-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O1I6oK6wVUOf+qZct7S/oy4KN7cyoJPM7Net5qKSu9m50eFwWvpgBq47d6mFmUPW z3GW2S6n8g8kuYAAfZxMNg== 0000950168-95-001158.txt : 19951229 0000950168-95-001158.hdr.sgml : 19951229 ACCESSION NUMBER: 0000950168-95-001158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951228 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCI MEDICAL AFFILIATES INC CENTRAL INDEX KEY: 0000737561 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 592225346 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13265 FILM NUMBER: 95605186 BUSINESS ADDRESS: STREET 1: 6168 ST ANDREWS RD CITY: COLUMBIA STATE: SC ZIP: 29212 BUSINESS PHONE: 8037728840 MAIL ADDRESS: STREET 1: 6168 ST ANDREWS ROAD CITY: COLUMBIA STATE: SC ZIP: 29212 10-K 1 UCI MEDICAL 10-K FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________ Commission File Number: 0-13265 UCI MEDICAL AFFILIATES, INC. (Exact name of registrant as specified in its charter) Delaware 59-2225346 (State or other jurisdiction of incorporation (IRS Employer Identification or organization) Number) 6168 St. Andrews Road, Columbia, SC 29212 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 772-8840 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ( X ) The registrant's revenue for the year ended September 30, 1995, the registrant's most recent year end, was $17,987,147. The aggregate market value of voting stock held by nonaffiliates of the registrant on December 15, 1995, is approximately $4,166,000.* The number of shares outstanding of the registrant's common stock, $.05 par value was 3,794,916 at December 15, 1995. DOCUMENTS INCORPORATED BY REFERENCE None * Calculated by excluding all shares held by officers, directors and controlling shareholder of registrant without conceding that all such persons are "affiliates" of registrant for purposes of the federal securities laws. Total number of pages, including the cover page, is 123 . Exhibit Index is on page 41 . -1- UCI MEDICAL AFFILIATES, INC. INDEX TO FORM 10-K PAGE PART I Item 1 Business ..........................................................3 Item 2 Properties .........................................................5 Item 3 Legal Proceedings ..................................................6 Item 4 Submission of Matters to a Vote of Security Holders ............. 6 PART II Item 5 Market for the Registrant's Common Stock and Related Security Holder Matters ............................... 7 Item 6 Selected Financial Data ........................................ 8 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations .............................. 9 Item 8 Financial Statements and Supplementary Data .......................12 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................... 12 PART III Item 10 Directors and Executive Officers of the Registrant ................12 Item 11 Executive Compensation ........................................... 14 Item 12 Security Ownership of Certain Beneficial Owners and Management ................................................ 15 Item 13 Certain Relationships and Related Transactions ....................17 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K ...............................................19 -2- PART I Item 1. Business Introduction The consolidated financial statements of UCI Medical Affiliates, Inc. include the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned subsidiary, UCI Medical Affiliates of SC, Inc. ("UCI-SC") and Doctor's Care, PA (the "P.A."), collectively the "Company". The financial statements of the P.A. are consolidated with UCI because UCI-SC has unilateral control over the assets and operations of the P.A. and, notwithstanding the lack of technical majority ownership, consolidation of the P.A. with UCI is necessary to present fairly the financial position and results of operations of UCI. UCI-SC provides non-medical management and administrative functions for 25 medical clinics, operating as Doctor's Care (the "Centers"). All medical services at the Centers are provided by or under the supervision of the P.A., which has contracted with UCI-SC to provide the medical direction of the Centers. The medical directors operate the Centers under the financial and operational control of UCI-SC. However, medical supervision of the Centers is provided solely by the P.A. The P.A. remits to UCI-SC all medical service revenues generated by the Centers, net of expenses incurred by the P.A. This compensation is recorded in the accompanying financial statements as revenue. Control of the P.A. is perpetual and other than temporary because of the nature of this relationship and the management's agreements between the entities. The net assets of the P.A. are not material for any period presented and intercompany accounts and transactions have been eliminated. For the fiscal year ended September 30, 1995, the Company has shown a substantial increase in revenues and in medical centers under management. This growth is a direct result of actions taken by management to increase marketing efforts, to expand the state-wide network in South Carolina and to focus on the field of occupational and industrial medicine. General UCI-SC provides nonmedical management and administrative services for freestanding medical centers. The Company as of September 1995 owns a network of medical centers consisting of 25 freestanding Centers located throughout South Carolina. In order to comply with prohibitions against corporations, other than medical professional associations, providing medical care; all medical services at the Centers are provided by or under the supervision of the P.A., a South Carolina professional association. The Centers are staffed by licensed physicians, other healthcare providers and administrative support staff. The medical support staff includes licensed nurses, certified medical assistants, laboratory technicians and x-ray technicians. The Centers typically are open for extended hours (weekends and evenings) and out-patient care only. When hospitalization or specialty care is needed, referrals to appropriate specialists are made. The Company's Centers are broadly distributed throughout the state of South Carolina. There are eleven primary care Centers in the Columbia region, four in the Charleston region, four in the Myrtle Beach region and four in the Greenville-Spartanburg region. In addition to these 23 Centers, the Company operates a surgical practice and an orthopedic practice, both of which are located in Columbia. The Company's business, by its nature, is subject to various risks, including, but not limited to, difficulties in controlling health care costs, uncertainty of future expansion, availability of primary care physicians and possible negative effects of government regulation. -3- The health care industry is subject to extensive federal and state regulation. Changes in healthcare legislation or reinterpretations of existing regulations could significantly affect the business of the Company. Medical Services Provided at the Centers The Company's Centers offer reasonably priced out-patient medical care, without appointment, for treatment of acute and episodic medical problems. The Centers provide a broad range of medical services which would generally be classified as within the scope of family practice and occupational medicine. The medical services are provided by licensed physicians, nurses and auxiliary support personnel. The services provided at the Centers include, but are not limited to the following: (bullet) Routine care of general medical problems, including colds, flu, ear infections, hypertension, asthma, pneumonia and other conditions typically treated by primary care providers; (bullet) Treatment of injuries, such as simple fractures, dislocations, sprains, bruises and cuts; (bullet) Minor surgery, including suturing of lacerations and removal of cysts and foreign bodies; (bullet) Diagnostic tests, such as x-rays, electrocardiograms, complete blood counts, urinalysis and various cultures; and, (bullet) Occupational and industrial medical services, including drug testing, worker's compensation and physical examinations. At any of the Centers, a patient with a life-threatening condition would be evaluated by the physician, stabilized and immediately transferred to a nearby hospital. Patient Charges and Payments The fees charged to a patient are determined by the nature of medical services rendered. Management of the Company believes that the charges at its Centers are significantly lower than the charges of hospital emergency departments and are generally competitive with the charges of local physicians and other providers in the area. The Company's Centers accept payment from a wide range of sources. These include patient payments at time of service (by cash, check or credit card), patient billing and assignment of insurance benefits (including Blue Cross/Blue Shield, Medicare, Worker's Compensation and other private insurance). Private pay billings represent the most significant source of revenues. The Company also provides services for members of three of the largest health maintenance organizations ("HMOs") operating in South Carolina - Companion HealthCare Corporation, HealthSource South Carolina, Inc., and Maxicare South Carolina (a division of Maxicare Southeast Health Plan, Inc.). Medical services traditionally have been provided on a fee-for-service basis with insurance companies assuming responsibility for paying all or a portion of such fees. The increase in medical costs under traditional indemnity health care plans has been caused by a number of factors. These factors include: (i) the lack of incentives on the part of health care providers to deliver cost-effective medical care; (ii) the absence of controls over the utilization of costly specialty care physicians and hospitals; (iii) a growing and aging population which requires increased health care expenditures; and (iv) the expense involved with the introduction and use of advanced pharmaceuticals and medical technology. As a result of escalating health care costs, employers, insurers and governmental entities all sought cost-effective approaches to the delivery of and payment for quality health care services. HMOs and other managed health care organizations have emerged as integral components in this effort. HMOs enroll -4- members by entering into contracts with employer groups or directly with individuals to provide a broad range of health care services for a capitation payment, with minimal or no deductibles or co-payments required of the members. HMOs, in turn, contract with health care providers like the Company to administer medical care to HMO members. These contracts provide for payment to the Company on either a discounted fee-for-service or through capitation payments based on the number of members covered, regardless of the amount of necessary medical care required within the covered benefit period. Certain third party payors are studying various alternatives for reducing medical costs, some of which, if implemented, could affect reimbursement levels to the Company. The Company cannot predict whether changes in present reimbursement methods or proposed future modifications in reimbursement methods will affect payments for services provided by the Centers and, if so, whether they will have an adverse impact upon the business of the Company. Competition and Marketing All of the Company's Centers face competition, in varying degrees, from hospital emergency rooms, private doctor's offices and other competing freestanding medical centers. Some of these providers have financial resources which are greater than those of the Company. In addition, traditional sources of medical services, such as hospital emergency rooms and private physicians, have had, in the past, a higher degree of recognition and acceptance by patients than Centers such as those operated by the Company. The Company's Centers compete on the basis of accessibility, including evening and weekend hours, a no-appointment policy, the attractiveness of its state-wide network to large employers and third party payors, and on a basis of a competitive fee schedule. In an effort to offset the competition's community recognition, the Company has substantially increased its marketing efforts. Regional marketing representatives have been added, focused promotional material has been developed and a newsletter for employers promoting the Company's activities has been initiated. Government Regulation South Carolina prohibits the corporate practice of medicine. By virtue of its relationship with the P.A., the Company believes that it is in full compliance with this law. The health care industry is highly regulated, and there can be no assurance that the regulatory environment in which the Company operates will not change significantly in the future. Generally, regulation of health care companies is increasing. Various proposals affecting federal and state regulation of the health care industry, including limitations on Medicare and Medicaid payments, have been introduced in the past, including provisions in legislation currently pending. Employees As of September 30, 1995 and 1994, the Company had 301 and 202 employees, respectively (270 and 170 , respectively, on a full-time equivalent basis). Item 2. Properties All but one of the Company's primary care Centers are leased. The properties are generally located on well-traveled major highways, with easy access. Each property offers free, off-street parking immediately adjacent to the center. Four (4) Centers are leased from entities affiliated with the Company's Chairman and one (1) center is leased directly from the Chairman. Seven (7) Centers are leased from Companion HealthCare Corporation, a principal shareholder of the Company. See additional information regarding these leases at Item 13, "Certain Relationships and Related Transactions." -5- Item 3. Legal Proceedings The Company is party to various claims, legal activities and complaints arising in the normal course of business. In the opinion of management and legal counsel, there are no material pending legal proceedings to which the Company is party. Item 4. Submission of Matters to a Vote of Security Holders On September 13, 1995, the annual meeting of the shareholders of the Company was held and the following actions were taken: 1. The shares of Common Stock represented at the meeting were voted to elect Charles M. Potok, Charles P. Cannon and Russell J. Froneberger to the Board of Directors for terms expiring in 1997, 1998 and 1998, respectively, as follows:
Number Voting For Against Abstain Charles M. Potok 2,804,675 2,665,941 - 138,734 Charles P. Cannon 2,804,675 2,665,941 - 138,734 Russell J. Froneberger 2,804,675 2,665,941 - 138,734
Two other Directors, M.F. McFarland, III, M.D. and Harold H. Adams, Jr., whose terms expire in 1997 and 1996, respectively, continued to serve as elected. 2. The shares of Common Stock represented at the meeting were voted to approve an amendment to the 1994 Incentive Stock Option Plan to increase the number of shares of Common Stock that may be issued under the Stock Option Plan from 50,000 shares to 750,000 shares as follows: Number Voting For Against Abstain 2,578,837 2,552,639 24,339 1,859 3. The shares of Common Stock represented at the meeting were voted to ratify the appointment of Price Waterhouse LLP as independent auditors for the Company as follows: Number Voting For Against Abstain 2,804,675 2,803,922 446 337 -6- PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters The Common Stock of the Company is traded on the over-the-counter market. The prices set forth below indicate the high and low bid prices. All stock prices have been adjusted to reflect the Company's one for five reverse stock split effected on July 27, 1994.
Bid Price Fiscal Year ended September 30, 1995 High Low 1st quarter (10/01/94 - 12/31/94) 3-1/8 1-1/2 2nd quarter (01/01/95 - 03/31/95) 3-1/4 1-1/2 3rd quarter (04/01/95 - 06/30/95) 3-3/8 2-1/4 4th quarter (07/01/95 - 09/30/95) 3-1/4 1-3/4 Bid Price Fiscal Year ended September 30, 1994 High Low 1st quarter (10/01/93 - 12/31/93) 5/8 5/8 2nd quarter (01/01/94 - 03/31/94) 2-1/2 15/100 3rd quarter (04/01/94 - 06/30/94) 4-1/16 1-1/4 4th quarter (07/01/94 - 09/30/94) 3-6/10 1-1/4
From October 1, 1992 through September 30, 1993, the Company's stock had been quoted at 5/32. The foregoing quotations reflect inter-dealer prices without retail markup, markdown or commission and may not necessarily reflect actual transactions. As of September 30, 1995, there were 698 stockholders of record of the Company's Common Stock, excluding individual participants in security position listings. The Company has not paid dividends on its Common Stock since inception and has no plans to declare cash dividends in the foreseeable future. -7- Item 6. Selected Financial Data (In thousands, except per share data) The following selected financial data should be read in conjunction with the Company's consolidated financial statements and the accompanying notes presented elsewhere herein. STATEMENT OF OPERATIONS DATA
For the year ended September 30, 1995 1994 1993 1992 1991 Revenues ............................................... $ 17,987 $12,540 $9,799 $8,330 $ 8,542 Income (loss) before extraordinary items ............... (1,360) 644 268 3 (76) Net income (loss) (1) .................................. (1,360) 644 407 3 (76) Net income (loss) per share (2) ........................ (.43) .28 .21 -- (.04) Weighted average number of shares outstanding (2) ............................... 3,137 2,324 1,971 1,946 1,946
BALANCE SHEET DATA
September 30, 1995 1994 1993 1992 1991 Working capital ................................ (383) 763 (845) (921) (1,394) Premises & equipment, net ...................... 2,795 1,098 487 268 404 Total assets ................................... 10,216 6,674 2,940 2,452 2,748 Long-term debt ................................. 4,366 2,838 667 634 473 Stockholders' equity ........................... 3,253 2,603 457 49 473
(1) Effective October 1, 1993, the Company adopted Statement of Financial Standards No. 109, "Accounting for Income Taxes." The effect of adopting SFAS 109 was to reduce income tax expense for 1994 by approximately $612,000 or $.26 per share. (2) The net income (loss) per share and the weighted average number of shares outstanding has been restated for all periods presented to reflect the one for five reverse stock split effected on July 27, 1994. -8- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which the Company believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto. Results of Operations for the Year Ended September 30, 1995 Compared to Year Ended September 30, 1994 For fiscal year 1995, revenues of $17,987,000 reflect an increase of 43% from the amount reported for fiscal year 1994. The following reflects revenue trends from fiscal year 1991 through fiscal year 1995: For the year ended September 30, (in thousands) 1995 1994 1993 1992 1991 Revenues $17,987 $12,540 $9,799 $8,330 $8,542 Operating Costs 18,180 11,881 9,133 8,004 8,232 Operating Margin (193) 660 666 326 310 The increase in revenue for fiscal year 1995 is attributable to a number of factors. The Company engaged in a significant expansion, increasing the number of primary care medical Centers from 19 to 25. The expansion included the addition of two Centers each to the clusters in Columbia (bringing the total to eleven plus two specialty practices in this region), Greenville (bringing the total to four in this region) and Myrtle Beach (bringing the total to four in this region). The Company, in fiscal year 1995, increased its services provided to members of HMOs. In these arrangements, the Company, through Doctor's Care, P.A., acts as the designated primary caregiver for members of the HMO who have selected Doctor's Care as their primary care provider. In fiscal year 1994, the Company began participating in an HMO operated by Companion HealthCare Corporation ("Companion"), a wholly owned subsidiary of Blue Cross Blue Shield of South Carolina. With its arrangement with Companion, the Company now participates in three HMOs and is the primary care "gatekeeper" for more than 11,000 capitated lives. While HMOs do not, at this time, have a significant penetration into the South Carolina market, the Company believes that HMOs and other managed care plans will experience a substantial increase in market share in the next few years, and the Company is therefore positioning itself for this possibility. Increased revenues in fiscal year 1995 also reflect the Company's heightened focus on occupational medicine and industrial health services. Focused marketing materials, including quarterly newsletters for employers, were developed to spotlight the Company's services for industry. The Company also entered into an agreement with Companion Property and Casualty Insurance Company wherein the Company acts as the primary care provider for injured workers of firms insured through Companion Property and Casualty Insurance Company. Companion Property and Casualty Insurance Company is wholly owned by Blue Cross Blue Shield of South Carolina and is therefore affiliated with Companion HealthCare Corporation, a primary shareholder of the Company. See additional related information at Item 13, "Certain Relationships and Related Transactions." Patient encounters increased to 283,000 in fiscal 1995 from 216,000 in fiscal 1994. Even with the positive effects of the factors mentioned above, revenues were short of goals for the year, due in part to the increased competition from hospitals and other providers in Greenville, Sumter and Myrtle Beach and to certain short-term disruptions related to the practices acquired during the year. -9- Operating losses of $193,000 were realized in fiscal 1995 as compared to an operating margin of $660,000 in fiscal 1994. This is due, in part, to start-up costs being incurred at the six Centers added in fiscal 1995. Operating costs of $18,180,000 for fiscal 1995 exceeded management's budgets primarily in the areas of personnel costs and medical supplies. Management has aggressively addressed these areas, implementing significant cost cutting measures during the latter part of the third quarter. These include very substantial and across the board reductions in personnel costs, severe reductions in overtime and aggressive negotiations with vendors to obtain more substantial discounts on medical supplies. Depreciation and amortization expense increased to $579,000 in fiscal 1995, up from $320,000 in fiscal 1994. This increase reflects higher depreciation expense as a result of significant leasehold improvements and equipment upgrades at a number of the Company's medical centers, as well as an increase in amortization expense related to the intangible assets acquired from the Company's purchase of existing practices in Surfside Beach, Columbia, and Myrtle Beach. Interest expense increased from $164,000 in fiscal 1994 to $505,000 in fiscal 1995 primarily as a result of the interest costs associated with the indebtedness incurred in the Company's purchase of the Surfside Beach Center and in the leasehold improvements. In the latter part of fiscal year 1994, the Company converted to a centralized computer system acquired from Companion Technologies. Companion Technologies is wholly owned by Blue Cross Blue Shield of South Carolina and is therefore affiliated with Companion HealthCare Corporation, a primary shareholder of the Company. See additional related information at Item 13, "Certain Relationships and Related Transactions." This conversion was necessitated by the Company's expansion, the need for a centralized, specialized billings and collections unit, and by the Company's recognition that increased managed care participation required more exacting data. With billing done from a centralized location rather than from each medical center, the Company believes that both increased billing efficiency, and greater focus on collections, will result. The new computer system will also cause a reduction in computer-related expansion costs should the Company add additional Centers. In making this conversion, the Company traded in its old computer equipment, giving rise to a loss of approximately $69,000 in fiscal 1994. Effective October 1, 1993, the Company adopted Statement of Financial Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires the use of an asset and liability approach to accounting for income taxes. The effect of adopting SFAS 109 was to reduce income tax expense for 1994 by approximately $612,000 or $.26 per share. Financial statements presented for 1993 and prior years reflected income taxes recorded under the deferred method previously required by previous accounting standards. As part of the adoption of SFAS 109, the Company has recognized a deferred tax asset relating to net operating loss carry forwards which are available to offset future taxable income. Under certain circumstances, a significant change in the Company's ownership could severely limit utilization of the Company's net operating loss carry forwards. Financial Condition at September 30, 1995 The Company grew significantly during the year ending September 30, 1995. Cash and cash equivalents have decreased from $210,000 at September 30, 1994 to $77,000 at September 30, 1995. Cash was utilized mainly for working capital needs and to fund the expansion previously discussed. Accounts receivables increased notably from fiscal year 1994. This was attributable to the opening of six additional primary care Centers and the overall growth in patient visits to existing Centers. The increase in property and equipment is attributable to the purchase of the Donaldson Center, the equipment needs of new Centers and the up-grading of equipment at established Centers. The excess of cost over the net assets of acquired businesses (goodwill) totaled $3,578,000 at September 30, 1995 compared to $2,651,000 at the end of the previous fiscal year and reflects the medical practices acquired. -10- The current portion of debt increased in fiscal year 1995 to $1,245,000 from $543,000 at the end of fiscal year 1994. Long-term debt also increased. These increases are primarily the result of indebtedness incurred in the purchases of the Donaldson Center, in the purchase of Summit Medical, and in the utilization of an operating line of credit. Accounts payable increased $1,186,000 during 1995 to $1,653,000 as a result of the tight cash position of the Company and as a result of the accelerated growth of the Company during this period. Overall, the Company's current liabilities exceeded its current assets at September 30, 1995 by $383,000; working capital needs were funded, in part, by the sale of stock to Companion HealthCare (a private placement) for $600,000 on November 3, 1995 (see Subsequent Events section below.) Liquidity and Capital Resources The Company requires capital principally to fund growth (acquire new Centers), for working capital needs and for the retirement of indebtedness. The Company's capital requirements and working capital needs have been funded through a combination of external financing (including bank debt and proceeds from the sale of common stock to Companion HealthCare Corporation), internally generated funds and credit extended by suppliers. Operating activities used $460,000 of cash during fiscal year 1995, compared with $744,000 used during fiscal year 1994. The decrease in operating cash used during fiscal 1995 is mainly the result of growth in accounts payable and accrued expenses. Some of these payables were reduced via utilization of the $600,000 from the November 3, 1995 common stock sale to Companion HealthCare (see Subsequent Events section below). Investing activities used $642,000 of cash during fiscal year 1995 compared with $120,000 in 1994 as a result of expansion efforts. Continued growth is anticipated during 1996. (See "Subsequent Events" for acquisition activity in the first quarter of fiscal year 1996.) The Company received $1,240,000 during fiscal 1995 in cash resulting from two private placements of stock with Companion HealthCare Corporation which was used in part to manage the Company's rapid growth and in part to reduce debt. Should additional needs arise, the Company may consider additional capital sources to obtain funding. There is no assurance that any additional financing, if required, will be available on terms acceptable to the Company. Earnings and Balance Sheet Analysis for Fiscal Year 1994 Compared to 1993 Total revenues for fiscal year 1994 increased by 28% to $12,540,000 from $9,799,000 for fiscal year 1993. The Company expanded from 14 to 19 Centers during this year and was able to hold gross profit margin at about $660,000 for both years. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" was adopted at the start of fiscal 1994 with the result of reducing income tax expense for 1994 by approximately $612,000. Subsequent Events In January 1995, the Company entered into an acquisition agreement for a medical practice in Myrtle Beach, South Carolina. The acquisition is expected to become effective prior to December 31, 1995, after certain conditions precedent occur. On November 3, 1995, Companion purchased 218,180 shares of newly issued common stock of the Company for $2.75 a share, or $599,995. Subsequent to the transaction, Companion's ownership in the Company was approximately 45%. Companion has the option to purchase as many shares as may be necessary for Companion to maintain ownership of 47% of the outstanding common stock of the Company in the event that the Company issues additional stock to other parties (excluding shares issued to employees or directors of the Company). -11- On December 1, 1995, the Company acquired a medical practice in Greenville, South Carolina. The Company entered into an employment agreement with the physician who had been the sole shareholder of the acquired medical practice. The Company also entered into lease agreements for the facility occupied by and the computer system used by the acquired medical practice. Item 8. Financial Statements and Supplementary Data Reference is made to the Index to Financial Statements on Page 20 . