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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________ to________________
Commission File No.0-19878
OPTION CARE, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3791193
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
100 Corporate North, Suite 212, Bannockburn, Illinois 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 615-1690
Securities registered pursuant to Section 12(b) of the Act:
None
--------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value per Share
--------------------------------------
Title of Each Class
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 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
--------- ---------
Indicate by check mark if 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 registrant's knowledge,in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates
of the registrant as of January 30, 1998 was approximately $15,100,000
(based on closing sale price of $3.375 per share as reported by the
Nasdaq National Market and published in the Wall Street Journal.)
The number of shares of the registrant's Common Stock, $.01 par
value,outstanding as of February 27, 1998 was 10,805,017.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of Stockholders are incorporated by reference into items 10-13
in Part III of this Report.
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OPTION CARE, Inc.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I: Page
Item 1. Business................................................... 3
Item 2. Properties................................................. 11
Item 3. Legal proceedings.......................................... 12
Item 4. Submission of matters to a vote of security holders........ 13
Item 4(a). Executive officers of registrant........................... 13
PART II:
Item 5. Market for registrant's common equity and
related stockholder matters.............................. 15
Item 6. Selected financial data.................................... 16
Item 7. Management's discussion and analysis of financial
condition and results of operations...................... 18
Item 7(a). Quantitative and qualitative disclosures about market risk. 23
Item 8. Financial statements and supplementary data................ 23
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure...................... 40
PART III:
Item 10. Directors and executive officers of the registrant......... 40
Item 11. Executive compensation..................................... 40
Item 12. Security ownership of certain beneficial owners
and management........................................... 40
Item 13. Certain relationships and related transactions............. 40
PART IV:
Item 14. Exhibits, financial statement schedules, and
reports on Form 8-K...................................... 40
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Annual
Report on Form 10-K and other materials filed or to be filed by the Company with
the Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are or will be forward-looking, such as statements
relating to acquisitions and other business development activities, future
capital expenditures and the effects of future regulation and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by, or on behalf of, the Company. These risks and uncertainties include,
but are not limited to, uncertainties affecting businesses of the Company and
its franchisees relating to acquisitions and divestitures (including continuing
obligations with respect to completed transactions), sales and renewals of
franchises, government and regulatory policies (including federal, state and
local efforts to reform the delivery of and payment for healthcare services),
general economic conditions (including economic conditions affecting the
healthcare industry in particular) the pricing and availability of equipment and
services, technological developments and changes in the competitive environment
in which the Company operates.
2
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PART I
Item 1. BUSINESS
Introduction
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Option Care, Inc. (together with its subsidiaries, collectively "Option
Care" or "the Company") provides infusion therapy and other ancillary
home healthcare services through its owned locations and through it
supporting franchise network. The Company was incorporated in Delaware
on July 9, 1991. The Company's predecessor was incorporated in
California in January 1984.
Option Care has established a nationwide presence. The advantages of a
national presence include strong brand identity and accessibility for
managed care payors and customers. As of December 31, 1997, 164 Option
Care infusion therapy locations, including satellite locations, were
operating in 34 states. Existing locations include 138 locations owned
and operated by franchise owners and 26 locations owned and operated by
the Company. Aggregate gross billings for patient care services for all
owned and franchised Option Care locations were approximately
$279,000,000 for the year ended December 31, 1997.
The Company also owns and operates other ancillary healthcare
businesses which provide nursing, respiratory therapy or durable
medical equipment. The Company operated 13 such locations at December
31, 1997. The Company may increase the number of its owned infusion
therapy and ancillary healthcare locations through acquisitions or
start-ups.
The Company and its franchises have formed networks to provide managed
care companies and payors with one-stop shop services. Many referral
sources, such as hospitals, physicians, third-party payors and case
management companies, may prefer making patient referrals to
multi-office companies or systems, such as the Option Care system.
Under the Company's OPTIONET(R) program, the Company has contracted
with certain regional and national third-party payors and case
management companies to refer patients to participating Option Care
locations.
The Company is committed to the provision of quality care and believes
that an important measure of quality in the home healthcare industry is
accreditation by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO") or similar organizations. As of December 31,
1997, 91.0% of the Company's franchised locations were accredited and
32.0% were accredited with commendation. In addition, 100.0% of the
Company's owned infusion therapy locations were accredited and 54.0%
were accredited with commendation. All new franchises since April 1,
1990 have been required by the Company to apply for accreditation
within their first year of operation. The Company's goal is for
substantially all Option Care locations to become accredited.
The Company plans to continue to expand and develop its business
through (i) selective entry into new market places through alliances,
acquisition or start-ups, (ii) providing managed care companies and
payors one-stop services through owned or networked providers, (iii)
entering into strategic alliances with outpatient services providers,
hospitals, physicians and payors, and (iv) increasing the volume of
current therapies and adding new therapies and services. To meet the
Company's objectives, existing debt may need to be refunded and
additional debt or equity financing may be required. The Company can
give no guarantees that such financing will be available or available
at an acceptable cost.
3
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The Home Healthcare Market
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Home healthcare principally involves the in-home or non-hospital
provision of nursing services, infusion therapy, respiratory services
and durable medical equipment. These services often begin during
hospitalization and continue in the home or other non-acute care
setting, but may also be provided following outpatient surgery or in
connection with the treatment of conditions not requiring
hospitalization.
The market for home healthcare services has experienced significant
growth. The Company believes that the following factors have
contributed to this growth: (i) cost containment efforts by third-party
payors promoting use of relatively less expensive home healthcare
therapy rather than more expensive hospital stays; (ii) increased
awareness and acceptance among physicians and third-party payors of
alternatives to in-hospital treatment; (iii) the desire of patients to
be treated at home; and (iv) improved technology. Consolidation of
providers has been a recent dominant trend in the home healthcare
industry.
Services
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The Company is a direct provider of infusion therapy and other home
healthcare services with a supporting franchise network. The Company
provides infusion therapy, nursing services, respiratory therapy and
durable medical equipment through its owned locations and infusion
therapy through its franchise network. The Company's franchise network
locations compound, dispense and administer pharmaceuticals, sell
medical supplies, sell or rent associated durable medical equipment,
provide skilled nursing services, train patients and their care givers,
consult with attending physicians, and process reimbursement claims.
The decision to proceed with alternate-site therapies is generally made
jointly by the patient, the attending physician and a representative of
the Option Care location involved. This decision involves obtaining and
evaluating information about the patient's medical history, care
environment and insurance coverage, as well as discussing the patient's
or care giver's willingness and ability to participate in the
management of care in the home setting.
Approximately 82% of the Company's patient care service revenue is
derived from home infusion therapy related services. The principal home
infusion therapies include the following:
Total Parenteral Nutrition ("TPN")
TPN involves the intravenous administration of life sustaining
nutrients to patients whose digestive tracts are unable to function
normally due to severe gastrointestinal illness or injury. In many
cases the TPN patient's underlying condition is chronic in nature and
he or she may require TPN for life.
Anti-infective Therapy
Anti-infective therapy involves the parenteral administration of
antibiotics, antivirals and antifungals to treat a variety of serious
infections such as those associated with AIDS, osteomyelitis,
endocarditis, urinary tract infection or wounds. Anti-infective therapy
is generally administered in the patient's home as a continuation of
therapy initiated on an outpatient basis or during hospitalization.
4
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Pain Management Therapy
Pain management therapy is the parenteral administration of analgesic
drugs to patients suffering from acute or chronic pain. Specialized
infusion devices permit patients to control the administration of
analgesic drugs to respond to the severity of their pain.
Enteral Nutrition
Enteral patients are usually unable to receive adequate nutrition
orally due to disorders including stroke, intestinal obstruction or
cancer. Patients receive nutritional formulas via a tube placed
directly into the stomach or small intestine, bypassing the
dysfunctional portion of the patient's digestive system.
Chemotherapy
Chemotherapy is the parenteral administration of drugs to treat
patients suffering from cancer. As chemotherapy is commonly
administered periodically for several weeks or months, patients may
receive their therapy regimen in alternate settings.
Other therapies provided by Option Care locations may include: (i)
hydration therapy; (ii) blood components (packed red blood cells,
Factor VIII and immunoglobin); (iii) human growth hormone; (iv)
aerosolized pentamidine for prevention of pneumonia often contracted by
AIDS patients; (v) intradialytic parenteral nutrition for chronic
kidney failure patients; (vi) deferoxamine for patients with chronic
iron overload; and (vii) pre-term labor monitoring and tocolytic
infusions for high-risk pregnancies.
The following table sets forth the aggregate percentages of home
infusion therapy revenues by therapy of Company-owned locations for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Total parenteral nutrition therapy........................................... 10% 19% 22%
Anti-infective therapies..................................................... 56 34 37
Pain management therapy...................................................... 6 8 8
Enteral nutrition therapy.................................................... 3 10 7
Chemotherapy................................................................. 4 4 5
Other therapies or services.................................................. 21 25 21
---- ---- ----
Total.................................................................. 100% 100% 100%
==== ==== ====
</TABLE>
Approximately 12% of the Company's patient care service revenue is
derived from nursing services. Option Care's nursing services include
providing support for infusion therapies and providing traditional home
health nursing services, skilled nursing services and private duty
services. These nursing services include patient assessment, training,
monitoring, documentation and physician communication.
In addition to the services mentioned above, Option Care derives
approximately 6% of its patient care service revenue from the sale and
rental of durable medical equipment (DME) and respiratory therapy.
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Company-owned Locations
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The Company operates and owns controlling interests in the following
Option Care locations:
<TABLE>
<CAPTION>
% Date of Owned by
Ownership Commencement Company
Owned Locations Interest of Operations Since
- --------------- ---------------------------------------------------------
<S> <C> <C> <C>
Chico, California.. ......... 100 April 1980 January 1984
Columbia, Missouri........... 100 March 1985 April 1992
Bethlehem, Pennsylvania...... 80 November 1986 May 1992
Horsham, Pennsylvania........ 80 February 1989 May 1992
Bullhead City, Arizona....... 100 March 1988 April 1993
Bellingham, Washington....... 100 November 1984 November 1993
Omaha, Nebraska.............. 100 May 1984 August 1994
Grand Junction, Colorado..... 100 December 1991 November 1994
Houston, Texas............... 100 January 1988 January 1996
Jefferson City, Missouri..... 100 May, 1988 March 1996
Milford, Ohio................ 100 July 1987 April 1996
Everett, Washington.......... 100 April 1985 May 1996
Bellaire, Texas.............. 100 May 1994 June 1996
Oklahoma City, Oklahoma...... 100 April 1986 September 1996
Grand Medical, Colorado...... 100 February 1981 October 1996
Kennewick, Washington........ 100 September 1985 December 1996
Miami, Florida............... 100 July 1984 March 1997
Ann Arbor, Michigan.......... 100 September 1990 March 1997
Brandon, Florida............. 100 July 1984 March 1997
Lincoln, Nebraska............ 100 June 1984 May 1997
Grand Island, Nebraska....... 100 November 1986 May 1997
Vista, California............ 100 April 1986 May 1997
Victorville, California...... 100 November 1985 May 1997
Grand Haven, Michigan........ 100 December 1989 June 1997
St. Louis, Missouri.......... 100 June 1995 June 1997
Denver, Colorado............. 100 September 1997 September 1997
</TABLE>
Franchising Program
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As of December 31, 1997, the Company had 138 franchise locations. The
Company's current franchise agreement grants the franchise owner the
authority to own and operate an Option Care franchise within a granted
territory for a 20-year term. The initial franchise fee for start-up
franchises generally range from $15,000 to $35,000 and is payable by
the franchise owner upon execution of the franchise agreement. The
exact amount of the initial franchise fee is determined by the Company
based on the population in the territory granted to the franchise
owner. Conversion franchise fees are lower than those for start-ups.
The Company's franchise agreements generally provide for royalties on a
sliding scale ranging from a high of 9% to a low of 2% of annual gross
cash receipts depending on the levels of such receipts, whether the
franchise owner conducted a similar business prior to the execution of
the franchise agreement, and other factors.
Each franchised Option Care location is required to maintain a licensed
pharmacy equipped to prepare sterile patient medications and parenteral
solutions as prescribed by the patient's physician. Each location
operates under a confidential, proprietary system developed by the
Company which includes procedures for quality assurance, office
administration and patient care, consistency and uniformity of
pharmaceuticals and offered services, initial training and ongoing
assistance.
6
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Key employees of each franchised Option Care location, including the
director of pharmacy, director of nursing, and general manager, must
complete initial training programs provided by the Company. In addition
to required initial training, the Company may offer advanced training
in selected topics to franchise owners and their employees. The
Company's initial training and ongoing support provided to its owned
and franchised locations stresses the importance of responsive service.
In addition, the Company makes available to Option Care franchisees
marketing and operating support services.
The Company's franchise agreements require, among other things,
franchise owners to meet the Company's policies on quality assurance,
clinical services and local marketing and to obtain liability insurance
protecting the franchise owner against claims arising out of the
operation of the franchised business.
The Company conducts an annual franchise owners meeting to offer
operating suggestions, information on new Option Care programs, and
other information. The Company also works with its franchise owners'
National Advisory Council in communicating with franchise owners and
receiving their recommendations for changes and improvements to the
Option Care system.
The following table indicates the number of Option Care franchise
locations at the beginning of the year, the number of new franchises
sold, the number of franchises terminated, consolidated or purchased
and the number of franchises at the end of each year in the three-year
period ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of franchise locations at beginning of year..... 164 166 173
New franchises opened.................................. 4 13 13
Franchises terminated, consolidated or purchased....... 30 15 20
---- ---- ----
Number of franchise locations at end of year........... 138 164 166
==== ==== ====
</TABLE>
Reimbursement for Services
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Most of the patient care revenues of owned Option Care locations are
derived from third-party payors, such as insurance companies, health
maintenance organizations, self-insured employers, Medicare and
Medicaid. Where permitted by law or contract, patients are billed for
amounts not reimbursed by third-party payors. Private third-party
payors typically reimburse more for a given service and reimburse for a
broader range of benefits than government sponsored programs. Private
third-party payors may reimburse more slowly than governmental payors
which accept electronic transmission of claims.
Reimbursement from Medicare and Medicaid programs is subject to
statutory and regulatory requirements, administrative rulings,
interpretations of policy, implementation of reimbursement procedures,
retroactive payment adjustments and governmental funding restrictions,
all of which may materially affect payments to home healthcare
providers.
Reimbursement of home healthcare is covered to varying degrees by
third-party payors. Obtaining reimbursement can be subject to delays
and is not always assured. Slower receivable collections may result in
a need for higher levels of short-term financing. Lack of adequate
financing may limit growth.
7
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The following table sets forth the approximate percentages of revenues
attributable to private and government reimbursement sources for
Company-owned locations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Private insurance and other private payors...... 60% 55% 58%
Medicare, Medicaid and other governmental
programs..................................... 40 45 42
---- ---- ----
Total..................................... 100% 100% 100%
==== ==== ====
</TABLE>
Sales and Marketing
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Generating patient referrals is vital to the success of any home
healthcare business. Option Care locations are required to employ sales
personnel whose primary responsibility is to market Option Care
services to potential referral sources. Marketing efforts focus on area
hospitals, physicians, managed-care and other payors and case
management companies. The active role which general managers and
franchise owners typically play in the operation of the business also
helps create a focused effort on developing the market for each
location.
The Company has established a program called OPTIONET(R), through which
the Company contracts with certain regional and national third-party
payors (e.g., insurance companies, health maintenance organizations and
large self-insured employers) to refer patients to participating Option
Care locations. Under OPTIONET(R) agreements, each participating Option
Care location provides local services for covered patients. Based on
payor preference or requirements, Option Care locations bill the payor
directly for services rendered, or the Company arranges for a
third-party billing service to bill the payor for a billing fee.
The Company maintains a National Advertising and Education Fund for
educational programs for franchises and marketing the services of
Option Care locations to patient referral sources such as physicians,
hospitals, nursing agencies, third-party payors and case management
companies, and for the cost of educational programs for franchise
owners. Option Care locations are required to contribute at various
rates up to 1 1/2% of gross receipts to this fund.
Suppliers
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Option Care locations must purchase pharmaceuticals, supplies,
equipment and services relating to their businesses from suppliers
which satisfy certain standards and possess adequate quality controls.
The Company may derive revenue through administrative fees received
from contracted manufacturers.
Neither the Company nor its franchises have experienced significant
difficulty in purchasing pharmaceuticals, supplies or equipment. In the
event that current suppliers cease to sell pharmaceuticals, supplies or
equipment to the Company or its franchises, the Company believes that
alternate sources can be located without undue burden, which would
adequately meet their needs.
8
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Government Regulation
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Health Care Regulation
Home healthcare is subject to regulation by the various states in which
the Company and its franchise owners conduct their businesses, as well
as by the federal government. Option Care locations are subject to
federal, state and local laws (including licensing laws) governing
pharmacies, home health agencies, nursing services, health planning and
professional conduct. Each Option Care location must be appropriately
registered with the United States Food and Drug Administration and Drug
Enforcement Administration and comply with record keeping and inventory
requirements for the dispensing of controlled substances. Although the
Company provides its franchised locations guidance in compliance with
regulatory requirements, it is not responsible for such compliance. The
failure of an Option Care location to obtain, renew or maintain any
required regulatory approvals or licenses could adversely affect that
location and could prevent such location from offering services to
patients.
To the extent Option Care locations provide services under Medicare,
Medicaid and other governmental programs, they are subject to a broad
body of laws regulating those programs, including federal "fraud and
abuse" laws. Among other things, these laws prohibit any bribe,
kickback or rebate in return for the referral of Medicare or Medicaid
patients. In addition, many of the states in which Option Care
locations operate have laws that prohibit certain direct or indirect
payments or fee-splitting arrangements between health care providers
that are designed to induce or encourage the referral of patients to,
or the recommendation of, a particular provider for medical products or
services. Several states restrict or prohibit referrals where a
physician has a financial relationship with the provider. In addition,
some states restrict certain business relationships between physicians
and pharmacies. State laws vary from state to state. The Company
exercises care in structuring its arrangements with health care
providers and referral sources to comply with the relevant statutes,
but there can be no assurance that such laws will ultimately be
interpreted in a manner consistent with the practices of the Company or
the franchise owners.
Other state and federal laws and regulations could also adversely
affect existing or future financial relationships between physicians
and health care businesses, including franchised businesses. The
Omnibus Reconciliation Act of 1993 prohibits physicians, subject to
certain exceptions, who have a "financial relationship" with an entity
from referring patients to that entity for the provision of "designated
health services" which may be reimbursed by Medicare or Medicaid. The
eleven "designated health services" include parenteral and enteral
nutrients, equipment and supplies; outpatient prescription drugs; and
durable medical equipment. With certain exceptions, this Act also
requires entities seeking payment from the Medicare and Medicaid
programs to report any ownership and compensation arrangements with
physicians. This federal law bars, with limited exceptions, physician
ownership of an Option Care franchised business.
The United States Department of Health and Human Services, Office of
the Inspector General ("OIG"), has been utilizing a civil statute, the
False Claims Act, in challenging Medicare billing practices. In
particular, the False Claims Act provides that any person who knowingly
presents, or causes to be presented, to an officer or employee of the
United States Government or a member of the Armed Forces of the United
States a false or fraudulent claim for payment or approval is liable to
the United States Government for a civil penalty of $10,000, plus 3
times the amount of damages which the Government sustains because of
the act of that person.
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It is the Company's understanding that the OIG considers each claim
that is submitted for reimbursement to the Medicare program to be a
claim for purposes of the False Claims Act. Accordingly, if 100 claims
are submitted knowingly containing false or fraudulent information, the
party submitting the claim may be liable for not only treble damages,
but also $1,000,000 in fines.
New healthcare legislation is promulgated on an ongoing basis and could
impact providers of Option Care services, although it is not possible
at this time to predict the nature or extent of any impact upon the
Company or the franchised businesses.
The Company is unable to predict whether any new legislation or
regulations may be enacted in the future which may affect the business
of the Company, Option Care locations or the health care industry,
including third-party reimbursement. Accordingly, the Company cannot
predict whether any such new legislation or regulations would have a
material adverse impact on the Company.
Franchise Regulation
The Company's franchising operations are subject to Federal Trade
Commission ("FTC") regulation and state laws which regulate the offer
and sale of franchises. The Company is also subject to a number of
state laws which regulate substantive aspects of the relationship
between franchisors and franchise owners.
The FTC's Trade Regulation Rule on Franchising (the "FTC Rule")
requires the Company to furnish prospective franchise owners with a
franchise offering circular containing information prescribed by the
FTC Rule. At least 12 states presently regulate the offer and sale of
franchises and, in almost all cases, require registration of the
franchise offering with state authorities.
State laws which regulate the relationship between franchisors and
franchise owners presently exist in a substantial number of states.
Such laws regulate the franchise relationship by, for example,
requiring the franchisor to deal with its franchise owners in good
faith, prohibiting interference with the right of free association
among franchise owners, and limiting the imposition of standard
charges, royalties or fees. These laws have not precluded the Company
from seeking franchise owners in any given area and have not had a
significant effect on the Company's operations.
The Company is not aware of any pending franchise legislation which in
its view is likely to significantly affect the operations of the
Company. The Company believes that its operations comply substantially
with the FTC Rule and applicable state franchise laws.
Competition
- -----------
The home healthcare market is intensely competitive. Although the
market is somewhat fragmented, there are several major providers of
home healthcare services and increasing pressures toward market
consolidation. There are certain other national competitors who are
larger and have greater resources than those of the Company.
Competition varies by market location. Option Care's competitors
include numerous small, local companies and physician groups, major
national and regional companies, hospital-based programs, and nursing
agencies. To the extent that the Company acquires or otherwise enters
new areas, the Company may face additional competition.
In addition, new competitors may enter the home healthcare market and
existing competitors may expand the variety of services that they
offer. Option Care locations compete on the basis of a number of
factors, including quality, consistency, responsiveness and diversity
of services; geographic coverage; the ability to develop and maintain
goodwill or contractual relationships with referral sources such as
10
<PAGE>
hospitals, managed care providers, physicians and other related
entities; and price. Option Care continues to develop ways to present
comprehensive home healthcare services in response to payor interest in
"one stop shop" home care service. Purchasing, diversification and
network development are alternative routes to providing this service.
Service Marks ------------- The Company has registered with the federal
government OPTION CARE(R), among others, as a service mark. The Company
believes that this service mark is becoming increasingly recognized by
many referral sources as representing a reliable, cost-effective source
of home healthcare services. The Company believes that its use of this
service mark does not violate or otherwise infringe on the rights of
others.
Employees
- ---------
At December 31, 1997, the Company employed 635 persons on a full-time
basis and 521 persons on a part-time basis. Of the Company's full-time
employees, 68 were corporate management and administrative personnel
and the remaining 567 were employees of Company-owned locations,
primarily in clinical, management and administrative positions.
The Company considers its employee relations to be good. None of the
Company's employees are covered by a collective bargaining agreement.
Insurance --------- The Company currently maintains insurance for
general and professional liability claims in an aggregate amount which
it believes to be sufficient given the nature of its business. In
addition, the Company maintains insurance for vicarious liability of
the Company, if any, for the acts and omissions of its franchises, and
the Company requires each franchise to maintain general liability
insurance and professional liability insurance on each of its
professionals, in each case covering both the franchise and the
Company, with coverage at levels which the Company believes to be
sufficient. These policies generally provide coverage on a claims made
or occurrence basis and have certain exclusions from coverage. These
insurance policies must generally be renewed annually. There can be no
assurance that insurance coverage will be adequate to cover liability
claims that may be asserted against the Company or that adequate
insurance will be available in the future at acceptable cost. To the
extent that liability insurance is not adequate to cover liability
claims against the Company, the Company will be responsible for the
excess.
Item 2. PROPERTIES
The Company maintains executive offices at 100 Corporate North, Suite
212, Bannockburn, Illinois 60015, consisting of approximately 19,645
square feet of leased space.
11
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At December 31, 1997, the Company owned operations located in Chico,
CA, Columbia, MO, Bethlehem, PA, Horsham, PA, Bullhead City, AZ,
Bellingham, WA, Omaha, NE, Grand Junction, CO, Houston, TX, Jefferson
City, MO, Little Rock, AR, Milford, OH, Everett, WA, Oklahoma City, OK,
Kennewick, WA, Miami, FL, Ann Arbor, MI, Lincoln, NE, Grand Island, NE,
Vista, CA, Victorville, CA, Grand Haven, MI, Brandon, FL, St. Louis,
MO, and Denver, CO. These locations consist of approximately 183,602
square feet in total.
All of the Company's locations are leased by the Company with remaining
lease terms ranging from one month to five years. All of the Company's
locations are in good condition and well maintained, and are adequate
to fulfill the operational needs of the Company for the foreseeable
future.
Item 3. LEGAL PROCEEDINGS/LITIGATION
On October 14, 1997, plaintiffs filed a lawsuit entitled
Criticare Home Health Service, Inc. and Marguerite Quinlan v.Option Care, Inc.,
- --------------------------------------------------------------------------------
Option Care Enterprises, Inc. et al.,Case No. 97-23448 in the Circuit Court
- -----------------------------
of the Eleventh Judicial Circuit for Dade County, Florida. Plaintiffs allege
various causes of action including interference with advantageous business
relationship andconspiracy stemming from the Company's decision to purchase the
assets of the Company's former Miami franchise and not to purchase the assets of
Criticare. Upon receiving the complaint, the Company immediately prepared and
filed a motion to dismiss plaintiffs' complaint for failing to state a cause of
action against Option Care, Inc. and Option Care Enterprises, Inc. The Company
will continue to aggressively defend this lawsuit.
On March 21, 1997, Genzyme Corporation filed a complaint entitled
Genzyme v. Option Care, Inc., et al., Case No. N744262, involving a former
- -------------------------------------
Option Care franchise, in the Superior Court of the State of California for the
County of San Diego. The complaint alleges that Genzyme is entitled to
approximately $192,000 based on the Company's former franchisee's failure to pay
for various goods, wares, merchandise and services. Specifically, the causes of
action against Option Care, Inc. are based on the theory that it is a "successor
in interest" to the former franchisee's business, assets, and liabilities. The
case is in the discovery stages of litigation, and the Company plans to
vigorously defend and seek dismissal of the case.
On January 17, 1995, an action entitled Dennis H. Birenbaum v. Option
-----------------------------
Care, Inc., Case No. 95-439, was filed with the District Court of Dallas County,
- ----------
Texas. Plaintiff alleged breach of contract, promissory estoppel and negligent
misrepresentation concerning an alleged agreement for the sale and purchase of
Plaintiff's company. In response, the Company produced evidence showing no
agreement was ever made. The plaintiff's lawsuit was dismissed and the Company
was awarded summary judgment by the Court. Most recently, the plaintiff
petitioned the Texas Supreme Court for further review. The Supreme Court
declined to review the case.
On January 28, 1994, an action entitled George Harvey v. Option Care,
-----------------------------
Inc., et al. (U.S. District Court, Clark County, Nevada, Case No. A329456), was
- ------------
filed against Option Care, Inc., Option Care Enterprises, Inc., a former
employee of Option Care Inc., and the corporate owner of the Las Vegas Option
Care franchise and two of its employees. At the time the action was filed,
Option Care Enterprises, Inc. managed the Las Vegas Option Care office through a
management agreement. The plaintiff is pursuing claims for breach of contract,
breach of fiduciary duties, fraud, negligent misrepresentation and breach of
12
<PAGE>
implied covenant of good faith and fair dealing relating to the performance of
the Management Agreement. The Company has filed a motion to dismiss, which was
granted on April 1, 1994 regarding the alleged breach of fiduciary duty, breach
of contract and fraud. There has been no subsequent pursuit of the remaining
claims. Should the plaintiff pursue these claims in the future, the Company will
vigorously contest such claims.
Despite the inherent uncertainties of litigation, management of the
Company at this time does not believe these lawsuits will have a material
adverse impact on the financial position or results of operations of the
Company.
The Company is also a party to other legal proceedings incidental to
its business. The Company does not believe that these other legal proceed-
ings will have a material adverse impact on its financial position or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through the
solicitation of proxies, or otherwise during the fourth quarter of the fiscal
year ended December 31, 1997.
Item 4(a). EXECUTIVE OFFICERS
The names, ages and positions of the executive officers of the Company are set
forth below. Executive officers of the Company serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dr. John N. Kapoor 54 Chairman and Director
Erick E. Hanson 51 President, Chief Executive Officer
and Director
Cathy Bellehumeur 47 Senior Vice President,General Counsel
and Secretary
James A. Hodges, Jr. 59 Senior Vice President and Chief
Financial Officer
</TABLE>
All executive officers are elected for one year terms. There are no
family relationships between any of the Company's executive officers and
directors and there are no arrangements or understandings between any of the
executive officers and any other person pursuant to which the executive officer
was selected as an officer.
Dr. John N. Kapoor is currently the Company's Chairman of the Board and
has served in this capacity since October 1990. Dr. Kapoor served as Chief
Executive Officer from August 1993 through April 1996. In addition, Dr. Kapoor
is President of EJ Financial Enterprises, Inc., a position he has held since
April 1990. From June 1982 to April 1990, Dr. Kapoor held several positions
with Lyphomed, Inc., including Chairman, Chief Executive Officer and President.
13
<PAGE>
Mr. Erick E. Hanson joined the Company as Senior Vice President in April
1995, was appointed Executive Vice President and Chief Operating Officer in
August 1995, and was appointed Director and President in March 1996. Mr. Hanson
was appointed Chief Executive Officer in April 1996. From November 1991 to April
1995 Mr. Hanson held executive positions, including that of Vice President
Corporate Sales and Marketing, at Caremark, Inc., in Northbrook, IL. From April
1989 to November 1991 Mr.Hanson served as President and Chief Operating Officer
of Clinical Partners, Inc. in Boston, MA. Prior to April 1989, Mr Hanson was w
with Blue Cross & Blue Shield of Indiana for over twenty years, holding a
variety of executive positions with that organization.
Ms. Cathy Bellehumeur, Esquire, has been General Counsel since February
1994, Secretary since March 1994, Vice President since August 1994 and Senior
Vice President since January 1997. Prior to joining the Company, Ms. Bellehumeur
was an attorney in private practice with Ross & Hardies,Chicago, Illinois
from August 1991 to January 1994 and was previously with Godfrey and Kahn,S.C.,
in Milwaukee, Wisconsin.
Mr. James A. Hodges, Jr., CPA, has been Chief Financial Officer and
Senior Vice President since December 1997. Prior to joining the Company, Mr.
Hodges managed a consulting practice for eight years focusing on corporate
finance, corporate development and information technology. Mr. Hodges also has
served as the chief financial officer for two NYSE-listed companies, Pansophic
Systems, Inc. and Sargent Welch Scientific Company. Earlier in his career, Mr.
Hodges held the position of corporate treasurer at Baxter International, Inc.
For purposes of determining the aggregate market value of the Company's
common stock held by non-affiliates, shares held by all directors and executive
officers of the Company have been excluded. The exclusion of such shares is not
intended to, and shall not, constitute a determination as to which persons
may be "affiliates" of the Company as defined by the Securities and Exchange
Commission.
14
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "OPTN". The following table sets forth, for the periods
indicated, the high and low sales prices for the Company's common stock.
RANGE OF HIGH AND LOW SALES PRICE INFORMATION
<TABLE>
<CAPTION>
Calendar Quarter High Low
---------------- ---- ---
1997
----
<S> <C> <C> <C>
First Quarter $ 7.13 $ 5.25
Second Quarter $ 6.38 $ 4.25
Third Quarter $ 5.31 $ 2.75
Fourth Quarter $ 4.75 $ 2.63
1996
----
First Quarter $ 4.50 $ 3.12
Second Quarter $ 8.38 $ 4.12
Third Quarter $ 7.88 $ 5.75
Fourth Quarter $ 6.62 $ 4.75
</TABLE>
As of February 27, 1998, there were approximately 308 holders of record
of the Company's Common Stock. Closing price at February 27, 1998 was $4.375 pe
share as reported by the Nasdaq National Market.
The Company did not pay cash dividends in 1996 or 1997, and is prohibited
by its revolving credit agreement with PNC Bank from doing so. See Note 4 of
Notes to Consolidated Financial Statements.
On September 19, 1996 the Company sold two hundred fifty thousand (250,000)
unregistered shares of common stock of the Company to Linda J. Addison. No
underwriters were utilized in this transaction. This sale was made in
consideration of and in exchange for two hundred fifty (250) shares of Addison
Home Care, Inc. pursuant to an Agreement and Plan of Merger under which the
Company purchased all of the issued and outstanding shares of Addison Home Care,
Inc. These shares were not registered under (I) the Securities Act of 1933, as
amended (the "Act"), by reason of an exemption to registration provided under
Section 4(2) of the Act; (II) The Illinois Securities Law of 1953, as amended,
by reason of their issuance pursuant to the exemption provided by Section 3(g)
and the rules and regulations promulgated thereunder or (III) the Texas
Securities Act, as amended by reasons of their issuance pursuant to the
exemption provided by Section 6(F) and the rules and regulations promulgated
thereunder. In order to convert these unregistered shares into registered shares
Linda J. Addison must send written notice to the Company demanding that all of
such unregistered shares in the Company be registered under the Act, which
demand must be made within one year of the date of the sale, or such shorter
period as may be specified from time to time by Rule 144(a) under the Act or any
successor rule relating to the resale of "restricted stock".
15
<PAGE>
On September 19, 1996 the Company sold two hundred fifty thousand (250,000)
unregistered shares of common stock of the Company to Jerry G. Addison. No
underwriters were utilized in this transaction. This sale was made in
consideration of and in exchange for two hundred fifty (250) shares of Addison
Home Care, Inc. pursuant to an Agreement and Plan of Merger under which the
Company purchased all of the issued outstanding shares of Addison Home Care,
Inc. These shares were not registered under (I) the Securities Act of 1933, as
amended (the "Act"), by reason of an exemption to registration provided under
Section 4(2) of the Act; (II) The Illinois Securities Law of 1953, as amended,
by reason of their issuance pursuant to the exemption provided by Section 3(g)
and the rules and regulations promulgated thereunder or (III) the Texas
Securities Act, as amended by reasons of their issuance pursuant to the
exemption provided by Section 6(F) and the rules and regulations promulgated
thereunder. In order to convert these unregistered shares into registered shares
Jerry G. Addison must send written notice to the Company demanding that all of
such unregistered shares in the Company be registered under the Act, which
demand must be made within one year of the date of the sale, or such shorter
period as may be specified from time to time by Rule 144(a) under the Act or any
successor rule relating to the resale of "restricted stock".
On December 29, 1995 the Company sold sixty-five thousand eight hundred
eighty-seven (65,887) shares of unregistered shares of common stock of the
Company to Greg Steinhoff. No underwriters were utilized in this transaction.
This sale was made in consideration of and in exchange for one thousand (1000)
shares of Pharmacy I.V. Associates, Inc. and six thousand six hundred sixty-six
and two-thirds (6,666.2/3) shares of Home Care of Boone County, Inc. These
shares were not registered under (I) the Securities Act of 1933, as amended (the
"Act"), by reason of an exemption to registration provided under Section 4(2) of
the Act; or (II) Section 409.402(b)(10) of the Missouri statutes. Before Greg
Steinhoff may transfer any of such shares, Steinhoff shall give Company written
notice of his intention to effect such transfer, which notice shall describe the
manner of the proposed transfer and, if requested by Company, shall be
accompanied by an opinion of counsel, obtained by Steinhoff, satisfactory to
Company, to the effect that the proposed transfer may be effected without
registration under the Act or qualification under any applicable state
securities law.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company for each of the five years ended December 31, 1997. The selected
consolidated financial data are effected for the Company's acquisitions, all of
which were accounted for using the purchase method of accounting, except for
Oklahoma City, which was treated as a pooling of interests. This summary should
be read in conjunction with the consolidated financial statements of the
Company, including the related notes, included elsewhere herein.
16
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations Data:
(in thousands, except per share data)
Years Ended December 31,
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997(1) 1996(1) 1995 1994 1993
------- ------- ------- ------- -------
Revenues:
Patient care services........................ $81,104 $49,035 $41,989 $34,703 $23,861
Royalty fees and other....................... 9,966 12,193 12,517 11,915 12,323
Product sales................................ 8,907 9,293 10,997 15,401 16,659
------- ------- ------- ------ -------
Total revenues.............................. 99,977 70,521 65,503 62,019 52,843
------- ------ ------ ------ -------
Cost of revenues:
Patient care services operations............. 42,268 29,038 24,838 19,947 14,392
Products sold to franchises and patients..... 36,875 22,160 22,275 23,401 19,859
Total cost of revenues.................... 79,143 51,198 47,113 43,348 34,251
------- ------- ------- ------- ------
Gross profit................................... 20,834 19,323 18,390 18,671 18,592
Operating expenses:
Selling, general and administrative.......... 12,989 10,676 10,709 12,112 11,534
Provision for doubtful accounts.............. 5,750 1,861 1,653 1,899 2,044
Amortization of goodwill..................... 386 960 914 825 729
Asset write-offs and other charges .......... 3,902 24,164 --- 6,536 ---
Reorganization expenses .................. --- --- --- --- 4,250
------ ------- ------- ------- -------
Total operating expenses................... 23,027 37,661 13,276 21,372 18,557
------- ------- ------- ------- -------
Operating income (loss)........................ ( 2,193) (18,338) 5,114 (2,701) 35
Other income (expense), net.................... ( 1,144) 380 93 130 808
------- ------- ------- ------- -------
Income (loss) before income taxes.............. ( 3,337) (17,958) 5,207 (2,571) 843
Provision (benefit) for income taxes........... ( 1,240) 2,298 2,219 (593) 571
------- ------- ------- -------- -------
Net income (loss).............................. $( 2,097) $(20,256) $ 2,988 $(1,978) $ 272
========= ========= ======= ======== =======
Net income (loss) per common shares
outstanding (basic EPS) ..................... $ (0.20) $ (1.93) $ 0.29 $ (0.19) $ 0.03
--------- -------- ------- ------- -------
Net income (loss) per common and common
equivalent shares (diluted EPS).............. $ (0.20) $ (1.93) $ 0.28 $ (0.19) $ 0.03
========= ======== ======= ======== =======
Weighted average common shares outstanding..... 10,655 10,494 10,431 10,435 10,215
-------- -------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding........................... 10,655 10,494 10,500 10,435 10,383
======== ======= ======= ======= =======
</TABLE>
<TABLE>
Balance Sheet Data:
(in thousands)
December 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- -------- -------- -------- ------
Accounts receivable........................ $34,138 $20,558 $16,558 $16,575 $14,978
Working capital............................ 24,206 21,458 16,131 16,614 12,204
Intangible assets.......................... 19,895 9,832 30,328 30,554 30,720
Total assets............................... 68,639 44,041 58,997 59,525 60,314
Long-term debt............................. 28,801 12,461 6,696 9,517 6,759
Stockholders' equity....................... $21,977 $23,540 $43,506 $40,847 $43,209
</TABLE>
(1) Refer to Note 2 in the Notes to Consolidated Financial Statements for
information regarding businesses acquired in fiscal 1997 and 1996.
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Option Care, Inc. (the "Company") is a provider of infusion therapy and
other home healthcare services with a supporting franchise network. The Company
offers infusion therapy, nursing services, respiratory therapy and durable
medical equipment through its owned locations and infusion therapy through its
franchise network. The Company has also developed the capability to manage
networks of outpatient service providers.
Results of Operations
The Company's revenues are derived primarily from three sources:(i) patient
care services from Company-owned locations, (ii) royalty fees and other revenues
from franchise owners and (iii) product sales to the franchised locations.
Revenues from network management were immaterial during the reporting periods.
The following table sets forth the percentage relationships that certain items
from the Company's Consolidated Statements of Operations bear to total revenues
for the years ended December 31, 1997, 1996, and 1995.
This information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto contained elsewhere in this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C> <C>
Revenues
Patient care services 81.1% 69.5% 64.1%
Royalty fees and other 10.0 17.3 19.1
Product sales 8.9 13.2 16.8
-------- -------- -------
Total revenues 100.0 100.0 100.0
Gross profit 20.8 27.4 28.1
Selling, general &
administrative expenses 13.0 15.1 16.3
Provision for Doubtful Accounts 5.8 2.6 2.5
Operating income (loss) ( 2.2) (26.0) 7.8
Net income (loss) ( 2.1%) (28.7%) 4.6%
======== ======== =======
</TABLE>
1997 compared to 1996
For 1997, total revenues rose 41.8 percent to $99,977,000 from
$70,521,000 in 1996. Patient care services revenue rose 65.4 percent to
$81,104,000, primarily reflecting the results of 1997 acquisitions as well as a
full year's operations of the Company's 1996 acquisitions. Royalty fees and
other revenue decreased 18.3 percent to $9,966,000, reflecting the acquisition
of several large franchises in 1997. The Company sold four new franchises during
1997, and terminated, consolidated or purchased thirty franchises and joint
ventures, continuing the trend towards consolidation. Product sales revenue
decreased 4.2 percent to $8,907,000, due primarily to management's continued
transition to direct billing of franchisees by selected manufacturers, which is
expected to be completed by mid-1998. Management expects this transition to
continue to have a negative effect on gross profit
18
<PAGE>
but an immaterial impact on net income. The administrative fees that are
recognized on such sales are recorded as other income rather than as revenue.
Gross profit increased 7.8 percent for the year to $20,834,000,
primarily due to increased patient care services revenue. As a percentage of
total revenues, gross profit declined to 20.8 percent in 1997 from 27.4 percent
in 1996. The decline in gross margin is due primarily to changes in the
Company's revenue mix, specifically the decline in royalty fees and product
sales coupled with growth in patient care service revenue. Revenues from patient
care services (derived from Company-owned locations) have a higher cost of
revenue than royalty and other revenues derived from the Company's franchise
business. One owned location was sold in Ft. Myers, FL and two locations
(Jacksonville, FL and Gadsden, AL) were closed in 1997 due to population
demographics and financial trends which limited the potential for long-term
profitability.
Total operating expenses decreased 38.9 percent to $23,027,000 from
$37,661,000 in 1996. Selling, general and administrative expenses increased 21.7
percent due to increased patient care service revenue. The Company's provision
for doubtful accounts increased 209.0 percent or $3,889,000, due to increased
receivables resulting from a greater volume of revenues, acquisitions and a
charge to write-off certain accounts receivable which became uncollectible in
1997. Amortization of goodwill decreased 59.8 percent due to the impact of the
1996 non-cash charge to write-off impaired goodwill recorded as a result of the
1990 change in control and prior years acquisitions.
During the fourth quarter of 1997, the Company evaluated its operations
which resulted in the initiation of a cost reduction program and disposition of
certain underperforming assets. In conjunction with its evaluation of the
Company's operations, $3,902,000 was recorded in asset write-offs and other
charges. During 1996, the Company recognized $24,164,000 in non-cash charges
relating to the write-off of impaired goodwill. If the effect of the asset
write-offs and other charges in 1997 and 1996 are excluded, total operating
expenses increased 41.7 percent in 1997 compared to 1996.
The effective combined federal and state income tax rate was 37.2
percent (benefit) and negative 12.8 percent for 1997 and 1996, respectively. The
effective tax rate is higher than the federal statutory tax rate of 35 percent
due to state taxes and to non-tax deductible expenses, primarily goodwill
amortization. The 1996 negative effective tax rate is due to the non-deductible
nature of certain components of the asset write-off and other charges. The
Company had a net loss of $2,097,000 in 1997 compared to a net loss of
$20,256,000 in 1996.
1996 compared to 1995
For 1996, total revenues rose 7.7 percent to $70,521,000 from
$65,503,000 in 1995. Patient care services revenue rose 16.8 percent to
$49,035,000, primarily reflecting the results of 1996 acquisitions as well as a
full year's operations of the Company's 1995 acquisitions. Royalty fees and
other revenue decreased 2.6 percent to $12,193,000, reflecting the acquisition
of several large franchises in 1996. The Company sold fourteen new franchises
during 1996, and terminated, consolidated or purchased fifteen franchises,
continuing the trend towards consolidation. Product sales revenue decreased 15.5
percent to $9,293,000, due primarily to management's continued transition to
19
<PAGE>
direct billing of franchisees by selected manufacturers. The
administrative fees that the Company recognizes from such sales are recorded as
other income rather than as revenue. Management expects the transition to
continue to have a negative effect on gross profit but an immaterial effect on
net income.
Gross profit increased 5.1 percent for the year to $19,323,000,
primarily due to increased patient care services revenue. As a percentage of
revenues, gross profit declined from 28.1 percent to 27.4 percent. The decline
in gross margin is due primarily to changes in the Company's revenue mix,
specifically the decline in royalty fees and product sales offset by growth in
patient care service revenue. Revenues from patient care services (derived from
Company-owned locations) have a higher cost of revenue than royalty and other
revenues derived from the Company's franchise business. Three owned office
locations were sold and three locations closed in 1996 due to population
demographics and financial trends which limited the potential for long-term
profitability.
Total operating expenses increased 183.7 percent to $37,661,000 from
$13,276,000 in 1995. Selling, general and administrative expenses decreased 0.3
percent as aresult of increased personnel productivity. The Company's provision
for doubtful accounts increased 12.6 percent or $208,000, due to increased
patient care service revenue. Amortization of goodwill increased 5.0 percent due
to 1996 and1995 acquisitions. During 1996, the Company recognized $24,164,000 in
non-cash charges relating to the write-off of impaired goodwill. This write-off
primarily relates to goodwill recorded as a result of a 1990 change in control
and prior years acquisitions. The write-off resulted from the Company's stated
objective of purchasing existing franchises as well as from evaluation of
expected future cash flows for purchased businesses. If the effect of these 1996
charges is excluded, total operating expenses increased 1.7 percent in 1996.
The effective combined federal and state income tax rate was negative 12.8
percent and 42.6 percent for 1996 and 1995, respectively. The 1996 negative
effective tax rate is due to the non-deductible nature of the write-off of
goodwill. The 1995 effective tax rate is higher than the federal statutory tax
rate of 34 percent due to state taxes and to non-tax deductible expenses,
primarily goodwill amortization. The Company had a net loss of $20,256,000 in
1996 versus net income of $2,988,000 in 1995. Net income for 1996 was $3,563,000
excluding the write-off of goodwill.
Liquidity and Capital Resources
As of December 31, 1997, the Company had no cash and cash equivalents.
Working capital at that date was $24,206,000 versus $21,458,000 at December 31,
1996. The Company attempts to manage its cash balances to minimize interest
expense on its line of credit borrowing. The Company has implemented strict
policies and procedures for controlling cash collections and disbursements.
As indicated in Note 4 to the Consolidated Financial Statements, in 1996
the Company entered into a two-year $30 million revolving credit arrangement,
subject to certain financial covenants. The credit availability was increased to
$35 million on February 5, 1997. Management believes that cash flow from
operations, in conjunction with borrowing availability under its credit
facility, will be sufficient to meet the cash needs of the business for the
immediate future. Additional long-term financing may be needed to refund the
20
<PAGE>
current bank revolving credit agreement and meet possible Company acquisitions
There are no guarantees that such financing will be available or available at an
acceptable cost.
There are currently various proposals under development to enact health
care reform on a national, state and local level. It is not possible atthis time
to predict the cash flow impact, if any, which any such changes may have on
providers of home healthcare services and on the Option Care locations.
Recent Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
The Company is required to adopt the new standard for periods ending after
fiscal 1997. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The standard requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with
the other financial statements. The standard is not expected to have a material
impact on the Company's current presentation of net income.
In June, 1997, the Financial Accounting Standards Board also issued
Statement ofFinancial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is required to adopt
this new standard for periods ending after fiscal 1997. This statement
establishes standards for the way companies are to report information about
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company is
currently evaluating the impact of the disclosure requirements of this standard
but does not expect it to have any impact on the financial position of the
Company or results of its operations.
21
<PAGE>
Quarterly Information
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1997 and 1996 (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
1997: First Second Third Fourth
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $19,924 $23,750 $27,690 $28,613
Gross profit 5,057 4,813 5,295 5,669
Pretax income (loss) 1,587 751 805 ( 6,480)
Net income (loss) 922 434 453 ( 3,906)
Basic EPS $ .09 $ .04 $ .04 $(0.36)
====== ======= ======= ========
Diluted EPS $ .09 $ .04 $ .04 $(0.36)
====== ======= ======= ========
1996: First Second Third Fourth
- ---- ------- -------- -------- -------
Total revenues $15,706 $18,110 $18,019 $18,686
Gross profit 4,582 5,027 5,120 4,594
Pretax income (loss) 1,523 1,538 1,653 (22,672)
Net income (loss) 850 866 1,004 (22,976)
Basic EPS $ .08 $ .08 $ .10 $ (2.18)
======= ======= ======= ========
Diluted EPS $ .08 $ .08 $ .09 $ (2.18)
======= ======= ======= ========
</TABLE>
22
<PAGE>
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and its
subsidiaries, and the Independent Auditors' Report thereon are included on pages
24 through 39 of this Annual Report on Form 10-K.
Page
Independent Auditors' Report.............................................. 24
.
