<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
UNIVERSAL SELF CARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
UNIVERSAL SELF CARE, INC.
11585 FARMINGTON ROAD
LIVONIA, MICHIGAN 48150
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 26, 1998
------------------------
To the Stockholders of
UNIVERSAL SELF CARE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Stockholders of Universal Self Care, Inc. (the "Company" or the "Corporation")
will be held at the Holiday Inn Livonia-West, 17123 North Laurel Park Drive,
Livonia, Michigan 48152 on January 26, 1998 at 10:00 a.m. local time for the
following purposes:
1. To elect four directors to hold office until the next Annual Meeting;
2. To ratify the selection of Feldman Radin & Co., P.C. auditors of the
Company for the Fiscal Year ending June 30, 1998;
3. To authorize the sale of all or substantially all of the assets of the
Company to a wholly-owned subsidiary of Gainor Medical Management, LLC (the
"Gainor Transaction") pursuant to the terms of the Asset Purchase Agreement,
dated November 14, 1997, by and among the Company, Gainor Medical Management,
LLC and certain other parties (the "Sale Agreement"); and
4. To authorize and approve the adoption of the Company's 1997 Stock Option
Plan for Non-Employee Directors;
5. To authorize an amendment to the Company's Certificate of Incorporation
to change the name of the Company to Tadeo Holdings, Inc., in accordance with
the terms of the Sale Agreement, to be effective only upon the closing of the
Sale Agreement identified in Proposal 3, above;
6. To authorize an amendment to the Company's certificate of incorporation
to increase the authorized capital of the company by increasing from 40,000,000
shares of common stock, $.0001 par value (the "Common Stock") to 100,000,000
shares the Company's authorized Common Stock; to be effective only upon the
closing of the Sale Agreement identified in Proposal 3 above; and
7. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed December 18, 1997 as the record date for
the determination of stockholders entitled to notice of and to vote at the
meeting or any adjournment thereof. The stock transfer books of the Company will
not be closed, but only stockholders of record at the close of business on
December 18, 1997 will be entitled to vote at the meeting or any adjournment or
adjournments thereof.
By Order of the Board of Directors
Brian Bookmeier,
PRESIDENT
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND RETURN YOUR
PROXY CARD PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE PROVIDED FOR YOUR USE.
<PAGE>
UNIVERSAL SELF CARE, INC.
11585 FARMINGTON ROAD
LIVONIA, MICHIGAN 48150
------------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Universal Self Care, Inc.
(hereinafter referred to as the "Company" or the "Corporation"), for its Annual
Meeting of Stockholders (the "Meeting") to be held on January 26, 1998, or any
adjournments thereof. Shares cannot be voted at the meeting unless their owner
is present in person or represented by proxy. Copies of this proxy statement and
the accompanying form of proxy shall be mailed to the stockholders of the
Company on or about December 18, 1997, accompanied by a copy of the Company's
Annual Report containing financial statements as of and for the two (2) fiscal
years ended June 30, 1997, together with other information respecting the
operations of the Company. The principal executive offices of the Company are
located at the address indicated above.
If a proxy is properly executed and returned, the shares represented thereby
will be voted in accordance with the specifications made, or if no specification
is made the shares will be voted to approve each proposition and to elect each
nominee for director identified on the proxy. Any stockholder giving a proxy has
the power to revoke it at any time before it is voted by filing with the
Secretary of the Company a notice in writing revoking it. A proxy may also be
revoked by any stockholder present at the Meeting who expresses a desire in
writing to revoke a previously delivered proxy and to vote his or her shares in
person. The mere presence at the Meeting of the person appointing a proxy does
not revoke the appointment. In order to revoke a properly executed and returned
proxy, the Company must receive a duly executed written revocation of that proxy
before it is voted. A proxy received after a vote is taken at the Meeting will
not revoke a proxy received prior to the Meeting; and a subsequently dated proxy
received prior to the vote will revoke a previously dated proxy.
All expenses in connection with the solicitation of proxies, including the
cost of preparing, handling, printing and mailing the Notice of Annual Meeting,
Proxies and Proxy Statements will be borne by the Company. Directors, officers
and regular employees of the Company, who will receive no additional
compensation therefore, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition, the
Company will reimburse brokerage houses and other institutions and fiduciaries
for their expense in forwarding proxies and proxy soliciting material to their
principals.
Under Delaware statutory law stockholders are estopped from bringing any
action against a Delaware Corporation with regard to any matter approved or
ratified by stockholders, on which matter adequate information has been provided
to stockholders, solely for the reason that an interested director is involved
in the transaction. By voting to approve any such matter, however, stockholders
are not estopped from taking action against the Company on the basis of other
objections or under common law principles, such as fraud.
At the close of business on December 18, 1997, there were outstanding
9,724,579 shares of Common Stock, 580,000 Shares of Series A Preferred Stock and
1,000,000 shares of Series B Preferred Stock (all of which Series A and Series B
Preferred Stock is collectively referred to as the "Preferred Stock"), which
constituted the voting securities of the Company. Each stockholder is entitled
to cast one vote for each share of Common Stock and Preferred Stock, which is
present at the Meeting either in person or by proxy. Only holders of record of
the outstanding shares of Common Stock at the close of business on December 18,
1997 will be entitled to vote at the Meeting.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.1-11568) pursuant
to the Exchange Act are incorporated herein by reference:
The Company's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997;
The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997;
The Company's Current Report on Form 8-K filed on July 7, 1997;
The Company's Current Report on form 8-K filed on December 17, 1997; and
The Company's Current Report on Form 8-KA filed on December 31, 1997.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies each person or entity known to the Company to
be the beneficial owner of more than five percent of the Company's common stock
on December 18, 1997, each director of the Company, each nominee for director,
and all the directors and officers of the Company as a group, and sets forth the
number of shares of the Company's common stock beneficially owned by each such
person and such group and the percentage of the shares of the Company's
outstanding common stock owned by each such person and such group. In all cases,
the named person has sole voting power and sole investment power of the
securities.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED(1) COMMON STOCK OWNED
- ----------------------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
H. T. Ardinger......................................................... 500,000 5.1%
9040 Governors Row
Dallas, TX 75356
Brian D. Bookmeier..................................................... 579,148 5.7%
37119 Muirfield
Livonia, MI 48150 (2)
Edward T. Buchholz..................................................... 601,358 5.8%
265 Waterside Drive
Moneta, VA 24124 (3)
Matthew B. Gietzen..................................................... 577,147 5.7%
23307 Mystic Street
Novi, MI 48375 (2)
Fred Kassner........................................................... 1,951,950 18.6%
59 Spring Street
Ramsey, NJ 07446 (4)
Alan M. Korby.......................................................... 574,148 5.6%
24054 Roma Ridge
Novi, MI 48375 (2)
Steven Leichter, M.D................................................... -0- -0-
70 Benfield Court
Columbus, GA 31907
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED(1) COMMON STOCK OWNED
- ----------------------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
James Linesch.......................................................... 136,000 1.4%
3401 Walnut Avenue
Manhattan Beach, CA 90266
Robert L. Moody, Jr.................................................... 607,560 6.1%
2302 Post Office Street,
Suite 601
Galveston, TX 77550 (4)
Robert M. Rubin........................................................ 613,789 6.2%
6060 Kings Gate Circle
Delray Beach, FL 33484 (4)
Damon D. Testaverde.................................................... 437,372 4.4%
580 Oakdale Street
Staten Island, NY 10312(5)
Peter W. Rothberg...................................................... 10,000 *-
c/o Greenberg Traurig Hoffman Lipoff Rosen & Quentel
153 East 53rd Street
New York, NY 10022(6)
All officers and directors as a group (6 persons)(2)(3)................ 2,467,801 22.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership, voting and
investment rights.
(2) Includes (i) 333,334 shares of Common Stock held by Mr. Korby as well as
166,666 shares of Common Stock issuable to Mr. Korby upon conversion of his
333,333 shares of Series B Preferred Stock, (ii) 338,333 shares of Common
Stock held by Mr. Bookmeier as well as 166,667 shares of Common Stock
issuable to Mr. Bookmeier upon conversion of his 333,334 shares of Series B
Preferred Stock and (iii) 336,334 shares of Common Stock held by Mr. Gietzen
as well as 166,667 shares of Common Stock issuable to Mr. Gietzen upon
conversion of his 333,333 shares of Series B Preferred Stock. Also includes
options to purchase 125,000 shares of Common Stock at $1.35 per share,
granted to each of Messrs. Korby, Bookmeier and Gietzen in connection with
the waiver of certain cash compensation in 1996. 39,179 of the shares of
Common Stock issued to each of Messrs. Korby, Bookmeier and Gietzen (117,537
shares in the aggregate), have been pledged to Barbara Milinko to secure a
$325,000 note payable to Ms. Milinko by Messrs. Korby, Bookmeier and
Gietzen. Does not include any shares of Series A Preferred Stock held by
Messrs. Korby (128,889 shares), Bookmeier (128,889 shares) and Geitzen
(128,888 shares), which Series A Preferred Stock vote on a one share for one
vote basis along with the Common Stock.
(3) Includes shares underlying options to purchase 350,000 shares of common
stock granted to Mr. Buchholz under his Employment Agreement, 175,000 at
$1.70 per share and 175,000 at $1.25 per share, options to purchase an
aggregate of 175,000 shares of Company Common Stock at $1.25 per
3
<PAGE>
share granted in connection with the acquisition of Diabetes Self Care, Inc.
and options to purchase an aggregate of 41,667 shares of Company Common
Stock at $1.35 per share granted in connection with the waiver of certain
cash compensation in 1996.
(4) For Mr. Kassner, includes 642,535 shares of Common Stock underlying the
Company's publicly-traded Class A Warrants and 100,000 shares of Common
Stock underlying Warrants granted in connection with certain financial
accommodations granted by Mr. Kassner related to the release of security
interests in Company assets. For Mr. Moody, includes Class A warrants to
purchase an aggregate of 307,560 shares of Company Common Stock. For Mr.
Rubin, includes the shares underlying 100,000 warrants granted in connection
with the waiver of defaults under then existing indebtedness.
(5) Includes options to acquire 150,000 shares of the Company's Common Stock
granted under the 1992 Stock Option Plan exercisable at $1.50 per share, and
warrants to acquire 50,000 shares of the Company's Common Stock exercisable
at $1.00 per share granted in connection with the waiver of defaults under
then existing indebtedness.
(6) Includes options to acquire 10,000 shares of the Company's Common Stock
granted under the 1992 Stock Option Plan exercisable at $1.50 per share.
DIRECTORS, NOMINEES FOR DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY
OFFICERS AND DIRECTORS
The executive officers, directors and nominees for director of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Brian D. Bookmeier................................. 39 President of Universal Self Care, Inc., Acting
Chief Financial Officer, Director and Nominee for
Director
Steven Leichter, M.D............................... 52 Director
Tod J. Robinson.................................... 36 Vice President-National Sales for Diabetes Self
Care, Inc. (formerly Thriftee Group)
Edward T. Buchholz................................. 54 President, Healthcare Management Solutions, Inc.,
Vice President Universal Self Care and Director
Alan M. Korby...................................... 40 President, Diabetes Self Care, Inc., Vice President
Universal Self Care, Inc. and Director
Matthew B. Gietzen................................. 34 Vice President of Fulfillment, Secretary and
Director
James Linesch...................................... 43 Director and Nominee for Director
Damon D. Testaverde................................ 49 Nominee for Director
Peter W. Rothberg.................................. 45 Nominee for Director
</TABLE>
Set forth below is a brief background of the officers, directors, nominees
for director and key employees of the Company, based on information supplied by
them.
BRIAN D. BOOKMEIER. Mr. Bookmeier has served as President, Chief Executive
Officer and a director of the Company since July 1995. From September 1989 until
its Merger into the Company Mr. Bookmeier served as Executive Vice President and
a Director of Patient Care Services, a home medical equipment
4
<PAGE>
supply company that specialized in diabetes management, and the sale of related
equipment and supplies. He has been a Director of the American Diabetes
Association since June 1995.
EDWARD T. BUCHHOLZ. Mr. Buchholz has served as a Vice President and a
Director of the Company since February 8, 1994. Since December 16, 1996 Mr.
Buchholz has served as President and CEO of the Company's managed care program,
"Healthcare Management Solutions, Inc.". Prior to this he served as President of
Diabetes Self Care, Inc. Mr. Buchholz started his health care career in 1969
with The Hartford Insurance Company and has held numerous executive positions in
the industry over the past 25 years. From October 1985 to December 1989, Mr.
Buchholz served as President of Shoney's Va/Md Construction Co., Inc., a
commercial builder of restaurants and motels in Virginia, Maryland and Delaware.
During that same period he also served as President of Eastern Commercial Real
Estate Services, Inc., an insurance consulting firm and developer of commercial
property.
ALAN M. KORBY. Mr. Korby has served as a Vice President and a director of
the Company since July 1995. Mr. Korby has also served as President of
USC-Michigan, Inc., the Company's wholly-owned subsidiary, since July 1995 and
the President of Diabetes Self Care, Inc. Since March 8, 1997. From its founding
in November 1987 until its Merger into the Company, Mr. Korby served as
President and a Director of Patient Care Services, a home medical equipment
supply company that specialized in diabetes management, and the sale of related
equipment and supplies.
MATTHEW B. GIETZEN. Mr. Gietzen has been the Secretary and a director of USC
since July 1995. Mr. Gietzen has also served as Vice President of USC-Michigan,
Inc., the Company's wholly-owned subsidiary, since July 1995. From January 1988
until its Merger into the Company, Mr. Gietzen served as Executive Vice
President and a Director of PCS Management, Inc., a home medical equipment
supply company that specialized in diabetes management, and the sale of related
equipment and supplies.
TOD J. ROBINSON. Mr. Robinson has served with the Company since April 1996,
as the National Vice President of Sales for Diabetes Self Care, Inc. From
October 1989 to April 1996, Mr. Robinson held a variety of positions with Home
Diagnostics, Inc. (HDI), a medical device manufacturer that specializes in
diabetes testing equipment, serving as the Director of New Business Development,
National Accounts Manager and finally Sales Manager. From September 1986 to
October 1989, Mr. Robinson was Sales Manager and Product Manager for Friden
Alcatel in its business products division.
STEVEN LEICHTER, M.D.. Since February 1997, Dr. Leichter has served as a
Director of the Company. Dr. Leichter has been on the faculty at University of
California, Davis, from 1976 to 1977, the University of Kentucky from 1977 to
1988, and Eastern Virginia Medical School from 1988 to 1995, where he was
Professor of Internal Medicine. In 1995, he moved to Columbus, Georgia to join
Dr. Garry August in an endocrinology practice. He is also Co-Director of the
West Georgia Center for Metabolic Disorders and President of the Columbus
Metabolic Foundation. Dr. Leichter has more than 60 published scientific papers
and book chapters. His most recent paper was published in Diabetes Care in
September, 1995. He has been a consultant to the World Health Organization and
chaired the Committee that wrote the International Plan for Diabetes of the
United Nations. He is currently a consultant to 5 national corporations in
diabetes, and is on the editorial review for the Archives of Internal Medicine,
a journal of the American Medical Association.
JAMES LINESCH. Since February 1997, Mr. Linesch has served as a Director of
the Company. Mr. Linesch is currently the President, Chief Executive Officer and
Chief Financial Officer of CompuMed, a public computer company involved with
computer assisted diagnosis of medical conditions, which he joined in April 1996
as Vice President and Chief Financial Officer. Mr. Linesch served as a Vice
President, Chief Financial Officer and Controller of the Company from August
1991 to April 1996. From May 1988 to August 1991, Mr. Linesch served as the
Chief Financial Officer of Science Dynamics Corp., a corporation involved in the
development of computer software.
5
<PAGE>
DAMON D. TESTAVERDE. Mr. Testaverde was President, Chief Executive Officer
and a director of the Company from May 1991 through February 1997. Mr.
Testaverde has also served as the President and principal stockholder of a R.H.
Damon & Company, Inc., a former full service securities broker-dealer which
ceased operations in March 1991. From 1986 to 1989, and from March 1991 to March
1994, Mr. Testaverde served as Senior Vice President of F.N. Wolf & Co., Inc., a
full service securities broker-dealer. Since March 1994, Mr. Testaverde has been
a registered representative with Network One Financial Services, Inc., a full
service securities broker-dealer. Mr. Testaverde does not devote his full time
and efforts to his duties at Network One Financial Services, Inc.
Mr. Testaverde is a former director of American Complex Care, Incorporated,
a company that provided home healthcare infusion therapies and distributed
Medicare Part B products. In April 1995, American Complex Care Incorporated's
operating subsidiaries made assignments of their assets for the benefit of
creditors without resort to bankruptcy proceedings.
PETER W. ROTHBERG. Mr. Rothberg has practiced law in private practice for
more than the last 18 years, and has represented the Company since its 1992
initial public offering. Since February 1996 he has been Counsel to Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, New York, New York, the Company's
outside general counsel. Prior thereto, from June 1993 to January 1996, he was a
member of Solomon, Weiss & Moskowitz, P.C., and prior thereto he was a member of
Fink Weinberger P.C., both of which firms were located in New York, New York.
Directors of the Company, including management directors, each receive
annual directors' fees of $25,000 for attendance at Board of Directors meetings,
and are reimbursed for actual expenses incurred in respect of such attendance.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
To the knowledge of the Company, no officers, directors, beneficial owners
of more than 10 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year, which ended June 30, 1997.
(The remainder of this page has been intentionally left blank)
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of 1995, 1996, and 1997 to the person
serving as the Company's Chief Executive Officer at any time during such periods
and to each of the three (3) highest paid Company current executive officers
whose total salary and bonus compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
<S> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- ---------------
<CAPTION>
OTHER RESTRICTED
ANNUAL STOCK
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARDS
- -------------------------------------------------------- --------- ---------- ------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Brian Bookmeier......................................... 1995 $ 38,834 0 $ 3,250 $ 0
President and Chief Executive Officer and Director 1996 $ 179,306 0 $ 15,000 $ 0
1997 $ 51,408 0 $ 18,000 $ 0
Edward T. Buchholz...................................... 1995 $ 94,808 0 $ 7,800 $ 0
President Healthcare Management Solutions, Inc. and 1996 $ 163,900 0 $ 13,320 $ 0
Director 1997 $ 147,321 0 $ 6,610 $ 0
Tod J. Robinson......................................... 1995 0 0 0 $ 0
V.P. of National Sales for Diabetes Self Care, Inc. 1996 $ 26,962 0 $ 1,500 $ 0
1997 $ 122,879 0 $ 6,000 $ 0
<CAPTION>
<S> <C>
OPTIONS/
NAME AND PRINCIPAL SARS(#)
- -------------------------------------------------------- -------------
<S> <C>
Brian Bookmeier......................................... $ 0
President and Chief Executive Officer and Director $ 0
$ 0
Edward T. Buchholz...................................... $ 0
President Healthcare Management Solutions, Inc. and $ 0
Director $ 0
Tod J. Robinson......................................... $ 0
V.P. of National Sales for Diabetes Self Care, Inc. $ 0
$ 0
</TABLE>
<TABLE>
<CAPTION>
PAYOUTS
LTIP ALL OTHER
NAME AND PRINCIPAL PAYOUTS COMPENSATION
- ----------------------------------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
Brian Bookmeier.......................................................................... $ 0 $ 0
President and Chief Executive Officer and Director $ 0 $ 0
$ 0 $ 0
Edward T. Buchholz....................................................................... $ 0 $ 0
President Healthcare Management Solutions, Inc. and Director $ 0 $ 0
$ 0 $ 0
Tod J. Robinson.......................................................................... $ 0 $ 0
V.P. of National Sales for Diabetes Self Care, Inc. $ 0 $ 0
$ 0 $ 0
</TABLE>
Officers and key employees of the Company receive employment benefits (e.g.,
health insurance, automobile allowances) other than cash compensation and
interests in the Company's employee stock option plan in amounts that are not
required to be separately reported .
STOCK OPTION GRANTS
The following table sets forth information concerning individual grants of
stock options made during the last completed fiscal year to each of the
executive officers named in the Summery Compensation Table.
7
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR
OPTIONS/SARS GRANTED IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE($/SH) DATE
(A) (B) (C) (D) (E)
------ ------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Edward T. Buchholz........................ 175,000 100% $ 1.70 December, 2006
</TABLE>
The following table sets forth information concerning the number of
unexercised options, and the value of such unexercised options, for each of the
executive officers named in the Summary Compensation Table.
AGGREGATED OPTIONS/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE REALIZED OPTIONS/SARS OPTIONS/SARS
NAME ON EXERCISE (#) ($) AT FY-END(#) AT FY-END($)
(A) (B) (C) (D) (E)
------ --------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
---------------- -------------------
Brian D. Bookmeier....................... 0 0 125,000/0 $ 187,500
Edward T. Buchholz....................... $ 58,334/0
0 0 41,667/0 $187,500/$75,000
0 0 125,000/50,000 0
0 0 350,000 $ 367,500
Tod J. Robinson.......................... 0 0 30,000/0 $ 18,750/$18,750
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Edward Buchholz entered into a three year contract on December 16, 1996,
effective on January 1, 1997, employment the term of which ends on December 31,
1999. Mr. Buchholz is the President and Chief Executive Officer of Healthcare
Management Solution, Inc., a subsidiary of the Company. Mr. Buchholz's
employment agreement provides him with an annual base salary of $150,000. In
connection with his employment agreement, Mr. Buchholz was granted options to
acquire 175,000 shares of common stock at an exercise price of $1.70 per share
(fair market value on the date of grant), vested on the date of grant. Upon
consummation of the Gainor Transaction, Mr. Buchholz's employment by the Company
and his employment agreement will terminate and the Company will negotiate a
severance arrangement with Mr. Buchholz with respect to such employment
termination.
In connection with consummation of the 1995 merger of the Company with
Patient Care Services, Inc. (the "PCS Merger"), the Company entered into
separate employment agreements expiring June 30, 2000 with each of Messrs. Alan
Korby, Brian Bookmeier and Matthew B. Gietzen. Under the terms of such
agreements, each of Messrs. Korby, Bookmeier and Gietzen serve as the Vice
President, President and Chief Executive Officer, and Vice President,
respectively, of the Company. Under such employment agreements, they each
receive a base salary of $150,000 per annum, plus customary fringe benefits,
including medical insurance and the use of an automobile paid for by the
Company, the aggregate value of which fringe benefits to each such person is
estimated at no more than $18,000.
8
<PAGE>
On April 25, 1996, each of Messrs. Bookmeier, Korby and Gietzen agreed to
waive the payment of installments of their annual compensation from the Company
during the annual period commencing May 1, 1996, in the aggregate amount of
$150,000 for each such person, and Mr. Buchholz agreed to waive the payment of
installments of his annual compensation from the Company during the annual
period commencing May 1, 1996 in the aggregate amount of $50,000. In
consideration for such waiver of compensation, each of Messrs. Bookmeier, Korby
and Gietzen was granted a five-year non-qualified stock option to acquire
125,000 shares of Company Common Stock at an exercise price of $1.35 per share
and Mr. Buchholz was granted a five-year non-qualified stock options to acquire
41,667 shares of Company Common Stock at an exercise price of $1.35 per share.
All of the options granted to Messrs. Bookmeier, Korby, Gietzen and Buchholz
vested in full on May 1, 1996. The closing sale price for a share of Common
Stock on April 25, 1996, as reported by Nasdaq, was $2 5/8. On May 1, 1997, each
of Messrs. Bookmeier, Korby and Gietzen again began to receive full annual
compensation under their employment agreement.
In March 1996, Mr. Tod Robinson entered into a two-year employment agreement
with Diabetes Self Care, Inc., a wholly-owned subsidiary of the Company. Under
such agreement, Mr. Robinson is to serve as the National Vice President-Sales
for Diabetes Self Care, having responsibility for marketing and sales efforts
throughout the United States for such company. Mr. Robinson's employment base
salary is $95,000 per annum. He has the opportunity to earn a Performance Bonus
of up to $1,000 based upon achieving performance goals to be identified by the
Company's management, as well as a Commission of $1,000 for each executed
managed care contract covering more than 10,000 lives which he originates. Mr.
Robinson's employment contract also provides for certain profit participation,
pursuant to which he will earn .5% of the net after-tax profits of Diabetes Self
Care for each fiscal year (and prorations thereof) during the term of the
employment agreement. In the event that such net after-tax profits exceed
$500,000 for any fiscal year, the profit participation shall be increased by
$10,000. Mr. Robinson may also receive additional discretionary bonuses, and
customary fringe benefits. On March 10, 1996, in connection with commencing his
employment, Mr. Robinson was granted options to acquire 30,000 shares of the
Company's common stock at an exercise price of $1.50 per share. The closing sale
price for a share of common stock on March 8, 1996 (the last business day before
the date of such agreement), as reported by Nasdaq, was $2 15/16. Whether or not
Mr. Robinson will be employed by Gainor following consummation of the Gainor
Transaction, under the terms of such transaction all obligations under Mr.
Robinson's employment agreement will be assigned to the Company.
CERTAIN TRANSACTIONS
As of June 30, 1994, the Company had made advances to Edward Buchholz, then
President of Diabetes Self Care, Inc., in the amount of $14,929. Payments on
this receivable were made in amounts equivalent to 50% of Mr. Buchholz's sales
commissions. As of October 22, 1997, the balance of this loan due the Company
was approximately $6,347.
Under the terms of the PCS Merger Agreement, each of Messrs. Robert M.
Rubin, and Damon Testaverde, agreed to vote all of the shares of Company Common
Stock to be owned by them following the PCS Merger for so long as each of such
person(s) shall continue to hold not less than 73% of the percentage of the
outstanding shares of Company Common Stock issued to him upon consummation of
the PCS Merger, for the election of each of Messrs. Korby, Bookmeier and Gietzen
to the Board of Directors of the Company. In addition, any additional nominees
to the Company's Board of Directors must be acceptable to Messrs. Rubin and
Testaverde and to a majority of Messrs. Korby, Bookmeier and Gietzen to the
extent that such persons meet the share ownership criterion set forth above.
In April 1996, Fred Kassner exchanged $776,482 of indebtedness in
consideration for: the exercise of 450,000 Warrants at an exercise price of
$1.00 per share to acquire 450,000 shares of common stock; and the exercise of
217,655 Class B Warrants at an exercise price of $1.50 per share, to acquire
217,655 shares of common stock and the acquisition of 217,655 Class A Warrants.
9
<PAGE>
In June 1997, the Company converted an aggregate of $2,018,829 of Company
indebtedness held by Messrs, H.T. Ardinger and Fred Kassner, principal
stockholders of the Company, into shares of Common Stock. The Company had
previously issued a $500,000 principal note, accruing interest at 10% per annum
and maturing on February 21, 1998, to Mr. Ardinger. Mr. Ardinger was paid
$71,156.54 in cash with respect to accrued interest on this note, and the
$500,000 of unpaid principal was converted by Mr. Ardinger into 250,000 shares
of common stock at $2.00 per share. The Company had previously issued a
$1,473,518 principal note to Mr. Kassner, accruing interest at a rate of prime
plus 2% and maturing on July 14, 1997. The aggregate of $1,518,829 of accrued
interest and unpaid principal was converted by Mr. Kassner into 759,415 shares
of Common Stock at $2.00 per share. The total amount of indebtedness converted
to Common Stock by Messrs. Ardinger and Kassner was $2,018,829, and 1,009,415
shares of Common Stock were issued. In June 1997, the Company also completed an
additional private placement of 250,000 shares of Common Stock at $2.00 per
share, paid in cash, to Mr. Ardinger. All of such shares received by Messrs.
Kassner and Ardinger are subject to "piggyback" registration rights granted by
the Company.
Mr. Testaverde, through Network 1 Financial Services, Inc., acted as a
financial adviser to the Company in connection with the debt conversion, as well
as in connection with the June 1997 private placement to Mr. Ardinger and the
Company's May 1997 private placement to accredited investors of 500,000 shares
of Common Stock at $2.00 per share. For such activities in connection with
structuring and obtaining investors for the May and June 1997 private placements
and debt conversions, Mr. Testaverde, as the designee of Network 1 Financial
Services, Inc., received 75,458 shares of Common Stock and a cash payment of
$100,000 from the Company.
See "Employment and Consulting Agreements." on page 8.
ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a) for
the election of the persons named in the next succeeding table as nominees for
directors of the Company; (b) for the proposal to authorize the appointment of
Feldman Radin & Co., P.C. as the Company's auditors for the current fiscal year
ending June 30, 1998; (c) for the proposal to authorize the sale of all or
substantially all of the assets of the Company to a wholly-owned subsidiary of
Gainor Medical Management, LLC in accordance with the terms of the Sale
Agreement; (d) for the proposal to authorize and ratify the 1997 Non-employee
Director Stock Option Plan; (e) for the proposal to authorize an amendment to
the Company's Certificate of Incorporation to change the name of the Company to
Tadeo Holdings, Inc., in accordance with the terms of the Sale Agreement, to be
effective only upon the closing of the Sale Agreement identified in Proposal (c
), above; (f) for the proposal to amend the Company's Certificate of
Incorporation to increase the Company's authorized capital by increasing the
authorized number of shares of Common Stock of the Company from 40,000,000
shares of Common Stock, $.0001 par value, to 100,000,000 shares of Common Stock,
$.0001 par value, to be effective only upon the closing of the Sale Agreement
identified in Proposal (c) above, and (g) in connection with the transaction of
such other business that may be brought before the Annual Meeting, in accordance
with the judgment of the persons voting the proxy.
I. ELECTION OF DIRECTORS
NOMINEES
At the Meeting four directors are to be elected, each to hold office until
the next Annual Meeting of Stockholders or until his or her successor shall be
elected and shall qualify. The names of the nominees for elections as directors,
now serve as directors of the Company, and certain information furnished to the
Company by such nominees with respect to them, as of December 18, 1997, are set
forth below. Unless authority to vote for one or more nominees is withheld, it
is intended that share represented by proxies in
10
<PAGE>
the accompanying form will be voted for the election of the following nominees.
With respect to any such nominee who may become unable or unwilling to accept
nomination or election, it is intended that the proxies will be voted for the
election in his stead of such person as the Board of Directors may recommend,
but the Board does not know of any reason why any nominee will be unable or
unwilling to serve if elected.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE DIRECTOR SINCE DURING LAST FIVE YEARS
- --------------------------------------------------------------------- --- --------------- ---------------------------
<S> <C> <C> <C>
Brian D. Bookmeier................................................... 39 1995 *
James Linesch........................................................ 43 1997 *
Damon D. Testaverde.................................................. 49 *
Peter W. Rothberg.................................................... 45 *
</TABLE>
- ------------------------
* See "Directors, Nominees for Director and Executive Officers of the Company"
on pages 4 through 6.
COMMITTEES AND MEETINGS OF THE BOARD
At present the Board of Directors has three committees, the Audit,
Compensation and Stock Option Committees which consist of the following
individuals, respectively: Messrs. Brian D. Bookmeier, James Linesch, and Steven
Leichter (Audit); Edward Buchholz, Brian D. Bookmeier (Compensation); and Brian
D. Bookmeier, Alan M. Korby (Stock Option). During the fiscal year ended June
30, 1997, the Board of Directors met eight times, including four action taken by
unanimous written consent of the directors. The Audit, Compensation and Stock
Option Committees did not meet, but rather conducted their operations through
meetings of the full Board of Directors. All of the nominated directors who
served as directors during the fiscal year ended June 30, 1997 attended more
than 75% of all the meetings of the Board held during their tenure during such
year. See "Directors, Nominees for Director and Executive Officers of the
Company" at page 7 above for information concerning fees payable to directors.
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING JUNE 30, 1998
At the Meeting a vote will be taken on a proposal to ratify the appointment
by the Board of Directors of Feldman Radin & Co., P.C., independent certified
public accountants, as the independent auditors of the Company for the fiscal
year ending June 30, 1998. Feldman Radin & Co., P.C. has no interest in or any
relationship with the Company except as its auditors.
Management believes the appointment to be in the best interest of the
Company and recommends that it be ratified.
III. AUTHORIZATION OF THE SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE
COMPANY TO THE WHOLLY-OWNED SUBSIDIARY OF GAINOR MEDICAL MANAGEMENT, LLC.
At the Annual Meeting a vote will be taken on a proposal to authorize the
sale of all or substantially all of the assets of the Company to a wholly-owned
subsidiary of Gainor Medical Management, LLC. The terms of such sale are
discussed below.
Pursuant to the terms of an Asset Purchase Agreement, dated as of November
14, 1997, as amended by the First Amendment (the "First Amendment") dated as of
November 24, 1997 (collectively, the "Sale Agreement"), by and among Gainor
Medical Management, LLC, a Georgia limited liability company, ("Gainor"), as
Buyer, and the Company and each of its Clinishare Diabetes Centers, Inc.,
Physician's Support Services, Inc., USC-Michigan, Inc., Diabetes Self Care,
Inc., PCS, Inc.-West and USCI Healthcare Management Solutions, Inc. subsidiaries
(collectively, the "Seller"), as Seller, and certain shareholders of the
Company--Messrs. Brian D. Bookmeier, Alan M. Korby, Matthew B. Gietzen and
Edward Buchholz (the "Shareholders"), the Seller agreed to sell all or
substantially all of the assets of the Seller (the "Business"), subject to the
assumption of certain limited liabilities of the Business, to a subsidiary of
Gainor newly-formed for the purpose of acquiring the Business (the "Gainor
Transaction"). A copy of the
11
<PAGE>
Sale Agreement is annexed hereto as Exhibit A. The assets acquired by Gainor
will include all of the outstanding capital stock of the Company's Diabetes Self
Care, Inc. ("Diabetes") and USCI Healthcare Management Solutions,
Inc.("Healthcare") subsidiaries (collectively, the "Purchased Companies") and
substantially all of the assets (the "Purchased Assets") of the other
subsidiaries identified above (the "Selling Subsidiaries"). Gainor's principal
place of business is located at 2205 Highway 42 North, McDonough, Georgia
30252-0353; telephone number (770) 474-0474. Gainor is a leading supplier of
lancets used in daily blood sampling by persons suffering from diabetes, as well
as a supplier of other micro-sampling devices, and is a principal vendor of
lancets to the Company. Certain financial information with respect to Gainor is
included below.
