<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q/A AMENDMENT NUMBER 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 number 0-27502
---------
HEALTH SYSTEMS DESIGN CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 38-1895876
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1330 Broadway Oakland, California 94612
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 763-2629
----------------
Not applicable
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(Former name, former address and former fiscal year if changed from last
report.)
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. [X] Yes (as to 1) [X] No (as to 2)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock Outstanding as of March 31, 1996 6,408,621
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Form 10-Q/A
HEALTH SYSTEMS DESIGN CORPORATION Amendment Number 1
Item 6 of the Quarterly Report filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended March 31, 1996 is
hereby amended in full as follows:
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. EXHIBIT
10.26 License, Support and Services Agreements,
dated March 25, 1996 between the Registrant
and Blue Cross/Blue Shield of Florida.*
11.1 Statement re: computation of earnings per
share.
(b) No reports on Form 8-K were filed for the period being reported.
- - --------------------------
* Certain portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
Form 10-Q/A
HEALTH SYSTEMS DESIGN CORPORATION Amendment Number 1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH SYSTEMS DESIGN CORPORATION
---------------------------------------
Registrant
Dated: August 12, 1996 /s/ Richard C. Auger
-------------------- ---------------------------------------
Richard C. Auger, Chairman of the Board
and Chief Executive Officer
/s/ Richard E. Malone
---------------------------------------
Richard E. Malone, Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE NO.
----------- ------- --------
10.26 License, Support and Services Agreements, dated March
25, 1996 between the Registrant and Blue Cross/Blue
Shield of Florida.*
- - --------------------------
* Certain portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
SOFTWARE LICENSE AGREEMENT
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1. LICENSE
Blue Cross and Blue Shield of Florida, Inc. ("Customer"), hereby enters
into a Licensing Agreement with Health Systems Design Corporation ("HSD"),
a California corporation, for the use of the software application known as
Diamond Client/Server, developed and owned by HSD.
2. PROPRIETARY RIGHTS
The Customer acknowledges that Diamond Client/Server ("the Product")
is proprietary and the property of HSD. The Product may not be copied
in whole or in part except for archive purposes or to move the Product
to another of the Customer's computers. The license to use the
Product is non-exclusive and non-transferable to any other
organization, individual, or legal entity. The Customer shall not
sell, assign, rent, reproduce, develop derivative products, or use the
Product in a service bureau arrangement.
3. WARRANTY
HSD warrants only that the Product will perform as described in the Diamond
Client/Server User Documentation, the Diamond Client/Server Installation
Manual, and performance standards documented in any generally available
marketing material published by HSD current at the time of delivery for
a period of one hundred and eighty (180) days from the first use of the
Product in a production environment ("Production"), provided the Product
has not been modified by Customer or Customer's agents, or improperly used
or maintained. THERE ARE NO OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
4. LIMITATION OF LIABILITY
In no event shall HSD be liable for consequential damages, loss of profits,
or other special damages, even if HSD has been apprised of likelihood of
the same. In no event shall HSD be liable for an amount greater than
the amount of monies previously paid by Customer to HSD under the terms
of this Agreement. The foregoing limitation of liability provisions do not
apply to any claims by any third parties that the software supplied by
HSD infringes a United States patent or other
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copyright or to damages resulting from personal injury caused, in whole
or in part, by HSD's negligence.
5. ACCEPTANCE
5.1 Customer shall have a period of ninety (90) days following
Production to ascertain the Product's material compliance with
the Diamond Client/Server User Documentation, the Diamond
Client/Server Installation Manual, and performance standards
documented in any generally available marketing material
published by HSD current at the time of delivery. Customer shall
have accepted the Product when Customer notifies HSD of
compliance ninety (90) days following Production or Customer shall
have rejected the Product when Customer notifies HSD of non-compliance
ninety (90) days following Production. Upon notification of
non-compliance, HSD shall thereafter make its best efforts to correct
any non-compliance within thirty (30) business days of notification
of each and every issue and shall notify BLBSF upon completion of
such correction.
5.2 In the event the Product fails to achieve compliance during the
ninety (90) day period, Customer shall immediately notify HSD
thereof, specifying the exact nature of the non-compliance. HSD
shall thereafter make its best efforts to correct any non-
compliance within ten (10) business days of notification of each
and every issue and shall notify Customer upon completion of such
correction.
5.3 If at any time prior to Acceptance there is reasonable evidence
that the Product shall not be made to comply by HSD, Customer may
terminate this Agreement and HSD shall refund to Customer all
monies previously paid by Customer to HSD under the terms of this
Agreement.
6. LICENSE FEES
6.1 The one-time license fee for the Product and the manner of
payment is set forth in Schedule A.
6.2 The license fee set forth in Schedule A is based upon the number
of unique members with at least one day of eligibility during
each month (the number of "Members") processed by the Product.
Members are defined as those individuals whom Customer defines as
holding Membership status. In the
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event that the number of Members processed by the Product
increases beyond the number of Members initially licensed under
this Agreement, the difference between the amount of license fee
paid to HSD and the amount due for the increased number of
Members as shown in Schedule A shall be due and payable to HSD.
Customer will report the number of unique Members on a semi annual
basis to HSD using a mutually acceptable reporting format. HSD
reserves the right to verify the accuracy of this Membership report
with the help of Customer.
6.3 If, for operational reasons, the Customer chooses to operate the
server software executable on multiple computer, Customer shall
keep a record of the make, model, and location of each computer
on which the server software executable resides. Customer shall
make such record available to HSD upon request.
6.4 The license for the Product applies to Customer operating the
Product solely for the administration of Customer's members.
6.5 All local, state, and federal sales, use, personal property, or
other similar taxes or duties relating to this license or to
Customer's operation of the Product shall be the exclusive
obligation of Customer. Payment of said taxes shall be
Customer's obligation independent of its obligation to pay
License Fees.
