U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 0-15936
HEALTH OUTCOMES MANAGEMENT, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1546471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2331 UNIVERSITY AVENUE S.E.
MINNEAPOLIS, MINNESOTA 55414
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (612) 378-3053
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No ___
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding at January 10, 1997, was 8,499,029.
INDEX
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - November 30, 1996 and
February 29, 1996.
Condensed Consolidated Statements of Operations -
Three and nine months ended November 30, 1996 and 1995.
Consolidated Statements of Cash Flows -
Nine months ended November 30, 1996 and 1995.
Notes to Consolidated Financial Statements -
November 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Securities
Holders.
Item 6 - Exhibits and Reports on Form 8-K.
SIGNATURES
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30,
1996 February 29,
(Unaudited) 1996
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 16,761 68,657
Trade receivables, less allowance for doubtful
accounts of $15,000 and $15,000, respectively 175,319 140,219
Inventory 67,084 --
Prepaid expenses 18,000 43,805
Other current assets 1,136 679
-------- --------
Total current assets 278,300 253,360
Property and equipment, net of accumulated depreciation 127,446 180,353
Other assets, net of accumulated amortization of
$311,440 and $286,867, respectively 58,028 82,601
-------- --------
Total assets $463,774 516,314
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
November 30,
1996 February 29,
(Unaudited) 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Notes payable to bank 25,000 --
Notes payable, other, current portion 6,768 --
Current installments of obligation under capital leases 68,095 58,928
Accounts payable 124,869 126,936
Deferred revenue 96,009 193,660
Accrued compensation 57,251 74,955
Accrued payroll taxes 13,842 20,222
Other current liabilities 20,463 16,219
----------- -----------
Total current liabilities 412,297 490,920
----------- -----------
Notes payable, other, excluding current portion 6,067 --
Obligation under capital leases, excluding
current installments 37,482 81,962
----------- -----------
Total liabilities 455,846 572,882
----------- -----------
Stockholders' deficit:
Series A, convertible stock, $.01 par value:
Authorized - 1,000,000
Issued and outstanding shares - none -- --
Common stock--$.01 par value:
Authorized - 15,000,000
Issued and outstanding shares - 8,499,029 and
8,327,885, respectively 84,990 83,279
Additional paid-in capital 4,724,567 4,665,724
Accumulated deficit (4,731,429) (4,713,171)
Note receivable from officer (70,200) (92,400)
----------- -----------
Total stockholders' deficit 7,928 (56,568)
----------- -----------
Total liabilities and stockholders' deficit $ 463,774 516,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
November 30, November 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 759,116 $ 792,488 $ 1,974,791 $ 2,427,559
Cost of revenues 353,539 461,362 1,183,418 1,384,783
----------- ----------- ----------- -----------
Gross profit 405,577 331,126 791,373 1,042,776
----------- ----------- ----------- -----------
Operating expenses:
Research and development 44,982 149,380 187,202 371,626
Selling and marketing 35,585 49,791 139,493 144,129
General and administrative 202,127 116,735 471,862 358,503
----------- ----------- ----------- -----------
Total operating expenses 282,694 315,906 798,557 874,258
----------- ----------- ----------- -----------
Income (loss) from operations 122,883 15,220 (7,184) 168,518
----------- ----------- ----------- -----------
Other (income) expense
Interest income (1,838) -- (6,117) (252)
Interest expense 6,295 6,327 17,191 21,257
----------- ----------- ----------- -----------
4,457 6,327 11,074 21,005
----------- ----------- ----------- -----------
Income tax expense -- -- -- --
Net income (loss) $ 118,426 $ 8,893 $ (18,258) $ 147,513
=========== =========== =========== ===========
Income (loss) per common share $ .01 $ .00 $ (.00) $ .02
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 8,486,162 8,728,656 8,421,214 8,745,873
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended November 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(18,258) 147,513
-------- --------
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation 68,476 80,675
Amortization 24,573 51,544
Provision for losses on accounts receivable 10,317 28,680
Recoveries of bad debts 4,153 --
Payments in stock 15,045 3,650
Changes in operating assets and liabilities, net of
acquisition of Edina Pharmacy
Decrease (increase) in trade receivables (49,570) 43,451
Increase in inventory (33,053) --
Decrease (increase) in prepaid expenses 25,805 (29,489)
Decrease (increase) in other current assets (457) 4,657
Decrease in accounts payable (15,690) (136,614)
Increase (decrease) in deferred revenue (97,650) 84,511
Decrease in accrued compensation (17,704) (64,630)
Decrease in accrued payroll taxes (6,380) (88,456)
Increase (decrease) in other current liabilities 4,243 (2,775)
-------- --------
Total adjustments (67,892) (24,796)
-------- --------
Cash provided by (used in) operating activities (86,150) 122,717
-------- --------
Cash flows from investing activities:
Capital expenditures (2,569) (48,253)
Cash paid for acquisition of Edina Pharmacy (18,435) --
-------- --------
Cash flows used in investing activities (21,004) (48,253)
-------- --------
Cash flows from financing activities:
Principal payments received on note receivable from officer 22,200 --
Principal payments under capital lease obligations (35,313) (32,148)
Loans from bank 25,000 --
Repayment of note payable assumed in the
Edina Pharmacy acquisition (2,139) --
Repayment of bank loans assumed in the
Applied Micro Management, Inc. acquisition -- (6,123)
Net repayment of loans to officer -- (60,000)
Proceeds from issuance of common stock 45,510 31,265
-------- --------
Cash flows provided by (used in) financing activities 55,258 (67,006)
-------- --------
Increase (decrease) in cash and cash equivalents (51,896) 7,458
Cash and cash equivalents at beginning of period 68,657 22,795
-------- --------
Cash and cash equivalents at end of period $ 16,761 30,253
======== ========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 17,191 21,257
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(1) BASIS OF PRESENTATION
The unaudited financial statements presented herein include the accounts of
Health Outcomes Management, Inc. and Subsidiaries after elimination of material
intercompany accounts and transactions. These statements do not include all of
the information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the year
ended February 29, 1996. In the opinion of management such financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to summarize fairly the Company's financial position and results of
operations. The results of the three and nine month periods ended November 30,
1996, may not be indicative of the results that may be expected for the year
ending February 28, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
Property under capitalized leases $ 310,006
Furniture and equipment 374,723
----------
684,729
Less accumulated depreciation 557,283
----------
Net property and equipment $ 127,446
==========
(3) NOTES PAYABLE
In July 1996, the Company assumed a $14,973 note payable related to the
acquisition of Edina Pharmacy. As of November 30, 1996, the Company had an
outstanding balance of $12,834 on this note payable.
As of November 30, 1996, the Company had borrowed $25,000 on the line of credit
with Riverside Bank.
(4) CAPITALIZED COMPUTER SOFTWARE
The Company capitalizes software production costs after technological
feasibility has been established and prior to general release to clients.
(5) MASTER LICENSE AGREEMENT
On April 21, 1995, the Company had signed a twelve (12) month Master License
Agreement with AmeriSource Health Corporation (AmeriSource) of Malvern, PA for
the Company's Assurance Community Pharmaceutical Care System(TM). Pursuant to
the terms of the agreement, the Company granted to AmeriSource an exclusive
license to market and license the software system to retail pharmacies
throughout the United States directly or through its affiliate, Pharmacy Care
Management Group (PCMG). As consideration for the Company granting these rights
to AmeriSource, the Company received $200,000 cash upon signing the agreement.
As further consideration, AmeriSource agreed to license a minimum specified
number of new retail pharmacies over the term of the agreement in order to
maintain the exclusive status of the Master License Agreement. Additional
provisions of the agreement provided for the payment of monthly license and
support fees to the Company for each retail pharmacy licensing the software.
During April 1996, the Company terminated its relationship with AmeriSource in
order to pursue other marketing arrangements. Upon termination of the agreement,
the Company no longer receives payments for license and support fees. Revenues
received under this agreement constituted approximately 21% of the Company's
total 1996 revenue.