GAINOR MEDICAL MANAGEMENT LLC
SUMMARY OF SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED AUDITED
AS OF OCTOBER 31, AS OF DECEMBER 31,
1997 1996
--------------------- ----------------------
<S> <C> <C>
BALANCE SHEET
Cash and Cash Equivalents......................................... 5,085,000 930,000
Current Assets.................................................... 17,351,000 8,095,000
Total Assets...................................................... 20,354,000 9,488,000
Current Liabilities............................................... 11,054,000 9,629,000
Long-Term Debt.................................................... 565,000 931,000
Deferred Revenue-Long Term........................................ 425,000 94,000
Member's Capital.................................................. 8,310,000 (1,166,000)
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED AUDITED
TEN MONTHS ENDED TWELVE MONTHS ENDED
OCTOBER 31, DECEMBER 31,
1997 1996
----------------- --------------------
<S> <C> <C>
INCOME STATEMENT
Revenues................................................................ 34,380,000 25,939,000
Operating Income........................................................ 4,937,000 1,577,000
Net Income*............................................................. 4,471,000 199,000
Depreciation and Amortization........................................... 644,000 434,000
</TABLE>
- ------------------------
* Stated on a pre-tax basis because a limited liability company is not subject
to federal or state income tax at the entity level.
Since October 31, 1997, the Company has purchased product from Gainor for
which it is currently obligated to pay a balance of approximately $1,920,000 on
credit terms, and the Company granted to Gainor a security interest in the
inventory purchased.
Under the terms of the Sale Agreement, the Company and Gainor agreed that as
a condition to their respective obligations to close the Gainor Transaction (the
"Closing"), the Company would obtain approval and authorization for the Gainor
Transaction and the other transactions contemplated by the Sale Agreement at a
duly called meeting of Company stockholders.
FAILURE OF COMPANY STOCKHOLDERS TO AUTHORIZE THE GAINOR TRANSACTION AND THE
OTHER TRANSACTIONS CONTEMPLATED THEREIN WILL PREVENT THE EFFECTIVENESS AND
PROHIBIT THE CLOSING OF ANY OF THE GAINOR TRANSACTION AND THE TRANSACTIONS
CONTEMPLATED THEREBY, NONE OF WHICH HAVE BEEN CONSUMMATED. THE SHAREHOLDERS AND
MR. DAMON D. TESTAVERDE, A NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS, HAVE
AGREED TO VOTE IN FAVOR OF AUTHORIZING THE GAINOR
12
<PAGE>
TRANSACTION PURSUANT TO THE TERMS OF THE SALE AGREEMENT. THE SHAREHOLDERS AND
MR. TESTAVERDE, COLLECTIVELY, HOLD SECURITIES GIVING THEM THE RIGHT TO CAST
2,302,730 VOTES IN FAVOR OF THE GAINOR TRANSACTION (APPROXIMATELY 22% OF THE
VOTES WHICH MAY BE CAST AT THE MEETING).
RECENT DEVELOPMENTS
On December 16, 1997 the First Amendment was executed. Negotiation of the
First Amendment resulted from Gainor's appraisal of the Company's future
operations and its past operating performance for the first five months of the
Company's current fiscal year ended November 30, 1997, which past performance
was below that internally projected by the Company owing in part to a decline in
referrals of potential customers, computer-generated problems in delivering
recent Medicare billings and other revenue reductions during the last several
months. The First Amendment reduced the purchase price for the assets from
$37,000,000 to $34,000,000 (the "Purchase Price"), eliminated upward adjustments
to the Purchase Price based upon the value of the Company's inventory and net
tangible assets at closing, and reduced the portion of the Purchase Price paid
in the form of a convertible subordinated note from $20,000,000 to $17,000,000.
Pursuant to the First Amendment, in addition to offsets for customary
indemnifications under the Sale Agreement, the principal of the Note is subject
to reduction in the event that (i) Gainor does not achieve Post Closing Revenue
(as hereinafter defined) during calendar 1998 at a level that is reduced in the
First Amendment, and (ii) Gainor is not able to collect at least $6,000,000 from
the accounts receivable sold to Gainor as part of the Transaction during the
one-year period succeeding the closing (which collection level was increased
from $5,000,000 in the First Amendment).
THE TRANSACTION
The purchase price for the Business (the "Purchase Price") is a maximum of
approximately $34,000,000. Approximately $17,000,000 will paid to the Company in
cash at closing, subject to certain adjustments for the cash of the Purchased
Companies and certain liabilities assumed based upon a preliminary assessment at
closing (the "Net Asset Value"). Management anticipates that such adjustments,
based on the Company's September 30, 1997 balance sheet, will reduce the cash
portion of the purchase price to approximately $10,500,000. Seventeen Million
($17,000,000) dollars of the Purchase Price will be paid by delivery of a
minimum 60-month, maximum 72-month (subject to earlier prepayment), interest
bearing convertible subordinated promissory note (7% through December 31, 1998
and 8% thereafter) made payable to the order of the Company by Gainor, with
interest paid currently on a quarterly basis and all principal paid at maturity
(the "Note"). On or before February 1, 1999, Gainor will deliver to the Company
a statement showing its revenue from operation of Diabetes during calendar 1998
(the "Post Closing Revenue"), and principal of the Note will be adjusted to
equal the lesser of 75% of the Post Closing Revenue or $17,000,000. The
Company's applicable revenue for the fiscal year ended June 30, 1997
(substantially all of which was related to the operations of Diabetes) was
approximately $33,500,000, and 75% of such revenue would equal $25,125,000, an
amount which is $8,125,000 greater than the required $17,000,000 minimum Post
Closing Revenue for Diabetes in calendar 1998. MANAGEMENT DOES NOT ANTICIPATE
THAT THE NOTE WILL BE ADJUSTED TO REFLECT POST CLOSING REVENUE BELOW
$17,000,000. In addition, principal of the Note will be further adjusted (i)
within four months following the closing, either up or down, based upon a final
determination of the audited Net Asset Value at closing (the "Final Net Asset
Value") and (ii) 12 months following the closing, downward by the amount that
Gainor's collections of the trade account receivables shown on the Company's
balance sheet at closing are less than $6,000,000. On September 30, 1997, the
Company's net trade account receivables exceeded $8,500,000. MANAGEMENT
ANTICIPATES THAT FOLLOWING THE CLOSING GAINOR WILL COLLECT MORE THAN $6,000,000
OF THE COMPANY'S NET TRADE ACCOUNTS RECEIVABLE.
13
<PAGE>
The Company will be required to pay in full approximately $4,500,000 of its
outstanding indebtedness, out of the cash portion of the purchase price, as
necessary to release existing liens against the assets to be transferred to
Gainor under the Sale Agreement. In addition, as a condition to Gainor's
obligation to consummate the Gainor Transaction, the Company must pay its
remaining liability for unpaid sales taxes that is owed to the State of
California (an obligation that is reserved against in the Company's financial
statements), which equaled approximately $441,000 on November 30, 1997 and which
must be reduced by approximately $63,000 on the last day of each succeeding
month thereafter.
The Note is fully subordinated to all Senior Indebtedness of Gainor, which
is defined as principal and accrued and unpaid interest on all Gainor financing
obtained specifically to consummate the Gainor Transaction, as well as all other
Gainor indebtedness for borrowed money from institutional lenders or from any
existing Gainor equity holder. The Note may be prepaid in whole or in part at
any time without penalty or premium. In the event that Gainor registers the sale
of any of its equity securities for its own account in a firm commitment
underwriting the proposed gross proceeds of which are at least $25,000,000, the
Company may elect to convert the Note, in whole or in part, into the type of
Gainor equity securities that are offered in the underwritten offering. In the
event that the proposed gross offering proceeds are less than $25,000,000,
however, Gainor and the underwriter of the proposed Gainor offering may limit
the amount outstanding under the Note that can be so converted. The number of
Gainor securities to be issued upon conversion (the "Conversion Shares") shall
be determined by dividing the aggregate outstanding dollar amount to be
converted by the per share offering price of the equity securities actually sold
in the underwritten offering. The Company will be granted "piggyback"
registration rights, exercisable on two occasions, to include its Conversion
Shares in an underwritten offering by Gainor , subject to the Company's entering
into an underwriting agreement on customary terms and conditions with the
underwriter selected by Gainor for its own offering (which terms may include the
underwriter's authority to limit the number of shares which may be offered by
the Company in such underwritten offering).
If prior to the third anniversary of the closing of the Gainor Transaction
(the "Third Anniversary") the Company elects to convert an amount outstanding
under the Note such that outstanding principal would fall below $10,000,000, or
if any conversion at any time would result in outstanding Note principal falling
below the aggregate amount of all outstanding, unpaid and unresolved claims for
indemnification under the Sale Agreement (the "Claim Amount"), then a number of
the Conversion Shares shall be pledged to Gainor to secure the Company's
indemnification obligations under the Sale Agreement. The pledge shall operate
such that the aggregate of the amount of remaining Note principal and the value
of the Conversion Shares pledged shall equal the greater of $10,000,000 or the
Claim Amount, if conversion occurs prior to the Third Anniversary; if conversion
occurs after the Third Anniversary, then the number of shares pledged shall have
a value equal to the Claim Amount.
At the Closing, Healthcare and Edward Buchholz, a member of the Company's
Board of Directors and the Company's Executive Vice President, will enter into a
3-year Employment Agreement pursuant to which Mr. Buchholz will act as President
of Healthcare. Mr. Buchholz's compensation under such Employment Agreement will
be $150,000 per year, plus an annual bonus equal to a maximum of $35,000 per
year based upon Mr. Buchholz meeting certain performance criteria set by
Healthcare's board of directors. Mr. Buchholz will also receive. customary
employment benefits available to other Gainor executives (e.g., medical, dental
, disability and life insurance coverage). Mr. Buchholz's current employment
agreement with the Company provides a base salary of $150,000 per year, a
discretionary bonus, a maximum $1,000 per month car allowance, a $350,000 life
insurance policy and other customary employment benefits. Each of the Company
and the Shareholders will enter into a 5-year Non-Competition Agreement pursuant
to which the Company and such Shareholders will be prohibited from competing
with Gainor in its operation of the Business and the existing Gainor business at
the time of consummating the Gainor Transaction. Following consummation of the
Gainor Transaction all obligations under Mr. Robinson's employment agreement
with Diabetes will be assigned to the Company.
14
<PAGE>
At the time that it negotiated the Purchase Price for the Gainor
Transaction, although the Company was actively soliciting the sale of the
Business, it was not aware of any other potential purchasers of the Business.
Due to the fact that the Purchase Price offered by Gainor was believed to be
quite favorable to the Company and its stockholders, the Company did not
actively solicit additional potential purchasers for the Business following its
receipt of Gainor's proposal. The Company did not seek the report or opinion of
any outside party to help in establishing or negotiating the amount of
consideration to be received by the Company for sale of the Business in the
Gainor Transaction. As a condition to consummation of its purchase, however, the
Company sought and obtained an independent opinion to confirm that the
previously established and negotiated purchase price was fair to the Company and
its stockholders. Such independent opinion was not used to establish the
Purchase Price for the business negotiated with Gainor, but merely confirmed the
fairness of such consideration.
In the event that the Gainor Transaction does not close for any reason not
attributable to Gainor, and prior to November 14, 1998 either (i) a person other
than a Shareholder gains control of more than 15% of the issued and outstanding
stock of the Company with the assistance or approval of the Company, its
management, members of its Board of Directors or any Shareholder, (ii) the
Company merges or effects any other business combination with any person the
result of which is that the stockholders of the Company prior to such
transaction own less than 80% of the resulting entity, or (iii) the Company
sells or leases or otherwise transfers all or 30% or more of its assets taken as
a whole to any person, then in such event the Company shall pay to Gainor the
sum of $2,000,000 upon the consummation of such transaction.
OPINION OF FINANCIAL ADVISOR
Valuemetrics, Inc. has acted as a financial advisor to the Company in
connection with the Gainor Transaction and has assisted the Board of Directors
in its examination of the fairness, from a financial point of view, of the
Purchase Price, as hereinafter defined, to be paid to the Company and the
Selling Subsidiaries for the Purchased Companies and Purchased Assets. Pursuant
to the terms of the Agreement, at the Closing (as defined therein), the Company
and the Selling Subsidiaries will receive the Purchase Price.
On December 16, 1997, Valuemetrics rendered its oral opinion to the Board of
Directors that, as of the date of such opinion, the Purchase Price was fair,
from a financial point of view, to the Company and the Selling Subsidiaries.
Valuemetrics subsequently rendered a written opinion confirming its earlier oral
opinion that, as of December 16, 1997, the Purchase Price is fair, from a
financial point of view, to the Company and the Selling Subsidiaries.
Valuemetrics' opinion is for the benefit and use of the Board of Directors
of Universal Self Care, Inc. in its consideration of the Gainor Transaction. The
opinion does not constitute a recommendation of the Transaction over any other
alternative transactions which may be available to the Company and does not
address the underlying business decision of the Board of Directors of Universal
Self Care, Inc. to proceed with or effect the Transaction. Furthermore, the
opinion does not constitute a recommendation by Valuemetrics to any stockholder
to vote in favor of the Gainor Transaction. The summary of the opinion of
Valuemetrics set forth herein is qualified in its entirety by reference to the
full text of such opinion, which is annexed hereto as Exhibit B.
FACTORS CONSIDERED. In connection with rendering its oral opinion to the
Board of Directors on December 16, 1997, Valuemetrics performed a variety of
financial analyses and considered the following material factors: (i) the
Company's business and operations and the industry in which the Company
operates; (ii) the Company's historical operating results and budget; (iii) the
Purchase Price proposed to be paid in connection with the proposed transaction;
(iv) the current tangible book value of the Company; (v) the stock price
performance of the Company; (vi) the Purchase Price compared to the value
implied by the publicly quoted stock price of Universal Self Care, Inc. and by
other companies in comparable transactions; and (vii) the recent deterioration
in the Company's operating performance. Based upon such
15
<PAGE>
analyses and factors, Valuemetrics concluded that the Purchase Price is fair,
from a financial point of view, to the Company and the Selling Subsidiaries. The
summary set forth below does not purport to be a complete description of the
analyses performed by Valuemetrics in this regard.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or a summary description. In arriving at its opinion,
Valuemetrics did not attribute any particular weight to any one analysis or
factor considered by it, but rather made qualitative judgements as to the
significance and relevance of each analysis and factor.
Accordingly, Valuemetrics believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Valuemetrics made numerous assumptions with respect to Universal Self Care, Inc.
and Gainor, industry outlook, general business, economic market and financial
conditions and other matters, many of which are beyond the control of the
Company. The estimates contained in such analyses are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
UNIVERSAL SELF CARE DUE DILIGENCE AND ANALYSIS. Valuemetrics reviewed
certain financial and other information of the Company that was publicly
available, including SEC filings. In conducting its due diligence of the
Company, Valuemetrics reviewed a number of documents, including, but not limited
to:
<TABLE>
<CAPTION>
(i) Monthly consolidated budget of Universal Self Care, Inc. and Subsidiaries for the
fiscal year ending June 30, 1998 (the "Budget");
<S> <C>
(ii) Forms 8-K filed on September 9, 1996 and July 7, 1997;
(iii) Prospectus of Universal Self Care, Inc. dated December 10, 1992;
(iv) Form S-3 Registration Statement and Post-Effective Amendment No. 1 to Form SB-2
Registration Statement on Form S-3 Registration Statement filed on July 11, 1997;
(v) Certificate of Incorporation of Universal Self Care, Inc. and all amendments thereto;
(vi) Certificate of Designations, Preferences and Relative, Participating, Optional or
Other Special Rights of Series A Redeemable Preferred Stock;
(vii) Certificate of Designations, Preferences and Relative, Participating, Optional or
Other Special Rights of Series B Convertible Preferred Stock;
(viii) Certificate of Correction to Correct a Certain Error in the Certificate of
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights of Series B Convertible Preferred Stock;
(ix) Universal Self Care, Inc. 1992 Employee Stock Option Plan;
(x) Universal Self Care, Inc. Management Non-Qualified Stock Option Plan;
(xi) Loan and Security Agreement by and among Universal Self Care, Inc., Diabetes Self
Care, Inc., PCS, Inc.-West, Physicians Support Services, Inc. and Healthpartners
Funding L.P. dated August 15, 1996;
(xii) Publicly reported trading activity in the common stock of Universal Self Care, Inc.
for the period from November 11, 1994 through October 1, 1997; and
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
(xiii) Public news releases by Universal Self Care, Inc. for the period from November 5, 1995
through July 28, 1997.
</TABLE>
Valuemetrics also reviewed the annual financial statements of the Company
for the fiscal years ended June 30, 1993 through June 30, 1997 as presented in
the Forms 10-KSB and/or 10-KSB/A, as well as the quarterly financial statements
of the Company for the fiscal quarters ended September 30, December 31, and
March 31, 1996 and 1997 as presented in Forms 10-Q and 10-QSB. Valuemetrics also
reviewed the internally prepared, unaudited Consolidating Financial Statements
of Universal Self Care, Inc. and Subsidiaries for the fiscal year ended June 30,
1997 and the fiscal quarter ended September 30, 1997, portions of the Company's
internal financial and operating reports for the months of October and November
1997, and the Company's current and future operating performance as compared to
the Budget. In addition, Valuemetrics reviewed available industry and market
research concerning: (i) diabetes, (ii) the history and development of the
Company, (iii) industry trends, (iv) competition, and (vii) substitute
technology or procedures.
In rendering its opinion, Valuemetrics conducted on site due diligence and
held discussions with the Company's key management and advisors. Material
investigation topics included: (i) Company history, (ii) products, (iii) end
markets, (iv) competitors, (v) suppliers, (vi) personnel and management, (vii)
general industry trends, (viii) development strategy for the Company, (ix)
operating cost structure, (x) capital spending program, (xi) financial
contingency plans, (xii) budgets and financial controls, (xiii) status of
discussions with alternative buyers of the Purchased Companies and the Purchased
Assets and (xiv) the deterioration in the operating performance of the Company
during the first five months of the Company's fiscal year ending June 30, 1998.
MARKET EFFICIENCY STUDY. In connection with rendering its opinion,
Valuemetrics performed a variety of financial analyses including an assessment
of the public market valuation of the Company as well as independent valuations
of the Company. With respect to such analyses, Valuemetrics conducted a study of
the efficiency of the market price of the Company's common stock. This
efficiency study was comprised of both qualitative and quantitative analyses,
including a statistical analysis of the historical market price of the Company's
stock to determine the degree of auto-correlation from trade to trade. During
recent times, the Company's stock has been thinly traded. According to
Valuemetrics' analysis, the market for Universal Self Care, Inc.'s stock did not
exhibit the characteristics of an efficient market.
Therefore, it is Valuemetrics' determination that the per share market value
of Universal Self Care, Inc. may not be a reliable indicator of value.
COMPARABLE TRANSACTIONS ANALYSIS. Valuemetrics performed a Merger &
Acquisition Analysis of the multiples paid in selected acquisition transactions.
The companies utilized in the Merger & Acquisition Analysis included companies
that possessed general business, operating and financial characteristics
representative of the companies in the industry in which the Company operates.
The specific transactions reviewed included, but were not limited to, the
following (target, acquiror, date of announcement): Health Management, Inc. by
Counsel Corporation, August 1997; American Medserve Corp. by Omnicare, Inc.,
August 1997; HMIS, Inc. by American Medserve Corp., June 1997; Health
Management, Inc. by Transworld Home Healthcare, Inc. November 1996 and January
1997; Pharmacare, Inc. by Capstone Pharmacy Services, Inc., March 1997;
Pennsylvania Prescriptions, Inc. by Capstone Pharmacy Services, Inc., March
1997; TeamCare, Inc. by Vitalink Pharmacy Services, Inc., February 1997; Portaro
Pharmacies, Inc. by Capstone Pharmacy Services, Inc., January 1997; Clinical
Care-SNF Pharmacy, Inc. Capstone Pharmacy Services, Inc., January 1997; Alger
Health Services, Inc. by Capstone Pharmacy Services, Inc., January 1997;
Institutional Pharmacy, Inc. by Capstone Pharmacy Services, Inc., December 1996;
Happy Harry's, Inc., by Capstone Pharmacy Services, Inc., October 1996; Liberty
Medical Supply, Inc. by Polymedica Industries, Inc., August 1996; StatScript
Management Services, Inc., by Chronimed, Inc., July 1996; Good Samaritan Supply
Services, Inc. by America Medserve Corp, April 1996; Systemed, Inc. by Merck &
Co., Inc., April 1996; IMD Corporation by Capstone Pharmacy Services, Inc.,
February 1996;
17
<PAGE>
Geri-Care Systems, inc. and Scripts & Things, Inc. by Capstone Pharmacy
Services, Inc., January 1996; Home Pharmacy, a division of Arc Ventures, Inc. by
Mednet MPC Corp., September 1995; and Premier Pharmacy, Inc. by Capstone
Pharmacy Services, Inc., May 1995.
In its comparable transaction analysis, Valuemetrics utilized the following
ratios: the market capital as a multiple of sales, operating income, EBITDA, and
pretax income of the selected acquired companies. The estimated range of values
for the Purchased Companies and the Purchased Assets using the Merger &
Acquisition Analysis was $6,000,000 to $68,000,000, with a midpoint of
$32,300,000 (rounded). Valuemetrics noted that the value of the Purchase Price
is approximately $27,900,000, which is within the range of value suggested by
the Merger & Acquisition Analysis.
MARKET COMPARABLES ANALYSIS. In its Market Comparables Analysis,
Valuemetrics compared the relevant historical and current operating results of
the Purchased Companies and the Purchased Assets with such financial and
operating results of selected publicly traded companies in the context of a
Comparable Company Analysis. The companies utilized in the Market Comparables
Analysis included companies that possessed general business, operating and
financial characteristics representative of the companies in the industry in
which the Company operates. The specific companies reviewed included: Advance
Paradigm, Inc.; Express Scripts, Inc.; MIM Corp.; Vitalink Pharmacy Services,
Inc.; Chronimed, Inc.; Transworld Home Healthcare, Inc.; Omnicare, Inc.;
Capstone Pharmacy Services, Inc.; and Polymedica Industries, Inc.
In its Market Comparables Analysis, Valuemetrics utilized the following
ratios in its determination of the fair market value of the Purchased Assets and
the Purchased Companies: the market capital as a multiple of book capital,
sales, historical earnings, historical cash flow, historical earnings before
interest and taxes (EBIT), and historical earnings before interest taxes,
depreciation, and amortization (EBITDA) of the selected public companies.
Valuemetrics also examined the ratios of market capital to future earnings and
future cash flow to determine the value of the Purchased Companies and Purchased
Assets. The estimated value of the Purchased Companies and Purchased Assets
using the historical measures of operating performance from the Market
Comparables Analysis was $15,700,000 (rounded). Because of the negative variance
of the Company's operating performance during the first five months of the
Company's fiscal year ending June 30, 1998 from the Budget, which may cause the
Company to incur operating losses for such fiscal year, the future measures of
operating performance derived from the Market Comparable Analysis did not
produce meaningful estimates of the value of the Purchased Companies and the
Purchased Assets. Valuemetrics noted that the value of the Purchase Price of
approximately $27,900,000 is greater than the range of value suggested by the
Market Comparables Analysis.
OPTION PRICING ANALYSIS. Valuemetrics performed an Option Pricing Analysis
which included an analysis of (i) all options issued and outstanding under the
1992 Stock Option Plan (ii) the Management Non-Qualified Stock Option Plan,
(iii) Series B Convertible Preferred Stock and (iv) all other outstanding
options and warrants. Valuemetrics used a Black Scholes option valuation
methodology to value the outstanding options and warrants. Based upon the
Company's current stock price, the specific terms and conditions of the
outstanding options and warrants and certain assumptions regarding the future
volatility of asset returns, Valuemetrics estimated the value of the outstanding
options and warrants to be within the range of approximately $500,000 to
$2,300,000 (rounded).
GAINOR DUE DILIGENCE AND ANALYSIS. Valuemetrics reviewed certain financial
and other information concerning Gainor. Among other things, Valuemetrics
reviewed: (i) the Operating Agreement of Gainor Medical Management, LLC; (ii)
the audited financial statements of Gainor Medical Management, LLC and
Affiliated Companies for the fiscal year ending December 31, 1996; (iii) the
description of the business and ownership of Gainor Medical Management, LLC,
prepared by Gainor; and (iv) the pro forma operating and financial forecast of
Gainor and the Purchased Companies and the Purchased Assets for the fiscal years
ending December 31, 1998 through 2004. In addition, Valuemetrics reviewed
available industry
18
<PAGE>
and market research concerning: (i) diabetes, (ii) the history and development
of Gainor, (iii) industry trends, (iv) competition, and (v) substitute
technology or procedures.
In rendering its opinion, Valuemetrics conducted due diligence and held
discussions with Gainors's management. Among other things, investigation topics
included: (i) Gainor's history, (ii) current business strategy, (iii)
competitors, (iv) sources of cash and liquidity, (v) personnel and management,
(vi) general industry trends, (vi) services and technologies, (vii) operating
cost structure, (viii) capital spending program, (ix) contingency plans, (x)
budgets and financial controls, and (xi) investors.
FORM OF PURCHASE PRICE. As consideration for the Purchased Companies and
the Purchased Assets, the Company will receive approximately $10,500,000 in cash
($17,000,000, subject to certain adjustments for the cash of the Purchased
Companies and certain liabilities assumed) and a convertible subordinated
promissory note with a face value of $17,000,000. The Note, whose issuer will be
Gainor, will mature in greater than five years, but less than six years, bear
interest at 7.00 percent for the first year and 8.00 percent thereafter and be
subordinated to the senior indebtedness of Gainor. If Gainor registers the sale
of any of its equity securities for its own account in a public offering under a
firm underwriting agreement, the Note will be convertible into the shares of
Gainor at fair market value of the shares at the time of the offering at the
option of the holder of the Note, subject to the permission of the underwriters
of the offering. The face value of the Note is subject to adjustment based on
any claims by Gainor or the Company under the indemnification provisions of the
Agreement, on any post closing adjustments under the provisions of the
Agreement, and on the revenue of Diabetes Self Care, Inc. during the
twelve-month period ending December 31, 1998. Based on the operating forecast
prepared by the management of the Company, Valuemetrics assumed that a reduction
in the face value of the Note would not be expected. Also, based on the
operating forecast of Diabetes prepared by Gainor, Valuemetrics assumed that a
reduction in the face value of the Note would not be expected.
Valuemetrics also assessed the value and credit quality of the Note. Based
on the terms of the Note, assuming that the Note is not converted into the stock
of Gainor prior to its maturity and, further, that the Note is not reduced or
increased due to a claim under the indemnification provisions of the Agreement,
to a post closing adjustment, or to a shortfall of the revenues derived from
Diabetes, Valuemetrics assumed that the present value of the cash flows from the
Note is approximately $16,100,000, taking into consideration market rates of
interest for similar instruments. Also, based on the same assumptions and the
pro forma projections of Gainor, the Purchased Companies, and the Purchased
Assets, provided by Gainor, Valuemetrics assumed that Gainor would meet the
payment schedule and would comply with the terms of the Note.
COMPARISON OF PURCHASE PRICE TO PUBLIC MARKET VALUES OF COMPANY COMMON
STOCK. Prior to the announcement of the Gainor Transaction, which was disclosed
in the Form 10-Q for the fiscal quarter ended September 30, 1997 filed by the
Company on November 17, 1997, the publicly quoted price for the common stock of
the Company was approximately $2.44 per share. Subsequent to the filing of the
Form 10-Q for the fiscal quarter ended September 30, 1997 and its disclosure of
the initial proposed terms of the Gainor Transaction, the per share price for
the common stock of the Company declined. On December 16, 1997, one day prior to
the announcement of the First Amendment to Asset Purchase Agreement, the
publicly quoted per share price for the common stock of the Company was
approximately $1.625 per share. The Purchase Price suggests a sale of the
Purchased Companies and Purchased Assets below the value of the Purchased
Companies and Purchased Assets implied by the publicly quoted stock price of the
Company as of November 14, 1997, the trading day immediately prior to the
initial announcement of the Gainor Transaction and the operating and financial
performance of the Company during the fiscal quarter ended September 30, 1997.
However, Valuemetrics noted that the Purchase Price of approximately $27,900,000
represents a premium of five percent from the value of the Purchased Companies
and the Purchased Assets implied by the publicly quoted stock price as of
December 15, 1997, one day prior to public disclosure of the First Amendment to
Asset Purchase Agreement. Given the results of the market efficiency study, the
value implied by the public stock price is not necessarily reflective of the
value of the
19
<PAGE>
Purchased Companies and the Purchased Assets. Also, given some disparity between
the value of the Purchased Companies and the Purchased Assets as determined by
the Merger & Acquisition and Market Comparables Analyses and as implied by the
publicly quoted stock price of Universal Self Care, Inc., Valuemetrics
considered the publicly quoted stock price and the value that it implies for the
Purchased Companies and the Purchased Assets as less significant in the
determination of the fairness of the Gainor Transaction.
PURCHASE PRICE OF TAX CONSEQUENCES. Valuemetrics' assistance provided to
the Board of Directors as to the fairness, from a financial point of view, of
the Purchase Price to be paid to the Company and the Selling Subsidiaries for
the Purchased Companies and Purchased Assets is limited exclusively to the
pretax value of the Purchase Price. It is Valuemetrics' understanding that the
structure of the Transaction is costly to the Company from a taxation
standpoint. As a result of the Transaction, the Company will incur a tax
liability of approximately $6,225,000, net of the realization of the Company's
net operating loss carryforwards. The payment of the tax liability may cause
substantial dilution. However, Valuemetrics is not aware of alternative
transaction structures mutually agreeable to both the Company and Gainor.
Furthermore, the tax consequences of the Transaction are beyond the purview of
Valuemetrics.
FEES AND EXPENSES. As compensation for its services as financial advisor to
the Company, the Company has agreed to pay Valuemetrics a fee of approximately
$47,000, plus out of pocket costs. The Company has also agreed to indemnify
Valuemetrics against certain liabilities arising out of or in connection with
its engagement.
Valuemetrics, Inc., a nationally recognized financial advisory firm, has
regularly been engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, sales and other corporate purposes.
The Company selected Valuemetrics based on its experience and expertise. Prior
to October 23, 1997, the date upon which the Company's Board engaged
Valuemetrics to render financial advisory services to the Board, Valuemetrics
had not previously provided financial advisory services to the Company, nor did
Valuemetrics have any relationship with the Company or any of its Board members.
MANAGEMENT'S APPRAISAL OF THE GAINOR TRANSACTION AND FUTURE STRATEGY
THE COMPANY'S MANAGEMENT ALSO BELIEVES THAT THE CONSIDERATION TO BE RECEIVED
IN THE GAINOR TRANSACTION IS FAIR TO THE COMPANY AND ITS STOCKHOLDERS FOR
SEVERAL REASONS.
First, without regard to income tax considerations, the anticipated cash
portion of the Purchase Price alone will be less, by only approximately
$13,253,888, than the market value for all the outstanding Company Common Stock
based upon the last reported sale price for a share of Company Common Stock on
the Nasdaq Small Cap Market ("Nasdaq") on the trading date immediately preceding
the announcement by the Company (November 17, 1997) of the Gainor Transaction
($23,727,972). However, the anticipated cash portion of the Purchase Price will
be only $5,328,357 less than such market value on the date preceding the
announcement by the Company (December 16, 1997) of the signing of the First
Amendment ($15,802,441). When the principal of the Note is added to the cash
portion of the Purchase Price, the total Purchase Price exceeds by more than
$3,746,000 such market value on the trading date immediately preceding the
announcement by the Company of the Gainor Transaction. However, the total
Purchase Price exceeds such market value on the date preceding the announcement
by the Company of the First Amendment (December 16, 1997) by more than
$11,671,644. On November 17, 1997, the date of the first announcement, the last
reported sale price for a share of Company Common Stock was $2.625, for an
aggregate market value for all outstanding Company Common Stock as reported on
Nasdaq of approximately $25,527,019 on that date. Second, the Business operates
in a rapidly developing, heavily regulated industry that is increasingly
dominated by large companies having significantly greater financial resources
than the Company, and it is believed that without significantly increasing its
financial resources the Company will find it difficult to improve upon its
operating performance, and even more difficult to become profitable and generate
annual income. The Company's past performance in the last two fiscal
20
<PAGE>
years has been characterized by a decreasing annual revenue stream that has
resulted in increasingly limited cash flow and accelerating financial losses.
Third, the Business derives a significant amount of revenues (more than 90%)
from payments made by governmental intermediaries, and the future impact of
federal and state budget constraints and shifting federal and state health care
policies upon governmental programs and reimbursement rates is uncertain to
predict. For example, the Company has recently been informed that Medicare
reimbursement rates on many of the products that it sells will be reduced by
approximately 10% in 1998. Fourth, as an existing vendor to the Company, Gainor
is a strategic purchaser of the Business and a purchaser that the Company
believes is intent upon entering the businesses in which the Company operates
either by purchasing existing operations or by developing competing operations
of its own. Gainor is better financed than the Company, in part through
relationships with a significant equity holder. The Company believes that should
Gainor enter the markets in which the Business operates independently and not
through purchase of the Business itself, Gainor would constitute a formidable
competitor in the industry to the detriment of the Company's future operations.
Fifth, and lastly, insofar as Gainor is a strategic purchaser of the Business,
the Company believes that in the event that the Company were to decide to sell
the Business at a future time it would not be able to obtain as favorable of a
price for that business should another strategic purchaser not be subsequently
available.
The Company has entered into the Gainor Transaction principally as a way to
create additional value for its stockholders by obtaining an attractive price
for sale of the Business, approximately 35% in cash anticipated at closing.
Indeed, the net book value of the assets of the Business to be sold in the
Gainor Transaction, based upon the Company's September 30, 1997 unaudited
financial statements (approximately $4,770,000), represents approximately 40% of
the anticipated cash proceeds to be received at closing ($11,820,000), without
any deduction for the estimated taxes to be paid with respect to such cash
proceeds (see below).