7. THIRD PARTY PRODUCTS
7.1 The database, Oracle, is not an HSD product and is not licensed
under this Agreement. License fees for Oracle are not included
in the fees specified in Schedule A. Customer shall enter into a
separate license agreement for Oracle. Customer shall order
Oracle, including all upgrades, through either HSD or Oracle.
Should Customer order Oracle through HSD, Oracle, HSD shall
invoice Customer for Oracle license fees at the time of Customer
order. Should Customer order Oracle through Oracle for use with
the product, Customer shall inform Oracle that the order is the
direct result of the Product and HSD.
7.2 The Product uses IQ, from IQ Software, as a report generator
under a Remarketer Agreement between HSD and IQ Software. IQ
Software shall be entitled to the benefit of the obligations
incurred by Customer as defined in Paragraph 2. Proprietary
Rights, 3. Warranty, and 10. Confidentiality of this Software
License Agreement when interpreted in the context of IQ and IQ
Software. HSD shall invoice Customer for IQ license fees at the
time of Customer order. Current fees for IQ are identified in
Schedule C.
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8. ADDITIONAL
8.1 The parties shall execute a Support Agreement simultaneously with
the execution of this Agreement.
8.2 The parties shall execute a Services Agreement simultaneously
with the execution of this Agreement.
9. TERM AND TERMINATION
9.1 The term of the license shall be perpetual.
9.2 If either party fails to observe or perform any material
obligation under this Agreement, the non-defaulting party may
give written notice of breach specifying the material default.
This Agreement may be terminated by the non-defaulting party
thirty (30) days after the date of such notice unless (a) the
material failure is corrected within such thirty (30) day period;
or (b) if it is not possible to correct within such thirty (30)
days, the defaulting party commences correction within thirty
(30) days and proceeds diligently to a cure. No breach has
taken place if the dispute has been submitted to arbitration as
specified in 13.2 and performance is according to the arbitration
decision.
9.3 Upon termination of this Agreement, the Customer shall, within
ten (10) days, return to HSD the software and all copies of the
software as well as the documentation and all copies of the
documentation. If termination is due to a breach by HSD, HSD
shall promptly refund any License Fees paid by customer to HSD.
If termination is by HSD or by mutual consent, Customer shall pay
all outstanding fees to HSD.
9.4 This Agreement shall not automatically terminate upon the
termination of the Support Agreement.
10. PATENT AND COPYRIGHT WARRANTY
10.1 At HSD's expense, HSD shall defend Customer against any claim
that the Product infringes upon any intellectual property rights,
including patent or copyright infringement, and shall pay all costs
and damages that a court awards as a result of such claim, the full
amount of any settlement, and Customer's reasonable attorney's fees
incurred in its defense of such claims. To qualify for such defense
and payment, Customer must: (1) give HSD prompt written notice for
such claim; and (2)
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allow HSD to control the defense and all related negotiations in
connection with any such claims, except that any decision to settle
and compromise any such claim shall be contingent upon first receiving
written approval by BCBSF, which shall not be reasonably withheld.
BCBSF also agrees to cooperate fully with HSD in the defense and
related negotiations of any such claims.
10.2 Customer agrees that if the operation of the Product becomes, or
in the opinion of HSD is likely to become the subject of a patent
or copyright infringement claim, Customer will permit HSD, at
HSD's option and expense, to: (1) promptly procure for Customer
the right to continue to use the Product; or (2) replace the
Product with alternatives that are substantially equivalent on
all material functions of the Product; or (3) modify the Product
in a manner which causes it to function substantially the same as
it had prior to modification, so that it becomes non-infringing.
Such modification will not alter the intended use of the Product.
If HSD is unable to provide Customer with any of the options set
forth above, Customer may terminate this Agreement and HSD shall
refund to Customer all monies previously paid by Customer to HSD
under the terms of this Agreement.
10.3 The provisions of this section state HSD's entire obligation to
Customer regarding patent or copyright infringement. Nothing in
these provisions shall be deemed to grant Customer any rights in
regard to modifications of the Product or use of the Product in a
manner in which it was not intended to be used in excess of those
otherwise granted under and pursuant to the terms of this
Agreement.
11. CONFIDENTIALITY
11.1 Each party agrees that it shall not, without prior written
consent of the other party, use, reproduce, disclose, or provide
to third parties any confidential documents or information
obtained from or relating to the other party, including but not
limited to the following:
11.1.1 All documents and other materials, including memoranda,
position descriptions, handbooks, financial statements,
client lists, and audio or visual recordings;
11.1.2 All methods, techniques, programs and procedures
utilized by the respective party; and
11.1.3 All trademarks, trade names, and service marks.
11.1.4 All member or patient identifiable medical information.
11.2 Upon termination of this Agreement by either party for any
reason, each party shall immediately return to the other any and
all of the above items
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and all copies thereof and shall remain obligated not to use,
reproduce, disclose or provide such items or information to third
parties.
12. NON-SOLICITATION OF PERSONNEL
HSD and Customer agree that during the term of this Agreement, neither
party shall solicit, hire for employment, retain, or use the services
of any past or present personnel employed by the other party without
prior written consent of the other party.
13. MISCELLANEOUS
13.1 All notices given hereunder shall be in writing and sent by
certified mail, return receipt requested, or an internationally
recognized courier service.
13.2 Any disputes between the Customer and HSD regarding this
Agreement shall be settled by an interim steering committee
representing both parties. HSD and Customer shall mutually agree
on the members of the interim steering committee. Should the
interim steering committee fail to resolve the dispute, then any
controversy, dispute, or claim of whatever nature arising out of,
in connection with, or in relation to the interpretation ,
performance or breach of this agreement, including any claim
based on contract, tort, or statute, shall be settled, at the
request of any party to this Agreement, by non-binding
arbitration pursuant to the rules of the American Arbitration
Association. Any dispute shall be submitted to arbitration at
the location of the city of the headquarters of the party not
initiating the arbitration, and the law applied shall be the law
of the state in which the arbitration is held, without reference
to choice of law. Depositions may be taken and discovery may
be obtained in any arbitration under this Agreement.
