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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27502
------------------------
HEALTH SYSTEMS DESIGN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3235734
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1330 BROADWAY, OAKLAND, CALIFORNIA 94612
(Address of principal executive offices) (Zip code)
(510) 763-2629
(Registrant's telephone number, including area code)
------------------------
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 / /
The registrant had 6,697,907 shares of common stock outstanding as of
January 31, 1999.
Exhibit index is located on page 11
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<PAGE>
HEALTH SYSTEMS DESIGN CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--December 31, 1998 and September 30, 1998........................... 2
Consolidated Statements of Operations--Three months ended December 31, 1998 and 1997............ 3
Consolidated Statements of Cash Flows--Three months ended December 31, 1998 and 1997............ 4
Notes to Consolidated Financial Statements...................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................... 11
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH SYSTEMS DESIGN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
DECEMBER 31, -------------
1998
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 8,339 $ 9,440
Accounts receivable, net of allowance for doubtful accounts of $725 at December
31, 1998, and $525 at September 30, 1998, respectively.......................... 7,071 5,646
Unbilled revenue.................................................................. 3,205 2,405
Prepaid expenses.................................................................. 428 384
------------ -------------
Total current assets............................................................ 19,043 17,875
------------ -------------
Property and equipment:
Computer equipment................................................................ 3,754 3,740
Office furniture and other........................................................ 1,427 1,407
------------ -------------
Total property and equipment.................................................... 5,181 5,147
Less: Accumulated depreciation.................................................. (2,609) (2,299)
------------ -------------
Net property and equipment...................................................... 2,572 2,848
------------ -------------
Deposits and other assets........................................................... 218 118
------------ -------------
Software development costs, net of accumulated amortization of $272 at December 31,
1998 and $99 at September 30, 1998, respectively.................................. 3,298 2,787
------------ -------------
Total assets.................................................................... $ 25,131 $ 23,628
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 1,021 $ 1,137
Accrued liabilities............................................................... 2,191 2,171
Unearned revenue.................................................................. 5,715 2,728
------------ -------------
Total current liabilities....................................................... 8,927 6,036
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none outstanding... -- --
Common stock, $.001 par value, 20,000,000 shares authorized, 6,697,907 and
6,673,307 shares issued and outstanding at December 31, 1998 and September 30,
1998, respectively.............................................................. 7 7
Additional paid-in capital........................................................ 24,020 23,986
Treasury stock, 2,054 shares...................................................... (29) (29)
Deferred compensation............................................................. (23) (28)
Retained deficit.................................................................. (7,771) (6,344)
------------ -------------
Total stockholders' equity........................................................ 16,204 17,592
------------ -------------
Total liabilities and stockholders' equity...................................... $ 25,131 $ 23,628
------------ -------------
------------ -------------
</TABLE>
2
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HEALTH SYSTEMS DESIGN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Revenues:
System sales............................................................................... $ 4,454 $ 4,546
Services and other......................................................................... 927 745
--------- ---------
Total revenues........................................................................... 5,381 5,291
Cost of revenues............................................................................. 2,203 1,724
--------- ---------
Gross margin............................................................................. 3,178 3,567
--------- ---------
Operating expenses:
General and administrative................................................................. 1,470 1,874
Sales and marketing........................................................................ 1,193 975
Product development........................................................................ 2,052 1,994
--------- ---------
Total operating expenses................................................................. 4,715 4,843
--------- ---------
Loss from operations................................................................... (1,537) (1,276)
Interest, net................................................................................ 112 122
--------- ---------
Loss before provision for income taxes................................................. (1,425) (1,154)
Provision for income taxes................................................................... 1 --
--------- ---------
Net loss..................................................................................... $ (1,426) $ (1,154)
--------- ---------
--------- ---------
Net loss per share........................................................................... $ (0. 21) $ (0.18)
--------- ---------
--------- ---------
Weighted average common shares outstanding:
Basic...................................................................................... 6,678 6,535
--------- ---------
--------- ---------
Diluted.................................................................................... 6,678 6,535
--------- ---------
--------- ---------
</TABLE>
3
<PAGE>
HEALTH SYSTEMS DESIGN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (1,426) $ (1,154)
Adjustments to reconcile net loss to net cash and cash equivalents
Provided by (used in) operating activities:
Allowance for doubtful accounts..................................... 200 --
Depreciation and amortization....................................... 494 340
Loss on sale of assets.............................................. 7 --
Changes in current assets and liabilities:
Accounts receivable............................................... (1,625) (1,299)
Unbilled revenue.................................................. (798) (662)
Prepaid expenses.................................................. (44) (164)
Accounts payable.................................................. (116) (170)
Accrued liabilities............................................... 20 243
Unearned revenue.................................................. 2,986 1,561
--------- ---------
Net cash used in operating activities........................... (302) (1,305)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment..................................... (124) (334)
Proceeds from sale of property and equipment............................ 75 --
Capitalization of software development costs............................ (684) (165)
Deposits and other assets............................................... (100) 1
--------- ---------
Net cash used in investing activities................................. (833) (498)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of warrants...................................... 25 --
Proceeds from exercise of common stock options.......................... 9 4
--------- ---------
Net cash provided by financing activities............................. 34 4
--------- ---------
Net decrease in cash and cash equivalents............................. (1,101) (1,799)
Cash and cash equivalents at beginning of period.......................... 9,440 11,195
--------- ---------
Cash and cash equivalents at end of period................................ $ 8,339 $ 9,396
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Taxes paid.............................................................. $ 1 $ --
</TABLE>
4
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HEALTH SYSTEMS DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information on substantially the same basis as the annual audited
financial statements. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three month period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1999. These
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto for the year ended September 30, 1998
included in the Company's Form 10-K Annual Report.
2. REVENUE RECOGNITION
The Company licenses its internally developed software products and other
software products to healthcare organizations under the terms of product license
contracts. Individual sales may include, among others, a combination of software
license, implementation, product enhancements, training, and post-contract
support. Contracts with customers could be terminated under certain
circumstances and revenues recognized could be refundable upon termination in
certain cases, including breach of contract. The termination of significant
customer contracts could have a material adverse effect on the Company's
business, financial condition, or results of operations.
In October, 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition,"
which the Company was required to adopt as of October 1, 1999. SOP 97-2 provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions and supercedes the guidance contained in SOP
91-1. The Company elected to adopt the provisions of the statement effective
October 1, 1997.
The Company generates revenues from licensing the rights to use its software
products directly to end-users and indirectly through remarketers. The Company
also generates revenues from sales of implementation services, fees for product
enhancement, post-contract support, consulting services and reselling hardware
and third party products, and training services performed for customers who
license the Company's products.
If the contract does not require significant production or customization of
software, revenue is recognized when all the following conditions are met: a
signed contract is obtained, delivery has occurred, the fee is fixed and
determinable, and collection is probable. Effective October 1, 1997, the Company
generally recognizes DIAMOND-TM- 725 license revenue upon shipment of the
software to end users, as no significant production or customization of this
software is required, and the installation period is relatively short. The
Company generally recognizes DIAMOND-TM- 950C/S license revenue on a
percentage-of-completion basis based on the labor hours required to implement
the system, as this software generally requires an extended installation period
and can require significant enhancements. If the software license agreement
provides for acceptance criteria that extend beyond the published specifications
of the applicable product, then revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period.
Implementation, consulting and training fees are billed either on an hourly
or a monthly basis and are recognized as services are rendered. Third party
software and hardware are typically billed and recognized as revenue when
delivered to the end user.
5
<PAGE>
HEALTH SYSTEMS DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. REVENUE RECOGNITION (CONTINUED)
Post-contract support services are billed on a monthly basis. Customers who
purchase post-contract support services under maintenance agreements have the
right to receive unspecified product updates and upgrades. Customers that do not
purchase post-contract support must purchase product updates and upgrades under
separate agreements that are subject to the criteria of the Company's revenue
recognition policy. Revenues from post-contract support services are recognized
ratably over the term of the support period. If post-contract support services
are included at no cost or at a discount in a license agreement, such amounts
are recorded at their fair market value based on the value established by
independent sale of such post-contract support services to customers and license
fee revenue is correspondingly reduced.
3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company accounts for capitalized software costs in accordance with SFAS
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." The Company begins capitalizing software development costs
upon the establishment of technological feasibility, which is established upon
the completion of a working model or, in the case of major releases, detailed
program design. Costs incurred prior to technological feasibility are charged to
expense as incurred. Capitalization ceases when the product is considered
available for general release to customers. Capitalized software development
costs are amortized to costs of revenues over the estimated economic lives of
the software products based on actual sales experience and product life
expectancy. Generally, estimated economic lives of the software products do not
exceed 3 years.
RECLASSIFICATIONS
During the fourth quarter of fiscal year 1998, the Company's management
decided to revise its expense classifications to be more consistent with
industry standards. This decision resulted in certain product engineering costs
being included in product development instead of cost of revenues. All prior
periods presented have been reclassified accordingly.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides managed care information systems software to payors and
providers of managed care products and services. The Company's principal product
line, DIAMOND-TM-, consists of DIAMOND-TM- 725 and DIAMOND-TM- 950C/S. The
DIAMOND-TM- products enable the Company's customers to manage information about
members, employer groups, providers, health plan and provider contracts,
referrals and authorizations and health care services for accurate provider
reimbursement, risk pool accounting and health care cost management.
The Company's revenues are derived from licensing DIAMOND-TM-products,
providing the associated implementation, product enhancements, post-contract
support, consulting services, reselling hardware and third party products and
training services. If collection is probable, the Company generally recognizes
DIAMOND-TM- 950C/S license revenue on a percentage of completion basis based on
the labor hours required to implement the system. The Company's ability to make
individual system sales in a particular period will significantly impact its
financial performance in future periods. As the Company has pursued larger
system sales (DIAMOND-TM- 950C/S), it has seen and expects to continue to see
variability in the recognition of system sales revenue. If collection is
probable and there are no uncertainties surrounding a contract, the Company
generally recognizes DIAMOND-TM- 725 license revenue upon shipment of the
software to end users. Implementation, post-contract support, consulting fees
and training are billed either on an hourly or monthly basis and are recognized
as services are rendered. Hardware and third party software fees are typically
billed and recognized as revenues when delivered to the client.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $5,381,000 and $5,291,000 for the three months ended
December 31, 1998 and 1997, respectively, representing an increase of 2%.
Approximately 39% of total revenues were from three customers for the quarter
ended December 31, 1998. Two customers, individually, exceeded 10% of the
Company's total revenues. Kaiser Permanente represented 21% of total revenues
while the Ohio Department of Mental Health represented 11% of total revenues.
SYSTEM SALES. System sales revenues were $4,454,000 and $4,546,000 for the
three months ended December 31, 1998 and 1997, respectively, representing a
decrease of 2%. A major contract was executed during the first quarter of fiscal
year 1999, however material revenue was not recognized from that contract in the
quarter. This revenue is expected to be recognized over the remaining
implementation period of the contract.
SERVICES AND OTHER. Services and other revenues were $927,000 and $745,000
for the three months ended December 31, 1998 and 1997, respectively,
representing an increase of 24%. The increase in services and other revenues was
due primarily to support fees resulting from the Company's larger installed
customer base.
COST OF REVENUES. Cost of revenues was $2,203,000 and $1,724,000 for the
three months ended December 31, 1998 and 1997, respectively, representing an
increase of 28%. Cost of revenues increased from 33% of total revenues in the
three months ended December 31, 1997 to 41% of total revenues in the three
months ended December 31, 1998, although no long-term trend should be implied
from this quarter to quarter comparison. Cost of revenues increased, as compared
to the growth in revenue, primarily as a result of the increased number of
personnel, both the Company's employees and independent contractors, required to
implement and support the larger client base. The cost of revenues as a
percentage of total revenues is dependent on the mix of license, service, and
third party software and hardware revenues, and
7
<PAGE>
may fluctuate over time as these revenue sources fluctuate. During the fourth
quarter of fiscal 1998, the Company's management decided to revise its expense
classifications to be more consistent with industry standards. This decision
resulted in certain product engineering costs being included in product
development instead of costs of revenues. Costs associated with implementation,
customer support, consulting and training services, amortization of capitalized
software and third party hardware and software continue to be classified as cost
of revenues. Corresponding periods in this filing have been reclassified on the
same basis.
OPERATING EXPENSES.
GENERAL AND ADMINISTRATIVE. General and administrative expenditures were
$1,470,000 and $1,874,000 for the three months ended December 31, 1998 and 1997,
respectively, representing a decrease of 22%. The decrease in general and
administrative expenses was due primarily to cost reduction policies instituted
by the Company. General and administrative expenses include the salaries and
benefits associated with general management, finance and administration and
allocated facilities costs. General and administrative expenditures as a
percentage of total revenues for the three months ended December 31, 1998 and
1997 were 27% and 35%, respectively, primarily due to the decrease in general
and administrative expenses in absolute dollars.
SALES AND MARKETING. Sales and marketing expenditures were $1,193,000 and
$975,000 for the three months ended December 31, 1998 and 1997, respectively,
representing an increase of 22%. The increase was primarily due to the Company's
continued emphasis on the expansion of its sales and marketing activities. Sales
and marketing expenditures as a percentage of revenues for the three months
ended December 31, 1998 and 1997 were 22% and 18%, respectively.
PRODUCT DEVELOPMENT. Product development expenditures, net of software
capitalization, were $2,052,000 and $1,994,000 for the three months ended
December 31, 1998 and 1997, respectively, representing a increase of 3%. Product
development expenditures as a percentage of revenues for the three months ended
December 31, 1998 and 1997 was 38% for each period. As mentioned above, during
the fourth quarter of fiscal 1998, the Company's management decided to revise
its expense classifications to be more consistent with industry standards. This
decision resulted in certain product engineering costs being included in product
development instead of cost of revenues. Costs associated with implementation,
customer support, amortization of capitalized software and third party hardware
and software continue to be classified as cost of revenues. All prior periods in
this filing have been reclassified on the same basis. The Company believes that
product development expenditures are essential to maintaining its competitive
position and expects these costs to continue to constitute a significant
percentage of total revenues in the near future.
The Company capitalized $684,000 and $165,000 of product development costs
in the three months ended December 30, 1998 and 1997, respectively. Capitalized
product development expenditures as a percentage of total product development
expenditures were 25% and 8% for the three months ended December 31, 1998 and
1997, respectively. The increase in the percentage of product development costs
capitalized is due primarily to the development of major releases of
DIAMOND-TM-.
INTEREST INCOME AND EXPENSE. Interest income, net of interest expense, was
$112,000 and $122,000 for the three months ended December 31, 1998 and 1997,
respectively. The decrease in interest income, net of expense, was primarily due
to a decrease in cash reserves invested. Interest income represents interest
earned on the Company's excess cash balances, which are generally placed in
short term investments, money market funds, and government securities.
PROVISION FOR INCOME TAXES. The provision for income taxes was $1,000 and
$0 for the three months ended December 31, 1998 and 1997 respectively.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $302,000 and $1,305,000 during the
three months ended December 31, 1998 and 1997, respectively. The decrease in
cash used by operating activities, as compared to the prior period, resulted
primarily from an increase in unearned revenue including cash received in
connection with the signing of a major contract in the first quarter of fiscal
year 1999.
Net cash used in investing activities was $833,000 and $498,000 during the
three months ended December 31, 1998 and 1997, respectively, and consisted
primarily of capitalization of software development costs.
Net cash provided by financing activities was $34,000 and $4,000 during the
three months ended December 31, 1998 and 1997, respectively, consisting
primarily of proceeds from the exercise of common stock warrants.
As of December 31, 1998 and 1997, the Company had cash and cash equivalents
in the amounts of $8,338,000 and $9,396,000, respectively. The company believes
that available funds and its cash flow from operations will be adequate to fund
its presently anticipated working capital requirements for at least the next 12
months.
YEAR 2000 ISSUES
STATE OF READINESS-Because many computer programs and embedded computer
chips are unable to distinguish between the year 1900 and the year 2000, the
Company has executed a plan to analyze, and if necessary, correct problems which
may occur as a result of the Year 2000 date change. The Year 2000 Project (The
Project) began by categorizing potential issues into four groups: the Company's
software developed for sale (DIAMOND-TM- 950C/S and DIAMOND-TM- 725); the
Company's internal systems and networks; third party software and hardware sold
by the Company; and customer systems and equipment, other than that sold and/or
licensed by the Company.
The Project for DIAMOND-TM- 950C/S and DIAMOND-TM- 725 began early in fiscal
1997. As a result of the Company's analysis and testing, the Company believes
the most current releases of DIAMOND-TM- software products are Year 2000
Compliant. The Company defines the term "Year 2000 Compliant" to mean that the
software will not: (a) cease to perform due solely to a change in date to or
after January 1, 2000, nor (b) generate incorrect or ambiguous data or results
with respect to same-century and/or multi-century formulas, functions, date
values, and date data interfaces. The Company continues to further validate
current products, new releases for such products, as well as new products, and
releases through testing and code reviews. The Company offers new releases at no
charge to customers who are under current support agreements. Other customers
may request and pay a fee for new releases.
The Company's internal systems and networks have been inventoried and
inquiries were made of each vendor. Substantially all systems, including
hardware, development tools, and software used in the company's information
systems are Year 2000 compliant. For the products that are not currently Year
2000 compliant the vendors have put plans into effect to correct their product
before the end of calendar year 1999.
Third party software and hardware which is sold by the Company has been
inventoried and inquiries were made of each vendor. With a few exceptions, all
third party software and hardware are Year 2000 compliant. For the products that
are not currently Year 2000 compliant the vendors have put plans into effect to
correct their product before the end of calendar year 1999.
During the last fiscal year, the Company communicated its state of readiness
to address Year 2000 issues to its clients. Clients were also notified of the
Company's ability to correct any issues associated with a Year 2000 problem in
the Company's software. Clients were also informed that their other hardware and
software systems may have unresolved issues relating to the Year 2000 problem
which may adversely affect
9
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the operation of the Company's DIAMOND-TM- software, even though the Company has
resolved its own problems.
COSTS TO ADDRESS THE ISSUES-As of December 31, 1998, the Company had not
separately tracked costs related to the Year 2000 problem, since the analysis
phase for the Company's DIAMOND-TM- software coincided with the testing and
quality assurance phase of the Company's general releases. However, based on an
estimate of the amount of time incurred by the Company's analysis team, costs
related to the Year 2000 problem have, to date, not been material and have not
been capitalized by the Company.