(6) LINE OF CREDIT AGREEMENT
On April 4, 1996, the Company entered into a $50,000 "Line of Credit" agreement
with Riverside Bank, Minneapolis, MN. Amounts borrowed under the agreement will
be used for working capital purposes. All outstanding borrowings bear interest
at the First Bank National Association Reference Rate plus 1.5%. The agreement
expires April 1, 1997. The agreement is secured by all accounts receivable,
equipment not covered under financing agreements, inventory, if any, and general
intangibles. The agreement also requires the Company to maintain certain
financial covenants, including but not limited to, maintaining a minimum net
worth. As of November 30, 1996, the Company had an outstanding balance of
$25,000 under this credit facility.
(7) BUSINESS ACQUISITION
On July 19, 1996, the Company acquired certain assets of Edina Pharmacy, a
retail pharmacy located in Minneapolis, Minnesota from James Kaner, an
individual. The Company acquired certain assets, including inventory, fixtures
and equipment, and the patient list. The purchase price was $47,228, of which
$12,000 was paid in cash. A note payable of $14,793 was assumed. The remaining
balance of $20,435 will be paid by the Company in 12 equal monthly installments.
The purchase method of accounting was used. The accompanying financial
statements include results of operations of the acquired business from the date
of acquisition. Due to the nature of the transaction under which the Company
purchased only certain assets of Edina Pharmacy, owned by an individual
reporting financial information on an income tax basis, meaningful pro-forma
financial information is not available.
This community pharmacy will be developed into a prototype store applying
patient care concepts utilizing the Company's Assurance Coordinated
Pharmaceutical Care System(TM) software.
(8) MAJOR CLIENT
During the second quarter ended August 31, 1996, Option Care, Inc., the
Company's largest client, announced that it had purchased a software company.
The current agreement with the Company and Option Care, Inc., expires on January
31, 1997. On October 31, 1996, the Company and Option Care announced the signing
of a "transition agreement" that, according to the terms of the agreement,
required Option Care to pay the Company a one-time payment of $159,000 for
consulting services and certain software tools owned by the Company. The Company
will receive an additional $15,000 on January 15, 1997, for training services
provided. Revenues received from this client constituted approximately 23% of
the Company's total 1996 revenue.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THIRD QUARTER ENDED NOVEMBER 30, 1996, COMPARED WITH THE THIRD QUARTER
ENDED NOVEMBER 30, 1995:
REVENUE. Revenues for the third quarter ended November 30, 1996, decreased
$33,372 to $759,116, a decrease of 4.21% when compared to prior year third
quarter revenues of $792,488. The Company recorded third quarter net income of
$118,426, compared to net income of $8,893, in the prior year period, an
increase of $109,533 or 1,231.7%. The increase in net income was primarily the
result of revenue received from one-time contracts rather than continuing
agreements. The Company received $50,000 from a consulting contract and $159,000
pursuant to the terms of the "termination agreement" between the Company and its
largest client.
Revenues for the current period were primarily generated by the Company's
Assurance Long-Term Care System(TM) and the Assurance Homecare System(TM).
Revenues from the Assurance Community Pharmaceutical Care System(TM) declined
approximately $179,000 when compared to the prior year period, primarily the
result of termination of the marketing relationship with AmeriSource Health
Corporation (AmeriSource) during April 1996. This decrease was offset by $50,000
received from a one-time consulting contract and $159,000 received pursuant to
the "termination agreement" with the Company's largest client. Revenues from the
Company's newly acquired retail pharmacy totaled approximately $80,000 or
approximately 10.5% of total revenue.
Revenue received from license fees decreased by approximately $143,000, or 64.6%
while revenue from continuing client support fees decreased approximately
$69,000, or 16.7%. The entire decrease in support fees, approximately 54.1% of
the decrease in license fees, 80% of the approximately $34,000 decrease in
training fees resulted from the termination of the AmeriSource marketing
agreement.
The effects of inflation on the Company's revenue and operating results were not
significant.
COSTS AND EXPENSES. Total costs and expenses incurred during the quarter ended
November 30, 1996, including interest, depreciation and amortization expense,
decreased by $142,905 or 18.2% to $640,690 when compared to prior year expenses
of $783,595. Compensation, benefits and payroll taxes decreased by approximately
$128,000 or 30.1% when compared to the prior year period. The decrease in
payroll expenses is primarily due to the approximate 30% staff reduction from
the year ago period, reductions in health insurance benefit costs and reductions
in state unemployment insurance rates. Staff reductions are the result of staff
attrition and involuntary termination of five (5) employees during May 1996.
Administrative expenses such as telephone expense, supplies, postage,
accounting, legal and equipment maintenance decreased by approximately 29.8%
when compared to the prior year period. Administrative expenses have declined
significantly as the Company has implemented expense reductions in an attempt to
offset reductions in revenue. Commissions paid to commissioned sales
representatives decreased by approximately 48.1%, primarily due to the decrease
in commissionable software license fees. Expenses associated with advertising,
marketing and trade shows decreased approximately 14.9%. The Company has reduced
trade journal advertising during the third quarter as part of its effort to
reduce costs during a period of reduced revenues. Fees paid to outside
consultants decreased by approximately 36.8% when compared to the prior year
period.
Net interest expense decreased 29.6% to $4,457 from $6,327, primarily due to
interest revenue received pursuant to the terms of a note receivable from an
officer of the Company.
Depreciation and amortization expense, including amortization of covenants,
decreased by approximately 31.5% to $31,415 from $45,831. This decrease was
primarily due to the completion of the amortization in 1995 of various costs
associated with the 1993 acquisition of certain assets of Applied Micro
Management, Inc.
RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED NOVEMBER 30, 1996, COMPARED WITH THE NINE MONTH
PERIOD ENDED NOVEMBER 30, 1995:
REVENUE. Revenue for the nine months ended November 30, 1996, was $1,974,791
down $452,768 or 18.7% when compared to prior year revenue of $2,427,559. Net
loss for the nine month period was $18,258, compared to net income of $147,513,
in the prior year period, a decrease of $165,771. The loss resulted from
decreased revenue that was only partially offset by a $286,997 decrease in
expenses. During the nine month period the Company received revenue from
one-time contracts totaling $209,000. The Company received $50,000 from a
consulting contract and $159,000 pursuant to the terms of the "termination
agreement" between the Company and its largest client.
When compared to the prior year, license fee revenue decreased by approximately
$39,000, or 8.4%. Increased revenue received from licensing the Company's
Homecare products was offset entirely by decreased license fee revenue from the
Company's Pharmaceutical Care and Long-Term Care products. Consulting fee
revenue decreased by approximately $135,000 or 69.9% primarily as a result of
the change in the method of reporting reimbursement received from the Company's
largest client. During part of the 1995 period, the Company received monthly
retainer fees; in the 1996 period the Company received reimbursement based on
the number of Homecare systems licensed and trained.
Revenues received from support fees also decreased during the current year
period when compared to the prior year period. Support fee revenue decreased by
approximately $53,000 or 4.6%. This decrease resulted entirely from the
termination of the AmeriSource marketing agreement. Training fee revenue
decreased by approximately $266,000 or 82.9% primarily the result of the
termination of the AmeriSource marketing agreement. As a result of the
termination of the marketing agreement with AmeriSource, revenues received from
the Assurance Community Pharmaceutical Care SystemTM declined approximately
$416,000 when compared to the prior year period. This decrease accounted for
approximately 91.8% of the total decrease in revenue. Revenues from the
Company's newly acquired retail pharmacy totaled approximately $123,000 or
approximately 5.1% of total revenue.
The effects of inflation on the Company's revenue and operating results were not
significant.
COSTS AND EXPENSES. Total costs and expenses incurred during the nine month
period ended November 30, 1996, including interest, depreciation and
amortization expense, decreased by $286,997 or 12.6% to $1,993,049 when compared
to prior year expenses of $2,280,046. During the current year period the Company
significantly reduced compensation, benefits and payroll tax expenses.
Compensation and related expenses decreased by approximately $256,000 or 20.4%
when compared to the prior year period. The decrease in payroll expense was
primarily due to the involuntary termination of five (5) employees during May
1996 and staff attrition. Reductions in health insurance benefit costs and
reductions in state unemployment insurance rates also contributed to the
decrease in payroll and benefit costs. The Company's employment level is
approximately 30% below the year ago period.