Following closing of the Sale Agreement in connection with the Gainor
Transaction, the Company's management intends to redirect the Company's business
focus through the acquisition of a new business or new businesses, although it
is not yet known in which direction the Company will develop its future business
operations. At this time the Company has no specific business or businesses
which it intends, or is obligated, to purchase.
Management believes that receipt of the proceeds from sale of the Business
will increase stockholder value. The significant amount of cash made available
to the Company for its acquisition program will permit the acquisition of
businesses which, over the long-term, will be expected to generate higher levels
of net income than those historically generated by the Business. Finally,
following the Gainor Transaction, the amount of cash resources to be available
to the Company should enable the Company to obtain favorable pricing for any
future businesses that it decides to acquire.
As a result of all of the factors recited above with respect to the fairness
of the terms of the Gainor Transaction to the Company and its stockholders, as
well as the potential for increased stockholder value as a result of the
application of proceeds from the Gainor Transaction, Management of the Company
believes the Gainor Transaction to be in the best interests of the Company and
its stockholders.
FEDERAL INCOME TAX CONSEQUENCES
For Federal income tax purposes, the sale by the Company will generate a
taxable gain, measured by the difference between the amount realized on the sale
and the tax basis of the assets sold. This gain can be offset by current year
operating losses, and available net operating loss carry forwards.
It is currently estimated that the Federal income tax on this sale, after
taking into account the estimated losses and carry forwards, would be
approximately $4,900,000. In addition, the gain would be subject to state income
taxes in the approximate amount of $1,325,000.
21
<PAGE>
To the extent that a portion of the sales price is payable with a note, the
Company can elect to report the gain under the installment method, whereby the
tax on the portion of the gain, attributable to such note is deferred until the
note is collected, pledged or otherwise disposed of. This would operate to defer
the entire Federal tax of approximately $4,900,000 and $840,000 of the state
taxes.
The Company will be liable for an interest charge on the deferred Federal
tax in the amount of approximately $310,000 per year. Such interest charge will
be reduced as the gain is reported.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements have been prepared
to show the proposed disposition of all of the Company's (including its
subsidiaries') operating assets in the Gainor Transaction.
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of the Company at September 30, 1997 as if the
proposed sale had occurred on such date. Included are adjustments to record the
value of the consideration paid to the Company, the disposition of assets sold
and liabilities assumed, the write-off of intangible assets connected with the
disposed operations and the settlement of a substantial portion of the remaining
liabilities.
The unaudited pro forma consolidated statements of operations for the year
ended June 30, 1997 and three months ended September 30, 1997 reflect the
Company in a non-operating mode after the disposition, whereupon certain
corporate general and administrative expenses will remain with the Company and
the Company's income will consist of interest collected upon the note issued in
the sale and on excess cash, as if the sale had occurred on July 1, 1996.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the sale
occurred on July 1, 1996, nor may it be indicative of future operations. These
unaudited pro forma consolidated financial statements should be read in
conjunction with the Company's historical financial statements and notes
thereto, which are included in the Company's 1997 Annual Report, which has been
delivered along with this Proxy Statement.
22
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 30, PRO FORMA ADJUSTMENTS
-------------- ----------------------------
1997 DEBIT CREDIT TOTAL
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash.......................................... $ 471,658(1) $ 10,474,084(3) $ 3,675,823 $ 6,798,261
Accounts receivable, net allowance for
doubtful accounts of $2,347,967............. 8,552,235 (1) 8,552,235 --
Inventories................................... 461,437 (1) 461,437 --
Prepaid expenses.............................. 74,200 (1) 74,200 --
-------------- ------------- ------------- -------------
Total current assets...................... 9,559,530 6,704,442
Long-term notes receivable, net of discount... (1) 16,100,000 16,100,000
Property and Equipment, net of accumulated
depreciation of $696,729.................... 964,729 (1) 964,729 --
Intangible Assets, net of accumulated
amortization of $889,999.................... 5,762,663 (2) 5,762,663 --
-------------- ------------- ------------- -------------
Deposits and other assets..................... 41,706 (1) 41,706 --
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
$ 16,328,628 $ 26,574,084 $ 20,004,451 $ 22,898,261
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
LIABILITIES
Current liabilities
Accounts payable............................ $ 3,941,435(1) $ 3,941,435 $ $ --
Notes payable-current portion............... 206,528 206,528
Accrued liabilities......................... 2,533,325(1) 2,505,617 27,708
State audit reserves........................ 700,000(3) 565,477 700,000
Payroll taxes payable....................... 550,522(1) 550,522
Accrued income tax payable--current
portion................................... (1) 475,000 475,000
-------------- ------------- ------------- -------------
Total Current Liabilities................. 7,931,810 1,409,236
Long-Term Notes Payable, net of current
portion..................................... 207,083 207,083
Revolving Credit Loan......................... 3,675,823(3) 3,675,823 --
Deferred Income Taxes Payable--long term
portion..................................... (1) 5,750,000 5,750,000
Redeemable Preferred Stock, Series A.......... 1,686,324 1,686,324
Stockholders' Equity
Preferred stock, Series B Cumulative
Convertible, $.0001 par value, 10,000,000
shares authorized, 1,580,000 shares issued
and outstanding........................... 505,000 505,000
Common stock, $.0001 par value 40,000,000
shares authorized, 9,724,579 shares issued
and outstanding as of September 30,
1997...................................... 972 972
Additional paid-in capital.................. 14,045,838 14,045,838
Retained earnings (deficit)................. (11,724,222 (2) 5,762,663(1) 16,780,693 (861,514)
-------------- -------------
Total Stockholders' Equity................ 2,827,588 13,690,296
-------------- ------------- ------------- -------------
$ 16,328,628 $ 16,436,060 $ 23,005,693 $ 22,898,261
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
See Notes to Pro forma Financial Statements
23
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA ADJUSTMENTS
SEPTEMBER 30, --------------------------
1997 DEBIT CREDIT TOTAL
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues........................................... $ 8,258,138(1) $ 8,258,138 $ $ --
----------
Cost of Goods Sold................................. 4,884,197 (1) 4,884,197 --
-------------
Gross Profit....................................... 3,373,941 --
Selling, General and Administrative Expenses....... 3,875,907(3) 279,250(1) 3,875,907 279,250
------------- ----------
Operating Income (loss)............................ (501,966) (279,250)
------------- ----------
Other Income (Expenses)
Interest (expense), net.......................... (143,391) (1) 133,051 (10,340)
IRS interest on deferred installment gain........ -- (4) 77,500 (77,500)
Interest income.................................. -- (2) 412,000 412,000
------------- ----------
Total Other Income (Expenses)...................... (143,391) 324,160
------------- ----------
Net Income (loss) Before Income Taxes.............. (645,357) 44,910
Provision for Income Taxes......................... -- (5) 17,964 17,964
------------- ------------ ------------ ----------
Net Income (loss).................................. $ (645,357) $ 8,632,852 $ 9,305,155 $ 26,946
------------- ------------ ------------ ----------
------------- ------------ ------------ ----------
Net Income (loss) Per Share........................ $ (0.07) $ 0.00
------------- ----------
------------- ----------
Weighted Average Shares............................ 9,724,579 9,724,579
------------- ----------
------------- ----------
</TABLE>
See Notes to Pro Forma Financial Statements
24
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA ADJUSTMENTS
JUNE 30, ----------------------------
1997 DEBIT CREDIT TOTAL
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................................... $ 34,001,626(1) $ 34,001,626 $ $ --
------------
Cost of Goods Sold............................. 19,981,506 (1) 19,981,506 --
-------------
Gross Profit................................... 14,020,120 --
Selling, General and Administrative Expenses... 15,798,780(3) 1,117,000(1) 15,798,780 1,117,000
------------- ------------
Operating Income (loss)........................ (1,778,660) (1,117,000)
------------- ------------
Other Income (Expenses)
Interest (expense), net...................... (874,572) (1) 833,211 (41,361)
IRS interest on deferred installment gain.... -- (4) 310,000 (310,000)
Interest income.............................. -- (2) 1,645,000 1,645,000
------------- ------------
Total Other Income (Expenses).............. (874,572) 1,293,639
------------- ------------
Net Income (loss) Before Income Taxes.......... (2,653,232) 176,639
Provision for Income Taxes..................... -- (5) 70,656 92,503
------------- ------------- ------------- ------------
Net Income (loss).............................. $ (2,653,232) $ 35,499,282 $ 38,258,497 $ 105,983
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
Net Income (loss) Per Share.................... $ (.33) $ 0.01
------------- ------------
------------- ------------
Weighted Average Shares........................ 8,084,278 8,084,278
------------- ------------
------------- ------------
</TABLE>
See Notes to Pro Forma Financial Statements
25
<PAGE>
UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro-forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at September 30,
1997:
(1) To record the sale of all the Company's operating assets with
assumption by the buyer of certain accounts payable totaling $3,941,435 and
accrued expenses of $1,878,637. The sale price is assumed to be $34 million,
constituted as follows: $17 million cash (as decreased for the assumption of
accounts payable and accrued expenses totaling $5,212,416) and a $17 million
note receivable payable over a minimum of 5 years (subject to prepayment),
bearing interest at 7% for the first year and 8% thereafter. The Company has
recorded a discount of $900,000 on the note. The estimated gain on sale is
$22,534,035. The estimated tax impact to the Company is $6.225 million
(after consideration of the Company's net operating loss carry forwards).
(2) To write off all remaining goodwill and intangible assets related to
the Company's operations upon the disposal.
(3) To utilize a portion of cash receipts from the sale to pay off the
revolving credit loan and amount due on the California sales tax audit
settlement.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statements of operations for the year ended
June 30, 1997 and three months ended September 30, 1997, which have been
prepared to reflect the sale as if it had occurred on July 1, 1996:
(1) To eliminate the operations of the disposed business from the
Company's statement of operations.
(2) To record interest income at an annual rate of 7% on the $17 million
note receivable, and 6% on the remaining cash.
(3) To record estimated general corporation expenses of $1,117,000 on an
annual basis.
(4) To record IRS interest on deferred installment gain.
(5) To record provision of income tax.
26
<PAGE>
Following consummation of the Gainor Transaction, the assets comprising the
Business that is sold will be accounted for as constituting discontinued
operations of the Company.
The Company is not in arrears with respect to the declaration and payment of
dividends on its securities.
The Company's Common Stock is traded principally on Nasdaq under the trading
symbol "USCI". On November 14, 1997, the trading date immediately preceding
public announcement of execution of the Sale Agreement, the high and low sale
prices of the Company's Common Stock as reported on Nasdaq were $2.625 and
$2.5625, respectively.
The failure by Company stockholders to authorize and approve the Gainor
Transaction will prevent the effectiveness and prevent consummation of the
Gainor Transaction.
MANAGEMENT BELIEVES THE SALE OF THE COMPANY'S BUSINESS TO GAINOR MEDICAL
MANAGEMENT, LLC IS IN THE BEST INTEREST OF THE COMPANY AND RECOMMENDS THAT IT BE
AUTHORIZED AND APPROVED.
IV. AUTHORIZATION AND RATIFICATION OF THE 1997 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
The Company established the 1997 Stock Option Plan for Non-Employee
Directors (the "Directors Plan") on November 21, 1997. A copy of the Directors
Plan is annexed as Exhibit C. The purpose of the Directors Plan is to provide
additional incentive to the non-employee directors of the Company who share a
significant role in and responsibility for guiding management's planning for the
growth of the Company. Under the Directors Plan, which is to be administered by
a committee of the Company's Board of Directors the members of which are not
eligible to participate in the Directors Plan (the "Committee"), each eligible
Non-Employee Director will be granted non-qualified options to acquire 10,000
shares of the Company's Common Stock on the date following approval of the
Directors Plan by the Company's stockholders, and on each succeeding July 1 upon
which such Non-Employee Director is an existing member of the Company's Board of
Directors (or the first succeeding business day thereafter on which the Common
Stock is traded on the principal securities exchange on which it is listed).
There will be 300,000 shares of Common Stock reserved for issuance pursuant to
options granted under the Directors Plan. The exercise price per share of Common
Stock for which each option is exercisable shall be the average of the closing
bid and asked prices of the stock (or the closing sale price of the stock if
traded on a national securities exchange) as generally reported for the
principal securities market on which the Company's Common Stock is listed. Each
option granted under the Plan shall be fully exercisable on the date of option
grant. Each option granted under the Plan shall expire five years from the date
of grant, and shall be subject to earlier termination as hereinafter provided.
In the event of the termination of service on the Board by the holder of any
option granted under the Directors Plan, other than by reason of mandatory
retirement, permanent disability or death, the then outstanding options of such
holder shall be exercisable only to the extent that they were exercisable on the
date of such termination and shall expire three months after such termination,
or on their stated expiration date, whichever occurs first. In the event of
termination of service by reason of mandatory retirement pursuant to Board
policy or permanent disability of the holder of any option, each of such
holder's then outstanding options granted under the Directors Plan will continue
to become exercisable in accordance with the terms set forth above, but the
holder shall be entitled to exercise such options (including any portions that
become exercisable after termination) within three years of such termination,
but in no event shall any affected option be exercisable after its expiration
date. In the event of the death of the holder of any option, each of the then
outstanding options of such holder shall become immediately exercisable in full,
and shall be exercisable by the holder's legal representative at any time within
a period of three years after death, but in no event shall any affected option
be exercisable after its expiration date. However, if the holder dies within two
years following termination of service on the Board by reason of mandatory
retirement or permanent disability, any option granted under the Directors Plan
shall be exercisable only until the earlier of (x) the later of (i) one year
27
<PAGE>
after the holder's death or (ii) two years after such termination, or (y) the
expiration date of the option. The option exercise price shall be paid in cash
and the cash price can be paid with the proceeds of a loan from the Company to
the participant for such purpose or by the surrender of shares of Common Stock
of the Company, valued at their fair market value on the date of exercise, or by
any combination of cash and such shares.
Management believes authorization and approval of the Directors Plan of the
Company is in the best interest of the Company and recommends that it be
authorized and ratified.
V. AUTHORIZATION AND APPROVAL OF A NAME CHANGE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
Pursuant to the terms of the Sale Agreement, upon consummation of the Gainor
Transaction the Company is required to change its corporate name to from
"Universal Self Care, Inc. to Tadeo Holdings, Inc. in order to avoid any
confusion between the Business acquired from the Company by Gainor and any
business operated by the Company in the future. As a result, as a part of the
consummation of the Gainor Transaction, Company stockholders must authorize and
approve an amendment to the Company's Certificate of Incorporation that effects
a change of the Company's name to Tadeo Holdings, Inc. in order for the Gainor
Transaction to be consummated. A copy of the Amendment to the Company's
Certificate of Incorporation that changes the name of the Corporation to Tadeo
Holdings, Inc. (the "Amendment") is annexed as Exhibit D. The Amendment is only
to be effective in the event that the Gainor Transaction is consummated pursuant
to the Terms of the Sale Agreement, and management of the Company. is only
authorized to execute and file the Amendment with the appropriate regulatory
authorities upon such consummation of the Gainor Transaction.
Management believes authorization and approval of the Amendment as part of
then Gainor Transaction is in the best interest of the Company and recommends
that it be authorized and ratified.
VI. TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF THE CORPORATION'S AUTHORIZED SHARES BY 60,000,000 SHARES OF
COMMON STOCK
At the Annual Meeting a vote will be taken on a proposal to authorize the
amendment of the Company's Certificate of Incorporation to increase the number
of shares authorized for issuance thereunder from 40,000,000 authorized shares
of Common Stock to 100,000,000 authorized shares of Common Stock, which
amendment is to be effective only upon closing the Sale Agreement identified in
Proposal III ,above. In reflecting upon the Company's present capital structure,
management of the Company believes that the current authorized number of common
and preferred shares is inadequate for the Company's purposes following the
closing of the Sale Agreement with respect to the sale of the Company's existing
business and operating assets to Gainor Medical. Management believes that the
Company needs more authorized shares of Common Stock in its capital structure in
order either to support its ability to consummate potential future acquisitions
of new businesses or to raise additional working capital funds for any such
business that it may acquire in the future. The purpose of the proposal to amend
the Company's Certificate of Incorporation is to enhance the Company's ability
to meet the needs of its post-Closing acquisition program, by providing added
flexibility for consummation of potential acquisitions and working capital
financing by creating a large pool of unissued shares of Common Stock to be used
as consideration for such acquisitions, as well as for capital formation.
Management sees the need for the proposed increase in its capital structure at
this time despite the absence of current plans for issuance of such shares to
raise additional working capital funds, or in connection with any specific
acquisitions. Management also believes that, insofar as the Company is seeking
stockholder approval at this time for the other proposals identified in this
solicitation material, it is more cost effective for the Company concurrently to
approach stockholders for approval of such increase in its authorized capital.
28
<PAGE>
Management believes approval of the amendment of the Company's Certificate
of Incorporation to increase the Company's authorized capital by 60,000,000
shares of Common Stock, effective upon the closing of the Sale Agreement with
Gainor Medical, is in the best interest of the Company and recommends that such
amendment be authorized and ratified.
XIXI. OTHER BUSINESS
While management of the Company does not know of any matters which may be
brought before the Meeting, other than as set forth in the Notice of Meeting,
the proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question which may properly be submitted to the meeting.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
If any stockholder desires to put forth a proposal to be voted on at the
1999 Annual Meeting of Stockholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to stockholders in connection with
such meeting, that stockholder must cause such proposal to be received by the
Company at its principal executive office no later than August 21, 1998. The
Company intends to hold its 1999 Annual Meeting of Stockholders on or before
January 31, 1999. Any request for such a proposal, should be accompanied by a
written representation that the person making the request is a record or
beneficial owner of the lesser of at least 1% of the outstanding shares of the
Company's Common Stock or $1,000 in market value of the Company's common shares
and has held such shares for at least one year as required by the Proxy Rules of
the Securities and Exchange Commission.
AVAILABILITY OF FORM 10-KSB
The Company will provide, without charge, to any stockholder, upon written
request of such stockholder, a copy of the Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 as filed with the Securities and Exchange
Commission, including all financial statements and financial statement schedules
required to be filed therewith.
Any request for a copy of the Form 10-KSB should include a representation
that the person making the request was the beneficial owner, as of the record
date, of securities entitled to vote at the Annual Meeting of Stockholders. Such
requests should be addressed to: Universal Self Care, Inc., 3601 Thirlane Road,
Roanoke, Virginia 24019--Attention: Investor Relations Department.
- --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED FOR SUCH PURPOSE
- --------------------------------------------------------------------------------
29
<PAGE>
EXHIBIT A
ASSET PURCHASE AGREEMENT
BETWEEN
GAINOR MEDICAL MANAGEMENT, LLC,
GAINOR MEDICAL ACQUISITION COMPANY
AND
UNIVERSAL SELF CARE, INC.,
ITS SUBSIDIARIES
CLINISHARE DIABETES CENTERS, INC.
PHYSICIANS SUPPORT SERVICES, INC.
USC-MICHIGAN, INC.
PCS, INC.--WEST
DIABETES SELF CARE, INC.
AND
USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC.
AND CERTAIN OF ITS STOCKHOLDERS,
BRIAN D. BOOKMEIER
EDWARD T. BUCHHOLZ
MATTHEW B. GIETZEN
AND
ALAN M. KORBY
NOVEMBER 14, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), dated as of November ,
1997, is by and among UNIVERSAL SELF CARE, INC., a Delaware corporation
("Universal"), each of its wholly owned subsidiaries, CLINISHARE DIABETES
CENTERS, INC., a California corporation, PHYSICIANS SUPPORT SERVICES, INC., a
California corporation, USC-MICHIGAN, INC., a Michigan corporation, its wholly
owned subsidiary, PCS, INC.-WEST, a Michigan corporation, DIABETES SELF CARE,
INC., a Virginia corporation, USCI HEALTHCARE MANAGEMENT SOLUTIONS, INC., a
Delaware corporation, and certain of the stockholders of Universal, BRIAN D.
BOOKMEIER, EDWARD T. BUCHHOLZ, MATTHEW B. GIETZEN, and ALAN M. KORBY
(individually, each a "Stockholder" and collectively, the "Stockholders"), on
the one hand, and GAINOR MEDICAL MANAGEMENT, LLC ("Gainor Management"), a
Georgia limited liability company, and its subsidiary GAINOR MEDICAL ACQUISITION
COMPANY, a Georgia corporation ("Gainor Acquisition", and collectively with
Gainor Management, "Gainor"), on the other hand. The Selling Companies (as
herein defined) desire to sell the Transferred Assets (as herein defined) to
Gainor, and Gainor desires to buy the Transferred Assets from the Selling
Companies, on the terms and subject to the conditions contained herein.
Therefore, in consideration of the mutual representations, warranties, covenants
and agreements, and upon and subject to the terms and the conditions hereinafter
set forth in this Agreement, the parties do hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
"Accepted Contracts" means the contracts of the Selling Companies listed on
Schedule A hereto.
"Accounting Standards" means GAAP and where not inconsistent with GAAP, the
prior reasonable accounting practices of the Universal Entities as specified in
the Disclosure Memorandum.
"Affiliates" of a particular Person means other Persons controlled by,
controlling, or under common control with, such Person.
"Assigned Contracts" means those contracts of the Purchased Companies listed
in Schedule A hereto.
"Beneficiaries" is defined in Section 3.21(a).
"Bill of Sale" means the instrument in the form of Exhibit A attached hereto
to be executed and delivered at the Closing pursuant to which certain
Transferred Assets will be conveyed to Gainor Acquisition.
"Charter Documents" means the articles or certificate of incorporation and
bylaws of each of the Universal Entities.
"Closing" means the consummation of the purchase and sale of the Transferred
Assets under the terms of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Closing Balance Sheets" is defined in Section 2.6(b).
"Closing Net Asset Value" is defined in Section 2.2(a).
"Contract Assignment Agreement" means the instrument in the form of Exhibit
B to be executed and delivered at Closing pursuant to which the Purchased
Companies will assign certain contracts to Universal, and the Selling Companies
will assign certain contracts to the Purchased Companies.
"Designated Official" means Mark J. Gainor, or any other person designated
by Gainor as a "Designated Official".
<PAGE>
"Disclosure Memorandum" means the memorandum executed and delivered by the
Universal Entities and the Stockholders contemporaneously with the execution and
delivery of this Agreement containing information required to be disclosed under
this Agreement.
"Employees" means the employees of the Universal Entities.
"Employee Benefit" refers to employment related obligations of the Universal
Entities, including all actual or contingent liabilities relating to
unemployment, health, injury, death and retirement as well as any and all items
of a similar nature.
"Employment Agreement" means the instrument in the form of Exhibit C
attached hereto to be executed and delivered at the Closing regarding the
employment by Gainor Acquisition of Edward T. Buchholz.
"Encumbrance" means any mortgage, charge (whether fixed or floating),
security interest, pledge, claim, right of first refusal, lien (including,
without limitation any unpaid vendor's lien), option, hypothecation, title
retention or conditional sale agreement, lease, option, restriction as to
transfer, use or possession, easement, subordination to any right of any other
person, and any other encumbrance on the absolute and unfettered use and
ownership of any asset or property.
"Environmental Law" includes any statute, law, code, regulation, order,
notice, rule, ordinance, or any requirement, restriction, limitation, condition
or obligation contained therein, including any and all plans, orders, decrees,
judgments, and notices issued, entered, promulgated, or approved thereunder,
purporting to regulate the use, misuse, pollution or preservation of land, air
and water resources including but not limited to those purporting to regulate
building and planning, industrial buildings, plants or equipment, and health or
safety, only as such are directly related to environmental matters.
"Excluded Assets" means assets of the Selling Companies specifically
identified as Excluded Assets on Schedule A hereto, including without limitation
all of the outstanding shares of stock of each of the Selling Companies.
"Excluded Contracts" means all contracts of all Universal Entities other
than the Accepted Contracts.
"GAAP" means generally accepted accounting principles consistently applied.
"Gainor Agreements" shall mean, collectively, this Agreement, the Gainor
Assumption Agreement, the Employment Agreement and the Note.
"Gainor Assumed Liabilities" means the liabilities of the Selling Companies
specifically identified on Schedule A hereto as Gainor Assumed Liabilities and
all liabilities incurred in connection with the operation of Universal's
Business by Gainor after the Closing.
"Gainor Assumption Agreement" means the instrument in the form of Exhibit D
attached hereto to be executed and delivered at the Closing pursuant to which
Gainor Acquisition will assume the Gainor Assumed Liabilities.
"Gainor's Business" means the business conducted by Gainor and its
Affiliates of the design, assembly and distribution of micro-sampling products
and the marketing, sale and distribution of diabetic supplies.
"Gainor Financial Statements" means the audited consolidated balance sheets
of Gainor Management as of December 31, 1996 and the related audited
consolidated statements of income, cash flows and shareholder's equity for the
year then ended and the unaudited consolidated balance sheets of Gainor
Management as of September 30, 1997 and the related unaudited consolidated
statements of income and cash flows for the nine months then ended.
"Hazardous Material" means any hazardous substance or any pollutant or
contaminant defined or included as such in (or for the purposes of) any
Environmental Law.
2
<PAGE>
"Interim Financial Statements" means the unaudited consolidated and
consolidating balance sheet of the Universal Entities as of September 30, 1997,
and the related unaudited consolidated and consolidating statements of income,
cash flow and shareholder's equity for the three-month period then ended,
prepared by management of Universal or anyone under the direction of the
management of Universal.
"Knowledge of Universal" or "Universal's Knowledge" (or words of similar
import) refers, with respect to each Universal Entity, to all those things known
after reasonable inquiry by the directors and officers of such Universal Entity
about the thing or things in question.
"Knowledge of Stockholders" or "Stockholders' Knowledge" (or words of
similar import) refers to all those things known after reasonable inquiry by the
Stockholders.
"Material Adverse Effect" means a material adverse effect (i) on the
business, assets, financial condition or prospects of either the Selling
Companies taken as a consolidated whole, or either of the Purchased Companies,
(ii) on the relationship of any Universal Entity with any material customer or
supplier, (iii) on any material Universal Contract, or (iv) on the transactions
contemplated herein.
"Note" is defined in Section 2.3(b).
"Permitted Encumbrance" means an Encumbrance identified as a "Permitted
Encumbrance" in the Disclosure Memorandum.
"Person" means a corporation, partnership, trust, limited liability company,
other business entity or an individual.
"Plans" is defined in Section 3.21(a).
"Post Closing Revenue" is defined in Section 2.7(a).
"Preliminary Balance Sheets" is defined in Section 2.3(a).
"Proxy Statement" means the proxy statement to be used by Universal in
connection with the meeting at which the stockholders of Universal will be asked
to approve the transactions set forth herein.
"Purchased Companies" means USCI Healthcare Management Solutions, Inc. and
Diabetes Self Care, Inc.
"Purchased Shares" means all of the issued and outstanding equity interests
of each of the Purchased Companies.
"Rule" means any law, statute, rule, regulation, order, court decision,
judgment or decree of any federal, state, territorial, provincial or municipal
authority.
"Section 338(h)(10) election" means an election described in Section
338(h)(10) of the Code with respect to Universal's sale of the Purchased Shares
to Gainor Acquisition pursuant to this Agreement. Section 338(h)(10) Election
shall also include any substantially similar election under a state or local
statute corresponding to Federal laws.
"Section 338 forms" means all returns, documents, statements, and other
forms that are required to be submitted to any Federal, state, county or other
local taxing authority in connection with a Section 338(g) Election or a Section
338(h)(10) Election. Section 338 forms shall include, without limitation, any
"statement of Section 338 election" and United States Internal Revenue Service
Form 8023 (together with any schedules or attachments thereto) that are required
pursuant to Treas. Reg. Section 1.3381 or Treas. Reg. Section 1.338(h)(10)1.
"Selling Companies" means collectively Universal and all of the Subsidiaries
other than the Purchased Companies.
3
<PAGE>
"Stock Powers" means the stock transfer powers executed by Universal in
blank pursuant to which the Purchased Shares will be transferred to Gainor
Acquisition.
"Subsidiary" means any corporation, limited liability company, partnership,
joint venture or other legal entity, 50% or more of the capital stock or equity
of which is owned by Universal or any other Subsidiary of Universal, and shall
expressly include, without limitation, each of Clinishare Diabetes Centers,
Inc., a California corporation, Physicians Support Services, Inc., a California
corporation, USC-Michigan, Inc., a Michigan corporation, PCS, Inc.-West, a
Michigan corporation, Diabetes Self Care, Inc., a Virginia corporation, and USCI
Healthcare Management Solutions, Inc., a Delaware corporation.
"Tax" or "Taxes" means all forms of levies, taxes, customs and other duties
normally deemed to be of a fiscal or customs nature, including but not limited
to (a) all taxes levied, imposed or assessed under the Internal Revenue Code of
1986, as amended, or any rule, in the U.S. or elsewhere; (b) taxes in the nature
of sales tax, consumption tax, value added tax, payroll tax, group tax,
undistributed profits tax, fringe benefits tax, recoupment tax, withholding tax,
land tax, water rates, municipal rates, stamp duties, gift duties or other
state, territorial, provincial or municipal charges or impositions levied,
imposed or collected by any governmental body; and (c) any additional tax,
interest, penalty, charge, fee or other amount of any kind assessed, charged or
imposed in relation to the non-, late, short or incorrect payment of the same or
the failure to file any return.
"Trademark Assignments" means the instruments substantially in the form of
Exhibit E hereto to be executed and delivered at Closing pursuant to which all
trademarks included in the Transferred Assets will be assigned by Universal to
Gainor.
"Transferred Accounts" means those bank accounts listed on Schedule A.
"Transferred Assets" means all right, title and interest of the Selling
Companies in, to and under all of their respective properties and assets
(tangible or intangible, real or personal, fixed or contingent, owned directly
or indirectly, including but not limited to all trademarks, the goodwill
associated therewith and the right to sue for past infringements thereof),
including but not limited to the Purchased Shares, and excluding the Excluded
Assets.
"Transferring Employee" means each Employee to whom Gainor makes an offer of
employment and who accepts such offer.
"Universal Agreements" means, collectively, this Agreement, the Bill of
Sale, the Trademark Assignment, and the Universal Assumption Agreement.
"Universal Assumed Liabilities" means all the liabilities of the Purchased
Companies other than (a) liabilities retained by the Purchased Companies on and
after the Closing consisting of performance obligations under all contracts of
the Purchased Companies other than the Assigned Contracts, and those liabilities
of the Purchased Companies shown on the Closing Balance Sheets, and (b) all
liabilities that arise in connection with the operation of Universal's Business
by Gainor that arise after the Closing and are attributable to acts or omissions
occurring after the Closing.
"Universal Assumption Agreement" means the instrument in the form of Exhibit
F attached hereto to be executed and delivered at the Closing pursuant to which
Universal will assume the Universal Assumed Liabilities.
"Universal Financial Statements" means the audited consolidated and
unaudited consolidating balance sheets of the Universal Entities as of June 30,
1996 and 1997, and the related audited consolidated and unaudited consolidating
statements of income, cash flows and shareholder's equity for the three years
ended June 30, 1995, 1996 and 1997, together with all footnotes, annexes and
schedules thereto, accompanied by the audit reports of Feldman Radin & Co.,
P.C., together with the Interim Financial Statements, and all notes thereto, all
of which balance sheets, statements of income and cash flow, reports and notes
have been attached to and incorporated into the Disclosure Memorandum.
4
<PAGE>
"Universal Representative" means Brian D. Bookmeier, a Stockholder acting as
the representative of each of the Stockholders for purposes of this Agreement.
"Universal Contracts" means all contracts, leases, agreements, indentures,
licenses, mortgages, commitments or binding arrangements or relationships
pursuant to which any Universal Entity is either a party or a third party
beneficiary.
"Universal Entity" means Universal and each Subsidiary; and "Universal
Entities" means, collectively, Universal and all Subsidiaries.
"Universal Permits" is defined in Section 3.18.
"Universal Premises" means the real estate (including fixtures, buildings
and other improvements thereon) at the addresses listed in the Disclosure
Memorandum owned or leased by a Universal Entity, as indicated therein.
"Universal Properties" is defined in Section 3.12(e).
"Universal's Business" means the business currently conducted by all of the
Purchased Companies, and any remaining business currently conducted by the
Selling Companies, namely the marketing, sale and retail distribution of
diabetic supplies, and the services related thereto, and disease management
programs and services.
"Warranty" means any representation of warranty of the Universal Entities
and Stockholders in this Agreement and in each certificate or other document
delivered by them or on their behalf in connection with this Agreement.
ARTICLE 2
TERMS OF TRANSACTION
2.1 PURCHASE AND SALE OF TRANSFERRED ASSETS. Upon the terms and subject to
the conditions of this Agreement, at the Closing Gainor Acquisition shall
purchase the Transferred Assets from Selling Companies and Selling Companies
shall sell, transfer and assign the Transferred Assets to Gainor Acquisition.
2.2 CONSIDERATION. In consideration of the sale, transfer and assignment
to Gainor Acquisition of the Transferred Assets and Universal's assumption of
the Universal Assumed Liabilities, Gainor Acquisition shall:
(a) pay the Selling Companies the sum of
(i) $17 million; plus
(ii) an amount equal to 75% of the Post Closing Revenue (as defined in
Section 2.5(b)) or $20 million, whichever is less, plus
(iii) the sum (whether positive or negative) of (1) the cash shown on
the Closing Balance Sheets, (2) the lesser of the book value or the net
realizable value at Closing of all inventory shown on the Closing Balance
Sheets, and (3) the agreed value at Closing (as determined in accordance
with Section 2.6(a) below) of all other tangible assets shown on the Closing
Balance Sheets (excluding accounts receivable, prepaid expenses, deposits
and other like kind assets, intercompany receivables, loan receivables, and
Excluded Assets), less (4) the book value at Closing of the Gainor Assumed
Liabilities required to be listed in a balance sheet, prepared in accordance
with GAAP, less (5) all liabilities of the Purchased Companies shown on the
Closing Balance Sheets, and less (6) the amount of the pledge by the
Universal Entities to the American Diabetes Association (the aggregate of
(1)-(6) being referred to herein as the "Closing Net Asset Value"); and
(b) assume the Gainor Assumed Liabilities.
