with that Purchased Company; and
<PAGE>
(ii) Termination Agreement executed by Edward Buchholz releasing USCI
Healthcare Management Solutions, Inc. from any and all obligations to
him under his employment agreement with that Purchased Company.
5. Notwithstanding the first sentence of Section 2.5(b), if 75% of the Post
Closing Revenue, as defined in Section 2.5(b), is less than $17 million,
then the Note shall be adjusted by reducing the principal amount of the
Note by the amount of the shortfall, following the procedure set forth in
Section 2.7 of the Asset Purchase Agreement.
6. The following are added to the list of occurrences stated in Section 6.9(a)
as a result of which or in connection with which the Selling Companies
shall indemnify, reimburse and hold harmless Gainor, the Purchased
Companies, and any of their Affiliates, any successors or assigns, none of
which shall be subject to the claim threshold in Section 6.9(e):
(a) any Loss in connection with any claim, action, lawsuit or other
proceeding by or on behalf of Karen Barger based on any actions taken or
failed to have been taken by a Selling Company or a Purchased Company prior
to the Closing; (b) any Loss in connection with a claim, audit,
investigation, or enforcement action by, or proceeding before, Medicare,
any Medicaid agency of any state, MediCal, or any intermediary or agent of
any state or local governmental entity, or any other healthcare regulatory
body, against a Selling Company or a Purchased Company based on any actions
taken or failed to have been taken by any Selling Company or Purchased
Company prior to the Closing and either identified in the California
Department of Health Services review of Physicians Support Services, Inc.
for the period November 1, 1994 to April 30, 1996, or not disclosed in the
Disclosure Memorandum; or (c) any Loss in connection with any claim,
action, lawsuit or other proceeding based on a claim of ownership of
certificate number 1, 2, 3 or 4 representing Diabetes Self Care, Inc.
common stock issued before the Closing Date, or a claim of ownership of
such common stock.
7. Notwithstanding the provisions of Section 6.20, Gainor shall not be
required to use any efforts to collect any accounts receivable in the
Sandata system. In addition, during the first month after the Closing
Gainor shall commit to the collection of other Universal trade accounts
receivable all the employees of the Purchased Companies committed to the
collection of trade accounts receivable after the initial termination of
employees of the Purchased Companies after the Closing; during the next
month after the Closing, Gainor shall commit at least six employees to the
collection of other Universal trade accounts receivable; after the first
two months after the Closing, Gainor shall not be required to commit more
than three employees to the collection of other Universal trade accounts
receivable; and the efforts of such employees shall be at least as diligent
as those used by Universal employees prior to the Closing.
8. Notwithstanding the provisions of Section 6.25, prior to Closing Gainor
shall designate the employees of the Purchased Companies who are to be
terminated after Closing. Universal shall not be required to hire such
employees but Universal shall be responsible for any liabilities incurred
by Gainor or the Purchased Companies in connection with such terminations
by the Purchased Companies, except for liabilities incurred by Gainor or
the Purchased Companies due to any tortious act committed by Gainor or a
Purchased Company in connection with such terminations, such as assault or
slander.
2
<PAGE>
9. Before the Closing, Gainor advanced to the Purchased Companies
$1,083,312.46 to pay all federal and state payroll and withholding taxes
accrued and unpaid by the Purchased Companies as of January 25, 1998. In
consideration of such advance, $1,299,974.80 shall be a treated as a
liability of the Purchased Companies to be shown on the Closing Balance
Sheets and included in the calculation set out in Section 2.2(a)(iii)(3)
and 2.3(a), thereby reducing the cash to be paid at Closing.
10. Notwithstanding anything in this Agreement or the Asset Purchase Agreement
to the contrary, and without limiting the generality of any provision of
either such agreement which is not contrary to the following, (i) as of the
Closing, no Purchased Company shall sponsor any Benefit Plan or Applicable
Benefit Plan (defined hereinafter); (ii) as of the Closing, no Purchased
Company shall have any liability, or responsibility to act or omit to act
in any regard, in relation to any Benefit Plan or Applicable Benefit Plan;
(iii) Gainor shall not assume or have any liability at any time in relation
to any Applicable Benefit Plan (unless such liability is expressly assumed
by Gainor); and (iv) as of the Closing, there shall be no liability, or
responsibility to act or omit to act in any regard, in relation to the
Assumed Plan (defined hereinafter), except with respect to insurance
premiums and claims for benefits in the ordinary and customary course of
administration of the Assumed Plan. To the extent that work in relation to
the Assumed Plan (with respect to any and all matters occurring up to the
Closing) or in relation to any Applicable Benefit Plan must be accomplished
after the Closing, competent counsel and other consultants engaged by
Universal prior to Closing shall be responsible for all such work; and,
without limiting any other provision of this Agreement or the Asset
Purchase Agreement, Universal shall be solely responsible for the payment
of all fees, costs, expenses and other charges incurred by one or more of
Gainor, Diabetes Self Care, Inc., or USCI Health Care Management Solutions,
Inc. prior to and after Closing in relation to the Assumed Plan (with
respect to any and all matters occurring up to the Closing) or in relation
to any Applicable Benefit Plan. Universal shall be solely responsible for
the payment of all administrative and other fees, costs, expenses and other