Administrative expenses such as telephone expense, supplies, postage,
accounting, legal and equipment maintenance decreased by approximately 19.9%
when compared to the prior year period. The Company has reduced administrative
expenses as a part of its overall strategy to reduce total corporate expenses to
offset declines in revenue. Commissions paid to commissioned sales
representatives decreased by approximately .9%, primarily due to the decrease in
commissionable software license fees. Expenses associated with advertising,
marketing and trade shows increased approximately 40.5%. During the current year
period, the Company created marketing literature focused on the Outcomes
Management area and also awarded software with a value of approximately $17,000
as "door prizes" at trade shows. Clients receiving these awards have licensed
additional software, and paid training and support fees to the Company. Travel
expenses, fees paid to outside consultants and new client training expenses also
decreased when compared to the nine months ended November 30, 1995.
Net interest expense decreased by approximately $10,000 or 46.8% when compared
to the prior year period. This decrease was primarily due to reduced borrowing
needs and interest revenue received pursuant to the terms of a note receivable
from an officer of the Company.
Depreciation and amortization expense, including amortization of covenants,
decreased by approximately $39,000 or 29.6% during the current year period when
compared to the prior year period. This decrease was primarily due to the
expiration of the write-off period for certain assets related to the 1993
acquisition of certain assets of Applied Micro Management, Inc.
LIQUIDITY AND FINANCIAL CONDITION
WORKING CAPITAL. The Company had a working capital deficit of ($133,997) at
November 30, 1996, compared to a deficit of ($237,560) at February 29, 1996; a
decrease of $103,563. The decrease in working capital deficit is primarily the
result of $159,000 received from the Company's largest client pursuant to the
"termination agreement." This improvement in the working capital was partially
offset by the Company's net loss for the nine month period ended November 30,
1996.
The Company's negative working situation continues. Improved capital
availability will ultimately depend on strong sales performances of the
Company's Assurance Long-Term Care System(TM) and the Assurance Coordinated
Pharmaceutical Care System(TM) and containment of all operational costs. There
can be no assurance that sales results will improve and that the Company will
experience profitable operations.
ADDITIONAL CAPITAL REQUIREMENTS. The Company believes that it will have
additional cash needs of up to $100,000 during the balance of fiscal 1997 if
revenue continues to fall short of the Company's needs and expectations. The
Company will supplement its cash requirements with the available line of credit
and call all or a portion of the demand note receivable from an officer of the
Company. The Company plans to continue operating expense reductions currently
underway. If revenue continues to fall short of Company needs and the Company is
unable to generate sufficient cash flow from operations the Company will need to
explore raising additional capital.
PART II
Item 4 - Submission of Matters to a Vote of Securities Holders
At the Annual Meeting of the stockholders of the Company held on September 19,
1996, the stockholders elected to the Board of Directors those nominees as
listed in the proxy statement. Those individuals are William A. Peter, Jr.,
Michael J. Frakes, Robert J. Cipolle and Jerry L. Hoganson. These individuals
constitute the entire Board of Directors of the Company.
No other matters were submitted to a vote of the security holders.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Asset Purchase Agreement for the purchase of certain assets of
Edina Pharmacy on July 19, 1996.
10(b) Transition Agreement between Health Outcomes Management, Inc.
and Option Care, Inc. dated as of October 31, 1996, for
consulting services and termination of Agreement dated
February 1, 1994, as amended by Amendment I effective as of
February 1, 1995.
11 Schedule showing calculation of earnings per share.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
Health Outcomes Management, Inc.
(registrant)
Date: January 14, 1997 By: /s/ William A. Peter, Jr.
---------------- ---------------------------------
William A. Peter, Jr.
President, CEO
Date: January 14, 1997 By: /s/ Russell Jackson
---------------- ---------------------------------
Russell Jackson
Chief Financial Officer and
Principal Financial Officer
Index to Exhibits
Exhibit
10(a) Asset Purchase Agreement
10(b) Transition Agreement
11 Schedule showing calculation of earnings per share.
27 Financial Data Schedule
EXHIBIT 10(a)
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 19th day of July, 1996, by
and between James Kaner, dba Edina Pharmacy, (the "Seller") and Health Outcomes
Management, Inc., a Minnesota corporation, (the "Purchaser").
RECITALS:
A. The Seller is engaged in the business of operating a pharmacy
through an unincorporated business doing business as Edina
Pharmacy, with its operations at 3831 West 50th Street,
Minneapolis, Minnesota 55410 (the "Business").
B. Seller desires to sell and Purchaser desires to purchase
selected assets used by Seller in the operations of the
Business.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE OF ASSETS
1.1 Purchase and Sale of the Assets. Purchaser hereby purchases from
Seller and Seller hereby sells to Purchaser, on the terms and subject to the
conditions set forth in this Agreement, of the assets and properties of Seller
which are related to or used in the operation of the Business. The assets and
properties to be purchased and sold pursuant to this Agreement (collectively the
"Assets") are as follows:
a. The equipment, machinery, furnishings, inventory and other
assets owned by Seller and used in the operation of the Business, as
set forth in Schedule 1.1(a);
b. All of the customer lists, lists of suppliers, telephone
numbers, and other information reasonably necessary for Purchaser to
carry on the Business in the ordinary course on and after the date of
closing; and
c. General intangible assets of the Business which include
goodwill and the Business name "Edina Pharmacy".
1.2 Lease Agreement. Seller shall assign all of his rights and interest
in the building lease pursuant to a Lease Agreement with Delano R. Nelson
("Nelson") dated September 19, 1993 ("Lease Agreement"). Seller shall use his
best efforts to obtain consent from Nelson for assigning his rights under the
Lease Agreement to Purchaser.
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price and Allocation. The purchase price for the Assets
(the "Purchase Price") shall be as follows:
a. The Purchase Price for the inventory shall be the value for
agreed-upon salable inventory as of July 19, 1996. The salable
inventory subject to this Agreement shall be determined upon a physical
inventory conducted by the parties on the morning of July 19, 1996
adjusted for the cost basis of inventory sold during the course of
business on July 19, 1996. The agreed-upon value paid by Purchaser for
the inventory shall be reduced by Purchaser's assumption of Seller's
remaining obligation pursuant to paragraph 2.1(c);
b. The Purchase Price of Thirteen Thousand and no/100 Dollars
($13,000.00) shall be paid for all of the equipment and furnishings of
the Business; and
c. Purchaser hereby agrees to assume Seller's remaining
obligation under a Promissory Note dated September 19, 1993 payable to
Nelson ("Promissory Note").
The Purchase Price shall be allocated among the Assets in a manner to
be mutually agreed upon by the Seller and Purchaser. Each party agrees not to
assert, in connection with any tax return, audit or other similar proceeding,
any allocation of the Purchase Price which differs from the allocation to which
the parties shall have agreed.
2.2 Payment of Purchase Price. The Purchase Price, with the exception
of the Promissory Note, shall be paid by cash payments delivered to Seller in
the following amounts:
a. $12,000 at Closing; and
b. The balance in twelve (12) equal monthly installments. Each
subsequent payment shall be due on or before the fifteenth day of each
of the twelve succeeding months, beginning with the first month
following the date of closing.
These payments will be made promptly by Health Outcomes Management,
Inc. and collection of the same are guaranteed personally by W. A. Peter, Jr. W.
A. Peter, Jr. shall be entitled to assert against Seller any and all defenses
available to the Purchaser pursuant to the terms of this Agreement.
ARTICLE 3
ASSUMPTION OF LIABILITIES AND ACCOUNTS RECEIVABLE
3.1 Limitation on Assumption of Liabilities. Seller will transfer the
Assets to Purchaser at the Closing free and clear of all liens and encumbrances,
except the equipment leases listed in attached Schedule 3.1, which Purchaser
shall assume by virtue of its purchase of the Assets. Purchaser also agrees to
assume Seller's obligation pursuant to the Promissory Note. Purchaser shall not
assume responsibility for any other debts, liabilities or obligations of Seller
of any kind or nature whatsoever other than those specifically pursuant to this
paragraph.