Consolidated Balance Sheets - December 31, 1997 and 1996.................. 25
Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995..................................... 27
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1997, 1996 and 1995....................................... 28
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995....................................... 29
Notes to Consolidated Financial Statements................................ 30
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Option Care, Inc.:
We have audited the accompanying consolidated balance sheets of Option Care,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Option Care,
Inc and subsidiaries at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 26, 1998
24
<PAGE>
Option Care, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
at December 31
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Assets
1997 1996
------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $ --- $ 1,223
Trade accounts receivable, less allowance
for doubtful accounts of $3,753 in 1997
and $1,738 in 1996........................... 34,138 20,558
Current portion of notes receivable,
less allowance for uncollectible
notes of $151 in 1997 and $116 in 1996...... 439 1,202
Inventory...................................... 2,289 1,598
Deferred income taxes.......................... 2,108 1,154
Prepaid assets................................. 2,473 914
Other current assets........................... 605 2,167
------- -------
Total current assets................42,052 28,816
Notes receivable, less current portion......... 296 539
Property and equipment, net.................... 5,865 4,322
Goodwill, net.................................. 18,271 7,873
Other long-term assets......................... 2,155 2,491
------- -------
Total assets.......................$68,639 $44,041
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
Option Care, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
at December 31
(in thousands, except share and per share data)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Current liabilities:
Cash overdraft................................. 145 ---
Current portion of long-term debt.............. 314 1,399
Trade accounts payable......................... 8,206 2,685
Accrued wages and related employee benefits.... 2,999 1,838
Accrued expenses............................... 6,182 1,436
---------- -------
Total current liabilities.................. 17,846 7,358
---------- -------
Long-term debt, less current portion........... 28,801 12,461
Deferred income taxes.......................... --- 637
Minority interest.............................. 15 45
-------- -------
Total liabilities....................... 46,662 20,501
-------- -------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized, 10,732,000 and
10,527,000 shares issued and outstanding
at December 31, 1997 and 1996,
respectively............................ 108 106
Additional paid-in capital................... 42,049 41,517
Retained earnings (deficit).................. (20,180) (18,083)
-------- --------
Total stockholders' equity.................. 21,977 23,540
-------- -------
Commitments and contingencies................
Total liabilities and
stockholders' equity................... $68,639 $44,041
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
s
<PAGE>
Option Care, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Patient care services................ $ 81,104 $ 49,035 $ 41,989
Royalty fees and other............... 9,966 12,193 12,517
Product sales........................ 8,907 9,293 10,997
-------- -------- -------
Total revenues.................. 99,977 70,521 65,503
Cost of revenues:
Patient care services operations.... 42,268 29,038 24,838
Products sold to franchises and
patients........................... 36,875 22,160 22,275
-------- -------- -------
Total cost of revenues.......... 79,143 51,198 47,113
-------- -------- -------
Gross profit........................... 20,834 19,323 18,390
Operating expenses:
Selling, general and administrative
expenses........................... 12,989 10,676 10,709
Provision for doubtful accounts...... 5,750 1,861 1,653
Amortization of goodwill............. 386 960 914
Asset write-offs and other charges... 3,902 24,164 ---
-------- -------- -------
Total operating expenses...... 23,027 37,661 13,276
-------- -------- -------
Operating income (loss)................ ( 2,193) (18,338) 5,114
Other income (expense), net:
Interest expense..................... ( 1,711) (550) (403)
Other, net........................... 567 930 496
-------- -------- -------
Total other income (expense), net...... ( 1,144) 380 93
-------- -------- -------
Income (loss) before income taxes...... ( 3,337) (17,958) 5,207
Income tax provision (benefit)......... ( 1,240) 2,298 2,219
-------- -------- -------
Net income (loss).................... $( 2,097) $(20,256) $ 2,988
======== ======== ========
Net income (loss) per common shares
outstanding (basic).................. $ (0.20) $ (1.93) $ 0.29
-------- -------- --------
Net income (loss) per common and
common equivalent shares (diluted)... $(0.20) $(1.93) $ 0.28
-------- -------- -------
Weighted average common shares
outstanding.......................... 10,655 10,494 10,431
-------- -------- -------
Weighted average common and common
equivalent shares outstanding........ 10,655 10,494 10,500
-------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
Option Care, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31
(in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994......... 105 41,293 (550) 40,848
-------- -------- -------- --------
Net income.......................... --- --- 2,988 2,988
Distribution from Subchapter S
Corporation....................... --- --- (188) (188)
Retirement of common stock, net..... --- (142) --- (142)
-------- ------- -------- --------
Balances, December 31, 1995......... 105 41,151 2,250 43,506
-------- ------- -------- --------
Net loss............................ --- --- (20,256) (20,256)
-------- ------- -------- --------
Distribution from Subchapter S
Corporation....................... --- --- (77) (77)
-------- ------- -------- --------
Issuance of common stock............ 1 366 --- 367
-------- ------- -------- --------
Balances, December 31, 1996......... $ 106 $ 41,517 $(18,083) $ 23,540
========= ======== ======== ========
Net loss............................ --- --- ( 2,097) (2,097)
-------- ------- -------- --------
Issuance of common stock............ 2 532 --- 534
-------- ------- -------- --------
Balances, December 31, 1997......... $ 108 $ 42,049 $(20,180) $ 21,977
========= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
Option Care, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ ( 2,097) $ (20,256) $ 2,988
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization.......... 3,108 2,521 2,078
Asset write-offs and other charges..... 3,902 24,164 ---
Provision for doubtful accounts........ 5,750 1,861 1,654
Changes in assets and liabilities, net
of effects from acquisitions:
Accounts and notes receivable.......... (12,590) (2,320) (2,171)
Inventory.............................. 17 180 (42)
Prepaid and other current assets....... (1,073) (1,205) 31
Deferred income taxes.................. (1,591) (139) 573
Accounts payable....................... 2,423 (1,015) 687
Accrued expenses and minority interest. 988 (975) (1,212)
-------- -------- --------
Net cash provided by
operating activities.......... (1,163) 2,816 4,586
-------- -------- -------
Cash flows from investing activities:
Payments for purchase of property
and equipment........................ (3,878) (1,423) (1,010)
Additions to other assets.............. (2,750) (426) (411)
Payments for acquisitions, net
of cash acquired..................... (9,210) (4,636) (7)
-------- -------- --------
Net cash used by
investing activities......... (15,838) (6,485) (1,428)
-------- -------- --------
Cash flows from financing activities:
Cash overdraft......................... 145 --- ---
Net (payments) borrowing under
line-of-credit agreement............. 16,300 5,800 (1,920)
Proceeds from (payments on) long-term
debt and capitalized leases.......... (1,033) (543) 340
Repayments of notes payable............ (168) (1,157) (1,141)
Issuance (retirement) of common stock,
net of related costs................. 534 367 (142)
Distribution from S Corporation........ --- (77) (188)
-------- --------- --------
Net cash provided (used) by
financing activities......... 15,778 4,390 (3,051)
-------- --------- --------
Net increase (decrease) in cash and
cash equivalents.......................... (1,223) 721 107
Cash and cash equivalents, beginning of year 1,223 502 395
-------- --------- ------
Cash and cash equivalents, end of year...... $ --- $ 1,223 $ 502
-------- --------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Option Care, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Description of Business
Option Care, Inc. is a provider of infusion therapy and other home
healthcare services with a supporting franchise network. The Company was
incorporated in Delaware on July 9, 1991. The Company's predecessor was
incorporated in California in January, 1984. As of December 31, 1997, 164 Optio
Care locations, including satellite locations, were operating in assigned
territories in 34 states. Existing locations include 138 locations owned and
operated by franchise owners and 26 locations owned and operated by the Company.
(b) Consolidation
The financial statements include Option Care, Inc. and its 50 percent
or more owned subsidiaries. The Company uses the cost method to account for
affiliates less than 20 percent owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity o three months or less to be cash equivalents.
(d) Financial Instruments
The fair value of the Company's financial instruments
approximates their carrying value.
(e) Inventory
Inventory, which consists primarily of medical supplies and
pharmaceuticals is stated at cost, which approximates market, on a first-in,
first-out (FIFO) basis.
(f) Long-Lived Assets
Property and equipment are stated at cost. Equipment purchased under
capital leases is stated at the lower of the present value of minimum leas
payments at the beginning of the lease term or fair value at the inception
of the lease.
Depreciation on equipment is calculated on the straight-line or double
declining balance method over the estimated useful lives of the assets (3-7
years for equipment). Leasehold improvements and equipment purchased under
capital leases are both amortized on the straight-line method over the shorter
of the lease term or estimated useful life of the asset.
Goodwill, which represents the excess of fair market value over the cost of
net assets acquired, is amortized on a straight-line basis over 40 years.
Accumulated amortization was $978,000 and $592,000 at December 31, 1997 and
1996, respectively.
30
<PAGE>
Long-lived assets and certain identifiable intangibles are reviewed fo
impairment in value based upon undiscounted future cash flows, and appropriate
losses are recognized, whenever the carrying amount of an asset may not be
recovered. See Note 8 of Notes to Consolidated Financial Statements.
(g) Income Taxes
The Company files a consolidated federal income tax return with all
of its 8 percent or more owned subsidiaries. Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Patient Care Services Revenues
Patient care service revenues are recognized when service is provided.
Billings to third party payors are net of contractual allowances. Payment from
third-party payors is dependent upon the specific benefits provided in the
patient's policy. The Company adjusts recognized revenues and the carrying value
of patient receivables to provide for the difference between billed charges and
expected collections.
(i) Royalty Fees and Other Revenues
Royalty fees and other revenues consist primarily of initial franchise
fees and royalty fees. Initial franchise fees are recognized when franchise
training is completed and substantially all services have been provided. Royalty
fees are recognized when cash is reported as received by the franchises.
Franchise agreements provide for royalties to be paid to the Company based on
either 9 percent of gross cash receipts (subject to certain minimums and
discounts), or on a sliding scale ranging from 9 percent to 2 percent of gross
cash receipts depending on the levels of such receipts and other factors.
(j) Net Income (Loss) Per Common Share and per Common and Common
Equivalent Share
Net income (loss) per common share and per common and common equivalen
share is based upon weighted average common and common equivalent shares
outstanding. Common equivalent shares include the dilutive effect of stock
options, if any.
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share (FASB 128). FASB 128 simplifie
the standards for computing earnings per share and replaces the presentation of
primary earnings per share with basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of the
consolidated statement of operations for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted EPS computation. The reconciliation for the years ended December 31,
1997, 1996 and 1995 are as follows:
31
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
-------------------------------------
Income Shares Per-Share
-------------------------------------
<S> <C> <C> <C>
Basic EPS
Net loss $ ( 2,097) 10,655,000 $ ( 0.20)
=========
Effect of Dilutive
Securities --- ---
Diluted EPS $ (20,356) 10,655,000 $ ( 0.20)
========== ========== ========
For the Year Ended December 31, 1996
-------------------------------------
Income Shares Per-Share
-------------------------------------
Basic EPS $ (20,256) 10,494,000 $ ( 1.93)
========
Net loss
Effect of Dilutive
Securities --- ---
Diluted EPS $ (20,256) 10,494,000 $ ( 1.93)
========= ========== ========
For the Year Ended December 31, 1995
------------------------------------
Income Shares Per-Share
------------------------------------
Basic EPS
Net income $ 2,988 10,431,000 $ 0.29
========
Effect of Dilutiv
Securitie--
Common stock options --- 69,000
Diluted EPS $ 2,988 10,500,000 $ 0.28
========= ========== ========
</TABLE>
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
(l) Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
32
<PAGE>
(2) Business Combinations
At various dates during 1997, the Company purchased the assets of
franchises located in Vista and Victorville, CA, Miami, FL, Ann Arbor and Grand
Haven, MI and Lincoln and Grand Island, NE. The Company also purchased the
assets of other healthcare related businesses in Victorville, CA and Miami, FL.
The aggregate purchase price for these transactions was $10,689,000, of which
$9,129,000 was paid in cash, $1,260,000 in short-term obligations and $300,000
in forgiveness of accounts receivable. The purchase method of accounting was
used and $9,026,000 of goodwill was recorded. The accompanying financial
statements include the results of operations of all acquired businesses from th
date of acquisition. During 1997, the Company recorded an additional $1,758,000
of goodwill from earn-outs and various adjustments to the fair market value of
assets acquired during 1996.
The unaudited pro-forma results of operations, affected by the
acquisitions accounted for as purchases as if they had occurred as of January 1
1996, was as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996
-------------- ----------------
<S> <C> <C>
Total revenues $ 104,008 $ 90,668
Net loss (2,040) (19,850)
Net loss per common and
common equivalent share (0.19) (1.89)
</TABLE>
At various dates during 1996, the Company purchased the assets of
franchises located in Bethel and Milford, OH, Everett, WA and Kennewick, WA as
well as all the outstanding stock of the franchise located in Oklahoma City, OK
The Company also purchased the outstanding minority interest in the Bullhead
City, AZ location. The Company also purchased the assets of other healthcare
related businesses in Bethel and Milford, OH, Kirksville, MO, Jefferson City,
MO, Bullhead City, AZ, Grand Junction, CO, Little Rock, AR, Ontario, CA and
Houston, TX. The aggregate purchase price for these transactions, except for the
Oklahoma City acquisition was $7,220,000, of which $4,652,000 was paid in cash,
$1,305,000 in short-term obligations, $471,000 in long-term obligations and
$808,000 in forgiveness of accounts receivable. The purchase method of
accounting was used and $2,518,000 of goodwill was recorded.
The Oklahoma City franchise, which was acquired through the issuance of
500,000 shares of common stock, was accounted for as a pooling of interests, and
the accompanying financial statements have been restated by immaterial amounts
to reflect this transaction.
The accompanying financial statements include the results of operations
of all other acquired businesses from the date of acquisition. The unaudited
pro-forma results of operations, affected by the acquisitions accounted for as
purchases as if they had occurred as of January 1, 1995, was as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Total revenues $ 77,502 $88,017
Net income (loss) $ (20,233) 3,397
Net income (loss) per common
and common equivalent share (1.93) 0.32
33
</TABLE>
<PAGE>
(3) Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Equipment.............................. $ 10,787 $ 8,604
Leasehold improvements................. 1,064 748
-------- --------
11,851 9,352
Less accumulated depreciation and
amortization......................... 5,986 5,030
-------- --------
$ 5,865 $ 4,322
======== ========
</TABLE>
(4) Long-Term Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Payable under lines of credit.................. $ 28,200 $ 11,900
Notes payable, secured by various assets,
with maturities through 2005 at interest
rates ranging from 6.0% to 10.5%............. 425 1,640
Capitalized lease obligations.................. 490 320
-------- --------
29,115 13,860
Less current portion........................... 314 1,399
-------- --------
Long-term debt................................. $ 28,801 $ 12,461
======== ========
</TABLE>
Maturities of long-term debt and capitalized lease obligations are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Capitalized
Year Ending Long-Term Lease
December 31, Debt Obligations
------------ --------- -----------
1998.......................................... $ 103 $ 258
1999.......................................... 86 205
2000.......................................... 28,239 93
2001.......................................... 42 12
2002 and beyond............................... 155 0
--------- ----------
$ 28,625 568
========
Less amounts representing interest............ 78
----------
Present value of net minimum lease payments... $ 490
==========
</TABLE>
All equipment purchased under capital leases is pledged as collateral.
In December 1996, the Company entered into a $30,000,000 revolving
credit agreement ($15,000,000, $10,000,000 and $5,000,000 with PNC
Bank, Harris Bank and The Northern Trust Company, respectively), of
which there were outstanding borrowings of $28,200,000 and $11,900,000
at December 31, 1997 and 1996, respectively. The agreement was amended
in February, 1997 to increase the maximum available amount to
$35,000,000 and to add The First National Bank of Chicago to the
lending syndicate. In March, 1998 the revolving credit agreement was
extended to January, 2000. Borrowing under this revolving credit
facility will be used to satisfy the Company's working capital
requirements. The effective borrowing rate of interest under this
facility as of December 31, 1997 averaged 7.93 percent and reflects
interest at the higher
34
<PAGE>
of prime or 0.5 percent in excess of the Federal Funds rate plus a
margin ranging from 0.0 percent to 0.75 percent. The Company may also
elect an interest rate ranging from the Euro-Rate plus 1.50 percent to
the Euro-Rate plus 2.25 percent. The margin is determined by the ratio
of the Company's funded debt to cash flow from operations.
The agreement provides that an annual commitment fee be paid by the
Company based on 0.375 percent average daily unused amount of the
facility. The agreement also requires the Company to maintain certain
financial covenants including, but not limited to: maximum leverage
ratio, minimum interest coverage ratio, minimum net worth and minimum
capitalization. The agreement prohibits the Company from declaring any
cash dividends on its common stock. The revolving credit facility is
secured by all of the issued and outstanding common stock of the
Company and its subsidiaries.
(5) Income Taxes
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Current Deferred Total
------- -------- -----
1997:
Federal....... $ 0 $ (1,464) $ (1,464)
State......... 482 (258) 224
--------- --------- ----------
$ 482 $ (1,722) $ (1,240)
========= ========= ==========
1996:
Federal....... $ 2,012 $ (108) $ 1,904
State......... 425 (31) 394
--------- --------- ---------
$ 2,437 $ (139) $ 2,298
========= ========= =========
1995:
Federal....... $ 1,214 $ 443 $ 1,657
State......... 433 129 562
--------- --------- ---------
$ 1,647 $ 572 $ 2,219
========= ========= =========
</TABLE>
Income tax expense (benefit) differs from the "expected" tax expense
(benefit) for those years computed by applying the U.S. Federal corporate income
tax rate of 35% for 1997 and 34% for 1996 and 1995 to earnings (loss) before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
-------- -------- ------
Computed "expected" tax expense
(benefit).......................... $ (1,168) $ (6,124) $ 1,669
Increase in income taxes resulting from:
Amortization of goodwill.......... 56 8,248 262
State income taxes, net of federal
income tax benefit.............. (143) 260 371
Other, net........................ 15 (86) (83)
--------- -------- -------
Total provision (benefit).............. $ (1,240) $ 2,298 $ 2,219
========= ======== ========
</TABLE>
35
<PAGE>
Deferred tax assets and (liabilities) at December 31, 1997 and 1996
include:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---------------------- ----------------
Current Noncurrent Current Noncurrent
------- --------- ------- ----------
Deferred tax assets:
Allowance for doubtful
accounts $ 1,451 $ --- $ 939 $ ---
Allowance for notes
receivable 65 --- 46 ---
Intangible assets --- --- --- 160
Accrued expenses 137 --- 256 ---
Severance accrual 252 --- --- ---
Capital loss carryforward --- 590 --- 590
Net operating loss
carryforward --- 651 --- ---
Other, net 286 --- 15 ---
------- ------- ------ -------
Total deferred tax assets 2,191 1,241 1,256 750
Valuation allowance --- (590) --- (590)
Net deferred tax assets 2,191 651 1,256 160
Deferred tax liabilities:
Tax over book depreciation --- (103) --- (113)
Intangible assets --- (126) --- ---
Tax accounting changes (83) (83) (102) (102)
Other, net --- (208) --- (582)
Total deferred tax ------ ------ ------- --------
liabilities $ (83) $ (520) $ (102) $ (797)
------- ------ -------- --------
Net deferred tax asset
(liability) $ 2,108 $ 131 $ 1,154 $ (637)
======= ======= ======= ========
</TABLE>
The valuation allowance of $590,000 at December 31, 1997 and 1996 has
not changed. The Company has a capital loss carryforward of $1,475,000, which
expires in 2001 and a net operating loss carryforward of $1,628,000 that expires
in 2012.
(6) Incentive Compensation Plan
The Company's 1991 Stock Incentive Plan (the "Incentive Plan") was
adopted by the Board and approved by the stockholders on September 11,
1991. The Incentive Plan provides for the award of cash, stock, and
stock unit bonuses, and the grant of stock options and stock
appreciation rights (SARs), to officers and certain employees of the
Company and its subsidiaries and other persons who provide services to
the Company on a regular and substantial basis. On February 21, 1997,
the Company's Board approved an increase in the amount of shares
reserved for the Incentive Plan to 2,000,000 shares of Common Stock.
All options under the Incentive Plan must be exercised within ten years
after the grant date. As of December 31, 1997, no stock, stock unit
bonuses, or SARs have been granted pursuant to the Incentive Plan.
36
<PAGE>
The following schedule details the changes in the Company's Stock
Incentive Plan for the three years ending December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------- -------------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ------------- ------- --------- ------- ---------- ------- ----------
Outstanding at
beginning
of year 965,447 $3.58 870,230 $3.52 868,730 $4.10
Granted 527,250 5.34 197,350 4.47 665,050 3.49
Exercised (160,748) 2.54 (42,428) 2.66 (24,625) 2.25
Terminated (354,234) 5.11 ( 59,705) 2.88 (638,925) 3.60
---------- ---------- ---------
Outstanding at
end of year 977,715 4.16 965,447 3.58 870,230 3.52
========== ========== =========
Options exercisable
at year-end 354,514 317,223 139,490
Weighted Average
fair value of
options granted
during the year $2.53 $1.71 $1.33
</TABLE>
The following table summarizes information about the Company's Stock
Incentive Plan and options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------------
Weighted-Avg.
Range of Number Remaining Number
Exercise Outstanding Contractual Weighted-Avg. Exercisable Weighted-Avg.
Prices at 12/31/97 Life Exercise Price at 12/31/97 Exercise Price
- -------- ----------- ----------- -------------- ------------ --------------
$2.25 to
$3.38 178,440 6.9 years $2.91 107,539 $2.79
$3.75 to
$4.31 484,950 8.0 years $3.91 170,399 $3.86
$4.38 to
$7.50 314,325 8.6 years $5.25 76,576 $4.43
-------- --------
$2.25 to
$7.50 977,715 8.0 years $4.16 354,514 $3.66
======== ========
</TABLE>
The 1996 Employee Stock Purchase Plan permits eligible employees to
acquire shares of the Company's common stock through payroll deductions not
exceeding 15% of base wages, at a 15% discount from market price on the grant
date. During 1997, there were 43,795 shares issued that related to the plan.
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its Incentive and Employee Stock
Purchase Plans.
37
<PAGE>
Had compensation cost for the Company's stock-based compensations plans
been determined based on FASB Statement No. 123, the Company's net income (loss)
and income (loss) per common and common equivalent share in 1997, 1996 and 1995
would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
--------- --------- -------
Net income (loss): as reported $ (2,097)$ (20,256) $ 2,988
pro forma $ (2,520)$ (20,449) $ 2,848
Net income (loss) per
common and common as reported $ (0.20)$ (1.93) $ 0.29
equivalent share: pro forma $ (O.24)$ (1.95) $ 0.27
</TABLE>
The fair value of options granted under the Company's stock option plan
during 1997, 1996 and 1995 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following assumptions used: no dividend
yield, expected volatility of 45% for 1997 and 30% for 1996 and 1995, risk free
interest rate of 5.75% for 1997 and 6.25% for 1996 and 1995, and expected lives
of 5 years for 1997, 1996 and 1995.
(7) Retirement Plan
All employees who have attained the age of 20 1/2 with one year's
service are eligible for participation in the Company's 401(k) Plan. The expense
recognized in 1997, 1996, and 1995 related to this plan totaled $176,000,
$298,000, and $421,000, respectively. The employer's matching contribution is a
percentage of the amount contributed by each employee and is funded on an annual
basis.
(8) Asset Write-offs and Other Charges
During the fourth quarter of 1997, the Company evaluated its operations
which resulted in the initiation of a cost reduction program and disposition of
certain underperforming assets. In conjunction with its evaluation of the
Company's operations, $3,902,000 was recorded in asset write-offs and other
charges.
During 1996, the Company recorded a $24,164,000 non-cash charge related
to write-offs of various intangible assets. These write-offs primarily relate to
goodwill recorded through pushdown accounting for a change of control in 1990,
as well as goodwill related to prior years acquisitions. The write-off resulted
from the Company's stated objective of purchasing existing franchises and from
evaluation of estimated future undiscounted cash flows of acquired businesses.
38
<PAGE>
(9) Commitments and Contingencies
The Company leases certain medical equipment under long-term lease
agreements. Most of the lease agreements have a term of 36 months and
are classified as capital leases.
The Company leases office space under leases which are classified as
operating leases. Operating lease expense for 1997, 1996 and 1995 was
$3,286,000, $2,609,000, and $2,100,000, respectively. The future
minimum lease payments for these leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
1998............................................... $1,919,000
1999............................................... 1,442,000
2000............................................... 1,110,000
2001............................................... 918,000
2002 and beyond.................................... 448,000
----------
$5,837,000
</TABLE>
The Company may also be required, upon death or termination of
employment, to purchase stock of certain minority shareholders of subsidiaries.
The Company is involved in litigation in the ordinary course of
business. Ultimate disposition of the matters will not be material to the
financial position or results of operations of the Company.
(10) Supplemental Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
--------- -------- - ------
Interest and taxes paid:
Interest........................... $ 1,568 $ 899 $ 998
======== ======== =========
Income taxes....................... $ 2,085 $ 2,105 $ 1,298
======== ======== =========
Noncash investing and financing activities:
Stock issued for acquired franchise $ --- $ 244 $ ---
Notes issued for franchise ======== ======== =========
acquisitions.................... $ 1,260 $ 1,776 $ ---
======== ======== =========
Additions to obligations under
capital leases.................. $ 465 $ 85 $ 27
-------- -------- ---------
Additions to subleases under
direct financing leases......... $ --- $ 45 $ 22
-------- -------- ---------
</TABLE>
39
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10. through 13.
Information regarding executive officers is contained in Item 4(a) of
Part I of this Report and is incorporated herein by reference. Information on
directors of the registrant, executive compensation, security ownership of
certain beneficial owners and management and certain relationships and related
transactions is set forth under the Election of Directors, Security Ownership of
Certain Beneficial Owners and Management, Executive Compensation and Certain
Transactions with Management and Directors captions of the Registrant's
definitive proxy statement dated April 9, 1998 for its May 13, 1998 Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
in April 1998, and such information is incorporated herein by reference;
provided, however the report of the compensation committee on executive
compensation, the performance graph and the ten-year option repricing table
shall not be deemed to be so incorporated by reference. The information under
the caption " Beneficial Ownership Reporting Compliance" of the 1998 Proxy
Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following Consolidated Financial Statements of the Company
and its subsidiaries and independent auditors' report thereon are included as
pages 25 through 39 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
<S> <C>
Page
----
Independent Auditors' Report.............................. 24
Consolidated Balance Sheets - December 31, 1997 and 1996.. 25
Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995........................ 27
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1997, 1996 and 1995............ 28
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995........................ 29
Notes to Consolidated Financial Statements................ 30
</TABLE>
40
<PAGE>
(a)(2) The following supporting financial statement schedule and
independent auditors' report thereon are included as pages 45 through 46 of this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
<S> <C>
Page
----
Independent Auditors' Report.............................. 43
Schedule II - Valuation and Qualifying Accounts........... 44
</TABLE>
All other Schedules are omitted because the required
information is not applicable or information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) Exhibits:
See exhibit index on page 45 hereto:
(b) Reports on Form 8-K:
The Company did not file any Reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1997.
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Option Care, Inc.:
Under date of March 26, 1998, we reported on the consolidated balance sheets of
Option Care, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997, as
contained in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
March 26, 1998
42
<PAGE>
Option Care, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1996 and 1997
(in thousands)
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Balance
Year Beginning (A) Charged (B) End
Ended of Period Acquisitions to Expense Deductions of Period
- ----- --------- ------------ ---------- ---------- ----------
December 31, 1995 2,342 --- 1,653 (2,722) 1,273
===== =========== ======== ======== ========
December 31, 1996 1,273 306 1,861 (1,702) 1,738
===== =========== ======== ======== ========
December 31, 1997 1,738 1,049 5,715 (4,749) 3,753
===== ========== ======== ======== ========
Allowance for Uncollectible Notes Receivable:
Balance Balance
Year Beginning (A) Charged (B) End
Ended of Period Acquisitions to Expense Deductions of Period
- ----- --------- ------------ ---------- ---------- ----------
December 31, 1995 671 --- --- (329) 342
======== ========= ========= ========== =======
December 31, 1996 342 --- 30 (256) 116
======== ========= ========= ========== =======
December 31, 1997 116 --- 35 --- 151
======== ========= ========= ========== =======
</TABLE>
(A) Represents balances related to companies acquired during the year.
(B) Represents accounts written off.
43
<PAGE>
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.
Option Care, Inc.
By: /S/ Erick E. Hanson
Erick E. Hanson
President, Chief Executive Officer and Director
Date: March 26, 1998
We, the undersigned officers and directors of Option Care, Inc., hereby
severally and individually constitute and appoint Erick E. Hanson the true and
lawful attorney and agent of each of us to execute in the name, place and stead
of each of us (individually and in any capacity stated below) any and all
amendments to this Annual Report on Form 10-K and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, said attorney and agent to have full power and authority to
do and perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as any of the undersigned might or could do in person, and
we hereby ratify and confirm our signatures as they may be signed by our said
attorney and agent to any and all such amendments and instruments.
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 dates indicated.
Signature Title Date
/s/ Erick E. Hanson President, Chief Executive March 26, 1998
- ---------------------------- Officer and Director --------------
Erick E. Hanson (Principal Executive Officer)
/s/ James A. Hodges, Jr. Senior Vice President and March 26, 1998
- ---------------------------- Chief Financial Officer --------------
James A Hodges, Jr. (Principal Accounting Officer
and Principal Financial Officer)
/s/ James G. Andress Director March 26, 1998
- ---------------------------- --------------
James G. Andress
/s/ John N. Kapoor Chairman and Director March 26, 1998
- ----------------------------- --------------
Dr. John N. Kapoor
/s/ Jerome F Sheldon Director March 26, 1998
- ---------------------------- --------------
Jerome F. Sheldon
/s/ Roger W. Stone Director March 26, 1998
- ---------------------------- --------------
Roger W. Stone
<PAGE>
Option Care, Inc.
Exhibit Index
Exhibit
Number
3.1 Certificate of Incorporation of the Registrant, together with
Certificate of Amendment thereto filed February 18, 1992. Filed as
Exhibit 3(a) to the Company's Registration Statement (No. 33-45836)
dated April 15, 1992 and incorporated by reference herein.
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant filed March 25, 1992. Filed as Exhibit 3(c) to the
Company's Registration Statement (No. 33-45836) dated April 15, 1992
and incorporated by reference herein.
3.3 Restated By-laws of the Registrant dated June 1, 1994. Filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ending December 31, 1994 and incorporated by reference herein.
10.1 Stock Purchase Agreement dated February 18, 1992, among the
Registrant, OCE and the stockholders of Young's I.V. Therapy, Inc.
Filed as Exhibit 2(f) to the Company's Registration Statement (No.
33-45836) dated April 15, 1992 and incorporated by reference herein.
10.2 1991 Stock Incentive Plan of the Registrant and related forms of
Incentive and Nonqualified Stock Option Agreements. Filed as
Exhibit 10(a) to the Company's Registration Statement (No. 33-45836)
dated April 15, 1992 and incorporated by reference herein. *
10.2(a) Amendment to the 1991 Stock Incentive Plan of the Registrant and
related forms of Incentive and Nonqualified Stock Option Agreements,
dated February 21, 1995. Filed as Exhibit 10.6(a) to the Company's
Annual Report on Form 10-K for the year ending December 31, 1994 and
incorporated by reference herein. *
10.2(b) Amendment to the 1991 Stock Incentive Plan of the Registrant, dated
May 22, 1997. *
10.3 Option Care, Inc. 401(k) Profit Sharing Plan. Filed as Exhibit
10(b) to the Company's Registration Statement (No. 33-45836) dated
April 15, 1992 and incorporated by reference herein. *
10.3(a) Amendment to the 1992 401(k) Profit Sharing Plan of the Registrant
dated January 1, 1996. *
10.4 Consulting Agreement dated as of September 27, 1990 between EJ
Financial Enterprises and Michael Prime. Filed as Exhibit 10(h)
to the Company's Registration Statement (No. 33-45836) dated April
15, 1992 and incorporated by reference herein. *
10.5 Form of Franchise Agreement. Filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ending December 31, 1996 and
incorporated by reference herein.
10.6 Lease dated as of October 23, 1996 between the Registrant and
LaSalle National Trust, N.A., as Trustee. Filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ending
December 31, 1996 and incorporated by reference herein.
10.7 Consulting Agreement between the Registrant and EJ Financial
Enterprises, Inc. Filed as Exhibit 10(o) to the Company's
Registration Statement (No. 33-45836) dated April 15, 1992 and
incorporated by reference herein.
<PAGE>
10.8 Credit Agreement with ancillary documentation dated December 23,
1996, among Registrant, Option Care Enterprises, Inc. ("OCE"),
Option Care, Inc. (California), and Option Care Capital Services and
PNC Bank as agent and lender and Harris Bank and The Northern Trust
Company as lenders re: $30,000,000 credit agreement. Filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
year ending December 31, 1996 and incorporated by reference herein.
10.8(a) Amendment 1 to Credit Agreement dated February 5, 1997, among
Registrant, Option Care Enterprises, Inc. ("OCE"), Option Care, Inc.
California), and PNC Bank as agent and lender and Harris Bank and
The Northern Trust Company as lenders re: Add The First National
Bank of Chicago as lendee and increase lending limit to $35,000,000.
10.8(b) Amendment 5 to Credit Agreement dated March 25, 1998, among
Registrant, Option Care Enterprises, Inc.("OCE"), Option Care, Inc.
California), and PNC Bank as agent and lender and Harris Bank, The
Northern Trust Company and First National Bank of Chicago as lenders
re: An extension to the original revolving credit agreement to
January, 2000.
10.9 Stock Sale Agreement, Franchise Agreement and Addendum to Franchise
Agreement dated December 31, 1996 among the Registrant and J. Harris
Morgan, Jr. Filed as Exhibit 10.9 to the Company's Annual Report
on form 10-K for the year ending December 31, 1996 and incorporated
by reference herein.
10.10 Promissory Note between Convention Center Drug, Inc. and Option
Care, Inc., dated November 15, 1996. Filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ending December
31, 1996 and incorporated by reference herein.
10.11 Security Agreement between Convention Center Drug, Inc. and Option
Care, Inc., dated November 15, 1996. Filed as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ending December
31, 1996 and incorporated by reference herein.
10.12 Promissory Notes between Home I.V., Inc. and Option Care, Inc.,
dated March 17, 1995. Filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ending December 31, 1995 and
incorporated by reference herein.
10.13 Promissary Note between Home Pharmacy Inc. and Option Care, Inc.,
dated February 1, 1997.
10.14 Management Agreement between Pinecrest Healthcare Consultants, Inc.,
and Option Care, Inc., dated April, 1997. *
10.15 Amended Option Care, Inc. 1996 Employee Stock Purchase Plan, dated
January 1, 1996. Filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ending December 31, 1995 and
incorporated by reference herein. *
10.16 Renewal, dated May 2, 1997, of the Executive Severance Agreement
between Erick E. Hanson and Option Care, Inc., dated June 28,
1996. *
10.17 Executive Severance Agreement between James A. Hodges, Jr. and
Option Care, Inc., dated December 19, 1997. *
<PAGE>
10.18 Executive Severance Agreement between Cathy Bellehumeur and Option
Care, Inc., dated November 12, 1997. *
10.19 Promissory Note between Felice, Inc., and Option Care, Inc., dated
March 11, 1997.
10.20 Promissory Note between C.R. I.V. Service, Inc., and Option Care,
Inc., dated April 24, 1997.
10.21 Promissory Note between Eugene and Susan Lutz, and Option Care,
Inc., dated April 24, 1997.
10.22 Promissory Note between East Coast Optioncare, Inc., and Option
Care, Inc., dated November 1, 1997.
10.23 Promissory Note between Brooks Home I.V., Inc., and Option Care,
Inc., dated December 8, 1997.
10.24 Facility Provider Agreement between Foundation Health Corporation
Affiliate(s) and Option Care, Inc. dated June 1, 1997.
10.25 Amendment to the Facility Provider Agreement between Foundation
Health Corporation Affiliate(s) and Option Care, Inc. dated March
23, 1998.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
* Management contracts and compensatory plans and arrangements.
<PAGE>
Exhibit 10.2(b)
OPTION CARE, INC.
AMENDED AND RESTATED
STOCK INCENTIVE PLAN
(1997)
I. GENERAL
1. Plan. To provide incentives to employees of OPTION CARE, Inc., a
----
Delaware Corporation (the "Company"), or its subsidiary corporations, members of
the Board of Directors of the Company (the "Board") and other persons who
provide services to the Company or its subsidiary corporations on a regular and
substantial basis ("vendors") through rewards based upon the ownership and
performance of the common stock of the Company, the Committee hereinafter
designated may grant incentive awards, stock options, stock appreciation rights,
or combinations thereof, to eligible officers and other employees and vendors on
the terms and subject to the conditions stated in this Plan. In addition,
members of the Board other than John N. Kapoor ("Directors") are or may be
granted options on the terms and subject to the conditions set forth in this
Plan. References hereinafter to employment by or the provision of services to
the Company shall include references to its subsidiary corporations within the
meaning of section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code"). All employees, officers, Directors and vendors eligible to receive
grants or awards under this Plan shall be collectively referred to herein as
"Eligible Recipients."
2. Eligibility. Officers and other employees of the Company and its
-----------
subsidiaries, and vendors, shall, upon selection by the Committee, be eligible
to receive incentive awards, stock options or stock appreciation rights, either
singly or in combination, as the Committee, in its discretion, shall determine.
Directors shall receive stock options on the terms and subject to the conditions
stated in this Plan.
3. Shares to be Issued. The maximum number of shares of common stock,
-------------------
par value $.01 per share of the Company ("Common Stock"), to be issued pursuant
to all grants made under the Plan shall be 2,000,000. Shares awarded pursuant to
grants which, by reason of the expiration, cancellation or other termination of
the grants prior to issuance, are not issued, shall again be available for
future grants. Shares of Common Stock to be issued nay be authorized and
unissued shares, treasury stock or a combination thereof.
4. Administration of the Plan. The Plan shall be administered by a
--------------------------
committee designated by the Board (the "Committee"). No member of the Committee
shall be eligible to participate in, or within one year prior to appointment to
the Committee (but disregarding any participation or eligibility for
participation during any period of time before the initial registration
statement under Section 12 of the Securities Exchange Act of 1934 of the Company
or any of its affiliates becomes effective) shall have participated in or shall
have been eligible to participate in, this Plan or any other stock purchase,
incentive award, stock
1
<PAGE>
option, stock appreciation rights or other stock
incentive plan of the Company, except as provided in Article III, Section l(b).
The Committee shall, subject to the terms of the Plan establish selection
guidelines, select officers and other employees, directors and vendors for
participation, and determine the form of grant, either as an incentive award,
stock option or stock appreciation rights or combination thereof, determine the
form of stock option, the number of shares subject to the grant, the fair market
value of the Common Stock when necessary, the time and conditions of vesting or
exercise, and all other terms and conditions of the grant. All grants and awards
under this Plan shall be evidenced by written agreements ("Option Agreements")
between this Company and the participants and no such grant or award shall be
valid until so evidenced. The Committee may interpret the Plan and establish
rules and regulations for the administration of the Plan, including without
limitation, the imposition of conditions with respect to competitive employment
and provisions accelerating vesting or exercisability, not inconsistent with or
conflicting with the terms of the Plan. All such rules, regulations, and
interpretations relating to the Plan adopted by the Committee shall be
conclusive and binding on all parties. The foregoing notwithstanding, neither
the Board nor the Committee shall have any discretion to alter the number of
shares subject to stock options granted to directors pursuant to Article 3,
Section l(b) or the terms or conditions under which such shares are granted
except as provided in Article I, Section 5.
5. Adjustments for Changes in Capitalization. Appropriate adjustments
-----------------------------------------
shall be made by the Committee in the maximum number of shares to be issued
under the Plan, the maximum number of shares to be issued pursuant to incentive
awards and in the number of shares the subject of any option grant, to give
effect to any stock splits, stock dividends and other relevant changes in
capitalization occurring after the effective date of the Plan and its amendment
and restatements, as applicable.
6. Effective Date and Term of Plan. The Plan as amended and restated
-------------------------------
shall be submitted to the stockholders of the Company for approval and if
approved shall become effective on the date thereof. The Plan shall terminate
ten years thereafter, unless terminated earlier by action of the Board. No
further grants shall be made under the Plan after termination, but termination
shall not affect the rights of any participant under any grants made prior to
termination.
7. Amendments. The Plan may be amended or terminated by the Board in
----------
any respect except that no amendment may be made without stockholder approval if
such amendment would cause the Plan to fail to comply with Rule 16b-3 under the
Securities Exchange Act of 1934 (as such Rule 16b-3 may be amended or applicable
from time to time) or any other requirement of applicable law or regulation
("Applicable Law").
8. Securities Matters.
------------------
(a) Compliance with Law. The exercise or vesting of any grant
-------------------
counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock of the Company pursuant
thereto will not violate any state or federal securities or
other laws. The person entitled to receive shares of stock
pursuant to any grant or award
2
<PAGE>
hereunder may be required by the Company, as a condition
prerequisite to such delivery, to agree in writing that all
shares of Common Stock to be acquired pursuant thereto shall
be held for his or her own account without a view to any
further distribution thereof, that the certificates for such
shares shall bear an appropriate legend to that effect and
that such shares will not be transferred or disposed of except
in compliance with be applicable federal and state securities
laws. The Company may,in its sole discretion, defer the
effectiveness of any exercise of an option granted hereunder
in order to allow the issuance of Common Stock to be made
pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance
available under federal or state securities laws. The Company
shall be under no obligation to effect the registration
pursuant to the Securities Act of 1933 of any shares of Common
Stock to be issued hereunder or to effect similar compliance
under any state laws. The Company shall inform the optionee i
writing of any decision to defer the effectiveness of the
exercise of an option granted hereunder. During the period
that the effectiveness of the exercise of an option has been
deferred, the optionee may, by written notice, withdraw such
exercise and obtain the refund of any amount paid with respect
thereto.
(b) Blue Sky Limitations. Anything in this Plan to the
--------------------
contrary notwithstanding, in the event the Company makes any
public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of
granted but unexercised stock options so as to comply with any
state securities or Blue Sky law limitation with respect
thereto, the Committee shall have the right (a) to accelerate
the dates on which options granted hereunder may be exercised
and (b) cancel any such accelerated options if they are not
exercised within fourteen (14) days after notice of such
acceleration has been given to the optionee.
9. Change of Control. Subject to the requirement of Article III,
-----------------
Section 2 hereof that an option must be held by an Eligible Recipient for at
least one year before becoming vested with such Eligible Recipient, upon a
Change of Control any other vesting period shall end and all otherwise unvested
options shall become immediately exercisable. For these purposes, a "Change of
Control" shall mean the occurrence of any of the following events:
(a) a merger, consolidation or reorganization of or involving the
Company, in which the Company does not survive as an entity independent
of other parties to such merger, consolidation or reorganizations;
(b) a sale of all or substantially all of the assets of the Company;
3
<PAGE>
(c) the first purchase of shares of Common Stock of the Company
pursuant to a tender or exchange offer for a majority of the Company's
outstanding shares of Common Stock by any person other than John N.
Kapoor;
(d) any change in control (other than as a result of a public issuance
of securities by the Company) of a nature that, in the opinion of the
Board, would be required to be reported under federal securities laws,
unless after (and taking into consideration) the occurrence of such
event John N. Kapoor owns or will own a majority of the Company's
outstanding shares of Common Stock;
(e) any change of control of a nature that, in the opinion of the
Board, would be required to be reported under federal securities laws,
unless after (and taking into consideration) the occurrence of such
event John N. Kapoor owns or will own at least forty percent (40%) of
the combined voting power of the Company's then-outstanding securities;
(f) the date on which any person, other than John N. Kapoor, becomes
the beneficial owner, directly or indirectly, of securities of the
Company representing at least a majority of the combined voting power
of the Company's then-outstanding securities; and
(g) the date on which a majority of the individuals who constitute the
members of the Board cease to be comprised of persons who (i) were
members of the Board two years prior to such date (the "Determining
Board Members") or (ii) were approved as directors by a vote of at
least seventy percent (70%) of the Determining Board Members.
10. Sale or Other Disposition By Majority Interest. Each recipient
----------------------------------------------
shall irrevocably appoint the Company and its Chief Executive Officer, or either
of them, as such recipient's agents and attorneys-in-fact, with full power of
substitution in the recipient's name, to sell, exchange, transfer or otherwise
dispose of all or a portion of such recipient's shares of Common Stock or
options, or both, and to do any and all things and to execute any and all
documents and instruments (including, without limitation, any stock transfer
powers) in connection therewith, such power of attorney not to become operable
until such time as the holder or holders of a majority of the issued and
outstanding shares of Common Stock of the Company sell, exchange, transfer or
otherwise dispose of, or contract to sell, exchange, transfer or otherwise
dispose of, all or substantially all of their shares of Common Stock of the
Company. Any sale, exchange, transfer other disposition of all or a portion of a
recipient's shares of Common Stock pursuant to the foregoing powers of attorney
shall be made upon substantially the same terms and conditions (including sale
price per share) applicable to a sale, exchange, transfer or other dispositions
of all or a portion of shares of Common Stock of the Company owned by the holder
or holders of a majority of the issued and outstanding shares of Common Stock of
the Company. For purposes of determining the sale price per share of Common
Stock under this Section 10, there shall be
4
<PAGE>
excluded the consideration (if any) paid or payable to the holder or holders of
a majority of the issued and outstanding shares of Common Stock of the Company
in connection with any employment, consulting, noncompetition or similar
agreements which such holder or holders may enter into in connection with or
subsequent to such sale, transfer, exchange or other disposition. The foregoing
powers of attorney shall be irrevocable and coupled with an interest and shall
not terminate by operation of law, whether by death, bankruptcy or
adjudication of incompetency or insanity of the recipient or the occurrence of
any other event.
11. Additional Provisions.
---------------------
(a) Additional Option Provisions. The Board or Committee may,
----------------------------
in its sole discretion, include additional provisions in any
option granted under the Plan, including, without limitation,
restrictions on transfer, repurchase rights, or commitments
(i) to pay cash bonuses, (ii) to make, arrange for or guaranty
loans, or (iii) to transfer other property to optionees upon
exercise of options, or such other provisions as shall be
determined by the Board of Directors or Committee; provided
that such additional provisions shall not be inconsistent with
any other term or condition of the Plan.
(b) Acceleration. The Board or Committee may, in its sole
------------
discretion, (i) accelerate the date or dates on which all or
any particular option or options granted under the Plan may be
exercised; or (ii) extend the dates during which all or any
particular option or options granted under the Plan may be
exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with
Applicable Law (as defined in Article I, Section 7).
II. INCENTIVE AWARDS
1. Form of Award. Incentive awards, whether Performance Awards or Fixed
-------------
Awards (as described below), may be made to Eligible Recipients in the form of
(i) cash, whether in an absolute amount or as a percentage of compensation, (ii)
stock units, without power to vote and without the entitlement to current
dividends, (iii) shares of Common Stock issued to the Eligible Recipient but
forfeitable and with restrictions on transfer in any form as hereinafter
provided or ( iv) any combination of the foregoing. In addition, in the
Committee's discretion, the Company may satisfy all or any part of its
obligation under an incentive award payable in cash by delivering shares of
Common Stock with a then fair market value equal to the amount of such
obligation or such part thereof.
2. Performance Awards. Performance Awards may be made in terms of a
------------------
stated potential maximum dollar amount, percentage or compensation, or number of
units or shares, with the actual such amount, percentage and number to be
determined by reference to the level of achievement of corporate, group,
division, individual or other specific objectives over a
5
<PAGE>
performance period of not less than one year nor more than five years, as
determined by the Committee. No rights or interests of any kind shall be vested
in an individual receiving a Performance Award until the conclusion of the
performance period and the determination of the level of achievement specified
in the award. The vesting period, if any, for a Performance Award shall be as
specified in the applicable award or Option Agreement.
3. Fixed Awards. Fixed Awards may be made which are not contingent on the
------------
performance of objectives, but are contingent on the recipient's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than one year nor more than ten years from the date of award.
4. Rights with Respect to Restricted Shares. If shares of restricted
----------------------------------------
Common Stock are issued pursuant to an Incentive Award, the recipient shall have
the right to vote the shares and to receive dividends thereon from the date of
issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to a
----------------------------------
recipient pursuant to an Incentive Award, amounts equal to dividends otherwise
payable on a like number of shares of Common Stock after the crediting of the
units shall be credited to an account for the recipient and held until the award
is forfeited or paid out. Interest shall be credited on the account annually at
a rate equal to the return on five year U.S. Treasury obligations.
6. Vesting and Resultant Events. At the time an Incentive Award vests, the
----------------------------
award, if in stock units, shall be paid to the recipient either in shares of
Common Stock equal to the number of units, in cash equal to the fair market
value of such shares, or in such combination thereof as the Committee shall
determine, and the recipient's account to which dividends and interest have been
credited shall be paid in cash. Shares of restricted Common Stock issued
pursuant to an award shall, at the time of vesting, be released from the
restrictions.
III. STOCK OPTIONS FOR OFFICERS,
OTHER EMPLOYEES, VENDORS AND DIRECTORS
1. Grants of Options for Eligible Recipients. Options to purchase
-----------------------------------------
shares of Common Stock of the Company may be granted to such Eligible Recipients
as may be selected by the Committee. These options may, but need not, constitute
"incentive stock options," as defined in section 422 of the Code, or any other
form of option under the Code as hereafter amended.
2. Terms of Options.
(a) No option shall be exercisable earlier than one year, nor more than
ten years after the date of grant. Subject to the preceding sentence,
the exercisability of an option may be conditioned upon the achievement
of performance goals established by the Committee. Options granted to
non-employee Directors shall
6
<PAGE>
become exercisable with respect to 25 percent of the shares subject
thereto on each of the first four anniversaries of the date of grant.
(b) The per share option price under incentive stock options shall be
not less; than 100% of, and the per share option price under options
granted to directors shall be 100% of, the fair market value of a share
of Common Stock at the time the option is granted, provided, however,
that if at the time an option designated as and intended to be an
incentive stock option is otherwise to be granted pursuant to the Plan,
the optionee owns directly or indirectly (within the meaning of section
424(d) of the Code) shares of Common Stock of the Company possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock cf the Company or its parent or subsidiary
corporations, if any within the meaning of section 422(b) (63 of the
Code), then the option price shall be not less than 110% of the fair
market value of the Common Stock as of the date the option is granted,
and such option by its terms shall not be exercisable after the
expiration of five (5) years from the date the option is granted.