charges incurred in relation to the Assumed Plan after the Closing with
respect to coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, for employees of any Purchased
Company prior to the Closing whose employment is terminated, for any reason
or no reason, at any time before the sixth month after the Closing. Gainor
and its legal counsel shall be entitled to obtain any and all documents and
other information (whether written or unwritten), from any and all persons
and entities, relating to one or more of the Applicable Benefit Plans and
the Assumed Plan. For purposes of this paragraph 10, the phrase "Benefit
Plan" shall include, without limitation, (i) each pension, retirement,
profit-sharing, cash or deferred, deferred compensation, stock option,
phantom stock, stock appreciation rights, employee stock ownership,
severance pay, vacation, paid time off, education-reimbursement, bonus,
incentive, and other or similar plan, program or other arrangement, (ii)
each written or unwritten employee or other or similar program,
arrangement, agreement or understanding, whether arrived at through
collective bargaining or otherwise, (iii) each cafeteria, Section 125,
medical, vision, dental, disability, death benefit, life insurance, health
and/or accident plan, program or other arrangement, and (iv) each other
employee benefit plan, voluntary employees' beneficiary association, fringe
benefit plan, and other or similar plan, program or other arrangement,
agreement or understanding, including, without limitation, each "employee
benefit plan," as that term is defined in Section 3(3) of the
3
<PAGE>
Employee Retirement Income Security Act of 1974, as amended. The phrases
"Applicable Benefit Plan" and "Applicable Benefit Plans" shall include,
without limitation, (i) each and every Benefit Plan which, at any time up
to the Closing, was sponsored by, was contributed to or required to be
contributed to by, or was otherwise connected with, one or more of
Universal, Clinishare Diabetes Centers, Inc., Physicians Support Services,
Inc., USC-Michigan, Inc., PCS, Inc.-West, Diabetes Self Care, Inc., and
USCI Health Care Management Solutions, Inc. (each, a "Target Company"), and
(ii) the Diabetes Self Care, Inc. 401(k) Plan, and each Target Company-
related life insurance, health coverage, disability coverage, flexible
benefits, and other or similar plan, program or arrangement. The phrases
"Benefit Plan," "Applicable Benefit Plan" and "Applicable Benefit Plans"
shall exclude only the fully-insured health and accident plan sponsored
for only the eligible employees of Diabetes Self Care, Inc. (the benefits
under which are underwritten by Allmerica Health Insurance Company); and
such excluded plan is referred to in this paragraph 10 as the "Assumed
Plan."
11. The list of Accepted Contracts contained on Schedule A to the Asset
Purchase Agreement shall be expanded to include that certain Equipment
Lease between Target Equipment Leasing, Inc. and Universal Self Care, Inc.
dated February 23, 1996 for specified computers and computer hardware
located at 11585 Farmington Road, Livonia, MI.
12. With reference to Section 6.30, because of the failure of Diabetes Self
Care, Inc. to obtain assignments of benefits for all patients and customers
billed under the PCS, Inc. - West ("PCS") provider numbers (the "PCS
customers"):
(i) the parties agree that Gainor and Diabetes Self Care, Inc. shall
continue reasonable efforts after the Closing to obtain such
assignments of benefits; and Gainor, Diabetes Self Care, Inc. and
their agents and representatives shall be entitled to communicate with
the PCS customers for the purposes thereof and to take such other
steps as shall be reasonably necessary to obtain such assignments of
benefits. In addition, as to all PCS customers for which Diabetes
Self Care, Inc. has not obtained such assignments of benefits within
six months after the Closing, the Note shall be adjusted by reducing
the principal amount of the Note by an amount equal to $600 times the
number of such PCS customers (up to $2.0 million), following the
procedure set forth in Section 2.7.
(ii) PCS has entered into a Billing Agency Agreement dated the date hereof
with Gainor Medical Direct, L.L.C., a Georgia limited liability
company ("Gainor Direct"), under which PCS has appointed Gainor Direct
as its agent to furnish billing, claims, check negotiation and
collection services as to payments receivable from or on behalf of the
PCS customers, a copy of which Agency Agreement is attached hereto as
Exhibit A. The parties further agree that Gainor Direct shall pay
over to Gainor all money received by Gainor Direct in regard to the
PCS Customers, less any money payable to Gainor Direct as compensation
under the Agency Agreement, and Gainor shall be entitled to keep all
such money received from Gainor Direct or PCS, as applicable. In
addition, the Note shall be immediately adjusted by reducing the
principal amount of the Note by $2.0 million, following the procedure
set forth in Section 2.7, if within six months after the Closing
either (A) PCS, its affiliates, successors or assigns
4
<PAGE>
terminate, revoke or modify or attempt to terminate, revoke or modify
the Agency Agreement or any part thereof except at the written request
or with the written consent of Gainor, or (B) Gainor Direct shall
otherwise be prevented by law or under an order or ruling of any court
or governmental agency (a "Legal Impediment") from performing under
the Billing Agency Agreement or from receiving and keeping the amounts
which it otherwise would be entitled to receive and keep under this
paragraph 12(ii), and PCS fails within 30 days after the occurrence of
such Legal Impediment to implement procedures reasonably satisfactory
to Gainor that insure that Gainor may receive and keep all payments to
or on behalf of PCS or its customers, and all fees payable under the
Billing Agency Agreement, it would have received for such six month
period had such Legal Impediment not occurred.