3.2 Accounts Receivable. It is understood and agreed between the
parties that the Seller shall be entitled to the receipt of all accounts
receivable existing as of the Closing, including: all unremitted credit card
receipts of Seller which may be on hand as of the Closing and related to the
operation of the Business prior to the date of Closing, all payments due on
account as of the Closing and all payments due from insurance, Medicare or other
providers. Purchaser agrees to remit to Seller at the place specified in this
Agreement any payments received from outstanding accounts as of the close of
business on July 19, 1996.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Clear Title and Conditions. Seller warrants and represents to
Purchaser that he has good and marketable title to the Assets subject to this
Agreement free and clear of any and all liens, encumbrances, security devices,
security interests, financing statements, mortgages, pledges, conditional sales
agreements, or claims of any kind, nature or description whatsoever, other than
those listed in Schedule 3.1. All of the Assets to be purchased and sold
hereunder have been maintained in good operating condition. However, it is
specifically agreed between the parties that the Purchaser has been given the
opportunity to inspect the Assets fully, and it purchases said Assets in "as is"
condition and without any representations or warranties by the Seller.
4.2 Litigation. Seller has no knowledge of any claim, suit, proceeding
or investigation at law or equity which is pending or threatened against or
affecting the Seller, the Assets or the Business.
4.3 Taxes. All federal, state, county, local sales and use, income, and
employment taxes and assessments attributable to the Assets and/or the Business
which are due and payable by Seller have been duly reported and are fully paid.
4.4 Books and Records. It is further agreed and understood between the
parties that the Seller has provided the Purchaser access to the Seller's
financial records, patient medical records and tax returns relating to the
Business. Purchaser has independently ascertained the value and expected
profitability of the Business and Purchaser does not rely upon any
representations or warranties by the Seller as to the future profitability of
the Business.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Due Incorporation. The Purchaser is duly organized, validly
existing and in good standing under the laws of Minnesota and has all power and
authority to carry on its business and to own, lease, use and operate its
properties. Purchaser is not subject to any agreement, commitment or
understanding which restricts or may restrict Purchaser's performance of its
obligations under this Agreement.
5.2 Due Authorization. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Purchaser. This Agreement and any documents and agreements referred to have been
or will be duly and validly authorized, executed and delivered by Purchaser and
the obligations of the Purchaser hereunder and thereunder are or will be valid
and legally binding, and this Agreement and the documents and agreements
referred to are or will be enforceable in accordance with its/their terms.
5.3 No Breach. Purchaser has full corporate power and authority to
purchase, assume and accept the Assets from the Seller, and the execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby will not conflict with, violate or result in any breach or default of any
term or provisions of the Articles of Incorporation, By-Laws or other governing
instruments of Purchaser and will not violate any other restriction of any kind
or character to which Purchaser is subject.
ARTICLE 6
CONDITIONS PRECEDENT TO PURCHASER' OBLIGATIONS
6.1 Necessary Licensing. The Purchaser's obligations pursuant to this
Agreement shall be conditioned upon the following:
a. Obtaining the appropriate pharmacy licenses necessary to
operate the Business. Purchaser shall undertake all efforts reasonably
necessary to obtain the required licenses.
b. Obtaining Nelson's consent to Seller's assignment of the
Lease Agreement.
c. Obtaining Nelson's consent to an extension agreement of the
Lease Agreement. Said extension to be on terms which are suitable to
the Purchaser.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Purchaser. Purchaser agrees to indemnify Seller
and hold Seller harmless from and against any loss, cost, expense, liability, or
other damage resulting from any matter relating to or arising out of the
Business from occurrences subsequent to the date of Closing.
7.2 Indemnification by Seller. Seller agrees to indemnify Purchaser and
hold Purchaser harmless from and against any loss, cost, expense, liability or
other damage resulting from any matters relating to or arising out of the
Business from occurrences prior to the date of Closing.
7.3 Right of Offset. Seller agrees that Purchaser shall have the right
to offset any unpaid liabilities as of July 19, 1996, which are not expressly
assumed by Purchaser, against all payments of the Purchase Price due to Seller,
in any order determined by the Purchaser. This right to offset shall be in
addition to all other remedies available to Purchaser pursuant to this Agreement
or under applicable law.
ARTICLE 8
CLOSING
8.1 Date of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be held on July 19, 1996 at the offices of
Moss & Barnett, A Professional Association, 90 South Seventh Street,
Minneapolis, Minnesota 55402 or at such place as may be mutually agreed upon by
the parties and shall be as of the close of business on such day.
8.2 Documents Delivered by Seller. At the Closing, Seller will deliver
to Purchaser the following:
a. Bill of Sale to all of the Assets, duly executed by Seller;
b. Releases or terminations of any financing statements or
security agreements, if any, there be;
c. Consent from Mr. Delano R. Nelson regarding substitution of
Purchaser as obligor on Promissory Note;
d. Consent from Nelson regarding assignment of the Lease
Agreement;
e. Inventory evaluation and tabulation as of July 19, 1996;
and
f. Clearance letter from Nelson indicating that Seller is
current with respect to any and all obligations owed to Nelson.
8.3 Documents Delivered by Purchaser. At the Closing, Purchaser will
deliver to Seller the following:
a. The initial cash payment portion of the Purchase Price; and
b. The assignment and assumption agreement related to
Purchaser's assumption of Seller's liabilities and obligations set
forth in Schedule 3.1.
ARTICLE 9
PERFORMANCE FOLLOWING THE CLOSING
9.1 Further Acts and Assurances. The parties will undertake the
following acts subsequent to closing:
a. Seller agrees that after the date of Closing he will do all
such further acts and things and execute, acknowledge and deliver to
Purchaser any and all documents, as may be necessary or desirable to
vest title to the Assets in Purchaser.
b. Purchaser agrees to remit to Seller at the place specified
in this Agreement any payments received from outstanding accounts as of
the close of business on July 19, 1996.
9.2 Covenant Not to Compete. During the period of three (3) years from
and after the date hereof, Seller covenants and agrees that he will not, without
the Purchaser's prior consent, directly or indirectly, within a three (3) mile
radius of the Business, engage in the operation or ownership of a pharmacy,
become employed by a pharmacy or perform services as a pharmacist.
9.3. Non-Solicitation. During the period of three (3) years from and
after the date hereof, Seller covenants and agrees that he will not, whether for
his own account or for the account of any other person, directly or indirectly
interfere with the Purchaser's relationship with or endeavor to divert or entice
away from the Purchaser any person who or which at any time during the two years
preceding the date hereof obtained Seller's services or the services of the
Business.
9.4 Consulting Agreement. Seller agrees to perform consulting services
for Purchaser for a period of up to four (4) weeks following the date of
Closing. Purchaser shall pay One Thousand and no/100 Dollars ($1,000.00) for
each week Seller performs such consulting services.
ARTICLE 10
MISCELLANEOUS
10.1 Survival of Representations, Warranties and Covenants. Each of the
representations, warranties, covenants, agreements and indemnities of the
parties contained in this Agreement and in any Exhibit, Schedule, or document
delivered by or on behalf of the parties shall survive the closing.
10.2 Employees. Nothing contained in this Agreement shall constitute or
be construed as a contract of employment between Purchaser and any employees of
Seller. Seller shall pay to the current employees all accrued wages up to the
date of this Agreement.
10.3 Sales and Use Taxes. Seller agrees to pay in full any and all
sales and use taxes, as and when the same may be due, which may be imposed upon
or arise out of the transfer of the Assets to the Purchaser and the consummation
of the transactions contemplated hereby.
10.4 Notices. All notices and other communications provided for
hereunder shall be in writing and shall be personally delivered, telecopied or
mailed or sent to each party, at their address as set forth below or at such
other address or in such other manner as may be designated by such party in
written notice to each of the other parties.
If to Seller: James Kaner
1728 Yorkshire Avenue South
Minnetonka, Minnesota 55305
If to Purchaser: William A. Peter, Jr.
Health Outcomes Management, Inc.
2331 University Avenue Southeast
Minneapolis, Minnesota 55414
10.5 Entire Agreement. This Agreement, together with the Exhibits and
Schedules attached hereto, contains the entire agreement of the parties hereto
and supersedes all prior or contemporaneous agreements and understandings, oral
or written, between the parties hereto with respect to the subject matter
hereof.