(c) Upon exercise, the option price may be paid in cash, in shares of
Common Stock having a fair market value equal to the option price, or
in a combination thereof. Options may be exercised during the
individual's continued employment with, or in the case of a vendor,
engagement by, the Company or service on the Board, as the case may be,
and for a period of ninety days following termination of such
employment, engagement or service on the Board (or such other period of
time provided in a relevant employment or severance agreement between
the optionee and the Company) and only within the original term of that
option; provided, however, that if employment of the optionee by the
Company or service on the Board, as the case may be, shall have
terminated by reason of retirement at or after age 65 or total and
permanent disability, then the option may be exercised for a period not
in excess of one year following such termination of employment or
service on the Board (or such other period of time provided in a
relevant employment or severance agreement between the optionee and the
Company), but in any event not after the expiration of the term of the
option. If and to the extent the Committee may, in its discretion,
determine the change in an option holder's status from an employee to a
vendor, or the transfer of an individual from the employment or
engagement or vice versa, the Company or its subsidiaries to the
employment or engagement of any affiliate of the Company shall not be
treated as a termination of employment or engagement by the Company.
The status of another entity as an affiliate of the Company shall be
determined by the Committee.
(d) Options shall not be transferable, except that in the event of the
death of an optionee (i) during employment, engagement or service on
the Board, as the case may be, (ii) within a period not in excess of
one year after termination of
7
<PAGE>
employment or service on the Board, as the case may be, by reason of
retirement at or after age 65 or total and permanent disability or
(iii) within ninety days after termination of employment, engagement or
service on the Board, as the case may be, for any other reason,
outstanding options may be exercised by the executor, administrator or
personal representative at such deceased optionee during the remainder
of the period during which the optionee could have exercised the option
had he survived, but not less than ninety days after the death of such
optionee.
3. Withholding Tax. An option may provide that the optionee may elect to
---------------
deliver to the Company (or authorize the Company to retain from the shares
purchased upon exercise of such option) whole shares of Common Stock to satisfy
the Company's obligation, if any, to withhold federal, state and local income
tax required to be withheld in respect of such exercise, provided, however, that
in the case of an optionee who is an executive officer or director of the
Company (within the meaning of Section 16 of the Securities Exchange Act of
1934), such election may not be made during the six-month period beginning on
the date of grant of such option and must be made either (i) at least six months
prior to the date on which the amount of such withholding tax is determined,
(ii) during the ten business day period beginning on the third business day
following each release of the Company's quarterly or annual summary of sales and
earnings, or (iii) in advance of such ten business day period to be effective
within such ten business day period. Any such election shall be irrevocable, but
subject to disapproval by the Committee.
IV. STOCK APPRECIATION RIGHTS
1. Grants. Rights entitling the grantee to receive cash or shares of Common
------
Stock having a fair market value equal to the appreciation in market value of a
stated number of shares of Common Stock from the date of grant, or in the case
of rights granted in tandem with or by reference to a stock option granted prior
to the grant of such rights, from the date of grant of the related stock option
to the date of exercise, nay be granted to such eligible officers and other
employees as may be selected by the Committee and approved by the Board.
2. Terms of Grant. Such rights may be granted in tandem with or with
--------------
reference to a related stock option, in which event the grantee may elect to
exercise either the option or the right, but not both, as to the same shares of
Common Stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall not be
exercisable unless it shall have been outstanding for at least 6 months nor
shall such right be exercisable more than ten years after the date of grant.
Stock appreciation rights shall not be transferable, except that in the event of
the death of a grantee such right shall be exercisable by the same persons and
for the same period of time as the related option. Stock appreciation rights may
be exercised during the individual's continued employment with the Company and
for a period of ninety days following termination of employment or engagement
(or such other period of time provided in a relevant employment or severance
agreement between the optionee and the Company), as the case may be, and only
within the original term of that grant; provided,
--------
8
<PAGE>
however, that if employment of the grantee by the Company and its subsidiaries
- -------
shall have terminated by reason of the grantee's death, retirement after age 65
or total and permanent disability, or if the grantee dies after termination of
employment on account of such retirement or disability, then such right shall be
exercisable by the same persons and for the same period of time as the related
option. If and to the extent the Committee may, in its discretion, determine the
change in an option holder's status from an employee to a vendor, or the
transfer of an individual from the employment or engagement or vice versa, the
Company or its subsidiaries to the employment or engagement of any affiliate of
the Company shall not be treated as a termination of employment or engagement by
the Company. The status of another entity as an affiliate of the Company shall
be determined by the Committee.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be
-------------------
paid the excess of the then fair market value of the number of shares to which
the right relates over the fair market value of such number of shares at the
date of grant of the right or of the related stock option, as the case may be.
Such excess shall be paid in cash or in shares of Common Stock having a fair
market value equal to such excess or in such combination thereof as the
Committee shall determine.
<PAGE>
Plan #002
NONSTANDARDIZED
ADOPTION AGREEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING
PLAN AND TRUST/CUSTODIAL ACCOUNT
Sponsored by
PNC BANK, NATIONAL ASSOCIATION
The Employer named below hereby establishes a Cash or Deferred Profit-Sharing
Plan for eligible Employees as provided in this Adoption Agreement and the
accompanying Basic Prototype Plan and Trust/Custodial Account Basic Plan
Document #04.
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this section
based on the lead Employer. Additional Employers may adopt this
Plan by attaching executed signature pages to the back of the
Employer's Adoption Agreement.
(a) NAME AND ADDRESS:
Option Care, Inc.
100 Corporate North
Suite 212
Bannockburn, IL 60015
(b) TELEPHONE NUMBER: (800) 879-6137
(c) TAX ID NUMBER: 36-3791193
(d) FORM OF BUSINESS:
[ ] (i) Sole Proprietor
[ ] (ii) Partnership
[ x] (iii) Corporation
[ ] (iv) "S" Corporation (formerly known as Subchapter S)
[ ] (v) Other:
------------------------------------------
1
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
(e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE
INSTRUCTIONS TO THE TRUSTEE/CUSTODIAN:
J. Jeffrey Fox; Russ Abraham; Rita McConville
(f) NAME OF PLAN: Option Care, Inc. 401(k) Profit Sharing Plan
(g) THREE DIGIT PLAN NUMBER FOR ANNUAL RETURN/REPORT: 002
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of .
----------------
(b) This is an amended Plan.
The effective date of the original Plan was January 1, 1989.
---------------
The effective date of the amended Plan is January 1, 1996.
---------------
(c) If different from above, the Effective Date for the Plan's Elective
Deferral provisions shall be .
------------------
3. DEFINITIONS
(a) "Collective or Commingled Funds" (Applicable to institutional Trustees
only.) Investment in collective or commingled funds as permitted at
paragraph 13.3(b) of the Basic Plan Document #04 shall only be made to
the following specifically named fund(s):
PNC Profile Funds
Funds made available after the execution of this Adoption Agreement
will be listed on schedules attached to the end of this Adoption
Agreement.
(b) "Compensation" Compensation shall be determined on the basis of the:
[x] (i) Plan Year.
[ ] (ii) Employer's Taxable Year.
2
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
[ ] (iii) Calendar Year.
Compensation shall be determined on the basis of the following
safe-harbor definition of Compensation in IRS Regulation Section
1.414(s)-1(c):
[x] (iv) Code Section 6041 and 6051 Compensation,
[ ] (v) Code Section 3401(a) Compensation, or
[ ] (vi) Code Section 415 Compensation.
Compensation [x] shall [ ] shall not include Employer contributions
made pursuant to a Salary Savings Agreement which are not includable in
the gross income of the Employee for the reasons indicated in the
definition of Compensation at 1.12 of the Basic Plan Document #04.
For purposes of the Plan, Compensation shall be limited to $ , the
------
maximum amount which will be considered for Plan purposes. [If an
amount is specified, it will limit the amount of contributions allowed
on behalf of higher compensated Employees. Completion of this section
is not intended to coordinate with the $200,000 of Code Section 415(d),
thus the amount should be less than $200,000 as adjusted for
cost-of-living increases.]
Exclusions From Compensation:
(1) overtime.
(2) bonuses.
(3) commissions.
(4)
-------------------------
Type of Contribution(s) Exclusion(s)
Elective Deferrals [Section 7(b)] ________
Matching Contributions [Section 7(c)] ________
Qualified Non-Elective Contri butions [Section 7(d)] ________
and Non-Elective Contributions [Section 7(e)]
3
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
(c) "Entry Date"
[ ] (i) The first day of the Plan Year nearest the date on which an
Employee meets the eligibility requirements.
[ ] (ii) The earlier of the first day of the Plan Year or the first day
of the seventh month of the Plan Year coinciding with or
following the date on which an Employee meets the eligibility
requirements.
[ ] (iii) The first day of the Plan Year following the date on which
the Employee meets the eligibility requirements. If this
election is made, the Service requirement at 4(a)(ii) may not
exceed 1/2 year and the age requirement at 4(b)(ii) may not
exceed 20-1/2.
[x] (iv) The first day of the month coinciding with or following the
date on which an Employee meets the eligibility requirements.
[ ] (v) The first day of the Plan Year, or the first day of the
fourth month, or the first day of the seventh month or the
first day of the tenth month, of the Plan Year coinciding with
or following the date on which an Employee meets the
eligibility requirements.
(d) "Hours of Service" Shall be determined on the basis of the method selected
below. Only one method may be selected. The method selected shall be
applied to all Employees covered under the Plan as follows:
[x] (i) On the basis of actual hours for which an Employee is paid or
entitled to payment.
[ ] (ii) On the basis of days worked. An Employee shall be credited
with ten (10) Hours of Service if under paragraph 1.42 of the
Basic Plan Document #04 such Employee would be credited with
at least one (1) Hour of Service during the day.
[ ] (iii) On the basis of weeks worked. An Employee shall be credited
with forty-five (45) Hours of Service if under paragraph 1.42
of the Basic Plan Document #04 such Employee would be credited
with at least one (1) Hour of Service during the week.
[ ] (iv) On the basis of semi-monthly payroll periods. An Employee
shall be credited with ninety-five (95) Hours of Service if
under paragraph 1.42 of the Basic Plan Document #04 such
Employee
4
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
would be credited with at least one (1) Hour of Service during
the semi-monthly payroll period.
[ ] (v) On the basis of months worked. An Employee shall be
credited with one-hundred-ninety (190) Hours of Service if
under paragraph 1.42 of the Basic Plan Document #04 such
Employee would be credited with at least one (1) Hour of
Service during the month.
(e) "Limitation Year" The 12-consecutive month period commencing on January 1
---------
and ending on December 31.
-----------
If applicable, the Limitation Year will be a short Limitation Year
commencing on and ending on . Thereafter, the
------------ ----------
Limitation Year shall end on the date last specified above.
(f) "Net Profit"
[x] (i) Not applicable (profits will not be required for any
contributions to the Plan).
[ ] (ii) As defined in paragraph 1.49 of the Basic Plan Document #04.
[ ] (iii) Shall be defined as:
-----------------------------------------------
(Only use if definition in paragraph 1.49 of the Basic Plan
Document #04 is to be superseded.)
(g) "Plan Year" The 12-consecutive month period commencing on January 1 and
---------
ending on December 31.
-----------
If applicable, the Plan Year will be a short Plan Year commencing on
-------
and ending on . Thereafter, the Plan Year shall end on the date last
--------
specified above.
(h) "Qualified Early Retirement Age" For purposes of making distributions under
the provisions of a Qualified Domestic Relations Order, the Plan's
Qualified Early Retirement Age with regard to the Participant against whom
the order is entered [x] shall [ ] shall not be the date the order is
determined to be qualified. If "shall" is elected, this will only allow
payout to the alternate payee(s).
5
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
(i) "Qualified Joint and Survivor Annuity" The safe-harbor provisions of
paragraph 8.7 of the Basic Plan Document #04 [ ] are [x] are not
applicable. If not applicable, the survivor annuity shall be 50 % (50%,
66-2/3%, 75% or 100%) of the annuity payable during the lives of the
Participant and Spouse. If no answer is specified, 50% will be used.
(j) "Taxable Wage Base" [paragraph 1.79]
[ ] (i) Not Applicable - Plan is not integrated with Social Security.
[x] (ii) The maximum earnings considered wages for such Plan Year under
Code Section 3121(a).
[ ] (iii) __% (not more than 100%) of the amount considered wages for such
Plan Year under Code Section 3121(a).
[ ] (iv) $___ , provided that such amount is not in excess of the amount
determined under paragraph 3(j)(ii) above.
[ ] (v) For the 1989 Plan Year $10,000. For all subsequent Plan Years,20%
of the maximum earnings considered wages for such Plan Year unde
Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may result in a change in the
allocation formula in Section 7.
(k) "Valuation Date(s)" Allocations to Participant Accounts will be done in
accordance with Article V of the Basic Plan Document #04:
(i) Daily (v) Quarterly
(ii) Weekly (vi) Semi-Annually
(iii) Monthly (vii) Annually
(iv) Bi-Monthly
Indicate Valuation Date(s) to be used by specifying opotion from list above:
Type of Contribution(s) Valuation Date(s)
----------------------- -----------------
After-Tax Voluntary Contributions [Section 6] ____
6
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
Elective Deferrals [Section 7(b)] ____
Matching Contributions [Section 7(c)] ____
Qualified Non-Elective Contributions [Section 7(d)] ____
Non-Elective Contributions [Section 7(e), (f) and (g)] ____
Minimum Top-Heavy Contributions [Section 7(I)] ____
(l) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month period during
which an Employee is credited with 1000 (not more than 1,000)
----
Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive month period
during which an Employee is credited with 1000 (not more than
----
1,000) Hours of Service.
(iii) For Vesting Purposes: The 12-consecutive month period during which
an Employee is credited with 1000 (not more than 1,000) Hours of
----
Service.
4. ELIGIBILITY REQUIREMENTS
(a) Service:
[ ] (i) The Plan shall have no service requirement.
[x] (ii) The Plan shall cover only Employees having completed
at least 1 [not more than three (3)] Years of Service
If more than one (1) is specified, for Plan Years
beginning in 1989 and later,the answer will be deemed
to be one (1).
NOTE: If the eligibility period selected is less than one
year, an Employee will not be required to complete any
specified number of Hours of Service to receive credit
for such period.
(b) Age:
[ ] (i) The Plan shall have no minimum age requirement.
7
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
[x] (ii) The Plan shall cover only Employees having attained
age 21 (not more than age 21).
----
(c) Classification:
The Plan shall cover all Employees who have met the age and
service requirements with the following exceptions:
[ ] (i) No exceptions.
[x] (ii) The Plan shall exclude Employees included in a
unit of Employees covered by a collective bargaining
agreement between the Employer and Employee
Representatives, if retirement benefits were the
subject of good faith bargaining. For this purpose,
the term "Employee Representative" does not include
any organization more than half of whose members are
Employees who are owners, officers, or executives of
the Employer.
[ ] (iii) The Plan shall exclude Employees who are
nonresident aliens and who receive no earned income
from the Employer which constitutes income from
sources within the United States.
[ ] (iv) The Plan shall exclude from participation any
nondiscriminatory classification of Employees
determined as follows:
__________________________
(d) Employees on Effective Date:
[x] (i) Not Applicable. All Employees will be required to
satisfy both the age and Service requirements
specified above.
[ ] (ii) Employees employed on the Plan's Effective Date
do not have to satisfy the Service requirements
specified above.
[ ] (iii) Employees employed on the Plan's Effective Date
do not have to satisfy the age requirements specified
above.
8
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire upon
reaching a specified age, the Normal Retirement Age selected below may
not exceed the Employer imposed mandatory retirement age.
[x] (i) Normal Retirement Age shall be 65 (not to exceed
----
age 65).
[ ] (ii) Normal Retirement Age shall be the later of attaining
age ____ (not to exceed age 65) or the (not to exceed
the 5th) anniversary of the first day of the first
Plan Year in which the Participant commenced
participation in the Plan.
(b) Early Retirement Age:
[ ] (i) Not Applicable.
[x] (ii) The Plan shall have an Early Retirement Age of 55
----
(not less than 55) and completion of 6 Years of
---
Service.
6. EMPLOYEE CONTRIBUTIONS
[x] (a) Participants shall be permitted to make Elective Deferrals in
any amount from 1 % up to 20 % of their Compensation.
--- ----
If (a) is applicable, Participants shall be permitted to amend
their Salary Savings Agreements to change the contribution
percentage as provided below:
[ ] (i) On the Anniversary Date of the Plan,
[ ] (ii) On the Anniversary Date of the Plan and on the first day
of the seventh month of the Plan Year,
[ ] (iii) On the Anniversary Date of the Plan and on the first day
following any Valuation Date, or
[x] (iv) Upon 30 days notice to the Employer.
[ ] (b) Participants shall be permitted to make after tax Voluntary
Contributions.
9
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
[ ] (c) Participants shall be required to make after tax Voluntary
Contributions as follows (Thrift Savings Plan):
[ ] (i) ____% of Compensation.
[ ] (ii) A percentage determined by the Employee on his
or her enrollment form.
[x] (d) If necessary to pass the Average Deferral Percentage Test,
Participants [ ] may [x] may not have Elective Deferrals
recharacterized as Voluntary Contributions.
NOTE: The Average Deferral Percentage Test will apply to
contributions under (a) above. The Average Contribution
Percentage Test will apply to contributions under (b) and (c)
above, and may apply to (a).
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in accordance
with the formula or formulas selected below. The Employer's
contribution shall be subject to the limitations contained in
Articles III and X. For this purpose, a contribution for a Plan
Year shall be limited for the Limitation Year which ends with or
within such Plan Year. Also, the integrated allocation formulas
below are for Plan Years beginning in 1989 and later. The
Employer's allocation for earlier years shall be as specified in
its Plan prior to amendment for the Tax Reform Act of 1986.
(a) Profits Requirement:
(i) Current or Accumulated Net Profits are required for:
[ ] (A) Matching Contributions.
[ ] (B) Qualified Non-Elective Contributions.
[ ] (C) discretionary contributions.
(ii) No Net Profits are required for:
[x] (A) Matching Contributions.
[x] (B) Qualified Non-Elective Contributions.
10
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
[x] (C) discretionary contributions.
NOTE: Elective Deferrals can always be contributed regardless of profits.
[x] (b) Salary Savings Agreement:
The Employer shall contribute and allocate to each Participant's
account an amount equal to the amount withheld from the
Compensation of such Participant pursuant to his or her Salary
Savings Agreement. If applicable, the maximum percentage is
specified in Section 6 above.
An Employee who has terminated his or her election under the
Salary Savings Agreement other than for hardship reasons may not
make another Elective Deferral:
[ ] (i) until the first day of the next Plan Year.
[ ] (ii) until the first day of the next valuation period.
[x] (iii) for a period of 1 month(s) (not to exceed 12 months).
---
[x] (c) Matching Employer Contribution [See paragraphs (h) and (i)]:
[ ] (i) Percentage Match: The Employer shall contribute
and allocate to each eligible Participant's account an
amount equal to __% of the amount contributed and
allocated in accordance with paragraph 7(b) above and
(if checked) __ % of [ ] the amount of Voluntary
Contributions made in accordance with paragraph 4.1 of
the Basic Plan Document #04. The Employer shall not
match Participant Elective Deferrals as provided above
in excess of $____ or in excess of __% of the
Participant's Compensation or if applicable,
Voluntary Contributions in excess of $____ or in
excess of __% of the Participant's Compensation.
In no event will the match on both Elective
Deferrals and Voluntary Contributions exceed a
combined amount of $____ or __%.
[x] (ii) Discretionary Match: The Employer shall contribute and
allocate to each eligible Participant's account a
percentage of the Participant's Elective Deferral
contributed and allocated in accordance with paragraph
7(b) above. The Employer shall set such percentage
prior to the end of the Plan Year. The Employer shall
not match Participant Elective Deferrals in excess of
$____ or in excess of __% of the Participant's
Compensation.
11
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Pan #002
[ ] (iii) Tiered Match: The Employer shall contribute
and allocate to each Participant's account an amount
equal to % of the first % of the Participant's
Compensation, to the extent deferred.
_____% of the next _____ % of the Participant's
Compensation, to the extent deferred.
_____% of the next _____ % of the Participant's
Compensation, to the extent deferred.
NOTE: Percentages specified in (iii) above may not increase
as the percentage of Participant's
contribution increases.
[ ] (iv) Flat Dollar Match: The Employer shall
contribute and allocate to each Participant's account
$______ if the Participant defers at least 1% of
Compensation.
[ ] (v) Percentage of Compensation Match: The Employer
shall contribute and allocate to each Participant's
account _____% of Compensation if the Participant
defers at least 1% of Compensation.
[ ] (vi) Proportionate Compensation Match: The Employer
shall contribute and allocate to each Participant who
defers at least 1% of Compensation, an amount
determined by multiplying such Employer Matching
Contribution by a fraction the numerator of which is
the Participant's Compensation and the denominator of
which is the Compensation of all Participants eligible
to receive such an allocation. The Employer shall set
such discretionary contribution prior to the end of
the Plan Year.
[ ] (vii) Qualified Match: Employer Matching Contributions will
be treated as Qualified Matching Contributions to the
extent specified below:
[ ] (A) All Matching Contributions.
[ ] (B) None.
[ ] (C) _____% of the Employer's Matching
Contribution.
[ ] (D) Up to ____% of each Participant's
Compensation.
12
<PAGE>
Prototype Cash or
Deferred Profit-
Sharing Plan #002
[ ] (E) The amount necessary to meet the [ ] Average
Deferral Percentage (ADP) Test, [ ] Average
Contribution Percentage (ACP) Test, [ ] Both
the ADP and ACP Tests.
(viii) Matching Contribution Computation Period: The
time period upon which matching contributions will be
based shall be
[ ] (A) weekly
[ ] (B) bi-weekly
[ ] (C) semi-monthly
[ ] (D) monthly
[ ] (E) quarterly
[ ] (F) semi-annually
[x] (G) annually
(ix) Eligibility for Match: Employer Matching
Contributions, whether or not Qualified, will only be
made on Employee Contributions not withdrawn prior to
the end of the [x] valuation period [ ] Plan Year.
[x] (d) Qualified Non-Elective Employer Contribution - [See
paragraphs (h) and (i)] These contributions are fully vested when
contributed.
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a
percentage of the Compensation of all eligible Employees. This
part of the Employer's contribution and the allocation thereof
shall be unrelated to any Employee contributions made hereunder.
The amount of Qualified non-Elective Contributions taken into
account for purposes of meeting the ADP or ACP test requirements
is:
[ ] (i) All such Qualified non-Elective Contributions.
[x] (ii) The amount necessary to meet [ ] the ADP test, [ ] the
ACP test, [x] Both the ADP and ACP tests.
13
<PAGE>
Qualified non-Elective Contributions will be made to:
[ ] (iii) All Employees eligible to participate.
[x] (iv) Only non-Highly Compensated Employees eligible to
participate.
[ ] (e) Additional Employer Contribution Other Than Qualified
Non-Elective Contributions - Non-Integrated [See paragraphs (h)
and (i)]
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a
percentage of the Compensation of all eligible Employees. This
part of the Employer's contribution and the allocation thereof
shall be unrelated to any Employee contributions made hereunder.
[x] (f) Additional Employer Contribution - Integrated Allocation
Formula [See paragraphs (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution. The Employer's contribution for the
Plan Year plus any forfeitures shall be allocated to the accounts
of eligible Participants as follows:
(i) First, to the extent contributions and forfeitures are
sufficient, all Participants will receive an allocation
equal to 3% of their Compensation.
(ii) Next, any remaining Employer Contributions and forfeitures
will be allocated to Participants who have Compensation in
excess of the Taxable Wage Base (excess Compensation).
Each such Participant will receive an allocation in the
ratio that his or her excess compensation bears to the
excess Compensation of all Participants. Participants may
only receive an allocation of 3% of excess Compensation.
(iii) Next, any remaining Employer contributions and forfeitures
will be allocated to all Participants in the ratio that
their Compensation plus excess Compensation bears to the
total Compensation plus excess Compensation of all
Participants. Participants may only receive an allocation
of up to 2.7% of their Compensation plus excess
Compensation, under this allocation method. If the Taxable
Wage Base defined at Section 3(j) is less than or equal to
the greater of $10,000 or 20% of the maximum, the 2.7%
need not be reduced. If the amount specified is greater
than the greater of $10,000 or 20% of the maximum Taxable
Wage Base, but not more than 80%, 2.7% must be reduced to
1.3%. If the amount
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Prototype Cash or
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Sharing Plan #002
specified is greater than 80% but less than 100% of the
maximum Taxable Wage Base, the 2.7% must be reduced to
2.4%.
NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum
contribution or benefit is provided under another Plan
[see Section 11(c)(ii)] covering the same Employees,
sub-paragraphs (i) and (ii) above may be disregarded and
5.7%, 4.3% or 5.4% may be substituted for 2.7%, 1.3% or
2.4% where it appears in (iii) above.
(iv) Next, any remaining Employer contributions and forfeitures
will be allocated to all Participants (whether or not they
received an allocation under the preceding paragraphs) in
the ratio that each Participant's Compensation bears to
all Participants' Compensation.
[ ] (g) Additional Employer Contribution-Alternative Integrated
Allocation Formula. [See paragraph (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution. To the extent that such contributions
are sufficient, they shall be allocated as follows:
_____% of each eligible Participant's Compensation plus _____% of
Compensation in excess of the Taxable Wage Base defined at
Section 3(j) hereof. The percentage on excess compensation may
not exceed the lesser of (i) the amount first specified in this
paragraph or (ii) the greater of 5.7% or the percentage rate of
tax under Code Section 3111(a) as in effect on the first day of
the Plan Year attributable to the Old Age (OA) portion of the
OASDI provisions of the Social Security Act. If the Employer
specifies a Taxable Wage Base in Section 3(j) which is lower than
the Taxable Wage Base for Social Security purposes (SSTWB) in
effect as of the first day of the Plan Year, the percentage
contributed with respect to excess Compensation must be adjusted.
If the Plan's Taxable Wage Base is greater than the larger of
$10,000 or 20% of the SSTWB but not more than 80% of the SSTWB,
the excess percentage is 4.3%. If the Plan's Taxable Wage Base is
greater than 80% of the SSTWB but less than 100% of the SSTWB,
the excess percentage is 5.4%.
NOTE: Only one plan maintained by the Employer may be integrated
with Social Security.
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Prototype Cash or
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(h) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an
Excess Amount, such excess shall be:
[] (i) placed in a suspense account accruing no gains or
losses for the benefit of the Participant.
[x] (ii) reallocated as additional Employer contributions
to all other Participants to the extent that they do
not have any Excess Amount.
(i) Minimum Employer Contribution Under Top-Heavy Plans:
For any Plan Year during which the Plan is Top-Heavy, the sum of
the contributions and forfeitures as allocated to eligible
Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of this
Adoption Agreement shall not be less than the amount required
under paragraph 14.2 of the Basic Plan document #04. Top-Heavy
minimums will be allocated to:
[ ] (i) all eligible Participants.
[x] (ii) only eligible non-Key Employees who are Participants.
(j) Return of Excess Contributions and/or Excess Aggregate
Contributions:
In the event that one or more Highly Compensated Employees is
subject to both the ADP and ACP tests and the sum of such tests
exceeds the Aggregate Limit, the limit will be satisfied by
reducing the:
[x] (i) the ADP of the affected Highly Compensated Employees.
[ ] (ii) the ACP of the affected Highly Compensated
Employees.
[ ] (iii) a combination of the ADP and ACP of the affected
Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
[ ] (a) The Employer will not allocate Employer related
contributions to Employees who terminate during a Plan Year,
unless required to satisfy the requirements of Code Section
401(a)(26) and 410(b). (These requirements are effective for
1989 and subsequent Plan Years.)
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Prototype Cash or
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[x] (b) The Employer will allocate Employer matching and other
related contributions as indicated below to Employees who
terminate during the Plan Year as a result of:
Matching Other
________ _____
[ ] [x] (i) Retirement.
[ ] [x] (ii) Disability.
[ ] [x] (iii) Death.
[ ] [x] (iv) Other termination of employment
provided that the Participant has
completed a Year of Service as
defined for Allocation Accrual
Purposes.
[x] [ ] (v) Other termination of employment even
though the Participant has not
completed a Year of Service.
[ ] [ ] (vi) Termination of employment (for any
reason provided that the Participant
had completed a Year of Service for
Allocation Accrual Purposes.
9. ALLOCATION OF FORFEITURES
NOTE: Subsections (a), (b) and (c) below apply to forfeitures of
amounts other than Excess Aggregate Contributions.
(a) Allocation Alternatives:
If forfeitures are allocated to Participants, such
allocation shall be done in the same manner as the
Employer's contribution.
[ ] (i) Not Applicable. All contributions are always
fully vested.
[ ] (ii) Forfeitures shall be allocated to
Participants in the same manner as the
Employer's contribution.
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Prototype Cash or
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If allocation to other Participants is selected,
the allocation shall be as follows:
[1] Amount attributable to Employer discretionary
contributions and Top-Heavy minimums will be
allocated to:
[ ] all eligible Participants under the Plan.
[ ] only those Participants eligible for an
allocation of Employer contributions in
the current year.
[ ] only those Participants eligible for an
allocation of matching contributions in
the current year.
[2] Amounts attributable to Employer Matching
contributions will be allocated to:
[ ] all eligible Participants.
[ ] only those Participants eligible for
allocations of matching contributions in
the current year.
[x] (iii) Forfeitures shall be applied to reduce the
Employer's contribution for such Plan Year.
[ ] (iv) Forfeitures shall be applied to offset
administrative expenses of the Plan. If forfeiture
exceed these expenses, (iii) above shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former Participant,
sub-section (i) below will apply to such Participant even
if the Employer elects (ii), (iii) or (iv) below as its
normal administrative policy.
[ ] (i) Forfeitures shall be reallocated at the end of
the Plan Year during which the former Participant
incurs his or her fifth consecutive one year Break
In Service.
[ ] (ii) Forfeitures will be reallocated immediately
(as of the next Valuation Date).
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Prototype Cash or
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[ ] (iii) Forfeitures shall be reallocated at the end
of the Plan Year during which the former Employee
incurs his or her ___(1st, 2nd, 3rd, or 4th)
consecutive one year Break In Service.
[x] (iv) Forfeitures will be reallocated immediately (as
of the Plan Year end).
(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year Breaks in
Service, the Funds for restoration of account balances will be
obtained from the following resources in the order indicated (fill in
the appropriate number):
[1] (i) Current year's forfeitures.
[2] (ii) Additional Employer contribution.
[ ] (iii) Income or gain to the Plan.
(d) Forfeitures of Excess Aggregate Contributions shall be:
[x] (i) Applied to reduce Employer contributions.
[ ] (ii) Allocated, after all other forfeitures under the
Plan, to the Matching Contribution account of each
non-highly compensated Participant who made Elective
Deferrals or Voluntary Contributions in the ratio which each
such Participant's Compensation for the Plan Year bears to
the total Compensation of all Participants for such Plan
Year. Such forfeitures cannot be allocated to the account of
any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so applied at
the end of the Plan Year in which they occur.
10. CASH OPTION
[ ] (a) The Employer may permit a Participant to elect to defer to
the Plan, an amount not to exceed % of any Employer paid cash
bonus made for such Participant for any year. A Participant must
file an election to defer such contribution at least fifteen (15)
days prior to the end of the Plan Year. If the Employee fails to
make such an election, the entire Employer paid cash bonus to
which the Participant would be entitled shall be paid as cash and
not to the Plan. Amounts
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Protoype Cash or
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Sharing Plan #002
deferred under this section shall be treated for all purposes as
Elective Deferrals. Notwithstanding the above, the election to
defer must be made before the bonus is made available to the
Participant.
[x] (b) Not Applicable.
11.LIMITATIONS ON ALLOCATIONS
[ ] This is the only Plan the Employer maintains or ever maintained,
therefore, this section is not applicable.
[x] The Employer does maintain or has maintained another Plan (including a
Welfare Benefit Fund or an individual medical account (as defined in
Code Section 415(l)(2)), under which amounts are treated as Annual
Additions) and has completed the proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or ever
maintained another qualified plan, including a Welfare Benefit Fund or
an individual medical account [as defined in Code Section 415(l)(2)]
in which any Participant in this Plan is (or was) a participant or
could possibly become a participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a Master or
Prototype Plan:
[x] (i) The provisions of Article X of the Basic Plan Document #04
will apply, as if the other plan were a Master or Prototype
Plan.
[ ] (ii) Attach provisions stating the method under which the
plans will limit total Annual Additions to the Maximum
Permissible Amount, and will properly reduce any Excess
Amounts, in a manner that precludes Employer discretion.
(b) If a Participant is or ever has been a participant in a Defined
Benefit Plan maintained by the Employer:
Attach provisions which will satisfy the 1.0 limitation of Code
Section 415(e). Such language must preclude Employer discretion. The
Employer must also specify the interest and mortality assumptions used
in determining Present Value in the Defined Benefit Plan.
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Protoype Cash or
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(c) The minimum contribution or benefit required under Code Section 416
relating to Top-Heavy Plans shall be satisfied by:
[x] (i) this Plan.
[ ] (ii) (Name of other qualified plan of the Employer).
[ (iii) Attach provisions stating the method under which the
minimum contribution and benefit provisions of Code Section
416 will be satisfied. If a Defined Benefit Plan is or was
maintained, an attachment must be provided showing interest
and mortality assumptions used in the Top-Heavy Ratio.
12.VESTING
Employees shall have a fully vested and nonforfeitable interest in any
Employer contribution and the investment earnings thereon made in
accordance with paragraphs (select one or more options) [ ] 7(c), [ ]
7(e), [ ] 7(f), [ ] 7(g) and [ ] 7(i) hereof. Contributions under
paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or more
of the foregoing options are not selected, such Employer contributions
shall be subject to the vesting table selected by the Employer.
Each Participant shall acquire a vested and nonforfeitable percentage in
his or her account balance attributable to Employer contributions and the
earnings thereon under the procedures selected below except with respect
to any Plan Year during which the Plan is Top-Heavy, in which case the
Two-twenty vesting schedule [Option (b)(iv)] shall automatically apply
unless the Employer has already elected a faster vesting schedule. If the
Plan is switched to option (b)(iv), because of its Top-Heavy status, that
vesting schedule will remain in effect even if the Plan later becomes
non-Top-Heavy until the Employer executes an amendment of this Adoption
Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of
Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance
derived from Employer contributions:
[ ] (i) shall not be applicable since Participants are
always fully vested,
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Protoype Cash or
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[ ] (ii) shall commence on the date on which an
Employee first performs an Hour of Service for the
Employer and each subsequent 12-consecutive month
period shall commence on the anniversary thereof, or
[x] (iii) shall commence on the first day of the Plan Year
during which an Employee first performs an Hour of
Service for the Employer and each subsequent
12-consecutive month period shall commence on the
anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she
completes at least 1,000 Hours of Service [or if lesser, the number of
hours specified at 3(l)(iii) of this Adoption Agreement] at any time
during the 12-consecutive month computation period. Consequently, a Year
of Service may be earned prior to the end of the 12-consecutive month
computation period and the Participant need not be employed at the end of
the 12-consecutive month computation period to receive credit for a Year
of Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a Participant who has
at least one Hour of Service during or after the 1989 Plan Year.
If applicable, Participants who separated from Service prior to
the 1989 Plan Year will remain under the vesting schedule as in
effect in the Plan prior to amendment for the Tax Reform Act of
1986.
(i) Full and immediate vesting.
<TABLE>
<CAPTION>
Years of Service
----------------
1 2 3 4 5 6 7
-- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) ___% 100%
(iii) ___% ___% 100%
(iv) ___% 20% 40% 60% 80% 100%
(v) ___% ___% 20% 40% 60% 80% 100%
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) 20% 40% 60% 80% 100%
(viii) ___% ___% ___% ___% ___% ___% 100%
</TABLE>
NOTE: The percentages selected for schedule (viii) may not be less for
any year than the percentages shown at schedule (v).
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Prototype Cash or
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[x] All contributions other than those which are fully vested when
contributed will vest under schedule vii above.
[ ] Contributions other than those which are fully vested when
contributed will vest as provided below:
Vesting
Option Selected Type Of Employer Contribution
--------------- -----------------------------
______ 7(c) Employer Match on Salary Savings
______ 7(c) Employer Match on
Employee Voluntary
______ 7(e) Employer Discretionary
______ 7(f) & (g) Employer Discretionary-Integrated
(c) Service disregarded for Vesting:
[x] (i) Not Applicable. All Service shall be considered.
[ ] (ii) Service prior to the Effective Date of this Plan or
a predecessor plan shall be disregarded when computing a
Participant's vested and nonforfeitable interest.
[ ] (iii) Service prior to a Participant having attained age
18 shall be disregarded when computing a Participant's
vested and nonforfeitable interest.
13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility, Hours
of Service shall include Service with the following predecessor
organization(s): (These hours will also be used for vesting purposes.)
See Appendix A.
14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the Basic
Plan Document #04, [x] shall [ ] shall not be permitted. If permitted,
Employees [x] may [ ] may not make
(b) Optional Forms of Payment:
[x] (i) Lump Sum
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Prototype Cash or
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Rollover Contributiuons priot to meeting the eligibility requirements
for participation in the Plan.
(b) Transfer Contributions, as described at paragraph 4.4 of the Basic
Plan Document #04 [x] shall [ ] shall not be permitted. If permitted,
Employees [x] may [ ] may not make Transfer Contributions prior to
meeting the eligibility requirements for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept such
contributions if its Plan meets the safe-harbor rules of paragraph 8.
of the Basic Plan Document #04.
15. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic Plan
Document #04, [x] are [ ] are not permitted.
16. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.5 of the Basic Plan
Document #04, [x] are [ ] are not permitted. If permitted, repayments of
principal and interest shall be repaid to [x] the Participant's segregated
account or [ ] the general Fund.
17. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document #04
[ ] shall [x] shall not be applicable.
18. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in paragraph
13.7 of the Basic Plan Document #04, [x] shall [ ] shall not be applicable.
19. EMPLOYEE INVESTMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in
paragraph 13.8 of the Basic Plan Document #04, [x] shall [ ] shall
not be applicable.
If applicable, Participants may direct their investments:
[x] (i) among funds offered by the Trustee
24
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Prototype Cash or
Deferred Profit-
Sharing Plan #002
[ ] (ii) among any allowable investments.
(b) Participants may direct the following kinds of contributions and the
earnings thereon (check all applicable):
[x] (i) All Contributions
[ ] (ii) Elective Deferrals
[ ] (iii) Employee Voluntary Contributions (after-tax)
[ ] (iv) Employee Mandatory Contributions (after-tax)
[ ] (v) Employer Qualified Matching Contributions
[ ] (vi) Other Employer Matching Contributions
[ ] (vii) Employer Qualified Non-Elective Contributions
[ ] (viii) Employer Discretionary Contributions
[ ] (ix) Rollover Contributions
[ ] (x) Transfer Contributions
[ ] (xi) All of above which are checked, but only to the
extent that the Participant is vested in those
contributions.
NOTE: To the extent that Employee investment direction was previously
allowed, the Trustee shall have the right to either make the
assets part of the general Trust, or leave them as separately
invested subject to the rights of paragraph 13.8.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement,
death or Disability [x] may [ ] may not make application to the
Employer requesting an early payment of his or her vested
account balance.
(b) A Participant who has attained age 59-1/2 and who has not
separated from Service [ ] may [x] may not obtain a distribution
of his or her vested Employer contributions. Distribution can
only be made if the Participant is 100% vested.
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Prototype Cash or
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(c) A Participant who has attained the Plan's Normal Retirement Age
and who has not separated from Service [x] may [ ] may not receive
a distribution of his or her vested account balance.
NOTE: If the Participant has had the right to withdraw his or her
account balance in the past, this right may not be taken away.
Notwithstanding the above, to the contrary, required minimum
distributions will be paid. For timing of distributions, see
item 21(a) below.
21. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[x] (i) As soon as administratively feasible, following
the close of the valuation period during which a
distribution is requested or is otherwise payable.
[ ] (ii) As soon as administratively feasible following
the close of the Plan Year during which a distribution
is requested or is otherwise payable.
[ ] (iii) As soon as administratively feasible, following
the date on which a distribution is requested or is
otherwise payable.
[ ] (iv) As soon as administratively feasible, after the
close of the Plan Year during which the Participant
incurs consecutive one-year Breaks in Service.
[ ] (v) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early Retirement Age,
if applicable.
In cases of death, Disability or retirement, benefits shall be paid:
[x] (vi) As soon as administratively feasible, following the
close of the valuation period during which a
distribution is requested or is otherwise payable.
[ ] (vii) As soon as administratively feasible following
the close of the Plan Year during which a distribution
is requested or is otherwise payable.
[ ] (viii) As soon as administratively feasible,
following the date on which a distribution is
requested or is otherwise payable.
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Prototype Cash or
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(b) Optional Forms of Payment:
[x] (i) Lump Sum.
[x] (ii) Installment Payments.
[x] (iii) Life Annuity*.
[x] (iv) Life Annuity Term Certain*. Life Annuity with payments
guaranteed for 5, 10, or 15 years (not to exceed 20
-------------
years, specify all applicable).
[x] (v) Joint and [x] 50%, [x] 66-2/3%, [ ] 75% or [x] 100%
survivor annuity* (specify all applicable).
[x] (vi) Other form(s) specified: See Attached
------------
* Not available in Plan meeting provisions of paragraph 8.7
of Basic Plan Document #04.
(c) Recalculation of Life Expectancy:
In determining required distributions under the Plan, Participants
and/or their Spouse (Surviving Spouse) [x] shall [ ] shall not
have the right to have their life expectancy recalculated
annually.
If "shall",
[ ] only the Participant shall be recalculated.
[ ] both the Participant and Spouse shall be recalculated.
[x] who is recalculated shall be determined by the Participant.
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Prototype Cash or
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22. SPONSOR CONTACT
Employers should direct questions concerning the language contained in
and qualification of the Prototype to:
Bonnie S. Fawcett (Job Title) Manager, Client Services (Phone Number)
(800) 762-0061
In the event that the Sponsor amends, discontinues or abandons this
Prototype Plan, notification will be provided to the Employer's
address provided on the first page of this Agreement.
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Prototype Cash or
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23. SIGNATURES:
Due to the significant tax ramifications, the Sponsor recommends that
before you execute this Adoption Agreement, you contact your attorney
or tax advisor, if any.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
This agreement and the corresponding provisions of the Plan and
Trust/Custodial Account Basic Plan Document #04 were adopted by
the Employer the _____ day of _________ , 19___.
Signed for the Employer by:
Title:
Signature: ___________________________________
The Employer understands that its failure to properly complete
the Adoption Agreement may result in disqualification of its
Plan.
Employer's Reliance: The adopting Employer may not rely on an
opinion letter issued by the National Office of the Internal
Revenue Service as evidence that the Plan is qualified under Code
Section 401. In order to obtain reliance with respect to Plan
qualification, the Employer must apply to the appropriate Key
District Office for a determination letter.
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #04.
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Prototype Cash or
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Sharing Plan #002
23. SIGNATURES:
Due to the significant tax ramifications, the Sponsor recommends that
before you execute this Adoption Agreement, you contact your attorney
or tax advisor, if any.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
Option Care, Inc. (California)
This agreement and the corresponding provisions of the Plan
and Trust/Custodial Account Basic Plan Document #04 were adopted
by the Employer the _____ day of_______________, 19___.
Signed for the Employer by:
Title:
Signature: ___________________________________
The Employer understands that its failure to properly complete
the Adoption Agreement may result in disqualification of its
Plan.
Employer's Reliance: The adopting Employer may not rely on an
opinion letter issued by the National Office of the Internal
Revenue Service as evidence that the Plan is qualified under Code
Section 401. In order to obtain reliance with respect to Plan
qualification, the Employer must apply to the appropriate Key
District Office for a determination letter.
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #04.
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<PAGE>
Prototype Cash or
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[x] (b) TRUSTEE:
Name of Trustee:
PNC Bank, N.A.
The assets of the Fund shall be invested in accordance with
paragraph 13.3 of the Basic Plan Document #04 as a Trust. As
such, the Employer's Plan as contained herein was accepted by the
Trustee the _____ day of __________, 19___.
Signed for the Trustee by:Patricia S. Bergey
Title: Vice President
Signature: ___________________________________
[ ] (c) CUSTODIAN
Name of Custodian:
The assets of the Fund shall be invested in accordance with
paragraph 13.4 of the Basic Plan Document #04 as a Custodial
Account. As such, the Employer's Plan as contained herein was
accepted by the Custodian the ______ day of ___________ , 19__.
Signed for the Custodian by:
Title:
Signature: ___________________________________
[ ] (d) SPONSOR:
The Employer's Agreement and the corresponding provisions of the
Plan and Trust/Custodial Account Basic Plan Document #04 were
accepted by the Sponsor the ______ day of ___________ , 19__.
Signed for the Sponsor by: Patricia S. Bergey
Title: Vice President
Signature: ___________________________________
<PAGE>
AMENDMENT NO. 1 TO CREDIT AGREEMENT
-----------------------------------
THIS AMENDMENT NO. 1, made as of this 5th day of February, 1997 (the
"Amendment No. 1"), among OPTION CARE, INC., OPTION CARE, INC., OPTION CARE
ENTERPRISES, INC., HOME CARE OF COLUMBIA, INC., YOUNG'S I.V. THERAPY, INC.,
CORDESYS HEALTHCARE MANAGEMENT, INC., NORTH COUNTY HOME I.V., INC. OPTION CARE
HOSPICE, INC., OPTION CARE HOME HEALTH, INC., MANAGEMENT BY INFORMATION, INC.
and OPTION CARE OF OKLAHOMA, INC. (collectively and jointly and severally the
"Borrowers"), THE NORTHERN TRUST COMPANY ( a "Bank"), HARRIS TRUST AND SAVINGS
BANK (a "Bank"), FIRST NATIONAL BANK OF CHICAGO (a "Bank") and PNC Bank,
National Association, as Agent (a "Bank" and the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are parties to a
Credit Agreement dated as of December 23, 1996 (the "Credit Agreement");
WHEREAS, one of the Borrowers and Guarantors, Infusion Therapy of
Ontario, Inc. merged with and into North County Home I.V., Inc.;
WHEREAS, four other Borrowers, Pharmacare of Southwest Florida, Inc.,
Pharmacy I.V. Associates, Inc., Home Infusion Therapy of Bullhead City, Inc. and
Whatcom Pharmaceutical Services, Inc. merged with and into Option Care
Enterprises, Inc.;
WHEREAS, Option Care Enterprises, Inc., through a tax-free merger is
now a Delaware corporation;
WHEREAS, First National Bank of Chicago purchased from PNC Bank,
National Association $10,000,000 of the Revolving Credit Commitment;
WHEREAS, the Borrowers, the Banks and the Agent wish to amend
the Credit Agreement to increase the Revolving Credit Commitment and allocate
the increase to the Revolving Credit Commitment of PNC Bank, National
Association;
WHEREAS, the Guarantors of the Borrowers' obligations to the Banks and
the Agent are reaffirming their Guaranties;
WHEREAS, Pledgors (the "Pledgors") under Pledge Agreements
executed in connection with the Credit Agreement are reaffirming their Pledges;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and intending to be legally bound hereby, the Agent, the Banks
and the Borrowers agree as follows:
1
<PAGE>
1. Definitions. Capitalized terms used herein but not defined
------------
herein shall have the meanings set forth in the Credit Agreement.
2. References. All references in the Loan Documents to Infusion
----------
Therapy of Ontario, Inc. are changed to references to North County Home, I.V.,
Inc. All references to Pharmacare of Southwest Florida, Inc., Pharmacy I.V.
Associates, Inc., Home Infusion Therapy of Bullhead City Inc., and Whatcom
Pharmaceutical Services, Inc. are changed to references to Option Care
Enterprises, Inc.
3. Revolving Credit Commitment. All references in the Credit
---------------------------
Agreement to the principal amount of the Revolving Credit Commitment shall
change from $30,000,000 to $35,000,000.
4. Schedule 1.1(B). Schedule 1.1(B) to the Credit Agreement is
----------------
replaced in its entirety by Schedule 1.1(B) to this Amendment No. 1.
5. Section 7.1.5. Section 7.1.5 is amended to delete the wor
--------------
"franchises."
6. Excluded Joint Ventures. Section 7.2.9 is amended to restate the
------------------------
second sentence (defining Excluded Joint Ventures) in its entirety as follows:
"Excluded Joint Ventures shall mean (a) working capital loans to
franchisees ("Franchisee Loans") made after December 23, 1996
aggregating, at any time, $300,000 or less and (b) affiliates or joint
venture subsidiaries of a Loan Party for which the Loan Parties have
no more than a 74% interest (and as long as financial statements of
the Excluded Joint Venture are not consolidated with any Borrower's)
and for which the Loan Parties have paid Consideration aggregating no
more than $1,000,000 less the amount of Franchisee Loans outstanding."