13. Diabetes Self Care, Inc. has entered into an agreement with MCI for the
provision of certain telephone services. If after the Closing Gainor or
Diabetes Self Care, Inc. desires to terminate such agreement and is not
able to terminate on 30 days' notice or less, Diabetes Self Care, Inc.
shall have the right to assign such agreement to Universal, and Universal
thereupon shall accept such agreement and assume all obligations under such
agreement as if such agreement were an Assigned Agreement under the Asset
Purchase Agreement.
14. In consideration of Gainor's relinquishment of the Selling Companies'
rights in certain furniture and equipment located at 990 Highland Drive,
Solana Beach, California, the cash to be paid at Closing shall be reduced
$3,000.
15. After the Closing, Universal shall continue to use its best efforts to
secure the consent to the assignment of the following equipment leases
covering certain computers, computer hardware and computer software:
Equipment Lease between Target Equipment Leasing, Inc. and Universal Self
Care, Inc. dated February 23, 1996
Equipment Lease between Target Equipment Leasing, Inc. and Universal Self
Care, Inc. dated February 27, 1996
Equipment Lease between Target Equipment Leasing, Inc. and Universal Self
Care, Inc. dated March 12, 1996.
16. Attached hereto as Exhibit B is the allocation of the Purchase Price
pursuant to Section 6.7(e)(iii).
17. Concerning the assumption by Gainor Acquisition of the Gainor Assumed
Liabilities, and the accounting for certain items to be shown on the
Closing Balance Sheet, the parties agree that Gainor Acquisition shall not
assume the accounts payable to Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel and to Feldman Radin & Co., P.C., in the aggregate amount of
$260,486, and vendor rebates payable in the amount of $470,000 for products
supplied by the Purchased Companies to Medicare and Medicaid patients shall
be treated as accounts receivable instead of a reduction of accounts
payable. In connection therewith, notwithstanding the provisions of
Section 2.5(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
5
<PAGE>
receivable shown on the Closing Balance Sheet shall be less than $5.75
million during that 12 month period.
18. Attached hereto as Exhibit C is a copy of the Preliminary Balance Sheets,
signed separately by a representative of each of the parties and annotated
concerning certain liabilities of certain Selling Companies to be assumed
by Gainor Acquisition and treated as Gainor Assumed Liabilities, with a
corresponding reduction in the cash to be paid at Closing, and certain
liabilities of certain Purchased Companies not to be assumed by Gainor
Acquisition and treated as Gainor Assumed Liabilities, with a corresponding
increase in the cash to be paid at Closing.
Each of the parties hereto has caused this Closing Agreement to be duly executed
on its behalf as of the date indicated on the first page hereof. 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.
GAINOR:
GAINOR MEDICAL MANAGEMENT, LLC GAINOR MEDICAL ACQUISITION
COMPANY
By: By:
------------------------- --------------------------
Mark J. Gainor Mark J. Gainor
President President
UNIVERSAL:
UNIVERSAL SELF CARE, INC. CLINISHARE DIABETES CENTERS, INC.
By: By:
------------------------ -------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------- -----------------------------
Print Name Print Name
PRESIDENT VICE PRESIDENT
- ---------------------------- -----------------------------
Print Title Print Title
PHYSICIANS SUPPORT SERVICES, INC. USC-MICHIGAN, INC.
By: By:
------------------------ ---------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------- ------------------------------
Print Name Print Name
VICE PRESIDENT VICE PRESIDENT
- ---------------------------- ------------------------------
Print Title Print Title
6
<PAGE>
PCS, INC. - WEST DIABETES SELF CARE, INC.
By: By:
---------------------- --------------------------
Brian D. Bookmeier Brian D. Bookmeier
- -------------------------- -------------------------------
Print Name Print Name
VICE PRESIDENT VICE PRESIDENT
- -------------------------- -------------------------------
Print Title Print Title
USCI HEALTHCARE MANAGEMENT
SOLUTIONS, INC.
By:
-------------------------
Brian D. Bookmeier
- ------------------------------
Print Name
VICE PRESIDENT
- ------------------------------
Print Title
STOCKHOLDERS:
- ------------------------ -----------------------------
BRIAN D. BOOKMEIER EDWARD T. BUCHHOLZ
- ------------------------ -----------------------------
MATTHEW B. GIETZEN ALAN M. KORBY
7
<PAGE>
EXHIBIT A
BILLING AGENCY AGREEMENT
8
<PAGE>
EXHIBIT B
PURCHASE PRICE ALLOCATION
Accounts Receivable $ 9,108,272
Inventories 1,118,398
Property and equipment 822,528
Cost in Excess of Net Assets Acquired 22,950,802
----------
$34,000,000
----------
----------
9
<PAGE>
EXHIBIT C
PRELIMINARY BALANCE SHEETS
10
<PAGE>
EXHIBIT 10.2
UNIVERSAL SELF CARE, INC.