Although the Company believes that its products are Year 2000 compliant, it
is continuing its testing and analysis program. Any remaining costs related to
the Year 2000 problem are not expected to be material for the DIAMOND-TM-
software. Projected costs for the Company's internal systems and networks; third
party software and hardware sold by the Company; and customer systems and
equipment, other than that sold and/or licensed by the Company are also not
expected to be material.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES-The Company's Year 2000 project is
ongoing. The Company's and its client's normal business activities and
operations could be adversely affected by the Year 2000 problem. However, due to
the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of its clients, the Company is
unable to determine at this time whether the consequences of the potential Year
2000 failure(s) would have a material adverse impact on the Company's results of
operations, liquidity or financial condition. If the Company's DIAMOND-TM-
products, its internal systems or its clients systems fail or experience
significant difficulties related to the Year 2000 problem then the Company's
results of operations, liquidity or financial condition could be materially
adversely affected.
CONTINGENCY PLAN-The Company does not currently have a contingency plan in
place. Should there be Year 2000 problems still remaining in the Company's
software developed for sale (DIAMOND-TM- 950C/S and DIAMOND-TM- 725); the
Company's internal systems and networks; third party software and hardware sold
by the Company; and customer systems and equipment, other than that sold and/or
licensed by the Company, the Company intends to prioritize requests, based on
severity, and correct the related problem.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements contained in this report which are not historical facts
are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. Such risks and uncertainties include the
Company's dependence on a single product line; the dynamic nature of the market
in which the company's product line competes; variability of operating results
due to the long sales cycle and implementation period of the company's products;
continued market acceptance of the Company's products; development of new
products and enhancements of the current product; dependence of the Company's
results of operations on certain large customers; the Company's ability to
attract and retain qualified personnel; intense competition and other risks
described in the Company's other Securities and Exchange Commission filings.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.30 License, Implementation and Support agreements, dated December 31,
1998 between Registrant and California Physicians' Service d.b.a.
Blue Shield of California+
11.1 Statement re: computation of earnings per share
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
- ------------------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
HEALTH SYSTEMS DESIGN CORPORATION
Date: February 12, 1999 By: /s/ RUSSELL J. HARRISON
-----------------------------------------
Russell J. Harrison
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ STEVEN L. MOORE
-----------------------------------------
Steven L. Moore
CHIEF FINANCIAL OFFICER
</TABLE>
12
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HEALTH SYSTEMS DESIGN CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.30 License, Implementation and Support agreements, dated December 31, 1998 between Registrant and California
Physicians' Services d.b.a. Blue Shield of California +
11.1 Computation of net loss per share
</TABLE>
- ------------------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
13
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CONFIDENTIAL TREATMENT
DIAMOND-Registered Trademark- 950 C/S SOFTWARE LICENSE AGREEMENT
1. PARTIES AND PURPOSE OF AGREEMENT
1.1 PARTIES: This license agreement (the "Agreement") is entered into
between California Physicians' Service d.b.a. Blue Shield of
California ("Customer") and Health Systems Design-TM- Corp.
("HSD"), a California Corporation, the owner and developer of the
managed healthcare software known as Diamond-Registered Trademark-
950C/S (the "Software") and shall be effective as of December 31,
1998 (the "Effective Date").
1.2 PURPOSE: The purpose of this Agreement is to specify the terms
under which Customer is authorized to possess and use the Software
licensed to Customer by HSD.
2. DEFINED TERMS
2.1 AFFILIATE: Any present or future entity or association controlled
by Customer. For the purposes of this definition, the term
"control" shall mean the ownership of voting stock or other equity
interest entitling the Customer to exercise more than fifty
percent (50%) of the voting rights of the entity or association.
2.2 CUSTOMER: The entity identified in Section 1, above, which is
licensed to possess and use the Software under the terms of this
Agreement. For ease of reference, HSD or Customer may be referred
to individually as a "Party" and collectively as the "Parties".
2.3 DEFINED TERMS: The words or phrases defined in this Section 2
which words or phrases will be capitalized when used in the text
of this Agreement in order to identify them as "Defined Terms".
Words and phrases that are defined within later sections of this
Agreement will be identified with quotation marks and will be
capitalized when used thereafter.
2.4 DESIGNATED SYSTEM(S): The computer hardware and its associated
operating system(s) specified in Schedule A on which the Software
may be installed and operated.
2.5 DOCUMENTATION: The applicable user Documentation and installation
manual which may be referred to collectively as "Documentation"
and shall be included within the scope of the defined term
"Software". The user Documentation describes the use of the
Software at the keyword reference level and provides overview
descriptions of a number of major functions. In conjunction with
HSD user training, the Documentation is sufficient for the use of
the Software by Customer's users. Technical Documentation as
described in Section 2.15 below shall be included within the
meaning of the defined term Documentation.
2.6 ENHANCEMENTS: Changes or additions to the Software including
modifications, corrections and/or new Releases of the Software.
2.7 INSTALLATION: The initial loading of the Software delivered to the
Customer in conjunction with the execution of this Agreement onto
the Customer's Designated System and will include the loading of
Diamond Tables and
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Tablespaces ("Tables") which Tables are incorporated into an
made a part of the Agreement as Attachment 2.7.
2.8 INSTALLATION LOCATION(S): The location(s) of Customer's Designated
System(s).
2.9 INTELLECTUAL PROPERTY RIGHTS: All copyrights, patents, trademarks,
trade names, commercial symbols, logos, service marks and other
proprietary rights including Trade Secrets (as defined in Section
4.4.2, below) belonging to either Party.
2.10 LICENSE FEE(S): The amounts set forth in Schedule A to be paid by
Customer pursuant to Section 5 in consideration of the rights of
possession and use of the Software granted to Customer by HSD with
respect to the Software (and applicable "Third Party Software").
2.11 OBJECT CODE: The machine-readable/executable version of the
Software.
2.12 PRODUCTION: The use of the Software to process live Customer data
as Customer's system of record for a line of business and/or
business function. For purposes of this Agreement, the terms
"Go-Live" and/or "First Production Use" shall have the same meaning
as "Production". For purposes of this Agreement, the use of
Customer data for testing purposes prior to the live-use of the
Software shall not be considered to be "Production".
2.13 RELEASE: An increase in any such numerical identifier for the
Software which occurs when another iteration of the Software is
distributed.
(a) General Release: A General Release typically contains a
large number of functional Enhancements as well as bug
fixes. A General Release may include architectural changes
to the Software and/or migration to later/more current
versions of the Oracle Database and/or Power Builder. A
General Release is identified by an increase in the value
of the numeral to the left of the decimal point.
(b) Interim Release: An iteration of the Software which
includes Enhancements and/or bug fixes and which is
identified by an increase in the value of the numeral to
the right of the decimal point.
(c) Supported Release: the most recent iteration (highest
numeral of the General Release or an Interim Release) and
the highest numbered prior Release number (whether it is an
Interim or a General Release).
2.14 SOFTWARE: The software modules identified in Schedule A, in Object
Code, as well as subsequent Enhancements including any copies
thereof, whether partial or complete, developed by or on behalf of
HSD at HSD's request for general distribution to its Customers with
the understanding that Customer will be entitled to Enhancements as
and when released under the Support Agreement (and applicable
extensions thereto) entered into in conjunction with this
Agreement. The Software may include additional functionality
developed for Customer's use at the time of Customer's initial
Production as well as any additional functionality developed for
Customer and delivered thereafter (such as Customer-Specific-Software
as provided for in Section 4.2, below [*] as defined in Section
4.2.1, below). Source Code shall be included within the meaning of
the defined term "Software" with the understanding that the terms and
conditions for the licensing of the Source Code are set forth in the
Source Code Addendum, dated December 31, 1998, to this Agreement.
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2.15 SOURCE CODE: The human-readable/human language form of the
Software (as opposed to the object/machine readable/compiled
Software) and relevant Technical Documentation. For purposes of
this definition "Technical Documentation" shall include the entity
relationship model and the data dictionary (consisting of a
SilverRun document representing the logical referential links of
the Software and a Word document organized by topics and
describing the Oracle tables and fields used in the Software).
2.16 SPECIFICATIONS: The Documentation, and the performance standards
("Performance Standards") which performance standards will include
items such as expected transaction through-put, scalability and
average response time which said performance standards shall
become Attachment 2.16 to the Agreement when finalized and
accepted by the Parties.
2.17 SUBSIDIARY: Any present or future entity controlled by or owned by
Customer. For the purposes of this definition, the term "control"
shall mean the ownership of voting stock or other equity interest
entitling the Customer to exercise more than fifty percent (50%)
of the voting rights of the entity or association.
2.18 THIRD PARTY SOFTWARE: Those software applications (including
software tools) for which HSD holds the right to sublicense. All
such Third Party Software, being sublicensed/distributed to
Customer under this Agreement are listed in Schedule A and
identified therein as "Third Party Software".
2.19 VERIFIED PROGRAM ERROR: A failure of a Supported Release of the
Software to function in a manner consistent with its
Specifications, which failure HSD is able to replicate using
Customer supplied information/data.
2.20 WARRANTY PERIOD: The period of time the Software is covered by the
warranty set forth in Section 6.1, below.
3. RIGHTS AND SCOPE OF USE GRANTED, RESTRICTIONS ON COPYING
3.1 GRANT AND SCOPE. HSD hereby grants to Customer and Customer
accepts a non-exclusive, non-transferable (except as otherwise
provided in this Agreement) license to use the Software in Object
Code form on the Designated System(s) which must be located within
the United States, for its internal purposes as set forth in this
Section 3. The terms and conditions for the licensing of the
Source Code are set forth in the Source Code Addendum to this
Agreement.
3.2 AFFILIATES AND SUBSIDIARIES. The rights of use granted under
Section 3.1, above, shall extend to Affiliates and Subsidiaries
subject to all other applicable terms of this Agreement.
3.3 USE DURING DISPUTES. Customer's rights of use under this
Agreement will continue in effect during any dispute between HSD
and Customer except to the extent that the subject mater of any
such dispute is an uncured breach of: (1) the
rights to use the Source Code; or (2) the rights of
use/confidentiality obligations of either Party regarding Trade
Secrets, or (3) the unauthorized use, disclosure and/or
distribution of Strategic Customer Enhancements. Should either
Party seek equitable relief for any such uncured breach, any such
requested relief shall be specific to the situation giving rise to
the applicable cause of action and
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should HSD be the Party seeking the relief, any such relief sought
or granted shall not otherwise enjoin Customer's use of the Software
except to the extent necessary to address the situation giving rise
to HSD's request for any such relief.
3.4 CUSTOMER'S USE FOR ITS CUSTOMERS. Customer may allow access to
the Object Code to organizations, entities and/or individuals with
which Customer has contractual/business relationships that
directly relate to Customer's business provided that any such
access is in all applicable respects consistent with the
requirements of this Agreement. Access to the Software and Source
Code by Customer's IT Service Provider (as defined in Section4.5,
below), shall be governed by Section 4.
3.5 INSTALLATION LOCATIONS. Customer may use the Software at [*] on a
Designated System (or on other than a Designated System as set
forth in Section3.5.3, below) with the understanding that Customer
shall provide HSD with written notice of each Installation
Location prior to Customer's installation of the Software at each
Installation Location.
3.5.1 ADDITIONAL INSTALLATION LOCATIONS. It is mutually
understood and agreed that each additional Installation
Location may require separate implementation services the
nature, extent and fees for which will be determined on a
case-by case basis.
3.5.2 ADDITIONAL SUPER USER LOCATIONS. It is mutually understood
and agreed that each additional Installation Location may
require separate/additional Super Users (as defined in
Section 3.4.1 of the Support Agreement).
3.5.3 DESIGNATED SYSTEM. The Designated System may include more
than one make/brand and model of computer and operating
system provided that HSD has expressly agreed to support
each such combination/configuration as an operating
environment for its Software. Customer may use other than
Designated System(s) with the understanding that HSD does
not warrant the use of the Software on other than a
Designated System and will not be required to support any
such use.
3.6 COPIES OF OBJECT CODE/DOCUMENTATION. Customer may make [*] copies
of the Object Code and its non-Technical Documentation [*] to
support its use and operation of the Software. All Software
copies will include HSD's copyright and proprietary rights notices
as they appear in the Software and/or its Documentation. The
media containing copies shall be labeled with HSD's copyright and
proprietary rights notices.
3.7 DELIVERY OF SOFTWARE. The Software (in both Object Code and
Source Code formats) will be delivered to Customer within three
(3) days of the full execution of this Agreement and Customer's
tender of the License Fees then due and payable as specified in
Schedule A.
3.8 DELIVERY OF DOCUMENTATION. HSD shall deliver five (5)
hard/printed copies of the Documentation to Customer within ten
(10) days of the full execution of this Agreement and Customer's
tender of the License Fees then due and payable as specified in
Schedule A. HSD shall timely revise and deliver such
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Documentation as necessary to reflect any Enhancements made by HSD
to the Software, provided Customer is under an HSD Support
Agreement. In addition, a copy of any such Documentation will
also be delivered to Customer on computer-readable media or
electronically/via email.
3.9 USE OF DOCUMENTATION. Customer may incorporate the Documentation
in works prepared for Customer's business endeavors so long as
Customer includes all copyright, trademark and other notices of
HSD in the same form as they appear on or in the Documentation.
3.10 ADDITIONAL AUTHORIZED USE OF THE SOFTWARE/THIRD PARTY
ADMINISTRATIVE SERVICES AND OUT-SOURCE SERVICES
3.10.1 CUSTOMER SERVICES. Customer may provided services as, or
similar to those provided by, a third-party administrator
("TPA") whereby Customer processes claims or otherwise uses
the Software for the benefit of third-party entities ("TPA
Clients") who purchase or use health care services provided,
or arranged for, by Customer ("TPA Services") provided that
the use of the Software for the TPA Clients shall be limited
to the core functions of the Software, e.g. confirming
membership status, eligibility and payment of claims. It is
understood and agreed that these core functions of the
Software will, at all times, be performed exclusively by
Customer or its IT Provider personnel (as opposed to TPA
Client personnel) located at a Customer owned/controlled
facility(ies).
3.10.2 LIMITATION ON CUSTOMER'S SERVICES. Customer's rights to
serve as a TPA will not include the right to serve as a TPA
for non-TPA Clients (except as set forth in Subsection
3.10.3 below).
3.10.3 LIMITED USE OF EXCEPTION. Notwithstanding anything to the
contrary in this Section 3.10 and its subsections, Customer
is authorized to provide temporary/interim TPA Services to
non-TPA Clients (for a maximum period of 180 days). It is
understood and agreed that Customer and HSD, before or
during the period Customer is providing the
temporary/interim TPA Services, will mutually agree upon a
TPA license fee (the "TPA Fee"), which TPA fee will apply to
the use of the Software granted under this Section 3.10.3
only and will be negotiated in good-faith by the Parties
based on relevant factors existing at the time of any such
negotiation.
3.11 ALL RIGHTS OF USE AND POSSESSION. The rights of possession and/or
use granted to the Customer under this Agreement constitute all of
the rights imparted to the Customer hereunder with the
understanding that those rights not expressly granted are retained
by HSD.
4. PROPRIETARY RIGHTS, ENHANCEMENTS, PROHIBITION AGAINST REVERSE
ENGINEERING, CONFIDENTIALITY AND LIMITED RIGHT OF ASSIGNMENT
4.1 PROPRIETARY RIGHTS. Customer acknowledges that the Software is
proprietary and the property of HSD and that this Agreement grants
specified rights of possession and use to Customer. Customer
further acknowledges that the unauthorized use and/or possession
of the Software would likely expose HSD to irreparable harm for
which the payment of money damages may not serve as an adequate
and/or complete remedy.
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4.2 ENHANCEMENTS/CUSTOMER SPECIFIC SOFTWARE. HSD will retain
ownership of any Enhancements and/or Customer-specific software
based on the design of the Software and/or otherwise integrated
into/made an integral part of the Software. For purposes of this
Section 4.2 (and its subsections) "Customer-Specific-Software"
shall be defined as Software which has been developed to address
business practices that are unique to Customer and are therefore
not likely to be generally required by HSD's customers. Any such
Customer-Specific-Software shall be included within the meaning of
the defined term Software with the understanding that HSD shall
not be required to provide support services for any such Customer
Specific Software which HSD does not incorporate into a Release
and distribute generally to its customers. The provisions of this
Section 4.2 shall not apply to those aspects of Interfaces (as
defined in Section 3.7.2 of the Implementation Agreement) which
serve as the entry and exit points between the Software and other
applications/software the ownership and distribution rights of
which shall be retained by HSD as "Derivative Works" (as defined
in Attachment 4.2.5 of this Agreement).
4.2.1 [*]
4.2.2 [*]
4.2.3 [*]DEVELOPED BY CUSTOMER. In the event that Customer
develops any such [*] independent of HSD, HSD will own the
[*] with the understanding that HSD will not have any rights
to distribute these [*] and HSD will not be required to
provide support services related thereto under the Support
Agreement entered into in conjunction with this Agreement,
and that Customer will have an exclusive no fee license to
use these [*] for the term of the Agreement and any renewals
thereof.
4.2.4 CUSTOMER/THIRD PARTY DEVELOPED STAND ALONE SOFTWARE. For
purposes of this Agreement, software developed by Customer,
HSD or third parties which is not integrated into the
Software and thereby can be used independently/stand-alone
of the Software (such as application program interfaces),
shall not be included within the meaning of the defined term
Software and HSD shall have no ownership interest therein.
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4.2.5 REFERENCE TABLE. For ease of reference and understanding,
Attachment 4.2.5 provides a quick-reference table that
summarizes the ownership, use and support of the Enhancements
as addressed in this Section 4.2.
4.2.6 [*] HSD shall distribute and support the [*] under its
agreements with its customers and/or under the Support
Agreement with Customer. [*]
4.3 PROHIBITED ACTIONS. Customer may not disassemble, decompile
and/or reverse engineer the Object Code.
4.4 CONFIDENTIAL INFORMATION. Each Party agrees that it shall not,
without the prior written consent of the other Party, use (except
as permitted under the terms of this Agreement), reproduce,
disclose, or provide to third parties any Confidential Information
obtained from the other Party.
4.4.1 CONFIDENTIAL INFORMATION DEFINED. For purposes of this
Agreement, "Confidential Information" shall be defined as
those terms and conditions of this Agreement that are not
subject to public disclosure under relevant statutes and/or
regulations (such as SEC reporting requirements), and also
includes but is not limited to, any and all financial,
sales, marketing, pricing and personnel information relative
to either Party as well as present or future products or
plans of either Party that have not been generally released
to the public by means that does not constitute a breach of
this Agreement.