7. Representations and Warranties. The Borrowers hereby represents
------------------------------
and warrants to the Banks and the Agent as follows:
(a) all representations, warranties and covenants made by the
Borrowers to the Banks and the Agent that are contained in the Loan Documents
are true and correct on and as of the date hereof with the same effect as though
such representations, warranties and covenants had been made on and as of the
date hereof;
(b) to the Borrowers' knowledge, no event or condition has
occurred or exists which, with the giving of notice or the passage of time, or
both, would constitute an Event of Default under any of the Loan Documents;
(c) the copies of the Articles of Incorporation and Bylaws of
the Borrowers delivered by the Borrowers to the Agent on December 23, 1996 have
not been
2
<PAGE>
amended, revised, supplemented, restated or changed in any way and are
still in full force and effect; and
(d) The execution and delivery of this Amendment No. 1 and the
consummation of the transactions contemplated hereby and by any other documents
executed by the Borrowers required to be delivered to the Agent in connection
with this Amendment No. 1 have been duly and validly authorized by the Borrowers
and all such documents together constitute the legal, valid and binding
agreement of the Borrowers, enforceable against the Borrowers in accordance with
their respective terms, except to the extent that enforceability of any of such
document may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforceability of creditors' rights generally
or general equitable principles.
8. Effectiveness. This Amendment No. 1 and the amendments to the
-------------
Credit Agreement effected hereby shall become effective upon the delivery to the
Agent of a fully executed Affirmation of Guaranty Agreement from each of the
Guarantors, an Affirmation of Pledge Agreement from each of the Pledgors and
Notes evidencing the Borrowers' obligations to First National Bank of Chicago
and PNC Bank, National Association.
9. Counterparts. This Amendment No. 1 may be executed in one or more
------------
counterparts by any party hereto in separate counterparts, each of which when so
executed and delivered to the other party shall be deemed an original. All such
counterparts together shall constitute one and the same instrument.
10. Waivers. This Amendment No. 1 shall not, except as expressly set
---------
forth above, serve to waive, supplement or amend the Credit Agreement, which
Credit Agreement shall remain in full force and effect as amended hereby.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment No. 1 as of the date and year first above written.
ATTEST: OPTION CARE, INC.,
a Delaware corporation
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
3
<PAGE>
ATTEST: OPTION CARE, INC.,
a California corporation
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: OPTION CARE ENTERPRISES, INC.
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: HOME CARE OF COLUMBIA, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: YOUNG'S I.V. THERAPY, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: CORDESYS HEALTHCARE
MANAGEMENT, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
4
<PAGE>
ATTEST: NORTH COUNTY HOME I.V., INC.
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: OPTION CARE HOSPICE, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: OPTION CARE HOME HEALTH, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: MANAGEMENT BY INFORMATION, INC.,
/s/Cathy Bellehumuer By:/s/Paul Jurewicz
Title:__________________________
[Seal]
ATTEST: OPTION CARE OF OKLAHOMA, INC.,
/s/Doreen Wiman By:/s/Dan Bramuchi
Title:__________________________
[Seal]
5
<PAGE>
ATTEST: THE NORTHERN TRUST COMPANY
_________________________________ By:/s/ Brian D. Beitz
Title: Vice President
ATTEST: HARRIS TRUST AND SAVINGS BANK
_________________________________ By:____________________________
Title:__________________________
ATTEST: FIRST NATIONAL BANK OF CHICAGO
_________________________________ By:____________________________
Title:__________________________
ATTEST: PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
_________________________________ By:____________________________
Title:__________________________
6-1
<PAGE>
ATTEST: THE NORTHERN TRUST COMPANY
_________________________________ By:/s/ Brian D. Beitz
Title: Vice President
ATTEST: HARRIS TRUST AND SAVINGS BANK
_________________________________ By:____________________________
Title:__________________________
ATTEST: FIRST NATIONAL BANK OF CHICAGO
/s/______________________________ By:/s/ Emil C. M
Title:Corp, Banking Officer
ATTEST: PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
_________________________________ By:____________________________
Title:__________________________
6-2
<PAGE>
ATTEST: THE NORTHERN TRUST COMPANY
_________________________________ By:/s/ Brian D. Beitz
Title: Vice President
ATTEST: HARRIS TRUST AND SAVINGS BANK
_________________________________ By:____________________________
Title:__________________________
ATTEST: FIRST NATIONAL BANK OF CHICAGO
_________________________________ By:____________________________
Title:__________________________
ATTEST: PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
_________________________________ By:/s/Edward J. Weiste
Title:AVP
6-3
<PAGE>
AMENDMENT NO. 5 TO CREDIT AGREEMENT
-----------------------------------
THIS AMENDMENT NO. 5 made as of this _____ day of ___________,
1998 (the "Amendment No. 5"), among OPTION CARE, INC., OPTION CARE, INC., OPTION
CARE ENTERPRISES, INC., HOME CARE OF COLUMBIA, INC., YOUNG'S I.V. THERAPY, INC.,
CORDESYS HEALTHCARE MANAGEMENT, INC., NORTH COUNTY HOME I.V., INC. OPTION CARE
HOSPICE, INC., OPTION CARE HOME HEALTH, INC., MANAGEMENT BY INFORMATION, INC.,
OPTION CARE OF OKLAHOMA, INC., OPTION CARE HOME HEALTH OF CALIFORNIA, INC., and
OPTION CARE DENVER, INC. (collectively and jointly and severally the
"Borrowers"), THE NORTHERN TRUST COMPANY ( a "Bank"), HARRIS TRUST AND SAVINGS
BANK (a "Bank"), THE FIRST NATIONAL BANK OF CHICAGO (a "Bank") and PNC Bank,
National Association, as Agent (a "Bank" and the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are parties to a
Credit Agreement dated as of December 23, 1996 as amended as of February 5,
1997, as of February 27, 1997, as of March 24, 1997 and as of December 31, 1997
(the "Credit Agreement"); and
WHEREAS, the Borrower, the Bank and the Agent wish to amend
the Credit Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and intending to be legally bound hereby, the Agent, the Banks
and the Borrowers agree as follows:
1. Definitions. Capitalized terms used herein but not defined herei
-----------
shall have the meanings set forth in the Credit Agreement.
2. Expiration Date. The definition of "Expiration Date" is amended
----------------
to read in its entirety as follows:
Expiration Date shall mean January 31, 2000.
---------------
3. Year 2000. Section 5.1 of the Credit Agreement is amended to add
---------
a new subsection 5.1.29 as follows:
5.1.29 Year 2000. The Loan Parties have reviewed the areas within
their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely
basis, the risk that certain computer applications used by any of the
Loan Parties or any of their respective material suppliers, customers
or venders may be unable to recognize and perform property
date-sensitive functions involving dates prior to and after December
31, 1999 (the "Year 2000 Problem").
1
<PAGE>
The Year 2000 Problem will not result in any Material Adverse Change.
4. Permitted Business Combinations. Section 7.2.6 (2)(ix) of the
-------------------------------
Credit Agreement is amended to read in its entirety as follows:
(ix) the Consideration paid by the Loan Parties for such
Acquisition shall not exceed (A) $250,000 in the period from May 1,
1998 through December 31, 1998 or (B) $1,000,000 in the fiscal year
ending December 31, 1999 without the prior approval of the Required
Banks which shall not be unreasonably withheld (a decision to be made
in ten (10) Business Days after receipt of complete information) and,
after giving effect to such Acquisition, the Consideration paid by the
Loan Parties for all Permitted Acquisitions made during the then
current fiscal year of the Loan Parties shall not exceed (C)
$1,000,000 in the period from May 1, 1998 through December 31, 1998 or
(D) $7,500,000 in the fiscal year ending December 31, 1999 without the
prior approval of the Required Banks which shall not be unreasonably
withheld (a decision to be made in ten (10) Business Days after
receipt of complete information).
5. Receivables Audit. Section 7.1 of the Credit Agreement is amended
-----------------
to add a new subsection 7.1.19 as follows:
7.1.19 Receivables Audit.
Each Loan Party shall, and shall cause each of its Subsidiaries
to, permit the Agent, through its Secured Credit Administration Unit,
to conduct an audit of receivables once each fiscal year. The scope
and cost of such audits shall be determined by the Agent and Option
Care, Inc. The audits described in this subsection are in addition to
those described in Section 7.1.6.
6. Quarterly Reporting. Section 7.3.2 of the Credit Agreement is
-------------------
amended and restated in its entirety as follows:
7.3.2 Quarterly Reporting
7.3.2.1 Financial Statements
Within forty-five (45) calendar days after the end of each of the
first three fiscal quarters in each fiscal year, financial statements
of Option Care, Inc., consisting of a consolidated and consolidating
balance sheet as of the end of such fiscal quarter and related
consolidated and consolidating statements of income, stockholders'
equity and cash flows for the fiscal quarter then ended and the fiscal
year through that date, all in reasonable
2
<PAGE>
detail and certified (subject to normal year-end audit adjustments)
by the Chief Executive Officer, President or Chief Financial Officer
of Option Care, Inc. as having been prepared in accordance with GAAP
consistently applied, and setting forth in comparative form the
respective financial statements for the corresponding date and period
in the previous fiscal year.
7.3.2.2 Receivables Agings
Within forty-five (45) days of the end of each fiscal quarter in
each fiscal year, a report of the agings of accounts receivable of the
Loan Parties on a consolidated basis, all in reasonable detail and
certified by the Chief Executive Officer, President or Chief Financial
Officer of Option Care, Inc.
7. Representations and Warranties. The Borrowers hereby represent
------------------------------
and warrant to the Banks and the Agent as follows:
(a) all representations, warranties and covenants made by the
Borrowers to the Banks and the Agent that are contained in the Credit Agreement
or any other Loan Document are, as amended by this Amendment No. 5, true and
correct on and as of the date hereof with the same effect as though such
representations, warranties and covenants had been made on and as of the date
hereof (except representations and warranties which expressly relate solely to
an earlier date and time, which representations and warranties shall be true and
correct on and as of the specific dates and times referred to therein);
(b) to the Borrowers' knowledge, no event or condition exists
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default under any of the Loan Documents;
(c) The execution and delivery of this Amendment No. 5 and the
consummation of the transactions contemplated hereby and by any other documents
executed by the Borrowers required to be delivered to the Agent in connection
with this Amendment No. 5 have been duly and validly authorized by the Borrowers
and all such documents together constitute the legal, valid and binding
agreement of the Borrowers, enforceable against the Borrowers in accordance with
their respective terms, except to the extent that enforceability of any of such
document may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforceability of creditors' rights generally
or general equitable principles.
8. Effectiveness. This Amendment No. 5 and the amendments to the
-------------
Credit Agreement effected hereby shall become effective upon the delivery to the
Agent of: (a) a fully executed Affirmation of Guaranty Agreement from each of
the Guarantors; (b) an Affirmation of Pledge Agreement from each of the
Pledgors; and (c) receipt by each of the Banks of an amendment fee equal to
0.06% of such Bank's Revolving Credit Commitment.
3
<PAGE>
9. Counterparts. This Amendment No. 5 may be executed in one or more
------------
counterparts by any party hereto in separate counterparts, each of which when so
executed and delivered to the other party shall be deemed an original. All such
counterparts together shall constitute one and the same instrument.
10. Waivers. This Amendment No. 5 shall not, except as expressly set
-------
forth above, serve to waive, supplement or amend the Credit Agreement, which
Credit Agreement shall remain in full force and effect as amended hereby.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment No. 5 as of the date and year first above written.
ATTEST: OPTION CARE, INC.,
a Delaware corporation
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
4
<PAGE>
ATTEST: OPTION CARE, INC.,
a Delaware corporation
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: OPTION CARE ENTERPRISES, INC.
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: HOME CARE OF COLUMBIA, INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: YOUNG'S I.V. THERAPY, INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: CORDESYS HEALTHCARE MANAGEMENT, INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
5
<PAGE>
ATTEST: NORTH COUNTY HOME I.V.,INC.
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: OPTION CARE HOSPICE,INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: OPTION CARE HOME HEALTH,INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: MANAGEMENT BY INFORMATION,INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: OPTION CARE OF OKLAHOMA, INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
6
<PAGE>
ATTEST: OPTION CARE HOME HEALTH OF
CALIFORNIA, INC.
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
ATTEST: OPTION CARE DENVER, INC.,
/s/James Hodges, Jr. By:/s/Erick Hanson
Title:CEO
[SEAL]
7
<PAGE>
WITNESS: THE NORTHERN TRUST COMPANY
/s/Kelly L. Potts By:/s/Sarah V. Dwartz
Title: Second Vice President
WITNESS: HARRIS TRUST AND SAVINGS BANK
/s/Kelly L. Potts By:/s/SCarolyn S. Woolsey
Title: Vice President
WITNESS: THE FIRST NATIONAL BANK OF CHICAGO
/s/Kelly L. Potts By:/s/Eric C. Minter
Title: Corporate Banking Officer
WITNESS: PNC BANK, NATIONAL ASSOCIATION,
/s/Kelly L. Potts By:/s/Justin J. Salgione
Title: Assistant Vice President
8
<PAGE>
Exhibit 10.13
$125,000 February 1, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, HOME PHARMACY, INC., a Florida corporation (hereinafter
referred to as "Maker"), promises to pay to the order of OPTION CARE, INC., a
California corporation (hereinafter referred to as "Holder"), or to the
registered holder, in the manner set forth below, the principal sum of One
Hundred Twenty-Five Thousand Dollars ($125,000) plus accrued interest from the
date hereof on the balance of the Principal remaining from time to time unpaid
at a rate of interest equal to ten percent (10%) per annum, compounded annually.
The Principal amount of this Note together with interest accrued thereon shall
be due and payable in twelve (12) consecutive monthly installments as follows:
(i) The first two installments shall be payments of accrued interest only,
with each such payment being in the amount of One Thousand Forty-One
Dollars and Sixty-Seven Cents ($1,041.67), with the first such
installment due and payable on March 1, 1997 and the second
installment due and payable on April 1, 1997;
(ii) The third installment shall be a payment of One-Quarter (1/4) of the
Principal plus accrued interest, this installment shall be in the
amount of Thirty-Two Thousand Two Hundred Ninety-One Dollars and
Sixty-Seven Cents ($32,291.67), and shall be due and payable on May 1,
1997;
(iii) The forth and fifth installments shall be payments of accrued
interest only, with each such payment being in the amount of Seven
Hundred Eighty-One Dollars and Twenty- Five Cents ($781.25), with such
forth installment due and payable on June 1, 1997 and such fifth
installment due and payable on July 1, 1997;
(iv) The sixth installment shall be a payment of One-Quarter (1/4) of the
Principal plus accrued interest, this installment shall be in the
amount of Thirty-Two Thousand Thirty-One Dollars and Twenty-Five Cents
($32,031.25), and shall be due and payable on August 1, 1997;
(v) The seventh and eighth installments shall be payments of accrued
interest only, with each such payment being in the amount of Five
Hundred Twenty Dollars and Eighty- Three Cents ($520.83), with such
seventh installment due and payable on September 1, 1997 and such
eighth installment due and payable on October 1, 1997;
(vi) The ninth installment shall be a payment of One-Quarter (1/4) of the
Principal plus accrued interest, this installment shall be in the
amount of Thirty-One Thousand Seven Hundred Seventy Dollars and
Eighty-Three Cents ($31,770.83), and shall be due and payable on
November 1, 1997;
<PAGE>
(v) The tenth and eleventh installments shall be payments of accrued
interest only, with each such payment being in the amount of Two
Hundred Sixty Dollars and Forty-Two Cents ($260.42), with such tenth
installment due and payable on December 1, 1997 and such eleventh
installment due and payable on January 1, 1998;
(vi) The twelveth and final installment shall be a payment of the remainder
of the Principal plus accrued interest, this installment shall be in
the amount of Thirty-One Thousand Five Hundred Ten Dollars and
Forty-Two Cents ($31,510.42), and shall be due and payable on February
1, 1998.
However, the full Principal and all interest accrued thereon shall become
immediately due and payable upon the Holder's acquisition of substantially all
of the stock or assets of Maker.
Occurrence of one or more of the following events shall constitute an "Event of
Default":
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of ten (10) days after its due date;
B. At any time, (i) commencement by the Maker of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted or any other applicable
federal or state bankruptcy, insolvency or other similar law, (ii) consent by
the Maker to the appointment of a receiver, trustee, custodian, sequestrator or
other similar official for the Maker or any substantial part of its property, or
to the taking possession by any such official of any substantial part of the
property of the Maker, or (iii) making by the Maker of any assignment for the
benefit of creditors generally;
C. Termination of the Maker's Franchise Agreement, as amended, with Option Care,
Inc.;
D. Failure of Maker to pay for product ordered pursuant to Option Care, Inc.'s
product contracts within 30 days of invoice; or
E. Failure to timely submit royalty reports and/or pay royalties by the date
prescribed in the Franchise Agreement from and after February 1, 1997.
Upon the occurrence of an Event of Default under clause (A), (B) or (C), the
Holder may, at its option, declare the entire unpaid Principal balance of the
Note and all accrued interest thereon to be due and payable. Upon the occurrence
of an Event of Default under clause (D) or (E), the Holder may, at its option,
escalate the interest rate to fifteen percent (15%) for the remaining term of
the Note.
The Maker agrees that while any portion of the indebtedness hereunder remains
outstanding it shall operate and conduct its business in the ordinary course,
and shall not purchase or enter into any agreement to purchase the stock or
assets of any entity of any kind.
If, at any time, the applicable interest rate hereunder is deemed by any
competent court of law, governmental agency, board, commission or tribunal, to
exceed the maximum rate of interest permitted by applicable law, then, for such
time as the applicable interest rate hereunder would be deemed excessive, such
interest rate shall be suspended and this Note shall bear interest at the
maximum rate permissible under such applicable law, but thereafter, the former
applicable interest rate hereunder shall be reinstated.
<PAGE>
All payments of Principal and interest hereunder shall be payable in lawful
money of the United States of America at the offices of Holder located in the
State of Illinois or at such other place as the Holder hereof may designate in
writing to the Maker. If any payment of principal or interest hereunder shall
become due on a Saturday, Sunday or business holiday under the laws of the State
of Illinois or the United States of America, such payment shall be made on the
next succeeding business day and such extension shall be included in computing
any interest in respect of payment.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty. All payments hereunder shall be applied first to
interest on the unpaid balance hereunder at the rate herein specified and then
to installments of principal in the inverse order of the maturity thereof.
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, asserts
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
ATTEST: HOME PHARMACY, INC.
____________________________ By:
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT effective as of the 1st day of April, 1997, among Pinecrest
Healthcare Consultants, Inc., a Florida corporation, ("Manager"), and OPTION
CARE, INC., a California corporation, with its principal office at 100 Corporate
North, Suite 212, Bannockburn, Illinois 60015 (hereinafter referred to as
"Option Care"), and each of the Option Care affiliated providers which are
listed on Exhibit A attached hereto, as amended from time to time, and which
become signatories to this Agreement (hereinafter collectively referred to as
the "Providers").
W I T N E S S E T H:
WHEREAS, each of the Providers owns and operates or desires to own and
operate one or more infusion therapy programs and other outpatient healthcare
services programs located within the State of Florida (hereinafter collectively
referred to as the "Programs");
WHEREAS, those Providers which are owned by Option Care shall be
referred herein as "OCI Providers" and Providers not owned by Option Care shall
be referred to as "Allied Providers;
WHEREAS, Manager provides management services suited to and designed
for the operation of Programs; and
WHEREAS, Manager desires to provide management services to Option Care
and the Providers for the Programs, and Option Care and the Providers desire to
procure such services from Manager for the Programs, pursuant to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. RETENTION OF MANAGER; AUTHORITY
-------------------------------
(a) Subject to the terms and conditions of this Agreement,
Option Care and the Providers hereby retain Manager to provide management
services for the Programs. Manager hereby accepts such retention. Manager agrees
it shall devote its full business time and effort exclusively to the management
of the Programs for the Providers.
(b) Pursuant to this Agreement, Manager shall have the
authority and responsibility to manage, supervise and administer the day-to-day
operations of the OCI Providers' Programs subject at all times to each OCI
Provider's authority over the governance, management and operations of the
Program, and Manager's compliance with (i) the policies and procedures adopted
by Option Care's Human Resources, Reimbursement, MIS, Accounting and Corporate
Compliance Departments, (ii) specific and general directives from Option Care's
and each Provider's governing board and management, and (iii) all applicable
laws, rules and regulations, including without limitation, as applicable, the
Medicare Conditions of Participation for Home Health Agencies, now set forth at
42 C.F.R. ss.484.1 et seq., and if applicable, the Medicare Conditions of
Participation for Hospices, now set forth at 42 C.F.R. ss.418.50 et seq., as
amended or recodified from time to time or any substitute or successor
regulations (collectively, the "Conditions").
<PAGE>
(c) Notwithstanding anything contained in this Agreement,
Manager has no authority to perform any of the following acts on behalf of
Option Care or the Providers without Option Care's (or if an Option Care
franchised office, the Provider's) prior written approval: enter into, terminate
or amend contracts; handle Program funds; execute other documents or
instruments; incur indebtedness; hire or fire personnel; or bring or respond to
lawsuits or administrative claims.
(d) Option Care or any Provider may request in writing that
Manger remove a specific Manager employee who is rendering on-site services at a
Program location for cause. Cause for removal must be documented in the written
request to Manger. Cause for purposes of this Subsection includes, but is not
limited to, non-performance and failure to follow reasonable directives from
Option Care or the Provider. Within a reasonable time of receiving such a
request from Option Care or a Provider, Manager agrees to remove the person in
question from the program site and provide a replacement reasonable acceptable
to Option Care and the Provider.
2. MANAGEMENT OBLIGATIONS OF MANAGER AS TO OCI PROVIDERS
-----------------------------------------------------
During the term of this Agreement, as to each OCI Provider,
subject to the limitations set forth in Section 1, Manager shall either (i)
directly perform the services listed in this Section 2 or (ii) where Option Care
has retained a General Manager for an OCI Provider, oversee and supervise that
General Manager in the performance of the responsibilities set forth in this
Section 2 and ensure that all requirements at this Section 2 are met.:
(a) Manage the general operations of each Program, as follows:
(i) Provide senior management either of the Provider
or Option Care, as determined by Option Care from time to time, with
consultation at Provider's location or Option Care headquarters (with the site
to be determined by Option Care) regarding Program operation and development;
(ii) Maintain, timely renew and supplement all local,
state and federal applications, certifications, licenses, forms and permits
necessary or appropriate for the operation of the Program and provide Option
Care's corporate headquarters with copies of all such items;
(iii) Seek and maintain the Program's compliance with
all governmental laws, rules and regulations, including the Conditions, as
applicable;
(iv) Supervise the preparation for and assist in the
conduct of the Program's regulatory surveys and inspections, as follows:
(1) If applicable, obtain and maintain
appropriate state licensure for each Program. Manager will use its best efforts
to assist the Program in remedying any deficiencies identified by the state
licensing authority;
<PAGE>
(2) Obtain and maintain certification to participate in
Medicare, Medicaid and other reimbursement programs in which the Program
participates. Manager will use its best efforts to assist the Program in
remedying any deficiencies identified by such Programs; and
(3) Obtain and maintain for each Program certification by
the Joint Commission of Accreditation of Healthcare Organizations or such
alternative accrediting body with which Option Care elects to participate (the
"Accreditor"). Manager will use its best efforts to assist the Program in
remedying any deficiencies identified by the Accreditor.
(v) Negotiate and maintain and enhance the Program's contractual
arrangements with payors and service providers and lessors and vendors;
(vi) Supervise plant and equipment maintenance and repair;
(vii) Implement and maintain operating, organizational, office
and personnel policies and procedures for the Program, utilizing Option Care's
policies and procedures where available;
(viii) Subject to approval of Option Care's Human Resources
Department, assist and advise the Program regarding personnel matters;
(ix) Ensure that appropriate insurance coverages for each Program
are maintained, including without limitation professional liability insurance
coverage;
(x) Assist the Provider and Option Care's Director of Management
Information Systems in supervision and management of the Program's data
processing operations and system;
(xi) Ensure that all staff employed in the operation of the
Programs comply with Option Care's Corporate Compliance and other universally
applicable Option Care policies and procedures; and
(xii) Provide other daily management, and sales and
administrative functions, as necessary.
(b) Develop each Program's services and relations, through marketing,
community and professional awareness and educational programs and activities;
(c) Oversee and manage the clinical and professional staff and
clinical and professional operations of each Program, as follows:
(i) Assist the Program in the recruiting of qualified clinical
personnel and assist and advise the Program with respect to other clinical
personnel matters;
<PAGE>
(ii) Assist with the design and implementation of Continuous
Quality Improvement Strategies (CQI) and patient satisfaction measures for the
Program which CQI shall be consistent for all Programs and compatible with
Option Care's CQI;
(iii) Assist in the development and implementation of quality
assurance and utilization review policies for the Program compatible with Option
Care policies and consistent for each Program;
(iv) Conduct training programs and seminars for professional and
non-professional, administrative and clinical personnel of the Program, as
necessary (including, without limitation, OSHA training and corporate compliance
training).
(v) Hold staff development and departmental meetings with
Provider and Manager personnel, as necessary;
(vi) Provide to Option Care analyses and evaluations of Program
staffing patterns in relation to patient mix, scope of services and number of
disciplines;
(vii) Maintain each Programs medical records system; and
(viii) Perform medical record/utilization review audits, as
necessary.
(d) Manage the financial affairs of each Provider's Program(s), as
follows; provided, however, that all financial statements will be prepared by
Option Care:
(i) Subject to the direction of Option Care's Chief Financial
Officer or his/her designee, monitor payments to the program and the depositing
of receipts into accounts of the Program;
(ii) Oversee the Program's collection systems;
(iii) Oversee daily cash flow and assist with cash flow
management;
(iv) Monitor and review the posting of cash receipts;
(v) Review and monitor Medicare/Medicaid logs;
(vi) Supervise the follow-up on outstanding receivables;
(vii) Review and monitor transaction logs;
(viii) Oversee the processing and payment of the Program's
accounts payable and payroll to the extent these functions are not performed at
Option Care's corporate headquarters;
<PAGE>
(ix) Prepare the annual budget for the Program for presentation
to and approval by Option Care management;
(x) Oversee the Provider's accounting staff;
(e) Manage the aspects of the operations of each Program that are
affected by third party reimbursement, as follows:
(i) Prepare monthly cost reports, if applicable, for purposes of
internal management information;
(ii) Oversee the Provider's reimbursement staff; ensure the
preparation of all quarterly interim rate computations, periodic reimbursement
reports, annual cost reports and other required data and reports for the
Provider's submission to the Program's Medicare fiscal intermediary, Medicaid
and other third party payors, as may be necessary under the provisions of laws,
rules, regulations and general instructions of Medicare, Medicaid or any other
local, state, federal or other program in which the Program participates;
(iii) Ensure the Provider's reimbursement staff follows
applicable law and Option Care reimbursement policies for the Program;
(iv) Monitor all applicable cost cap and therapy limitations
published by third party payors in light of applicable requirements;
(v) Notify Option Care of and supervise the preparation for and
assist in the conduct of Medicare and Medicaid audits, and attend all exit
conferences;
(vi) Review initial reimbursement settlements and proposed audit
adjustments and prepare commentary for Option Care's approval for submission to
the relevant authorities (e.g., the Medicare fiscal intermediary), as necessary;
(vii) Provide advice and assistance to the Provider in connection
with the pursuit and prosecution of reimbursement appeals; and
(viii) Assist the Provider in maintaining and updating an
appropriate charge structure for its Program.
(f) Throughout the term of this Agreement, Manager shall submit
monthly and annual progress reports to Option Care. Manager's progress reports
will address, , Manager's success in meeting defined goals and objectives for
services and each Program's operations, and each Program's business plan and
such other items as agreed upon by Option Care and Manager. Annual progress
reports shall include a report of current staffing and changes thereto over the
period, and a report of services delivered by Manager to the Programs.
<PAGE>
3. OBLIGATIONS OF MANAGER AS TO ALLIED PROVIDERS
---------------------------------------------
During the term of this Agreement, as to each Allied Provider,
subject to the limitations set forth in Section 1, Manager shall:
(a) Assist with the general operations of each Allied Provider's
Program, as follows:
(i) Provide senior management of the Allied Provider with
consultation at Provider's location regarding Program operation and development;
(ii) Ensure that each Allied Provider timely renews and
supplements all local, state and federal applications, certifications, licenses,
forms and permits necessary or appropriate for the operation of the Program;
(iii) Ensure that each Allied Provider offices maintains the
Program's compliance with all governmental laws, rules and regulations,
including the Conditions, as applicable;
(iv) Assist in the preparation for and the conduct of the
Program's regulatory surveys and inspections, as follows:
(1) Manager will use its best efforts to assist the Program
in remedying any deficiencies identified by the state licensing authority;
(2) Assist the Allied Provider with obtaining and
maintaining certification to participate in Medicare, Medicaid and other
reimbursement programs in which the Program participates. Manager will use its
best efforts to assist the Program in remedying any deficiencies identified by
such programs; and
(3) Assist the Allied Provider with obtaining and
maintaining for each Program certification by the Joint Commission of
Accreditation of Healthcare Organizations or such alternative accrediting body
with which Option Care elects to participate (the "Accreditor"). Manager will
use its best efforts to assist the Program in remedying any deficiencies
identified by the Accreditor.
(v) Assist the Allied Provider with negotiating and maintaining
and enhancing the Program's contractual arrangements with payors and service
providers and lessors and vendors;
(vi) Assist Allied Provider in maintaining plant and equipment
maintenance and repair;
(vii) Monitor implemented and maintenance of operating,
organizational, office and personnel policies and procedures for the Program,
utilizing Option Care's policies and procedures where available;
<PAGE>
(viii) Subject to approval of Option Care's Human Resources
Department, assist and advise the Program regarding personnel matters;
(ix) Monitor status of appropriate insurance coverages for each
Program, including without limitation professional liability insurance coverage;
(x) Assist the Allied Provider in supervision and management of
the Program's data processing operations and system;
(xi) Monitor whether all staff employed in the operation of the
Programs comply with Option Care's Corporate Compliance and other universally
applicable Option Care policies and procedures; and
(xii) Provide other daily management, and sales and
administrative assistance, as necessary.
(b) Assist each Program with marketing, community and professional
awareness and educational programs and activities;
(c) Assist Allied Provider with the clinical and professional staff
and clinical and professional operations of each Program, as follows:
(i) Assist the Program in the recruiting of qualified clinical
personnel and assist and advise the Program with respect to other clinical
personnel matters;
(ii) Assist with the design and implementation of Continuous
Quality Improvement Strategies (CQI) and patient satisfaction measures for the
Program which CQI shall be consistent for all Programs and compatible with
Option Care's CQI;
(iii) Assist in the development and implementation of quality
assurance and utilization review policies for the Program compatible with Option
Care policies and consistent for each Program;
(iv) Conduct training programs and seminars for professional and
non-professional, administrative and clinical personnel of the Program, as
necessary (including, without limitation, OSHA training and corporate compliance
training).
(v) Hold staff development and departmental meetings with
Provider and Manager personnel, as necessary;
(vi) Provide to Allied Provider analyses and evaluations of
Program staffing patterns in relation to patient mix, scope of services and
number of disciplines;
(vii) Assist each Program with medical records system
maintenance; and
<PAGE>
(viii) Perform medical record/utilization review audits, as
necessary.
(d) Ensure that Allied Provider is managing the financial affairs of
Program, as follows; provided, however, that all financial statements will be
prepared by Allied Provider:
(i) Review the Program's collection systems;
(ii) Review daily cash flow and assist with cash flow management;
(iii) Review the posting of cash receipts;
(iv) Review and monitor Medicare/Medicaid logs;
(v) Supervise the follow-up on outstanding receivables;
(vi) Review and monitor transaction logs;
(vii) Review the processing and payment of the Program's accounts
payable and payroll;
(viii) Monitor whether the Provider's reimbursement staff follows
applicable law and Option Care reimbursement policies for the Program;
(ix) Monitor all applicable cost cap and therapy limitations
published by third party payors in light of applicable requirements;
(x) Notify Option Care of and assist in the conduct of Medicare
and Medicaid audits, and attend all exit conferences;
(xi) Review initial reimbursement settlements and proposed audit
adjustments, as necessary;
(xii) Provide advice and assistance to the Provider in connection
with the pursuit and prosecution of reimbursement appeals; and
(xiii) Assist the Provider in maintaining and updating an
appropriate charge structure for its Program.
(f) Throughout the term of this Agreement, Manager shall submit
monthly and annual progress reports to Option Care. Manager's progress reports
will address Manager's success in meeting defined goals and objectives for
services and each Program's operations, and each Program's business plan and
such other items as agreed upon by Option Care and Manager. Annual progress
reports shall include a report of current staffing and changes thereto over the
period, and a report of services delivered by Manager to the Programs.
<PAGE>
4. Obligations of Option Care and the Providers
--------------------------------------------
(a) Option Care and the Providers agree that each of the Programs
shall be, subject to the obligations of Manager to provide the management
services set forth herein, operated and maintained as a duly certified, licensed
and accredited home health agency or hospice, as the case may be, in accordance
with, as applicable: (i) the Conditions; (ii) the provisions contained in the
Medicare "Home Health Agency manual", HIM-11, the "Hospice Manual", HIM-21;
(iii) other applicable Medicare or Medicaid manuals and general instructions;
(iv) any and all other applicable federal, state or local laws, rules or
regulations; and (v) all supplements, amendments, substitutions or additions to
any of the foregoing.
(b) The Providers shall employ for each of the Programs, directly or
under arrangement, a clinical staff competent to provide clinical services in
conformity with the standards now or hereafter prescribed by any law, rule or
regulation which may be applicable to the operation of the Programs, including
the Conditions. The Providers also will furnish all personnel required for the
operation of each Program including a General Manager and adequate
administrative staff, either on-site or at Option Care corporate headquarters.
Option Care and the Providers shall ensure that such personnel cooperate with
Manager in the discharge of Manager's duties under this Agreement and comply
with the reasonable instructions provided by Manager from time to time. In
performing their functions relative to the Programs', such personnel will be
accountable to Manager; and
(c) A representative of Manager may be requested to attend meetings of
Providers' governing boards relating to the operation of a Program. At meetings
or portions thereof attended by Manager, representatives of Manager shall be
permitted to participate in discussions of Program operations, but shall not be
entitled to vote. Option Care and the Providers shall deliver to Manager a copy
of resolutions, directives and authorizations which affect the services provided
by Manager under this Agreement.
5. TERM AND TERMINATION
--------------------
(a) This Agreement shall have a term of three (3) years beginning on
the date set forth in the preamble and continuing thereafter on a year to year
basis unless with each party giving written notice at least 90 days prior to the
end of the current term of its written notice unless earlier terminated in
accordance with this Section 5 or any of the other provision of this Agreement
addressing termination.
(b) Option Care shall have the power to terminate this Agreement as
follows:
(i) If Manager breaches or defaults in the performance of any
material term, condition or undertaking set forth herein and fails to cure such
breach or default within thirty (30) days of its receipt of written notice from
Option Care describing in detail the occurrence and nature of the breach or
default, or fails to submit a plan reasonably acceptable to Option Care for
curing the breach or default within such thirty (30) day period and to
thereafter diligently cure the breach or default pursuant to the plan if the
breach or default cannot reasonably be cured within the thirty (30) day period;
provided, however, that any such plan must provide for cure of the breach within
a sixty (60) day period from the date of the breach; and further provided that
for any breach involving violation by Manager of any federal or state law,
regulation or rule, the cure period shall be limited to ten (10) days;
<PAGE>
(ii) Immediately upon written notice if Manager becomes
insolvent, has a petition in bankruptcy filed with respect to it which is not
dismissed or discharged within thirty (30) days or makes an assignment for the
benefit of creditors;
(iii) Immediately upon written notice if Manager or any of its
employees is barred or suspended from participation in the Medicare or Medicaid
Programs; and
(iv) Immediately upon written notice in the event of the actual
revocation, termination or suspension of any certification (including Medicare
and Medicaid), license or permit of any Option Care Providers or Option Care
Providers' business required by federal or state law which shall or may
materially and adversely affect any of the Program's business, if such
revocation, termination or suspension was due wholly or in part to the
negligence or misconduct of Manager in the performance of its duties under this
Agreement.
(c) Manager shall have the power to terminate this Agreement as
follows:
(i) If Option Care or a Provider breaches or defaults in the
performance of any material term, condition or undertaking set forth herein and
fails to cure such breach or default within thirty (30) days of its receipt of
written notice from Manager describing in detail the occurrence and nature of
the breach or default, or fails to submit a plan for curing the breach or
default within such thirty (30) days period and to thereafter diligently cure
the breach or default pursuant to the plan if the breach or default cannot
reasonably be cured within the thirty (30) day period; provided, however, that
any such plan must provide for cure of the breach within a sixty (60) day period
from the date of the breach; and further provided for any breach or default
involving the payment of money or the actual violation by Option Care or a
Provider of any federal or state law, regulation or rule, the cure period shall
be limited to ten (10) days;
<PAGE>
(ii) Immediately upon written notice if Option Care or a Provider
has a petition in bankruptcy filed with respect to it which is not dismissed or
discharged within thirty (30) days or makes an assignment for the benefit of
creditors;
(iii) Immediately upon written notice in the event of the actual
revocation, termination or suspension of any certification (including Medicare
and Medicaid certification), license or permit of Option Care Providers required
by federal or state law which shall or may materially and adversely affect any
of the Program's business; and
(d) If this Agreement is terminated prior to its expiration date,
Manager shall be paid any bonus due hereunder pro-rated to such termination
date. If this Agreement is terminated by Option Care without cause, then Manager
shall be paid for the remainder of the initial 3 year term in accordance with
this Agreement.
<PAGE>
6. Insurance and Indemnity
-----------------------
(a) Manager shall carry and maintain in force insurance to cover
liabilities arising out of the services provided by Manager hereunder, including
general liability insurance with limits of at least $1.0 million per occurrence
and $3.0 million in the aggregate, errors and omission insurance with a limit of
at least $1.0 million and workers' compensation insurance as prescribed by law.
Option Care and each of the Providers shall carry and maintain in force
insurance to cover liabilities arising out of the operation of the Programs,
including professional and general liability insurance with limits of at least
$1.0 million per occurrence and $3.0 million in the aggregate and workers'
compensation insurance as prescribed by law.
(b) Option Care and each Provider shall indemnify and hold harmless
Manager (including Manager's directors, officers, employees and agents,
individually and collectively) from and against any and all claims, liabilities,
damages, fines, penalties, taxes, costs and expenses, including reasonable
attorneys' fees and costs of settlement, which any such party may suffer,
sustain or become subject to as a result of (i) the negligence or other wrongful
conduct (including, without limitation, misrepresentation, fraud, willful
misconduct, violations of law or breach of contract) of Option Care or any
Provider or their respective directors, officers or employees in the operation
of the Programs' business or the performance of Option Care's or any Provider's
obligations hereunder; (ii) any existing or future debts, liabilities or
obligations of Option Care or any Provider relative to any Program; or (iii) any
acts or omissions of Manager or any of its officers, employees or agents taken
or not taken (following delivery by Manager to Option Care of Manager's written
objection to the proposed act or omission, which objection is not heeded by
Option Care) pursuant to the policies, procedures or directives of Option Care
or any Provider, their respective governing boards, officers or employees.
(c) Manager shall indemnify and hold harmless Option Care and each
Provider (including their respective directors, officers, employees and agents,
individually and collectively) from and against any and all claims, liabilities,
damages, fines, penalties, taxes, costs and expenses, including reasonable
attorneys' fees and costs of settlement, which any such party may suffer,
sustain or become subject to as a result of the negligence or other wrongful
conduct (including, without limitation, misrepresentation, fraud, willful
misconduct, violations of law or breach of contract) of Manager or any of their
directors, officers, employees or agents in the performance of Manager's
obligations hereunder.
(d) The obligations of the parties under this Section 6 shall survive
termination of this Agreement.
7. ASSIGNMENT
----------
Neither party may assign any of its rights or obligations under this
Agreement to any other person, firm or entity without the express prior written
consent of the other party. This Agreement shall inure to the benefit of and be
binding upon the legal representatives, permitted assigns and successors of the
parties hereto.
<PAGE>
8. NOTICES
-------
Notices required hereunder shall be effective if in writing and when
delivered in person or sent by Certified Mail, postage prepaid, to the General
Counsel of Option Care or the President of Manager or the President of any
Provider at the appropriate address set forth in the preamble of this Agreement
or such other addresses as either party may designate in writing to the other
party in accordance with this Section 8.
9. ACCESS TO BOOKS AND RECORDS
---------------------------
(a) For a period of four (4) years following the last date Manager
furnishes services pursuant to this Agreement for a Medicare-certified Program,
Manager shall make available upon written request of the Secretary of the United
States Department of Health and Human Services, the United States Comptroller
General and their duly authorized representatives, all contracts, books,
documents and records of Manager to the extent required by 42 U.S.C.
ss.1395x(v)(1)(l) (as amended or recodified from time to time or any substitute
or successor statute) and lawful regulations promulgated thereunder. Manager
shall notify Option Care within ten (10) days of its receipt of such a request
and of Manager's proposed response to the request.
(b) If Manager carries out any of its duties under this Agreement
through a subcontract with a value of $10,000.00 or more over a twelve (12)
month period with a related organization, such subcontract shall contain a
clause to the effect that until four (4) years after the furnishing of such
services pursuant to such subcontract, such related organization shall make
available, upon written request of the Secretary of the United States Department
of Health and Human Services, the United States Comptroller General or any of
their duly authorized representatives, the subcontract and the books, documents
and records of such organization to the extend required by 42 U.S.C.
ss.1395x(v)(1)(l) (as amended or recodified from time to time or any substitute
or successor statute) and lawful regulations promulgated thereunder.
10. ENTIRE AGREEMENT
----------------
This instrument contains the entire agreement of the parties with respect to
the subject matter hereof. Any and all prior agreements, promises, inducements,
negotiations or representations not expressly set forth in this Agreement are
superseded hereby and are void and of no force and effect.
11. AMENDMENTS
----------
This Agreement cannot be altered or amended except pursuant to an instrument
in writing signed by both of the parties hereto.
12. SEVERABILITY
------------
Every provision of this Agreement is intended to be severable. In the event
that any provision of this Agreement is rendered illegal, invalid or
unenforceable by a federal or state law, rule or regulation, or declared
illegal, invalid or unenforceable by any court of competent jurisdiction, the
remaining provisions hereof shall remain in full force and effect.
Notwithstanding the foregoing, however, and subject to the parties' obligations
under Section 17, in the event that the removal of any provision of this
Agreement by such cause has or may have the effect of materially and adversely
altering the obligations of either party in such a manner as, in the reasonable
judgment of the party affected, will cause serious financial or other hardship
to such party, the party so affected shall have the right to terminate this
Agreement upon thirty (30) days' prior written notice to the other party.
<PAGE>
13. HEADINGS
--------
Headings are used herein solely for the convenience of the parties and are
not part of this Agreement.
14. APPLICABLE LAW
--------------
This Agreement shall be governed by, construed and interpreted in accordance
with the internal laws of the State of Illinois, notwithstanding its conflict of
laws rules.
15. WAIVER OF BREACH
----------------
The Waiver by a party of a breach of or default under any term or provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach or default under the same or any other term or
provision of this Agreement by that party.
16. STATUS OF RELATIONSHIP
----------------------
It is understood and agreed that the parties to this Agreement are
independent contractors, and nothing herein shall be construed to establish a
partnership or joint venture relationship between the parties. Each party has
sole responsibility for the payment of each of its employee's wages, payroll
taxes and benefits. By virtue hereof, neither party assumes, directly or by
implication, the debts, obligations, taxes or liabilities of the other party.
17. LIMITED RENEGOTIATION
---------------------
This Agreement shall be construed to be in accordance with any and all
Federal (including Medicare and Medicaid) and state statutes, rules,
regulations, principles and interpretations. In the event there is a change in
Medicare, Medicaid or other federal or state statutes or regulations or in the
interpretation thereof, or in the event a claim is threatened, made or filed by
a government agency, which renders any of the material terms of this Agreement
unlawful, or asserts that any such terms are unlawful, the parties shall
promptly and in good faith renegotiate the affected term or terms to remedy such
condition in such a manner that will preserve, in all material respects, the
underlying economic, financial and business relationship of the parties. If the
parties are unable to renegotiate such term or terms within thirty (30) days,
despite their good faith efforts, either party may terminate this Agreement upon
written notice to the other party.
18. FORCE MAJEURE
-------------
If either Option Care of Manager is delayed or prevented from fulfilling any
of its obligations under this Agreement by force majeure, such party shall not
be liable under this Agreement for the delay or failure. "Force majeure" means
any cause beyond the reasonable control of a party, including but not limited to
an act of God, act or omission of civil or military authorities of a state or
nation, fire, strike, flood, riot, war, delay of transportation, or inability
due to any of these causes to provide or obtain necessary labor, materials or
facilities.
<PAGE>
19. EXCLUSIVITY
-----------
Manager agrees and shall cause each of its employees to agree that during the
term of this Agreement, it shall provide management services only for the
Programs and shall not engage, directly or indirectly, in the provision of
healthcare management or consulting services for any other persons or entities;
provided that Option Care may, directly or indirectly through one or more of its
subsidiaries, internally provide management services for such Programs.
The Manager's sole employees shall consist of Marc Parness, David Davis and
Irwin Halperin. Each of Parness, Davis and Halperin shall be full-time employees
of Manager. Parness, Davis and Halperin shall be deemed to be and construed as
employees of Manager and not of Option Care.
20. DISPUTE RESOLUTION
------------------
Any material dispute between the parties arising under this Agreement which
is not resolved by good faith negotiation may be submitted by either party to
non-binding arbitration in Chicago, Illinois, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The costs of
arbitration shall be borne equally be the parties and each party shall bear its
own attorney's fees and other cots. Either party may appeal an arbitration award
to any court of competent jurisdiction.
21. FEES
----
21.1 (a) Option Care shall pay the Manager a fee (the "Fee") in equal monthly
installments based upon Five Hundred Forty-Five Thousand Dollars ($545,000) per
annum. Manager shall not be entitled to participate in any fringe benefits
offered by Option Care. Manager shall be responsible for payment of all
withholding and other taxes and fringe benefits for its employees.
(b) The Fee shall be reduced by one-third (1/3) for each of Parness,
Davis and Halperin's termination of full-time employment with the Manager for
any reason.
(c) The Fee will be increased on each anniversary date by the change
in the Consumer Price Index from the previous anniversary date, but not more
than four percent (4%), on each anniversary date of this Agreement.
(d) The Fee will be paid on the fifteenth (15th) of each month.
21.2 In addition to the Fee, Option Care shall reimburse the Manager pursuant
to Option Care's normal reimbursement policies, for those reasonable direct
expenses approved by Option Care. However, Manager's maximum care allowance
shall be nine cents (.09) per business mile.
21.3 The Fee plus Manager's approved direct expenses plus Manager's
secretarial expenses plus Manager's office space expense shall be charged back
by Option Care in accordance with the formula described below to (a) the Miami
<PAGE>
location business revenue, (b) Option Care's company-owned Florida location
revenues (other than Miami), and (c) Option Care's royalty collections from
Florida Franchisees.
Each of a, b and c hereof shall be divided by the total of a, b and c and
then multiplied by the sum of the Fee plus direct expenses plus office space
plus secretarial expense; such final amount shall be charged back monthly to and
included in the P&L of the appropriate entity prior to any calculation of the
bonus hereunder.
22. BONUS
-----
In addition to the Fee, Manager shall be eligible for a bonus for each of
three twelve month periods, the first period commencing March 1, 1997 and ending
February 28, 1998 (the "1997 period"), the second period commencing March 1,
1998 and ending February 28, 1999 (the "1998 period"), and the third period
commencing March 1, 1999 and ending February 29, 2000 (the "1999 period"), to be
determined as follows and paid within sixty (60) days following the last day of
each such period:
(a) For the Miami location (exclusive of CritiCare), thirty percent (
30%) of its pre-tax earnings over and above the EBITDA dollar target specified
for such period in the Purchase Agreement of even date herewith among Home
Pharmacy, Inc., its shareholders and Option Care (the "Purchase Agreement");
(b) For each existing Option Care Enterprises, Inc. office located in
the State of Florida (exclusive of the Miami location), twenty percent (20%) of
the first fifteen percent (15%) of pre-tax earnings EBITDA margin and forty
percent (40%) of any EBITDA margin over and above a fifteen percent (15%)
margin. For example, assuming $1 million of net sales and a cost of goods and
expense (exclusive of interest and tax) totaling $750,000, a pre-tax margin of
$250,000 or 25% would have been achieved. And, on the first 15% or $150,000, 20%
of $150,000 or $30,000 would be payable. And, on the portion of the $250,000
over and above the 15% pre-tax margin (i.e., $250,000 minus $150,000 equals
$100,000), 40% would be payable or $40,000. In this example, a total bonus
payment of $70,000 would be payable.
(c) For each Option Care franchise located in the State of Florida,
thirty-five percent (35%) of any annual gain documented and collected by Option
Care in same store royalties over and above the royalty amounts paid Option Care
by such franchises in the immediately preceding period.
(d) For each Option Care franchise established in Florida subsequent
to March 24, 1997, ten percent (10%) of the franchise origination fee received
by Option Care plus twenty percent (20%) of the royalties paid to Option Care by
the new franchise within twelve (12) months of execution of its Franchise
Agreement.
(e) For each location purchased by Option Care Enterprises, Inc.
subsequent to March 24, 1997 in the State of Florida, twenty percent (20%) of
any pre-tax earnings over and above the applicable EBITDA targets described in
the definitive agreement to purchase for that particular location.
<PAGE>
(f) The bonus for any final fractional period of this
Agreement shall be pro-rated for the months of the final year this Agreement is
in effect.
IN WITNESS WHEREOF, Option Care and Manager have caused this Agreement
to be executed by their duly authorized representative as of the date first set
forth above.
OPTION CARE, INC.
a California corporation
By:
-------------------------------------
Its:
-------------------------------------
PINECREST HEALTHCARE CONSULTANTS,
INC.