11585 FARMINGTON ROAD
LIVONIA, MICHIGAN 48150
-AND-
USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC.
3601 THIRLANE ROAD, N.W., SUITE 4
ROANOKE, VIRGINIA 24019
January 28, 1998
Mr. Edward T. Buchholz
265 Waterside Drive
Moneta, Virginia 24121
Re: TERMINATION AGREEMENT
Dear Mr. Buchholz:
This letter sets forth the agreement between you and USCI Healthcare
Management Solutions, Inc. ("Healthcare") and Universal Self Care, Inc. ("USCI")
regarding your termination as an officer and employee of the Healthcare.
1. RESIGNATION DATE. Your employment as an officer and employee of
Healthcare will terminate, effective as of the close of business on the Closing
Date (the "Effective Date") of the Asset Purchase Agreement, dated November 14,
1997, as amended, by and among Gainor Medical Management LLC, Universal Self
Care, Inc., Diabetes Self Care, Inc. and various other parties identified
therein (the "Asset Purchase Agreement").
2. CANCELLATION OF EMPLOYMENT AGREEMENT. In mutual consideration of the
promises contained in this termination agreement (the "Agreement"), effective as
of the Effective Date the Employment Agreement, dated as of December 16, 1996,
between you and Healthcare (the "Employment Agreement"), shall terminate and be
of no further force and effect, except as otherwise provided in this Agreement.
Unless otherwise separately defined herein, all capitalized terms used herein
shall have the same meaning as defined in the Employment Agreement.
3. PAYMENTS. Subject to this Agreement, USCI, the parent of Healthcare,
will pay you or provide you with the following benefits in connection with the
termination of your employment with Healthcare (the "Severance Benefits"):
a) SEVERANCE PAYMENT. Insofar as your termination of employment is
neither for Cause nor as a result of your death or disability (as determined
in accordance with the terms
<PAGE>
of the Employment Agreement), notwithstanding the terms of the Employment
Agreement which would require compensation received by you from alternate
employment to be credited against Healthcare's obligations under the Employment
Agreement, and in recognition for your extraordinary efforts in connection with
the negotiation of the Asset Purchase Agreement and the management of the
process leading up to the Closing of the Asset Purchase Agreement, USCI shall
pay to you the following in full satisfaction of any obligations that it may
have to you under the terms of the Employment Agreement and with respect to the
termination of your employment thereunder: a total amount equal to Seven Hundred
Eight Thousand ($708,000) Dollars, (i) $250,000 to be paid by USCI on the
Effective Date (the "Initial Payment") and (ii) $458,000 to be paid by USCI in
sixty (60) equal monthly installments of $7,633.33 (the "Installments"),
payable on the first day of each succeeding calendar month commencing with the
second full month commencing after the Effective Date [subject to a fifteen (15)
day grace period with respect to payment of each such Installment]; PROVIDED,
that in the event that USCI receives a prepayment of amounts owed to it under
the terms of the $17,000,000 Promissory Note delivered to USCI under the terms
of the Asset Purchase Agreement (the "Prepayment"), then payment to you of the
aggregate amount of all Installments remaining unpaid (the "Installments
Balance") shall be accelerated, and within thirty (30) days following USCI's
receipt of such Prepayment you shall receive a "lump sum" payment from USCI
equal to the Installments Balance (the "Balance Payment"); PROVIDED FURTHER,
that notwithstanding such agreement to pay the Balance Payment, the Balance
Payment shall not exceed 50% of the amount of the Prepayment to USCI, with any
Installments not paid as part of the Balance Payment being paid in succeeding
equal monthly Installments (collectively, the Initial Payment and the
Installments payments shall be referred to as the "Severance Payment"). Other
than the continuing of certain stock options granted to you under the terms of
the Employment Agreement, and the continuation of payment of certain life
insurance premiums , and referred to in subparagraphs (c ) and (d) below,
payment of this Severance Payment represents the entire consideration to you as
a result of the termination of your employment by Healthcare.
(b) SECTION 401(K) BENEFITS. You shall be entitled to receive
benefits under the Diabetes Self Care, Inc. Employee Savings Plan in accordance
with the terms of such plan based upon the service credited to you through the
earlier of the Effective Date or the date of termination of the plan.
(c) STOCK OPTIONS. All stock options granted to you under the
Employment Agreement shall be fully vested and shall continue in full force and
effect through the date of expiration thereof, notwithstanding any other terms
which may be contained in such stock option agreements which would otherwise
result in termination of such stock options upon termination of employment by
Healthcare.
(d) LIFE INSURANCE POLICY. USCI shall continue to pay all premiums on
the existing $350,000 life insurance policy issued on your life by Valley Forge
life Insurance Company (such policy being Policy No. UL00003635, currently owned
by you), through December 31, 1999.
2
<PAGE>
(e) COBRA RIGHTS. After the Effective Date, you shall be entitled to
group health insurance continuation benefits pursuant to the relevant provisions
of the Consolidated Omnibus Budge Reconciliation Act of 1985 and any other
statutory health insurance rights at your sole cost and expense.