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On July 27, 1995, the Company notified Scott and Holloway, LLP (formerly Moore Kirkland Scott & Beauston) that it would not be retained as the Company's independent accountants for the fiscal year ending September 30, 1995. The Company's decision not to retain Scott and Holloway, LLP was approved by the Board of Directors at a meeting held on July 26, 1995 and was not the result of any prior, existing or expected disagreement with the Company. The reports of Moore Kirkland Scott & Beauston on the financial statements of the Company for the fiscal years ended September 30, 1994 and 1993 contained no adverse opinion or disclaimer of opinion. The reports were modified because of an uncertainty as to the Company's ability to continue as a going concern as a consequence of losses incurred from continuing operations. This modification has been subsequently rescended and an unqualified opinion for the fiscal years ended September 30, 1994 and 1993 has been issued. In connection with its audits of financial statements of the Company for the fiscal years ended September 30, 1994 and 1993, and the interim period through July 27, 1995, the Company had no disagreement with Moore Kirkland Scott & Beauston on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Moore Kirkland Scott & Beauston, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the financial statements for such periods. Scott and Holloway, LLP has furnished the Company with a letter addressed to the SEC stating that they agree with the statements made by the Company with respect to their dismissal. On July 26, 1995, the Company engaged Price Waterhouse LLP as its independent accountants to audit the Company's financial statements for the fiscal year ending September 30, 1995. The decision to engage Price Waterhouse LLP was approved by the Board of Directors of the Company at a meeting held on July 26, 1995. During the Company's fiscal years ended September 30, 1994 and 1993, the Company did not consult with Price Waterhouse LLP regarding any matters (a) which were, or should have been, subject to SAS 50, or (b) concerning the subject matter of a disagreement or reportable event with the Company's former independent accountants (as described in Regulation S-B, Item 304(a)(2)). Item 10. Directors and Executive Officers of the Registrant Directors The Company's Restated Certificate of Incorporation provides for a classified Board of Directors so that, as nearly possible, one-third of the Company's Board of Directors is elected each year to serve a three-year term. Currently, the Board of Directors consists of five directorships with staggered terms expiring at the Annual Meetings of Shareholders in 1996, 1997 and 1998. The Company's Bylaws provide the Board of Directors with the power and authority to determine the number of directors constituting the entire Board of Directors. At a meeting of the Board of Directors on July 26, 1995, the Board of Directors voted to increase the size of the Board from three members to the current five members, with such increase to be effective immediately prior to the election of directors at the Annual Meeting, which was held September 13, 1995. To give effect to such increase, the Board of Directors approved the addition of one directorship to each of the classes of directors whose terms expire at the Annual Meetings of Shareholders -12- in 1997 and 1998. Set forth below is the certain biographical information with respect to the directors of the Company. M.F. McFarland, III, M.D., 47, has served as Chairman of the Board, President and Chief Executive Officer of the Company since January 1987 and as a director of the Company since September 1984. From September 1984 until January 1987, he served as Vice President of the Company. He served as Associate Professional Director of the Emergency Department of Richland Memorial Hospital in Columbia, South Carolina from 1978 to 1981 and was President of the South Carolina Chapter of the American College of Emergency Physicians in 1979. Dr. McFarland is currently a member of the Columbia Medical Society, the South Carolina Medical Society and the American Medical Association. In November 1992, a voluntary proceeding under Chapter 11 of the United States Bankruptcy Code was filed with respect to Dr. McFarland. Harold H. Adams, Jr., 48, has served as Director of the Company since June 1994 and as President and owner of Adams and Associates, International, Adams and Associates, and Southern Insurance Managers since June 1992, and served as President of Adams Eaddy and Associates, an independent insurance agency, from 1980 to 1992. Mr. Adams has been awarded the Chartered Property Casualty Underwriter designation and is currently a member of the President's Board of Visitors of Charleston Southern University in Charleston, South Carolina. He has received numerous professional awards as the result of over 25 years of involvement in the insurance industry and is a member of many professional and civic organizations. Charles P. Cannon, 45, has served as Director of the Company since September 1995 and as Vice President, Corporate Controller and Assistant Treasurer for Blue Cross Blue Shield of South Carolina ("Blue Cross") since April 1988 and as Assistant Treasurer for its subsidiary, Companion HealthCare Corporation, since April 1988. Prior to joining Blue Cross in April 1988, he was a Senior Manager and consultant for Price Waterhouse LLP for eleven (11) years. Mr. Cannon is a member of the American Institute of Certified Public Accountants, the South Carolina Association of Certified Public Accountants, the Institute of Management Accountants, and the Tennessee Society of Certified Public Accountants. Russell J. Froneberger, 50, has served as Director of the Company since June 1994 and as President of Global Consulting, a multinational marketing and financial consulting firm, since 1991. Mr. Froneberger has over twenty-eight years of international corporate finance and marketing experience, having been associated with Manufacturers Hanover Trust Company from 1967 to 1972, and South Carolina National Bank, where he served as Senior Vice President of Marketing and Corporate Development Relations from 1972 to 1991. He has lectured on finance and capital formation at major universities and was the founder and first Chairman of the Midlands International Trade Association in Columbia, South Carolina. Charles M. Potok, 46, has served as Director of the Company since September 1995 and as Executive Vice President and Chief Operating Officer of Companion Property and Casualty Insurance Company ("CPCIC") since March 1984. Mr. Potok is an Associate of the Casualty Actuarial Society and a member of the American Academy of Actuaries. Prior to joining CPCIC, Mr. Potok served as Chief Property and Casualty Actuary and Director of the Property and Casualty Division of the South Carolina Department of Insurance. Executive Officers The names of the executive officers, who are not also directors of the Company, and certain other biographical information are as follows: Stephen S. Seeling, 46, has served as Chief Operating Officer and Counsel and Corporate Secretary of the Company since he joined the Company in January 1994. Prior to that time, Mr. Seeling served as the Executive Director of the South Carolina State Board of Medical Examiners from 1987 to -13- January 1994, as the Assistant Attorney General for the South Carolina State Board of Medical Examiners from 1983 to 1987, and as Assistant District Attorney for Philadelphia, Pennsylvania from 1976 to 1981. Jerry F. Wells, Jr., 33, has served as Chief Financial Officer of the Company since he joined the Company in February 1995. Prior to that time, he served as a Senior Manager and consultant for Price Waterhouse LLP from 1985 until February 1995. Mr. Wells is a certified public accountant and is a member of the American Institute of Certified Public Accountants, the South Carolina Association of Certified Public Accountants and the North Carolina CPA Association. D. Michael Stout, M.D., 50, has served as Vice President of Medical Affairs of the Company since 1985. He is Board Certified in Emergency Medicine and is a member of the American College of Emergency Physicians and the Columbia Medical Society. Dr. Stout is also a member of the American College of Physician Executives. Jitendra S. Mehta, 44, has served as Vice President of Operations for the Company since November 1993. Mr. Mehta has an extensive background in hospital and medical personnel administration. He served as Business Director of Multispecialty Clinic in Maryland from 1985 to 1989 and served as Vice President and Partner of Citrus Diagnostic Center from 1990 to 1993. Mr. Mehta is currently a member of American Registry for Radiological Technology and the Nuclear Medicine Technologist Certification Board. Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's directors and officers to file reports of holdings and transactions in the Company's common stock with the Securities and Exchange Commission ("SEC"). Based on Company records and other information, the Company believes that all SEC filing requirements applicable to its directors and officers were complied with in respect to the Company's fiscal year ending September 30, 1995. Item 11. Executive Compensation Compensation of Directors Directors are paid a fee of $500 for attendance at each meeting of the Board of Directors. Directors of the Company are reimbursed by the Company for all out-of-pocket expenses reasonably incurred by them in the discharge of their duties as directors, including out-of-pocket expenses incurred in attending meetings of the Board of Directors. Compensation of Officers During each of the Company's three prior fiscal years, M.F. McFarland, III, M.D., the Company's Chief Executive Officer and President, and D. Michael Stout, M.D., the Company's Vice President of Medical Affairs, served without compensation from UCI-SC for their services in the executive offices they have held with the Company during such periods. No other executive officer of the Company earned compensation in excess of $100,000 for services provided to the Company in any of the Company's three prior fiscal years. During each of the Company's three prior fiscal years, Dr. McFarland and Dr. Stout have received compensation for the services they performed for the P.A. For services performed for the P.A. during each of the Company's fiscal years ended September 30, 1995, 1994 and 1993, Dr. McFarland was paid aggregate compensation, including bonuses, of $362,046, $343,500 and $253,603, respectively. For services performed for the P.A. during each of the Company's fiscal years ended September 30, 1995, 1994 and 1993, Dr. Stout was paid aggregate compensation, including bonuses, of $189,600, $180,394 and $169,665, respectively. See "Certain Transactions - Agreements with Doctor's Care." -14- Effective October 1, 1995 and November 1, 1995, Dr. McFarland and Dr. Stout, respectively, entered into new employment contracts with both the Company and the P.A., with the following terms: Dr. McFarland: Effective October 1, 1995, Dr. McFarland entered into a five (5) year contract with UCI-SC that provides for annual compensation of $157,500, the use of one automobile, and an incentive bonus payable at the end of the Company's fiscal year subject to the Board of Directors' determination and based upon net income and gross revenue of the Company for the same year. Also, effective October 1, 1995, Dr. McFarland entered into a five (5) year contract with the P.A. that provides for annual compensation of $157,500. Dr. Stout: Effective November 1, 1995, Dr. Stout entered into a five (5) year contract with UCI-SC that provides for annual compensation of $50,000. Also, effective November 1, 1995, Dr. Stout entered into a five (5) year contract with the P.A. that provides for annual compensation of $160,000. Existing Stock Option Plans Pursuant to the Company's Incentive Stock Option Plan adopted in 1994, (the "1994 Plan"), "incentive stock options", within the meaning of Section 422 of the Internal Revenue Code, may be granted to employees of the Company. The 1994 Plan provides for the granting of options for the purchase of 750,000 shares at 100% of the fair market value of the stock at the date of grant. Options granted under the 1994 Plan vest at a rate of 33% in each of the three years following the grant. Vested options become exercisable one year after the date of grant and can be exercised within ten years of the date of grant, subject to earlier termination upon cessation of employment. During the year ended September 30, 1995, no options were exercised. At September 30, 1995, there were stock options outstanding under the 1994 Plan for 242,000 shares, all of which were granted in the year ended September 30, 1995. The Incentive Stock Option Plan adopted in 1984 (the "1984 Plan") expired under its terms in December 1993. During the year ended September 30, 1995, no options were exercised and 5,100 options expired. At September 30, 1995, there were stock options outstanding under the 1984 Plan for 15,500 shares at $.25 per share, all of which were exercisable. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information known to the Company regarding the beneficial ownership of the common stock of the Company as of September 30, 1995. Information is presented for (i) shareholders owning more than five percent of the outstanding common stock, (ii) each director and executive officer of the Company, individually, and (iii) all directors and executive officers of the Company, as a group. Except as otherwise specified, each of the shareholders named in the table has indicated to the Company that such shareholder has sole voting and investment power with respect to all shares of common stock beneficially owned by that shareholder. Beneficial ownership reflected in the table below is determined in accordance with the rules and regulations of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock issuable upon the exercise of options currently exercisable or convertible, or exercisable or convertible within sixty days, are deemed outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person. -15-
Number of Shares Name Beneficially Owned Percentage Companion HealthCare Corporation 1,460,991 41.65% I-20 at Alpine Road Columbia, SC 29219 M.F. McFarland, III, M.D. 521,844 14.88% 6168 St. Andrews Road Columbia, SC 29212 D. Michael Stout, M.D. 240,360 6.85% 512 Sims Avenue Columbia, SC 29205 Manufacturers Hanover Trust Co. 202,200 5.76% 350 Fifth Avenue, Suite 426 New York, NY 10118 Harold H. Adams, Jr. 2,000 - 6137 Hampton Ridge Road Columbia, SC 29209 Charles P. Cannon - - I-20 at Alpine Road Columbia, SC 29219 Russell J. Froneberger - - 1201 Main Street, Suite 1980 Columbia, SC 29201 Jitendra S. Mehta - - 6168 St. Andrews Road Columbia, SC 29212 Charles M. Potok - - I-20 at Clemson Road Columbia, SC 29219 Stephen S. Seeling - - 6168 St. Andrews Road Columbia, SC 29212 Jerry F. Wells, Jr. - - 6168 St. Andrews Road Columbia, SC 29212 All directors and executive officers 764,204 21.78% as a group (7 persons)
-16- Item 13. Certain Relationships and Related Transactions Agreements with Doctor's Care General. All of the Company's operations are conducted through its wholly-owned subsidiary, UCI-SC, which operates a network of twenty-five freestanding primary care medical Centers located throughout South Carolina, all of which conduct business under the name "Doctor's Care." In order to comply with prohibitions of providing medical care, all medical services at these medical facilities are provided by or under the supervision of Doctor's Care, P.A., a South Carolina professional association (the "P.A."). Facilities Agreement. Pursuant to a Facilities Agreement between UCI-SC and the P.A. (the "Facilities Agreement"), UCI-SC supplies to the P.A. the facilities, equipment and assets of the Centers, as well as such non-medical personnel as are reasonably required by the P.A. in the operation of the Centers. In exchange, the P.A. provides the necessary staffing for the performance of medical services at the Centers, including a physician to serve as Executive Medical Director having overall responsibility for the operations of the Centers. Pursuant to an employment agreement between M.F. McFarland, III, M.D., President and Chief Executive Officer of the Company ("Dr. McFarland") and the P.A., Dr. McFarland serves as Executive Medical Director of the Centers. In September 1994, the Facilities Agreement was renewed for an additional five year term. In January 1995, the Facilities Agreement was modified to provide UCI-SC with certain rights to terminate the Facilities Agreement (a) upon the death of Dr. McFarland, (b) upon Dr. McFarland ceasing to own, either directly or indirectly, a controlling interest in the P.A., or (c) upon Dr. McFarland becoming a "disqualified person" as defined by the South Carolina Business Corporation Act of 1988, as amended. Refund Agreement. Pursuant to a Facilities Fee Refund Agreement (the "Refund Agreement"), entered into among UCI-SC and the P.A., the P.A. was entitled to receive a refund of a portion of the fees payable to UCI-SC under the Facilities Agreement with respect to certain Centers. This agreement was terminated effective October 1, 1995. During the year ended September 30, 1995, UCI-SC accrued total refunds payable to the P.A. under the Refund Agreement of $177,000 and made payments of $200,000 against accumulated payables. During the year ended September 30, 1994, UCI-SC accrued total refunds payable to the P.A. under the Refund Agreement of $131,000 and made payments of $213,500 against accumulated payables. At September 30, 1995 and 1994, UCI-SC had a refund payable to the P.A. of approximately $276,000 and $299,000, respectively. Facility Leases UCI-SC leases seven Centers from Companion HealthCare Corporation under operating leases with fifteen year terms expiring in 2008, 2009 and 2010. Each of these leases has a five year renewal option, and a rent guarantee by the P.A. One of the leases has a purchase option allowing UCI-SC to purchase the facility at fair market value after February 1, 1995. Total lease payments made by UCI-SC under these leases during the Company's fiscal years ended September 30, 1995, 1994 and 1993 were $271,100, $205,901 and zero, respectively. Several of the Centers operated by UCI-SC are leased from entities owned or controlled by certain principal shareholders and/or members of the Company's management. The Doctor's Care-Northeast Center is leased from a partnership in which Dr. McFarland is a general partner. The lease was renewed in October 1994 for a five year term. The lease has two five year renewal options and provides UCI-SC with an option to purchase the facility at its fair market value after October 1995. Total lease payments made by UCI-SC under the lease during the Company's fiscal years ended September 30, 1995, 1994 and 1993 were $45,600, $42,696 and $39,554, respectively, plus utilities and real estate taxes. During the year ended September 30, 1995, the Doctor's Care-Lexington and the Doctor's Care-Forest Acres Centers were leased from a general partnership in which Dr. McFarland and Dr. Stout are general partners. The Doctor's Care-Lexington lease was renewed in October 1994 for a five year term. In August 1995, the Doctor's Care- -17- Forest Acres facility was sold to an unrelated third party who leases it to the Company. The Doctor's Care-Lexington lease has a five year renewal option and provides UCI-SC with an option to purchase the property at its fair market value at any time during the lease term. Total lease payments made by UCI-SC under these two leases during the Company's fiscal years ended September 30, 1995, 1994 and 1993 were $90,000, $75,166 and $78,012, respectively, plus utilities and real estate taxes. The Doctor's Care-West Columbia and the Doctor's Care-Beltline Centers are leased from a general partnership in which Dr. McFarland and Dr. Stout are general partners. These two leases expire in October 1998 and provide for a five year renewal option. Total lease payments made by UCI-SC under these two leases during the Company's fiscal years ended September 30, 1995, 1994 and 1993 were $84,000, $87,000 and $78,000, respectively, plus utilities and real estate taxes. In connection with its agreement to lease these two Centers, UCI-SC guaranteed the lessor's mortgage debt relating to the two Centers. At September 30, 1995, 1994 and 1993, the outstanding balance of such debt was $382,697, $386,110 and $395,000, respectively. The Doctor's Care-West Wateree Center is leased directly from Dr. McFarland. Total lease payments made by UCI-SC under this lease during the Company's fiscal years ended September 30, 1995, 1994 and 1993, were $24,666, $23,333 and $21,522, respectively. Other Transactions with Related Companies Blue Cross Blue Shield of South Carolina ("Blue Cross") owns 100% of Companion HealthCare Corporation, which owns approximately 45% of the Company's outstanding common stock. During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a new billing and accounts receivable system from Companion Technologies, Inc., a wholly-owned subsidiary of Blue Cross for an aggregate purchase price of $504,000. The terms of the purchase agreement are believed to have been no more or less favorable to UCI-SC than the terms that would have been obtainable through arm's-length negotiations with unrelated third parties for a similar billing and accounts receivable system, which includes computer equipment. The Company has the option to purchase the equipment at the end of the five year lease term for $1. The lease obligation recorded at September 30, 1995 is $464,361 which includes lease addenda. During the Company's fiscal year ended September 30, 1994, UCI-SC entered into an agreement with Company Property and Casualty Insurance Company, a wholly-owned subsidiary of Blue Cross, pursuant to which UCI-SC acts as the primary care provider for injured workers of firms carrying worker's compensation insurance through Companion Property and Casualty Insurance Company ("CP&C"). Additionally, during the Company's fiscal year ended September 30, 1995, UCI-SC entered into a financing arrangement with CP&C for the purchase of the Doctor's Care-Donaldson facility, which consists of a note payable in monthly installments of $4,546 (including 11% interest) from April 1, 1995 to March 1, 2010, collateralized by certain accounts receivable. The terms of the agreement with Companion Property and Casualty Insurance Company are believed to be no more or less favorable to UCI-SC than those that would have been obtainable through arm's-length negotiations with unrelated third parties for similar arrangements. During the Company's fiscal year ended September 30, 1994, UCI-SC began providing services for a health maintenance organization ("HMO") operated by Companion HealthCare Corporation, pursuant to which UCI-SC, through the P.A., acts as the designated primary care provider for members of the HMO who have selected the P.A. as their primary care provider. The terms of the agreement with Companion HealthCare Corporation are believed to be no more or less favorable to UCI-SC than those that would have been obtainable through arm's - -length negotiations with unrelated third parties for similar arrangements. The employees of the Company are offered health, life, dental and disability coverage at group rates from Blue Cross and its subsidiaries. The group rates offered to the employees of the Company are believed to be no more or less favorable to the Company than those that would have been obtainable through arm's-length negotiations with unrelated third parties for similar services. -18- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) Reference is made to the Index to Financial Statements on page 21 . (2) A listing of the exhibits to the Form 10-KSB is set forth on the Exhibit Index which immediately precedes such exhibits in this Form 10-KSB. (b) Reports on Form 8-K The Company filed a Form 8-K during the quarter ended September 30, 1995, which reported the acquisition of Summit Medical of Greenville, South Carolina. The Company filed a Form 8-K during July 1995 which reported a change in the Company's independent accountants from Scott & Holloway, LLP to Price Waterhouse LLP. -19- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page(s) Reports of Independent Accountants ......................................22-23 Consolidated Balance Sheets at September 30, 1995 and 1994 ............ 24 Consolidated Statements of Operations for the three years ended September 30, 1995 ................................... 25 Consolidated Statements of Changes in Stockholder's Equity for the three years ended September 30, 1995 ......................26 Consolidated Statements of Cash Flows for the three years ended September 30, 1995 ....................................... 27 Notes to Consolidated Financial Statements ............................. 28-39 All other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. -20- UCI MEDICAL AFFILIATES, INC. CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 AND 1994 -21- Report of Independent Accountants November 21, 1995 To the Board of Directors and Stockholders of UCI Medical Affiliates, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of UCI Medical Affiliates, Inc. at September 30, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of UCI Medical Affiliates, Inc. at September 30, 1994 and for each of the two years in the period then ended were audited by other independent accountants whose report dated January 26, 1995 expressed an unqualified opinion on those statements with an explanatory paragraph that the Company prospectively changed its method of accounting for income taxes for the year ended September 30, 1994. This change is described in Notes 1 and 4 to the accompanying consolidated financial statements. /s/ Price Waterhouse LLP ORIGINAL SIGNED OPINION ON PRICE WATERHOUSE LLP LETTERHEAD IS ON FILE WITH UCI MEDICAL AFFILIATES, INC. -22- REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors UCI Medical Affiliates, Inc. We have audited the accompanying balance sheet of UCI Medical Affiliates, Inc. as of September 30, 1994, and the related statements of income, retained earnings, and cash flows for each of the two years in the period then ended that appear in this annual report. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UCI Medical Affiliates, Inc. as of September 30, 1994, and the results of its operations and its cash flows for each of the two years in the period then ended in conformity with generally accepted accounting principles. /s/ Moore Kirkland Scott & Beauston West Columbia, South Carolina January 26, 1995 ORIGINAL SIGNED OPINION ON MOORE KIRKLAND SCOTT & BEAUSTON LETTERHEAD IS ON FILE WITH UCI MEDICAL AFFILIATES, INC. -23- UCI Medical Affiliates, Inc. Consolidated Balance Sheets
September 30, 1995 1994 ------------ ----------- Assets Current assets Cash and cash equivalents ................................. $ 76,513 $ 210,286 Accounts receivable, less allowance for doubtful accounts of $608,792 and $1,061,987 ............................ 2,343,325 1,508,514 Inventory ................................................. 265,068 217,076 Deferred taxes ............................................ 491,543 491,543 Prepaid expenses and other current assets ................. 282,060 111,149 ------------ ----------- Total current assets ......................................... 3,458,509 2,538,568 Property and equipment less accumulated depreciation of $1,529,999 and $1,173,667 ................................. 2,795,384 1,098,310 Deferred taxes ............................................... 120,639 120,639 Excess of cost over fair value of assets acquired, less accumulated amortization of $869,271 and $532,763 3,578,371 2,651,245 Other assets ................................................. 262,768 265,531 ------------ ----------- Total Assets ................................................. $ 10,215,671 $ 6,674,293 ============ =========== Liabilities and Stockholders' Equity Current liabilities Current portion of long-term debt ......................... $ 1,244,603 $ 542,564 Accounts payable .......................................... 1,652,792 467,371 Accrued salaries and payroll taxes ........................ 498,791 307,612 Other accrued liabilities ................................. 445,362 458,782 ------------ ----------- Total current liabilities .................................... 3,841,548 1,776,329 Long-term debt, net of current portion ....................... 3,121,098 2,295,197 ------------ ----------- Total Liabilities ............................................ 6,962,646 4,071,526 ------------ ----------- Commitments and contingencies Stockholders' Equity Preferred stock, par value $.01 per share: Authorized shares - 10,000,000; none issued 0 0 Common stock, par value $.05 per share: Authorized shares - 10,000,000 Issued and outstanding- 3,508,164 and 2,622,178 shares .............................................. 175,408 131,109 Paid-in capital ........................................... 9,694,256 7,728,554 Accumulated deficit ....................................... (6,616,639) (5,256,896) ------------ ----------- Total Stockholders' Equity ................................... 3,253,025 2,602,767 ------------ ----------- Total Liabilities and Stockholders' Equity ................... $ 10,215,671 $ 6,674,293 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. -24- UCI Medical Affiliates, Inc. Consolidated Statements of Operations
For the Years Ended September 30, 1995 1994 1993 ----------- ------------ ------------ Revenues ........................................................... $ 17,987,147 $ 12,540,040 $ 9,799,387 Operating costs .................................................... 18,180,080 11,880,508 9,133,104 ------------ ------------ ------------ Operating margin ................................................... (192,933) 659,532 666,283 General and administrative expenses ................................ 87,616 74,698 45,075 Depreciation and amortization ...................................... 579,224 319,554 161,149 ------------ ------------ ------------ Income (loss) from operations ...................................... (859,773) 265,280 460,059 Other income (expenses) Interest expense (net of interest income) ....................... (505,459) (164,182) (53,507) Gain (loss) on disposal of equipment ............................ 5,493 (68,892) 0 ------------ ------------ ------------ Other income (expense) ............................................. (499,966) (233,074) (53,507) Income (loss) before benefit (provision )for income taxes and extraordinary credit ........................... (1,359,739) 32,206 406,552 Benefit (provision )for income taxes ............................... 0 612,182 (138,228) ------------ ------------ ------------ Income before extraordinary credit ................................. (1,359,739) 644,388 268,324 Extraordinary credit, utilization of net operating loss carryforward ..................................... 138,228 0 0 ============ ============ ============ Net income (loss) .................................................. $ (1,359,739) $ 644,388 $ 406,552 ============ ============ ============ Earnings (loss) per common and common equivalent share: Income (loss) before extraordinary credit ....................... $ (.43) $ .28 $ .14 Extraordinary credit 0 0 .07 ------------ ------------ ------------ Net Income (loss) per common equivalent share ...................... $ (.43) $ .28 $ .21 ============ ============ ============ Weighted average common shares outstanding ..................................................... 3,136,544 2,324,241 1,970,693 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -25- UCI Medical Affiliates, Inc. Consolidated Statements of Changes in Stockholders' Equity
Common Stock Paid-In Accumulated Shares Par Value Capital Deficit Total ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1992 ................ 1,945,988 $ 97,299 $ 6,259,940 $(6,307,836) $ 49,403 Net income (loss) ....................... -- -- -- 406,552 406,552 Exercise of stock options ............... 4,000 200 800 -- 1,000 Balance, September 30, 1993 ................ 1,949,988 97,499 6,260,740 (5,901,284) 456,955 Net income (loss) ....................... -- 644,388 644,388 - Exercise of stock options ............... 5,700 285 1,139 1,424 ----------- ----------- Issuance of common stock ................ 666,666 33,333 1,466,667 1,500,000 ----------- ----------- Other ................................... (8) (176) 8 -- -- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1994 ................ 2,622,178 131,109 7,728,554 (5,256,896) 2,602,767 Net income (loss) ....................... -- -- (1,359,739) (1,359,739) ----------- Issuance of common stock ................ 885,888 44,294 1,975,706 2,020,000 ----------- Other ................................... 5 (10,004) (10,003) 98 (4) =========== =========== =========== =========== =========== Balance, September 30, 1995 ................ 3,508,164 $ 175,408 $ 9,694,256 $(6,616,639) $ 3,253,025 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -26- UCI Medical Affiliates, Inc. Consolidated Statements of Cash Flows
For the Years Ended September 30, 1995 1994 1993 ----------- ----------- --------- Net income (loss) .................................................... $(1,359,739) $ 644,388 $ 406,552 Adjustments to reconcile net income (loss) to net cash provided by (used-in) operating activities: (Gain) loss on disposal of equipment ........................... (5,493) 68,892 0 Provision for losses on accounts receivable .................... 544,208 778,213 308,302 Depreciation and amortization .................................. 579,224 319,554 161,149 Common stock issued ............................................ 4,125 0 0 Deferred taxes ................................................. 0 (612,182) 0 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ........................ (1,379,019) (1,318,998) (629,342) (Increase) decrease in inventory .................................. (47,992) (4,531) (4,412) (Increase) decrease in prepaid expenses and other current assets ................................................. (158,536) (37,001) (261) Increase (decrease) in accounts payable and accrued expenses ....................................................... 1,363,180 (582,542) 47,663 ----------- ----------- --------- Cash provided by (used in) operating activities ...................... (460,042) (744,207) 289,651 ----------- ----------- --------- Investing activities: Purchases of property and equipment .................................. (620,584) (226,362) (67,244) Acquisitions of goodwill ............................................. (24,426) (50,000) 0 (Increase) decrease in other assets .................................. 2,760 (2,979) 26,380 ----------- ----------- --------- Cash provided by (used in) investing activities ...................... (642,250) (120,223) (199,982) ----------- ----------- --------- Financing activities: Issuance of common stock, net of redemptions ......................... 1,240,000 1,500,000 0 Proceeds from issuance of common stock under stock option plan ................................................. 0 1,424 1,000 Increase in long-term debt ........................................... 475,000 0 106,608 Payments on long-term debt ........................................... (746,481) (450,589) (181,786) ----------- ----------- --------- Cash provided by (used in) financing activities ...................... 968,519 1,050,835 (74,178) ----------- ----------- --------- Increase (decrease) in cash and cash equivalents ..................... (133,773) 186,405 15,491 Cash and cash equivalents at beginning of year ....................... 210,286 23,881 8,390 ----------- ----------- --------- Cash and cash equivalents at end of year ............................. $ 76,513 $ 210,286 $ 23,881 =========== =========== =========