By:
-------------------------------------
Its:
-------------------------------------
<PAGE>
RENEWAL
That certain Executive Severance Agreement dated as of June 28, 1996 by
and between Option Care, Inc., a Delaware corporation and Erick E. Hanson (the
"Severance Agreement") is hereby renewed for a period of one (1) year, and
Section 8.1 of the Severance Agreement is hereby amended to evidence that the
Severance Agreement shall continue in full force and effect to and including
July 1, 1998.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Renewal as of May 2, 1997.
OPTION CARE, INC.
By:
------------------------
Its:
-----------------------
<PAGE>
Exhibit 10.17
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Option Care, Inc. ("Company") and James Hodges
("Employee") agree as follows:
1. If Employee's employment is terminated by the Company for any
reason, including without limitation a Change of Control (as hereafter defined),
or for no reason, then the Company shall pay Employee the Severance Payment (as
hereafter defined) in the manner described herein; provided, however, that the
Severance Payment shall not be due Employee if Employee is terminated for Cause
(as hereafter defined).
2. "Cause" shall mean that a majority of the Company's Board of
Directors shall have determined that Employee:
(i) willfully and continually failed to substantially perform his
duties with Company (other than a failure resulting for Employee's incapacity
due to illness, physical or mental disability or other incapacity) and such
failure continues for 30 days after written notice from the Board reasonably
detailing the failure;
(ii) has been convicted of a felony;
(iii) engaged in conduct constituting willful malfeasance in
connection with his employment which is materially and demonstrably injurious to
the Company and its subsidiaries as a whole. No act or failure to act on
Employee's part shall be considered willful unless he acted or failed to act
with an absence of good faith and reasonable belief that his actions or
inactions were in the best interests of the Company.
3. "Change of Control" shall mean:
(i) the approval by the shareholders of the Company of any
merger, pooling, consolidation or recapitalization of the Company (or any
subsidiary of the Company if the capital stock of the Company is affected), or
any sale, lease or other transfer (in one transaction or a service of
transactions contemplated by any party as a single plan) of all or substantially
all of the assets of the Company; or
(ii) any plan or proposal for liquidation or dissolution of the
Company; or
(iii) any person other than John N. Kapoor shall be or become the
beneficial owner, directly or indirectly, of securities of the Company
representing in the aggregate 50% or more of the then outstanding shares of
common stock of the Company or the combined voting power of all then outstanding
voting securities of the Company.
4. "Severance Payment" shall mean an amount equal to:
(i) 100% of Employee's six months base salary plus car allowance,
determined in each case using the highest rate paid Employee during the course
of employment by Company, plus;
(ii) any accrued but unpaid bonus, salary, car allowance,
vacation and sick pay. The Severance Payment shall be paid in a lump sum within
10 days of termination or in equal installments, not less frequently than
bi-monthly, with the first installment due within 5 days following termination.
<PAGE>
For a period of six months following a termination of Employee by
Company, the Company shall provide Employee at Company's expense with employee
benefits substantially similar to those which Employee was receiving or was
entitled to receive immediately prior to termination.
5. Any termination of Employee other than for Cause, or the reduction
of Employee's base salary or the removal of Employee from any office or position
in the Company other than for Cause, following the commencement of any
discussion with a third person that results in a Change in Control shall be
deemed a termination of Employee's employment due to a Change of Control.
6. Employee shall be entitled to the Severance Payment hereunder and a
termination of Employee by Company shall be deemed to have occurred, if,
following a Change of Control:
(i) Employee is not maintained in the office or position of or
with the Company, to that office or position which Employee held immediately
prior to the Change in Control;
(ii) a significant adverse change occurs in the nature or scope
of the authority, power, reporting, authority, function, responsibilities or
duties attached to the position which Employee held immediately prior to the
Change in Control;
(iii) a reduction occurs in Employee's annual base salary; or
(iv) the principal office of the Company or Employee's principal
work location is changed to a location more than 25 miles from its location
immediately prior to the Change in Control.
7. Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amount payable Employee hereunder
and such amount shall not be reduced whether or not Employee obtains other
employment.
8. All rights, covenants and agreements of the Company set forth
herein shall be binding upon and inure to the benefit of its Company's
respective successors and assigns.
9. In consideration of this Agreement, Employee will give Company at
least 45 days notice of his intent to terminate his employment with the Company.
10. After one year of employment it will change from six months to
twelve months, and employee benefits will continue for 12 months from six
months.
This Agreement has been signed by Employee and the duly authorized
representative of the Company on December 22, 1997.
OPTION CARE, INC.
By:
-------------------------------------
Title: President & CEO
--------------------------
James A. Hodges
<PAGE>
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Option Care, Inc. ("Company") and Cathy
Bellehumeur ("Employee") agree as follows:
1. If Employee's employment is terminated by the Company for any
reason, including without limitation a Change of Control (as hereafter defined),
or for no reason, then the Company shall pay Employee the Severance Payment (as
hereafter defined) in the manner described herein; provided, however, that the
Severance Payment shall not be due Employee if Employee is terminated for Cause
(as hereafter defined).
2. "Cause" shall mean that a majority of the Company's Board of
Directors shall have determined that Employee:
(i) willfully and continually failed to substantially perform her
duties with Company (other than a failure resulting for Employee's incapacity
due to illness, physical or mental disability or other incapacity) and such
failure continues for 30 days after written notice from the Board reasonably
detailing the failure;
(ii) has been convicted of a felony;
(iii) engaged in conduct constituting willful malfeasance in
connection with her employment which is materially and demonstrably injurious to
the Company and its subsidiaries as a whole. No act or failure to act on
Employee's part shall be considered willful unless she acted or failed to act
with an absence of good faith and reasonable belief that her actions or
inactions were in the best interests of the Company.
3. "Change of Control" shall mean:
(i) the approval by the shareholders of the Company of any
merger, pooling, consolidation or recapitalization of the Company (or any
subsidiary of the Company if the capital stock of the Company is affected), or
any sale, lease or other transfer (in one transaction or a service of
transactions contemplated by any party as a single plan) of all or substantially
all of the assets of the Company; or
(ii) any plan or proposal for liquidation or dissolution of the
Company; or
(iii) any person other than John N. Kapoor shall be or become the
beneficial owner, directly or indirectly, of securities of the Company
representing in the aggregate 50% or more of the then outstanding shares of
common stock of the Company or the combined voting power of all then outstanding
voting securities of the Company.
<PAGE>
4. "Severance Payment" shall mean an amount equal to:
(i) 100% of Employee's annual base salary plus annual car
allowance, determined in each case using the highest rate paid Employee during
the course of her employment by Company, plus;
(ii) any accrued but unpaid bonus, salary, car allowance,
vacation and sick pay. The Severance Payment shall be paid in a lump sum within
10 days of termination or in equal installments, not less frequently than
bi-monthly, with the first installment due within 5 days following termination.
For a period of one year following a termination of Employee by
Company, the Company shall provide Employee at Company's expense with employee
benefits substantially similar to those which Employee was receiving or was
entitled to receive immediately prior to termination.
5. Any termination of Employee other than for Cause, or the reduction
of Employee's base salary or the removal of Employee from any office or position
in the Company other than for Cause, following the commencement of any
discussion with a third person that results in a Change in Control shall be
deemed a termination of Employee's employment due to a Change of Control.
6. Employee shall be entitled to the Severance Payment hereunder and a
termination of Employee by Company shall be deemed to have occurred, if,
following a Change of Control:
(i) Employee is not maintained in the office or position of or
with the Company, to that office or position which Employee held immediately
prior to the Change in Control;
(ii) a significant adverse change occurs in the nature or scope
of the authority, power, reporting, authority, function, responsibilities or
duties attached to the position which Employee held immediately prior to the
Change in Control;
(iii) a reduction occurs in Employee's annual base salary and or
bonus opportunity; or
(iv) the principal office of the Company or Employee's principal
work location is changed to a location more than 25 miles from its location
immediately prior to the Change in Control.
7. Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amount payable Employee hereunder
and such amount shall not be reduced whether or not Employee obtains other
employment.
<PAGE>
8. All rights, covenants and agreements of the Company set forth
herein shall be binding upon and inure to the benefit of its Company's
respective successors and assigns.
9. In consideration of this Agreement, Employee will give Company at
least 45 days notice of her intent to terminate her employement with the
Company.
This Agreement has been signed by Employee and the duly authorized
representative of the Company on November 12, 1997.
OPTION CARE, INC.
By:
------------------------------------
Title:
------------------------------------
- -----------------------------------
Cathy Bellehumeur
<PAGE>
Exhibit 10.19
$20,000 March 11, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, Felice, Inc., a Massachusetts corporation (hereinafter
referred to as "Maker"), promises to pay to the order of OPTION CARE, INC., a
California corporation (hereinafter referred to as "Holder"), or to the
registered holder, in the manner set forth below, the principal sum of Twenty
Thousand Dollars ($20,000) plus accrued interest from the date hereof on the
balance of the Principal remaining from time to time unpaid at the prime rate of
interest charged by the Northern Trust Company, Chicago, Illinois on the date
hereof plus two percent (2%) per annum compounded annually.
The Principal amount of this Note together with interest accrued thereon shall
be due and payable in six (6) equal monthly installments, with the first
installment due and payable on January 1, 1998 and each installment due on each
1st day of each month thereafter (the "Due Date").
Occurrence of one or more of the following events shall constitute an "Event of
Default:"
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of ten (10) days after any Due Date;
B. At any time, (i) commencement by the Maker of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted or any other applicable
federal or state bankruptcy, insolvency or other similar law, (ii) consent by
the Maker to the appointment of a receiver, trustee, custodian, sequestrator or
other similar official for the Maker or any substantial part of its property, or
to the taking possession by any such official of any substantial part of the
property of the Maker, or (iii) making by the Maker of any assignment for the
benefit of creditors generally; or
C. Termination of the Maker's Franchise Agreement with Option Care, Inc.
Upon the occurrence of an Event of Default under clause (A), (B), or (C), the
Holder may, at its option, declare the entire unpaid Principal balance of the
Note and all accrued interest thereon to be due and payable.
If, at any time, the applicable interest rate hereunder is deemed by any
competent court of law, governmental agency, board, commission or tribunal, to
exceed the maximum rate of interest permitted by applicable law, then, for such
time as the applicable interest rate hereunder would be deemed excessive, such
interest rate shall be suspended and this Note shall bear interest at the
maximum rate permissible under such applicable law, but thereafter, the former
applicable interest rate hereunder shall be reinstated.
<PAGE>
All payments of Principal and interest hereunder shall be payable in lawful
money of the United States of America at the offices of Holder located in the
State of Illinois or at such other place as the Holder hereof may designate in
writing to the Maker. If any payment of principal or interest hereunder shall
become due on a Saturday, Sunday or business holiday under the laws of the State
of Illinois or the United States of America, such payment shall be made on the
next succeeding business day and such extension shall be included in computing
any interest in respect of payment.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty. All payments hereunder shall be applied first to
interest on the unpaid balance hereunder at the rate herein specified and then
to installments of principal in the inverse order of the maturity thereof.
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, asserts
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
ATTEST:
- -------------------------------------
FRANCHISE OWNER:
- -------------------------------------
By:
- -------------------------------------
Name:
- -------------------------------------
Its:
- -------------------------------------
<PAGE>
Exhibit 10.20
$30,000 April 24, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, C. R. IV Service, Inc., an Iowa corporation (hereinafter
referred to as "Maker"), promises to pay to the order of OPTION CARE, INC., a
California corporation (hereinafter referred to as "Holder"), or to the holder
thereof, in the manner set forth below, the principal sum of Thirty Thousand
Dollars ($30,000) at no interest.
The Principal amount of this Note shall be due and payable in 12 equal monthly
installments, with the first installment due and payable May 15, 1997 and each
installment, in the amount set forth on the attached Schedule, due on each 15th
day of each month thereafter (the "Due Date").
Occurrence of one or more of the following events shall constitute an "Event of
Default:"
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of five (5) days after notice of nonpayment
from Holder;
B. At any time, (i) commencement by the Maker of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted or any other applicable
federal or state bankruptcy, insolvency or other similar law, (ii) consent by
the Maker to the appointment of a receiver, trustee, custodian, sequestrator or
other similar official for the Maker or any substantial part of its property, or
to the taking possession by any such official of any substantial part of the
property of the Maker, or (iii) making by the Maker of any assignment for the
benefit of creditors generally; or
C. Termination of the Maker's Franchise Agreement with Option Care, Inc.
Upon the occurrence of an Event of Default under clause (A), (B), or (C), the
Holder may, at its option, declare the entire unpaid Principal balance of the
Note due and payable.
All payments of Principal hereunder shall be payable in lawful money of the
United States of America at the offices of Holder located in the State of
Illinois or at such other place as the Holder hereof may designate in writing to
the Maker. If any payment of principal hereunder shall become due on a Saturday,
Sunday or business holiday under the laws of the State of Illinois or the United
States of America, such payment shall be made on the next succeeding business
day.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty.
All pre-payments hereunder shall be applied to installments of principal in the
inverse order of the maturity thereof.
<PAGE>
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The Maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assents
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
FRANCHISE OWNER:
C.R. IV SERVICE, INC.
ATTEST:
- --------------------------------------
By:
- --------------------------------------
Name:
- --------------------------------------
Its:
- --------------------------------------
<PAGE>
$20,000 April 24, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, Eugene M. Lutz and Susan C. Lutz (hereinafter referred to as
"Maker"), jointly and severally promise to pay to the order of OPTION CARE,
INC., a California corporation (hereinafter referred to as "Holder"), or to the
registered holder, in the manner set forth below, the principal sum of Twenty
Thousand Dollars ($20,000) plus accrued interest from the date hereof on the
balance of the Principal remaining from time to time unpaid at the rate of
interest of ten percent (10%) per annum compounded annually.
The Principal amount of this Note together with interest accrued thereon shall
be due and payable in 12 equal monthly installments, with the first installment
due and payable May 15, 1997 and each installment due on each 15th day of each
month thereafter (the "Due Date").
Occurrence of the following event shall constitute an "Event of Default:"
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of five (5) days after any Due Date.
Upon the occurrence of an Event of Default under clause (A) the Holder may, at
its option, declare the entire unpaid Principal balance of the Note and all
accrued interest thereon to be due and payable.
If, at any time, the applicable interest rate hereunder is deemed by any
competent court of law, governmental agency, board, commission or tribunal, to
exceed the maximum rate of interest permitted by applicable law, then, for such
time as the applicable interest rate hereunder would be deemed excessive, such
interest rate shall be suspended and this Note shall bear interest at the
maximum rate permissible under such applicable law, but thereafter, the former
applicable interest rate hereunder shall be reinstated.
All payments of Principal and interest hereunder shall be payable in lawful
money of the United States of America at the offices of Holder located in the
State of Illinois or at such other place as the Holder hereof may designate in
writing to the Maker. If any payment of principal or interest hereunder shall
become due on a Saturday, Sunday or business holiday under the laws of the State
of Illinois or the United States of America, such payment shall be made on the
next succeeding business day and such extension shall be included in computing
any interest in respect of payment.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty. All payments hereunder shall be applied first to
interest on the unpaid balance hereunder at the rate herein specified and then
to installments of principal in the inverse order of the maturity thereof.
<PAGE>
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, asserts
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
- ------------------------------------
Eugene M. Lutz
- ------------------------------------
Susan C. Lutz
<PAGE>
$32,336.50 November 1, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, EAST COAST OPTIONCARE, INC., formerly known as Nick's Health
Care, Inc., a Florida corporation (hereinafter referred to as "Maker"), promises
to pay to the order of OPTION CARE, INC., a California corporation (hereinafter
referred to as "Holder"), or to the registered holder, in the manner set forth
below, the principal sum of Thirty-Two Thousand Three Hundred Thirty-Six Dollars
and Fifty Cents ($32,336.50) plus accrued interest from the date hereof on the
balance of the Principal remaining from time to time unpaid at the rate of
fifteen percent (15%) per annum compounded annually.
The Principal amount of this Note together with interest accrued thereon shall
be due and payable in 15 equal monthly installments of $2,377.59, with the first
installment due and payable December 1, 1997 and each installment due on the
first day of each month thereafter (the "Due Date").
Occurrence of one or more of the following events shall constitute an "Event of
Default:"
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of ten (10) days after any Due Date;
B. At any time, (i) commencement by the Maker of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted or any other applicable
federal or state bankruptcy, insolvency or other similar law, (ii) consent by
the Maker to the appointment of a receiver, trustee, custodian, sequestrator or
other similar official for the Maker or any substantial part of its property, or
to the taking possession by any such official of any substantial part of the
property of the Maker, or (iii) making by the Maker of any assignment for the
benefit of creditors generally; or
C. Termination of the Maker's Franchise Agreement with Option Care, Inc.
Upon the occurrence of an Event of Default under clause (A), (B), or (C), the
Holder may, at its option, declare the entire unpaid Principal balance of the
Note and all accrued interest thereon to be due and payable.
If, at any time, the applicable interest rate hereunder is deemed by any
competent court of law, governmental agency, board, commission or tribunal, to
exceed the maximum rate of interest permitted by applicable law, then, for such
time as the applicable interest rate hereunder would be deemed excessive, such
interest rate shall be suspended and this Note shall bear interest at the
maximum rate permissible under such applicable law, but thereafter, the former
applicable interest rate hereunder shall be reinstated.
<PAGE>
All payments of Principal and interest hereunder shall be payable in lawful
money of the United States of America at the offices of Holder located in the
State of Illinois or at such other place as the Holder hereof may designate in
writing to the Maker. If any payment of principal or interest hereunder shall
become due on a Saturday, Sunday or business holiday under the laws of the State
of Illinois or the United States of America, such payment shall be made on the
next succeeding business day and such extension shall be included in computing
any interest in respect of payment.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty. All payments hereunder shall be applied first to
interest on the unpaid balance hereunder at the rate herein specified and then
to installments of principal in the inverse order of the maturity thereof.
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assents
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
ATTEST:
- ---------------------------------------
FRANCHISE OWNER:
EAST COAST OPTION CARE, INC.,
F/K/A NICK'S HEALTH CARE, INC.
By:
- ---------------------------------------
Name:
- ---------------------------------------
Its:
- ---------------------------------------
<PAGE>
($30,000)
1997
PROMISSORY NOTE
FOR VALUE RECEIVED, Brooks Home I.V., Inc., a California corporation, Kelly J.
Brooks and Patricia Hixson (collectively hereinafter referred to as "Maker"
jointly and severally), promises to pay to the order of OPTION CARE, INC., a
California corporation (hereinafter referred to as "Holder"), or to the
registered holder, in the manner set forth below, the principal sum of Thirty
Thousand Dollars ($30,000).
The Principal amount of this Note shall be due and payable in (12) equal monthly
installments, with the first installment due and payable January 1, 1998 and
each installment due on each 1st day of each month thereafter (the "Due Date").
Occurrence of one or more of the following events shall constitute an "Event of
Default:"
A. Failure of the Maker to pay any installment due under this Note where such
failure has continued for a period of ten (10) days after any Due Date;
B. At any time, (i) commencement by the Maker of a voluntary case under the
federal bankruptcy laws, as now or hereafter constituted or any other applicable
federal or state bankruptcy, insolvency or other similar law, (ii) consent by
the Maker to the appointment of a receiver, trustee, custodian, sequestrator or
other similar official for the Maker or any substantial part of its property, or
to the taking possession by any such official of any substantial part of the
property of the Maker, or (iii) making by the Maker of any assignment for the
benefit of creditors generally; or
C. Termination of the Maker's Franchise Agreement with Option Care, Inc.
Upon the occurrence of an Event of Default under clause (A), (B), or (C), the
Holder may, at its option, declare the entire unpaid Principal balance of the
Note and all accrued interest thereon to be due and payable.
All payments of Principal shall be payable in lawful money of the United States
of America at the offices of Holder located in the State of Illinois or at such
other place as the Holder hereof may designate in writing to the Maker. If any
payment of principal hereunder shall become due on a Saturday, Sunday or
business holiday under the laws of the State of Illinois or the United States of
America, such payment shall be made on the next succeeding business day.
This Note may be prepaid in whole or in part at any time or from time to time
without premium or penalty.
<PAGE>
The Maker agrees to pay, promptly and on demand by the Holder, all costs of
collection and all reasonable attorneys' fees paid or incurred by the Holder in
enforcing any of the Holder's rights hereunder. The maker waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assents
to any extension or postponement of the time of any payment or any indulgence to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondary liable.
This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Illinois.
The Holder's failure to assert or any delay in asserting any right or remedy
provided herein shall not operate as a waiver of such right or remedy, nor shall
any partial exercise preclude full exercise of any such right or remedy.
This Note shall be binding upon the legal representatives, successors and
assigns of Maker and shall inure to the benefit of the legal representatives,
successors, heirs and assigns of the Holder.
ATTEST:
FRANCHISE OWNER:
BROOKS HOME I.V., INC.
By:
- ---------------------------------------
Name:
- ---------------------------------------
Its:
- ---------------------------------------
- ---------------------------------------
Kelly J. Brooks
- ---------------------------------------
Patricia Hixson
<PAGE>
FACILITY PROVIDER AGREEMENT
This Facility Provider Agreement ("Agreement") is made and entered into as of
the 1st day of June, 1997 by and between Option Care, Inc. ("Provider"), and the
Foundation Health Corporation Affiliate(s) ("Foundation") identified in Addendum
A to this Agreement.
R E C I T A L S
A. Provider is a corporation or other public or private entity that
operates the Facilities listed on the signature page hereto, as
amended from time to time.
B. Foundation is one or more corporations which has the legal
authority to enter into this Agreement, and to perform the
obligations of Foundation hereunder with respect to the Benefit
Programs identified on Addendum A.
C. Foundation desires to enter into this Agreement to arrange for
Provider to render Contracted Services to Beneficiaries of the
various Benefit Programs identified on Addendum A.
D. Provider desires to enter into this Agreement to render
Contracted Services to Beneficiaries of the
various Benefit Programs identified on Addendum A.
A G R E E M E N T
NOW, THEREFORE, in consideration of the above recitals and the covenants
contained herein, the parties hereby agree as follows:
I. DEFINITIONS
Many words and terms are capitalized throughout this Agreement to indicate that
they are defined as set forth in this Article I.
1.1 Affiliate. A company in which Foundation Health Corporation, a
----------
Delaware corporation, owns 51% or more of the voting stock.
The Affiliates provide, arrange or administer one or more
Benefit Programs covered under this Agreement on behalf of
themselves and Payors. The Affiliates who are parties to this
Agreement are listed on Addendum A, as amended from time to
time by Foundation.
1.2 Beneficiary. (Member) A person who is eligible to receive
------------
Covered Medical Services under a Benefit Program included in
this Agreement, including a newborn baby who is a dependent of
Beneficiary during the first 31 days following the baby's
birth and/or legal adoption.
1.3 Benefit Program. Foundation's and Payors' performance of its
----------------
obligations to provide, arrange or administer health care,
provider networks, administrative or other related services
pursuant to a written agreement between a public or private
employer or other entity and Foundation. The Benefit Programs
covered under this Agreement are listed on Addendum A hereto,
as amended from time to time.
1.4 Benefit Program Requirements. The rules, procedures,
-----------------------------
policies, protocols and other conditions to be followed by
Participating Providers and Beneficiaries with respect to
providing Covered Medical Services under a particular Benefit
Program.
1.5 Capitated Medical Group/IPA. A Participating Provider having a
----------------------------
capitation agreement with Foundation, to provide Covered
Medical Services to Beneficiaries.
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1.6 Capitation Compensation. The per Beneficiary (member) per
------------------------
month ("PMPM") payment, indicated in the applicable Addenda to
this Agreement, payable monthly for each Beneficiary who has
selected or been assigned to Provider or a Capitated Medical
Group/IPA linked to Provider.
1.7 Contracted Services. All Inpatient Services, Outpatient
--------------------
Services, Emergency or other Covered Medical Services listed
on Addendum I, except Excluded Services, to be rendered by
Provider to a Beneficiary in accordance with this Agreement.
Contracted Services are included in Provider Risk Services as
specified in the Division of Financial Responsibility/Matrix
of Foundation, Capitated Medical Group/IPA and Provider Risk
Services exhibit to an applicable Addendum.
1.8 Coordination of Benefits. The allocation of financial
-------------------------
responsibility between two or more payors of health care
services, each with a legal duty to pay for or provide Covered
Medical Services to a Beneficiary at the same time.
1.9 Copayment. That portion of the cost of Covered Medical
----------
Services that a Beneficiary is obligated to pay under a
particular Benefit Program, including a deductible and
coinsurance. A Copayment may be either a fixed dollar amount
or a percentage of the applicable Participating Provider
contract rate. Foundation will advise Participating Providers
of the amounts or methods by which Copayments may be
determined.
1.10 Covered Medical Services. (Covered Services) The Medically
-------------------------
Necessary health care services and supplies that are covered
under a Benefit Program.
1.11 Emergency. (Emergency Services) The sudden onset of a medical
----------
condition manifesting itself by acute symptoms of sufficient
severity, including severe pain, where the absence of
immediate medical attention could reasonably be expected to
result in serious impairment to a bodily function, or serious
and permanent dysfunction of any body organ or body part, or
to cause other serious medical consequences which include
placing a Beneficiary's health in permanent jeopardy.
1.12 Excluded Services. Those health care services and
------------------
supplies which are determined not to be Medically Necessary,
or which otherwise are not Covered Medical Services under the
applicable Benefit Program.
1.13 Facility(ies). The hospitals, health care facility(ies) and
-------------
other service locations operated or subcontracted by Provider
at which Contracted Services are to be provided under this
Agreement. Provider's hospitals, health care facilities and
other service locations are listed on the signature page of
this Agreement, as amended from time to time.
1.14 Inpatient Services. Inpatient Services include, but are not
-------------------
limited to: (a) bed and board; (b) medical, nursing, surgical,
pharmacy and dietary services; (c) all diagnostic and
therapeutic services required by a Beneficiary when ordered by
an attending physician with appropriate medical and clinical
staff privileges; (d) use of Facilities, and medical, mental
health and social services furnished for the provision of
Contracted Services; (e) drugs while an inpatient, take-home
drugs, supplies, appliances and equipment; (f) transportation
services subsequent to admission and prior to discharge
required in providing Inpatient Services; (g) services
rendered within 24 hours at the facility prior to
Beneficiary's admission as an inpatient, which are related to
the condition for which the Beneficiary is admitted; (h)
observation services, and (i) Facility physician and other
professional services where such physicians or allied health
professionals are employees or contractors of Provider, and
Provider normally bills for these services on Provider's HCFA
1500 or UB-92 (UB-82) or its successor form. Above services
are included in the
2
<PAGE>
compensation rates contained in this Agreement and shall not
be billed separately by Provider, physicians or allied health
professionals.
1.15 Medically Necessary. Those Covered Medical Services which
---------------------
are determined under the applicable Utilization Review and
Management Program to be:
(a) Appropriate and necessary for the symptoms, diagnosis or
treatment of a medical condition; and,
(b) Provided for the diagnosis or direct care and treatment of
a medical condition; and,
(c) Within standards of good medical practice within the
organized medical community of the treating provider; and,
(d) Not primarily for the convenience of the Beneficiary or
the treating provider; and,
(e) Consistent with the medical policy, the Utilization
Management Program, Quality Management Program and Benefit
Program Requirements applicable to the Benefit Program
under which the Covered Medical Services are rendered;
and,
(f) The most appropriate and cost effective service or supply
consistent with generally accepted medical standards of
care. For inpatient stays, this means that acute care as
an inpatient is necessary due to the kind of services the
Beneficiary is receiving or the severity of the
Beneficiary's condition, and that safe, cost effective and
adequate care cannot be received as an outpatient or in a
less intensified medical setting.
1.16 Outpatient Services. Outpatient services include, but are not
-------------------
limited to, Emergency services, outpatient and short stay
surgery, day care, clinic care, and related ancillary
services. Any outpatient services delivered to a Beneficiary
within 24 hours prior of an admission as an inpatient for the
same medical condition are included in the inpatient rate.
1.17 Participating Provider. A hospital, physician, physician
-----------------------
organization, other health care practitioner or other
organization which has a direct or indirect contractual
relationship with Foundation, a Payor or another Participating
Provider to provide certain Covered Medical Services.
1.18 Payor. Foundation, or any other public or private entity which
------
provides, administers, funds, insures or is responsible for
paying Participating Providers for Covered Medical Services
rendered to Beneficiaries under a Benefit Program covered
under this Agreement.
1.19 Preventive Care. Preventive Care aims to remove or reduce
----------------
disease risk factors and promote early detection of disease
or precursor states. Health education and behavior
modification are two of the most effective and economical
means of disease control.
1.20 Primary Care Physician (PCP). The physician who is a
------------------------------
Participating Provider and who is responsible pursuant to the
applicable Benefit Program for coordinating and managing the
delivery of Covered Medical Services to Beneficiaries selected
or assigned to such physician.
1.21 Prior Authorization. The written approval by Foundation, an
--------------------
Affiliate, a Payor, or other permitted person or entity, prior
to admitting a Beneficiary to a hospital, or to providing
certain other Covered Medical Services to a Beneficiary, which
approval is required under the Utilization Management Program
of the applicable Benefit Program.
1.22 Provider Risk Services. Contracted Services and such other
----------------------
Covered Medical Services as are described in an Addendum to
this Agreement for which Provider has accepted Capitation
Compensation under the applicable Benefit Programs to which
the Addendum applies.
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<PAGE>
1.23 Provider Service Area. The geographic area(s), specified by
----------------------
zip codes and/or other descriptive boundaries which are
described in the applicable Addenda to this Agreement.
1.24 Quality Management Program. The functions, including, but not
---------------------------
limited to, credentialing and certification of providers,
review and audit of medical and other records, outcome rate
reviews, peer review and provider appeals and grievance
procedures performed or required by Foundation, an Affiliate,
a Payor, or any other permitted person or entity, to review
and improve the quality of Covered Medical Services rendered
to Beneficiaries.
1.25 Referral. When required under a Benefit Program, the written
---------
approval from the Beneficiary's PCP and usually for a
specified number of visits, treatments, or period of time,
required under a Utilization Management Program for a
Beneficiary to receive Covered Medical Services from a
physician (usually a specialist) or other health care
professional or organization. Referral to a non-Participating
Provider requires Prior Authorization.
1.26 Supplemental Medical. A Benefit Program which limits coverage
---------------------
to Copayments.
1.27 State. The state or states of licensure and accreditation of
------
Facilities at which Contracted Services are to be provided
under this Agreement.
1.28 Utilization Management Program. The functions, including, but
-------------------------------
not limited to Prior Authorization, Referral and prospective,
concurrent and retrospective review, performed or required by
Foundation, an Affiliate, a Payor, or any other permitted
person or entity, to review and determine whether medical
services or supplies which have been or will be provided to
Beneficiaries are covered under a Benefit Program and meet the
criteria as Medically Necessary.
II. PERFORMANCE PROVISIONS
----------------------
2.1 Representations and Warranties. Provider represents and
------------------------------
warrants for each Facility that:
(a) Provider is licensed by the State to operate and
provide Contracted Services at the Facility;
(b) Provider operates and provides Contracted Services
at the Facility in compliance with all applicable
local, State, and federal laws, rules, regulations
and institutional and professional standards of
care;
(c) The Facility is certified to participate in Medicare
under Title XVIII of the Social Security Act, and in
Medicaid under Title XIX of the Social Security Act
or other applicable State law pertaining to Title
XIX of the Social Security Act;
(d) The Facility is accredited by the appropriate
accrediting organization(s) listed on the signature
page of this Agreement; and
(e) Provider shall maintain such licensure, compliance,
certification and accreditation throughout the term
of this Agreement.
2.2 Provision of Services. Provider agrees to render Contracted
----------------------
Services to Beneficiaries of the Benefit Programs covered
under this Agreement, in accordance with:
(a) The terms and conditions of this Agreement;
(b) All laws, rules and regulations applicable to
Provider, each Facility, Foundation, Affiliates and
Payors;
(c) The Utilization Management Program, Quality
Management Program, Benefit Program Requirements and
grievance, appeals and other policies and procedures
of the particular Benefit Program under which the
Covered Medical Services are rendered; and
4
<PAGE>
(d) The same standard of care, skill and diligence as is
customarily used by similar facilities in the
community in which such services are rendered, and in
the same manner, and with the same availability, as
Provider renders services to its other patients.
(e) Provider shall accept the Compensation Rates, as
referenced in Exhibit 1 of the Addenda, from
Foundation Health Affiliates who are not parties to
this Agreement in return for services rendered to
Beneficiaries of Benefit Programs offered by such
Affiliates.
Provider shall maintain such Facilities, equipment, patient
service personnel and allied health personnel as may be
necessary to provide Contracted Services. Provider shall be
responsible for promptly notifying Foundation of any additions
or deletions in the services contained in the Hospital Service
Inventory in Addendum I.
2.3 Non-Discrimination. Provider shall not discriminate against
-------------------
any Beneficiary in the provision of Contracted Services
hereunder, whether on the basis of the Beneficiary's coverage
under a Benefit Program, age, sex, marital status, sexual
orientation, race, color, religion, ancestry, national origin,
disability, handicap, health status, source of payment,
utilization of medical or mental health services or supplies
or other unlawful basis including, without limitation, the
filing by such Beneficiary of any complaint, grievance or
legal action against Provider, Foundation, an Affiliate or a
Payor.
2.4 Subcontracting. Provider shall not subcontract for the
--------------
performance of Contracted Services under this Agreement
without the prior written consent of Foundation. If Provider
has agreed to render Provider Risk Services for Capitation
Compensation hereunder, Provider may subcontract for the
provision of such services with entities acceptable to
Foundation. Every subcontract between Provider and a
subcontractor shall be in writing and shall comply with all
applicable local, State and federal laws, be consistent with
the terms and conditions of this Agreement, and be terminable
with respect to Beneficiaries by Provider upon request of
Foundation. Each such subcontract may require the prior
approval of one or more local, State, or federal regulatory
agencies, and shall not become effective until all such
required approvals have been obtained. If any of the Provider
Risk Services are to be provided by a subcontractor, Provider
and the subcontractor shall enter into a written agreement
which expressly provides that the rendering of Provider Risk
Services by the subcontractor is subject to the terms of this
Agreement. Provider shall furnish Foundation with copies of
such subcontracts within ten days of execution of this
Agreement and ten days of execution of any subsequent
subcontracts by Provider. Each such subcontractor shall meet
Foundation's credentialing requirements, prior to the
subcontract becoming effective. Provider agrees to be solely
responsible to pay any subcontractor permitted under this
Agreement, and shall hold, and ensure that subcontractors
hold, Foundation, Affiliates, Payors and Beneficiaries
harmless from and against any and all claims which may be made
by such subcontractors in connection with Contracted Services
rendered to Beneficiaries under any such subcontract.
2.5 Utilization Management Requirements. Provider agrees to
------------------------------------
participate in, cooperate with and comply with all decisions
rendered in connection with Foundation's, an Affiliate's or a
Payor's Utilization Management Program. The hospital shall
submit indicator data relevant to its services to the Joint
Commission on Accreditation of Healthcare Organizations'
(JCAHO) Indicator Measurement System. The data will be
submitted on a timely basis and meet the reasonable standards
set by JCAHO for completeness and reliability. Provider also
agrees to provide such other records and information as may be
required or requested under such Utilization Management
Program. Provider shall notify Foundation's Health Care
Services Department in the event of any inpatient admission,
in addition to any notification required by the Beneficiary's
Capitated Medical Group/IPA.
5
<PAGE>
2.6 Prior Authorization and Referrals. Unless a particular Benefit
----------------------------------
Program or Utilization Management Program contains no such
requirement, and except in an Emergency, Provider agrees not
to seek payment from Foundation or a Payor for Contracted
Services rendered to a Beneficiary unless Prior Authorization
or a Referral was obtained for the rendering of such services.
Such Prior Authorization or Referral may be issued by
Foundation, the applicable Payor, or a Participating Provider.
In an Emergency, Provider agrees to attempt to obtain Prior
Authorization, by telephone if necessary, before admitting a
Beneficiary either as an inpatient or outpatient, or providing
Contracted Services. If Prior Authorization or Referral cannot
be obtained, Provider agrees to notify Foundation or the
applicable Payor and the appropriate Participating Provider as
applicable, as soon as possible, but no later than 24 hours
after admission, or providing the Contracted Services, or on
the next working day.
2.7 Participating Providers. Except in an Emergency, as otherwise
------------------------
described in the applicable Benefit Program Requirements, or
as otherwise required by law, Provider shall refer
Beneficiaries only to Participating Providers for Covered
Medical Services, and shall use Participating Providers to
provide Facility-based physician and other ancillary services
included in Contracted Services. In the event Provider
knowingly refers a Beneficiary to a nonparticipating provider
without Prior Authorization, Provider agrees to be responsible
for payment of claims incurred for the unauthorized Covered
Medical Service, and Provider agrees, in accordance with
Section 3.7 of this Agreement, to hold harmless the
Beneficiary for such claims. Provider shall assist Foundation
or Payors in their efforts to contract with Provider's
Facility-based physicians. Foundation or a Payor will require
that the most cost effective, qualified Participating Provider
is utilized.
2.8 Quality Management Program. Provider shall be solely
---------------------------
responsible for the quality of Contracted Services rendered to
Beneficiaries. The quality of Contracted Services rendered to
Beneficiaries shall be monitored under the Quality Management
Program applicable to the particular Benefit Program. Provider
agrees to participate in and cooperate in all respects with
the applicable Quality Management Program. Provider also
agrees to comply with all decisions rendered by Foundation or
a Payor in connection with a Quality Management Program.
Provider also agrees to provide such medical and other records
within 10 days of written notice, and such review data and
other information as may be required or requested under a
Quality Management Program, including outcome reporting in
accordance with, but not limited to, the Health Plan Employer
Data and Information Set (HEDIS), Version 2.0, or its
successor. In the event that the standard or quality of care
furnished by Provider is found to be unacceptable under any
Quality Management Program, Foundation shall give written
notice to Provider to correct the specified deficiencies
within the time period specified in the notice. Provider shall
correct such deficiencies within that time period.
2.9 Credentialing of Provider. Provider shall submit to Foundation
-------------------------
the Credentials Application or the same information in a
format used by Provider which meets minimum requirements of
Foundation, contained in Exhibit 1 to Addendum A of this
Agreement. In no event will this Agreement be executed by
Foundation, nor will Provider begin performing Provider's
obligations under this Agreement, until Provider's Credentials
Application has been approved by Foundation.
2.10 Notice of Adverse Action. Provider shall notify Foundation in
-------------------------
writing, within five days of receiving any written or oral
notice of any adverse action, including, without limitation,
any malpractice suit or arbitration action, or other suit or
arbitration action naming or otherwise involving Provider, a
Facility, Foundation or any Payor, and of any other event,
occurrence or situation which might materially interfere with,
modify or alter performance of any of Provider's duties or
obligations under this Agreement. Provider shall forward to
Foundation any written complaint or grievance of a Beneficiary
against Provider, a Facility, Foundation or any Payor
6
<PAGE>
within one business day of receipt thereof. Provider shall
maintain a written record of any Beneficiary complaint and
provide such record to Foundation promptly upon request.
Provider also shall notify Foundation promptly of any action
against any Facility license, accreditation, or certification
under Title XVIII or Title XIX or other applicable statute of
the Social Security Act or other State law, and of any
material change in the ownership or business operations of
Provider or a Facility.
2.11 Preventive Care. Provider shall require and assure that its
----------------
Facilities abide by Foundation's policies and procedures
regarding Preventive Care and health education. Provider shall
render Preventive Care and health education to Beneficiaries
during each episode of care and document such in the medical
record.
2.12 Professional Liability Insurance. Provider shall maintain
---------------------------------
professional liability insurance in an amount equal to the
lesser of the highest amount required by law, the accrediting
body having jurisdiction over Provider or, $3,000,000 per
claim and $10,000,000 in the aggregate of all claims per
policy year. Provider agrees to provide Foundation with
written evidence, acceptable to Foundation, of such insurance
coverage within three days of such request by Foundation.
Provider also agrees to notify, or to ensure that its
insurance carriers notify Foundation, at least 30 days prior
to any proposed termination, cancellation or material
modification of any policy for all or any portion of the
coverage provided for above.
2.13 Listing of Provider. Provider agrees that Foundation and
--------------------
Payors may list the name, address, telephone number and other
factual information of Provider, each Facility and Provider's
subcontractors and their facilities in its marketing and
informational materials. Provider shall supply all printed
materials and other information relating to its operations
within seven days of Foundation's request.
2.14 Non-Solicitation. Neither Provider nor any employee, agent or
-----------------
subcontractor of Provider shall solicit or attempt to convince
or otherwise persuade any Beneficiary not to participate or to
discontinue participation in any Foundation or Payor Benefit
Program for which Provider renders Contracted Services under
this Agreement. Further, Provider, its employees and
subcontractors, shall treat Beneficiaries promptly, fairly and
courteously.
2.15 Encounter Reporting. For Beneficiaries for which Provider
-------------------
receives Capitation Compensation under this Agreement,
Provider shall provide Foundation with the following
information, via personal computer diskette, magnetic tape or
electronic transmission in standard UB-92 (UB-82) form or its
successor format, for each encounter (either at Provider's
Facility, or any other facility at which a Beneficiary
received approved Inpatient Services, and for which Provider
has paid the claim) with a Beneficiary during a calendar
month. Such electronic encounter information materials shall
be complete, accurate and provided to Foundation by the 15th
day of the month following the month in which the encounter
occurred. Encounter reporting shall be in accordance with, but
not limited to, the Health Plan Employer Data and Information
Set (HEDIS), Version 2.0, or its successor. Additionally,
Provider shall promptly provide Foundation with all
corrections to and revisions of such encounter data.
2.16 New or Additional Benefit Programs. Provider acknowledges that
-----------------------------------
Foundation may develop new or additional Benefit Programs in
Provider's Service Area. Provider agrees to participate and
negotiate with Foundation in good faith to amend this
Agreement to include such new or additional Benefit Programs
as requested by Foundation. Where a new Benefit Program falls
under existing Addenda, then the applicable contract rates
shall automatically apply.
2.17 Payment of Applicable Taxes. Provider shall be solely
----------------------------
responsible for the collection and payment of any sales, use
or other applicable taxes on the sale or delivery of medical
services.
7
<PAGE>
2.18 Timely Assignment of Beneficiaries. Where required under a
-----------------------------------
Benefit Program, Foundation shall require Beneficiaries to
select specified Participating Providers at the time of
enrollment. In the event a Beneficiary does not select a PCP
or other Participating Providers within 60 days, Foundation
shall automatically assign the Beneficiary to the appropriate
PCP and Facility Provider based upon the zip code in which the
Beneficiary resides. Upon automatic assignment of PCP and
Facility Provider, the Beneficiary may change to another PCP
and Facility Provider of choice.
2.19 Requirement that Most Cost Effective Services be Used. Unless
------------------------------------------------------
there is an overriding medical reason, as determined by the
appropriate Medical Director, Provider agrees to utilize the
lowest cost option in circumstances in which there is a
medically appropriate choice of using different services.
2.20 Beneficiary Grievance Procedures. Provider shall abide by the
---------------------------------
determination of the applicable Payor's Beneficiary Grievance
Procedure.
III. COMPENSATION
3.1 Compensation Rates. Provider shall accept as payment in full
-------------------
for Contracted Services and all other services (including
payment for any and all sales, use or other applicable taxes
on the sale or delivery of medical services) rendered under
this Agreement to Beneficiaries the amounts payable by
Foundation or a Payor as set forth in the applicable Addendum
to this Agreement, less Copayment amounts payable by
Beneficiaries in accordance with the applicable Benefit
Program. It is expressly understood that, in this context,
Provider acknowledges its obligations to provide care
consistent with the professional standards of care generally
accepted by the medical community.
3.2 Billing and Payment.
--------------------
(a) Billing. Unless a Provider is compensated on a
--------
Capitation Compensation basis, Provider shall submit
to Foundation, via Foundation's electronic claims
submission program [or hardcopy], clean, complete and
accurate claims in a format approved by Foundation
for Contracted Services rendered to a Beneficiary
within 60 calendar days after such services are
rendered. Where Foundation is the secondary payor
under Coordination of Benefits, such 60 day period
shall commence once the primary payor has paid or
denied the claim. Neither Foundation nor any Payor
shall be under any obligation to pay Provider on any
claim not timely submitted. Provider shall not seek
payment from any Beneficiary in the event Foundation
or a Payor fails to pay Provider for a claim not
timely submitted. In the event Provider elects to
purchase reinsurance from Foundation, and is
capitated on a Capitation Compensation basis,
Provider shall submit to Foundation clean, complete
and accurate claims in a format approved by
Foundation for Provider Risk Services in excess of
the stop loss threshold. Provider shall be
responsible for submitting such claims no later than
60 days after the stop loss year ends. Foundation
shall not be under any obligation to pay Provider on
any claim not timely submitted. Provider shall not
seek payment from any Beneficiary in the event
Foundation fails to pay Provider for a claim not
timely submitted.
(b) Payment. Unless the claim is disputed, Foundation or
---------
a Payor shall make payment on each of Provider's
clean, complete, accurate and timely submitted claims
for Contracted Services rendered to a Beneficiary,
within 30 working days of receipt of such claim, or
within the time required by applicable State, Federal
Law or Regulation or such other period of time as set
forth in the applicable Benefit Program Addendum to
this
8
<PAGE>
Agreement, or as required by State Occupationally
Ill/Injured or Workers' Compensation law, if
applicable.
(c) Performance Guarantees. If Foundation determines that
-----------------------
deficiencies identified and reported to Provider
relating to the Quality Management Program,
Utilization Review Program, Preventive Care Services,
credentialing, encounter reporting, and financial
reporting are not corrected within 30 working days of
notice to Provider, then Provider's compensation
hereunder shall be reduced at Foundation's discretion
up to 2.5% of the Provider's applicable monthly
compensation or claims reimbursement. Reduction of
compensation shall occur on payments due for the
first month after Provider has been notified and
continue until such identified deficiencies are
remedied.
(d) Appeals. Provider shall abide by Foundation's appeal
--------
process for disputes regarding denial of coverage.
3.3 Eligibility. Except in an Emergency, Provider shall verify the
------------
eligibility of Beneficiaries before admitting or providing
Contracted Services. When required by the applicable
Utilization Management Program, Provider shall verify the
eligibility of Beneficiaries before admitting or providing
Provider Risk Services. Foundation shall make a good faith
effort to confirm the eligibility of any Beneficiary when such
is in question.
3.4 Reconciliation of Eligibility. When Provider is compensated on
------------------------------
a Capitation Compensation basis, Foundation shall provide
Provider with a monthly list of Beneficiaries for whom
Provider is responsible for rendering Provider Risk Services
during such month. Foundation will use its best efforts to
discourage retroactive cancellation or addition of
Beneficiaries to a Benefit Program. However, in the event
Foundation allows such adjustments, Foundation shall
retroactively adjust Provider's Capitation Compensation as
necessary, provided that the retroactive addition or
cancellation period shall not exceed 90 days (except for
Medicare Risk Benefit Programs, which have no such limits). In
cases where a Beneficiary has utilized a non-participating
hospital, and an appeal of the denial of such utilization by
Foundation or Provider has been approved in favor of the
Beneficiary by a governmental agency or its agent, after such
90 day period, Foundation may disenroll such Beneficiary and
retroactively adjust Provider's Capitation Compensation
accordingly. In the event of allowable retroactive additions,
Provider agrees to be responsible for all Provider Risk
Services rendered to the Beneficiary from the beginning of the
retroactive period. In the event of retroactive cancellations,
Provider may bill the Beneficiary for all Provider Risk
Services received by the Beneficiary from the date such
Beneficiary was no longer covered under the applicable Benefit
Program.
3.5 Collection of Copayments. Provider shall collect all
-------------------------
Copayments due from Beneficiaries, and shall not waive or fail
to pursue collection of Copayments from Beneficiaries, without
the prior written consent of Foundation.
3.6 No Surcharges. Provider shall not charge the Beneficiary any
--------------
fees or surcharges for Contracted Services rendered pursuant
to this Agreement (except for authorized Copayments). In
addition, Provider shall not collect a sales, use or other
applicable tax from Beneficiaries for the sale or delivery of
medical services. If Foundation or any Payor receives notice
of any additional charge, Provider shall fully cooperate with
Foundation or such Payor to investigate such allegations, and
shall promptly refund any payment deemed improper by
Foundation or a Payor to the party who made the payment.
3.7 Beneficiary Held Harmless. Provider agrees that in no event,
-------------------------
including, but not limited to, non-payment by Foundation or a
Payor, insolvency of Foundation or a Payor, or breach of this
Agreement, shall Provider bill, charge, collect a deposit
from, seek compensation, remuneration, or reimbursement from,
or have any recourse against Beneficiaries or persons other
than Foundation or a Payor acting on their behalf for
Contracted Services provided pursuant to this
9
<PAGE>
Agreement. This provision shall not prohibit collection of
Copayments on Foundation's or a Payor's behalf made in
accordance with the terms of the applicable Benefit Program.
Provider further agrees that: (a) this provision shall survive
the termination of this Agreement regardless of the cause
giving rise to termination and shall be construed to be for
the benefit of Beneficiaries; and (b) this provision
supersedes any oral or written contrary agreement now existing
or hereafter entered into between Provider and Beneficiaries
or persons acting on their behalf. Any modification, addition,
or deletion mandated by State of or to the provisions of this
clause shall be effective on a date no earlier than 15 days
after the State regulatory agency has received written notice
of such proposed change and has approved such change.