(f) NO OTHER BENEFITS. Except as expressly set forth in this Section
3, you shall not be entitled to any other payments or benefits from Healthcare,
USCI, or any of their parents, subsidiaries or affiliates (collectively, the
"Company"), or to participate in any employee benefit program of the Company on
or after the Effective Date. You also agree to waive any right you may have to
reemployment with the Company in any capacity. You agree that you have received
full reimbursement for all business expenses owned to you by the Company, except
for expenses, not to exceed $5,000 in the aggregate, which you incurred in the
ordinary course of business and for which your invoices have not yet been
received and approved.
4. RELEASE OF CLAIMS.
a) In recognition of the consideration recited above, (i) you hereby
release Healthcare and Diabetes, and (ii) subject at all times to your timely
receipt of all payments and other consideration to which you may be entitled
hereunder, you hereby release and discharge USCI, and any of their present,
former and future partners, affiliates, direct and indirect parents,
subsidiaries (other than Healthcare and Diabetes), successors, directors,
officers, employees, agents, attorneys, heirs and assigns (collectively, the
"Released Parties"), from any and all claims, actions and causes of action that
you may have as of the Effective Date with respect to the Released Parties,
which arise out of your employment relationship with Healthcare and any other
Released Parties, your rights to any compensation or benefits from the Released
Parties in connection with your employment, your Employment Agreement, or the
termination of your employment with the Released Parties (collectively, the
"Released Claims"). The Released Claims shall include any claims arising under
Title VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the civil Rights Act of 1866, the Civil
Rights Act of 1991, Employee Retirement Income Security Act of 1974,the Family
and Medical Lease Act of 1993, and any other federal, state or local law whether
such claim arises under statute or common law and whether or not you are
presently aware of the existence of such claim, damage, action and cause of
action, suit or demand, and any personal gain with respect to any claim arising
under the provisions of the False Claims Act, 31 U.S.C. 3730, other than an
action or suit to enforce this Agreement. You also forever release, discharge
and waive any right you may have to recover in any proceeding brought by any
federal, state or local agency against the Released Parties to enforce any laws
with regard to any Released Claim. You agree that the value received as
described in this Agreement shall be in full satisfaction of any and all claims,
actions or causes of action for payment or other benefits of any kind that you
may have against the Released Parties in respect of Released Claims, other than
any claims you may have to vested benefits under any of the Company's "employee
pension benefit plans" or "employee welfare benefit plans" as defined under
ERISA. By signing this Agreement, you represent that you have been given the
opportunity to consult with the attorney(s) of your choice prior to signing this
Agreement and to have those attorney(s) explain the provisions of this
3
<PAGE>
Agreement to you and that you have knowingly and voluntarily accepted the terms
of the offer as described herein.
b) The Released Parties hereby release you from any and all claims,
actions and causes of action that the Released Parties may have with respect to
the performance of your duties and obligations in connection with your
employment relationship with Healthcare and any other Released Parties on and
prior to the date hereof and pursuant to your Employment Agreement. The
foregoing notwithstanding, nothing herein shall be construed to release you from
any claims, actions, or other causes of action under the Asset Purchase
Agreement, all documents and instruments executed in connection with the Asset
Purchase Agreement and the Closing of the transactions contemplated therein, and
the consummation of the transactions contemplated by the Asset Purchase
Agreement, including but not limited to any employment agreements executed or to
be executed by you with Gainor Medical Management, LLC or its affiliates.
5. PROTECTION OF THE COMPANY'S INTERESTS.
a) CONFIDENTIALITY. Notwithstanding any other provision hereof, you
shall remain obligated by all agreements which may exist between you and the
Company or between you and any third party executed in connection with your
employment by the Company regarding confidentiality, including, but not limited
to Section 5 of the Employment Agreement.
b) EXCLUSIVE PROPERTY. You confirm that all confidential
information of the Company is and shall remain the exclusive property of the
Company. All business records, papers and documents kept or made by you
relating to the business of the Company shall be and remain the property of the
Company. You further agree that you shall deliver to the Company on the
Effective Date, and shall not without the consent of the Company retain copies
of, any written materials not previously made available to the public, or
records and documents that you made or that came into your possession concerning
the business or affairs of the Company.
6. TAXES. USCI shall not withhold any amounts for federal, state or local
tax purposes from the $250,000.00 payment due on the Effective Date. You shall
be responsible for any taxes due on such payment. USCI shall be permitted to
withhold any amounts for federal, state or local tax purposes required to be
withheld with respect to the Installments. In the event USCI shall be required
to make any tax payment for your benefit in connection with the $250,000.00
payment, USCI shall also be permitted to withhold additional amounts from the
Installments to recoup any such payment(s).
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Common wealth of Virginia applicable to
contracts to be performed in that state and without regard to laws that might
otherwise govern under applicable principles of conflicts of law.
4
<PAGE>
8. SUCCESSORS AND ASSIGNS. The rights and obligations under this
agreement shall be binding upon and shall inure to the benefit of the successors
and assigns of the Company and to your heirs, executives, successors and
assigns.