4.4.2 CONFIDENTIAL INFORMATION INCLUDES SOURCE CODE/TECHNICAL
DOCUMENTATION/INTELLECTUAL PROPERTY RIGHTS/STRATEGIC
CUSTOMER ENHANCEMENTS. In addition, Confidential
Information shall include the Source Code and its Technical
Documentation (including, without limitation all know-how
and relating to, contained in, or embodied in the Software),
Intellectual Property Rights, technical, research,
development or other business data and information,
memoranda, position descriptions, handbooks, financial
statements, client lists, and/or audio or visual recordings
of either Party as well as concepts related to Customer's
Strategic Customer Enhancements, the actual Strategic
Customer Enhancements and their specifications (the actual
Strategic Customer Enhancements and specifications are
included within the term "Strategic Customer Enhancements").
For purposes of this Section and this Agreement, the term
"Trade Secrets" shall be defined as Confidential Information
belonging to either Party which (1) affords the Party
economic value (actual or potential) from its not being
generally known to the public and/or in the Party's industry
(2) and is the subject of efforts which are reasonable under
the circumstances to maintain its secrecy.
4.4.3 ADDITIONAL CONFIDENTIAL INFORMATION. Confidential
Information shall also include information/material that (a)
either Party has marked as confidential or proprietary, (b)
either Party, orally or in writing, has
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advised the other Party to be confidential, or (c) the
notes, memoranda, analysis, compilations, data, studies,
and workpapers prepared by one Party based on information
obtained or received from the other Party or (d) due to
its character or nature, a reasonable person in a like
position and under like circumstances would treat as
confidential, whether communicated orally, visually, in
writing, or in any other recorded or tangible form
(including this Agreement, the Implementation Agreement
and the Support Agreement as well as any attachments thereto),
except to the extent that either Party is authorized to
disclose any such information as provided under Section
4.4.7, below and its applicable subsections.
4.4.4 GENERAL PRECAUTIONS. In addition to the process/procedures
otherwise set forth in this Section 4, Customer agrees to
generally take reasonable and appropriate precautions to help
ensure the continued confidentiality of the Source Code, which
precautions shall include informing Customer's applicable
personnel of the proprietary nature of the Source Code.
4.4.5 ADDITIONAL CONFIDENTIAL INFORMATION REQUIREMENTS. Except as
expressly permitted by this Agreement, neither Party will
use the other Party's Confidential Information or disclose
such information to any third party without the prior
written consent of the other Party. Should either Party be
merged into or acquired by a competitor of the other Party,
the Party being merged (if not the surviving entity) or
acquired shall maintain the confidentiality of the other
Party's Confidential Information and shall return to the
other Party all of that Party's Confidential Information
(other than the Software, Source Code and HSD Trade Secrets
which are addressed in Sections 4.7 and4.8) prior to the
closing of the merger or acquisition.
4.4.6 EXCEPTIONS. The provisions of this Section 4 (and its
subsections) will not apply to Confidential Information if
such information:
(a) Was in the possession of the receiving Party prior
to the initial Non-Disclosure Agreement entered into
between the Parties;
(b) Is or becomes available to the public/enters the
public domain separate and apart from any
disclosures by the receiving Party that are
expressly authorized under the terms of this
Agreement;
(c) Is required to be disclosed under applicable laws,
regulations by court order, or orders of any
governmental authority (including, without
limitation, the rules and regulations of the
Securities and Exchange Commission relating to the
filing of exhibits to filings required under the
Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended) or for
accreditation purposes. If disclosure is required
by law, regulation or governmental or court
authority/order, the Party being required to
disclose shall advise the other Party as reasonably
practical of the required disclosure so that Party
may take legal action to prevent the disclosure;
(e) Is learned by the receiving Party from a third Party
entitled to disclose such information, provided the
receiving Party complies with any restrictions
imposed by the third Party; or
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(f) Is independently developed by the receiving Party.
Any such claim of independent development will be
subject to the Party providing credible evidence
thereof.
4.4.7 PERMITTED DISCLOSURES. Either Party may disclose
Confidential Information contained in this Agreement and the
transactions contemplated hereby, including providing a
redacted copy of this Agreement as follows:
(a) In connection with the due diligence review of a Party
by potential business partners, purchasers, investors,
investment bankers and to their employees, agents,
attorneys and auditors with the understanding that the
party receiving the Confidential Information will be
bound by the applicable confidentiality/non-disclosure
provisions of this Agreement.
(b) In connection with quarterly and annual financial or
tax audits to the Party's public accounting firm but
only to the extent necessary and relevant to any such
accounting/reporting actions.
(c) In connection with obtaining legal advice regarding
this Agreement or any related matters, to the Party's
outside legal advisors, in all cases subject to the
applicable confidentiality restrictions of this
Agreement.
4.4.8 RETURN OF CONFIDENTIAL INFORMATION. Upon termination of
this Agreement by either Party for any reason, but subject
to the provisions of Section 12.4 RETENTION OF LICENSE/USE
OF SOFTWARE below, each Party shall, within twenty (20) days
return any and all Confidential Information (together with
any and all copies thereof) to the other Party. Following
termination, the Parties shall remain obligated not to use,
disclose or provide any such Confidential Information to
third-parties for as long as any such Confidential
Information is not generally known in the disclosing Party's
industry and/or otherwise remains confidential, but in no
event longer than a period of ten (10) years following the
termination and/or expiration of this Agreement.
4.5 CUSTOMER'S IT SERVICE PROVIDERS. HSD understands that Customer's
information technology services are provided by [*]and that
consultants/contractors will also be selected by Customer to
assist with the Software implementation and its use. For purposes
of this Agreement, [*] and any successor entity which provides
information/technology services to Customer shall be referred to
as Customer's "IT Service Provider". The terms of this Agreement
with respect to IT Service Provider(s) will apply to any IT
Service Provider.
4.5.1 HSD WILL WORK COOPERATIVELY WITH IT SERVICE PROVIDER/OTHERS.
HSD acknowledges that the IT Service Provider and any such
consultantS and/or contractors will be instrumental in
implementing and operating the Software and agrees to make
commercially reasonable efforts to work cooperatively with
the IT Service Provider and Customer's
consultants/contractors in providing services to Customer
required by this Agreement and the Implementation and
Support Agreements.
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4.5.2 CUSTOMER'S IT SERVICE PROVIDER/ OTHERS. In addition,
Customer agrees to make commercially reasonable efforts to
obtain the commitment of the IT Service Provider and
Customer's consultants to work cooperatively with HSD in
providing services required under this Agreement and the
Implementation and Support Agreements for the benefit of the
Customer.
4.6 IT SERVICE PROVIDERS/THIRD PARTY ACCESS TO CONFIDENTIAL
INFORMATION. Given the sensitive and proprietary nature of the
Confidential Information which includes the Source Code,
third-party access, including access granted to the IT Service
Provider, will be allowed on a strict "need to know basis" subject
to the following procedures.
4.6.1 NON-DISCLOSURE AGREEMENT REQUIREMENTS. Access to the Source
Code and/or the Confidential Information belonging to either
Party will be provided only after a non-disclosure agreement
("NDA" in form and substance equivalent to the NDAs attached
hereto as Attachment 4.6.1 - A (Customer's NDA to be used for
disclosure of Customer's Confidential Information) and
Attachment 4.6.1 - B (HSD's NDA to be used for disclosure of
HSD's Confidential Information) has been executed on behalf
of any such third party, by both a duly authorized and
empowered officer and by any/all personnel granted access to
the Source Code or the Confidential Information. In
situations in which personnel have been engaged by an entity
that has executed a master NDA with Customer and/or HSD the
requirement that any such entity personnel execute
individual NDAs will not apply.
4.6.2 STAND ALONE PROGRAMS. Notwithstanding Section 4.6.1 in the
event that the services to be rendered by any such third
party involves stand-alone software programs that operate
independently of the Software (such that the third party is
not made privy to any of HSD's Confidential Information
and/or Source Code) the requirements of Section 4.6.1,
above, will not apply.
4.6.3 COPIES OF NON-DISCLOSURE AGREEMENTS. Each party shall
provide the other Party with copies of each fully executed
NDA required under this Agreement upon request, which copies
shall be provided in a manner consistent with the Notice
provisions of this Agreement.
4.6.4 RECORD RETENTION OF NON-DISCLOSURE AGREEMENTS. Each Party
shall retain written records of any such access granted to
personnel of entities that are not covered by a master NDA
(including name, address, company affiliation, the nature of
the access granted and the purpose of any such access
together with a fully executed NDA). The Party granting
any such third party access will provide the other Party
with a copy of the executed NDA upon request ,which copies
shall be provided in a manner consistent with the Notice
provisions of this Agreement.
4.7 USE OF SOFTWARE BY AFFILIATE OR SUBSIDIARY BEING
MERGED/REORGANIZED OR SELLING SUBSTANTIALLY ALL OF ITS ASSETS. In
the event of a merger or reorganization or the sale of
substantially all of the assets of an Affiliate or Subsidiary of
the Customer that has access to/is using the Software under this
Agreement, to a "Non-Customer Entity"(which for purposes of this
Agreement shall be defined as an entity which is not owned,
controlled and/or under the common control of the Customer), and
the Affiliate or Subsidiary is not the surviving entity, HSD will
grant such Affiliate or Subsidiary a temporary license for its
continued use of the
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Software on an interim/transitional basis following the closing of
any such merger, reorganization, or sale of substantially all of
the assets of the Affiliate or Subsidiary of the Customer to a
Non-Customer Entity. The duration of any such temporary/interim
license will be determined by and between HSD and any such
Affiliate or Subsidiary (with the understanding that the duration
is not anticipated to be for a period to exceed six (6) months)
under mutually acceptable license and support terms with the
understanding that any such Affiliate or Subsidiary's interim use
will continue during the good-faith negotiation of the terms of
the temporary/interim use license. Notwithstanding anything to the
contrary in this Section 4.7 and subject to the applicable
provisions of Subsections 4.7.1 and 4.7.2 below, should the Affiliate
or Subsidiary be the surviving entity of any such merger or
reorganization or sale of substantially all of its assets or
should the merger, reorganization or sale of substantially all of
its assets be with or to the Customer, an Affiliate or Subsidiary,
the Affiliate's or Subsidiary's rights of use shall continue as they
existed prior to any such merger or reorganization or the sale of
substantially all of the assets of the Affiliate or Subsidiary.
4.7.1 USE BY HSD COMPETITOR. Notwithstanding anything to the
contrary in Section 4.7, above, should the merger,
reorganization, or sale of substantially all of the assets
of an Affiliate or Subsidiary of the Customer to a
Non-Customer Entity involve the transfer of a majority
ownership interest and/or a controlling interest in the
Affiliate or Subsidiary to an HSD Competitor (as defined in
Section 4.8.5, below), HSD shall not be required to grant
any such temporary license and/or allow any such Affiliate
or Subsidiary to continue its use of the Software under this
Agreement after the merger, reorganization or sale of
substantially all of the assets of the Affiliate or
Subsidiary, should any such access/use include access to
and/or use of the Source Code.
4.7.2 EXCEPTION TO USE BY HSD COMPETITOR. Notwithstanding
anything to the contrary in Section4.7.1, above, HSD will
consider providing a period of transitional use to an
Affiliate or Subsidiary that is being merged into or
acquired by an HSD Competitor which will obtain the majority
ownership or controlling interest of the Affiliate or
Subsidiary provided that the HSD Competitor provides HSD
with a written plan/proposal to ensure HSD's Confidential
Information and HSD's Source Code are fully protected. It
is mutually understood and agreed that HSD will make a
good-faith evaluation of any such plan/proposal with the
understanding that HSD's approval of any such plan shall not
be unreasonably withheld and/or delayed.
4.8 USE OF SOFTWARE BY CUSTOMER WHEN CUSTOMER MERGING, REORGANIZING OR
SELLING SUBSTANTIALLY ALL OF ITS ASSETS. In the event of a merger
or reorganization, in which Customer is not the surviving entity or
the sale of substantially all of the assets of Customer to a
Non-Customer Entity, HSD agrees this license to use the Software
under the same terms and conditions of this Agreement will transfer
to the new owner-entity subject to the following sub-provisions of
this Section 4.8
4.8.1 Any transfer of this Agreement under Section 4.8 above shall
be subject to the new owner-entity's agreement to be bound
by its terms and further provided that should the new-owner
entity be an HSD Competitor (as defined below) the
new-owner-entity will not be entitled to any rights of
possession, use and/or access to the Source Code.
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4.8.2 In the event such a transfer of this Agreement under Section
4.8.1 above is to an HSD Competitor, Customer will provide
HSD with prior notice of the closing of any such merger,
reorganization or sale to the extent feasible and consistent
with applicable law and/or regulation.
4.8.3 Prior to the completion of any transfer of this Agreement to
an HSD Competitor under Section 4.8 above , Customer will
deliver the Source Code (both the HSD unmodified Source Code
and the Customer-modified versions thereof together with any
associated Technical Documentation) to an independent third
party that is not an HSD Competitor (such as the Integrator
which for the purpose of this Agreement means the entity
assisting Customer with the implementation of, and related
services for, the Software). Any such third-party entity
will be authorized under an agreement with HSD to possess
and use the Software (including the Source Code) for the
balance of the term of this Agreement and any renewal term
for the purpose of supporting the new owner-entity's licensed
use of the Software and HSD agrees to negotiate with this
third party in good-faith in recognition of the need to
timely complete any such agreement concerning the third
party's possession and use of the Software and Source Code
to assist the new owner prior to the completion of the
transfer of the Agreement. The rights of use granted to any
such third party by HSD will be consistent with the applicable
rights granted to Customer under this Agreement for the
purpose of allowing the new-owner to continue to use the
Object Code in a manner that protects HSD's Trade Secrets,
Source Code and other confidential proprietary interests.
4.8.4 Prior to the completion of any transfer of this Agreement
under Section 4.8.1 above to an HSD Competitor Customer will
delete any/all Source Code on any of its internal systems
and certify to HSD that all such material has been timely
deleted/destroyed.
4.8.5 For purposes of this Agreement, an "HSD Competitor" is
defined as any of the entities as set forth in Attachment
4.8.5 to this Agreement, which Attachment may be updated
from time to time as necessary/applicable subject to the
mutual agreement of the Parties.
4.9 ASSIGNABILITY. Customer may assign this Agreement to a Subsidiary
or Affiliate and HSD may likewise assign this Agreement to a
subsidiary or affiliate, provided that the other Party is given at
least thirty (30) days prior written notice of any such intended
assignment and provided that the prospective assignee is not an
HSD Competitor other than as provided for in Sections 4.7 and 4.8
or Customer competitor which for the purpose of this Agreement is
considered to be any entity that provides the same services or
similar services as is provided by Customer and its Subsidiaries
and Affiliates. Any such assignment shall be subject to the prior
written agreement of the entity to which the assignment is being
made affirming that it will abide by the terms of this Agreement.
5. TERM OF AGREEMENT, TERM OF RELATED AGREEMENTS AND LICENSE FEES
5.1 TERM. The term of this Agreement shall be ten (10) years from the
Effective Date unless terminated as provided under the applicable
termination provisions of this Agreement. The Agreement may be
extended for two additional ten (10) year renewal terms in
consideration of the license renewal fee specified in Schedule A.
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5.2 TERM OF RELATED AGREEMENTS Any Implementation Agreement and/or
Support Agreement which is in-force at the time of any termination
of the License Agreement (or the expiration of its term or any
extension thereof) will automatically terminate as of the date of
any such termination or expiration of the term of the License
Agreement.
5.3 LICENSE FEES. The Software license fees ("License Fees") are
specified in Schedule A, which Schedule is attached hereto and
incorporated into/made a part of this Agreement by this reference.
5.4 GROWTH OF MEMBERSHIP. In the event that Customer incurs
membership growth that will be processed by, and use, the
Software, whether the growth is by the Customer acquiring or
merging with another entity or the growth occurs from the purchase
of Customer by a third party, [*]
5.5 THIRD PARTY SOFTWARE. It is mutually understood and agreed that
for any third-party software products acquired in conjunction with
the Software, Customer will be required to obtain rights of use in
a manner consistent with the practices of each such third party
vendor.
5.6 TAXES. 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 Software, (excluding
taxes based on HSD's revenue, profit or income) shall be the
exclusive obligation of Customer. Payment of said taxes shall be
Customer's obligation independent of its obligation to pay License
Fees.
6. WARRANTIES
HSD represents and warrants to Customer as follows:
6.1 CONFORMANCE TO DOCUMENTATION AND SPECIFICATIONS. The Software
used in Production by Customer in Release Sequence 1a of
Attachment 6.1 of this Agreement (the "[*] Release Sequence"),
will perform in a manner consistent with its Specifications for a
period of thirty (30) days from the date of its first Production
use (the "Warranty Period") when installed and operated on a
Designated System.
6.1.1 REMEDIES/CORRECTIVE ACTION. It is mutually understood and
agreed that the remedies/corrective action for any breach of
the warranty set forth in Section 6.1 will be as set forth
in Sections 2.6.1, Section 2.7.1(a) and 2.7.1(b) of the
Support Agreement entered into in conjunction with this
Agreement.
6.1.2 WARRANTY PERIOD EXTENSION. In the event that Customer
encounters a Priority 1 or Priority 2 Verified Program Error
(as described in the Diamond Issues Classification Table in
Section 2.6.1 of the Support Agreement) the Warranty Period
will be extended by the amount of the time that Production
is halted as a result of any such Verified Program Error
("The Warranty Period Extension").
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6.2 [*] RELEASE SEQUENCE - ADDITIONAL SUPPORT AGREEMENT FEES
PROVISION.
HSD warrants that its Support Agreement Fees set forth in Section
III of Schedule A will be billed to Customer as specified in said
Section III. HSD further warrants that the billing increments for
"[*] Release Sequence 1c ("Claims & Capitation") and "[*] Release
Sequence 2 ("Membership") as identified in Attachment 6.1 to this
Agreement will not be required to be paid by Customer for the
first thirty (30) days of Production of the Software included in
[*] Release Sequences 1c and 2 as specified in Section III of
Schedule A.
6.2.1 Remedies/EXTENSION OF SUPPORT FEE PROVISIONS. In the event
that Customer encounters a Priority 1 or Priority 2 Verified
Program Error (as described in the Diamond Issues
Classification Table in Section 2.6.1 of the Support
Agreement) in using each additional Release in Production as
described in Section 6.2, above, Section 2.7.1 of the
Support Agreement shall be applicable and the thirty (30)
day period in which the Support Agreement fees are not
payable will be extended by the amount of time that
Production is halted as a result of any such Priority 1 or
Priority 2 Verified Program Errors.