5
<PAGE>
2.3 PAYMENT. The Purchase Price (which is subject to a post-closing
adjustment as set forth in Section 2.5 below) shall be paid as follows:
(a) At the Closing, Gainor Acquisition shall make a cash payment by wire
transfer of immediately available funds to the bank account of Universal's
choice equal to $17 million plus the Closing Net Asset Value. For the purpose of
the Closing, the Closing Net Asset Value shall be estimated based upon a
preliminary unaudited consolidated closing balance sheet for the Selling
Companies and separate unaudited closing balance sheets for each of the
Purchased Companies, each as of the Closing Date, which shall be prepared by or
on behalf of Universal in accordance with the Accounting Standards and delivered
to Gainor at the Closing. Such preliminary balance sheets shall show detail
sufficient to allow a preliminary determination of the Closing Net Asset Value
(the "Preliminary Balance Sheets").
(b) At the Closing, Gainor Management shall deliver to Universal a
subordinated promissory note substantially in the form of Exhibit G hereto (the
"Note") in the principal amount of $20 Million, having a term of at least 5
years and 1 day, but no more than 6 years, with interest payable quarterly at
the rate of 7% per annum through December 31, 1998, and 8% per annum thereafter,
and all principal due and payable on the maturity date. Upon determination of
the Post Closing Revenue under Section 2.5(b), the principal amount of the Note
shall be reduced to the lessor of (i) $20 million or (ii) 75% of the Post
Closing Revenue. Gainor shall have the right to offset against any amount of
principal or interest due under the Note any amount to which Gainor is entitled
under any claim for indemnification made by Gainor against Universal hereunder,
as determined in accordance with Section 6.9 hereof. The Note shall be
convertible into equity securities of Gainor to the extent set forth therein.
2.4 THE CLOSING.
(a) The Closing shall take place, subject to the satisfaction or waiver of
the conditions set forth herein in the offices of Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia or in such other place as the parties may
agree upon in writing, on a date to be mutually agreed upon by the parties
provided, however, that the Closing shall take place not later than ten (10)
business days following stockholder approval and ratification of this Agreement
and the transactions contemplated hereby at the Universal Stockholders Meeting
described in Section 6.16 hereof.
(b) At the Closing, Universal shall execute and deliver to Gainor, in
substantially the forms attached hereto or otherwise in a form reasonably
acceptable to Gainor:
(i) certificates representing all of the Purchased Shares along with the
Stock Powers;
(ii) the Preliminary Balance Sheets;
(iii) the Bill of Sale;
(iv) the Contract Assignment Agreement;
(v) the Universal Assumption Agreement;
(vi) the Trademark Assignments;
(vii) all business and financial files and records of each Selling
Company (including but not limited to all customer lists, payment records,
financial statements and all other information, files and records) which are
required to operate Universal's Business after the Closing as it was run by
the Universal Entities prior to the closing;
(viii) signature cards for bank accounts of each of the Transferred
Accounts;
(ix) releases of all Encumbrances on all Transferred Assets;
(x) the resignations of all of the directors and officers of the
Purchased Companies, effective as of the Closing Date;
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(xi) the Purchased Companies' original corporate minute books;
(xii) all other corporate records of the Purchased Companies; and
(xiii) legal opinions of counsel to each of the Universal Entities
concerning, among other things, the organization and authority of the
Universal Entities, the Purchased Companies' authorized and outstanding
capital stock, the due authorization, execution and delivery of this
Agreement and each other agreement and instrument to be delivered by the
Stockholders and the Universal Entities hereunder, the transfer of the
Purchased Shares, the transfer of the Transferred Assets, the Assumption of
the Universal Assumed Liabilities, and other reasonable and customary
matters.
(c) At the Closing, in addition to payment of the Purchase Price as set
forth in Section 2.3, Gainor shall execute and deliver to Universal, in
substantially the forms attached hereto or otherwise in a form reasonably
acceptable to Universal:
(i) the Gainor Assumption Agreement;
(ii) the Contract Assignment Agreement;
(iii) the Note; and
(iv) legal opinions of counsel to each of Gainor Acquisition and Gainor
Management covering, among other things, the organization and authority of
each of Gainor Acquisition and Gainor Management, the due authorization,
execution, delivery, and enforceability of this Agreement and each other
agreement and instrument to be delivered by Gainor hereunder, the Assumption
of the Gainor Assumed Liabilities, and other reasonable and customary
matters.
(d) At the Closing, Gainor Acquisition and Edward T. Buchholz shall execute
and deliver the Employment Agreement.
(e) At the Closing, the Purchased Companies shall execute and deliver the
Contract Assignment Agreement.
2.5 POST-CLOSING ADJUSTMENT IN PURCHASE PRICE.
(a) Within five business days after the final determination of the Closing
Net Asset Value under Section 2.6(b) below, if the final Closing Net Value Asset
shown in the Closing Balance Sheets is lower than the preliminary Closing Net
Asset Value shown in the Preliminary Balance Sheets, the principal amount of the
Note shall be reduced (following the procedure given in Section 2.7) by the
amount of such difference, and if the final Closing Net Asset Value shown in the
Closing Balance Sheets is greater than the preliminary Closing Net Asset Value
shown in the Preliminary Balance Sheets, the principal amount of the Note shall
be increased (following the procedure given in Section 2.7) by an amount equal
to such difference.
(b) Upon determination of the Post Closing Revenue (as defined below), the
principal amount of the Note shall be adjusted to equal the lesser of (i) $20
million or (ii) 75% of the Post Closing Revenue following the procedure set
forth in Section 2.7. "Post Closing Revenue" shall mean the gross revenues of
the Purchased Companies for calendar year 1998, less sales taxes, allowable
adjustments and other sales adjustments, all determined in accordance with GAAP.
In the event that the Purchased Companies are consolidated with other of
Gainor's businesses or companies, then the Post Closing Revenue shall exclude
revenue from then existing customers of such other businesses and companies, but
the revenue of customers of both the Purchased Companies and the consolidated
businesses or companies shall be included in Post Closing Revenue. By February
1, 1999, Gainor shall deliver to Universal a statement showing the Post Closing
Revenue. Universal shall review such statement and shall, within 10 days of
receipt of such statement, notify Gainor in writing of any objections thereto.
If Universal fails to give such notice by such time, Universal shall be deemed
to have agreed with the statement as delivered. If Universal gives such notice
by such time, Gainor and Universal shall then have 10 business days after such
notice to
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agree on the Post Closing Revenue. If Gainor and Universal are not able to agree
by such time, such statement will be submitted to Ernst & Young, LLP, Atlanta,
Georgia (or any successor accounting firm), who shall have responsibility for
determining the correct Post Closing Revenue, under GAAP, within 30 days
following such submission. Ernst & Young, LLP's (or any such successor
accounting firm's) determination shall be final and binding on Gainor and
Universal. The costs of any such determination shall be shared equally by Gainor
and Universal.
(c) Twelve months following the Closing, the principal amount of the Note
shall be reduced (following the procedure set forth in Section 2.7) in the event
and to the extent that the amount by which collections of the trade accounts
receivable shown on the Closing Balance Sheet shall be less than $5 million
during that 12 month period.
2.6 DETERMINATION OF VALUE OF TANGIBLE ASSETS AND CLOSING NET ASSET VALUE
(a) Not later than 20 business days prior to the Closing, Gainor and
Universal shall agree upon the value of all of the tangible assets of the
Universal Entities to be included on the Closing Balance Sheets (excluding the
Excluded Assets). If Gainor and Universal are unable to agree by such time, then
the parties shall cause an appraisal to be made of such tangible assets by an
independent third party appraiser acceptable to both parties. The value so
determined shall be reflected on the Preliminary and Final Closing Balance
Sheets. The cost of such appraisal shall be shared equally by Gainor and
Universal.
(b) Not later than 20 business days after the Closing, Universal shall
prepare or cause to be prepared audited balance sheets as of the Closing Date,
in accordance with the Accounting Standards and consistent with prior years'
reasonable accounting practices, on a consolidated basis for the Selling
Companies and separate balance sheets for each of the Purchased Companies, in
detail sufficient to allow the determination of the Closing Net Asset Value (the
"Closing Balance Sheets"). All intercompany receivables and payables shall be
satisfied and "zeroed out" on the Closing Balance Sheets. Upon completion of the
Closing Balance Sheets, Universal shall deliver a copy of the Closing Balance
Sheets to Gainor, who shall review the Closing Balance Sheets and notify
Universal in writing of any objections thereto within 45 days after receiving
them. If Gainor fails to give such notice by such time, Gainor shall be deemed
to have agreed with the Closing Balance Sheets as delivered. If Gainor gives
such notice by such time, Gainor and Universal shall then have 10 business days
after such notice to agree on the Closing Net Asset Value. If Gainor and
Universal are not able to agree by such time, the Closing Balance Sheets will be
submitted to Ernst & Young, LLP in Atlanta, Georgia (or any successor accounting
firm), who shall have responsibility for determining the correct Closing Net
Asset Value, under the Accounting Standards and consistent with prior years'
reasonable accounting policies, within 30 days following such submission. Ernst
& Young, LLP's (or any such successor accounting firm's) determination shall be
final and binding on Gainor and Universal. The costs of any such determination
shall be shared equally by Gainor and Universal.
2.7 NOTE ADJUSTMENT. If any adjustment is required to be made to the Note
hereunder, the principal amount of the Note shall be reduced or increased, as
the case may be, by (a) the amount of such adjustment, plus (b) the total of all
interest paid on the amount of the adjustment through the date of such
adjustment, or the total of all interest that would have been paid on the amount
of the adjustment from the Closing Date through the date of such adjustment, as
the case may be. Upon any reduction of or increase in the Note, Universal shall
promptly annotate the Note to reflect such reduction or increase and deliver to
Gainor a copy of the Note so annotated. Adjustments may be made separately or
with other adjustments, and all adjustments shall be cumulative.
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ARTICLE 3A
REPRESENTATIONS AND WARRANTIES
OF UNIVERSAL ENTITIES
To induce Gainor to execute, deliver and perform this Agreement, and in
acknowledgment of Gainor's reliance on the following Warranties, each of the
Universal Entities hereby jointly and severally represents and warrants to
Gainor as follows as of the date hereof and as of the Closing.
3.1 ORGANIZATION OF UNIVERSAL ENTITIES.
(a) Each Universal Entity is a corporation duly organized and validly
existing under the laws of its jurisdiction of incorporation and has all
requisite power and authority, corporate or otherwise, to carry on and conduct
its business as it is now being conducted and to own or lease its properties and
assets. Except as set forth in the Disclosure Memorandum, or where the failure
to properly and timely file would have a Material Adverse Effect, all documents
required to be filed with any government entity with respect to each Universal
Entity have been properly and timely filed.
(b) Except as disclosed in the Disclosure Memorandum, no Universal Entity
has been, is currently being, or a result of the consummation of the
transactions contemplated herein will be (i) subject to any bankruptcy or
insolvency related procedure in respect of part or all of its assets, or (ii)
involuntarily liquidated. Except as specified in the Disclosure Memorandum, no
Rule and no provision of any Charter Document, or any agreement of any Universal
Entity would require any Universal Entity to be wound up or dissolved after the
Closing Date whether as a result of capital impairment of the Universal Entity
or otherwise.
(c) The Disclosure Memorandum sets forth (i) the name, address and
jurisdiction of organization of each Universal Entity, (ii) every entity in
which any Universal Entity owns any of the outstanding equity, directly or
indirectly, (iii) the equity interest in such entity that is owned by such
Universal Entity, and (iv) each such entity's respective jurisdiction of
organization.
(d) The Disclosure Memorandum includes a true, complete and correct copy of
all of the Charter Documents for each of the Purchased Companies and Universal
has delivered to Gainor a true, complete and correct copy of each of the Charter
Documents and all minutes of shareholders' and directors' meetings or written
consents in lieu of such meetings for the Purchased Companies, all as in effect
on the date hereof. The minutes of directors' and stockholders' meetings of each
Universal Entity that have previously been delivered to Gainor are the complete,
true, valid and correct records of directors' and stockholders' meetings through
and including the date hereof and, reflect all transactions and other matters
required to be reflected in such records, as well as such other matters
customarily contained in records of such type.
(e) The current officers and directors of each Universal Entity are listed
in the Disclosure Memorandum.
(f) Except as set forth in the Disclosure Memorandum, since June 30, 1997,
the Selling Companies (other than Universal) have not been engaged in the
Universal Business or any other corporate activity.
3.2 POWER AND AUTHORITY OF UNIVERSAL ENTITIES. Other than the approval of
Universal's stockholders (which is a condition to Universal's and Gainor's
obligations hereunder) and other than as set forth in the Disclosure Memorandum
or except where the failure to obtain a consent, approval, authorization or
estoppel would not have a Material Adverse Effect, each Universal Entity has
obtained all necessary consents, approvals, authorizations or estoppels of any
other Person or governmental or regulatory authority required to be obtained to
execute and perform under this Agreement and to authorize and permit the
Universal Entities to transfer, or cause to be transferred, to Gainor all of the
Transferred Assets. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary action, corporate
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or otherwise, on the part of each Universal Entity required to take such action
and except as set forth in the Disclosure Memorandum will not without the giving
of notice or the lapse of time, or both (i) violate or conflict with any of the
provisions of any Charter Document; (ii) violate, conflict with or result in a
breach or default under or cause termination of any term or condition of any
mortgage, indenture, contract, license, permit, instrument, trust document, or
other agreement, document or instrument to which any Universal Entity is a party
or by which any Universal Entity or any of its properties may be bound; (iii)
violate any Rule the result of which would have a Material Adverse Effect; or
(iv) result in the creation or imposition of any material Encumbrance upon any
asset of any Universal Entity. This Agreement has been duly and validly executed
by each Universal Entity and constitutes each such parties legal, valid and
binding obligation, enforceable in accordance with its terms, except to the
extent that its enforceability is limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditor's rights generally or by general principals of equity.
3.3 OWNERSHIP OF THE SHARES. Universal owns, of record and beneficially,
good, valid and marketable title to the Purchased Shares, the Purchased Shares
are validly issued and are free and clear of any Encumbrances, with no defects
of title whatsoever, and Universal has full and exclusive power, right and
authority to vote and transfer the Purchased Shares. Except as disclosed in the
Disclosure Memorandum, other than the Purchased Shares, Universal owns no
capital shares of any Purchased Company and has no right to acquire any such
shares. Except as disclosed in the Disclosure Memorandum, no Person (other than
Universal) owns any capital shares of any Purchased Company, no Person has any
right to acquire any such shares and there are no Encumbrances on any such
shares. Upon consummation of the Closing, Gainor Acquisition shall obtain good,
valid and marketable title to the Purchased Shares, free and clear of all
Encumbrances, with no defects of title whatsoever, and shall have full and
exclusive power, right and authority to vote the Purchased Shares. Universal is
not a party to or bound by any agreement affecting or relating to its right or
obligation to transfer or vote the Purchased Shares.
3.4 ISSUED SHARES.
(a) The number of issued and outstanding shares or other equity interests of
each Universal Entity are set forth in the Disclosure Memorandum. The number of
shares of Universal owned by each Stockholder is set forth in the Disclosure
Memorandum. Universal owns all outstanding shares of each of the Subsidiaries,
with the exception of PCS, Inc.-West, which is a wholly-owned subsidiary of USC-
Michigan, Inc. All of such shares and interests are validly issued. All
issuances, transfers or purchases of all such shares and interests have been in
compliance with all applicable agreements and all applicable Rules, and all
Taxes thereon have been paid. There are no shares or other capital interests
held in the treasury of any Universal Entity. Universal has full power, right
and authority to vote all of the shares and other interests of each Subsidiary,
with the exception of PCS, Inc.-West. USC-Michigan, Inc. has the full power,
right and authority to vote all of the shares and other interests of PCS,
Inc.-West. All of the shares of each Universal Entity are validly issued and are
free and clear of any Encumbrances, with no defects of title whatsoever.
(b) Except as set forth in the Disclosure Memorandum, no increase in the
capital of any Purchased Company has been agreed, resolved or promised, nor is
in the process of being effected, and none will be through Closing. No
instrument or security whatsoever which may, whether by exchange, subscription,
conversion or in any other manner, give right to share capital or voting rights
as to any Purchased Company has been issued, resolved or promised.
3.5 ABSENCE OF OTHER CLAIMS. Except as set forth in the Disclosure
Memorandum, there is not outstanding, nor is any Purchased Company bound by, any
subscriptions, options, preemptive rights, warrants, agreements or rights of any
character requiring such Purchased Company to issue or transfer any of its
shares or other equity interests, or any of the Purchased Shares, including any
right of conversion or exchange under any outstanding security or other
instrument. There are no outstanding obligations of any
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Purchased Company to repurchase, redeem or otherwise acquire any of its
outstanding shares or other equity interests.
3.6 COMPLIANCE WITH LAW. No Universal Entity has violated any order of any
court, governmental authority, arbitration board or tribunal to which it is or
was subject, nor is any Universal Entity in violation of any Rule the violation
of which would have a Material Adverse Effect. Except as set forth in the
Disclosure Memorandum, (i) since June 30, 1992 no Universal Entity has been the
subject of an audit, investigation, or other enforcement action by Medicare, any
Medicaid agency of any state, MediCal, any intermediary or agent of any state or
local governmental entity, or other healthcare regulatory bodies, and (ii) since
June 30, 1994, no fines, assessments, penalties or other amounts have been paid
by any Universal Entity to or withheld by Medicare, any Medicaid agency of any
state, MediCal, any intermediary or agent of any state or local governmental
entity or other healthcare regulatory bodies because of a violation of a Rule
promulgated by any such body.
3.7 FINANCIAL MATTERS. The Universal Financial Statements, as provided to
Gainor, including the footnotes thereto are complete, have been prepared in
accordance with the Accounting Standards, consistently applied, and fairly
present the financial position of the Universal Entities as of the dates thereof
and the results of their operations for the respective periods thereof. The
Universal Financial Statements contain all disclosures required under the
Accounting Standards as of the dates of, and for the periods covered by, the
Universal Financial Statements. Since June 30, 1992, the books and records of
each Universal Entity have been maintained in accordance with the Accounting
Standards.
3.8 INDEBTEDNESS. The Disclosure Memorandum sets forth a complete and
accurate list and description of all instruments or other documents relating to
any direct or indirect indebtedness for borrowed money of each Universal Entity,
as well as indebtedness by way of lease-purchase arrangements, guarantees,
undertakings on which others rely in extending credit, and all conditional sales
contracts, pledges and other security arrangements with respect to personal
property used or owned by such Universal Entity. Except as expressly set forth
in the Disclosure Memorandum, no Universal Entity is in material default with
respect to any indebtedness aggregating $30,000 or more or, to the knowledge of
Universal, any other indebtedness.
3.9 NO UNDISCLOSED LIABILITIES. Except as and to the extent reflected and
adequately reserved against on the Interim Balance Sheets or as shown in the
Disclosure Memorandum, no Universal Entity has any liabilities or obligations
whatsoever, whether accrued, absolute, contingent or otherwise, in excess of
$20,000.
3.10 TAX MATTERS.
(a) TAX RESERVES. The amount of the Universal Entities' liabilities for
unpaid Taxes for all periods ending on or before the date of this Agreement do
not, in the aggregate, materially exceed the amount of the current liability
accruals for Taxes with respect to each Universal Entity, as such accruals are
reflected in the Interim Balance Sheets; and the amount of any Universal
Entity's liability for unpaid Taxes for all periods ending on or before the
Closing does not, in the aggregate, exceed the amount of the current liability
accruals for Taxes as shown on the Interim Balance Sheet for each respective
Universal Entity.
(b) TAX AND EMPLOYEE BENEFIT RETURNS. Except as set forth in the Disclosure
Memorandum, any and all the Universal Entities have correctly and timely (i)
filed all Tax and Employee Benefit returns required to be filed in the manner
required by Tax and Employee Benefit authorities, (ii) responded to information
requested by said authorities and (iii) made all Tax and Employee Benefit
payments at due dates, including but not limited to federal and state payroll
taxes. All such payments that are due and unpaid, as well as all penalties and
interest on delinquencies, have been accrued as liabilities of the Universal
Entities.
(c) OTHER MATTERS. The Purchased Companies are not a party to any tax
sharing agreement with any other Person. Except as set forth in the Disclosure
Memorandum: (i) no Universal Entity is subject to income tax in countries other
than the U.S.; (ii) none of the Universal Entities has entered into any
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transaction which could be disregarded or recharacterized for Tax or Employee
Benefit purposes on the grounds that it aimed at the avoidance of Tax or
Employee Benefit obligations; and (iii) none of the Universal Entities is the
subject matter of any inquiry, investigation or audit relating to Tax or
Employee Benefit matters and have not been informed of any proposed audit.
(d) TAX AND EMPLOYEE BENEFIT AUDITS. The Disclosure Memorandum sets forth
the conclusions of any Tax or Employee Benefit audit or reassessment made during
the period not yet completely time barred by applicable statutes of limitation.
(e) RETURNS FURNISHED. The Universal Entities have furnished Gainor with
true and complete copies of (i) income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of each
Universal Entity relating to Taxes, and (ii) all tax returns for each Universal
Entity for all periods since July 1, 1994.
3.11 LITIGATION. Except as set forth in the Disclosure Memorandum, there
is no action, suit, investigation or proceeding pending or, to Universal's
Knowledge, threatened against or affecting a Universal Entity, Universal's
Business or the assets of a Universal Entity before any court or by or before
any governmental body or arbitration board or tribunal, nor is there any
internal investigation at any Universal Entity as to any circumstances that
would adversely affect Universal's Business or the Transferred Assets, nor is
there a basis for any such action, suit, investigation or proceeding. No action,
suit, investigation or proceeding listed on the Disclosure Memorandum will have
a Material Adverse Effect on Universal's Business prior to or following the
Closing.
3.12 ASSETS.
(a) DESCRIPTION. The Disclosure Memorandum sets forth a description, the
location, the historical cost and the net book value of all personal property
and leasehold improvements included in the Transferred Assets and in the assets
of the Purchased Companies with a net book value in excess of $500.00.
(b) TITLE. Each Universal Entity has good, valid and marketable title to all
of its assets, free and clear of any and all Encumbrances other than the
Permitted Encumbrances. The Universal Entities own all the real and personal
property reflected on the Interim Financial Statements. Upon the Closing, Gainor
shall have good, valid and marketable title to all of the Transferred Assets
free and clear of any and all Encumbrances, other than the Permitted
Encumbrances.
(c) POSSESSION. Except as set forth in the Disclosure Memorandum, each
material tangible asset of the Universal Entities and materially all of the
tangible assets of each Universal Entity in the aggregate are on Universal
Premises, in their possession and control and no one else has any right, title
or interest in any property or asset of the Universal Entities or used in
Universal's Business.
(d) ALL ASSETS. The assets of the Universal Entities reflected on the
Interim Financial Statements are all the assets used to conduct Universal's
Business as of the date of the Interim Financial Statements, and other than
those transferred or consumed in the ordinary course of business, all such
assets are in the possession of the Universal Entities.
(e) CONDITION. The assets of the Universal Entities that constitute tangible
personal property (collectively, the "Universal Properties") are in good
condition and repair, in satisfactory working order (ordinary wear and tear
excepted), have been maintained in accordance with reasonable procedures and are
suitable for their respective intended uses in connection with the operation of
Universal's Business. The properties leased or used by each Universal Entity do
not have any known material defects.
(f) COMPLIANCE. Universal Properties and the existing and prior uses thereof
by the Universal Entitles are in substantial compliance in all respects with all
applicable Rules. The Universal Entities have delivered to Gainor all material
reports and documents generated by the Universal Entities or any third party at
the direction of the Universal Entities about the condition of Universal
Properties or about such compliance.
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(g) INVENTORY. Except as set forth in the Disclosure Memorandum, all of the
Universal Entities' inventory included in the Interim Financial Statements is of
a quality usable and saleable in the ordinary and usual course of Universal's
Business, and the quantities of each type of inventory are not excessive, but
are reasonable, adequate and appropriate in the Universal Entities' present
circumstances. All of such inventory is valued for the purposes of the Interim
Financial Statements at the lower of cost or net realizable market value.
(h) ACCOUNTS RECEIVABLE. Each Universal Entity has provided Gainor with a
current, complete and accurate aging report of its accounts receivable, a copy
of the most recent of which is included in the Disclosure Memorandum.
(i) [intentionally omitted]
(j) INTERESTS IN OTHER PERSONS. Other than the shares of the Subsidiaries
owned by Universal and USC-Michigan, Inc. set forth in the Disclosure
Memorandum, no Universal Entity owns, either legally or beneficially, directly
or indirectly any participating interest in any partnership, limited liability
company, trust, joint venture, association or other non-corporate business
enterprise.
(k) BANK ACCOUNTS. The Disclosure Memorandum contains a list of all the
checking, depository or other bank accounts and any safe deposit boxes of or
relating to the assets, operations or business of the Universal Entities,
together with the authorized signers.
3.13 SUPPLIERS AND CUSTOMERS.
(a) The Disclosure Memorandum contains a list of: each supplier of goods or
services to each Universal Entity to whom such Universal Entity paid in the
aggregate more than $25,000 during the 12-month period ended September 30, 1997,
together with the amount paid during such period; and each customer or
third-party payor of each Universal Entity to whom such Universal Entity billed
in the aggregate more than $50,000 during the 12-month period ended September
30, 1997, together with the amount billed during this period. Except as set
forth in the Disclosure Memorandum, there has been no change in the
reimbursement rates for any such third-party payor during such 12-month period
in excess of 2%, nor does any Universal Entity have any knowledge of any such
proposed change.
(b) The Universal Entities have agreements with the managed care providers
listed in the Disclosure Memorandum (identified by provider and the applicable
Universal Entity) covering approximately 8,300 patients (the "Managed Care
Customers"); true, correct, and complete copies of such agreements are contained
in the Disclosure Memorandum, and except as set forth in the Disclosure
Memorandum, all such agreements will remain in full force and effect after the
Closing; except as set forth in the Disclosure Memorandum, no such agreement
requires assignment, and no such agreement may be terminated due to the transfer
of the Purchased Shares to Gainor Acquisition; and to Universal's Knowledge,
each such provider will do business with Gainor following the Closing
substantially to the same extent they did business with Universal prior to
Closing.
(c) At least 50,691 customers have ordered from the Universal Entities
within the last 365 days; at least 35,507 customers have ordered from the
Universal Entities within the last 120 days; and the Universal Entities have
made monthly shipments of at least 18,291 packages in each of the three full
calendar months prior to date of this Agreement. The Disclosure Memorandum sets
forth, for each month between December 31, 1996 and September 30, 1997, the
number of patient referrals, the number of packages shipped and the net revenue
of each Universal Entity.
(d) Except as set forth in the Disclosure Memorandum, there are no material
disputes between any Universal Entity (or to Universal's Knowledge, any of the
Universal Entities' employees or representatives) and any of the Universal
Entities' significant suppliers, customers or others doing business with any
Universal Entity. Except as set forth in the Disclosure Memorandum, neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereunder will have any material
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adverse effect on the business relationship of any Universal Entity with any
significant supplier or customer.
3.14 TRADE SECRET AND EMPLOYMENT CLAIMS. Except as set forth in the
Disclosure Memorandum, Universal has not received notice that any third party
has claimed that any Universal Entity, any Stockholder, or any director,
officer, manager, employee or agent of any Universal Entity, in respect of
activities on behalf of any Universal Entity or in respect of the operations of
Universal's Business to date, has (i) violated any of the terms or conditions of
any employment contract with a third party, (ii) infringed any patent, trademark
or copyright of a third party, (iii) disclosed or used any trade secrets or
proprietary information or documentation of such third party, or (iv) interfered
in the employment relationship between a third party and any of his or its
employees; nor does any Universal Entity have any reason to believe that any
such violation, disclosure, use or interference has occurred.
3.15 INTELLECTUAL PROPERTY.
(a) The Disclosure Memorandum (i) lists all patents, patent applications,
trade names, trademarks, service marks, trademark and service mark registrations
and applications, all material patent, trademark and service mark licenses, all
material copyrights, all material computer software, other than retail
shrinkwrap software, and all databases and other intellectual property, that are
owned by or registered in the name of the Universal Entities or to which the
Universal Entities have any rights as licensee or otherwise, which list
specifies which items are owned and to which items the Universal Entities have
rights as a licensee or otherwise; and (ii) lists all material contracts,
agreements or understandings pursuant to which the Universal Entities have
authorized any person to use, or which any person otherwise has the right to
use, in any business or commercial activity, any of the items listed in clause
(i) above.
(b) The items listed or described in the Disclosure Memorandum pursuant to
the preceding subsection (a) constitute or represent all of the material
intellectual property used to conduct Universal's Business, and the Universal
Entities' ownership and use rights with respect thereto are free and clear of
Encumbrances, other than Permitted Encumbrances.
(c) All federal trademark or service mark registrations, and all
applications to register any trademarks or service marks with any trademark
register maintained by the United States Patent and Trademark Office or any
similar authority of any state or foreign country, filed or in the name of any
Universal Entity, are based on truthful affidavits or declarations of use.
(d) Except as set forth in the Disclosure Memorandum, no Universal Entity
has infringed upon any patent, service mark, trade name, trademark, copyright,
trade secret or other intellectual property belonging to any other Person; and
no Universal Entity has agreed to indemnify any Person for or against any
infringement of or by the intellectual property set forth in the Disclosure
Memorandum. To the knowledge of Universal, no person is infringing upon any of
the Universal Entities' patents, patent applications, trade names, trademarks,
service marks, trademark and service mark registrations, licenses, copyrights,
computer software or other intellectual property which infringement would have a
Material Adverse Effect.
(e) The Universal Entities own or license all computer software and
databases that are necessary to conduct Universal's Business as presently
conducted by the Universal Entities and all material documentation relating to
all such computer software and databases. The computer software performs in all
material respects in accordance with the documentation related thereto or used
in connection therewith and is free of material defects in programming and
operation.
3.16 CONTRACTS.
(a) The Disclosure Memorandum includes a list of all Universal Contracts
with a value, expected payments or expected benefits in excess of $25,000,
identified by Universal Entity, and all other Universal
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Contracts that are material to Universal's Business, true, correct and complete
copies of which are contained in the Disclosure Memorandum, including without
limitation the following:
(i) all agreements and participation agreements between a Universal
Entity and any provider or pharmacy which serves Medicare or Medicaid
patients;
(ii) all managed care contracts or approvals in a managed care plan or
third-party program;
(iii) all third-party payor contracts;
(iv) all bank accounts associated with Universal's participation in each
Medicare/Medicaid or other third party payor program; and
(v) all agreements with Medicare, MediCal, and any state Medicaid or any
fiscal intermediary for Medicare, MediCal, or any Medicaid agency.
(vi) all agreements with billing agencies and financial or fiscal
intermediaries; and
(vii) all contracts or other documents regarding arrangements with
referral sources and marketing agents.
(b) True and correct copies of each of the following documents received by
any Universal Entity since January 1, 1995 have been delivered to Gainor, and
each such document which could reasonably be expected to have a Material Adverse
Effect has been listed on the Disclosure Memorandum:
(i) all notices or other correspondence with any third party payor
terminating a contract or relationship and the reason for such termination
or alleging any breach of any such contract;
(ii) all notices or other correspondence with any managed care plan
terminating a contract or relationship and the reason for such termination
or alleging any breach of any such contract;
(iii) all notices, if any, to terminate a provider or participation
agreement with any Universal Entity or alleging a breach of any such
agreement; and
(iv) all discount pricing policies.
(c) Except as set forth in the Disclosure Memorandum:
(i) Each contract required to be listed in Section 3.16(a) is in full
force and effect and constitutes a binding obligation of all parties
thereto, enforceable against the other party or parties to such contracts in
accordance with its terms; no such contract has been canceled or otherwise
terminated, and to the knowledge of Universal there is no threat to do so.
(ii) There are no existing defaults or events of default, real or
claimed, or events (including the sale of the Purchased Shares) which with
notice or lapse of time or both would constitute material defaults under any
Universal Contract.
(iii) There are no Universal Contracts relating to Universal's Business
or the assets of a Universal Entity with any director or officer of any
Universal Entity, any Stockholder, or any person with a greater than 5%
ownership interest in Universal's Common Stock, or with any person related
to any such person or with any company or other organization in which any
director, officer of any Universal Entity, any Stockholder, or any person
with a greater than 5% ownership interest in Universal's Common Stock or
anyone related to any such person, has a direct or indirect financial
interest, excluding less than a 5% interest in any Company listed on a
national or regional stock exchange or on the NASDAQ market.
(iv) No Universal Entity is subject to any contract or agreement: (i)
that contains covenants limiting the freedom of any Universal Entity to
compete in any line of business in any geographic area; (ii) that requires
any Universal Entity to share any profits, or requiring any payments or
other
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distributions based on profits, revenues cash flows or referrals; (iii)
pursuant to which third parties have been provided with products that can be
returned to any Universal Entity in the event they are not sold; or (iv)
that otherwise has had or would reasonably forseeably have a Material
Adverse Effect.
(v) There are and have been no referral agreements, discounts, rebates,
kickbacks, or referral payments or fees made or paid by any Universal Entity
in violation of any Rule.
3.17 LEASES.
(a) Real Property. No Universal Entity owns any real property. Except as set
forth in the Disclosure Memorandum, no Universal Entity leases any real
property. Universal has delivered to Gainor true, correct, and complete copies
of the following with respect to each parcel of real property listed or
described in the Disclosure Memorandum: each lease and option to purchase (if
any) with respect to such property to which a Universal Entity is a party and
any surveys in Universal's possession with respect to such property. Except for
Permitted Encumbrances and other matters set forth in the Disclosure Memorandum,
to the knowledge of Universal no real property leased or used by any Universal
Entity is subject to (i) any governmental decree or order (or threatened or
proposed order known to such Universal Entity) to be sold, condemned or
otherwise taken by public authority; or (ii) any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever, not of record which would have a material adverse effect on Gainor's
use of such property. All such leases shall be transferred and assigned as
required herein, and shall remain in full force and effect immediately following
such transfers and assignments; provided, however, that the Universal Entities
make no representations with respect to the effect any conduct by Gainor may
have on the effectiveness of any such lease.