9. ENTIRE AGREEMENT/MODIFICATION. The terms and provisions of this
instrument constitute the entire agreement between the Company and you and shall
supersede all previous communications, representations or agreements, either
verbal or written, between the parties hereto (including, but not limited to any
communications, representations or agreement with any employee or representative
of Gainor Medical Management LLC or any of its affiliates) with respect to your
employment with the Company on and prior to the Effective Date, including,
without limitation, the Employment Agreement, except as otherwise provided
herein. This Agreement may not be enlarged, modified, amended or altered except
in writing signed by USCI and you.
Please indicate your agreement and acceptance of the terms and conditions
of this Agreement by signing this document in the place provided below.
USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC.
By:______________________________________
Brian Bookmeier
Vice President
UNIVERSAL SELF CARE, INC.
By:______________________________________
Brian Bookmeier
President
ACCEPTED BY:
__________________________
Edward T. Buchholz
5
<PAGE>
STATE OF VIRGINIA
} s.s.:
COUNTY OF ROANOKE }
On January _, 1998, before me personally came Edward T. Buchholz to
me known to be the individual described in, and who executed the foregoing
Termination Agreement and duly acknowledged to me that he executed the same.
-------------------------
NOTARY PUBLIC
STATE OF MICHIGAN
} s.s.:
COUNTY OF _________ }
On January _, 1998, before me personally came Brian Bookmeier, to me
known to be the Vice President of USCI Healthcare Management Solutions, Inc. and
the President of Universal Self Care, Inc. as described in, and who executed the
foregoing Termination Agreement, and duly acknowledged to me that he executed
the same in such capacities on behalf of USCI Healthcare Management Solutions,
Inc. and Universal Self Care, Inc..
-------------------------
NOTARY PUBLIC
6
<PAGE>
EXHIBIT 10.3
UNIVERSAL SELF CARE, INC.
11585 FARMINGTON ROAD
LIVONIA, MICHIGAN 48150
-AND-
DIABETES SELF CARE, INC.
3601 THIRLANE ROAD, N.W., SUITE 4
ROANOKE, VIRGINIA 24019
January 28, 1998
Mr. Tod Robinson
12744 Via Nieve
San Diego, California 92130
Re: TERMINATION AGREEMENT
Dear Mr. Robinson:
This letter sets forth the agreement between you and Diabetes Self Care,
Inc. ("Diabetes") and Universal Self Care, Inc. ("USCI"), regarding your
termination as an employee of Diabetes.
1. RESIGNATION DATE. Your employment as an employee of Diabetes will
terminate, effective as of the close of business on the Closing Date of the
transactions contemplated by the Asset Purchase Agreement (as such term is
defined below) (the "Effective Date") of the Asset Purchase Agreement, dated
November 14, 1997, as amended, by and among Gainor Medical Management LLC,
Universal Self Care, Inc., Diabetes Self Care, Inc. and various other parties
identified therein (the "Asset Purchase Agreement"). It is expressly agreed and
understood by the parties hereto that the termination of your employment is by
mutual consent and is not in any manner to be construed as termination for
"Cause" as defined in the Employment Agreement dated as of March 10, 1996,
between you and Diabetes, as amended by letter agreement dated June 30, 1997
(the "Employment Agreement").
2. CANCELLATION OF EMPLOYMENT AGREEMENT. In mutual consideration of the
promises contained in this termination agreement (the "Agreement"), effective as
of the Effective Date the Employment Agreement shall terminate and be of no
further force and effect, except as otherwise provided in this Agreement.
Unless otherwise separately defined herein, all capitalized terms used herein
shall have the same meaning as defined in the Employment Agreement.
<PAGE>
3. PAYMENTS. Subject to this Agreement, USCI, the parent of Diabetes,
will pay you or provide you with the following benefits in connection with the
termination of your employment with Diabetes (the "Severance Benefits"):
a) SEVERANCE PAYMENT. As full cash consideration for the
termination of your employment, USCI shall pay to you the amount of $151,500 as
compensation for your Base Salary, which sum includes the $500 monthly car
allowance (without inclusion of any amounts for mileage charges) through August
1, 1999, without payment of the car allowance for the month of August 1999 (such
lump-sum payment refereed to hereinafter as the "Severance Payment"). The
Severance Payment shall be payable to you in twelve (12) equal monthly
installments of $12,625 each, commencing on the later to occur of Closing Date
or February 1, 1998 and continuing through January 1, 1999. Other than amounts
referred to in subparagraphs (b), ( c), (d), (e) and (f) below, this amount
represents the entire cash payment to be payable to you as a result of the
termination of your employment by Diabetes.
(b) MOTOROLA COMMISSION AND PURCHASE OF ASSETS. In consideration of
your assistance in obtaining a diabetes management and supply contract between
USCI Healthcare Management Solutions, Inc. and Motorola, Inc. you shall receive
a commission of $4,000, payable upon the Effective Date.
(c) ASSUMPTION OF LEASE. You agree to assume all of the obligations
and liabilities of Diabetes under the lease for the Premises between Diabetes
and M.C. Strauss Company (the "Landlord") dated May 14, 1997 (the "Lease") and
Diabetes agrees to assign to you all of its rights, title and interest under the
Lease in consideration of the sum of $2,700, representing the balance of monthly
payments to become due under the Lease, plus an additional $200, representing
reimbursement of processing fees in securing the assignment of the Lease from
the Landlord, for an aggregate consideration of $2,900 payable to you by USCI on
the Effective Date. You agree to indemnify and hold Diabetes and USCI harmless
from and against any and all claims, actions and causes of action, fees, costs
and expenses arising out of or in connection with any acts or failures to act on
your part in connection with the Premises, or any breaches of your obligations
under the Lease, which acts or failures to act or breaches occur subsequent to
the Effective Date.