6.3 CONDITIONS OF WARRANTIES. The warranties set forth in Sections
6.1 and 6.2 above shall be conditional upon the Software being
operated on a Designated System and the Software not having been
modified other than by HSD, [*] (in its capacity as the
Integrator) by or on behalf of HSD at HSD's request, or by an IT
Service Provider in its capacity described in Sections 4.5 and
4.6, above.
6.4 EXCEPTIONS TO WARRANTIES IN SECTION 6.1 AND 6.2. Notwithstanding
Section 6.3 above, the warranties set forth in Sections 6.1 and
6.2 will remain in effect in the event that HSD can/will not
support the Software as required under the Support Agreement (and
any renewal thereof). Should Customer find it necessary to engage
a third party to render such support services, Customer will make
commercially reasonable efforts to have any such replacement
services rendered by a nationally recognized and/or well-known
company and will use commercially reasonable efforts to obtain
written non-disclosure/confidentiality agreements as part of any
such support service arrangements in order to help protect the
Source Code.
6.5 YEAR 2000 WARRANTY. HSD warrants the Software provided under this
Agreement will automatically and accurately process calendar dates
(including leap year dates) and date calculations for all dates
prior to, through and beyond January 1, 2000 and that any such
processing shall not require Customer to invoke special procedures
(hereinafter referred to as "Year 2000 Compliant" or alternatively
"Y2K Compliant"). In addition, HSD warrants that the Software
operates on versions of the UNIX operating system, PowerBuilder
(or a successor development tool) and Oracle database which have
been certified by their respective vendors to be Year 2000
Compliant.
6.6 OPERATING SYSTEM. HSD will make commercially reasonable efforts
to remain on the current version of the UNIX operating system of
the Designated System(s), PowerBuilder (or a successor development
tool) and the Oracle database during the term of the Support
Agreement associated with this Agreement. In the alternative the
Software will remain compatible with a vendor supported version of
the UNIX operating system of the Designated System(s),
PowerBuilder (or a successor development tool) and the Oracle
database for the term of the Support Agreement associated with the
Agreement.
6.7 RESTRICTIVE DEVICES. HSD warrants the Software does not and will
not contain, at
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the time of delivery to Customer, any disability virus, self-help
code, program dependency feature or other device or software routine
(including any "back door," "time bomb," "Trojan horse," "worm,"
"drop dead device," "virus" or other computer software routines)
designed to permit unauthorized access to, disable (whether through
the passage of time or under the control of a Person other than
Customer), erase or otherwise harm or interrupt the continued usage
of the Software.
6.8 SOFTWARE MEDIA. HSD warrants the media in which the Software is
provided shall be new media/previously unused and of good quality.
6.9 TITLE TO SOFTWARE. HSD warrants it owns and/or has full license
or marketing rights to the Software and has the right to grant the
license hereunder and the other rights contained herein.
6.10 NO BREACH OF ANY OTHER AGREEMENT. HSD warrants the execution and
delivery of this Agreement by HSD and the performance of this
Agreement by HSD does not and will not constitute a breach of any
agreement binding on HSD.
6.11 NON-DISTURBANCE IN USE OF SOFTWARE. HSD warrants Customer shall
be entitled to use the Software without disturbance, subject to
its continued and ongoing compliance with the terms of this
Agreement.
6.12 EXCEPTIONS TO WARRANTIES. The foregoing warranties other than as
provided for in Section 6.3 above, shall not be deemed to cover
any components of the Software created by Customer and/or on
Customer's behalf by other than HSD or on behalf of HSD at HSD's
request.
6.13 THIRD PARTY INFRINGEMENT. To the best of HSD's knowledge, the use
by Customer of the Software in accordance with the terms of this
Agreement does not violate or infringe any patent rights or other
intellectual property rights of any third party; provided,
however, that this representation shall not be deemed to cover any
components of the Software created by Customer and/or on
Customer's behalf by other than HSD or created on behalf of HSD at
HSD's request.
6.14 NO ACTIONS, SUITS OR PROCEEDINGS. HSD warrants there are no
actions, suits, or proceedings, pending or threatened, which will
have a material adverse effect on HSD's ability to fulfill its
obligations under this Agreement. HSD further warrants that it
will timely notify Customer should HSD become aware of any action,
suit or proceeding, pending or threatened, which will have a
material adverse effect of HSD's ability to fulfill its
obligations to Customer under this Agreement.
6.15 CAPABILITY TO PERFORM. HSD warrants that it is financially
capable of fulfilling all requirements of this Agreement, is
appropriately staffed to fulfill its obligations under this
Agreement and the Support and Implementation Agreements and that
HSD is a validly organized entity authorized to enter into the
Agreement.
6.16 EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, THE
PRECEDING IS HSD'S ONLY WARRANTIES CONCERNING THE SOFTWARE, AND
ARE MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES AND
REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR
OTHERWISE.
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7. THIRD-PARTY INTELLECTUAL PROPERTY INFRINGEMENT WARRANTY
7.1 DEFENSE AND PAYMENT. At HSD's expense, HSD shall defend,
indemnify and hold harmless Customer and its Subsidiaries and
Affiliates against any claim that the Software infringes the
intellectual property rights of another person or entity and shall
pay all costs, damages, losses, liabilities and expenses awarded
as a result of such claim. To qualify for such defense and
payment, Customer shall comply with the applicable
procedure/process set forth in Section 8, below.
7.2 LIMITATION ON HSD'S INDEMNIFICATION OBLIGATIONS. HSD's liability
or obligation under the preceding Section 7.1 shall be reduced or
eliminated (on a comparative fault basis) to the extent that any
such claim is based upon (i) the misuse and/or modification of the
Software by other than HSD (or on behalf of HSD at HSD's request);
(ii) Customer's use of the Software in combination with other than
a Designated System or Third Party Software specified for use with
the Software in the Documentation and/or as otherwise approved in
writing by HSD for use with the Software, (iii) Customer's failure
to timely use/employ corrections and/or Enhancements to the
Software made available by HSD with the understanding that any
such corrections and/or Enhancements will be provided to the
Customer at no additional fee.
7.3 CUSTOMER'S DEFENSE OF HSD. In the event of any such infringement
claim against HSD arising under Section 7.2, above, Customer shall
defend HSD against any such claim and pay all costs and damages
awarded as a result of such claim provided that HSD complies with
the procedure/process set forth in Section 8, below to the extent
that HSD incurs any liability, cost and/or expense attributable to
any such infringement claim.
7.4 ALTERNATIVE INFRINGEMENT REMEDY. If any portion of the Software
becomes the subject of an infringement claim that results in a
curtailment of Customer's use of the Software, HSD shall use
commercially reasonable efforts to: (i) on an expedited basis seek
to procure for Customer the right to continue to use the Software;
or (ii) replace the Software with non-infringing alternatives that
are substantially equivalent on all material functions of the
Software; or (iii) modify the Software in a manner which causes it
to function substantially the same as it had prior to modification
so that it becomes non-infringing. For the purpose of this
Section 7.4, it is mutually agreed that commercially reasonable
efforts shall mean that HSD will incur costs up to the dollar
value of the License Fees paid by Customer to HSD under this
Agreement, (including the Source Code License Fee) with these
costs being reduced each year from the Effective Date of the
Agreement by the amount of the annual amortization of the
Software, based on a ten (10) year straight line amortization
schedule beginning as of the Effective Date of this Agreement.
7.5 ALTERNATIVE ARRANGEMENTS. Should HSD be unable to secure any of
the options specified in Section 7.4, above, the Parties will meet
and confer in order to explore other alternatives to allow
Customer's use of the Software.
8. INDEMNIFICATION PROCEDURE FOR THIRD-PARTY INTELLECTUAL PROPERTY CLAIMS
8.1 PROCEDURE. Within five (5) days after receipt of written notice
by the party seeking indemnification (the "Indemnitee") of the
assertion or the commencement of any Claim, demand, action, cause
of action or other proceeding by a third-party, whether by legal
process or otherwise (a "Claim") with respect to any matter within
the scope of Section 7, above, the Indemnitee
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shall give written notice thereof to the Party from whom
indemnification is sought pursuant hereto (the "Indemnitor") and
shall thereafter keep the Indemnitor reasonably informed with respect
thereto; provided, however, that the failure of the Indemnitee to
give the Indemnitor such prompt written notice will not relieve the
Indemnitor of its obligations hereunder except to the extent such
failure results in prejudice to Indemnitor's defense of such Claim.
Within ten (10) days following receipt of written notice from the
Indemnitee relating to any Claim, but no later than ten (10) days
before the date on which any response to a complaint or summons is
due, the Indemnitor shall notify the Indemnitee in writing that the
Indemnitor shall assume control of the defense and settlement of
such Claim.
8.2 SOLE CONTROL. The Indemnitor will be entitled to have sole
control over the defense and settlement of any such Claim;
provided, however, that the Indemnitee will be entitled to
participate in the defense of such Claim and to employ counsel at
its own expense to assist in the handling of such Claim.
8.3 FAILURE TO PROVIDE DEFENSE. If the Indemnitor fails to assume or
provide a reasonable defense of any such Claim, then the
Indemnitee may assume the defense of any such Claim at the cost
and expense of the Indemnitor. The Indemnitor shall reimburse
Indemnitee for its costs and expenses incurred as a result of
Indemnitor's failure to assume or provide a reasonable defense of
such Claim subject to a determination under Section 15, below
(Dispute Resolution) that a duty of indemnity was owed to the
Indemnitee.
8.4 ASSISTANCE. The Indemnitee shall provide reasonable assistance to
the Indemnitor (at the Indemnitor's expense), including reasonable
assistance from the Indemnitee's employees, agents and independent
contractors, as applicable.
8.5 INFRINGEMENT INDEMNIFICATION OBLIGATIONS. The provisions of
Section 7 above state the entire obligation of the Parties to each
other with respect to the claims as defined in Section 7. The
requirements of this Section 8 shall apply to the extent they do
not conflict with any of the provisions of Section 7, above.
9.0 GENERAL INDEMNIFICATION.
9.1 INDEMNIFICATION. Subject to the conditions specified in Section
9.2, below, the Parties will indemnify, defend, and hold each
other and their respective Affiliates, Subsidiaries, directors,
officers, employees and agents harmless from and against any and
all claims, losses, liabilities, obligations and expenses
including reasonable attorneys fees, based on bodily injury,
including death, or damage to property resulting from the
negligence or willful misconduct of the other Party's employees or
agents. Each Party shall also at its expense, indemnify, defend
and hold the other Party harmless from and against any claim with
respect to withholding taxes, workmens' compensation, employee's
benefits or any other claim, demand, liability, damage or loss of
any nature relating to any of its employees or agents.
9.2 INDEMNIFICATION PROCEDURE. The procedure for seeking
indemnification shall be as set forth in Section 8.
Indemnification Procedure for Third Party Intellectual Property
Claims.
9.3 EXCEPTION. The Parties obligations under this Section 9 shall not
apply to the extent that any claim is covered by the Indemnitee's
workers' compensation insurance coverage. The Parties herewith
agree to a mutual waiver of subrogation with respect to any such
claims covered by their respective workers' compensation insurance
coverage.
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10. LIMITATION OF LIABILITY
10.1 CONSEQUENTIAL/INDIRECT/INCIDENTAL DAMAGES. IN NO EVENT SHALL
EITHER PARTY BE LIABLE FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL,
EXEMPLARY OR PUNITIVE DAMAGES ARISING FROM OR RELATED TO THIS
AGREEMENT, REGARDLESS OF THE TYPE OF CLAIM, WHETHER IN CONTRACT,
EQUITY, NEGLIGENCE OR OTHERWISE AND REGARDLESS OF THE CAUSE OF
SUCH DAMAGES EVEN IF SUCH DAMAGES WERE FORESEEABLE.
10.2 DOLLAR LIMITATION OF LIABILITIES. IF EITHER PARTY SHALL BECOME
LIABLE TO THE OTHER PARTY FOR ANY MATTER RELATING TO OR ARISING
FROM THIS AGREEMENT, WHETHER BASED UPON AN ACTION OR CLAIM IN
CONTRACT, EQUITY, NEGLIGENCE OR OTHERWISE, THE AGGREGATE AMOUNT OF
DAMAGES RECOVERABLE AGAINST THE LIABLE PARTY WITH RESPECT TO ANY
AND ALL BREACHES, PERFORMANCE, NONPERFORMANCE, ACTS OR OMISSIONS
HEREUNDER SHALL NOT EXCEED AN AMOUNT EQUAL TO THE TOTAL AMOUNT OF
THE LICENSE FEE AND SOURCE CODE LICENSE FEE THAT HAVE BEEN PAID BY
CUSTOMER (OR ARE OWED TO HSD) UNDER THIS AGREEMENT.
10.3 EXCEPTIONS. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
SECTION 10, IN THE EVENT OF A MATERIAL BREACH OF THIS AGREEMENT
RELATING TO THE SOURCE CODE, EITHER PARTY'S TRADE SECRETS
INCLUDING THE UNAUTHORIZED USE OR DISCLOSURE AND/OR DISTRIBUTION
OF STRATEGIC CUSTOMER ENHANCEMENTS, THE AMOUNT OF ANY DAMAGES
CLAIMED AND/OR AWARDED HEREUNDER SHALL NOT BE SUBJECT TO THE
DOLLAR LIMITATION OF LIABILITY RECOVERABLE UNDER SECTION 10.2,
ABOVE.
11. NON-SOLICITATION OF PERSONNEL
Neither Party shall solicit the employment/engagement of the services of,
offer employment to, employ or contract with the other Party's personnel
who are performing such activities and services under this Agreement in
any capacity (including as an employee, consultant or independent
contractor) without first obtaining the written permission of the Party
employing/engaging any such individual. The term of this provision shall
be for the duration of each such individual's involvement in providing
any services related to this Agreement and for a period of 12 months
following the termination of that individual's rendering of any such
services.
12. TERMINATION.
12.1 MATERIAL DEFAULT/BREACH. In the event of a claim of a material
default/breach, the Party alleging any such material
default/breach shall give written notice of the alleged material
default/breach, which notice shall specify the nature of any such
material default/breach in sufficient detail to allow the
receiving Party to investigate same in the interest of being able
to respond thereto.
12.2 CURE PERIOD. This Agreement may be terminated by the Party
alleging a material breach/default sixty (60) days after the date
of such notice is given to the other Party (the "Cure Period")
unless: (a) the material default/breach is corrected within such
sixty (60) day period; or (b) if it is not possible to correct
within such
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sixty (60) days, the defaulting Party commences correction within
sixty (60) days and proceeds diligently to a cure, or (c) the matter
remains a subject of disagreement between the Parties and the process
of dispute resolution has been initiated under Section 15 below. The
general cure provision of this Section 12.2 shall not apply to
those provisions of this Agreement which have provided for specific
remedies for a breach of those provisions. For a material breach
relating to the Source Code, Trade Secrets and/or the unauthorized
use, disclosure and/or distribution of [*] any such breach will be
subject a [*] Cure Period. Notwithstanding anything to the
contrary in the preceding sentence, the Cure Period may be extended
in the discretion of the Party alleging the breach on the basis of
an action plan to cure the alleged breach which action plan is
acceptable to the Party alleging the material default/breach.
12.3 REMEDIES/RETURN OF SOFTWARE. Subject to Section 12.4 below, upon
termination or expiration of this Agreement, the Customer shall,
within ten (10) days, return the Software to HSD. Termination of
this Agreement or any license granted herein shall not limit
either Party from pursuing any other remedies available to it at
law or in equity, subject to the limitations set forth in this
Agreement.
12.4 RETENTION OF LICENSE/USE OF SOFTWARE. Notwithstanding anything to
the contrary in this Agreement, in the event of an uncured
material/default breach of this Agreement by HSD that is confirmed
under Section 15 (Dispute Resolution) below, this Agreement and
the Source Code Addendum shall not terminate and Customer's use of
the Software, including the Source Code, shall continue subject to
the terms and conditions of this Agreement for the balance of its
remaining term and any applicable renewal terms (should Customer
elect to renew), with the exception of the fees provision of
Section 5. The determination of whether Customer owes any unpaid
license fees to HSD after the date of the uncured breach will be
determined by the Dispute Resolution mechanism as set forth in
Section 15.
13. THIRD-PARTY SOFTWARE PRODUCTS
Third-party Software license fees for software products used in
conjunction with HSD's Diamond Software are specified in Schedule A.
Applicable third-party licenses are provided to Customer as attachments
to Schedule A.
14. SUPPORT AND IMPLEMENTATION AGREEMENTS
Separate Support and Implementation Agreements will be executed by the
Parties at the time of the execution of this License Agreement and/or at
such time as the Parties may otherwise mutually agree.
15. DISPUTE RESOLUTION
15.1 INFORMAL RESOLUTION. Prior to the initiation of formal dispute
resolution procedures, the Parties shall first attempt to resolve
any dispute, controversy or claim arising under or in connection
with this Agreement (a "Dispute") informally, as follows:
15.1.1 MEETING. Representatives of HSD and Customer shall meet as
promptly, as often, and for such duration as the Parties
deem necessary to discuss the Dispute and negotiate in good
faith in an effort to resolve the Dispute.
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15.1.2 REFERRAL TO STEERING COMMITTEE. If the HSD and Customer
representatives are unable to resolve the Dispute within 15
days after the referral of the Dispute to them, then the
matter will be referred to the Executive Steering Committee
(referred to below in Section 15.2) which will meet as
promptly, as often, and for such duration as the Parties
reasonably deem necessary to discuss the Dispute and
negotiate in good faith in an effort to resolve the Dispute.
15.2 EXECUTIVE STEERING COMMITTEE. The Parties shall establish a
steering committee (the "Executive Steering Committee") to monitor
and address issues arising with respect to the Software and the
performance by the Parties of their obligations hereunder. The
Executive Steering Committee will serve as a second level for
Dispute resolution should the Parties be unable to resolve the
Dispute at an informal level.
15.2.1 REPRESENTATIVES ON THE EXECUTIVE STEERING COMMITTEE. The
Parties shall mutually determine the number of
representatives they will assign to the Executive Steering
Committee. Each Party may replace its members of the
Executive Steering Committee after providing the other Party
with reasonable advance written notice and after
consultation with the other Party. Each Party shall use
reasonable efforts to minimize the turnover of individuals
serving on the Executive Steering Committee.
15.2.2 MEETINGS. The Executive Steering Committee shall meet at
such times and places as are agreed upon by the Parties.