The arbitrator shall determine which is the prevailing party and
shall include in the award that party's reasonable attorneys'
fees and costs. As soon as practicable after selection of the
arbitrator, the arbitrator or his/her designated representative
shall determine a reasonable estimate of anticipated fees and
costs of the arbitrator and render a statement to each party
setting forth that party's pro rata share of said fees and costs.
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13.3 HSD agrees to identify to BCBSF all back-doors and predefined
default users and passwords associated with the Product. HSD will
notify BCBSF of any integrity exposures detected in its Prodcut and
provide service updates to rectify such problems to the extent they
can be rectified within the Product.
13.4 Should HSD or any of its successor organizations cease to do
business for any reason or be rendered incapable of providing
technical support in a manner consistent with the Terms and Conditions
of this Agreement, Customer shall request in writing and shall receive
delivery of the then most current Source Code for the Product
14. LATE PAYMENTS
14.1 If Customer fails to make any payment due, HSD may give written
notice to Customer ("Notice") and Customer shall have ten (10)
days from the date of such notice to cure the default.
14.2 In the event Customer has not made payment within ten days of
receipt of Notice, Customer agrees to pay a late fee calculated
at an annual rate of 12% and a processing fee of $250.00 to cover
the administrative costs relating to collecting and accounting
for late payments.
14.3 This provision of late charges does not apply to any charges
which the Customer in good faith contests as being due by
notifying HSD of the contested charges within fifteen (15) days
of receipt of the invoice containing the charges. Customer may
withhold amounts contested in good faith until resolved, while
all uncontested charges on an invoice remain due and payable.
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SCHEDULES
The following schedules attached to this Agreement are part of this
Agreement:
Schedule A - License and Support Fees
Schedule B - Addendum to Subcontract Under the Health Insurance for the
Aged and Disabled Act
Schedule C- Current IQ Fees
CUSTOMER BLUE CROSS BLUE SHIELD OF FLORIDA HEALTH SYSTEMS DESIGN CORPORATION
Signed /s/ David Dingfield Signed /s/ Richard E. Malone
---------------------------------- --------------------------
Name David Dingfield Name Richard E. Malone
---------------------------------- ----------------------------
Please print name
Title VP, IS&O Title CFO
---------------------------------- ----------------------------
Please print title
Date 3-1-96 Date 3-25-96
----------------------------------- -----------------------------
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SCHEDULE A - LICENSE AND SUPPORT FEES
Base License Fee
DIAMOND CLIENT/SERVER SYSTEM [ * ]
Core system includes Membership, Group Accounting, Utilization,
Claims Processing, Pre-pricing, Capitation, Premium Billing,
Pre-Authorization, Electronic Batch (EDI) Claims Processing,
Electronic Eligibility, Medical AP, Provider Module, Letters,
and System Manager Modules.
OPTIONAL MODULES
IQ Report Writer [ * ]
Source Code [ * ]
LICENSE FEE TIER PRICING
[ * ]
* Confidential portions omitted and filed separately with the Commission.
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SCHEDULE A - (CONTINUED)
MANNER OF PAYMENT
Initial License Fee
[ * ]
Optional Module License Fees Purchased at a Later Date
[ * ]
Support Fee - [ * ]
[ * ]
* Confidential portions omitted and filed separately with the Commission.
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SCHEDULE C - CURRENT IQ FEES
IQ and IQ Access for Windows
Number of copies License Fee
(clients) /User Support Fee
1-9 $750 15% of license fees / year
10-25 $675 "
26-50 $600 "
51-99 $525 "
100+ $450 "
Server Runtime Version
Price varies by machine class, ranging from $2,000 to $25,000
Support fees are 15% of license fees / year
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SUPPORT AGREEMENT
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1. AGREEMENT
The undersigned ("Customer"), hereby enters into a Support Agreement with
Health Systems Design Corporation ("HSD"), a California corporation.
This Agreement is entered into simultaneously and in connection with the
Software License Agreement between Customer and HSD. All capitalized terms
in this Agreement and not otherwise defined herein shall have the meaning
ascribed to them as in the License Agreement.
2. SERVICES
2.1 HSD shall, in a timely and diligent manner, provide corrections to any
material programming error attributable to HSD, either by replacing
the Customer's copy of the Product with a corrected copy, or by taking
other corrective action.
2.2 HSD shall provide direct telephone assistance to Customer's Help Desk
(see paragraph 3.3) between the hours of 6:30 AM and 5:00 PM Pacific
Coast time during regular HSD business days. HSD recognizes New
Year's day, Presidents' Day Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas Day. Additional hours of telephone
support may be extended as mutually agreed upon by HSD and Customer.
The purpose of the telephone assistance is to explain the Product's
features and use; clarify the user documentation; provide guidance
in the use of the Product; assist in identifying software problems,
data problems, or other related problems; and correct such problems.
HSD shall provide Customer with a toll-free "800" phone number for
such telephone assistance.
2.3 Problems shall generally be handled in accordance with the following
procedures:
2.3.1 Phone inquiries and problem reports will be initially
responded to by return call or immediate assistance. Calls
will be triaged in order to meet critical needs efficiently.
2.3.2 As necessary for technical reasons in accordance with HSD
support staff judgment, or if requested by Customer, HSD
shall dial-in to Customer's computer to investigate,
duplicate, and/or resolve problems. Dial-in will take place
as soon as possible, recognizing that Customer must provide
access to its computer and be notified any time HSD wants
such access.