(b) Other Property. The Disclosure Memorandum contains a complete and
accurate list of all leases (including any capital leases) and lease-purchase
arrangements with a total annual lease payment in excess of $10,000 pursuant to
which any Universal Entity leases any property (other than real property) from
others. Except as set forth in the Disclosure Memorandum, the Universal
Entities' possession of such property has not been disturbed, nor has any claim
been asserted against the Universal Entities adverse to its rights in such
leasehold interests. All such leases that are required to be capitalized by the
Accounting Standards have been so accounted for in the Universal Financial
Statements, and such leases are identified as capital leases in the Disclosure
Memorandum. Except as set forth in the Disclosure Memorandum, all such leases to
which a Selling Company is a party are fully assignable to Gainor and shall be
assigned to Gainor at the Closing and all of such leases to which a Purchased
Company is a party will remain in full force and effect after Closing. No lease
will be adversely affected by its assignment to Gainor, the transfer of the
Purchased Shares or otherwise by the consummation of the transaction
contemplated herein.
3.18 PERMITS. Except as set forth in the Disclosure Memorandum:
(a) The Universal Entities and their employees (as applicable), hold all
permits, licenses, franchises and authorizations from governmental and
regulatory authorities as are necessary to conduct Universal's Business in the
manner in which it has been and is being conducted (the "Universal Permits"),
true, complete and correct copies of which Universal Permits are contained in
the Disclosure Memorandum, including but not limited to the following:
(i) a list of all states from, in or to which any Universal Entity mails
prescription drugs, a description of any governmental permits or licenses
held by any Universal Entity required to do so or regarding the use of the
mails in any of these states, and a statement as to where such mailings are
made;
(ii) all medical, healthcare, and pharmacy related permits, licenses,
franchises and authorizations from governmental and regulatory authorities,
including DEA numbers and/or approvals, and Medicare, MediCal, and any
Medicaid agency supplier or provider numbers and the Universal Entity which
uses such number(s);
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(iii) all approvals, certifications, or licenses granted by the FDA
(including 510(k)'s), with a description of the device or procedure so
approved; and
(iv) all approvals by or participation in private accrediting agency
programs, evidence of which has been provided to Gainor.
(b) True, correct and complete copies of all correspondence regarding any
material adverse information concerning any of the Universal Permits, all
material notices concerning any of the Universal Permits, and other material
information concerning the Universal Permits are contained in the Disclosure
Memorandum, including but not limited to the following:
(i) all material documents relating to any governmental agency surveys,
investigations and inspections regarding any Universal Entity or Universal's
Business, the Universal Entity's response to any deficiency or other problem
noted, and copies of all documents regarding any such problem or deficiency;
(ii) all material correspondence with the Health Care Financing
Administration, any state Medicaid agency or any fiscal intermediary
relating to the filing or auditing of any Medicare and Medicaid cost reports
or any actions or claims relating to recoupment, penalties, offsets or other
material adverse actions relating to reimbursement;
(iii) all current marketing materials and other material communications
with referral sources or patients.
(iv) all pricing and billing policies and procedures and documentation
permitting an audit of a sample of claims made to Medicare, MediCal, and any
Medicaid agency programs.
(v) all correspondence with any licensing or permitting agency in any
state or the federal government referencing any noncompliance (whether
because of an action or an omission) with any licensure or permitting
requirement, any claims or charges past or pending against any Universal
Entity, its officers, directors, employees, or, to Universal's knowledge,
its agents, contractors or affiliates, alleging violations of applicable
regulatory requirements including physician ownership or referral
requirements of state or federal law;
(vi) all court or agency orders, rulings, judgments or settlement
agreements or evidence of other regulatory sanctions against any Universal
Entity, its officers, directors or employees that relate to Universal's
Business which would have a Material Adverse Effect;
(vii) all documents relating to investigations or material inquiries,
including subpoenas or other material requests for information by
governmental agencies and Universal's response;
(viii) each of Universal's compliance programs or policies and documents
relating to complaints, inquiries and internal investigations relating to
possible regulatory compliance issues including physician ownership or
referral requirements of state or federal law.
(c) Except as set forth in the Disclosure Memorandum: all of the Universal
Permits of the Selling Companies are fully transferable to Gainor, and none of
the Universal Permits of the Purchased Companies will be terminated, canceled,
revoked or otherwise materially adversely affected by the transactions
contemplated herein. With respect to the Universal Permits of the Purchased
Companies which will be terminated, canceled, revoked or otherwise materially
adversely affected by the transactions contemplated herein, if any, all
standards and conditions to be met by Universal necessary for the reissuance of
such Universal Permits have been satisfied or obtained and will continue until
the Closing to be satisfied by the operation of the Universal Entities. No event
has occurred that allows (nor after notice or lapse of time or both would allow)
revocation or termination of any Universal Permit or would result in any other
impairment of the rights of the holder of any Universal Permit.
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(d) The Disclosure Memorandum lists all physicians who had a direct or
indirect ownership interest in Universal prior to the initial public offering of
stock of Universal, which ownership interest would raise any issue under Stark
II, and all physicians having any compensation or any referral arrangement with
any Universal Entity. No Universal Entity is in or has committed any violation
of any state or federal physician self referral law, including Stark II or the
federal anti-kickback statute.
(e) Each Universal Entity has all necessary certificates of medical need and
benefit assignments as required to receive reimbursement from Medicare, Medicaid
and MediCal and other third party payors for each of its customers who rely on
third party payors for payment.
3.19 LABOR MATTERS.
(a) The Universal Entities are in substantial compliance with all Rules
respecting employment and employment practices, terms and conditions of
employment, wages and hours.
(b) No Universal Entity is nor has been engaged in any unfair labor
practice, and no unfair labor practice complaints against the Universal Entities
are pending before the National Labor Relations Board or similar authority.
There are no labor strikes or other labor trouble actually pending, or to the
Knowledge of Universal being threatened against or affecting the Universal
Entities; relations between management and labor are generally amicable; and
there have not been, nor are there presently, to the knowledge of Universal, any
attempts or plans to organize the Universal Entities' employees.
(c) There is no agreement, arrangement or understanding between the
Universal Entities and any trade union, any representative of any trade union or
any bargaining agent in respect of any of the Employees.
(d) No Universal Entity has done, nor omitted to, do any act or thing the
doing or omissions of which is or could be a material breach of any term
contained or implied in any agreement between the Universal Entities and any of
the Employees, or of any provision of any arrangement, practice, custom or
understanding (whether or not legally enforceable) between any trade union and
the Universal Entities, which act or thing, or the omission thereof, would
foreseeably result in any collective bargaining obligation.
3.20 EMPLOYEES.
(a) The Disclosure Memorandum sets forth as to each Employee: his or her
name, the Universal Entity he or she works for, the location of employment, the
date on which he or she was hired, the basic weekly or hourly rate of pay
(separately listing any bonus), a true and correct estimate of each of the
Employee's accrued sick leave entitlement up to the Closing Date, a true and
correct estimate of each of the Employee's accrued vacation up to the Closing
Date, and a true and correct estimate of all other benefits actually or
continently accruing to any Employee as of the Closing Date. Except as set forth
in the Disclosure Memorandum, no Universal Entity has any obligation to pay
severance to any Employee under any circumstances, contingent or otherwise.
(b) The Disclosure Memorandum sets forth as to each officer or other manager
of any Universal Entity, the information described in subsection (a) above, as
well as the current compensation rate (salary, bonus, commission or other) for
each such person.
(c) All the items described in the preceding subsections (a) and (b) which
remain unpaid will have been accrued as liabilities of the Universal Entities as
of the Closing Date and reflected on the Closing Balance Sheets.
(d) Except as set forth in the Disclosure Memorandum, no Universal Entity
has entered into any written employment agreement or any other material
agreement with any Employee, for a fixed term or otherwise.
(e) Since June 30, 1997, no Employee has received a raise out of the
ordinary course of business, and no raises have been withheld in contemplation
of the sale of Universal's business.
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(f) Except as set forth in the Disclosure Memorandum, during the last five
years no significant accident or injury to an Employee has occurred at Universal
Premises.
(g) No Universal Entity or Stockholder has any reason to believe that any
key Employee of any Purchased Company will voluntarily leave such Purchased
Company in connection with the sale of the Transferred Assets to Gainor
hereunder, other than due to the termination of a significant number of
employees in connection herewith.
(h) The Universal Entities have made available to Gainor all employment
records for each Employee.
(i) To Universal's knowledge, no Transferring Employee is under any
obligation which would prevent or limit such employee from performing any duty
in furtherance of Universal's or Gainor's Business, including without limitation
any no-compete, no-hire, or non-solicitation obligation pursuant to any
employment or other agreement with any party.
(j) The Disclosure Memorandum contains a list of all licensed pharmacists,
pharmacy assistants and physicians employed or engaged by or contracted with or
by any Universal Entity, specifying the Universal Entity which employs such
person, the type of license, all states or other governmental entities which
have licensed such individual, the license number (if any), any employed
physicians' DEA number and a list of all correspondence known to Universal
relating to any adverse actions against any such persons, true, correct and
complete copies of which are contained in the Disclosure Memorandum. All such
persons are properly licensed by all applicable governmental and regulatory
agencies with respect to their activities on behalf of the Universal Entities,
and Universal has no Knowledge of any material problems or adverse actions
regarding any such license. No Universal Entity or Stockholder has any reason to
believe that any such licensed pharmacists, pharmacy assistants or physicians of
any Purchased Company will voluntarily terminate his or her employed, engagement
or contracted with or by such Purchased Company in connection with the sale of
the Transferred Assets to Gainor hereunder, for any reason other than due to the
termination of a significant number of employees in connection herewith.
3.21 EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS.
(a) LIST OF PLANS AND OBLIGATIONS. The Disclosure Memorandum sets forth a
complete and accurate list and description of all plans, arrangements,
agreements, commitments, promises and other obligations of all the Universal
Entities, including but not limited to pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, sick leave without compensation, bonus and other incentive plans,
every medical, vision, dental and other health plan, every life insurance plan
and every other written or unwritten employee program, arrangement, agreement or
understanding, commitment or method of contribution or compensation, whether
formal or informal, whether funded or unfunded and other obligations under which
the Universal Entities have been, are or will be obligated to provide benefits
to any current or former Employee, retiree, director, independent contractor,
shareholder, officer, consultant or other beneficiary, or dependent, spouse or
other family member or beneficiary of such Employee, retiree, director,
independent contractor, shareholder, officer, consultant or other beneficiary,
of such Universal Entity whether during their employment with such Universal
Entity or after the termination of such employment (the "Plans" and the
"Beneficiaries", respectively).
(b) COMPLIANCE. All of the Plans have been maintained, funded and
administered in substantial compliance with all Rules, including but not limited
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Internal Revenue Code of 1986, as amended and all final regulations and
rulings related thereto. There are no penalties, fines, interest or Taxes
related to the Plans due to any federal or state authority.
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(c) NO LIABILITIES OR OBLIGATIONS. Except as reflected on the Interim
Financial Statements, or as otherwise set forth on the Disclosure Memorandum,
the Universal Entities have no liabilities or obligations to any Beneficiaries,
governmental authorities or any other parties arising out of or relating to the
Plans.
(d) NO PAYMENTS. Except as set forth in the Disclosure Memorandum, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any Beneficiary to any severance pay, unemployment compensation or any
other payment contingent upon a change in control or ownership of any Universal
Entity or its assets or (ii) accelerate the time of payment or vesting or
increase the amount of any compensation or benefit due to any Beneficiary.
(e) NO MULTI-EMPLOYER PLANS. Except as set forth in the Disclosure
Memorandum, none of the Plans is a multi-employer plan, as defined in Section
3(37) of ERISA.
3.22 ENVIRONMENTAL MATTERS.
(a) No Universal Entity has been at any time in, and no condition or event
has occurred in relation to Universal's Business which with notice or the
passage of time or both would constitute a material violation or contravention
of any Environmental Law or any licenses, approvals, consents, permissions or
permits issued under any Environmental Law.
(b) Universal Premises are not contaminated nor are they in such condition
as to justify or lead any government or semi-government body to issue any
notice, direction or order requiring clean-up, decontamination, remedial action
or making good under any Environmental Law.
(c) There are no circumstances whatsoever affecting Universal Premises or
Universal's Business or operations conducted by or on behalf of the Universal
Entities in connection with Universal's Business which may give rise to a claim
by any third party arising from property damage or personal injury or death
caused by any Hazardous Material of whatever nature caused or contributed to in
whole or in part by the Universal Entities or Universal Premises, operations or
business of the Universal Entities.
(d) Except as set forth in the Disclosure Memorandum: (i) there are no
Hazardous Materials in, on or under Universal Premises; (ii) there are no
current and there have not been any past releases of Hazardous Materials from or
onto Universal Premises that are or were subject to regulation under any
Environmental Law, or that may make the Universal Entities or Gainor subject to
an action under any Rule, or liable in tort or under a common law public or
private nuisance action; and (iii) Universal Premises and all activities
conducted thereon have complied with all applicable Environmental Laws. Neither
the Universal Entities nor, to the knowledge of the Universal Entities, anyone
related to the Universal Entities, directly or indirectly, has indemnified any
other party with respect to transportation, storage or use of Hazardous
Materials.
(e) The Universal Entities have obtained from all governmental, local and
other relevant authorities or agencies all necessary licenses or other
authorizations required under the Environmental Laws in relation to the carrying
on of Universal's Business. Except as set forth in the Disclosure Memorandum,
all such licenses and authorizations have been granted on the basis that they
are unconditional and do or did not require the undertaking or performance by
the Universal Entities of any obligation of any nature (including, without
limitation, any obligation to make any payment of any nature to any person),
remain in full force and effect and permit the carrying on by the Universal
Entities of the Universal Entities' Business and all activities related thereto
on the basis disclosed to Gainor, and at least at the same level of activity as
has existed in relation thereto over the period of one year prior to the date
hereof. No Universal Entity has any knowledge that any such permit, license or
authorization is in the process of being terminated or revoked or knows of any
reason why any such license, permit or authorization should or could be
terminated or revoked.
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(f) No Universal Premises has and no Universal Entity has or has ever had
responsibility for or control of any underground storage tank or other
underground storage facilities.
(g) Except as set forth in the Disclosure Memorandum, no building or other
improvement on Universal Premises contains any asbestoscontaining materials.
(h) Except as set forth in the Disclosure Memorandum, Universal Premises do
not contain any PCBs in any form.
3.23 INSURANCE POLICIES. The Disclosure Memorandum sets forth a complete
and accurate list and description of all insurance policies in force naming any
Universal Entity, or any employees thereof in their capacity as such, as an
insured or beneficiary or as a loss payable payee, or for which any Universal
Entity has paid or is obligated to pay all or part of the premiums. Except as
set forth in the Disclosure Memorandum, the Universal Entities have not received
notice of any pending or threatened termination or premium increase (retroactive
or otherwise) with respect thereto, and the Universal Entities are in compliance
with all material conditions contained therein. Except as set forth in the
Disclosure Memorandum, there have been no lapses (whether cured or not) in the
coverage provided under the insurance policies, referenced herein and as set
forth in the Disclosure Memorandum.
3.24 EVENTS AFTER JUNE 30, 1997. Except as set forth in the Disclosure
Memorandum, since June 30, 1997, each Universal Entity has conducted its
business only in the ordinary course, consistent with reasonable past practices,
and has not:
(a) suffered any material property or casualty loss, or aived any material
right;
(b) made any changes in officer, director or employee compensation, or paid
any other bonus, except in the ordinary course of business and consistent with
reasonable past practice;
(c) lost a major customer or vendor or received a notice of nonrenewal from
a major customer or vender, suffered a material deterioration in any
relationship with any third-party payor or any other significant relationship or
experienced any other Material Adverse Effect;
(d) made any change in any method, practice or principle of financial or tax
accounting;
(e) made any sales on terms (including but not limited to discounts,
extended payment terms and other incentives) inconsistent with reasonable prior
practices;
(f) entered into any commitment or transaction resulting in a Material
Adverse Effect ;
(g) realized a material asset (or material group of assets) or reduced a
material liability (or material group of liabilities) related to a transaction
with a customer or supplier that was not authorized by the customer or supplier;
(h) failed to maintain the Universal Financial Statements and its books of
account in accordance with the Accounting Standards;
(i) sold, assigned, transferred or encumbered any of its assets or affected
the carrying value of any its liabilities, including without limitation any
commercial agreements, or entered into any arrangement to purchase assets and/or
assume liabilities (except in each case as required in the ordinary course of
business);
(j) paid, discharged, satisfied or renewed any claim, liability or
obligation other than payment in the ordinary course of business and consistent
with reasonable past practice;
(k) made any distribution or declared or paid any dividends to any
stockholders, received any capital contribution, or redeemed, purchased or
otherwise acquired any shares;
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(l) made any payment of cash or any transfer of other assets, to any
shareholder or affiliate thereof, or paid, loaned, advanced, sold, transferred
or leased any asset to any employee, except for normal compensation involving
salary and benefits;
(m) failed to perform in all material respects its obligations under the
Universal Contracts;
(n) failed to manage working capital components (including cash,
receivables, other current assets, trade payables and other current liabilities)
in a fashion consistent with reasonable past practice, including failing to sell
inventory and other property in an orderly and prudent manner or failing to make
all budgeted and other normal capital expenditures, repairs, improvements and
dispositions;
(o) failed to use commercially reasonable efforts to increase its sales in a
profitable manner, enhance its financial position, address market changes,
preserve its business, keep available the services of its present employees, and
preserve the goodwill of its customers, suppliers and others having business
relations with it; or
(p) agreed to take any action described in this Section 3.24.
3.25 COPIES PROVIDED TO GAINOR. Universal has delivered to Gainor true,
correct and complete copies of each of the contracts, agreements, instruments,
other documents, material notices and correspondence listed in the Disclosure
Memorandum.
3.26 BROKERS. No broker or finder has acted on behalf of any Universal
Entity or Stockholders in connection with this Agreement and the transactions
contemplated hereby, and neither the Universal Entities nor any Stockholder has
made any other agreement to pay any agent, finder, broker or any other
representative any fee or commission in the nature of a finder's or originator's
fee arising out of or in connection with the subject matter of this Agreement.
3.27 PUBLIC FILINGS. All registration statements, periodic reports, and
other material filed by Universal with the Securities and Exchange Commission
(the "SEC"), and all press releases issued by Universal, as of the respective
dates thereof were true and correct in all material respects in light of the
circumstances in which they were made, and accurately portrayed the then current
business and status of Universal, and all financial statements filed with the
SEC as of the respective dates thereof were true and correct in all material
respects, were prepared in accordance with generally accepted accounting
practices, and fairly presented Universal's financial position as of the dates
thereof and the results of Universal's operations for the periods covered
thereby. Except as set forth in the Disclosure Memorandum, no changes have
occurred which would make any such materials filed with the SEC, press releases
or financial statement untrue or misleading in any material respect.
3.28 PROXY STATEMENT. The Proxy Statement (including any amendments and
supplements thereto) will conform in all material respects to the requirements
of the Securities Act and the rules and regulations of the SEC thereunder and
shall not when filed with the SEC or mailed to the stockholders of Universal
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, provided that Universal makes no representation with
respect to disclosures concerning Gainor based on information provided by Gainor
for inclusion in the Proxy Statement.
3.29 ADVERSE INFORMATION. No Universal Entity, nor any Stockholder, has
withheld information about any conditions, facts or circumstances that have had
or reasonably could be expected to have a Material Adverse Effect.
3.30 OTHER INFORMATION. No representation, warranty or statement made by
any Universal Entity or Stockholders in this Agreement, the Disclosure
Memorandum or any other document or instrument furnished to Gainor in connection
with the transactions contemplated herein, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein in light of the circumstance in which they were made
not misleading.
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ARTICLE 3B
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDERS
To induce Gainor to execute, deliver and perform this Agreement, and in
acknowledgment of Gainor's reliance on the following Warranties, each of the
Stockholders hereby severally represents and warrants to Gainor as follows as of
the date hereof and as of the Closing.
3B.1 POWER AND AUTHORITY OF STOCKHOLDERS. Each Stockholder has the right,
power and capacity to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by such of the Stockholders and constitutes
each Stockholder's legal, valid and binding obligation, enforceable in
accordance with its terms except to the extent that its enforceability is
limited by bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of creditors' rights generally or by general
principles of equity. The execution and delivery of this Agreement by each
Stockholder, the consummation of the transactions contemplated herein by such
Stockholder, and the performance of the covenants and agreements of the
Stockholders, will not, with or without the giving of notice or the lapse of
time, or both, (i) violate, conflict with or result in a breach or default under
or cause termination of any term or condition of any material mortgage,
indenture, contract, lease, license, permit, instrument, trust document, or
other agreement, document or instrument to which such Stockholder is a party or
by which the Stockholders or any of their properties may be bound; (ii) violate
any Rule, the result of which would have a Material Adverse Effect.
3B.2 WARRANTIES OF THE UNIVERSAL ENTITIES. To Stockholder's Knowledge, of
the Stockholders, the Warranties of the Universal Entities in Article 3A hereof
are true and correct in all material respects and none of such Warranties omits
to state a material fact necessary to be stated therein in order to make any
such Warranty in light of the circumstances in which they were made not
misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF GAINOR
4.1 To induce Universal, the Universal Entities and the Stockholders to
execute, deliver and perform this Agreement, and in acknowledgment of each of
their reliance on the following representations and warranties, each of Gainor
Acquisition and Gainor Management hereby jointly and severally represent and
warrant to each of the Universal Entities and each of the Stockholders as
follows as of the date hereof and as of the Closing:
(a) Gainor Acquisition is a corporation duly organized and validly existing
under the laws of Georgia and has all requisite power and authority, corporate
or otherwise, to carry on and conduct its business as it is now being conducted
and to own or lease its properties and assets.
(b) Gainor Management is a limited liability company duly organized and
validly existing under the laws of Georgia and has all requisite power and
authority, to carry on and conduct its business as it is now being conducted and
to own or lease its properties and assets.
(c) Each of Gainor Acquisition and Gainor Management has obtained all
necessary consents, approvals, authorizations or estoppels of any other Person
or governmental or regulatory authority required to be obtained to execute and
perform under this Agreement and to authorize and permit Gainor Acquisition to
purchase all of the Transferred Assets. The execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby,
by Gainor Acquisition and Gainor Management have been duly and validly
authorized by all necessary action, corporate or otherwise, on the part of
Gainor Acquisition and Gainor Management required to take such action and will
not, without the giving of notice or the lapse of time, or both (i) violate or
conflict with any of the provisions of the Articles of Incorporation, bylaws or
other governing documents of Gainor Acquisition or Gainor Management; (ii)
violate, conflict with or result in a breach or default under or cause
termination of any
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term or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, or other agreement, document or instrument to which
Gainor Acquisition or Gainor Management is a party or by which it or any of
their respective properties may be bound; (iii) violate any Rule.
(d) This Agreement has been duly and validly executed by each of Gainor
Management and Gainor Acquisition and constitutes each such party's legal, valid
and binding obligation, enforceable in accordance with its terms, except to the
extent that its enforceability is limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditors rights generally or by general principles of equity.
4.2 PROXY STATEMENT. None of the information relating to Gainor to be
supplied by Gainor for use in the Proxy Statement, at the time the Proxy
Statement is filed with the SEC and when mailed to the stockholders of
Universal, will contain any untrue statement of a material fact or will omit to
state a material fact necessary to be stated therein in order to make the
statements contained therein in light of the circumstances in which they were
made not misleading. If at any time prior to the Closing Date, an event or
circumstance relating to Gainor or any of their officers, directors or
stockholders occurs that should be set forth in an amendment or supplement to
the Proxy Statement, Gainor shall promptly inform Universal.
4.3 FINANCIAL MATTERS. The Gainor Financial Statements, as provided to
Universal, including the footnotes thereto are complete, have been prepared in
accordance with the Accounting Standards, consistently applied, and fairly
present the financial position of Gainor Management as of the dates thereof and
the results of its operations for the respective periods thereof.
ARTICLE 5
CONDUCT OF BUSINESS PRIOR TO CLOSING
Pending the Closing or earlier termination of this Agreement in accordance
with its terms, each Universal Entity will operate and conduct its Business
diligently and only in accordance with reasonable prior practices and will not
make or institute any material changes in its methods of purchase, sale,
management, distribution, marketing, accounting or operation. Pursuant thereto
and not in limitation of the foregoing:
5.1 FINANCIAL STATEMENTS; FINANCIAL POSITION. Each Universal Entity shall
maintain its financial statements in accordance with the Accounting Standards,
use reasonable efforts to maintain each Universal Entity's financial position,
and use commercially reasonable efforts to maintain each Universal Entity's
revenues in a profitable manner.
5.2 WORKING CAPITAL. Each Universal Entity shall manage its working
capital, including cash, receivables, other current assets, trade payables and
other current liabilities, in a profitable manner consistent with reasonable
past practices, including by maintaining adequate reserves of inventory to
fulfill customer orders, and paying outstanding obligations, trade accounts and
other indebtedness as they come due in accordance with reasonable and prudent
past practices.
5.3 MAINTENANCE OF ASSETS, PERMITS BUSINESS. Each Universal Entity shall
maintain its assets in their present state of repair (ordinary wear and tear
excepted), and shall use its reasonable best efforts to keep available the
services of its employees, to continue to perform in material compliance with
its obligations under the Universal Contracts and to preserve the goodwill, if
any, of its business and relationships with the customers, licensors, suppliers,
distributors and brokers with whom it has business relations. Each Universal
Entity shall maintain all Universal Permits and shall obtain any permit or
license required to conduct any of Universal's Business prior to the Closing.
5.4 NOTICE OF DISPUTES. Universal shall promptly advise the Designated
Official of the details of any material disputes, claims, actions, suits or
proceedings pertaining to or otherwise materially adversely affecting
Universal's Business, affairs, assets or contracts.
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5.5 NO ACTION WITHOUT CONSENT. No Universal Entity shall take any of the
following actions after the date of this Agreement and prior to Closing or
termination of this Agreement without the prior written consent of the
Designated Official:
(a) sell, assign, transfer or otherwise dispose of any material Transferred
Asset or any material fixed asset of any Purchased Company except in the
ordinary course of business consistent with past practice;
(b) dispose of any other asset of a Universal Entity except in the ordinary
course of business consistent with reasonable past practices;
(c) subject any material asset of any Universal Entity to a material
Encumbrance, other than a Permitted Encumbrance;
(d) materially affect the carrying value of any existing liability or enter
into any arrangement to assume liabilities (except as required in the ordinary
course of business);
(e) purchase or commit to purchase any capital asset for a price exceeding
$25,000;
(f) enter into any leasing arrangement for any real or personal property
where the annual payments will exceed $25,000;
(g) enter into or modify any contractual arrangement with directors or
officers or any material contract with any manager, employee or consultant;
(h) increase or announce any increase of any salaries, wages or benefits for
directors, officers, managers or employees, or hire, commit to hire or terminate
any employee (except in the ordinary course of business, including but not
limited to anniversary date salary or wage increases consistent with reasonable
past practice);
(i) amend any of its Charter Documents (other than as set forth in the Proxy
Statement or required by law);
(j) issue, sell or repurchase any of its shares, or make any change in its
issued and outstanding shares, or issue any warrant, option or other right to
purchase shares or any security convertible into its shares, or redeem, purchase
or otherwise acquire any shares, or declare or pay any dividends or make any
other distribution with respect to its shares except pursuant to obligations set
forth in the Disclosure Memorandum;
(k) incur, assume or guarantee any material obligation or liability for
borrowed money, except for repayments, and reborrowings under Universal's
revolving credit facility with Health Partners Funding, L.P., or exchange,
refund or renew any outstanding indebtedness in such a manner as to reduce the
principal amount of such indebtedness and increase the interest rate or balance
outstanding, except in the ordinary course of business consistent with past
practice;
(l) cancel any material debts owed to it, except for consideration deemed
fair and reasonable by the Board of Directors of the appropriate Universal
Entity;
(m) amend or terminate any material agreement, including any employee
benefit plan or any insurance policy, in force on the date hereof;
(n) solicit or entertain any offer for, or sell or agree to sell, or
participate in any business combination with respect to, any of its shares;
(o) make any material changes in accounting methods, principles or
practices;
(p) do any act, omit to do any act or permit any act within its control
which will cause a material breach or untruth of any Warranty, or a material
breach of any obligation contained in this Agreement or contained in any
material contract;
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(q) issue substitute share certificates to replace certificates which have
been lost, misplaced, destroyed, stolen or are otherwise irretrievable, unless
an adequate bond or indemnity agreement has been duly executed and delivered to
the Universal Entity (with the exception of Universal);
(r) enter into any material contract or commitment except in the ordinary
course of business consistent with reasonable past practice;
(s) take any action which would have an adverse effect on any Universal
Permit; or
(t) Agree to take any of the prohibited actions described in this Section
5.5.
ARTICLE 6
COVENANTS OF THE PARTIES
6.1 COOPERATION. The Universal Entities and Stockholders, on the one hand,
and Gainor, on the other hand, shall cooperate fully with each other and their
respective employees, legal counsel, accountants and other representatives and
advisers in connection with the steps required to be taken as part of their
respective obligations under this Agreement; and shall, at any time and from
time to time after the Closing, upon the request of the other, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, receipts, acknowledgments, acceptances and assurances as may
be reasonably required (without incurring unreasonable unreimbursed expense) to
satisfy and perform the obligations of such party hereunder, and to allow Gainor
to operate Universal's Business after Closing in the manner in which it was
operated before the Closing.
6.2 ACCESS. Prior to the Closing, Universal shall (i) provide Gainor and
its designees (officers, counsel, accountants, actuaries, and other authorized
representatives) with such information as Gainor may from time to time
reasonably request with respect to the Universal Entities and the transactions
contemplated by this Agreement; (ii) provide Gainor and its designees complete
access to the books, records, offices, personnel, counsel, accountants and
actuaries of Universal as Gainor or its designees may from time to time
reasonably request; and (iii) permit Gainor and its designees to make such
inspections of Universal Premises and Universal Properties as Gainor may
reasonably request. No such investigation shall limit or modify in any way
Universal's Entities or any Stockholder's obligations with respect to any
breach, inaccuracy or untruth of its representations, warranties, covenants or
agreements contained herein; provided, that if in the course of their
investigation, Gainor or its Affiliates shall, prior to the Closing, discover
any such breach, inaccuracy or untruth, they shall, in good faith disclose the
same to Universal prior to the Closing; provided, further, that the failure of
Gainor so to disclose same before Closing shall not limit or modify such
obligations of the Universal Entities or Stockholders unless such failure was
deliberate and in bad faith. Any information so furnished by Universal or any
Stockholder shall be true, correct and complete in all material respects and
shall not contain any untrue statement of a fact or omit to state a fact
required to be stated therein or necessary to make the statements therein not
materially misleading.
6.3 INTERIM FINANCIALS. As promptly as practicable after each regular
monthly accounting period after September 30, 1997, and prior to the Closing
Date, the Universal Entities shall deliver to Gainor periodic financial reports
in the form which it customarily prepares for its internal purposes and, if
available, consolidated and consolidating unaudited statements of the financial
position of the Universal Entities as of the last day of each month and
consolidated and consolidating statements of income, cash flow and stockholders'
equity of the Universal Entities for each such month.
6.4 RECORDS. The Stockholders shall provide to Gainor, as soon as is
reasonably practicable after the Closing, copies of any and all files, records
or other data in their possession or under their control in respect of or
relating to the operation of Universal's Business.
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6.5 USE OF UNIVERSAL NAME. From and after the Closing, each Selling
Company, the Stockholders and Universal's directors, officers, employees, agents
and representatives shall cease to use the name of any of the Universal Entities
(with the exception of Clinishare Diabetes Centers, Inc. and Physicians Support
Services, Inc.) or any of the trademarks, service marks, or trade names listed
in Section 3.15 of the Disclosure Memorandum (or any variation thereof) for any
business purpose, except as employees or agents of Universal or Gainor, for the
benefit of Universal or Gainor. Each Selling Company (with the exception of
Clinishare Diabetes Centers, Inc. and Physicians Support Services, Inc.) shall
within 60 days after Closing either change its name to a name that is not
confusing with the current name or dissolve. In the Proxy Statement, Universal
shall seek its stockholders' approval to change its name.
6.6 EXPENSES. Whether or not the expenses are incurred before or after the
Closing, each of the expenses incurred by Gainor, Universal, any other Universal
Entity and any Stockholder in connection with the authorization, preparation,
execution and performance of this Agreement, including without limitation all
fees, commissions, and expenses of agents, representatives, counsel,
accountants, brokers and finders, shall be paid by the party that incurred such
expenses. Without limiting the generality of the foregoing, Universal shall be
responsible for the payment of any fees, commissions or expenses of any broker
or finder engaged by Universal, any other Universal Entity or Stockholders; and
any expenses of Universal, or any other Universal Entity, including but not
limited to expenses related to agents, representatives, counsel, accountants,
brokers or finders.
6.7 TAX MATTERS.
(a) Universal shall pay all Taxes arising from or relating to the sale of
the Purchased Shares to Gainor Acquisition and the other transactions
contemplated by this Agreement.
(b) Universal shall file and control any returns required to be filed by the
Selling Companies after the Closing Date. Gainor shall have the right to review
and comment on such returns before they are filed.
(c) Each of the Selling Companies, on the one hand, and Gainor, on the other
hand, agree to give prompt notice to each other of any proposed adjustment to
Taxes for periods prior to the Closing. The Selling Companies and Gainor shall
cooperate with each other in the conduct of any Tax audit or other proceedings
involving any Universal Entity for such periods. In connection with any such
audit or other proceeding Gainor, upon Universal's request and at their expense,
shall provide Universal copies of all notices, correspondence, demands,
assessments and other documents generated in connection with such audit or other
proceeding, all of which information shall remain subject to Section 6.12 below.