10.6 No Waiver; Remedies Cumulative. No failure on the part of a party
hereto to exercise and no delay in exercising any right hereunder shall operate
as a waiver thereof nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. Remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
10.7 Specific Performance. Seller acknowledges and agrees that the
Assets are unique and that Purchaser will have no adequate remedy at law if
Seller shall fail to perform any of his obligations hereunder. In such event,
Purchaser shall have the right, in addition to any other rights he may have, to
specific performance of this Agreement.
10.8 Amendments. No purported amendment, modification or waiver of any
provision of this Agreement or any Schedule or Exhibit hereto or document
referred to herein or contemplated hereby shall be binding or effective unless
the same shall be in writing and signed by all the parties.
10.9 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns. Nothing in this Agreement is
to be construed as an authorization or right of any party to assign their rights
or delegate their duties under this Agreement without the prior written consent
of the other parties hereto.
10.10 Costs. Each party hereto shall pay their own costs and expenses
incurred in connection with negotiating, preparing and consummating the
transactions contemplated by this Agreement, including but not limited to
attorneys and accountants fees. Notwithstanding the foregoing, the inventory
evaluation cost will be split equally by the parties (estimated cost $150 each).
10.11 Headings. The headings of the articles, sections and subsections
of this Agreement are intended for the convenience of the parties only and shall
in no way be held to explain, modify, construe, limit, amplify or aid in the
interpretation of the provisions hereof.
10.12 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month and year first above written.
PURCHASER: SELLER:
HEALTH OUTCOMES MANAGEMENT, INC. ------------------------------------
James Kaner
By
----------------------------------
William A. Peter, Jr.
Its President
GUARANTY
I, William A. Peter, Jr., hereby personally guarantee Seller's
collection of the installment payments to be made by Purchaser pursuant to
paragraph 2.2(b) of this Agreement. This guaranty of collection shall extend
only to those payments listed in Paragraph 2.2(b). No other guarantees, whether
express or implied, oral or written, are being made.
IN WITNESS WHEREOF, this guaranty has been duly exercised by the
undersigned as of the day, month and year first above written.
------------------------------------
William A. Peter, Jr.
LIST OF SCHEDULES AND EXHIBITS
Schedule 1.1(a) - List of Fixed Assets
Schedule 3.1 - Liabilities and Obligations Assumed
SCHEDULE 1.1(a)
Edina Pharmacy
3831 W. 50th St.
Minneapolis, MN 55410
FIXTURES AND EQUIPMENT
Outside
"Edina Pharmacy" sign (4 feet x 20 feet approx.) - lighted
East Side
27 feet wall shelving unit with lighted valance
West Side
12 feet wall shelving
6 feet wall shelving unit with lighted valance
8 feet wall pegboard
1 chair
Middle Section
8 feet metal gondola section
1 display unit
9 feet drug counter unit with formica top - metal shelving on both sides
1 Sharp cash register
1 Rolodex file
1 Unitrex electronic adding machine
1 tape dispenser
Prescription Section - South Side
18 feet "Prescription" sign overhead
15 feet Prescription counter formica top
12 feet prescription door shelving (Schwartz type)
3 feet metal wall shelving
4 feet wood wall shelving
1 Kenmore refrigerator
1 metal prescription file unit
1 Victor safe
Infonet computer system (owner F Dohmen Co. - month-by-month charge)
IBM electric typewriter
1 calculator
Phone system - 4 in pharmacy; 1 in office
Assorted pharmacy books and manuals
Tape dispensers
Radio
Assorted pharmacy implements
Assorted tools
Metro alarm burglar system
Pharmacy Storeroom
1 Norand computer system (older model)
3 feet wood shelving
Pharmacy sink
1 torsion balance
Miscellaneous pharmacy implements
1 microwave oven
15 feet wall shelving, wood and metal
1 step ladder
Label dispensers
Waste container
1 Panasonic commercial vacuum cleaner
Rolodex files
Bulk scale
Office Upstairs
3 chairs
1 wood desk
2 drawer metal file
1 adding machine
1 sharp TV security unit
Storeroom Basement
1 metal prescription file unit
Assorted shelving and metal pegs
SCHEDULE 3.1
LIABILITIES AND OBLIGATIONS ASSUMED
1. Promissory Note dated September 19, 1993 to Delano R. Nelson
EXHIBIT 10(b)
TRANSITION AGREEMENT
This Transition Agreement (the "Transition Agreement") is executed as
of the 31st day of October, 1996, by and between OPTION CARE, INC., a Delaware
corporation ("OCI"), and HEALTH OUTCOMES MANAGEMENT, INC., a Minnesota
corporation ("HOMI"), previously named Data Med Clinical Support Services, Inc.
WHEREAS, OCI and HOMI are parties to an Agreement dated as of February
1, 1994, as amended by Amendment I effective as of February 1, 1995 (together,
the "Agreement");
WHEREAS, the parties desire to terminate and supersede all terms of the
Agreement, to provide for the transfer of certain software tools from HOMI to
OCI, provide for certain training and support to OCI during a transition period,
to acknowledge ownership of FOCIS, and to provide for mutual releases from any
and all obligations arising out of the Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, OCI and HOMI hereby covenant, contract and agree as follows:
1. Definitions.
a. "Clinical/Quality Assurance Module" shall mean that part of FOCIS
developed by HOMI pursuant to the Prior Agreements and the Agreement, including,
without limitation, those portions of FOCIS that were derived directly or
indirectly from HOMI's version of the software program commonly known as the
"Assurance Homecare System(TM)." The definition of "Clinical/Quality Assurance
Module" shall not include the "Assurance Homecare System(TM)" currently marketed
by HOMI, nor shall it include any portion of "Assurance Homecare System(TM)"
that was not incorporated into FOCIS pursuant to the Agreement or the Prior
Agreements.
b. "Confidential Information" shall include, without limitation,
creations, properties, inventions, trade secrets, technical information,
copyrights, the Source Code, research, developments, data, records, computer
software, equipment, as well as patents and patent applications manufactured,
developed or used by OCI or HOMI which the parties do not disclose to the public
in the ordinary course of their business.
c. "FOCIS" shall mean the computer software system generally known
as "FOCIS" and all related software and documentation consisting of various
Functional Modules developed pursuant to the Prior Agreements and the Agreement.
d. "Functional Module(s)" shall mean a separate and discrete package
of Software having particular functional and performance characteristics
suitable for inclusion in FOCIS including without limitation, the
Clinical/Quality Assurance Modules, patient care plans, patient assessment
protocols, patient procedures, continuous quality improvement and
medication/treatment/physician orders.
e. "Person-week Training" shall mean five consecutive eight hour
days of one on one training by qualified HOMI personnel at HOMI offices to OCI
personnel or consultants pertaining to the FOCIS Software, including technical
support training.
f. "Source Code" shall mean a copy of the Source Code (the computer
instructions in human readable computer language form on magnetic media) to the
software, including all upgrades and enhancements plus any pertinent commentary
or explanation that may be used by programmers, programmer's notes (whether
imbedded in the source code or otherwise), instructions or information necessary
to understand and use the source code, including any MFS used by the system or
the source files (other than standard AREV MFS's) and any inserted or replaced
programs in any standard AREV file. The Source Code shall include all system
documentation, statements of principals of operation, and schematics in the
possession of HOMI, if any.
Any other initially-capitalized terms not otherwise defined in this
Transition Agreement shall have the meaning given such terms in the Agreement.
2. Termination of Agreement. Effective as of January 31, 1997, the
Agreement is terminated in its entirety, including those provisions that would
otherwise survive termination, and as of such date the Agreement shall be of no
further force or effect.
3. Support of FOCIS Users. Until January 15, 1997, HOMI shall continue
to provide support to end users of FOCIS pursuant to Section 6.2 of the
Agreement. In payment of such support, HOMI shall be entitled to the payments
described in Section 4.b, subject to the provisions of Section 4.d.