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2.3.3 Whenever it is mutually agreed by HSD and Customer that the
most expedient or efficient way to resolve a Customer
problem is for HSD to provide onsite technical staff, HSD
will provide that staff within an agreed timeframe.
2.4 HSD shall provide the Customer with Product modifications,
enhancements, and upgrades generally made available to HSD's other
Product licensees. These modifications, enhancements, and upgrades
will be issued by HSD approximately twice each calendar year. There
will be no additional charge beyond monthly support fees for those
standard Product modifications, enhancements, or upgrades.
2.5 HSD shall provide Customer with one onsite visit of up to four (4)
business days by a qualified HSD client analyst and/or senior manager
at least once every twelve (12) months. The services rendered by HSD
during this onsite visit shall be negotiated by HSD and Customer to
include, but not be limited to, user training, business requirements
analysis, Product functionality walk throughs or presentations,
introduction of new Product features and/or modules, assistance in
Product modification development, and problem resolution.
3. CUSTOMER OBLIGATIONS
3.1 Customer shall maintain a proper onsite environment for the Product
and perform system and data backups as set forth in the Product user
manuals. Customer shall provide the dedicated 14400 baud modem and
dedicated phone line necessary for HSD to have dial-in access as
described in paragraph 2.3.2 above.
3.2 Customer shall remain on a version of the Product which is no more
than one numbered, major release behind the current Product versions
at all times.
3.3 Customer shall maintain one centralized team (the "Help Desk") to
support all of Customer's users across Customer's various locations on
the use of the Product. All support calls to HSD shall be made by
this Help Desk.
3.4 If HSD performs services hereunder to correct problems caused by
modifications to the Product made by Customer or Customer's agents, or
if HSD performs services hereunder to correct problems on a version of
the software more than one, numbered major release behind the current
versions, then Customer shall reimburse HSD for time and materials as
billed by HSD at its standard hourly rate.
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4. PRICE AND PAYMENT
4.1 The monthly support fee for HSD's services shall be determined by
Schedule A of the License Agreement. In the event that Customer at
any time pays an additional user fee pursuant to Paragraph 6.2 of the
License Agreement, such monthly fee shall be adjusted accordingly.
4.2 Customer shall reimburse HSD for reasonable and documented
out-of-pocket expenses including but not limited to travel, telephone
charges, and expedited delivery incurred by HSD in the performance of
its duties.
4.3 Support fees and out-of-pocket expenses shall be billed monthly.
5. TERM AND TERMINATION
5.1 The term of this Agreement shall commence thirty (30) days after first
production use of the Product and shall expire one (1) year
thereafter. This Agreement shall be automatically extended for a
series of one (1) year terms unless either party notifies the other
party of intent not to renew ninety (90) days prior to the expiration
of the then current term.
5.2 If either party fails to observe or perform any material obligation
under this Agreement, the non-defaulting party may give written notice
of breach specifying the material default. This Agreement may be
terminated by the non-defaulting party thirty (30) days after the date
of such notice unless (a) the material failure is corrected within
such thirty (30) day period; or (b) if it is not possible to correct
within such thirty (30) days, the defaulting party commences
correction within thirty (30) days and proceeds diligently to a cure.
No breach has taken place if the dispute has been submitted to
arbitration as specified in 8.2 and performance is according to the
arbitration decision.
6. LATE PAYMENTS
6.1 If Customer fails to make any payment due, HSD may give written notice
to Customer ("Notice") and Customer shall have ten (10) days from the
date of such notice to cure the default.
6.2 In the event Customer has not made payment within ten days of receipt
of First Notice, Customer agrees to pay a late fee calculated at an
annual rate of 12% and processing fee of $250.00 to cover the
administrative costs relating to collecting and accounting for late
payments.
6.3 This provision of late charges does not apply to any charges which
the Customer in good faith contests as being due by notifying HSD of
the contested charges within fifteen (15) days of receipt of the
invoice
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containing the charges. Customer may withhold amounts contested in
good faith until resolved while all uncontested charges on an invoice
remain due and payable.
7. LIMITATION OF LIABILITY
In no event shall HSD be liable for consequential damages, loss of profits,
or other special damages, even if HSD has been apprised of likelihood of
the same. In no event shall HSD be liable for an amount greater than the
amount of monies previously paid by Customer to HSD under the terms of this
Agreement, except that this limitation of liability does not apply to any
claims by any third parties that the software supplied by HSD infringes a
United States patent or other copyright.
8. MISCELLANEOUS
8.1 All notices given hereunder shall be in writing and sent by certified
mail, return receipt requested, or a nationally recognized courier
service.
8.2 Any disputes between the Customer and HSD regarding this Agreement
shall be settled by an interim steering committee representing both
parties. HSD and Customer shall mutually agree on the members of the
interim steering committee. Should the interim steering committee
fail to resolve the dispute, then any controversy, dispute, or claim
of whatever nature arising out of, in connection with, or in relation
to the interpretation, performance or breach of this agreement,
including any claim based on contract, tort, or statute, shall be
settled, at the request of any party to this Agreement, by non-binding
arbitration pursuant to the rules of the American Arbitration
Association. Any dispute shall be submitted to arbitration at the
location of the city of the headquarters of the party not initiating
the arbitration, and the law applied shall be the law of the state in
which the arbitration is held, without reference to choice of law.
Any judgment upon any award rendered by the arbitrators may be entered
by any state or federal court having jurisdiction thereof.
Depositions may be taken and discovery may be obtained in any
arbitration under this Agreement. The arbitrator shall determine which
is the prevailing party and shall include in the award that party's
reasonable attorneys' fees and costs. As soon as practicable after
selection of the arbitrator, the arbitrator or his/her designated
representative shall determine a reasonable estimate of anticipated
fees and costs of the arbitrator and render a statement to each party
setting forth that party's pro rata share of said fees and costs.