Universal shall also have the right to discuss the status of such audit or other
proceeding with Gainor's representatives and, with prior written notice to
Gainor, with the applicable taxing authorities involved. All of such activities
by Universal shall be conducted in a manner so as not to adversely impact the
best interests of Gainor or the Purchased Companies; provided that
notwithstanding the above, Universal shall at all times be permitted to act as
required by law and to deal honestly and accurately with all applicable taxing
authorities and in its preparation for submissions to such Authorities without
being in violation of this subsection (c).
(d) Universal, on the one hand, and Gainor, on the other hand, agree to
furnish or cause to be furnished to each other, upon request, such information
and assistance (including access to books and records) relating to the Universal
Entities as is reasonably necessary for the preparation of any return, claim for
refund or audit, and the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment.
(e) Section 338(h)(10) Elections and Forms.
(i) Universal and Gainor shall jointly make all Section 338(h) (10)
elections in accordance with applicable Tax Rules on a timely basis and as
set forth herein. Universal and Gainor will supply in advance to one another
copies of all correspondence filings or communications (or memoranda setting
forth the substance thereof) to be sent or made by Universal and Gainor or
their respective
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representatives to be sent or made by Universal or Gainor or their
respective representatives to or with the Internal Revenue Service and other
taxing authority relating to any Section 338(h)(10) elections. Universal and
Gainor agree to report the transfer of the Purchased Shares under this
Agreement consistent with any Section 338(h)(10) elections, and shall take
no position contrary thereto unless required to do so by applicable Tax
Rules pursuant to a "determination" (as described in Section 1313 of the
Code).
(ii) Gainor shall be responsible for the preparation and filing of all
Section 338 forms in accordance with applicable Tax Rules and the terms of
this Agreement and Gainor shall deliver such forms and related documents to
Universal at least forty (40) days prior to the date such Section 338 forms
are required to be filed under applicable Tax Rules for Universal's review
and approval (such approval not to be unreasonably withheld). If reasonably
acceptable to Universal, Universal shall execute and deliver to Gainor such
documents or forms as are reasonably requested by Gainor and are required by
any Tax Rules to properly complete the Section 338 forms, no more than
twenty (20) days after the date such documents or forms are requested by
Gainor.
(iii) Universal and Gainor will allocate the Purchase Price as computed
under applicable Treasury Regulations (or similar state law provisions),
among the assets of the Purchased Companies for tax and accounting purposes
in accordance with Universal and Gainor's joint reasonable determination
before Closing.
(f) Tax Payments. Universal shall pay or cause to be paid in a timely
fashion all Taxes of the Selling Companies for which the Purchased Companies
could be liable and for all Taxes of the Purchased Companies incurred prior to
and through the Closing, including, without limitation, all Taxes attributable
to the Section 338(h)(10) election, provided that with prior written notice to
Gainor, Universal may take such extensions to tax filings and make such
estimated interim payments as may be permitted under applicable Rules.
6.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
provided in this Section 6.8, the representations and warranties made by the
parties to this Agreement or pursuant hereto shall survive for three years after
the Closing.
(a) The representations and warranties made by the Selling Companies and by
the Stockholders in Sections 3.6, 3.10, 3.18, 3.21, or 3.22 shall survive
Closing until 60 days following the expiration of all applicable statutes of
limitation, and any extensions
(b) thereof. The representations and warranties made by the Selling
Companies in Section 3.11 shall survive the Closing until 60 days after all
applicable actions, suits, investigations and proceedings are fully and finally
resolved, as determined in accordance with Section 6.9(g)(iii).
(c) The representations and warranties made by the Selling Companies and the
Stockholders in Sections 3.1(a) and 3.2, 3.3, 3.4, and 3.5 related to the
Purchased Companies and the Purchased Shares shall survive the Closing
indefinitely.
(d) The representations and warranties made by Gainor in Sections 4.1(a) and
(b) shall survive the Closing indefinitely.
(e) Subject to the two provisos in Section 6.2, the representations and
warranties of the parties shall not be affected or diminished by any
investigation at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
(f) The expiration of any representation or warranty shall not affect any
parties' right to pursue any claim made prior to such expiration.
(g) Notwithstanding the foregoing, any party may make a claim at any time
based on fraud in connection with any representation or warranty.
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6.9 INDEMNIFICATION.
(a) BY THE SELLING COMPANIES. From and after the Closing, each of the
Selling Companies jointly and severally, shall indemnify, reimburse and hold
harmless Gainor, the Purchased Companies, and any of their Affiliates, any
successors or assigns for any and all direct or indirect claims, losses,
liabilities, damages (including special and consequential damages), costs
(including court costs) and expenses (including all reasonable attorneys' and
accountants' fees and expenses) (hereinafter "a Loss" or "Losses"), as a result
of or in connection with (i) any breach, inaccuracy or untruth of any Warranty,
whether such breach, inaccuracy or untruth exists or is made on the date of this
Agreement or as of the Closing; or (ii) any breach of or noncompliance by any
Universal Entity or any Stockholder of any covenant or agreement of any
Universal Entity or Stockholder contained in this Agreement or in any other
agreement or instrument delivered in connection with this Agreement; or (iii)
any action, enforcement action, charges, litigation, mediation or arbitration
before any court, governmental or regulatory agency, mediator or arbitrator
involving any Universal Entity, any Stockholder, or Universal's Business,
arising from actions taken or facts existing before the Closing or arising out
of or related to the transactions contemplated by this Agreement; or (iv) any
liability of the Selling Companies other than the Gainor Assumed Liabilities; or
(v) any of the Universal Assumed Liabilities; or (vi) any Loss in connection
with the Diabetes Self Care 401(k) Plan or any termination thereof; or (vii) any
Loss in connection with the trademark infringement claims related to (A) "USCI"
(provided that Gainor makes no use of "USCI" after January 31, 1998) or (B)
"Healthcare Management Solutions" arising out of the use of such mark prior to
the Closing or the use of such mark after the Closing in the same manner and to
the same extent it was used prior to the Closing.
(b) BY THE STOCKHOLDERS. From and after the Closing, each of the
Stockholders severally shall indemnify, reimburse and hold harmless Gainor, the
Purchased Companies, and any of their Affiliates, any successors or assigns for
any and all direct or indirect claims, losses, damages, costs (including court
costs) and expenses (including all reasonable attorneys' and accounts' fees and
expenses), as a result or in connection with (i) any breach, inaccuracy or
untruth of any representation or warranty made by the Stockholder in Article 3B
hereof; or (ii) any breach of or noncompliance by the Stockholder of any
covenant or agreement of the Stockholder contained in this Agreement or in any
other agreement or instrument delivered in connection with this Agreement.
(c) BY GAINOR. From and after the Closing, each of Gainor Management and
Gainor Acquisition jointly and severally shall indemnify, reimburse and hold
harmless the Selling Companies and the Stockholders, and any of their
Affiliates, any successors or assigns for any and all direct or indirect claims,
losses, liabilities, damages (including special and consequential damages),
costs (including court costs) and expenses (including all reasonable attorneys'
and accountants' fees and expenses) (hereinafter "a Loss" or "Losses"), as a
result of or in connection with (i) any breach, inaccuracy or untruth of any
warranty of Gainor, whether such breach, inaccuracy or untruth exists or is made
on the date of this Agreement or as of the Closing; or (ii) any breach of or
noncompliance by Gainor of any covenant or agreement of Gainor contained in this
Agreement or in any other agreement or instrument delivered in connection with
this Agreement; or (iii) any of the Gainor Assumed Liabilities.
(d) DEFINITIONS. A person entitled to make a claim of indemnification
hereunder shall be referred to as an "Indemnified Party". A person obligated for
indemnification hereunder shall be referred to as an "Indemnifying Party".
(e) CLAIM THRESHOLD. Notwithstanding the foregoing, no claim for
indemnification under Sections 6.8(a)(i) through (iv) or Sections 6.9(b)(i) and
(ii) may be made by an Indemnified Party against an Indemnifying Party unless
and until the cumulative total of all Losses suffered by such Indemnified Party
exceeds or is reasonably expected to exceed $100,000 (the "Threshold"). Once
Losses exceed the Threshold, the Indemnified Party suffering such Losses may
recover all Losses. The foregoing limitation shall not apply to any Loss either
intentionally caused by the Indemnifying Party or of which the Indemnifying
Party had knowledge prior to the Closing.
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(f) ORDER OF REMEDIES. No claim may be made by a Gainor Indemnified Party
under this Section 6.9 against any Stockholder unless and until (i) there is no
further amount available under the Note to set off against such claim, and (ii)
Gainor has used reasonable efforts to collect such amount from Universal.
(g) PROCEDURES.
(i) The Indemnifying Party shall be entitled to defend any claim,
action, suit or proceeding made by any third party against an Indemnified
Party; provided, however, the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice and at its own
expense, and if the Indemnifying Party does not provide a competent and
vigorous defense then the Indemnified Party's participation shall be at the
expense of the Indemnifying Party. The Indemnified Party shall provide such
cooperation and access to its books, records and properties as the
Indemnifying Party shall reasonably request with respect to such matter; and
the parties shall cooperate with each other in order to ensure the proper
and adequate defense thereof.
(ii) An Indemnified Party shall not settle any claim subject to
indemnification hereunder without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed.
(iii) With regard to claims of third parties for which indemnification
is payable hereunder, such indemnification shall be paid by the Indemnifying
Party (or amounts may be set off by the Indemnified Party) upon the earliest
to occur of: (A) the entry of a judgment against the Indemnified Party and
the expiration of any applicable appeal period, (B) the entry of an
unappealable judgment or final appellate decision against the Indemnified
Party, (C) the settlement of the claim, (D) with respect to indemnities for
Tax liabilities, upon the issuance of any final resolution by a taxation
authority, or (E) with respect to claims before any administrative or
regulatory authority when the Loss is finally determined and not subject to
further review or appeal; provided, however, the Indemnifying Party shall
pay on the Indemnified Party's demand any cost or expenses reasonably
incurred by the Indemnified Party in defending or otherwise dealing with
such claim.
(h) NOTICE OF CLAIM. To seek indemnification hereunder, an Indemnified Party
shall notify the Designated Official or the Universal Representative, as
applicable, of any claim for indemnification, specifying in reasonable detail
the nature of the Loss and the amount or an estimate of the amount thereof.
(i) NO PREJUDICE. Nothing herein shall prevent an Indemnified Party from
making a claim for a Loss hereunder notwithstanding its knowledge of the Loss or
possibility of the Loss on, prior to, or after the Closing Date.
(j) OTHER RIGHTS. The indemnities granted hereunder are in addition to and
not in substitution for any other right or remedy an Indemnified Party may now
have or may subsequently take or hold, and may be enforced without first
recourse to such other right or remedy and without taking any steps or
proceedings in connection therewith, and notwithstanding any rule of law or
equity or statutory provision to the contrary, provided all claims for
indemnification against Universal must first be satisfied by setting off against
the Note.
(k) NOTE REDUCTION. If a Loss is realized at any time during which any
amount is outstanding under the Note, then an amount sufficient to cover such
Loss shall be deducted from the then current outstanding principal balance of
the Note as set forth in Section 2.7. Gainor shall give at least 20 business
days prior written notice to Universal prior to setting off any amount
hereunder. Universal shall have 10 business days to deliver written notice to
Gainor of dispute of such claim. If Universal does not deliver such notice
within such 10 business day period, then Universal shall be deemed to have
agreed with such deduction. If Universal delivers such notice within such 10
business day period, the parties shall attempt to resolve any such dispute in
good faith within 10 business days thereafter.
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6.10 CASUALTY. The Universal Entities shall bear the risk of any loss or
damage or destruction to any of the assets of a Universal Entity from fire or
other casualty or cause at all times prior to the Closing. Upon the occurrence
of any loss or damage to any significant portion of such assets as a result of
fire, casualty, or other causes prior to the Closing, Universal shall
immediately notify Gainor of the same in writing, stating with particularity the
extent of loss or damage incurred, the cause thereof, if known, and the extent
to which restoration, replacement, and repair of such assets lost or destroyed
will be reimbursed under any insurance policy with respect thereto. Gainor shall
have the option, but not the obligation, exercisable within 15 business days
after receipt of such notice from Universal to: a) Postpone the Closing until
such time as such assets have been completely repaired, replaced, or restored;
b) Elect to consummate the Closing and accept such assets in their "then"
condition, in which event the appropriate Universal Entity shall assign to
Gainor all rights under any insurance claim covering the loss and pay over to
Gainor any proceeds under any such insurance policy theretofore received by
Universal Entity with respect thereto; or c) If in the good faith opinion of
Gainor the loss or damage materially adversely affects Universal's Business or
the assets taken as a whole, terminate this Agreement, whereupon this Agreement
shall be of no further force or effect and no party shall have any further
rights, duties, or obligations hereunder except under Section 6.11.
6.11 CONFIDENTIALITY.
(a) The Universal Entities and the Stockholders shall hold in trust and
confidence all Confidential Information, Trade Secrets and Inventions of Gainor
and shall not use, divulge or communicate any Confidential Information, Trade
Secrets or Inventions of Gainor to any Person other than those officers,
employees, or professional advisors of Universal or any Universal Entity who
have a need to know such information for the purpose of the completion of the
transactions contemplated herein, or as specifically allowed by the Designated
Official in writing, or which Universal is required to disclose pursuant to any
law, regulation, or court or administrative order. Following the Closing, the
foregoing restrictions shall also apply to all Confidential Information,
Inventions and Trade Secrets of Universal and each Universal Entity and relating
to Universal's Business.
(b) Notwithstanding anything herein to the contrary, the provisions of
Section D.7. of the Letter of Intent dated as of August 15, 1997 from Gainor to
Universal shall continue in full force and effect through the Closing, or for a
period of five years from any termination of this Agreement in accordance with
its terms (and with respect to Trade Secrets, as long as such information
remains a Trade Secret under applicable law).
(c) "Confidential Information" means technical, business, financial and
other information relating of Gainor, its Affiliates, Universal, any Universal
Entity, or relating to relating to Gainor's Business or Universal's Business,
regardless of the form or medium of storage, and whether originated or obtained
by, or coming into the possession, custody, control or knowledge of the
Universal, the Stockholders, or any of their Affiliates either alone or jointly;
provided, however, "Confidential Information" shall not be deemed to include any
information that is in the public domain at the time of disclosure, or enters
the public domain through no fault of Universal or the Stockholders.
(d) "Invention" means any invention, drawing, design, model, contrivance,
structure, specification, improvement, discovery, creation, idea, concept,
formula, process and other work or contribution related to the past, current or
future business of Gainor, its Affiliates, Universal, or any Universal Entity,
however developed, created, made discovered or conceived, and whether or not
patented or patentable (whether by renewal or otherwise), protected by
copyright, or otherwise protected or capable of protection by law anywhere.
(e) "Trade Secrets" means any information about or regarding Universal, any
Universal Entity, Gainor, any of its Affiliates, or Gainor's Business or
Universal's Business, in whatever form, whether written down or not, which (i)
derives economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can
obtain economic value
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from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
6.12 NONCOMPETITION.
(a) The Selling Companies and Stockholders acknowledge and recognize the
highly competitive nature of Gainor's Business and accordingly agree that, to
induce Gainor to consummate the transaction contemplated by this Agreement, each
of the Selling Companies and the Stockholders shall not, for a period of five
(5) years after the Closing Date: (i) engage directly or indirectly in any
Competitive Business (as defined below) anywhere in the Restricted Territory (as
defined below), whether such engagement be as an employer, officer, director,
owner, investor, employee, partner, consultant or other participant in any
Competitive Business; (ii) solicit or accept business from anyone who is or
becomes an active or prospective customer of Gainor or its Affiliates or who was
an active or prospective customer of Universal or any other Universal Entity at
or prior to the Closing Date; (iii) solicit for employment or hire any employee
of Universal, any other Universal Entity, Gainor or its Affiliates; or (iv)
attempt to do any of the things or assist anyone else in doing any of the things
specified in subsections (i), (ii) or (iii) above. Notwithstanding the
foregoing, the ownership or control of up to 1% of the outstanding securities of
any company which has a class of securities traded on any national or regional
stock exchange or on the NASDAQ market shall not be deemed a violation of this
Section 6.12.
(b) As used in this Section 6.12: (1) "Competitive Business" means and
includes any business individual, corporation or other entity which is engaged
wholly or partly in any business competitive with or in competition with
Universal's Business, or Gainor's Business as conducted at the Closing; and (2)
"Restricted Territory" means the entire United States.
(c) Not later than the Closing Universal shall have obtained non-competition
agreements from the Stockholders, directors and officers of the Universal
Entities, containing terms substantially identical to the terms of this Section
6.12.
6.13 FUNDS RECEIVED AFTER CLOSING. Any and all funds received by any
Stockholder or Selling Company after Closing in respect of the Purchased
Companies, the Transferred Assets or otherwise to Universal's Business
transferred to Gainor shall be remitted to Gainor immediately upon receipt.
6.14 NO PUBLIC ANNOUNCEMENTS. Prior to Closing, without the prior written
consent of the other parties, neither Gainor, Stockholders nor any Universal
Entity shall make any press release or other public disclosure, or make any
statement to any customer, supplier or other person with regard to the
transactions contemplated by this Agreement, except as may required by any
applicable securities law or regulations; provided, however, that Universal may
issue a press release and file such other reports and make such other disclosure
as may be required by applicable securities law or the rules or regulations of
NASDAQ or the Boston Stock Exchange upon execution of this Agreement. Universal
shall provide Gainor with any such press release or other disclosure document
prior to its release for Gainor's review and comment. After Closing, without the
prior written consent of the Designated Official, neither the Selling Companies
nor Stockholders shall make any press release or other public disclosure, or
make any statement to any customer, supplier or other person with regard to the
transactions contemplated by this Agreement, except as required by applicable
securities law or regulations or the rules or regulations of NASDAQ or the
Boston Stock Exchange without prior consultation with Gainor.
6.15 ACQUISITION PROPOSALS. Prior to the Closing or termination of this
Agreement, Universal Entities and Stockholders shall not, and shall not permit
any officer, director, employee or agent of any Universal Entity or any
Affiliate thereof (a) to solicit, initiate or encourage submission of proposals
or offers, or accept any offers, from any person relating to any acquisition or
purchase of all or a material amount of the assets of, or any equity interest
in, or any merger, consolidation or business combination with, any Universal
Entity (an "Acquisition Proposal"), or (b) to participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise
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<PAGE>
cooperate in any way with or assist, facilitate or encourage any Acquisition
Proposal by any other Person. The Stockholders and the Universal Entities shall
immediately notify Gainor if any Person makes an Acquisition Proposal.
6.16 PREPARATION OF THE PROXY STATEMENT; COMPANY STOCKHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement, Universal,
in consultation with Gainor, shall prepare and file with the SEC a preliminary
Proxy Statement. All information in the Proxy Statement concerning Gainor shall
be submitted to Gainor for its approval prior to filing with the SEC or mailing
to stockholders. Universal shall use all reasonable efforts to respond to any
comments of the SEC regarding the Proxy Statement. Universal will use
commercially reasonable efforts to cause the Proxy Statement to be mailed to
Universal's stockholders as promptly as practicable. Universal will notify
Gainor promptly of the receipt of any comments from the SEC and of any request
by the SEC for amendments or supplements to the Proxy Statement or for
additional information and Universal will supply Gainor with copies of all
correspondence between Universal or any of its representatives and the SEC. The
Proxy Statement shall comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement, Universal shall promptly
inform Gainor of such occurrences and shall use commercially reasonable efforts
to promptly file with the SEC and/or mail to the stockholders of Universal such
amendment or supplement. The Proxy Statement shall include the recommendation of
the Board of Directors of Universal in favor of the transactions set forth
herein. Universal shall also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the completion
of the transaction hereunder and will pay all expenses incident thereto.
Notwithstanding the foregoing, Universal shall not be required to mail the Proxy
Statement to its Shareholders until (a) Gainor has received a commitment letter
for the financing required to complete the transactions contemplated herein or
(b) Universal is otherwise reasonably satisfied as to the terms and availability
of such financing.
(b) Universal will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the stockholders of Universal), convene and hold a
meeting of its stockholders (the "Universal Stockholders Meeting") for the
purpose of obtaining such approval of the transactions set forth herein of
Universal's stockholders as may be required by any Rule. Universal will, through
its Board of Directors, recommend to its stockholder's approval of this
Agreement and the transactions set forth herein and shall use all reasonable
efforts to solicit from its stockholders proxies in favor of approval of this
Agreement and such transactions and take all other reasonable action necessary
or advisable to secure the vote of stockholders to obtain such approvals. Each
of the Stockholders shall vote in favor of the transactions set forth herein,
and against any proposal that would prevent the consummation of such
transactions, at any stockholders meeting at which approval for such
transactions is sought, and each Stockholder shall use his best efforts to cause
the requisite number of the Universal stockholders to vote in favor of such
transactions at any such meeting, and against any proposal that would prevent
the consummation of such transactions, so that such transactions may be
consummated.
6.17 CLOSING. Each of the parties shall use all reasonable efforts to
close the transactions contemplated herein on or before January 15, 1997.
6.18 POST CLOSING CORPORATE EXISTENCE. Universal shall maintain its
corporate existence and a minimum tangible net worth of $2 million (excluding
the value of the Note) for at least five years following the Closing.
6.19 TERMINATION AND BREAK-UP FEE. Either party may terminate this
Agreement upon (i) a material breach of the terms or conditions of this
Agreement by the other party which breach is not cured within 10 days following
written notice thereof to the breaching party or (ii) on or after March 30,
1998, provided, however, that no party may terminate this Agreement who is in
material breach of the provisions hereof. In the event that the Closing does not
occur for any reason not attributable to Gainor or its Affiliates, and
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<PAGE>
within a year following the date of this Agreement either (a) a Person other
than a Stockholder gains control of more than 15% of the issued and outstanding
stock of Universal with the help, assistance, or approval of Universal, any
Universal Entity, any of their management, any of their Boards of Directors, or
any Stockholder, or (b) Universal or the Universal Entities or any of them
merge, consolidate, or effect any other business combination with any Person,
the result of which is that the current stockholders of Universal own less than
80% of the resulting entity or (c) Universal or the Universal Entities or any of
them sell, lease or otherwise transfer all or 30% or more of their assets taken
as a whole to any Person or Persons, then Universal shall pay to Gainor the sum
of $2 million upon the consummation of any such transaction.
6.20 COLLECTION OF ACCOUNTS RECEIVABLE. Gainor shall use good faith
reasonable commercial efforts to collect all trade accounts receivable of
Universal purchased by Gainor hereunder, which efforts shall be at least as
diligent as those used by Universal prior to the Closing.
6.21 UNIVERSAL PERMITS. Each and all of the Universal Entities shall
cooperate with and use its best efforts to assist Gainor, both in advance of the
Closing and after the Closing, in maintaining or reapplying for any Universal
Permits for Gainor's use after the Closing (without incurring any unreasonable
expense).
6.22 TWO TIERED PRICING DISPUTE. Notwithstanding anything herein to the
contrary or in the terms of the Note, Gainor shall not be required to pay the
principal amount of the Note below the amount then alleged to be owed to the
State of California or any agency thereof with respect to the two-tiered pricing
dispute between Universal and MediCal unless either (i) such claim has been paid
in full and released, or (ii) Universal makes provisions acceptable to Gainor
for payment of all such amounts or for reimbursement of Gainor in the event
Gainor is required to pay such amounts or incurs any cost or expense related
thereto. Any settlement of such dispute shall include terms and conditions
reasonably acceptable to Gainor.
6.23 FINANCING. Gainor shall use all reasonable efforts to obtain
financing necessary to consummate the transactions contemplated herein.
6.24 FAIRNESS OPINION. Universal shall use all reasonable efforts to
obtain a fairness opinion as described in Section 7.6.
6.25 EMPLOYEES. Prior to the Closing, Universal shall hire, and the
Purchased Companies shall terminate, all employees of the Purchased Companies
designated by Gainor. Prior to the Closing, Diabetes Self Care, Inc. shall
terminate its 401(k) plan and pay in full or discharge all liabilities
associated therewith. Universal shall provide all notices and take all other
actions required under the WARN act and any state law in connection with such
transfers and subsequent termination of employees.
6.26 PERMITS. Universal consents to Gainor Acquisition making any and all
necessary application for new permits, licenses and certifications, as may be
required by any Rule and agrees to allow Gainor Acquisition to use and continue
to use existing permits, licenses and certifications as may be allowed by 6.27
any Rule. Upon Gainor's request Universal will execute and deliver separate
documents containing the consents and agreements given in the preceding
sentence.
6.28 UNEMPLOYMENT TAXES. Universal shall reimburse Gainor, or Gainor may,
at its option, reduce the amount of the Note (following the procedures set forth
in Section 2.7), by the amount of any increase in premiums for unemployment
insurance attributable to the termination of any employees in connection with
the transactions set forth herein or any termination of former Universal
employees by Gainor within 6 months of the Closing.
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6.29 ACCOUNTS RECEIVABLE. Notwithstanding anything herein to the contrary,
no third party payor accounts receivable of the Selling Companies shall be
assigned to Gainor hereunder which may not be assigned under applicable
regulations. Gainor shall collect all such accounts receivable on behalf of the
Selling Companies, and shall keep such amounts as may be collected. Any accounts
receivable received by the Selling Companies after the Closing shall be promptly
forwarded to Gainor. Each of the Selling Companies agrees to execute and deliver
to Gainor such powers of attorney and other documents as may be reasonably
necessary to allow Gainor to collect and otherwise deal with such accounts
receivable on the Selling Companies' behalf.
6.30 MANAGED CARE AND THIRD PARTY PAYOR CONTRACTS.
(a) Prior to the Closing, all agreements between any Selling Company and a
managed care provider (including those listed in Section 3.13 of the Disclosure
Memorandum) shall be assigned or transferred to USCI Healthcare Management
Solutions, Inc., and the applicable Selling Companies shall obtain all
applicable consents and approvals as may be required under such agreements to
effect such assignments or transfers.
(b) Prior to the Closing, all agreements between any Selling Company and a
third party payor shall be assigned, transferred or re-executed with Diabetes
Self Care, Inc., and the applicable Selling Companies shall obtain all
applicable consents and approvals.
6.31 CUSTOMER TRANSFERS. Prior to the Closing, Diabetes Self Care, Inc.
shall obtain assignments of benefits for all patients and customers billed under
the PCS, Inc.--West provider numbers, and as of the Closing Date, such customers
and patients shall be billable under the provider numbers of Diabetes Self Care,
Inc.
6.32 STATE QUALIFICATION. Each of the Purchased Companies shall be
qualified to do business in all states in which they lease real property or have
employees, or are otherwise required to have such qualifications, and each of
the Purchased Companies shall pay all applicable taxes in such states, including
all applicable late fees and penalties.
6.33 CONSENTS. If any Universal Contract listed in the Disclosure
Memorandum pursuant to Section 3.16 (a)hereof to which a Purchased Company is a
party will terminate in accordance with its terms or otherwise be materially
adversely affected due to the consummation of the transactions contemplated
herein, including the transfer of the Purchased Shares, then the Universal
Entities shall, prior to Closing, obtain such consents, approvals or waivers as
may be required to prevent such termination or material adverse effect.
6.34 RELEASE OF ENCUMBRANCES. At or before Closing, Universal shall obtain
releases of all Encumbrances on the Transferred Assets, and on any of the assets
of the Purchased Companies, including UCC-3 termination statements, from HCFP
Funding, Inc. and any other Person in whose favor any such Encumbrance exists,
such releases to be in form and substance reasonably satisfactory to Gainor.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLING COMPANIES AND STOCKHOLDERS
The obligations of Selling Companies to consummate the sale of the
Transferred Assets hereunder shall be subject to the satisfaction (or waiver by
Universal) at or prior to the Closing Date of each of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the representations
and warranties of Gainor contained in this Agreement shall be true in all
respects as of the time of the Closing with the same force and effect as though
made at that time; Gainor shall have performed and complied in all material
respects with the respective covenants and agreements set forth herein to be
performed or complied with
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by it at or before the Closing; and Gainor shall have delivered to Universal a
certificate, signed on behalf of each of Gainor Acquisition and Gainor
Management by its President to all such effects.
7.2 LITIGATION. No suit, investigation, action or other proceeding shall
be pending or overtly threatened before any court or governmental agency, which
has resulted in the restraint or prohibition of Universal Entities or
Stockholders, or in the reasonable opinion of counsel for Universal could result
in the obtaining of material damages or other relief from Universal Entities or
Stockholders, in connection with this Agreement or the consummation of the
transactions contemplated hereby.
7.3 OPINION OF COUNSEL TO GAINOR. Universal shall have received from
counsel to each of Gainor Management and Gainor Acquisition an opinion dated the
Closing Date in form and substance reasonably satisfactory to Universal and its
counsel.
7.4 REQUIRED APPROVALS. All governmental authorizations, consents and
approvals necessary for the valid consummation of the transactions contemplated
hereby shall have been obtained and shall be in full force and effect. All
applicable governmental preacquisition filing, information furnishing and
waiting period requirements shall have been met or such compliance shall have
been waived by the governmental authority having authority to grant such
waivers. The stockholders of Universal shall have approved the consummation of
the transactions contemplated herein at the meeting of stockholders called for
such purpose.
7.5 EXECUTION AND DELIVERY OF DOCUMENTS. Gainor Acquisition and Gainor
Management shall have executed and delivered all the documents required herein
to be executed and delivered by them; and all other agreements, certificates and
other documents delivered by Gainor to Universal hereunder shall be in form and
substance reasonably satisfactory to counsel for Universal.
7.6 FAIRNESS OPINION. The Board of Directors of Universal shall have
received an opinion, in form and substance reasonably satisfactory to the Board,
of an investment bank advisor or other Person acceptable to the Board to the
effect that the consideration to be received by the Selling Companies hereunder
is fair to Universal and it stockholders, from a financial point of view.
7.7 NO MATERIAL ADVERSE CHANGE. Gainor shall not have suffered any
material adverse change since September 30, 1997 in its business or financial
condition as a whole.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF GAINOR
The obligations of Gainor to be performed hereunder shall be subject to the
satisfaction (or waiver by Gainor) at or before the Closing of each of the
following conditions:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the representations
and warranties of the Universal Entities and Stockholders contained in this
Agreement shall be true in all respects as of the time of the Closing with the
same force and effect as though made at that time; the Universal Entities and
Stockholders shall have performed and complied in all respects with the
respective covenants and agreements set forth herein to be performed or complied
with by it at or before the Closing; and the Universal Entities and each
Stockholder shall have delivered to Gainor a certificate, signed on behalf of
each Universal Entity by its President, and by each Stockholder to all such
effects. Notwithstanding the foregoing, Gainor may not fail to perform hereunder
in the event that the Universal Entities fail to comply with their obligations
in Section 6.29, 6.30 or 6.32 in any immaterial respect, provided that (a) all
agreements required to be assigned under Section 6.29 producing revenue in
excess of $30,000 have been assigned, (b) 90% of the patients and customers
required to be transferred under Section 6.30 have been transferred, (c) all
consents required under Section 6.32 for agreements with value in excess of
$30,000 have been obtained, and (d) the Universal Entities and the Stockholders
have used their best efforts to comply with such provisions and any request of
Gainor with respect to performance under any such provision.
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8.2 LITIGATION. No suit, investigation, action or other proceeding shall
be pending or overtly threatened before any court or governmental agency, which
has resulted in the restraint or prohibition of Gainor, or in the reasonable
opinion of counsel for Gainor could result in the obtaining of material damages
or other relief from Gainor, in connection with this Agreement or the
consummation of the transactions contemplated hereby.
8.3 OPINION OF COUNSEL TO UNIVERSAL. Gainor shall have received from
counsel to each Universal Entity and Stockholders an opinion dated the Closing
Date in form and substance reasonably satisfactory to Gainor and its counsel.
8.4 EXECUTION AND DELIVERY OF DOCUMENTS. The Universal Entities and
Stockholders shall have executed and delivered all the documents required
herein; and all other agreements, certificates and other documents delivered by
the Universal Entities and Stockholders to Gainor hereunder shall be in form and
substance reasonably satisfactory to counsel for Gainor. Edward T. Buchholz
shall have executed the Employment Agreement and delivered it to Gainor.
8.5 NO MATERIAL ADVERSE CHANGE. No Universal Entity shall have suffered
any material adverse change since September 30, 1997 in its business, prospects,
financial condition, working capital, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves or operations.
8.6 REQUIRED APPROVALS. All governmental authorizations, consents and
approvals necessary for the valid consummation of the transactions contemplated
hereby shall have been obtained and shall be in full force and effect. All
applicable governmental preacquisition filing, information furnishing and
waiting period requirements shall have been met or such compliance shall have
been waived by the governmental authority having authority to grant such
waivers. The stockholders of Universal shall have approved the consummation of
the transactions contemplated herein at the meeting of stockholders called for
such purpose.
8.7 OTHER NECESSARY CONSENTS AND APPROVALS. Each Universal Entity shall
have obtained any approval of its stockholders required by any Rule, all
consents, approvals and estoppels required under any material Universal
Contract, all consents and approvals listed in the Disclosure Memorandum, and
all other consents and approvals, the failure of which to obtain would have a
material adverse effect on Universal's Business as conducted by Gainor following
the Closing or the Transferred Assets at any time after the Closing. With
respect to each such consent, approval and estoppel, Gainor shall have received
written evidence, reasonably satisfactory to Gainor, that such consent, approval
or estoppel has been duly and lawfully filed, given, obtained or taken and is
effective, valid and subsisting.
8.8 ENCUMBRANCES. All of the Transferred Assets and all of the assets of
the Purchased Companies shall be free and clear of all Encumbrances at the
Closing other than Permitted Encumbrances, if any.
8.9 PAYMENT OF SALES TAX CLAIM. Universal shall have paid in full all
amounts owed to the State of California relating to any claim for sales taxes
due, including those referenced by the California State Board of Equalization as
SR-AC 402029-010, and Gainor shall have received adequate proof and assurance of
such payment.
8.10 COMPLETION OF FINANCING. Gainor Acquisition shall have completed the
financing of the purchase of the Transferred Assets on terms satisfactory to
Gainor in its sole discretion.
8.11 PERMITS. Gainor shall be satisfied that it can obtain or that
Universal can transfer all permits necessary to the continued conduct of
Universal's Business following the Closing.
