Judge Marvin Isgur of the U.S. Bankruptcy Court for the Southern District of Texas in Houston will consider confirming the medical clinic operator's plan on Oct. 14.

EDG will pay $4.75 million in cash and assume up to $925,000 in liabilities to acquire all of Diabetes America's assets.

The sale would allow the debtor to pay all secured creditors the value of their collateral. Diabetes America owes almost $6 million in secured claims, but said in its disclosure statement that it disputes a number of those claims.

Also under the plan, filed Sept. 1, unsecured creditors, owed $3.5 million, would recover a pro-rata share of available funds. Diabetes America estimated a 22% recover for unsecured creditors.

Equity holders would be wiped out.

The debtor originally filed its disclosure statement and plan on Aug. 19. It then filed amended versions of each on Sept. 1 and Sept. 2.

Isgur approved the disclosure statement on Sept. 1.

EDG's offer would have served as the stalking-horse bid for an Oct. 4 auction, but on Sept. 26, the debtor notified the court that no other bids were received and that it would pursue the sale to EDG.

Under the bidding procedures, filed and approved on Aug. 11 and Aug. 18, respectively, competing bids due Sept. 21 had to be at least $5.25 million plus the assumption of $925,000 in liabilities. Had any parties submitted bids, increments at the auction would have been $150,000.

EDG would have been entitled to $350,000 for expense reimbursements had it lost the auction.

Documents show that Diabetes America retained WoodRock & Co. as its investment banker in July to evaluate whether it should sell its assets, try to raise new equity capital, or obtain new debt financing. WoodRock received several indications of interest for a sale and ultimately had two term sheets to choose from before selecting EDG.

The Houston debtor was formed in 2004 and operates a network of centrally managed medical clinics that provide outpatient medical care to patients with Type 1, Type 2 and gestational diabetes. It has expanded from just Houston to the Dallas and San Antonio areas. It now owns 17 clinics in Texas and one in Arizona.

In 2010 it treated more than 20,000 patients with its treatment, which includes medical care, education and counseling. The debtor said its treatment substantially improves long-term wellbeing of patients and reduces overall medical costs.

Diabetes America, however, had not made a profit by the end of its fourth year in business. To continue operating, the debtor discontinued nonprofitable programs including its interactive wellness program and pharmaceutical services. The debtor also had several lease agreements that prevented it from closing underperforming locations. Furthermore, 2008 changes to Medicare and Medicaid imposed an "ambitious" payback plan based on self-reporting functions, which resulted in several months with no revenue from patients in the government-sponsored programs. On top of that, Aetna Inc. decided not to pay some billings that it had previously accepted.

Hurricane Ike in 2008 also left Diabetes America's facilities inaccessible to patients, while the economic recession left other patients unable to afford its services.

Diabetes America's net revenue plummeted from $8.9 million in 2008 to $3.7 million in 2009 and $3.6 million in 2010.

According to Diabetes America, there are 24 million diabetics in the U.S. In 2007 the disease led to $174 billion in charges nationwide -- $116 billion in healthcare costs and $58 billion in reduced productivity due to absenteeism.

Diabetes America filed for bankruptcy on Dec. 21.

H. Joseph Acosta of Looper, Reed & McGraw PC was debtor counsel. However, the clinic's board voted to terminate his employment in May. Court documents do not disclose why the debtor decided against their employment. Acosta could not be reached for comment.

The current debtor counsel, Joshua Walton Wolfshohl of Porter Hedges LLP, also could not be reached.

Healthcare Markets Group is the debtor's financial adviser, and the firm's Monte B. Tucker is chief restructuring officer for Diabetes America.