(d) PERFORMANCE BONUS AND COMMISSION. Within thirty (30) days of the
Effective Date, you shall receive payment of all amounts otherwise owed to you
under the terms of Section 3(b) of the Employment Agreement for your activities
under the Employment Agreement prior to the Effective Date, if any. The amount
of such payment shall be determined by USCI and when paid shall be in full
satisfaction of payments to which Diabetes is obligated to you under Section
3(b) of the Employment Agreement.
2
<PAGE>
(e) VACATION PAY. You shall be paid all accrued vacation pay,
accrued through the Effective Date, on the Effective Date.
(f) PROFIT PARTICIPATION. Within thirty (90) days following the end
of USCI's fiscal year ending June 30, 1998, you shall receive payment of all
amounts otherwise owed to you as your Profit Participation under the terms of
Section 3(c) of the Employment Agreement, if any; PROVIDED, that the period of
time with respect to which any Profit Participation payment arises shall be
measured solely with respect to the After-Tax Profits earned by Diabetes for the
period commencing on July 1, 1997 and terminating on the Effective Date. The
amount of such payment shall be determined by USCI and when paid shall be in
full satisfaction of payments to which Diabetes is obligated to you under
Section 3(c) of the Employment Agreement.
(g) SECTION 401 (K) BENEFITS. You shall be entitled to receive
benefits under the Diabetes Self Care, Inc. Employee Savings Plan in accordance
with the terms of such plan based upon the service credited to you through the
earlier of the Effective Date or the date of termination of the plan.
(h) STOCK OPTIONS. All stock options granted to you under the terms
of stock option agreements entered into pursuant to the Employment Agreement
shall be fully vested without further restrictions as of the Effective Date, and
shall continue in full force and effect through the date of expiration thereof,
notwithstanding any other terms which may be contained in such stock option
agreements and the Employment Agreement which would otherwise result in
termination of such stock options.
(i) COBRA RIGHTS. After the Effective Date, you shall be entitled to
group health insurance continuation benefits pursuant to the relevant provisions
of the Consolidated Omnibus Budge Reconciliation Act of 1985 and any other
statutory health insurance rights at your sole cost and expense.
(j) NO OTHER BENEFITS. Except as expressly set forth in this Section
3, you shall not be entitled to any other payments or benefits from Diabetes,
USCI or any of their parents, subsidiaries or affiliates (collectively, the
"Company"), or to participate in any employee benefit program of the Company on
or after the Effective Date. You also agree to waive any right you may have to
reemployment with the Company in any capacity. You agree that you have received
full reimbursement for all business expenses owned to you by the Company, except
for expenses, not to exceed $2,500 in the aggregate, which you incurred in the
ordinary course of business and for which your invoices have not yet been
received and approved.
4. RELEASE OF CLAIMS.
a) In recognition of the consideration recited above, (i) you hereby
release Diabetes, and (ii) subject at all times to your timely and satisfactory
receipt of all payments and
3
<PAGE>
other consideration to which you may be entitled hereunder, you hereby release
and discharge USCI and any of their present, former and future partners,
affiliates, direct and indirect parents, subsidiaries (other than Diabetes),
successors, directors, officers, employees, agents, attorneys, heirs and assigns
(collectively, the "Released Parties"), from any and all claims, actions and
causes of action that you may have as of the Effective Date with respect to the
Released Parties, which arise out of your employment relationship with Diabetes
and any other released Parties, your rights to any compensation or benefits from
the Released Parties in connection with your employment, your Employment
Agreement, or the termination of your employment with the Released Parties
(collectively, the "Released Claims"). The Released Claims shall include any
claims arising under Title VII of the Civil Rights Act of 1964, the
Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, the
civil Rights Act of 1866, the Civil Rights Act of 1991, Employee Retirement
Income Security Act of 1974,the Family and Medical Lease Act of 1993, and any
other federal, state or local law whether such claim arises under statute or
common law and whether or not you are presently aware of the existence of such
claim, damage, action and cause of action, suit or demand, and any personal gain
with respect to any claim arising under the provisions of the False Claims Act,
31 U.S.C. 3730, other than an action or suit to enforce this Agreement. You also
forever release, discharge and waive any right you may have to recover in any
proceeding brought by any federal, state or local agency against the Released
Parties to enforce any laws with regard to any Released Claim. You agree that
the value received as described in this Agreement shall be in full satisfaction
of any and all claims, actions or causes of action for payment or other benefits
of any kind that you may have against the Released Parties in respect of
Released Claims, other than any claims you may have to vested benefits under any
of the Company's "employee pension benefit plans" or "employee welfare benefit
plans" as defined under ERISA, or to any rights or entitlements arising under
any stock option agreements. By signing this Agreement, you represent that you
have been given the opportunity to consult with the attorney(s) of your choice
prior to signing this Agreement and to have those attorney(s) explain the
provisions of this Agreement to you and that you have knowingly and voluntarily
accepted the terms of the offer as described herein.