Each Party's representatives on the Executive Steering
Committee shall have the responsibility to notify that
Party's senior management of material issues considered and
material actions taken, by the Executive Steering Committee.
15.2.3 IMPLEMENTATION OF ARBITRATION. Implementing arbitration to
resolve the Dispute may not be commenced until the earlier
of:
(a) The good faith determination by the Executive Steering
Committee that an amicable resolution through continued
negotiation of the matter does not appear likely; or
(b) Thirty (30) days following the date that the Dispute
was first referred to the Executive Steering Committee.
15.3 ARBITRATION PROCESS. In the event that the Dispute is not
resolved after a good faith effort under the process described
above in this Sections 15.1 and 15.2, then, at the request of
either Party to this Agreement, the Dispute shall be subject to
final and binding arbitration pursuant to the rules of the
American Arbitration Association under the procedure specified
below.
15.3.1 Any Dispute submitted to arbitration shall be convened at
the location of the city of the headquarters of the Party
not initiating the arbitration and shall be conducted by a
three-person arbitration panel from a commercial alternative
dispute resolution organization. The Parties shall each
choose one arbitrator from the list of arbitrators supplied
by the dispute resolution organization, which panel must
include arbitrators with large system software industry
experience. The two selected arbitrators will then select
the third member of the panel and the arbitration hearing
will be scheduled within 30 days of the initiation of the
arbitration process.
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15.3.2 California law shall be applied in any such arbitration
without reference to its choice of law statutes and the
arbitrators' findings will include a detailed summary of the
law as it applied to the award and/or findings of the
arbitration panel. Depositions may be taken and discovery
may be conducted in any arbitration under this Agreement
subject to limitations imposed by the arbitrators.
15.3.3 Any judgment upon any award and/or findings rendered by the
arbitrators may be entered by any state or federal court
having jurisdiction thereof and the attorney fees and cost
provisions of this section shall also apply to the entering
of judgment and/or its enforcement.
15.4 EQUITABLE RELIEF. Notwithstanding anything to the contrary in
this Section15, it is jointly acknowledged and understood that
either Party may seek expedited equitable judicial remedies such
as temporary restraining orders with respect to any material
breach/actions that exposes either Party to the prospect of
irreparable harm (such as a breach relative to the use or
protection of the Source Code, Trade Secrets and/or Strategic
Customer Enhancements).
15.5 VENUE. Disputes under Section 15.4, above, shall be subject to
judicial action under California law with venue in Oakland,
California except to the extent preempted by applicable federal
law, notwithstanding anything to the contrary in this Section 15.
15.6 ATTORNEY FEES. The prevailing Party under any arbitration and/or
judicial action under this Section 15 shall be entitled to an
award of its attorney fees and applicable costs, including those
associated with appeals of any judgment and/or actions associated
with the enforcement of any such judgment, the entry of judgment
based on an arbitration award and/or the enforcement of any such
award.
15.7 CONTINUED PERFORMANCE. Notwithstanding anything to the contrary
in this Section 15, both HSD and Customer's will continue to
perform their obligation under this Agreement and the Support and
Implementation Agreements during the dispute resolution process.
Customer's use of the Software and/or associated HSD services
(such as implementation, support and/or consulting) will not be
suspended during the dispute resolution process provided that
Customer continues to otherwise perform as required under this
Agreement and/or any associated agreement (such as the Support and
Implementation Agreements). Customer's continued performance
referenced in the preceding sentence shall include the timely
payment of amounts invoiced by HSD for services rendered and
expenses incurred except with respect to any amounts which are
subject to a good-faith dispute of which HSD has received prior
written notice.
16. GENERAL PROVISIONS
16.1 NOTICES. All notices given hereunder shall be in writing and sent
by telefax/facsimile and/or an internationally recognized courier
such as DHL to the addresses and/or telephone numbers below, which
information may be changed by notice conforming to the requirements
of this Notice Section. Notices delivered by telefax and/or courier
shall be deemed received on the date of
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successful transmission thereof if received during business hours or
otherwise on the next business day following its receipt.
CUSTOMER: California Physicians' Service
dba Blue Shield of California
50 Beale St.
San Francisco, CA 94105
Attention: President
Facsimile: 415-229-5056
HSD: Health Systems Design Corp.
1330 Broadway, Suite 1200
Oakland, California 94612
Attention: Legal Department
Facsimile: 510 763-2081
16.2 INSURANCE. HSD has and shall retain in effect during the term of
this Agreement, errors and omissions insurance ("E&O") in the
minimum amount of Five Million Dollars ($5,000,000) per claim in
any one policy year and Five Million Dollars ($5,000,000) annual
aggregate for itself and general liability insurance in the amount
of Three Million Dollars ($3,000,000), and workers compensation in
the statutory amount or if none, a reasonable amount for a company
of similar size to HSD. The liability insurance shall: (i) name
Customer as an additional insured, including without limitation,
as an insured with respect to third party claims or actions made
or brought directly against Customer or against Customer and HSD
as co-defendants and arising out of or in connection with this
Agreement, (ii) contain a provision that Customer, although named
an insured, shall nonetheless be entitled to recovery for any loss
suffered by Customer as a result of HSD's negligence, (iii) be
written as a primary policy not contributing with any other
coverage which Customer may carry, and (iv) stipulate that
Customer shall receive thirty (30) days prior written notice of
any cancellation or reduction in coverage. HSD shall provide
Customer with a copy of its insurance policies, upon request. Any
insurance proceeds payable and/or other benefit to Customer that
becomes payable/is received under this Section 16.2 shall be
subject to Section 10. Limitation of Liability set forth in this
Agreement.
16.3 WAIVER. No term and/or provision of the Agreement, the Source
Code Addendum, the Support Agreement, and the Implementation
Agreement shall be deemed waived and/or any breach excused unless
such waiver or consent is specified in writing and signed by the
Party claimed to have waived and/or consented. No such consent
and/or waiver, whether express or implied, shall constitute a
consent, waiver and/or excuse for any other, different or
subsequent breach.
16.3 INDEPENDENT CONTRACTORS. The Parties specifically acknowledge and
agree that, in the exercise of their rights and the performance of
their duties under this Agreement, they are and will be
independent contractors. Neither Party will bind or attempt to
bind the other Party to any contract or other obligation, and
neither Party will represent to any third party that it is
authorized to act on behalf of, or bind, the other Party.
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16.4 FORCE MAJEURE. The obligations of the Parties to perform under
this Agreement shall be suspended to the extent that any such
performance cannot be rendered by reason of matters beyond the
control of the affected Party, including Acts of God, war and/or
insurrection.
16.6 HEADINGS. The headings and subheadings in this Agreement are
provided for convenience only and will not control the
interpretation of the Agreement.
16.7 SEVERABILITY. In the event that any provision of this Agreement
is found invalid or unenforceable pursuant to a final judicial
decree or decision, the remainder of this Agreement will remain
valid and enforceable according to its terms and the Parties will
attempt in good faith to agree upon a substitute provision for the
invalid or unenforceable provision.
16.8 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
will inure to the benefit of the Parties and their respective
successors and permitted assigns.
16.9 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of California without
regard to the conflicts of laws provisions thereof. Both Parties
hereby consent to the personal jurisdiction of the courts located
in the State of California for the resolution of those disputes,
which are subject to judicial resolution under the terms of this
Agreement.
16.10 SURVIVAL. The provisions of those Sections hereof regarding
indemnification, remedies, limitation of liability, dispute
resolution and this provision regarding survival shall survive any
termination or expiration of this Agreement for a period of ten
(10) years. The post-termination survival of the provisions
relating to Confidential Information shall be governed by Section
4, above.
16.11 RULE OF CONSTRUCTION. In the event any dispute arises with regard
to the interpretation of any term of this Agreement, or any other
document referred to herein, the Parties agree that the drafting
of this Agreement or any other instrument referred to herein,
shall not be deemed that of any one Party or their agent and that
any rules of construction to the effect that any ambiguities are
to be resolved against the drafting Party shall not be applicable.
16.12 AMENDMENTS. Changes to this Agreement shall be valid only if in
written form and signed by the Parties.
16.13 USE OF NAMES AND MARKS. The Parties each reserve the right to
control the use of their respective business names,
trademarks/servicemarks currently existing or later established
and neither Party shall use the other's name, trademarks or
servicemarks without the other's prior written consent, which
consent shall not be unreasonably withheld and/or delayed. This
provision shall also apply to logos and commercial symbols
generally/publicly known to be associated with either Party.
16.14 ENTIRE AGREEMENT. This Agreement and the Schedules and
Attachments referenced herein together with the Source Code
Addendum, Support Agreement and Implementation Agreement represent
the entire understanding between the Parties and supersedes any and
all prior understandings between the Parties, whether verbal or
written. Referenced Schedules and/or Attachments shall be deemed
incorporated into and made a part of this Agreement by reference.
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17. EXECUTION
This Agreement shall be effective as of the Effective Date notwithstanding any
date to the contrary associated with its execution by the duly authorized
signatories specified below. This Agreement may be executed in counterparts,
each of which will be deemed an original, but which together constitute one and
the same instrument.
CUSTOMER: California Physicians' Service HSD:
dba Blue Shield of California
Signed /s/ Thomas S. Fischer Signed /s/ Russell J. Harrison
------------------------ -------------------------
Name: Thomas S. Fischer Name: Russell J. Harrison
Title: SVP & CAO Title: President & CEO
Date 12/31/98 Date 12/31/98
------------------------ -------------------------
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SCHEDULE A TO THE BSCA - HSD SOFTWARE LICENSE AGREEMENT
- --------------------------------------------------------------------------------
I. DIAMOND SOFTWARE 950C/S (CURRENT VERSION) CORE SOFTWARE [*]
CONCURRENT USERS:
(Subject to the provisions of Section 3 of this Agreement)
STANDARD SOFTWARE MODULES CONSIST OF THE FOLLOWING:
Membership
Group
Utilization Management
Claims
Capitation
Premium Billing/Accounts Receivable
Accounts Payable
EDI (Eligibility & Claims)
Providers
Letters
Customer Service and Management Reporting
DIAMOND LICENSE FEES [*]
LICENSE RENEWAL FEES:
The Agreement may be extended for two additional ten (10) year renewal terms in
consideration of the payment of additional license renewal fees of [*] per
renewal term.
OPTIONAL DIAMOND SOFTWARE:
HSD will provide, at no charge, the following currently available API's:
Authorizations, Membership, Professional Claims and Institutional Claims
- ----------------------------------------------------------------------
II. DIAMOND 950C/S SOURCE CODE
Diamond 950C/S Source Code
(includes Data Dictionary and
Entity Relationship Model) [*]
- ----------------------------------------------------------------------
III. DIAMOND SOFTWARE SUPPORT MONTHLY FEES:
DIAMOND 950C/S CORE SOFTWARE :
[*] RELEASE SEQUENCE 1a - Provider Module:
(includes three (3) HSD [*] Personnel) [*]
- ----------------------------------------------------------------------
[*] RELEASE SEQUENCE 1c
Provider, Claims and Capitation Modules:
(includes four (4) HSD [*] Personnel) [*]
- ----------------------------------------------------------------------
[*] RELEASE SEQUENCE 2
- Provider, Claims, Capitation, and Membership Modules:
(includes five (5) HSD [*] Personnel) [*]
- ----------------------------------------------------------------------
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NOTE: To accommodate Customer's plans to implement the Software per the [*]
Release Sequence, the above Monthly Fees reflect the total fees due based
upon the [*] Release Sequence approach.. In the event that the Software is
implemented on a basis that differs from that specified in this Section III
(including changes in the [*]Release Sequence as it exists as of December
1998), the maximum monthly fee that will apply at the conclusion of any such
alternative implementation approach will not exceed the [*] specified above
(subject to applicable annual support fee increases as set forth in the
Support Agreement).
OPTIONAL PAGER SUPPORT AS PROVIDED IN THE SUPPORT AGREEMENT:
Off-Hours Pager Support: [*]
- ------------------------------------------------------------------------------
IV. THIRD PARTY SOFTWARE LICENSES FEES
IQ Report Writer for Windows License for up to 5 users: [*]
PowerBuilder Development License (1) N/A
"C" Compiler (2) N/A
Oracle7 Database Software Full Use License (3) N/A
(1) This quote does not include the cost of a PowerBuilder Development
License
(2) Customer may desire to license a "C" Compiler for use with the Diamond
Software. This quote does not include the cost of a "C" Compiler (this
is not distributed by HSD).
(3) Customer is required to license and install a Full Use version of
Oracle7 Database software to be able to use the Diamond Software. This
quote does not include the price for the Oracle software and assumes
Customer will be licensing it through another distributor
- ------------------------------------------------------------------------------
V. DESIGNATED SYSTEM
HARDWARE AND OPERATING SYSTEM SOFTWARE
SUN/SOLARIS, IBM RISC6000/AIX, HP9000/HP-UX, SEQUENT/DYNAX
(Designated System To Be Determined by Customer)
- ------------------------------------------------------------------------------
VI. MANNER OF PAYMENT
1. [*]
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2. DIAMOND SOURCE CODE LICENSE FEE:
[*] is due upon delivery of the Source Code
3. 3RD PARTY SOFTWARE:
None licensed at this time.
4. PROFESSIONAL/CONSULTING SERVICES:
Billed monthly as incurred. Payment due within thirty (30) days of
receipt of invoice by Customer.
5. ADDITIONAL WEEKEND AND/OR HOLIDAY SUPPORT COVERAGE AS ADDRESSED IN THE
SUPPORT AGREEMENT
Additional weekend and/or holiday Support coverage for planned
operational support is available at a rate of $1000 per day (the "Base
Week-End Daily Fee") and $200 per hour with the understanding that the
first two (2) hours of service of each weekend day is included as part
of the $1,000 Base Week-End Daily Fee. It is further understood and
agreed that the availability of additional week-end/holiday service
shall be subject HSD being provided at least ten (10) days notice of its
request for any such extended coverage.
6. OUT OF POCKET EXPENSES:
Out of Pocket Expenses such as travel/living expenses are not included
as part of the Implementation and Support Agreements fees and are billed
monthly as incurred. Payment is due within fifteen (15) days of receipt
of invoice by Customer. All travel and out-of-pocket expenses will be
subject to the HSD Travel Policy and Procedures set forth in Attachment
3.1.5 to the Implementation Agreement.
7. LATE PAYMENTS:
If Customer fails to make any payment within thirty (30) days of receipt
of HSD's invoice, HSD may give written notice to Customer ("Notice") and
Customer shall have five (5) days from the date of Customer's receipt of
such notice to cure the default. Past due amounts will be subject to a
late fee, calculated at an annual rate of 12% or the maximum amount
allowable under applicable law (whichever is the lesser amount).
It is mutually understood and agreed that the failure to timely remit
payment shall be considered a material breach of this Agreements shall
be subject to the Section 12.2 of the License Agreement.
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DIAMOND-Registered Trademark- 950 C/S SOFTWARE SOURCE CODE ADDENDUM
- ------------------------------------------------------------------------------
1.0 PARTIES, PURPOSE, EFFECTIVE DATE AND RULE OF INTERPRETATION
1.1 PARTIES. This addendum (the "Source Code Addendum") is part
of, and shall serve to modify, the Diamond Software License
Agreement ("Agreement") between California Physicians' Service
dba Blue Shield of California ("Customer") and Health Systems
Design-TM-Corp. ("HSD"), a California Corporation, the owner
and developer of the managed healthcare software known as
Diamond 950 C/S (the "Software") and shall be effective as of
December 31, 1998 (the "Effective Date").
1.2 PURPOSE. The purpose of this Source Code Addendum is to
specify the terms and conditions applicable to Customer's
rights of possession and use of the Software Source Code
licensed to Customer.
1.3 TERMS OF THE AGREEMENT. This Addendum shall be governed by the
terms and conditions of the Agreement which shall remain in
full force and effect and in the event of any conflict between
the terms of this Addendum and the Agreement, the terms of this
Source Code Addendum shall control.
1.4 CAPITALIZED TERMS. All capitalized/defined terms in this
Source Code Addendum shall have the same meaning as that
ascribed to them in the Agreement.
2. RIGHTS AND SCOPE OF USE GRANTED
2.1 LICENSE GRANTED. HSD hereby grants to Customer and Customer
accepts a non-exclusive, non-transferable license to use the
Source Code within the United States for its internal purposes
as set forth in this Section 2, the term of which shall
coincide with the term of the Agreement referenced in Section
1.1, above, subject to the terms and conditions of the
Agreement.
2.2 SCOPE OF USE. Customer may use the Source Code as necessary to
support and enhance its use of the Object Code under the terms
of the Agreement. Those uses shall include, without
limitation, the rights to modify the Software, create
derivative works and develop interfaces between the Software
and other software applications. Ownership of the Intellectual
Property Rights in works created by Customer (or Customer's
authorized third-party agents) shall be governed by the
applicable sections of the Agreement.
2.3 INTERNAL USE. Customer may use the Source Code as necessary to
provide internal assistance to Customer's employees, including
technical staff, the IT Service Provider, management and/or
Customer personnel who will use or service the Object Code of
the Software in Production.
2.4 THIRD PARTY ACCESS. Customer may allow third party consultants
to access and use the Source Code to assist Customer as
necessary to its Customer's use of the Software as authorized
under this Addendum. Any such access and use shall be subject
to the confidentiality provisions set forth in this Addendum
and as otherwise specified in the Agreement.
2.5 COPIES. Customer may make [*] copies of, or reproduce, the
Source Code version of the Software and the Technical
Documentation [*]to support its internal use of the Software
including one onsite backup, one archival and one offsite
backup for each Customer location where the
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Source Code is located. All such copies will include HSD's
copyright and proprietary rights notices as they appear in the
Software and/or its Documentation. The media containing copies
shall be labeled with HSD's copyright and proprietary rights
notices.
3.0 CONFIDENTIALITY, PROPRIETARY RIGHTS PROTECTION
3.1 CONFIDENTIALITY. Customer agrees to take all reasonable
precautions to ensure the continued confidentiality of the
Source Code, which precautions shall include informing
Customer's applicable personnel of the proprietary nature of
the Source Code and maintaining the Source Code and Technical
Documentation in locked/limited-access facilities.
3.2 RECORDS. In recognition of the confidential and highly
proprietary nature of the Source Code, Customer agrees to make
and retain written records of access granted to third parties
(including name, address, company affiliation, nature and
purpose of the access granted).