4. Payment and Terms. In lieu of any and all amounts due from OCI to
HOMI pursuant to the Agreement, whether currently due or otherwise hereafter
arising, OCI shall pay to HOMI the amounts set forth in this Section 4. Such
amounts shall be allocated to the various obligations of HOMI hereunder in OCI's
sole discretion. All such amounts shall be paid by OCI company check.
a. Execution Payment. Upon execution of this Transition Agreement,
OCI shall pay HOMI the amount of $171,000.00.
b. Support Payments. On each of November 15, 1996, December 15,
1996, and January 15, 1997 and subject to HOMI's obligations under Section 3
hereof, OCI shall pay HOMI the amount of $27,150.00 and HOMI agrees to continue
to provide support to End Users of FOCIS under the provisions of Section 6.2 of
the Agreement.
c. Final Payment. Upon completion of the training required to be
provided by HOMI pursuant to Section 7 hereof, but not earlier than January 15,
1997, OCI shall pay HOMI the amount of $15,000.00.
d. Requirement for Source Code Delivery. Notwithstanding the above
provisions, OCI shall be entitled to withhold and shall not be required to pay
any or all amounts due pursuant to Sections 4.b or 4.c until delivery by HOMI to
OCI the Source Code to FOCIS and the other items required to be delivered
pursuant to Section 5 hereof.
5. Source Code.
a. On or before the fourteenth (14th) calendar day following the
date of this Transition Agreement, HOMI shall deliver to OCI:
(1) a true, correct, and complete copy of the Source Code (as
defined above) of the latest version of FOCIS released to any user as
of the date of this Transition Agreement;
(2) a complete copy of the FOCIS software compiled from such
Source Code; and
(3) a copy of any compiler, routine or program not
commercially available used to compile such copy of FOCIS, provided
that if such compiler, routine or program is proprietary to HOMI, HOMI
shall provide a copy of the Source Code of such compiler, routine or
program.
b. HOMI represents and warrants that the compiler delivered pursuant
to Section 5.a.(3) is adequate to compile the FOCIS Source Code in a manner
consistent with prior compilations of such Source Code by HOMI.
6. Tools.
a. HOMI hereby grants to OCI a world-wide, paid-up, perpetual,
royalty-free, non-exclusive, transferable license to use, modify, alter,
enhance, sublicense, and distribute, and create derivative works of the software
programs and tools described in Attachment A, which software programs and tools
are also reflected as items 16, 38, 39, and 42 on Attachment A-1, (the "Tools").
This license is and shall be unlimited in scope and use, and includes, but is
not limited to, (i) the right of OCI to use the Tools in its own internal data
processing operations, wherever located and without respect to the type or
machine class of hardware used, (ii) to make an unlimited number of copies of
the Tools, and (iii) the unlimited and unrestricted right to license and
sublicense any and all present and future versions of FOCIS that contain the
Tools.
b. The license granted hereunder includes the right to allow third
party maintenance vendors of OCI, as well as third party maintenance vendors of
any party granted a sublicense of the Tools, to use the Tools in connection with
performing maintenance or technical support or services of any sort or
description.
c. All sublicenses of the Tools granted by OCI may be on such terms
and conditions as OCI shall in its sole discretion determine necessary or
proper. OCI will be under no duty to report to or notify Licensor of any such
grant of a sublicense nor to disclose the terms of any such sublicense.
d. The license hereby granted is a license to use, modify, alter,
enhance, and create derivative works of the source code of the Tools. OCI has
and shall have the right to contract with any third party to assist it in the
modification, alteration, and enhancement of the Tools and in the creation of
derivative works of the Tools. OCI has and shall have all right title and
interest in and ownership of any such modifications, alterations, enhancements,
and derivative works without the payment of any amount, fee, additional payment,
or royalty.
e. In addition to using the Tools for OCI's own internal data
processing operations, the license granted hereunder is a license for use of the
Tools for commercial time-sharing arrangements and for providing service bureau,
data processing, rental, and other services to third parties.
f. The license granted hereunder shall include the right to
sublicense and package the Tools to third parties in conjunction with any OCI
product. OCI may also appoint third parties to sell or license the Tools on its
behalf.
g. On or before fourteenth (14th) calendar day following the date of
this Transition Agreement, HOMI shall deliver the Tools to OCI in both Source
Code and object code form, together with any programmer's notes useful or
necessary for the effective understanding, maintenance and use of the Tools.
HOMI represents and warrants that it owns the Tools free of all liens, claims,
encumbrances, and interests of third parties and has the right to license the
Tools to OCI hereunder.
7. Training. HOMI shall provide training to OCI personnel in accordance
with the following schedule. OCI shall be responsible for paying for any
expenses incurred by OCI personnel in connection with such training. Such
training shall include, but not necessarily be limited to those items reflected
on Attachment B, hereto.
MONTH TRAINING
November, 1996 three Person-weeks
December, 1996 two Person-weeks
January 1-14, 1997 one Person-week
8. Transfer of Support Calls. OCI Bannockburn staff shall assume
responsibility for all First-Call Support calls beginning on January 16, 1997.
HOMI shall provide to OCI Bannockburn telephone assistance for the handling of
First-Call Support calls from January 16 to January 31, 1997 during the hours of
9:00 A.M. to 5:00 P.M. Central Standard Time. The hours of assistance shall be
determined by OCI but shall not exceed 160 hours.
9. Ownership. The parties acknowledge and agree that upon termination
of the Agreement pursuant to the terms of this Transition Agreement, all
property rights of any kind whatsoever including without limitation, all
patents, trademarks, copyrights, and trade secrets in and to all portions of
FOCIS whether created pursuant to the Agreement or the Prior Agreements,
including the Clinical/Quality Assurance Module, shall belong solely to OCI.
HOMI expressly represents, warrants, and covenants that neither it nor its
employees, consultants, agents, successors, or assigns shall in any way contest
the property rights of OCI relating to FOCIS. The provisions of this Section 9
shall survive indefinitely.
10. Mutual Release of All Claims.
a. Effective as of the termination of the Agreement, HOMI, for
itself, and for all of its stockholders, directors, officers, employees,
affiliates, successors and assigns, hereby releases, remises, acquits and
forever discharges OCI and all of its stockholders, directors, officers,
employees, affiliates, franchisees, successors, assigns, and each of them, and
each of their respective heirs, legal representatives and assigns, of and from
any and all manner of claims, actions, causes of action, suits, debts, dues,
accounts, contracts, agreements, continuing obligations, judgments, claims and
demands whatsoever, whether in law or in equity, which now exist or may
hereafter arise from any matter, fact, circumstance, happening or thing
whatsoever occurring or failing to occur as of the date of such termination
including, but not limited to any matter, fact, circumstance, happening or thing
occurring or failing to occur in connection with or related to any agreement
between or among the parties or to any actions taken by them prior to the date
hereof, excluding only this Transition Agreement and claims for payment of
monetary obligations pursuant to this Transition Agreement.
b. Effective as of the termination of the Agreement, OCI, for
itself, and for all of its stockholders, directors, officers, employees,
affiliates, successors and assigns, hereby releases, remises, acquits and
forever discharges HOMI and all of its stockholders, directors, officers,
employees, affiliates, successors and assigns and each of them, and each of
their respective heirs, legal representatives and assigns, of and from any and
all manner of claims, actions, causes of action, suits, debts, dues, accounts,
contracts, agreements, continuing obligations, judgments, claims and demands
whatsoever, whether in law or in equity, which now exist or may hereafter arise
from any matter, fact, circumstance, happening, or thing whatsoever occurring or
failing to occur as of the date of such termination, including, but not limited
to any matter, fact, circumstance, happening or thing occurring or failing to
occur in connection with or related to any agreement between or among the
parties or to any actions taken by them prior to the date hereof, excluding only
this Transition Agreement and claims for payment of monetary obligations or
damages and delivery of the Source Code pursuant to Section 5 and the Tools
pursuant to Section 6.g of this Transition Agreement.
c. OCI and HOMI, hereby represent, warrant, and acknowledge that the
mutual covenants, agreements and releases hereunder are made in good faith.
11. Covenant Not to Sue. OCI and HOMI hereby agree that they will not
institute any action against the other with respect to matters released
hereunder. Both parties retain the right to sue for breach of this Transition
Agreement.