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8.3 Neither party shall be permitted to assign its rights or interest in
this Agreement or its duties and responsibilities hereunder without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Notwithstanding the above sentence, BCBSF may
assign this Agreement to a subsidiary or affiliate company upon written
notice to HSD. Any attempted assignment or delegation in contravention
of the above provision shall be void and ineffective.
SCHEDULES
The following schedules attached to this Agreement are part of this
Agreement:
Schedule A - Addendum to Subcontract Under the Health Insurance for the
Aged and Disabled Act
Schedule B - Support Fees payable to HSD
CUSTOMER BLUE CROSS BLUE HEALTH SYSTEMS DESIGN CORPORATION
SHIELD OF FLORIDA
Signed /s/ David Dingfield Signed /s/ Richard E. Malone
----------------------- ---------------------------
Name David Dingfield Name Richard E. Malone
------------------------- -----------------------------
Please print name
Title VP, IS&O Title CFO
------------------------ -------------------------------
Please print title
Date 3-1-96 Date 3/25/96
------------ --------------
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SCHEDULE B - Support Fees payable to HSD
Base License Fee
DIAMOND CLIENT/SERVER SYSTEM [ * ]
Core system includes Membership, Group Accounting, Utilization,
Claims Processing, Pre-pricing, Capitation, Premium Billing,
Pre-Authorization, Electronic Batch (EDI) Claims Processing,
Electronic Eligibility, Medical AP, Provider Module, Letters,
and System Manager Modules.
SUPPORT FEE TIER PRICING
[ * ]
SUPPORT FEE - [ * ]
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DIAMOND CLIENT/SERVER SERVICES AGREEMENT
- - --------------------------------------------------------------------------------
1. Introduction
Blue Cross Blue Shield of Florida ("BCBSF") desires to modify and implement
the Diamond Client/Server system ("the Product") from Health Systems Design
Corporation ("HSD") to use the Product as modified to perform managed care
administrative functionality. This Services Agreement identifies the
modifications and associated services BCBSF will purchase from HSD to
implement the Product. This Agreement replaces the Development Agreement
dated November 13, 1995 between the parties, and represents a continuation
of the efforts begun under such Development Agreement.
2. HSD Responsibilities
2.1 Software Load onto BCBSF Computer
Software loading will take place on site at BCBSF. BCBSF staff
members, including a UNIX administrator and a data base administrator
(DBA), are required to be present during software loading.
Installation includes loading the software, verifying that users can
print from Diamond, and dialing in to the client's modem. Prior to
this activity the network must be up and running in communication with
the UNIX server, the clients must also be loaded with the
communications software and communicating with the UNIX server, and
Oracle 7 must be in place. (HSD is not responsible for porting the
Product to hardware not supported by HSD should BCBSF choose to
install the Product on such hardware.)
2.2 Technical Training Session
The technical training session is designed for the BCBSF DBA, UNIX
administrator and LAN administrator. The session will cover:
- how to install Diamond Client/Server updates
- architectural overview of Diamond Client/Server
- software structure
- system backup strategy
- PowerBuilder access
- network considerations
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- user authorizations (UNIX and Oracle)
- client setup and maintenance
- Diamond utilities
2.3 Detailed Walkthrough of Product Functionality
The HSD project manager will conduct a detailed walkthrough of the
Product for BCBSF Implementation Team members on site at BCBSF.
2.4 Product User Training (including training on modifications)
The HSD project manager will train the implementation team members on
site at BCBSF. Training sessions in total will require approximately
30 business days, covering the following topics:
- Basic Windows training (if required)
- Group and membership
- Claims processing and adjudication
- Provider contracts
- Utilization review functions
- Premium billing
- Accounts receivable
- Accounts payable and PPO claims transmittals
- Medical Definitions
- Letters/listings
- Parameters/System management
- Capitation
- Customer Service
2.5 Technical Support
HSD will provide technical support during the term of this Agreement,
both on site at BCBSF and from the Oakland office.
2.6 Project Management Support
Primary responsibility for project management will reside with BCBSF.
HSD will provide project management support, including:
2.6.1 updating the status of each deliverable weekly,
2.6.2 attending design meetings, and
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2.6.3 participating in change management and project status
meetings.
2.7 Consulting
HSD provides consulting on system set up. Consulting may cover
recommendations on group coding schemes, suggestions for medical
definitions and adjudication rule set up and recommendations on
capitation model set up. Consulting may also cover attendance at
internal meetings to discuss implications of plan policy on Diamond
software.
The HSD project manager(s) will develop user requirements for
enhancements determined to be necessary.
2.8 Phone Support
Over the course of the implementation HSD provides phone support to
the implementation team, typically answering user and technical
questions about system functions, project plans and status.
2.9 System Audit
Prior to live cutover, HSD will conduct a file audit to verify that
files have been set up correctly and to identify problems that may
occur during conversion. File audit may occur onsite or via dial up,
and usually takes three person-days.
2.10 Development of Modifications
2.10.1 HSD will develop the modifications identified in Schedule A
using the process described in Paragraph 5.
2.10.2 Schedule A will be completed within 30 days of execution of
this Agreement.
3. BCBSF responsibilities
3.1 System Availability and Administration
To enable HSD to provide the services outlined above, BCBSF agrees
that a system administrator and DBA will be on staff and on site, the
operating
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system and Oracle7 loaded and available, printers configured, and the
network up and running in communication with the UNIX server prior to
HSD's visit to load the Product. In addition, the clients must also
be loaded with the communications software and communicating with the
UNIX server prior to loading the Product.
3.2 Project Manager
A qualified project manager must be assigned as the primary contact
for HSD. The BCBSF project manager is responsible for motivating
implementation team members to complete tasks within agreed upon time
frames and for providing daily user and technical support to
development team members.