The accompanying notes are an integral part of these consolidated financial statements. -27- UCI Medical Affiliates, Inc. Notes To Consolidated Financial Statements September 30, 1995 1. Significant Accounting Policies Basis of Presentation The consolidated financial statements of UCI Medical Affiliates, Inc. include the accounts of UCI Medical Affiliates, Inc. ("UCI"), its wholly owned subsidiary, UCI Medical Affiliates of SC ("UCI-SC") and Doctor's Care, PA ("the P.A."), collectively the "Company". The financial statements of the P.A. are consolidated with UCI because UCI-SC has unilateral control over the assets and operations of the P.A. and, notwithstanding the lack of technical majority ownership, consolidation of the P.A. with UCI is necessary to present fairly the financial position and results of operations of UCI. UCI-SC provides non-medical management and administrative functions for 25 medical clinics, operating as Doctor's Care (the "Centers"). All medical services at the Centers are provided by or under the supervision of the P.A., which has contracted with UCI-SC to provide the medical direction of the Centers. The medical directors operate the Centers under the financial and operational control of UCI-SC. However, medical supervision of the centers is provided solely by the P.A. The P.A. remits to UCI-SC all medical service revenues generated by the Centers, net of expenses incurred by the P.A. This compensation is recorded in the accompanying financial statements as revenue. Control of the P.A. is perpetual and other than temporary because of the nature of this relationship and the management agreements between the entities. The net assets of the P.A. are not material for any period presented and intercompany accounts and transactions have been eliminated. Medical Supplies Inventory The inventory of medical supplies and drugs is carried at the lower of average cost or market. Property and Equipment Depreciation is provided principally by the straight-line method over the estimated useful lives of the assets, ranging from three to twenty years. Maintenance, repairs and minor renewals are charged to expense. Major renewals or betterments, which prolong the life of the assets, are capitalized. -28- 1. Significant Accounting Policies (continued) Upon disposal of depreciable property, the asset accounts are reduced by the related cost and accumulated depreciation. The resulting gains and losses are reflected in the consolidated statements of operations. Intangible Assets The excess of cost over fair value of assets acquired (goodwill) is amortized on the straight-line method over periods from 15 to 30 years. Subsequent to an acquisition, the Company continually evaluates whether later events and circumstances have occurred that indicate that the remaining balance of goodwill may not be recoverable or that the remaining useful life may warrant revision. When external factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the related business segment's discounted cash flows over the remaining life of the goodwill and compares it to the business segment's goodwill balance to determine whether the goodwill is recoverable or if impairment exists, in which case an adjustment is made to the carrying value of the asset. Revenue Recognition Revenue is recognized at estimated net amounts to be received from employers, third party payors, and others at the time the related services are rendered. Capitation payments from payors are paid monthly and are recognized as revenue during the period in which enrollees are entitled to receive services. Earnings Per Share The computation of income per common and common equivalent share is based on the weighted average number of common shares outstanding during the period plus (in periods in which they have a dilutive effect) the effect of common shares issuable from stock options, using the treasury stock method. Income Taxes The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of October 1, 1993. Under the liability method specified by SFAS 109, deferred tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax (benefit) provision is the result of the net change in the deferred tax assets to amounts expected to be realized. Financial statements for the year ended September 30,1993 reflect income taxes recorded under the deferred method required under previous accounting standards. -29- 1. Significant Accounting Policies (continued) Cash and Cash Equivalents The Company considers all short-term deposits with a maturity of three months or less at acquisition date to be cash equivalents. Reclassifications Certain 1994 and 1993 amounts have been reclassified to conform with the 1995 presentation. 2. Property and Equipment Property and equipment consists of the following at September 30:
1995 1994 ----------------------- ----------------------- Leasehold improvements $ 382,659 $ 158,854 Property and equipment, including capitalized leases 3,942,724 2,113,123 ----------------------- ----------------------- 4,325,383 2,271,977 Less, accumulated depreciation and amortization (1,529,999) (1,173,667) ----------------------- ----------------------- $ 2,795,384 $ 1,098,310 ======================= =======================
At September 30, 1995 and 1994, capitalized leased equipment included above amounted to approximately $1,651,000 and $647,000, net of accumulated amortization of $203,000 and $18,000, respectively. Depreciation and amortization expense equalled $384,638, $196,756 and $114,949 for the years ended September 30, 1995, 1994 and 1993, respectively. 3. Business Combinations In August 1995, the Company acquired the net assets of Summit Medical and entered into an employment agreement with the physician owner of Summit Medical. The acquisition has been accounted for as a purchase, and the financial activity of Summit Medical has been included in the accompanying consolidated financial statements since the date of the acquisition. -30- 3. Business Combinations (continued) The pro forma results listed below are unaudited and reflect purchase price accounting adjustments assuming the acquisition occurred at the beginning of each fiscal year presented. 1995 1994 ------------------ -------------- Revenue $ 18,393,000 $ 13,082,000 Net Income (loss) $ (1,358,624) $ 645,875 Net income (loss) per common and common equivalent share $ (.43) $ .28 Certain other acquisition during fiscal year 1995 have not been included in this pro forma disclosure as the relevant information is not readily available. (Refer to note 12 for additional information provided on these acquisitions.) 4. Income Taxes Effective October 1, 1993, the Company prospectively adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). As permitted under SFAS 109, prior years' financial statements have not been restated. As of October 1, 1993, the Company had a net deferred tax asset of $2,718,407, which was fully offset by a valuation allowance. The components of the (benefit) provision for income taxes for the years ended September 30 are as follows: 1995 1994 1993 ---------------------- ----------------- ---------------- Current: Federal $ -- $ -- $ 16,694 State -- -- 2,584 ---------------------- ----------------- ------------- -- -- 19,278 ---------------------- ----------------- ------------- Deferred: -- Federal -- (530,120) 103,005 State -- (82,062) 15,945 ---------------------- ----------------- ------------- -- (612,182) 118,950 ---------------------- ----------------- ------------- Total (benefit) provision before extraordinary credit -- (612,182) 138,228 Extraordinary credit -- -- (138,228) ---------------------- ---------------- -------------- Total income tax benefit $ $ (612,182) $ -- ====================== ================= ============ -31- 4. Income Taxes (continued) Deferred taxes result from temporary differences in the recognition of certain items of income and expense, and the changes in the valuation allowance attributable to deferred tax assets. The principal sources of temporary differences and the related deferred tax effects as of September 30, were as follows: 1995 1994 ------------- ------------ Allowance for doubtful accounts $ (169,043) $ (155,852) Related party accruals 7,673 46,812 Operating loss carryforwards 687,242 95,183 Accumulated depreciation (58,324) 69,650 ------------- -------------- 467,548 55,793 Changes in valuation allowance (467,548) (667,975) ============= ============== $ -- $ (612,182) ============= ============== The sources of significant timing differences for the year ended September 30, 1993 which gave rise to deferred taxes and their effects were as follows: 1993 ------------------- Allowance for doubtful accounts $ 137,686 Related party accruals (20,480) Other 1,744 ------------------- $ 118,950 =================== At September 30, 1995 and 1994, the Company's deferred tax assets (liabilities) and the related valuation allowances are as follows: 1995 1994 ----------- ----------- Allowance for doubtful accounts $ $ 396,122 Related party accruals 227,079 95,421 Operating loss carryforwards 103,094 2,248,121 Accumulated depreciation 2,935,363 (135,374) (77,050) ----------- ----------- $ 3,130,162 $ 2,662,614 =========== =========== Valuation allowance $ 2,517,980 $ 2,050,432 =========== =========== -32- 4. Income Taxes (continued) The principal reasons for the differences between the consolidated income tax benefit (expense) and the amount computed by applying the statutory federal income tax rate of 34% were as follows for the years ended September 30:
1995 1994 1993 --------- --------- --------- Tax at federal statutory rate $(462,311) $ 10,950 $ 138,228 Effect on rate of: Amortization of goodwill 15,708 15,708 15,708 Non deductible expenses 21,107 10,485 28,601 Life insurance premiums 3,044 3,862 754 Other net (45,096) 14,788 (45,063) Change in valuation allowance 467,548 (667,975) -- --------- --------- --------- (612,182) 138,228 --------- Extraordinary credit -- -- 138,228 --------- --------- --------- $ -- $(612,182) $ -- ========= ========= =========
At September 30, 1995, the Company has net tax operating loss (NOL) carryforwards expiring in the following years ending September 30, 2000 $ 1,347,851 2001 1,783,595 2002 1,802,220 2003 458,112 2005 470,006 2006 76,306 2010 1,931,517 --------------------- $ 7,869,607 ===================== Under certain circumstances, a significant change in the Company's ownership could severely limit utilization of the net operating loss carryforwards. The Company has $7,800 and $8,450 of investment tax credit carryforwards which expire in 1999 and 2000, respectively. -33- 5. Long-Term Debt Long-term debt consists of the following at September 30:
1995 1994 ---------- ---------- ............................................................................................ Note to Chemical Bank, monthly payments (including 6% interest) range from $7,500 to $12,000 from December 30, 1992 to March 31, 1996 and $32,750 on April 30,1996, collateralized by premises and equipment, accounts receivable and stock of UCI-SC and the guarantee of UCI-SC ....................................................... $ 97,921 $ 253,215 Note payable in monthly installments of $8,889 plus interest at prime plus 6%, through February 1, 2009 collateralized by certain accounts receivable and leasehold interests and the guarantee of the P.A ........................................................................ 1,422,222 1,537,778 Note payable in monthly installments of $1,389 plus interest at prime plus 2% , through February 1, 2009 collateralized by a condominium ................................................................................. 222,222 240,278 Notes payable in monthly installments over three to four years at interest rates ranging from 3.9% to 10.5%, collateralized by related vehicles .......................................................... 90,569 106,547 Line of Credit in the amount of $500,000 dated March 10, 1995, bearing interest at a rate of prime plus 1.5%, for a period of 12 months, secured by the personal guarantee of an officer of the Company ...................................................................... 475,000 0 Note payable in monthly installments of $4,546 (including 11% interest) from April 1, 1995 to March 1, 2010, collateralized by certain accounts receivable ............................................... 393,670 0 Note payable in monthly installments (including 9% interest) of $25,000 from July 15, 1995 to September 15, 1995, and $12,842 from October 15, 1995 to September 15, 1997 ....................................................................................... 270,243 0 Capitalized lease obligations .................................................................. 1,384,172 678,259 Other .......................................................................................... 9,682 21,684 ---------- ---------- 4,365,701 2,837,761 Less, current portion .......................................................................... 1,244,603 542,564 ---------- ---------- $3,121,098 $2,295,197 ========== ==========
-34- 5. Long-Term Debt (continued) Aggregate maturities of notes payable and capital leases in each of the five years 1996 through 2000 are as follows: Year ending September 30: Notes Payable Capital Leases Total ------------------- ------------------ ----------------- 1996 $ 878,399 $ 366,204 $ 1,244,603 1997 310,255 349,395 659,650 1998 145,207 340,483 485,690 1999 154,808 250,637 405,445 2000 141,678 67,862 209,540 Thereafter 1,351,182 9,591 1,360,773 =================== ================== ================= $ 2,981,529 $ 1,384,172 $ 4,365,701 =================== ================== ================= 6. Employee Benefit Plans Pursuant to the Company's incentive stock option plan adopted in 1994, (the "1994 Plan"), "incentive stock options", within the meaning of Section 422 of the Internal Revenue Code, may be granted to employees of the Company. The 1994 Plan provides for the granting of options for the purchase of 750,000 shares at 100% of the fair market value of the stock at the date of grant. Options granted under the 1994 Plan vest at a rate of 33% in each of the three years following the grant. Vested options become exercisable one year after the date of grant and can be exercised within ten years of the date of grant, subject to earlier termination upon cessation of employment. During the year ending September 30, 1995, no options were exercised. At September 30, 1995, there were stock options outstanding under the 1994 plan for 242,000 shares, all of which were granted in the year ended September 30,1995. The incentive stock option plan adopted in 1984 (the "1984 Plan") expired under its terms in December 1993. During the year ending September 30, 1995, no options were exercised and 5,100 options expired. At September 30, 1995, there were stock options outstanding under the 1984 Plan for 15,500 shares at $.25 per share, all of which were exercisable. The Company has an employee savings plan ( the "Savings Plan") that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. Effective in June 1995, the Company discontinued its matching contribution. Prior to that date, the company matched 50% of each employee's contributions up to a maximum of 2.5% of the employee's earnings. The company's matching contributions were $71,463, $50,805 and $35,788 in fiscal years 1995, 1994, and 1993, respectively. -35- 7. Stockholders' Equity On June 30, 1994, the Company's shareholders approved an amendment to, and a restatement of, the Restated Certificate of Incorporation to provide for a 1 for 5 reverse stock split. The Amended and Restated Certificate of Incorporation increased the number of authorized shares of common stock from 4,000,000 to 10,000,000 ( as adjusted for the reverse stock split as discussed above) and increased the par value per share of common stock from one cent ($.01) to five cents ($.05). In addition, the Amended and Restated Certificate of Incorporation authorized the Company to issue up to 10,000,000 shares of $.01 par value preferred stock to be issued in one or more series. The Board of Directors is authorized, without further action by the stockholders, to designate the rights, preferences, limitations and restrictions of and upon shares of each series, including dividend voting, redemption and conversion rights. All references in the financial statements to average number of shares outstanding and related prices, per share amounts, common stock and stock option plan data have been restated to reflect the split . At September 30, 1995, 257,500 shares of common stock were reserved for issuance under the Company's incentive stock option plans. 8. Lease Commitments UCI-SC leases office and medical center space under various operating lease agreements. Certain operating leases provide for escalation payments, exclusive of renewal options. Future minimum lease payments under noncancellable operating leases with a remaining term in excess of one year as of September 30, 1995, are as follows: Operating Leases Year ending September 30: 1996 $ 1,053,794 1997 1,029,697 1998 1,020,409 1999 900,476 2000 742,169 Thereafter 5,420,154 ----------------- Total minimum lease payments $ 10,166,699 =================== Total rental expense under operating leases for 1995, 1994 and 1993 was approximately $923,000, $714,000, and $775,000, respectively. 9. Related Party Transactions Facility Leases UCI-SC leases seven medical centers from Companion HealthCare Corporation under operating leases with fifteen year terms expiring in 2008, 2009 and 2010. At September 30,1995, Companion owned 1,460,991 shares or approximately 42% of the Company's outstanding common stock. Each of these leases has a five year renewal option, and a rent guarantee by Doctor's Care. One of the leases has a purchase option allowing UCI-SC to purchase the center at fair market value after February 1, 1995. Total lease payments made by UCI-SC under these leases during the Company's fiscal years ended September 30, 1995,1994, and 1993 were $271,100, $205,901, and zero, respectively. -36- 9. Related Party Transactions (continued) Several of the medical centers operated by UCI-SC are leased from entities owned or controlled by certain principal shareholders and/or members of the Company's management. Total lease payments made by UCI-SC under these leases during the fiscal years ended September 30,1995, 1994 and 1993 were $244,300, $228,200 and $217,100, respectively. Other Transactions with Related Companies On December 10, 1993, Companion HealthCare Corporation ("Companion") acquired 333,333 shares of the Company's common stock for $500,000. On June 8, 1994, Companion purchased an additional 333,333 shares for $1,000,000. On January 16, 1995, Companion purchased 470,588 shares for $1,000,000, and on May 24, 1995, Companion purchased 117,647 shares for $250,000. Including shares purchased by Companion from third parties, at September 30, 1995, Companion owned 1,460,991 shares, or approximately 42% of the Company's outstanding Common Stock. Companion purchased additional shares in November 1995, as discussed in note 12. The shares acquired by Companion from the Company were purchased pursuant to stock purchase agreements and were not registered. Companion has the right to require registration of the stock under certain circumstances as described in the agreement. Blue Cross Blue Shield of South Carolina ("Blue Cross") owns 100% of Companion HealthCare Corporation. During the Company's fiscal year ended September 30, 1994, UCI-SC purchased a new billing and accounts receivable system from Companion Technologies, Inc., a wholly-owned subsidiary of Blue Cross for an aggregate purchase price of $504,000. The Company entered into a capital lease agreement for this system, which includes computer equipment. The Company has the option to purchase the equipment at the end of the five year lease term for $1. The lease obligation recorded at September 30, 1995 is $464,361, which includes lease addendums. During the Company's fiscal year ended September 30, 1994, UCI-SC entered into an agreement with Companion Property and Casualty Insurance Company ("CP&C"), a wholly-owned subsidiary of Blue Cross, pursuant to which UCI-SC acts as the primary care provider for injured workers of firms carrying worker's compensation insurance through CP&C. Additionally, during the Company's fiscal year ended September 30, 1995, UCI-SC entered into a financing arrangement with CP&C for the purchase of the Doctor's Care - Donaldson facility, which consists of a note payable in monthly installments of $4,546 (including 11% interest) from April 1, 1995 to March 1, 2010, collateralized by certain accounts receivable. During the Company's fiscal year ended September 30, 1994, UCI-SC began providing services for a health maintenance organization ("HMO") operated by Companion HealthCare Corporation, pursuant to which UCI-SC, through Doctor's Care, acts as the designated primary care provider for members of the HMO who have selected Doctor's Care as their primary care provider. The employees of the Company are offered health, life, dental and disability coverage at group rates from Blue Cross and its subsidiaries. 10. Concentration of Credit Risk In the normal course of providing health care services, the Company may extend credit to patients without requiring collateral. Each individual's ability to pay balances due the Company is assessed and reserves are established to provide for management's estimate of uncollectible balances. Future revenues of the Company are largely dependent on third-party payors and private insurance companies, especially in instances where the Company accepts assignment. -37- 11. Commitments and Contingencies In the ordinary course of conducting its business, the Company becomes involved in litigation, claims, and administrative proceedings. Certain litigation, claims, and proceedings were pending at September 30, 1995, and management intends to vigorously defend the Company in such matters. While the ultimate results cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position or results of operations of the Company. 12. Supplemental Cash Flow Information Supplemental Disclosure of Cash Flow Information The Company made interest payments of $448,311, $147,208, and $53,507 for the years ended September 30, 1995, 1994, and 1993, respectively. There were no amounts paid for income taxes during the three years ended September 30, 1995. Supplemental Non-Cash Operating Activities In July 1995, the Company paid for certain corporate expenses through an issuance of 6,000 shares of common stock of the Company in the amount of $16,500, of which $4,125 was expensed and the remainder classified as prepaid expenses. Supplemental Non-Cash Financing Activities Capital lease obligations of $1,069,915 and $683,119 were incurred in 1995 and 1994. Additionally, in February 1995, the Company acquired property which was financed through a note payable in the amount of $400,000. Supplemental Non-Cash Investing Activities In February 1993, the Company acquired a medical facility in Surfside Beach, South Carolina for $1,697,000 including $50,000 in cash, a $1,600,000 note payable to the seller and the assumption of approximately $47,000 of trade accounts payable. Also, as part of the transaction the Company acquired a condominium for $250,000, which was financed by the seller. In February 1994, the Company entered into a management agreement with an orthopedic practice and purchased the practice's accounts receivable and inventory for $56,873 and $15,000, respectively with a note payable to the seller. In January 1995, the Company acquired certain assets of a medical practice in West Columbia, South Carolina for $291,000, consisting of 145,500 shares of common stock of the Company. In May 1995, the Company acquired a medical practice in Cayce, South Carolina for $150,000, consisting of 46,153 shares of common stock of the Company. In August 1995, the Company acquired certain assets of a medical practice in Greenville, South Carolina for $662,500, by financing $350,000 with the seller, and issuing 100,000 shares of common stock of the Company. -38- 13. Subsequent Events In January 1995, the Company entered into an acquisition agreement for a medical practice in Myrtle Beach, South Carolina. The acquisition is expected to become effective prior to December 31, 1995, after certain conditions precedent occur. On November 3, 1995, Companion purchased 218,180 shares of newly issued common stock of the Company for $2.75 a share, or $599,995. Subsequent to the transaction, Companion's ownership in the Company was approximately 45%. Companion has the option to purchase as many shares as may be necessary for Companion to maintain ownership of 47% of the outstanding common stock of the Company in the event that the Company issues additional stock to other parties (excluding shares issued to employees or directors of the Company). On December 1, 1995, the Company acquired a medical practice in Greenville, South Carolina for $300,000. The Company entered into an employment agreement with the physician who had been the sole shareholder of the acquired medical practice. The Company also entered into lease agreements for the facility occupied by and the computer system used by the acquired medical practice. -39- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UCI MEDICAL AFFILIATES, INC. Date: December 27, 1995 By: /s/ M. F. McFarland M.F. McFarland, III, M.D. Chief Executive Officer By: /s/ Jerry F. Wells, Jr. Jerry F. Wells, Jr. Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Date: December 27, 1995 By: /s/ M.F. McFarland M.F. McFarland, III, M.D. Chairman of the Board By: /s/ Harold H. Adams, Jr. Harold H. Adams, Jr. Director By: /s/ Charles P. Cannon Charles P. Cannon Director By: /s/ Russell J. Froneberger Russell J. Froneberger Director By: /s/ Charles M. Potok Charles M. Potok Director -40- UCI MEDICAL AFFILIATES, INC. EXHIBIT INDEX PAGE NUMBER OR EXHIBIT INCORPORATION BY NO. DESCRIPTION REFERENCE TO 3.1 Amended and Restated Certificate of Incorporation .. 42 3.2 Amended and Restated Bylaws ...................... 51 10.1 Facilities Agreement .................................... 61 10.2 Facilities Fee Refund Agreement .................... 66 10.3 Amendments to the Facilities Agreement and the Facilities Fee Refund Agreement ................ 68 10.4 Employment Agreement Between UCI Medical Affiliates of South Carolina, Inc. and M.F. McFarland, III, M.D. ............................ 72 10.5 Employment Agreement Between Doctor's Care, P.A. and M.F. McFarland, III, M.D. .. 80 10.6 Employment Agreement Between UCI Medical Affiliates of South Carolina, Inc. and D. Michael Stout, M.D. ................. 87 10.7 Employment Agreement Between Doctor's Care, P.A. and D. Michael Stout, M.D. ..... 93 10.8 Lease and License Agreement with Companion Technologies .......................... 102 10.9 UCI Medical Affiliates, Inc. 1994 Incentive Stock Option Plan ............... 112 10.10 Consent of Independent Accountants ................ 120 21 Subsidiaries of the Registrant ........... 122 -41- EX-3.(I) 2 EXHIBIT 3.1 EXHIBIT NO. 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION -42- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UCI MEDICAL AFFILIATES, INC. UCI MEDICAL AFFILIATES, INC., a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is UCI MEDICAL AFFILIATES, INC. The date of filing its original Certificate of Incorporation with the Secretary of State was August 25, 1982, and the original name of the corporation was UrgentCare, Inc. 2. This Amended and Restated Certificate of Incorporation restates and integrates and further amends the original Restated Certificate of Incorporation of this corporation filed on February 1, 1984, in the following manner: The Article numbered FOURTH of the original Restated Certificate of Incorporation is amended so as to read in its entirety as follows: "FOURTH: After giving effect to Section Seven herein, the total number of shares of stock which the corporation shall have authority to issue is as follows: Ten Million (10,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Five Hundred Thousand Dollars ($500,000), and Ten Million (10,000,000) shares of Preferred Stock having a par value of one cent ($.01) per share, amounting in the aggregate to One Hundred Thousand Dollars ($100,000). The following is a statement fixing certain of the designations and powers, voting powers, preferences, and relative, participating, optional or other rights of the Common Stock and Preferred Stock of the corporation, and the qualifications, limitations or restrictions thereof, and the authority with respect thereto expressly granted to the Board of Directors of the corporation to fix any such provisions not fixed by this Certificate: I. Common Stock Authority is hereby expressly granted to and vested in the Board of Directors of this corporation to provide for the issue of Common Stock. The holders of record of shares of Common Stock shall be entitled to unlimited voting rights equating to one (1) vote per outstanding share of Common Stock on all matters upon which shareholders are entitled to vote. Shares of Common Stock shall have distribution, dividend, and liquidation rights granted by law or declared by resolution or resolutions of the Board of Directors from time to time, except that in the absence of the establishment of liquidation rights for one or more series of Preferred Stock (either preferentially to, or on a parity with, the Common Stock) as provided below, the holders of record of shares of Common Stock shall be entitled to receive the net assets of this corporation upon dissolution. The distribution, dividend, and liquidation rights associated with the shares of Common Stock will be subordinated only to the comparable distribution, dividend, or liquidation rights associated with shares of certain series of Preferred Stock, if any, but only to the extent such preferences, if any, are established for one or more series of Preferred Stock by the Board of Directors in its discretion as provided below. II. Preferred Stock The Board of Directors is hereby expressly vested with the authority to adopt a resolution or resolutions provided for the issue of authorized but unissued shares of Preferred Stock, which shares may be issued from time to time in one or more series and -43- in such amounts as may be determined by the Board of Directors in such resolution or resolutions. The powers, voting powers, designations, preferences, and relative, participating, operational or other rights, if any, of each series of Preferred Stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights (collectively the "Series Terms"), shall be such as are stated and expressed in a resolution or resolutions provided for the creation or revision of such Series Terms (a "Preferred Stock Series Resolution") adopted by the Board of Directors or a committee of the Board of Directors to which such responsibility is specifically and lawfully delegated. The powers of the Board of Directors with respect to the Series Terms of a particular series (any of which powers, other than voting powers, may be resolution of the Board of Directors be specifically delegated to one or more of its committees, except as prohibited by law) shall include, but not be limited to, determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number; (2) The dividend rate of the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, of so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon occurrence of such events as the Board of Directors shall determine; (5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per shares payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (8) The conditions or resolutions upon the creation of indebtedness of the corporation or upon the issuance of additional preferred stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation; (9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the Preferred Stock or to -44- any series thereof with respect to dividends or distribution of assets upon liquidation; and, (10) Any other designations, powers, preferences, and rights, including, without limitation any qualifications, limitations, or restrictions thereof. Any of the Series Terms, including voting rights, of any series may be made dependent upon facts ascertainable outside the Amended and Restated Certificate of Incorporation and the Preferred Stock Series Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Amended and Restated Certificate of Incorporation or in the Preferred Stock Series Resolution, Subject to the provisions of this Article Four, shares of one or more series of Preferred Stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors or a designated committee thereof, in an aggregate amount not exceeding the total number of shares of Preferred Stock authorized by this Amended and Restated Certificate of Incorporation. Except in respect of series particulars fixed by the Board of Directors or its committee as permitted thereby, all shares of Preferred Stock shall be of equal rank and shall be identical. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative." The following addition is added to the original Restated Certificate of Incorporation so as to read in its entirety as follows: "SEVENTH: Pursuant to a 1 for 5 reverse stock split, the amount of the total authorized Common Stock of this corporation is decreased and the number and par value are by these means changed so that the authorized Common Stock of this corporation, which, prior to the filing of this amendment, was Twenty Million (20,000,000) shares of Common Stock, having a par value of one cent ($.01) per share, amounting in the aggregate to Two Hundred Thousand Dollars ($200,000), shall be Four Million (4,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Two Hundred Thousand Dollars ($200,000) ; provided however, immediately after the effectuation of such reverse stock split, the authorized Common Stock of this corporation shall be increased so that the authorized Common Stock of this corporation shall be Ten Million (10,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Five Hundred Thousand Dollars ($500,000). At the time this amendment becomes effective, each five (5) prior issued and outstanding shares of the Common Stock of this corporation, par value one cent ($.01) per share, shall thereby and thereupon be combined into one (1) share of validly issued, fully paid and nonassessable shares of Common Stock of this corporation, par value five cents ($.05) per share. Each person at that time holding of record any issued and outstanding share of Common Stock of this corporation shall receive upon surrender thereof to the corporation's authorized agency a stock certificate or certificates to evidence and represent the number of shares of post reverse stock split Common Stock of this corporation to which he is entitled after this reverse split; provided, however, that this corporation shall not issue fractional shares of Common Stock in connection with this reverse stock split, but, in lieu thereof, this corporation shall make a cash payment at the rate of seventy cents ($.70) and for each share of prior Common Stock to the holders thereof who would otherwise be entitled to receive fractional shares except for the provisions hereof upon surrender of certificates representing those shares to the corporation's authorized agent. The ownership of such fractional interests shall not entitle the holder thereof to any voting, dividend or other right except the right to receive payment therefor as described above. -45- EIGHTH: A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for such liability as is expressly not subject to limitation under the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended to further limit or eliminate such liability. NINTH: Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or the Bylaws of this corporation, the terms of the members of the Board of Directors shall be staggered in the manner set forth in this Article Nine, in lieu of electing the whole number of directors annually. Commencing on the effective date of this Article Nine, the directors shall be divided by the Board of Directors into three (3) classes, each class to be as nearly equal in number as possible. The term of office of directors of the first class shall expire at the first annual meeting of shareholders after their election, that of the second class shall expire at the second annual meeting after the election, and that of the third class shall expire at the third annual meeting after their election. At each annual meeting after such classification, the number of directors equal to the number of the class whose terms expires at the time of such meeting shall be elected to hold office until the third such succeeding annual meeting. The provisions of this Article Nine shall apply only when the Board of Directors consists of three or more members; if the Board of Directors consists of less than three members, the terms of each such member shall expire at the next annual meeting of the shareholders of the corporation. TENTH: To the fullest extent permitted by law, the Board of Directors, when evaluating any offer by another party to (i) make a tender or exchange offer for any equity security of this corporation outside of the ordinary course of business, (ii) merge or consolidate this corporation with any other corporation, (iii) purchase or otherwise acquire all or substantially all of the properties and assets of this corporation, or (iv) undertake any similar extraordinary corporate transactions with this corporation, may be its discretion, in connection with exercise of its judgment in determining what is in the best interests of this corporation and its shareholders, give due consideration to: (aa) all relevant factors, including without limitation the social, legal, and economic effects on the employees, customers, suppliers, and other constituencies of this corporation and its subsidiaries, on the communities and geographical areas in which this corporation and its subsidiaries operate or are located, and on any of the businesses and properties of this corporation or any of its subsidiaries, as well as such other factors as the directors deem relevant; and (bb) all features of the consideration being offered, not only in relation to the then current market price for the corporation's outstanding shares of capital stock, but also in relation to the then current value of the corporation in a freely negotiated transaction and in relation to the Board of Director's estimate of the future value of this corporation (including the unrealized value of its properties and assets) as an independent going concern." 3. The text of the original Restated Certificate of Incorporation as amended or supplemented heretofore is further amended hereby to read as herein set forth in full: "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UCI MEDICAL AFFILIATES, INC. FIRST: The name of the corporation is: UCI MEDICAL AFFILIATES, INC. SECOND: The address of its registered office in the State of Delaware is: Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. -46- THIRD: The nature of the business or purposes to be conducted or promoted is: the operation of an Emergency Care Center and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: After giving effect to Section Seven herein, the total number of shares of stock which the corporation shall have authority to issue is as follows: Ten Million (10,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Five Hundred Thousand Dollars ($500,000), and Ten Million (10,000,000) shares of Preferred Stock having a par value of one cent ($.01) per share, amounting in the aggregate to One Hundred Thousand Dollars ($100,000). The following is a statement of fixing certain of the designations and powers, voting powers, preferences, and relative, participating, optional or other rights of the Common Stock and Preferred Stock of the corporation, and the qualifications, limitations or restrictions thereof, and the authority with respect thereto expressly granted to the Board of Directors of the corporation to fix any such provisions not fixed by this Certificate: I. Common Stock Authority is hereby expressly granted to and vested in the Board of Directors of this corporation to provide for the issue of Common Stock. The holders of record of shares of Common Stock shall be entitled to unlimited voting rights equating to one (1) vote per outstanding share of Common Stock on all matters upon which shareholders are entitled to vote. Shares of Common Stock shall have distribution, dividend, and liquidation rights granted by law or declared by resolution or resolutions of the Board of Directors from time to time, except that in the absence of the establishment of liquidation rights for one or more series of Preferred Stock (either preferentially to, or on a party with, the Common Stock) as provided below, the holders of record of shares of Common Stock shall be entitled to receive the net assets of this corporation upon dissolution. The distribution, dividend, and liquidation rights associated with the shares of Common Stock will be subordinated only to the comparable distribution, dividend, or liquidation rights associated with shares of certain series of Preferred Stock, if any, but only to the extent such preferences, if any, are established for one or more series of Preferred Stock by the Board of Directors in its discretion as provided below. II. Preferred Stock The Board of Directors is hereby expressly vested with the authority to adopt a resolution or resolutions providing for the issue of authorized but unissued shares of Preferred Stock, which shares may be issued from time to time in one or more series and in such amounts as may be determined by the Board of Directors in such resolution or resolutions. The powers, voting powers, designations, preferences, and relative, participating, operational or other rights, if any, of each series of Preferred Stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights (collectively the "Series Terms"), shall be such as are stated and expressed in a resolution or resolutions providing for the creation or revision of such Series Terms (a "Preferred Stock Series Resolution") adopted by the Board of Directors or a committee of the Board of Directors to which such responsibility is specifically and lawfully delegated. The powers of the Board of Directors with respect to the Series Terms of a particular series (any of which powers, other than voting powers, may be resolution of the Board of Directors be specifically delegated to one or more of its committees, except as prohibited by law) shall include, but not be limited to, determination of the following: -47- (1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number; (2) The dividend rate of the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, of so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon occurrence of such events as the Board of Directors shall determine; (5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per shares payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (8) The conditions or resolutions upon the creation of indebtedness of the corporation or upon the issuance of additional preferred stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation; (9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, sharing ranking junior to the Preferred Stock or to any series thereof with respect to dividends or distribution of assets upon liquidation; and, (10) Any other designations, powers, preferences, and rights, including, without limitation any qualifications, limitations, or restrictions thereof. Any of the Series Terms, including voting rights, of any series may be made dependent upon facts ascertainable outside the Amended and Restated Certificate of Incorporation and the Preferred Stock Series Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Amended and Restated Certificate of Incorporation or in the Preferred Stock Series Resolution. -48- Subject to the provisions of this Article Four, shares of one or more series of Preferred Stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors or a designated committee thereof, in an aggregate amount not exceeding the total number of shares of Preferred Stock authorized by this Amended and Restated Certificate of Incorporation. Except in respect of series particulars fixed by the Board of Directors or its committee as permitted thereby, all shares of Preferred Stock shall be of equal rank and shall be identical. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. FIFTH: The corporation shall have perpetual existence. SIXTH: In furtherance and not in limitation of the powers conferred by statute, the corporation's Board of Directors is expressly authorized to adopt, amend, or repeal by Bylaws of the corporation. SEVENTH: Pursuant to a 1 for 5 reverse stock split, the amount of the total authorized Common Stock of this corporation is decreased and the number and par value are by these means changed so that the authorized Common Stock of this corporation, which, prior to the filing of this amendment, was Twenty Million (20,000,000) shares of Common Stock, having a par value of one cent ($.01) per share, amounting in the aggregate to Two Hundred Thousand Dollars ($200,000), shall be Four Million (4,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Two Hundred Thousand Dollars ($200,000); provided however, immediately after the effectuation of such reverse stock split, the authorized Common Stock of this corporation shall be increased so that the authorized Common Stock of this corporation shall be Ten Million (10,000,000) shares of Common Stock, having a par value of five cents ($.05) per share, amounting in the aggregate to Five Hundred Thousand Dollars ($500,000). At the time this amendment becomes effective, each five (5) prior issued and outstanding shares of the Common Stock of this corporation, par value one cent ($.01) per share, shall thereby and thereupon be combined into one (1) share of validly issued, fully paid and nonassessable shares of Common Stock of this corporation, par value five cents ($.05) per share. Each person at that time holding of record any issued and outstanding share of Common Stock of this corporation shall receive upon surrender thereof to the corporation's authorized agency a stock certificate or certificates to evidence and represent the number of shares of post reverse split; provided, however, that this corporation shall not issue fractional shares of Common Stock in connection with this reverse stock split, but, in lieu thereof, this corporation shall make a cash payment at the rate of seventy cents ($.70) and for each share of prior Common Stock to the holders thereof who would otherwise by entitled to receive fractional shares except for the provisions hereof upon surrender of certificates representing those shares to the corporation's authorized agent. The ownership of such fractional interests shall not entitle the holder thereof to any voting, dividend or other right except the right to receive payment therefor as described above. EIGHTH: A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for such liability as is expressly not subject to limitation under the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended to further limit or eliminate such liability. NINTH: Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or the Bylaws of this corporation, the terms of the members of the Board of Directors shall be staggered in the manner set forth in this Article Nine, in lieu of electing the whole number of directors annually. Commencing on the effective date of this Article Nine, the -49- directors shall be divided by the Board of Directors into three (3) classes, each class to be as nearly equal in number as possible. The term of office of directors of the first class shall expire at the first annual meeting of shareholders after their election, that of the second class shall expire at the second annual meeting after the election, and that of the third class shall expire at the third annual meeting after their election. At each annual meeting after such classification, the number of directors equal to the number of the class whose terms expires at the time of such meeting shall be elected to hold office until the third such succeeding annual meeting. The provisions of this Article Nine shall apply only when the Board of Directors consists of three or more members; if the Board of Directors consists of less than three members, the term of each such member shall expire at the next annual meeting of the shareholders of the corporation. TENTH: To the fullest extent permitted by law, the Board of Directors, when evaluating any offer by another party to (i) make a tender or exchange offer for any equity security of this corporation outside of the ordinary course of business, (ii) merge or consolidate this corporation with any other corporation, (iii) purchase or otherwise acquire all or substantially all of the properties and assets of this corporation, or (iv) undertake any similar extraordinary corporate transactions with this corporation, may in its discretion, in connection with exercise of its judgment in determining what is in the best interests of this corporation and its shareholders, give due consideration to: (aa) all relevant factors, including without limitation the social, legal, and economic effects on the employees, customers, suppliers, and other constituencies of this corporation and its subsidiaries, on the communities and geographical areas in which this corporation and its subsidiaries operate or are located, and on any of the businesses and properties of this corporation or any of its subsidiaries, as well as such other factors as the directors deem relevant; and (bb) all features of the consideration being offered, not only in relation to the then current value of the corporation in a freely negotiated transaction and in relation to the Board of Director's estimate of the future value of this corporation (including the unrealized value of its properties and assets) as an independent going concern." 4. This Amended and Restated Certificate of Incorporation was duly adopted by the stockholders in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, UCI Medical Affiliates, Inc. has caused this certificate to be signed by M.F. McFarland, III, M.D., its Chairman of the Board of Directors, and attested to by Jon R. Bright, its Assistant Secretary, this 30th day of June, 1994. UCI MEDICAL AFFILIATES, INC. By: /s/ M.F. McFarland, III, M.D. M.F. McFarland, III, M.D. Its: Chairman of the Board (CORPORATE SEAL) Attest: By: /s/ Jon R. Bright Jon R. Bright Its: Assistant Secretary -50- EX-2 3 EXHIBIT 3.2 EXHIBIT NO. 3.2 AMENDED AND RESTATED BYLAWS -51- AMENDED AND RESTATED BYLAWS OF UCI MEDICAL AFFILIATES, INC. November 23, 1993 ARTICLE I - GENERAL PROVISIONS Section 1. Name. This Corporation shall be known as "UCI MEDICAL AFFILIATES, INC.", or such other name as the stockholders or directors shall, from time to time, deem advisable. Section 2. Offices. The principal place of business of the Corporation shall be located in the State of South Carolina or at such other place which the officers or directors may designate from time to time. ARTICLE II - STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders shall be held at such place on such date, and at such time as the Board of Directors shall each year designate, which date shall be within thirteen (13) months subsequent to the date of the last annual meeting of the stockholders. At such meeting the stockholders shall elect, by a plurality vote, directors to succeed those whose terms expire. The stockholders shall further transact such other business as may properly come before the meeting. Section 2. Special Meeting. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prohibited by law (meaning here and hereinafter as required, the General Corporation Law of the State of Delaware or the Certificate of Incorporation), may be called by the Chairman of the Board, the President, or at the request in writing of a majority of the Board of Directors, and shall be held at such place, on such date, at such time, and for such purpose or purposes as the above designated officer or Board of Directors shall fix in the prescribed notice of the meeting. Section 3. Notice of Meetings. Written notice of the place, date and time (and in the case of a special meeting, the purpose or purposes for which the meeting is called) of all meetings of the stockholders shall be given to those stockholders entitled to vote at such meeting, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled vote at such meetings, except as otherwise provided herein or required by law. When a meeting is adjourned to another time, place, or date, written notice need not be given of the adjourned meeting if the time, place and date thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of adjourned meeting is more than thirty (30) days after the date of the original meeting, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given. Any business which might have been transacted at the original meeting may be transacted at the adjourned meeting. Section 4. Stock List. Subsequent to the record date of any meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order for each class of stock with the address of each such stockholder and the number of shares registered in the stockholder's name, shall be prepared by the Secretary, the Assistant Secretary, or such other agent of the Corporation as may be designated by the Board of Directors, at least ten (10) days before such meeting, and shall be open to the inspection of any such stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or at the principal office of the Corporation. -52- The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each. Section 5. Quorum. At any meeting of the stockholders, the holders of a majority of all of the outstanding shares of the stock entitled to vote, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number is required by law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. Section 6. Conduct of Business. The Chairman of the Board, or in his absence or disability the president, or such other person as the Board of Directors may have designated or, in the absence of such designation, the highest ranking officer of the Corporation who is present, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints. The chairman of any meeting of the stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as he deems appropriate. Section 7. Voting and Proxies. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing executed by such stockholder and bearing a date not more than three (3) years prior to said meeting, unless said instrument provides for a longer period, filed in accordance with the procedure established for the meeting. Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, except on the election of directors and where otherwise required by law, may be by a voice vote. A stock vote shall be taken on the election of directors. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. Section 8. Record Date. The Board of Directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of the stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: (a) to notice of or to vote at any meeting of the stockholders or any adjournment thereof; (b) to express consent to corporate action in writing without a meeting; (c) to receive payment of any dividend or other distribution or allotment of any rights; or, (d) to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. Upon the designation of a record date, only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to the rights and privileges enumerated above, notwithstanding any transfer of stock on the books of the Corporation after the record date is fixed as aforesaid. Section 9. Action in Lieu of Meeting. Any action required to be taken at any annual or special meeting of the stockholders, or any action which may be taken at such meeting, may be taken without a -53- meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of the outstanding voting stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted Prompt notice of the taking of the corporate action without a meeting by less than a unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III - BOARD OF DIRECTORS Section 1. Number and Term of Office. The number of directors shall be fixed by the Board of Directors from time to time. Each director shall serve until his successor is elected and qualified, except as otherwise required by law. Directors need not be stockholders. Section 2. Vacancies. If the office of any director becomes vacant by reason of death, resignation, retirement, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term or until the director's successor is elected and qualified. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates and at such time or times as shall have been established by the Chairman of the Board of Directors or the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, or, on the written request of one-third of the directors then in office, by the Secretary. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived either personally, by mail or by telegram not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At all meetings of the Board of Directors, one-third of the total number of the whole Board of Directors shall constitute a quorum for the transaction of business. The vote of the majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by law. Section 6. Meetings by Conference Telephone. Members of the Board of Directors, or any committee thereof, may participate in a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other. Such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order as the Board of Directors from time to time may determine. All matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Section 8. Actions in Lieu of Meetings. Any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 9. Powers. The property and business of the Corporation shall be managed by the Directors which may, except as otherwise required by law, exercise all such powers and do all such acts and -54- things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the power to: (a) Declare dividends from time to time in accordance with law; (b) Purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (c) Authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or nonnegotiable, secured or unsecured, and to do all things necessary in connection therewith; (d) Remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (e) Confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers and agents; (f) Adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, agents and employees of the Corporation and its subsidiaries as it may determine; (g) Adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, agents and employees of the Corporation and its subsidiaries as it may determine; and, (h) Adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the corporation's business and affairs. Section 10. Compensation of Directors. The Board of Directors shall have the authority, from time to time, to establish such reasonable compensation to be paid as a retainer to the directors of this Corporation for their services associated therewith, and to establish a fixed sum to compensate the directors for their attendance at any regular or special meeting or any meeting of a duly designated committee, and further to reimburse the directors for expenses incurred in connection with their attendance at any regular or special meeting or meeting of a committee; provided, that nothing contained herein shall be construed as precluding any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 11. Advisory Directors. In addition to the regular Board of Directors, this Corporation may have and establish, by appropriate resolutions of the Board of Directors, one or more, but not exceeding three (3) Advisory Directors who shall perform the following duties as designated by the Chairman of the Board: (a) to render advice and counsel to the Board of Directors; (b) to perform such other duties as may be mutually agreeable to the Chairman of the Board and such Advisory Directors. Advisory Directors shall not vote at the meetings of the Board of Directors, but shall be entitled to participate therein. Advisory Directors shall, at the discretion of the Board of Directors, be entitled to a retainer for their services associated therewith, to a fixed sum to compensate Advisory Directors for attendance at any regular or special meeting or meeting of a committee, and to reimbursement for expenses incurred in connection with attendance at any regular or special meeting or meeting of a committee. ARTICLE IV - COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of the majority of all members of the Board of Directors, may from time to time designate committees of the Board of Directors, each committee to consist of two (2) or more of the directors, to serve at the pleasure of the Board of Directors. Any committee so designated may exercise such power and authority of the Board of Directors as the resolution so designating the committee shall provide. In the absence or in the event of -55- disqualification from voting of any member of any committee, the member or members of the committee present at the meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Such committee or committees shall have the name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting business and shall act in accordance therewith, except as otherwise provided herein or required by law. One-third of the members shall constitute a quorum unless the committee shall consist of two (2) members, in which event one (1) member shall constitute a quorum. All matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceeding of such committee. All committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. ARTICLE V - OFFICERS Section 1. Offices in General. The officers of this Corporation shall be chosen by the Board of Directors and shall consist of a Chairman of the Board of Directors, a President, an Executive Vice President, one or more Vice Presidents, a Secretary, a Treasurer, and such Assistant Secretaries, Assistant Treasurers or other subordinate officers as may from time to time be appointed by the Board of Directors. In addition, the Board of Directors may appoint a Vice Chairman of the Board of Directors and a Chief Medical Officer. Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal. The officers will hold such titles and have such duties as shall be hereafter stated, or hereafter designated by a resolution of the Board of Directors which is not inconsistent with these Bylaws. Any number of offices may be held by the same person. Section 2. Chairman of the Board. The Chairman of the Board of Directors shall be the chief executive officer of the Corporation. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and directors at which he is present. He shall be an ex-officio member of all standing committees and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him by the Board of Directors. He shall have the power to sign all stock certificates, contracts, execute bonds, notes, mortgages and other instruments on behalf of the Corporation. He shall have general supervision and direction of all of the other officers and agents of the Corporation. Section 3. President. Unless otherwise designated by the Board of Directors, the President shall be the chief operating officer of the Corporation. In the absence of a Chairman of the Board of Directors and unless otherwise designated by the Board of Directors, the President shall be the chief executive officer of the Corporation and he shall preside over the meetings of the stockholders and carry on the other duties of the Chairman of the Board of Directors. He shall have the power to sign all stock certificates, contracts and execute bonds, notes, mortgages, and other instruments on behalf of the Corporation. He shall perform such functions and duties as may be authorized by the Board of Directors or delegated to him by the Chairman of the Board. Section 4. Executive Vice President. The Executive Vice President shall have the power to sign all stock certificates and contracts and execute bonds, notes, mortgages and other instruments on behalf of the Corporation. He shall perform such functions and duties as may be authorized by the Board of Directors or designated to him by the Chairman of the Board. -56- Section 5. Vice Presidents. The Vice Presidents shall perform such duties and be designated such areas of responsibility as the Board of Directors or Chairman of the Board of Directors shall prescribe. Section 6. Treasurer. The Treasurer or any Assistant Treasurer designated by the Board of Directors shall have the custody of all corporate funds and securities and shall keep accurate accounts of receipts and disbursements. The Treasurer and any Assistant Treasurer shall make such disbursements of the funds of the Corporation as are proper and shall render from time to time an account of all such transactions of the financial condition of the Corporation. Section 7. Secretary. The Secretary or any Assistant Secretary shall issue all authorized notices for and attend all meetings of the stockholders and Board of Directors and shall keep minutes of such meetings and record all votes therein. The Secretary or any Assistant Secretary shall keep the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature. Section 8. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any office to any other officer or agent, notwithstanding any provision hereof. In the absence or disability of the Chairman of the Board of Directors, the President and the Executive Vice President, their duties shall be performed and their powers shall be exercised by such person or persons as shall be exercised by such person or persons as shall be designated by the Board of Directors. Section 9. Removal. Any officer of the Corporation may be removed at any time, with or without cause, by a majority of the Board of Directors. Section 10. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board, or in his absence or disability, the President shall have the power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of the stockholders or with respect to any action of stockholders of any other corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporations. ARTICLE VI - INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 1. General Indemnity. The Corporation shall indemnify any person who was or is a party or who is threatened to be made a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative (including any action or suit by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation, or of a partnership, joint venture, trust, employee benefit plan, or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such suit, action or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that in the case of an action or suit by or in the right of the Corporation, such person shall be indemnified only to the extent of his expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement thereof, and no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. The termination of any action, suit or proceeding (other than an action by or in the right of the Corporation) by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he -57- reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this provision, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith. Any indemnification hereunder (unless required by law or ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in this provision. Such determination shall be made by (a) the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders of the Corporation. The indemnification provided herein shall not be deemed exclusive of any other rights to which a person indemnified may be entitled under any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of this Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation, or of a partnership, joint venture, trust, employee benefit plan, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of the State of Delaware or of these Bylaws. The Corporation's indemnity of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation, or of a partnership, joint venture, trust, employee benefit plan, or other enterprise, shall be reduced by any amounts such person may collect as indemnification (a) under any policy of insurance purchased and maintained on his behalf by the Corporation or (b) from such other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. ARTICLE VII - STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board of Directors and/or the President, and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him. Any and all of the signatures on the certificate may be a facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by the transfer agent designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 3 of this Article, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or its agent to issue a new certificate to the person entitled thereto. -58- Section 3. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing the issuance of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates to give the Corporation a bond, with acceptable surety in such sum as it may direct, as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. ARTICLE VIII - NOTICES Section 1. Notices. Whenever notice is required to be given to any stockholders, director, officer, or agent, such requirements shall not be construed to mean personal notice. Unless otherwise stated herein, such notice may in every incident be effectively given by depositing a writing in the United States Mail, in a prepaid envelope or by dispatching a prepaid telegram, addressed to such stockholder, director, officer or agent at his or her address as the same appears in the books of the Corporation. The time when such notice is dispatched shall be the time of the giving of the notice. Section 2. Waiver. Whenever any notice is required to be given under the provisions of the Certificate of Incorporation, these Bylaws, or otherwise required by law, a written waiver thereof, signed by the stockholder, director, officer or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE IX - MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of an officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in charge of the Secretary or an Assistant Secretary. Duplicates of the seal may be kept and used by persons so designated by the Board. Section 3. Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 4. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. -59- ARTICLE X - AMENDMENTS Section 1. Amendments. These Bylaws may be amended or repealed by the majority vote of the Board of Directors at any regular or special meeting thereof or by a majority of the voting stockholders at any regular or special meeting thereof at which a quorum is present, provided notice of the proposed amendment or repeal is contained in the notice of such meeting. The foregoing are certified to be the true and complete Amended and Restated Bylaws of the UCI Medical Affiliates, Inc. as adopted by the Board of Directors as of November 23, 1993. /s/ M.F. McFarland M.F. McFarland - Secretary -60- EX-10 4 EXHIBIT 10.1 EXHIBIT NO. 10.1 FACILITIES AGREEMENT -61- 21 June, 1985 FACILITIES AGREEMENT 8 May, 1984 Parties: Doctor's Care, P.A. (PA) and UCI Medical Affiliates of South Carolina (UCI) for the use of UCI's facilities and equipment by PA. Term: The Agreement shall commence on the Closing Date of the Assets Purchase Agreement and run for five years. Additional Clinics: Upon the mutual agreement of UCI and PA, additional clinics may be included in the Agreement and shall be listed and initialed on an Exhibit attached to the Agreement. Equitable Relief: Both UCI and PA shall be entitled to injunctive and/or other equitable relief to prevent breach of the Agreement. Waiver: The failure to enforce provisions or require performance under the Agreement by either UCI or PA shall not be construed to be a waiver of that provision or affect the validity of the Agreement. Invalidity: The invalidity or unenforceability of any provisions of the Agreement shall not affect the other provisions of the Agreement. Governing Law: The Agreement shall be governed and interpreted in accordance with the laws of the State of South Carolina. Amendments: No modification, amendment or waiver of any provision of the Agreement will be effective unless it is in writing and signed by both parties. Entire Agreement: The Agreement shall constitute the entire agreement of the parties. -62- DUTIES AND RESPONSIBILITIES OF UCI 1. UCI shall make available the facilities, equipment and assets of the Clinics to PA for PA's use. 2. UCI shall provide (at its own expense) additional equipment, secretarial, bookkeeping, accounting and other non-medical personnel as required by PA to operate the Clinics. 3. UCI shall provide PA with two Cadillac Sevilles (or comparable automobiles) for use by PA's Professionals, and shall pay all operating expenses for these automobiles. These automobiles shall be replaced at least every three years, and PA shall have the right to purchase them at depreciated book value. (NOTE, this provision has been superceded by the employment agreements included as Exhibits 10.4 and 10.5.) 4. UCI may terminate the Agreement upon thirty (30) days written notice only for "good cause" , i.e., failure by PA to provide the agreed operation of the Clinics and/or to perform other duties or to willfully violate any terms of the Agreement. UCI may also terminate within thirty (30) days after the death of or loss of license of M.F. McFarland. -63- DUTIES AND RESPONSIBILITIES OF PA 1. PA shall provide all medical and medically related services at UCI's Clinics and shall: a. approve, hire, supervise, evaluate and terminate all medically related personnel; b. purchase, control, prescribe and dispense all drugs; c. select and approve all medically related supplies and equipment; d. monitor the quality of medical care provided at the Clinics, and assure that such care meets currently accepted standards of medical competence according to currently approved methods and practices (including peer review) in the medical profession; and, e. establish fees for all services at the Clinics consistent with normal charges rendered for such services in the community; PA shall also bill all fees in PA's name. 2. PA shall provide a physician to serve as Executive Medical Director of the Clinics who shall have overall responsibility for the operation of the Clinics by PA, who shall be acceptable to UCI, and who shall perform by devoting such time and effort to providing services to best assure efficient operation and quality rendition of medical services to the patients at the Clinics. PA shall also provide a Professional to serve as Medical Director of each individual Clinic, and Professionals to provide medical services at the Clinics. 3. PA shall use best efforts to provide Professionals at the Clinics during all regular hours of operation established by PA in consultation with UCI. PA shall be solely responsible for the work schedules of all medically related personnel. PA shall have full control over all activities relating to the practice of medicine by the Professionals; UCI shall have no control over the methods by which any medical or medically related services are to be performed at the Clinics; UCI shall not interfere with freedom to prescribe rules or control the manner in which services are to be performed at the Clinics. PA shall indemnify and hold harmless UCI for claims of medical malpractice against PA's Professionals. 4. PA and/or the individual Professionals shall be solely responsible for payment of unemployment and workmen's compensation insurance, pensions, annuities or other benefits to the Professionals and other medically related personnel at the Clinics. 5. Fees, Billing Etc.: PA shall be solely responsible for billing and collecting all fees from patients. PA shall retain from total fees $200 per month, and an amount equal to the cost of all narcotic drugs for the previous month, and an amount sufficient to pay all payroll, and payroll costs, professional liability insurance and reasonable disability and health insurance relating to PA's Professionals and other non-physician medical personnel. -64- The excess shall be paid over to UCI by PA on a bi-weekly basis as payment for the use of UCI's facilities, equipment and assets, and other non-medical services provided to PA by UCI employees. UCI shall have the right at least annually to have its certified public accountants review PA's books. Amendment of 24 September 1984: Should total fees collected by PA at any time not be sufficient for PA to pay wages, salaries and other compensation of Professionals and other medically related personnel employed by or under contract with PA, UCI shall, within five days written notice by PA of the amount of such insufficiency and documentation reasonably required by UCI, pay over to PA an amount sufficient to pay such wages, salaries and compensation. 6. Books, Office Equipment, Records, Etc.: All professional instruments, books, office equipment, narcotic drugs or medications requiring a prescription shall at all times remain PA's property. All patient records shall at all times remain PA's property except that upon termination of the Agreement, PA shall provide any successor professional association at the Clinics copies of such medical records within 90 days after the termination upon request by the successor. 7. Non-Competition: PA agrees that for seven years after the date of the Agreement neither PA nor its stockholders shall: a. induce or attempt to influence any person rendering medical or management services at any UCI facility to cease rendering such services; or b. engage in, enter the employ of, or be financially interested in any corporation, partnership or professional association owning or operating any primary care facility or substantially similar practice (excluding hospital emergency rooms) within ten miles of any UCI facility or any such facility which UCI has taken definite action to acquire, construct or operate. PA and its stockholders are not restricted from owning up to one (1%) percent of the corporate securities of any competitor of UCI listed on any national securities exchange or traded over-the-counter. 8. Non-Disclosure: PA shall take reasonable precautions to assure confidentiality of all books, records, documents, and materials relating to the Clinics, and to reasonably maintain in confidence all information obtained from UCI during the Agreement. 9. Termination: After reasonable written notice, PA may terminate the Agreement upon repeated failure by UCI to provide facilities, equipment or services necessary for PA to operate Clinics as primary care facilities, or for UCI's willful violation of any term of the Agreement. -65- EX-10 5 EXHIBIT 10.2 EXHIBIT NO. 10.2 FACILITIES FEE REFUND AGREEMENT -66- NOTE: THIS AGREEMENT WAS TERMINATED ON OCTOBER 1, 1995. 21 June, 1985 FACILITIES FEE REFUND AGREEMENT 8 May, 1984 Parties: UCI Medical Affiliates, Inc. (UCI), UCI Medical Affiliates of South Carolina, Inc. (UCISC) and Doctor's Care, P.A. (PA). Fee Refund: UCISC shall refund to PA 25% of the annual pre-tax profits arising directly out of the operations of the Northeast (NE) and Columbia East (CE) Clinics from the fee paid to UCISC under the Facilities Agreement dated 8 May, 1984. In addition, PA shall receive a refund of 35% of the annual pre-tax profits after a reduction of $82,000 for NE and $88,000 for CE. With respect to NE, the additional 35% of pre-tax profit above $82,000 will not be effective until five years after the merger of NE with UCISC. UCISC shall also refund, from the fee paid to it under the Facilities Agreement, 35% of the annual pre-tax profits arising directly out of the operations of Clinics other than NE and CE after a reduction of $180,000 for the Seven Oaks Clinic (SO) and a 20% return on investment for any new Clinic (including the cost of all assets acquired and working capital advanced until the Clinic can fund its own operations). These calculations shall be made annually within 120 days after the close of UCISC's fiscal year, and shall be based on financial statements prepared by UCISC's regularly employed CPA. Payment of any facilities fee refund shall be made by UCISC within 30 days following the annual determination of pre-tax profits of the respective Clinics. For any period less than 12 months, the formula for determining annual pre-tax profits and reductions before which PA becomes eligible for the additional 35% refund, shall be prorated. Amendment of 24 September, 1984: The refund amounts shall be paid to PA based on the pre-tax profits of the respective Clinics regardless of the fee paid over to UCISC under the Facilities Agreement. Billings generated by a particular clinic will be used to the extent necessary to pay wages, salaries and other compensation to Professionals and other medically related personnel employed at existing clinics and clinics opened after the execution of this Agreement. Term: The rights of PA under the Agreement shall continue for the duration of the Facilities Agreement (five years from Closing Date of Assets Purchase Agreement). Notices: All notices, requests, demands and other communications shall be in writing to be deemed duly given. Assignment: The rights of PA under the Agreement are not assignable in whole or in part without the reasonable written consent of UCISC. -67- EX-10 6 EXHIBIT 10.3 EXHIBIT NO. 10. 3 AMENDMENTS TO FACILITIES AGREEMENT AND FACILITIES FEE REFUND AGREEMENT -68- NOTE: THIS AGREEMENT WAS TERMINATED ON OCTOBER 1, 1995. AMENDMENT TO FACILITIES AGREEMENT AND FACILITIES FEE REFUND AGREEMENT Agreement dated as of the 24th day of September, 1984, between UCI Medical Affiliates of South Carolina, Inc. ("Company"), a South Carolina corporation and a wholly owned subsidiary of UCI Medical Affiliates, Inc. ("UCI"), and Doctor's Care, P.A. ("PA") of South Carolina. It is agreed that all provisions of the 1984 and Amendment shall remain in place and that the following new provisions shall be added to the agreement and by signature, each party is indicating their acceptance and ratification of the new changes and the original/amended agreements. (A) Additional compensation 1. Whereas, the Company does acknowledge the effort provided by the PA, the Company wishes to recognize the results and provide the following plan for the payment of the additional compensation: a) All "Doctor's Care" facilities shall show a return on the investment before calculation of any additional compensation being paid to PA. BASE PERCENTAGE Seven Oaks $135,000 35% Northeast 60,000 35% 60,000 25% Columbia East - 0 - 50% Lexington 22,500 35% Forest Acres - 0 - 35% Sumter 12,000 35% West Columbia - 0 - 35% Beltline - 0 - 25% West Wateree - 0 - 25% West Ashley - 0 - 25% Northwoods - 0 - 25% Summerville - 0 - 25% East Blackstock - 0 - 25% Greenville - 0 - 25% Upon the completion of the year end audit by the outside auditors, the calculation shall be made for the amount of facility fee to be due to PA. -69- IN WITNESS WHEREOF, the parties have executed this Agreement on the date of October 1, 1989. UCI MEDICAL AFFILIATES, INC. WITNESS: /s/ John Bright /s/ M.F. McFarland DOCTOR'S CARE, PA WITNESS: /s/ John Bright /s/ M.F. McFarland -70- AMENDMENT TO FACILITIES AGREEMENT AND FACILITIES FEE REFUND AGREEMENT Agreement dated as of the 24th day of September, 1984, between UCI Medical Affiliates of South Carolina, Inc. ("Company"), a South Carolina corporation and a wholly owned subsidiary of UCI Medical Affiliates, Inc. ("UCI"), and Doctor's Care, P.A. ("PA"), of South Carolina. In consideration of the Agreement of PA to utilize facilities, equipment and other assets of the Company in South Carolina pursuant to the Facilities Agreement between PA and Company dated September 24, 1984 (the "Facilities Agreement"), Company and PA agree as follows: 1. PA and Company shall contemporaneously herewith execute the Facilities Agreement and Facilities Fee Refund Agreement. 2. Should total fees collected by PA pursuant to the Facilities Agreement at any time not be sufficient for PA to pay wages, salaries and other compensation, including withholding, etc., for Professionals and other medically related personnel employed by or under contract with PA, Company shall, within five (5) days of written notice by PA of the amount of such insufficiency and such documentation as may be reasonably required by Company, pay over to Company an amount sufficient to enable PA to pay such wages, salaries and other compensation. 3. Company agrees that the amounts to be paid pursuant to paragraph 1 of the Facilities Fee Refund Agreement shall be paid to PA based upon the pre-tax profit of the respective clinics regardless of the fee actually paid over to Company under the Facilities Agreement, it being understood and agreed by the parties that billings generated by a particular clinic will be used to be extent necessary to pay wages, salaries and other compensation required to be paid to Professionals and other medically related personnel employed at existing clinics and clinics opened subsequent to the execution of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Attest: UCI MEDICAL AFFILIATES, INC. /s/ Jack Cheek By: /s/ Herbert Zlotnick Secretary Its: Chairman of the Board UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC. /s/ Jack Cheek By: /s/ Herbert Zlotnick Secretary Its: President DOCTOR'S CARE, P.A. /s/ Gerald A. Fishman By: /s/ M.F. McFarland Secretary Its: President -71- EX-10 7 EXHIBIT 10.4 EXHIBIT 10. 4 EMPLOYMENT AGREEMENT BETWEEN UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC. AND M.F. MCFARLAND, III, M.D. -72- EMPLOYMENT AGREEMENT This Employment Agreement is made as of the 1st day of October, 1995, by and between UCI Medical Affiliates of South Carolina, Inc., a South Carolina Corporation (UCI), and M. F. McFarland, III, M. D. ("McFarland"). WHEREAS, UCI desires to employ McFarland, and McFarland desires to be employed by UCI, in accordance with the terms and conditions hereinafter set forth: NOW, THEREFORE, in consideration of the mutual promises herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. Employment. UCI hereby agrees to employ McFarland to perform the duties described in Section 3 below subject to and in accordance with the terms and conditions hereof, and McFarland hereby accepts such employment. 2. Term. The employment shall commence on the date hereof, and shall continue for a period of Five (5) years unless earlier terminated in accordance with the provisions of Section 8 of this Agreement. 3. Duties of McFarland. A. In accepting employment by UCI, McFarland shall undertake and assume the responsibility of performing for and on behalf of UCI the duties of the President and Chief Executive Officer of UCI in Columbia, South Carolina. Except with his written consent, McFarland shall not be permanently assigned to (i) any position of lower professional status, or (ii) a location outside of Richland or Lexington Counties, South Carolina. B. Other than McFarland's duties as an employee of Doctor's Care, P.A., McFarland shall be a full-time employee of UCI, and shall devote his full working time and efforts to his duties hereunder. McFarland shall perform all of his duties hereunder to the best of his ability and shall not, directly or indirectly, engage or participate in any activities in conflict with the best interests of UCI. Without limiting the generality of the foregoing, McFarland shall not engage in any activity for compensation or pecuniary gain other than his employment hereunder, his association with Doctor's Care, P.A., and passive investing for the account of himself or members of his household. McFarland agrees that his total compensation for his service to UCI shall be described in Section 4 of this Agreement. McFarland has entered into a separate Employment Agreement with respect to his association with Doctor's Care, P.A. His compensation for services to Doctor's Care, P.A. is described in Section 4 of that Agreement. McFarland agrees that his total compensation for his service to Doctor's Care, P.A. is set forth in Section 4 of that Agreement. 4. Compensation. As compensation for the services to be rendered by McFarland for UCI under this Agreement, McFarland shall be compensated by UCI on the following basis: A. Base Salary. During the term of this Agreement, McFarland shall receive from UCI an annual salary of One Hundred Fifty-Seven Thousand Five Hundred and No/100 ($157,500), payable in pay periods as determined by UCI, but in no event less frequently than monthly, subject to an annual increase upon approval by the Board of Directors. -73- B. Dues. During the term of this Agreement, UCI shall pay all dues of McFarland as a member of one private club not to exceed Five Hundred Dollars and No/100 ($500.00) per month for the purpose of entertainment of UCI's clients in connection with the performance of McFarland's duties. C. Vacation. During the term of this Agreement, McFarland shall be entitled to a total of thirty (30) business days of paid leave to attend conventions and professional meetings and vacation time each calendar year. Such vacation and leave days are to be taken at such time or times as McFarland may reasonably request, subject to UCI's convenience and prior approval, which approval shall not be unreasonably withheld. Vacation and leave time may cumulate year-to-year up to a maximum of 60 days. D. Automobile. During the term of this Agreement, UCI shall provide to McFarland the use of one (1) automobile. E. Reimbursement for Expenses. During the term of this Agreement, UCI shall reimburse McFarland for all reasonable expenses in an aggregate amount equal to, or less than Seven Thousand five hundred dollars and No/100 ($7,500.00) per annum incurred by McFarland for the benefit of UCI in the performance of his duties hereunder. Reimbursement for aggregate expenses each calendar year in excess of such amount shall require the prior written approval of the Board of Directors of UCI. F. Other Benefits. During the term of McFarland's employment with UCI, McFarland shall receive from UCI such other benefits (e.g. health insurance coverage, life insurance coverage, participation in pension plans, and participation in stock option plans, etc.) reasonably comparable to, and no worse than, those benefits, if any, generally provided to other senior executives of UCI. Additionally, during his employment with UCI, McFarland will be provided at UCI's costs, with a term life insurance policy that at the time of McFarland's death will pay One Million Dollars ($1,000,000) to his spouse or other designated beneficiary(s). G. Incentive Bonus. On or about the end of UCI's fiscal year, the Board shall determine what, if any, Incentive Bonus payment shall be made to McFarland. This Incentive Bonus payment, if any, shall be based on two variables: UCI's Net Income (Loss) for the previous fiscal year and the Gross Revenue for the same year, as set forth in Addendum A, which is attached hereto. The attached Addendum specifies the total Incentive Bonus, if any, to be paid to McFarland under differing scenarios based on UCI's Net Income (Loss) and Gross Revenue for the previous year. The Board, in making its decision as to what, if any, Incentive Bonus shall be paid to McFarland, shall be governed by Addendum A, and shall have no authority to alter or deviate from the amount, if any, of the Inventive Bonus payment mandated by the Net Income/Gross Revenues grid in Addendum A. In the event UCI pays McFarland an Incentive Bonus, payment shall be in the form of cash. H. Discretionary Bonus. On or about the end of UCI's fiscal year, the Board shall, in its sole discretion, determine whether or not McFarland is to be awarded a discretionary bonus, not to exceed 10% of his annual base salary. This Discretionary Bonus, if any, shall be in addition to, and distinct from any other compensation or bonus payment to McFarland, provided, however, nothing contained herein shall be construed in any way to obligate UCI to pay a Discretionary Bonus to McFarland. The factors to be reviewed by the Board in determining whether or not a Discretionary Bonus, if any, shall be paid to McFarland shall include the following: 1. McFarland's ability and success in recruiting and retaining quality physicians. 2. McFarland's ability and success in recruiting and retaining a quality senior management team. 3. McFarland's ability and success in positioning UCI for implementation of managed care. -74- 4. McFarland's ability and success in developing a long-term strategic plan for UCI. In the event UCI pays McFarland a Discretionary Bonus, payment shall be in the form of cash. 5. Confidentiality and Secrecy. McFarland acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to UCI business, including without limitation technological know-how, copyrights, proprietary information, trade secrets, systems, procedures, manuals, confidential reports, records, operational expertise, lists of customers and projects, the nature and type of services rendered by UCI, the equipment and methods used and preferred by UCI customers, and the fees paid by inducement to UCI to enter into this Agreement and to pay to McFarland the compensation stated in Section 4 herein, McFarland covenants and agrees that during the term of his employment hereunder, and for five (5) years after the termination thereof, he shall not, directly or indirectly, make use of, or disclose to any person, any confidential information of UCI or its affiliates. McFarland agrees that he will never disclose trade secrets of UCI and assigns his rights to confidential information as "work made for hire" to UCI. 6. Covenants Against Competition. In view of the unique value to UCI of the services of McFarland for which UCI has contracted hereunder, because of the confidential information to be obtained by or disclosed to McFarland, as herein above set forth, and because McFarland's employment hereunder will result in McFarland's development of a unique relationship with customers, suppliers and employees as a material inducement to UCI to enter into this Agreement and to pay to McFarland the compensation stated in Section 4 hereof, McFarland covenants and agrees as follows: A. During McFarland's employment hereunder, and for a period of two (2) years after the termination of McFarland's employment hereunder for any reason, McFarland shall not directly or indirectly solicit or divert employment of any employee of UCI's business or employ any person previously employed by UCI or its affiliates. B. During McFarland's employment hereunder, and for a period of two (2) years after the termination of McFarland's employment whereunder for any reason, McFarland shall not directly or indirectly solicit, divert, or convert, or assist another person or entity to solicit, divert or convert, the customers of UCI or its affiliates to any other company or entity. C. During McFarland's employment hereunder, and for a period of two (2) years after the termination of McFarland's employment with UCI, McFarland shall not within the geographic area specified below engage in any business or perform any services, directly or indirectly, in competition with the business of UCI or its affiliates or have any interest, whether as a proprietor, partner, employee, stockholder (directly or beneficially), principal, agent, consultant, director, officer or in any other capacity or manner whatsoever, in any enterprise that shall so engage, except that McFarland shall be permitted to own for investment purposes only, directly or beneficially, up to (but not more than) 2% in the aggregate of the stock of a competing corporation which is publicly-traded on a national stock exchange or the NASDAQ National Market System, so long as McFarland is not a controlling person of, or a member of a group that controls, such corporation and McFarland is not otherwise affiliated in any capacity with such corporation. The restrictions to this Section 6(C) shall apply everywhere within a five (5) mile radius of (i) any primary or urgent care facility owned or operated by UCI or an affiliate, and (ii) each other location where UCI or any affiliate maintains an office, in existence as of the date of such termination. 