12. No Admission of Liability. Neither of the parties hereto admits
liability to the other party hereto.
13. Confidentiality.
a. Each party agrees that it will keep confidential and not disclose
or divulge any Confidential Information acquired or accessed from the other
party or its employees, agents, or other third parties under any the Agreement
or any Prior Agreement, or in contemplation thereof. Each party shall hold the
Confidential Information of the other in strict confidence to the same extent
that it holds its own Confidential Information of like kind, but in no event
shall either party use less than due care, and each party shall not reveal the
same, except as consistent with this Transition Agreement and except for any
information which is: (i) generally available to or known to the public; (ii)
known to such party prior to the negotiations leading to any prior agreements;
(iii) independently developed by such party outside the scope of the all prior
agreements or the Agreement without reference to Confidential Information; or
(iv) lawfully disclosed by or to a third party or tribunal. If either party is
required by law to disclose any Confidential Information of the other party,
such party shall promptly notify the other party of such requirement so that
such other party may seek an appropriate protective order and/or waive
compliance with the provisions of this Transition Agreement. In the absence of a
protective order or the receipt of a waiver hereunder, if, in the written
opinion of its attorneys, a party is compelled to disclose any Confidential
Information under the sanction of contempt or other material penalty, such party
may disclose the affected Confidential Information without liability hereunder
upon notice to such other party.
b. Within thirty days following the execution of this Transition
Agreement, each party shall return to the other party Confidential Information
of such other party, excluding Confidential Information of HOMI that is needed
to support FOCIS and Confidential Information allowed to be retained pursuant to
this Transition Agreement. Neither party shall communicate nor distribute
directly or indirectly Confidential Information to third parties. This
restriction on communication and distribution applies to all employees, agents,
stockholders, directors, officers, affiliates, and successors of the parties.
Nothing in this Section shall require delivery to OCI any software tool listed
on Attachment A - 1 that was not purchased hereunder. Nothing in this Section 13
or in the definition of "Confidential Information" shall be deemed to transfer
to OCI any of HOMI's rights in HOMI's "Assurance Homecare System" or be deemed
to prevent HOMI from marketing or licensing such software to others.
14. Press Release. HOMI may issue a public announcement in the form of
that attached hereto as Attachment C regarding the execution of this Transition
Agreement or in such other form approved in writing prior to release by OCI's
general counsel.
15. Advertising. Neither party shall use the other party's name nor
reference the other party in any advertising or marketing or marketing material
or statement.
16. Defamation. Each party agrees not to defame or intentionally cause
injury to the other party's reputation, either through oral or by written
communication.
17. Rights of Successors and Assigns. All representations, warranties,
covenants, agreements and obligations hereunder made by or on behalf of the
parties hereto shall be binding upon and shall inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether or
not so expressed.
18. Entire Agreement. This Transition Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and all
promises, representations, understandings, warranties and agreements with
reference to the subject matter hereof and inducements to the making of this
Transition Agreement relied upon by any party hereto, have been expressed
herein.
19. Amendments, Waivers and Consent. Changes in or additions to this
Transition Agreement may be made, any required consent may be given, or
compliance with any term, covenant, agreement, condition or provision set forth
herein or therein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), only upon written consent
of the parties hereto; PROVIDED, HOWEVER, that no waiver or consent on any one
instance shall be deemed to be or be construed as a further or continuing waiver
of any such term or condition unless it expressly so provides.
20. Governing Law; Severability. This Transition Agreement shall be
deemed a contract made under the laws of the State of Illinois and, together
with the rights and obligations of the parties hereunder, shall be construed
under and governed by the laws of such State, without giving effect to the
conflicts or choice of law provisions thereof.
21. Counterparts. This Transition Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Effect of Headings. Any heading herein contained is for convenience
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Transition
Agreement as of the date first above written.
OPTION CARE, INC.,
a Delaware corporation
By:____________________________________
Name:
Title:
HEALTH OUTCOMES MANAGEMENT,
INC., a Minnesota corporation
By:____________________________________
Name:
Title:
ATTACHMENT A
The following are the four software tools ("Tools") to be delivered to
OCI within fourteen (14) days following execution of the Transition Agreement:
1. Medispan data tools (which allow creation of FOCIS compatible data
files from the medispan changes for both MDDB (monthly) and DTMS
(quarterly) installs and upgrades);
2. Inventory tools (which are tools used to clean out inventory data;
reset certain items to zero to restart a year; set balance on hand for
reconciliation, etc.);
3. Dispensing and billing tools (which are used to find invoices not
posted, rebuild AREC files from an invoice, math cash key pointers to
an AREC and put in list for processing; reset carrier in unbilled
dispense records/ blank balance fields in preselected invoices; check
AREC balances); and
4. Tools and procedures for adding companies to a site (the above 4 sets
of tools are listed as numbers 16, 38, 39 and 42 on the tools list
provided to OCI from HOMI).
The above Tools (being numbers 16, 38, 39, and 42 on Attachment A - 1)
are all of the software tools listed on Attachment A - 1 that OCI have elected
to purchase. OCI understands that HOMI have recommended that OCI purchase the
remaining software tools on such Attachment A - 1.
ATTACHMENT A - 1
ITEMS RECOMMENDED BY HEALTH OUTCOMES MANAGEMENT, Inc. TO BE INCLUDED IN A
TRANSITION PLAN.
1. Access to programmers knowledgeable in the focis modules related to
code and programming functions.
2. Access to support personnel knowledgeable in financial and billing
aspects of focis.
3. Access to support personnel knowledgeable in dispensing and inventory
aspects of focis.
4. Access to support personnel knowledgeable in clinical aspects of focis.
5. Access to support personnel knowledgeable in hardware/novell/OS /arev
nlm aspects of focis.
6. Access to support personnel knowledgeable in electronic communications
aspects of focis.
7. Access to personnel knowledgeable in code tracking and quality control
systems.
8. Access to written technical notes on topics related to focis regarding
support issues, setup issues, yearly procedures, common problem fixes,
file and data description and listings - general data useful for
training support staff.
9. Monitor utility: fully automated system for detecting file corruption
and inefficient files. Can be extended to catch any module specific or
data-specific errors. Greatly reduces support time caused by user
errors and hardware problems.
10. Database of focis reported problems, enhancements and bugs and their
status.
11. Library system for source code checkin/checkout - basic quality control
process for code control.
12. Upgrade system tied to source code library. Handles both scheduled
maintenance releases and emergency patches.
13. Customized record tracking: individual focis sites can have their own
version of certain records and procedures and programs totally
integrated with the library system; this system keeps track of site
specific changes.
14. Optional modules: system to allow modules to be created and maintained
that do not come with the base product but can be optionally installed
and still support the library and upgrade processes.
15. Install utilities: allows creation of install sets that can be used
on-line on a network for creating work and testing systems for
different versions of the system or files that can be generated to
floppy disks or other media.
16. Medispan data tools; allows creation of focis compatible data files
from the medispan changes for both MDDB (monthly) and DTMS (quarterly)
installs and upgrades.
17. Refresh utility: allows programmers to quickly apply a set of fixes to
their workbench system either locally of on a network area, greatly
reducing overhead time for the programmer.
18. Rename volume utility: system to allow more than one arev system on a
network or workbench to avoid system crashes caused by such
occurrences, necessary for efficient programming, installation in some
customer circumstances, and hardware usage, prevents file corruption.
19. Install library utility: complete system for maintaining existing
product releases, while allowing development to continue on new
features and modules for the product.
20. Transfer utility: easily moves install disk sets from the install
library to a set of floppy disks.
21. Zip utility: tools used to coordinate with pkzip product to compress
subdirectories for install or upgrade purposes.
22. Fix backup/fix restore utilities: allows a programmer to save and
restore all programs and records attached to a set of fixes, thus
allowing a quick and simple backup of the programmer's current work.
Used to move fixes easily from one workbench to another for additional
testing.
23. Relational index checker: makes sure that relational indexes are
accurate and not corrupted.
24. Report library: provides a holding area of all possible reports for a
product, from which users can select the reports they want for their
system; system then creates an upgrade disk to install those reports at
the site.