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ARTICLE 9
MISCELLANEOUS
9.1 NOTICES. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by overnight courier or express
mail service or by postage pre-paid certified or registered mail, return receipt
requested (the return receipt constituting prima facie evidence of the giving of
such notice, request, demand or other communication), by personal delivery, or
by fax with confirmation of receipt to the following address or such other
address of which a party subsequently may give notice to all the other parties:
To a Universal Entity or Stockholders: Universal Self Care, Inc.
11585 Farmington Road
Livonia, Michigan 48150
Attention: Brian D. Bookmeier
Fax: (313) 261-6511
And
Greenberg Trauig, Hoffman, Lipoff
Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Attention: Stephen A. Weiss
Fax: (212) 223-7161
To Gainor or Gainor Acquisition: Gainor Medical Management, LLC
2205 Highway 42 North
McDonough, Georgia 30252-0353
Attention: Mark J. Gainor
Fax: (770) 474-1600
And
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Building
Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Philip H. Moise
Fax: (404) 817-6050
9.2 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of Gainor, neither Stockholders nor
the Universal Entities may assign their rights, duties or obligations hereunder
or any part thereof to any other Person. Gainor may assign its rights and duties
hereunder in whole or in part (before or after the Closing) to one or more
Affiliates, provided that Gainor Management may not assign its obligations
relating to the Guarantee, nor the confidentiality nor indemnification
provisions without the prior written consent of Universal.
9.3 ENTIRE AGREEMENT. This Agreement, the Disclosure Memorandum and all
other certificates, schedules and other documents delivered pursuant thereto
constitute the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersede and are in full substitution of
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any and all prior agreements and understandings written or oral between the
arties relating to such transactions.
9.4 DESCRIPTIVE HEADINGS. The descriptive headings of the Sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
9.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.6 AMENDMENTS AND WAIVERS. No modification, termination, extension,
renewal or waiver of any provision of this Agreement shall be binding upon a
party unless made in writing and signed by such party. A waiver on one occasion
shall not be construed as a waiver of any right on any future occasion. No delay
or omission by a party in exercising any of its rights hereunder shall operate
as a waiver of such rights.
9.7 GOVERNING LAW, JURISDICTION AND VENUE. This Agreement is executed by
the parties in, and shall be construed in accordance with and governed by the
laws of the State of Georgia, and any dispute in relation hereto will be
submitted to the Superior Court of Henry County, Georgia, or the U.S. federal
District Court for the Northern District of Georgia.
9.8 NO THIRDPARTY BENEFICIARIES. With the exception of the parties to this
Agreement and the Indemnified Parties, there shall exist no right of any person
to claim a beneficial interest in this Agreement or any rights accruing by
virtue of this Agreement.
9.9 GENDER AND NUMBER. Where the context requires, the use of a pronoun of
one gender or the neuter is to be deemed to include a pronoun of the appropriate
gender, singular words are to be deemed to include the plural, and vice versa.
Each of the parties hereto has caused this Agreement to be duly executed on
its behalf as of the date indicated on the first page hereof.
GAINOR:
<TABLE>
<CAPTION>
GAINOR MEDICAL MANAGEMENT, LLC GAINOR MEDICAL ACQUISITION COMPANY
<S> <C> <C> <C>
By: By:
Print Name Print Name
Print Title Print Title
</TABLE>
<TABLE>
<CAPTION>
UNIVERSAL:
UNIVERSAL SELF CARE, INC. CLINISHARE DIABETES CENTERS, INC.
<S> <C> <C> <C>
By: By:
Print Name Print Name
Print Title Print Title
</TABLE>
<TABLE>
<CAPTION>
PHYSICIANS SUPPORT SERVICES, INC. USC-MICHIGAN, INC.
<S> <C> <C> <C>
By: By:
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Print Name Print Name Print Title Print Title
</TABLE>
<TABLE>
<CAPTION>
PCS, INC. - WEST
<S> <C> <C> <C>
DIABETES SELF CARE, INC.
By: By:
Print Name Print Name
Print Title Print Title
</TABLE>
<TABLE>
<CAPTION>
USCI HEALTHCARE MANAGEMENT
SOLUTIONS, INC.
<S> <C>
By:
Print Name
Print Title
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS:
<S> <C>
BRIAN D. BOOKMEIER EDWARD T. BUCHHOLZ
MATTHEW B. GIETZEN ALAN M. KORBY
</TABLE>
40
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SCHEDULE A
ACCEPTED CONTRACTS
The lease for real property at 5946 Kester Avenue, Van Nuys, CA shall be
assigned to Diabetes Self Care, Inc.
The lease for personal property with Target Equipment Leasing, Inc. dated
February 27, 1996 shall be assigned to Diabetes Self Care, Inc.
The lease for personal property with Target Equipment Leasing, Inc. dated March
12, 1996 shall be assigned to Diabetes Self Care, Inc.
All agreements of the Selling Companies listed in Schedule 3.16(a).
ASSIGNED CONTRACTS
The leases for real property in North Hollywood, CA and 990 Highland Drive,
Solana Beach, California shall be assigned to one of the Selling Companies.
The employment agreement between USCI Healthcare Management Solutions, Inc., and
Edward Buchholz shall be assigned to Universal Self Care, Inc.
The employment agreement between Diabetes Self Care, Inc. and Tod Robinson shall
be assigned to Universal Self Care, Inc.
EXCLUDED ASSETS
Stock of the Selling Companies
All leases other than the leases for real property at 5946 Kester Avenue, Van
Nuys, CA 91411
Intercompany receivables
Prepaid loan fees
Prepaid expenses
Deposits and other like kind assets
GOODWILL AND OTHER INTANGIBLE ASSETS
Gainor Assumed Liabilities
Trade accounts payable and obligations under Accepted Contracts.
Transferred Accounts.
All bank accounts of the Selling Companies.
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FIRST AMENDMENT TO THE ASSET PURCHASE AGREEMENT
This First Amendment to the Asset Purchase Agreement (the "AGREEMENT"),
dated as of November 24, 1997, is by and among UNIVERSAL SELF CARE, INC., a
Delaware corporation ("UNIVERSAL"), each of its wholly owned subsidiaries,
CLINISHARE DIABETES CENTERS, INC., a California corporation, PHYSICIANS SUPPORT
SERVICES, INC., a California corporation, USC-MICHIGAN, INC., a Michigan
corporation, its wholly owned subsidiary, PCS, INC.-WEST, a Michigan
corporation, DIABETES SELF CARE, INC., a Virginia corporation, USCI HEALTHCARE
MANAGEMENT SOLUTIONS, INC., a Delaware corporation, and certain of the
stockholders of Universal, BRIAN D. BOOKMEIER, EDWARD T. BUCHHOLZ, MATTHEW B.
GIETZEN, and ALAN M. KORBY (individually, each a "STOCKHOLDER" and collectively,
the "STOCKHOLDERS"), on the one hand, and GAINOR MEDICAL MANAGEMENT, LLC
("GAINOR MANAGEMENT"), a Georgia limited liability company, and its subsidiary
GAINOR MEDICAL ACQUISITION COMPANY, a Georgia corporation ("GAINOR ACQUISITION",
and collectively with Gainor Management, "GAINOR"), on the other hand. The
parties named above entered into an Asset Purchase Agreement on November 14,
1997 (the "Purchase Agreement"). The Purchase Agreement contained an error with
respect to the calculation of the amount to be paid to Universal, using the
revenue of the "Purchased Companies" for calculation of the Post Closing
Revenue, rather than the revenue of Diabetes Self Care, Inc. only, as agreed by
the parties. In order to correct such mistake, and to make additional changes
agreed to by the parties, the parties hereby agree as follows:
1. Sections 2.2(a)(ii) and (iii) of the Asset Purchase Agreement are hereby
replaced in their entirety with the following:
(ii) an amount equal to 75% of the Post Closing Revenue (as defined in
Section 2.5(b)) or $17 million, whichever is less, plus
(iii) the sum (whether positive or negative) of (1) the cash shown on
the Closing Balance Sheets, less (2) the book value at Closing of the Gainor
Assumed Liabilities required to be listed in a balance sheet, prepared in
accordance with GAAP, less (3) all liabilities of the Purchased Companies
shown on the Closing Balance Sheets, and less (4) the amount of the pledge
by the Universal Entities to the American Diabetes Association (the
aggregate of (1)-(4) being referred to herein as the "Closing Net Asset
Value"); and
2. The second sentence of Section 2.3(b) is hereby replaced in its entirety
with the following:
The Note shall be reduced post closing as set forth in Section 2.5(b)
3. Section 2.5 (b) of the Asset Purchase Agreement is hereby replaced in its
entirety with the following:
(b) Upon determination of the Post Closing Revenue (as defined below), the
principal amount of the Note shall be adjusted to equal the lesser of (i) $17
million or (ii) 75% of the Post Closing Revenue following the procedure set
forth in Section 2.7. "Post Closing Revenue" shall mean the gross revenues of
Diabetes Self Care, Inc. for calendar year 1998, less sales taxes, allowable
adjustments and other sales adjustments, all determined in accordance with GAAP.
In the event that Diabetes Self Care, Inc. is consolidated with other of
Gainor's businesses or companies, then the Post Closing Revenue shall exclude
revenue from then existing customers of such other businesses and companies, but
the revenue of customers of both Diabetes Self Care, Inc. and the consolidated
businesses or companies shall be included in Post Closing Revenue. By February
1, 1999, Gainor shall deliver to Universal a statement showing the Post Closing
Revenue. Universal shall review such statement and shall, within 10 days of
receipt of such statement, notify Gainor in writing of any objections thereto.
If Universal fails to give such notice by such time, Universal shall be deemed
to have agreed with the statement as delivered. If Universal gives such notice
by such time, Gainor and Universal shall then have 10 business days after such
notice to agree on the Post Closing Revenue. If Gainor and Universal are not
able to agree by such time, such statement will
42
<PAGE>
be submitted to Ernst & Young, LLP, Atlanta, Georgia (or any successor
accounting firm), who shall have responsibility for determining the correct Post
Closing Revenue, under GAAP, within 30 days following such submission. Ernst &
Young, LLP's (or any such successor accounting firm's) determination shall be
final and binding on Gainor and Universal. The costs of any such determination
shall be shared equally by Gainor and Universal.
4. Section 2.5(c) of the Asset Purchase Agreement is hereby replaced in its
entirety with the following:
(c) Twelve months following the Closing, the principal amount of the Note
shall be reduced (following the procedure set forth in Section 2.7) in the event
and to the extent that the amount by which collections of the trade accounts
receivable shown on the Closing Balance Sheet shall be less than $6 million
during that 12 month period.
5. Section 2.6(a) shall be replaced in its entirety with the word "Omitted".
6. Section 6.6 of Exhibit C to the Asset Purchase Agreement entitled
"Employment Agreement" shall have a new Section 6.6 as follows:
6.6 For a period of three years from the date hereof, Employee shall not
directly or indirectly work for Universal Self Care, Inc. or any of its
subsidiaries, affiliates or successors in interest to its business or
assets, whether as an officer, director, key employee, partner, consultant,
holder of an equity or debt investment, lender or in any other management,
sales, consulting or business development capacity, except in accordance
with the written authorization of HMS.
Each of the parties hereto has caused this Agreement to be duly executed on its
behalf as of the date indicated on the first page hereof.
<TABLE>
<CAPTION>
GAINOR:
GAINOR MEDICAL MANAGEMENT, LLC GAINOR MEDICAL ACQUISITION COMPANY
<S> <C>
By: /s/ MARK J. GAINOR By: /s/ MARK J. GAINOR
- ---------------------------------------- ----------------------------------------
Mark J. Gainor Mark J. Gainor
- ---------------------------------------- ----------------------------------------
Print Name Print Name
Pres./CEO/Mgr Part. Pres/CEO
- ---------------------------------------- ----------------------------------------
Print Title Print Title
UNIVERSAL:
UNIVERSAL SELF CARE, INC. CLINISHARE DIABETES CENTERS, INC.
By: /s/ BRIAN D. BOOKMEIER By: /s/ BRIAN D. BOOKMEIER
- ---------------------------------------- ----------------------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- ----------------------------------------
Print Name Print Name
President President
- ---------------------------------------- ----------------------------------------
Print Title Print Title
PHYSICIANS SUPPORT SERVICES, INC. USC-MICHIGAN, INC.
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- ----------------------------------------
Print Name Print Name
President President
- ---------------------------------------- ----------------------------------------
Print Title Print Title
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
PCS, INC.-WEST DIABETES SELF CARE, INC.
By: /s/ BRIAN D. BOOKMEIER By: /s/ BRIAN D. BOOKMEIER
- ---------------------------------------- ----------------------------------------
Brian D. Bookmeier Brian D. Bookmeier
- ---------------------------------------- ----------------------------------------
Print Name Print Name
President President
- ---------------------------------------- ----------------------------------------
Print Title Print Title
USCI HEALTHCARE MANAGEMENT SOLUTIONS,
INC.
By: /s/ BRIAN D. BOOKMEIER
- ----------------------------------------
Brian D. Bookmeier
- ----------------------------------------
Print Name
President
- ----------------------------------------
Print Title
STOCKHOLDERS:
/s/ BRIAN D. BOOKMEIER /s/ EDWARD T. BUCHHOLZ
- ---------------------------------------- ----------------------------------------
Brian D. Bookmeier Edward T. Buchholz
/s/ MATTHEW B. GIETZEN /s/ ALAN M. KORBY
- ---------------------------------------- ----------------------------------------
Matthew B. Gietzen Alan M. Korby
</TABLE>
44
<PAGE>
EXHIBIT G TO ASSET PURCHASE AGREEMENT
THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND SUCH
SECURITIES MAY NOT BE TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND SUCH LAWS, OR PURSUANT TO EXEMPTIONS FROM
SUCH REGISTRATION.
THIS NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF GAINOR (AS
DEFINED BELOW) AND EACH HOLDER OF THIS NOTE, BY ACCEPTANCE HEREOF, SHALL BE
BOUND BY THE SUBORDINATION AND OTHER PROVISIONS HEREOF.
THIS NOTE MAY NOT BE TRANSFERRED OR ASSIGNED, EXCEPT IN ACCORDANCE WITH THE
TERMS OF SECTION 9 HEREOF.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$20,000,000.00 , 1997
SIMPLE INTEREST 7.00%-8.00% PER ANNUM
FOR VALUE RECEIVED, the undersigned, GAINOR MEDICAL MANAGEMENT, LLC, a
Georgia corporation (together with its permitted successors and assigns,
"Gainor"), promises to pay to the order of UNIVERSAL SELF CARE, INC., a Delaware
corporation (together with its permitted successors and assigns, "Holder"), the
principal sum of TWENTY MILLION AND 00/100 DOLLARS ($20,000,000.00), plus
interest as provided herein, on and subject to the terms set forth herein. This
Note is made in accordance with Section 2.3(c) of the Asset Purchase Agreement
dated November , 1997 by and among Gainor and Gainor Medical Acquisition
Company, on the one hand, and Holder, Clinishare Diabetes Centers, Inc.,
Physicians Support Services, Inc., USC-Michigan, Inc., PCS, Inc.-West, Diabetes
Self Care, Inc., USCI Healthcare Management Solutions, Inc., and certain of the
shareholders of Holder on the other hand (the "Purchase Agreement").
1. Payment.
Subject to Section 3 below, the principal amount of this Note shall be
paid in a single payment with all accrued and unpaid interest thereon no later
than (the "Maturity Date"). Beginning on the date hereof, interest at a
simple rate of 7.00% per annum through December 31, 1998 and 8.00% per annum
thereafter shall accrue on the unpaid principal balance of this Note outstanding
from time to time. On the first business day in each calendar quarter,
commencing on January 2, 1998, Gainor shall pay to Holder the interest accrued
hereunder in arrears. Interest shall be calculated based on a 365(6)-day year,
for actual days elapsed. The principal amount of this Note may be adjusted as
set forth in Sections 2.3, 2.5 and 2.7 of the Purchase Agreement, which
adjustments may be made separately or with another adjustment, and all such
adjustments shall be cumulative.
2. Default.
For purposes of this Note, a "Default" shall occur whenever:
(a) Gainor fails to pay any amount of principal of or interest on this
Note when due hereunder and fails to cure its non-payment within 10 days after
receiving notice from Holder of such failure.
(b) Gainor shall commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect); file a petition seeking to take advantage
as against its creditors of any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or composition or adjustment
of debts; consent to or fail to contest in a timely and appropriate manner any
petition filed against Gainor in an involuntary case under such bankruptcy laws
or other laws; apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial part
of the property of Gainor; admit
<PAGE>
in writing its inability to pay its debts as they become due; make a general
assignment for the benefit of creditors; or take any company action for the
purpose of authorizing any of the foregoing.
(c) A case or other proceeding shall be commenced against Gainor in any
court of competent jurisdiction seeking relief under the federal bankruptcy laws
(as now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or adjustments of
debts, or the appointment of a trustee, receiver, custodian, liquidator or the
like of Gainor or of all or any substantial part of the assets, domestic or
foreign, of Gainor, and such case, proceeding or appointment shall continue
undismissed or unstayed for a period of sixty (60) consecutive calendar days, or
an order granting the relief requested in such case or proceeding (including,
but not limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
Subject to Section 3 below, upon the occurrence and continuance of a Default,
Holder may declare any or all of the unpaid principal balance and accrued
interest under this Note to be immediately due and payable.
3. Subordination.
(a) Notwithstanding any other provision in this Note to the contrary,
Holder hereby agrees, to the extent so provided in this Section 3, that the
indebtedness represented by this Note shall be subordinated and subject in all
respects, including in right of payment to the prior indefeasible payment in
full in cash or immediately available funds of all Senior Indebtedness. As used
herein, the term "Senior Indebtedness" shall mean (i) the principal of, accrued
and unpaid interest on and all fees and other amounts owing in connection with
all indebtedness of Gainor for borrowed money in connection with its term loan
or line of credit with , and (ii) all or any other indebtedness of Gainor
for borrowed money from any bank, commercial finance company, factor, insurance
company, SBIC or other institutional lender, or from a currently existing equity
holder of Gainor.
(b) No payment on account of principal, interest or other amount owing
on this Note shall be made if, at the time of such payment or immediately
after giving effect thereto, there shall have occurred and be continuing a
default, with respect to any particular Senior Indebtedness, which default
shall not have been cured or waived.
(c) Upon any distribution of assets of Gainor, whether in cash,
properties or securities, or any payment by Gainor or any liquidating
trustee or to creditors in connection with any dissolution or winding up or
assignment for the benefit of creditors or any total or partial liquidation
or reorganization of Gainor, whether voluntary or involuntary, in
bankruptcy, insolvency, receivership or other similar proceedings, (i) all
amounts then due upon all Senior Indebtedness (including all interest
accruing thereon after the commencement of such proceeding, whether or not
allowed or allowable as a claim therein) shall first be indefeasibly paid in
full in cash, before any payment or distribution is made on account of this
Note, (ii) any payment or distribution, whether in cash, property or
securities which, but for the terms hereof, otherwise would be payable or
deliverable in respect of the obligations owing under this Note, shall be
paid or delivered directly to the holders of the Senior Indebtedness until
all Senior Indebtedness is indefeasably paid in full in cash; (iii) Holder
agrees not to initiate or prosecute any claim, action or other proceeding
challenging the enforceability of the Senior Indebtedness or any liens and
security interests securing the Senior Indebtedness; and (iv) Holder agrees
to execute, verify, deliver and file any proofs of claim in respect of the
obligations owing under this Note in connection with any such proceeding and
hereby irrevocably authorizes, empowers and appoints the holders of the
Senior Indebtedness as its agent and attorney-in-fact to (A) execute,
verify, deliver and file such proofs of claim upon the failure of Holder
promptly to do so (and, in any event, prior to 10 days before the expiration
of the time to file any such proof of claim) and (B) vote such claim in any
such proceeding upon the failure of Holder to do so prior to 10 days before
the expiration of the time to vote any such claim; provided, however, that
the holders of the Senior Indebtedness shall have no obligation to execute,
verify, deliver, file and/or vote any such proof
2
<PAGE>
of claim. The Senior Indebtedness shall continue to be treated as Senior
Indebtedness and the provisions of this Section 3 shall continue to govern
the relative rights and priorities of the holders of the Senior Indebtedness
and Holder even if all or part of the Senior Indebtedness or the security
interests securing the Senior Indebtedness are subordinated, set aside,
avoided or disallowed in connection with any such proceeding and the
provisions of this Section 3 shall be reinstated if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be returned
by any holder of Senior Indebtedness or any representative of such holder.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets prohibited by the foregoing or by subsection (b)
above shall be received by Holder before all Senior Indebtedness is
indefeasibly paid in full in cash, such payment or distribution shall be
received and held in trust for, and shall be promptly paid over or delivered
to the holders of Senior Indebtedness or their representatives, as their
respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to indefeasibly
pay all Senior Indebtedness in full in cash.
(d) The rights of Holder shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payment or distributions of cash,
property or securities of Gainor applicable to the Senior Indebtedness,
provided, however, that no payment or distribution to the holders of the
Senior Indebtedness pursuant to the provisions of this Note shall entitle
Holder to exercise any rights of subrogation in respect thereof until the
Senior Indebtedness shall have indefeasibly been paid in full in cash.
(e) Until the Senior Indebtedness is indefeasibly paid in full in cash,
Holder shall not take any collection or enforcement action with respect to
amounts due hereunder (including (i) to demand, sue for or set-off any
moneys, (ii) to initiate or participate with others in any such enforcement
action, including the bringing of any proceeding described in Section 3(c)
above and (iii) to accelerate this Note), except (i) with the express prior
written consent of the holders of the Senior Indebtedness or (ii) after
giving 180 days' prior written notice to the holders of the Senior
Indebtedness that a default under this Note has occurred and is continuing,
Holder may accelerate this Note and take such collection or enforcement
action.
(f) Gainor shall be permitted to modify the Senior Indebtedness,
including increasing principal amounts owing and interest rate chargeable
thereunder and changing the manner, amount and time for payments thereunder,
and to incur additional indebtedness on a senior and/or secured basis at any
time, without notice to Holder, provided, however that Gainor shall not
extend the final maturity date of any Senior Indebtedness beyond the
Maturity Date.
(g) Holder hereby agrees to promptly notify the holders of the Senior
Indebtedness in writing of each default by Gainor hereunder, and the cure
thereof.
(h) Holder agrees to execute an intercreditor or subordination agreement
with terms and conditions consistent with the subordination provisions of
this Note or otherwise reasonable under the circumstances, if required by
the holders of the Senior Indebtedness, and to take all such other
reasonable action as the holders of the Senior Indebtedness may request in
order to enable such holders to enforce their rights hereunder.
(i) The holders of the Senior Indebtedness may foreclose on their
security interests securing payment of the Senior Indebtedness in any manner
that they, in their sole discretion, may elect even though a higher price
might have been obtained had such security interests been foreclosed upon in
another manner. Holder waives any requirement that the holders of the Senior
Indebtedness protest, secure, perfect or insure any security interest or
lien on any property subject thereto or exhaust any right or take any action
against Gainor. The right of any present or future holder of Senior
Indebtedness to enforce subordination of this Note pursuant to the
provisions of this Section 3 shall not at any time be prejudiced or impaired
by any act or failure to act on the part of Gainor or any such
3
<PAGE>
holder of Senior Indebtedness, including but not limited to any application
of any sums by whomsoever paid or however realized to the Senior
Indebtedness, or any amendment of the amount, manner, place or terms of
payment of the Senior Indebtedness, or any extension of the time of payment
of or renewal of the Senior Indebtedness, or any forbearance, waiver,
consent, compromise, amendment, extension, renewal, or taking or release of
security of or in respect of any Senior Indebtedness or by noncompliance by
Gainor with the terms of such subordination regardless of any knowledge
thereof with which such holders may have or otherwise be charged.
(j) The holders of the Senior Indebtedness are hereby authorized to
demand specific performance of the subordination provisions contained in
this Note at any time when Holder shall have failed to comply with any of
the subordination provisions contained in this Note applicable to it. Holder
hereby irrevocably waives any defense based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific performance.
(k) Each current and future holder of Senior Indebtedness, whether now
outstanding or hereafter created, incurred, assumed or guaranteed, shall be
deemed to have acquired the Senior Indebtedness in reliance on the
subordination provisions contained in this Note, which are made for the
benefit of all such holders and their successors, assigns and participants,
and in this regard all such holders shall be third party beneficiaries of
this Note.
(l) This Note shall not at any time be secured by the assets or
properties of Gainor.
4. Right of Set Off. Payment (and prepayment, if applicable) of all amounts
due under this Note, including principal and interest, is subject to (i)
Gainor's right to setoff, against principal and interest and all other amounts
due hereunder, any amounts due to Gainor from Holder and/or another Selling
Company (as defined in the Purchase Agreement) under their respective
indemnification and other obligations under the Purchase Agreement, (ii) the
provisions of Sections 2.3 and 2.5 of the Purchase Agreement concerning the
adjustment in the principal amount of this Note under certain circumstances,
(iii) the provisions of Section 6.22 of the Purchase Agreement concerning
Holder's potential liability in California for alleged two-tiered pricing
practices, and (iv) the last sentence of this Section 4. This Note is subject to
such rights and such other terms and conditions of the Purchase Agreement as may
be applicable. Notwithstanding any other provision of this Note, Gainor shall
not be obligated to make any payment hereunder that would reduce the principal
outstanding hereunder below the aggregate amount of all outstanding, unpaid and
unresolved claims for indemnification made by Gainor under Section 6.9 of the
Purchase Agreement.
5. Prepayment; Escrow. Gainor may prepay the principal hereof and interest
hereunder in whole or in part at any time and from time to time without penalty
or premium. If any such prepayment is made prior to the end of the three year
period following the date hereof and would result in the principal amount
outstanding under the Note to fall below $10 million, then part of such
prepayment shall be placed in escrow to secure Holder's indemnification and
other obligations under the Purchase Agreement, such that the amount of
principal remaining outstanding under this Note and the amount in escrow total
$10 million at all times. The amounts to be placed in escrow shall be placed
with SunTrust Bank, Atlanta or another escrow agent acceptable to both Holder
and Gainor pursuant to an escrow agreement with terms and conditions reasonably
acceptable to each of Holder and Gainor. If Gainor elects to make such a
prepayment and any amounts are so required to be placed in escrow, the parties
shall negotiate in good faith to agree upon the terms and conditions of such
escrow agreement as soon as possible following such election. All amounts
remaining in escrow at the end of such three year period shall be released to
Holder, except such amounts as may be required to cover outstanding claims by
Gainor against amounts held in escrow.
4
<PAGE>
6. Conversion of Note.
(a) Conversion at Option of Holder. If Gainor shall at any time
determine in its sole discretion to register the sale of any of its equity
securities for its own account in a public offering on a firm commitment
underwritten basis through one or more underwriters pursuant to an
underwriting agreement between Gainor and such underwriters (an
"Underwritten Public Offering"), then Gainor shall notify Holder in writing
(the "Offering Notice") as soon as practicable but no less than 20 days
prior to filing a registration statement for such Underwritten Public
Offering, which Offering Notice shall include the most recent financial
statements of Gainor and the most recent description of Gainor's business
proposed to be included in the registration statement, and a copy of such
other information available to Gainor and reasonably requested by Holder
concerning the terms of the proposed Underwritten Public Offering. Within 10
business days after receipt of the Offering Notice, Holder may elect to
convert this Note, in whole or in part, into the equity securities of Gainor
offered pursuant to such Underwritten Public Offering (the "Conversion
Shares"), contingent upon the closing of such offering. The number of
Conversion Shares shall be determined by dividing the aggregate amount of
this Note to be converted by the per share offering price of the equity
securities actually offered in such Underwritten Public Offering.
Notwithstanding the above: if the aggregate offering price of the securities
offered in the Underwritten Public Offering is less than $25 million, and if
the managing underwriter or underwriters determine that marketing or other
factors so require, the underwriter and Gainor may limit the amount of this
Note that may be converted under this Section 6; and the conversion rights
of this Section 6 are subject to the provisions of Section 9 hereof
concerning the sale, transfer or assignment hereof by Holder.
(b) Conversion Procedures. Such conversion shall be made by delivery to
Gainor of a written notice of Holder's election to convert this Note within
10 business days after receipt of the Offering Notice. Such conversion shall
be deemed to have been made at the close of business on the date immediately
prior to the commencement of such Underwritten Public Offering. No
fractional shares of Common Stock shall be issued upon conversion of this
Note, and in lieu thereof, Gainor shall pay to Holder the amount of
outstanding principal that is not so converted. Upon the conversion of this
Note, Holder shall surrender the Note, duly endorsed, at the principal
office of Gainor. At its expense, Gainor shall, upon the closing of the
Underwritten Public Offering, issue and deliver to Holder a certificate or
certificates for Conversion Shares (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to
Gainor), together with a check payable to Holder for any cash amount payable
for fractional shares. Upon conversion of this Note, Gainor shall be forever
released from all its obligations and liabilities under this Note, provided,
however, that the obligations of Gainor set forth in Section 7 shall remain
in effect.
(c) Security Pledge. If any conversion hereunder is made prior to the
end of the three year period following the date hereof and would result in
the principal amount outstanding under the Note to fall below $10 million,
or if any conversion hereunder is made at any time and would result in the
principal amount outstanding under the Note to fall below the aggregate
amount of all outstanding, unpaid and unresolved claims for indemnification
made by Gainor under Section 6.9 of the Purchase Agreement, then a number of
the Conversion Shares shall be pledged to Gainor to secure Holder's and/or
the other Selling Companies' indemnification and other obligations under the
Purchase Agreement, such that the amount of principal remaining under this
Note and the value of the Conversion Shares so pledged (valued at the
offering price) shall total the greater of $10 million or the aggregate
amount of all such claims if conversion occurs during such three-year
period, or the aggregate amount of all such claims if conversion occurs
after such three-year period. Such shares shall be pledged pursuant to a
pledge agreement with terms and conditions reasonably acceptable to each of
Holder and Gainor, in any event providing that obligations of Holder to
Gainor may be satisfied by Gainor's reacquisition of an appropriate number
of the Conversion Shares, valued at the average of the closing market price
for such shares during the five trading days prior thereto. The
5
<PAGE>
parties shall negotiate in good faith to agree upon the terms and conditions
of such pledge agreement as soon as possible following the conversion
election. All shares remaining under pledge at the end of such three year
period shall be released to Holder, except such shares as may be required to
cover outstanding claims by Gainor under the indemnification provisions of
the Purchase Agreement.
7. Registration Rights.
(a) Piggyback Registration. Not more than two times after the date of
this Note, if Gainor determines to effect an Underwritten Public Offering
and Holder has elected to acquire Conversion Shares through the conversion
of all or any portion of this Note, Gainor will:
(i) promptly give to Holder written notice of such Underwritten
Public Offering (which shall include, to the extent available, a list of
the jurisdictions in which Gainor intends to attempt to qualify the offer
and sale of such securities under the applicable blue sky or other state
securities laws); and
(ii) use its reasonable efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), and
in any Underwritten Public Offering involved therein, all the Conversion
Shares specified in a written request by Holder received by Gainor within
ten days after such written notice is given. Any such request from Holder
shall (i) specify the number of Conversion Shares requested to be
included in such registration and (ii) include an undertaking to provide
all information and materials concerning Holder, to comply with all
requirements hereunder concerning such Underwritten Public Offering, and
to take any other actions reasonably requested by Gainor to enable Gainor
to comply with the Securities Act, any applicable state securities law,
and the applicable rules and regulations thereunder
(b) Underwriting. The registration rights of Holder shall be conditioned
upon Holder's participation in the Underwritten Public Offering, the
inclusion of the Conversion Shares in the Underwritten Public Offering to
the extent provided herein, and Holder's entering into an underwriting
agreement in customary form with the underwriter or underwriters selected by
Gainor for such Underwritten Public Offering.
(c) Termination of Registration by Gainor. Notwithstanding any other
provision herein, at any time before or after the filing of a registration
statement in connection with such Underwritten Public Offering, Gainor may,
in its sole discretion, abandon or terminate such registration without the
consent of Holder.
(d) Limitations on Rights. Gainor shall not be required to include the
Conversion Shares in the securities covered by a registration statement on
any form which limits the amount of securities that may be registered by the
issuer or selling security holders if, and to the extent that, such
inclusion would make the use of such form unavailable. In addition, the
registration rights under this Section 7 are subject to the provisions of
Section 9 hereof concerning the sale, transfer or assignment hereof by
Holder.
(e) Reduction of Rights. Notwithstanding any other provision herein, if
the managing underwriter or underwriters determine that marketing or other
factors require a limitation of the amount of securities to be offered in
the Underwritten Public Offering, the underwriter and Gainor may limit the
number of Conversion Shares to be included in any registration and
Underwritten Public Offering.
(f) Prohibition on Selling Stock During Underwritten Public Offering. In
the event of an Underwritten Public Offering, Holder shall not sell any of
the Conversion Shares, except to the underwriters in connection with such
offering, during the period of distribution of the offered securities by the
underwriters and the period in which the underwriting syndicate participates
in the aftermarket. The securities registered under the terms of this
Section 5 shall be subject to such restrictions on sale or lock up periods
as may be required by the Underwriters.
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<PAGE>
(g) Registration Expenses. Gainor shall pay, on behalf of Holder, all of
the expenses in connection with the registration of the Conversion Shares as
provided herein, including all registration, filing and NASD fees, and all
fees and expenses of complying with securities or blue sky laws, but
excluding any underwriting discounts and commissions and transfer taxes, if
any, and any fees or disbursements of any counsel to Holder. In any
registration, Holder shall pay for its own counsel, underwriting discounts
and commissions, and transfer taxes.