7. Reasonableness, Enforceability and Remedies. A. McFarland has carefully read and considered the provisions of Section 5, 6 and 7, and, having done so, agrees that the restrictions set forth in these Sections, including, but not limited to, the time period of restriction and geographic limitations set forth in Section 6, are fair and reasonable and are reasonably required for the protection of the interest of UCI and its officers, directors, shareholders, employees, and affiliates. -75- B. In the event that, notwithstanding the foregoing, any of the provisions of Sections 5, 6 and 7 hereof or any parts thereof shall be held to be invalid or unenforceable, the remaining provisions or parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable portions or parts had not been included therein. In the event that any provision of Sections 5 and 6 hereof relating to the time period and/or geographic restrictions and/or related aspects shall be declared by a court of competent jurisdiction to exceed the maximum restrictiveness such court deems reasonable and enforceable, the time period and/or geographic restrictions and/or related aspects deemed reasonable and enforceable by the court shall become and thereafter be the maximum restriction in such regard, and the restriction shall remain enforceable to the fullest extent deemed reasonable by such court. C. McFarland acknowledges that the services he is to render are of a special and unusual character with a unique value to UCI and its affiliates, the loss of which cannot adequately be compensated by damages in an action at law. In the event of a breach or threatened breach by McFarland of any of the provisions of Section 5 or 6 hereof, UCI or its affiliates, in addition to and not in limitation of, any other rights, remedies, or damages available to UCI or its affiliates under this Agreement, shall be entitled to a permanent injunction in order to prevent or restrain any such breach by McFarland or by McFarland's partners, agents, representatives, servants, employees, consulting clients, and/or any and all persons directly or indirectly acting for or with him. D. McFarland covenants and agrees that if he shall violate any of his covenants or agreements under Section 5 or 6 hereof, UCI or its affiliates shall be entitled to: (i) an accounting and repayment of all profits, compensation, commissions, remuneration, or other benefits that McFarland directly or indirectly has realized and/or may realize as a result of, growing out of, or in connection with, any such violation; (ii) recover actual damages incurred by UCI or its affiliates as a result of any such violation; (iii) any injunctive relief to which UCI or its affiliates is or may be entitled by law, in equity, or under this Agreement; and (iv) exercise its other rights respecting a breach of this Agreement as set forth herein. E. McFarland's obligations under Section 5 and 6 hereof shall survive any termination of employment hereunder. 8. Termination A. For Cause by UCI. Notwithstanding any other provisions hereof, UCI may terminate McFarland's employment under this Agreement immediately at any time for "cause". For purposes hereof the term "cause" shall include, but not limited to, the commission of any of the following by McFarland: dishonesty: theft; unethical business conduct; indictment for a felony; incompetence in the performance of material duties on behalf of UCI; violation of the terms and provisions of this Agreement; willful or recurring insubordination; failure to attempt, in good faith, to comply with reasonable instructions of UCI; if McFarland's license to practice medicine in the State of South Carolina is revoked or otherwise terminated; or if McFarland fails to follow accepted medical practices or is guilty of misconduct under the principles of medical ethics of the American Medical Association. All compensation (including without limitation the Base Salary, and all prerequisites and fringe benefits) to which McFarland would otherwise be entitled shall be discontinued and forfeited as of the effective date of such termination. B. Without Cause by UCI. UCI may terminate this Agreement "without cause" at any time upon written notice to McFarland. In the event of such termination, McFarland shall be paid a lump sum severance payment equal to two (2) times his last 2 years of Base Salary plus Incentive and Discretionary Bonuses. All other compensation (including without limitation any prerequisites and fringe benefits, if any) to which McFarland would otherwise be entitled (for periods after the effective date of such termination) shall be discontinued and forfeited as of the effective date of such termination. C. Termination by McFarland. McFarland may with or without cause terminate this Agreement upon (60) days prior written notice to UCI. In the event of such termination, all -76- compensation (including without limitation the Base Salary and any prerequisites and fringe benefits, if any) to which McFarland would otherwise be entitled (for periods after the effective date of the termination) shall be discontinued and forfeited as of the effective date of such termination. D. Disability. In the event of McFarland's disability during employment under this Agreement, then employment under this Agreement shall terminate. For purposes of this Agreement, except as provided herein below, "disability" shall mean the inability of McFarland, due to sickness or other incapacity, to perform his duties under his Agreement for a period in excess of one hundred and eighty (180) substantially consecutive days. Such termination shall become effective at UCI's election upon the expiration of such one hundred and eighty (180) day period of disability. Upon termination of employment under this Agreement due to McFarland's disability, McFarland shall be entitled to payment of his Base Salary up to the date of termination. E. Death. In the event McFarland dies during this term of this Agreement, this Agreement shall terminate and UCI shall pay to McFarland's estate all Base Salary accrued but unpaid through the date of McFarland's death. 9. Burden of Benefit. This Agreement shall be binding upon, and shall inure to the benefit of UCI, McFarland, UCI's affiliates, and their respective heirs, personal and legal representatives, successors, and assigns. 10. Assignment. This Agreement and any rights hereunder are personal to McFarland and shall not be assigned or otherwise transferred by McFarland. 11. Governing Law/Jurisdiction. The construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of South Carolina. McFarland and UCI hereby (i) agree that any litigation, action or proceeding arising out of or relating to this Agreement may be instituted in a state or federal court in Columbia, South Carolina, (ii) waives any objection which it might have now or hereafter to any litigation, action or proceeding based upon improper venue or inconvenient forum, and (iii) irrevocably submits to the jurisdiction of such courts in any such litigation, action or proceeding. For all purposes of this Agreement, McFarland and UCI hereby further agree that service of process upon McFarland and UCI may be affected pursuant to United States mail. 12. Usage. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Terms such as "hereof", "herein", and words of similar import shall refer to this Agreement in its entirety and all references shall refer to specified portions of this Agreement, unless the contest clearly requires otherwise. 13. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect validity and enforceability of the other provisions. -77- 14. Notice. Any notice, request, approval, consent, demand or other communication hereunder shall be effective if in writing and upon the first to occur of the following: (i) upon receipt by the party to whom such notice, request, approval, consent, demand or other communications being given; or (ii) three (3) business days after being duly deposited in the U. S. Mail, certified, return receipt requested, and addressed as follows: McFarland M. F. McFarland, III, M. D. 6168 St. Andrews Road Columbia, S. C. 29212 UCI: UCI Medical Affiliates of South Carolina, Inc. 6168 St. Andrews Road Columbia, S. C. 29212 Attn: Stephen Seeling, Esquire The parties hereto may change their respective addresses by notice in writing given to the other parties of this Agreement. 15. Entire Agreement. This Agreement contains the entire agreement and understanding by and between UCI and McFarland with respect to the employment of McFarland, and no representations, promises, agreements, or understandings, written or oral not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party intended to be bound. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. IN WITNESS WHEREOF, UCI and McFarland have duly executed this Agreement under seal to be effective as of the day and year first above written. IN THE PRESENCE OF: UCI: /s/ Patricia J. Hammond UCI MEDICAL AFFILIATES OF SOUTH Witness CAROLINA, INC. (SEAL) /s/ Stephanie Davenport By: /s/ Stephen Seeling Witness Its: Chief Operating Officer & Counsel MCFARLAND: /s/Patricia J. Hammond /s/ M.F. McFarland, III, M.D. (SEAL) Witness M. F. McFarland, III, M.D. /s/ Stephanie Davenport Witness -78- ADDENDUM A BONUS GRID
- ---------------------- REVENUE - ---------------------- - ----------------------------------------------------------------------------------------------------------------------------------- $40,000,000 $0 $110,000 $135,000 $160,000 $185,000 $210,000 $240,000 $270,000 $300,000 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- $35,000,000 $0 $85,000 $110,000 $135,000 $160,000 $185,000 $210,000 $250,000 $285,000 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- $30,000,000 $0 $0 $85,000 $110,000 $135,000 $160,000 $185,000 $230,000 $270,000 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- $25,000,000 $0 $0 $60,000 $85,000 $110,000 $135,000 $160,000 $210,000 $255,000 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- $20,000,000 $0 $0 $35,000 $60,000 $85,000 $110,000 $135,000 $185,000 $240,000 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INC / (LOSS) ($500,000) $0 $250,000 $750,000 $1,250,000 $1,750,000 $2,250,000 $2,750,000 $3,250,000 - -----------------------------------------------------------------------------------------------------------------------------------
-79- EX-10 8 EXHIBIT 10.5 EXHIBIT NO. 10.5 EMPLOYMENT AGREEMENT BETWEEN DOCTOR'S CARE, P.A. AND M.F. MCFARLAND, III, M.D. -80- EMPLOYMENT AGREEMENT This Employment Agreement is made as of the 1st day of October 1995, by and between Doctor's Care, P.A., a South Carolina professional corporation ("Employer"), and M.F. McFarland, III, M.D. ("McFarland") . WHEREAS, Employer is a South Carolina professional association and is authorized to engage in the practice of medicine in South Carolina through individuals so licensed in South Carolina; and WHEREAS, Employer desires to employ McFarland, and McFarland desires to be employed by Employer, in accordance with the terms and conditions hereinafter set forth: NOW, THEREFORE, in consideration of the mutual promises herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. Employment. Employer hereby agrees to employ McFarland to perform the duties described in Section 3 below subject to and in accordance with the terms and conditions hereof, and McFarland hereby accepts such employment. 2. Term. The employment shall commence on the date hereof, and shall continue for a period of five ( 5 ) years unless earlier terminated in accordance with the provisions of Section 8 of this Agreement. 3. Duties of McFarland. A. In accepting employment by Employer, McFarland shall undertake and assume the responsibility of performing for and on behalf of Employer the duties of the President of Employer in Columbia, South Carolina. Except with his written consent, McFarland shall not be permanently assigned to (i) any position of lower professional status, or (ii) a location outside of Richland or Lexington Counties, South Carolina. B. Other than McFarland's duties as an employee of UCI Medical Affiliates of South Carolina, Inc., during the term of this Agreement McFarland shall be a full-time employee of Employer, and shall devote his full working time and efforts to his duties hereunder. McFarland shall perform all of his duties hereunder to the best of his ability and shall not, directly or indirectly, engage or participate in any activities in conflict with the best interests of Employer, and will conduct all activities in strict loyalty to Employer. Without limiting the generality of the foregoing, McFarland shall not engage in any activity for compensation or pecuniary gain other than his employment hereunder, his employment with UCI Medical Affiliates of South Carolina, Inc., and passive investing for the account of himself or members of his household. 4. Compensation. As compensation for the services to be rendered by McFarland for Employer under this Agreement, McFarland shall be compensated by Employer on the following basis: -81- A. Base Salary. During the term of this Agreement, McFarland shall receive from Employer an annual salary of One Hundred Fifty-Seven Thousand Five Hundred Dollars and No/100 ($157,500.00 ). Dollars payable in pay periods as determined by the Employer, but in no event less frequently than monthly. B. Vacation. During the term of this Agreement, McFarland shall be entitled to a total of thirty (30) business days of paid leave to attend conventions and professional meetings and vacation time each calendar year. Such vacation and leave days are to be taken at such time or times as McFarland may reasonably request, subject to the Employer's convenience and prior approval, which approval shall not be unreasonably withheld. Vacation and leave time may cumulate year to year up to a maximum of 60 days. C. Other Benefits. During the term of this Agreement, McFarland shall receive from Employer such other benefits (e.g., health insurance coverage, life insurance coverage, participation in pension plans, and participation in stock option plans, etc. ) reasonably comparable to, and no worse than, those benefits, if any, generally provided to other senior executives of Employer. The compensation stated above is intended to be the total compensation paid to McFarland. 5. Confidentiality and Secrecy. McFarland acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to Employer's business, including without limitation technological knowhow, copyrights, proprietary information, trade secrets, systems, procedures, manuals, confidential reports, records, operational expertise, lists of customers and projects, the nature and type of services rendered by Employer, the equipment and methods used and preferred by Employer's customers, and the fees paid by them (all of which are deemed for all purposes confidential and proprietary). As a material inducement to Employer to enter into this Agreement and to pay to McFarland the compensation stated in Section 4 herein, McFarland covenants and agrees that during the term of his employment hereunder, and for five (5) years after the termination thereof, he shall not, directly or indirectly, make use of, or disclose to any person, any confidential information of Employer or its affiliates. 6. Covenants Against Competition. In view of the unique value to Employer of the services of McFarland for which Employer has contracted hereunder, because of the confidential information to be obtained by or disclosed to McFarland, as hereinabove set forth, and because McFarland's employment hereunder will result in McFarland's development of a unique relationship with customers, suppliers and employees, as a material inducement to Employer to enter into this Agreement and to pay to McFarland the compensation stated in Section 4 hereof, McFarland covenants and agrees as follows: A. During McFarland's employment hereunder, and for a period of two (2) years after the termination of McFarland's employment hereunder for any reason, McFarland shall not directly or indirectly solicit or divert employment of any employee of Employer's business or employ any person previously employed by Employer or its affiliates. B. During McFarland's employment hereunder, and for a period of two (2) years after the termination of McFarland's employment hereunder for any reason, McFarland -82- shall not directly or indirectly solicit, divert, or convert, or assist another person or entity to solicit, divert or convert, the customers of Employer or its affiliates to any other company or entity. C. During McFarland's employment hereunder, and for a period of one (1) year after the termination of McFarland's employment with Employer for any reason, McFarland shall not within the geographic area specified below engage in any business or perform any services, directly or indirectly, in competition with the business of Employer or its affiliates or have any interest, whether as a proprietor, partner, employee, stockholder (directly or beneficially), principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that shall so engage; except that McFarland shall be permitted to own for investment purposes only, directly or beneficially, up to (but not more than) 2% in the aggregate of the stock of a competing corporation which is publicly-traded on a national stock exchange or the NASDAQ National Market System, so long as McFarland is not a controlling person of or a member of a group that controls, such corporation and McFarland is not otherwise affiliated in any capacity with such corporation. The restrictions of this Section 6(C) shall apply everywhere within a five (5) mile radius of (i) any primary or urgent care facility owned or operated by Employer or an affiliate, and (ii) each other location where Employer or any affiliate maintains an office, in existence as of the date of such termination. 7. Reasonableness, Enforceability and Remedies. A. McFarland has carefully read and considered the provisions of Section 5,6, and 7, and , having done so, agrees that the restrictions set forth in these Sections, including, but not limited to, the time period of restriction and geographic limitations set forth in Section 6, are fair and reasonable and are reasonably required for the protection of the interest of Employer and its officers, directors, shareholders, employees, and affiliates. B. In the event that, notwithstanding the foregoing, any of the provisions of Sections 5, 6, or 7 hereof or any parts thereof shall be held to be invalid or unenforceable, the remaining provisions or parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable portions or parts had not been included therein. In the event that any provision of Sections 5 or 6 hereof relating to the time period and/or geographic restrictions and/or related aspects shall be declared by a court of competent jurisdiction to exceed the maximum restrictiveness such court deems reasonable and enforceable, the time period and/or geographic restrictions and/or related aspects deemed reasonable and enforceable by the court shall become and thereafter be the maximum restriction in such regard, and the restriction shall remain enforceable to the fullest extent deemed reasonable by such court. C. McFarland acknowledges that the services he is to render are of a special and unusual character with a unique value to Employer and its affiliates, the loss of which cannot adequately be compensated by damages in an action at law. In the event of a breach or threatened breach by McFarland of any of the provisions of Sections 5 or 6 hereof, Employer or its affiliates, in addition to and not in limitation of, any other rights, remedies, or damages available to Employer or its affiliates under this Agreement, shall be entitled to a permanent injunction in order to prevent or restrain any such breach by McFarland or by McFarland's partners, agents, representatives, servants, employers, employees, consulting clients, and/or any and all persons directly or indirectly acting for or with him. -83- D. McFarland covenants and agrees that if he shall violate any of his covenants or agreements under Section 5 or 6 hereof, Employer or its affiliates shall be entitled to: (i) an accounting and repayment of all profits, compensation, commissions, remuneration, or other benefits that McFarland directly or indirectly has realized and/or may realize as a result of, growing out of, or in connection with, any such violation; (ii) recover actual damages incurred by Employer or its affiliates as a result of any such violation; (iii) any injunctive relief to which Employer or its affiliates is or may be entitled at law, in equity, or under this Agreement; and (iv) exercise its other rights respecting a breach of this Agreement as set forth herein. E. McFarland's obligations under Sections 5 and 6 hereof shall survive any termination of employment hereunder. 8. Termination. A. For Cause By Employer. Notwithstanding any other provision hereof, Employer may terminate McFarland's employment under this Agreement immediately at any time for "cause". For purposes hereof the term "cause" shall include, but not be limited to, the commission of any of the following by McFarland: dishonesty; theft; unethical business conduct; indictment for a felony; incompetence in the performance of material duties on behalf of Employer; violation of the terms and provisions of this Agreement; willful or recurring insubordination; failure to attempt, in good faith, to comply with reasonable instructions of Employer; McFarland's license to practice medicine in the State of South Carolina is revoked or otherwise terminated; or McFarland fails to follow accepted medical practices or is guilty of misconduct under the principles of medical ethics of the American Medical Association. All compensation (including without limitation the Base Salary, and all perquisites and fringe benefits) to which McFarland would otherwise be entitled shall be discontinued and forfeited as of the effective date of such termination. B. Termination By McFarland. McFarland may with or without cause terminate this Agreement upon sixty(60) days prior written notice to Employer. In the event of such termination, all compensation (including without limitation the Base Salary and any perquisites and fringe benefits, if any) to which McFarland would otherwise be entitled (for periods after the effective date of the termination) shall be discontinued and forfeited as of the effective date of such termination. C. Disability. In the event of the McFarland's disability during employment under this Agreement, then employment under this Agreement shall terminate. For purposes of this Agreement, except as provided herein below, "disability" shall mean the inability of McFarland, due to sickness or other incapacity, to perform his duties under this Agreement for a period in excess of one hundred eighty (180) substantially consecutive days. Such termination shall become effective at Employer's election upon the expiration of such one hundred eighty (180) day period of disability. Upon termination of employment under this Agreement due to McFarland's disability, McFarland shall be entitled to payment of his Base Salary up to the date of termination. D. Death. In the event McFarland dies during the term of this Agreement, this Agreement shall terminate and Employer shall pay to McFarland's estate all Base Salary accrued but unpaid through the date of McFarland's death. -84- 9. Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of Employer, McFarland, Employer's affiliates, and their respective heirs, personal and legal representatives, successors, and assigns. 10. Patients and Records. Employer and McFarland agree that all patient lists, records, and charts are the property of the Employer, and that upon termination of this Agreement, McFarland shall not be entitled to receive any patient lists, records, or charts. 11. Assignment. This Agreement and any rights hereunder are personal to McFarland and shall not be assigned or otherwise transferred by McFarland. 12. Governing Law/Jurisdiction. The construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of South Carolina. McFarland and Employer hereby (i) agree that any litigation, action or proceeding arising out of or relating to this Agreement may be instituted in a state or federal court in Columbia, South Carolina, (ii) waives any objection which it might have now or hereafter to any such litigation, action or proceeding based upon improper venue or inconvenient forum, and (iii) irrevocably submits to the jurisdiction of such courts in any such litigation, action or proceeding. For all purposes of this Agreement, McFarland and Employer hereby further agree that service of process upon McFarland and Employer may be effected pursuant to United States mail. 13. Usage. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Term such as "hereof", "hereunder", "herein", and words of similar import shall refer to this Agreement in its entirety and all references shall refer to specified portions of this Agreement, unless the context clearly requires otherwise. 14. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect validity and enforceability of the other provision. 15. Notice. Any notice, request, approval, consent, demand or other communication hereunder shall be effective if in writing and upon the first to occur of the following: (i) upon receipt by the party to whom such notice, request, approval, consent, demand or other communications being given; or (ii) three (3) business days after being duly deposited in the U.S. Mail, certified, return receipt requested, and addressed as follows: McFarland: M.F. McFarland, III, M.D. 6168 St. Andrews Road Columbia, South Carolina 29212 Employer: Doctor's Care, P.A. 6168 St. Andrews Road Columbia, South Carolina 29212 Attn: Stephen Seeling, Esquire The parties hereto may change their respective addresses by notice in writing given to the other parties this Agreement. -85- 16. Entire Agreement. This Agreement contains the entire agreement and understanding by and between Employer and McFarland with respect to the employment of McFarland, and no representations, promises, agreements, or understandings, written or oral not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party intended to be bound. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. IN WITNESS WHEREOF, Employer and McFarland have duly executed this Agreement under seal to be effective as of the day and year first above written. IN THE PRESENCE OF: EMPLOYER: /s/ Patricia J. Hammond DOCTOR'S CARE, P.A. (SEAL) Witness /s/ Stephanie Davenport By: /s/ M.F. McFarland Witness Its: President MCFARLAND: /s/ Patricia J. Hammond /s/ M.F. McFarland, III (SEAL) Witness M.F. McFarland, III, M.D. /s/ Stephanie Davenport Witness -86- EX-10 9 EXHIBIT 10.6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT BETWEEN UCI MEDICAL AFFILIATES OF SOUTH CAROLINA, INC. AND MICHAEL STOUT, M.D. -87- EMPLOYMENT AGREEMENT This Employment Agreement is made as of the 1st day of November, 1995, by and between UCI Medical Affiliates of South Carolina, Inc., a South Carolina Corporation (UCI), and Michael Stout, M. D. ("Stout"). WHEREAS, UCI desires to employ Stout, and Stout desires to be employed by UCI, in accordance with the terms and conditions hereinafter set forth: NOW, THEREFORE, in consideration of the mutual promises herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bond, agree as follows: 1. Employment. UCI hereby agrees to employ Stout to perform the duties described in Section 3 below subject to and in accordance with the terms and conditions hereof, and Stout hereby accepts such employment. 2. Term. The employment shall commence on the date hereof, and shall continue for a period of Five (5) years unless earlier terminated in accordance with the provisions of Section 8 of this Agreement. 3. Duties of Stout. A. In accepting employment by UCI, Stout shall undertake and assume the responsibility of performing for and on behalf of UCI the duties of Vice President of Medical Affairs of UCI in Columbia, South Carolina. B. Other than Stout's duties as an employee of Doctor's Care, P.A., Stout shall be a full-time employee of UCI, and shall devote his full working time and efforts to his duties hereunder. Stout shall perform all of his duties hereunder to the best of his ability and shall not, directly or indirectly, engage or participate in any activities in conflict with the best interests of UCI. Without limiting the generality of the foregoing, Stout shall not engage in any activity for compensation or pecuniary gain other than his employment hereunder, his association with Doctor's Care, P.A., and passive investing for the account of himself or members of his household. Stout agrees that his total compensation for his service to UCI shall be described in Section 4 of this Agreement. Stout has entered into a separate Employment Agreement with respect to his association with Doctor's Care, P.A. His compensation for services to Doctor's Care, P.A. is described in Section 3 of that Agreement. Stout agrees that his total compensation for his service to Doctor's Care, P.A. is set forth in Section 4 of that Agreement. 4. Compensation. As compensation for the services to be rendered by Stout for UCI under this Agreement, Stout shall be compensated by UCI on the following basis: A. Salary. During the term of this Agreement, Stout shall receive from UCI an annual salary of Fifty Thousand and No/100 ($50,000), payable in pay periods as determined by UCI, but in no event less frequently than monthly, subject to an annual review. B. Other Benefits. During the term of Stout's employment with UCI, Stout shall receive from UCI such other benefits (e.g. health insurance coverage, life insurance coverage, participation in pension plans, and participation in stock option plans, etc.) reasonably comparable to, and no worse than, those benefits, if any, generally provided to other senior executives of UCI. -88- 5. Confidentiality and Secrecy. Stout acknowledges that in and as a result of his employment hereunder, he will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to UCI business, including without limitation technological know-how, copyrights, proprietary information, trade secrets, systems, procedures, manuals, confidential reports, records, operational expertise, lists of customers and projects, the nature and type of services rendered by UCI, the equipment and methods used and preferred by UCI customers, and the fees paid by inducement to UCI to enter into this Agreement and to pay to Stout the compensation stated in Section 4 herein, Stout covenants and agrees that during the term of his employment hereunder, and for five (5) years after the termination thereof, he shall not, directly or indirectly, make use of, or disclose to any person, any confidential information of UCI or its affiliates. Stout agrees that he will never disclose trade secrets of UCI and assigns his rights to confidential information as "work made for hire" to UCI. 6. Covenants Against Competition. In view of the unique value to UCI of the services of Stout for which UCI has contracted hereunder, because of the confidential information to be obtained by or disclosed to Stout, as herein above set forth, and because Stout's employment hereunder will result in Stout's development of a unique relationship with customers, suppliers and employees as a material inducement to UCI to enter into this Agreement and to pay to Stout the compensation stated in Section 4 hereof, Stout covenants and agrees as follows: A. during Stout's employment hereunder, and for a period of two (2) years after the termination of Stout's employment hereunder for any reason, Stout shall not directly or indirectly solicit or divert employment of any employee of UCI's business or employ any person previously employed by UCI or its affiliates. B. During Stout's employment hereunder, and for a period of two (2) years after the termination of Stout's employment whereunder for any reason, Stout shall not directly or indirectly solicit, divert, or convert, or assist another person or entity to solicit, divert or convert, the customers of UCI or its affiliates to any other company or entity. C. During Stout's employment hereunder, and for a period of two (2) years after the termination of Stout's employment with UCI, Stout shall not within the geographic area specified below engage in any business or perform any services, directly or indirectly, in competition with the business of UCI or its affiliates or have any interest, whether as a proprietor, partner, employee, stockholder (directly or beneficially), principal, agent, consultant, director, officer or in any other capacity or manner whatsoever, in any enterprise that shall so engage, except that Stout shall be permitted to own for investment purposes only, directly or beneficially, up to (but not more than) 2% in the aggregate of the stock of a competing corporation which is publicly-traded on a national stock exchange or the NASDAQ National Market System, so long as Stout is not a controlling person of, or a member of a group that controls, such corporation and Stout is not otherwise affiliated in any capacity with such corporation. The restrictions to this Section 6(C) shall apply everywhere within a five (5) mile radius of (i) any primary or urgent care facility owned or operated by UCI or an affiliate, and (ii) each other location where UCI or any affiliate maintains an office, in existence as of the date of such termination. 