25. Procedure utilities: a set of tools needed to maintain, lock, define
skip questions and delete questions in the clinical documents.
26. Utilities to maintain the control information used by the QC system to
do it's work.
27. Harvest utility: allows transfer of data records from one system to
another; used to move procedures or other data from one site to another
or between offices and for support to get the data needed to track data
related problems reported by the users, greatly reducing time to solve
problems.
28. Delete fast attach utility: tool used to maintain an image of files
needed to be opened at login, allowing much faster login of the system.
Needed by support to fix certain problems related to crashes and
corruption.
29. Security function for maintaining additions and subtractions of items
in the system menus above the user level of restrictions used for
module control at the sites.
30. Report writing utilities: used by programming to greatly reduce the
time it takes to create reports from multiple files in the system.
31. Focis site definition database: allows tracking of the individual sites
customization and other qc information for that site.
32. Support menus: menus developed for the support staff for easy access to
many utilities used by them and to set flags in the system for site
choices of parameters for features in most modules.
33. Point of care utilities: install, upgrade and repair functions related
to the point of care programs.
34. Demo manager: utility for creating demo or training storyboards for the
focis system.
35. Focis site hardware and personnel database - lists site hardware,
people involved in different functions, people trained, phone numbers,
modules supported etc.
36. Call problem database - lists call history activity in detail by focis
site by problem.
37. General ledger utilities: unpost for a period and forward/clear out glt
records, rebuild GLM file/ recalc class code totals/ reset glt dates/
reset gl but keep glt data; items needed for glt crashes and end of
year problems created by user errors.
38. Inventory tools: tools used to clean out inventory data; reset certain
items to zero to restart a year; set balance on hand for
reconciliation, etc.
39. Dispense and billing tools; find invoices not posted, rebuild AREC file
from an invoice, math cash key pointers to an AREC and put in list for
processing; reset carrier in unbilled dispense records/ blank balance
fields in preselected invoices; check arec balances.
40. Programmer tools; show menus, usage reports for variables and routines,
menu tracking, equate builder, mass compile, find help, rebuild
indexes, clear files, document version check, required prompts color,
cleanup source files, fix reports and queries and searches; all very
useful for learning the code.
41. Close-up and pcanywhere setup/phone files and discussion.
42. Tools and procedures for adding companies to a site.
Items selected by OPTION CARE are #16, #38, #39, and #42.
ATTACHMENT B
Training Items
ATTACHMENT C
Approved Press Release
ATTACHMENT B
Overview of FOCIS system topology, including workstation and server
configurations, A-Rev NLM issues, operating system setup, etc. Have
HOMI discuss all the different configurations that exist for FOCIS
users (i.e., Novell, single user, concurrent DOS, etc.). Specific
issues (using Novell as an example):
* which versions of Netware work with FOCIS, and which ones do
not
* which versions of workstation drivers work, and which do not
* what do you need to do in order to increase the number of
users at the
* Novell level and at the AREV level.
* what are the hardware requirements for a server and for
workstations;
* what additional hardware is required,
* which FOCIS files are installed on the sever, and which on
each workstation, and on what directories/volumes do they need
to be; are there any special file attributes required (shared,
read only, etc.) - are users running the AREV NLM, and if not
- how do we upgrade a site to use the NLM.
* what is the operating environment of the workstations (DOS,
Windows 3.11, Windows 95) and how do we set up new
workstations at each operating environment.
* when using Windows 3.11 and Windows 95 workstations are there
any special considerations in running AREV and preventing
lock-ups and data corruption.
Discussion of FOCIS database, including identification of files,
dictionary structures, records of special significance to A-Rev.
Review of source codes, including how programs are organized in the
source files and where object files are located. Discussion of programs
with known bugs that require ongoing support.
Discussion of custom queries/reports through TCL or report writer, and
how custom requests have been handled in the past.
Resolutions of FOCIS database issues, such as billing_tx errors,
indexer errors, GFE errors, corrupted indexes, missing data
dictionaries, file optimization or resizing, etc.
Review of most common support problems reported by users. OCI will
provide a list to be considered a starting point based on support logs
received from HOMI, but welcome input from HOMI support team.
Resolution of printer problems association with FOCIS printer
definition files and configuration.
Review of month-end and year-end procedures.
Use of Medispan data tools for creation of monthly and quarterly
updates to be acquired from HOMI.
Use of dispense and billing tools to be acquired from HOMI.
Use of tools and procedures for adding companies to a site to be
acquired from HOMI.
ATTACHMENT C
FOR IMMEDIATE RELEASE
CONTACT: HEALTH OUTCOMES MANAGEMENT, INC. OPTION CARE, INC.
2331 UNIVERSITY AVENUE SE 100 CORPORATE NORTH, SUITE 212
MINNEAPOLIS, MN 55414 BANNOCKBURN, IL 60015
RUSSELL JACKSON, CFO JEFF FOX, CFO
WILLIAM PETER, PRESIDENT, CEO ERICK HANSON, PRESIDENT, CEO
(800) STAT-911 (800) 879-6137
(612) 378-3053
HEALTH OUTCOMES MANAGEMENT, INC.
ANNOUNCED NEW CONSULTING AGREEMENT
OCTOBER 31, 1996
MINNEAPOLIS, MN/BANNOCKBURN, IL - It was announced today that OPTION Care, Inc.
(a supplier of homecare services) has contracted with Health Outcomes
Management, Inc. (a developer and supplier of healthcare software systems) for a
consulting agreement for a series of training programs and software tools for
its home infusion therapy system called FOCIS. Financial terms of the agreement
have not been disclosed.
Health Outcomes Management, Inc. (previously known as Data Med Clinical Support
Services, Inc.), based in Minneapolis, Minnesota is a publicly-traded developer
and supplier of computer software and services focused in the area of managing
health outcomes per dollar. Healthcare professionals in community pharmacy,
long-term care facilities and hospitals utilize the Company's computerized
information management software to assist them in efficiently maintaining and
improving patient health care. The Company provides the information through the
following services: computer software designed to monitor outcomes per dollar of
expenditure; 24-hours a day, 7 days a week consultations via the 1-800-STAT-911
helpline; and training seminars. The Company's common stock currently is traded
via Bulletin Board and Pink Sheets under the symbol: "HOMI".
OPTION Care, Inc. is a full service home healthcare provider with a national
network of over 189 franchised and company-owned locations, representing over
$250 million in billings. It provides home infusion therapy, home health
nursing, respiratory therapy, durable medical equipment and other home health
services. The company is traded on the Nasdaq National Market System under the
symbol "OPTN".
EXHIBIT 11
<TABLE>
<CAPTION>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
Calculation of Earnings Per Share (1)
(Unaudited)
Three months ended Nine months ended
November 30, November 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings used in calculations:
Net income (loss) used in per
share calculation $ 118,426 $ 8,893 $ (18,258) $ 147,513
=========== =========== =========== ===========
Shares used in calculation:
Average number of shares outstanding 8,477,867 8,094,643 8,412,795 8,042,601
Additional shares issuable assuming
exercise of outstanding stock options 5,769 467,817 5,893 518,511
Additional shares issuable assuming
exercise of outstanding warrants 2,526 166,196 2,526 184,761
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding 8,486,162 8,728,656 8,421,214 8,745,873
=========== =========== =========== ===========
Income (loss) per common share .01 .00 (.00) .02
=========== =========== =========== ===========
</TABLE>
(1) Earnings per share assuming full dilution are not different from primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 16,761
<SECURITIES> 0
<RECEIVABLES> 190,319
<ALLOWANCES> 15,000
<INVENTORY> 67,084
<CURRENT-ASSETS> 278,300
<PP&E> 684,728
<DEPRECIATION> 557,282
<TOTAL-ASSETS> 463,774
<CURRENT-LIABILITIES> 412,297
<BONDS> 43,549
0
0
<COMMON> 84,990
<OTHER-SE> (77,062)
<TOTAL-LIABILITY-AND-EQUITY> 463,774
<SALES> 1,974,791
<TOTAL-REVENUES> 1,974,791
<CGS> 1,183,418
<TOTAL-COSTS> 798,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,074
<INCOME-PRETAX> (18,258)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,258)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,258)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