3.2.1 In the event that the entity/person to which any such
access is granted is not subject to a current
non-disclosure agreement ("NDA") then Customer will
obtain an NDA from any such third-party entity prior to
granting access to the Source Code any person affiliated
with the entity (including its employees, officers
and/or consultants/contractors). The form(s) of NDA to
be used for purposes of compliance with the NDA
requirement of this subsection is Attachments 4.6.1- A
and 4.6.1 - B to the Agreement.
3.2.2 Customer records required under Sections 3.2 and 3.2.1
shall be made available to HSD upon not less than ten
(10) days prior written notice.
4.0. UPDATES
The Source Code will be refreshed and promptly given to Customer whenever HSD
makes a Software update to the Object Code, a bug fix, and Enhancement or
issues a new Release of the Software provided that there is a valid Support
Agreement in effect between Customer and HSD at the time of any such new
Release of the Software.
5.0. EXECUTION
This Source Code Addendum shall be effective as of the Effective Date
notwithstanding any date to the contrary associated with its execution by the
duly authorized signatories specified below. This Agreement may be executed
in counterparts, each of which will be deemed an original, but which together
constitute one and the same instrument.
CUSTOMER: California Physicians' HSD:
Service
dba Blue Shield of
California
Signed /s/ Thomas S. Fischer Signed /s/ Russell J. Harrison
------------------------------ ------------------------------
Name: Thomas S. Fischer Name: Russell J. Harrison
Title: SVP & CAO Title: President & CEO
Date 12/31/98 Date 12/31/98
-------------------------------- --------------------------------
[*] Confidential portions omitted and filed separately with the Commission
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DIAMOND-Registered Trademark- IMPLEMENTATION AGREEMENT
- -------------------------------------------------------------------------------
1. PARTIES AND PURPOSE OF AGREEMENT
1.1 PARTIES. This Diamond Implementation Agreement (the
"Implementation Agreement") is effective December 31, 1998
("Effective Date") and is entered into between the undersigned
Customer and Health Systems Design-TM- Corp. ("HSD") in
conjunction with the Diamond Software License Agreement (the
"Agreement") executed by and between the Customer and HSD with an
effective date of December 31, 1998
1.2 PURPOSE. The purpose of the Implementation Agreement is to
specify the terms under which Customer will receive implementation
services from HSD.
1.3 CAPITALIZED TERMS. Capitalized terms in this Implementation
Agreement shall have the same meaning as specified in the
Agreement.
1.4 SURVIVAL OF DEFINED TERMS. Defined Terms or references created
under this Implementation Agreement will survive the termination
or expiration of this Implementation Agreement to the extent that
any such Defined Terms or references are used in the surviving
Agreement and/or the Support Agreement.
2. IMPLEMENTATION MANAGEMENT
2.1 OVERALL MANAGEMENT. The general/overall management of the
implementation of the Software (hereinafter "Implementation" or
"Implementation Project") will be done by Customer. HSD and the
Integrator will report to Customer in its capacity as the client
of both entities.
2.2 PROGRAM MANAGEMENT OFFICE. Customer has established a management
committee (the "Program Management Office" or "PMO") to oversee
the implementation of the Software and related activities.
2.3 PROGRAM MANAGEMENT OFFICE MEETINGS. The PMO will meet as
necessary and appropriate for the effective management of the
Implementation, including the discussion and handling of
operational matters/issues that are not resolved by the joint
efforts of HSD and Customer's Implementation Project managers. In
the event that HSD disagrees with a PMO resolution the matter will
be subject to the dispute resolution process set forth in Section
15 of the License Agreement.
3. RESPONSIBILITIES OF HEALTH SYSTEMS DESIGN
3.1. ASSIGNMENT OF HSD PROJECT MANAGER, ADDITIONAL STAFFING, TRAVEL AND
OUT OF POCKET EXPENSES
3.1.1. HSD RESPONSIBILITIES. HSD will support Customer and/or the
Integrator in the day to day aspects of the
Implementation, working with the Customer's onsite
project manager and the Integrator's project manager.
The HSD Project Manager (as is more fully addressed in
Section 3.1.2 below) will be assigned to Customer's
Implementation Project on a full-time basis and will
function as an HSD contact for all Customer questions
and issues concerning the Software during the
Implementation process. HSD will use the Customer
and/or Integrator tools and methodology
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("Customer Methodology") in assisting in the management of
the Implementation process to enable the Integrator to give
Customer reports in a consistent format.
3.1.2. HSD PROJECT MANAGER. HSD will assign a Project Manager
(the "PM") to the Customer's Implementation Project for
the period beginning with the Implementation Project
Meeting (as further described in Section 3.2.1 below)
and continuing until Customer transitions from
Implementation to support as per the process described
in Section 6. of the Agreement. When the PM is not
onsite at Customer's location, the PM can be contacted
through HSD's Oakland offices during standard business
hours/days (8 a.m. to 5 p.m. Pacific Time).
3.1.3. HSD PERSONNEL. HSD personnel will be assigned to the
Implementation Project as mutually agreed/specified by the
Parties, which personnel will render services under this
Implementation Agreement in a good and workmanlike manner.
(a) HSD PERSONNEL EXPERIENCE. Any such personnel will
have professional experience as necessary and
appropriate to the effective performance of the
duties each is to perform under the Workplan and a
summary of their relevant qualifications will be
made available to Customer upon request.
(b) HSD PERSONNEL CONTINUITY. HSD shall make
commercially reasonable efforts to maintain the
continuity of personnel assigned to Customer's
Implementation Project and provide sufficient
project and technical resources to perform the
tasks specified in the Workplan(s).
3.14 REMOVAL OF HSD PERSONNEL. If in Customer's reasonable and
good faith judgment that the results to be obtained
under the Implementation Agreement may be impaired
because an HSD employee who has significant contact
with Customer in connection with the provision of
services under this Implementation Agreement is not
performing services in a reasonably satisfactory
manner, then Customer may provide written notice of
its objective basis for any such determination to
HSD's Vice President - Client Services. If HSD
decides to remove any such employee, HSD shall timely
initiate commercially reasonable efforts to replace
the individual with a person of suitable ability and
qualifications.
3.1.5 TRAVEL AND RELATED EXPENSES. Travel and out-of-pocket
expenses for HSD Implementation Project personnel are not
included in the monthly Implementation fees and will be
billed separately as incurred. All expenses will be subject
to the HSD Travel Policy, which is attached as Attachment
3.1.5 to the Agreement and incorporated by reference in
this Implementation Agreement.
3.2 IMPLEMENTATION PROJECT MEETING AND WORKPLANS
3.2.1 IMPLEMENTATION PROJECT MEETING. Although Implementation
work has been, and is being, done by HSD for Customer, an
Implementation Project planning session (the
"Implementation Project Meeting") will be scheduled at
Customer's location at a date and time mutually acceptable
to Customer, Integrator and HSD following the signing of
the License Agreement and this Implementation Agreement.
The Implementation
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Project Meeting will include, but not be limited to, a
detailed walkthrough of the Software for Customer's
Implementation team. A primary purpose of the
Implementation Project Meeting is to continue the process
of working with Customer and the Integrator to further
develop the Implementation workplan (the "Workplan") which
Workplan will become Attachment 3.2.1 of this Agreement
when finalized.
3.2.2 WORKPLAN. Customer has advised HSD that the Workplan will:
(1) define the specific tasks necessary to complete the
Implementation; (2) designate the Party responsible for
each such task; (3) specify scheduled completion dates
associated with those tasks; (4) contain the HSD and
Customer developed and/or approved performance
standards/metrics, scalability, testing network loads,
and testing procedures which will be incorporated into
the Workplan as and when completed in a manner
acceptable to the Parties pursuant to the process
described in Attachment 3.10.4(B) to this
Implementation Agreement; (5) project planning; (6)
module training;(7) Software setup/configuration;(8)
gap analysis; (9) unit and regression system
testing;(10) assistance with Customer policies and
procedures documentation and; (11) end-user training
("train-the-trainer approach").
3.2.3 WORKPLAN REVISIONS. The Parties understand and agree that
the initial Workplan may be replaced with a revised
Workplan(s) as mutually agreed which subsequent Workplan(s)
will become a part of this Agreement when approved by the
Parties. Requirements/services that are outside of the
scope of the Workplan will be subject to separate
agreements as to fees for any such additional services.
3.2.4 WORKPLAN DISPUTE RESOLUTION In the event that the HSD and
the Integrator are unable to agree upon mutually acceptable
HSD services to be included in the Workplan within ninety
(90) days of the Implementation Project Meeting the matter
will be referred to the PMO. If a Workplan is not agreed
upon within fifteen (15) days of the commencement of the
PMO's direct involvement in the process then the matter
will be referred to the Customer for final resolution.
3.2.5 CUSTOMER METHODOLOGY. HSD will make reasonable efforts to
use the Customer Methodology as defined in Section 3.1.1,
above, in preparing its work to be incorporated into the
Workplan.
3.3 TECHNICAL PRE-INSTALLATION AUDIT
3.3.1 TECHNICAL INSTALLATION CONFERENCE. To facilitate the
initial Software installation at Customer's location, a
technical installation telephone conference will occur
prior to the loading of the Software (which Software will
be delivered to Customer within three (3) business days
following the execution of the Agreement or as otherwise
determined in the Workplan).
During this conference HSD will review a
pre-installation checklist that will have been
previously provided to the Customer as part of the
Implementation process. The pre-installation checklist
specifies both hardware and Software related tasks,
which Customer must complete prior to HSD's
installation of the Software and any Third Party
Software obtained through HSD and/or to be implemented
by HSD and this pre-installation checklist will be
included as Attachment 3.3.1 to this Implementation
Agreement.
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3.3.2 CUSTOMER'S RESPONSIBILITIES. As part of the
pre-installation checklist, Customer will ensure that
all necessary peripheral devices (such as printers) are
installed and available on the Customer's network and
at least one workstation is available for HSD's remote
access. After Customer notifies HSD that all tasks on
the pre-installation checklist have been completed, HSD
will perform a system audit (the "Initial Technical
Audit") to ensure that the Customer's system is
properly configured and stable prior to the loading of
the Software. When completed, the Initial Technical
Audit documentation will be included as Attachment
3.3.2 to this Implementation Agreement.
3.3.3 CUSTOMER/INTEGRATOR/IT SERVICE PROVIDER USE OF SOFTWARE.
The activities specified in Sections 3.3.1 and 3.3.2 above
will be performed when necessary/appropriate should
Customer elect to temporarily use/access the Software on
the Integrator's or IT Service Provider's hardware or the
Software that is made available and temporarily used by the
Integrator or IT Service Provider to facilitate Customer's
Implementation.
3.4 TECHNICAL INSTALLATION OF SOFTWARE
3.4.1 INSTALLATION AND TRAINING. Upon the successful completion
of the Initial Technical Audit, HSD system engineers
will conduct both installation and technical training
activities at the Customer's site. Customer's
technical staff members identified in the Workplan, are
required to be on site and available during the
installation process. For the Software, this Customer
staffing requirement will include an experienced,
Oracle-trained DBA.
3.4.2 INSTALLATION ACTIVITIES. Installation activities include
the installation and configuration of the Software on
the Customer's or Customer's designee or IT Service
Provider's server and installation of one or two client
workstations. Unless specified otherwise, Customer or
Customer's designee or IT Service Provider will be
responsible for loading the Software onto all other
client workstations.
3.4.3 DIAMOND ENVIRONMENTS. HSD will install three Diamond
environments: training, test, and Production on Customer's
Designated System.
(a) TRAINING ENVIRONMENT. The training environment will
contain HSD data that is used during the
Implementation process for base module training,
demos, and user practice.
(b) TEST ENVIRONMENT. The test environment will be
composed of a development architecture and a run
time architecture, also referred to as "Model
Office". This environment will initially be
empty/unpopulated and will be used to develop
programs and complete both unit and integration
testing during the implementation process and
thereafter when the Software is in Production for
on-going Enhancements or changes as-needed. The
test environment is also used to install and test
new Software releases and Enhancements prior to
their installation into the Customer's Production
environment.
(c) PRODUCTION ENVIRONMENT. The Production, sometimes
referred to as the Operations, environment remains
empty/unpopulated until the later stages of the
Implementation process/Workplan when it is
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populated with data from the test environment in
preparation for the initial Production use of the
Software. Each of the three Diamond environments
specified in this Section 3.4.3 must be maintained
during the Implementation process and continued
throughout Customer's Production use of the
Software.
3.5 TECHNICAL TRAINING
Technical training is conducted at Customer's, Customer's designee
or IT Service Provider site and typically requires three (3) days.
It is designed for Customer's technical personnel, (such as DBA,
UNIX and LAN administrators) and includes the following subject
areas:
(a) How to install Software updates
(b) How to install Software workstations
(c) System architecture overview
(d) Software structure
(e) Network considerations
(f) Security setup
(g) Back-up procedures
3.6 USER TRAINING SESSIONS
The PM and/or HSD analyst will train Customer's Implementation
team members at the Customer's location for the fees set forth in
this Implementation Agreement. Training sessions generally
require a total of 20 to 25 days and typically cover the following
topics:
(a) Software overview
(b) Group and membership
(C) Claims processing
(d) Provider contracts
(e) Utilization review functions
(f) Premium billing
(g) Accounts receivable
(h) Accounts payable
(i) Medical Definitions
(j) Adjudication
(k) Customer Service
(l) Letters
(m) Parameters/System management
(n) Capitation
(o) Member EDI
(p) Professional Pricing
3.7 CONSULTING SERVICES
3.7.1 DEFINED/AVAILABILITY. Consulting services are not
included in the standard Implementation fees.
Consulting Services are defined as any actions or
services not specifically covered by this
Implementation Agreement and/or the Workplan(s) such as
technical training other than as provided in Section
3.5, above, and assistance in the assessment of
Customer's technical staffing. Consulting services will
be provided by HSD during and after the Implementation
Project with the prior written authorization by the
Customer and will be provided at HSD's then-current
rates under terms mutually acceptable to Customer and
HSD. At Customer's request,
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HSD will provide consulting services in subject areas such
as the identification of types of required interfaces and
collaborating with third-party vendors to assist in the
timely development of interfaces to the Software.
3.7.2 HSD COOPERATION IN INTERFACE DESIGN. HSD will cooperate
with Customer (and/or its designees) in designing
system interfaces between the Software and Customer's
systems/third-party software. HSD acknowledges the
importance of the interfaces to the Customer's
effective use of the Software and agrees to timely and
effectively assist Customer to accomplish its
objectives as they become known. Given the sensitive
nature of information that HSD will likely provide
(such as the underlying structure/design of its
Software), it is mutually understood and agreed that
HSD will take precautions consistent with Section 4.4
of the Agreement to protect its Confidential
Information/Trade Secrets that are disclosed during the
course of any such cooperation. For purposes of this
Implementation Agreement an "Interface" shall be
defined as the automated passing of information between
two or more software applications which definition
shall also apply to the Implementation Agreement and
the Agreement.
3.7.3 INTERFACE SUPPORT. It is mutually understood and agreed
that the vendor that actually builds any interface as
described in Sections 3.7.1 and 3.7.2 above will be the
entity that warrants and supports any such interface.
3.8 SYSTEM SET UP ASSISTANCE
In addition to user training, HSD, as part of the Implementation,
will provide assistance (as a specified Workplan element) on
Software system set up, including but not limited to:
recommendations on group coding schemes, suggestions for medical
definitions and adjudication rule set up, recommendations on
capitation model set up, and the implications of Customer's
business policy and practice (of which HSD has been apprised) on
the Software.
3.9 LEGACY DATA CONVERSION
3.9.1 ASSISTANCE WITH CONVERSION. HSD's on-site Implementation
Project Management staff will assist the Customer to
develop an approach for converting data in existing Legacy
systems for the use of any such data with the Software.
That assistance typically consists of mapping data from
the Legacy system to the Software on a field by field
basis that specifies where specific Legacy data fields
are to be placed in the Software.
3.9.2 ADDITIONAL CONVERSION SERVICES. HSD does not typically
perform the actual conversion services necessary to
electronically submit data to the Software for initial file
loads. Should Customer wish to obtain those services
through HSD they will be provided at HSD's then-standard
rates for such services and rendered under mutually agreed
to terms subject to the reasonable availability of the
required HSD resources/personnel.
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3.10 TECHNICAL PRE-PRODUCTION CERTIFICATION
3.10.1 CUSTOMER REQUIREMENTS. Customer will be required to
prepare its operations and the Software for use in a
Production environment, which preparations will include the
transfer of all data built in the test environment to the
Production environment.
3.10.2 HSD ASSISTANCE. While Customer is undertaking the
requirements set forth in Section 3.10.1 above, HSD's
system engineers will be available to guide and assist
Customer in activities associated with creating and sizing
the Production environment. Once the Production
environment is established, HSD's systems engineers will
be available to assist in the transfer of data from the
test to the Production environment.
3.10.3 TECHNICAL AUDIT. In addition to confirming the Production
readiness of the Customer's database, HSD's technical
Implementation staff will conduct a technical audit of the
Customer's system operations. This audit and subsequent
technical audit review session will typically address some
(or all) of the following topics:
(a) Ability to add and remove users
(b) System security setup
(c) Backup schedule and operational procedures
(d) Typical problem-solving scenarios
(e) Data import/export concepts
(f) Remote support access
3.10.4 PRE-PRODUCTION TESTING. Pre-Production testing will
be done to confirm that the Software functions in a
manner consistent with the Specifications and to
confirm that the Software operates in a manner nsistent
with applicable Customer "Model Office"
requirements/protocols which Model Office
requirements/protocols will become Attachment 3.10.4(A)
to this Implementation Agreement as and when they are
jointly developed. It is understood and agreed that the
Performance Standards will be jointly determined by HSD
and Customer and will include variables such as testing
procedures, the determination of applicable performance
measures for the specification on the Designated System
and the technical requirements for any additional
Software functionality as more fully described in
Attachment 3.10.4(B) to this Implementation Agreement.
4. RESPONSIBILITIES OF CUSTOMER
4.1 MEETING SCHEDULE
The Customer's project manager and PM will attend meetings as
required by Customer.
4.2 TECHNICAL/CUSTOMER IMPLEMENTATION STAFF
4.2.1 CUSTOMER PROJECT MANAGER. A qualified project manager must
be assigned as the primary contact between Customer and
HSD. The Customer's project manager is responsible for
assigning and maintaining Customer's Implementation team
members to complete the Customer assigned tasks as
described in the Workplan. The Customer's project manager
will provide daily user and technical support to Customer's
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implementation team members. The Customer's project
manager is also responsible for the training of Customer's
staff members outside of the Implementation team and for
the updating of Customer's procedure manuals, as
necessary/appropriate.