7. Reasonableness, Enforceability and Remedies. A. Stout has carefully read and considered the provisions of Section 5, 6 and 7, and, having done so, agrees that the restrictions set forth in these Sections, including, but not limited to, the time period of restriction and geographic limitations set forth in Section 6, are fair and reasonable and are reasonably required for the protection of the interest of UCI and its officers, directors, shareholders, employees, and affiliates. B. In the event that, notwithstanding the foregoing, any of the provisions of Sections 5, 6 and 7 hereof or any parts thereof shall beheld to be invalid or unenforceable, the remaining provisions or parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable portions or parts had not been included therein. In the event that any provision of Sections 5 and 6 hereof -89- relating to the time period and/or geographic restrictions and/or related aspects shall be declared by a court of competent jurisdiction to exceed the maximum restrictiveness such court deems reasonable and enforceable, the time period and/or geographic restrictions and/or related aspects deemed reasonable and enforceable by the court shall become and thereafter be the maximum restriction in such regard, and the restriction shall remain enforceable to the fullest extent deemed reasonable by such court. C. Stout acknowledges that the services he is to render are of a special and unusual character with a unique value to UCI and its affiliates, the loss of which cannot adequately be compensated by damages in an action at law. In the event of a breach or threatened breach by Stout of any of the provisions of Section 5 or 6 hereof, UCI or its affiliates, in addition to and not in limitation of, any other rights, remedies, or damages available to UCI or its affiliates under this Agreement, shall be entitled to a permanent injunction in order to prevent or restrain any such breach by Stout or by Stout's partners, agents, representatives, servants, employees, consulting clients, and/or any and all persons directly or indirectly acting for or with him. D. Stout covenants and agrees that if he shall violate any of his covenants or agreements under Section 5 or 6 hereof, UCI or its affiliates shall be entitled to: (I) an accounting and repayment of all profits, compensation, commissions, remuneration, or other benefits that Stout directly or indirectly has realized and/or may realize as a result of, growing out of, or in connection with, any such violation; (ii) recover actual damages incurred by UCI or its affiliates as a result of any such violation; (iii) any injunctive relief to which UCI or its affiliates is or may be entitled by law, in equity, or under this Agreement; and (iv) exercise its other rights respecting a breach of this Agreement as set forth herein. E. Stout's obligations under Section 5 and 6 hereof shall survive any termination of employment hereunder. 8. Termination A. For Cause by UCI. Notwithstanding any other provisions hereof, UCI may terminate Stout's employment under this Agreement immediately at any time for "cause". For purposes hereof the term "cause" shall include, but not limited to, the commission of any of the following by Stout: dishonesty: theft; unethical business conduct; indictment for a felony; incompetence in the performance of material duties on behalf of UCI; violation of the terms and provisions of this Agreement; willful or recurring insubordination; failure to attempt, in good faith, to comply with reasonable instructions of UCI; if Stout's license to practice medicine in the State of South Carolina is revoked or otherwise terminated; or if Stout fails to follow accepted medical practices or is guilty of misconduct under the principles of medical ethics of the American Medical Association. All compensation (including without limitation the Base Salary, and all prerequisites and fringe benefits) to which Stout would otherwise be entitled shall be discontinued and forfeited as of the effective date of such termination. B. Disability. In the event of Stout's disability during employment under this Agreement, then employment under this Agreement shall terminate. For purposes of this Agreement, except as provided herein below, "disability" shall mean the inability of Stout, due to sickness or other incapacity, to perform his duties under his Agreement for a period in excess of ninety (90) substantially consecutive days. Such termination shall become effective at UCI's election upon the expiration of such ninety (90) day period of disability. Upon termination of employment under this Agreement due to Stout's disability, Stout shall be entitled to payment of his Salary up to the date of termination. C. Death. In the event Stout dies during this term of this Agreement, this Agreement shall terminate and UCI shall pay to Stout's estate all Base Salary accrued but unpaid through the date of Stout's death. 9. Burden of Benefit. This Agreement shall be binding upon, and shall inure to the benefit of UCI, Stout, UCI's affiliates, and their respective heirs, personal and legal representatives, successors, and assigns. -90- 10. Assignment. This Agreement and any rights hereunder are personal to Stout and shall not be assigned or otherwise transferred by Stout. 11. Governing Law/Jurisdiction. The construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of South Carolina. Stout and UCI hereby (I) agree that any litigation, action or proceeding arising out of or relating to this Agreement may be instituted in a state or federal court in Columbia, South Carolina, (ii) waives any objection which it might have now or hereafter to any litigation, action or proceeding based upon improper venue or inconvenient forum, and (iii) irrevocably submits to the jurisdiction of such courts in any such litigation, action or proceeding. For all purposes of this Agreement, Stout and UCI hereby further agree that service of process upon Stout and UCI may be affected pursuant to United States mail. 12. Usage. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Term such as "hereof", "herein", and words of similar import shall refer to this Agreement in its entirety and all references shall refer to specified portions of this Agreement, unless the contest clearly requires otherwise. 13. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any one or more of the provisions of this Agreement shall not affect validity and enforceability of the other provisions. 14. Notice. Any notice, request, approval, consent, demand or other communication hereunder shall be effective if in writing and upon the first to occur of the following: (I) upon receipt by the party to whom such notice, request, approval, consent, demand or other communications being given; or (ii) three (3) business days after being duly deposited in the U. S. Mail, certified, return receipt requested, and addressed as follows: Stout Michael Stout, M. D. 511 Beltline Blvd. Columbia, S. C. 29205 UCI: UCI Medical Affiliates of South Carolina, Inc. 6168 St. Andrews Road Columbia, S. C. 29212 Attn. Stephen Seeling, Esquire The parties hereto may change their respective addresses by notice in writing given to the other parties of this Agreement. 15. Entire Agreement. This Agreement contains the entire agreement and understanding by and between UCI and Stout with respect to the employment of Stout, and no representations, promises, agreements, or understandings, written or oral not contained herein shall be of any force or effect. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by the party intended to be bound. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the waiver is sought to be enforced. No valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or at any other time. -91- IN WITNESS WHEREOF, UCI and Stout have duly executed this Agreement under seal to be effective as of the day and year first above written. IN THE PRESENCE OF: UCI: UCI MEDICAL AFFILIATES OF SOUTH Witness CAROLINA, INC. (SEAL) By: /s/ M.F. McFarland, III, M.D. Witness Its: President STOUT: __________________________________ /s/ Michael Stout, M.D. (SEAL) Witness Michael Stout, M.D. - ---------------------------------- Witness -92- EX-10 10 EXHIBIT 10.7 EXHIBIT 10.7 EMPLOYMENT AGREEMENT BETWEEN DOCTOR'S CARE, P.A. AND MICHAEL STOUT, M.D. -93- STATE OF SOUTH CAROLINA ) ) EMPLOYMENT AGREEMENT COUNTY OF LEXINGTON ) THIS AGREEMENT made and entered into this 1st. day of November, 19 1995, between Doctor's Care, P. A. (hereinafter "Employer"), a South Carolina Professional Association with its principal office in Columbia, South Carolina, and Michael Stout, (hereinafter "Employee"). WHEREAS, Employer is a South Carolina Professional Association and wishes to employ the Employee to render services for it; and, WHEREAS, Employee is a licensed physician in South Carolina and desires and is willing to become a professional employee of Employer, in accordance with the following terms, conditions, and provisions: NOW, THEREFORE, for and in consideration of the promises herein and other valuable consideration, it is agreed that: (1) Employment Term. Subject to the provisions for termination as hereinafter provided, the term of this Agreement shall be five (5) year beginning November 1, 19 95 . After the initial five (5) year term, this Agreement shall be renewable from year to year upon the mutual agreement of both parties. (2) Duties. A. Other than Employee's duties as an Employee of UCI Medical Affiliates of South Carolina, Inc., Employee shall devote his full-time professional skill and attention to the performance of services in the practice for the benefit of Employer at Doctor's Care Beltline or such other clinic within the Columbia, South Carolina area as shall be reasonably assigned by Employer. Employee's duty schedule shall be determined by Employer and Employee shall provide such emergency evening and weekend coverage as shall be needed and be reasonably assigned to Employee by Employer. B. Employee shall not engage in any outside professional activities involving the personal services of Employee and yielding a financial return without Employer's prior written consent. However, nothing stated herein shall restrict or prevent employee from personally and on Employee's own account, investing in stocks, bond securities, commodities, real estate, or other forms of investments. C. Employee will actively and industriously pursue his profession in Employer's interest, will faithfully adhere to the principles and ethics of the profession, and will carefully avoid any and all personal acts, habits and usages which might injure in any way, directly or indirectly, -94- Employee's professional reputation or that of any other Employee of Employer, or which might otherwise be detrimental to any interest of Employer. D. Employee hereby agrees that all fees received or collected as a result of professional services rendered by Employee, together with all other emolument, e.g., witness fees, report fees, speaker feets, etc., shall be the property of Employer. Accordingly, Employee acknowledges that Employee's employment renders him an agent and servant of Employer and does not confer upon Employee any ownership interest in or professional claim upon any fees charged by Employer for Employee's services, whether said fees are collected during Employee's employment or after termination thereof. (3) Compensation. (A) Regular Compensation. For all services rendered under this Agreement, Employer shall pay the Employee an initial salary of One Hundred Sixty Thousand Dollars ($ 160,000.00) per year, payable bi-weekly. (B) Changes in Compensation. From time to time, increases in the Employee's salary may be made, said increases to be reflected on the "Schedule of Compensation" attached hereto and made a part hereof. (C) Bonuses. Employer may from time to time review Employee's compensation arrangement with respect to the payment of a bonus for superior performance; provided however that the decision to make bonus payments, if any, shall be at the sole discretion of Employer. (4) Fringe Benefits. As further consideration for the performance by Employee of the services set forth herein, Employee shall be eligible on a non-discriminatory basis for participation in any tax qualified deferred compensation plan maintained by Employer and also for inclusion in any group-term life insurance plan maintained by Employer. However, Employee understands that the decision to maintain any such plans shall be in sole discretion of Employer. (A) Health Insurance Coverage. Employer, shall provide for Employee such health coverage as provided to other employees of Doctor's Care, P. A. Family coverage is available on the same basis as is provided to other senior executives of Employer or UCI Medical Affiliates, Inc. (B) Group Term Life Insurance & Group Disability Insurance. Employer, at its cost, shall furnish such life and disability insurance for Employee as it, from time to time, may provide to other Employees. -95- (5) Vacation and Professional Meetings. Employee shall be entitled to four weeks paid vacation. All above leave shall be taken on reasonable prior notice and at such time or times as shall be agreed to by Employer and that does not interfere with proper operation of the Practice. In addition, Employee is entitled to one week of paid leave for Continuing Medical Education. (6) Inability to Perform Essential Services. If Employee is unable to perform the essential professional services contemplated by this agreement as a result of illness or incapacity, Employee shall continue to receive those benefits which become payable to Employee under contracts, if any, provided for Employee by Employer. Anything to the contrary contained herein notwithstanding if Employee is not able to resume the performance of such essential professional duties within ninety (90) days of the date Employee was first unable to perform such duties, Employee may be deemed, at the sole discretion of the Employer, to have terminated this Agreement and Employer shall have the right to pursue all remedies set forth herein related to such a termination. (7) Equipment and Expenses. (A) Facilities. Employer shall provide and pay for suitable office space and facilities, furniture, fixtures, equipment, supplies, employees and assistants necessary and appropriate for the proper performance of the duties of Employee. (B) Professional Liability Insurance. Employer shall either pay or, upon proof of payment by the Employee, reimburse the Employee for the cost of Professional Liability (malpractice) Insurance covering the Employee for services provided hereinunder for claims as follows: the first One Hundred Thousand Dollars ($100,000) in coverage shall be through the South Carolina Medical Malpractice Joint Underwriters Association ("JUA"); the excess coverage shall be provided through the South Carolina Patients' Compensation Fund ("PCF"). Employee understands that the amount of coverage provided by JUA and PCF may not be adequate to protect Employee against all claims and that the responsibility of securing additional insurance coverage, if any, is solely that of Employee. (C) License Fees, Memberships and Dues. Employer shall either pay or, upon proof of payment by the Employee, reimburse up to $300, to Employee for the cost of professional license fees, and the cost of reasonable professional membership and dues. (D) Documentation. Employee agrees to submit to Employer the documentation as may be necessary to substantiate the deductibility of the foregoing expenses for income tax purposes. -96- (8) Employee Death. If Employee dies while this Agreement is in full force and effect, Employer shall pay to Employee's named beneficiary, or in default of the named beneficiary to Employee's estate, all salary accrued but unpaid through the pay period which includes the date of Employee's death. (9) Patients and Records. Employer and Employee agree that all patient lists, records, and charts are the property of Employer, and that upon termination of this Agreement, Employee shall not be entitled to receive any patient lists, records, or charts whether or not the Employee shall have seen or attended any patient with which such terms are covered; provided however, that record keeping for patients treated by Employee shall be the sole responsibility of Employee, and Employee shall complete all such charts and records for such patients in accordance with professional standards. (10) Policy Decisions. It is understood that Employer shall have the sole and exclusive right of management over the practice, including without limitation, the determination of the professional standards to be observed, the determination of the fees to be charged, and the determination of the office hours to be maintained. (11) Conditions of Termination. Physician understands and agrees that cause for termination of employment includes, but is not limited to the following: (A) At any time by mutual agreement in writing between Employer and Employee. (B) At the loss or the suspension of the right to conduct the practice of medicine by Employee, or the loss, or suspension of any right or privilege necessary or incident thereto, or the loss, suspension, or limitation of Employee's Controlled Substance license, or if Employee performs any negligent or intentional act which directly or indirectly damages the reputation or property of Employer. (C) At the death of Employee, provided however, that the provisions of this Agreement regarding Employee's death shall be performed by the Employer. (D) At the option of the Employer, upon thirty (30) days prior written notice for "good cause", which shall mean failure of Employee to provide the agreed duties hereunder or willful violation by Employee of any of the terms of this Agreement. (E) Upon a party hereto failing to perform any covenant or condition hereunder within thirty (30) days after written notice and demand, the non-defaulting party may terminate this Agreement. (F) Upon the bankruptcy, insolvency or assignment for the benefit of the creditors of Employer, or any other type of voluntary or -97- involuntary creditors proceeding involving the property of Employer. (G) Upon Employee's failure to satisfactorily comply with accepted standards of medical practice and professional conduct. (H) If Employee engages in the abuse of drugs, intoxicants or other mood-altering substances or if Employee treats or attempts to treat a patient while under the influence of drugs, intoxicants or other mood-altering substances. (I) Upon thirty days notice, at the option of the Employer if Employee does not satisfy the credentialing requirements of the managed care and other plans with which Employer participate. (12) First Year. For a period of twelve (12) months after execution of this Agreement, either party shall have the right to terminate the Agreement for any reason or for no reason upon sixty day written notice of the other party. In the event the Employer exercises its rights under this provision, the restrictive covenants set forth in paragraphs 13B, 13C and 13D shall be null and void. (13) Non-Disclosure of Information. Employee shall not, at any time after the date hereof, directly or indirectly, divulge or disclose for any purpose whatsoever any confidential information that has been developed or obtained by, or disclosed to, Employee by Employer at any time or after the date hereof (exclusive of such information as is in the public domain). Employee acknowledges that such confidential information is of a special and unique nature and value relating to matters of Employer's business, including, without limitation, Employer's patents, copyrights, proprietary information, trade secrets, trademarks, systems, procedures, manuals, confidential reports, records, operational expertise, locations and lists of clients and potential clients, pricing information and lists, marketing materials and methods, the nature and type of services rendered by Employer, the methods used and preferred by Employer's clients, and the fees paid by them (all of which are deemed for all purposes to be confidential, proprietary, and trade secrets of Employer). Any confidential information in Employee's possession shall be returned to Employer upon any termination or expiration of this Agreement. (14) Covenants Against Competition. A. Exclusivity. For the period of Employee's retention by Employer, Employee will not, directly or indirectly, plan, operate, organize or otherwise be involved in any primary or urgent care facility of a type similar to those operated by Employer other than on behalf of Employer. Employee further agrees that so long as this Agreement is in effect, Employee will not undertake the planning or organizing of any business activity competitive with the work Employee performs for Employer. -98- B. Restrictive Covenant. In addition to (but not in limitation of) the restrictions of Section 14 (A), for the period of Employee's retention by Employer plus a period of two (2) years after termination of this Agreement, Employee shall not, directly or indirectly engage in, or assist another person or entity to engage in, any sales of products and services furnished (or similar business operated) by Employer in competition with Employer within a five (5) mile radius of the primary Clinic maintained, managed or otherwise controlled by Employer at which Employee performed services during the term of Employee's retention by Employer (collectively, the "Territory"). C. Ownership. In addition to (but not in limitation of) the restrictions of Sections 14 ^A and B, for the period of Employee's retention by Employer, Employee shall not, directly or indirectly, own an equity interest (other than as the holder for investment purposes only of up to 2% of the outstanding capital stock of any corporation which is publicly traded on a national stock exchange or the NASDAQ National Market System, so long as Employee is not a controlling person of, or a member of a group that controls, such corporation and Employee is not otherwise affiliated in any capacity with such corporation) in any entity or enterprise conducting operations in the Territory which is competitive with Employer's business activities. D. Employees. In addition to (but not in limitation of) the restrictions of (Sections A, B and C), for the period of Employee's retention by Employer, plus a period of two years after termination of this Agreement, Employee shall not, directly or indirectly, solicit or in any manner attempt to solicit or induce any person employed by, or an agent of, Employer to terminate such person's association or contract of employment or agency, as the case may be, with Employer. (15) Remedy for Violation. Employer and Employee agree that remedies at law are inadequate and that Employer may seek injunctive relief in the event of violation of this covenant. In addition, it is agreed that the actual damages occasioned by any breach of the covenants by Employee not to solicit and/or perform services except as provided above will not be susceptible to exact determination and Employer shall be entitled to liquidated damages in an amount equal to three (3) times the gross fees billed by Employer to any such patients solicited or treated in violation of this covenant during the two (2) year (twenty four (24) month) period immediately preceding the violation of this covenant. (16) Binding Agreement. This Agreement shall be binding on the parties, their distributees, legal representatives, successors and assigns. -99- (17) Notices. All notices under this Agreement shall be in writing and shall be served by personal service or registered mail, return receipt requested. Notice by mail shall be addressed to each party at such party's last known address. (18) Cost of Enforcement. Employer and Employee each hereby agree that should they default in any of the obligations contained herein, the defaulting party shall pay all costs and expenses, including a reasonable attorney's fee which may arise or accrue from enforcing this Agreement or in pursuing any remedy provided by the statues of the State of South Carolina, whether such remedy is pursued by filing a suit or otherwise. (19) Captions. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. (20) Governing Law. This Agreement shall be governed by the Laws of the State of South Carolina. (21) Waiver. Waiver by either party of a breach or violation of any provision of this Agreement shall not operate as or be constrained as a waiver of any subsequent breach thereof. (22) Severability. If any provision of this Agreement, or portion thereof, shall be declared invalid or unforceable, the remainder of this Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. DOCTOR'S CARE, P. A. EMPLOYER: By: /s/ M.F. McFarland, III, M.D. M. F. McFarland, III, Its: President EMPLOYEE: /s/ Michael Stout, M.D. Michael Stout, MD -100- SCHEDULE OF COMPENSATION Date Change Effective New Annual Salary Employer Employee -101- EX-10 11 EXHIBIT 10.8 EXHIBIT NO. 10. 8 LEASE AND LICENSE AGREEMENT WITH COMPANION TECHNOLOGIES -102- COMPANION TECHNOLOGIES Division of Blue Cross Blue Shield of South Carolina LEASE AND LICENSE AGREEMENT Customer Name: Doctor's Care - Central Acct #: Term #: Address: 6168 St. Andrews Road Business: Columbia, SC 29212 Rep.: Attn: Mr. Mehta (803) 772-8840 This Agreement between the Customer named hereinbelow and Companion Technologies Division of Blue Cross Blue Shield of South Carolina (the Corporation) shall commence on October 1, 1994. The Corporation agrees to provide and the Customer agrees to lease and license the following for business use in South Carolina: 1. LEASE OF HARDWARE AND PERIPHERALS Quantity Type/Model Serial # Refer to Attachment A. II. LICENSE OF STANDARD SYSTEM SOFTWARE PROGRAMS Refer to Attachment A. III. PASS THROUGH LICENSE OF OPTIONAL SOFTWARE PROGRAMS Refer to Attachment A. IV. TERM The term of this Agreement shall be from the date of installation, unless it is terminated by either party in accordance with the Termination section set forth below. V. PAYMENTS Payment of $ ( Refer to Attachment B ) is due from the Customer on the date this Agreement is signed. Then $ (See Selected Payment Option Below), for as long as this contract remains in force. Payment Option Payment Term Payment Amount ( ) A Month-to-Month Lease $ ( ) B Annual Lease (Paid Annually) $ ( ) C Annual Lease (Paid Monthly) $ ( ) D Term of 60 Months $14,924.85* *Ownership of equipment will transfer to Doctor's Care at the end of 60 months' payments for an additional payment of $1.00. -103- Charges for Month-to-Month Leases (Option A) can be increased upon thirty (30) days prior written notice by the Corporation to the Customer. Charges for Term Leases (Options B, C and D) cannot be increased during the initial contract period. Term Leases will revert to Month-to-Month Leases after the initial contract period. The above charges do not include the fee for access to the PAID TM Network for transmission and receipt of data between the provider and the Corporation's Data Center. VI. PARTIES' RESPONSIBILITIES The Customer agrees it will: (bullet) Pay the Corporation the full rent and service fee in advance by the first of each month if a Monthly Payment Option is selected at V. above. (bullet) Pay the full rent and service fee on or before the termination of this lease and agreement. (bullet) Not hold the Corporation liable for injuries caused by the misuse of, or malfunction in, their service, software, hardware or equipment. (bullet) ONLY use the PAID TM system software as designated and instructed by the Corporation's user manuals and personnel. Other uses of such material must be approved, in writing, by the Corporation. The provider may use the equipment to run other software. (bullet) Make no alterations in or additions to the equipment. (bullet) Obtain the written authorization of the Corporation prior to any movement of the equipment. (bullet) Pay for repairs or replacements not covered by the maintenance agreement. (bullet) Pay interest on any delinquent payments at the rate of 18% per annum. (bullet) Maintain insurance to indemnify the Corporation in the event the system is lost, damaged, stolen or destroyed. (bullet) Keep the system free and clear of all liens and encumbrances. (bullet) Return the system (hardware and software) to the Corporation under termination of this Agreement in good repair, ordinary wear and tear from proper use alone excepted, and return all manuals and other materials related to the system. (bullet) Hold the information contained in the software program material, changes, additions, and enhancements in confidence and not disclose, or permit its employees to disclose, such information to any other party. (bullet) Use the system solely at its own location in South Carolina and that it will not copy, reproduce, assign, or otherwise transfer the system or any part thereof. (bullet) Allow the Corporation to inspect and observe the system during normal business hours. (bullet) Sign a statement attesting that the system belongs to the Corporation for filing with the Secretary of State. -104- The Corporation and the Customer understand and agree as follows: (bullet) Charges and fees are exclusive of all federal, state, municipal, or other government, excise, sales, use, occupational, or like taxes now in force or enacted in the future and, therefore, charges are subject to an increase equal in amount to any tax the Corporation may be required to collect or pay upon the delivery of items leased or licensed. (bullet) The system is personal property of the Corporation and shall not be affixed or attached to any building or other real property. (bullet) The equipment is and remains the sole and exclusive property of the Corporation and the Corporation's identification must remain affixed to the equipment. (bullet) In the event of default by the provider, the Corporation can take possession of the system (hardware and software), declare the entire amount of the rent due and payable without notice or demand, terminate the lease, sue to recover all rents and other payments and pursue any other remedy. These remedies are cumulative and may be exercised concurrently or separately. THE CORPORATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT OR SOFTWARE, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. THE CORPORATION SHALL HAVE NO LIABILITY TO CUSTOMER FOR ANY CLAIM, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTALLY OR CONSEQUENTIALLY BY THE EQUIPMENT OR SOFTWARE, BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN, BY ANY INCIDENT WHATSOEVER IN CONNECTION THEREWITH, ARISING IN CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR USE PERFORMANCE OF THE SYSTEM. VII. PAID TM SERVICES The Corporation agrees to deliver the following to the Customer: (1) PAID TM Manual; (2) Access to the help desk for questions and problems connected with software, hardware, and maintenance; and, (3) Initial training of the Customer's personnel in the use of the equipment by representatives of the Corporation. (Continued requests by the Customer for retraining will be subject to a fee by the Corporation.) Charges for these items can be assessed or increased upon thirty (30) days prior written notice by the Corporation to the Customer. This software enables you to utilize the Corporation's PAID System for patient injury, electronic mail with the Corporation, and filing of claims electronically. VIII. SOFTWARE AND HARDWARE MAINTENANCE Improvements: During the term of this Agreement, the Corporation will supply the Customer with any improvements or modifications to the software which are not charged for as options. Coverage: Except as stated otherwise herein, during the term of this Agreement, the Corporation will correct or replace software and hardware and/or provide services necessary to