b) The Released Parties hereby release you from any and all claims,
actions and causes of action, known or unknown, that the Released Parties may
have with respect to the performance of your duties and obligations in
connection with your employment relationship with Diabetes and any other
Released Parties and pursuant to your Employment Agreement. USCI hereby
indemnifies you against any and all claims, actions and causes of action, known
or unknown, that any third party may have with respect to the performance of
your duties and obligations in connection with your employment relationship with
Diabetes and any other Released Parties and pursuant to your Employment
Agreement, except for such claims, actions and causes of action arising out of
or in connection with your willful misconduct.
c) In connection with the releases provided for herein, each of the
parties hereto has been advised by counsel of the provisions of Section 1542 of
the Civil Code of the
4
<PAGE>
State of California and they have read said Section and hereby expressly waive
the benefits of said Section, which provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release which if known by him must
have materially affected his settlement with the debtor."
5. PROTECTION OF THE COMPANY'S INTERESTS.
a) CONFIDENTIALITY. Notwithstanding any other provision hereof, you
shall remain obligated by all written agreements which may exist between you and
the Company or between you and any third party executed in connection with your
employment by the Company regarding confidentiality, including, but not limited
to Section 5 of the Employment Agreement.
(b) EXCLUSIVE PROPERTY. You confirm that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by you relating to the
business of the Company shall be and remain the property of the Company. You
further agree that you shall deliver to the Company on the Effective Date, and
shall not without the consent of the Company retain copies of, any written
materials not previously made available to the public, or records and documents
that you made or that came into your possession concerning the business or
affairs of the Company.
6. TAXES. USCI shall be permitted to withhold any amounts for federal,
state or local tax purposes required to be withheld with respect to the
consideration awarded under the terms of this Agreement and to remit such
amounts to the relevant taxing authority.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts to
be performed in that state and without regard to laws that might otherwise
govern under applicable principles of conflicts of law.
8. SUCCESSORS AND ASSIGNS. The rights and obligations under this
agreement shall be binding upon and shall inure to the benefit of the successors
and assigns of the Company and to your heirs, executives, successors and
assigns-
9. ENTIRE AGREEMENT/MODIFICATION. The terms and provisions of this
instrument constitute the entire agreement between the Company and you and shall
supersede all previous communications, representations or agreements, either
verbal or written, between the parties hereto (including, but not limited to any
communications, representations or agreement with any employee or representative
of Gainor Medical Management LLC or any of its affiliates) with respect to your
employment with the Company, including, without limitation, the Employment
5
<PAGE>
Agreement, except as otherwise provided herein. This Agreement may not be
enlarged, modified, amended or altered except in writing signed by the Company
and you.
Please indicate your agreement and acceptance of the terms and
conditions of this Agreement by signing this document in the place provided
below.
UNIVERSAL SELF CARE, INC.
By:
------------------------
Brian D. Bookmeier
President
DIABETES SELF CARE, INC.
By:
------------------------
Alan M. Korby
President
ACCEPTED BY:
- ------------------------
Tod Robinson
6
<PAGE>
STATE OF VIRGINIA )
: SS.:
COUNTY OF ROANOKE )
On January _, 1998, before me personally came Tod Robinson to me known
to be the individual described in, and who executed the foregoing Termination
Agreement and duly acknowledged to me that he executed the same.
NOTARY PUBLIC
<PAGE>
STATE OF MICHIGAN )
: SS.:
COUNTY OF WAYNE )
On January _, 1998, before me personally came Brian Bookmeier, to me
known to be the President of Universal Self Care, Inc. as described in, and who
executed the foregoing Termination Agreement, and duly acknowledged to me that
he executed the same in such capacity on behalf of Universal Self Care, Inc.
NOTARY PUBLIC
STATE OF VIRGINIA )
: SS.:
COUNTY OF ROANOKE )
On January _, 1998, before me personally came Edward Buchholz, to me
known to be the President of Diabetes Self Care, Inc. as described in, and who
executed the foregoing Termination Agreement, and duly acknowledged to me that
he executed the same in such capacity on behalf of Diabetes Se-If Care, Inc.
NOTARY PUBLIC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 557,367
<SECURITIES> 0
<RECEIVABLES> 11,921,360
<ALLOWANCES> (2,478,099)
<INVENTORY> 966,721
<CURRENT-ASSETS> 11,029,869
<PP&E> 1,676,522
<DEPRECIATION> (776,368)
<TOTAL-ASSETS> 17,648,481
<CURRENT-LIABILITIES> 9,198,883
<BONDS> 0
1,589,555
505,000
<COMMON> 972
<OTHER-SE> 1,633,348
<TOTAL-LIABILITY-AND-EQUITY> 17,648,481
<SALES> 17,309,242
<TOTAL-REVENUES> 17,309,242
<CGS> 9,885,132
<TOTAL-COSTS> 9,885,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,038,368
<INTEREST-EXPENSE> 304,338
<INCOME-PRETAX> (1,285,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,285,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,285,395)
<NET-INCOME> 0
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