4.2.2 CUSTOMER'S STAFF. To help ensure a successful and timely
Implementation, Customer through its staff or by use of the
Integrator or, its IT Service Provider other
vendors/consultants, agrees to have qualified technical
staff available on an ongoing basis to work with HSD during
the Implementation Project. The Workplan will identify the
specific technical staff requirements for each phase of the
Implementation Project. Generally, these technical staff
requirements will include a System Administrator, a Network
Administrator, and an experienced Oracle Database
Administrator ("DBA"). When HSD's PM is onsite, Customer's
designated technical staff must be available on reasonable
notice to facilitate implementation tasks such as release
installation, user profile set-up, ensuring remote/dial-up
access and to resolve system issues such as
security/access.
4.2.3 CHANGE IN CUSTOMER'S STAFF. HSD reserves the right to
request that Customer assign replacement technical
staff/Implementation Project staff if in HSD's good-faith
professional opinion, assigned Customer personnel lack the
minimum basic required skills to successfully proceed with
the implementation. Any such request will be submitted in
writing to Customer's CIO by HSD's Vice President of Client
Services and will specify the objective reason(s) for any
such request.
4.3 REMOTE ACCESS
4.3.1 CUSTOMER COMMUNICATIONS EQUIPMENT. One week prior to the
Installation of the Software, Customer must have
installed and available to HSD a means of remote access
to Customer's computer system/Software environment.
Current HSD communication equipment and protocols
require that the Customer have at least one dedicated
modem (with a baud rate of 56,000), dedicated phone
line and PCAnywhere communications software to
facilitate dial-in point-to-point protocol ("PPP")
access. Customer agrees to make diligent efforts to
keep the remote access communication equipment in good
working order at all times during the Implementation
process and to timely address any operational
issues/failures.
4.3.2 HSD REMOTE ACCESS. Remote access is required for all
technical support in diagnosing and addressing Software
and/or data problems, and may be used for the delivery of
Software updates. In order to facilitate this process,
Customer grants HSD the right to remotely access the
Customer's test environment during the Implementation with
the understanding that HSD will notify Customer, obtain
Customer's approval prior to accessing the Customer's test
environment and abide by the Confidential Information
provisions of the Agreement.
4.3.3 ACCESS PROBLEMS. The Implementation will be considered
suspended should HSD be repeatedly unable to remotely
access the system due to problems attributable to
Customer's equipment (or lack of equipment) unless such
problems are beyond Customer's reasonable control. Any
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such suspension will be subject to Section 5 of this
Implementation Agreement.
4.4 SYSTEM ENVIRONMENT
4.4.1 PRODUCTION ENVIRONMENTS. As specified in Section 3.4.3
above, Customer must maintain separate training, test and
Production environments of the Software.
4.4.2 MAINTENANCE OF PRODUCTION ENVIRONMENTS. Given the
importance of maintaining these three distinct environments
throughout the entire Implementation process to the success
of the Implementation process, the failure of Customer to
comply with this requirement may result in a suspension of
the Implementation Project pending the correction of any
such situation.
4.4.3 HSD ASSISTANCE WITH CUSTOMER'S PRODUCTION ENVIRONMENTS. In
the event that Customer requests HSD's assistance in
addressing situations associated with the Customer's
failure to properly maintain these three environments, any
such assistance will be treated as a consulting function.
Any such consulting services will be rendered on a time and
materials basis at HSD's then current rates.
4.5 ISSUES MANAGEMENT
Should Customer encounter Software and/or system issues, the
following procedures will apply, with the understanding that HSD
will make reasonable efforts to comply with Customer's
Methodology.
4.5.1 NOTICE. As soon as feasible, Customer will complete HSD's
implementation issues tracking form (an example of such
will be presented by the PM at the onset of the
Implementation Project) and routes the completed form to
the PM.
4.5.2 DOCUMENTATION. In addition, Customer will provide all
necessary screen prints that illustrate the issue and
related Diamond keywords that may be involved.
4.5.3 TEST. Customer shall ensure that a Diamond "test"
environment is available that reasonably mirrors the
Production environment.
4.5.4 HSD ACTION. Upon receipt of the material specified in the
preceding subsections, the PM (or designee) will initiate
the process of replicating the reported issue/problem in a
comparable Diamond offsite environment in an effort to
determine the source of the reported problem. Based on the
outcome of this initial review and work-up, the PM will
review the application set-up, explore potential
workarounds, and/or submit the issue to HSD Engineering for
further evaluation and disposition.
4.5.5 REPORTS. The PM will provide periodic status updates to
the Customer for any items that have been submitted to HSD
engineering for evaluation and disposition.
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5. IMPLEMENTATION DELAYS
5.1 DELAYS. The Parties acknowledge that it is mutually beneficial
for the Implementation to proceed as scheduled without
interruption.
5.2 CUSTOMER CREATED DELAYS. Should the Implementation Project be
materially delayed/negatively impacted by factors attributable to
Customer, (such as Customer's failure to provide effective
technical staff based on objective/observable failures and/or
remote access situations as generally described in this
Implementation Agreement) HSD reserves the right to temporarily
suspend applicable Implementation services and related activities
upon ten (10) days written notice (the "Notice/Cure Period") to
Customer unless the situation giving rise to such notice is
corrected/cured within the Notice/Cure Period. Any such
suspension of Implementation services shall continue until such
time as any such situation has been corrected with the
understanding that HSD will make commercially reasonable efforts
to modify the priority of Workplan task(s) assigned to HSD and to
re-deploy the HSD personnel assigned to the Workplan activities to
other Workplan tasks in an effort to continue the Implementation
process during the ten (10) day notice period specified in the
preceding sentence.
5.3 CUSTOMER'S ELECTION. Should HSD suspend Implementation services,
Customer may either (1) continue to pay HSD for its Implementation
personnel and HSD will continue to make these personnel available
to Customer until released by Customer's written authorization, or
(2) stop paying HSD for its Implementation personnel as of the
date of HSD's suspension of services and HSD may reassign these
personnel to non-Customer functions, provided it has made
commercially reasonable efforts to assign these personnel to other
applicable Workplan activities as provided for in Section 5.2
above.
5.4 HSD DELAY. Should the Workplan be delayed and/or suspended for
reasons attributable to HSD, the Implementation fees will be
pro-rated and/or suspended/abated to the extent that any such
delay and/or suspension is attributable to HSD and HSD
personnel will not be reassigned from the Implementation
Project.
6. IMPLEMENTATION FEES
The estimated duration and cost of the Implementation are specified in
Schedule A of this Implementation Agreement. Fees for fully
dedicated/full-time personnel are billed on a monthly basis starting with
the month that the Implementation Project Meeting is held. The initial
month will be billed on a pro-rata basis in the event that Implementation
services begin after the fifth day of the first month of the
Implementation Project or end prior to the end of the month.
7. TRANSITION FROM IMPLEMENTATION TO SUPPORT SERVICES
7.1 After completion of the Implementation and the expiration of the
"Warranty Period" the support of Customer's Production use of the
Software will transition to HSD's Support Services Department.
Thereafter, Customer will receive all support services from HSD's
Support Services department under the Support Agreement entered in
conjunction with the Diamond License Agreement.
8. ENHANCEMENTS
8.1 The Workplan will address the development of Customer requested
Enhancements and provide for their integration into the Software
in a timely
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manner. HSD's process for the development of Customer requested
Enhancements is set forth in Attachment 8.1 to this Implementation
Agreement. Attachment 8.1 also includes a comprehensive list of
the Customer requested Enhancements which classifies them in terms
of their importance to the Customer and sets forth the sequence
in which they are to be developed and implemented. [*]
9. TERMINATION
9.1 TERMINATION FOR CONVENIENCE Customer may terminate this
Implementation Agreement at any time for any reason by providing
HSD with sixty (60) days prior written notice of such termination
(the "Termination Notice Period ").
9.1.1 COMPENSATION DURING TERMINATION NOTICE PERIOD. In the
event of any such termination for convenience, Customer
will compensate HSD for its Implementation services which
were rendered prior to and during the Termination Notice
Period.
9.1.2 PAYMENT OF LICENSE FEES. In the event of any such
termination for convenience, all License Fees shall become
due and payable within thirty (30) days of following HSD's
receipt of any such termination notice.
9.2 TERMINATION FOR CAUSE. In the event that Customer
terminates for cause, Customer shall provide HSD with
written notice thereof setting forth the reason(s) for
Customer's action. HSD shall have a ten (10) day cure
period (the "Cure Period") in which to correct any/all such
specified basis for termination and/or otherwise address
the matters under the Dispute Resolution procedures of the
Agreement.
9.2.1 COMPENSATION DURING CURE PERIOD. In the event that
Customer terminates for cause, HSD will be compensated at
its applicable rates as set forth in Schedule A to this
Implementation Agreement for services rendered during the
Cure Period.
9.2.2 PAYMENT OF LICENSE FEES. In the event of any such
termination for cause License Fees will remain due and
payable as set forth in Schedule A to the License
Agreement.
9.3 AGREEMENT/IMPLEMENTATION AGREEMENT TERMINATES. Should the
Agreement terminate, this Implementation Agreement will
automatically terminate on the termination date of the
Agreement. Upon such termination, Customer will remain
obligated to pay HSD for implementation services rendered
through the date of any such expiration/termination as
provided for in Section 9.1.1 and 9.2.1.
9.4 TERMINATION FOR FAILURE TO MEET THE PERFORMANCE STANDARDS.
Notwithstanding any provision in the Agreement, the Support
Agreement or this Implementation Agreement, should the Software
fail to substantially comply with Performance Standards , as
provided for in Section 4.0 of Attachment 3.10.4 (B) (under the
Test Plan referenced in Attachment 3.10.4(B)) of this
Implementation Agreement, the Customer may immediately terminate
the Agreement, the Support Agreement and the Implementation
Agreement and will pay HSD the Implementation Agreement fees and
travel and out of pocket expenses for services rendered by HSD up
to the date of termination. HSD shall retain the License Fees
paid prior to the date of termination and the Source Code Fee but
as of the date of termination, Customer shall owe no further
payments to HSD. Customer shall also return the Software and
Source Code to HSD.
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10. INCORPORATION OF PROVISIONS OF LICENSE AGREEMENT BY REFERENCE
10.1 The Agreement's terms and conditions are incorporated into and
made a part of this Implementation Agreement by reference with the
exception of those that are specific to the Agreement or are
specifically provided for in this Implementation Agreement
10.2 Should there be a conflict between the terms and conditions of the
Implementation Agreement and the Agreement, the terms and
conditions of the Implementation Agreement shall control.
11. EXECUTION
This Agreement shall be effective as of the date of the signature by the duly
authorized signatories specified below. The Parties agree that this
Agreement may be executed in counterparts, each of which will be deemed an
original, but which togetherand the same instrument.
CUSTOMER: California Physicians' Service HSD:
dba Blue Shield of California
Signed /s/ Thomas S. Fischer Signed /s/ Russell J. Harrison
----------------------- -------------------------
Name: Thomas S. Fischer Name: Russell J. Harrison
Title: SVP & CAO Title: President & CEO
Date 12/31/98 Date 12/31/98
----------------------- -------------------------
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SCHEDULE A TO IMPLEMENTATION AGREEMENT
IMPLEMENTATION FEES
- -------------------------------------------------------------------------------
IMPLEMENTATION & TRAINING:
Implementation fees and expenses are billed on a monthly basis beginning with
the first month and continuing until the completion of the last applicable [*]
Release Sequence.
The Implementation Fees listed below do not include taxes imposed upon or
with respect to goods or services delivered pursuant to this Implementation
Agreement. Any applicable taxes (such as property taxes) imposed upon or with
respect to the Software, equipment or other deliverables under this Agreement
shall be the responsibility of Customer.
- - Senior Project Manager (required for term of Implementation): [*]
- - Project Manager (required for term of Implementation): [*]
- - Senior Technical Resource Consulting: [*]
REQUIRED HSD CLASSROOM TRAINING (NOT INCLUDED IN IMPLEMENTATION COSTS):
Software Group Training On-Site for up to 30 Attendees
(Additional attendees will require additional trainer/class) [*]
<TABLE>
<CAPTION>
Other Professional Services DAILY RATE HOURLY RATE
---------- -----------
<S> <C> <C>
Oracle DBA [*] [*]
Technical Architecture and Performance
Review/Testing [*] [*]
Other Professional Services To Be Determined To Be Determined
</TABLE>
Daily rates are base on an eight (8) hour day average over the life of the
engagement. Additional hours (for those hours in excess of eight (8) hours per
day) will be billed at the above-specified hourly rate if the average hours
exceeds ninday in any month.
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Diamond-Registered Trademark- Support Agreement
- -------------------------------------------------------------------------------
1. PURPOSE OF AGREEMENT, PARTIES AND DEFINED TERMS
1.1 PARTIES. The undersigned ("Customer") hereby enters into a
Support Agreement with Health Systems Design Corp. ("HSD"), a
California corporation, to be effective December 31, 1998
("Effective Date"), in conjunction with the Software License
Agreement (the "Agreement") entered into between Customer and HSD
effective December 31, 1998.
1.2 PURPOSE. The purpose of the Support Agreement is to specify the
terms under which Customer shall receive support services from
HSD.
1.3 CAPITALIZED/DEFINED TERMS. All capitalized/Defined Terms in this
Support Agreement shall have the same meaning as that ascribed to
them in the Agreement.
1.4 SURVIVAL OF DEFINED TERMS. Defined Terms created under or
references to this Support Agreement will survive the termination
or expiration of this Support Agreement to the extent that any
such Defined Terms or references are used in the surviving
Agreement and/or the Implementation Agreement
2. SERVICES
2.1 CUSTOMER SOFTWARE PROBLEMS. HSD shall address Customer observed-
reported errors/situations which prevent a Supported Release of
the Software from functioning in a manner consistent with the
Specifications as defined in the Section 2.19 of the License
Agreement ("Verified Program Error").
2.1.1 HSD'S SERVICES. HSD's services will be rendered in a
manner consistent with the Diamond Issues Classification
Table in Section 2.6.1 below and as otherwise required
under the terms of this Support Agreement
2.1.2 HSD'S OBLIGATIONS. HSD's obligation to provide support
services under this Support Agreement shall include the
Supported Releases of the Software as well as Enhancements
to the Software that are created by HSD (and/or on HSD's
behalf at HSD's request) which HSD incorporates into the
Software and HSD makes generally available to its Diamond
950 C/S Customers.
2.1.3 SUPPORT FOR CUSTOMER SPECIFIC SOFTWARE. In addition to
HSD's obligation specified in Section 2.1.2, above HSD will
provide support services for Customer-Specific Software (as
defined in Section 4.2. of the Agreement).
2.2 REPORTING OF PROBLEM. The Verified Program Error as set forth
inSection 2.1 above, will be provided by Customer's Super User(s)
(to the extent feasible) and shall contain a description of the
Customer observed-reported errors/situations in sufficient detail
to allow HSD to replicate/attempt to replicate the reported non-
compliance on the Supported Release of the Software that the
Customer is using in Production at the time of any such Verified
Program Error.
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2.3 HSD ASSISTANCE FOR NON-REPLICATED ERRORS. In the event that HSD
is unable to replicate the reported error and/or if the reported
error/situation involves other than Customer's Supported Release
of the Software in Production, HSD will continue to work with
Customer to help identify/isolate the source of any such Customer
reported errors/situations and assist Customer in addressing its
correction. Services rendered under this Section 2.3 will be on a
time and materials basis.
2.4 HSD TELEPHONE ASSISTANCE. HSD will provide direct telephone
assistance to Customer between the hours of 6:30 AM and 5:00 PM
Pacific Coast time during regular HSD business days (Monday
through Friday). The purpose of telephone assistance is to explain
the Software's features and use; clarify the user Documentation,
provide guidance in the use of the Software to assist in
identifying and to address Software problems (such as observed
failures of the Software to function in a manner consistent with
its applicable Documentation or Specifications).
2.4.1 HSD HOLIDAYS. HSD currently recognizes New Year's Day,
Martin Luther King Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving and the day after
Thanksgiving, the day before Christmas and Christmas Day as
holidays. HSD will provide Customer with an updated list
of observed holidays on an annual basis at the beginning of
each year that this Support Agreement is in effect.
2.4.2 HSD PAGER COVERAGE. In addition, pager coverage will be
provided 365 days per year for the days/hours outside of
HSD's normal business days/hours specified in the Section
2.4 and 2.4.1 above, at an additional fee as specified in
Schedule A of the Agreement. Pager coverage may be
initiated or terminated upon twenty (20) days prior written
notice from Customer. Pager coverage is limited to
problems in the Customer's Production environment which
are of a Priority Level 1 or 2 as defined in the Diamond
Issues Classification Table in Section2.6.1, below.
2.4.3 SUPPORT OBLIGATIONS. HSD's support obligations shall apply
to those aspects of the Software/modules that were
installed and fully implemented by HSD (or on HSD's behalf
at HSD's request) or an HSD approved entity. HSD shall
provide Customer with a toll-free "800" phone number for
such telephone assistance, which service will include
multiple trunk lines.
2.4.4 WEEKEND/HOLIDAY COVERAGE. Additional weekend and/or
holiday coverage (to provide non-emergency service for
circumstances such as Customer's installation of a new
Release) is available at rates specified in Schedule A of
the Agreement, subject to Customer providing HSD at least
ten (10) days prior notice of any such request for the
coverage described in this Section 2.4.4.
2.5 Staffing
2.5.1 HSD PERSONNEL. HSD will [*] whose primary responsibility
will be to render services to Customer as specified in this
Support Agreement. HSD will assign up to [*] as per
Section III of Schedule A of the Agreement at the time
that all Software Core modules in Schedule A of the
Agreement are in Production and have complied with the
Specifications. The qualifications for [*] will
include experience that is relevant
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to the duties required of [*] In addition, HSD will, to
the extent feasible, involve [*] in the later stages of
the implementation of the Software.
2.5.2 [*]
2.5.3 NUMBER OF HSD PERSONNEL. During the term of this Support
Agreement HSD [*] per Section III of Schedule A of the
Agreement and technical resources to perform as required
under this Support Agreement.
2.5.4 PERFORMANCE. If in Customer's reasonable and good faith
judgment Customer determines that the results to be
obtained under this Support Agreement may be impaired
because [*] not performing required services in a
satisfactory manner, then Customer will provide written
notice of its objective basis for any such determination to
HSD's Vice President - Support Services.