3.8 Conditions for Compensation for Excluded Services. Provider
--------------------------------------------------
may bill a Beneficiary for other Excluded Services rendered by
Provider to such Beneficiary only if the Beneficiary is
notified in advance that the services to be provided are not
covered under the Beneficiary's Benefit Program, and the
Beneficiary requests in writing that Provider render the
Excluded Services, prior to Provider's rendition of such
services. Neither a Beneficiary, nor Foundation nor any Payor
shall be liable to pay Provider for any Contracted Service
rendered by Provider to a Beneficiary which is determined
under a Utilization Management Program not to be Medically
Necessary.
3.9 Coordination of Benefits. Provider agrees to conduct
-------------------------
Coordination of Benefits in accordance with the policies and
procedures established by Foundation or a Payor for the
applicable Benefit Program. Provider shall not bill
Beneficiaries for any portion of Contracted Services not paid
by the primary carrier when Foundation or Payor is the
secondary carrier, but shall instead look to Foundation or
Payor for such payment. When a Beneficiary has coverage which
is primary through another carrier, then Foundation's or a
Payor's compensation to Provider shall be limited to the
difference between the amount paid by the primary payor and
the negotiated rates, including Copayments, contained in the
applicable Addendum to this Agreement. When Provider is
compensated on a Capitated Compensation basis, Provider shall
be entitled to conduct Coordination of Benefits for those
services where Provider is so paid.
3.10 Third Party Recoveries. When Foundation or a Payor has
-----------------------
compensated Provider for Contracted Services, then Foundation
or a Payor retains the right to recover from applicable third
party carriers covering a Beneficiary, including self-insured
plans, and to retain all such recoveries. Provider agrees to
provide Foundation with such information as Foundation may
require to pursue recoveries from such third party sources,
and to promptly remit to Foundation or a Payor any moneys
Provider may receive from or with respect to such sources of
recovery.
3.11 Occupationally Ill/Injured or Workers' Compensation. Unless a
----------------------------------------------------
beneficiary is covered under the Occupationally Ill/Injured or
Workers' Compensation Benefit Program (Addendum H), Covered
Medical Services shall not include health care services and
supplies rendered to diagnose or treat occupational illnesses
or injuries.
IV. TERM AND TERMINATION
--------------------
4.1 Term. The term of this Agreement shall commence on the date
-----
set forth on the first page of this Agreement and shall
continue for a period of three years thereafter. This
Agreement shall automatically renew for successive three year
periods, unless one party notifies the other in writing of its
intent not to renew this Agreement, at least 120 days prior to
the next scheduled renewal date. Any and all negotiations must
be completed 90 days prior to the anniversary date of the
contract. The renewal date of the term of this Agreement shall
remain the same for all Benefit Programs covered hereunder,
even if this Agreement becomes effective with respect to a
particular Benefit Program after the initial or any renewal
date of this Agreement, due to licensure, contract award or
other reason. Regardless of the effective date or any renewal
date of
10
<PAGE>
this Agreement, Provider shall not begin providing Contracted
Services to Beneficiaries and Foundation shall have no
obligation to pay for such services until the completion of
Foundation's or a Payor's credentialing and certification
processes.
4.2 Immediate Termination. Foundation may terminate this Agreement
----------------------
in its entirety, or with respect to specific Facilities,
immediately upon notice to Provider, in the event of: (a)
Provider's violation of any applicable law, rule or
regulation; (b) the revocation or suspension of any of
Provider's licenses, accreditations or certifications; (c)
Provider's failure to maintain the professional liability
insurance coverage specified hereunder; (d) Provider's failure
to comply with the terms, conditions or determinations of any
Utilization Management Program or Quality Management Program
or other Benefit Program Requirements; (e) Provider's breach
of Section 2.1, 2.2, 2.3, 2.5, 2.8, 2.9, 2.10, 2.12, 2.15,
3.6, 3.7 or 3.8 hereof; or (f) Foundation's determination that
the health, safety or welfare of any Beneficiary may be in
jeopardy if this Agreement is not terminated.
4.3 Termination Due to Material Breach. In the event that either
----------------------------------
Provider or Foundation fails to cure a material breach of this
Agreement within 30 days of receipt of written notice to cure
from the other, the non-defaulting party may terminate this
Agreement, effective as of the expiration of said 30 day
period. If the breach is cured within such 30 day period, or
if the breach is one which cannot reasonably be corrected
within 30 days, and the non-defaulting party determines that
the defaulting party is making substantial and diligent
progress toward correction during such 30 day period, this
Agreement shall remain in full force and effect.
4.4 Right of Partial Termination. Provider may only terminate this
-----------------------------
Agreement in its entirety in accordance with Sections 4.1 and
4.3. Foundation may terminate this Agreement, with respect to
one or more Benefit Programs as Foundation indicates in the
notice of termination to Provider. This Agreement shall remain
in full force and effect with respect to all other
Beneficiaries and Benefit Programs.
4.5 Effect of Termination. In the event that a Beneficiary is
----------------------
receiving Contracted Services at the time this Agreement
terminates, Provider shall continue to provide Contracted
Services to the Beneficiary until: (a) the Beneficiary is
discharged; or (b) treatment is completed; or (c) the
Beneficiary is transferred to another Participating Provider.
Compensation for such Contracted Services shall be at the
rates contained in the Addendum that applies to the applicable
Benefit Program.
V. RECORDS, AUDITS AND REGULATORY REQUIREMENTS
-------------------------------------------
5.1 Medical and Other Records. Provider warrants that it prepares
--------------------------
and maintains and will prepare and maintain all medical and
other books and records required by law in a form maintained
in accordance with the general standards applicable to such
book- or recordkeeping. Provider shall maintain such records
for at least seven years after the rendering of Contracted
Services [records of a minor child shall be kept for at least
one year after the minor has reached the age of 18, but in no
event less than seven years]. Additionally, Provider shall
maintain such financial, administrative and other records as
may be necessary for compliance by Foundation and Payors with
all applicable local, State, and federal laws, rules and
regulations.
5.2 Access to Records; Audits. The records referred to in Section
--------------------------
5.1 shall be and remain the property of Provider and shall not
be removed or transferred from Provider except in accordance
with applicable local, State, and federal laws, rules and
regulations. Subject to applicable State and federal
confidentiality or privacy laws, Foundation and Payors, or
their designated representatives, and designated
representatives of local, State, and federal regulatory
agencies
11
<PAGE>
having jurisdiction over Foundation or any Payor, shall have
access to Provider's records, at Provider's place of business
on request during normal business hours, to inspect and review
and make copies of such records. Such governmental agencies
shall include, when applicable to the Benefit Programs
identified on Addendum A, the California Department of Health
Services, the California Department of Corporations and the
United States Department of Health and Human Services. When
requested by Foundation, Payors, or representatives of local,
State or federal regulatory agencies, Provider shall produce
copies of any such records for which Provider shall charge no
more than $.10 per page. In no event, however, shall Provider
charge for copying records requested for payment of a claim.
Additionally, Provider agrees to permit Foundation, and its
designated representatives, and designated representatives of
local, State, and federal regulatory agencies having
jurisdiction over Foundation or any Payor, to conduct site
evaluations and inspections of Provider's offices and service
locations.
5.3 Continuing Obligation. The obligations of Provider under
---------------------
Sections 5.1 and 5.2 shall not be terminated upon termination
of this Agreement, whether by rescission or otherwise. After
termination of this Agreement, Foundation and Payors shall
continue to have access to Provider's records as necessary to
fulfill the requirements of this Agreement and to comply with
all applicable laws, rules and regulations.
5.4 Regulatory Compliance. Provider agrees to comply with all
----------------------
applicable local, State, and federal laws, rules and
regulations, now or hereafter in effect, to the extent that
they directly or indirectly affect Provider, Provider's
Facility(ies), Foundation, any Payor, and bear upon the
subject matter of this Agreement.
In addition, Foundation Health, a California Health
Plan is subject to the requirements of Chapter 2.2 of Division
2 of the California Health and Safety Code and of Subchapter
5.5 of Chapter 3 of Title 10 of the California Code of
Regulations. Any provision required to be in this Agreement by
either of the above shall bind the parties whether or not
provided in this Agreement.
VI. GENERAL PROVISIONS
------------------
6.1 Amendments. All amendments to this Agreement or any of its
-----------
Addenda proposed by Provider must be agreed to in writing by
Foundation in advance of the effective date thereof. Any
amendment to this Agreement, including any of its Addenda,
proposed by Foundation shall be effective 20 days after
Foundation has given written notice to Provider of the
amendment, and Provider has failed within that time period to
notify Foundation in writing of Provider's rejection of the
requested amendment. Amendments required because of
legislative, regulatory or legal requirements do not require
the consent of Provider or Foundation and will be effective
immediately on the effective date thereof. Any amendment to
this Agreement requiring prior approval of or notice to any
federal or state regulatory agency shall not become effective
until all necessary approvals have been granted or all
required notice periods have expired. Foundation and Provider
shall amend this Agreement, from time to time, to include
additional Facilities, Affiliates, Benefit Programs, and
Payors.
6.2 Separate Obligations. The rights and obligations of Foundation
---------------------
under this Agreement shall apply to each Affiliate listed on
Addendum A to this Agreement only with respect to the Benefit
Programs of such Affiliate. No such Affiliate shall be
responsible for the obligations of any other Affiliate under
this Agreement with respect to the other Affiliate's Benefit
Programs. The person executing this Agreement on behalf of
Foundation has been duly authorized by each Affiliate listed
on Addendum A to execute this Agreement on its behalf.
12
<PAGE>
6.3 Assignment. Neither this Agreement, nor any of Provider's
-----------
rights or obligations hereunder, is assignable by Provider
without the prior written consent of Foundation. Should the
name of Foundation change, due to any merger or other cause,
Provider agrees that this Agreement shall remain in full force
and effect.
6.4 Confidentiality. Foundation and Provider agree to hold all
----------------
confidential or proprietary information or trade secrets of
each other in trust and confidence and agree that such
information shall be used only for the purposes contemplated
herein, and not for any other purpose. Specifically Provider,
as well as Foundation and Payors, shall keep strictly
confidential all compensation rates, set forth in this
Agreement and its Addenda, except that this provision does not
preclude disclosure of the method of compensation, e.g.,
fee-for-service, capitation, shared risk pool, DRG or per
diem. However, Provider agrees that Foundation may extend the
compensation rate set forth in this Agreement and its Addenda
to other participating Providers who may from time to time be
responsible for compensating Provider for Covered Medical
Services rendered by Provider to a Beneficiary of Foundation
or a Payor. Foundation and Provider agree that nothing in this
Agreement shall be construed as a limitation of the Provider's
right or obligation to discuss with the Beneficiaries matters
pertaining to the Beneficiaries' health.
6.5 Binding Arbitration. Provider and Foundation agree to meet and
--------------------
confer in good faith to resolve any problems or disputes that
may arise under this Agreement. Such negotiation shall be a
condition precedent to the filing of any arbitration demand by
either party, and no arbitration demand may be filed until the
exhaustion of Foundation's internal appeal procedures.
The parties agree that any controversy or claim arising out
of or relating to this Agreement, or the breach thereof,
whether involving a claim in tort, contract or otherwise,
shall be settled by final and binding arbitration in
accordance with the provisions of the California Arbitration
Act (California Code of Civil Procedure Sections 1280, et
seq.). The parties waive their right to a jury or court trial.
The arbitration shall be conducted in Sacramento, California
by a single, neutral arbitrator who is licensed to practice
law. These arbitration proceedings are initiated by the
complaining party serving a written demand for arbitration
upon the other party. The written demand shall contain a
detailed statement of the matter and facts supporting the
demand and include copies of all related documents. On receipt
of a timely demand for arbitration, Foundation shall provide
Provider with a list of three neutral arbitrators from which
Provider shall select its choice of arbitrator for the
arbitration. Each party shall have the right to take the
deposition of one individual and any expert witness designated
by another party. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any
experts, and copies of all exhibits to be used at the
arbitration. Arbitration must be initiated within six months
after the alleged controversy or claim occurred by submitting
a written demand to the other party. The failure to initiate
arbitration within that period constitutes an absolute bar to
the institution of any proceedings.
The decision of the arbitrator shall be final and binding
upon the parties. The arbitrator shall have no authority to
make materials errors of law or to award punitive damages or
to add to, modify or refuse to enforce any agreements between
the parties. The arbitrator shall make findings of fact and
conclusions of law and shall have no authority to make any
award which could not have been made by a court of law. The
prevailing party, or substantially prevailing party's costs of
arbitration, are to be borne by the other party, including
reasonable attorneys' fees.
13
<PAGE>
6.6 Entire Agreement. This Agreement supersedes any and all other
-----------------
agreements, either oral or written, between the parties with
respect to the subject matter hereof, and no other agreement,
statement or promise relating to the subject matter of this
Agreement shall be valid or binding.
6.7 Governing Law. This Agreement shall be governed by and
--------------
construed and enforced in accordance with the laws of the
State, except to the extent such laws conflict with or are
preempted by any federal law, in which case such federal law
shall govern. Federal law shall also govern with respect to
Benefit Programs of federal Benefit Programs.
6.8 Indemnification of Parties. Foundation, any entity contracting
---------------------------
with Foundation (or any of their respective agents or
employees), and Provider are each responsible for their own
acts or omissions, and are not liable for the acts or
omissions of, or the costs of defending, others. Any provision
to the contrary in a contract with providers is void and
unenforceable. Nothing in this section shall preclude a
finding of liability on the part of Foundation, any entity
contracting with Foundation (or any of their respective agents
or employees), or Provider, based on doctrines of equitable
indemnity, comparative negligence, contribution, or other
statutory or common law bases for liability.
6.9 Non-Exclusive Contract. This Agreement is non-exclusive and
-----------------------
shall not prohibit Provider or Foundation from entering into
agreements with other health care providers or purchasers of
health care services.
6.10 No Notice to Beneficiaries. Provider and Foundation reserve
--------------------------
the right to amend this Agreement and any of its provisions,
to waive any rights granted to either party hereunder, and to
terminate this Agreement without notice to or consent of any
Beneficiary.
6.11 No Third Party Beneficiary. Nothing in this Agreement is
---------------------------
intended to, or shall be deemed or construed to create any
rights or remedies in any third party, including a
Beneficiary. Nothing contained herein shall operate (or be
construed to operate) in any manner whatsoever to increase the
rights of any such Beneficiary or the duties or
responsibilities of Provider or Foundation with respect to
such Beneficiaries.
6.12 Notice. Any notice required or desired to be given under this
-------
Agreement shall be in writing and shall be sent by certified
mail, return receipt requested, postage prepaid, or overnight
courier, or facsimile, addressed as follows:
Foundation: 3400 Data Drive
Rancho Cordova, California 95670
Attention: Senior Vice President,
Provider Development
Facsimile number: 916-631-5152
Provider:
=============================================
---------------------------------------------
Facsimile number: ____________________________
Notices given hereunder shall be deemed given upon documented
receipt. The addresses to which notices are to be sent may be
changed by written notice given in accordance with this
Section.
14
<PAGE>
6.13 Regulation. Foundation is subject to the requirements of
-----------
various local, State, and federal laws, rules and regulations.
Any provision required to be in this Agreement by any of the
above shall bind Provider and Foundation whether or not
provided herein.
6.14 Severability. If any provision of this Agreement is rendered
-------------
invalid or unenforceable by any local, State, or federal law,
rule or regulation, or declared null and void by any court of
competent jurisdiction, the remainder of this Agreement shall
remain in full force and effect.
6.15 Status as Independent Entities. None of the provisions of this
-------------------------------
Agreement is intended to create or shall be deemed or
construed to create any relationship between Provider and
Foundation other than that of independent entities contracting
with each other solely for the purpose of effecting the
provisions of this Agreement. Neither Provider nor Foundation,
nor any of their respective agents, employees or
representatives, shall be construed to be the agent, employee
or representative of the other.
6.16 Addenda. Each Addendum to this Agreement is made a part of
-------
this Agreement as though set forth fully herein. Any provision
of an Addendum that is in conflict with any provision of this
Agreement shall take precedence and supersede the conflicting
provision of this Agreement.
6.17 Regulatory Approval. If Foundation has not been licensed to
--------------------
provide, or provide services in connection with, a particular
Benefit Program in a particular State, or has not received all
required regulatory approvals for use of this Agreement with
respect to a particular Benefit Program in such State prior to
the execution of this Agreement, this Agreement shall be
deemed to be a binding letter of intent with respect to such
Benefit Program in that State. In such event, this Agreement
shall become effective with respect to any such Benefit
Program in that State on the date that the required licensure
and regulatory approvals are obtained. If Foundation does not
obtain such licensure or regulatory approvals after due
diligence, Foundation shall notify Provider and both parties
shall be released from any liability under this Agreement with
respect to the Benefit Program in question in the applicable
State; provided however, that if such licensure or regulatory
approval is conditioned upon amendment of this Agreement, then
this Agreement shall be amended automatically pursuant to
Section 6.1 hereof.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective on
the first day of the month after Foundation has executed this Agreement.
Option Care, Inc. Foundation Health
- ------------------------------------ -------------------------------------
Signature Signature
- ------------------------------------ -------------------------------------
Title Title
- ------------------------------------ -------------------------------------
Date Date
- ------------------------------------ -------------------------------------
- ------------------------------------
Federal Tax Identification Number
<TABLE>
<CAPTION>
Provider's Facilities included in this Agreement:
====================================================================================================================================
JCAHO
Facility Name, State Federal Tax Medicare Medi-Cal or other
Address, Telephone and Type of License Identification Provider Provider Accrediting
Facsimile and Phone Facility Number Number Number Number Body
<S> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
Provider's Facilities excluded from this Agreement:
====================================================================================================================================
JCAHO
Facility Name, State Federal Tax Medicare Medi-Cal or other
Address, Telephone and Type of License Identification Provider Provider Accrediting
Facsimile and Phone Facility Number Number Number Number Body
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
</TABLE>
16
<PAGE>
Addendum A
ADDENDUM A
AFFILIATES, BENEFIT PROGRAMS AND CREDENTIALS APPLICATION
I. AFFILIATES AND BENEFIT PROGRAMS
The Affiliates who are parties to this Agreement and whose Benefit Programs are
included within and covered by this Agreement, are indicated by the typewritten
mark "X" below. This Agreement applies only to Affiliates and Benefit Programs
where such check mark appears in either the "FEE-FOR-SERVICE" or "CAP" box, and
may be amended from time to time as specified in Section 2.16 of the Agreement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FEE-FOR-
AFFILIATE and Benefit Programs ADDENDUM SERVICE CAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foundation Health, a California Health Plan
- ------------------------------------------------------------------------------------------------------------------
HMO (Standard) B X
- ------------------------------------------------------------------------------------------------------------------
Medi-Cal D X
- ------------------------------------------------------------------------------------------------------------------
Medicare Risk C X
- ------------------------------------------------------------------------------------------------------------------
Medicare Supplement and Medicare Select E X
- ------------------------------------------------------------------------------------------------------------------
Point of Service B X
- ------------------------------------------------------------------------------------------------------------------
Supplemental Medical E X
- ------------------------------------------------------------------------------------------------------------------
Occupationally Ill/Injured or Workers' H X
Compensation
- ------------------------------------------------------------------------------------------------------------------
Foundation Health National Life Insurance Company/
California Compensation Insurance Company
- ------------------------------------------------------------------------------------------------------------------
Medicare Supplement E X
- ------------------------------------------------------------------------------------------------------------------
Point of Service G X
- ------------------------------------------------------------------------------------------------------------------
Preferred Provider Organization G X
- ------------------------------------------------------------------------------------------------------------------
Supplemental Medical E
- ------------------------------------------------------------------------------------------------------------------
Occupationally Ill/Injured or Workers' H X
Compensation
- ------------------------------------------------------------------------------------------------------------------
Foundation Health Federal Services
- ------------------------------------------------------------------------------------------------------------------
CHAMPUS F X
- ------------------------------------------------------------------------------------------------------------------
Other Government F X
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
II. CREDENTIALS APPLICATION.
------------------------
The Foundation Provider Credentials Application is included herein as
Exhibit 1 to this Addendum A. Provider shall be responsible for completing the
Credentials Application in its entirety for itself and/or every Facility
rendering Contracted Services under this Agreement, unless Provider's
Credentials Application meets Foundation's requirements.
17
<PAGE>
Addendum A, Exhibit 1
EXHIBIT 1 TO ADDENDUM A
CREDENTIALS APPLICATION
(SEE ATTACHMENT)
18
<PAGE>
Addendum B
ADDENDUM B
TO FACILITY PROVIDER AGREEMENT
HMO AND POINT OF SERVICE BENEFIT PROGRAMS
Provider understands and agrees that the obligations of Foundation set forth in
this Addendum are the obligations Foundation Health, a California Health Plan,
an Affiliate of Foundation Health Corporation ("FHC"), and not the obligations
of FHC or any other Affiliate of FHC.
A. STANDARD HMO BENEFIT PROGRAMS
-----------------------------
1. Fee-For-Service Contracted Services. Provider shall render
------------------------------------
Contracted Services to Beneficiaries of Foundation's Benefit
Programs covered under this Addendum on a fee-for-service or
per diem basis. As compensation for providing such Contracted
Services, Provider shall be paid the rates set forth in
Exhibit 1 of this Addendum. Such compensation shall be paid
within 30 working days of Foundation's receipt of a complete
and accurate claim for Contracted Services rendered to a
Beneficiary.
[OPTIONAL]
2. Capitation; Provider Risk Services.
-----------------------------------
2.1 Compensation to Provider for Provider Risk Services.
----------------------------------------------------
Provider shall render Provider Risk Services for each
Beneficiary linked to such Capitated Medical
Group/IPA(s) as are delineated on Exhibit 2 of this
Addendum. Provider Risk Services and Foundation Risk
Services are set forth on Exhibit 4 of this Addendum.
As compensation for providing Provider Risk Services,
Foundation shall pay Provider the Capitation
Compensation as set forth in Exhibit 2 of this
Addendum for each Beneficiary eligible to receive
such services from Provider during a particular
month. Notwithstanding any provision in this
paragraph to the contrary, only one Capitation
Compensation shall be paid by Foundation for both a
mother and newborn child during the first 31 days
following the baby's birth. Such payment shall be
made by Foundation on or before the 15th day of such
month. Foundation's payment shall be subject to the
provisions of Sections 2.15 and 3.4 of the Agreement.
2.2 Compensation to Other Providers of Provider Risk
------------------------------------------------
Services. Provider shall compensate all other
---------
providers of Provider Risk Services rendered to
assigned Beneficiaries not available at Provider's
facilities. In the event that Provider does not
process and pay eligible claims submitted by other
providers for Provider Risk Services not rendered by
Provider within the applicable time limits as
specified above, Foundation may pay such claims at
billed charges or Foundation contract rate unless
Provider indicates subcontract terms and deduct the
amounts paid from Provider's monthly Capitation
Compensation.
2.3 Access to Financial Records. In that Provider will be
----------------------------
compensated on other than a fee-for-service or per
diem basis and is responsible for paying claims of
other providers as set forth in Section 2.2 above,
Foundation also shall have access to all financial
records relating to the financial condition of
Provider. Provider agrees to submit such reports and
financial information as is necessary for Foundation
to comply with regulatory requirements to monitor
capitated providers' financial and administrative
viability of capitated providers.
19
<PAGE>
2.4 Provider Risk Services Threshold. Provider shall also
---------------------------------
render Contracted Services on a fee-for-service or
per diem basis to Beneficiaries whose utilization of
Provider Risk Services has exceeded $100,000 for the
calendar year. For purposes of calculating the
$100,000 threshold, the following shall apply when
Provider Risk Services are actually provided by:
(a) Provider, the compensation schedule set
forth on Exhibit 1 of this Addendum
shall be utilized to compute such
calculation;
(b) another provider who is subcontracted to
Provider, the subcontract rates shall
be utilized to compute such calculation;
(c) a Participating Provider who is not
subcontracted by Provider, Foundation shall
pay such Participating Provider based upon
Foundation's contract rate with such
Participating Provider, and deduct that
payment amount from Provider's subsequent
capitation payment; or
(d) the actual charges paid by Provider when
none of the above applies.
Provider shall be responsible for identifying such
cases to Foundation, and Foundation shall compensate
Provider for such services exceeding $100,000 in a
calendar year, utilizing the rates set forth on
Exhibit 1 of this Addendum.
2.5 Provider's Service Area. Provider's Service Area as
------------------------
described in Exhibit 2 to this Addendum denotes the
geographic area within which Provider is responsible
for providing and/or paying for all Provider Risk
Services which are rendered on an Emergency basis to
Provider's assigned Beneficiaries. In addition,
Provider is responsible for paying for all Provider
Risk Services rendered by any provider anywhere on a
non-Emergency basis to Provider's assigned
Beneficiaries, unless such services are Excluded
Services.
2.6 Encounter Data. Provider shall provide Foundation
----------------
with all encounter information as required under
Section 2.15 of this Agreement.
2.7 Qualification Process for Capitation Compensation.
--------------------------------------------------
Foundation shall have the right at its option to
review and assess Provider's financial ability and
administrative capacity to perform its obligations
hereunder, including the managed care and other
functions delegated to Provider by Foundation, prior
to implementing Capitation Compensation to Provider.
Such review and assessment may include, but is not
limited to, Provider's general operations and
administration, claims processing and adjudication,
information systems capability and capacity, and
financial viability and reporting, Utilization
Management Program and Quality Management Program. If
Foundation determines that Provider does not meet
Foundation's minimum requirements for Capitation
Compensation, then the implementation of such
prospective payment methodology shall be deferred
until Provider remedies the deficiency(ies). Provider
shall in the meantime be compensated for Contracte
Services on a fee-for-service or per diem basis in
accordance with the rates set forth on Exhibit 1 of
this Addendum. Foundation, at its sole discretion,
may implement Capitation Compensation on a
provisional basis subject to appropriate monitoring
and evaluation of Provider to assess ongoing
viability and capacity.
3. Contracted Services Reciprocity. When a Beneficiary
-----------------------------------
not assigned to Provider under a Capitation Compensation
arrangement receives Contracted Services from Provider, then
Provider shall accept compensation based upon the rates set
forth in Exhibit 1 of this Addendum.
20
<PAGE>
4. Report of Reinsurance Claims. Provider shall report
------------------------------
potential reinsurance claims in accordance with Foundation's
reinsurance guidelines. Foundation shall provide Provider with
such guidelines, from time to time.
B. POINT OF SERVICE BENEFIT PROGRAMS
---------------------------------
1. Benefit Program Design. Under a Point of Service Benefit
-----------------------
Program, Beneficiaries may elect, at the time of obtaining
each Covered Medical Service, to utilize either: (1) HMO
coverage through their selected or assigned PCP; (2) other
indemnity coverage through either nonparticipating providers,
or Participating Providers where other Benefit Program
Requirements are not met; or (3) optional Preferred Provider
Organization ("PPO") coverage by self-referring to PPO
Participating Providers.
2. Compensation Method.
--------------------
2.1 Fee-for-Service. Provider shall render
----------------
Contracted Services to Beneficiary of Foundation's
Benefit Programs covered under this Addendum on a
fee-for-service or per diem basis. As compensation
for rendering such Contracted Services, Provider
shall be paid the rates set forth in Exhibit 1 to
this Addendum. Such compensation shall be paid within
30 working days of receipt by Foundation of a
complete and accurate claim for Contracted Services
rendered to a Beneficiary.
[OPTIONAL]
2.2 Capitation; Provider Risk Services. Provider
-----------------------------------
shall render the Provider Risk Services set forth on
Exhibit 4 to this Addendum to Beneficiaries of a
Point of Service Benefit Program and who are linked
to such Capitated Medical Group/IPA(s) as are
delineated on Exhibit 3 of this Addendum. As
compensation for providing such services, Provider
shall be paid the applicable Capitation Compensation
provided for on Exhibit 3 of this Addendum, less a
30% withhold. Notwithstanding any provision in this
paragraph to the contrary, only one Capitation
Compensation shall be paid by Foundation for both a
mother and newborn child during the first 31 days
following the baby's birth. The 30% withhold shall be
placed in an escrow account ("Point of Service
Reserve Fund"). Foundation or its indemnity
Affiliate, as required by law, shall reimburse all
non-network hospitals and optional PPO Participating
Provider hospitals for inpatient care received by
linked Beneficiaries who have selected the indemnity
or PPO options of the Point of Service Benefit
Program for the provision of Covered Medical Services
at the time of service ("Indemnity Loss"). If such
total reimbursement for non-network hospitals and
optional PPO Participating Provider hospitals is less
than the amount withheld in Provider's Point of
Service Reserve Fund after an annual (contract year)
reconciliation, then Provider shall be paid the
difference between the total amount withheld in the
Point of Service Reserve Fund and the amount paid by
Foundation for the Indemnity Loss. To allow adequate
time for claims runout, Foundation shall make such
payments required in this Section within 220 days
after the end of each contract year. Foundation shall
pay Provider the Capitation Compensation for each
Beneficiary entitled to receive such services from
Provider during a particular month on or before the
15th day of such month. Foundation's payment shall be
subject to the provisions of Sections 2.15 and 3.4 of
the Agreement.
3. Other Performance Obligations of Provider. Provider shall
------------------------------------------
comply with Sections A(2.2), A(2.3), A(2.4), A(2.5), A(2.6),
A(2.7), A(3) and A(4) contained above in this Addendum B, with
respect to the Point of Service Benefit Programs.
21
<PAGE>
Addendum B, Exhibit 1
EXHIBIT 1 TO ADDENDUM B
FEE-FOR-SERVICE COMPENSATION SCHEDULE
HMO/POS BENEFIT PROGRAMS
ASSIGNED AND UNASSIGNED BENEFICIARIES SERVICES
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 60% of billed charges or the rate
schedule in Attachment A.
22
<PAGE>
Addendum C
ADDENDUM C
TO FACILITY PROVIDER AGREEMENT
MEDICARE RISK PROGRAMS
Provider understands and agrees that the obligations of Foundation set forth in
this Addendum shall be the obligations of Foundation Health, a California Health
Plan, an Affiliate of Foundation Health Corporation, ("FHC"), and not the
obligations of FHC or any other Affiliate of FHC. All references to
"Beneficiaries" in this Addendum are deemed to refer to "Medicare
Beneficiaries".
A. DEFINITIONS
-----------
For purposes of this Addendum, the definitions included herein shall have the
meaning required by law to applicable Medicare Risk Programs.
1. Emergency Services. Covered Medical Services which are
--------------------
needed immediately because of injury or sudden illness such
that not receiving immediate care would risk permanent damage
to the health of the Beneficiary.
2. Senior Value Member. A Medicare beneficiary entitled to
--------------------
receive coverage for certain health care services under the
terms of the Foundation Health Senior Value Combined Evidence
of Coverage, Member Contract and Disclosure Form who has
elected to enroll and whose enrollment in Foundation Health
Senior Value has been confirmed by the Health Care Financing
Administration ("HCFA").
3. In-Area-Out-of-Plan Emergency Care. Emergency services
-----------------------------------
provided for Medicare Risk Beneficiaries which are performed
by an entity other than Provider within 30 miles of Provider's
Facility(ies).
4. Medicare Risk Capitated Medical Group/IPA. A Capitated
------------------------------------------
Medical Group/IPA associated with Provider with whom
Foundation contracts on a capitated compensation basis under
the Medicare Risk Program to provide Capitated Group Risk
Services to the Senior Value Members assigned to both Provider
and Medicare Risk Capitated Medical Group/IPA.
5. Medicare Risk Program. A program to provide services to
----------------------
Medicare Beneficiaries under a contract with HCFA,
authorized by Section 114 of the U.S. Tax Equity and Fiscal
Responsibility Act of 1982.
6. Medicare Risk Service Area. The area approved by HCFA and the
---------------------------
State regulatory agency as being the area in which Foundation
may market and enroll Beneficiaries. At any given time during
the term of this Agreement, the Medicare Risk Service Area
consists of the list of zip codes currently approved by HCFA
and/or the State regulatory agency as the Medicare Risk
service area. This is not necessarily the area for which
Provider shall be responsible for "in-area" care.
7. Out-of-Area Emergency Care. Emergency services performed more
---------------------------
than 30 miles from Provider's Facility(ies).
8. Primary Care Physician (PCP). The physician selected by or
-----------------------------
assigned to a Medicare Risk Beneficiary to provide primary
care services and to serve as a coordinator to manage
utilization and quality of other medical services. Only
physicians who practice as general practitioners or
23
<PAGE>
who practice in and are Board eligible or certified in the
specialties of family practice, geriatrics, pediatrics (for
Medicare eligible infants and children only) or internal
medicine, and who are able to directly provide a comprehensive
range of primary care services, shall be eligible for listing
as a Medicare Risk PCP.
9. Provider Service Area. The geographic area within the zip
----------------------
codes as defined by Exhibit 2 this Addendum.
10. Senior Value Combined Evidence of Coverage, Member Contract
-----------------------------------------------------------
and Disclosure Form. A contract, revised annually, between a
--------------------
Senior Value Member and Foundation under which a Senior Value
Member is entitled to receive coverage for certain hospital,
medical and other health services. Foundation shall notify
Provider immediately of any material modifications or
amendments to the contract which would reasonably require
renegotiation of the financial provisions of this Agreement.
11. Urgently Needed Care.
---------------------
(a) In-Area Urgently Needed Care. Non-Emergency, in-area
-----------------------------
Covered Medical Services obtained to treat a
condition where the condition or other circumstances
are such that obtaining a future appointment through
standard procedures would result in severe pain or
might reasonably be judged by the Beneficiary to risk
a serious deterioration of the Beneficiary's health.
(b) Out-of-Area Urgently Needed Care. Non-Emergency
---------------------------------
Covered Medical Services obtained to treat an
unforeseen condition while a Beneficiary is
temporarily outside of the Medicare Risk Service Area
where the condition is such that waiting to return to
the service area would risk a serious deterioration
of the Beneficiary's health.
B. MEDICARE RISK BENEFIT PROGRAMS
------------------------------
1. Provider Obligations. Provider agrees to render Contracted
---------------------
Services or Provider Risk Services to Beneficiaries eligible
for coverage under Title XVIII of the Social Security Act, as
amended, (otherwise known as Medicare), in accordance with the
terms and conditions of Foundation's Medicare Risk Programs.
Foundation shall provide Provider with the Benefit Program
Requirements of such Benefit Programs not set forth in this
Addendum. Such Benefit Program Requirements include the
provisions of the applicable Senior Value Combined Evidence of
Coverage, Member Contract and Disclosure Form, operational
policies and procedures, Utilization Management Program and
Quality Management Program requirements with which Provider
shall comply in rendering Contracted Services or Provider Risk
Services, as applicable, under this Addendum. Provider
acknowledges that the determination of Provider Risk Services
and all other services shall be governed by coverage
guidelines established by Medicare, and the Medicare Risk
Benefit Program and Benefit Program Requirements, with
Foundation being solely responsible for final coverage
determinations, subject to the applicable appeal procedures.
2. Continuation of Services After Termination. After
---------------------------------------------
termination of this Agreement, Foundation shall be liable for
payment of Covered Medical Services rendered by Provider
(other than for Copayments) to a Senior Value Member who
retains eligibility or is under the care of Provider at the
time of termination, until the services being rendered to the
Senior Value Member by Provider are completed, unless
Foundation makes reasonable and medically appropriate
provision for the assumption of such services by another
Participating Provider. Foundation shall reimburse Provider
for all services rendered pursuant to this Section at Medicare
allowable assignment rates and Provider shall accept such
payment, together with any authorized
24
<PAGE>
Copayment, as payment in full. Notwithstanding the above or
any other provisions to the contrary, Provider agrees that, in
the event Foundation ceases operations for any reason,
including insolvency, Provider shall provide Contracted
Services and shall not bill, charge, collect or receive any
form of payment other than an authorized Copayment, nor shall
Provider collect a deposit from any Senior Value Member or
persons acting on their behalf, nor have any recourse against
a Senior Value Member or persons acting on their behalf, for
Contracted Services provided after Foundation ceases
operations. This continuation of Contracted Services
obligation shall be for the period for which member premium
has been paid, not to exceed a period of 30 days, except for
those Senior Value Members who are hospitalized on an
inpatient basis. Provider shall continue to arrange for
Contracted Services to those Senior Value Members who are
hospitalized on an inpatient basis at the time this Agreement
is no longer in effect until the Senior Value Member is
discharged from the hospital. No amendment or modification of
the provisions of this Section B.(2) shall be allowed without
the prior written approval of the Secretary of the U.S.
Department of Health & Human Services, or the Secretary's
designee.
3. Reconciliation of Eligibility. Notwithstanding the
-------------------------------
provisions contained in Section 3.4 of the Agreement,
Foundation shall assume financial responsibility for care
provided to an ineligible person due to retroactivity or
otherwise erroneous, incomplete or late Eligibility List data
Such care shall be provided at the lesser of the amount which
the Medicare program would have paid plus any applicable
deductible or copayment, or the compensation contained in
Exhibit 1 to Addendum B. However, Foundation shall only be
responsible for such payment in the event that no other payor,
including Medicare, Medi-Cal, or other HMO or insurance plan,
or other individual is responsible for such care, and when
Provider has used Provider's best efforts to verify and
confirm eligibility from Foundation for any patient whose
eligibility is or should have been in question, or who
required institutional or other high cost care.
4. Prohibition on Removal of Plan Assigned Members. Neither
--------------------------------------------------
Provider, Provider's employees nor Provider's subcontractors
under the Agreement shall request, demand, require or
otherwise seek, directly or indirectly, the termination from
the Medicare Risk Benefit Plan of any Beneficiary based upon
the Beneficiary's need for or utilization of medically
required services, or in order to gain financially or
otherwise from such termination. Provider may request that
Foundation terminate coverage of a Beneficiary for reasons of
fraud, disruption of medical services, or failure to follow a
physician's orders, or for any of the reasons for mandator
disenrollment specified by HCFA. However, Provider agrees that
Foundation shall have sole and ultimate authority to terminate
a Medicare Risk Beneficiary's coverage, and Provider
understands that any requested termination is subject to prior
approval by HCFA.
5. Operations Policies and Procedures. Provider shall have or
------------------------------------
develop written administrative and operational policies and
procedures to administer the Medicare Risk Program.
6. Member Services. Provider shall cooperate fully with
----------------
Foundation in the investigation and resolution of complaints
by Senior Value Members regarding Provider, the services
Provider renders or that are provided by subcontractors, in
compliance with HCFA, California Department of Corporations
and California Department of Health Services requirements.
7. Reports and Administration. Foundation shall have sole
responsibility for filing reports, obtaining approval
from, and complying with the applicable laws and
regulations of federal, State and local governmental
agencies having jurisdiction over Foundation. Provider
shall cooperate in providing Foundation with such information
and assistance regarding Senior Value Members and Provider's
performance under this Agreement and Addendum C as
Foundation may reasonably require in filing such reports.
Foundation shall perform all the necessary administrative,
accounting, enrollment and other functions appropriate for
the marketing and administration of its Senior Value Benefit
Programs and this Agreement. Any material change
25
<PAGE>
in Foundation's marketing and administrative policies and
procedures affecting Provider shall be promptly communicated
by Foundation.
C. COMPENSATION
------------
1. Fee-For-Service Contracted Services. Provider shall render
------------------------------------
Contracted Services which are not Provider Risk Services to
Beneficiaries of Foundation's Benefit Programs covered under
this Addendum on a fee-for-service, per diem or DRG basis. As
compensation for providing such Contracted Services, Provider
shall be paid the rates set forth on Exhibit 1 of this
Addendum. Such compensation shall be paid within 27 working
days of receipt by Foundation of a complete and accurate claim
for Covered Services rendered to a Beneficiary.
2. Capitation; Provider Risk Services. Provider shall render
-------------------------------------
Provider Risk Services for each Beneficiary linked to such
Capitated Medicare Risk Medical Group/IPA(s) as are delineated
on Exhibit 2 of this Addendum. Provider/Facility Risk
Services, Capitated Group Risk Services and Foundation Risk
Services are set forth on Exhibit 3 of this Addendum. As
compensation for rendering Provider Risk Services, Foundation
shall pay Provider the Capitation Compensation as set forth in
Exhibit 2 of this Addendum for each Beneficiary eligible to
receive such services from Provider during a particular month.
Notwithstanding any provision in this paragraph to the
contrary, only one Capitation Compensation shall be paid by
Foundation for both a mother and newborn child during the
first 30 days following the baby's birth. Such Capitation
Compensation shall be paid by Foundation on or before the 15th
day of such month. Foundation's payment shall be subject to
the provisions of Sections 2.15 and 3.4 of the Agreement.
3. Compensation to Other Providers of Provider Risk Services.
Provider shall compensate all other providers of Provider
Risk Services for services provided to assigned
Beneficiaries. Provider shall process and pay or deny all
"clean" claims submitted by other providers related to
Foundation Medicare Risk Beneficiaries, for Provider Risk
Services not rendered by Provider, within the time limits
specified by HCFA, the State regulatory agency, and State
Department of Health Services. Current HCFA guidelines
specify that "clean" claims be paid or denied within 27 days
of receipt by the plan or its contracted responsible payo
(Provider in this case), and within 60 days for claims
requiring significant medical review. Claims that are denied,
either fully or partially, are subject to appeal to HCFA by
members and/or the provider whose claim is denied. Provider
shall either follow and use the HCFA guidelines and model
denial letters when denying claims or it shall submit
[no later than 20 days of receipt for clean claims and 55 days
for other claims] recommendations to deny a claim to
Foundation for review, determination of coverage and, if
appropriate, preparation of HCFA approved formal denial letter
to the provider or member. If the latter choice is made by
Provider, Foundation shall consult with Provider prior to
overruling a recommendation to deny a claim made by Provider.
Clean claims must be paid by Provider at reasonable rates for
the service in question, or, if negotiations fail within a
reasonable period of time, at least at the rate that the
Medicare program would have paid on a fee-for-service, per
diem or DRG basis, plus Medicare deductible and copayment,
where applicable. Provider shall maintain adequate records and
procedures to record dates of receipt, processing, and payment
of claims from non-contracted providers. Foundation shall
assist Provider in obtaining agreement from such
non-contracted providers to accept payment rates which do not
exceed the Medicare allowable rate. In the event that Provider
does not process and pay eligible claims submitted by other
providers for Provider Risk Services not rendered by Provider
within the applicable time limits as specified above,
Foundation reserves the right to pay such claims and deduct
the amount paid from Provider's monthly Capitation
Compensation.
4. Access to Financial Records. In that Provider will be
----------------------------
compensated on other than a fee-for-service basis and is
responsible for paying claims of other providers as set forth
in Section 3 above, Foundation also shall have access to all
financial records relating to the financial
26
<PAGE>
condition of Provider. Provider agrees to submit reports and
financial information as is necessary for Foundation to comply
with regulatory requirements to monitor the financial and
administrative viability of capitated providers.
5. Provider's Service Area. Provider's Service Area as described
------------------------
in Section A above denotes the geographic area within which
Provider is responsible for providing and/or paying for all
Provider Risk Services rendered on an Emergency basis to
Beneficiaries assigned to Provider. In addition, Provider is
responsible for paying for all Provider Risk Services rendered
by any provider anywhere on a non-Emergency basis to
Provider's assigned Beneficiaries, unless such services are
Excluded Services.
6. Encounter Data. Provider shall provide Foundation with all
----------------
encounter information as required under Section 2.15 of this
Agreement.
7. Shared Risk Pool. Foundation shall withhold 15% of Provider's
-----------------
capitation compensation each month and deposit the entire
amount into a Shared Risk Pool. As an incentive to maintain
inpatient utilization within reasonable limits, Provider,
Medicare Risk Capitated Medical Group/IPA and Foundation shall
participate in the Shared Risk Pool Program as set
forth in Section 7.1 below.
7.1 Shared Risk Pool Program. Distribution of the Shared
-------------------------
Risk Pool shall be made to Provider and the Medicare
Risk Capitated Medical Group/IPA(s) based upon the
measurement of actual hospital utilization as
measured each contract year, and in accordance with
the Shared Risk Pool Matrix contained in Exhibit 4 to
this Addendum. For purposes of this measurement,
"hospital days" shall include the following: all
acute inpatient (in and out-of-area) days, all
out-patient surgery days, all skilled nursing
facility (SNF) days and any other subacute days. Each
outpatient surgical episode shall count as one
"hospital day", each SNF day as 0.25 day and other
subacute days as 0.50 day. All days shall be counted
in the month of a Beneficiary's discharge.
Distribution of the Shared Risk Pool for each
contract year shall occur within 120 days following
the end of such contract year. Claims/utilization
applicable to the year in question that are not
received by Foundation within 90 days of the end of
such year shall be carried forward into the
utilization results for the subsequent year. The
amount of the incentive to be paid is determined on
the basis of experience for the entire contract year,
including claims for out-of-plan services received
within 90 days of the end of the contract year.
8. Foundation Medical Risk Fund. Foundation shall establish a
-----------------------------
Medical Risk Fund into which it shall deposit the entire
Medical Risk Fund allocation each month. Foundation shall pay
all Covered Medicare Risk Benefit Program services as
Foundation's responsibility in Exhibit 3 to this Addendum,
"Division of Financial Responsibility" and related
administrative fees and costs from the Foundation Medical Risk
Fund. Any surplus or deficit in this Foundation Medical Risk
Fund shall remain with and be the responsibility of
Foundation.
9. Contracted Services Reciprocity. When a Beneficiary not
----------------------------------
assigned to Provider under a Capitated Compensation method
receives services from Provider, then Provider shall accept
compensation based upon the rates set forth in Exhibit 1 of
this Addendum.
27
<PAGE>
Addendum C, Exhibit 1
EXHIBIT 1 TO ADDENDUM C
FEE-FOR-SERVICE COMPENSATION SCHEDULE
MEDICARE RISK BENEFIT PROGRAMS
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 85% of the Medicare allowable fee
schedule, 60% of billed charges, or the rate schedule in Attachment A.
28
<PAGE>
Addendum D
ADDENDUM D
TO FACILITY PROVIDER AGREEMENT
MEDI-CAL PROGRAM
Provider understands and agrees that the obligations of Foundation set forth in
this Addendum shall be the obligations of Foundation Health, a California Health
Plan, an Affiliate of Foundation Health Corporation ("FHC"), and not the
obligations of FHC or any other Affiliate of FHC. Foundation has entered into a
prepaid health plan agreement ("PHP Agreement"), with the State Department of
Health Services ("DHS") under which Foundation has agreed to provide medical
services covered under California's Medi-Cal program, including Provider Risk
Services, to Medi-Cal Beneficiaries enrolled in or otherwise assigned to
Foundation, on a prepaid basis. Pursuant to the requirements of the Medi-Cal
Program, this Agreement and any subcontracts as requested, must be filed with
DHS. All references to "Beneficiaries" in this Addendum are deemed to refer to
"Medi-Cal Beneficiaries".
A. PROVIDER RISK SERVICES
----------------------
1. Provider Risk Services. Provider shall render the Provider
-----------------------
Risk Services set forth in Exhibit 3 to this Addendum to
Beneficiaries eligible for coverage and enrolled in Foundation
under the PHP Agreement, who select or are assigned to
Provider, or who select or are assigned to a Capitated Medical
Group/IPA listed on Exhibit 2 of this Addendum, as of the end
of a particular month. Provider shall provide such services in
accordance with this Agreement, this Addendum and the
applicable Benefit Program Requirements. Foundation shall
provide Provider with Benefit Program Requirements not set
forth in this Addendum. Such Benefit Program Requirements may
include Utilization Management Program and Quality Management
Program requirements.
B. COMPENSATION PROVISIONS
-----------------------
1. Fee-For-Service Contracted Services. Provider shall render
------------------------------------
Contracted Services which are not Provider Risk Services to
Beneficiaries of Foundation's Benefit Programs covered under
this Addendum on a fee-for-service or per diem basis except
for Provider Risk Services rendered to Beneficiaries assigned
to Provider under a Capitation Compensation method. As
compensation for providing such Contracted Services, Provider
shall be paid in accordance with the rates set forth on
Exhibit 1 of this Addendum. Such compensation shall be paid
within 45 working days of receipt of a complete and accurate
claim for Covered Services rendered to a Beneficiary.
2. Provider Risk Services. Foundation shall pay Provider the
------------------------
applicable Capitation Compensation described in Exhibit 2 to
this Addendum for each Beneficiary entitled to receive
Provider Risk Services from Provider during the month to which
the Capitation Compensation applies, on or before the
_______________ (_____) day following Foundation's receipt of
payment for that month from the California Department of
Health Services. Notwithstanding any provision in this
paragraph to the contrary, only one Capitation Compensation
shall be paid by Foundation for both a mother and newborn
child during the child's month of birth and the immediately
following month. Provider shall hold harmless and not seek to
recover against the State of California or any Beneficiary in
the event Foundation fails to make any payment required
hereunder.
3. Contracted Services Reciprocity. When a Beneficiary not
assigned to Provider under a Capitated Compensation method
receives services from Provider, then Provider shall accept
compensation based upon the rates set forth in Exhibit 1
of this Addendum.
29
<PAGE>
Addendum D
C. GENERAL PROVISIONS
------------------
1. Subcontracts and Assignment. Any subcontract for the
----------------------------
provision of Contracted Services shall require that the
subcontractor make all applicable books and records available
at all reasonable times for inspection, examination or copying
by Foundation and the California Department of Health
Services, retain such books and records for a term of at least
five years from the close of the California fiscal year in
which the subcontract is in effect, and comply with the
nondiscrimination and compliance provisions set forth in
Section 6, below.
2. Disclosure of Interest. Provider shall submit to Foundation a
-----------------------
Disclosure of Interest form, attached as Exhibit 4 to this
Addendum for officers and other persons associated with
Provider as required by Welfare and Institutions Code, Section
14452 and described in Exhibit 4.