3.3 Implementation Team
An implementation team must be established for the duration of the
project, including representation of all operational areas of BCBSF
including but not limited to claims, enrollment, finance, provider
relations and provider contracting, utilization management and quality
assurance, and MIS.
3.4 On site MIS support
When an HSD representative is on site, an MIS representative must be
available for release installation, setting up user profiles, network
access and problem resolution, ensuring dial-up access to HSD
technical staff, resolving miscellaneous system issues such as
security, authority and so forth.
3.5 Adequate Staff Time
Adequate BCBSF project staff time must be available for assigned
tasks.
3.6 Hardware Environments
BCBSF will maintain, at a minimum, demonstration, test, and production
environments on their hardware, and other environments as requested by
HSD for interface development.
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3.7 Dial-up Access
Dial-up access must be available to HSD for diagnosing and fixing
software and/or data problems, and permission granted by BCBSF to
access the Product programs and data on either a blanket or case-by-
case basis. Access can not be unreasonably denied. A dedicated
14,400-baud modem must be available for this purpose prior to the
first on site visit.
3.8 Requirements Signoff
BCBSF must execute timely signoff of user requirements and general
system design documents for desired modifications and programming
projects so that these projects can be completed in a timely and
efficient manner by HSD. (All approvals must be signed or
countersigned by the primary contact.)
3.9 Training Facilities
Training facilities, including overhead projector and LCD panel
(color) for all scheduled training classes, will be made available.
3.10 Meeting Schedule
BCBSF will schedule bi-weekly team meetings including the HSD project
manager to resolve team issues, document accomplishments, specify what
is to be done prior to the next meeting by HSD and BCBSF staff, and
arrange the HSD project manager's time for the next two weeks. In
general, team members must leave several blocks of time open when HSD
is onsite so that meetings can be scheduled for user-specific issues
such as training, support file decisions, transaction testing, and the
like.
4. HSD Project Staffing
4.1 Implementation and Training Services (Paragraphs 2.1 through 2.9)
HSD estimates that two FTE implementation analysts will be assigned
for the estimated duration of the project. The length of the BCBSF
implementation will be determined in the BCBSF project plan.
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4.2 Modification Team (Paragraph 2.10)
5 FTEs per month for the estimated duration of the project will be
assigned. This team will be composed of design, coding and testing
resources, and the mix of these resources may be adjusted by HSD over
the course of this project.
5. Modification Process
5.1 Development of General Systems Designs (GSDs)
5.1.1 HSD shall develop a GSD for each modification project with
input from BCBSF generated from initial design sessions.
5.2.2 BCBSF will sign-off on each modification's GSD before
programming and testing of that modification shall begin.
5.2 Programming and Unit Testing
HSD shall program, develop test plans and cases, and test all
modifications.
5.3 Integration Testing
Integration testing procedures will be mutually agreed to by HSD and
BCBSF.
5.4 User Documentation and Training Materials
5.4.1 HSD shall develop all user documentation.
5.4.2 HSD and BCBSF shall jointly develop training materials.
5.5 Delivery of Modifications
Modification delivery procedures will be mutually agreed to by HSD and
BCBSF.
5.6 Acceptance
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5.6.1 BCBSF shall have a period of thirty (30) days following the
delivery of each modification to ascertain that
modification's material compliance with its User
Documentation and its GSD. BCBSF shall have accepted the
modification when BCBSF notifies HSD of compliance, or
thirty (30) days following delivery should BCBSF neither
notify HSD of compliance or non-compliance.
5.6.2 In the event the modification fails to achieve compliance
during the thirty (30) day period, BCBSF shall immediately
notify HSD thereof, specifying the exact nature of the non-
compliance. HSD shall thereafter make its best efforts to
correct any non-compliance within ten (10) business days of
notification of each and every issue and shall notify BCBSF
upon completion of such correction.
5.7 Bug Fixes
HSD will provide fixes to documented modification errors at no charge
to BCBSF for the term of this Agreement.
6. Change Management Process
6.1 Any changes to the list of modification projects on Schedule A must be
signed off in writing by both parties.
6.2 Any change to the scope of a modification project as defined by a
material change to the GSD must be signed off in writing by both
parties. To the extent such change decreases or increases the
estimated development days, Schedule A must be updated.
6.3 If at any time HSD believes that the level of effort required to
complete a modification project described in Schedule A exceeds the
original estimate by more than 25% DUE TO NO FAULT OF HSD, HSD will
immediately notify BCBSF thereof. HSD and BCBSF shall mutually
determine the appropriate course of action which may include reducing
the scope of the modification, increasing the compensation to be paid
HSD, or taking no action at all.
6.4 Services outside the scope of this Agreement shall be pre-approved
by a authorized BCBSF representative designated by the BCBSF Vice
President of IS & O, and billed monthly at a rate of $1,500 per day.
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7. Warranty
7.1 HSD warrants that all services shall be of professional quality
conforming to generally accepted data processing standards.
7.2 HSD warrants that each modification will work in all material respects
in accordance with its documentation and its GSD.
8. Limitation of Liability
HSD's sole obligation or liability under the terms of this Agreement is to
correct or replace work which does not meet generally accepted data
processing standards or does not work in all material respects in
accordance with its documentation or GSD.
9.1 Each party agrees that it shall not, without prior written consent of
the other party, use, reproduce, disclose, or provide to third parties
any confidential documents or information obtained from or relating to
the other party, including but not limited to the following:
9.1.1 All documents and other materials, including memoranda,
position descriptions, handbooks, financial statements,
client lists, and audio or visual recordings;
9.1.2 All methods, techniques, and procedures utilized by the
respective party; and
9.1.3 All trademarks, trade names, and service marks.
9.2 Upon termination of this Agreement by either party for any reason,
each party shall immediately return to the other any and all of the
above items and all copies thereof and shall remain obligated not to
use, reproduce, disclose or provide such items or information to third
parties.