2.5.5 REPLACEMENT. If HSD decides to remove such personnel, HSD
shall initiate efforts to replace the individual with a
person who meets the qualifications specified in Section
2.5.1 qualifications. In such event HSD will, within ten
(10) business days, provide Customer with temporary/interim
coverage/personnel who meets the qualifications specified
in Section2.5.1, which coverage will continue until
replacement [*] are available.
2.6 Software problems will be handled in accordance with the following
procedures:
2.6.1 HSD RESPONSE. HSD will respond to the Customer's telephone
or pager communications when received with the
understanding that it is HSD's intent to have Customer's
calls answered by [*]. Customer calls will be triaged
(pursuant to a priority list consisting solely of Customer
issues/problem reports) in order to meet critical needs
efficiently with the understanding that Customer and HSD
will mutually determine the Classification Priority to be
assigned to the reported error per the following table. In
the event of a disagreement as to the Classification
Priority the matter will be escalated for determination by
Customer's Support/Help Desk Manager and HSD's Manager of
Support Services at time of any such disagreement. In the
event that Customer's Support/Help Desk Manager and HSD's
Manager of Support Services are unable to agree on the
classification the matter will be escalated to
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Customer's CIO for final determination (or to the CIO's
designated direct report).
DIAMOND ISSUES CLASSIFICATION TABLE - SECTION 2.6.1
- -------------------------------------------------------------------------------
PRIORITY TYPE DESCRIPTION
- -------------------------------------------------------------------------------
1 Urgent A Priority 1 consists of any of the following:
(a)The Customer cannot carry on its daily business that is
supported by the Software.
(b) The Software is not functional, operations are halted
and/or the Customer cannot process transactions and/or
access the database.
- --------------------------------------------------------------------------------
2 High A Priority 2 consists of any of the following:
(a) The Customer remains able to carry on daily business
but a major component of the Software is not working
correctly, there has been a physical data loss, or data
integrity has been compromised.
(b)The Customer can still process claims but some damage
has occurred in the Software. Significant manual
intervention is required to correct the problems created by
the error/damage to the Software.
(c) The Software is functioning but not giving
expected/accurate results in functions dealing directly or
indirectly with money/payments.
(d)There is no "Work-Around". For purposes of this
Agreement a "Work-Around" is an interim/temporary process
for accomplishing the process/function in which the
reported error has occurred, which process may involve the
use of additional steps within the Software and/or manual
procedures that are done outside of the Software.
- --------------------------------------------------------------------------------
3 Moderate A Priority 3 consists of any of the following:
(a) The Software is functioning as designed/in a manner
consistent with its Specifications but not giving
expected/accurate results in functions other than those
dealing directly or indirectly with money or payment.
(b) Function(s) that are not critical to the daily business
of the Customer are not operating correctly. There is
a "Work-Around" which does not impose an undue burden
on Customer (either in terms of costs and the amount of
labor required).
- --------------------------------------------------------------------------------
4 Low A Priority 4 consists of the following:
Cosmetic and/or Documentation issues exist that effect the
"user-friendliness" of the Software but not its actual
function. These issues may include items such as
misspellings in screens, reports or Documentation, missing
or incorrect online help, missing or incorrect
Documentation, non-standard colors, fonts or attributes of
fields.
- --------------------------------------------------------------------------------
2.7 Handling of Priority 1 and 2 Situations
2.7.1 PROCEDURE TO ADDRESS SITUATIONS. Following the
determination (per Section2.6.1, above) of a Priority 1 or
2 situation (as per Section 2.6.1
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above), HSD shall immediately thereafter address the
reported problem pursuant to the procedures set forth
in Sections 2.2 and 2.3 above with the understanding
that HSD will modify the order in which such services
are rendered under this Section 2.7.1 in order to
ensure that the most critical situations are addressed
first.
(a) CONFIRMATION OF ERROR. In the event that HSD is
able to confirm the existence of a Verified Program
Error then HSD will initiate the resolution of the
error and continue to work diligently with an
appropriate number of qualified resources until the
matter is resolved.
(b) ATTEMPT TO RESOLVE. In the event that HSD is unable
to timely, as reasonably determined by Customer,
resolve any such Verified Program Error then
Customer will have the option of using the most
recent prior Release of the Software with the
understanding that HSD will provide support services
under this Support Agreement for any such prior
Release until the reported Verified Program Error(s)
are corrected and Customer is again in Production on
a Supported Release of the Software.
(c) TIME TO RESOLVE. If within sixty (60) days after
Customer begins Production on a prior Release of the
Software, HSD is unable to correct the Customer's
Priority 1 and/or Priority 2 Verified Program
Error(s) in the Supported Release of the Software
that Customer was using in Production, HSD will
reduce its then-current monthly support fee by
twenty (20%) percent (which 20% reduction shall
apply even if Customer does not have the option of
using a prior Release of the Software in
Production). Any such credit will apply
retroactively to the initial sixty (60) day use of
the prior Release of the Software in Production and
will continue until the Customer is in Production on
the Customer's Supported Release which is
functioning in a manner consistent with its
Specifications.
(d) REFUND. In the event that Section 2.7.1 (b)
applies, HSD will refund any fees paid by Customer
for additional support services (services not
included as part of Customer's monthly/standard
support fees under this Support Agreement such as
those specified in the last sentence of
Section2.4.4, above) rendered by HSD to assist
Customer in its initial efforts to prepare to use
the Supported Release of the Software in Production.
2.7.2 INABILITY TO REPLICATE PROBLEM/ASSISTANCE. In the event
HSD is unable to recreate/replicate a Customer-reported
problem/situation and/or the problem is determined to have
been caused by factors such as use of the Software in a
manner and/or for a purpose not specified in the
Documentation, and/or the use of the Software on other than
a Designated System, network, communication, power supply
problems and/or the use of software/variations of the
Software not supported by HSD, HSD's services expended in
the effort to identify and/or correct any such problem(s)
will be billed to the Customer on a time and materials
basis at HSD's then current rates.
2.7.3 NO BILLING. Notwithstanding anything to the contrary in
Section 2.7.2 above, Customer will not be billed for
Software problems/errors
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encountered by Customer to the extent that any such
Software problem/errors are the result of improper
information and/or guidance provided to Customer by HSD
(such as how to set up a support table or benefit rule)
and/or action(s) taken directly by HSD on behalf of the
Customer with respect to the Customer's use of the
Software and/or Application Programming Interfaces
provided by HSD. In addition Customer will not be billed
for Software problems of the type summarized in this
Section 2.7.3 that are the result of actions not taken by
HSD which HSD should have taken pursuant to HSD's standard
procedures/practices.
2.8 HSD DIAL-IN. As necessary for technical reasons in accordance
with HSD support staff judgment, HSD may dial-in to Customer's
computer system in order to investigate, duplicate, and/or resolve
reported problems. Dial-in will take place as soon as feasible
with the understanding that HSD will not remotely access
Customer's system without first obtaining Customer's authorization
for any such access and that any such access shall be subject to
the applicable confidentiality provisions of the Agreement.
2.9 HANDLING OF PRIORITY 3 AND 4 SITUATIONS
2.9.1 PRIORITIZING. HSD will immediately address Priority 3 and
4 Verified Program Errors with the understanding that any
outstanding Priority 1 and 2 Verified Program Errors will
take precedence.
2.9.2 TIME AND MATERIAL ASSISTANCE. Time/resources expended by
HSD to investigate/trouble shoot situations that are
determined in HSD's reasonable discretion to be other than
Verified Program Error(s) will be billable to Customer on a
time and materials under HSD's then current rates for any
such services rendered.
2.10 ENHANCEMENTS. During the term of this Support Agreement (and/or
any renewal), HSD will provide Customer with Software Enhancements
generally made available to HSD's other Customers. In addition,
HSD will promptly provide updated Documentation for any such
Enhancements. There will be no additional charge for any such
Enhancements and/or Documentation with the understanding that
charges may be imposed by third party vendors for upgrades and/or
enhancements to their products.
2.11 RELEASE ANNOUNCEMENTS. HSD will provide Customer with a "Release
Announcement" prior to the general availability of each new
Release of the Software. Each such Release Announcement will
provide a preview and overview of the content of each such
Release.
2.12 RELEASE NOTES. Release notes will be distributed to Customer at
the time of distribution of each Release. Release notes will
include a detailed description of items such as Software changes,
Enhancements and applicable bug-fixes.
2.13 OPERATING SYSTEM. During the term of this Support Agreement, the
Software will continue to operate on a version of the Operating
System(s) of the Designated System(s) supported by the applicable
hardware manufacturer and the Oracle RDBMS supported by Oracle.
HSD shall timely notify Customer of the expected date of
incorporation of applicable Designated System Operating System
software updates and Oracle RDBMS releases that will be required
to operate the Supported Release of the (Diamond) Software. For
purposes of this Section 2.13 "Operating System" shall be
defined as the software specified by the hardware manufacturer
that is required to be installed on the hardware in order for
the hardware to operate.
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2.14 PERFORMANCE OF SERVICES. It is mutually understood and agreed
that services rendered under this Support Agreement will be
performed in a good and workmanlike manner.
3. CUSTOMER OBLIGATIONS, HSD RECOMMENDATIONS
3.1 CUSTOMER ENVIRONMENT. HSD recommends that Customer maintain a
proper onsite environment for the Software that includes separate
test, training and Production environments.
3.2 CUSTOMER COMMUNICATIONS. In addition HSD recommends that Customer
maintain email/internet service as a means of expediting
communication/rendering services under this Support Agreement.
3.3 BACKUP. HSD recommends that Customer perform system and data
backups in accordance with generally accepted industry practices.
In addition HSD recommends that Customer implement a disaster
recovery plan/strategy to augment its data backup/archive
practices.
3.4 SUPPORTED RELEASE. In order to remain entitled to receive support
services under the monthly fees applicable to this Support
Agreement, Customer shall remain on a Supported Release of the
Software. In addition, HSD will provide new-Release training at a
designated HSD facility for a maximum of two Super-Users per
Installation Location (not to exceed a maximum of six (6) Super
Users for each such new-Release training class). Any such
training will be on a no-fee basis with the understanding that
Customer will cover its travel-related expenses. Customer's Super
User's (as defined in Section 3.4.1, below) will be required to
participate in HSD's General Release training, which training will
be scheduled in conjunction with each such Release.
3.4.1 SUPER USERS. Customer will designate a sufficient number
of individuals who have received the HSD training (as
initially offered in conjunction with the Diamond
Implementation Agreement) to serve as the single point of
contact with HSD for support related/user issues. For
purposes of this Agreement the designated individuals shall
be known as "Super Users" with the understanding that the
number of Super Users will be adjusted by Customer as
necessary to provide coverage adequate to meet Customer's
needs. Customer's DBA and/or system/network administrator
may be used to meet the Super User requirement to cover
staffing shortages due to situations such as illness and/or
vacation.
3.4.2 SUPER USER TRAINING. The Super Users will participate in
the HSD training referenced in Section 3.4 in order to help
ensure that they have the information necessary to
guide/train Customer's personnel/users and interface with
HSD's support function/personnel.
3.4.3 SUPER USER PERSONNEL. If HSD determines in its reasonable
and good faith judgment that any Super User is not
performing required services in a reasonably satisfactory
manner, then HSD may provide written notice of its
objective basis for any such determination to Customer and
request that the individual be replaced.
(a) Following receipt of HSD's notice, Customer and HSD
shall promptly discuss HSD's request and whether
there are alternatives to replacing the subject
Super User which would be reasonably acceptable to
HSD. Alternatives would include actions
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<PAGE>
such as allowing the individual an opportunity to
correct the alleged performance problems.
(b) If Customer does not propose any alternatives of the
type described in the preceding subsection or HSD
does not find any such alternatives to be reasonably
acceptable, Customer shall timely escalate the
matter to its CIO for resolution.
3.5 REMOTE ACCESS. Customer must have installed and available to HSD
a means of remote access to the Customer's Designated
System/Software test environment consisting of at least one
dedicated modem (with a minimum baud rate of 56.6K), dedicated
phone line and PCAnywhere communications software to facilitate
dial-in point-to-point protocol ("PPP") access for each
Installation Location.
3.5.1 Customer agrees to make diligent efforts to keep the remote
access communication equipment in good working order at all
times. In addition, Customer understands and agrees that
it may be required to periodically upgrade and/or change
its remote access protocol to conform to HSD's then-current
standard with the understanding that the cost of any such
upgrade is anticipated to be nominal.
3.5.2 In the event that HSD modifies its standard remote access
protocol (or any portion thereof), Customer will be given a
sixty (60) day advance notice of the effective date any
such required remote access protocol modification. Should
Customer not agree that the cost of any such modification
was "nominal" then Customer will not be required to upgrade
and HSD will remain obligated to provide remote access to
Customer on the previously approved remote access protocol.
3.5.3 HSD will advise Customer when it desires to remotely access
the Designated System/Software and will obtain Customer's
authorization prior to any such remote access.
3.6 MODIFICATIONS/VARIATIONS TO SOFTWARE. Customer shall timely
advise HSD support personnel of any modifications/variations from
HSD's Supported Release that Customer is using in Production as
well as any changes to its computing environment, such as changes
to its Designated System(s), network and/or telecommunications
protocols.
3.7 TIME AND MATERIAL. In the event that HSD renders services to
diagnose, troubleshoot and/or otherwise address operational
problems associated with changes/non-standard system/Software
configurations such as those referenced in Section 3.6, above,
Customer will be billed on a time and materials basis for any
such services at HSD's then-current rates.
3.8 TESTING NEW RELEASE/ENHANCEMENTS. HSD recommends that Customer
test new Releases, Enhancements/added functionality received from
HSD as well as new/modified Customer practices in its test
environment to confirm that it is operating correctly prior to its
use in Production.
3.9 CUSTOMER'S STAFF. It is mutually understood and agreed that
Customer will have an experienced system/network administrator as
well as an Oracle Database Administrator ("DBA") available to
communicate with HSD's Support Personnel in the resolution of
situations arising under this Support Agreement. Should HSD be
required to render system/network administrator and/or DBA
services to
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Customer because Customer does not/did not have those required
technical resources, any such additional services will be billed
to Customer on a time and materials basis at HSD's then-current
rates.
4. PRICE AND PAYMENT
4.1 FEES. The monthly fee for HSD's services under this Support
Agreement is specified in Schedule A of the Agreement.
4.2 TRAVEL/OTHER EXPENSES. Customer shall reimburse HSD for
reasonable and documented out-of-pocket expenses incurred by HSD
in the performance of its duties, including items such as travel,
lodging, meals and telephone charges. All travel expenses will be
subject to the HSD Travel Policy that serves as Attachment 3.1.5
to the Implementation Agreement.
4.3 BILLING. Support fees and applicable out-of-pocket expenses shall
be billed monthly as specified in Schedule A of the Agreement with
the understanding that Customer will not be required to reimburse
HSD for out of pocket expenses incurred by HSD in addressing
Verified Program Errors.
5. TERM, TERMINATION AND ASSIGNMENT
5.1 TERM. The term of this Agreement shall commence upon the
expiration of the Warranty Period as set forth in Section 6.1 of
the Agreement and will continue for the balance of the unexpired
term of the Agreement in one-year renewable increments. Each such
one-year renewal shall be at rates mutually acceptable to the
Parties (which rates will be consistent with HSD's then-current
Support Agreement) unless either party notifies the other party of
its intent not to renew within three hundred sixty five (365) days
prior to the expiration of the next one-year renewal term.
5.2 TERMINATION FOR BREACH. Should either party breach this Support
Agreement, the non-breaching party shall give the breaching party
written notice and ten (10) days to cure the breach. Should the
breaching party fail to cure the breach, the non-breaching party
may terminate this Agreement.
5.3 ASSIGNMENT. HSD will not assign it obligations to perform under
this Support Agreement and/or any renewal without obtaining
Customer's prior written consent, which consent shall not be
unreasonably withheld or delayed.
5.4 AGREEMENT/SUPPORT AGREEMENT TERMINATES. Should the Agreement
terminate, this Support Agreement will automatically terminate on
the termination date of the Agreement. Upon such termination,
Customer will remain obligated to pay HSD for support services
rendered through the date of any such expiration/termination
6. INCORPORATION OF PROVISIONS OF LICENSE AGREEMENT BY REFERENCE,
CONTROLLING DOCUMENT IN THE EVENT OF CONFLICT
6.1 The Agreement's terms and conditions are incorporated into and
made a part of this Support Agreement by reference with the
exception of those that are specific to the Agreement or are
specifically provided for in this Support Agreement
6.2 Should there be a conflict between the terms and conditions of the
Support Agreement and the Agreement, the terms and conditions of
the Support Agreement shall control.
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7. EXECUTION
This Agreement shall be effective as of the Effective Date notwithstanding any
date to the contrary associated with its execution by the duly authorized
signatories specified below. This Agreement may be executed in counterparts,
each of which will be deemed an original, but which together constitute one and
the same instrument.
CUSTOMER: California Physicians' Service HSD:
dba Blue Shield of California
Signed /s/ Thomas S. Fischer Signed /s/ Russell J. Harrison
---------------------------- ------------------------
Name: Thomas S. Fischer Name: Russell J. Harrison
Title: SVP & CAO Title: President & CEO
Date 12/31/98 Date 12/31/98
---------------------------- ------------------------
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EXHIBIT 11.1
HEALTH SYSTEMS DESIGN CORPORATION
COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net loss.................................................................. $ (1,426) $ (1,154)
--------- ---------
--------- ---------
Weighted average common shares outstanding:
Basic................................................................... 6,678 6,535
--------- ---------
--------- ---------
Fully Diluted........................................................... 6,678 6,535
--------- ---------
--------- ---------
Net loss per common share:
Basic................................................................... $ (0.21) $ (0.18)
--------- ---------
--------- ---------
Diluted................................................................. $ (0.21) $ (0.18)
--------- ---------
--------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,339
<SECURITIES> 0
<RECEIVABLES> 7,796
<ALLOWANCES> 725
<INVENTORY> 0
<CURRENT-ASSETS> 19,043
<PP&E> 5,181
<DEPRECIATION> 2,609
<TOTAL-ASSETS> 25,131
<CURRENT-LIABILITIES> 8,927
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 16,197
<TOTAL-LIABILITY-AND-EQUITY> 25,131
<SALES> 0
<TOTAL-REVENUES> 5,381
<CGS> 0
<TOTAL-COSTS> 2,203
<OTHER-EXPENSES> 4,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (112)<F1>
<INCOME-PRETAX> (1,425)
<INCOME-TAX> 1
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,426)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
<FN>
<F1>INTEREST INCOME
</FN>
</TABLE>