3. Beneficiary Education. Provider shall make health education
----------------------
materials and programs available to Beneficiaries on the same
basis that it makes such materials and programs available to
the general public, and shall use its best efforts to
encourage Beneficiaries to participate in such health
education programs.
4. Grievances. Provider and Foundation agree to cooperate i
-----------
resolving all grievances relating to the provision of services
to Beneficiaries. Copies of complaint forms and Foundation's
grievance procedure will be made available to Provider and all
Beneficiaries. Provider agrees to report any complaint
directly to Foundation within one business day of receipt,
whether resolved directly or not. All complaints will be
logged by Foundation, a form letter acknowledging the
complaint will be sent to the Beneficiary within 20 days of
its receipt, and a brief summary of the resolution of the
complaint will be sent to the Beneficiary within 30 days
thereafter. Provider agrees to comply with Foundation's
grievance procedure and to abide by Foundation's adjudication
process for grievances concerning Provider and Beneficiaries,
including any fair hearing procedure involving the State of
California or Foundation. Beneficiaries may request
disenrollment from the Benefit Plan or a fair hearing from the
State or Foundation.
In the event that complaints from Beneficiaries
regarding Provider Risk Services are received by Foundation,
Foundation shall forward the complaint to Provider, who shall
attempt to resolve the complaint informally. If the complaint
cannot be resolved satisfactorily within a reasonable period
of time by direct communication between Provider and the
Beneficiary, the matter will be submitted for resolution in
accordance with Foundation's grievance procedures.
5. Relationship of the Parties. Provider shall be solely
----------------------------
responsible, without interference from Foundation or its
agent, for providing Provider Risk Services to Beneficiaries,
and shall have the right to object to treating any individual
who makes onerous the relationship between Provider and
Beneficiary. In the event of a breakdown in such relationship,
Foundation shall make reasonable efforts to assign the
Beneficiary to another Participating Provider. If reassignment
is unsuccessful, a request may be filed with the State of
California to permit termination of services to such
Beneficiary. Approval from the State must be obtained before
Provider terminates services to such Beneficiary.
6. Fair Employment Requirements. During the term of
---------------------------------
this Agreement, Provider and its subcontractors shall not
unlawfully discriminate against any employee or applicant for
employment becaus of race, religious creed, color, national
origin, ancestry, physical disability, mental disability,
medical condition, marital status, age (over 40) or sex.
Provider and its subcontractors also shall ensure that the
evaluation and treatment of their employees and applicants for
employment are free of such discrimination. Provider and its
subcontractors shall comply with the provisions of the Fair
Employment & Housing Act (California Government Code, Section
12990 et seq.) and the applicable regulations promulgated
-------
thereunder (California Code of Regulations, Title 2,
Section 7285.0 et seq.). The applicable regulations of the
-------
Fair
30
<PAGE>
Employment & Housing Commission implementing Government Code,
Section 12990, set forth in Chapter 5 of Division 4 of Title 2
of the California Code of Regulations are incorporated into
this Agreement by reference and made a part hereof as if set
forth in full. Provider and its subcontractors shall give
written notice of their obligations under this clause to labor
organizations with which they have a collective bargaining or
other agreements.
7. Regulation. Foundation is subject to the requirements of
-----------
Chapter 2.2 of Division 2 of the California Health and Safety
Code, the California Welfare and Institutions Code, and
Subchapter 5.5 of Chapter 3 of Title 10 and other portions of
Title 22 of the California Code of Regulations. Provider and
Foundation agree to be bound by any provision required by any
of such laws or regulations to be in this Agreement or
Addendum, and with all other laws, regulations and contractual
obligations incumbent upon Foundation. Additionally, Provider
shall comply with all standards expressed in the PHP
Agreement, and Chapters 3 and 4 of Subdivision 1 of Division 3
of Title 22 of the California Code of Regulations. Further,
Provider agrees that this Agreement, as it applies to
Beneficiaries covered under this Addendum shall be governed by
and construed in accordance with the contractual obligations
of Foundation under the PHP Agreement, as well as with all
applicable State, federal and local laws, rules and
regulations.
8. Notice. Provider agrees, as long as it provides Contracted
-------
Services to Beneficiaries, to notify the California Department
of Health Services in the event this Agreement is amended or
terminated. Notice to the California Department of Health
Services is considered given when properly addressed and
deposited with the United States Postal Service as first class
certified mail, postage attached.
9. Reports and Information. Provider shall provide Foundation,
------------------------
within the time requested by Foundation, with all such reports
and information as Foundation may require to allow it to meet
the reporting requirements under the PHP Agreement or any
applicable law, rule or regulation.
10. Confidentiality of Information. Notwithstanding any other
---------------------------------
provision of this Agreement or Addendum to the contrary, names
of persons receiving public social services are confidential
and are to be protected from unauthorized disclosure in
accordance with Title 45, Code of Federal Regulations, Section
205.50 and Section 14100.2 of the California Welfare and
Institutions Code and the regulations adopted thereunder. For
the purposes of this Agreement, all information, records,
data, and data elements collected and maintained for or in
connection with performance under this Agreement and
pertaining to Beneficiaries shall be protected by Provider
from unauthorized disclosure. With respect to any identifiable
information concerning a Beneficiary under this Agreement that
is obtained by Provider or its subcontractors, Provider: (i)
will not use any such information for any purpose other than
carrying out the express terms of this Agreement; (ii) will
promptly transmit to Foundation all requests for disclosure of
such information, (iii) will not disclose, except as otherwise
specifically permitted by this Agreement, any such information
to any party other than Foundation without Foundation's prior
written authorization specifying that the information is
releasable under applicable law, and will, at the expiration
or termination of this Agreement, return all such information
to Foundation or maintain such information according to
written procedures provided Provider by Foundation for this
purpose. Provider shall ensure that its subcontractors comply
with the provisions of this paragraph.
11. Coordination of Benefits. Provider shall abide by and
---------------------------
comply with the requirements of Foundation's Coordination
of Benefits policy. The above notwithstanding, Provider
shall make no claim for recovery for Contracted Services
rendered to a Beneficiary when such recovery would result from
recovery from an action involving the tort liability of a
third party or casualty liability insurance, including
workers' compensation awards and uninsured motorist coverage.
Provider shall notify Foundation of cases in which an action
by the Beneficiary involving the tort
31
<PAGE>
or workers' compensation liability of a third party could
result in a recovery by the Beneficiary. Additionally,
Provider shall promptly provide: (a) all information requested
by Foundation in connection with the provision of Provider
Risk Services to a Beneficiary who may have an action for
recovery from any such third party; (b) copies of all requests
by subpoena from attorneys, insurers or Beneficiaries for
copies of bills invoices or claims for Provider Risk Services;
and (c) copies of all documents released as result of such
requests. Provider shall ensure that its subcontractors comply
with the provisions of this paragraph.
32
<PAGE>
Addendum D, Exhibit 1
EXHIBIT 1 TO ADDENDUM D
MEDI-CAL PROGRAM FEE-FOR-SERVICE COMPENSATION SCHEDULE
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 100% of the Medi-Cal allowable fee
schedule, 60% of billed charges, or the rate schedule in Attachment A.
33
<PAGE>
Addendum D, Exhibit 4
EXHIBIT 4 TO ADDENDUM D
DISCLOSURE FORM
(Required by California Welfare and Institutions Code Section 14452)
(Name of Provider)
The undersigned hereby certifies that the following information regarding:
- -------------------------------------------------------------------------------
(the "Organization") is true and correct as of the date set forth below:
Officers/Directors/General Partners:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Co-Owner(s):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Stockholders owning more than ten percent of the stock of the Organization:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Major creditors holding more than five percent of Organization's debt:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Form of Organization (Corporation, Partnership, Sole Proprietorship, Individual,
etc.):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If not already disclosed above, is Organization, either directly or indirectly
related to or affiliated with the Contracting Health Plan? Please explain:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dated: Signature: _____________________________
- --------------------------
Name: ________________________________
(Please type or print)
Title: _________________________________
(Please type or print)
34
<PAGE>
Addendum E
ADDENDUM E
TO FACILITY PROVIDER AGREEMENT
MEDICARE SUPPLEMENT, MEDICARE SELECT AND SUPPLEMENTAL MEDICAL BENEFIT
PROGRAMS
Provider understands and agrees that the obligations of Foundation hereunder are
the obligations of:
[X] Foundation Health, a California Health Plan
[X] Foundation Health National Life Insurance Company
[_] Other: __________________________________
as applicable, all of which are Affiliates of Foundation Health Corporation
("FHC"), and not the obligations of FHC or any other Affiliate of FHC.
Provider agrees to provide Contracted Services to Beneficiaries eligible for
coverage under Title XVIII of the Social Security Act, as amended, (otherwise
known as Medicare), or other Beneficiaries in accordance with the terms and
conditions of Foundation's Medicare Supplement, Medicare Select or other
Supplemental Medical Programs.
A. MEDICARE SUPPLEMENT AND MEDICARE SELECT BENEFIT PROGRAMS
1. Fee-for-Service Compensation. Under the Medicare Supplement and
-----------------------------
Medicare Select Programs, Provider shall accept Medicare assignment
from Beneficiaries for Contracted Services covered under Medicare,
and shall bill and accept payment from Medicare as payment in full
for such services, except for applicable Copayments and deductibles.
Provider shall bill Foundation, and not Beneficiaries, for such
Copayments and deductibles. For Contracted Services rendered that
are not covered under Medicare, but which are covered under the
applicable Medicare Supplement or Medicare Select Program, Provider
shall be paid the lessor of Provider's billed charges or the HMO
fee-for-service or per diem compensation rates set forth on Exhibit
1 to Addendum B, if Provider is not participating in the HMO Benefit
Program Provider shall be reimbursed 80% of Provider's billed
charges. Such compensation shall be paid subject to the billing
requirements set forth in Section 3.2 of the Agreement.
B. SUPPLEMENTAL MEDICAL BENEFIT PROGRAMS
1. Fee-for-Service Compensation. Under a Supplemental Medical
-----------------------------
Benefit Program, Provider shall render Contracted Services
covered under a Beneficiary's primary health care program, and
shall bill and accept payment from that primary health care
program as payment in full for such services, except for
applicable Copayments. Provider shall bill Foundation, and not
Beneficiaries, for such Copayments. For Contracted Services
rendered that are not covered under the Beneficiary's primary
health care program, but which are covered under the
applicable Foundation Supplemental Medical Program, Provider
shall be paid the lessor of Provider's billed charges or the
HMO fee-for-service or per diem rates set forth on Exhibit 1
to Addendum B, if Provider is not participating in the HMO
Benefit Program Provider shall be reimbursed 80% of Provider's
billed charges. Such copayments and compensation shall be paid
subject to the billing requirements set forth in Section 3.2
of the Agreement.
35
<PAGE>
Addendum E, Exhibit 1
EXHIBIT 1 TO ADDENDUM E
MEDICARE SUPPLEMENT, MEDICARE SELECT AND SUPPLEMENTAL MEDICAL BENEFIT
PROGRAMS
FEE-FOR-SERVICE COMPENSATION SCHEDULE
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 85% of the Medicare allowable fee
schedule, 60% of billed charges, or the rate schedule in Attachment A.
36
<PAGE>
Addendum F
ADDENDUM F
TO FACILITY PROVIDER AGREEMENT
CHAMPUS, CHAMPUS SUPPLEMENT AND OTHER GOVERNMENT BENEFIT
PROGRAMS
Provider understands and agrees that the obligations of Foundation hereunder are
obligations of:
[X] Foundation Health Federal Services, Inc.
[X] Foundation Health, a California Health Plan
[X] Foundation Health National Life Insurance Company
[_] Other: __________________________________
as applicable, an Affiliate of Foundation Health Corporation ("FHC"), and not
obligations of FHC or any other Affiliate of FHC. Foundation may contract with
the United States Department of Defense ("DoD"), or with other entities which
contract with DOD, to arrange for the provision of health and administrative
services to certain Beneficiaries of the Civilian Health and Medical Program of
the Uniformed Services ("CHAMPUS"), and may contract with other local, state or
federal agencies to arrange for the provision of health, administrative and
certain other services to the Beneficiaries of other local, state and/or federal
programs.
A. CHAMPUS PROGRAMS AND REGULATIONS
--------------------------------
1. CHAMPUS Programs. CHAMPUS Programs are those services and
-----------------
benefits which require the use of the services of a contracted
medical provider network and are purchased by the United
States Government through the authorized agency pursuant to
Chapter 55 of Title 10 of the United States Code and the
regulations promulgated thereunder.
2. CHAMPUS Regulations. Foundation is obligated to comply with
-------------------
all applicable CHAMPUS regulations, operations manuals,
Automated Data Processing manuals, policy manuals and the
prime contract technical proposals, and with the American
Disabilities Act. These documents provide a comprehensive
description of the applicable CHAMPUS program benefits and
operational requirements. The parties to this Agreement
acknowledge that all services rendered by Provider hereunder
are governed by such requirements. Foundation shall provide
Provider with all information regarding such requirements as
necessary for proper compliance.
3. Fee-for-Service Contracted Services. Provider shall render
------------------------------------
Contracted Services to Beneficiaries of CHAMPUS Programs,
including the TRICARE Prime and TRICARE Extra Programs,
covered under this Addendum on a fee-for-service, per diem or
DRG basis. As compensation for providing such Contracted
Services, Provider shall be paid the rates set forth in
Exhibit 1 of this Addendum. Such compensation shall be paid
within 30 working days of receipt by Foundation of a complete
and accurate claim for Contracted Services rendered to a
Beneficiary in accordance with the provisions of Section
3.2(a) and 3.2(b) of the Agreement.
4. Primary Care Manager (PCM). or Primary Care Physician is a
--------------------------
physician who is a Participating Provider and who is
responsible pursuant to the applicable CHAMPUS Benefit Program
for coordinating and managing the delivery of Covered Medical
Services to Beneficiaries selected or assigned to such
physician.
37
<PAGE>
Addendum F
5. Supplemental Care. Foundation will work with MTF Commanders
-----------------
to define Supplemental Care needs and to extend TRICARE
contract rates to the MTF's for those services.
B. CHAMPUS SUPPLEMENT PROGRAMS
---------------------------
1. Fee-for-Service Compensation. Under a CHAMPUS Supplement
----------------------------
Medical Coverage Program, Provider shall render Contracted
Services covered under the Standard CHAMPUS Benefit Program,
and shall bill and accept payment from CHAMPUS or its agent as
payment in full for such services, except for applicable
Copayments. Provider shall bill Foundation, and not
Beneficiaries, for such Copayments. For Contracted Services
rendered that are not covered under the Standard CHAMPUS
program, but which are covered under the applicable Foundation
CHAMPUS Supplement Medical Program, Provider shall be paid the
compensation rates set forth on Exhibit 1 to Addendum E. Such
Copayments and compensation shall be paid within the time and
subject to the billing requirements set forth in Section 3.2
of the Agreement.
C. OTHER GOVERNMENTAL PROGRAMS. Foundation may contract with local, State
or federal entities to provide medical delivery programs such as
universal health care programs, or other Benefit Programs for which
Foundation has contracted with a Payor to provide Participating
Provider networks, or certain Covered Medical Services. Provider shall
render Contracted Services covered under such other governmental
benefit programs, and shall bill and accept payment from Foundation or
a Payor as payment in full for such services, except for applicable
Copayments, in accordance with the HMO fee-for-service or per diem
compensation rates set forth on Exhibit 1 to Addendum B.
D. PROVIDER OBLIGATIONS
--------------------
1. Contracted Services. Provider shall provide Contracted
--------------------
Services to Beneficiaries of CHAMPUS,CHAMPUS Supplement and
other governmental programs in accordance with the terms and
conditions of those programs. Provider must be contracted and
accept assignment for both CHAMPUS and Medicare as
Participating Providers in order to render services to CHAMPUS
Beneficiaries. Foundation shall provide Provider with the
Benefit Program Requirements of the CHAMPUS, CHAMPUS
Supplement and other governmental programs not set forth in
this Addendum. Such Benefit Program Requirements may include
Utilization Management Program and Quality Management Program
requirements with which Provider shall comply in rendering
Contracted Services under this Addendum. Participating
Providers shall monitor the accessibility of care to
Enrollees, and adhere to the following standards: a). office
wait times for non-emergencies shall not exceed 30 minutes;
b). wait times for appointments for well visits shall not
exceed 4 weeks, 1 week for routine visits, nor 1 day for acute
illness. Participating Providers shall comply with the
Foundation's reasonable efforts to monitor and evaluate same.
2. Performance Provisions. Provider shall provide Contracted
-----------------------
Services to Beneficiaries of CHAMPUS, CHAMPUS Supplement and
other governmental programs in accordance with the following
terms: a). Provider will cooperate with Foundation in the
assumption and conduct of review activities, b). Provider
will allocate adequate space for the conduct of on site
review, c). Provider will photocopy and deliver to Foundation
all required information within 30 days of a request for
off-site review, d). Provider will provide Beneficiaries, in
writing, their rights and responsibilities, e). Provider will
inform Foundation within three working days if they issue a
notice that the Beneficiary no longer requires inpatient care,
f). Provider will assure that each case subject to
preadmission/preprocedure review has been reviewed and
approved by Foundation, g). Provider will agree, when they
fail to obtain certification as required, that Provider will
accept full financial liability for any admission subject to
preadmission review that
38
<PAGE>
Addendum F, Exhibit I
EXHIBIT 1 TO ADDENDUM F
- --------------------------------------------------------------------------------
Addendum F
was not reviewed and is subsequently found to be medically
unnecessary or provided at an inappropriate level, h).
Foundation will reimburse Provider under the diagnosis related
group reimbursement system for the costs of photocopying and
postage as established by OCHAMPUS, i). Foundation shall
provide detailed information on the review process and
criteria used, including financial liability incurred by
failing to obtain preauthorization.
3. Specialty Providers. Foundation requires all specialty
--------------------
Providers to request a TRICARE Prime Beneficiary to sign a
release of medical information at each site visit, to include
ancillary services associated with each visit whereby the PCM
and/or the MTF Commanders are designated as the recipients of
the medical records. Specialty Providers are required to
submit the medical records to the PCM and/or MTF Commander
within 14 days for all routine referrals.
4. Eligibility. Eligibility of all CHAMPUS and other governmental
-----------
program Beneficiaries may be verified by the designated agent
of such program (e.g., Defense Enrollment Eligibility
Reporting System). However, if the designated agent initially
indicates that a patient is a Beneficiary under the applicable
CHAMPUS or other governmental program, and that patient is
later determined to be ineligible at the time of service, then
Foundation shall deny any claims for payment due to
non-eligibility, and Provider may seek compensation from the
patient or the patient's other health insurance coverage.
5. National Disaster Medical System (NDMS). When required under a
---------------------------------------
CHAMPUS prime contract, Provider shall obtain membership in
the National Disaster Medical System (NDMS) network. Provider
shall work in good faith with Foundation, or its
representative, to become a member of NDMS as soon as possible
after notification of award of such prime contract.
6. Access Requirements. When required by a particular CHAMPUS
--------------------
program, Provider understands that the Military Treatment
Facility (MTF) is the first resource for health care for
CHAMPUS Beneficiaries, and that Beneficiaries gain access to
the civilian CHAMPUS provider network only through referral of
the Health Care Finder Program, or a Beneficiary's Primary
Care Manager ("PCM"), in coordination with the Health Care
Finder (HCF) Program. Provider agrees to provide services to
CHAMPUS Beneficiaries for non-emergency services only after
obtaining appropriate non-availability statements as required
from the MTF, Referral by Beneficiary's PCM, and prior
authorization through the HCF Program.
7. Benefit Program Phase-Out. Provider agrees to use its best
-------------------------
efforts to submit all CHAMPUS claims within 30 days from date
of service or discharge during the Phase-out period of a DoD
prime contract.
8. Active Duty Personnel. When required under a DoD prime
----------------------
Contract, Provider shall render Contracted Services to United
States military active duty personnel and seek compensation
from the appropriate service organization at the same rates as
provided in Exhibit 1 to this Addendum.
9. CHAMPUS Quality and Utilization Review Programs. Provider
-----------------------------------------------
agrees to comply with all provisions of the CHAMPUS Quality
and Utilization Review programs, including the provision of
medical records and other documentation for cases being
reviewed by Foundation or another CHAMPUS contractor in
compliance with these programs. Provider further authorizes
such CHAMPUS National Quality Monitoring Contractors to
release all review data obtained through medical record and
other document audit to Foundation.
39
<PAGE>
Addendum F, Exhibit 1
EXHIBIT 1 TO ADDENDUM F
FEE-FOR-SERVICE COMPENSATION SCHEDULE
CHAMPUS BENEFIT PROGRAMS
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 85% of the CHAMPUS Maximum Allowable
Charges, 85% of area prevailing rates, or 60% of billed charges for those
services which have a defined Allowable. Services for which a procedure code has
not been assigned, or are unvalued by CHAMPUS, compensation will be the lesser
of Average Wholesale Price minus ten percent (AWP-10%) or 60% of billed charges.
40
<PAGE>
Addendum G
ADDENDUM G
TO FACILITY PROVIDER AGREEMENT
PREFERRED PROVIDER ORGANIZATION
(INCLUDING POINT OF SERVICE BENEFIT PROGRAMS)
Provider understands and agrees that the obligations of Foundation set forth in
this Addendum shall be the obligations of:
[X] Foundation Health National Life Insurance Company ("FHNL"), or
[_] Other: __________________________________
as applicable, all of which are Affiliates of Foundation Health Corporation
("FHC"), and not the obligations of FHC or any other Affiliate of FHC. FHNL
provides preferred provider organization ("PPO") and the indemnity and optional
PPO components of Point of Service Benefit Programs.
Provider understands that Foundation shall seek out Payors with whom Benefit
Program, third party administrator (TPA) and other contracts may be negotiated.
Foundation shall provide Provider with a listing of all such Payors, as updated
from time to time by Foundation including those Payors for whom Foundation
serves only in an administrative capacity. The listing shall include the Payors'
utilization management administrator and claims administrator when such is not
Foundation.
A. PPO BENEFIT PROGRAMS
1. Compensation Method. Provider shall render Contracted
--------------------
Services to Beneficiaries of the PPO Benefit Programs
covered under this Addendum. As compensation for rendering
Contracted Services to Beneficiaries of a PPO Benefit Program,
Provider shall be paid in accordance with the rates set forth
on Exhibit 1 of this Addendum. Such compensation shall be paid
within the time and subject to the billing requirements set
forth in Section 3.2 of the Agreement. The above
notwithstanding, for self-insured an other such Payors,
Foundation shall not be obligated to pay all or any portion of
any Provider claim unless and until Foundation has received
sufficient funds from the applicable Payor to cover such
claim.
B. POINT OF SERVICE BENEFIT PROGRAMS
---------------------------------
1. Benefit Program Design. Under a Point of Service Benefit
----------------------
Program, Beneficiaries may elect, at the time of obtaining
each Covered Medical Service, to utilize either: (1) HMO
coverage through their selected or assigned PCP; (2) other
indemnity coverage through either nonparticipating providers,
or Participating Providers where other Benefit Program
Requirements are not met; or (3) optional PPO coverage by
self-referring to PPO Participating Providers.
2. Compensation Method. Provider shall render Contracted Services
--------------------
on a fee-for-service or per diem basis to Beneficiaries of
Foundation's Point of Service Benefit Programs covered under
the PPO option of this Addendum. As compensation for rendering
such Contracted Services, Provider shall be paid the HMO
fee-for-service or per diem rates set forth in Exhibit 1 to
Addendum B. Such compensation shall be paid within the time
and subject to the billing requirements set forth in Section
3.2 of the Agreement.
41
<PAGE>
Addendum G, Exhibit 1
EXHIBIT 1 TO ADDENDUM G
PPO COMPENSATION SCHEDULE
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 60% of billed charges, or the rate
schedule in Attachment A.
42
<PAGE>
Addendum H
ADDENDUM H
TO FACILITY PROVIDER AGREEMENT
OCCUPATIONALLY ILL/INJURED OR WORKERS' COMPENSATION BENEFIT
PROGRAMS
Provider understands and agrees that the obligations of Foundation set forth in
this Addendum shall be the obligations of:
[X] Foundation Health, a California Health Plan
[X] Foundation Health National Life Insurance Company
[X] California Compensation Insurance Company
|_| Other: __________________________________
as applicable, all of which are Affiliates of Foundation Health Corporation
("FHC"), and not the obligations of FHC or any other Affiliate of FHC.
Foundation shall contract with Payors, which may include Affiliates of FHC, to
provide Occupationally Ill/Injured or Workers' Compensation Benefit Programs for
Beneficiaries for work related injuries and diseases compensable under State
Occupationally Ill/Injured or Workers' Compensation law. Provider shall render
Contracted Services to Beneficiaries for occupational illnesses and injuries
covered under Foundation's and Payors' Occupationally Ill/Injured or Workers'
Compensation Benefit Programs. Foundation shall provide Provider with a listing
of all such Payors, as updated from time to time by Foundation, including those
Payors for whom Foundation serves only in an administrative capacity. The
listing shall include the Payors' utilization management administrator and
claims administrator when such is not Foundation.
A. OCCUPATIONALLY ILL/INJURED OR WORKERS' COMPENSATION BENEFIT PROGRAMS.
----------------------------------------------------------------------
1. Compensation Method. As compensation for the delivery of
-------------------
Contracted Services, limited as described above, Provider
shall be paid in accordance with the rates set forth on
Exhibit 1 of this Addendum. Such compensation shall be paid
within the time and subject to the billing requirements set
forth in Section 3.2 of the Agreement. The above
notwithstanding, for self-insured and other such Payors,
Foundation shall not be obligated to pay any or all portion of
any Provider claim, as allowed by applicable law, unless and
until Foundation has received sufficient funds from the
applicable Payor to cover such claim.
2. Requirements for Eligibility Verification and Service
--------------------------------------------------------------
Authorization.
--------------
Foundation and Payor Occupationally Ill/Injured or Workers'
Compensation Utilization Management Programs may require
Provider to: (a) verify Beneficiary eligibility to receive
Contracted Services; (b) verify that the Beneficiary's
injury or disease has been determined to "arise out of and in
the course of employment"; (c) determine the requested
treatment is Medically Necessary to cure and relieve the
work-related condition; and Contracted Services prior to
rendering such services. Provider agrees to comply with
such eligibility verification and/or Referral and/or Prior
Authorization requirements and other verification
requirements. Foundation shall advise Provider of all
applicable Utilization Management Program requirements.
43
<PAGE>
Addendum H
3. Reports. Provider agrees to furnish, upon request, all
--------
information reasonably required by Foundation or a Payor
to verify and provide written substantiation of the
provision of Contracted Services, and the charges for such
services.
4. Return to Work. In addition to Contracted Services, and
--------------
without further compensation from Foundation or an Payor,
Provider shall work with Foundation and each Payor to develop
a return-to-work program for each Beneficiary.
44
<PAGE>
Addendum H, Exhibit 1
EXHIBIT 1 TO ADDENDUM H
OCCUPATIONALLY ILL/INJURED OR WORKERS' COMPENSATION RATE SCHEDULE
Compensation to Provider for the delivery of Medically Necessary Covered
Contracted Services will be the lesser of 90% of the Workers' compensation fee
schedule, 60% of billed charges, or the rate schedule in Attachment A.
45
<PAGE>
Addendum I
ADDENDUM I
TO FACILITY PROVIDER AGREEMENT
Contracted Services
OptionCare, Bakersfield
3400 Unicorn Rd.
Bakersfield, CA 93308
805/399-8866 FAX 805/399-8897
TIN: 36-3957843
Medicare Provider # 0309760002 Medi-Cal Provider # PHA-359430
OptionCare, Ceres
2800 Mitchell Rd.
Ceres, CA 95307
209/531-1858 FAX 209/531-0825
TIN: 36-3957843
Medicare Provider # 0492020001 Medi-Cal Provider # PHY-370930
OptionCare, Chico
15 Declaration Dr.
Chico, CA 95973
916/893-1337 FAX 916/893-9532
TIN: 36-3957843
Medicare Provider # 0388540001 Medi-Cal Provider # YP-20023
OptionCare, Compton
555 W. Compton Blvd.
Compton, CA 90220-3098
310/638-7212 FAX 310/638-1547
TIN: 36-3957843
Medicare Provider # 0308890001 Medi-Cal Provider # PHA-193310
OptionCare, Eureka
2504 Harrison Ave., Suite C
Eureka, CA 95501
707/441-8520 FAX 707/441-1538
TIN: 36-3957843
Medicare Provider # 0256530002 Medi-Cal Provider # PHA-376520
46
<PAGE>
Addendum I
OptionCare, Fairfield
2573 Clay Bank Rd., #11
Fairfield, CA 94533
707/426-5600 FAX 707/426-5602
TIN: 36-3957843
Medicare Provider # 0315800001 Medi-Cal Provider # PHY-371400
OptionCare, Fresno
6107 N. First St.
Fresno, CA 93710
209/439-8877 FAX 209/439-9078
TIN: 36-3957843
Medicare Provider # 0194480002 Medi-Cal Provider # PHA-350380
OptionCare, Hemet
2087 E. Florida Ave.
Hemet, CA 62544
909/766-6560 FAX 909/766-6562
TIN: 36-3957843
Medicare Provider # 0201000001 Medi-Cal Provider # PHA-339440
OptionCare, Redding
2021 Court St.
Redding, CA 96001
916/241-2273 FAX 916/241-4391
TIN: 36-3957843
Medicare Provider # 0256530002 Medi-Cal Provider # PHA-376520
OptionCare, Sacramento
3671 Business Dr.
Sacramento, CA 95820
916/454-0444 FAX 916/454-3586
TIN: 36-3957843
Medicare Provider # 0276170001 Medi-Cal Provider # PHA-374590
OptionCare, San Diego
7445 Mission Valley Rd.
San Diego, CA 92108
619/295-7595 FAX 619/295-8690
TIN: 36-3957843
Medicare Provider # 1065830001 Medi-Cal Provider # PHA-40992
47
<PAGE>
Addendum I
OptionCare, San Rafael
2165-A E. Francisco Blvd.
San Rafael, CA 94901
415/721-2273 FAX 404/721-2163
TIN: 36-3957843
Medicare Provider # 0316750001 Medi-Cal Provider # PHA-379410
OptionCare, Stockton
1016 E. Bianchi Rd.
Stockton, CA 95210
209/472-0184 FAX 209/472-0187
TIN: 36-3957843
Medicare Provider # D421180002 Medi-Cal Provider # PHA-405440
OptionCare, Victorville
15367-B Tamarack Rd.
Victorville, CA 92392
619/241-0424 FAX619/241-3083
TIN: 36-3957843
Medicare Provider # 0217890001 Medi-Cal Provider # PHA-350690
OptionCare, Visalia
3141 S. Mooney Blvd.
Visalia, CA 93277
209/732-7753 FAX 209/732-1534
TIN: 36-3957843
Medicare Provider # 0194480001 Medi-Cal Provider # PHA-355610
OptionCare, Vista
1122 N. Melrose Dr.
Vista, CA 92083
619/630-5350 FAX 619/630-5374
TIN: 36-3957843
Medicare Provider # 0487820001 Medi-Cal Provider # PHA-37096
48
<PAGE>
Attachment A
ATTACHMENT A
Fee-For-Service Reimbursement Schedule
I. HOME INFUSION THERAPY SERVICES
Reimbursement to Participating Provider for all medically necessary covered
benefits billed under the Participating Provider's Federal Tax Identification
number(s) will be as follows:
All aspects of Participating Provider's comprehensive services are covered under
one of several therapy specific prices. The therapy services listed within are
inclusive of:
1. Participating Provider's Clinical Services, and Nursing, including 24
hour/day, 7 days a week on call availability for pharmacy, nursing, and
delivery.
2. Initial nurse assessment, two nursing visits a week, and pharmacy and
clinical monitoring;
3. All therapy related IV solutions/sets, needleless system, solutions,
diluent, minibags, dressings, nursing/medical supplies and equipment;
4. Support services related to delivery and transportation, equipment rental
of infusion pumps and IV poles and other related equipment, line
maintenance, obtaining of laboratory specimens (exception: lab draws
ordered for purposes unrelated to authorized therapies), pharmacy
compounding and dispensing, and hazardous/infectious waste management,
waste disposal, and equipment cleaning;
5. Support services facilitating patient access and care, including
Managed Care Representatives, Precertification and Preauthorization
Services, education and training, and other Customer Services;
6. Information services that monitor, track and report utilization by a
variety of both clinical and financial criteria, including prescription
tracking and record keeping, utilization reporting, administration and
overhead.
7. All medication must be billed with 90780 and the NDC number and will be
allowed at AWP minus 10 percent.
A. ANTIBIOTIC, ANTIVIRAL, AND ANTIFUNGAL THERAPY
The antibiotic, antiviral, and antifungal therapy rate is composed of the daily
per diem rate, determined by the dosing schedule, plus the Average Wholesale
Price (AWP) of the antibiotic minus 10 percent. This rate is applicable for
central or peripheral lines.
<TABLE>
<CAPTION>
Dosing Schedule Rate/Code
------------------- -----------
<S> <C>
Every 24 hours, q24 $ 70.00/AB241
Every 12 hours, q12 $ 70.00/AB121
Every 8 hours, q8 $ 70.00/AB081
Every 6 hours, q6 $ 70.00/AB061
Every 4 hours, q4 $ 70.00/AB041
Every 3 hours, q3 $ 70.00/AB031
</TABLE>
49
<PAGE>
Attachment A
B. MULTIPLE ANTIBIOTIC REGIMENS (BOTH PERIPHERAL AND CENTRAL LINES):
For multiple antibiotic, antiviral, and antifungal drug regimens, the standard
daily single drug therapy per diem rate will be paid for the first drug therapy,
plus, for each additional drug therapy, an additional 50% of the per diem (or
$35) will be paid on each additional drug therapy dosing schedule. The AWP minus
10 % of ALL antibiotic, antiviral, and antifungal drugs will be paid.
C. TOTAL PARENTERAL NUTRITION (TPN) THERAPY
TPN therapy consists of amino acid/dextrose; including electrolytes, vitamins
(excluding Vitamin K), trace elements, insulin and heparin. The TPN therapy
service is composed of the daily per diem rate, determined by the daily volume
of TPN solution. The per diem rate for TPN therapy INCLUDES the TPN solutions.
There is NOT a separate rate for the AWP of the solutions. Lipids will be paid
at a separate rate, as detailed below. Any additionally authorized additives
(except renal & hepatic) will be paid at AWP minus 10 %. The pump is included in
the per diem rates.
<TABLE>
<CAPTION>
Standard TPN Solution Rate/Code
--------------------- ------------
<S> <C>
Solution 1.0 liters or less per day $ 135.00/TP101
Solution 1.1 to 2.0 liters per day $ 155.00/TP201
Solution 2.1 to 3.0 liters per day $ 175.00/TP301
Solution 3.1 liters or greater per day $ 185.00/TP401
Lipids will be paid at:
10% up to 500 ml $ 35.00/TP050
20% up to 500 ml $ 45.00/TP060
</TABLE>
D. CHEMOTHERAPY
The per diem service is composed of the daily per diem rate plus the Average
Wholesale Price (AWP) minus 10 % of the chemotherapeutic agent.
<TABLE>
<CAPTION>
Rate /Code
----------
<S> <C>
Chemotherapy, one drug: $ 70.00/CH001 plus the AWP
minus 10% of the drug
Additional Drug Therapy:
Chemotherapy, additional drug: $ 35.00/CH002 plus the AWP
minus 10% of the drug
</TABLE>
50
<PAGE>
Attachment A
E. HYDRATION THERAPY
Hydration therapy consists of fluids with electrolytes. The hydration therapy
service is composed of the daily per diem rate. The per diem rate for Hydration
therapy INCLUDES the charge for the fluids and electrolytes. There is NOT a
separate rate for the AWP of the solutions. Any additives not included in the
basic hydration therapy will be reimbursed at AWP minus 10% only if authorized
by Foundation.
<TABLE>
<CAPTION>
Standard Hydration Solution Rate/Code
--------------------------- -----------
<S> <C>
Solution 1.0 liters or less per day $ 50.00/HD101
Solution 1.1 to 2.0 liters per day $ 50.00/HD201
Solution 2.1 to 3.0 liters per day $ 50.00/HD301
Solution 3.1 liters or more per day $ 50.00/HD401
</TABLE>
F. PAIN MANAGEMENT THERAPY
The Pain Management therapy service rate is composed of the daily per diem rate
plus the Average Wholesale Price (AWP) minus 10% of the analgesic drug.
<TABLE>
<CAPTION>
Rate/Code
-------------
<S> <C>
Continuous or Intermittent pain $ 50.00/PA101 plus the AWP
management, one drug or multiple drugs minus 10% of the drug
</TABLE>
G. ENTERAL THERAPY
The Enteral therapy service is composed of the daily per diem rate plus the
Average Wholesale Price (AWP) minus 10% of the enteral solution.
<TABLE>
<CAPTION>
Enteral Product Rate /Code
-------------- ----------
<S> <C>
Liquid or Powder $ 20.00/EN100 plus the AWP
minus 10% of the enteral
product.
</TABLE>
H. PENTAMIDINE THERAPY
The Pentamidine therapy service is composed of the daily per diem rate plus the
Average Wholesale Price (AWP) minus 10% of the drug.
<TABLE>
<CAPTION>
Rate /Code
----------
<S> <C>
Pentamidine $ 65.00/AP100 plus the AWP
minus 10% of the drug
</TABLE>
Specific equipment allowances:
- ------------------------------
Compressor will be paid separately
51
<PAGE>
Attachment A
I. GROWTH HORMONE THERAPY
The Growth Hormone therapy rate is composed of the per vial rate plus the
Average Wholesale Price (AWP) minus 10% of the growth hormone.
<TABLE>
<CAPTION>
Rate /Code
------------
<S> <C>
Growth Hormone $ 20.00/GH100 plus the AWP m
inus 10% of the drug
</TABLE>
K. NEUPOGEN, EPOGEN, & PROCRIT SUBCUTANEOUS THERAPIES
The Neupogen, Epogen & Procrit therapy service is composed of the per vial rate
plus the Average Wholesale Price (AWP) minus 10% of the drug.
Rate/Code
---------
Neupogen $ 40.00/NE100 plus the AWP minus 10% of the drug
Epogen $ 40.00/EP100 plus the AWP minus 10% of the drug
Procrit $ 40.00/PR100 plus the AWP minus 10% of the drug
L. CARDIAC (DOBUTAMINE) THERAPY
The Dobutamine therapy service is composed of the daily per diem rate plus the
Average Wholesale Price (AWP) minus 10% of the drug.
<TABLE>
<CAPTION>
Rate/Code
---------
<S> <C>
Dobutamine Therapy $ 80.00/CA101 plus the AWP
minus 10% of the drug
</TABLE>
M. GAMMIMUNE THERAPY
The Gammimune therapy service is composed of the daily per diem rate plus the
Average Wholesale Price (AWP) minus 10% of the drug.
<TABLE>
<CAPTION>
Rate/Code
---------
<S> <C>
Gammimune Therapy $ 60.00/IM101 plus the AWP
minus 10% of the drug
</TABLE>
52
<PAGE>
Attachment A
N. STEROID THERAPY
The Steroid Therapy service is composed of the daily per diem rate plus the
Average Wholesale Price (AWP) minus 10% of the drug.
<TABLE>
<CAPTION>
Rate /Code
----------
<S> <C>
Steroid therapy $ 60.00/ST101 plus the AWP
minus 10% of the drug
</TABLE>
O. MULTIPLE THERAPIES
Multiple therapies are defined as TWO or more therapies as defined in sections A
- - N and S which occur on the same day. Multiple therapies will be paid as
follows:
The highest daily per diem rate will be paid at 100%.
The second highest per diem rate will be paid at 70%.
All following per diem rates will be paid at 50%.
All pharmaceuticals will be paid at the AWP minus 10% rate as indicated in
this per diem schedule.
Multiple therapies must be billed together on one bill for the same period. The
highest payment therapies will be considered first.
PER DIEM MAXIMUM
Services for any one day of Multiple Therapies may not exceed the Maximum
Per Diem Rate of $ 255.00
P. SKILLED NURSING SERVICES
See home health nursing rates.
Q. PICC LINE INSERTION SERVICE
The PICC Line Insertion Service consists of a charge for each PICC Line
Insertion visit.
<TABLE>
<CAPTION>
Rate/Code
---------
<S> <C>
PICC LINE INSERTION SERVICE $ 180.00/PC000
</TABLE>
Excluded from the PICC Line Insertion Service in the per diem rate: Verification
of PICC placement via X-Ray is not included.
53
<PAGE>
Attachment A
R. CATHETER CARE - NON THERAPY RELATED
All Catheters $6.00 per diem
S. OTHER THERAPIES AND/OR SERVICES
Any therapies not included in the agreement will be paid at 60% of the
Participating Provider's Usual and Customary rates in effect at the time the
product or service was provided. All medication must be billed with 90780 and
the NDC number and will be allowed at AWP minus 10 percent.
Code for other therapies AD100
T. RETURNED GOODS
All patient specific solutions premixed and delivered by Participating Provider
(subject to applicable state pharmacy laws) pursuant to prescription(s) written
by a patient's prescribing physician shall be billed at the time of delivery and
no credit shall be allowed for return of such goods. In no case shall this
charge be for in excess of three days supply.
Nonreturnable supplies which have been delivered in connection with any unused
solutions (referenced in the preceding paragraph) will be paid at a daily per
diem rate equal to 30% of the normal daily rate. The number of "nonreturnable
supplies" per diems charged will be equal to the number of days of drug which
are nonreturnable. In no case will this charge be in excess of three days.
Code for Returned Supplies Use specific per diem code for
the applicable therapy with
the-22 modifier.
54
<PAGE>
Attachment A
- --------------------------------------------------------------------------------
II. HOME HEALTH NURSING
A. Home Health Nursing - Intermittent Nursing Services*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Registered Nurse:
1. Assessment: $ 65/HH000
2. Visit: $ 65/HH001 3. Hourly: $ 30/HH002
Licensed Vocation Nurse:
2. Visit: $ 50/HH010 3. Hourly: $ 25/HH011
Home Health Aide:
2. Visit: $ 24/HH020
Social Work - MSW:
2. Visit: $ 65/HH030
Physical Therapy:
2. Visit: $ 65/HH040
Speech Therapy:
2. Visit: $ 65/HH050
Occupational Therapy:
2. Visit: $ 65/HH060
</TABLE>
1. A skilled nursing (RN) assessment visit is defined as up to and
including two hours.
2. Home visits after an initial assesment are calculated at a two hour
interval.
3. To be paid for each subsequent hour on an extended visit, up to six
(6) hours per day.
* All rates include cost of medical supplies, travel, time and mileage.
Specific Medical Supplies excluded from these rates are included as Exhibit 1
to Attachment A. No additional payment will be made for holidays. These rates
apply to services provided within a 60 mile radius of the office location.
55
<PAGE>
Attachment A
- --------------------------------------------------------------------------------
III. OXYGEN and RESPIRATORY THERAPY
/HOME MEDICAL EQUIPMENT/MEDICAL SUPPLIES
30% Discount off 1997 Medicare Allowable Rates for California for
DME & Medical Supplies (Medicare Allowable Rates shall remain
fixed for the duration of the initial 3 year term of the contract,
and shall not be updated).
DME and medical supplies without a 1997 Medicare Allowable Rate
will be paid at a 40% Discount off Provider's usual & customary
rates (Billed Charges). The 40% discount applies only if billed
charges per item are at or below $2500; items above $2500 require
prior authorization and rate negotiation.
After at least one month's rental, subsequent rentals which are
less than one month in length will be pro-rated at 50% of the
monthly rental rates.
60% of each continuous use monthly rental payment shall apply
towards purchase of an item.
56
<PAGE>
A4402 LUBRICANT, PER OZ
------------------------------------------------------------------
A4404 OSTOMY RINGS, EA
------------------------------------------------------------------
A4455 ADHESIVE REMOVER OR SOLVENT (FOR TAPE, CEMENT OR OTHER ADH),
PER OZ
------------------------------------------------------------------
A5051 POUCH, CLOSED; W/BARRIER ATTACHED (1 PIECE)
------------------------------------------------------------------
A5052 POUCH, CLOSED; W/O BARRIER ATTACHED (1 PIECE)
------------------------------------------------------------------
A5053 POUCH, CLOSED; FOR USE OF FACEPLACE
------------------------------------------------------------------
A5054 POUCH, CLOSED; FOR UE ON BARRIER W/FLANGE (2 PIECES)
------------------------------------------------------------------
57
<PAGE>
Attachment A, Exhibit 1
A5055 STOMA CAP
- -------------------------------------------------------------------------------
A5061 POUCH, DRAINABLE; W/ BARRIER ATTACHED (1 PIECE)
- -------------------------------------------------------------------------------
A5063 POUCH, DRAINABLE; FOR USE ON BARRIER W/ FLANGE (2 PIECES)
- -------------------------------------------------------------------------------
A5064 POUCH, DRAINABLE; W/ FACEPLATE ATTACHED, PLASTIC OR RUBBER
- -------------------------------------------------------------------------------
A5065 POUCH, DRAINABLE; FOR USE ON FACEPLATE; PLASTIC OR RUBBER
- -------------------------------------------------------------------------------
A5071 POUCH, URINARY; W/ BARRIER ATTACHED (1 PIECE)
- -------------------------------------------------------------------------------
A5072 POUCH, URINARY; W/O BARRIER ATTACHED (1 PIECE)
- -------------------------------------------------------------------------------
A5073 POUCH, URINARY; FOR USE ON BARRIER W/ FLANGE (2 PIECES)
- -------------------------------------------------------------------------------
A5074 POUCH, URINARY; W/ FACEPLATE ATTACHED, PLASTIC OR RUBBER
- -------------------------------------------------------------------------------
A5075 POUCH, URINARY; FOR USE ON FACEPLATE ATTACHED, PLASTIC OR
RUBBER
- -------------------------------------------------------------------------------
A5081 CONTINENT DEVICE; PLUG FOR CONTINENT STOMA
- -------------------------------------------------------------------------------
A5082 CONTINENT DEVICE; CATHETER FOR CONTINENT STOMA
- -------------------------------------------------------------------------------
A5093 OSTOMY ACCESSORY; CONVEX INSERT
- -------------------------------------------------------------------------------
A5102 BEDSIDE DRAINAGE BOTTLE, RIGID OR EXPANDABLE
- -------------------------------------------------------------------------------
A5105 URINARY SUSPENSORY; W/ LEG BAG, W/ W/O TUBE
- -------------------------------------------------------------------------------
A5112 URINARY LEG BAG; LATEX
- -------------------------------------------------------------------------------
A5113 LEG STRAP; LATEX, PER SET
- -------------------------------------------------------------------------------
A5114 LEG STRAP; FOAM OR FABRIC, PER SET
- -------------------------------------------------------------------------------
A5123 SKIN BARRIER; W/ FLANGE (SOLID, FLEXIBLE OR ACCORDIAN),
ANY SIZE, EA
- -------------------------------------------------------------------------------
A5131 APPLIANCE CLEANER, INCONTINENCE AND OSTOMY APPLIANCES,
PER 16 OZ
- -------------------------------------------------------------------------------
58
<PAGE>
EXHIBIT 10.25
SECOND AMENDMENT
TO THE FACILITY PROVIDER AGREEMENT
BETWEEN
OPTION CARE, INC.
AND
FOUNDATION HEALTH SYSTEMS AFFILIATE(S)
This Amendment to the original Facility Provider Agreement entered into by and
between Option Care, Inc. (PROVIDER) and the Foundation Health Corporation
Affiliate(s) ("Foundation") now known as Foundation Health Systems Affiliate(s)
("FHS"), shall be effective May 1, 1998. This Amendment is an integral part of
the Agreement and shall supersede any contractual provisions to the contrary as
of the effective date.
NOW THEREFORE, in consideration of the mutual considerations contained in this
Amendment, PROVIDER and FHS agree to amend the Agreement as follows:
1. The following Addenda are hereby deleted and replaced in its entirety:
A, B, C, E, G.
2. The First Amendment to the Agreement is hereby deleted in its entirety.
3. Section 2.8, QUALITY MANAGEMENT PROGRAM of Article II, PERFORMANCE
-------------------------- -----------
PROVISIONS is deleted in its entirety and replaced with the following:
----------
PROVIDER shall be solely responsible for the quality of Contracted
Services rendered to Beneficiaries. The quality of Contracted Services
rendered to Beneficiaries shall be monitored under the Quality
Management Program applicable to the particular Benefit Program.
PROVIDER agrees to participate in and cooperate in all respects with
the applicable Quality Management Program. PROVIDER also agrees to
comply with all such medical and other records within 10 days of
written notice, and such review data and other information as may be
required or requested under a Quality Management Program, including
outcome reporting in accordance with, but not limited to, the Health
Plan Employer Data and Information Set (HEDIS), Version 3.0, or its
successor. In the event that the standard or quality of care furnished
by PROVIDER is found to be unacceptable under any Quality Management
Program, FHS shall give written notice to PROVIDER to correct the
specified deficiencies within the time period specified in the notice.
PROVIDER shall correct such deficiencies within that time period.
PROVIDER shall satisfactorily revise the preliminary Corrective Action
Plan (CAP), attached hereto as Exhibit 1, for Quality Improvement,
Utilization Management, Medical Records, Member Rights and
Responsibilities and Credentialing standards to reflect all necessary
actions as determined by FHS to enable achievement of those standards
cited in the Standardized Health Delivery Organization (HDO) audit
tool.
PROVIDER and FHS shall finalize and execute a Joint Action Plan for
Patient Care Transition with tasks starting March 1, 1998 through June
1, 1998, and a Joint Action Plan for Transition of Full Delegation of
UM, QI, and other above designated functions, with tasks starting May
1, 1998 and concluding no later than October 31, 1998. Those
preliminary plans are attached hereto, as Exhibits 2 and 3.