10. Employees, Facilities and Expenses
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10.1 HSD, and its employees (if any), are independent contractors
and not employees of BCBSF. Neither HSD nor any of its employees
shall hold themselves out as agents or employees of BCBSF in
connection with the performance of this Agreement or any other
matter. HSD agrees that all services will be performed by employees
or agents of HSD. HSD is responsible for compliance with applicable
federal and state laws and specifically assumes exclusive
responsibility for payment of all taxes or contributions which,
under such laws, may be payable based on the amount paid by BCBSF
to HSD, including, by way of illustration but not limitation,
federal and state income taxes; social security taxes;
unemployement compensation taxes; worker's compensation premiums or
assessment; and any other taxes, assessments, or business license
fees required. At no time shall HSD make any commitments or incur
any charges or expenses for, or in the name of, BCBSF. HSD
acknowledges that none of HSD's employees are entitled to
participate in any of BCBSF's benefit plans, even if a court or
administrative body determines that any employee of HSD is an
employee of BCBSF.
10.2 HSD and BCBSF agree that during the term of this Agreement, neither
party shall solicit, hire for employment, retain, or use the services
of any past or present personnel employed by the other party without
prior written consent of the other party.
10.3 HSD employees performing work at BCBSF will be supplied with
reasonable work and storage facilities, clerical supplies, computer
terminals, CPU time, and phone services at no charge as
necessary to complete the work under this Agreement.
10.4 BCBSF is responsible for the reasonable and documented travel expenses
of HSD employees associated with this Agreement in accordance with
HSD's travel policy. Out-of-pocket and travel expenses are limited to
reasonable costs directly related to transportation, lodging and meals
incurred in connection with the contemplated development and
implementation costs.
11. Ownership of Modifications
11.1 HSD shall retain all intellectual property rights to modifications
developed under the terms of this Agreement, including but not limited
to the right to license, copy, distribute, and develop derivative
products subject to paragraph 11.3 below.
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11.2 BCBSF shall have a right to use modifications developed under this
Agreement and the Development Agreement executed on November 13, 1995
by the parties under the terms in the Diamond Client/Server License
Agreement executed by the parties.
11.3 BCBSF shall identify any component of the modifications which contain
proprietary or confidential materials ("Proposed Confidential
Modifications"), and may request that HSD not include the Proposed
Confidential Modifications in Diamond Client/Server for general
distribution to HSD's clients. BCBSF shall make such request to
HSD before signing the GSD containing the Proposed Confidential
Modifications. Should HSD determine that it is technically feasible
to disassociate the Proposed Confidential Modifications from the
standard Diamond Client/Server product, HSD shall identify in the
GSD the portion of the design which is the Proposed Confidential
Modification. Upon approval of the GSD, the Proposed Confidential
Modification shall become an Approved Confidential Modification.
HSD shall not include any Approved Confidential Modifications in
the version of Diamond Client/Server available to the public without
prior written approval by BCBSF. Should HSD determine
that it is not technically feasible to disassociate the Proposed
Confidential Modifications from the standard Diamond Client/Server
product, Customer should have the right to request to make such
modifications independently. HSD will have the right to accept or
reject Customer Modifications within 30 days of delivery to HSD for
acceptance. If acceptable Customer shall use Product as if HSD had
made the Modifications as described above. If HSD rejects Customer's
modifications, Customer may use such Modifications, however, HSD's
sole obligation to Customer for use of the Product will be to use
reasonable efforts to provide support to Customer, and HSD will no
longer maintain any Warranty or Liability provisions of this
Agreement for the Product. The fees associated with the development
of the Approved Confidential Modifications shall not be included in
the total development fees used to calculate the maximum reimbursement
BCBSF may receive from HSD pursuant to paragraph 15.
12. Term and Termination
12.1 This Agreement shall terminate upon the later of completion and
acceptance of the deliverables in Schedule A or 30 days after cutover
to live processing.
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12.2 BCBSF may terminate this Agreement without cause upon sixty (60) days
written notice. Upon such notification, HSD shall immediately cease
work on all activities associated with this Agreement. BCBSF shall
pay HSD for all services performed though the notice of termination as
well as all services which would have been performed up to sixty (60)
days following HSD's receipt of such notification.
12.3 If either party fails to observe or perform any material obligation
under this Agreement, the non-defaulting party may give written notice
of breach specifying the material default. This Agreement may be
terminated by the non-defaulting party thirty (30) days after the date
of such notice unless (a) the material failure is corrected within
such thirty (30) day period; or (b) if it is not possible to correct
within such thirty (30) days, the defaulting party commences
correction within thirty (30) days and proceeds diligently to a cure.
No breach has taken place if the dispute has been submitted to
arbitration as specified in 16.2 and performance is according to the
arbitration decision.
13. Payment
13.1 For Implementation Services (Paragraphs 2.1 through 2.9):
13.1.1 The cost of each FTE implementation analyst is [ *
]
13.1.2 Should BCBSF request more than [ * ],
HSD shall make its best efforts to accommodate
BCBSF's request. Charges for the additional [ * ]
13.2 For Modification Services (Paragraph 2.10):
13.1.1 The cost of the [ * ]
13.2.2 The modification services required for BCBSF to implement
the Product may not require the same timeframe as the
implementation services. [ * ]
* Confidential portions omitted and filed separately with the
Commission.
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[ * ]
13.2.3 HSD and BCBSF executed a Development Agreement dated
November 13, 1995 contracting for, among other services,
[ * ] Since this Agreement represents a continuation of
the Development Agreement, HSD shall credit BCBSF [ * ]
13.3 Travel and Out-of-pocket Expenses
Out-of-pocket expenses incurred in connection with this Agreement,
including travel expenses, are billed monthly as incurred. Out-of-
pocket and travel expenses are limited to reasonable costs directly
related to transportation, lodging and meals incurred in connection
with the contemplated development and implementation costs.