remedy any programming error or problem which is attributed to the Corporation and which significantly -105- affects use of the software. The Corporation may provide preventative and remedial maintenance to the hardware, including labor and parts required for good operating condition when such labor and parts are required because of normal wear and tear. Exchanged parts removed from the system become the property of the Corporation. Such correction, replacement or services will be promptly accomplished after the Customer has identified and notified the Corporation of any such error in accordance with the Corporation's reporting procedures. The maintenance services shall be performed during normal working hours which are defined as 8:00 am to 5:00 pm Monday through Friday, exclusive of the Corporation's observed holidays. The Corporation shall not be responsible for maintaining Customer modified portions of the software or hardware or for maintaining portions of the software or hardware affected by Customer modified portions of the software or hardware. Corrections for difficulties or defect traceable to Customer errors or system changes will be billed at the Corporation's standard time and material rates. EXCLUSIONS AND CONDITIONS OF SERVICE: The Corporation shall be under no obligation to furnish maintenance service should repair be required because of (1) improper use or misuse; (2) natural disasters such as flood or earthquake; (3) strikes, riots or acts of war or nuclear disaster; (4) repairs, maintenance, modifications or relocation and reinstallation made by other than the Corporation's personnel or without the Corporation's supervision and approval; (5) unusual shock or electrical damage, accident, fire or water damage, neglect, air conditioning failure, damage during transportation by Customer or other causes other than ordinary use; or (6) overhaul or refurbishment of the equipment due to age or prolong use. If maintenance service is required as a result of the causes stated above, such service shall be offered at the Corporation's published rates for labor, travel and material in effect at the time of service. The Corporation's maintenance service does not include operating supplies and consumables; refinishing the products or furnishing materials for that purpose; electrical work external to the products; maintenance of accessories, attachments or products not specified in this Agreement; and equipment calibrations. RESPONSIBILITIES OF THE CUSTOMER: The Customer agrees (1) to provide the Corporation access to the software and hardware to perform maintenance; (2) to provide adequate working space and facilities close to the software and hardware for use by the Corporation; (3) to provide access to and use of all information and facilities determined necessary by the Corporation to maintain the software and hardware; (Insofar as these items may contain propriety or classified information, the Customer shall assume full responsibility for safeguards and protection for wrongful use): (4) to provide routine operator maintenance as specified in the Corporation's Operating Instructions for the software and hardware; and, (5) to provide operating supplies and consumables. LIMITATIONS OF REMEDIES: THE CORPORATION'S LIABILITY TO THE CUSTOMER, WHETHER IN CONTRACT, TORT, NEGLIGENCE, OR STRICT LIABILITY OR OTHERWISE SHALL NOT EXCEED THE TOTAL CHARGES PAID OR PAYABLE DURING ONE YEAR UNDER THIS AGREEMENT. IN NO EVENT SHALL THE CORPORATION BE LIABLE FOR LOST PROFITS, DATA OR ANY INDIRECT OR CONSEQUENTIAL DAMAGES. DISCLAIMER: THE CORPORATION DISCLAIMS ALL WARRANTIES, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. -106- TERMINATION: Either party may terminate a month-to-month agreement at any time by giving 30 days prior written notice to the other party. Either party may terminate a yearly agreement at any time after the term of the Agreement by giving 30 days prior written notice to the other party. The Corporation may terminate this Agreement in the event of default by the Customer, which includes, but is not limited to, Customer's failure to make timely payments under this Agreement. If termination occurs for any reason, the Corporation has the right to take possession of all hardware indicated in Section I and Software indicated in Section II and retain all payments previously made by the Customer under this Agreement. Upon termination of this Agreement, the Customer shall return the hardware and software to the Corporation in good repair, ordinary wear and tear from proper use alone excepted. IX. GENERAL PROVISIONS The Provider agrees it will not hold the Corporation liable for any damages caused by the misuse of, or malfunction of, any software, hardware or services. This Agreement shall constitute the entire agreement between the Provider and the Corporation for the leased equipment, software and services described in the Agreement and may only be amended by a separate writing signed by both parties. This Agreement is not assignable without the prior written consent of the Corporation. Any attempt by the Customer to assign any of the rights, duties or obligations of the Agreement without such consent is void. No action, regardless of form, arising out of this Agreement may be brought by either party more than two years after the cause of action has arisen, or, in the case of non-payment, more than two years from the date of the last payment. In any action for enforcement of any provision of this Agreement, the Corporation shall be entitled to reasonable attorney fees, the cost of the action, and prejudgement interest. Doctor's Care - Central (Customer Name) /s/ M.F. McFarland President 03/30/94 By: Title Date Signed This Agreement is not enforceable until accepted by an officer of the Corporation in Columbia, South Carolina and will be governed by the laws of the State of South Carolina. Accepted By: /s/ Curtis Oliver Senior Director 03/30/94 Companion Technologies Title Date Signed Division of Blue Cross Blue Shield of SC in Columbia, South Carolina -107- ATTACHMENT A BUSINESS PROPOSAL TO CONSOLIDATE DOCTOR'S CARE FACILITIES Submitted By: Curtis Oliver March 28, 1994 Hardware 1 RISC/6000 990, 4 Gigabyte Hard Disk, 5.0 Gigabyte Tape Backup Unit, 1.44 Megabyte Diskette Drive, 10 Backup Tapes ................................................ $ 124,500.00 1 3270 Connection Adapter .............................. 618.00 1 256 Megabyte Memory Select ........................... 26,200.00 1 256 Port Async Controller ............................ 2,590.00 1 256 Port Async 4.5M Controller Cabling ............... 120.00 14 256 Port Async 23CM Controller Cabling ............... 560.00 16 16 Port Concentrators ................................ 23,920.00 64 RJ-45 to DB-25 Converters ............................ 7,680.00 1 Power GT31 ........................................... 1,855.00 1 Power Display, Keyboard, Mouse (3 button) ............ 2,760.00 2 Data Products LM815 Line Printer (600 LPM) ........... 19,700.00 1 Clary Online UPS 800 Watt w/Oneac Line Conditioner ... 1,710.00 38 Wyse 60 Terminals .................................... 22,762.00 34 Eight port multiplexer with CSU/DSU .................. 67,660.00 Hardware Total ....................................... $ 302,635.00 NOTE: Current desktop or TI880 printers will be supplied by the site for remote locations. Software
- AIX - 64 User License $ 14,610.00 - AIX Windows - AIX 3270 Host Connect - AIX Load - PAID IV Plus (a private label of the Medical Manager TM) accounts receivable and billing system 55,900.00 - Standard Management Reports - Data Merge Language - 77 Terminal Serialization - Refund Check Writer - Lab Interface (one company) - Prescription Writer - Facet Term (8 users) - Contract Module - Electronic Data Interface (one company) - Chart Tracking - Delinquent Report Module - Company Insurance Reporting - Location Reporting - Electronic Claim Module, Blue Cross, Medicaid, Medicare, CHAMPUS, Commercial - Collections Module 2,500.00 - Report Writer - Allows center the capability to produce custom reports 2,495.00 - Automated conversion ($2,000.00 each) 20,400.00 Software Total $ 95,905.00
-108- Installation $ 22,000.00 - Complete installation and wiring to connect equipment to RISC/6000 - Bring all sites to production - Testing all remote locations - Testing Communications Training $ 16,100.00 - (2) 40 hour group sessions (regional) - (1) 40 hour group session (central) - 6 hours at each location follow-up Custom Programming/Consulting (200 Hours) $ 24,000.00 - Used to identify and code corporate financial reports - Time will be reported to Doctor's Care on all activity related to the corporate reports NOTE!!! If 200 hours of programming/consulting time is attained prior to the completion of all corporate reports, additional hours will be billed at $80.00 per hour. TOTAL SYSTEM PRICE $460,640.00
Monthly Maintenance Fees Hardware (above only) $3,531.00 Telephone and Software Support 1,170.00 Electronic Claims 65.00 Accepted By: /s/ M.F. McFarland Accepted By: /s/ Curtis Oliver Doctor's Care Companion Technologies Date: 03/30/94 Date: 03/30/94 * * *Proposal Valid Until April 25, 1994* * * C O N F I D E N T I A L -109- ATTACHMENT B DOCTOR'S CARE FINANCIAL SUMMARY MARCH 14, 1994 Downpayment = PPI, Inc. Software Cost - Plus $ 2,225.00 12,600.00 480.00 700.00 950.00 = Automated Conversions 10,200.00 = Installation 11,000.00 = Training 8,050.00 ------------ $ 46,205.00 Total Trade-In (17,723.00) ------------ Total Downpayment Due $ 28,482.00 May Be Paid as Follows: Pay $9,461.00 upon time of initial installment Pay $9,461.00 August Pay $9,461.00 October System Price $460,640.00 Plus Payoff 89,700.00 Less Downpayment (46,205.00) ----------- Balance to be Financed $504,135.00 @ 8% for 60 months = $10,223.85 per month installment beginning October 1, 1994 NOTE!!! Doctor's Care will continue payment current fees until system is completely installed and will begin above payment schedule on October 1, 1994. -110- DOCTOR'S CARE ITEMS TO BE TRADED-IN 8 APC 450 Watt ............ @ $125 ea. $ 1,000.00 1 TSI UPS ................. @ $100 ea. 100.00 6 Clary UPS ............... @ $350 ea. 2,100.00 15 ALTOS 1000 CPU's ........ @ $800 ea. 12,000.00 Tape backup, 440 hard disk 33 Terminals - ALTOS ....... @ $ 50 ea. 1,650.00 15 2400 Baud Modem ......... @ $ 75 ea. 1,125.00 ------------- Subtotal 17,975.00 Less: Shipping (252.00) ------------- Total $ 17,723.00 -111- EX-10 12 EXHIBIT 10.9 EXHIBIT NO. 10. 9 UCI MEDICAL AFFILIATES, INC. 1994 INCENTIVE STOCK OPTION PLAN -112- UCI MEDICAL AFFILIATES, INC. 1994 INCENTIVE STOCK OPTION PLAN 1. Purpose. The purposes of this 1994 Incentive Stock Option Plan (the "Plan") are to: (1) closely associate the interests of the employees of UCI Medical Affiliates, Inc. and its subsidiaries (collectively, the "Company") with the shareholders of the Company by reinforcing the relationship between employees' rewards and shareholder gains; (2) provide selected employees, officers and directors with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and, (4) provide an incentive to employees for continuous employment with the Company. The stock options granted under the Plan are intended to qualify as incentive stock options within the meaning of Internal Revenue Code Section 422. 2. Amount of Stock. The total number of shares of Common Stock to be subject to options granted on and after April 20, 1994 pursuant to the Plan shall not exceed 250,000 shares of the Company's Common Stock, par value $.01 per share. In the event that options granted under this Plan shall lapse without being exercised in whole or in part, other options may be granted covering the shares not purchased under such lapsed options. 3. Stock Option Committee. The Board of Directors shall from time to time appoint a Committee (the "Committee"), which may also be the Compensation Committee of the Board of Directors, to serve under this Plan. The Committee shall consist of two or more directors. 4. Eligibility and Participation. Options may be granted pursuant to the Plan to any officer or employee of the Company. From time to time the Committee shall select the officers and employees to whom options may be granted by the Board of Directors and shall determine the number of shares to be covered by each option so granted. Future as well as present officers and employees (including officers and employees who are directors but who are not members of the Committee) shall be eligible to participate in the Plan. Directors who are members of the Committee or who are not officers or employees of the Company are not eligible to participate in the Plan. No option may be granted under the Plan after April 20, 2004. 5. Option Agreement. The terms and provisions of options granted pursuant to the Plan shall be set forth in an agreement, herein called Option Agreement, between the Company and the grantee receiving the same. The Options may be in such form, not inconsistent with the terms of this Plan, as shall be approved by the Board of Directors and may include provisions regarding the timing of the exercisability of the Options. 6. Price. The purchase price per share of Common Stock purchasable under options granted pursuant to the Plan shall not be less than 100 percent of the fair market value at the time the options are granted. The purchase price per share of Common Stock purchasable under options granted pursuant to this Plan to a person who owns more than 10 percent of the voting power of the Company's voting stock shall not be less than 110 percent of the fair market value of such shares, at the time the options are granted. For the purposes of the preceding sentence (a) the optionee shall be considered as owning the stock owned directly or indirectly by or for himself, the stock which the optionee may purchase under outstanding options and the stock owned, directly or indirectly, by or for his brothers and sisters (whether of the whole or half blood), spouse, ancestors, and lineal descendants and (b) stock owned directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For all purposes of this Plan, the fair market value of the Common Stock of the Company shall be determined in good faith at the time of the grant of any option by decision of the Stock Option Committee. In making such determination, the Stock Option Committee shall not take into account the effect of any restrictions on the Common Stock other than restrictions which, by their terms, will never lapse. The full purchase price of shares purchased shall be paid upon exercise of the option. Under certain circumstances such purchase price per share shall be subject to adjustment as referred to in Section 10 of this Plan. -113- 7. Option Period. No option granted pursuant to the Plan shall be exercisable after the expiration of ten years from the date the option is first granted. No option granted pursuant to the Plan to a person then owning more than 10 percent of the voting power of the Company's voting stock shall be exercisable after the expiration of five years from the date the option is first granted. For the purposes of the preceding sentence (a)the optionee shall be considered as owning the stock owned directly or indirectly by or for himself, the stock which the optionee may purchase under outstanding options and the stock owned, directly or indirectly, by or for his brothers and sisters (whether of the whole or half blood), spouse, ancestors, and lineal descendants and (b) stock owned directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. The expiration date stated in the Option Agreement is hereafter called the Expiration Date. 8. Termination of Employment. The Option Agreement shall provide that upon the occurrence of the optionee ceasing for any reason to be employed by the Company (such occurrence being a "termination of employment"), any unexercised option shall terminate and become null and void immediately upon such termination of employment, except in a case where the termination of employment is by reason of retirement, disability or death. Upon a termination of employment by reason of retirement, disability or death, the Option Agreement shall provide that an outstanding and unexercised option may be exercised during a time not exceeding the following periods: (a) the one-year period following the date of such termination of the employee's employment in the case of a disability (within the meaning of Section 22(e)(3) of the Code), (b) the one-year period following the date of an employee's death, and (c) the three-month period following the date of such termination in the case of retirement on or after attainment of age 65, or in the case of disability other than as described in (a) above. In no event, however, shall any such period extend beyond the Expiration Date. 9. Assignability. The Option Agreement shall provide that the option granted thereby shall not be transferable or assignable by the optionee otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the Rules thereunder. During the lifetime of the optionee, the option granted shall be exercisable only by the optionee. 10. Adjustment in Case of Stock Splits, Stock Dividends, etc. The Option Agreement may contain such provisions as the Board of Directors may approve as equitable concerning the effect upon options granted and the option price due to (a) stock dividends upon, or subdivisions, split-ups, combinations, consolidations or reclassifications of, the securities purchasable under the option, or (b) proposals to merge or consolidate the Company or to sell all or substantially all of its assets, or to liquidate or dissolve the Company. 11. Stock for Investment. The Option Agreement shall provide that the optionee shall upon each exercise of a part or all of the option granted represent and warrant this his purchase of stock pursuant to such option is for investment only, and not with a view to distribution involving a public offering. At any time the Board of Directors of the Company may waive the requirement of such a provision in any Option Agreement entered into under this Stock Option Plan of the Company. The Option Agreement may also provide such additional restrictions and requirements concerning the exercise of options and issuance of shares as the Company determines in its discretion are necessary to meet all applicable laws, rules, and regulations, and to obtain such approvals as may be required by any governmental agencies, including state and Federal securities agencies and national securities exchanges. -114- 12. Amendment of the Plan. The Board of Directors of the Company may from time to time alter, amend, suspend or discontinue the Plan and make rules for its administration, except that the Board of Directors shall not amend the Plan in any manner which would have the effect of preventing options issued under the Plan from being "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986. However, nothing in this Plan shall be deemed to prevent the Board of Directors from issuing non-qualified stock options to any officer or employee. 13. Options Discretionary. The granting of options under the Plan shall be entirely discretionary with the Stock Option Committee and nothing in the Plan shall be deemed to give any officer or employee any right to participate in the Plan or to receive options. 14. Limitation as to Amount. No person to whom options are granted hereunder shall receive options, first exercisable during any single calendar year, for shares, the fair market value of which (determined at the time of grant of the options) exceeds $100,000. Accordingly, no optionee shall be entitled to exercise options in any single calendar year, for shares of Common Stock the value of which (determined at the time of grant of the options) exceeds $100,000. 15. Stockholder Approval. The Plan will be submitted to the stockholders of the Company for approval by the holders of a majority of the outstanding shares of stock of the Company. If the Plan is not approved by the holders of a majority of the outstanding shares of stock of the Company by April 20, 1995, then the Plan shall terminate and any options granted hereunder shall be void and of no further force or effect. -115- UCI MEDICAL AFFILIATES, INC. INCENTIVE STOCK OPTION AGREEMENT GRANT OF INCENTIVE STOCK OPTION Date of Grant: ____________, 19 ___ THIS GRANT, dated as of the date of grant first stated above (the "Date of Grant"), is delivered to UCI Medical Affiliates, Inc., a Delaware corporation (the "Company"), to __________________________ (the "Grantee"), who is an officer or employee of the Company or a subsidiary of the Company. WHEREAS, the Board of Directors of the Company (the "Board") has adopted, subject to shareholder approval, the UCI Medical Affiliates, Inc. 1994 Incentive Stock Option Plan (the "Plan"); and, WHEREAS, the Plan provides for the granting of incentive stock options by the Board to officers and employees of the Company and its subsidiaries to purchase shares of the Common Stock of the Company (the "Stock"), in accordance with the terms and provisions thereof; and, WHEREAS, the Board considers the Grantee to be a person who is eligible for a grant of incentive stock options under the Plan, and has determined that it would be in the best interest of the Company to grant the incentive stock options documented herein. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Grant of Option. Subject to the terms and conditions hereinafter set forth, the Company, with the approval and at the direction of the Board, hereby grants to the Grantee, as of the Date of Grant, an option to purchase up to _____ shares of Stock at a price of $______ per share, the fair market value on the date hereof. Such option is hereinafter referred to as the "Option" and the shares of Stock purchasable upon exercise of the Option are hereinafter sometimes referred to as the "Option Shares". The Option is intended by the parties hereto to be, and shall be treated as, an incentive stock option (as such term is defined under Section 422 of the Internal Revenue Code of 1986 (the "Code")). 2. Installment Exercise. Subject to such further limitations as are provided herein, the Option shall become exercisable in three (3) installments, the Grantee having the right hereunder to purchase from the Company the following number of Option Shares upon exercise of the Option, on and after the following dates, in cumulative fashion: (a) on and after the first anniversary of the Date of Grant, up to one-third (ignoring fractional shares) of the total number of Option Shares; (b) on and after the second anniversary of the Date of Grant, up to an additional one-third (ignoring fractional shares) of the total number of Option Shares; and, (c) on and after the third anniversary of the Date of Grant, the remaining Option Shares. 3. Termination of Option. (a) The Option and all rights hereunder with respect thereto, to the extent such rights shall not have been exercised, shall terminate and become null and void after the expiration of ten (10) years from the Date of Grant (the "Expiration Date"). (b) Upon the occurrence of the Grantee's ceasing for any reason to be employed by the Company (such occurrence being a "termination of the Grantee's employment"), the Option, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination of the -116- Grantee's employment, except in a case where the termination of the Grantee's employment is by reason of retirement, disability or death, the Option may be exercised during the following periods, but only to the extent that the Option was outstanding and exercisable on any such date of retirement, disability or death: (i) the one-year period following the date of such termination of the Grantees employment in the case of a disability (within the meaning of Section 22(e)(3) of the Code), (ii) the six-month period following the date of issuance of letters testamentary or letters of administration to the executor or administrator of a deceased Grantee, in the case of the Grantee's death during his employment by the Company, but not later than one year after the Grantee's death, and (iii) the three-month period following the date of such termination in the case of retirement on or after attainment of age 65, or in the case of disability other than as described in (i) above. In no event, however, shall any such period extend beyond the Expiration Date. (c) In the event of the death of the Grantee, the Option may be exercised by the Grantee's legal representative(s), but only to the extent that the Option would otherwise have been exercisable by the Grantee. (d) A transfer of the Grantee's employment between the Company and any subsidiary of the Company, or between any subsidiaries of the Company, shall not be deemed to be a termination of the Grantee's employment. (e) Notwithstanding any other provisions set forth herein or in the Plan, if the Grantee shall (i) commit any act of malfeasance or wrongdoing affecting the Company, (ii) breach any covenant not to compete or employment contract with the Company, or (iii) engage in conduct that would warrant the Grantee's discharge for cause (excluding general dissatisfaction with the performance of the Grantee's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company), any unexercised portion of the Option shall immediately terminate and be void. 4. Exercise of Options. (a) Subject to such further limitations as are provided herein, the Option shall be exercisable at any time and from time to time during the period commencing one (1) year from the Date of Grant and ending ten (10) years (five (5) years for 10 percent shareholders as described in the Plan) from the Date of Grant. The Grantee may exercise the Option with respect to all or any part of the number of Option Shares then exercisable hereunder by giving the Secretary of the Company written notice of intent to exercise. The notice of exercise shall specify the number of Option Shares as to which the Option is to be exercised and the date of exercise thereof, which date shall be at least five days after the giving of such notice unless an earlier time shall have been mutually agreed upon. (b) Full payment (in U.S. dollars) by the Grantee of the option price for the Option Shares purchased shall be made on or before the exercise date specified in the notice of exercise in cash, or, with the prior written consent of the Secretary, in whole or in part through the surrender of previously acquired shares of Stock at their fair market value on the exercise date. On the exercise date specified in the Grantee's notice or as soon thereafter as is practicable, the Company shall cause to be delivered to the Grantee, a certificate or certificates for the Option Shares then being purchased (out of theretofore unissued Stock or reacquired Stock, as the Company may elect) upon full payment of such Option Shares. The Grantee shall upon each exercise of a part or all of the option granted represent and warrant that his purchase of stock pursuant to such option is for investment only, and not with a view to distribution involving a public offering. The obligation of the Company to deliver Stock shall, however, be subject to the condition that if at any time the Board shall determine in its discretion that -117- the listing, registration or qualification of the Option or the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of Stock thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. (c) If the Grantee fails to pay for any of the Option Shares specified in such notice or fails to accept delivery thereof, the Grantee's right to purchase such Option Shares may be terminated by the Company. The date specified in the Grantee's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date. 5. Adjustment of and Changes in Stock of the Company. In the event of a reorganization, recapitalization, change of shares, stock split, spin-off, stock dividend, reclassification, subdivision, consolidation or combination of shares,, merger, consolidation, rights offering, or any other change in the corporate structure or shares of capital stock of the Company, the Board may make such adjustment as it deems appropriate in the number and kind of shares of Stock subject to the Option or in the option price; provided, however, that no such adjustment shall give the Grantee any additional benefits under the Option. 6. No Rights of Stockholders. Neither the Grantee nor any personal representative shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any shares of Stock purchasable or usable upon the exercise of the Option, in whole or in part, prior to the date of exercise of the Option. 7. Non-Transferability of Option. During the Grantee's lifetime, the Option hereunder shall be exercisable only by the Grantee or any guardian or legal representative of the Grantee, and the Option shall not be transferable except, in case of the death of the Grantee, by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the Rules thereunder, nor shall the Option be subject to attachment, execution or other similar process. In the event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate or otherwise dispose of the Option, except as provided for herein, or (b) the levy of any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Grantee and it shall thereupon become null and void. 8. Employment Not Affected. Neither the granting of the Option nor its exercise shall be construed as granting to the Grantee any right with respect to continuance of employment with the Company or any of its subsidiaries. Except as may otherwise be limited by a written agreement between the Company and the Grantee, the right of the Company or any subsidiary of the Company to terminate at will the Grantee's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company or any subsidiary of the Company, as the employer, and is acknowledged by the Grantee. 9. Amendment of Option. The Option may be amended by the Board or the Committee at any time (i) if the Board or the Stock Option Committee determines, in its sole discretion, that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code of 1986 or in the regulations issued thereunder, or any federal or state securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Option; or (ii) other than in the circumstances described in clause (i), with the consent of the Grantee. 10. Notice. Any notice to the Company provided for in this instrument shall be addressed to it in care of its Secretary at its executive offices at 6168 St. Andrews Road, Columbia, South Carolina 29212, and any notice to the Grantee shall be addressed to the Grantee at the current address shown on the payroll -118- records of the Company. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid. 11. Incorporation of Plan by Reference. The Option is granted pursuant to the terms of the Plan, the terms of which are incorporated herein by reference, and the Option shall in all respects be interpreted in accordance with the Plan. The Stock Option Committee shall interpret and construe the Plan and this instrument, and its interpretations and determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder. 12. Governing Law. The validity, construction, interpretation and effect of this instrument shall exclusively be governed by and determined in accordance with the law of the State of South Carolina, except to the extent preempted by federal law, which shall to such extent govern. IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Grant of Incentive Stock Option, and the Grantee has placed his or her signature hereon, effective as of the Date of Grant. UCI MEDICAL AFFILIATES, INC. By: _________________________ Its: ACCEPTED AND AGREED TO: By: _________________________ Grantee -119- EX-10 13 EXHIBIT 10.10 EXHIBIT NO. 10.10 CONSENT OF INDEPENDENT ACCOUNTANT -120- ACCOUNTANT'S CONSENT We consent to the incorporation by reference in this annual report on Form 10-K of our report dated January 26, 1995 on our audit of the consolidated financial statements of UCI Medical Affiliates, Inc. as of September 30, 1994, and for the two years in the period ended September 30, 1994. /s/ Moore Kirkland Scott & Beauston West Columbia, South Carolina December 22, 1995 ORIGINAL SIGNED ACCOUNTANT'S CONSENT ON MOORE KIRKLAND SCOTT & BEAUSTON LETTERHEAD IS ON FILE WITH UCI MEDICAL AFFILIATES, INC. -121- EX-21 14 EXHIBIT 21 EXHIBIT NO. 21 SUBSIDIARIES OF THE REGISTRANT -122- SUBSIDIARIES OF UCI MEDICAL AFFILIATES, INC. Name Under Which State of Jurisdiction Subsidiary Does Name of Subsidiary of Incorporation Business UCI Medical Affiliates of South Carolina, Inc. South Carolina Doctor's Care -123- -----END PRIVACY-ENHANCED MESSAGE-----