(h) Registration Procedures. In the case of any registration effected by
Gainor in which the Conversion Shares are included pursuant to this Section
5, Gainor will, at its expense:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to the Conversion
Shares and use its reasonable efforts to cause such registration
statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of the Conversion Shares under
the plan of distribution chosen by Gainor for the Underwritten Public
Offering;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to correct any statements or omissions if,
during the time when the prospectus is required to be delivered under the
Securities Act of 1933 (the "Securities Act"), any event shall have
occurred as a result of which the prospectus would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in
which they were made, not misleading;
(iii) furnish to Holder a copy of any opinion letters which Gainor
shall provide to the underwriters pursuant to the underwriting agreement;
(iv) furnish to Holder such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and such
other documents as Holder may reasonably request in order to facilitate
the public offering of the Conversion Shares; and
(v) use its reasonable efforts to register or qualify the Conversion
Shares covered by such registration statement under such state securities
or blue sky laws of such jurisdictions as the underwriters and Gainor
determine appropriate.
(i) Indemnification. In the case of a registration effected by Gainor
pursuant to this Section 5 in which Conversion Shares are included:
(i) Gainor agrees to indemnify and hold harmless Holder against any
and all losses, claims, damages or liabilities to which Holder may become
subject under the Securities Act or any other statute or common law, and
to reimburse Holder for any reasonable legal or other expenses incurred
by it in connection with the investigation of any claims and defense of
any actions, insofar as any such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement, any prospectus contained therein, or any amendment or
supplement thereto, or in any blue sky application, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the indemnification contained in this subsection
shall not (A) apply to such losses, claims, damages, liabilities or
actions arising out of, or based upon, any such untrue statement or
alleged untrue statement, or any such omission or alleged omission, if
such statement or omission was made in reliance upon and in conformity
with information furnished to Gainor by Holder for use in connection with
the preparation of the registration statement or any prospectus contained
in the registration statement or any such amendment thereof or supplement
thereto; or (B) inure to the benefit of any person to the extent such
person's claim for indemnification hereunder arises out of or is based on
any violation of such person of applicable law.
7
<PAGE>
(ii) Holder shall be obligated, in the same manner and to the same
extent as set forth in subsection (i) of this Section 5(i), to indemnify
and hold harmless Gainor and each person, if any, who controls Gainor
within the meaning of Section 15 of the Securities Act, and their
directors and officers, with respect to any statement or alleged untrue
statement in, or omission or alleged omission from, such registration
statement, any prospectus contained therein, or any amendment or
supplement thereto, or in any blue sky application, if such statement or
omission was made in reliance upon and in conformity with information
furnished to Gainor by Holder for use in connection with the preparation
of such registration statement or any prospectus contained in such
registration statement or any such amendment thereof or supplement
thereto or blue sky application; provided, however, that the liability of
Holder hereunder shall be limited to the proceeds received by Holder from
the sale of Conversion Shares covered by such registration statement,
amendment, supplement, prospectus or blue sky application, as the case
may be.
(iii) Each person to be indemnified pursuant to this Section 5 shall,
promptly after its receipt of written notice of the commencement of any
action against such indemnified person in respect of which indemnity may
be sought from an indemnifying person under this Section 5, notify the
indemnifying person in writing of the commencement thereof. The failure
of any indemnified person to so notify an indemnifying person of the
commencement of any such action shall relieve the indemnifying person
from any liability in respect of such action which it may have to such
indemnified person on account of the indemnity contained in this Section
5, but shall not relieve the indemnifying person from any other liability
which it may have to such indemnified person. Upon notification of such
an action as provided above, the indemnifying person shall be entitled to
participate therein and, to the extent it may desire, jointly with any
other indemnifying persons similarly notified, to assume the defense
thereof, and after notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, the
indemnifying person will not be liable to such indemnified person under
this Section 5 for any legal or other expenses subsequently incurred by
such indemnified person in connection with the defense thereof other than
reasonable costs of investigation unless (A) the indemnified party shall
have employed counsel in an action in which the indemnified party and
indemnifying party are both defendants and there is a conflict of
interest between such parties that would prevent counsel from adequately
representing both parties, or (B) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party.
8. Representations, Warranties and Covenants of Holder. Holder hereby
represents and warrants to Gainor as follows:
(a) Restricted Securities. Holder understands that neither the issuance
of this Note nor the issuance of the Conversion Shares will be registered
under the Securities Act or the securities laws of any, in reliance upon
exemptions from registration contained in the Securities Act and such laws,
and that Gainor's reliance upon such exemptions is based in part upon the
representations, warranties and agreements of Holder contained herein.
(b) Investment Intent. Holder is acquiring this Note (and will acquire
the Conversion Shares) for its own account and not for distribution or
resale to others, and agrees that it will not sell or otherwise transfer
this Note or the Conversion Shares except pursuant to an effective
registration statement under the Securities Act and applicable state
securities laws, or exemptions available therefrom.
(c) Legend Requirement. Holder acknowledges that the certificates
representing the Conversion Shares will contain a legend stating that the
issuance thereof was not registered under the Securities Act or any state
securities laws and referring to the above restrictions on transferability
and sale. A notation will also be made in the records of Gainor so that
transfers of such Conversion Shares will not be effected in the records of
Gainor without compliance with these restrictions.
8
<PAGE>
9. Assignment. Neither party hereto shall have the right to sell, transfer
or assign this Note or any rights or delegate any duties hereunder except with
the express prior written consent of the other party, except that (a) Gainor
shall have the right to assign any rights or delegate any duties hereunder to
any Affiliate (as that term is defined in the Purchase Agreement) who is a
successor in interest to all or substantially all of its business or assets or
to any other Affiliate provided that Gainor guarantees the performance of all
obligations by such Affiliate hereunder, and (b) Holder may sell, transfer or
assign this Note (in whole but not in part) to another person through a direct
assignment or through a merger or consolidation with such other person upon at
least 10 days prior written notice to Gainor, provided, however, that Holder may
not sell, transfer or assign this Note to any person engaged in any business
that is competitive with any business conducted by Gainor at the time of such
sale, transfer or assignment. Any sale, transfer or assignment by either party,
when permitted hereunder, shall be subject to all terms contained herein, and
the buyer, transferee or assignee shall agree in writing to all terms and
conditions contained herein. Subject to the restrictions on transfer contained
herein and the proviso at the end of this sentence, the rights and obligations
of Gainor and Holder shall be binding upon and benefit the successors and
permitted assigns of such party; provided, however, that upon any sale, transfer
or assignment of this Note by Holder, the provisions of Section 6 (Conversion of
Note) and 7 (Registration Rights) hereof shall become null and void and the
buyer, transferee or assignee shall not be entitled to any of the benefits
thereof. This Note shall be deemed to be canceled, and all obligations of Gainor
hereunder shall terminate, if, without the prior written consent of Gainor
Holder attempts to distribute this Note or any interests therein to its security
holders or liquidate.
10. Amendment. Any provision of this Note may be amended or modified only
upon the written agreement of Gainor and Holder.
11. Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by overnight courier or express
mail service or by postage pre-paid certified or registered mail, return receipt
requested (the return receipt constituting prima facie evidence of the giving of
such notice, request, demand or other communication), by personal delivery, or
by fax with confirmation of receipt to the following address or such other
address of which a party subsequently may give notice to all the other parties:
To Holder: Universal Self Care, Inc.
1158 Farmington Road
Livonia, Michigan 48150
Attention: Brian D. Bookmeier
Fax: (313) 261-6511
To Gainor: Gainor Medical Management, LLC
2205 Highway 42 North
McDonough, Georgia 30252-0353
Attention: Mark J. Gainor
Fax: (770) 471-1600
And
Nelson Mullins Riley & Scarborough, L.L.P.
Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Philip H. Moise
Fax: (404) 817-6050
9
<PAGE>
12. Heading; References. All headings used herein are used for convenience
only and shall not be used to construe or interpret this Note. Except where
otherwise indicated, all references herein to Sections refer to Sections hereof.
13. Governing Law. The provisions of this Note are to be governed by and
construed according to the laws of the State of Georgia.
<TABLE>
<S> <C> <C>
GAINOR MEDICAL MANAGEMENT, LLC
By:
------------------------------------------
Mark J. Gainor
President
</TABLE>
<TABLE>
<CAPTION>
Consented and Agreed to:
<S> <C> <C>
UNIVERSAL SELF CARE, INC.
---------------------------------------
Brian D. Bookmeier
President
By:
</TABLE>
10
<PAGE>
EXHIBIT B
DECEMBER 16, 1997
The Board of Directors of Universal Self Care, Inc.
Universal Self Care, Inc.
11585 Farmington Road
Livonia, MI 48150
Board of Directors:
We understand that Universal Self Care Inc. (the "Company"), its
subsidiaries, Clinishare Diabetes Centers, Inc., Physicians Support Services,
Inc., USC-Michigan, Inc., PCS, Inc.-West, Diabetes Self Care, Inc., ("DSC") and
USCI Healthcare Management Solutions, Inc. ("HMS"), (together, the
"Subsidiaries"), and Certain of its Stockholders, Brian D. Bookmeier, Edward T.
Buchholtz, Matthew B. Gietzen, and Alan M. Korby (together, the "Stockholders")
and Gainor Medical Management, LLC, and Gainor Medical Acquisition Company
(together, "Gainor") have entered into an Asset Purchase Agreement, as amended,
(the "Agreement"), whereby, among other things, the Company will sell DSC and
HMS (the "Purchased Companies"), and the Subsidiaries, excluding DSC and HMS
(the "Selling Subsidiaries"), will sell substantially all of their assets (the
"Purchased Assets") to Gainor (the "Transaction"). As consideration for the
Purchased Companies and the Purchased Assets, the Company and the Selling
Subsidiaries will receive (i) cash in the amount of $17,000,000, net of certain
adjustments, including the cash of the Purchased Companies and certain
liabilities of the Company and the Subsidiaries to be assumed (the "Cash
Consideration"), (ii) a convertible subordinated promissory note in the face
value of $17,000,000 (the "Note"), and Gainor will assume certain liabilities of
the Subsidiaries (the Gainor Assumed Liabilities" and together with the Cash
Consideration and the Note, the "Consideration"). The Note, whose maker will be
Gainor, will mature in greater than five years, but less than six years, bear
interest at 7.00 percent for the first year and 8.00 percent thereafter, will be
convertible at fair market value into the shares of Gainor at the time of the
closing of an underwritten public offering of any equity securities of Gainor,
subject to certain conditions, including, but not limited to, the registration
of the equity securities of Gainor for an underwritten public offering, and will
be subordinated to the senior indebtedness of Gainor. Furthermore, the face
value of the Note will be subject to adjustment based on any claims by Gainor or
the Company under the indemnification provisions of the Agreement, on any post
closing adjustments under the provisions of the Agreement, and on the revenue of
DSC during the twelve-month period ending December 31, 1998.
You have requested our opinion, as financial advisors, as to the fairness,
from a financial point of view, to the Company and to the Selling Subsidiaries
of the Consideration to be paid for the Purchased Companies and the Purchased
Assets in the Transaction.
In conducting our analysis of the Company and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of the Company that was publicly available; including filings made
with the Securities and Exchange Commission (the "SEC"). The documents reviewed
by Valuemetrics include, but are not limited to:
(i) Monthly consolidated budget of Universal Self Care, Inc. and Subsidiaries
for the fiscal year ending June 30, 1998 (the "Budget");
(ii) Forms 8-K filed on September 9, 1996 and July 7, 1997;
(iii) Prospectus of Universal Self Care, Inc. dated December 10, 1992;
(iv) Form S-3 Registration Statement and Post-Effective Amendment No. 1 to
Form SB-2 Registration Statement on Form S-3 Registration Statement filed
on July 11, 1997;
(v) Certificate of Incorporation of Universal Self Care, Inc. and all
amendments thereto;
(vi) Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series A Convertible Preferred Stock;
<PAGE>
(vii) Certificate of Designation, Preferences and Relative, Participating,
Optional or Other Special Rights of Series B Convertible Preferred
Stock;
(viii) Certificate of Correction to Correct a Certain Error in the Certificate
of Designations, Preferences and Relative, Participating, Optional or
Other Special Rights of Series B Convertible Preferred Stock;
(ix) Universal Self Care, Inc. 1992 Employee Stock Option Plan;
(x) Universal Self Care, Inc. Management Non-Qualified Stock Option Plan;
(xi) Loan and Security Agreement by and among Universal Self Care, Inc.,
Diabetes Self Care, Inc., PCS, Inc.-West, Physicians Support Services,
Inc. and Healthpartners Funding L.P. dated August 15, 1996;
(xii) Publicly reported trading activity in the common stock of Universal Self
Care, Inc. for the period from November 11, 1994 through October 1,
1997; and
(xiii) Public news releases by Universal Self Care, Inc. for the period from
November 6, 1995 through July 28, 1997.
Valuemetrics also reviewed the annual financial statements of the Company for
the fiscal years ended June 30, 1993 through June 30, 1997 as presented in the
Forms 10-KSB and/or 10-KSB/A, as well as the quarterly financial statements of
the Company for the fiscal quarters ended September 30, December 31, and March
31, 1996 and 1997 as presented in Forms 10-Q and 10-QSB. Valuemetrics also
reviewed the internally prepared, unaudited Consolidating Financial Statements
of Universal Self Care, Inc. and Subsidiaries for the fiscal year ending June
30, 1997 and the fiscal quarter ending September 30, 1997, portions of the
Company's internal financial and operating reports for the months of October and
November, 1997, and the Company's current and future operating performance as
compared to the Budget. In addition, we have reviewed available industry and
market research and publicly available financial and stock performance data of
companies that we deemed comparable to the Company.
In conducting our analysis of Gainor and arriving at our opinion as
expressed herein, we have reviewed and analyzed certain financial and other
information of the Company and Gainor. The documents reviewed by Valuemetrics
include, but are not limited to:
(i) Letter regarding the Acquisition of Assets of Universal Self Care, Inc.
and Subsidiaries from Gainor Medical Management, LLC, dated August 15,
1997;
(ii) Letter regarding the Acquisition of Assets of Universal Self Care, Inc.
and Subsidiaries from Gainor Medical Management, LLC, dated November 6,
1997;
(iii) Asset Purchase Agreement between Gainor Medical Management, LLC, Gainor
Medical Acquisition Company and Universal Self Care, Inc. and its
Subsidiaries Clinishare Diabetes Centers, Inc., Physicians Support
Services, Inc., USC-Michigan, Inc., PCS, Inc.-West, Diabetes Self Care
Inc., Medical Accounting Specialists, Inc., and USCI Healthcare
Management Solutions, Inc., and Certain of its Shareholders, Brian D.
Bookmeier, Edward T. Buchholz, Matthew B. Gietzen, and Alan M. Korby,
Dated November 14, 1997 and all Exhibits attached thereto, including,
the Bill of Sale, the Contract Assignment Agreement, the Employment
Agreement, the Gainor Assumption Agreement, the Trademark Assignment
Agreement, the Universal Assumption Agreement, and the Convertible
Subordinated Promissory Note;
(iv) the unexecuted First Amendment to the Asset Purchase Agreement, dated as
of November 24, 1997;
(v) Letter regarding the Financing Proposal of Gainor Medical Management, LLC
from LaSalle National Bank, Dated October 8, 1997;
2
<PAGE>
(vi) Letter regarding the Discussion Draft of Proposed Terms and Conditions
for Gainor Medical Management, LLC from U.S. Bank National Association,
d/b/a First Bank National Association, Dated October 8, 1997;
(vii) Operating Agreement of Gainor Medical Management, LLC;
(viii) Unaudited Pro Forma Consolidated Financial Statements of Universal Self
Care, Inc. and Subsidiaries as of September 30, 1997, compiled by
Feldman Radin & Co., P.C.;
(ix) Audited Financial Statements of Gainor Medical Management, LLC and
Affiliated Companies for the fiscal year ending December 31, 1996;
(x) Description of the business and ownership of Gainor Medical Management,
LLC, prepared by Gainor; and
(xi) Pro forma operating and financial forecast of Gainor and the Purchased
Companies and the Purchased Assets for the fiscal years ending December
31, 1998 through 2004.
In addition, we have reviewed available industry and market research pertaining
to Gainor's operations and various assets.
In rendering our opinion, we have conducted on site due diligence and held
discussions with certain officers, employees and representatives (including
counsel and independent auditors) of the Company and Gainor, respectively,
concerning the business and operations, assets, present condition and future
prospects of the Company and Gainor and undertook such other studies, analyses
and investigations as we have deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information supplied to or otherwise
used by us in arriving at our opinion and have not attempted independently to
verify such information. With respect to the pro forma projections provided to
us by Gainor of the expected future operating and financial performance of the
Purchased Companies and the Purchased Assets combined with Gainor, we have
assumed that they have been reasonably prepared on the bases reflecting the best
currently available estimates and judgement of Gainor's management as to their
expected future performance. We have not assumed any responsibility for the
independent verification of any such information or projections provided to us
and we have further relied upon the assurance of the management of Gainor that
they are unaware of any facts that would make the information or projections
provided to us incomplete or misleading. In arriving at our opinion, we have not
performed or obtained any independent appraisal of the assets or liabilities of
the Company, its subsidiaries, or Gainor. We have also assumed that the
transactions described in the Agreement, as amended, would be consummated on the
terms set forth therein, without waiver of any such terms.
We have assumed, with the consent of the Company and Gainor, that the
Transaction will comply with applicable federal and state laws, including,
without limitation laws relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer or other similar laws now or
hereafter in effect affecting creditors' rights generally.
Our opinion, as expressed herein, is limited exclusively to the pretax value
of the Consideration. It is our understanding that the structure of the
Transaction is costly to the Company from a taxation standpoint. As a result of
the Transaction, the Company will incur a tax liability of approximately
$6,225,000, net of the realization of the Company's net operating loss
carryforwards. The payment of the tax liability may cause substantial dilution.
However, we are not aware of alternative transaction structures mutually
agreeable to both the Company and Gainor. Furthermore, the tax consequences of
the Transaction are beyond our purview.
As part of our professional services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
leveraged buyouts, sales of unlisted securities, and
3
<PAGE>
valuations for estate, corporate and other purposes. We have also taken into
account our assessment of general economic, market and financial conditions and
our experience in similar transactions, as well as our experience in securities
valuation in general. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof. Subsequent developments may
affect this opinion, and we disclaim any obligation to update, revise or
reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and use
of the Board of Directors of the Company in its consideration of the
Transaction. The Board of Directors of the Company may rely upon this opinion
with respect to the Transaction. This letter does not constitute a
recommendation of the Transaction over any other alternative transactions which
may be available to the Company and does not address the underlying business
decision of the Board of Directors of the Company to proceed with or effect the
Transaction. In addition, in rendering this opinion, we do not express any view
as to the prices at which the Company's securities may trade prior to or
following the Transaction. This letter does not constitute a recommendation by
our firm to any particular member of the Board of Directors or to any
Stockholder as to how such member or stockholder should vote in connection with
the Transaction. This letter and the contents hereof may not be published,
disseminated, referred to, summarized, described or otherwise used, nor shall
any public reference to Valuemetrics, Inc., be made, without our prior written
consent. We understand that this opinion will be filed with the SEC and
distributed to the Company's Shareholders as part of the Proxy Statement related
to the proposed Transaction. As you are aware, we will receive a fee for our
services to the Board of Directors in connection with rendering this opinion,
and the Company has indemnified Valuemetrics for certain liabilities arising out
of this engagement including the rendering of this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be paid for the Purchased Companies and
Purchased Assets is fair, from a financial point of view, to the Company and the
Selling Subsidiaries.
VERY TRULY YOURS,
VALUEMETRICS, INC.
4
<PAGE>
EXHIBIT C
UNIVERSAL SELF CARE, INC.
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSES.
The 1997 Stock Option Plan for Non-Employee Directors (the "Plan") is
established to attract, retain and compensate highly qualified individuals who
are not employees of Universal Self Care, Inc.(the "Company") for service as
members of the Board of Directors ("Non-Employee Directors") and to provide them
with an ownership Interest in the Company's common stock (the "Common Stock").
The Plan will be beneficial to the Company and its stockholders by allowing
these Non-Employee Directors to have a personal financial stake in the Company
through an ownership interest in the Company's common stock, in addition to
underscoring their common interest with stockholders in increasing the value of
the Company's stock over the long term.
2. EFFECTIVE DATE.
The Plan shall be effective as of the date it is adopted by the Board of
Directors of the Company, subject to the approval of the Plan by the holders of
at least a majority of the outstanding shares of Company common stock present,
or represented, and entitled to vote at the 1998 Annual Meeting of Stockholders.
Grants of options may be made under the Plan on and after its effective date,
subject to stockholder approval of the Plan as provided above. In the event such
approval is not obtained, any options granted under the Plan shall be null and
void.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee appointed by the Board of
Directors and consisting of Directors who are not eligible to participate in the
Plan (the "Committee"), or by the full Board of Directors in the event that a
Committee has not been appointed (in the event that a Committee has not been
appointed, any action hereunder to be taken by the Committee shall be taken by
the Board of Directors). Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; PROVIDED, HOWEVER,
that the Committee shall have no discretion with respect to the eligibility or
Election of Non-Employee Directors to receive options under the Plan, the number
of shares of stock subject to any such options or the Plan, or the purchase
price thereunder; and PROVIDED FURTHER, that the Committee shall not have the
authority to take any action or make any determination that would materially
increase the benefits accruing to participants under the Plan. The Committee's
interpretation of the Plan, and all actions taken and determinations made by the
Committee pursuant to the powers vested in it hereunder, shall be conclusive and
binding upon all parties concerned including the Company, its stockholders and
persons granted options under the Plan. The Chairman of the Board and Chief
Executive Officer of the Company, or any other officer of the Company as
designated by the Committee, shall be authorized to implement the Plan in
accordance with its terms and to take or cause to be taken such actions of a
ministerial nature as shall be necessary to effectuate the intent and purposes
thereof.
4. PARTICIPATION IN THE PLAN.
All active members of the Company's Board of Directors who are not as of the
date of any option grant employees of the Company or any of its subsidiaries or
affiliates shall be eligible to participate in the Plan. Directors emeritus
shall not be eligible to participate.
5. NON-QUALIFIED STOCK OPTIONS.
Only non-qualified stock options ("Options") may be granted under this Plan.
<PAGE>
6. TERMS, CONDITIONS AND FORM OF OPTIONS.
(A) OPTION GRANT DATES. Options to purchase Ten Thousand (10,000) shares of
Common Stock (as adjusted pursuant to Section 8) shall be automatically granted
to each eligible Non-Employee Director on the date following approval of the
Plan at the 1998 Annual Stockholders Meeting and on an annual basis to each
eligible Non-Employee Director on each July 1 thereafter (or the first
succeeding business day thereafter of which the Common Stock is traded on the
principal securities exchange on which it is listed).
(B) EXERCISE PRICE. The exercise price per share of Common Stock for which
each option is exercisable shall be 100% of the fair market value per share of
Common Stock on the date the Option is granted, which shall be the average of
the closing bid and asked prices of the stock (or the closing sale price of the
stock if traded on a national securities exchange) as generally reported for the
principal securities exchange on which the Company's Common Stock is listed.
(C) EXERCISABILITY AND TERM OF OPTIONS. Each Option granted under the Plan
shall become fully exercisable on the date of grant. Each Option granted under
the Plan shall expire five years from the date of grant, and shall he subject to
earlier termination as hereinafter provided.
(D) TERMINATION OF SERVICE. In the event of the termination of service on
the Board by the holder of any Option, other than by reason of mandatory
retirement, permanent disability or death as set forth in paragraph (e) hereof,
the then outstanding Options of such holder shall be exercisable only to the
extent that they were exercisable on the date of such termination and shall
expire three months after such termination, or on their stated expiration date,
whichever occurs first.
(E) RETIREMENT, DISABILITY OR DEATH. In the event of termination of service
by reason of mandatory retirement pursuant to Board policy or permanent
disability of the holder of any Option, each of the then outstanding Options of
such holder will continue to become exercisable in accordance with Section 6(c)
above, but the holder shall be entitled to exercise such Options, including any
portions thereof that become exercisable after such termination, within three
years of such termination, but in no event, after the expiration date of the
Option. In the event of the death of the holder of any Option, each of the then
outstanding Options of such holder shall become immediately exercisable in full,
and shall be exercisable by the holder's legal representative at any time within
a period of three years after death, but in no event after the expiration date
of the Option. However, if the holder dies within two years following
termination of service on the Board by reason of mandatory retirement or
permanent disability, such option shall be exercisable only until (x) the later
of (i) one year after the holder's death or (ii) two years after such
termination, or (y) the expiration date of the Option, if earlier.
(F) PAYMENT. The option price shall be paid in cash (whether or not such
cash is loaned by the Company to the participant for such purpose) or by the
surrender of shares of Common Stock of the Company, valued at their fair market
value on the date of exercise, or by any combination of cash and such shares.
7. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be purchased pursuant to Options under the Plan shall
not exceed an aggregate of 300,000 shares of Company Common Stock (as adjusted
pursuant to Section 8). Any shares subject to an Option grant which for any
reason expires or is terminated unexercised as to such shares shall again be
available for issuance under the Plan.
8. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of Company Common Stock
by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, such equitable adjustment shall be made in the Plan and the grants
thereunder, including the exercise price of outstanding Options, as the
Committee determines are
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necessary or appropriate, including, if necessary, any adjustments in the
maximum number of shares referred to in Section 7 of the Plan. Such adjustment
shall be conclusive and binding for all purposes of the Plan.
9. MISCELLANEOUS PROVISIONS.
(A) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no rights
as a holder of Company Common Stock with respect to Option grants hereunder,
unless and until certificates for shares of such Common Stock are issued to the
participant.
(B) ASSIGNMENT OR TRANSFER. No Options granted under the Plan or any rights
or interests therein shall be assignable or transferable by a participant except
by will or the laws of descent and distribution. During the lifetime of a
participant, Options granted hereunder are exercisable only by, and payable only
to, the participant.
(C) AGREEMENTS. All Options granted under the Plan shall be evidenced by
agreements or certificates in such form and containing such terms and conditions
(not inconsistent with the Plan) as the Committee shall adopt.
(D) COMPLIANCE WITH LEGAL REGULATIONS. During the term of the Plan and the
term of any Options granted under the Plan, the Company shall at all times
reserve and keep available such number of shares as may be issuable under the
Plan, and shall seek to obtain from any regulatory body having jurisdiction,
including the Office of the Secretary of State of the State of Delaware, any
requisite authority required in the opinion of counsel for the Company in order
to grant Options to purchase Shares of Company Common Stock or to issue such
stock pursuant thereto. If in the opinion of counsel for the Company the
transfer, issue or sale of any shares of its stock under the Plan shall not be
lawful for any reason, including the inability of the Company to obtain from any
regulatory body having jurisdiction authority deemed by such counsel to be
necessary to such transfer, issuance or sale, the Company shall not be obligated
to transfer, issue or sell any such shares. In any event, the Company shall not
be obligated to transfer, issue or sell any shares to any participant unless a
registration statement which complies with the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), is in effect at the time with
respect to such shares or other appropriate action has been taken under and
pursuant to the terms and provisions of the Securities Act, or the Company
receives evidence satisfactory to the Committee that the transfer, issuance or
sale of such shares, in the absence of an effective registration statement or
other appropriate action, would not constitute a violation of the terms and
provisions of the Securities Act. The Company's obligation to issue shares upon
the exercise of any Option granted under the Plan shall in any case be subject
to the Company being satisfied that the shares purchased are being purchased for
investment and not with a view to the distribution thereof, if at the time of
such exercise a result of such issuance of shares would otherwise violate the
Securities Act in the absence of an effective registration statement relating to
such shares.
(C) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Option or to any
Non-Employee Director receiving an Option.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(A) AMENDMENT. The Committee may from time to time amend the Plan in whole
or in part; PROVIDED, that no such action shall adversely affect any rights or
obligations with respect to any Options theretofore granted under the Plan, AND
PROVIDED FURTHER, that the provisions of Sections 4 and 6 hereof may not he
amended more than once every six months, other than to comport with a change in
the Internal Revenue Code or regulations thereunder.
Unless the holders of at least a majority of the outstanding shares of
Company Common Stock present, or represented, and entitled to vote at a meeting
of stockholders shall have first approved thereof,
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no amendment of the Plan shall be effective which would (i) increase the maximum
number of shares referred to in Section 7 of the Plan or the number of shares
subject to Options that may be granted pursuant to section 6(a) of the Plan to
any one Non-Employee Director or (ii) extend the maximum period during which
Options may be granted under the Plan.
With the consent of the Non-Employee Director affected, the Committee may
amend outstanding agreements or certificates evidencing Options under the Plan
in a manner not inconsistent with the terms of the Plan.
(B) TERMINATION. The Committee may terminate the Plan (but not any Options
theretofore granted under the Plan) at any time. The Plan (but not any Options
theretofore granted under the Plan) shall in any event terminate on, and no
Options shall be granted after, September 1, 2006.
11. COMPLIANCE WITH SEC REGULATIONS.
It is the Company's intent that the Plan comply in all respects with Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any related regulations. If any provision of this Plan is later found
not to be in compliance with such Rule and regulations, the provision shall be
deemed null and void. All grants and exercises of Options under this Plan shall
be executed in accordance with the requirements of Section 16 of the Exchange
Act and regulations promulgated thereunder.
12. GOVERNING LAW.
The validity and construction of the Plan and any agreements entered into
thereunder shall he governed by the laws of the State of Delaware.
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EXHIBIT D
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
UNIVERSAL SELF CARE, INC.
PURSUANT TO SECTION 242 OF THE DELAWARE
GENERAL CORPORATION LAW
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law, the undersigned, being the Chief Executive Officer of the
Corporation, hereby certifies and set forths as follows:
FIRST: The name of the Corporation is Universal Self Care, Inc. (the
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation was filed by the
Secretary of State on the 12th day of May, 1989.
THIRD: The Certificate of Incorporation is hereby amended to change the
corporate name and increase the number of authorized shares of the Corporation
pursuant to Sections 241 and 242 of the General Corporation Law. Articles
"FIRST" and "FOURTH" of the Certificate of Incorporation are hereby amended as
follows:
"FIRST: The name of the Corporation is Tadeo Holdings, Inc."
"FOURTH: The aggregate number of shares of capital stock that may be
issued by the Corporation is One Hundred (100,000,000) Shares, consisting of
90,000,000 shares of Common Stock, par value $.0001 per share ("Common
Stock") and Ten Million (10,000,000) shares of Preferred Stock ("Preferred
Stock").
FOURTH: The amendment to the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Business Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned hereby execute his name and affirm that
the statements made herein are true under the penalties of perjury, this
th day of , 1998.
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Brian Bookmeier,
CHIEF EXECUTIVE OFFICER
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UNIVERSAL SELF CARE, INC.
PROXY-ANNUAL MEETING OF STOCKHOLDERS
JANUARY 26, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS OF UNIVERSAL SELF CARE, INC. TO BE HELD ON
JANUARY 26, 1998. ANY STOCKHOLDERS HAS THE RIGHT TO APPOINT AS HIS PROXY A
PERSON (WHO NEED NOT BE A STOCKHOLDER) OTHER THAN ANY PERSON DESIGNATED BELOW,
BY INSERTING THE NAME OF SUCH OTHER PERSON IN ANOTHER PROPER FORM OF PROXY.
The undersigned, a stockholder of Universal Self Care, Inc., (the
'Corporation'), hereby revoking any proxy herein before given, does hereby
appoint Brian D. Bookmeier and Alan M. Korby, or either of them, as his proxy
with full power of substitution, for and in the name of the undersigned to
attend the Annual Meeting of Stockholders to be held on January 26, 1998 at the
Holiday Inn Livonia-West, 17123 North Laurel Park Drive, Livonia, Michigan
48152, at 10:00 a.m., local time, and at any adjournments thereof, and to vote
upon all matters specified in the notice of said meeting, as set forth herein,
and upon such other business as may properly come before the meeting, all shares
of stock of said Corporation which the undersigned would be entitled to vote if
personally present at the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL
PROPOSALS.
1. THE ELECTION OF DIRECTORS
Election of the following proposed directors to hold office until the next
Annual Meeting of Stockholders or until their successors shall be elected
and shall qualify: Brian D. Bookmeier, James Linesch. Damon D. Testaverde
and Peter W. Rothberg.
FOR ALL NOMINEES (EXCEPT AS MARKED TO THE CONTRARY) WITHHOLD ALL NOMINEES
/ / FOR / / AGAINST / / ABSTAIN
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD BE
INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE NOMINEE.
2. Ratify the Appointment of Feldman, Radin & Co., P.C. as independent
auditors for the Corporation for the fiscal year ending June 30, 1998.
/ / FOR / / AGAINST / / ABSTAIN
Authorize and approve the sale of all or substantially all of the assets
3. of the Company's Business to a subsidiary of Gainor Medical Management,
LLC as part of the Gainor Transaction under the terms of the Sale
Agreement, and authorize and approve the terms of the Sale Agreement, all
Exhibits thereto, and the transactions contemplated thereby.
/ / FOR / / AGAINST / / ABSTAIN
4. To authorize and approve the 1997 Stock Option Plan for Non-Employee
Directors.
/ / FOR / / AGAINST / / ABSTAIN
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To authorize an amendment to the Company's Certificate of Incorporation,
5. effective upon consummation of the Gainor Transaction pursuant to the
terms of the Sale Agreement, to change the name of the Corporation from
"Universal Self Care, Inc." to "Tadeo Holdings, Inc."
/ / FOR / / AGAINST / / ABSTAIN
To authorize an amendment to the Company's Certificate of Incorporation,
effective upon consummation of the Gainor Transaction pursuant to the
terms of the Sale Agreement, to increase the authorized capital of the
6.
Company by increasing the number of authorized shares of Common Stock from
40,000,000 shares, $.0001 par value, to 100,000,000 shares of Common
Stock, $.0001 par value.
/ / FOR / / AGAINST / / ABSTAIN
7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
/ / FOR / / AGAINST / / ABSTAIN
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PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREIN, if signing as attorney,
executor, administrator, trustee or guardian, indicate such capacity. All joint
tenants must sign. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
The Board of Directors request that you fill in the date and sign the Proxy and
return it in the enclosed envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE SPACE, IT IS DEEMED TO BE DATED ON THE
DAY ON WHICH IT WAS MAILED BY THE CORPORATION.
Dated: _______________________, 1998.
_____________________________________
Signature
_____________________________________
Print Name
_____________________________________
Signature, if Jointly Held
_____________________________________
Print Name