PROVIDER shall comply with the Transition of Care Arrangement as
defined, and attached hereto, as Exhibit 4
PROVIDER agrees that the CAP and the two Joint Action Plans, attached
hereto as Exhibits 1, 2, and 3, are critical to the successful
transition of patient care and to the smooth interaction between
PROVIDER, FHS and Participating Physician Groups (PPGs). PROVIDER
shall, therefore, commit to complete and appropriate allocation of
resources to fulfill its obligations under these Plans and shall agree
to achieve those critical milestones as set forth in Exhibit 5.
PROVIDER shall agree to financial penalties as set forth in Exhibit 5,
for any failure to achieve those critical milestones.
PROVIDER agrees to achieve and maintain those performance standards set
forth in the Operations Manual. Notwithstanding the above, PROVIDER
agrees to financial penalties for failure to achieve certain key
performance standards; those key performance standards and the
associated financial penalties are contained in Exhibit 6, attached
hereto and incorporated herein.
<PAGE>
4. Section 4.1, TERM of Article IV, TERM AND TERMINATION, shall be
---- --------------------
amended to read:
The term of this Agreement shall commence on April 1, 1998 and shall
continue for an initial period of three (3) years. This Agreement shall
automatically renew for successive one year periods, unless one party
notifies the other in writing of its intent not to renew this Agreement
at least one hundred twenty (120) days prior to the next scheduled
renewal date. Any and all negotiations must be completed thirty (30)
days prior to the anniversary date of the contract. The renewal date of
the term of this Agreement shall remain the same for all Benefit
Programs covered hereunder, even if this Agreement becomes effective
with respect to a particular Benefit Program after the initial or any
renewal date of this Agreement, due to the licensure, contract award or
other reason.
During the initial term, either party has the right to request
reconsideration of significant terms and conditions by giving notice of
proposed Amendment provisions in writing by December 1 of each year,
and the parties commit to finalize negotiations by March 1 of the
subsequent year. Should the parties fail to reach mutual agreement
through those discussions, one of the parties shall be expected, by the
March 1 deadline, to give a ninety (90) day notice of termination.
Notwithstanding the terms set forth in the above Amendment, PROVIDER
shall have the right at any time during this Agreement to provide FHS
with one hundred five (105) days prior written notice of termination if
the PROVIDER's reason for termination results from a major
subcontractor giving PROVIDER one hundred and twenty days (120) days
notice of termination of the contractor.
IN WITNESS WHEREOF, the parties have executed this Amendment to be effective on
the first day of the month after FHS has executed this Amendment. All other
terms and conditions of the Agreement remain in full force and effect.
<TABLE>
<S> <C>
OPTION CARE, INC., A CALIFORNIA CORPORATION FOUNDATION HEALTH SYSTEMS AFFILIATES
- --------------------------------------- -------------------------------------------
Rick E. Hanson Linda S. Pollnow
President & CEO Senior Vice President, Provider Network Management
- ----------------------------------- ---------------------------------
Date Date
</TABLE>
<PAGE>
ADDENDUM A
AFFILIATES AND BENEFIT PROGRAMS
I. AFFILIATES
----------
Upon execution of this Agreement, the Affiliates primarily using this Agreement
include, but are not limited to, the following: Health Net; Foundation Health, a
California Health Plan; Health Net Life Insurance Company; Qualmed Life and
Health Insurance Company; Foundation Health National Life Insurance Company;
Business Insurance Group, Inc.; Business Insurance Company; California
Compensation Insurance Company; Combined Benefits Insurance Company; Commercial
Compensation Insurance Company; Foundation Health Federal Services; California
Compensation Insurance Company (Cal Comp); and, Preferred Health Network.
Notwithstanding the foregoing, PROVIDER further agrees that any other Affiliate
of FHS not listed above may access the rates set forth in this Agreement and
Addenda. Such affiliates would include Members of non-California based
Affiliates who access contracts on a fee for service basis.
II. BENEFIT PROGRAMS
----------------
Benefit Program participation and reimbursement under this Agreement shall
include the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FEE-FOR-
AFFILIATE AND BENEFIT PROGRAMS ADDENDUM SERVICE CAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HMO (Standard) B X
- ------------------------------------------------------------------------------------------------------------------
Medicare Risk C X
- ------------------------------------------------------------------------------------------------------------------
Medi-Cal D X
- ------------------------------------------------------------------------------------------------------------------
Fee-for-Service E X
- ------------------------------------------------------------------------------------------------------------------
CHAMPUS/Tricare and Other Government F X
- ------------------------------------------------------------------------------------------------------------------
(Intentionally Left Blank) G X
- ------------------------------------------------------------------------------------------------------------------
Occupationally Ill/Injured or Workers' H X
Compensation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADDENDUM B
COMMERCIAL HMO
PROVIDER understands and agrees that the obligations of FHS set forth on this
Addendum are only the obligations of Health Net and Foundation Health, a
California Health Plan, (hereafter "HMO") and not the obligations of FHS or any
other Affiliate of FHS. PROVIDER understands that HMO operates under two
separate administrative infrastructures: one for Health Net Members and another
for Foundation Health Members; HMO may continue to use separate administration
for different product segments. During term of this Agreement, PROVIDER may
receive capitation from both systems.
I. DESCRIPTION OF PROVIDER RISK SERVICES:
1. HOME HEALTH SERVICES. Those Covered Services customarily
--------------------
provided to Members in the home including, but not limited to, skilled
nursing services rendered by a registered professional nurse or
licensed vocational nurse; home health aide services; physical,
occupational, speech and respiratory therapy services; and medical
social services.
Contracted Services are services which are provided in a Member's home
to a homebound member, as defined herein. Except as provided below,
Contracted Services shall be included as Provider Risk Services only
when Members meet the home health requirements and such services are
authorized by a Participating Provider. The home health requirements
shall include: the Member is "homebound", under the care of a
Participating Provider, and requires medically necessary skilled
nursing services, short-term physical therapy, respiratory therapy,
speech therapy, occupational therapy, or medical social services.
Obstetrical patients in the early postpartum phase and Members
requiring (at least) daily or more frequent wound care visits may also
be eligible for home health services.
In order to be considered "homebound", Members shall meet the following
criteria:
a. Member is unable to leave home.
b. It takes a considerable and taxing effort to leave (such as
using special medical transportation and/or the Member
requires medication in order to be moved).
c. Absences from home are infrequent, of short duration, or are
to receive medical care. (Homebound eligibility is not
affected by frequent absences from home when the reason to
leave is to receive medical care.)
The following conditions shall be included as part of the Provider Risk
Services:
a. Member's medical condition is such that if the Member leaves
home, it creates a public health hazard.
b. Member has been discharged from the hospital post-partum and
services must be reasonable and medically necessary.
c. Member receives infusion services at school or work and has
additional medically necessary skilled nursing needs at home
such as respiratory monitoring for a ventilator dependent
Member. The hours and level of care for the Member's skilled
nursing needs at home will be reviewed and approved by HMO or
PROVIDER's Medical Director.
d. Home infusion therapy and durable medical equipment services
are not restricted to homebound Members.
2. SKILLED NURSING SERVICES. Skilled nursing services are those
------------------------
which require the technical skills of a nurse (i.e., specialized
training and knowledge). Examples would be catheter care, postural
drainage and percussion, NG tube insertion and feedings, manual removal
of fecal impactions and dressing changes requiring aseptic techniques.
A nurse may instruct the patient or family Members in performance of
the procedure. Nursing procedures performed during the course of
teaching are considered skilled. Services that can be safely and
effectively performed (or self administered) by the average
nonlicensed, non-medical person without the direct supervision of a
licensed nurse are not skilled nursing services, even though a licensed
nurse may provide the service.
<PAGE>
Capitated Medical Groups/IPA (now referred to as "PPG") who authorize
skilled nursing services adhere to the following criteria:
a. PPG must determine the need for Skilled Nursing services;
formulate a treatment plan; and include the order for home
health services in the Member's treatment plan.
b. PPG must consider both the inherent complexity of the service
and the condition of the Member when weighing
the need for home health services.
c. A service is considered a skilled nursing service when it is
performed or directly supervised by a licensed nurse.
Skilled nursing observation and evaluation may be necessary if a change
(i.e. medications, therapies) is made in the treatment plan by the
Member Physician. Generally three (3) weeks is considered the maximum
limit on the skilled observation and evaluation if the Member is stable
and no changes have been made. The criteria for skilled nursing
observation and evaluation are as follows:
a. When the Member is medically unstable.
b. When the Member has frequent contact with a Participating
Provider for medical treatment.
c. When Member has changes in medications (date and reason).
d. When Member has a new diagnosis.
e. When Member is under a new treatment plan.
3. HOME INFUSION SERVICES. Home Infusion Services are services
----------------------
which involve the dispensing and administration of prescribed
intravenous substances and solutions, and patient education. All
equipment and supplies necessary to provide such services are also
covered. Infusion patients do not need to be homebound but must meet
the criteria for home health care and meet the requirements of the
Utilization Program to be included as Provider Risk services.
4. PHYSICAL, SPEECH, OCCUPATIONAL, RESPIRATORY THERAPY. These
---------------------------------------------------
services must relate directly and specifically to a written treatment
plan established by a Member Physician usually after the Member
Physician has consulted with a qualified therapist. The therapy must be
medically necessary for the treatment of the Members illness or injury.
Member must meet the criteria for home health services as defined in
Section I, number 1, Home Health Services.
5. MEDICAL SOCIAL SERVICES. Medical social services are covered
-----------------------
if they are prescribed by a Member Physician, included in the Member's
treatment plan, and are medically necessary. Indication of social
problems must exist which are or will prevent the effective treatment
of either the Member's medical condition or recovery. Only licensed
medical social worker may perform medical social services. Member must
meet the criteria for home health services as defined in Section I,
number 1, Home Health Services.
6. HOME HEALTH AIDE SERVICES. A home health aide is authorized
-------------------------
only in conjunction with skilled nursing services provided by a
licensed RN or LVN, or a Participating Provider or speech therapist.
The home health aide provides personal care to the Member. Such
services must be medically necessary. The Member's medical condition
and need will dictate the frequency and duration of home health aide
services (per day, etc.). Custodial care, as defined in the Medical
Policy Manual is not a Covered Service. Member must meet the criteria
for home health services as defined in Section I, number 1, Home Health
Services.
7. DURABLE MEDICAL EQUIPMENT. Durable Medical Equipment (DME) and
-------------------------
supplies are covered subject to the Member's Coverage Certificate. If
the Member's Plan does not provide coverage for DME, but provides
coverage for home health care, such equipment when determined to be
medically necessary shall be paid by HMO based on the fee-for-service
rates described in the applicable Addendum.
8. MEDICAL SUPPLIES. All supplies used in conjunction with a home
----------------
health service and/or for teaching of a Member until Member becomes
independent, are considered as part of the home health benefit.
<PAGE>
9. HOME HOSPICE CARE. Hospice services include all services as
-----------------
defined in the Medicare hospice program.
10. WOUND CARE. Wound care is covered when a homebound Member
----------
requires one or more dressing changes per day and the Member is not
able to perform the dressing change. If three or more wound care
changes per day are required, HMO will use best efforts to refer care
to an appropriate facility; however, if such referral is not possible,
PROVIDER will be responsible for authorized wound care. Member must
meet the criteria for home health services as defined in Section I,
number 1, Home Health Services. PROVIDER is not responsible for
dressing changes for non-homebound Members. Any disputes regarding
wound care will be determined by an HMO Medical Director.
11. DIABETIC SUPPLIES. PROVIDER shall be responsible for diabetic
-----------------
supplies only (chem strips, lancets, and syringes) for those HMO
Members without a pharmacy benefit and the provision of those
diabetic supplies shall be covered under the DME benefit.
II. NON-CONTRACTED AND EXCLUDED SERVICES:
------------------------------------
The following services are those services which PROVIDER is not
responsible for rendering under this Agreement or which HMO is not
responsible for providing under an applicable Benefit Program:
1. MEDICAL SUPPLIES. PROVIDER shall not be responsible for
----------------
providing Medical Supplies when Member is not receiving home health,
home infusion, or hospice services. All supplies used in conjunction
with a nursing visit which meets home health requirements are included
as Provider Risk Services.
2. BONE GROWTH STIMULATORS. PROVIDER shall not be responsible for
-----------------------
providing Bone Growth Stimulators. This item is covered under the
surgical supply benefit and is usually billed under a hospital claim.
In the event PROVIDER is asked to provide this item, PROVIDER may bill
HMO and HMO shall pay PROVIDER based on the Fee for Service rates in
The applicable Addendum.
3. SELF INJECTIBLE MEDICATIONS. Self Injectible Medications,
---------------------------
excluding human growth hormones and antihemophic factors, are a medical
benefit and are the financial responsibility of the PPG. In the event
that PROVIDER is asked to provide such medications, PROVIDER shall bill
the Member's PPG directly.
4. OUT OF AREA. PROVIDER is not responsible for providing
-----------
emergency and out of area skilled nursing care provided to Members who
are out of the Service Area. However, for a limited duration of one
month, planned out-of-area nursing and infusion services shall be
considered PROVIDER Risk Services as long as reasonable notification is
given by the Member or PPG for such occurrences.
5. CUSTODIAL HOMEMAKER CARE. PROVIDER shall not be responsible
for custodial homemaker care.
6. NOT-COVERED SERVICES. Services which are not covered by Plan
--------------------
includes, but are not limited to, the following:
a. Food, housing, homemaker services, and home-delivered
meals.
b. Home hemodialysis services, including the purchase or
rental of equipment required for renal dialysis
procedures.
c. Supportive environmental equipment such as handrails,
ramps, etc., as defined in the Medicare guidelines.
d. Services deemed not to be medically necessary or
appropriate by the PPG and HMO.
e. Exercise devices (Exercycles), gravitonic devices,
treadmill, room air purifier, air conditioner and
similar types of devices.
f. Experimental drugs.
<PAGE>
III. HMO REIMBURSEMENT PROGRAMS
-------------------------
1. COMPENSATION FOR PROVIDER RISK SERVICES. Effective April 1,
---------------------------------------
1998, as compensation for providing Provider Risk Services HMO shall
pay PROVIDER $1.40 Per Member Per Month (PMPM) for each Commercial HMO
Member eligible to receive such services from PROVIDER during any
particular month. Capitation shall be increased to $1.42 PMPM at such
time Health Net's Quality Improvement Committee approves PROVIDER for
full delegation. Capitation shall be computed on the basis of the most
current information available in the eligibility file of Health Net or
the former Foundation Health Plan. Member eligibility rules may vary by
eligibility system until such time as the HMO can consolidate all
members onto a single operating system. Capitation payment shall be
paid by the HMO by wire transfer on or before the fifteenth (15th) day
of each month or the first business day following the fifteenth if the
fifteenth is a holiday or on a weekend. Each Capitation payment shall
be accompanied by a remittance summary. The remittance summary
identifies the total Capitation payable and those Commercial HMO
Members for whom Capitation is being paid. In the event of a Capitation
error, resulting in an overpayment or underpayment to PROVIDER, HMO
shall adjust subsequent Capitation to offset such error. (Member
eligibility rules may vary by eligibility system until such time as the
HMO can consolidate all members onto a single operating system.)
2. GENERAL STOP LOSS PROGRAM. PROVIDER's Stop Loss threshold
-------------------------
shall be $50,000.00 per Commercial HMO Member during the contract year
of the Agreement (each May 1st through each April 30th). If the
PROVIDER projects the costs of providing services to a Member will
reach the $50,000.00 threshold, PROVIDER shall refer the Member to
HMO's Care Management Department, at point of determination. PROVIDER
shall submit claims under the applicable stop loss program no later
than sixty (60) calendar days at the conclusion of service which occur
beyond the threshold or at the end of the month in which services were
rendered. Failure to submit claims in a timely manner may result in
forfeiture of PROVIDER's right to reimbursement. For purposes of
determining if the stop loss threshold has been reached, the
compensation schedule set forth in the applicable Addendum shall be the
source rates for calculation. HMO shall compensate PROVIDER for claims
in excess of the stop loss threshold at eighty percent (80%) of the
Fee-for-Service rates in The applicable Addendum, except for drugs
which will be reimbursed at AWP minus ten percent (10%), less
applicable Copayments, coinsurance, deductibles and payments from third
parties or coordination of benefits.
3. CUSTOM EQUIPMENT STOP LOSS. PROVIDER shall be responsible for
--------------------------
the first $6,000 in incurred cost per Commercial HMO Member during the
contract year (each May 1st through each April 30th) for: (1) custom
and power wheelchairs and (2) custom and power scooters. Subsequent to
reaching the $6,000 threshold, the HMO shall assume the financial
responsibility for the custom equipment cost for that Member. PROVIDER
shall submit to HMO evidence of PROVIDER's cost plus ten percent (10%)
within sixty (60) calendar days following the day of delivery.
Reimbursement from HMO to PROVIDER shall be less applicable copayments,
deductibles, and recoveries from third parties and coordination of
benefits. Failure to submit invoices timely may result in forfeiture of
PROVIDER's right to reimbursement.
PROVIDER shall notify HMO of any authorization for custom equipment
whose cost is projected to exceed the threshold, prior to arranging for
the product. Notification requirements shall be as stated in the
Operations Manual.
4. BLOOD FACTOR PRODUCTS STOP LOSS. Blood Factor products include
-------------------------------
antithrombin III, factor 8 (VIII), factor 9 (IX), factor 11 (XI), and
factor 13 (XIII). PROVIDER shall be responsible under Capitation for
the first $400,000.00 in calculated cost for all Commercial HMO Members
assuming 700,000 Members (or for the first $57,142.00 in calculated
costs for each 100,000 Members subject to Capitation.) After this
threshold has been reached, the HMO shall assume all financial
responsibility for such products for any Commercial HMO Member.
The threshold shall be determined on a contract year basis (each May
March 1st through each April 30th) and shall be calculated using the
compensation schedule set for in The applicable Addendum. HMO shall
compensate PROVIDER for claims in excess of this stop loss threshold at
eighty percent (80%) of the fee-for-service rates in The applicable
Addendum for services and at AWP minus 10% for medications, less
applicable copayments, coinsurance, deductibles, and recoveries from
third parties and coordination of benefits.
PROVIDER shall notify HMO's Care Management department of each Member
receiving blood factor products and shall work cooperatively with HMO
on care management. Notification shall be according to the requirements
in the Operations Manual. Additionally, PROVIDER shall provide HMO on a
monthly basis the total accumulated Member costs under this stoploss
provision. Failure to notify of inform HMO accordingly may result in
the loss of reimbursement to PROVIDER.
<PAGE>
5. LONG TERM SHIFT CARE EXCLUSION. PROVIDER shall not be
------------------------------
responsible for Long Term Shift Care. Such shift care is defined as
those Medically Necessary home health skilled nursing services, which
is not hospice care, for four (4) or greater continuous hours per day
for a period of more than thirty (30) days. If, at the point of acute
hospital discharge, the attending physician and HMO determine that
shift care will be Medically Necessary for a period of thirty (30) days
or more, the case will be deemed to be Long Term Shift Care and HMO
shall be financially responsible for all such Long Term Shift Care from
the first day of patient care. Furthermore, if such Long Term Shift
Care is identified after care has been initiated, HMO shall be
financially responsible from the onset of such services. PROVIDER shall
be responsible for shift care for patients whose care requirements are
less than thirty (30) days.
6. CAPITATION DEDUCTIONS. PMPM deductions shall be made to
---------------------
PROVIDER's monthly capitation as adjustment for items covered under a
PPG's Professional Capitation. In the event PPG has been assigned the
risk for Durable Medical Equipment, a deduction of .42 PMPM can be made
in PROVIDER capitation for Members assigned to such PPG. HMO shall
notify PROVIDER on a monthly basis of such PPG. HMO shall notify
PROVIDER on a monthly basis of any such PPGs.
<PAGE>
ADDENDUM C
MEDICARE RISK BENEFIT PROGRAM
This Addendum sets forth additional terms which shall only apply to Members who
are enrolled in HMOs Medicare Risk Benefit Programs. PROVIDER understands and
agrees that the obligations set forth in this Addendum are only the obligations
of Health Net and Foundation Health, a California Health Plan, (hereafter
"HMO"), and not the obligations of HMO or any other Affiliate of HMO.
A. DEFINITIONS:
------------
For purposes of this Addendum, the definitions included herein shall
have the meaning required by law to applicable Medicare Risk Programs.
1. HCFA. The Health Care Financing Administration which is the
----
agency of the federal government responsible for
administration of the Medicare program.
2. MEDICARE RISK SERVICE AREA. The area approved by HCFA and the
--------------------------
State regulatory agency as the area in which HMO may market
and enroll Medicare HMO Members. At any given time during the
term of this Agreement, the Medicare Risk Service Area
consists of the list of zip codes currently approved by HCFA
and/or the State regulatory agency as the Medicare Risk
Service Area.
3. PMPM. For purposes of this Addendum, any per Member per
----
month ("PMPM") calculation shall be based on Medicare HMO
Members only.
B. STANDARD BENEFIT RISK PROGRAMS:
------------------------------
Contracted Services shall be those Medically Necessary Covered Services
as defined by HCFA for home health services, home infusion services,
hospice care, and durable medical equipment provided to Medicare
eligibles. All benefit administration shall be defined by HCFA. The
only exceptions to standard HCFA service or administrative guidelines
shall be as follows:
1. SELF INJECTIBLE MEDICATIONS. Self Injectible Medications,
---------------------------
excluding human growth hormones and antihemophic factors, are a
medical benefit and are the financial responsibility of the PPG. In
the event that PROVIDER is asked to provide such medications, PROVIDER
shall bill the Member's PPG directly.
2. OUT OF AREA. PROVIDER is not responsible for providing
-----------
emergency and out of area skilled nursing care provided to Members who
are out of the Service Area. However, for a limited duration of one
month, planned out-of-area nursing and infusion services shall be
considered PROVIDER Risk Services as long as reasonable notification is
given by the Member or PPG for such occurrences.
C. REIMBURSEMENT
-------------
1. COMPENSATION FOR PROVIDER RISK SERVICES. Effective April 1,
---------------------------------------
1998, as compensation for providing PROVIDER Risk Services, HMO shall
pay PROVIDER $6.77 Per Member Per Month (PMPM) for each Medicare HMO
Member eligible to receive such services from PROVIDER during any
particular month. Capitation shall be computed on the basis of the most
current information available in the eligibility files of Health Net or
the former Foundation Health Plan and shall be paid by HMO wire
transfer on or before the fifteenth (15th) day of each month or the
first business day following the fifteenth if the fifteenth is a
holiday or is on a weekend or within two (2) days of HCFA's payment to
HMO, whichever is later. Each Capitation payment shall be accompanied
by a remittance summary. The remittance summary identifies the total
Capitation payable and those Medicare Risk HMO Members for whom
Capitation is being paid. In the event of a Capitation error, resulting
in an overpayment or underpayment to PROVIDER, HMO shall adjust
subsequent Capitation to offset such error. (Member eligibility rules
may vary by eligibility system until such time as the HMO can
consolidate all members onto a single operating system.)
<PAGE>
2. STOP LOSS PROGRAM. PROVIDER's Stop Loss threshold shall be
-----------------
$50,000.00 per Medicare Risk Member during the contract year of the
Agreement (each April 1st through each March 31st). If the PROVIDER
projects the costs of providing services to a Member will reach the
$50,000.00 threshold, PROVIDER shall refer the Member to HMO's Care
Management Department, at point of determination. PROVIDER shall submit
claims under the applicable stop loss program no later than sixty (60)
calendar days following those days of service which occur beyond the
threshold. Failure to submit claims in a timely manner may result in
forfeiture of PROVIDER's right to reimbursement. For purposes of
determining if the stop loss threshold has been reached, the
compensation schedule set forth in Fee-For-Service Addendum shall be
the source rates for calculation. HMO shall compensate PROVIDER for
claims in excess of the stop loss threshold at eighty percent (80%) of
the Fee-for-Service rates in the applicable Addendum, except for drugs
which will be reimbursed at AWP minus ten percent (10%), less
applicable Copayments, coinsurance, deductibles and payments from third
parties or coordination of benefits.
3. CUSTOM EQUIPMENT STOP LOSS. PROVIDER shall be responsible for
--------------------------
the first $6,000 in incurred cost per Commercial HMO Member during the
contract year (each May 1st through each April 30th) for: (1) custom
and power wheelchairs and (2) custom and power scooters. Subsequent to
reaching the $6,000 threshold, the HMO shall assume the financial
responsibility for the custom equipment cost for that Member. PROVIDER
shall submit to HMO evidence of PROVIDER's cost plus ten percent (10%)
within sixty (60) calendar days following the day of delivery.
Reimbursement from HMO to PROVIDER shall be less applicable copayments,
deductibles, and recoveries from third parties and coordination of
benefits. Failure to submit invoices timely may result in forfeiture of
PROVIDER's right to reimbursement.
PROVIDER shall notify HMO of any authorization for custom equipment
whose cost is projected to exceed the threshold, prior to arranging for
the product. Notification requirements shall be as stated in the
Operations Manual.
4. BLOOD FACTOR PRODUCTS STOP LOSS. Blood Factor products include
-------------------------------
antithrombin III, factor 8 (VIII), factor 9 (IX), factor 11 (XI), and
factor 13 (XIII). PROVIDER shall be responsible under Capitation for
the first $400,000.00 in calculated cost for all Medicare Risk HMO
Members up to 70,000 Members (or for the first $57,142.00 in calculated
costs for each 10,000 Members subject to Capitation). After this
threshold has been reached, the HMO shall assume all financial
responsibility for such products for any Medicare HMO Member.
The threshold shall be determined on a contract year basis (each May
1st through each April 30th) and shall be calculated using the
compensation schedule set for in the applicable Addendum. HMO shall
compensate PROVIDER for claims in excess of this stop loss threshold at
eighty percent (80%) of the fee-for-service rates in the applicable
Addendum for services and at AWP minus 10% for medications, less
applicable copayments, coinsurance, deductibles, and recoveries from
third parties and coordination of benefits.
PROVIDER shall notify HMO's Care Management department of each Member
receiving blood factor products and shall work cooperatively with HMO
on care management. Notification shall be according to the requirements
in the Operations Manual. Additionally, PROVIDER shall provide HMO on a
monthly basis the total accumulated Member costs under this stoploss
provision. Failure to notify of inform HMO accordingly may result in
the loss of reimbursement to PROVIDER.
5. LONG TERM SHIFT CARE EXCLUSION. PROVIDER shall not be
------------------------------
responsible for Long Term Shift Care. Such shift care is defined as
those Medically Necessary home health skilled nursing services, which
is not hospice care, for four (4) or greater continuous hours per day
for a period of more than thirty (30) days. If, at the point of acute
hospital discharge, the attending physician and HMO determine that
shift care will be Medically Necessary for a period of thirty (30) days
or more, the case will be deemed to be Long Term Shift Care and HMO
shall be financially responsible for all such Long Term Shift Care from
the first day of patient care. Furthermore, if such Long Term Shift
Care is identified after care has been initiated, HMO shall be
financially responsible from the onset of such services. PROVIDER shall
be responsible for shift care for patients whose care requirements are
less than thirty (30) days.
6. CAPITATION DEDUCTIONS. PMPM deductions shall be made to
---------------------
PROVIDER's monthly capitation as adjustment for items covered under a
PPG's Professional Capitation. In the event PPG has been assigned the
risk for Durable Medical Equipment, a deduction of $3.17 PMPM can be
made in PROVIDER capitation for Members assigned to any such PPGs. HMO
shall notify PROVIDER on a monthly basis of any such PPGs.
<PAGE>
7. COMPENSATION TO OTHER PROVIDERS OF PROVIDER RISK SERVICES.
---------------------------------------------------------
PROVIDER shall compensate all Participating Providers of Provider Risk
Services to Members assigned to PROVIDER. In the event that PROVIDER
does not process and pay eligible claims submitted by Participating
Providers for Provider Risk Services within timeframes required by law,
after verification with the PROVIDER that the claim was not paid for
some valid reason, HMO may pay such claims at the lesser of HMO's
contract rate, the PROVIDER's subcontract terms, or the PROVIDER's
billed charges, and shall deduct such amounts paid from PROVIDER's
Capitation as set forth in the Operations Manual.
<PAGE>
ADDENDUM E
FEE-FOR-SERVICE COMPENSATION SCHEDULE
PROVIDER understands that Affiliates of FHS or Payors contracted with FHS who
are qualified may provide PPO, EPO and POS Benefit Programs. FHS shall provide
PROVIDER with a listing of all such Payors, as updated from time to time by FHS.
Notwithstanding any provision in this Agreement, PROVIDER and Participating
Provider understand and agree that each Payor is solely responsible for paying
PROVIDER and/or Participating Provider for those individuals to whom Payor
provides health care coverage. In no event shall FHS or any FHS Affiliate be
responsible for any payment which is the financial responsibility of a Payor and
PROVIDER shall seek compensation for such services only from Payor.
For designated Benefit Programs offered by FHS Affiliates or Payors, PROVIDER
shall be compensated for non-capitated, authorized Contracted Services, less
applicable Copayments, in an amount equal to the rates described in this
Addendum:
A. BENEFIT PROGRAM REQUIREMENTS:
----------------------------
PROVIDER agrees:
1. To comply with the terms and conditions of this Addendum, the terms
of the applicable Benefit Programs, and of the Operations Manual.
2. To comply with FHS efforts to provide Case Management. PROVIDER
agrees to provide a written treatment plan within five (5) working days of
receipt of request from FHS. A treatment plan includes a statement of diagnosis,
current patient condition, current or proposed treatment, and anticipated
outcomes.
3. FHS shall not be obligated to pay all or any portion of any PROVIDER
claim on a Payor's behalf unless and until FHS has received sufficient funds
from the applicable Payor to cover such claim but shall require prompt funding
in its Agreement with payors and shall assist PROVIDER in receiving payment. In
the event such Payor fails to provide funds to FHS, PROVIDER may seek payment
from Member up to the rates specified in this Addendum, unless prohibited by
applicable law.
B. COMPENSATION:
------------
PROVIDER shall be compensated for services rendered under this Addendum
according to the following rates and payment guidelines. Such
compensation shall be paid subject to the billing requirements set
forth in the Agreement. FHS shall pay all claims within thirty (30)
calendar days from day of receipt by FHS or within parameters set forth
by state or federal law, whichever is the shorter timeframe.
I. HOME INFUSION THERAPY SERVICES:
All aspects of PROVIDER's comprehensive services are covered under one
of several therapy specific prices. The therapy services listed within
are inclusive of the following:
1. Clinical and nursing services, including 24 hour per day,
7 days a week on call availability for pharmacy, nursing,
and delivery.
2. Initial nurse assessment, two nursing visits a week, and
pharmacy and clinical monitoring;
3. All therapy related IV solutions/sets, needleless system,
solutions, diluent, minibags, dressings, nursing/medical
supplies and equipment;
4. Support services related to delivery and transportation,
equipment rental of infusion pumps and IV poles and other
related equipment, line maintenance, obtaining of laboratory
specimens (exception: lab draws
<PAGE>
ordered for purposes unrelated to authorized therapies),
pharmacy compounding and dispensing, and hazardous/infectious
waste management, waste disposal, and equipment cleaning;
5. Support services facilitating patient access and care,
including precertification and/or preauthorization services,
education and training, and other customer services;
6. Information services that monitor, track and report
utilization by a variety of both clinical and financial
criteria, including prescription tracking and record keeping,
utilization reporting, administration and overhead.
7. All medications shall be reimbursed at Average Wholesale Price
(AWP) minus ten percent (10%).
a. ANTIBIOTIC, ANTIVIRAL, AND ANTIFUNGAL THERAPY
The antibiotic, antiviral, and antifungal therapy rate is composed of the daily
per diem rate, determined by the dosing schedule, plus the AWP minus 10% of the
drug used. (This rate is applicable for central or peripheral lines.)
Dosing Schedule Per Diem Rate/Code
--------------- ------------------
Every 24 hours, q24 $ 70.00/ AB241
Every 12 hours, q12 $ 80.00/ AB121
Every 8 hours, q8 $ 90.00/ AB081
Every 6 hours, q6 $ 95.00/ AB061
Every 4 hours, q4 $105.00/ AB041
Every 3 hours, q3 $105.00/ AB031
b. MULTIPLE REGIMENS (BOTH PERIPHERAL AND CENTRAL LINES):
For multiple drug regimens, the per diem for each of the lower cost dosing
regimen will be paid at 50% of the overall lower cost procedures per diem plus
the AWP minus 10% of any antibiotic, antiviral, and antifungal drugs being
administered.
c. TOTAL PARENTERAL NUTRITION (TPN) THERAPY
TPN therapy consists of amino acid/dextrose; including electrolytes, vitamins
(excluding Vitamin K), trace elements, insulin and heparin. The TPN therapy
service is composed of the daily per diem rate, determined by the daily volume
of TPN solution. The per diem rate for TPN therapy INCLUDES the TPN solutions.
There is NOT a separate rate for the AWP of the solutions. Lipids will be paid
at a separate rate, as detailed below. Any additionally authorized additives
(except renal & hepatic) will be paid at AWP minus 10%. The pump is included in
the per diem rates.
Standard TPN Solution Per Diem Rate/Code
--------------------- ------------------
Solution 1.0 liters or less per day $135.00/TP101
Solution 1.1 to 2.0 liters per day $155.00/TP201
Solution 2.1 to 3.0 liters per day $175.00/TP301
Solution 3.1 liters or greater per day $185.00/TP401
Lipids will be paid in addition to the standard per diem for Solution:
---------------------------------------------------------------------
10% up to 500 ml $ 35.00/TP050
20% up to 500 ml $ 45.00/TP060
<PAGE>
d. CHEMOTHERAPY
The per diem service is composed of the daily per diem rate plus the AWP minus
10% of the chemotherapeutic agent.
Per Diem Rate/Code
------------------
Chemotherapy, one or more drugs $ 70.00/CH001
e. HYDRATION THERAPY
Hydration therapy consists of fluids with electrolytes. The hydration therapy
service is composed of the daily per diem rate. The per diem rate for Hydration
therapy INCLUDES the charge for the fluids and electrolytes. There is NOT a
separate rate for the AWP of the solutions.
Standard Hydration Solution Per Diem Rate/Code
--------------------------- ------------------
Any amount $ 55.00/HD101
Additives AWP-10%
f. PAIN MANAGEMENT THERAPY
The Pain Management therapy service rate is composed of the daily per diem rate
plus AWP minus 10% of the analgesic drug.
Per Diem Rate/Code
------------------
Continuous or Intermittent pain $ 60.00/PA101
management, one drug or multiple drugs
g. ENTERAL NUTRITION THERAPY Code
----
The Enteral therapy service is composed of AWP minus 10% of
the enteral solution PLUS $40.00 per delivery. EN100
h. AEROSOLIZED PENTAMIDINE THERAPY
The Pentamidine therapy service is composed of the daily per diem rate plus
AWP minus 10% of the drug, plus the compressor at the appropriate DME rate.
Per Diem Rate/Code
------------------
Pentamidine $ 65.00/AP100
i. GROWTH HORMONE THERAPY
The Growth Hormone therapy rate is composed of the AWP minus 5% plus $20.00 per
vial of the growth hormone.
Rate/Code
-----------
Growth Hormone $ 20.00 per vial + AWP-5%/GH100
<PAGE>
j. NEUPOGEN, EPOGEN, & PROCRIT SUBCUTANEOUS THERAPIES
The Neupogen, Epogen & Procrit therapy service is composed of the AWP minus 5%
plus $40.00 per vial of the drug.
Rate/Code
-----------
Neupogen $ 40.00 per vial + AWP-5%/NE100
Epogen $ 40.00 per vial + AWP-5%/EP100
Procrit $ 40.00 per vial + AWP-5%/PR100
k. CARDIAC (DOBUTAMINE) THERAPY
The Dobutamine therapy service is composed of the daily per diem rate plus the
AWP minus 10% of the drug.
Per Diem Rate/Code
------------------
Dobutamine Therapy $ 80.00/CA101
l. INTRAVENOUS IMMUNE GLOBULIN THERAPY
The IV Immune Globulin therapy service is composed of the daily per diem rate
plus the AWP minus 10% of the drug.
Per Diem Rate/Code
--------------------
IV Immune Globulin Therapy $ 60.00/IM101
m. STEROID THERAPY
The Steroid Therapy service is composed of the daily per diem rate plus the AWP
minus 10% of the drug.
Per Diem Rate/Code
------------------
Steroid therapy $ 60.00/ST101
n. SKILLED NURSING SERVICES
See home health nursing rates.
o. PICC LINE INSERTION SERVICE
The PICC Line Insertion Service consists of a charge for each PICC Line
Insertion. Verification of PICC placement via X-Ray is not included, and
PROVIDER is not responsible for the cost of the X-Ray.
Rate/Code
---------
PICC LINE INSERTION SERVICE $180.00/PC000
<PAGE>
p. CENTRAL LINE MAINTENANCE
The central line maintenance rate is a per diem rate and includes supplies
needed to maintain a catheter but excludes the nursing visit. AWP minus 10% will
be paid for any medication and flushes used.
All Catheters $6.00 per diem/CL000
q. OTHER THERAPIES AND/OR SERVICES
Any therapies not included in the agreement will be negotiated on a case by case
basis.
Code for other therapies AD100
II. HOME HEALTH NURSING:
All rates are defined as visits up to two hours. Any services thereafter
will be charged at the hourly rate. The rates also include medical
supplies, travel, time and mileage. No additional payment will be made for
holidays.
1. RN Nursing Visit $ 68.00 per visit/HH000
$ 35.00 per hour/HH001
2. LVN Nursing Visit $ 48.00 per visit/HH010
$ 24.00 per hour/HH011
3. Physical Therapy $ 65.00 per visit/HH040
4. Occupational Therapy $ 65.00 per visit/HH060
5. Speech Therapy $ 65.00 per visit/HH050
6. Medical Social Worker $ 65.00 per visit/HH030
7. Home Health Aide or $ 39.00 per visit/HH020
Certified Nurses Aide $ 19.00 per hour
III. DURABLE (HOME) MEDICAL EQUIPMENT:
FHS shall reimburse PROVIDER at the fee schedule attached for all items, except
as noted for Oxygen and Respiratory equipment, and which shall be updated from
time to time at the mutual agreement of the parties.
The description of DME categories and terms are as follows:
1. CAPPED RENTAL ITEMS (CR). This category includes DME which is generally
rented monthly rather than purchased). Rental payment will be made for a maximum
of 12 months. PROVIDER must continue to supply the rented DME at no additional
charge after the maximum rental period is met. PROVIDER shall be paid a
maintenance servicing fee every six months for a capped rental item. The
maintenance and service fee shall be equal to one month rental rate for the
item.
2. FREQUENTLY SERVICED ITEMS (FS). This category includes items which require
frequent and substantial servicing in order to avoid risk to the patients health
(e.g. aspirators, IPPB machines, nebulizers). These items are rented monthly
with no rental cap as long as it is medically appropriate forthe Members
condition. FHS shall not pay a maintenance or servicing fee on these items.
<PAGE>
3. INEXPENSIVE AND ROUTINELY PURCHASED ITEMS (IR). This includes DME whose
purchase price generally does not exceed $150.00 (Medicare rate) or DME which is
generally purchased at least 75% of the time. Payment for IR items shall be made
on a rental basis or in a lump-sum purchase amount. If rental rather than
lump-sum purchase is chosen, the total amount of rental payments may not exceed
the allowed lump-sum purchase amount.
4. OSTOMY, TRACHEOSTOMY AND UROLOGICALS (OS). These are also inexpensive
routinely purchased supplies that are required for surgically created opening,
urologic and tracheostomy care. Supplies will be limited to Usual Maximum
Quantity of Supplies as suggested on DMERC Region D Supplier Manual.
5. OXYGEN AND OXYGEN EQUIPMENT (OX). Included in this category are oxygen (both
gaseous and liquid) and all equipment and supplies used to deliver oxygen to the
patient. These items will be rented monthly with no rental cap for three months
at a time as long as it is medically appropriate. After three months rental, an
authorization extension request by the provider must be accompanied with a
follow up test of the initial indications, performed within the final 30 days of
that 90-day period. Payments for stationary oxygen system rentals and for oxygen
provided to members are included. The provider must bill on a monthly basis for
all covered oxygen equipment and/or oxygen contents furnished during a month,
regardless of the number of times delivery of oxygen or equipment was made in
that month. Because the monthly payment is all inclusive, the single monthly
bill must show each reported HCPCS oxygen/equipment code only once. Further:
a. All stationary liquid oxygen systems shall include a portable liquid
oxygen set at no additional charge.
b. All oxygen concentrator and compressed oxygen stationary system
rentals must include a standby E tank at no additional charge.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
HCPC CODE DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------
E0424-E0425 Gaseous Oxygen System, Stationary $220.64
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0430-E0431 Gaseous Oxygen System, Portable $34.68
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0434-E0435 Liquid Oxygen System, Portable $34.68
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0439-E0440 Liquid Oxygen System, Stationary $220.64
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0452 BiPAP-S $211.46
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0480 Precussor - Variable Speed $37.09
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0550 Humidifier Jar/Cover (Heated) $43.03
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
EO560 Humidifier $17.25
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0565 Compressor, Jar $52.38
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0570 Nebulizer, w/ Compressor $16.94
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0575 Nebulizer, Ultrasonic $88.23
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0600 Suction Pump - Home Model $39.30
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E0601 CPAP (excluding accessories) $90.36
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
E1400-E1404 Oxygen Concentrators (all) $220.64
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
6. SURGICAL DRESSINGS (SD). This category include supplies required to care for
surgical and non-surgical wounds that shall be purchased. However, FHS will not
reimburse the provider for these items on the day of a visit provided by a home
health agency or other health care providers.
7. SUPPLIES (SU). This category include supplies such as blood glucose test
strips, lancets, etc. that shall be purchased. However, FHS will NOT reimburse
the provider for these items if the care is provided by a home health agency or
care providers.
8. TRANSCUTANEOUS ELECTRICAL NERVE STIMULATORS (TENS) (TE). This category
includes only E0720 and E0730. TENS is a device which utilizes electrical
current delivered through electrodes placed on the surface of the skin to
decrease the patients perception of pain by inhibiting the transmission of
afferent pain nerve impulses and/or stimulating the release of endorphins.
Unless TENS units are purchased, supplies for the unit are included in the
rental allowance - i.e., there is no additional allowance for electrodes
(A4558), lead wires, batteries (A4630) etc.
Conditions:
1. All purchased or rental equipment shall include all medically necessary
supplies and training, to ensure delivery of the treatment prescribed.
2. FHS shall not reimburse:
o For delivery and pick up of the rented/purchased item.
o For training of the patient and/or the family on the use of the item.
o For after hours, weekend, holiday availability for delivery of
o rental/purchased DME.
3. FHS shall reimburse PROVIDER at sixty five percent (65%) of billed charges
for any HCPCS codes that are not listed in the DME fee schedule.
4. PROVIDER agrees that in no event shall total rental reimbursement exceed
the purchase price of an item.
IV. PERINATAL SERVICES:
Included in the per diem rates are all supplies, medications, nursing,
and equipment. If additional services are indicated for pre-term labor
services, i.e. hydration therapy, TPN, antibiotics, or other IV
medications, PROVIDER will be reimbursed for such services in accordance
to the fee for service rate schedule in addition to the per diem rates
below:
<TABLE>
<S> <C> <C>
1. Level I Intrauterine monitor with or without oral tocolytic therapy $ 75.00 per day
2. Level II Intrauterine monitor and subcutaneous tocolytic therapy $248.00 per day
subcutaneous tocolytic therapy
3. Perinatal Non-Stress Test (one fetus) $125.00 per test
Perinatal Non-Stress Test (two fetuses) $185.00 per test
</TABLE>
V. HOSPICE CARE SERVICES:
FHS shall reimburse PROVIDER the lesser of: (a) the per diem rates indicated
below; or (b) the Medicare Allowable rates.
Level of Care Per Diem Rate
- ------------- -------------
Hospice Level 1 $95.00
Hospice Level 2 $45.00
Hospice Level 3 $195.00
Hospice Level 4 $300.00
<PAGE>
1. The Hospice Levels shall include the following:
Hospice Level 1 - This is designed to meet the needs of the hospice patient who
has a primary care giver in the home. The attendant/home aide component has a
maximum of 20 hours a week.
Hospice Level 2 - This level is designed to meet the needs of the hospice
patient who has a primary care giver in the home. The attendant/home health aide
component has a maximum of 60 hours a week.
Hospice Level 3 - This level is designed to meet the needs of the hospice
patient who has a primary care giver in the home. The attendant/home health aide
component has a maximum of 80 hours a week.
Hospice Level 4 - This level is designed to meet the needs of the hospice
patient who has no primary care giver in the home environment. The attendant/
home component has a maximum of 168 hours a week.
2. Services included in the per diem include, but are not limited to:
o medical and skilled nursing care
o home health aid/home maker services/paraprofessional attendants
o medical social services
o spiritual care
o bereavement and other counseling services
o volunteer assistance
o physical therapy/occupational therapy/speech therapy
o pain control/IV pain control/hydration
o nutritional counseling
o services ordered by the physician
o medications related to the terminal diagnosis
o Durable Medical Equipment to provide a safe home environment
o supplies and ordinary dressings
o maintenance care and training
3. Physical, occupational, and speech therapy for hospice patients is limited to
skilled services when improvement is expected within 60 days. Frequency of these
and other services is based on the need of the individual as reflected by the
individualized plan of care developed by PROVIDER's interdisciplinary team,
under the attending physician and authorized by FHS. The individual plan may
include, but is not limited to:
o pain and symptom control
o teaching and assisting the family in caring for the patient at
o counseling to the family for coping with terminal illness and death
o help in arranging for equipment and supplies
VI. NOTES:
1. Therapies not listed will be negotiated on a case by case basis.
2. PROVIDER agrees that the rates listed in the fee schedule contained in this
exhibit are all-inclusive and that no additional charges for such services as
in-hospital or nursing assessments, travel time, supplies, training, case
management, forms and billing, weekend or evening differentials, overtime, or
other charges will be billed to or reimbursed by FHS.
CONFIDENTIAL, PROPRIETARY AND TRADE SECRET
<PAGE>
Exhibit 11
Option Care, Inc.
Statement re: Computation of Per Share Earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ---------
Net income (loss)..................... $( 2,097) $ (20,256) $ 2,988
========= ========== =========
Shares issued and outstanding......... 10,571 10,415 10,436
Weighted average shares issued........ 84 79 9
Weighted average shares retired....... --- --- (14)
--------- --------- ---------
Weighted average common shares
outstanding......................... 10,655 10,494 10,431
--------- --------- ---------
Additional shares included assuming
exercise of stock options using
treasury stock method............... --- --- 69
Weighted average common and
common equivalent shares............ 10,655 10,494 10,500
========== ========= =========
Net income (loss) per common shares
outstanding (basic)................. $ (0.20) $ (1.93) $ 0.29
========== ========= =========
Net income (loss) per common and
common equivalent shares (diluted).. $ (0.20) $ (1.93) $ 0.28
========== ========= =========
</TABLE>
<PAGE>
Exhibit 21
Option Care, Inc.
Listing of Subsidiaries of the Registrant
Option Care, Inc. (Delaware corporation)
Option Care, Inc. (California corporation) (Franchising company)
Option Care Capital Services, Inc. (Delaware corporation) (Finance company)
Option Care Enterprises, Inc. (Delaware corporation)
Home Care of Columbia, Inc. (Missouri corporation)
Young's I.V. Therapy, Inc. (Pennsylvania corporation) (80% owned)
Rehab Options, Inc. (Missouri corporation)
North County Home I.V., Inc. (California corporation)
Option Care Hospice, Inc. (Missouri corporation)
Option Care Home Health, Inc. (Ohio corporation)
Management by Information, Inc. (Delaware corporation)
Cordesys Healthcare Management, Inc. (Delaware corporation)
Women's Health of Optioncare, Inc. (Delaware corporation)
Option Care of Oklahoma, Inc. (Delaware corporation)
Option Care of Denver, Inc. (Delaware corporation)
Option Care Home Health of California, Inc. (Delaware corporation)
Option Home Health Care, Inc. (Delaware corporation)
Option Care Home Health of Los Angeles, Inc. (Delaware corporation)
Option Care Home Health of Coweta, Inc. (Delaware corporation)
Entities listed above are all wholly-owned subsidiaries, except as indicated.
<PAGE>
Exhibit 23
Option Care, Inc.
Consent of Independent Accountants
The Board of Directors
Option Care, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
33-47436 and 33-98256 on Form S-8 of Option Care, Inc. of our reports dated
March 26, 1998, relating to the consolidated balance sheets of Option Care, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows and related
schedule for each of the years in the three-year period ended December 31, 1997,
which reports appear in this December 31, 1997 annual report on Form 10-K of
Option Care, Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 34,138,000
<ALLOWANCES> 0
<INVENTORY> 2,289,000
<CURRENT-ASSETS> 42,052,000
<PP&E> 5,865,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,639,000
<CURRENT-LIABILITIES> 17,846,000
<BONDS> 0
0
0
<COMMON> 108,000
<OTHER-SE> 21,869,000
<TOTAL-LIABILITY-AND-EQUITY> 68,639,000
<SALES> 0
<TOTAL-REVENUES> 99,977,000
<CGS> 79,143,000
<TOTAL-COSTS> 102,170,000
<OTHER-EXPENSES> (567,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,711,000
<INCOME-PRETAX> (3,337,000)
<INCOME-TAX> (1,240,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,097,000)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