13.4 Payment terms are net 15.
14. Late Payments
14.1 If BCBSF fails to make any payment due, HSD may give written notice to
BCBSF ("Notice") and BCBSF shall have ten (10) days from the date of
such notice to cure the default.
14.2 In the event BCBSF has not made payment within ten days of receipt of
Notice, BCBSF agrees to pay a late fee calculated at an annual rate of
12% and a processing fee of $250.00 to cover the administrative costs
relating to collecting and accounting for late payments.
* Confidential portions omitted and filed separately with the
Commission.
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14.3 This provision of late charges does not apply to any charges which the
BCBSF in good faith contests as being due by notifying HSD of the
contested charges within fifteen (15) days of receipt of the invoice
containing the charges. BCBSF may withhold amounts contested in good
faith until resolved while all uncontested charges on an invoice
remain due and payable.
15. Modification Value Recapture
15.1 HSD acknowledges that the modifications developed as part of this
Agreement add product enhancements or product modules which may be
licensed to other HSD customers, specifically those customers with
similar requirements as BCBSF. Consequently, should HSD directly
license the Product with any of the modifications developed under the
terms of this Agreement to any customer identified in Schedule B of
this Agreement, HSD shall remit to BCBSF a percentage of the Product
license fees paid by that customer within 90 days of receipt of such
license fees by HSD.
15.2 The percentage of Product license fees remitted to BCBSF shall be
based on the total Diamond Client/Server license fees paid under the
terms of each license contract executed between HSD and a customer in
Schedule B. For the first $500,000 in license fees paid under the
terms of an individual license agreement, HSD shall remit to BCBSF 5%
of such license fees. For all license fees above $500,000 under the
terms an individual license agreement, HSD shall remit to BCBSF 10% of
such license fees.
15.3 BCBSF shall not be entitled to any fees should a customer on Schedule
B licensed the Product through one of HSD's distributors.
15.4 The maximum reimbursement BCBSF may receive under the terms of this
Paragraph shall not exceed 75% of the total development fees paid by
BCBSF to HSD pursuant to Paragraph 13.2 of this Agreement plus the
development fees paid by BCBSF to HSD pursuant to Paragraph 13.2 of
the Development Agreement dated November 13, 1995 between the parties.
15.5 Upon termination of this Agreement, HSD shall remain obligated to
reimburse BCBSF pursuant to this Paragraph.
16. Miscellaneous
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16.1 All notices given hereunder shall be in writing and sent by certified
mail, return receipt requested, or an internationally recognized
courier service.
16.2 Any disputes between the BCBSF and HSD regarding this Agreement shall
be settled by an interim steering committee representing both parties.
HSD and BCBSF shall mutually agree on the members of the interim
steering committee. Should the interim steering committee fail to
resolve the dispute, then any controversy, dispute, or claim of
whatever nature arising out of, in connection with, or in relation to
the interpretation, performance or breach of this agreement, including
any claim based on contract, tort, or statute, shall be settled, at
the request of any party to this Agreement, by non-binding arbitration
pursuant to the rules of the American Arbitration Association. Any
dispute shall be submitted to arbitration at the location of the city
of the headquarters of the party not initiating the arbitration, and
the law applied shall be the law of the state in which the arbitration
is held, without reference to choice of law. Any judgment upon any
award rendered by the arbitrators may be entered by any state or
federal court having jurisdiction thereof. Depositions may be taken
and discovery may be obtained in any arbitration under this Agreement.
The arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorneys' fees and
costs. As soon as practicable after selection of the arbitrator, the
arbitrator or his/her designated representative shall determine a
reasonable estimate of anticipated fees and costs of the arbitrator
and render a statement to each party setting forth that party's pro
rata share of said fees and costs.
17. Demo Site
17.1 BCBSF shall be a demo-site for Diamond Client/Server, and shall be
used as a reference. BCBSF and HSD shall mutually agree to the
requirements of being a demo-site and reference within 30 days of this
Agreement. Customer reserves the right to restrict such
demo site visits based upon reasonable business issues,
however Customer agrees that demonstration site access
will not be unreasonably withheld.
17.2 HSD agrees to allow Customer to review any news release or
other Publicity about Customer in advance of any
publication. Customer reserves the right of refusal of any
such Publication by HSD.
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SCHEDULES
The following schedules attached to this Agreement are part of this
Agreement:
Schedule A - Modification Projects
Schedule B - Prospects Generating Commissions for BCBSF
Schedule C - Addendum to Subcontract Under the Health Insurance for the
Aged and Disabled Act.
BLUE CROSS BLUE SHIELD OF FLORIDA HEALTH SYSTEMS DESIGN CORPORATION
Signed /s/ David Dingfield Signed /s/ Richard E. Malone
------------------------------- -------------------------------
Name David Dingfield Name Richard E. Malone
-------------------------------- -------------------------------
Please print name
Title VP, IS & O Title CFO
-------------------------------- -------------------------------
Please print title
Date 3/1/96 Date 3/25/96
-------------------------------- -------------------------------
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SCHEDULE A -MODIFICATION PROJECTS
Schedule A shall be jointly developed by HSD and BCBSF within thirty (30)
days of execution of this Agreement.
The list of modification projects with estimated development days will
total 5 FTEs times 20 days per month times the number of months of the
project.
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SCHEDULE B - PROSPECTS GENERATING COMMISSIONS FOR BCBSF
All Blue Cross and Blue Shield Plans
The top 500 insurance carriers with health related products as identified in
Best's 1996 annual directory.
Any HMO or other managed care organization of 500,000 members or
greater initially licensing the Product for a minimum of either
500,000 members or 256 users.
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